SC: Creditor of a firm in liquidation can seek transfer of winding up from HC to NCLT

Updated: Nov 19,2020 17:18 GMT

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IANS

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New Delhi, Nov 19 (IANS) The Supreme Court said on Thursday that the transfer of the winding up proceedings of a company from the High Court (company court) to the National Company Law Tribunal (NCLT) can be ordered at the instance of any creditor of a company in liquidation.

A bench headed by Chief Justice S.A. Bobde and comprising Justices A.S. Bopanna and V. Ramasubramanian said: "The petitioner is entitled to seek a transfer of the pending winding up proceedings against the first respondent to the NCLT."

The top court judgement came on an appeal filed by M/s Kaledonia Jute and Fibres Pvt Ltd, challenging the Allahabad High Court which had declined to transfer to the NCLT a pending winding up petition against M/s Axis Nirman and Industries Ltd.

The top court set aside the high court order and transferred the winding up proceedings to the NCLT.

The bench observed that if the Allahabad High Court is allowed to proceed with the winding up and the NCLT is allowed to proceed with an enquiry into the application under Section 7 of the IBC, the entire objective of the IBC will be thrown to the winds. "The objective of IBC will be stultified if parallel proceedings are allowed to go on in different fora," the top court noted.

The bench decided the case on two legal questions: Under what circumstances winding up proceedings from the High Court can be transferred to the NCLT, and at whose instance, this transfer can be ordered.

The bench observed that for winding up proceedings, under the Company Law, any creditor of a firm in liquidation may become a party to the proceedings. Also, the creditor can seek transfer of the proceedings to be dealt under the IBC.

The bench observed that winding proceedings of a company are actually proceedings to which the entire body of creditors is a party. The bench added that the proceedings might have been initiated by one or more creditors, but by a deeming fiction the petition is treated as a joint petition.

The top court said: "Therefore, the word 'party' appearing in the 5th proviso to Clause (c) of Sub section (1) of Section 434 cannot be construed to mean only the single petitioning creditor or the company or the official liquidator. The words 'party or parties' appearing would take within their fold any creditor of the company in liquidation."

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