This article is written by Chandana pursuing B.Com.LLB(Hons) from The Tamil Nadu Dr. Ambedkar Law University (SOEL). This article deals with the transfer of proceedings from courts to NCLT.
National Company Law Tribunal is a quasi-judicial body that adjudicates company law disputes. The establishment of NCLT brought a lot of confusion among the petitioners and judges of the high court as to whether the proceedings pending before high courts are to be transferred to NCLT or they have to continue under the existing company law board.
National Company Law Tribunal
National Company Law Tribunal ( hereinafter referred to as NCLT) was constituted by the central government under Section 408 of Companies Act, 2013 for the sole purpose of exercising and discharging the functions of the Companies act, 2013. NCLAT was also constituted by the central government as per the provision of Section 408 of the Companies Act, 2013 and the members of NCLT shall constitute chairperson, judicial and technical members who shall not be more than eleven members. The president of the tribunal shall be the person who has been the judge of the high court for a period of five years.
Transfer of Proceedings from Court to NCLT
Section 434 of Companies Act, 2013 provides transfer of certain proceedings in the matters as discussed below:
- All matters, proceedings, cases which are pending before the company law board as, under Section 10-E of Companies Act, 1956 states before such date shall be transferred to tribunal and tribunal shall dispose of such cases.
- If any person Is aggrieved by the order or any decision of company law board and wants to file an appeal to tribunal can do so within sixty days of communication of order or decision.
- All proceedings of Companies Act, 1956 and which includes proceedings relating to either arbitration, compromise, arrangement, reconstruction, and winding of companies that are pending before either district court or high court shall be transferred to the tribunal.
- Proceedings which are pending relating to winding up of companies before the establishment of IBC ordinance 2018 the applicants can file an application before the court to transfer such proceedings to the tribunal.
It is also important to note only proceedings other than proceedings of winding up and proceedings that are not exclusively reserved for the order of the high courts shall stand transferred.
Rule 5 of companies (Transfer of pending proceedings) Rules, 2017 states, all proceedings relating to winding up of the company on the ground of inability to pay debts and where notice has not been served on the respondent, the proceedings shall stand transferred to the tribunal.
Only those cases in which winding-up petitions were not served as per Rule 26 of the companies (court) Rules, 1959 were transferred to NCLT other cases the high court had jurisdiction to decide the cases.
The below-mentioned procedure applies to companies only when a petition is filed before the tribunal other than the inability to pay its debts.
The procedure which governs voluntary winding up and inability to pay its debts is mentioned in Insolvency and Bankruptcy code 2016.
As per Section 2(94-A) of Companies Act, 2013 winding up means winding up of a company either under this Act or Insolvency and Bankruptcy Code, 2016.
Petition for winding up of the company
Section 272 of Companies Act, 2013 states a company may be wound by submitting a petition to the tribunal by any one of them:
- A petition can be filed by the company itself; or
- Any Contributory or contributors can file the petition; or
- All the persons who are mentioned under the clauses(a) and (b); or
- Registrar of the companies where the registered office is situated can file; or
- The person who is authorised by the central government or state government to file a petition on behalf of the central government or state government.
Powers of tribunal
- Dismiss the order or make an order for winding up;
- Pass any interim order;
- Appoint a provisional liquidator of the company;
- Pass any order within ninety days of the presentation of the petition;
- When there is any other alternative remedy available to the petitioner instead of winding up the company on the ground of just and equitable ground, the tribunal may reject such grounds and instruct the petitioners to pursue that alternative remedy.
Direction for filing the statement of affairs
Section 274 of Companies Act, 2014 states when a petition is filed by any person in the tribunal other than the company to wind up its affairs tribunal shall direct the company to file its objections along with the statement of affairs within the thirty days of the order. Thirty days may be extended to further thirty days in certain unforeseen circumstances.
When directors or officers of the company contravene this provision, they shall be punished with imprisonment which extends to six months or fine with which shall not be less than INR 25 thousand but it may extend to INR 5 lakhs or both.
Appointment of Company liquidator
Section 2(23) Company liquidator is the person who is appointed by the tribunal as per the provision of section 275 for the purpose of winding up of the company.
Section 275 of Companies Act, 2013 provides a tribunal that may appoint any person as an official liquidator from the panel of the company liquidators.
Any person who has been registered as insolvency professional under Insolvency and Bankruptcy code 2016 shall be appointed as provisional liquidator by the tribunal.
Winding up order
Section 277(4) to (8) of Companies Act, 2013 states:
After passing winding-up orders, the tribunal within three weeks shall set a winding-up committee to assist and monitor the liquidation proceedings.
Winding up committee shall include the following persons:
- Official liquidator;
- any professional nominated by the tribunal;
- Nominee of secured creditors.
Company liquidator shall be appointed as chief of the winding-up committee and shall assist and monitor the liquidation proceedings such as:
- taking over the assets of the company;
- examination of the statement of the affairs of the company;
- recovery of any property or cash or any other assets of the company and any other benefits;
- engage in a review of audit reports and accounts of the company;
- sale of the assets of the company;
- finalise the list of creditors and contributors;
- any compromise, abandonment, and settlement of claims;
- payment of dividends;
After assessing and monitoring liquidation proceedings the company liquidator along with the report and the minutes of meetings shall be placed before the tribunal.
The final draft report which has been approved by the winding-up committee shall be placed before the tribunal for passing dissolution orders.
Winding up proceedings
In Companies Act, 1956 there were three modes by which a company may wound up:
- Section 10 of Companies Act, 1956 – Winding up by court.
- Section 488 of Companies Act, 1956 – Voluntary winding
- Member’s Voluntary winding up.
- Creditor’s Voluntary winding up.
3. Winding up subject to the supervision of the court.
By the introduction of Companies act, 2013 initially there were two modes of winding-up procedures
4. Section 270 of Companies Act, 2013 – Winding up by tribunal.
5. Section 308 of Companies Act, 2013 – Voluntary winding up.
Voluntary winding up is omitted by the Companies Act, 2013 and inserted in Insolvency and Bankruptcy Code 2016. Now there is only one way in which a company can be wound up that is winding up by tribunal.
Winding up under Companies act, 2013 is divided:
- Winding up for registered companies.
- Winding up for unregistered companies.
1. Winding up for registered companies
Circumstances in which a company can be wound up:
Section 271 of Companies Act, 2013 provides a company can be wound up.
- If the company has by special resolution resolved that the company be wound by the tribunal.
- When a company has acted:
- against the interest of sovereignty;
- security of the state;
- friendly relation with foreign states;
- public order;
- decency or morality.
3. When an application is made by the registrar or by any person who is authorised by the central government to file a petition to the tribunal stating anyone grounds mentioned:
- Affairs of the company have been conducted in a fraudulent manner; or
- The company was formed with the sole objective of conducting business for unlawful purposes.
- Persons who were engaged in the formation of company or management of its affairs have been guilty of fraud, misfeasance, or misconduct.
And the tribunal comes to the conclusion that it is proper to wound the company.
4. When the company fails to file with registrar its financial statements and annual returns immediately preceding the five consecutive years.
5. Tribunal is of the opinion that it is just and equitable that a company should be wound up if the company falls within any one of the circumstances a company may be wound up.
2. Winding up for Unregistered Companies
An unregistered company shall wind up as per Section 375 of Companies Act, 2013.
- Unregistered companies cannot voluntarily wind up.
- Unregistered company shall be wound up if.
- Unable to pay its debts.
- Tribunal is of opinion it is just and equitable to wound up.
- Company has been dissolved.
- It ceased to carry on its business.
- It is carrying business only for the purpose of winding up its affairs.
Companies (winding up) rules 2020
On January 24, 2020, the Ministry of Corporate Affairs notified rules governing the procedure for winding up and which shall take effect from April 1, 2020. This rule shall be applicable only when a petition is filed with the tribunal for winding up on grounds other than the inability to pay debts as mentioned under Section 271 of Companies Act, 2013.
Prior to the enactment of these winding up rules under Section 361 of Companies Act, 2013 which deals with the summary of proceeding, only the following class of companies would be wound up.
- Companies whose book value of assets is not more than one crore.
- A certain class of companies which has been mentioned by the central government.
- The central government shall appoint the liquidator of the company and he shall take all the assets and actionable claims of the company into his custody and within thirty days he shall submit the report to central government including the statements showing that there has been:
- No fraud has been committed either in its promotion.
- Formation and management of the affairs of the company.
And, once the central government is satisfied shall issue the order of winding up of the company.
With the introduction of Companies (winding up) Rules, 2020 the following classes of Company can directly file a petition with the central government for the wound up. These classes of companies are exempt from filing an application with NCLT for winding up.
Companies which accepts deposit and which is having total outstanding deposit
Up to INR 25 lakhs
Companies which is having total outstanding loans and including secured loan
Up to INR 50 lakhs
Companies whose total turnover
Up to INR 50 crore
Companies which is having paid-up capital
Up to INR 1 crore
A company shall wind up as per provisions of Section 271(a) rule 3 companies (winding up) rules shall apply.
The petition for winding up of the company shall be presented in form WIN 1 or in, form WIN 2 to the tribunal.
The statement of affairs of the company shall be filed in form WIN 4.
Appointment for provisional liquidator shall be filed in form WIN 7.
Winding up order shall be filed in form WIN 11.
Views of the High Court
Delhi High court view in the cases of Action Ispat and Power Limited v. Shyam Metalics and Energy Limited
Facts of the case:
Winding up proceedings were filed against Action ISPAT and Power limited by Shyam metallics and energy limited on August 27, 2018, under the Companies Act, 1956 for winding up of the company. A liquidator was appointed for the winding-up process. During the pending proceedings, an application was filed by SBI who is the second respondent of this case to judge under Section 7 of IBC to transfer the pending proceedings to NCLT. The judge transferred the winding-up proceedings from court to NCLT on January 14, 2019.
The main important issue to note here is whether the proceedings transferring from the high court to NCLT operating under the IBC is maintainable?
The following questions were raised by the appellants:
- As winding-up orders were already initiated under Companies Act 1956, and a liquidator was appointed it was not right to transfer the proceedings.
- Invoked the rights under Section 433(e) of Companies Act, 1956.
- The judge’s power to transfer the case was also questionable.
The respondents further argued that transfer was maintainable as one of the main objectives of IBC is to protect the interest of creditors, corporate debtors, and to maximize the value of the assets. Keeping in mind the objective the court came to the conclusion just because the winding-up proceedings were initiated it is not right to assume that the company should be wind up. The primary thing a company should see is to find any other alternative to revive the company. Proceedings transferred were maintainable.
Companies (Winding-up) Rules, 2020 was introduced by the Ministry of Corporate Affairs on January 24, 2020, which brought a significant change in the process of winding up of companies, reducing the burden of the tribunal, and providing exit opportunities to classes of companies. Tribunals should give the order to wind up the company only when all the alternatives are extinguished otherwise the tribunal should advise the companies to revise or restore their companies.
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