No Irreversible Actions In Winding Up, Company Court Can Transfer Proceedings To NCLT: Bombay High Court

The bench held that it is only where the winding up proceedings have reached the 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 NCLT.

Brief Facts:

The Applicant approached the Bombay High Court (“High Court”) to transfer Company Petition No.317 of 2012 to the National Company Law Tribunal (NCLT), Mumbai, under the 5th proviso to Section 434(1)(c) of the Companies Act, 2013. On 21st July 2023, the matter was listed, and the Official Liquidator was directed to respond. Subsequently, the Official Liquidator filed a reply and stated that statutory notices were issued to concerned authorities and ex-directors of the company in liquidation. Meetings were held regarding the disclosure of company assets, but only one ex-director attended. The Official Liquidator took possession of the registered office on 6th November 2017, and subsequently handed over to Edelweiss Asset Reconstruction Company Limited.

The Official Liquidator contended that other properties have been taken over by Edelweiss Asset Reconstruction Company Limited under SARFAESI proceedings, and the Official Liquidator was not in possession of any company properties. It also argued that the Official Liquidator has not invited claims from creditors or workers as required by Rule 148 of the said Rules. It argued that there is discretionary power on the court to transfer pending petitions under Section 434 of the Companies Act, subject to the Applicant depositing liquidation expenses.

On 1st March 2024, the Petitioner expressed no objection to transferring proceedings to the NCLT but sought time to file a reply. The reply argued that since the Official Liquidator hasn't invited claims from creditors or workers, transferring proceedings to the NCLT would expedite the resolution of corporate insolvency while allowing for more technical considerations.

Observations by the High Court:

The High Court referred to the decision of the Supreme Court in A. Navinchandra Steels Private Limited vs. SREI Equipment Finance Ltd. & Others, where the SC emphasised the criteria for transferring winding-up proceedings to the NCLT under the 5th proviso to Section 434(1)(c) of the Companies Act, 2013. The Supreme Court held that as long as no irreversible actions, such as actual sales of immovable or movable properties, have occurred, the Company Court retains the discretion to transfer proceedings to the NCLT. It further stated that if nothing irreversible has transpired, the Company Court can proceed with the transfer.

The High Court noted that the Official Liquidator handed over possession of the company's registered office to Edelweiss Asset Reconstruction Company Limited, under a court order. As of the application date, the Official Liquidator was not in possession of any company properties, which were instead held by the Applicant-creditor. Additionally, no notice inviting claims from creditors/workers was published. As no irreversible steps were taken by the Official Liquidator, the High Court held that there was no impediment to transferring the proceedings to the NCLT.

The High Court noted that transferring the proceedings to the NCLT would expedite the resolution of corporate insolvency while allowing for a more technical consideration of issues. To address the issue of liquidation expenses and costs, the High Court directed the Applicant to deposit Rs. 3 lakhs with the Official Liquidator towards liquidation costs/expenses.

Case Title: Omkara Assets Reconstruction In the matter of ICICI Bank Limited Vs Classic Diamonds (India) Limited

Case Number: INTERIM APPLICATION (L) NO. 25210 OF 2022 IN COMPANY PETITION NO. 317 OF 2012

Ms.Aneesa Cheema a/w. Mr.Harsh Kesharia, Advocate for the Applicant.

Mr.Arun Siwach, through Video Conferencing, a/w. Ms Priyanka Mitra and Mr Karan Gandhi i/by Cyril Amarchand Mangaldas, Advocate for the Petitioner in CP/317/2012.

Mr.Mutahhar Khan, Advocate for the Official Liquidator.

Ms.Nikita Yadav, Assistant Official Liquidator, was present in Court.

Date of Judgment: 3rd MAY 2024

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