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SUPREME COURT OF INDIA
R.F. Nariman, R. Subhash Reddy, Surya Kant, JJ.
Jignesh Shah & Anr. – Petitioners
Versus
Union of India & Anr. – Respondents
WRIT PETITION (CIVIL) NO.455 OF 2019 WITH CIVIL APPEAL NO. OF 2019 (Arising out of Special Leave Petition (Civil) No.______ of 2019) (D. No.13468 of 2019) WITH TRANSFER PETITION (CIVIL) NO.817 OF 2019 WITH CIVIL APPEAL NO. 7618-19 OF 2019 (D. No.16521 of 2019) WITH WRIT PETITION (CIVIL) NO.645 OF 2019
Decided On : 25-09-2019
(a) Insolvency and Bankruptcy Code, 2016 - Section 7 and 238A - Provisions of Limitation Act apply to applications made under the Code. (Para 10)
(b) Insolvency and Bankruptcy Code, 2016 - Section 7 r/w Article 137, Limitation Act, 1963 - Suit for recovery of dues and suit for winding up - Separate and distinct - Suit for recovery filed earlier will not revive limitation for winding up suit. (Para 19)
(c) Companies Act, 1956 - Section 433(e) and 434 - Making of a winding up order discretionary - In case of a debt bona fide disputed and a substantial defence, court will not wind up the company - Instantly winding up petition nowhere mentioning that there is no reasonable prospect of the company sought to be wound up ever making a profit in the future, nor that the company had abandoned its business and is, therefore, unable to meet the outstandings owed by it. (Para 23, 25, 29, 30)
(d) Companies Act, 1956 - Section 433(e) and 434 r/w Article 137, Limitation Act, 1963 - Winding up proceeding a proceeding in rem - Not a recovery proceeding - Yet, limitation is triggered on the date of default - Would not include the commercial insolvency or the loss of substratum of the company. (Para 25)
(e) Companies Act, 1956 - Section 433 and 434 - Winding up - Not legitimate means of seeking to enforce payment of a debt which is bona fide disputed - Where the debt is bona fide disputed, there cannot be ‘neglect to pay’ - In such case the debt is not ‘due’ - Question of commercial insolvency comes later. (Para 28)
Facts of the case:
On 20th August, 2009, a share purchase agreement was executed between Multi-Commodity Exchange India Limited, MCX Stock Exchange Limited and IL&FS, whereby IL&FS agreed to purchase 442 lakh equity shares of MCX-SX from MCX.
Pursuant to this agreement, La-Fin, as a group company of MCX, issued a ‘Letter of Undertaking’ to IL&FS on 20th August, 2009 stating that La-Fin or its appointed nominees would offer to purchase from IL&FS the shares of MCX-SX after a period of one year, but before a period of three years, from the date of investment. This period of three years expired in August, 2012.
IL&FS exercised its option to sell its entire holding of shares in MCX-SX, and called upon La-Fin to purchase these shares. La-Fin replied that it was under no legal or contractual obligation to buy the aforesaid shares.
IL&FS filed a Suit in the High Court for specific performance of the Letter of Undertaking by La-Fin or, in the alternative, for damages.
A Single Judge of the High Court passed an injunction order restraining La-Fin from alienating its assets pending disposal of the suit, subject to attachments of La-Fin’s properties that had been made by the Economic Offences Wing of the Mumbai Police during the pendency of the suit. An appeal against this order was dismissed by a Division Bench of the High Court.
A statutory notice under Section 433 and 434 of the Companies Act, 1956 was issued by IL&FS to La-Fin, referring to the attachment by the EOW, and stating that La-Fin was obviously in no financial position to pay the sum of INR 232,50,00,000/- which, according to IL&FS, was owing to them as of 31st October, 2015.
A winding up petition was then filed by IL&FS against La-Fin in the High Court.
On the Insolvency and Bankruptcy (Application to Adjudicating Authority) Code, 2016 coming into force on 1st December, 2016 the Winding up Petition was transferred to the NCLT.
The said Winding up Petition was admitted by the NCLT as an application under Section 7 of the Code, stating that a financial debt had, in fact, been incurred by La-Fin. The National Company Law Appellate Tribunal dismissed the appeal.
A Writ Petition was filed by Smt. Pushpa Shah against these orders in the High Court,. Writ Petition (Civil) No.455 of 2019 was then filed in Supreme Court challenging the constitutionality of certain provisions of the Code, as well as the NCLT and NCLAT orders, after which the Civil Appeal (Diary No. 16521 of 2019) was also filed against the NCLAT order.
Finding of the Court:
The winding up petition was time barred.
Result: Civil Appeal (Diary No. 16521 of 2019) allowed and Writ Petition (Civil) No.455 of 2019 disposed of.
Special Leave Petition (Diary No.13468 of 2019) and Transfer Petition (Civil) No.817 of 2019 disposed of as having become infructuous.
JUDGMENT
R.F. Nariman, J.
W.P.(C) No.645 OF 2019
1. The issues involved in Writ Petition (Civil) No.645 of 2019 are entirely different from the Writ Petition (Civil) No.455 of 2019 and its other connected matters. This writ petition is accordingly de-tagged from Writ Petition (Civil) No.455 of 2019. The Registry is directed to list this writ petition separately.
W.P.(C) No.455 of 2019 & Civil Appeal (Diary No.16521 of 2019)
2. Delay is condoned. Civil Appeal (Diary No. 16521 of 2019) is admitted.
3. Writ Petition (Civil) No.455 of 2019 and Civil Appeal (Diary No. 16521 of 2019) have been filed by Shri Jignesh Shah and Smt. Pushpa Shah respectively, both of whom are shareholders of La-Fin Financial Services Pvt. Ltd. (hereinafter “La-Fin”) assailing the order of the National Company Law Tribunal, Mumbai Bench (hereinafter referred to as the “NCLT”) admitting a winding up petition that was filed by IL&FS Financial Services Ltd. (hereinafter referred to as “IL&FS”) against La-Fin before the High Court of Judicature at Bombay (hereinafter referred to as the “Bombay High Court”), which was transferred to the NCLT and then heard as a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to the “the Code”).
4. The brief facts necessary to appreciate the narrow controversy that arises in Writ Petition (Civil) No.455 of 2019 and its connected matters are as follows:
(i) On 20th August, 2009, a share purchase agreement was executed between Multi-Commodity Exchange India Limited (hereinafter referred to as “MCX”), MCX Stock Exchange Limited (hereinafter referred to as “MCX-SX”) and IL&FS, whereby IL&FS agreed to purchase 442 lakh equity shares of MCX-SX from MCX.
(ii) Pursuant to this agreement, La-Fin, as a group company of MCX, issued a ‘Letter of Undertaking’ to IL&FS on 20th August, 2009 (hereinafter referred to as the “Letter of Undertaking”) stating that La-Fin or its appointed nominees would offer to purchase from IL&FS the shares of MCX-SX after a period of one year, but before a period of three years, from the date of investment. On facts, this period of three years expired in August, 2012.
(iii) IL&FS, therefore, by its letter dated 3rd August, 2012, exercised its option to sell its entire holding of shares in MCX-SX, and called upon La-Fin to purchase these shares in accordance with the Letter of Undertaking. On 16th August, 2012, La-Fin replied that it was under no legal or contractual obligation to buy the aforesaid shares.
(iv) Thereafter, correspondence between the parties continued, until finally, on 19th June, 2013, IL&FS filed a Suit No.449 of 2013 in the Bombay High Court for specific performance of the Letter of Undertaking by La-Fin or, in the alternative, for damages. It is important to note that the cause of action for the suit - as stated in the plaint - arose on 16th August, 2012, i.e. the day La-Fin purportedly refused to honour its obligation under the Letter of Undertaking.
(v) On 13th October, 2014, a learned Single Judge of the Bombay High Court passed an injunction order restraining La-Fin from alienating its assets pending disposal of the suit, subject to attachments of La-Fin’s properties that had been made by the Economic Offences Wing of the Mumbai Police (hereinafter referred to as the “EOW”) during the pendency of the suit. An appeal against this order was dismissed by a Division Bench of the Bombay High Court on 11th September, 2015.
(vi) On 3rd November, 2015, a statutory notice under Section 433 and 434 of the Companies Act, 1956 was issued by IL&FS to La-Fin, referring to the attachment by the EOW, and stating that La-Fin was obviously in no financial position to pay the sum of INR 232,50,00,000/- which, according to IL&FS, was owing to them as of 31st October, 2015. On 18th November, 2015, a reply was promptly given by La-Fin to the aforesaid notice referring to the pending suit, and stoutly disputing the fact that any amount was due and payable. The reply went on to state
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