M/S KALEDONIA JUTE AND FIBRES PVT. LTD. versus M/S AXIS NIRMAN AND INDUSTRIES LTD. & ORS. on 19 November 2020

SUPREME COURT REPORTS

[2020] 11 S.C.R.

AM/S KALEDONIA JUTE AND FIBRES PVT. LTD.

v.

M/S AXIS NIRMAN AND INDUSTRIES LTD. & ORS.

(Civil Appeal No. 3735 of 2020)

BNOVEMBER 19, 2020

[S. A. BOBDE, CJI, A. S. BOPANNA ANDV. RAMASUBRAMANIAN, JJ.]

Companies (Transfer of Pending Proceedings) Rules 2016:rr.5 and 6 – Application seeking transfer of the winding up petitionCpending before High Court to the National Company Law Tribunal(NCLT) – Refusal by Company Court (High Court) – Correctnessof – Second respondent filed a company petition against the firstrespondent for winding up on the ground that first respondent wasnot able to pay its debts – Winding up order – Thereafter firstDrespondent sought for recalling the order of winding up and inorder to prove bonafides paid the entire amount due to the petitioningcreditor (second respondent) – Petitioning creditor had no objectionto recall the order – But the official liquidator opposed to recall theorder on the ground that the first respondent owed money to variousother creditors to the tune of Rs.27 Crores and that unless the saidEamount was paid, the order of winding up could not be recalled –The Official Liquidator also submitted that he had already takenover charge of the assets of the Company – Company Court passedan order keeping the winding up in abeyance, however, directedthe Official Liquidator to continue to be in custody of the assets ofFthe Company – Appellant claiming to be a creditor of the firstrespondent moved an application before the NCLT under s.7 of theIBC, 2016 on the ground that the first respondent was due andliable to pay a sum of Rs.32 lakhs and that it failed to pay despiterepeated demands – Thereafter, the appellant moved an applicationbefore the Company Court seeking transfer of the winding up petitionGto the NCLT – Company Court refused transfer on the sole groundthat the requirement of r.24 had already been complied with andthat a winding up order had already been passed – Instant appealfiled by appellant-financial creditor – The main issues that arosefor consideration were: (i) what are the circumstances under whichHa winding up proceeding pending on the file of a High Court could

Conclusion

be transferred to the NCLT and (ii) at whose instance, such transfercould be ordered – Held: If the winding up petition has alreadybeen served on the respondent in terms of r.26 of the 1959 Rules,the proceedings are not liable to be transferred – But if service ofthe winding up petition on the respondent in terms of r.26 had notbeen completed, such winding up proceedings, whether they areunder Clause (c) of s.433 or under Clauses (a) and (f) of s.433,shall peremptorily be transferred to the NCLT – In other words, rr.5and 6 of the Companies (Transfer of Pending Proceedings) Rules2016, fix the stage of service of notice under r.26, as the stage atwhich a winding up proceeding can be transferred – This is becausethe first proviso under Clause (c) of Sub-section (1) of s.434 enablesthe Central Government to prescribe the stage at which proceedingsfor winding up can be transferred and sub-section (2) of s.434confers rule making power on the Central Government – As regardsthe second question as to who are the parties to the winding upproceedings, the proceedings for winding up of a company areactually proceedings in rem to which the entire body of creditors isa party – The proceeding might have been initiated by one or morecreditors, but by a deeming fiction the petition is treated as a jointpetition – The official liquidator acts for and on behalf of the entirebody of creditors – The word “party” appearing in the fifth provisoto Clause (c) of Sub-section (1) of s.434 cannot be construed tomean only the single petitioning creditor or the company or theofficial liquidator and would take within its fold any creditor of thecompany in liquidation – Therefore, appellant will come within thedefinition of the expression “party” appearing in the 5[th] proviso toClause (c) of Sub-section (1) of s.434 of the Companies Act, 2013and that the petitioner is entitled to seek a transfer of the pendingwinding up proceedings against the first respondent, to the NCLT –Thus, proceedings for winding up pending before the CompanyCourt against the first respondent is ordered to be transferred tothe NCLT, to be taken up along with the application of the appellantunder s.7 of the IBC – Companies (Court) Rules, 1959 – r.26 –Companies Act, 2013 – s.434(1)(c), fifth proviso, s.447.

Allowing the appeal, the Court

HELD: 1. The first proviso to Clause (c) of Section 434restricts the transferability of proceedings for winding up from AB

C

DEF

G

H

Athe High Court to the tribunal, by stipulating that only suchproceedings for winding up which are at a stage as may beprescribed by the Central Government, be transferred to theTribunal. Sub-section (2) of Section 434 empowers the CentralGovernment to make Rules consistent with the provisions of theAct, to ensure timely transfer of all matters pending before theBCompany Law Board or the Courts, to the Tribunal. Therefore,in exercise of the power conferred by Sub-section (2) of Section434 of the Companies Act, 2013 read with Sub-section (1) ofSection 239 of the IBC, 2016, the Central Government issued aset of Rules known as ‘The Companies (Transfer of PendingCProceedings) Rules, 2016. [Paras 21, 22][813-D-G]

2. For the purpose of transfer, winding up proceedingspending before the High Courts, are classified by Section 434into two categories namely:- Proceedings for voluntary windingup where notice of resolution by advertisement has been givenDunder Section 485(1) of the Companies Act, 1956, but thecompany has not been dissolved before 01.04.2017; and othertypes of winding up proceedings. The first of the above 2categories of cases are covered by the fourth proviso under Clause(c) of Sub-section (1) of Section 434, which states that proceedingsrelating to cases of voluntary winding up of a company whereEnotice of the resolution by advertisement has been given undersub-section (1) of section 485 of the Companies Act, 1956 butthe company has not been dissolved before the 1[st] April, 2017shall continue to be dealt with in accordance with provisions ofthe Companies Act, 1956 and the Companies (Court) Rules, 1959.

FSuch cases of voluntary winding up covered by the above provisoshall continue to be dealt with by the High court. It is only (i)cases of voluntary winding up falling outside the scope of the 4[th]Proviso and (ii) other types of winding up proceedings, that canbe transferred by the High Courts to the Tribunal, subjecthowever to the Rules made by the Central Government underGSection 434 (2). The transferability, by operation of law, of windingup proceedings, other than those covered by the 4[th] Proviso,depends upon the stage at which they are pending before theCompany Court. But this is left by the law makers to be H

determined through subordinate legislation, in the form of Rules.[Paras 23, 24, 25][813-G-H; 814-A-F]

3. Apart from providing for the transfer of certain types ofwinding up proceedings by operation of law, Section 434 (1)(c)also gives a choice to the parties to those proceedings to seek atransfer of such proceedings to the NCLT. This is under the fifthproviso to Clause (c). The Companies (Transfer of PendingProceedings) Rule, 2016 issued in exercise of the powersconferred by Section 434 (2) read with Section 239(1) of IBC,2016 categorise the pending proceedings for winding up into threetypes namely (i) proceedings for voluntary winding up coveredby the fourth proviso to Clause (c) of Sub-section (1) of Section434, which shall continue to be dealt with in accordance with theprovisions of the 1956 Act; (ii) proceedings for winding up on theground of inability to pay debts; and (iii) proceedings for windingup on grounds other than inability to pay debts. Rule 5 of theaforesaid Rules provides for transfer of proceedings for windingup on the ground of inability to pay debts. Rule 6 of the aforesaidRules deals with transfer of proceedings for winding up, ongrounds other than inability to pay debts. The transferability of awinding up proceeding, both under Rule 5 as well as under Rule6, is directly linked to the service of the winding up petition onthe respondent under Rule 26 of the Companies (Court) Rules,1959. If the winding up petition has already been served on therespondent in terms of Rule 26 of the 1959 Rules, the proceedingsare not liable to be transferred. But if service of the winding uppetition on the respondent in terms of Rule 26 had not beencompleted, such winding up proceedings, whether they are underClause (c) of Section 433 or under Clauses (a) and (f) of Section433, shall peremptorily be transferred to the NCLT. [Paras 26,27, 28, 30, 31, 32][814-F-H; 815-A-C; 816-A-B; 816-D-E]

4. Who are “the parties to” the winding up proceedings.The Companies Act, 1956 does not define the expression “party”.The Companies (Court) Rules, 1959 also does not define theexpression “party”. The Companies Act 2013 and the Companies(Transfer of pending proceedings) Rules, 2016 also does notdefine the expression “party”. Even the IBC, 2016 does notdefine the expression “party”. But there are certain clues AB

C

D

E

F

G

H

Ainherently available in the Companies Act, 1956, to indicate thepersons who may come within the meaning of the expression“party to the proceedings”. The provisions which contain suchclues are as follows: (i) Section 447 of the Companies Act, 1956,which is equivalent to Section 278 of the Companies Act, 2013states that an order for winding up shall operate in favour of allBthe creditors and of all the contributories of the company as if ithas been made on the joint petition of a creditor and of acontributory. There is a small change between the wording ofSection 278 of the 2013 Act and the wording of Section 447 of the1956 Act. Section 278 of the 2013 Act shows that any petition byCa single creditor or contributory is actually treated as a jointpetition of creditors and contributories, so that the order ofwinding up operates in favour of all the creditors and all thecontributories. (ii) Under Section 454 (6) of the 1956 Act, anyperson stating himself in writing to be a creditor shall be entitledto inspect the statement of affairs submitted to the officialDliquidator. If the claim of such a person to be a creditor turns outto be untrue, such a person is liable to be punished under Section454(7) of the 1956 Act. (iii) The powers of the liquidator areenumerated in Section 457 of the 1956 Act. Section 457 actuallydivides the powers of a liquidator into two categories namely (i)Ethose available with the sanction of the Tribunal and (ii) thosegenerally available to the liquidator. But Section 290 of the 2013Act has done away with such a distinction. However, the 1956Act, as well as 2013 Act make the exercise of the powers by theliquidator, subject to the overall control of the Tribunal. This ismade clear by Section 457(3) of the 1956 Act and Section 290(2)Fof the 2013 Act. Additionally, Section 457(3) of the 1956 Actenables any creditor or contributory to apply to the Court withrespect to the exercise by the Liquidator, of any of the powersconferred by Section 457. (iv) Section 460 of the 1956 Act andSection 292 of the 2013 Act make it clear that in the administrationGof the assets of the Company and the distribution thereof amongits creditors, the liquidator should have regard to any directionsgiven by resolution of creditors at any general meeting. If theliquidator does something, in exercise of his powers, any personaggrieved by such Act or decision of the liquidator, is entitled toapply to the Company Court, under Section 460(6) of the 1956H

Act and Section 292(4) of the 2013 Act. (v) Section 466(1) of the1956 Act enables any creditor to apply for stay of all proceedingsin relation to the winding up. This right can be exercised by anycreditor at any time after the making of a winding up order. Thus,the proceedings for winding up of a company are actuallyproceedings in rem to which the entire body of creditors is aparty. The proceeding might have been initiated by one or morecreditors, but by a deeming fiction the petition is treated as ajoint petition. The official liquidator acts for and on behalf of theentire body of creditors. Therefore, the word “party” appearingin the 5[th] proviso to Clause (c) of Sub-section (1) of section 434cannot be construed to mean only the single petitioning creditoror the company or the official liquidator. The words “party orparties” appearing in the 5[th] proviso to Clause (c) of Sub-section(1) of Section 434 would take within its fold any creditor of thecompany in liquidation. [Paras 41, 42, 43][818-B-H; 819-A-H;820-A]

5. The above conclusion can be reached through anothermethod of deductive logic also. If any creditor is aggrieved byany decision of the official liquidator, he is entitled under the 1956Act to challenge the same before the Company Court. Once hedoes that, he becomes a party to the proceeding, even by theplain language of the section. Instead of asking a party to adoptsuch a circuitous route and then take recourse to the 5[th] provisoto section 434(1)(c), it would be better to recognise the right ofsuch a party to seek transfer directly. [Para 44][820-B-C]

6. The object of IBC will be stultified if parallel proceedingsare allowed to go on in different fora. If the High Court is allowedto proceed with the winding up and NCLT is allowed to proceedwith an enquiry into the application under Section 7 IBC, theentire object of IBC will be thrown to the winds. Therefore, thepetitioner will come within the definition of the expression “party”appearing in the 5[th] proviso to Clause (c) of Sub-section (1) ofSection 434 of the Companies Act, 2013 and that the petitioneris entitled to seek a transfer of the pending winding upproceedings against the first respondent, to the NCLT. It isimportant to note that the restriction under Rules 5 and 6 of the ABC

D

E

FG

H

ACompanies (Transfer of Pending Proceedings) Rules, 2016relating to the stage at which a transfer could be ordered, has noapplication to the case of a transfer covered by the 5[th] proviso toclause (c) of sub-section (1) of Section 434. Therefore, the orderof the High court rejecting the petition for transfer on the basisof Rule 26 of the Companies (Court) Rules, 1959 is flawed. [ParasB45, 46][820-C-F]

Forech India Ltd. v. Edelweiss Assets ReconstructionCo. Ltd. [2019] 2 SCR 477 – relied on.

Case Law Reference

C[2019] 2 SCR 477

relied onPara 36

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3735of 2020.

From the Judgment and Order dated 24.02.2020 of the High CourtDof Judicature at Allahabad in Civil Miscellaneous Application No. 23 of2020.

Huzefa Ahmadi, A. Nadkarni, Sr.Advs., Sadapurna Mukherjee,Rajat Mittal, Preshit Vilas Surshe, Gp. Capt. Karan Singh Bhati,Ms. Chitrangda Rastravara, Advs. for the appearing parties.

EThe Judgment of the Court was delivered by

V. RAMASUBRAMANIAN, J.

1. Leave granted.

2. Aggrieved by an order passed by the Company Court (HighFCourt of Allahabad), refusing to transfer the winding up petition pendingtherein, to the National Company Law Tribunal (NCLT for short), afinancial creditor has come up with this appeal.

3. Heard Mr. Huzefa Ahmadi, learned senior counsel appearingfor the appellant, Mr. A.N.S. Nadkarni, learned senior counsel appearingGfor the 1[st] respondent-corporate debtor and Gp. Capt. Karan Singh Bhati,learned counsel appearing for the official liquidator.

Background Facts

4. One M/s Girdhar Trading Co., the 2[nd] respondent herein, filed apetition in Company Petition No.24 of 2015 before the High Court ofHAllahabad under Section 433 of the Companies Act, 1956, for the winding up of the first respondent company, on the ground that the Companywas unable to pay its debts. The Company Court ordered notice to the1[st] respondent herein, but the 1[st] respondent failed to appear before theCompany Court.

5. Therefore, by an order dated 08.01.2016 the Company Courtordered the admission of the Company Petition and also directedpublication of the advertisement of the petition in accordance with Rule24 of the Companies (Court) Rules, 1959. Pursuant to the said order, the2[nd] respondent herein (petitioning creditor) effected a publication of theadvertisement in the Official Gazette in Form No. 48 on 30.01.2016.Newspaper publications were also made, indicating the date of hearingof the Company Petition as 29.02.2016.

6. Thereafter, the Company Court passed an order dated10.03.2016 directing the winding up of the 1[st] respondent Company onthe ground that the Company has been unable to pay its debts and that itwas just and equitable to wind up the 1[st] respondent Company.

7. By the aforesaid order dated 10.03.2016, the Company Courtappointed the official liquidator attached to the High Court of Allahabadas the Liquidator and directed him to take over the assets and books ofaccounts of the Company. The order of winding up was also directed tobe advertised in Form 53 in two newspapers, as required under Rule 113of the Companies (Courts) Rules 1959.

8. Thereafter, the 1[st] respondent filed an application for recallingthe order of winding up dated 10.03.2016. The 1[st] respondent, in order toprove their bonafides paid the entire amount due to the petitioning creditor(the second respondent herein) along with costs. Therefore, the petitioningcreditor had no objection to the recall of the order of winding up.

9. But the official liquidator opposed the application for recall onthe ground that the 1[st] respondent-Company owed money to variouscreditors to the tune of Rs.27 Crores and that unless the said amount ispaid, the order of winding up cannot be recalled. The Official Liquidatoralso submitted that he had already taken over charge of the assets of theCompany.

10. In the light of the rival contentions, the Company Court passedan order on 22.08.2016 keeping the winding up order dated 10.03.2016in abeyance. However, the Company Court directed the OfficialLiquidator to continue to be in custody of the assets of the Company.

A

BC

D

E

F

G

H

A

A11. While things stood thus, the appellant herein, claiming to be acreditor of the first respondent herein, moved an application before theNCLT, Allahabad under Section 7 of the Insolvency and BankruptcyCode, 2016 (for short the ‘IBC, 2016’). The claim of the appellant hereinbefore the NCLT was that the 1[st] respondent was due and liable to paya sum of Rs.32 lakhs and that despite repeated demands, the 1[st]Brespondent failed to pay the said amount.

12. Thereafter, the appellant moved an application in CivilMiscellaneous Application No. 23 of 2020 before the Company Court(High court) seeking a transfer of the winding up petition to the NCLT,Allahabad. This application was rejected by the Company Court by aCcryptic order dated 24.02.2020, on the sole ground that the requirementof Rule 24 had already been complied with and that a winding up orderhad already been passed. It is against this order of the High court, refusingto transfer the winding up proceedings from the Company Court to theNCLT that the financial creditor has come up with this civil appeal.

DIssues for Consideration

13. The main issues that arise for consideration in this appeal are:(i) what are the circumstances under which a winding up proceedingpending on the file of a High court could be transferred to the NCLT and E(ii) at whose instance, such transfer could be ordered.

Discussion

14. Though the Companies Act, 2013 (Act 18 of 2013) receivedthe assent of the President on 29.08.2013 and it was published in theGazette of India dated 30.08.2013 and corrected through corrigendaFpublished on 01.01.2014, various provisions of the Act came into forceon various dates. While some of the provisions came into force w.e.f.12.09.2013, some other provisions came into force w.e.f. 01.04.2014.

15. Clauses (a) and (b) of Sub-section (1) of Section 434 as wellas Sub-section (2) of Section 434 came into force w.e.f. 01.06.2016Gvide S.O.1934 (E) dated 01.06.2016. Clause (c) of Sub-section (1) ofSection 434 came into force on 15.12.2016 vide S.O. 3677(E) dated01.12.2016.

16. It may be noted here that Section 434 as it originally stoodwhen the Companies Act, 2013 was enacted, was different from what itHis today. Section 434 as it was incorporated originally in the Companies

Act, 2013, was actually substituted by the Insolvency and BankruptcyCode, 2016 (Act 31 of 2016), which came into force on 15.11.2016.

A

17. Section 434 as it stood originally in the Companies Act, 2013(Act 18 of 2013) and Section 434 as substituted by IBC, 2016 (Act 31 of2016) together with subsequent amendments thereto, are presented in atabular column for easy appreciation.

B

Sec. 434 as it was originallySec. 434 as it was substituteddrafted in Act 18 of 2013under IBC, Act 31 of 2016

“434. Transfer of certainpending proceedings.-(1) Onsuch date as may be notified bythe Central Government in thisbehalf,- [434. Transfer of certainpending proceedings.-(1) Onsuch date as may be notified bythe Central Government in thisbehalf,- C

(a) all matters, proceedings orcases pending before the Boardof Company Law Administration(herein in this section referred toas the Company Law Board)constituted under sub-section (1)of section 10E of the CompaniesAct, 1956 (1 of 1956),immediately before such date shallstand transferred to the Tribunaland the Tribunal shall dispose ofsuch matters, proceedings or casesin accordance with the provisionsof this Act; (a) all matters, proceedings orcases pending before the Boardof Company Law AdministrationD(herein in this section referred toas the Company Law Board)constituted under sub-section (1)of section 10E of the CompaniesAct, 1956 (1 of 1956)immediately before such dateEshall stand transferred to theTribunal and the Tribunal shalldispose of such matters,proceedings or cases inaccordance with the provisionsFof this Act; D

E

(b) any person aggrieved by anydecision or order of theCompany Law Board madebefore such date may file anappeal to the High Court withinsixty days from the date ofcommunication of the decision ororder of the Company LawBoard to him on any question oflaw arising out of such order:

(b) any person aggrieved by anydecision or order of the CompanyLaw Board made before suchdate may file an appeal to the HighCourt within sixty days from thedate of communication of thedecision or order of the CompanyLaw Board to him on any questionof law arising out of such order; G

H

AProvided that the High Court mayProvided that the High Courtif it is satisfied that the appellantmay if it is satisfied that thewas prevented by sufficient causeappellant was prevented byfrom filing an appeal within thesufficient cause from filing ansaid period, allow it to be filedappeal within the said period,Bwithin a further period notallow it to be filed within aexceeding sixty days;further period not exceedingsixty days; and(c) all proceedings under the(c) all proceedings under theCompanies Act, 1956 (1 of 1956),Companies Act, 1956 (1 ofCincluding proceedings relating to1956), including proceedingsarbitration, compromise,relating to arbitration,arrangements and reconstructioncompromise, arrangementsand winding up of companies,and reconstruction and windingpending immediately before suchup of companies, pendingDdate before any District Court orimmediately before such dateHigh Court, shall stand transferredbefore any District Court orto the Tribunal and the TribunalHigh Court, shall standmay proceed to deal with suchtransferred to the Tribunal andproceedings from the stage beforethe Tribunal may proceed totheir transfer;deal with such proceedingsEfrom the stage before theirtransfer:Provided that only suchproceedings relating to thewinding up of companies shallF(d) any appeal preferred to thebe transferred to the TribunalAppellate Authority for Industrialthat are at a stage as may beand Financial Reconstruction orprescribed by the Centralany reference made or inquiryGovernment:pending to or before the Board of[Provided further that only suchIndustrial and Financialproceedings relating to casesGReconstruction or any proceedingother than winding-up, forof whatever nature pending beforewhich orders for allowing orthe Appellate Authority forotherwise of the proceedingsIndustrial and Financialare not reserved by the HighReconstruction or the Board forCourt shall be transferred to theIndustrial and FinancialTribunal:H

Reconstruction under the sickIndustrial Companies (SpecialProvisions) Act, 1985 (1 of 1986)immediately before thecommencement of this Act shallstand abated:

Provided that a company inrespect of which such appeal orreference or inquiry standsabated under this clause maymake a reference to the Tribunalunder this Act within one hundredand eighty days from thecommencement of this Act inaccordance with the provisions ofthis Act:

Provided further that no fees shallbe payable for making suchreference under this Act by acompany whose appeal orreference or inquiry standsabated under this clause.

(2) The Central Government maymake rules consistent with theprovisions of this Act to ensuretimely transfer of all matters,proceedings or cases pendingbefore the Company Law Boardor the court, to the Tribunal underthis section.”

shall be dealt with in accordancewith provisions of the CompaniesAct, 1956 and the CompaniesD(Court) Rules, 1959:][Provided also that proceedingsrelating to cases of voluntarywinding up of a company wherenotice of the resolution byEadvertisement has been givenunder sub-section (1) of section485 of the Companies Act, 1956but the company has not beendissolved before the 1[st] April,2017 shall continue to be dealtFwith in accordance withprovisions of the Companies Act,1956 and the Companies (Court)Rules, 1959.][Provided further that any partyGor parties to any proceedingsrelating to the winding up ofcompanies pending before theany Court immediately before thecommencement of theInsolvency and Bankruptcy CodeH

A(Amendment) Ordinance,2018, may file an applicationfor transfer of suchproceedings and the Court mayby order transfer suchproceedings to the Tribunal andBthe proceedings so transferredshall be dealt with by theTribunal as an application forinitiation of corporateinsolvency resolution processCunder the Insolvency andBankruptcy Code, 2016 (31 of2016).](2) The Central Governmentmay make rules consistent withthe provisions of this Act toDensure timely transfer of allmatters, proceedings or casespending before the CompanyLaw Board or the courts, to theTribunal under this section.]

E

18. It is important to note that what is extracted in the right handside column of the above Table includes, apart from what was substitutedby Act 31 of 2016, a couple of amendments made to Section 434. Thoseamendments were made under:-

(i) The Companies (Removal of Difficulties) Fourth Order, 2016Fpublished on 07.12.2016, which came into effect on15.12.2016;

(ii) The Companies (Removal of Difficulties) Order, 2017published on 29.06.2017 which came into effect on the samedate; andG

(iii) The Insolvency and Bankruptcy Code (Second Amendment)Act, 2018 namely 26 of 2018, which came into force w.e.f.06.06.2018.

19. A careful look at Section 434 as it stands today would showthat Clause (b) of Sub-section(1) of Section 434 has nothing to do withH

what Section 434 in entirety purports to deal with. Section 434 in entiretypurports to deal with the transfer of proceedings pending either beforethe Board of Company Law Administration or before the Company Court(the High Court or the District Court). Clause (b) of Sub-section (1)deals with the right of appeal to the High Court against any decision ofthe Company Law Board and hence Clause (b) is actually a misfit in thescheme of Section 434.

20. Be that as it may, clause (c) of Sub-section (1) is the provisionthat actually provides for the transfer of all the proceedings under theCompanies Act, 1956 pending before any District Court or High Court,to the Tribunal. Broadly Clause (c) makes a mention about proceedingsrelating to arbitration, compromise, arrangements and reconstruction andwinding up. But Clause (c) is not limited in its application to proceedingsrelating to arbitration, compromise, arrangements and reconstruction andwinding up.This is due to the usage of the words “Allproceedings......including” in Clause (c).

21. However, the first proviso to Clause (c) which was not therein the original Section 434, but which was inserted only under IBC Actof 2016 when Section 434 was substituted, circumscribes what iscontained in the main part of Clause (c). The first proviso to Clause (c)restricts the transferability of proceedings for winding up from the HighCourt to the tribunal, by stipulating that only such proceedings for windingup which are at a stage as may be prescribed by the Central Government,be transferred to the Tribunal.

22. Sub-section (2) of Section 434 empowers the CentralGovernment to make Rules consistent with the provisions of the Act, toensure timely transfer of all matters pending before the Company LawBoard or the Courts, to the Tribunal. Therefore, in exercise of the powerconferred by Sub-section (2) of Section 434 of the Companies Act, 2013read with Sub-section (1) of Section 239 of the IBC, 2016, the CentralGovernment issued a set of Rules known as ‘The Companies (Transferof Pending Proceedings) Rules, 2016.

23. Before we have a look at the Rules it is necessary to note thatfor the purpose of transfer, winding up proceedings pending before theHigh Courts, are classified by Section 434 into two categories namely:- (a) Proceedings for voluntary winding up where notice of resolutionby advertisement has been given under Section 485(1) of the AB

C

D

E

F

G

H

ACompanies Act, 1956, but the company has not been dissolvedbefore 01.04.2017; and (b) Other types of winding up proceedings.

24. The first of the above 2 categories of cases are covered bythe fourth proviso under Clause (c) of Sub-section (1) of Section 434,Bwhich states:

“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 notCbeen dissolved before the 1[st] April, 2017 shall continue to bedealt with in accordance with provisions of the CompaniesAct, 1956 and the Companies (Court) Rules, 1959”.

Such cases of voluntary winding up covered by the above provisoshall continue to be dealt with by the High court. It is only (i) cases ofDvoluntary winding up falling outside the scope of the 4[th] Proviso and (ii)other types of winding up proceedings, that can be transferred by theHigh Courts to the Tribunal, subject however to the Rules made by theCentral Government under Section 434 (2).

25. The transferability, by operation of law, of winding upEproceedings, other than those covered by the 4[th] Proviso, depends uponthe stage at which they are pending before the Company Court. But thisis left by the law makers to be determined through subordinate legislation,in the form of Rules.

26. Apart from providing for the transfer of certain types of windingFup proceedings by operation of law, Section 434 (1)(c) also gives a choiceto the parties to those proceedings to seek a transfer of such proceedingsto the NCLT. This is under the fifth proviso to Clause (c).

27. Keeping in mind the above scheme of Section 434, let us nowturn to the Rules. As stated earlier, The Companies (Transfer of PendingGProceedings) Rule, 2016 were issued in exercise of the powers conferredby Section 434 (2) read with Section 239(1) of IBC, 2016.

28. The aforesaid Rules categorise the pending proceedings forwinding up into three types namely (i) proceedings for voluntary windingup covered by the fourth proviso to Clause (c) of Sub-section (1) ofHSection 434, which shall continue to be dealt with in accordance with the provisions of the 1956 Act; (ii) proceedings for winding up on the groundof inability to pay debts; and (iii) proceedings for winding up on groundsother than inability to pay debts.

29. Rule 4 of the aforesaid Rules deals with cases of voluntarywinding up covered by the fourth proviso to Section 434(1)(c). We arenot concerned in this case with such types of cases.

30. Rule 5 of the aforesaid Rules provides for transfer ofproceedings for winding up on the ground of inability to pay debts. Itreads as follows:

“5. Transfer of pending proceedings of Winding up on theground of inability to pay debts.—(1) All petitions relating towinding up of a company under clause (c) of section 433 ofthe Act on the ground of inability to pay its debts pendingbefore a High Court, and, where the petition has not beenserved on the respondent under Rule 26 of the Companies(Court) Rules, 1959 shall be transferred to the Bench of theTribunal established under sub-section (4) of section 419 ofthe Companies Act, 2013 exercising territorial jurisdiction tobe 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,including details of the proposed insolvency professional tothe Tribunal upto 15[th] day of July, 2017, failing which thepetition shall stand abated.

Provided further that any party or parties to the petitionsshall, after the 1[st] day of July, 2017, be eligible to file freshapplications under Sections 7 or 8 or 9 of the Code, as thecase may be in accordance with the provisions of the Code:

Provided also that where a petition relating to winding up ofa company is not transferred to the Tribunal under this Ruleand remains in the High Court and where there is anotherpetition under Clause (e) of Section 433 of the Act for windingup against the same company pending as on 15[th] December,2016, such other petition shall not be transferred to the A

B

C

D

E

F

G

H

ATribunal, even if the petition has not been served on therespondent.”

31. Rule 6 of the aforesaid Rules deals with transfer of proceedingsfor winding up, on grounds other than inability to pay debts. It reads asfollows:-B

“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 ruleC26 of the Companies (Court) Rules, 1959 shall be transferredto the Bench of the Tribunal exercising territorial jurisdictionand such petitions shall be treated as petitions under theprovisions of the Companies Act, 2013 (18 of 2013).”

32. The transferability of a winding up proceeding, both underDRule 5 as well as under Rule 6, is directly linked to the service of thewinding up petition on the respondent under Rule 26 of the Companies(Court) Rules, 1959. If the winding up petition has already been servedon the respondent in terms of Rule 26 of the 1959 Rules, the proceedingsare not liable to be transferred. But if service of the winding up petitionon the respondent in terms of Rule 26 had not been completed, suchEwinding up proceedings, whether they are under Clause (c) of Section433 or under Clauses (a) and (f) of Section 433, shall peremptorily betransferred to the NCLT.

33. In other words, Rules 5 and 6 of the Companies (Transfer ofPending Proceedings) Rules 2016, fix the stage of service of noticeFunder Rule 26 of the Companies (Court) Rules, 1959, as the stage atwhich a winding up proceeding can be transferred. This is because thefirst proviso under Clause (c) of Sub-section (1) of Section 434 enablesthe Central Government to prescribe the stage at which proceedings forwinding up can be transferred and sub-section (2) of section 434 confersGrule making power on the Central Government.

34. Rule 26 of the Companies (Court) Rules, 1959 reads as follows:

“Service of petition- Every petition shall be served on therespondent, if any, named in the petition and on such otherpersons as the Act or these rules may require or as the JudgeHor the Registrar may direct. Unless otherwise ordered, a copy of the petition shall be served along with the notice of thepetition.”

35. The normal requirement of Rule 26, as seen from its last limbis that the copy of the petition under the Act shall be served on therespondent along with the notice of the petition, unless otherwise ordered.The notice of the petition, required under Rule 26 to be served alongwith the copy of the petition, should be in Form No.6, due to the mandateof Rule 27.

36. Due to the usage of the words “was admitted” in Form No.6,there was a confusion as to whether the service referred to in Rule 26,is of a pre-admission notice or post-admission notice, in a winding upproceeding. Different High Courts took different views. Eventually, thisCourt settled the position in Forech India Ltd. vs. Edelweiss AssetsReconstruction Co. Ltd.[1]by holding “that Rules 26 and 27 clearlyrefer to a pre-admission scenario.”

37. After so interpreting Rules 26 and 27 of the Companies (Court)Rules, 1959, this Court pointed out in Forech India Ltd.(supra) that“when the Code was enacted, only winding up petitions where nonotice under Rule 26 was served, were to be transferred to NCLTand treated as petitions under the Code”. However, after Section434 was substituted by a new provision under Act 31 of 2016 and the 5[th]proviso was inserted by Act 26 of 2018, the transfer of the winding upproceedings, even at the instance of the party or parties to the proceedingsbecame permissible. This change of position was also noted by this Courtin Forech India Limited (supra).

38. But while noting the change of position after the insertion ofthe 5[th] proviso through Act 26 of 2018, this Court indicated in para 17 ofthe Judgment as though “any person could apply for transfer of suchpetitions to the NCLT under the Code”. Taking advantage of this, it iscontended by the learned senior counsel for the petitioner that “anyperson” (and not necessarily a party to the proceeding) could apply fortransfer.

39. But we do not think that the decision in Forech India Limited(supra) is an authority for the proposition that the 5[th] proviso to Clause(c) of Sub-section (1) of Section 434 could be invoked by any personwho is not a party to the proceeding for winding up. The 5[th] proviso1 2019 (2) SCR 477

A

B

C

DE

F

G

H

Awhich we have already extracted uses the words “any party or partiesto any proceedings relating to the winding up of companies pendingbefore any Court.”

40. In other words, the right to invoke the 5[th] proviso isspecifically conferred only upon the parties to the proceedings.BTherefore, on a literal interpretation, such a right should be held to beconfined only to”the parties to the proceedings.”

41. That takes us to the next question as to who are “the partiesto” the winding up proceedings. The Companies Act, 1956 does notdefine the expression “party”. The Companies (Court) Rules, 1959 alsoCdoes not define the expression “party”. The Companies Act 2013 doesnot define the expression “party”. The Companies (Transfer of pendingproceedings) Rules, 2016 also does not define the expression “party”.Even the IBC, 2016 does not define the expression “party”.

42. But there are certain clues inherently available in theDCompanies Act, 1956, to indicate the persons who may come within themeaning of the expression “party to the proceedings”. The provisionswhich contain such clues are as follows:

(i) Section 447 of the Companies Act, 1956, which is equivalent toSection 278 of the Companies Act, 2013 states that an order forEwinding up shall operate in favour of all the creditors and ofall the contributories of the company as if it has been madeon the joint petition of a creditor and of a contributory. Thereis a small change between the wording of Section 278 of the 2013Act and the wording of Section 447 of the 1956 Act. This changemay be appreciated, if both these provisions are presentedFsimultaneously in a tabular column:

Section 278 of the 2013 Act shows that any petition by a singlecreditor or contributory is actually treated as a joint petition ofH

creditors and contributories, so that the order of winding up operatesin favour of all the creditors and all the contributories.

(ii) Under Section 454 (6) of the 1956 Act, any person statinghimself in writing to be a creditor shall be entitled to inspect thestatement of affairs submitted to the official liquidator. If the claim ofsuch a person to be a creditor turns out to be untrue, such a person isliable to be punished under Section 454(7) of the 1956 Act.

(iii) The powers of the liquidator are enumerated in Section 457of the 1956 Act. Section 457 actually divides the powers of a liquidatorinto two categories namely (i) those available with the sanction of theTribunal and (ii) those generally available to the liquidator. But Section290 of the 2013 Act has done away with such a distinction. However,the 1956 Act, as well as 2013 Act make the exercise of the powers bythe liquidator, subject to the overall control of the Tribunal. This is madeclear by Section 457(3) of the 1956 Act and Section 290(2) of the 2013Act. Additionally, Section 457(3) of the 1956 Act enables any creditor orcontributory to apply to the Court with respect to the exercise by theLiquidator, of any of the powers conferred by Section 457.

(iv) Section 460 of the 1956 Act and Section 292 of the 2013 Actmake it clear that in the administration of the assets of the Company andthe distribution thereof among its creditors, the liquidator should haveregard to any directions given by resolution of creditors at any generalmeeting. If the liquidator does something, in exercise of his powers, anyperson aggrieved by such Act or decision of the liquidator, is entitled toapply to the Company Court, under Section 460(6) of the 1956 Act andSection 292(4) of the 2013 Act.

(v) Section 466(1) of the 1956 Act enables any creditor to applyfor stay of all proceedings in relation to the winding up. This right can beexercised by any creditor at any time after the making of a winding uporder.

43. Thus, the proceedings for winding up of a company are actuallyproceedings in rem to which the entire body of creditors is a party. Theproceeding might have been initiated by one or more creditors, but by adeeming fiction the petition is treated as a joint petition. The officialliquidator acts for and on behalf of the entire body of creditors. Therefore,the word “party” appearing in the 5[th] proviso to Clause (c) of Sub-section (1) of section 434 cannot be construed to mean only the single AB

C

DE

F

G

H

Apetitioning creditor or the company or the official liquidator. The words“party or parties” appearing in the 5[th] proviso to Clause (c) of Sub-section (1) of Section 434 would take within its fold any creditor of thecompany in liquidation.

44. The above conclusion can be reached through another methodBof deductive logic also. If any creditor is aggrieved by any decision ofthe official liquidator, he is entitled under the 1956 Act to challenge thesame before the Company Court. Once he does that, he becomes aparty to the proceeding, even by the plain language of the section. Insteadof asking a party to adopt such a circuitous route and then take recourseto the 5[th] proviso to section 434(1)(c), it would be better to recognise theCright of such a party to seek transfer directly.

45. As observed by this Court in Forech India Limited (supra),the object of IBC will be stultified if parallel proceedings are allowed togo on in different fora. If the Allahabad High Court is allowed to proceedwith the winding up and NCLT is allowed to proceed with an enquiryDinto the application under Section 7 IBC, the entire object of IBC will bethrown to the winds.

46. Therefore, we are of the considered view that the petitioner-herein will come within the definition of the expression “party” appearingin the 5[th] proviso to Clause (c) of Sub-section (1) of Section 434 of theCompanies Act, 2013 and that the petitioner is entitled to seek a transferEof the pending winding up proceedings against the first respondent, tothe NCLT. It is important to note that the restriction under Rules 5and 6 of the Companies (Transfer of Pending Proceedings) Rules,2016 relating to the stage at which a transfer could be ordered, hasno application to the case of a transfer covered by the 5[th] proviso toFclause (c) of sub-section (1) of Section 434. Therefore, the impugnedorder of the High court rejecting the petition for transfer on the basis ofRule 26 of the Companies (Court) Rules, 1959 is flawed.

47. Therefore, the appeal is allowed, the impugned order is setside and the proceedings for winding up pending before the CompanyGCourt (Allahabad High Court) against the first respondent herein, isordered to be transferred to the NCLT, to be taken up along with theapplication of the appellant-herein under Section 7 of the IBC. Therewill be no order as to costs.

Devika GujralH