Judgment Summaries (High Court) Jotun India Private Limited v. PSL Limited

  March 3, 2022

Case Summary

Jotun India Private Limited v. PSL Limited

C.A. No. 572 OF 2017 in C.P. No. 434 OF 2015, High Court of Bombay, Decided on 05.01.2018

During the pendency of a winding-up petition filed by the petitioner-creditor, the debtor company filed an application under the Sick Industrial Companies Act (‘SICA’). With the enactment of the Insolvency and Bankruptcy Code 2016 (‘IBC’) and the repeal of the SICA, all pending proceedings (till 1-Dec-2016) under SICA were to be refiled as a Section 10 petition under IBC. The debtor company did the same. On the same day, the petitioner-creditor filed a company application for the appointment of a provisional liquidator in the pending winding-up case. The company judge, passed an order (‘Impugned Order’) restraining the NCLT to proceed with the Section 10 application, and placed the application filed by the petitioner-creditor for the appointment of provisional liquidator for hearing. The present petition before the Bombay High Court was filed to vacate the Impugned Order, alleging that the company judge in staying the Section 10 NCLT proceedings, exceeded its jurisdiction. 

  • Comparison between the SICA and the IBC

Under the SICA, a company in distress approached the BIFR. On filing of the reference, a moratorium under Section 22 of the SICA would apply due to which any winding-up proceeding, execution, recovery, etc. could not be filed/continued. However, SICA was selective in its application as it applied only to the companies mentioned in SICA’s schedule. The performance of the SCIA was underwhelming as it was often abused by the promoters, who would take undue advantage of the moratorium, thereby defeating the creditors’ rights and the purpose of the SICA.

IBC, on the other hand, marks a healthy departure from the SICA. IBC applies to all companies. Further, IBC is premised on the idea that if a temporary respite is given, a company facing temporary financial difficulties can be revived. Further, unlike the erstwhile winding-up proceedings, where even one creditor could drag the company into winding-up/liquidation, an attempt to revive the company is mandatory before liquidation. Furthermore, IBC process is strictly time-bound. Crucially, unlike in SICA, the control of the company goes out of the hands of the current management and rests in the interim/resolution professional, who then invites proposals to revive the company, which once approved, binds the company, its creditors, etc

  • Admission of winding-up petition does not entail a stay of NCLT proceedings

The court acknowledged the observation in Bank of New York Mellon v. Zenith Infotech, that, even when a winding-up order has been passed, it is open for a company whose reference is pending before the BIFR, to seek remedy under the IBC. 

Further, a winding-up petition does not entail a stay of NCLT proceedings is clear from the fact that the legislature was aware and made provisions regarding the company petitions that had been pending at the time of the enactment of the IBC. In the Transfer Proceedings Rules 2016, and as discussed in West Hills Realty Pvt. Ltd., winding-up petitions in which notice has been issued or that have been admitted, they would stay with the concerned high court, and all other winding-up petitions would get transferred to the NCLT. Therefore, if the law intended that the pending winding-up proceedings would all stay with the concerned high court, and would override the IBC, express provision to that effect should have been made. Contrarily, as per Section 64(2) of the IBC, clearly, the law did not intend that the company courts would have the power to stay the NCLT proceedings. 

  • Proceedings under IBC would apply to all the pending winding-up proceedings whether a notice has been issued or not pursuant thereto

As per various provisions of the IBC and notifications issued thereunder, pre-notice winding-up proceedings (that are transferred to NCLT) are governed by the IBC, while the post-notice ones remain with the high courts and have to be dealt with as per the Companies Act. The fact that the post-notice winding-up petitions are to be governed by the Companies Act does not mean that in a post-notice proceeding, a new proceeding under the IBC cannot be initiated. If that were the case, it would disentitle a person covered under Section 6 of the IBC to get the benefits of the IBC, against whom a winding-up proceeding is retained in the high court. This is not allowed by the language of IBC that applies the IBC provisions without exception to all proceedings pursuant to the insolvency resolution and revivals (S. 14, 63, 64(2)). Further, that, the post-notice winding-up petitions are to be decided as per the Companies Act is only a transitional provision, that cannot take away the substantive remedies provided under the IBC. Interpreting otherwise would mean turning a blind eye to the existence of the IBC.

Even for the pre-notice winding-up proceedings that are to be transferred to the NCLT, an IBC proceeding can still be initiated. The bar is against approaching the high court and not the NCLT under IBC.

  • No jurisdiction of company court to restrain/injunct NCLT from proceeding under IBC

Section 63, IBC, expressly bars the jurisdiction of the company court regarding IBC proceedings. Further, Section 64(2) prohibits the company court from injuncting the NCLT from exercising its jurisdiction under IBC. Due to Section 238 overriding provision, these provisions override the Companies Act.

Further, NCLT is not a subordinate court to the high court, so, as per Section 41(b) of the Specific Relief Act 1963, no injunction can be given against a company to institute proceedings before NCLT. Further, inherent powers of the high court would also not allow it to injunct NCLT proceedings because the Supreme Court, in Cotton Corporation of India v UIBL has held that inherent powers of the high court cannot nullify a statutory provision. Besides, Section 64(2) expressly prevents any court/authority to grant an injunction regarding any action of NCLT under IBC.

Furthermore, as held in Rishabh Agro v PNB Capital, even if a winding-up order is passed, Section 22 of the SICA applies and the company court cannot injunct the SICA proceedings. Since, IBC is a successor to the SICA, and Section 64(2) is pari-materia to Section 22 of SICA, the company court, similarly, cannot injunct an NCLT proceeding under IBC. However, the company court will have the jurisdiction to recall an earlier order passed by it.

In light of the above, the Impugned Order, being in excess of jurisdiction shall be recalled.

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