Winding Up Proceedings Transfer: Supreme Court’s Decision on Insolvency and Bankruptcy Code

This case revolves around a dispute regarding the transfer of winding-up proceedings from the High Court to the National Company Law Tribunal (NCLT). The appellant, M/s. Kaledonia Jute and Fibres Pvt. Ltd., challenged the decision of the Company Court (Allahabad High Court) that refused to transfer the winding-up petition, filed under Section 433 of the Companies Act, to the NCLT. The appellant, claiming to be a financial creditor, argued that the winding-up proceedings should be moved to NCLT under the Insolvency and Bankruptcy Code, 2016 (IBC).

Background of the Case

In 2015, M/s. Girdhar Trading Co., the second respondent, filed a petition before the Allahabad High Court under Section 433 of the Companies Act, seeking the winding-up of M/s. Axis Nirman and Industries Ltd., the first respondent, on the grounds of its inability to pay its debts. The petition was admitted by the High Court, and an official liquidator was appointed to take over the company’s assets. The first respondent paid the petitioning creditor the amount owed, and subsequently, the official liquidator opposed the recall of the winding-up order.

In 2019, the appellant, M/s. Kaledonia Jute and Fibres Pvt. Ltd., filed an application before the NCLT, claiming that the first respondent owed them money and seeking the initiation of insolvency proceedings under Section 7 of the IBC. However, the High Court refused to transfer the winding-up proceedings to the NCLT, resulting in the appellant filing this appeal.

Petitioner’s Arguments

The appellant, represented by learned senior counsel, argued that:

The winding-up proceedings initiated by the High Court should be transferred to NCLT as per the provisions of Section 434 of the Companies Act, 2013, in accordance with the Insolvency and Bankruptcy Code.
The NCLT has jurisdiction over insolvency matters under the IBC, and the transfer of winding-up proceedings to NCLT is in line with the objectives of the Code.
The appellant, as a financial creditor, has the locus standi to request the transfer and initiate proceedings under the IBC, which is a more efficient process than winding-up under the Companies Act.

“The provisions of the Insolvency and Bankruptcy Code provide a more comprehensive and efficient framework for handling insolvency matters, and the proceedings for winding up in the High Court should be transferred to the NCLT for proper adjudication.”

Respondent’s Arguments

The first respondent, M/s. Axis Nirman and Industries Ltd., countered the petitioner’s claims by asserting that:

The winding-up proceedings were properly initiated under the Companies Act, and the appellant had no legal standing to seek their transfer to the NCLT.
The appellant had failed to show sufficient grounds for the transfer of the proceedings and should instead pursue the remedies available under the Companies Act.
The winding-up petition had already been dealt with by the High Court, and there was no justification for transferring the matter to another forum.

“The winding-up proceedings were rightly initiated in the High Court, and the transfer to the NCLT is neither warranted nor appropriate, given that the matter is already in progress.”

Supreme Court’s Ruling

The Supreme Court, after hearing the arguments of both parties, ruled in favor of the appellant and directed that the winding-up proceedings be transferred to the NCLT. The Court made the following observations:

The primary issue before the Court was the interpretation of Section 434 of the Companies Act, 2013, and the powers vested in the NCLT under the IBC.
The Court noted that the objective of the IBC was to streamline insolvency proceedings, and it held that such matters should be dealt with by the NCLT to ensure consistency and efficiency in handling insolvency and liquidation cases.
The Court also emphasized that the provisions of the IBC supersede the earlier Companies Act, and the power to transfer winding-up cases lies with the NCLT under the IBC’s framework.
The Court ruled that the appellant, as a financial creditor, had the right to seek the transfer of the winding-up proceedings to the NCLT and that the request was in line with the provisions of the IBC, as well as the object of having a centralized mechanism for insolvency and bankruptcy matters.

“The entire objective of the Insolvency and Bankruptcy Code is to ensure a structured and comprehensive process for the resolution of insolvency issues. The NCLT is best suited to adjudicate matters related to insolvency and winding-up proceedings.”

Conclusion

The Supreme Court’s judgment in this case is a significant step in affirming the jurisdiction of the NCLT over insolvency and winding-up matters, in line with the objectives of the Insolvency and Bankruptcy Code, 2016. The Court’s decision ensures that financial creditors, such as the appellant, have the right to seek the transfer of winding-up proceedings to the NCLT. This ruling enhances the efficiency of insolvency proceedings and ensures that such matters are handled in a more centralized and standardized manner under the IBC framework.

Petitioner Name: M/s Kaledonia Jute and Fibres Pvt. Ltd..
Respondent Name: M/s Axis Nirman and Industries Ltd..
Judgment By: Justice S.A. Bobde, Justice A.S. Bopanna, Justice V. Ramasubramanian.
Place Of Incident: Allahabad, Uttar Pradesh.
Judgment Date: 19-11-2020.

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