Winding up petitions remain transferable to NCLT unless proceedings reach an irreversible stage like concluded asset sales.

In brief

The question

1. Whether the transfer of a winding-up petition to the NCLT is contingent upon the prior payment of expenses (such as security costs) incurred by the Official Liquidator.

The court held

the court answered both issues in the negative and dismissed the appeals. It held that the pending claim for security services does not constitute an irreversible stage of winding up

It also directed

The Company Court's decision to transfer the petitions to the NCLT was upheld. The court also condoned the delay in filing the second appeal but ultimately found no merit in the challenges. Final Order: Appeals dismissed without costs

01Facts

The appellant, Shiva Shakti Security Services, was appointed by the Official Liquidator (OL) to provide security for the assets of Martina Boi Genics Pvt. Ltd. (In Liquidation) following a winding-up order dated November 21, 2016

¶ 13-14

The appellant claimed approximately unpaid bills for these services

¶ 5

Subsequently, the Company Court directed the transfer of the winding-up proceedings (CP/49/2016 and CP/347/2015) to the National Company Law Tribunal (NCLT), Kolkata, in light of the Insolvency and Bankruptcy Code (IBC) regime

¶ 3-4

The appellant challenged these transfer orders, arguing that their unpaid dues should be settled before transfer and that the assets remain in custodia legis

¶ 7-10

02Issues

i.1. Whether the transfer of a winding-up petition to the NCLT is contingent upon the prior payment of expenses (such as security costs) incurred by the Official Liquidator.

¶ 7, 21

ii.2. Whether the pending claims of a service provider constitute an "irreversible" or "irretrievable" stage of winding up that prevents the transfer of proceedings to the NCLT.

¶ 25-27

03Law Applied

The court primarily applied Section 434 of the Companies Act, 2013, regarding the transfer of pending proceedings

¶ 16

Action Ispat and Power Private Limited v. Shyam Metalics and Energy Limited (2021) 2 SCC 641

¶ 4, 17

A. Navinchandra Steels Private Limited v. SREI Equipment Finance Limited and Others (2021) 4 SCC 435

¶ 4, 19

These precedents established that a Company Court retains discretion to transfer proceedings post-admission unless the process has reached an "irreversible" or "irretrievable" stage, such as the actual sale of immovable/movable properties or where the company is near "corporate death"

¶ 18-19

Provisions in the judgment · 3 · Linked ones open on LawLens

Companies Act, 2013 Section 290 Section 434

Insolvency and Bankruptcy Code, 2016. Section 7

04Reasoning

The court reasoned that the primary test for preventing a transfer to the NCLT is whether "actual sales of the immovable or movable properties have taken place" or if "nothing irreversible is done"

¶ 18, 25

In the present case, the court found that although the appellant had rendered services and had pending bills, this did not meet the "irreversible/irretrievable" threshold

¶ 26

The court clarified that the Supreme Court's observations in Action Ispat regarding the reimbursement of OL expenses were specific to the facts of that case and did not create a sine qua non (absolute condition) for transfer

¶ 21

The court noted that Section 529 of the Companies Act, 1956, does not provide a right to halt a transfer, as the appellant can still prove and pursue its claims before the NCLT

¶ 11, 27

05Holding

the court answered both issues in the negative and dismissed the appeals. It held that the pending claim for security services does not constitute an irreversible stage of winding up

¶ 27

¶ 29-31

LawLens.Calcutta High Court

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