Winding Up Order Is Not Irrevocable;Proceedings Can Be Transferred Later To NCLT Under IBC: Delhi HC [Read Judgment]

Delhi High Court has held that a winding up order passed by a Company Judge is not irrevocable and the proceedings can be later transferred to NCLT under IBC if the same is in the interest of the company and the creditors.

The Division Bench of Justice Vipin Sanghi and Sanjeev Narula also held that when the plea moved by secured creditors regarding the appropriate forum and process for liquidation comes in conflict with that of the ex- management, the preference shall be given to the creditors unless a strong reason exists for the contrary.

The Company Judge had passed a winding-up order against the Appellant company on 27/08/2018 and had also appointed an Official Liquidator to secure the assets/books and to inform the creditors and contributors about the development.

However, State Bank of India, one of the secured creditors of the company moved an application under section 7 of Insolvency and Bankruptcy Code (IBC) before the NCLT, seeking Corporate Insolvency Resolution Process (CIRP) for the Appellant company.

The application for transfer was opposed by the ex-management and by the Official Liquidator (OL) as well. The OL claimed that he had already sealed the registered office of the company at New Delhi and the factory premises at Orissa, and had incurred heavy expenditure in securing the factory premises.

By the order dated 14/01/2019, the Company Judge accepted the said application and revoked the previous order which had appointed the OL by citing the same to be in the interest of the Appellant company and the creditors, as the winding up process was at the initial stage.

It also noted that power to transfer a petition to NCLT under Section 434(1)(c) of the Companies Act, 2013 is 'discretionary' and has to be exercised in the facts and circumstances of the case so as to expeditiously deal with the proceedings/winding up.

Challenging the said order, Appellant's counsel Ms Maneesha Dhir submitted that by virtue of the Company Judge passing the winding up order, the company stood wound up, and the company petition could not be transferred to the NCLT.

Ms Dhir also relied upon the judgment passed by the Supreme Court in Jaipur Metals & Electricals Employees Organisation v. Jaipur Metals & Electricals Ltd. to argue that no party has the right to seek transfer of proceedings, as, once a winding up order is passed, the creditors are required to approach the Liquidator and file their respective claims.

Ms. Dhir also raised objection to the transfer at the instance of Respondent No. 2 (SBI), who is not a party to the winding up proceedings. She submitted that the scope of proviso to Section 434 is restricted to 'parties' to the winding up proceedings.

Appearing for SBI, Mr Srinivasan submitted that dated 27.08.2018 the Company Judge merely "admitted" the winding up petition, but did not

pass a liquidation order. The Liquidator was given only the limited mandate. Hence, it could be said that no liquidation proceedings had commenced, and the winding up of the company had not been achieved.

He also placed reliance on the judgment in Jaipur Metals case where it was held that a proceeding under section 7 of IBC is an independent proceeding which has nothing to do with the transfer of pending winding up proceedings before the High Court.

Rejecting the claim of the Appellants, the court opined that when the plea of a secured creditor transfer the proceedings to the NCLT from the Company Court is pitted against the plea of the ex-management not to do so, unless very strong

reasons for accepting the plea of the ex-management are brought forth the Company Court would lean in favour of transferring the winding up proceedings pending before it to the NCLT.

The court also noted that the jurisdiction vested in the Company Court to order transfer of the proceedings to the Tribunal is discretionary and not limited to cases squarely covered by Rule 5 of the Company (Code) Rules, 1959.

While upholding that the order passed by the Company Court admitting the petition and ordering its winding up is not irrevocable, the court went on to highlight that when transfer of winding up petition can aid in achieving the aforementioned objective, it ought to be allowed in the interest of justice. The court must be sensitive to the scheme and object of the Code; running of parallel proceedings will indeed be futile, create chaos and confusion.

The court, therefore, upheld the order passed by the Company Judge and directed the OL to deseal the mortgaged asset and to deliver possession thereof to the Receiver appointed in proceedings under the SARFAESI Act. 

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