REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.  12023   OF 2018 [ARISING OUT OF SLP(CIVIL) NO.18598 OF 2018]

JAIPUR METALS & ELECTRICALS  EMPLOYEES ORGANIZATION THROUGH GENERAL SECRETARY MR. TEJ RAM MEENA …APPELLANT

VERSUS

JAIPUR METALS & ELECTRICALS LTD. THROUGH ITS MANAGING DIRECTOR & ORS. …RESPONDENTS

J U D G M E N T

R.F. NARIMAN, J.

1. Leave granted.  

2. The  present  appeal  has  been  filed  by  an  employees’

union challenging the judgment of the High Court of Judicature

for Rajasthan dated 01.06.2018, in which the High Court has

refused to transfer winding up proceedings pending before it to

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the  National  Company  Law  Tribunal  (“NCLT”),  and  has  set

aside an order dated 13.04.2018 of the NCLT by which order a

financial  creditor’s  petition under Section 7 of  the Insolvency

and Bankruptcy  Code,  2016 (“Insolvency Code”  or  “Code”)

has been admitted.  

3. This case has had a chequered history. On 30.09.1997,

the account of the Respondent No. 1 company had become a

non-performing asset, and since the company’s net worth had

turned  negative,  a  reference  was  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 facie opinion

that  the company ought to be wound up, which opinion was

forwarded  to  the  High  Court.  The  High  Court  ultimately

registered  the  case  as  Company  Petition  No.  19/2009.  The

Alchemist  Asset  Reconstruction  Company  Ltd.  (Respondent

No.  3)  acquired  substantially  all  the  financial  debts  of

Respondent No. 1. The State of Rajasthan tried to revive the

company, but with no success. Ultimately, in a writ petition filed

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by a workers’ union, being Writ Petition No. 504/2000, the High

Court,  on  07.12.2017,  directed  the  Official  Liquidator  to  be

provisionally attached to the Court, and to join in the evaluation

of the value of goods and material lying in the factory premises

of the company so that dues of the workmen could be paid.  

4. In the meanwhile, on 11.01.2018, the Respondent No. 3

herein  preferred  an  application  under  Section  7  of  the

Insolvency Code, stating that it  had an assigned debt of INR

356 crores owed to it by the Respondent No. 1. Considering the

fact  that  the debt was admitted by the company and that  till

date no liquidation order had been passed in the winding up

proceedings that were pending before the High Court, the NCLT

held, referring to the non-obstante clause contained in Section

238  of  the  Insolvency  Code,  that  it  was  satisfied  that  the

conditions of Section 7 had been fulfilled and that, therefore,

the application should be admitted. Accordingly, a moratorium

was declared in terms of Section 14 of the Code and an interim

resolution professional was appointed.

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5. Meanwhile, in Company Petition No. 19/2009 and other

connected matters, being various writ petitions that were filed

by labour  unions,  the High Court,  by  an interim order  dated

26.04.2018, stayed implementation of the order passed by the

NCLT  on  13.04.2018.  Against  this  order,  a  Special  Leave

Petition  (“SLP”)  was  preferred  in  which  this  Court,  on

09.05.2018, dismissed the SLP as withdrawn and directed the

petitioner  to  make submissions before the High Court  in  the

pending company petition and allied matters. The High Court

then  passed  the  impugned  judgment  dated  01.06.2018,  in

which it refused to transfer the winding up proceedings pending

before  it,  and  set  aside  the  NCLT order  dated  13.04.2018,

stating that it had been passed without jurisdiction. Accordingly,

the  writ  petitions  and  the  company  petition  were  placed  for

further orders on 05.07.2018. On 16.07.2018, this Court issued

notice and stayed the operation of the impugned judgment.  

6. Shri Sidharth Luthra, learned Senior Advocate, appearing

on behalf of the appellant, and Shri P. Chidambaram, learned

Senior  Advocate,  appearing  on behalf  of  Respondent  No.  3,

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have argued that  a perusal  of  the Eleventh  Schedule of  the

Code  and  amendments  made  to  the  Companies  Act,  2013,

particularly to Section 434 therein, would show that all winding

up proceedings  pending  before  the  High  Court  are  to  stand

transferred to the NCLT at such stage as may be prescribed by

the Central Government by rules made in this behalf. They then

referred  to  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 after  29.06.2017, it  would be

clear that winding up of companies that are initiated under the

SIC Act cannot, after such omission, be continued to be dealt

with  by the  High  Court.   According to  them,  the High Court

judgment was incorrect as Rule 5, and not Rule 6, of the 2016

Transfer Rules applied. Post omission of Rule 5(2), therefore,

proceedings would in any case stand transferred to the NCLT.

Alternatively,  they  argued  that  in  any  case,  the  2018

amendment  made  to  Section  434(1)(c)  added  a  proviso,  by

which any party to any winding up proceedings that are pending

before a High Court may file an application for transfer of such

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proceedings,  and  the  Court  is  then  obliged  to  transfer  such

proceedings to the NCLT. They also argued that in any case, a

Section 7 application made by Respondent No. 3 before the

NCLT  was  an  independent  application  which  was  correctly

admitted by the NCLT, which correctly applied Section 238 of

the Insolvency Code.  

 7. Shri Siddharth Dave, learned counsel appearing on behalf

of  Respondents No. 4 and 5, supported the judgment of  the

High Court. According to the learned counsel, even if Rule 5 of

the 2016 Transfer Rules were to apply, Rule 5(2) made it clear

that the present proceedings would continue before the High

Court, being proceedings for winding up of a company pursuant

to Section 20 of the SIC Act. The omission of this Rule in the

amendment made to Rule 5 on 29.06.2017 would not impact

the High Court continuing to deal with this matter as the SIC Act

had been repealed with effect from 01.12.2016, and together

with the repeal, it was necessary to state that proceedings for

winding up that were initiated under Section 20 of the SIC Act

would continue to be dealt with by the High Court. Once this

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was stated to be so, when the amendment was made to Rule 5,

it became unnecessary to continue with the said provision as all

such proceedings are to continue to be dealt with 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 has

no application as it is a non-obstante clause which interdicts a

clash  between  the  Insolvency  Code  and  other  statutes.

Inasmuch as the amendments to Section 434 of the Companies

Act, 2013 have been made pursuant to the Eleventh Schedule

of  the  Insolvency  Code  itself,  Section  238  would  have  no

application, and, therefore, the winding up proceedings pending

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

to  deal  with  a  preliminary  objection raised by Shri  Siddharth

Dave. According to the learned counsel, an appeal against the

judgment dated 01.06.2018 has 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

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cahoots  with  Respondent  No.  3.  Ordinarily,  we  would  have

relegated  the  appellant  to  the  Division  Bench,  but  since  the

questions raised are of importance generally, it is better that an

authoritative  decision  be  given  at  the  earliest.  It  is  for  this

reason that we have entertained this SLP directly against the

order of a single Judge. Shri Luthra has also pointed out that it

is  incorrect  to  say  that  the  client  that  he  represents  is  a

derecognized  or  unrecognized  union  in  cahoots  with

Respondent  No.  3,  and  has  pointed  out  a  certificate  of

registration of the said union. Be that as it may, since this SLP

raises important questions of law which need to be decided at

the earliest, we have disregarded this preliminary objection.

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 Eleventh Schedule.”

In  pursuance  of  this  Section,  the  Eleventh  Schedule  to  the

Code makes 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:

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“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

(c)  all  proceedings  under  the Companies  Act,  1956,  including proceedings  relating  to  arbitration, compromise,  arrangements  and reconstruction  and  winding  up  of companies,  pending  immediately

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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.”

On  and  from  17.08.2018,  by  an  amendment  made  to  the

Eleventh Schedule of the Code, Section 434 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

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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

(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

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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;

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

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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.”

10. On 07.12.2016, in exercise of powers under Section 434

of  the  Companies  Act,  2013  read  with  Section  239  of  the

Insolvency  Code,  the  Companies  (Transfer  of  Pending

Proceedings)  Rules,  2016,  came  into  force  with  effect  from

01.04.2017.  What  is  of  relevance for  decision in  the present

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case is Rules 5 and 6 of the 2016 Rules, which are set out 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 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.

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

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High Court in accordance with the provisions of the Act.

6.  Transfer  of  pending  proceedings  of 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 shall be transferred to the Bench of the Tribunal exercising  territorial  jurisdiction  and  such petitions shall be treated as petitions under the provisions of the Companies Act,  2013 (18 of 2013).”

11. By an amendment  dated 29.06.2017,  Rule  5  was then

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 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 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

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

12. It  is  clear that under Section 434 as substituted by the

Eleventh  Schedule  to  the  Code  vide notification  dated

15.11.2016,  all  proceedings  under  the  Companies  Act,  2013

which relate to winding up of companies and which are pending

immediately before such date as may be notified by the Central

Government in this behalf shall stand transferred to the NCLT.

The stage at which such proceedings are to be transferred to 16

the  NCLT  is  such  as  may  be  prescribed  by  the  Central

Government.  

13. 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.  Under  Rule  5(1),  petitions  which  relate  to

winding up under clause (e) of Section 433 of the Companies

Act,  1956  on  the  ground  of  inability  to  pay  debts  that  are

pending  before  the  High  Court  are  to  be  transferred  to  the

NCLT  in  case  the  petition  has  not  been  served  on  the

respondent. They shall then be treated as applications under

Sections 7, 8, or 9 of the Code and dealt with in accordance

with  Part  II  of  the  Code.  Similarly,  all  petitions  filed  under

clauses (a) and (f) of Section 433 of the Companies Act, 1956

pending before the High Court,  in which the petition has not

been served on the respondents,  shall  be transferred to the

NCLT.  Only  such  petitions  will  continue  to  be  treated  as

petitions under the provisions of the Companies Act, 2013. The

third category of cases dealt with by Rules 5 and 6 is contained

in Rule 5(2). This category relates to cases where the BIFR has

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forwarded an opinion to the High Court to wind up a company

under Section 20 of the SIC Act. All such cases, whatever be

the stage, shall continue to be dealt with by the High Court in

accordance 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

company  being  wound  up  under  the  Companies  Act,  1956

under the just and equitable 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 with separately under Rule

5(2), they cannot be treated as petitions that have been filed

under Section 433(f)  of  the Companies Act,  1956, which are

separately specified under Rule 6. The High Court is therefore

not correct in treating petitions that are pursuant to Section 20

of  the  SIC  Act  as  being  pursuant  to  Section  433(f)  of  the

Companies Act, 1956 and applying Rule 6 of the 2016 Transfer

Rules.   

15. However,  though  the  language  of  Rule  5(2)  is  plain

enough,  it  has  been  argued  before  us  that  Rule  5  was

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substituted on 29.06.2017, as a result of which, Rule 5(2) has

been omitted. The effect of the omission of Rule 5(2) is not to

automatically transfer all cases under Section 20 of the SIC Act

to the NCLT,  as otherwise,  a specific  rule would have to be

framed transferring such cases to the NCLT, as has been done

in Rule 5(1). The real reason for omission of Rule 5(2) in the

substituted  Rule  5  is  because  it  is  necessary  to  state,  only

once,  on  the  repeal  of  the  SIC  Act,  that  proceedings  under

Section 20 of the SIC Act shall continue to be dealt with by the

High Court. It was unnecessary to continue Rule 5(2) even after

29.06.2017 as on 15.12.2016, all pending cases under Section

20 of the SIC Act were to continue to be dealt with by the High

Court before which such cases were pending. Since there could

be no opinion 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  Rule  5(2)  as,  on  15.12.2016,  all

pending proceedings under Section 20 of the SIC Act were to

continue  with  the  High  Court  and  would  continue  even

thereafter.  This  is  further  made  clear  by  the  amendment  to

Section 434(1)(c), with effect from 17.08.2018, where any party

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to a winding up proceeding pending before a Court immediately

before  this  date  may  file  an  application  for  transfer  of  such

proceedings,  and  the  Court,  at  that  stage,  may,  by  order,

transfer  such  proceedings  to  the  NCLT.  The proceedings  so

transferred  would  then  be  dealt  with  by  the  NCLT  as  an

application for initiation 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, all proceedings under Section 20 of the SIC Act pending

before the High Court are to continue as such until a party files

an  application  before  the  High  Court  for  transfer  of  such

proceedings post 17.08.2018. Once this is done, the High Court

must  transfer  such proceedings to the NCLT which will  then

deal with such proceedings as an application for initiation of the

corporate insolvency resolution process under the Code.  

16. The High Court judgment, therefore, though incorrect in

applying  Rule  6  of  the  2016  Transfer  Rules,  can  still  be

supported on this aspect with a reference to Rule 5(2) read with

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Section 434 of  the Companies Act,  2013,  as  amended,  with

effect from 17.08.2018.   

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

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 21

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

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Code  must  run  their  entire  course.  We,  therefore,  allow  the

appeal and set aside the High Court’s judgment.  

…………………………..J. (R.F. NARIMAN)

…………………………..J. (M.R. SHAH)

New Delhi; December 12, 2018.

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