HC rejects applications for transfer of winding up petitions to NCLT finding that once the OL gets appointed and the liquidation process being initiated; However, transfers the petition to NCLT finding that the liquidation process is at initial stage and provisional liquidator has been appointed.
In the present matter, HC deals with the individual applications filed by the applicants for the transfer of the winding up petition to the NCLT. In the first petition against Hanung Toys & Textiles Ltd., HC appointed the Official Liquidator (OL) and the applicant – Punjab National Bank filed two applications which seeks for impleadment in the present petition and for transfer of the proceedings before the NCLT. In the second petition against Shakti Bhog Foods Ltd., the OL was appointed as the Liquidator and the applicant State Bank of India filed two applications for intervention in the petition and for transfer of present proceedings before NCLT. In the third petition against MVL Ltd., the OL was appointed as the Provisional Liquidator and the applicant Dena Bank preferred two applications seeking for impleadment in the petition and transfer of the present proceedings before the NCLT. In the fourth petition against Premia Projects Ltd.), the OL was appointed as the provisional liquidator, the allottees of flats in the project of the respondent have filed applications for transfer of petition to the NCLT.
HC observes that the basic issue here is whether in exercise of powers under the proviso to Section 434 of the Companies Act, 2013, the court should transfer the present proceedings to NCLT.
HC further observes that that the highlighted proviso (added in 2018) to section 434(c) of the Companies Act, 2013 was dealt with by HC in the judgment of Tata Capital Financial Services Ltd. v. Shree Shyam Pulp & Board Mills Ltd., 2018 SCC Online Del 11365. In that case the OL had been appointed as a provisional liquidator and HC held that a reading of the said proviso to Section 434(c) of the Companies Act, 2013 shows that the proviso is discretionary and it gives discretion to this court to transfer the matters. It further held that once the OL has been appointed as provisional liquidator, normally the matter would not be transferred to NCLT. The Division Bench of the Court upheld the aforesaid judgment in the appeal titled Shree Shyam Pulp & Board Mills Ltd. v. Tata Capital Financial Services Ltd. & Ors., 2018 SCC OnLine Del 12777. HC finds that the Supreme Court has in the case of Jaipur Metals & Electricals Employees Organisation vs. Jaipur Metals & Electricals Ltd.,( 2019) 4 SCC 227. stated, that it was open to a financial creditor to any time before a winding up order is passed to apply under section 7 of the Code. HC finds that the decisions in Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd.(supra) and Forech India Ltd. v. Edelweiss Assets Reconstruction Co.Ltd 2019 SCC OnLine 87 and the judgment of the Division Bench of the Bombay High Court in the case of Jotun India Private Limited & Ors. v. PSL Limited 2019 ( 213) Co. Cases 61 read with the relevant proviso to Section 434 (1) (c) of the Companies Act is that a discretion has been granted to the High Court to transfer matters at the request of any party to the NCLT. Where the Official Liquidator has not been appointed as the Liquidator, the Company Court would transfer such matters to the NCLT on receipt of an appropriate request by a party. However, where a Liquidator has been appointed, such matters would normally not be transferred to NCLT.
HC further refers to CESC Limited v. Bharat Iron & Steel Industries & Shalimar Mineral Products Pvt. Ltd., 1995 (6) SCALE 417 and observes that OL under the Companies Act, 1956 and Liquidator under IBC cannot concurrently carry out their functions. HC finds that once a liquidator is appointed by the company court in saved matters, the process of liquidation commences and once this process has started, no purpose is served by handing over the same to another liquidator who would also perform a similar function all over again. Hence, once this court has appointed the Official Liquidator as the liquidator, normally such petition would not be transferred to NCLT. With regards the issue as to whether an application under Section 7 or Section 9 of IBC can be initiated before NCLT once the OL is appointed as a Liquidator by the Company Court HC finds that it is an issue that is said to be pending before the Supreme Court in the case of State Bank of India v. Shakti Bhog Foods Ltd. being Civil Appeal No.4536/2018.
HC refers to observations of the Supreme Court in the case of Forech India Ltd. v. Edelweiss Assets Reconstruction Co.Ltd. where the judgment of the Bombay High Court in the case of Jotun India Private Limited & Ors. v. PSL Limited was approved, the contention of the OL that there is no material distinction between appointment of a provisional liquidator and the official liquidator cannot be accepted. HC observes that once an Official Liquidator is appointed as a Provisional Liquidator, normally the whole exercise would still be at an initial stage. In these circumstances, normally, the court would transfer the matter to NCLT which would also give an opportunity to try and revive the company by the Insolvency Resolution Process. HC notes that there may be exceptional circumstances where the Liquidator has made much progress and the chances of Insolvency Resolution Process are very bleak then, in that eventuality the court may exercise its discretion and not transfer such a matter.
HC thus rejects the applications for transfer of petitions to NCLT for Hanung Toys & Textiles Ltd., Shakti Bhog Foods Ltd., and MVL Ltd. However, with regards the application for Premia Projects Ltd., HC observes that the proceedings before the Provisional Liquidator are at an initial stage and winding up process has not progressed much after the Provisional Liquidator was appointed. HC opines that it would be in the interest of the respondent Company and its creditors that an attempt is made to revive the company. HC thus, impleads the three allottees as parties in the present petition and transfer this petition to NCLT.