The Supreme Court of India had recently held in the matter of Kaledonia Jute and Fibres Pvt. Ltd. v. Axis Nirman and Industries Ltd, that the transfer of winding-up proceedings of the firm from a High Court (Company Court) to the National Company Law Tribunal (NCLT) could be ordered at the instance of a creditor who is not a party towards the litigation.
The Apex Court stated that "any creditor of a company in liquidation" could become a party to the liquidation petition against the defaulting company and can seek transfer of the appeal from a High court to a National Company Law Tribunal (NCLT), as made under the new law on insolvency and bankruptcy.
The bench was led by Chief Justice S A Bobde and justices A S Bopanna and V Ramasubramanian had faced two legal questions which comprise that
i. as to what are the conditions under which a winding-up proceeding pending in a High court can be transferred to the NCLT, and
ii. at whose instance, such transfer could be directed.
In a ruling, as directed by Justice Ramasubramanian, it held that the proceedings for winding up is a continuous legal procedure and according to the Company law, any creditor of the firm in winding up might become a party towards the proceedings and can seek transfer of the matter from a High court to the NCLT in order to be treated under the Insolvency and Bankruptcy Code (IBC) 2016.
Therefore, the proceedings for liquidation of a corporation are actually proceedings in rem towards which the entire body of creditors is a party. The bench also held that one or more creditors might have started the proceedings, but through a deeming fiction, the appeal is treated as a joint petition. The official liquidator will perform for and in the best interests of the entire body of creditors.
The Apex Court held that the term 'party' appearing in the 5th provisions to Clause (c) of Subsection (1) of section 434 shall not be deemed to mean only the single petitioning creditor or the corporation or the official liquidator. The words 'party or parties' appearing in the said proviso shall take within its fold any creditor of the corporation in liquidation.
Referring to the previous rulings, it said that the object of the IBC would be "stultified" if parallel proceedings are permitted to continue in different mediums.
The bench, in its long judgment, dealt in details the provisions of the Companies Act, IBC and Rules and stated that the creditors, was not a party to a liquidation proceeding in the early stages of the lawsuit, could become one on the later stage as the all the creditors of a defaulting corporation shall be treated equally in law.
The judgment came on an appeal made by a company, M/s Kaledonia Jute and Fibres Pvt Ltd, against an order of the Allahabad High Court which had declined to transfer to the NCLT a pending winding up appeal before it against M/s Axis Nirman and Industries Ltd stating that the procedure before cannot be transferred.
The Supreme Court stated that the petitioner here shall come within the definition of the word "party" appearing in the 5th proviso to Clause (c) of Sub-section (1) of Section 434 of the Companies Act, 2013 and that the claimant is entitled towards seeking a transfer of the pending proceedings of winding up against the first defendant, to the NCLT,".
Conclusion:
Therefore, it could be observed that the winding proceedings of a corporation are actually proceedings towards which the entire body of creditors is a party. The word 'party' in the 5th proviso to Clause (c) of Subsection (1) of Section 434 shall not be interpreted to mean only the single pleading creditor or the corporation or the official liquidator. The words 'party or parties' shall be deemed to be taken within their fold by any creditor of the corporation in liquidation.
Thus, the petition is allowed; the order of the High Court was set aside and the proceedings for winding up pending before the Company Court against the corporation are ordered to be transferred to the NCLT".
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