Pending winding up petition wouldn’t bar initiation of insolvency proceedings in NCLT

Pending winding up petition wouldn’t bar initiation of insolvency proceedings in NCLT
IBC is not a Recovery Law, it is Revival Law
SHORT SUMMARY
In this flash tabloid, the writer initiates by speak of the provisions of Insolvency & Bankruptcy Code, 2016 (hereafter referred as “IBC”) in relation to power of NCLT to accept the application in which proceedings are already pending for winding up.
The main drive of the broadsheet, on the other hand, is upon the (i) What shall be status of transfer of cases in NCLT in relation to winding up. (ii) [1]Whether Insolvency Process could be initiated when case is already initiated in High court and “Liquidator appointed” (iii) “Whether pendency of proceeding of winding is ground of rejection under IBC.”

This is article no. 262 of the series of editorials written by the author on corporate laws
{Including Companies Act, 2013, SEBI, RBI Regulations, IBC, LLP Act, 2008 etc.}.

INTRODUCTION:
Creditors can no longer file winding up petitions under the Companies Act on the grounds that a company is unable to pay its debts. Instead, such persons would have to file an application for commencement of the insolvency resolution process under the Code
In this editorial author discuss the decisions of benches Hon’ble National Company Law Tribunal and the notification issued pursuant to transfer of matters from High Court to NCLT etc. Before glimpse on the judgments’ of NCLT and provisions under IBC, 2016 take a quick look on the notification regarding transfer of cases from High Court (like many winding up matters) to NCLT.




Transfer of Matters from Hon’ble High Court to NCLT

MCA has came with The Companies (Transfer of Pending Proceedings) Rules, 2016 vide notification dated 7th December, 2016. These Rules lay down the criteria for deciding whether the matter will be filed with and adjudged by the NCLT or by the High Court


Matters which will transfer to the Tribunal relating to winding up w.e.f. 15.12.2016 shall be as follows:

S. No.
Matter
Particular
1.        
[2]Winding up on the ground of Inability To Pay Debts
·         All petitions relating to winding up under clause (e) of section 433 of the Act on the ground of inability to pay its debts
·         pending before a High Court, and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959
2.        
Winding up matters on the grounds Other Than Inability To Pay Debts
·         All petitions filed under clauses (a) and (f) of section 433 of the Companies Act, 1956
·         Pending before a High Court and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959

Matters Still Continue With High Court
S. No.
PARTICULAR
1.        
Where the petition for winding up has been served on the company and is pending before the relevant High Court, such petition shall be adjudged by the High Court.
2.        
When a matter is being adjudged by the High Court, 1956, the same will be governed by the provisions of the erstwhile Companies Act, 1956 (“Act, 1956”).
3.       
only those voluntary winding up proceedings to be dealt with under the Act, 1956 which fulfil both the conditions laid down below –

Notice of the resolution by advertisement has been given under section 485 (1) of the Act, 1956 within 14 days of passing the resolution for voluntary winding up; and

The company has not been dissolved before April 1, 2017.

One can opine that, where winding up petition is pending before high court and petition has not served on the respondent then such matter shall be automatically transferred to NCLT under IBC, 2016.

1. Whether Insolvency Process could be initiated when case is already initiated in High court and “Liquidator appointed”.


A.  CASE ELEMENT:
Case Name
Fiabila India Private Limited V/s Elder Health Care Ltd.
Bench Name
NATIONAL COMPANY LAW TRIBUNAL, MUMBAI BENCH
Section
9 (Operational Creditor)

It is a Company petition filed under Section 9 of the IBC, 2016 against the Corporate Debtor on ground that the debtor defaulted in making payment to the Creditor accordingly sought for initiation of Insolvency Resolution Process, hence this petition.
The petitioner council having not denied initiation of liquidation proceeding with Honb’ble High Court of Bombay, the petition is hereby dismissed on the ground liquidator has been appointed in the Corporate Debtor Company.
Here one can opine that in case winding up petition is already filed with High Court and Liquidator is already appointed then application can’t be accepted in IBC.
B.      Same decision is given by National Company Law Tribunal, Special Bench at New Delhi in the case of M/s. Nowfloats Technologies (P.) Ltd. v. Getit Infoservices (P.) Ltd., reported in 2017 SCC OnLine NCLT 89, In that case, the Hon'ble High Court of Delhi appointed Official Liquidator as 'Provisional Liquidator' and therefore in case Interim Resolution Professional is appointed by the Tribunal there would be conflict in administering the assets of Corporate Debtor in that case. In those circumstances, the Special Bench of New Delhi disallowed the Insolvency Resolution Process. 

Whether Insolvency Process could be initiated in the situation neither liquidator is appointed nor winding up order passed by the High Court?


C.      Division Bench of the National Company Law Tribunal, Chennai, by its order dated 21.4.2017 in CA/1/(IB)/2017 clearly held that the pendency of winding up petition cannot be a bar under the Code for initiating the corporate insolvency process unless the winding up order has been passed by the Hon'ble High Court and Liquidator has been appointed. The said order was challenged before the National Company Law Appellate Tribunal, New Delhi. The National Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 41 of 2017 vide its order dated 19.5.2017 referring to Section 14 of the Code and Section 238 of the Code observed that the provisions of Insolvency and Bankruptcy Code will prevail over all other Laws in force including the Companies Act, 1956. It is also observed in the said order that the said provisions have not been brought to the notice of the Hon'ble Judge of the Madras High Court in the petitions filed by Vasan Healthcare Pvt. Ltd. before the Hon'ble High Court of Madras vide Company Applications No. 462 and 463 of 2017 in Company Petition No. 267 of 2015 on the file of Hon'ble High Court of Madras. It is a fact that Hon'ble High Court of Madras stayed the order of the National Company Law Tribunal, Chennai Bench passed in CA / 1/(IB)/2017 on 21.4.2017. However, in view order of the National Company Law Tribunal, Chennai Bench, and in view of the observations made by the National Company Law Appellate Tribunal, New Delhi, it is more than clear that the provisions of the Insolvency Code will prevail over all other Laws in force in case of inconsistency including the Companies Act, 1956 under which winding up proceedings have been initiated.

D. CASE ELEMENT:
In the case of Maheshwar Textiles V/s Zapp India Limited before National Company Law Tribunal, New Delhi, Bench, ‘The operational creditor had also filed the Company Petition No. 26/2013 before the Hon’ble High Court of Judicature for Rajasthan, Jaipur Bench, praying for winding up of Corporate Debtor. It is submitted by the petitioner that pursuant to the notification of the Code they said petition stood transferred to the NCLT, New Delhi.
E.      In the case of Alcon Laboratories (India) Private Limited vs Vasan Health Care Private Limited, The NCLT held that pendency of the winding up petition cannot be a bar under the IBC, 2016 for initiating the corporate insolvency resolution process because the High Court has not passed any order for winding up of the corporate debtor and no OL has been appointed.

Conclusion: 
In case winding up petition is filed by the creditor in High Court (Neither Liquidator is appointed nor order for winding up is passed by the High Court) and simultaneously petition is filed by the Creditor in the NCLT. In such situation one can opine that Pendency of winding up proceeding before admission of insolvency proceeding would not bar either initiation or continuation of such insolvency proceedings.

In general, nothing should prevent an entity from filing an application for resolution of a company for which winding up proceedings have been initiated. Even in a case where order has been passed in this regard, seeking leave from the Court is a matter of protocol only. This should not be a stumbling block






[1] (Fiabila India pvt.Ltd vs. Elder Health Care Ltd.)?

[2]that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with Rule 7, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal within six month from date of this notification, failing which the petition shall abate

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