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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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All the winding up petitions filed in the courts in which hardly any proceedings have taken towards winding up of the company have to be compulsorily transferred to the NCLT- Delhi High Court.

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Title: Aakash Engineers & Contractors v. Gaursons Hi-tech Infrastructure

Decided on: 10th October, 2023

+ CO.PET. 531/2016 & CO.APPL. 1671/2017

CORAM: HON’BLE MS. JUSTICE PRATIBHA M. SINGH

Introduction

The Delhi High Court transferred a winding up petition made under Section 434 of the Companies Act, 1996 on the ground of Non Payment of Debt, to the NCLT as per the Legal Position settled in the case of Action Ispat and Power Limited v. Shyam Metallics and Energy Limited (2021) 2 SCC 641, and in view of Companies (Transfer of Pending Proceedings) Rules, 2016, as hardly any proceedings had been initiated towards winding up of the company because the petition was at a very Nascent stage and no substantive orders had been passed towards the winding up of the company.

Facts of the Case

In 2012 Respondents advertised for Contractors for one of its projects in Noida and thus hired the Petitioners and gave them several work orders for construction. They reassured them of Timely payments and Cooperation however when the petitioner began with the work the Respondents caused several difficulties for them during execution and failed to make payments.
The petitioners still completed the work on time and raised a bill after the completion for all the costs incurred. When the Respondents failed to pay that cost, they sent them a Legal Notice on 1st March 2016 as per section 431 (1) (a) of the Companies Act, 1956.
There was no reply given by the Respondent’s side hence the Petitioners filed the application for Winding up of the company under section 434 on the ground of Non-payment of Debts. An Interim order was passed on 25th July 2016, ordering the respondent company to not dispose of or alienate, or encumber directly or indirectly or part with any asset of the company except for the ordinary course of business or the payment of salary or statutory dues.
On, 10th Jan 2017 Respondents came up with their contentions that no notice was given to them under section 434 of the Companies Act, as claimed by the petitioner, and that on 3rd Feb 2016 itself, the Petitioners invoked the arbitration clause mentioned in the said work orders, they also submitted before the court that the present petition should not be in effect as an alternative remedy for dispute resolution has already been invoked.
Later a Rejoinder dated 25th May 2017 which was on record was found by the court which clearly showed that there were arbitration proceedings between both parties. On 16th of August 2018, the court asked the parties to file a copy of the award that was rendered through the Arbitration proceedings. After that, the petition was adjourned from time to time because either or none of the parties appeared. The provisional Liquidator was also not appointed in the present matter.

Court analysis and decision

After listening to both parties and looking at all the facts and circumstances of the case, Delhi HC in this case relied on the Judgement given in the case of Action Ispat and Power Limited v. Shyam Metalics and Energy Limited (2021), winding up proceedings which have not reached an advanced stage ought to be shifted to the National Company Law Tribunal (NCLT), Only when a Company Liquidator has been assigned and the proceedings have arrived at a phase where it would be irrevocable, making it not possible to reverse time that the Company court must continue with the winding up, instead of moving the proceedings to the NCLT. It would depend upon the facts and circumstances of the case whether that phase has arrived yet, the court examined that in this present case that advanced stage hasn’t been reached yet and it’s still at a very nascent stage and no substantive orders have been passed towards winding up of the company, including the appointment of the Liquidator.
Hence the order was passed to transfer the electronic record of the petition to the NCLT within one week by the Registry. The interim order was allowed to continue till the first hearing of the present petition by NCLT.

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Written by- Aditi

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