Winding up proceeding transferable to NCLT until it has reached the stage of irreversibility, says Supreme Court
The Supreme Court of India has recently said in a judgement that a winding up proceeding pending before the High Court can be transferred to the National Company Law Tribunal (NCLT) as long as such a proceeding has not reached the stage of ‘irreversibility’.
Passing the order, the apex court stated: “So long as no actual sales of the immovable or movable properties have taken place, nothing irreversible is done which would warrant a company court staying its hands on a transfer application made to it by a creditor or any party to the proceedings. It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to the NCLT (under the Insolvency and Bankruptcy Code).”
The SC further noted that in a winding up proceeding, where the petition has not been served in terms of Rule 26 of the Companies (Court) Rules, 1959 at a pre-admission stage, given the beneficial result of the application of the IBC, such winding up proceeding is compulsorily transferable to the NCLT to be resolved under the Code. Even post issue of notice and pre-admission, the same result would ensue.
Brief of the case
The court was hearing a petition filed by Action Ispat and Power Pvt Ltd, which had moved the Supreme Court against a Delhi High Court order upholding a company judge’s order dated 14 January 2019 transferring a winding up proceeding against it pending before the High Court to NCLT was upheld.
Action Ispat had approached Shyam Metalics and Energy Ltd for supply of Iron Pellets. A specified quantity of 11612.34MTs of the goods was supplied to Action Ispat by Shyam Matalics. After making partial payment, a sum of Rs 4.55 crore was due and payable by Action Ispat to the Shyam Metalics. Despite several reminders and issuance of a statutory notice on 15 June 2016, the former failed to make the payment. Following this, a winding up petition was filed in high court and the court gave a go ahead to the winding up proceeding by appointing an official liquidator.
After the order, State Bank of India approached the company Judge seeking transfer of the winding up petition to the NCLT in view of the fact that it had filed an application under section 7 of the IBC against Action Ispat, which was pending before the NCLT.
The company judge of the High Court in an order dated 14 January 2019 transferred the case to NCLT, against which the management of Action Ispat moved the divisional bench of Delhi High Court, which upheld the company judge’s order.
The petitioned then moved SC, which in its order on 15 December 2020 said: “Given the fact that the matter has been transferred by the High Court to the NCLT to verify the necessary facts and circumstances of the case, after which relief can be given to the appellant herein, we do not find any reason to interfere with the aforesaid order.”
