### Post-Admission Transfer to NCLT Is Discretionary and Barred Where Irreversible Liquidaton Steps Are Taken

In 2010, a petition was filed for the winding up of the Respondent Company due to unpaid debts.

The High Court of Karnataka admitted the petition on 11.11.2011 and passed a final winding-up order on 09.01.2012, appointing the Official Liquidator (OL).

After 13 years of liquidation proceedings—including the OL's reports, failed recall applications by the company, and the initiation of misfeasance and criminal proceedings against former directors—an erstwhile director (the Applicant) filed CA No. 39/2025.

The Applicant sought to transfer the winding-up proceedings to the National Company Law Tribunal (NCLT) under Section 434 of the Companies Act, 2013, arguing that no "irreversible steps" (specifically the sale of assets) had yet occurred.

1. Whether an erstwhile Director has the locus standi to seek transfer of winding-up proceedings under the fifth proviso to Section 434(1)(c) of the Companies Act, 2013?

2. Whether the power of the Company Court to transfer pending winding-up proceedings to the NCLT is mandatory or discretionary?

3. Whether the proceedings had reached an "irreversible stage" precluding transfer, despite no sale of assets having taken place?

4. Whether the application was liable to be rejected due to delay, laches, and lack of bona fides?

The court primarily applied Section 434(1)(c) of the Companies Act, 2013, and its fifth proviso, which grants the High Court discretionary power ("may") to transfer winding-up proceedings to the NCLT upon application by a party.

It relied on the Supreme Court ruling in Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd., which established that transfer is permissible post-admission unless "irreversible steps" are taken, making it impossible to set the clock back.

The court also applied Kaledonia Jute and Fibres Pvt. Ltd. v. Axis Nirman and Industries Ltd. regarding the broad definition of a "party" in proceedings in rem.

The Karnataka High Court precedent in Magnifico Minerals Pvt. Ltd. v. Saravana Alloys Steels Pvt. Ltd., which clarified that transfer is not automatic and requires the applicant to justify the exercise of judicial discretion.

The Court reasoned that while the term "party" under Section 434 is broad, an erstwhile director's standing is "precarious" as they no longer represent the company post-liquidation.

Centrally, the Court held that the power to transfer is discretionary ("may") and not mandatory.

While the Applicant argued that the absence of an asset sale meant the stage was not "irreversible," the Court clarified that "irreversibility" is not limited to physical sales but includes the maturity of the liquidation process.

In this case, 13 years had elapsed, and the OL had initiated substantive proceedings under Sections 454 (Statement of Affairs), 468, and 543 (misfeasance) of the 1956 Act.

The Court found the Applicant's 13-year delay unexplained and strategically timed to obstruct ongoing criminal and misfeasance liabilities, thereby failing the test of bona fides required for discretionary relief.

It held that the proceedings had reached an irreversible stage due to the prolonged duration of court-supervised liquidation and the advanced stage of consequential legal actions against the management.

Consequently, the Court dismissed Company Application No. 39/2025 and ordered that the winding-up proceedings (COP No. 236/2010) continue before the High Court.