A) ABSTRACT / HEADNOTE

The judgment in Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd. examines the scope and application of the fifth proviso to Section 434(1)(c) of the Companies Act, 2013 in the context of transfer of winding-up proceedings from the High Court to the National Company Law Tribunal. The Supreme Court was called upon to determine whether a winding-up petition, which had already been admitted and in which a Company Liquidator had taken possession of assets, could still be transferred to the NCLT for resolution under the Insolvency and Bankruptcy Code, 2016.

The Court undertook a detailed statutory analysis of Chapter XX of the Companies Act, 2013, juxtaposed with the objectives and overriding nature of the IBC under Section 238. It reaffirmed that the legislative intent behind the IBC prioritises revival and resolution over liquidation, and that winding-up is a measure of last resort. The Court clarified that the power to transfer winding-up proceedings is discretionary and not constrained by the stage of the proceedings, provided that no irreversible steps such as sale of assets have occurred.

Applying this principle, the Court upheld the concurrent findings of the Company Judge and the Division Bench that mere possession of assets by the Official Liquidator does not amount to irreversibility. The judgment harmonises corporate insolvency jurisprudence by preventing parallel proceedings and reinforces the supremacy of the IBC framework in achieving value maximisation and equitable treatment of stakeholders.

Keywords:
Winding up; Transfer of proceedings; Insolvency and Bankruptcy Code; Section 434 Companies Act; Custodia legis; Irreversible stage; Corporate insolvency resolution.

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case arises against the backdrop of the legislative transition from the winding-up regime under the Companies Act to the insolvency resolution framework under the IBC. Historically, winding-up proceedings were conducted before High Courts, often resulting in prolonged liquidation processes that eroded asset value. The enactment of the IBC marked a paradigm shift by introducing a creditor-in-control, time-bound resolution mechanism focused on revival.

To facilitate this transition, Section 434 of the Companies Act, 2013 was amended, and the Companies (Transfer of Pending Proceedings) Rules, 2016 were notified. However, ambiguities persisted regarding proceedings that had progressed beyond admission. The introduction of the fifth proviso to Section 434(1)(c) sought to resolve this anomaly by enabling parties to seek transfer of winding-up proceedings at any stage.

The present case directly tests the limits of this proviso, particularly where a winding-up order has been passed and the Official Liquidator has taken control of assets. The judgment situates itself within prior Supreme Court precedents such as Jaipur Metals, Forech India, Kaledonia Jute, and Swiss Ribbons, which collectively underscore that the IBC is a beneficial legislation and liquidation is a measure of last resort.

The decision thus serves as a crucial interpretative milestone in aligning corporate winding-up jurisprudence with insolvency resolution objectives.

D) FACTS OF THE CASE

Shyam Metalics and Energy Ltd., the respondent, filed a winding-up petition under Sections 433(e) and (f) of the Companies Act, 1956 against Action Ispat and Power Pvt. Ltd. for non-payment of ₹4.55 crore arising out of supply of iron pellets. The appellant company issued multiple post-dated cheques, a majority of which were dishonoured. Despite statutory notice, no payment was made.

On 27 August 2018, the Delhi High Court admitted the winding-up petition and appointed the Official Liquidator, directing him to take possession of the company’s registered office, factory premises, and records. The Liquidator complied and incurred expenses in securing the assets.

Subsequently, State Bank of India, a secured creditor with outstanding dues exceeding ₹700 crore, filed an application under Section 7 of the IBC before the NCLT and also sought transfer of the winding-up proceedings under Section 434(1)(c). The Company Judge allowed the transfer, revoked the winding-up order, and directed the OL to hand over possession.

The Division Bench upheld this order, noting the absence of irreversible steps. Aggrieved, the appellant approached the Supreme Court contending that once a winding-up order is passed, proceedings must continue before the High Court.

E) LEGAL ISSUES RAISED

i. Whether a winding-up petition admitted by the High Court can be transferred to the NCLT under Section 434(1)(c)?
ii. Whether taking possession of assets by the Official Liquidator constitutes an irreversible stage?
iii. Whether parallel proceedings under the IBC and Companies Act can continue simultaneously?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for the appellant submitted that once a winding-up order is passed and the Official Liquidator assumes custody, the High Court becomes functus officio. Reliance was placed on Jaipur Metals and Forech India to argue that transfer is permissible only prior to admission. It was contended that allowing transfer post-admission undermines finality and destabilises winding-up proceedings.

G) RESPONDENT’S ARGUMENTS

The counsels for the respondent and SBI argued that the fifth proviso to Section 434(1)(c) confers wide discretion without reference to stage. It was submitted that Section 238 of the IBC overrides conflicting laws and that no asset sale had occurred. Reliance was placed on Swiss Ribbons to emphasise revival as the primary goal.

H) JUDGEMENT 

The Court dismissed the appeals, holding that the discretionary power to transfer proceedings extends even post-admission. It meticulously examined Chapter XX of the Companies Act, 2013 to demonstrate that winding-up is a multi-stage process and that possession by the Liquidator does not ipso facto make proceedings irreversible.

The Court emphasised that irreversibility arises only when asset sales or distributions occur. Since none had taken place, the High Court correctly exercised discretion. Parallel proceedings were deprecated as antithetical to the IBC’s objectives.

a) RATIO DECIDENDI

The ratio is that winding-up proceedings can be transferred to the NCLT at any stage, including post-admission, provided no irreversible steps such as sale of assets have occurred, and such discretion must be exercised to further the objectives of the IBC.

b) OBITER DICTA

The Court observed that liquidation under company law should not defeat the possibility of corporate revival and reiterated that IBC is not a recovery mechanism but a resolution framework.

c) GUIDELINES

i. Transfer is mandatory where proceedings are pre-notice.
ii. Transfer is discretionary post-admission.
iii. Irreversibility depends on facts, primarily asset sale.
iv. Parallel proceedings must be avoided.

I) CONCLUSION & COMMENTS

The judgment decisively strengthens the insolvency resolution regime by clarifying that procedural milestones under company law cannot frustrate substantive revival under the IBC. It harmonises statutory interpretation with economic policy, ensuring that corporate value is preserved and creditor interests are balanced. The decision reinforces judicial consistency and provides clarity to High Courts exercising discretion under Section 434.

J) REFERENCES

a) Important Cases Referred

i. Jaipur Metals & Electricals Employees Organisation v. Jaipur Metals & Electricals Ltd., [2019] 4 SCC 227
ii. Forech India Ltd. v. Edelweiss ARC Ltd., 2019 SCC OnLine SC 87
iii. Swiss Ribbons Pvt. Ltd. v. Union of India, [2019] 4 SCC 17
iv. Kaledonia Jute & Fibres Pvt. Ltd. v. Axis Nirman, 2020 SCC OnLine SC 943

b) Important Statutes Referred

i. Companies Act, 1956
ii. Companies Act, 2013
iii. Insolvency and Bankruptcy Code, 2016