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The Supreme Court grants appeals and clarifies the distinction between “legislation by reference” and “legislation by incorporation.”

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CASE TITLE – Insolvency and Bankruptcy Board of India Versus Satyanarayan Bankatlal Malu & Ors.

CASE NUMBER – CRIMINAL APPEAL NO.3851 OF 2023/ 2024 INSC 319

DATED ON – 19.04.2024

QUORUM – Justice B.R. Gavai.

FACTS OF THE CASE

M/s. SBM Paper Mills Private Limited (Corporate Debtor) filed a petition on 4th September 2017 under Section 10 of the Code for initiation of the Corporate Insolvency Resolution Process (CIRP) of itself vide. The National Company Law Tribunal, Mumbai Bench (NCLT) vide order dated 17th October 2017, admitted the Petition and directed the moratorium to commence as prescribed under Section 14 of the Code and directed certain statutory steps to be taken as a consequence thereof. Vide the said order, the NCLT also appointed Mr. Amit Poddar as the Interim Resolution Professional (“RP”) to carry out the functions as prescribed under the provisions of the Code. In the meanwhile, Mr. Satyanarayan Malu, i.e., the Respondent/Ex-Director of the Corporate Debtor filed an application being M.A. No. 1396/2018 before the NCLT under Section 12A of the Code for the withdrawal of the aforesaid petition under Section 10 in light of a One Time Settlement (“OTS”) entered into with the sole Financial Creditor, i.e., Allahabad Bank. On the other hand, the RP had also filed an application being M.A. No. 827/2018 for the approval of the Resolution Plan. The NCLT vide order dated 20th December 2018 allowed the M.A. No. 1396/2018 filed by the Respondent while 3 observing the consent for withdrawal of the petition by the sole Financial Creditor vide letter dated 27th November 2018. However, on account of non-compliance of the terms of the OTS by the Respondents, the NCLT issued a Show-Cause Notice against them vide order dated 11th March 2019. The NCLT further found it to be a fit case to propose the prosecution of the Respondents vide order dated 20th August 2019 while hearing an application filed by the sole Financial Creditor being M.A. 494 and 495 of 2019 thereby seeking prosecution of the Respondent. Thereafter, on 22nd September 2020, the Appellant-Board filed a Complaint against the Respondents before the Sessions Judge in Special Case No. 853/2020 under the aforementioned provisions and for offences punishable under Section 73(a) and 235A of the Code for the non-compliance of the terms of the OTS and for not having filed the M.A. 1396/2018 under Section 12A of the Code through the RP. The Sessions Judge vide Order dated 17th March 2021 directed issuance of process against the Respondents and further directed them to be summoned on the next date of hearing. Being aggrieved thereby, the Respondents filed a Writ Petition No. 2592 of 2021 before the High Court of Judicature at Bombay, praying for the quashing and setting aside of the order dated 17th March 2021 passed by the Sessions Judge for the want of jurisdiction. The High Court vide impugned judgement and order dated 14th February 2022 allowed the Writ Petition No. 2592 of 2021 filed by the Respondents.

This appeal challenges the judgement and order dated 14th February 2022, passed by the learned Single Judge of the High Court of Judicature at Bombay in Writ Petition No.2592 of 2021, thereby allowing the petition filed by Satyanarayan Bankatlal Malu and Ramesh Satyanarayan Malu, the Ex-Directors of M/s. 1 SBM Paper Mills Pvt. Ltd. (hereinafter referred to as ‘the Respondents’) challenging the order dated 17th March 2021 passed by the learned Additional Sessions Judge, 58th Court in Special Case No.853 of 2020.

 

ISSUES

Whether the the present case is a case of ‘legislation by incorporation’ and not a case of ‘legislation by reference’?

 

LEGAL PROVISIONS

Section 435(3) of the Companies Act, 2013, lays out the qualification requirement for appointment as a judge in a Special Court. 

 

CONTENTION OF APPELLANTS

The Learned Counsel submitted that only the offences committed under the Companies 5 Act can be tried by Special Court consisting of Sessions Judge or Additional Sessions Judge. He submitted that the reasoning given by the learned Single Judge that the offences other than the Companies Act cannot be tried by the Special Court consisting of Sessions Judge or Additional Sessions Judge is totally in ignorance of the provisions of sub-section (1) of Section 236 of the Code. Learned ASG submitted that sub-section (1) of Section 236 of the Code provides that the offences under the Code shall be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013. He stated that the legislative intent is clear. There is no general reference to the provisions of the Companies Act. He contended that what has been done by sub section (1) of Section 236 of the Code is that the offences punishable under the Code are required to be tried by the Special Court established under Chapter XXVIII of the Companies Act, 2013. 6. Learned ASG therefore submitted that, if the reference made to the Special Court established under Chapter XXVIII of the Companies Act, 2013 is held to be legislation by incorporation, then the subsequent amendments to the Companies Act, 2013 would not be applicable to the Code. He submitted that since the Code has come into effect on 28th May, 2016, the provisions of Section 435, as it existed in Chapter XXVIII of the Companies Act, 2013 then, would only be applicable. He submitted that, if a statute is a complete Code in itself, then normally a reference to the provisions of the prior statute referred to in a subsequent statute would only have a restrictive operation. In such a case, it would be a ‘legislation by incorporation’ and not a ‘legislation by reference’. He therefore submits that the finding of the learned Single Judge of the High Court that in view of the Companies (Amendment) Act, 2017, the Special Court consisting of Sessions Judge or Additional Sessions Judge will not have the jurisdiction to entertain the complaint in question is totally erroneous. Learned ASG submits that, in any event, the learned Single Judge of the High Court has erred in quashing the complaint. It was submitted that, in the event the learned Single Judge found that the Special Court consisting of Sessions Judge or Additional Sessions Judge did not have jurisdiction and it is the Special Court of Metropolitan Magistrate or Judicial Magistrate First Class which has jurisdiction, then it should have returned the complaint for presentation of the same before the competent court having jurisdiction.

 

CONTENTIONS OF RESPONDENTS

The Learned Advocate on Record appearing for the Respondents raises a preliminary objection. He submitted that the point with regard to ‘legislation by incorporation’ was not argued before the learned Single Judge of the High Court and therefore the said contention cannot be permitted to be raised for the first time in this Court. He submitted that the judgment of this Court in the case of Bolani Ores Ltd. (supra) would not be applicable in the facts of the present case inasmuch as, in the said case what was incorporated in the subsequent statute was a definition of ‘motor vehicles’ as found in the earlier statute i.e. Motor Vehicles Act, 1939. It is therefore submitted that, the definition cannot be in a state of flux subject to the mercy of amendments to the Central Act. He submitted that in the said case, this Court was considering a provision which provided a substantive right to file an appeal. As such, a reference to Section 100 of the CPC was held amounting to be an ‘incorporation’ as the substantive right of appeal could not be left at the mercy of subsequent amendments to the CPC. Learned counsel stated that in the present case, a general reference is made to Chapter XXVIII of the Companies Act. It was therefore contended that, since a general reference is made, the present case would not be a case of ‘legislation by incorporation’ but would be a case of ‘legislation by reference’. Learned counsel submits that in any case, the Respondents Nos.1 and 2 have a good case on merits. He argued that the learned Single Judge of the High Court has not considered the merits of the matter and in the event this Court holds that the learned Single Judge was not justified in quashing the proceedings, the matter be remitted to the learned Single Judge of the High Court for deciding it afresh on merits.

 

COURT ANALYSIS AND JUDGEMENT

The Hon’ble Supreme Court held that the present case is a case of ‘legislation by incorporation’ and not a case of ‘legislation by reference’. In other words, the provision of Section 435 of the Companies Act, 2013 with regard to Special Court would become a part of Section 236(1) of the Code as on the date of its enactment. If that be so, any amendment to Section 435 of the Companies Act, 2013, after the date on which the Code came into effect would not have any effect on the provisions of Section 236(1) of the Code. The Special Court at that point of time only consists of a person who was qualified to be a Sessions Judge or an Additional Sessions Judge.  It was further stated that the Code has also suffered two subsequent amendments i.e. the 2015 Amendment and the 2018 Amendment. If the legislative intent was to give effect to the subsequent amendments in the Companies Act to Section 236(1) of the Code, nothing prevented the legislature from amending Section 236(1) of the Code. The legislature having not done that, 54 the provision with regard to the reference in Section 236(1) of the Code pertaining to Special Court as mentioned in Section 435 of the Companies Act, 2013 stood frozen as on the date of enactment of the Code. As such, they stated that the learned Judge of the High Court had erred in holding that in view of the subsequent amendment, the offences under the Code shall be tried only by a Metropolitan Magistrate or a Judicial Magistrate of the First Class. The Hon’ble Supreme Court further stated that the reasoning of the learned single judge of the High Court that in view of the 2018 Amendment only the offences under the Companies Act would be tried by a Special Court of Sessions Judge or Additional Sessions Judge and all other offences including under the Code shall be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class is untenable. For a moment, even if it was held that the reference in Section 236(1) of the Code is a ‘legislation by reference’ and not ‘legislation by incorporation’, still the offences punishable under the Code having imprisonment of two years or more will have to be tried by a Special Court presided by a 55 Sessions Judge or an Additional Sessions Judge. Whereas the offences having punishment of less than two years will have to be tried by a Special Court presided by a Metropolitan Magistrate or a Judicial Magistrate of the First Class. The Supreme Court further stated that in any case, the learned single Judge of the High Court had grossly erred in quashing the complaint only on the ground that it was filed before a Special Court presided by a Sessions Judges. At the most, the learned single judge of the High Court could have directed the complaint to be withdrawn and presented before the appropriate court having jurisdiction.

The Learned Advocate-on-record for the respondent Nos.1 and 2, had submitted that in the event this Court holds that the Special Courts presided by a Sessions Judge or an Additional Sessions Judge will have jurisdiction to try the complaint under the Code, the Supreme Court stated that they should remand the matter to the High Court for deciding the matter afresh on merits. It was stated that the respondents have a good case on merits and there has been no adjudication on merits of the matter. In the result, the court allowed the appeal.

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Judgement Reviewed by – Gnaneswarran Beemarao

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Supreme Court’s Verdict Shapes Industry Landscape: Mining Lease Saga

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Case Title: Chief Secretary Government of Odisha vs. Bharat Process & Mechanical Engineers Limited (In Liquidation) And Others

Case No.: Civil Appeals a/o. SLP (C) Nos.7315-7316 of 2021

Dated on: MAY 17, 2024

Coram: J. SANJIV KHANNA, J. DIPANKAR DATTA

Facts:

In this case, the Government of Odisha is appealing a decision involving the renewal of mining leases for three ore blocks. The dispute centres around Bharat Process & Mechanical Engineers Limited (BPMEL), a company in liquidation, and its subsidiary, Odisha Mineral Development Company Ltd (OMDC), which managed the mining operations. The leases were originally granted to Bird and Company, which was nationalized in 1980, transferring ownership to the Central Government and later to BPMEL. However, BPMEL became financially troubled and was ordered to be wound up in 2004. UCO Bank, a creditor, assigned its recovery rights to TGP Equity Management, leading to legal complexities. The High Court had directed the formation of a committee to decide on the lease renewals, involving the Central and Odisha governments, OMDC, and hearing TGP. Now, this appeal challenges various court decisions about the lease renewals and the legal standing of TGP.

Issues

  • Whether the High Court at Calcutta was justified in directing the formation of a High-Powered Committee comprising no more than three members, representing the Union of India, State of Odisha, and OMDC.

Legal Provisions:

  • Rule 72 of the Mineral (Other than Atomic and Hydrocarbon Energy) Concessional Rules, 2016: It states that before January 12, 2015, all mining leases for minerals given to a government company or corporation are automatically considered to have been granted for a duration of fifty years.
  • Section 4A (4) of the Mines and Minerals (Development and Regulation), Act 1957: It states that if the holder of a mining lease doesn’t start producing and dispatching minerals within two years of receiving the lease, or if they stop production and dispatch for two years after starting, the lease will end two years from when it was granted or from when production stopped.
  • Section 446(2)(d) of the Companies Act, 1956: It gives the company court the power to entertain or dispose of any suit or proceeding against a company, or any claim made against it.
  • Section 457(1)(b) of the Companies Act, 1956: Under this Section the company is allowed to continue its operations to the extent required for the purpose of winding up the company in a manner that is beneficial.
  • Section 201 of the Indian Contract Act, 1872: Termination of agency.

Contentions of the Appellant:

The appellant, the Government of Odisha, contends that the High Court’s decision to form a committee for lease renewals involving the Central Government, the Odisha Government, and other stakeholders, including TGP Equity Management, is erroneous. They argue that the lease renewal decisions should be within the jurisdiction of the state government alone, without the involvement of other parties. Additionally, the appellant challenges the High Court’s rulings regarding the liquidation proceedings of BPMEL and the assignment of recovery rights to TGP, asserting that these matters should be handled differently.

Contentions of the Respondent:

Bharat Process & Mechanical Engineers Limited (BPMEL) and others, herein the respondents, contended that the directions given by the High Court regarding the renewal of mining leases were justified, given the history of ownership and management of the leases involving BPMEL and its subsidiary, Odisha Mineral Development Company Ltd (OMDC). Further, they argued that the involvement of all stakeholders, including TGP Equity Management, was necessary for a fair and equitable decision on the lease renewals. Additionally, they raised objections to the delay in the liquidation proceedings of BPMEL and any attempts by the appellant to overturn previous court decisions regarding the lease renewals. However, it can be determined that their contentions focused on upholding the High Court’s decisions and ensuring a just resolution considering the complex legal and financial history of the mining leases involved.

Court’s Analysis & Judgement:

Based on the intricate analysis made by the hon’ble court, it examined the history of mining leases granted to Bird and Company, which were later transferred to Bharat Process & Mechanical Engineers Limited (BPMEL) and its subsidiary, OMDC. BPMEL faced financial difficulties and was ordered to be wound up, leading to legal disputes with creditors like UCO Bank, whose rights were later assigned to TGP Equity Management. Further, the court considered the validity of lease renewals and the involvement of various stakeholders and upheld a decision directing the formation of a committee involving the Central and Odisha governments, OMDC, and TGP to decide on the lease renewals. Moreover, it can be said that the court’s judgment emphasized on fair consideration of all parties’ interests and adherence to legal procedures in the resolution of the mining lease issues.

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Judgement Reviewed By- Shramana Sengupta

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Electricity Authority’s Actions Ultra Vires: Himachal Pradesh HC Orders Connection and Compensation to Petitioner

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Case Tittle:  M/S PURE & CURE HEALTHCARE Pvt. Ltd vs. HPSEBL

Case No.: CWP No.2585 of 2024

Dated on: 04.04.2024

Coram: HON’BLE MR. JUSTICE SANDEEP SHARMA

Facts of the Case:

The Petitioner in this case, had applied for new electricity connection but their application was rejected by the respondent because a huge amount was due to the previous owner, M/S Ankur Drug Pvt. Ltd, as the petitioner did not pay that amount to the previous owner. After rejection of such application by the electricity authority. The petitioner approached to the Hon’ble High Court of Himachal Pradesh by filling a writ application under Article 226 of the Constitution of India and urged before the hon’ble court for issuing writ of Mandamus for quashing the communication dated on 02.03.2024(Annexure P2) as it was ultra vires and also provide for compensation because respondent had breached the terms of the Himachal Pradesh   Electricity Regulatory   Commission (Distribution   Performance Standards) Regulations, 2010.

Legal Provisions:

Article 226 of the Constitution of India: It empowers the High Court to issue writ.

Section 13 of the SARFAESI Act: It states about the enforcement of security interest.

Section 77 of Companies Act, 2013: It provides for the duty to register charges.

Section 78 of Companies Act, 2013: Application for Registration of Charge.

Section 100 of the Transfer of Property Act: Charges

Contentions of the Appellant:

M/s Pure & Cure Healthcare Pvt. Ltd., herein the petitioner contended that they shouldn’t have to pay the previous owner’s outstanding electricity dues because they bought the property in an auction free of any past debts, as confirmed by the Sale Certificate. Further, they claimed that it was unfair and against the law for the electricity board to demand payment of old dues before granting a new electricity connection. Additionally, they sought compensation for the delay caused by the board’s refusal to provide the connection.

Contentions of the Respondents:

The HPSEBL, herein the respondent contended that according to their regulations, the new owner must either clear the previous owner’s outstanding electricity dues of Rs. 20,43,837 with interest or pay an advance cost along with an average bill amount to get a new electricity connection. They maintained that these payments were necessary for providing the new connection, regardless of the property’s sale through an auction.

Court’s Analysis & Judgement:

The court reviewed the case and determined that M/s Pure & Cure Healthcare Pvt. Ltd., herein the petitioner, bought the property in an auction, which included a Sale Certificate stating the property was free of previous debts. Further, the court found that it was unfair for the electricity board to demand that the new owner pay the former owner’s outstanding electricity dues. However, the hon’ble bench decided that the electricity board’s condition regarding the requirement of payment of the old dues before granting a new connection was unlawful. Therefore, the court ordered the electricity board to provide the new electricity connection without insisting on the payment of the old dues and also addressed the issue of compensating the company for the delay.

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Judgement Reviewed By- Shramana Sengupta

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Delhi High Court Transfers Winding-Up Petition to NCLT Due to Rent Payment Defaults.

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Case Title: ATAMJIT SINGH & ORS. Vs. SPORTS FIT WORLD PVT. LTD.

Case No.: CO.PET. 48/2016

Dated on: May 07, 2024

Quorum: HON’BLE MR. JUSTICE DHARMESH SHARMA

Facts of the Case:

The case involves a petition filed by Atamjit Singh & others against Sports Fit World Pvt. Ltd. under Sections 433(e) and (f) of the Companies Act, 1956, seeking winding up of the respondent company due to non-payment of outstanding rent amounting to Rs. 1,99,70,730/- for the period from June 2013 to November 2015. The petitioner leased commercial property to the respondent with a monthly rental of Rs. 9,25,000/-, but the respondent repeatedly defaulted on payments, leading to legal notices and court proceedings. Despite the petitioner’s efforts, no liquidator was appointed, prompting the court to transfer the case to the National Company Law Tribunal (NCLT) as per the provisions of the Companies Act, 2013.

Issues framed by the Court:

  1. Whether there lies a default in fulfilling lease agreement obligations?
  2. Whether the failure of the respondent to reply to legal notice discharge its liabilities?
  3. Whether the proceedings should be transferred to the National Company Law Tribunal based on the stage of the winding-up proceedings?

Legal Provisions:

Section 433 (e) of the Companies Act, 1956: Deals with the power of the court to wind up a company.

Section 433 (f) of the Companies Act, 1956: It states that a company can be wound up if the company has acted against the interests of the sovereignty and integrity of India, security of the State, friendly relations with foreign States, public order, decency or morality.

Section 434 of the Companies Act, 1956: It pertains to the jurisdiction of the court for the winding up proceedings.

Section 439 of the Companies Act, 1956: Empowers the HC to make rules for regulating the proceedings under the Act.

Section 13 of the Punjab Rent Control Act: It provides for the tenant’s obligation to pay rent.

Section 485 (1) of the Companies Act, 1956: Deals with the power of the Central Government to make rules for carrying out the provisions of the Act.

Rule 26 of the Companies (Court) Rules, 1959: Pertains to the submission of documents and petitions in court proceedings under the Companies Act. It outlines the requirements and procedures for filing documents, petitions, or applications with the court.

Section 290 of the Companies Act, 2013: Pertains to the power of the Central Govt. to make rules regarding the winding up of companies.

Contentions of the Appellant:

The contentions of the appellants, Atamjit Singh & Ors., revolve around their petition seeking the winding-up of Sports Fit World Pvt. Ltd. due to non-payment of rent. The appellants assert that Sports Fit World Pvt. Ltd. has constantly defaulted on rent payments for the commercial property leased to them. Despite agreements and legal actions taken against the respondent, the outstanding rent remains unpaid. Further, they highlight that they served legal notices to the respondent regarding the outstanding rent and initiated legal proceedings under Section 138 of the Negotiable Instruments Act, 1881, and Section 13 of the Punjab Rent Control Act. However, the respondent failed to respond adequately, leading to the filing of the present petition.

The appellants argue that the respondent’s failure to pay its debts in the ordinary course of business justifies the filing of a winding-up petition under Sections 433(e) and (f) of the Companies Act, 1956, read with relevant provisions of the Act. They acknowledge the enactment of the Insolvency and Bankruptcy Code, 2016, and the Companies Act, 2013, during the proceedings. They contend that given the absence of appointed liquidators and the progression of legal frameworks, transferring the case to the National Company Law Tribunal (NCLT) is appropriate, as per Section 434 of the Companies Act, 2013.

Contentions of the Respondent:

A mere interpretation can be brought in order to determine the contentions of the respondent herein, which may include: Dispute over Rent Payment, Legal Defenses, Counterclaims, Procedural Objections and Request for Alternative Remedies. 

Court’s Analysis and Judgement:

The court’s analysis and judgment focus on the petitioner’s request for winding up of the respondent company due to non-payment of rent. The court notes the sequential default by the respondent in rent payments, legal actions taken by the petitioner, and the absence of appointed liquidators in the case.

However, it cites certain relevant legal provisions, including Section 434 of the Companies Act, 2013, which allows for the transfer of winding-up proceedings from High Courts to the National Company Law Tribunal (NCLT). The court also references a Supreme Court decision indicating that cases at a nascent stage should be transferred to the NCLT. Therefore, the court decides to transfer the case to the NCLT, disposing of the current petition and directing the electronic record to be transmitted to the NCLT. The judgment emphasizes the NCLT’s authority to consider the matter further and pass appropriate orders.

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Judgement Reviewed By- Shramana Sengupta

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Delhi High Court Upholds Petitioner’s Appeal, Transfers Case to NCLT and Dismisses Tribunal’s Liability Order

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 Case Name: Gurbakhsh Singh Ba, Buliders Private Limited v. Fortis Hospital Limited Escort Heart Institute & Research Centre 

Case No.: CO.APPL. 1353/2015 

Dated: May 14,2024 

Quorum:  Justice Dharmesh Sharma  

 

FACTS OF THE CASE: 

In order to carry out specific work at Fortis Hospital in Ludhiana, the respondent company issued a work order on May 15, 2014, with No. LDH-1/Addl Work/0101/R-1, in favour of the petitioner company. The petitioner completed the work to the satisfaction of the respondent company within the time frame specified in the work order.  

The petitioner company raised bills in accordance with the work completed. Dated August 14, 2014, and August 20, 2014, for a total of INR 2,52,59,522/- and transferred the same to the respondent company’s office for money exchange. The petitioner in this instance is the one who, via email dated on August 21, 2014, the responding company verified the amount of the work completed and provided the petitioner with an assurance that the sum owed will be properly compensated.  

But in spite of several reminders, the respondent company refused to release the outstanding payment. As a result, the petitioner was forced to serve the respondent company with a formal demand notice dated October 16, 2014. Following that, the petitioner company served the respondent company with a statutory legal notice dated November 13, 2014, in accordance with Sections 271 (1)(a) and 271 (2) (a) and (c) of the Companies Act, 2013. 

In response to the aforementioned legal notices dated 16.10.2014 and 13.11.2014, the respondent company, through its counsel, responded on 11.12.2014 and 26.12.2014, respectively. Suffice it to say, while the respondent company acknowledged issuing the Work Order, they denied any further obligation to pay the petitioner, claiming that the payment had already been made in accordance with the Memorandum of Understanding dated 22.05.2014 and that the Work Order in question was an internal adjustment issued for accounting purposes.  

 

 

LEGAL PROVISIONS: 

  • Section 433 of the Companies Act, 1956. Circumstances in which company may be wound up by Tribunal. The Tribunal has the authority to wind up a company for the following reasons: if the company has decided by special resolution to be wound up by the Tribunal; if the company defaults on delivering the statutory report to the Registrar or on holding the statutory meeting; if the company does not begin operations within a year of its incorporation, or suspends operations for an entire year; if the number of members is reduced below two, or below seven in the case of a private company; if the company is unable to pay its debts 

 

 

ISSUES: 

  • Whether respondent is entitled to the recovery of Rs.5,91,906/- towards balance amount for supply of goods to the appellant? 
  • Whether respondent is entitled to interest claimed @ 18%per annum w.e.f. July, 2019 till the filing of the suit, amounting to Rs.2,57,479/- from the appellant? 

 

CONTENTIONS OF THE PETITIONERS: 

The petitioners vehemently argued that the petitioner company is requesting the respondent company be wound up because it has unpaid debts totaling Rs. 2,48,39,128 and Rs. 2,34,53,258 in two different petitions. In compliance with the work orders dated May 15, 2014, and May 12, 2014, the petitioner finished the work to the respondent’s satisfaction within the allotted time.  

The respondent company promised payment and validated the amount of work completed via email, however they did not transfer the money in spite of several reminders. In order to recover money, the petitioner issued the respondent business with statutory legal notices and legal demand notices in accordance with the Companies Act of 2013.  

 

CONTENTIONS OF THE RESPONDENT:  

The respondent’s counsel strongly contends that the issuing of the work order but disclaimed any further responsibility, claiming that payment had been made in accordance with a Memorandum of Understanding (MoU) dated May 22, 2014, which had nothing to do with the work carried out in accordance with the Work Order dated May 14, 2014. 

They asserted that the disputed Work Order was an internal modification made for accounting purposes. According to the respondent, the work order dated May 12, 2014, was revoked, and a new work order dated May 14, 2014, was issued for internal accounting purposes. This new work order adjusted the amount already paid under the May 22, 2015, memorandum of understanding.  

 

COURT’S ANALYSIS AND JUDGMENT: 

The court found that a review of the record confirms that the current winding up petitions are completely unworkable. The current procedures are in its early stages, to the extent that neither an Official Liquidator nor a Provisional Liquidator has been designated to assume control over the assets and operations of the responding company. Therefore, in these company petitions, no significant orders have been issued.  

The parties’ learned counsels have made representations in this regard. On behalf of the Petitioner’s learned Counsel, it has been argued that the purpose of the provisions pertaining to the transfer of pending winding up proceedings—particularly the fifth proviso to Section 434—is to prevent the emergence of parallel proceedings. In relation to the current case. 

As per the court’s ruling, all cases filed before the date in any District Court or High Court under the Companies Act, 1956 (1 of 1956), including those pertaining to arbitration, compromise, arrangements, reconstruction, and winding up of companies, will be transferred to the Tribunal. The Tribunal will then be able to handle these cases starting from the point where they were filed.  

Additionally, the court held that the Supreme Court had taken into consideration the entire statutory framework pertaining to company winding up as well as a number of rulings when it held that, even after admission, the High Court may transfer a petition of this kind to the NCLT, provided that no irreversible actions have been taken in connection with the company’s winding up. In addition, the petitioner’s experienced counsel has submitted that no application has been moved to transfer the current petitions to the NCLT, and this cannot be accepted.  

The court after considering the previous debate, this Court believed that the current petitions cannot be allowed to be continued before it because no substantive actions have been made to wind up the corporation. The instant petitions are therefore moved to the NCLT. The NCLT has the authority to decide these cases based on their merits and issue relevant rulings that comply with the law. 

 

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Judgment reviewed by Riddhi S Bhora 

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