REPORTABLE IN THE SUPREME COURT OF INDIA  CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 818 OF 2018

FORECH INDIA LTD. .. APPELLANT(S)

VERSUS

EDELWEISS ASSETS RECONSTRUCTION  CO. LTD. .. RESPONDENT(S)

J U D G M E N T

ROHINTON F. NARIMAN, J.

1. The present matter arises from an Operational Creditor’s appeal to

continue with a winding up petition that has been filed by the said creditor

way back in 2014. The facts relevant for disposal of  this appeal are as

follows:-

2. A winding up petition, being No. 42 of 2014, was filed by the present

appellant  before  the  High  Court  of  Delhi  on  10.01.2014,  against

Respondent  No.  2-Company,  alleging  (under  Section  433(e)  of  the

Companies Act)  inability  to  pay dues.   Notice  in  this  petition  had been

served, as is recorded by an order dated 20.01.2014 of the High Court of

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Delhi.   Further  orders  which  have  been  pointed  out  to  us  by  learned

counsel for the appellant,  have gone on to state that there is a debt or

liability which is, in fact, admitted.  

3. It was also pointed out by learned counsel for the appellant that a

Reference had been made by the Company itself  on 14.07.2015 to the

Board for Industrial and Financial Reconstruction (BIFR) under the Sick

Industrial Companies Act, 1985, which, according to the learned counsel for

the appellant,  has abated as on 11.12.2016.   It  transpires that  another

operational  creditor,  viz.,  SKF  India  Ltd.  had  filed  an  application  under

Section 9 of the Insolvency & Bankruptcy Code, 2016 (in short ‘the Code’),

against Respondent No. 2, which was allowed to be withdrawn so that the

aforesaid operational creditor could go to the High Court in a winding up

petition which would then be heard along with the Company Petition No.

42/2014.

4. Meanwhile, Respondent No. 1, being a financial creditor of the self-

same corporate debtor, moved the National Company Law Tribunal (NCLT)

in an insolvency petition filed under Section 7 of the Code sometime in

May/June 2017.  This petition was admitted on 07.08.2017.  Against the

aforesaid order,  an appeal  was filed by the appellant  herein which was

dismissed by the Appellate Tribunal, in which Section 11 of the Code was

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referred to, and it was held by the Appellate Tribunal that since there was

no  winding  up  order  by  the  High  Court,  the  financial  creditor’s  petition

would be maintainable,  as  a result  of  which the appellant’s  appeal  has

been dismissed.

5. Learned  counsel  appearing  on  behalf  of  the  appellant  has

painstakingly taken us through the record, and has referred to the Code,

together with Notifications from the Ministry of Corporate Affairs, which, in

exercise of powers under Section 239 of the Code, have made Rules called

the Companies (Transfer of Pending Proceedings) Rules, 2015.  She has

also referred to amendments made up to date in the Eleventh Schedule to

the Code and has argued before us that the winding up petition that had

been preferred by her would clearly fall within the ambit of Rule 5 of the

aforesaid  Rules  inasmuch  as  notice  under  Rule  26  of  the  Companies

(Court) Rules had been served much prior to the commencement of the

Code.  This being the case, this winding up petition should, therefore, have

carried on and should be allowed to carry on before the High Court.  The

necessary  concomitant  of  this  argument  was  that  the  winding  up

proceedings before the High Court should continue and not proceedings

filed by other creditors under the Code.

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6. Mr.  Sanjiv  Sen,  learned  senior  counsel  appearing  on  behalf  of

Respondent No. 1, countered these submissions and has placed before us

all the relevant materials, statutory and otherwise, to state that the whole

object of the Code would be frustrated if petitions for winding up in the High

Court were to continue in the face of the insolvency petitions that  have

been  filed  under  the  Code.   He  referred  to  some of  our  judgments  to

buttress this  submission and,  in  particular,  to  Section 238 of  the Code.

According  to  him,  as  has  been  held  in  some  of  our  judgments,  the

proceedings that were initiated under Section 7 or Section 9 of the Code

are independent  proceedings,  which must  reach their  logical  conclusion

unhampered by any winding up petition that  may be pending in a High

Court.  According to him, it is also important to remember that the basic

objective of the Code is to infuse life into a corporate debtor who is in the

red,  and  it  is  only  if  the  resuscitation  process  cannot  be  completed  in

accordance with  the provisions of  the Code that  liquidation takes place

under the Code.  Keeping this in mind, it is obvious that the judgment of the

Appellate Tribunal can be sustained on the grounds argued by him and the

appeal must, therefore, be dismissed.

7. At  this  stage,  it  is  important  to  advert  to  some  of  the  provisions

contained in the Code.  Section 255 of the Code reads as under:

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“255. Amendments of Act 18 of 2013.-  The Companies Act, 2013 shall be amended in the manner specified in the Eleventh Schedule.”       

8. In  pursuance of  this  Section,  the  Eleventh  Schedule  to  the  Code

made various amendments to the Companies Act, 2013 on 15.11.2016 with

effect  from 01.12.2016.   Section  434  of  the  Companies  Act,  2013 was

substituted as follows:-

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

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

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

Provided  that  the  High  Court  may  if  it  is satisfied  that  the  appellant  was  prevented  by sufficient cause from filing an appeal within the said period, allow it to be filed within a further period not exceeding sixty days; and

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(c)  all  proceedings under  the Companies Act, 1956,  including  proceedings  relating  to arbitration,  compromise,  arrangements  and reconstruction  and  winding  up  of  companies, pending  immediately  before  such  date  before any  District  Court  or  High  Court,  shall  stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer:

Provided that only such proceedings relating to the  winding  up  of  companies  shall  be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government.

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

9. On and from 17.08.2018, Section 434 was substituted again.  This

time, the provision reads as follows:-

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

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

(b)  any  person  aggrieved  by  any  decision  or order of the Company Law Board made before such date may file an appeal to the High Court

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within  sixty  days  from  the  date  of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order:

Provided  that  the  High  Court  may  if  it  is satisfied  that  the  appellant  was  prevented  by sufficient cause from filing an appeal within the said period, allow it to be filed within a further period not exceeding sixty days; and

(c)  all  proceedings under  the Companies Act, 1956,  including  proceedings  relating  to arbitration,  compromise,  arrangements  and reconstruction  and  winding  up  of  companies, pending  immediately  before  such  date  before any  District  Court  or  High  Court,  shall  stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer:

Provided that only such proceedings relating to the  winding  up  of  companies  shall  be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government:

Provided  further  that  only  such  proceedings relating  to  cases  other  than  winding  up,  for which  orders  for  allowing  or  otherwise  of  the proceedings  are  not  reserved  by  the  High Courts shall be transferred to the Tribunal:

Provided also that—

(i)  all  proceedings  under  the  Companies  Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; or

(ii)  the  proceedings  relating  to  winding  up  of companies  which  have  not  been  transferred from the High Courts;

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shall  be  dealt  with  in  accordance  with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959:]

Provided  also  that  proceedings  relating  to cases  of  voluntary  winding  up  of  a  company where notice of the resolution by advertisement has been given under sub-section (1) of Section 485  of  the  Companies  Act,  1956  but  the company has not been dissolved before the 1st April,  2017  shall  continue  to  be  dealt  with  in accordance with  provisions of  the Companies Act,  1956  and  the  Companies  (Court)  Rules, 1959:

Provided further that any party or parties to any proceedings  relating  to  the  winding  up  of companies  pending  before  any  Court immediately before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance,  2018,  may  file  an  application  for transfer of such proceedings and the Court may by  order  transfer  such  proceedings  to  the Tribunal  and  the  proceedings  so  transferred shall  be  dealt  with  by  the  Tribunal  as  an application for initiation of corporate insolvency resolution  process  under  the  Insolvency  and Bankruptcy Code, 2016 (31 of 2016).

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

(Emphasis supplied.)

10. When  the  Code  was  enacted  with  effect  from  01.12.2016,  two

Notifications  both  dated  07.12.2015  were  made.   The  first  Notification,

which  was  titled  as  the  Companies  (Transfer  of  Pending  Proceedings)

Rules, 2016 laid down in Rule 5 as follows: 8

“5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts.- (1) 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  shall  be  transferred  to  the  Bench  of  the  Tribunal established under  sub-Section (4)  of  Section 419 of  the Act, exercising  territorial  jurisdiction  and  such  petitions  shall  be treated as applications under Sections 7, 8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the code:

Provided 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 sixty days from date of this notification, failing which the petition shall abate.”

11. Simultaneously, on the same date, by the Companies (Removal of

Difficulties) Fourth Order, 2016, it was made clear in sub-Clause 2 of the

said Order as follows:-

“(2) In the Companies Act, 2013, in Section 434, in sub-section (1), in clause (c), after the proviso, the following provisos shall be inserted, namely:-

 “Provided further that –

  xxx xxx xxx

(ii) the  proceedings  relating  to  winding  up  of companies which have not been transferred from the High Courts;

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shall be dealt with in accordance with provisions of the Companies  Act,  1956  and  the  Companies  (Court) Rules, 1959””

12. By a Notification dated 29.06.2017, titled the Companies (Transfer of

Pending  Proceedings)  Second  Amendment,  Rules,  2017,  Rule  5  was

substituted as follows:-

“(5)  Transfer  of  pending  proceedings  of  Winding  up  on  the ground  of  inability  to  pay  debts.--(1)  All  petitions  relating  to winding up of a company 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  under  Rule  26  of  the  Companies  (Court)  Rules, 1959,  shall  be  transferred  to  the  Bench  of  the  Tribunal established  under  sub-Section  (4)  of  Section  419  of  the Companies  Act,  2013,  exercising  territorial  jurisdiction  to  be dealt with in accordance with Part II of the Code:

Provided 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 upto 15th day of July, 2017, failing which the petition shall stand abated:

Provided further that any party or parties to the petitions shall, after  the  15th day  of  July,  2017,  be  eligible  to  file  fresh applications under Sections 7 or 8 or 9 of the Code, as the case may be, in accordance with the provisions of the Code:

Provided also that where a petition relating to winding up of a company is not transferred to the Tribunal under this Rule and remains in the High Court and where there is another petition under  clause  (e)  of  Section  433  of  the  Act  for  winding  up against the same company pending as on 15th December, 2016

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such other petition shall not be transferred to the Tribunal, even if the petition has not been served on the respondent.”

13. Rules  26  and  27 of  the  Companies  (Court)  Rules,  1959  read  as

follows:

“Rule 26. Service of petition - Every petition shall be served on the respondent, if any, named in the petition and on such other persons as the Act or these rules may require or as the Judge or the Registrar may direct. Unless otherwise ordered, a copy of the petition shall be served along with the notice of the petition.  

Rule 27. Notice of petition and time of service - Notice of every petition required to be served upon any person shall be in Form No. 6, and shall,  unless otherwise ordered by Court or provided by these rules, be served not less than 14 days before the date of hearing.  

Provided always  that  such  notice  when by  the Act  or  under these  Rules  is  required  to  be  served  on  the  Central Government, the same shall, unless otherwise ordered by the Court, be served not less than 28 clear days before the date of hearing.”

14. Form No. 6 appended to Rule 27 reads as under:

“FORM No. 6 (See Rule 27)

[Heading as in Form No. 1] Company Petition No………………. of 19

NOTICE OF PETITION

Take  notice  that  a  petition  under  Sec…………….   of  the Companies  Act,  1956,  for  ………………….  presented  by …………………. on the ……………….  day of ………………….. 19……………….  was  admitted  on  the  …………..  day  of …………………19……………. and that the said petition is fixed

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for  hearing before the Company Judge on the ………………. day of …………………….. 19………. If you  desire to support or oppose the petition at the hearing, you should give me notice thereof in writing so as to reach me not later than……………. days before the date fixed for the hearing of the petition, and appear at the hearing in person or by your advocate.  If  you wish to oppose the petition, the grounds of opposition or a copy of your affidavit should be furnished with your notice.  A copy of the petition will be furnished to you if you require it on payment of the prescribed charges for the same/is enclosed herewith.  

Dated……………     (Sd/-)………………   Name…………………

                                                                        (Advocate for petitioner)

                                                                                                    Address:

[This notice should be served on or before the ………………….  day of …………..19……………]

NOTE:   Where  the  notice  is  to  a  respondent  named in  the petition,  a  copy  of  the  petition  should  be  served  on  him alongwith the notice.”

15. Shri Sen pointed out to us that there was a divergence of views in the

interpretation  of  the  aforesaid  rules.  The  Bombay  High  Court  in  Ashok

Commercial Enterprises vs.  Parekh Aluminex Limited, (2017) 4 Bom. CR

653,  stated that  the notice  referred to  in  Rule  26 was a  pre-admission

notice and hence, held that all winding up petitions where pre-admission

notices were issued and served on the respondent will be retained in the

High Court.  On the other hand, the Madras High Court in  M/s. M.K. & 12

Sons Engineering v/s.  Eason Reyrolle Ltd. in CP/364/2016 has held that

the notice under Rule 26 is referable to a post-admission position of the

winding up petition and accordingly held that only those petitions where a

winding up order is already made can be retained in the High Court.   For

this  purpose,  the  Madras  High  Court  strongly  relied  upon  Form  No.  6

appended to Rule 27 and the expression “was admitted” occurring in the

Notice of Petition contained in the said Form.   

16. We are  of  the  view that  Rules  26  and  27  clearly  refer  to  a  pre-

admission scenario as is clear from a plain reading of Rules 26 and 27,

which make it  clear  that  the notice contained in  Form No.  6 has to be

served in not less than 14 days  before the date of hearing.  Hence, the

expression “was admitted” in Form No. 6 only means that notice has been

issued in the winding up petition which is then “fixed for hearing before the

Company Judge” on a certain day.  Thus, the Madras High Court view is

plainly incorrect whereas the Bombay High Court view is correct in law.  

17. The resultant position in law is that, as a first step, when the Code

was enacted, only winding up petitions, where no notice under Rule 26 of

the Companies (Court)  Rules was served, were to be transferred to the

NCLT and treated as petitions under the Code. However, on a working of

the Code, the Government realized that parallel proceedings in the High 13

Courts  as  well  as  before  the  adjudicating  authority  in  the  Code  would

stultify  the  objective  sought  to  be  achieved  by  the  Code,  which  is  to

resuscitate the corporate debtors who are in the red.  In accordance with

this objective, the Rules kept being amended, until finally Section 434 was

itself substituted in 2018, in which a proviso was added by which even in

winding up petitions where notice has been served and which are pending

in the High Courts, any person could apply for transfer of such petitions to

the NCLT under the Code, which would then have to be transferred by the

High  Court  to  the  adjudicating  authority  and  treated  as  an  insolvency

petition under the Code.  This statutory scheme has been referred to, albeit

in the context of Section 20 of the SICA, in our judgment which is contained

in  Jaipur Metals & Electricals Employees Organization Through General

Secretary Mr. Tej Ram Meena vs. Jaipur Metals & Electricals Ltd. Through

its Managing Director &Ors., being a judgment by a Division Bench of this

Court dated 12.12.2018.

18. After referring to the statutory scheme, as aforesaid, this Court held:

“17. However,  this  does  not  end  the  matter.  It  is  clear  that Respondent No. 3 has filed a Section 7 application under the Code  on  11.01.2018,  on  which  an  order  has  been  passed admitting  such application by the  NCLT on  13.04.2018.  This proceeding is an independent proceeding which has nothing to do with the transfer of pending winding up 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 Section 7 of

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the Code. This is clear from a reading of Section 7 together with Section 238 of the Code which reads as follows:

“238.  Provisions  of  this  Code  to  override other laws.—The provisions of this Code shall have  effect,  notwithstanding  anything inconsistent  therewith  contained  in  any  other law for the time being in force or any instrument having effect by virtue of any such law.”

18. Shri Dave’s ingenious argument that since Section 434 of the Companies 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 not the Companies Act, 2013, must be rejected  for  the  reason  that  though  Section  434  of  the Companies Act, 2013 is substituted by the Eleventh Schedule of the Code, yet Section 434, as substituted, appears only in the Companies Act, 2013 and is part and parcel of that Act. This being so, if there is any inconsistency between Section 434 as substituted  and  the  provisions  of  the  Code,  the  latter  must prevail.  We  are  of  the  view  that  the  NCLT  was  absolutely correct in applying Section 238 of the Code to an independent proceeding instituted by a secured financial  creditor,  namely, the Alchemist Asset Reconstruction Company Ltd. This being the case, it is difficult to comprehend how the High Court could have 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 they have been left off. Obviously, the company  petition  pending  before  the  High  Court  cannot  be proceeded with further in view of Section 238 of the Code. The writ petitions that are pending before the High Court have also to be disposed of in light of the fact that proceedings under the Code  must  run  their  entire  course.  We,  therefore,  allow  the appeal and set aside the High Court’s judgment.”  

19. Mr. Sen also referred us to a judgment of the learned Single Judge of

the High Court of Bombay reported, in (2018) 2 AIR Bom R 350 in  PSL

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Limited vs.  Jotun India Private Limited.  The Learned Single Judge, after

referring  to  the  self-same  provisions  of  the  Code  and  subordinate

legislation made thereunder, held as follows:-

“93. The fact that post notice winding up petitions continue to be governed by the Companies Act, 1956, only means – that to those proceedings it will be the Companies Act, 1956 which will apply.   It  does  not,  however,  mean  that  if,  in  a  post-notice winding up petition a new proceeding is filed under IBC, and where orders are passed by NCLT, including under Section 14 of IBC, the consequences provided for under IBC will not apply to post notice proceeding, whatever their stage may be.

xxx xxx xxx

98. Furthermore, this transitional provision cannot in any way affect the remedies available to a person under IBC, vis-a-vis the company against whom a winding up petition is filed and retained  in  the  High  Court,  as  the  same  would  amount  to treating IBC as if it did not exist on the statute book and would deprive persons of the benefit of the new legislation.  This is contrary  to  the  plain  language  of  IBC.  If  the  contentions  of petitioner were to be accepted, it would mean that in respect of companies, where a post notice winding up petition is admitted or  a  provisional  liquidator  appointed,  provisions  of  IBC  can never apply to such companies for all times to come.

xxx xxx xxx

100. The mere fact that post notice winding up proceedings are to  be  “dealt  with”  in  accordance  with  the  provisions  of  the Companies  Act,  1956,  does  not  bar  the  applicability  of  the provisions  of  IBC in  general  to  proceedings  validly  instituted under  IBC,  [nor]  does it  mean that  such proceeding  can be suspended.”

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20. This judgment was upheld by a Division Bench of the Bombay High

Court.  We may hasten to add that the law declared by this judgment has

our approval.

21. The resultant position, therefore, is that we agree with the learned

counsel  for  the  appellant  that  the  Appellate  Tribunal’s  reasoning  is  not

correct. Section 11 of the Code specifies which persons are not eligible to

initiate proceedings under it.  In particular, Section 11(d) reads as follows:

“11. Persons not entitled to make applications- The following persons shall not be entitled to make an application to initiate corporate  insolvency  resolution  process  under  this  Chapter, namely:-

xxx xxx xxx

(d) a corporate debtor in respect of whom a liquidation order has been made.

Explanation  -  For  the  purposes  of  this  section,  a  corporate debtor  includes  a  corporate  applicant  in  respect  of  such corporate debtor.”

22. This Section is of limited application and only bars a corporate debtor

from initiating a petition under Section 10 of the Code in respect of whom a

liquidation order has been made.  From a reading of this Section, it does

not follow that until a liquidation order has been made against the corporate

debtor, an Insolvency Petition may be filed under Section 7 or Section 9 as

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the case may be, as has been held by the Appellate Tribunal.  Hence, any

reference to Section 11 in the context of the problem before us is wholly

irrelevant. However, we decline to interfere with the ultimate order passed

by the Appellate Tribunal  because it  is  clear  that  the financial  creditor’s

application  which  has  been  admitted  by  the  Tribunal  is  clearly  an

independent  proceeding which must  be decided in  accordance with  the

provisions of the Code.

23. Though,  we are  not  interfering  with  the  Appellate  Tribunal’s  order

dismissing the appeal, we grant liberty to the appellant before us to apply

under the proviso to Section 434 of the Companies Act (added in 2018), to

transfer the winding up proceeding pending before the High Court of Delhi

to the NCLT, which can then be treated as a proceeding under Section 9 of

the Code.

24. With these observations, we dispose of the aforesaid appeal.  

      …..........................J. (R.F. Nariman)

...............................J. (Navin Sinha)

Delhi, Dated: January 22, 2019.     

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