Insolvency proceedings abate upon failure to transition to IBC, reviving winding-up orders and barring unauthorized asset alienation.

M/s Jaipur Udyog Ltd. (JUL) was declared a 'sick industry' in 1987 under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA)

In 1992, the BIFR sanctioned a rehabilitation scheme (SS-92) submitted by Gannon Dunkerley & Co. Ltd. (GDCL), appointing them to manage JUL

However, the scheme failed, and in 2000, the BIFR recommended the winding up of JUL

An appeal was filed before the AAIFR, which remained pending until SICA was repealed in 2016

Under the Insolvency and Bankruptcy Code (IBC), JUL/GDCL failed to approach the NCLT within the 180-day window, causing the AAIFR proceedings to abate and the winding-up recommendation to revive

Despite this, GDCL continued to manage JUL's assets, diluted JUL’s shareholding in its subsidiary, Jai Agro Industries Ltd. (JAIL), and sold properties (including a Jute Mill in Kanpur and land in Jodhpur) without court permission during the pendency of this Writ Petition

Workers’ unions filed the present petition seeking decades of unpaid wages

1. Whether the management and locus of GDCL over JUL’s assets survived the abatement of SICA proceedings and the failure to migrate to the IBC.

2. Whether the sale of assets of JUL and JAIL by GDCL during the pendency of litigation without court approval was legally valid.

3. Whether the court should exercise its power under Article 142 to condone GDCL's actions or approve new rehabilitation schemes from third-party investors.

4. What mechanism should be adopted for the final settlement of worker dues and the disposal of remaining assets.

The court applied Section 252 and the Eighth Schedule of the Insolvency and Bankruptcy Code, 2016, which mandates that proceedings pending under SICA stand abated upon repeal unless a reference is made to the NCLT within 180 days

It relied on the principle from Sivanandan C.T. v. High Court of Kerala that "legitimate expectation" cannot override legal requirements or condone illegalities

Regarding the independence of subsidiaries, the court noted the principles in Vodafone International Holdings BV v. Union of India but distinguished it on facts involving the fraudulent dilution of a holding company's shares in a subsidiary during insolvency

The court also applied the doctrine that a manager or promoter of a sick company acts as a custodian and cannot alienate assets without following the statutory mode of sale

The Court observed that GDCL’s legal authority to manage JUL essentially evaporated when the AAIFR appeal abated in 2016 due to non-compliance with IBC transition timelines

Consequently, the BIFR’s 2000 recommendation for winding up stood revived

The Court found GDCL’s conduct "clandestine" and "illegal," specifically noting that it diluted JUL's 99.9% stake in JAIL to 33% by issuing shares to its own group companies without authority

The sale of the Kanpur Jute Mill and JAIL properties during the pendency of this Writ Petition, without seeking the Court's or a Sale Committee’s permission, was a gross violation of the custodia legis status of the assets

The Court refused to invoke Article 142 to "iron out creases," holding that the provision cannot be used to validate fundamental illegalities or lack of locus

While third-party investors (Frost Realty and Dickey Asset Management) proposed schemes, the Court rejected them as "premature" and "conditional," noting that no asset could be transferred without a formal, independent valuation

The Court directed the completion of worker verification and payment of dues (principal + 5% interest) by August 31, 2026

It appointed Justice Manindra Mohan Shrivastava (Retd.) as Court Administrator to oversee the valuation of all JUL/JAIL assets and the preparation of an inventory

The sale of scrap was set aside; however, the Court refrained from setting aside the Kanpur and JAIL land sales to avoid further complex litigation with third-party buyers, instead ordering that GDCL be reimbursed for debts it cleared only after the workmen are paid

The Company Petition No. 21/2001 in Rajasthan HC was disposed of as infructuous since JUL's external debts are now cleared

Applications by Frost Realty and Dickey Asset Management were rejected

Workers must vacate company housing six months after receiving full payment of dues