Winding Up Proceedings Must Reach Irreversible Stage To Prevent Transfer To NCLT Under IBC: Bombay HC Transfers Company Petition To NCLT
The Bombay High Court transferred a company petition to the National Company Law Tribunal (NCLT) for initiation of the Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC).
The Bench explained that a Company Court must proceed with the winding up only if the proceedings had reached an irreversible stage, making it impossible to "set the clock back," instead of transferring the case to the NCLT under the IBC pursuant to the 5th proviso to Section 434(1)(c) of the Companies Act, 2013 (the Act).
A Single Bench of Justice Abhay Ahuja observed, “From the affidavit filed on behalf of the Official Liquidator and the submissions over possession of the registered office of the company, which was the only property of which the Official Liquidator had taken possession, to Edelweiss Asset Reconstruction Company Limited…That, no notice inviting claims of creditors/workers etc. under Rule 148 of the said Rules has been published. That, in the facts, no steps have been taken by the Official Liquidator which can be said to be irreversible, such that the winding up proceedings have to be proceeded with by this Court.”
Advocate Arun Siwach represented the petitioner.
An interim application was filed by Omkara Assets Reconstruction seeking the transfer pursuant to the 5th proviso to Section 434(1)(c) of the Act. The Official Liquidator who had taken possession of the registered office of Classic Diamonds in November 2017 had indicated that the properties were handed over to Edelweiss Asset Reconstruction Company Limited. Despite this, the Official Liquidator had not invited claims from creditors or workers as required under Rule 148 of the Companies (Court) Rules, 1959.
The High Court referred to the Supreme Court's judgment in the cases of A. Navinchandra Steels Private Limited v. SREI Equipment Finance Ltd. (Civil Appeal Nos.4230-4234 of 2020) affirming that a transfer to the NCLT was appropriate unless the winding-up proceedings had reached an irreversible stage.
“It is only where the winding up proceedings have reached the stage where it would be irreversible, making it impossible to set the clock back, that the Company Court must proceed with the winding up instead of transferring the proceedings to NCLT to be decided in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016,” the Court explained.
The Bench noted that since the Official Liquidator was no longer in possession of any of Classic Diamonds' properties and no irreversible actions had been taken, the transfer was justified.
Consequently, the Bench ordered, “...subject to deposit of costs of Rs.3 lacs by the Applicant with the Official Liquidator towards liquidation costs/expenses, Company Petition be transferred to the NCLT, Mumbai, having jurisdiction under the Insolvency and Bankruptcy Code, 2016, to be decided in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016.”
Accordingly, the High Court directed that the company and its directors were not to “sell, alienate, encumber, part with possession or create any third party rights or interest in respect of any of the movable/immovable/fix assets of the company or the monies lying in the bank accounts of the company.”
Cause Title: ICICI Bank Limited v. Classic Diamonds (India) Limited (Neutral Citation: 2024:BHC-OS:7311)
Appearance:
Petitioner: Advocates Arun Siwach, Priyanka Mitra and Karan Gandhi
Applicant: Advocates Aneesa Cheema and Harsh Kesharia