High Court order rejecting transfer of pending winding up proceeding to NCLT on the basis of Rule 26 of the Companies (Court) Rules 1959 was flawed – SC
ABCAUS Case Law Citation
ABCAUS 3422 (2020) (11)
Important case law relied upon by the parties:
Forech India Ltd. vs. Edelweiss Assets Reconstruction Co. Ltd 2019 (2) SCR 477
In this case, the Petitioner financial creditor was aggrieved by the order passed by the Company Court of the High Court refusing to transfer winding up petition pending therein, to the National Company Law Tribunal (NCLT).
In this case, the Company Court had passed the order directing the winding up of the company and appointed the official liquidator who took over charge of the assets of the Company.
At this juncture, a creditor of the company moved an application before the NCLT u/s 7 of the Insolvency and Bankruptcy Code, 2016 (IBC 2016).
The main issues for consideration by the Apex Court were :
(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
The Hon’ble Supreme Court observed that Section 434 of the Companies Act 2013 as it was incorporated originally was actually substituted by the IBC 2016 which came into force on 15.11.2016.
The Hon’ble Supreme Court held that the petitioner creditor in this case will come within the definition of the expression “party” appearing in the 5th proviso to Clause (c) of Subsection (1) of Section 434 of the Companies Act, 2013 and that the petitioner was entitled to seek a transfer of the pending winding up proceedings against the first respondent, to the NCLT.
The Hon’ble Supreme Court stated that the restriction under Rules 5 and 6 of the Companies (Transfer of Pending Proceedings) Rules, 2016 relating to the stage at which a transfer could be ordered, has no application to the case of a transfer covered by the 5th proviso to clause (c) of subsection (1) of Section 434.
The Hon’ble Supreme Court further pointed out that as observed by it the object of IBC will be stultified if parallel proceedings are allowed to go on in different fora. If the High Court is allowed to proceed with the winding up and NCLT is allowed to proceed with an enquiry into the application u/s 7 of IBC, the entire object of IBC will be thrown to the winds.
Therefore, the Hon’ble Supreme Court held that the impugned order of the High court rejecting the petition for transfer on the basis of Rule 26 of the Companies (Court) Rules, 1959 was flawed.
Accordingly, the appeal was allowed and the impugned order was set aside and the proceedings for winding up pending before the Company Court of the High Court was ordered to be transferred to the NCLT.
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