A) ABSTRACT / HEADNOTE

The judgment resolves a significant conflict arising during the transition from the Companies Act, 1956 regime to the Insolvency and Bankruptcy Code, 2016. The Supreme Court examined whether a winding-up proceeding, already admitted and advertised by a High Court, could be transferred to the National Company Law Tribunal at the instance of a financial creditor who was not the original petitioning creditor. The dispute emerged against the backdrop of overlapping jurisdictions between Company Courts and the NCLT, especially where insolvency proceedings under Section 7 of the IBC run parallel to winding-up proceedings.

The Court interpreted Section 434(1)(c) of the Companies Act, 2013, including its fifth proviso inserted by the IBC (Second Amendment) Act, 2018. A detailed examination of Rules 5 and 6 of the Companies (Transfer of Pending Proceedings) Rules, 2016 and Rule 26 of the Companies (Court) Rules, 1959 was undertaken to determine the stage at which transfer is permissible.

The Court clarified that while Rules 5 and 6 restrict automatic transfer once service under Rule 26 is completed, these restrictions do not apply where transfer is sought under the fifth proviso to Section 434(1)(c). Importantly, the Court held that winding-up proceedings are proceedings in rem, and any creditor of the company is a “party” entitled to seek transfer. Allowing parallel proceedings would defeat the object of the IBC. Consequently, the Supreme Court set aside the High Court’s refusal and directed transfer of the winding-up proceedings to the NCLT to be heard along with the Section 7 application.

Keywords:
Insolvency and Bankruptcy Code, Winding-up Proceedings, Section 434 Companies Act 2013, Transfer to NCLT, Proceedings in rem, Financial Creditor

B) CASE DETAILS

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The decision arises from systemic uncertainty during the legislative shift from court-driven winding-up proceedings to the creditor-centric insolvency resolution mechanism under the IBC, 2016. High Courts across India faced competing claims of jurisdiction when insolvency petitions were filed before the NCLT while winding-up proceedings were pending. The legislative intent behind Section 434 of the Companies Act, 2013 was to ensure a smooth transition while preventing forum shopping and duplication.

The present case highlights this tension. The winding-up petition against the corporate debtor had culminated in an order of winding up and appointment of an Official Liquidator. Subsequently, a financial creditor initiated proceedings under Section 7 of the IBC. The refusal of the High Court to transfer the winding-up proceedings rested solely on compliance with Rule 24 advertisement and the existence of a winding-up order.

The Supreme Court was required to examine the scope of the fifth proviso to Section 434(1)(c) and determine whether creditors other than the original petitioning creditor could invoke it. The judgment also revisits the nature of winding-up proceedings as collective actions affecting all creditors. This background sets the foundation for harmonising company liquidation jurisprudence with insolvency resolution objectives under the IBC.

D) FACTS OF THE CASE

A company petition under Section 433 of the Companies Act, 1956 was filed in 2015 by M/s Girdhar Trading Co. seeking winding up of the corporate debtor on the ground of inability to pay debts. Notice was ordered, but the company failed to appear. Consequently, the petition was admitted and advertised in accordance with Rule 24 of the Companies (Court) Rules, 1959.

On 10 March 2016, the High Court ordered winding up and appointed the Official Liquidator, directing takeover of assets and publication under Rule 113. Subsequently, the corporate debtor sought recall of the winding-up order after paying the entire admitted dues of the petitioning creditor. While the petitioning creditor raised no objection, the Official Liquidator opposed recall citing outstanding liabilities of approximately Rs. 27 crores owed to other creditors.

The High Court kept the winding-up order in abeyance but directed the Official Liquidator to retain custody of assets. During this period, the appellant, claiming to be a financial creditor owed Rs. 32 lakhs, filed an application under Section 7 of the IBC before the NCLT, Allahabad.

Thereafter, the appellant sought transfer of the winding-up proceedings from the High Court to the NCLT under Section 434. The High Court rejected the application on 24 February 2020, stating that the winding-up proceedings had progressed beyond the stage contemplated for transfer. This rejection gave rise to the present appeal before the Supreme Court.

E) LEGAL ISSUES RAISED

i. Whether a winding-up proceeding pending before a High Court can be transferred to the NCLT after service and advertisement of the petition?
ii. Whether a financial creditor, who was not the original petitioning creditor, qualifies as a “party” entitled to seek transfer under the fifth proviso to Section 434(1)(c)?

F) PETITIONER / APPELLANT’S ARGUMENTS

The counsels for the appellant submitted that Section 434(1)(c), as amended, confers an independent statutory right upon any party to seek transfer of winding-up proceedings. It was argued that winding-up proceedings are collective in nature and affect all creditors equally. The appellant relied on the object of the IBC to avoid multiplicity of proceedings and contended that continuation of winding-up proceedings alongside Section 7 IBC proceedings would frustrate insolvency resolution.

G) RESPONDENT’S ARGUMENTS

The counsels for the respondents contended that transfer is barred once notice under Rule 26 is served and winding-up proceedings reach an advanced stage. The Official Liquidator argued that transfer would prejudice other creditors and disrupt liquidation already initiated under the Companies Act framework.

H) RELATED LEGAL PROVISIONS

i. Section 434(1)(c), Companies Act, 2013
ii. Rules 5 & 6, Companies (Transfer of Pending Proceedings) Rules, 2016
iii. Rule 26, Companies (Court) Rules, 1959
iv. Section 7, Insolvency and Bankruptcy Code, 2016

I) JUDGEMENT

The Supreme Court allowed the appeal and set aside the High Court’s order. The Court held that Rules 5 and 6 govern automatic statutory transfers but do not restrict transfers sought under the fifth proviso to Section 434(1)(c). The Court reasoned that winding-up proceedings are proceedings in rem wherein all creditors are deemed parties.

The Court relied on statutory indicators such as Sections 447, 454, 457, 460 and 466 of the Companies Act, 1956 to demonstrate that creditors possess participatory rights throughout liquidation. The Official Liquidator acts on behalf of the entire body of creditors. Therefore, restricting the term “party” to only the original petitioner would defeat legislative intent.

The Court further observed that allowing parallel proceedings before the High Court and the NCLT would undermine the IBC’s objective of time-bound resolution. Consequently, the winding-up proceedings were directed to be transferred to the NCLT to be heard along with the Section 7 IBC application.

a) RATIO DECIDENDI

The ratio decidendi is that any creditor of a company under winding up is a “party” entitled to seek transfer of proceedings under the fifth proviso to Section 434(1)(c), irrespective of the stage of service under Rule 26.

b) OBITER DICTA

The Court observed that legislative ambiguity during transitional phases must be resolved in favour of the dominant economic legislation, namely the IBC, to prevent jurisdictional conflicts.

c) GUIDELINES

i. Parallel insolvency and winding-up proceedings must be avoided.
ii. Creditors have locus to seek transfer under Section 434(1)(c).
iii. Rules 5 and 6 do not curtail the fifth proviso.

J) REFERENCES

a) Important Cases Referred

i. Forech India Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., [2019] 2 SCR 477

b) Important Statutes Referred

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