Hon'ble Mr. Justice R.F. Nariman
Hon'ble Mr. Justice Mukeshkumar Rasikbhai Shah
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 subsection (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
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the NCLT is such as may be prescribed by the Central
Government.
13. When Rules 5 and 6 of the 2016 Transfer Rules (unamended) 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
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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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