Supreme Court of India
FORECH INDIA LTD.versusEDELWEISS ASSETS RECONSTRUCTION CO. LTD.
- Citation
- 2019 INSC 77
- Decided
- 22 January 2019
- Disposal
- Disposed off
- Bench
- R F NARIMAN
Holding
The appeal is dismissed; the winding‑up petition may be transferred to the NCLT under the proviso to Section 434, and the insolvency petition proceeds independently, rendering the Tribunal’s reliance on Section 11 incorrect but its dismissal order upheld.
Summary
Forech India Ltd. filed a winding‑up petition in the Delhi High Court in 2014 against a company, serving notice under Rule 26 of the Companies (Court) Rules. Later, a financial creditor (Respondent No.1) filed an insolvency petition under Section 7 of the Insolvency & Bankruptcy Code (IBC) before the NCLT, which was admitted. The appellant appealed, arguing that the winding‑up petition should continue because the notice was served before the Code’s commencement and that Section 11 of the IBC barred the insolvency petition. The Appellate Tribunal dismissed the appeal, relying on Section 11. The Supreme Court held that the Tribunal’s reasoning on Section 11 was incorrect but affirmed its order dismissing the appeal, noting that the winding‑up petition could be transferred to the NCLT under the proviso to Section 434 of the Companies Act, 2013, and that the insolvency proceeding is an independent proceeding under the IBC.
Issues considered
- The effect of a winding‑up petition filed before the IBC, with notice under Rule 26, on a subsequent insolvency petition under the IBC.
- Whether Rules 26 and 27 of the Companies (Court) Rules refer to a pre‑admission or post‑admission scenario.
- The applicability of Section 11 of the IBC to bar the insolvency petition.
- The scope of Section 434 (as amended) allowing transfer of pending winding‑up proceedings to the NCLT.
- Whether the Supreme Court should interfere with the Appellate Tribunal’s order dismissing the appeal.
Legislation cited
- Companies Act, 1956s. 433(e)
- Companies Act, 2013s. 434
- Companies (Court) Rules, 1959s. 26, s. 27
- Companies (Transfer of Pending Proceedings) Rules, 2016s. 5
- Companies (Transfer of Pending Proceedings) Second Amendment Rules, 2017s. 5
- Eleventh Schedule to the IBC (as amendment)
- Insolvency & Bankruptcy Code, 2016s. 11, s. 238, s. 255, s. 7, s. 9
Subjects
InsolvencyBankruptcyWinding upSection 434Transfer of proceedingsSection 11Companies ActNCLTHigh CourtParallel proceedings
Judgment
[2019] 2 S.C.R. 477 477
FORECH INDIA LTD. A
v.
EDELWEISS ASSETS RECONSTRUCTION CO. LTD.
(Civil Appeal No. 818 of 2018)
JANUARY 22, 2019
B
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
Insolvency & Bankruptcy Code, 2016 – ss.7, 9, 11, 238, 255
and The Eleventh Schedule – Proceedings u/ss.7 and 9, if
independent of winding up process pending in High Court – Winding
up petition filed by the appellant before High Court, against
Respondent No.2-Company, alleging inability to pay dues – C
Respondent No.1, financial creditor of the self-same corporate
debtor, filed insolvency petition u/s.7 of the 2016 Code before
National Company Law Tribunal (NCLT) – Petition admitted – Appeal
filed by the appellant against the order – Dismissed by Appellate
Tribunal – Plea of appellant inter alia that notice u/r.26 of the 1959 D
Rules was served much prior to the commencement of the Code,
hence, the winding up petition should be allowed to carry on and
not proceedings filed by other creditors under the Code – Held:
When the Code was enacted, only winding up petitions, where no
notice u/r.26 of the 1959 Rules was served, were to be transferred
to the NCLT and treated as petitions under the Code – However, on E
working of the Code, the Government realized that parallel
proceedings in the High Courts and before the adjudicating authority
in the Code would stultify the objective sought to be achieved by
the Code, i.e. to resuscitate the corporate debtors who are in the
red – Accordingly, the Rules kept being amended, until finally s.434, F
2013 Act was itself substituted in 2018, adding a proviso by which
even in winding up petitions where notice was served and pending
in the High Courts, any person could apply for transfer of such
petitions to the NCLT, which would then be transferred by the High
Court to the adjudicating authority and treated as insolvency petition
under the Code – Appellate Tribunal’s reasoning is not correct as G
reference to s.11 of the Code in the context of the present problem is
wholly irrelevant – However, the ultimate order passed by the
Appellate Tribunal is not interfered with because Respondent No.1’s
application admitted by the Tribunal is an independent proceeding
to be decided in accordance with the provisions of the Code – H
477
478 SUPREME COURT REPORTS [2019] 2 S.C.R.
A However, the appellant is granted liberty to apply under the proviso
to s.434 of the 2013 Act (added in 2018), to transfer the winding
up proceeding pending before the High Court to the NCLT, which
can then be treated as proceeding u/s.9 of the Code – Companies
Act, 1956 – s.433(e) – Companies Act, 2013 – s.434 – Companies
(Transfer of Pending Proceedings) Rules, 2016 – r.5 –
B
Companies(Transfer of Pending Proceedings) Second Amendment
Rules, 2017 – Companies (Court) Rules, 1959– rr.26 and 27.
Companies (Court) Rules, 1959 – rr.26 and 27 – Notice under
– Pre-admission or post-admission – Held: Rules 26 and 27 clearly
refer to a pre-admission scenario making it clear that the notice
C contained in Form No. 6 appended to r.27 has to be served in not
less than 14 days before the date of hearing – Hence, the expression
“was admitted” in Form No. 6 only means that notice has been
issued in the winding up petition which is then “fixed for hearing
before the Company Judge” on a certain day.
D Disposing of the appeal, the Court
HELD: 1.1 Rules 26 and 27, Companies (Court) Rules,
1959 clearly refer to a pre-admission scenario as is clear from a
plain reading of Rules 26 and 27, which make it clear that the
notice contained in Form No. 6 has to be served in not less than
E 14 days before the date of hearing. Hence, the expression “was
admitted” in Form No. 6 only means that notice has been issued
in the winding up petition which is then “fixed for hearing before
the Company Judge” on a certain day. Thus, the Madras High
Court view in M/s. M.K. & Sons Engineering case is plainly
F incorrect whereas the Bombay High Court view in Ashok
Commercial Enterprises case is correct in law. [Para 16]
[489-A-B]
1.2 As a first step, when the Insolvency & Bankruptcy
Code, 2016 (the Code) was enacted, only winding up petitions,
where no notice under Rule 26 of the Companies (Court) Rules
G
was served, were to be transferred to the NCLT and treated as
petitions under the Code. However, on a working of the Code,
the Government realized that parallel proceedings in the High
Courts as well as before the adjudicating authority in the Code
would stultify the objective sought to be achieved by the Code,
H which is to resuscitate the corporate debtors who are in the red.
FORECH INDIA LTD. v. EDELWEISS ASSETS 479
RECONSTRUCTION CO. LTD.
In accordance with this objective, the Rules kept being amended, A
until finally Section 434 was itself substituted in 2018, in which a
proviso was added by which even in winding up petitions where
notice has been served and which are pending in the High Courts,
any person could apply for transfer of such petitions to the NCLT
under the Code, which would then have to be transferred by the
B
High Court to the adjudicating authority and treated as an
insolvency petition under the Code. [Para 17] [489-C-E]
1.3 The Appellate Tribunal’s reasoning is not correct.
Section 11 of the Code specifies which persons are not eligible
to initiate proceedings under it. This Section is of limited
application and only bars a corporate debtor from initiating a C
petition under Section 10 of the Code in respect of whom a
liquidation order has been made. From a reading of this Section,
it does not follow that until a liquidation order has been made
against the corporate debtor, an Insolvency Petition may be filed
under Section 7 or Section 9 of the Code as the case may be, as D
has been held by the Appellate Tribunal. Hence, any reference
to Section 11 in the context of the problem before Supreme Court
is wholly irrelevant. However, the ultimate order passed by the
Appellate Tribunal is not interfered with because it is clear that
the financial creditor’s application which has been admitted by
the Tribunal is clearly an independent proceeding which must be E
decided in accordance with the provisions of the Code.
[Paras 21, 22] [491-G; 492-C-D]
1.4 Though, the Appellate Tribunal’s order dismissing the
appeal is not being interfered with, liberty is granted to the
appellant to apply under the proviso to Section 434 of the F
Companies Act (added in 2018), to transfer the winding up
proceeding pending before the High Court of Delhi to the Code.
NCLT, which can then be treated as a proceeding under Section
9 of the Code. [Para 23] [492-E-F]
PSL Limited v. Jotun India Private Limited. (2018) 2 G
AIR Bom R 350 – approved.
Ashok Commercial Enterprises v. Parekh Aluminex
Limited (2017) 4 Bom. CR 653 – held correct law.
H
480 SUPREME COURT REPORTS [2019] 2 S.C.R.
A M/s. M.K. & Sons Engineering v. Eason Reyrolle Ltd.
Decision of Madras High Court in CP/364/2016 – held
incorrect view.
Jaipur Metals & Electricals Employees Organization
Through General Secretary Mr. Tej Ram Meena v. Jaipur
B Metals & Electricals Ltd. Through its Managing Director
&Ors. 2018 (15) SCALE 836 – referred to.
Case Law Reference
(2017) 4 Bom. CR 653 held correct law Para 15
C 2018 (15) SCALE 836 referred to Para 17
(2018) 2 AIR Bom R 350 approved Para 19
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 818 of
2018
From the Judgment and Order dated 23.11.2017 of the National
D
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No.202 of 2017.
Ms. Purti Marwah Gupta, Ms. Henna George, A. Venayagam
Balan, Advs.for the Appellant.
E Sanjeev Sen, Sr. Adv., Ms. Srishti Khare, S. S. Shroff, Advs. for
the Respondent.
The Judgment of the Court was delivered by
ROHINTON F. NARIMAN, J. 1. The present matter arises
from an Operational Creditor’s appeal to continue with a winding up
F petition that has been filed by the said creditor way back in 2014. The
facts relevant for disposal of this appeal are as follows:-
2. A winding up petition, being No. 42 of 2014, was filed by the
present appellant before the High Court of Delhi on 10.01.2014, against
Respondent No. 2-Company, alleging (under Section 433(e) of the
G Companies Act) inability to pay dues. Notice in this petition had been
served, as is recorded by an order dated 20.01.2014 of the High Court
of Delhi. Further orders which have been pointed out to us by learned
counsel for the appellant, have gone on to state that there is a debt or
liability which is, in fact, admitted.
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3. It was also pointed out by learned counsel for the appellant that A
a Reference had been made by the Company itself on 14.07.2015 to the
Board for Industrial and Financial Reconstruction (BIFR) under the Sick
Industrial Companies Act, 1985, which, according to the learned counsel
for the appellant, has abated as on 11.12.2016. It transpires that another
operational creditor, viz., SKF India Ltd. had filed an application under
B
Section 9 of the Insolvency & Bankruptcy Code, 2016 (in short ‘the
Code’), against Respondent No. 2, which was allowed to be withdrawn
so that the aforesaid operational creditor could go to the High Court in a
winding up petition which would then be heard along with the Company
Petition No. 42/2014.
4. Meanwhile, Respondent No. 1, being a financial creditor of the C
self-same corporate debtor, moved the National Company Law Tribunal
(NCLT) in an insolvency petition filed under Section 7 of the Code
sometime in May/June 2017. This petition was admitted on 07.08.2017.
Against the aforesaid order, an appeal was filed by the appellant herein
which was dismissed by the Appellate Tribunal, in which Section 11 of D
the Code was referred to, and it was held by the Appellate Tribunal that
since there was no winding up order by the High Court, the financial
creditor’s petition would be maintainable, as a result of which the
appellant’s appeal has been dismissed.
5. Learned counsel appearing on behalf of the appellant has E
painstakingly taken us through the record, and has referred to the Code,
together with Notifications from the Ministry of Corporate Affairs, which,
in exercise of powers under Section 239 of the Code, have made Rules
called the Companies (Transfer of Pending Proceedings) Rules, 2015.
She has also referred to amendments made up to date in the Eleventh
Schedule to the Code and has argued before us that the winding up F
petition that had been preferred by her would clearly fall within the ambit
of Rule 5 of the aforesaid Rules inasmuch as notice under Rule 26 of the
Companies (Court) Rules had been served much prior to the
commencement of the Code. This being the case, this winding up petition
should, therefore, have carried on and should be allowed to carry on G
before the High Court. The necessary concomitant of this argument
was that the winding up proceedings before the High Court should
continue and not proceedings filed by other creditors under
the Code.
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482 SUPREME COURT REPORTS [2019] 2 S.C.R.
A 6. Mr. Sanjiv Sen, learned senior counsel appearing on behalf of
Respondent No. 1, countered these submissions and has placed before
us all the relevant materials, statutory and otherwise, to state that the
whole object of the Code would be frustrated if petitions for winding up
in the High Court were to continue in the face of the insolvency petitions
that have been filed under the Code. He referred to some of our
B
judgments to buttress this submission and, in particular, to Section 238 of
the Code. According to him, as has been held in some of our judgments,
the proceedings that were initiated under Section 7 or Section 9 of the
Code are independent proceedings, which must reach their logical
conclusion unhampered by any winding up petition that may be pending
C in a High Court. According to him, it is also important to remember that
the basic objective of the Code is to infuse life into a corporate debtor
who is in the red, and it is only if the resuscitation process cannot be
completed in accordance with the provisions of the Code that liquidation
takes place under the Code. Keeping this in mind, it is obvious that the
judgment of the Appellate Tribunal can be sustained on the grounds argued
D
by him and the appeal must, therefore, be dismissed.
7. At this stage, it is important to advert to some of the provisions
contained in the Code. Section 255 of the Code reads as under:
“255. Amendments of Act 18 of 2013.- The Companies Act,
E 2013 shall be amended in the manner specified in the Eleventh
Schedule.”
8. In pursuance of this Section, the Eleventh Schedule to the Code
made various amendments to the Companies Act, 2013 on 15.11.2016
with effect from 01.12.2016. Section 434 of the Companies Act, 2013
F was substituted as follows:-
“434. Transfer of certain pending proceedings.- (1) On such
date as may be notified by the Central Government in this behalf,—
(a) all matters, proceedings or cases pending before the Board
of Company Law Administration (herein in this section referred
G to as the Company Law Board) constituted under sub-section
(1) of Section 10-E of the Companies Act, 1956, immediately
before such date shall stand transferred to the Tribunal and
the Tribunal shall dispose of such matters, proceedings or cases
in accordance with the provisions of this Act;
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FORECH INDIA LTD. v. EDELWEISS ASSETS 483
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(b) any person aggrieved by any decision or order of the A
Company Law Board made before such date may file an appeal
to the High Court within sixty days from the date of
communication of the decision or order of the Company Law
Board to him on any question of law arising out of such order:
Provided that the High Court may if it is satisfied that the B
appellant was prevented by sufficient cause from filing an appeal
within the said period, allow it to be filed within a further period
not exceeding sixty days; and
(c) all proceedings under the Companies Act, 1956, including
proceedings relating to arbitration, compromise, arrangements C
and reconstruction and winding up of companies, pending
immediately before such date before any District Court or High
Court, shall stand transferred to the Tribunal and the Tribunal
may proceed to deal with such proceedings from the stage
before their transfer: D
Provided that only such proceedings relating to the winding up
of companies shall be transferred to the Tribunal that are at a
stage as may be prescribed by the Central Government.
(2) The Central Government may make rules consistent with the
E
provisions of this Act to ensure timely transfer of all matters,
proceedings or cases pending before the Company Law Board or
the courts, to the Tribunal under this section.”
9. On and from 17.08.2018, Section 434 was substituted again.
This time, the provision reads as follows:- F
“434. Transfer of certain pending proceedings.- (1) On such
date as may be notified by the Central Government in this behalf,—
(a) all matters, proceedings or cases pending before the Board
of Company Law Administration (herein in this section referred
G
to as the Company Law Board) constituted under sub-section
(1) of Section 10-E of the Companies Act, 1956, immediately
before such date shall stand transferred to the Tribunal and
the Tribunal shall dispose of such matters, proceedings or cases
in accordance with the provisions of this Act;
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484 SUPREME COURT REPORTS [2019] 2 S.C.R.
A (b) any person aggrieved by any decision or order of the
Company Law Board made before such date may file an appeal
to the High Court within sixty days from the date of
communication of the decision or order of the Company Law
Board to him on any question of law arising out of such order:
B Provided that the High Court may if it is satisfied that the
appellant was prevented by sufficient cause from filing an appeal
within the said period, allow it to be filed within a further period
not exceeding sixty days; and
(c) all proceedings under the Companies Act, 1956, including
C proceedings relating to arbitration, compromise, arrangements
and reconstruction and winding up of companies, pending
immediately before such date before any District Court or High
Court, shall stand transferred to the Tribunal and the Tribunal
may proceed to deal with such proceedings from the stage
before their transfer:
D
Provided that only such proceedings relating to the winding up
of companies shall be transferred to the Tribunal that are at a
stage as may be prescribed by the Central Government:
Provided further that only such proceedings relating to cases
E other than winding up, for which orders for allowing or
otherwise of the proceedings are not reserved by the High
Courts shall be transferred to the Tribunal:
Provided also that—
(i) all proceedings under the Companies Act, 1956 other than
F the cases relating to winding up of companies that are reserved
for orders for allowing or otherwise such proceedings; or
(ii) the proceedings relating to winding up of companies which
have not been transferred from the High Courts;
shall be dealt with in accordance with provisions of the
G Companies Act, 1956 and the Companies (Court) Rules, 1959:]
Provided also that proceedings relating to cases of voluntary
winding up of a company where notice of the resolution by
advertisement has been given under sub-section (1) of Section
485 of the Companies Act, 1956 but the company has not been
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FORECH INDIA LTD. v. EDELWEISS ASSETS 485
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dissolved before the 1st April, 2017 shall continue to be dealt A
with in accordance with provisions of the Companies Act, 1956
and the Companies (Court) Rules, 1959:
Provided further that any party or parties to any proceedings
relating to the winding up of companies pending before any
Court immediately before the commencement of the Insolvency B
and Bankruptcy Code (Amendment) Ordinance, 2018, may
file an application for transfer of such proceedings and the
Court may by order transfer such proceedings to the Tribunal
and the proceedings so transferred shall be dealt with by the
Tribunal as an application for initiation of corporate insolvency
resolution process under the Insolvency and Bankruptcy Code, C
2016 (31 of 2016).
(2) The Central Government may make rules consistent with the
provisions of this Act to ensure timely transfer of all matters,
proceedings or cases pending before the Company Law Board or
the courts, to the Tribunal under this section.” D
(Emphasis supplied.)
10. When the Code was enacted with effect from 01.12.2016,
two Notifications both dated 07.12.2015 were made. The first
Notification, which was titled as the Companies (Transfer of Pending E
Proceedings) Rules, 2016 laid down in Rule 5 as follows:
“5. Transfer of pending proceedings of Winding up on the
ground of inability to pay debts.- (1) All petitions relating to
winding up under clause (e) of Section 433 of the Act on the
ground of inability to pay its debts pending before a High Court, F
and where the petition has not been served on the respondent as
required under Rule 26 of the Companies (Court) Rules, 1959
shall be transferred to the Bench of the Tribunal established under
sub-Section (4) of Section 419 of the Act, exercising territorial
jurisdiction and such petitions shall be treated as applications under
Sections 7, 8 or 9 of the Code, as the case may be, and dealt with G
in accordance with Part II of the code:
Provided that the petitioner shall submit all information, other than
information forming part of the records transferred in accordance
with Rule 7, required for admission of the petition under Sections
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486 SUPREME COURT REPORTS [2019] 2 S.C.R.
A 7, 8 or 9 of the Code, as the case may be, including details of the
proposed insolvency professional to the Tribunal within sixty days
from date of this notification, failing which the petition shall abate.”
11. Simultaneously, on the same date, by the Companies (Removal
of Difficulties) Fourth Order, 2016, it was made clear in sub-Clause 2 of
B the said Order as follows:-
“(2) In the Companies Act, 2013, in Section 434, in sub-section
(1), in clause (c), after the proviso, the following provisos shall be
inserted, namely:-
“Provided further that –
C xxx xxx xxx
(ii) the proceedings relating to winding up of companies which
have not been transferred from the High Courts;
shall be dealt with in accordance with provisions of the
Companies Act, 1956 and the Companies (Court) Rules, 1959"”
D 12. By a Notification dated 29.06.2017, titled the Companies
(Transfer of Pending Proceedings) Second Amendment, Rules, 2017,
Rule 5 was substituted as follows:-
“(5) Transfer of pending proceedings of Winding up on the ground
of inability to pay debts.—(1) All petitions relating to winding up
E of a company under clause (e) of Section 433 of the Act on the
ground of inability to pay its debts pending before a High Court,
and, where the petition has not been served on the respondent
under Rule 26 of the Companies (Court) Rules, 1959, shall be
transferred to the Bench of the Tribunal established under sub-
Section (4) of Section 419 of the Companies Act, 2013, exercising
F territorial jurisdiction to be dealt with in accordance with Part II
of the Code:
Provided that the petitioner shall submit all information, other than
information forming part of the records transferred in accordance
with Rule 7, required for admission of the petition under Sections
G 7, 8 or 9 of the Code, as the case may be, including details of the
proposed insolvency professional to the Tribunal upto 15th day of
July, 2017, failing which the petition shall stand abated:
Provided further that any party or parties to the petitions shall,
after the 15th day of July, 2017, be eligible to file fresh applications
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under Sections 7 or 8 or 9 of the Code, as the case may be, in A
accordance with the provisions of the Code:
Provided also that where a petition relating to winding up of a
company is not transferred to the Tribunal under this Rule and
remains in the High Court and where there is another petition
under clause (e) of Section 433 of the Act for winding up against B
the same company pending as on 15th December, 2016 such other
petition shall not be transferred to the Tribunal, even if the petition
has not been served on the respondent.”
13. Rules 26 and 27 of the Companies (Court) Rules, 1959 read
as follows: C
“Rule 26. Service of petition - Every petition shall be served
on the respondent, if any, named in the petition and on such other
persons as the Act or these rules may require or as the Judge or
the Registrar may direct. Unless otherwise ordered, a copy of the
petition shall be served along with the notice of the petition. D
Rule 27. Notice of petition and time of service - Notice of
every petition required to be served upon any person shall be in
Form No. 6, and shall, unless otherwise ordered by Court or
provided by these rules, be served not less than 14 days before
the date of hearing.
E
Provided always that such notice when by the Act or under these
Rules is required to be served on the Central Government, the
same shall, unless otherwise ordered by the Court, be served not
less than 28 clear days before the date of hearing.”
14. Form No. 6 appended to Rule 27 reads as under: F
“FORM No. 6
(See Rule 27)
[Heading as in Form No. 1]
Company Petition No………………. of 19
G
NOTICE OF PETITION
Take notice that a petition under Sec……………. of the
Companies Act, 1956, for …………………. presented by
…………………. on the ………………. day of
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488 SUPREME COURT REPORTS [2019] 2 S.C.R.
A ………………….. 19………………. was admitted on the
………….. day of …………………19……………. and that the
said petition is fixed for hearing before the Company Judge on the
………………. day of …………………….. 19………. If you
desire to support or oppose the petition at the hearing, you should
give me notice thereof in writing so as to reach me not later
B
than……………. days before the date fixed for the hearing of
the petition, and appear at the hearing in person or by your
advocate. If you wish to oppose the petition, the grounds of
opposition or a copy of your affidavit should be furnished with
your notice. A copy of the petition will be furnished to you if you
C require it on payment of the prescribed charges for the same/is
enclosed herewith.
Dated…………… (Sd/-)………………Name…………………
(Advocate
for petitioner)
D
Address:
[This notice should be served on or before the ……………....
day of …………..19……………]
NOTE: Where the notice is to a respondent named in the petition,
E a copy of the petition should be served on him alongwith the notice.”
15. Shri Sen pointed out to us that there was a divergence of
views in the interpretation of the aforesaid rules. The Bombay High
Court in Ashok Commercial Enterprises vs. Parekh Aluminex Limited,
(2017) 4 Bom. CR 653, stated that the notice referred to in Rule 26 was
F a pre-admission notice and hence, held that all winding up petitions where
pre-admission notices were issued and served on the respondent will be
retained in the High Court. On the other hand, the Madras High Court
in M/s. M.K. & Sons Engineering v/s. Eason Reyrolle Ltd. in CP/364/
2016 has held that the notice under Rule 26 is referable to a post-admission
position of the winding up petition and accordingly held that only those
G
petitions where a winding up order is already made can be retained in
the High Court. For this purpose, the Madras High Court strongly
relied upon Form No. 6 appended to Rule 27 and the expression “was
admitted” occurring in the Notice of Petition contained in the said Form.
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16. We are of the view that Rules 26 and 27 clearly refer to a pre- A
admission scenario as is clear from a plain reading of Rules 26 and 27,
which make it clear that the notice contained in Form No. 6 has to be
served in not less than 14 days before the date of hearing. Hence, the
expression “was admitted” in Form No. 6 only means that notice has
been issued in the winding up petition which is then “fixed for hearing
B
before the Company Judge” on a certain day. Thus, the Madras High
Court view is plainly incorrect whereas the Bombay High Court view is
correct in law.
17. The resultant position in law is that, as a first step, when the
Code was enacted, only winding up petitions, where no notice under
Rule 26 of the Companies (Court) Rules was served, were to be C
transferred to the NCLT and treated as petitions under the Code. However,
on a working of the Code, the Government realized that parallel
proceedings in the High Courts as well as before the adjudicating authority
in the Code would stultify the objective sought to be achieved by the
Code, which is to resuscitate the corporate debtors who are in the red. D
In accordance with this objective, the Rules kept being amended, until
finally Section 434 was itself substituted in 2018, in which a proviso was
added by which even in winding up petitions where notice has been
served and which are pending in the High Courts, any person could
apply for transfer of such petitions to the NCLT under the Code, which
would then have to be transferred by the High Court to the adjudicating E
authority and treated as an insolvency petition under the Code. This
statutory scheme has been referred to, albeit in the context of Section
20 of the SICA, in our judgment which is contained in Jaipur Metals &
Electricals Employees Organization Through General Secretary Mr.
Tej Ram Meena vs. Jaipur Metals & Electricals Ltd. Through its F
Managing Director &Ors., being a judgment by a Division Bench of
this Court dated 12.12.2018.
18. After referring to the statutory scheme, as aforesaid, this Court
held:
“17. However, this does not end the matter. It is clear that G
Respondent No. 3 has filed a Section 7 application under the Code
on 11.01.2018, on which an order has been passed admitting such
application by the NCLT on 13.04.2018. This proceeding is an
independent proceeding which has nothing to do with the transfer
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490 SUPREME COURT REPORTS [2019] 2 S.C.R.
A of pending winding up proceedings before the High Court. It was
open for Respondent No. 3 at any time before a winding up order
is passed to apply under Section 7 of the Code. This is clear from
a reading of Section 7 together with Section 238 of the Code
which reads as follows:
B “238. Provisions of this Code to override other laws.—
The provisions of this Code shall have effect, notwithstanding
anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue
of any such law.”
18. Shri Dave’s ingenious argument that since Section 434 of the
C Companies Act, 2013 is amended by the Eleventh Schedule of
the Code, the amended Section 434 must be read as being part of
the Code and not the Companies Act, 2013, must be rejected for
the reason that though Section 434 of the Companies Act, 2013 is
substituted by the Eleventh Schedule of the Code, yet Section
D 434, as substituted, appears only in the Companies Act, 2013 and
is part and parcel of that Act. This being so, if there is any
inconsistency between Section 434 as substituted and the provisions
of the Code, the latter must prevail. We are of the view that the
NCLT was absolutely correct in applying Section 238 of the Code
to an independent proceeding instituted by a secured financial
E creditor, namely, the Alchemist Asset Reconstruction Company
Ltd. This being the case, it is difficult to comprehend how the
High Court could have held that the proceedings before the NCLT
were without jurisdiction. On this score, therefore, the High Court
judgment has to be set aside. The NCLT proceedings will now
F continue from the stage at which they have been left off.
Obviously, the company petition pending before the High Court
cannot be proceeded with further in view of Section 238 of the
Code. The writ petitions that are pending before the High Court
have also to be disposed of in light of the fact that proceedings
under the Code must run their entire course. We, therefore, allow
G the appeal and set aside the High Court’s judgment.”
19. Mr. Sen also referred us to a judgment of the learned Single
Judge of the High Court of Bombay reported, in (2018) 2 AIR Bom R
350 in PSL Limited vs. Jotun India Private Limited. The Learned
Single Judge, after referring to the self-same provisions of the Code and
H subordinate legislation made thereunder, held as follows:-
FORECH INDIA LTD. v. EDELWEISS ASSETS 491
RECONSTRUCTION CO. LTD. [R. F. NARIMAN, J.]
“93. The fact that post notice winding up petitions continue to be A
governed by the Companies Act, 1956, only means – that to those
proceedings it will be the Companies Act, 1956 which will apply.
It does not, however, mean that if, in a post-notice winding up
petition a new proceeding is filed under IBC, and where orders
are passed by NCLT, including under Section 14 of IBC, the
B
consequences provided for under IBC will not apply to post notice
proceeding, whatever their stage may be.
xxx xxx xxx
98. Furthermore, this transitional provision cannot in any way affect
the remedies available to a person under IBC, vis-a-vis the C
company against whom a winding up petition is filed and retained
in the High Court, as the same would amount to treating IBC as if
it did not exist on the statute book and would deprive persons of
the benefit of the new legislation. This is contrary to the plain
language of IBC. If the contentions of petitioner were to be
accepted, it would mean that in respect of companies, where a D
post notice winding up petition is admitted or a provisional liquidator
appointed, provisions of IBC can never apply to such companies
for all times to come.
xxx xxx xxx
E
100. The mere fact that post notice winding up proceedings are to
be “dealt with” in accordance with the provisions of the Companies
Act, 1956, does not bar the applicability of the provisions of IBC
in general to proceedings validly instituted under IBC, [nor] does
it mean that such proceeding can be suspended.”
F
20. This judgment was upheld by a Division Bench of the Bombay
High Court. We may hasten to add that the law declared by this judgment
has our approval.
21. The resultant position, therefore, is that we agree with the
learned counsel for the appellant that the Appellate Tribunal’s reasoning
G
is not correct. Section 11 of the Code specifies which persons are not
eligible to initiate proceedings under it. In particular, Section 11(d) reads
as follows:
“11. Persons not entitled to make applications- The following
persons shall not be entitled to make an application to initiate
H
492 SUPREME COURT REPORTS [2019] 2 S.C.R.
A corporate insolvency resolution process under this Chapter,
namely:-
xxx xxx xxx
(d) a corporate debtor in respect of whom a liquidation order has
been made.
B
Explanation - For the purposes of this section, a corporate debtor
includes a corporate applicant in respect of such corporate debtor.”
22. This Section is of limited application and only bars a corporate
debtor from initiating a petition under Section 10 of the Code in respect
C of whom a liquidation order has been made. From a reading of this
Section, it does not follow that until a liquidation order has been made
against the corporate debtor, an Insolvency Petition may be filed under
Section 7 or Section 9 as the case may be, as has been held by the
Appellate Tribunal. Hence, any reference to Section 11 in the context
of the problem before us is wholly irrelevant. However, we decline to
D interfere with the ultimate order passed by the Appellate Tribunal because
it is clear that the financial creditor’s application which has been admitted
by the Tribunal is clearly an independent proceeding which must be
decided in accordance with the provisions of the Code.
23. Though, we are not interfering with the Appellate Tribunal’s
E order dismissing the appeal, we grant liberty to the appellant before us to
apply under the proviso to Section 434 of the Companies Act (added in
2018), to transfer the winding up proceeding pending before the High
Court of Delhi to the NCLT, which can then be treated as a proceeding
under Section 9 of the Code.
F 24. With these observations, we dispose of the aforesaid appeal.
Divya Pandey Appeal disposed of
G
H
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