Nil vs. Shabnam Parveen Ahmad

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R
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
nd
DATED THIS THE 2 DAY OF APRIL, 2024
BEFORE
THE HON'BLE MR JUSTICE ANANT RAMANATH HEGDE
COMPANY APPLICATION NO.31 OF 2024
IN
COMPANY PETITION NO. 42 OF 2016

BETWEEN:

M/S MAGNIFICO MINERALS PRIVATE LIMITED,
HAVING ITS REGISTERED OFFICE AT 75,
KHIRKI VILLAGE, MALVIYA NAGAR,
NEW DELHI, REPRESENTED BY ITS
CHIEF GENERAL MANAGER, FINANCE,
SRI RADHEY SHYAM AGGARWAL,
S/O KALYAN CHAND AGGARWAL.
... APPLICANT
(BY SRI SHIVARUDRAPPA SHETKAR, ADVOCATE)

AND:

M/S SARAVANA ALLOYS STEELS PVT.LTD.
21/D, INDUSTRIAL SUBURB, II STAGE,
YESHWANTHPURA, TUMKUR ROAD,
BANGALORE - 560 022,
REPRESENTED BY ITS DIRECTOR
…RESPONDENT
(BY SRI B K SAMPATH KUMAR, SR. ADVOCATE FOR
SRI KASHYAP N NAIK, ADVOCATE)

THIS COMPANY APPLICATION IS FILED UNDER SECTION
434(1)(c) OF THE COMPANIES ACT, 2013 PRAYING TO TRANSFER
THE PENDING PROCEEDINGS IN THE ABOVE MATTER TO THE
HON'BLE NATIONAL COMPANY LAW TRIBUNAL, BENGALURU
BENCH, FOR FURTHER ADJUDICATION, IN THE INTEREST OF
JUSTICE AND EQUITY.

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THIS COMPANY APPLICATION HAVING BEEN HEARD AND
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RESERVED FOR ORDERS ON 6 MARCH, 2024 AND COMING ON
FOR PRONOUNCEMENT THIS DAY THE COURT PRONOUNCED THE
FOLLOWING:

ORDER

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On an application invoking 5 proviso to Section 434(1)
(c) of the Companies Act 2013, whether the Company Court is
bound to transfer the Company Petition for winding up under the
Companies Act 1956, to the National Company Law Tribunal, is
the question that needs to be answered.

2. The applicant in Company Application No.31/2024,
being the respondent is seeking transfer of Company Petition
No.42/2016 to the National Company Law Tribunal. The petitioner
in COP No. 42/2016 is opposing the transfer application.

3. Learned Senior counsel Sri. B.K.Sampath Kumar,
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appearing for the applicant would contend that 5 proviso to
Section 434(1)(c) of Companies Act 2013(for short 'Act of 2013')
enables any party to the winding up petition to seek transfer of
the Company Petition to the National Company Law Tribunal. It is
also urged that the Company Petition is not yet admitted and
there is no progress in the petition which compels the Court to

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retain the petition before this Court. Reliance is placed on the
ACTION ISPAT AND
judgment of the Hon'ble Apex Court in
POWER PRIVATE LIMITED VS. SHYAM METALICS AND
ENERGY LIMITED, (AIR 2021 SC 309) . Referring to paragraph
No.22 of the said judgment, the learned senior counsel would
urge that the application seeking transfer of the Company Petition
has to be allowed notwithstanding the fact that the notice before
admission is already served on the respondent in the Company
Petition. He would also submit that co-ordinate bench of this
Court in COP No.21/2014 as well as in COP No.119/2014 has
transferred the petitions to the National Company Law Tribunal for
disposal in accordance with law despite service of notice to the
respondents in those petitions.

4. Learned counsel appearing for the respondent i.e., the
petitioner in Company Petition opposed the prayer on the premise
that no parallel proceeding is pending between the applicant and
the respondent, before the National Company Law Tribunal. In
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ACTION ISPA supra, the Hon’ble Apex Court was dealing with a
situation where a parallel proceeding was pending under the

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Insolvency and Bankruptcy Code. Thus, the facts in the present
case do not attract the ratio in the judgment.

5. It is also his submission that because of the use of the
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word “may” in 5 proviso to Section 434(1)(c) of the Act of
2013, the discretion lies with the Company Court as to whether or
not to transfer the Company Petition to the National Company Law
Tribunal. He placed reliance on NITESH RESIDENCY HOTELS
PRIVATE LIMITED VS. ARCHDIOCESE OF BANGALORE,
(2021 SCC ONLINE KAR 14704)

6. He would further submit that no valid ground is made
out seeking transfer of the Company Petition and this application
is filed only to protract the proceeding.

7. This Court has considered the contentions raised at
the Bar.

8. The Act of 2013 came into force in a phased manner.
Even after the commencement of the 2013 Act, the jurisdiction
of this Court (Company Court) to deal with certain matters
initiated under the provisions of the Companies Act, 1956, is

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retained. It is an admitted position before the introduction of 5
proviso to Section 434(1)(c) of the Act of 2013, the Act of 2013
enabled the Company Court to adjudicate the winding up petitions
on merit where notice regarding admission under Rule 26 of the
Companies (Court) Rules, 1959 (for short Rules, 1959) was
served.

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9. 5 proviso to Section 434(1)(c) of the Act of 2013 is
introduced in the year 2018 after the commencement of the

Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 .

10. Section 434(1)(c) of the Act of 2013 would read as
under:
434. Transfer of certain pending proceedings.— (1) On such
date as may be notified by the Central Government in this
behalf,—
(a) xxxxx
(b) xxxxx
(c) all proceedings under the Companies Act,
1956 (1 of 1956), including proceedings
relating to arbitration, compromise,
arrangements and reconstruction, and winding
up of companies, pending immediately before
such date before any District Court or High
Court, shall stand transferred to the Tribunal
and the Tribunal may proceed to deal with

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such proceedings from the stage before their
transfer:

Provided also that --

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(emphasis supplied)

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11. 5 proviso to Section 434(1)(c) of the Act of 2013
provides for an application seeking transfer of the pending
company petition to the National Company Law Tribunal . The plain
reading of the said provision, particularly the use of the word
“may” at two places in the provision, would clearly demonstrate
that the party has the option to seek transfer and the Company
Court may transfer the petition to the National Company Law
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Tribunal. To put it differently, 5 proviso to Section 434(1)(c) of
the Act of 2013 confers the discretion on the Company Court
either to retain the Company Petition or to transfer the Company
Petition subject to inherent limitations in law on exercise of
discretionary jurisdiction.


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12. Thus, the transfer of the petition is not mandatory on
the application by any of the parties to the proceeding. An
element of discretion lies with the Court. Else there was no need
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to introduce the 5 proviso in the manner in which it is couched.
Whenever a discretionary power is conferred to the Court, then
the person who seeks such discretionary power to be exercised in
his favour has to make out a valid ground for the exercise of such
power.

13. A valid ground of pendency of a parallel proceeding
before the National Company Law Tribunal is recognised by the
Apex Court in ACTION ISPAT supra. Admittedly no parallel
proceeding is pending between the parties to this application
before the National Company Law Tribunal. This Court is also
conscious of the fact that the judgment in ACTION ISPAT supra
cannot be interpreted to say that the pendency of parallel
proceedings before the National Company Law Tribunal is the only
ground recognised in ACTION ISPAT supra. Certainly, it is not
the philosophy of the said judgment. The underlying philosophy of
the said judgment is to transfer the company petition on an
application, if there is a valid ground for transfer.

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14. The question before this Court is, “whether the
applicant has made out any ground to transfer the Company
Petition to the National Company Law Tribunal?”

15. This Court has perused the application filed by the
applicant. The application does not make out any ground-seeking
transfer of the petition to the National Company Law Tribunal
other than citing the judgment of the Hon’ble Apex Court in
ACTION ISPAT
supra.

16. The co-ordinate bench of this Court in NITESH
HOTELS supra has also considered the effect of the judgment of
the Apex Court in ACTION ISPAT supra. The co-ordinate bench
of this Court has taken a view that the ACTION ISPAT supra,
judgment has to be understood in the context in which the
judgment was delivered. The co-ordinate bench of this Court has
taken a view that ACTION ISPAT supra, does not mandate the
automatic transfer of the Company Petition on an application by
one of the parties to the proceeding to the National Company Law
Tribunal.

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17. It is true that in ACTION ISPAT supra, the Apex Court
has also taken a view that the transfer of the Company Petition to
the National Company Law Tribunal is permissible even post-
admission of the Company Petition in a situation where no
irreversible transactions have taken place pursuant to the court
order which would desist the Company Court from transferring the
petition to the National Company Law Tribunal. It is also true that
the Company Petition is not yet admitted and no transactions have
taken place pursuant to the Court order which can be termed as
‘irreversible transactions'. Nevertheless, the power of the
Company Court to retain the petition under certain circumstances
post service of notice under Rule 26 of Rules, 1959 and before
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admission is evident from the language employed in 5 proviso to
Section 434(1)(c) of the Act of 2013.

18. It is well settled principle of law that the judgment
cannot be read like a statute and it has to be understood in the
context. Thus, the observation in paragraph No.22 of ACTION
ISPAT supra, cannot be construed as a mandate to transfer the
Company Petition on an application filed by any of the parties to
the proceeding. The discretion to allow or to reject the application

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under certain circumstances is still available with the Company
Court. However such discretion is not absolute. No doubt fifth
proviso to Section 434(1)(c) of the Act of 2013 is silent on the
parameters to be taken into account while exercising the
discretion. Even if the provision is silent on the parameters to be
considered while exercising the discretion, then also the discretion
on the Court is not to be construed as unfettered. The
discretionary power conferred on the Court in the absence of any
specific parameters guiding exercise of such power has inbuilt
inherent limitations and the discretion of the Court is always
guided by the principles of fair play, equity and justice.

19. Applying the aforementioned well-established
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principles, this Court is of the view that 5 proviso to Section
434(1)(c) of the Act of 2013 does not mandate the transfer of a
Company Petition to the National Company Law Tribunal on an
application filed by the parties. However the Court has to consider
whether a case is made out to exercise the discretion. The party
who seeks the discretion to be exercised in his favour must make
out a valid ground for the exercise of the discretion in his favour.
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5 proviso to Section 434(1) (c) of the Act of 2013 is not an

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exception to such rule. On perusal of the application it is evident
ACTION ISPAT
that except citing the judgment in (which has no
application to this case) the applicant has not made out a case to
exercise the discretion in his favour.

20. There is one more reason not to exercise discretion in
favour of the applicant. It is relevant to note that the petitioner's
argument on admission of the Company Petition was heard on
31.01.2024. On that day, there was no appearance for the
counsel for the respondent. Nevertheless, the Court showed
indulgence, and awaiting the appearance of the respondent
adjourned the matter to 09.02.2024 to hear the respondent. On
09.02.2024, the counsel for the respondent in the Company
Petition sought a short accommodation. The case was adjourned
to 16.02.2024. On that day the case was adjourned to
21.02.2024. On 21.02.2024, the learned senior counsel appearing
for the respondent in the Company Petition sought short
accommodation on the premise that the respondent to the
Company Petition would apply to transfer the petition to the
National Company Law Tribunal. Accordingly, the case was

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adjourned to 28.02.2024 on which date the application was filed
seeking transfer of the Company Petition.
21. Fifth proviso to Section 434(1)(c) of the Act of 2013,
as already noticed confers the discretion on the Court to either
retain the Company Petition or to transfer the Company Petition.
This Court is of the view that the conduct of the party would also
play a significant role while considering the application seeking
transfer. Admittedly, the petition was filed in the year 2016 and
the matter was heard relating to admission in the year 2024. The
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5 proviso to Section 434(1)(c) of the Act of 2013 was introduced
in the year 2018. The respondent has not chosen to move the
application till 2024. The application is moved only after the
submissions on the admission of the company petition by the
counsel for the petitioner were concluded. The conduct of the
applicant reveals that he is interested in protracting the hearing
and nothing else. This being the position, this Court does not find
any reason to exercise discretion in favour of the applicant.

22. In Company Petition No.21/2014 as well as in
Company Petition No.119/2014, relied upon by the learned senior
counsel for the applicant, this Court passed an order for transfer

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placing reliance on the Judgment of ACTION ISPAT supra. It is
relevant to note that in the aforementioned two cases, none of the
parties to the proceeding opposed the prayer for the transfer of
the petitions to the National Company Law Tribunal and the orders
passed in the said petitions are in the nature of consent orders
and those orders do not assist the applicant.

23. Accordingly, the Company Application is dismissed.


Sd/-
JUDGE


BRN