2024 TaxPub(CL) 163 (Cal-HC)
COMPANIES ACT, 2013
Section
434
Single Judge passed order of transfer of winding up proceedings without
any application for transfer to NCLT by any party and without considering the
present stage of the proceedings, there was no credible hope of revival of
company, thus, the order could not be sustained and the same was set aside.
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Transfer of Certain Pending Proceedings -
Winding up proceedings transferred by Single Judge to NCLT without considering
present stage of proceedings - No application filed for transfer of
proceedings - Maintainability of appeal
A winding up order was passed against company
(FFPL). However, Single Judge transferred winding up proceedings to NCLT. The
company filed an appeal against the order on the ground that the Single Judge
had erred in passing order of transfer without any application for transfer to
NCLT by any party and without considering the present stage of the proceedings.
Held: In the present matter, copy of the petition is already
served on respondent, Liquidator appointed, Sale notice issued which is under
challenge before Trial Court and there is grievance that unless a scheme is
framed with regard to salaries of companies staff they will suffer irreparable
loss and injury. Further, there is no credible hope of revival of the company
and that it would suit the interest of all stakeholders and of the public if
its liquidation was speedily carried out. The Single Judge thus erred in
passing order of transfer without any application for transfer to NCLT by any
party and without considering the present stage of the proceedings. The order
passed by the Single Judge could not be sustained and thus, the same was set
aside.
REFERRED :
FAVOUR : In favour of appellant
A.Y. :
IN THE CALCUTTA HIGH COURT
I.P. MUKERJI & BISWAROOP
CHOWDHURY, JJ.
Fortune Furnitech (P)
Ltd. & Ors. v. Asset Reconstruction Company (India) Ltd.
APO/30/2022 with
CP/77/2012 ACO/3/2023, with APO/31/2022 ACO/7/2023, with APO/33/2022 ACO/3/2022
7 December, 2023
Appellants (APO 30&31 of
2022) by: Urmila Chakraborty, Advocate
ARCIL by: Ratnanko Banerji, Sr. Advocate Srishti Barman Roy, Avishek Guha,
Akansha Chopra, Advocate
O.L (APO 30&33 of 2022)
by: Smita Das De, Advocate
O.L (APO 31 of 2022) by: Manju Bhuteria, Shreya Choudhary
Purchaser by: Sakya Sen, Kaushik Banerjee
I.P. Mukerji, J.
The company Fortune Furnitech
Pvt. Ltd. was ordered to be wound of by this court during the operation of the
Companies Act, 1956. The procedure and proceedings for its liquidation started
in that period.
Thereafter, the Companies Act,
2013 was enacted by Parliament repealing the 1956 Act and replacing it by a
wholly new Act.
The Insolvency and Bankruptcy
Code, 2016 was enacted on 28-5-2016.
Section 434 of the Companies
Act, 2013 was substituted by a new section 434 with effect from 15-11-2016. The
proviso to section 434(1)(c) provided that pending winding up proceedings, at a
particular stage as may be prescribed by the Central government, were to be
transferred to the tribunal.
The Central government
prescribed that those winding up applications of which notice had not been
served on the respondent would be transferred to the tribunal.
Another proviso was added with
effect from 6-6-2018 to the effect that in any proceedings relating to the
winding up of companies pending before the court immediately before the
commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018
an application may be filed for transfer of such proceedings. The court on such
application may transfer the proceedings to the tribunal. In that case the
proceeding would be dealt with by the tribunal as an application for initiation
of corporate insolvency resolution process under the Insolvency and Bankruptcy
Code, 2016.
The appeal (APO 33 of 2022)
is preferred by Alok Kumar Ganguly an empanelled valuer with the official
liquidator who had been engaged by letter to value the assets of the Company in
liquidation. He is aggrieved by the impugned order of the learned Single Judge
dated 20-1-2022 transferring the winding up proceedings to the tribunal without
payment of his dues as valuer.
An application (ACO 3 of 2022)
is taken out in the appeal (APO 33 of 2022) by Aloke Kumar Ganguly. He
wants modification of the division bench order of this court made on 17-5-2022.
It related to the claim of the valuer. The order had assessed the claim of the
valuer at Rs. 3,11,000 and had directed Rs. 87,000 being 28% of the value to be
deposited by ARCIL and Rs. 72,000 being 72% of the value by ASREC. By the said
application, the applicant wants an additional amount of Rs. 1,00,000 to be
added to the claim and to be shared by the said two secured creditors in the
said percentage.
The appeal (APO 31 of 2022)
is preferred by Shiva Shakti Security Services complaining of the judgment and Order,
dated 20-1-2022, passed by the learned company judge transferring the case
to the Tribunal. The appellant's grievance is that such transfer was made
without ordering payment for the security service charges of the appellant of
more than Rs. 1,12,30,874. The appellant was engaged by the Official Liquidator
with the sanction of the court to protect the assets of the company.
The application (ACO 7 of
2023) connected with the appeal (APO 31/2022) is filed by ASREC
(India) Ltd., a secured creditor of the company in liquidation. They stated
therein that the only property of the company in liquidation were parcels of
land measuring 16.02 bighas, 17.045 bighas and 6.99 bighas aggregating to 40.46
bighas in Mouza - Dirghanga, District - Hooghly, West Bengal. The company had
two secured creditors namely the applicant and ARCIL. Both of them had a
combined claim of about Rs. 110 crores from the company. It was also averred in
that application that these two secured creditors had negotiated with a company
Square Four Logistics Park Pvt. Ltd. of 238A, A.J.C. Bose Road, Kolkata -
700020 which had agreed to purchase the above property for Rs. 18,13,26,547. If
the said property was sold to this intending purchaser, these two secured
creditors ASREC and ARCIL would divide up the net sale proceeds in the ratio of
72 : 28 respectively representing the value of their respective loans to the company.
It was also stated in the application that the value offered by the intending
purchaser was over Rs. 12 crores which was the market value of the said
property.
By this application, the
applicant seek confirmation from the court for sale of the said property to the
said intending purchaser upon their making payment of Rs. 16,73,26,544. It may
be mentioned here that at the time of negotiation, the intending purchaser had,
according to the statement made in the petition paid Rs. 1,40,00,000 to the
applicant.
We have taken note of the view
expressed by the official liquidator. It has some merit. The normal procedure
for effecting the sale of the assets of a company in liquidation should not be
so easily bypassed by making a private treaty with an intending purchaser to
purchase the said immovable property belonging to the company, now in
liquidation. It is true that offers were invited by the Official Liquidator but
no offer anywhere near the said offer by the intending purchaser introduced by
the secured creditors was received.
However, we are minded to give
another chance to the official liquidator to get a higher offer than that
brought by the secured creditors. We grant the official liquidator time till
12-1-2024 to advertise the sale of the subject property and hold an e-auction
amongst the offerers, each of whom should make an earnest deposit of 10% of the
offer, to be eligible to participate in the e-auction. The e-auction should be
concluded by 31-1-2024. If any offer higher than the offer brought by the
secured creditors succeeds at the e-auction, the official liquidator shall not
conclude the sale in favour of the offerer, but shall file a report in this
court stating the said outcome of the auction. If no such offer is received the
Official Liquidator shall also indicate the same in his report to be filed in
Court by 5-2-2024.
The appeal (APO 30 of 2022)
has been preferred by the company paid staff in the office of the Official
Liquidator being aggrieved by the said judgment and order of the learned single
judge. The main grounds of appeal are that the learned single judge erred in
not considering payment of the security charges claimed by the provider Shiva
Shakti Security Services, not considering the condition of the company paid
staff whose source of salary is through the fund received on sale of the assets
of the company on its winding up, in not appreciating that the property of the
company was grossly undervalued by the valuer and a fresh valuation ought to
have been ordered and also failing to appreciate that in the facts and
circumstances of the case, the winding up proceedings ought not to have been
directed to be transferred to the tribunal.
In the application (ACO 3 of
2023) connected with the appeal APO 30 of 2022 ASG Business (India)
Pvt. Ltd. asked for setting aside of the Order, dated 12-7-2023 by a
division bench of this court which directed payment to Shiva Shakti Security
Services and the valuer. There was also a prayer for the applicant to be added
as a party in the appeal and also for return of the cheque dated 26-4-2019
drawn by them on Kotak Mahindra Bank, Dhanbad.
The questions which need
consideration in this appeal are as follows :--
(a) What are
the types of winding up proceedings which are to be retained by the High Court
and not transferred to the tribunal?
(b) While
dealing with the transfer of proceedings from the High Court to the tribunal
what consideration is to be made by the Court of the fact that a sizable number
of company paid staff are working in the Official Liquidator's offices attached
to 22 High Courts in the country whose pay and allowances are met out of the
fund generated by the Official Liquidator on sale of the assets of the
companies in liquidation?
(c) If during
liquidation the Official Liquidator attached to the High Court has incurred
expenses to protect the assets of the company to what extent should those
expenses be paid out of orders passed by the High Court?
(d) Whether
the learned judge adopted the correct approach in not considering the
applications on merits and instead making an order of transfer of the
proceedings to NCLT, when this was nobody's prayer?
Cases:
In Kaledonia Jute and Fibres
Pvt. Ltd. v. Axis Nirman and Industries Ltd. & Ors. (2021) 2 SCC 403,
the Supreme Court noted that initially under the Companies Act, 2013 only
winding up applications of which notice had not been served on the Company
under Rule 26 of the Companies (Court) Rules, 1959 could be transferred. By
subsequent insertion of a proviso by amendment on 6-6-2018 to section
434(1)(c), a party to a winding up proceeding could apply to the court to seek
transfer of the proceedings before it. The court opined that in a winding up
application a party to the proceeding had to be given a very wide meaning, to
include the creditors and contributories. Therefore, by the above dictum of the
Supreme Court parties of the above category had a right to apply to the court
for transfer of the proceedings. When winding up of a company had become a
foregone conclusion and the steps taken by the company court were such as to
indicate that the process of winding up was irreversible 'making it just
impossible to set the clock back, the company court must proceed with the
winding up instead of transferring the proceedings to NCLT'. The highest court
opined that what also followed was that after this amendment even post
admission winding up petitions, in applications after appointment of a company
liquidator to take over the assets of a company 'discretion is vested in the
company court to transfer such petition to NCLT'.
Whether an irreversible stage
had been reached 'would depend upon the facts and circumstances of each case.'
This interpretation of the law was made by the Supreme Court in Action Ispat
and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd. (2021) 2 SCC 641. In
that case the Official Liquidator had taken possession of the registered office
of the appellant company together with its factory premises, all books and
other records. The Supreme Court held that this did not signify that any
irreversible step had been taken. The irreversible step must be 'corporate
death'.
'.......Given the object sought
to be achieved by the IBC, it is clear that only where a company in winding up
is near corporate death that no transfer of the winding up proceeding would
then take place to NCLT to be tried as a proceeding under the IBC. Short of an
irresistible conclusion that corporate death is inevitable, every effort should
be made to resuscitate the corporate debtor in the larger public interest,
which includes not only the workmen of the corporate debtor, but also its
creditors and the goods it produces in the larger interest of the economy of
the country.....'.
This was the dictum of the
Supreme Court in Navinchandra Steels Pvt. Ltd. v. Srei Equipment Finance
Ltd. & Ors. (2021) 4 SCC 435.
The question which now arises is
whether this court in exercise of its jurisdiction under the said proviso to
section 434(1)(c) of the Companies Act should transfer the winding up
application to the NCLT?
As far as this company is
concerned, the winding up order was passed more than one decade ago. No
creditor or contributory of the company has come forward to revive it or
present a scheme to the court, for payment to the secured creditors and other
creditors of the company, which include its workers. From time to time the
court has passed orders to safeguard the assets of the company, by employment
of security agencies on terms and conditions set by it. These agencies have
provided protection to the assets and are claiming amounts on account of their
fees and charges. The court which passed orders authorizing their engagement
has a duty to ensure that they are paid. It also has a similar duty towards the
valuer who is also engaged by the court in assessing the value of the property
of the company-in-liquidation.
As such, the chance of revival
of the company is practically nil.
The secured creditors have also
introduced an intending purchaser to the court who are willing to buy the
assets of the company through which the claim of the secured creditors and
others can be met. The Official Liquidator wants to conduct their sale through
an e-auction. The secured creditors want early conduct of the sale of the
assets to their nominee purchaser who is said to be prepared to make payment of
a higher price.
If we take all these facts into
account, nobody can deny that 'death' of the company by sale and distribution
of its assets is imminent.
If those assets are sold by the
court and distributed by it, it would be speedier and more convenient than
relegating the whole matter to the tribunal.
Another and a very strong ground
made out in this appeal is that the impugned judgment and order was passed for
transfer of the proceedings to NCLT when the application by ARCIL on which the
order was passed sought revaluation of the assets of the company-in-liquidation,
the secured creditor. Instead of considering the merits of the application the
learned judge simply transferred the proceedings to the tribunal. There was no
application before the court by any person for transfer of the proceedings. The
said proviso expressly lays down that such transfer order could be made only
when an application to that effect had been made. The learned judge ought to
have dealt with the question of valuation of the assets as raised before him
instead of leapfrogging procedure to pass an order of transfer. Undoubtedly,
the Supreme Court has said in the cases discussed above that when corporate
death for a company is certain, then only the company court could retain
winding up proceedings. If there was semblance of a chance of revival of the
company, the matter was to be transferred to the tribunal.
As we have said, in our opinion,
whether to transfer a pending winding up proceeding to the tribunal has to be
decided on the facts and circumstances of each case. The categories of cases
which can be so referred have not been closed by the above decisions of the
Supreme Court.
Instances of such cases as is
the case with this company may be as follows :--
(a) The
winding up proceedings have been pending for years. The promoters of the
company and its principal shareholders and directors at the time of its winding
up have all disappeared or do not show any interest in the revival of the
company.
(b) The
secured creditors also do not show any interest in its revival.
(c) Workers
who have been thrown out of employment are in great financial hardship for
years. Their wages for working in the company remain outstanding and unpaid.
(d) After the
winding up order has been made the official liquidator has taken steps for
protection of the assets of the company and for this purpose has employed
security personnel to guard those assets against pilferage and damage. This
arrangement is made with the sanction of the company Court. It becomes the
solemn duty of that court to ensure that these security providers are paid out
of sale of the assets of the company or by the secured creditors whose assets
are protected by them. When such is the obligation incurred by the court, it is
desirable that the winding up proceedings are retained by court to enable the
court to pass appropriate orders for payment of these service providers. These
service providers might also include surveyors and valuers with the official
liquidator with the sanction of the Court to survey and value the assets of the
company.
There is a body of employees
called the company paid staff who are special employees in the office of the
official liquidator and under directions of the company court, spanning several
decades have been paid out of the funds in the hands of the official liquidator
realized out of sale of the assets of the company in liquidation. The
government has not made any provision for absorption of these employees. As
long as the present employees remain in the rolls of the Official Liquidator as
company paid staff, the company court should lean in favour of retention of
winding up proceedings to the extent of providing salary to these personnel.
There may not be any further recruitment but the existing staff till their age
of superannuation should be retained out of the funds generated from
liquidation proceedings.
In those circumstances, the only
conclusion that can be drawn is that there is no credible hope of revival of
the company and that it would suit the interest of all stakeholders and of the
public if its liquidation was speedily carried out. Thus the learned judge
ought not to have passed the impugned order relegating this matter to the
tribunal.
We set aside the impugned order
in each appeal and direct the winding up proceedings to be conducted and
concluded as early as possible. We remit the issues involved in the appeals and
the applications except Appeal APO 31 of 2022 and the application ACO
7 of 2023 to the learned trial court to pass necessary orders in aid of
winding up of the company. All the appeals and the connected applications (APO
30 of 2022 with ACO 3 of 2023 and APO 33 of 2022 with ACO 3 of
2022) except the appeal APO 31 of 2022 with ACO 7 of 2023 are
disposed of accordingly.
(I.P. Mukerji, J.)
Biswaroop Chowdhury, J.
I have perused the Judgment
delivered by my learned Brother and have agreed to the grounds cited and final
order made therein. However I add the following grounds.
In the judgment my learned
Brother has discussed about the decisions of the Hon'ble Supreme Court with
regard to transfer of the Liquidation Proceedings pending before High Court to
Tribunals.
Upon perusing the decisions of
the Hon'ble Supreme Court as discussed above and upon considering the proviso
of section 434(1)(c) of the Companies Act, 2013 it is clear that Company Court
has discretion to transfer proceedings to NCLT in accordance with the
provisions of the Code, considering the facts and circumstances of each case.
Further it is also observed by the Hon'ble Apex Court in Para-39 of the
Judgment in Kaledonia Jute and Fibres (P) Ltd. (supra) that the right to
invoke the 5th proviso is specifically conferred only upon the parties to the
proceedings. Therefore on a literal interpretation such a right should be held
to be confined only to the parties to the proceedings. Thus it will be clear
from the observations of the Hon'ble Apex Court in the decisions mentioned
above that the suo moto power of transfer which may be followed in case
of pending proceedings of Winding up on the ground of inability to pay its
debts, where the petition has not been served on the respondent rule 26 of the
Companies (Court) Rules 1959, cannot be exercised in cases where petition is
served on the respondent, matter is admitted or when transfer is sought to be
made by Court under 5th proviso to section 434(1)(c) of the Companies Act,
2013. In such cases order for transfer should be made on the application of any
party and upon giving the opposite parties an opportunity of being heard. In
the instant matter copy of the petition is already served on the respondent,
Liquidator appointed, Sale notice issued which is under challenge before
Learned Trial Court and there is grievance that unless a scheme is framed with
regard to salaries of Companies staff they will suffer irreparable loss and
injury. Learned Judge thus erred in passing order of transfer without any
application for transfer to N.C.L.T. by any party and without considering the
present stage of the proceedings. The order passed by the learned Trial Judge
hence cannot be sustained and with due respect the same should be set aside.
Urgent certified photo-copy of
this judgment and order if applied for be furnished to the appearing parties on
priority basis upon companies of necessary formalities.