2020 Supreme(SC) 664

SUPREME COURT OF INDIA
S.A. BOBDE, CJI., A.S. BOPANNA, V. RAMASUBRAMANIAN, JJ.
M/s Kaledonia Jute and Fibres Pvt. Ltd. – Appellant
Versus
M/s Axis Nirman and Industries Ltd. and Others – Respondents
Civil Appeal No. 3735 of 2020, Special Leave Petition (Civil) No. 5452 of 2020
Decided On : 19-11-2020

IMPORTANT POINTS
(1) Proceedings for winding up of a company are actually proceedings in rem to which entire body of creditors is a party – Proceeding might have been initiated by one or more creditors, but by a deeming fiction petition is treated as a joint petition.
(2) Restriction under Rules 5 and 6 of Companies (Transfer of Pending Proceedings) Rules, 2016 relating to stage at which a transfer could be ordered, has no application to case of a transfer covered by 5th proviso to clause (c) of sub-section (1) of Section 434.

Headnote:

Companies Act, 1956 – Section 434, 5th Proviso – Companies (Transfer of Pending Proceedings) Rule, 2016 – Rules 5 and 6 – Companies (Court) Rules, 1959 – Rule 26 – Insolvency and Bankruptcy Code, 2016 – Section 7 – Transfer of winding up petition – Refusal – Appeal by financial creditor – Right to invoke 5th proviso is specifically conferred only upon parties to proceedings – Such a right should be held to be confined only to parties to proceedings – Proceedings for winding up of a company are actually proceedings in rem to which entire body of creditors is a party – Proceeding might have been initiated by one or more creditors, but by a deeming fiction petition is treated as a joint petition – Official liquidator acts for and on behalf of entire body of creditors – If any creditor is aggrieved by any decision of official liquidator, he is entitled under 1956 Act to challenge the same before Company Court – Once he does that, he becomes a party to proceeding – Instead of asking a party to adopt such a circuitous route and then take recourse to 5th proviso to Section 434(1)(c), it would be better to recognise right of such a party to seek transfer directly – Object of IBC will be stultified if parallel proceedings are allowed to go on in different Fora – Petitioner will come within definition of expression “party” appearing in 5th proviso to Clause (c) of Sub-section (1) of Section 434 of the Companies Act, 2013 and that petitioner is entitled to seek a transfer of pending winding up proceedings against first respondent, to NCLT – Restriction under Rules 5 and 6 of Companies (Transfer of Pending Proceedings) Rules, 2016 relating to stage at which a transfer could be ordered, has no application to case of a transfer covered by 5th proviso to clause (c) of sub-section (1) of Section 434 – Impugned order of High court rejecting petition for transfer on the basis of Rule 26 of the Companies (Court) Rules, 1959 is flawed – Impugned order set aside and proceedings for winding up pending before Company Court (Allahabad High Court) against first respondent herein, ordered to be transferred to NCLT, to be taken up along with application of appellant under Section 7 of IBC. (Paras 40, 43, 44, 45, 46 and 47)

Facts of the case:

Aggrieved by an order passed by the Company Court (High Court of Allahabad), refusing to transfer the winding up petition pending therein, to the National Company Law Tribunal (NCLT), a financial creditor has come up with this appeal. Main issues that arise for consideration in this appeal are: (i) what are the circumstances under which a winding up proceeding pending on the file of a High court could be transferred to the NCLT and (ii) at whose instance, such transfer could be ordered.

Findings of Court:

Proceedings for winding up of a company are actually proceedings in rem to which the entire body of creditors is a party. The proceeding might have been initiated by one or more creditors, but by a deeming fiction the petition is treated as a joint petition. The official liquidator acts for and on behalf of the entire body of creditors. Therefore, the word “party” appearing in the 5th proviso to Clause (c) of Sub-section (1) of section 434 cannot be construed to mean only the single petitioning creditor or the company or the official liquidator. The words “party or parties” appearing in the 5th proviso to Clause (c) of Sub-section (1) of Section 434 would take within its fold any creditor of the company in liquidation.

Result : Appeal allowed.