A bench headed by Chief Justice S A Bobde and justices A S Bopanna and V Ramasubramanian was faced with two legal questions as to what are the circumstances under which a winding up proceeding pending in a High court could be transferred to the NCLT and at whose instance, such transfer could be ordered.
In a judgement, penned by Justice Ramasubramanian, it has been held that the winding up proceedings is a continuous legal process and under the Company law, any creditor of the firm in liquidation may become a party to the proceedings and seek transfer of the case from a high court to the NCLT to be dealt under the Insolvency and Bankruptcy Code (IBC) 2016.
“Thus, the 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 …would take within its fold any creditor of the company in liquidation,” the top court said.
Referring to earlier judgements, it said that the object of the IBC will be “stultified” if parallel proceedings are allowed to go on in different fora.
The bench, in its 26-page verdict, dealt in details the provisions of the Companies Act, IBC and Rules and said that the creditors, even if not a party to a winding up proceedings in initial stages of the litigation, can become one later as the all the creditors of a defaulting firm have to be treated equally in law.
The verdict came on an appeal of firm, M/s Kaledonia Jute and Fibres Pvt Ltd, against an order of the Allahabad High Court which refused to transfer to the NCLT a pending winding up petition before it against M/s Axis Nirman and Industries Ltd saying that the process before cannot be transferred.
“We are of the considered view that the petitioner herein will come within the definition of the expression “party” appearing in the 5th proviso to Clause (c) of Sub-section (1) of Section 434 of the Companies Act, 2013 and that the petitioner is entitled to seek a transfer of the pending winding up proceedings against the first respondent, to the NCLT,” the apex court held.
The appeal is allowed, the high court’s order is set aside and the proceedings for winding up pending before the Company Court against the company are “ordered to be transferred to the NCLT” , it said.