JAIPUR METALS & ELECTRICALS EMPLOYEES ORGANIZATION THROUGH GENERAL SECRETARY MR. TEJ RAM MEENA versus JAIPUR METALS & ELECTRICALS LTD. THROUGH ITS MANAGING DIRECTOR & ORS. on 12 December 2018

AJAIPUR METALS & ELECTRICALS EMPLOYEESORGANIZATION THROUGH GENERAL SECRETARY MR. TEJRAM MEENA

v.

JAIPUR METALS & ELECTRICALS LTD. THROUGH ITSBMANAGING DIRECTOR & ORS.

(Civil Appeal No. 12023 of 2018)

DECEMBER 12, 2018

[R. F. NARIMAN AND M. R. SHAH, JJ.]

CInsolvency and Bankruptcy Code, 2016 – ss.7, 238 –Respondent No.1-company became a non-performing asset – Boardfor Industrial and Financial Reconstruction (BIFR) was of primafacie opinion that the company ought to be wound up and samewas forwarded to the High Court – High Court registered the caseas a Company Petition – Respondent No.3 acquired financial debtsDof Respondent No.1 – After some time, respondent no.3 filedapplication u/s.7 of the Code before the National Company LawTribunal (NCLT) stating that it had an assigned debt owed to it bythe respondent No.1 – NCLT by order dated 13.04.2018 referred tothe non-obstante clause contained in s.238 of the Code and heldEthat it was satisfied that the conditions of s.7 had been fulfilled andtherefore, admitted the application – High Court in company petitionand other connected matters refused to transfer the winding upproceedings pending before it, and set aside the NCLT order dated13.04.2018, stating that it had been passed without jurisdiction –Propriety of – Held: Though s.434 of the Companies Act, 2013,Fwhich relates to transfer of certain proceedings, was substituted bythe Eleventh Schedule of the Code, yet Section 434, as substituted,appears only in the Companies Act, 2013 and is part and parcel ofthat Act – This being so, if there is any inconsistency between s.434as substituted and the provisions of the Code, the latter must prevailG– NCLT was absolutely correct in applying s.238 of the Code to anindependent proceeding instituted by a secured financial creditor,namely, respondent no.3 – High Court was not right in stating thatthe proceedings before the NCLT were without jurisdiction –Proceedings before NCLT to be continued from the stage at whichthey had been left off – On this score, therefore, the High CourtHjudgment set aside – Furthermore, the company petition pending JAIPUR METALS & ELECTRICALS EMPLOYEES ORG. THR. GEN. SECY. v.JAIPUR METALS & ELECTRICALS LTD.

before the High Court cannot be proceeded with in view of s.238 ofthe Code – Thus, other connected matters that are pending beforethe High Court disposed of in light of the fact that proceedingsunder the Code, 2016 must run their entire course – CompaniesAct, 2013 – s.434 (as amended w.e.f 17.08.2018) – Sick IndustrialCompanies (Special Provisions) Act, 1985 – s.20 – Companies(Transfer of Pending Proceedings) Rules, 2016 – rr. 5(2) and 6.

Allowing the appeal, the Court

HELD: 1. It is clear that under Section 434 of the CompaniesAct, 2013 as substituted by the Eleventh Schedule to theInsolvency and Bankruptcy Code, 2016 vide notification dated15.11.2016, all proceedings under the Act, which relate to windingup of companies and which are pending immediately before suchdate as may be notified by the Central Government in this behalfshall stand transferred to the NCLT. The stage at which suchproceedings are to be transferred to the NCLT is such as may beprescribed by the Central Government. [Para 12][938-C-D]

2. When Rules 5 and 6 of the 2016 Transfer Rules (un-amended) are read, it is clear that three types of proceedings arereferred to. Under Rule 5(1), petitions which relate to windingup under clause (e) of Section 433 of the Companies Act, 1956on the ground of inability to pay debts that are pending beforethe High Court are to be transferred to the NCLT in case thepetition has not been served on the respondent. They shall thenbe treated as applications under Sections 7, 8, or 9 of the Codeand dealt with in accordance with Part II of the Code. Similarly,all petitions filed under clauses (a) and (f) of Section 433 of theCompanies Act, 1956 pending before the High Court, in whichthe petition has not been served on the respondents, shall betransferred to the NCLT. Only such petitions will continue to betreated as petitions under the provisions of the Companies Act,2013. The third category of cases dealt with by Rules 5 and 6 iscontained in Rule 5(2). This category relates to cases where theBIFR has forwarded an opinion to the High Court to wind up acompany under Section 20 of the SIC Act. All such cases, whateverbe the stage, shall continue to be dealt with by the High Court inaccordance with the provisions of the SIC Act. [Para 13][938-D-G]

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A3. It is clear that the present case relates to Rule 5(2) alone.Despite the fact that Section 20 of the SIC Act speaks of acompany being wound up under the Companies Act, 1956 underthe just and equitable provision, which is Section 433(f) of theCompanies Act, 1956, yet, since cases that fall under Section 20of the SIC Act are dealt with separately under Rule 5(2), theyBcannot be treated as petitions that have been filed under Section433(f) of the Companies Act, 1956, which are separately specifiedunder Rule 6. The High Court is therefore not correct in treatingpetitions that are pursuant to Section 20 of the SIC Act as beingpursuant to Section 433(f) of the Companies Act, 1956 and applyingCRule 6 of the 2016 Transfer Rules. [Para 14][938-G-H; 939-A]

4. However, though the language of Rule 5(2) is plainenough, it has been argued that Rule 5 was substituted on29.06.2017, as a result of which, Rule 5(2) has been omitted. Theeffect of the omission of Rule 5(2) is not to automatically transferDall cases under Section 20 of the SIC Act to the NCLT, asotherwise, a specific rule would have to be framed transferringsuch cases to the NCLT, as has been done in Rule 5(1). The realreason for omission of Rule 5(2) in the substituted Rule 5 isbecause it is necessary to state, only once, on the repeal of theSIC Act, that proceedings under Section 20 of the SIC Act shallEcontinue to be dealt with by the High Court. It was unnecessaryto continue Rule 5(2) even after 29.06.2017 as on 15.12.2016, allpending cases under Section 20 of the SIC Act were to continueto be dealt with by the High Court before which such cases werepending. Since there could be no opinion by the BIFR underFSection 20 of the SIC Act after 01.12.2016, when the SIC Act wasrepealed, it was unnecessary to continue Rule 5(2) as, on15.12.2016, all pending proceedings under Section 20 of the SICAct were to continue with the High Court and would continueeven thereafter. This is further made clear by the amendment toSection 434(1)(c), with effect from 17.08.2018, where any partyGto a winding up proceeding pending before a Court immediatelybefore this date may file an application for transfer of suchproceedings, and the Court, at that stage, may, by order, transfersuch proceedings to the NCLT. The proceedings so transferredwould then be dealt with by the NCLT as an application forHinitiation of the corporate insolvency resolution process under

the Code. It is thus clear that under the scheme of Section 434(as amended) and Rule 5 of the 2016 Transfer Rules, allproceedings under Section 20 of the SIC Act pending before theHigh Court are to continue as such until a party files an applicationbefore the High Court for transfer of such proceedings post17.08.2018. Once this is done, the High Court must transfer suchproceedings to the NCLT which will then deal with suchproceedings as an application for initiation of the corporateinsolvency resolution process under the Code. [Para 15][939-B-G]

5. The High Court judgment, therefore, though incorrectin applying Rule 6 of the 2016 Transfer Rules, can still besupported on this aspect with a reference to Rule 5(2) read withSection 434 of the Companies Act, 2013, as amended, with effectfrom 17.08.2018. [Para 16][939-H; 940-A]

6. It is clear that Respondent No. 3 has filed a Section 7application under the Code on 11.01.2018, on which an order hasbeen passed admitting such application by the NCLT on13.04.2018. This proceeding is an independent proceeding whichhas nothing to do with the transfer of pending winding upproceedings before the High Court. It was open for RespondentNo. 3 at any time before a winding up order is passed to applyunder Section 7 of the Code. [Para 17][940-B-C]

7. The contention of Respondent nos.4 and 5 that sinceSection 434 of the Companies Act, 2013 is amended by theEleventh Schedule of the Code, the amended Section 434 mustbe read as being part of the Code and not the Companies Act,2013, must be rejected for the reason that though Section 434 ofthe Companies Act, 2013 is substituted by the Eleventh Scheduleof the Code, yet Section 434, as substituted, appears only in theCompanies Act, 2013 and is part and parcel of that Act. This beingso, if there is any inconsistency between Section 434 as substitutedand the provisions of the Code, the latter must prevail. The NCLTwas absolutely correct in applying Section 238 of the Code to anindependent proceeding instituted by a secured financial creditor,namely, the respondent no.3. This being the case, it is difficult tocomprehend how the High Court could have held that theproceedings before the NCLT were without jurisdiction. On thisscore, therefore, the High Court judgment has to be set aside.

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AThe NCLT proceedings will now continue from the stage at whichthey have been left off. Obviously, the company petition pendingbefore the High Court cannot be proceeded with further in viewof Section 238 of the Code. The writ petitions that are pendingbefore the High Court have also to be disposed of in light of thefact that proceedings under the Code must run their entire course.B[Para 18][940-D-H]CIVIL APPELLATE JURISDICTION : Civil Appeal No. 12023of 2018.

From the Judgment and Order dated 01.06.2018 of the High Courtof Judicature for Rajasthan, Bench at Jaipur in S.B. Company PetitionCNo.19 of 2009.

Sidharth Luthra, Sr. Adv., Ms. Anushree Prashit Kapadia,Ms. Priyanka Rathi, Advs. for the Appellant.

P. Chidambaram, Sr. Adv., Ashu Kansal, T.V.S. RaghavendraDSreyas, Ms. Gayatri Gulati, Ms. Sneh Dhillon, Karan Batura, SiddharthaDave, Rishi Matoliya, Ms. Sumati Sharma, H.D. Thanvi, Ankit Sareen,Tarun Gupta, Amit Sharma, Ankit Raj, Ms. Indira Bhakar, Ms. NidhiJaswal, Ms. Ruchi Kohli, Rahul Pratap, Nikhil Nayyar, Ms. Garima Bajaj,Surya Kant, Pranav Vyas, Ms. Priyanka Tyagi, Advs. for the Respondents.

The Judgment of the Court was delivered byE

R. F. NARIMAN, J. 1. Leave granted.

2. The present appeal has been filed by an employees’ unionchallenging the judgment of the High Court of Judicature for Rajasthandated 01.06.2018, in which the High Court has refused to transfer windingup proceedings pending before it to the National Company Law TribunalF(“NCLT”), and has set aside an order dated 13.04.2018 of the NCLTby which order a financial creditor’s petition under Section 7 of theInsolvency and Bankruptcy Code, 2016 (“Insolvency Code” or“Code”) has been admitted.

3. This case has had a chequered history. On 30.09.1997, theGaccount of the Respondent No. 1 company had become a non-performingasset, and since the company’s net worth had turned negative, a referencewas made to the Board for Industrial and Financial Reconstruction(“BIFR”) under the Sick Industrial Companies (Special Provisions) Act,1985 (“SIC Act”). On 26.09.2002, the BIFR was of the prima facieHopinion that the company ought to be wound up, which opinion wasforwarded to the High Court. The High Court ultimately registered the case as Company Petition No. 19/2009. The Alchemist AssetReconstruction Company Ltd. (Respondent No. 3) acquired substantiallyall the financial debts of Respondent No. 1. The State of Rajasthan triedto revive the company, but with no success. Ultimately, in a writ petitionfiled by a workers’ union, being Writ Petition No. 504/2000, the HighCourt, on 07.12.2017, directed the Official Liquidator to be provisionallyattached to the Court, and to join in the evaluation of the value of goodsand material lying in the factory premises of the company so that duesof the workmen could be paid.

4. In the meanwhile, on 11.01.2018, the Respondent No. 3 hereinpreferred an application under Section 7 of the Insolvency Code, statingthat it had an assigned debt of INR 356 crores owed to it by theRespondent No. 1. Considering the fact that the debt was admitted bythe company and that till date no liquidation order had been passed in thewinding up proceedings that were pending before the High Court, theNCLT held, referring to the non-obstante clause contained in Section238 of the Insolvency Code, that it was satisfied that the conditions ofSection 7 had been fulfilled and that, therefore, the application should beadmitted. Accordingly, a moratorium was declared in terms of Section14 of the Code and an interim resolution professional was appointed.

5. Meanwhile, in Company Petition No. 19/2009 and otherconnected matters, being various writ petitions that were filed by labourunions, the High Court, by an interim order dated 26.04.2018, stayedimplementation of the order passed by the NCLT on 13.04.2018. Againstthis order, a Special Leave Petition (“SLP”) was preferred in which thisCourt, on 09.05.2018, dismissed the SLP as withdrawn and directed thepetitioner to make submissions before the High Court in the pendingcompany petition and allied matters. The High Court then passed theimpugned judgment dated 01.06.2018, in which it refused to transfer thewinding up proceedings pending before it, and set aside the NCLT orderdated 13.04.2018, stating that it had been passed without jurisdiction.Accordingly, the writ petitions and the company petition were placed forfurther orders on 05.07.2018. On 16.07.2018, this Court issued noticeand stayed the operation of the impugned judgment.

6. Shri Sidharth Luthra, learned Senior Advocate, appearing onbehalf of the appellant, and Shri P. Chidambaram, learned SeniorAdvocate, appearing on behalf of Respondent No. 3, have argued that aperusal of the Eleventh Schedule of the Code and amendments made tothe Companies Act, 2013, particularly to Section 434 therein, would show AB

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Athat all winding up proceedings pending before the High Court are tostand transferred to the NCLT at such stage as may be prescribed bythe Central Government by rules made in this behalf. They then referredto Rule 5 of the Companies (Transfer of Pending Proceedings) Rules,2016 (“2016 Transfer Rules”), and in particular, to Rule 5(2) thereof.They then argued that as Rule 5(2) was not continued on and afterB29.06.2017, it would be clear that winding up of companies that areinitiated under the SIC Act cannot, after such omission, be continued tobe dealt with by the High Court. According to them, the High Courtjudgment was incorrect as Rule 5, and not Rule 6, of the 2016 TransferRules applied. Post omission of Rule 5(2), therefore, proceedings wouldCin any case stand transferred to the NCLT. Alternatively, they arguedthat in any case, the 2018 amendment made to Section 434(1)(c) addeda proviso, by which any party to any winding up proceedings that arepending before a High Court may file an application for transfer of suchproceedings, and the Court is then obliged to transfer such proceedings to the NCLT. They also argued that in any case, a Section 7 applicationDmade by Respondent No. 3 before the NCLT was an independentapplication which was correctly admitted by the NCLT, which correctlyapplied Section 238 of the Insolvency Code.

7. Shri Siddharth Dave, learned counsel appearing on behalf ofRespondents No. 4 and 5, supported the judgment of the High Court.EAccording to the learned counsel, even if Rule 5 of the 2016 TransferRules were to apply, Rule 5(2) made it clear that the present proceedingswould continue before the High Court, being proceedings for winding upof a company pursuant to Section 20 of the SIC Act. The omission ofthis Rule in the amendment made to Rule 5 on 29.06.2017 would notFimpact the High Court continuing to deal with this matter as the SIC Acthad been repealed with effect from 01.12.2016, and together with therepeal, it was necessary to state that proceedings for winding up thatwere initiated under Section 20 of the SIC Act would continue to bedealt with by the High Court. Once this was stated to be so, when theamendment was made to Rule 5, it became unnecessary to continueGwith the said provision as all such proceedings are to continue to be dealtwith by the High Court on and from the date of repeal of the SIC Act.Equally, according to the learned counsel, Section 238 of the Code hasno application as it is a non-obstante clause which interdicts a clashbetween the Insolvency Code and other statutes. Inasmuch as theHamendments to Section 434 of the Companies Act, 2013 have been made pursuant to the Eleventh Schedule of the Insolvency Code itself, Section238 would have no application, and, therefore, the winding up proceedingspending before the High Court would have to reach their logical conclusion.This being so, the High Court judgment is correct.

8. Having heard learned counsel for all parties, we first need todeal with a preliminary objection raised by Shri Siddharth Dave. Accordingto the learned counsel, an appeal against the judgment dated 01.06.2018has been filed by Respondent No. 3, and since this appeal is still pending,we should not entertain an SLP filed at the behest of an employees’union which is in cahoots with Respondent No. 3. Ordinarily, we wouldhave relegated the appellant to the Division Bench, but since the questionsraised are of importance generally, it is better that an authoritative decisionbe given at the earliest. It is for this reason that we have entertained thisSLP directly against the order of a single Judge. Shri Luthra has alsopointed out that it is incorrect to say that the client that he represents isa derecognized or unrecognized union in cahoots with Respondent No.3, and has pointed out a certificate of registration of the said union. Bethat as it may, since this SLP raises important questions of law whichneed to be decided at the earliest, we have disregarded this preliminaryobjection.

9. Section 255 of the Insolvency Code reads as follows:

“255. Amendments of Act 18 of 2013.—The Companies Act,2013 shall be amended in the manner specified in the EleventhSchedule.”

In pursuance of this Section, the Eleventh Schedule to the Codemakes various amendments to the Companies Act, 2013. On 15.11.2016,with effect from 01.12.2016, Section 434 of the Companies Act, 2013was substituted as follows:

“434. Transfer of certain pending proceedings.—(1) On suchdate as may be notified by the Central Government in this behalf,—

(a) all matters, proceedings or cases pending before the Boardof Company Law Administration (herein in this section referredto as the Company Law Board) constituted under sub-section(1) of Section 10-E of the Companies Act, 1956, immediatelybefore such date shall stand transferred to the Tribunal andthe Tribunal shall dispose of such matters, proceedings or casesin accordance with the provisions of this Act; A

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(b) any person aggrieved by any decision or order of theCompany Law Board made before such date may file an appealto the High Court within sixty days from the date ofcommunication of the decision or order of the Company LawBoard to him on any question of law arising out of such order:

Provided that the High Court may if it is satisfied that theappellant was prevented by sufficient cause from filing an appealwithin the said period, allow it to be filed within a further periodnot exceeding sixty days; and B

(c) all proceedings under the Companies Act, 1956, includingproceedings relating to arbitration, compromise, arrangementsand reconstruction and winding up of companies, pendingimmediately before such date before any District Court or HighCourt, shall stand transferred to the Tribunal and the Tribunalmay proceed to deal with such proceedings from the stagebefore their transfer:

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Provided that only such proceedings relating to thewinding up of companies shall be transferred to the Tribunalthat are at a stage as may be prescribed by the CentralGovernment:

(2) The Central Government may make rules consistent with theprovisions of this Act to ensure timely transfer of all matters,proceedings or cases pending before the Company Law Board orthe courts, to the Tribunal under this section.”

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On and from 17.08.2018, by an amendment made to the EleventhSchedule of the Code, Section 434 was substituted as follows:F

“434. Transfer of certain pending proceedings.—(1) On suchdate as may be notified by the Central Government in this behalf,—

(a) all matters, proceedings or cases pending before the Boardof Company Law Administration (herein in this section referredto as the Company Law Board) constituted under sub-section(1) of Section 10-E of the Companies Act, 1956, immediatelybefore such date shall stand transferred to the Tribunal andthe Tribunal shall dispose of such matters, proceedings or casesin accordance with the provisions of this Act; G

(b) any person aggrieved by any decision or order of theCompany Law Board made before such date may file an appeal H

JAIPUR METALS & ELECTRICALS EMPLOYEES ORG. THR. GEN. SECY. v.JAIPUR METALS & ELECTRICALS LTD. [R. F. NARIMAN, J.]

to the High Court within sixty days from the date ofcommunication of the decision or order of the Company LawBoard to him on any question of law arising out of such order:

Provided that the High Court may if it is satisfied that theappellant was prevented by sufficient cause from filing an appealwithin the said period, allow it to be filed within a further periodnot exceeding sixty days; and

(c) all proceedings under the Companies Act, 1956, includingproceedings relating to arbitration, compromise, arrangementsand reconstruction and winding up of companies, pendingimmediately before such date before any District Court or HighCourt, shall stand transferred to the Tribunal and the Tribunalmay proceed to deal with such proceedings from the stagebefore their transfer:

Provided that only such proceedings relating to the windingup of companies shall be transferred to the Tribunal that are ata stage as may be prescribed by the Central Government:

Provided further that only such proceedings relating to casesother than winding up, for which orders for allowing orotherwise of the proceedings are not reserved by the HighCourts shall be transferred to the Tribunal:

Provided also that—

(i) all proceedings under the Companies Act, 1956 otherthan the cases relating to winding up of companies that arereserved for orders for allowing or otherwise suchproceedings; or

(ii) the proceedings relating to winding up of companieswhich have not been transferred from the High Courts; shall be dealt with in accordance with provisions of theCompanies Act, 1956 and the Companies (Court) Rules,1959:]

Provided also that proceedings relating to cases of voluntarywinding up of a company where notice of the resolution byadvertisement has been given under sub-section (1) of Section485 of the Companies Act, 1956 but the company has not beendissolved before the 1st April, 2017 shall continue to be dealtwith in accordance with provisions of the Companies Act, 1956and the Companies (Court) Rules, 1959:

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AProvided further that any party or parties to any proceedingsrelating to the winding up of companies pending before anyCourt immediately before the commencement of the Insolvencyand Bankruptcy Code (Amendment) Ordinance, 2018, mayfile an application for transfer of such proceedings and theCourt may by order transfer such proceedings to the TribunalBand the proceedings so transferred shall be dealt with by theTribunal as an application for initiation of corporate insolvencyresolution process under the Insolvency and Bankruptcy Code,2016 (31 of 2016).

(2) The Central Government may make rules consistent with theCprovisions of this Act to ensure timely transfer of all matters,proceedings or cases pending before the Company Law Board orthe courts, to the Tribunal under this section.”

10. On 07.12.2016, in exercise of powers under Section 434 ofthe Companies Act, 2013 read with Section 239 of the Insolvency Code,Dthe Companies (Transfer of Pending Proceedings) Rules, 2016, cameinto force with effect from 01.04.2017. What is of relevance for decisionin the present case is Rules 5 and 6 of the 2016 Rules, which are set outas follows:

“5. Transfer of pending proceedings of Winding up on theEground of inability to pay debts.—(1) All petitions relating towinding up under clause (e) of Section 433 of the Act on theground of inability to pay its debts pending before a High Court,and where the petition has not been served on the respondent asrequired under Rule 26 of the Companies (Court) Rules, 1959shall be transferred to the Bench of the Tribunal established underFsub-section (4) of Section 419 of the Act, exercising territorialjurisdiction and such petitions shall be treated as applications underSections 7, 8 or 9 of the Code, as the case may be, and dealt within accordance with Part II of the Code:

Provided that the petitioner shall submit all information, otherGthan information forming part of the records transferred inaccordance with Rule 7, required for admission of the petitionunder Sections 7, 8 or 9 of the Code, as the case may be, includingdetails of the proposed insolvency professional to the Tribunalwithin sixty days from date of this notification, failing which thepetition shall abate.H

(2) All cases where opinion has been forwarded by Board forIndustrial and Financial Reconstruction, for winding up of acompany to a High Court and where no appeal is pending, theproceedings for winding up initiated under the Act, pursuant toSection 20 of the Sick Industrial Companies (Special Provisions)Act, 1985 shall continue to be dealt with by such High Court inaccordance with the provisions of the Act.

6. Transfer of pending proceedings of winding up matterson the grounds other than inability to pay debts.—All petitionsfiled under clauses (a) and (f) of Section 433 of the CompaniesAct, 1956 pending before a High Court and where the petitionhas not been served on the respondent as required under Rule 26of the Companies (Court) Rules, 1959 shall be transferred to theBench of the Tribunal exercising territorial jurisdiction and suchpetitions shall be treated as petitions under the provisions of theCompanies Act, 2013 (18 of 2013).”

11. By an amendment dated 29.06.2017, Rule 5 was thensubstituted as follows:

“5. Transfer of pending proceedings of Winding up onthe ground of inability to pay debts.—(1) All petitions relatingto winding up under clause (e) of Section 433 of the Act on theground of inability to pay its debts pending before a High Court,and where the petition has not been served on the respondentunder Rule 26 of the Companies (Court) Rules, 1959 shall betransferred to the Bench of the Tribunal established under sub-section (4) of Section 419 of the Companies Act, 2013 exercisingterritorial jurisdiction and such petitions shall be treated asapplications under Sections 7, 8 or 9 of the Code, as the case maybe, and dealt with in accordance with Part II of the Code:

Provided that the petitioner shall submit all information, otherthan information forming part of the records transferred inaccordance with Rule 7, required for admission of the petitionunder Sections 7, 8 or 9 of the Code, as the case may be, includingdetails of the proposed insolvency professional to the Tribunalupto 15[th] day of July, 2017, failing which the petition shall standabated:

Provided further that any party or parties to the petition shall,after the 15[th] day of July, 2017, be eligible to file fresh applications AB

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Aunder Sections 7 or 8 or 9 of the Code, as the case may be, inaccordance with the provisions of the Code:

Provided also that where a petition relating to winding up of acompany is not transferred to the Tribunal under this Rule andremains in the High Court and where there is another petitionBunder clause (e) of Section 433 of the Act for winding up againstthe same company pending as on 15[th] December, 2016, such otherpetition shall not be transferred to the Tribunal, even if the petitionhas not been served on the respondent.”

12. It is clear that under Section 434 as substituted by the EleventhSchedule to the Code vide notification dated 15.11.2016, all proceedingsCunder the Companies Act, 2013 which relate to winding up of companiesand which are pending immediately before such date as may be notifiedby the Central Government in this behalf shall stand transferred to theNCLT. The stage at which such proceedings are to be transferred tothe NCLT is such as may be prescribed by the Central Government.D13. When Rules 5 and 6 of the 2016 Transfer Rules (un-amended)

D13. When Rules 5 and 6 of the 2016 Transfer Rules (un-amended)are read, it is clear that three types of proceedings are referred to. UnderRule 5(1), petitions which relate to winding up under clause (e) of Section433 of the Companies Act, 1956 on the ground of inability to pay debtsthat are pending before the High Court are to be transferred to theNCLT in case the petition has not been served on the respondent. TheyEshall then be treated as applications under Sections 7, 8, or 9 of the Codeand dealt with in accordance with Part II of the Code. Similarly, allpetitions filed under clauses (a) and (f) of Section 433 of the CompaniesAct, 1956 pending before the High Court, in which the petition has notbeen served on the respondents, shall be transferred to the NCLT. Onlysuch petitions will continue to be treated as petitions under the provisionsFof the Companies Act, 2013. The third category of cases dealt with byRules 5 and 6 is contained in Rule 5(2). This category relates to caseswhere the BIFR has forwarded an opinion to the High Court to wind upa company under Section 20 of the SIC Act. All such cases, whateverbe the stage, shall continue to be dealt with by the High Court inGaccordance with the provisions of the SIC Act.

14. It is clear that the present case relates to Rule 5(2) alone.Despite the fact that Section 20 of the SIC Act speaks of a companybeing wound up under the Companies Act, 1956 under the just andequitable provision, which is Section 433(f) of the Companies Act, 1956,yet, since cases that fall under Section 20 of the SIC Act are dealt withHseparately under Rule 5(2), they cannot be treated as petitions that have been filed under Section 433(f) of the Companies Act, 1956, which areseparately specified under Rule 6. The High Court is therefore not correctin treating petitions that are pursuant to Section 20 of the SIC Act asbeing pursuant to Section 433(f) of the Companies Act, 1956 and applyingRule 6 of the 2016 Transfer Rules.

15. However, though the language of Rule 5(2) is plain enough, ithas been argued before us that Rule 5 was substituted on 29.06.2017, asa result of which, Rule 5(2) has been omitted. The effect of the omissionof Rule 5(2) is not to automatically transfer all cases under Section 20 ofthe SIC Act to the NCLT, as otherwise, a specific rule would have to beframed transferring such cases to the NCLT, as has been done in Rule5(1). The real reason for omission of Rule 5(2) in the substituted Rule 5is because it is necessary to state, only once, on the repeal of the SICAct, that proceedings under Section 20 of the SIC Act shall continue tobe dealt with by the High Court. It was unnecessary to continue Rule5(2) even after 29.06.2017 as on 15.12.2016, all pending cases underSection 20 of the SIC Act were to continue to be dealt with by the HighCourt before which such cases were pending. Since there could be noopinion by the BIFR under Section 20 of the SIC Act after 01.12.2016,when the SIC Act was repealed, it was unnecessary to continue Rule5(2) as, on 15.12.2016, all pending proceedings under Section 20 of theSIC Act were to continue with the High Court and would continue eventhereafter. This is further made clear by the amendment to Section434(1)(c), with effect from 17.08.2018, where any party to a winding upproceeding pending before a Court immediately before this date mayfile an application for transfer of such proceedings, and the Court, atthat stage, may, by order, transfer such proceedings to the NCLT. Theproceedings so transferred would then be dealt with by the NCLT as anapplication for initiation of the corporate insolvency resolution processunder the Code. It is thus clear that under the scheme of Section 434 (asamended) and Rule 5 of the 2016 Transfer Rules, all proceedings underSection 20 of the SIC Act pending before the High Court are to continueas such until a party files an application before the High Court for transferof such proceedings post 17.08.2018. Once this is done, the High Courtmust transfer such proceedings to the NCLT which will then deal withsuch proceedings as an application for initiation of the corporateinsolvency resolution process under the Code.

16. The High Court judgment, therefore, though incorrect inapplying Rule 6 of the 2016 Transfer Rules, can still be supported on this A

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Aaspect with a reference to Rule 5(2) read with Section 434 of theCompanies Act, 2013, as amended, with effect from 17.08.2018.

17. However, this does not end the matter. It is clear thatRespondent No. 3 has filed a Section 7 application under the Code on11.01.2018, on which an order has been passed admitting such applicationBby the NCLT on 13.04.2018. This proceeding is an independentproceeding which has nothing to do with the transfer of pending windingup proceedings before the High Court. It was open for Respondent No.3 at any time before a winding up order is passed to apply under Section7 of the Code. This is clear from a reading of Section 7 together withSection 238 of the Code which reads as follows:C“238. Provisions of this Code to override other laws.—Theprovisions of this Code shall have effect, notwithstanding anythinginconsistent therewith contained in any other law for the timebeing in force or any instrument having effect by virtue of anysuch law.”

D18. Shri Dave’s ingenious argument that since Section 434 of theCompanies Act, 2013 is amended by the Eleventh Schedule of the Code,the amended Section 434 must be read as being part of the Code and notthe Companies Act, 2013, must be rejected for the reason that thoughSection 434 of the Companies Act, 2013 is substituted by the EleventhSchedule of the Code, yet Section 434, as substituted, appears only inEthe Companies Act, 2013 and is part and parcel of that Act. This beingso, if there is any inconsistency between Section 434 as substituted andthe provisions of the Code, the latter must prevail. We are of the viewthat the NCLT was absolutely correct in applying Section 238 of theCode to an independent proceeding instituted by a secured financialcreditor, namely, the Alchemist Asset Reconstruction Company Ltd. ThisFbeing the case, it is difficult to comprehend how the High Court couldhave held that the proceedings before the NCLT were without jurisdiction.On this score, therefore, the High Court judgment has to be set aside.The NCLT proceedings will now continue from the stage at which theyhave been left off. Obviously, the company petition pending before theGHigh Court cannot be proceeded with further in view of Section 238 ofthe Code. The writ petitions that are pending before the High Courthave also to be disposed of in light of the fact that proceedings under theCode must run their entire course. We, therefore, allow the appeal andset aside the High Court’s judgment.

HAnkit Gyan