44 Honble Mr. Justice R. D. Dhanuka and the Honble Mr. Justice
26. 1977 2 SCC 166 Gauri Gaekwad 27/53 CA-572-2017.doc1. A. S. Gadkari have duly exercised their aforesaid discretionary powers in passing the Orders dated 9th March 2017 (hereinafter referred to as the Admission Order) and 19th July 2017 (hereinafter referred to as the Stay Order), respectively.
45 This Court in the Admission Order, has considered the relevant facts and has exercised its powers under Sections 442 and 443 of the 1956 Act restraining respondent from approaching NCLT. The Honble Judge has in context of the possibility of revival of respondentapplicant observed that the CDR Scheme could not be implemented and that prima facie, respondentapplicant cannot be revived.
46 Honble Mr. Justice A. S. Gadkari J. has exercised powers under Sections 442 and 443 of 1956 Act, in the Stay Order and held as follows
1. Circulation is granted for 26.07.2017. To be placed high on board.
2. In the meantime the National Company Law Tribunal (NCLT), Ahmedabad is directed not to proceed further with CP (IB) No. 37 of 2017.
(VII) Harmonious construction of the 1956 Act, the 2013 Act and IBC :
47 With respect to the Saved Petitions, the provisions of the 1956 Act, the 2013 Act and IBC must be read in a harmonious and purposive manner. Gauri Gaekwad 28/53 CA-572-2017.doc1. NCLT being the Adjudicating Authority under IBC, in fact derives its powers from the provisions of the 2013 Act. Section 5(1) of IBC defines the Adjudicating Authority as follows Adjudicating Authority for the purposes of this Part, means National Company Law Tribunal constituted under section 408 of the Companies Act, 2013. The powers of the Adjudicating Authority are derived from the provisions of the 2013 Act, under Chapter XXVII in Sections 407 434.
48 After hearing the counsel for opposing parties, I am inclined to agree with the submissions of Mr. Dwarkadas and my views are as under :
(I) Background and Object Purpose of Insolvency Code :
49 The Honble Supreme Court of India, in Innoventive Industries Ltd. (Supra), has referred to the report of Bankruptcy Law Reforms Committee 2015 (Reforms Committee) in order to gain an insight into why IBC was enacted and purpose for which it was enacted. Briefly stated the Reforms Committee examined whether in the case of a company which has committed a default in repaying its debt obligations, whereas secured creditors are able to repossess the fixed assets which are pledged with them, there are several creditors and lenders who are not secured lender and when default takes place lenders are able to recover only 20% of the value of debt on a Net Present Value (NPV) basis. Gauri Gaekwad 29/53 CA-572-2017.doc1. In short, the Reforms Committee came to the conclusion that those industries which do not have a strong asset base are being deprived of credit which makes it difficult for corporates to raise finance by issuance of long dated corporate bonds (unsecured) which are essential for most infrastructure projects. The Reforms Committee found that where a default occurs, an unsecured lender was either to take the company into liquidation or to negotiate a debt restructuring, where the creditors accept a reduced amount on NPV basis, in the hope that negotiated value exceeds the liquidation value. A third possibility would be to sell the firm as a going concern and pay off the creditors. Many hybrid structures of these broad categories can be envisioned. The Reforms Committee after examination came to the conclusion that it would be better that only one forum evaluates such possibilities and makes a decision, which in opinion of the Reforms Committee was a Creditors Committee, where all financial creditors have a vote in proportion to magnitude of debt they held. As to what should happen to a defaulting firm, in the opinion of Creditors Committee is a business decision and only creditors should make it. The Reforms Committee also came to the conclusion that liquidation is not a viable solution because of delays in implementing Gauri Gaekwad 30/53 CA-572-2017.doc1. liquidation process which resulted in liquidation value going down with time on account of high economic rate of depreciation. As noted at Pg.7 of Innoventive (supra) the Reforms Committee has stated: The Committee believes that there is only one correct forum for evaluating such possibilities, and making a decision: a creditors committee, where all financial creditors have votes in proportion to the magnitude of debt that they hold. In the past, the laws in India have brought arms of the government (legislature, executive or judiciary) into this question. This has been strictly avoided by the Committee. The appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it. The Committee came to the conclusion that the creditors and debtors ought to be left to decide and realise and agree on whether the entity was facing financial failure or business failure and whether it was capable of being revived. The most significant change being, that when a company defaults on its debt, control of the company should shift to creditors rather than the management who was retaining control after default. It is apparent from a reading of the object and purpose for which IBC has been enacted is to set up an Insolvency and Bankruptcy resolution process, which has to be implemented in a strict time bound manner, by the appointment of an IRP and creation of a creditors Committee. These are powers which can be exercised only by NCLT and not by the Company Court. It is for this reason that pending the Insolvency Resolution Process a moratorium is provided for under Section 14 of IBC. Therefore, the most fundamental distinction between the Gauri Gaekwad 31/53 CA-572-2017.doc1. provision of the Companies Act and IBC is, whereas, under the Companies Act winding up would be a matter for the Court alone to decide, under IBC, there is a paradigm shift in as much as it displaces the management of the Company and an IRP is appointed and the Creditors Committee is left to decide the fate of the company.
(II) Broad comparison between the provisions of SICA and IBC :
50 Prior to the enactment of IBC, SICA required, what were defined as Sick Industrial Companies to file a reference before BIFR. Once a reference was filed, the moratorium under section 22 of SICA kicked in, as a result whereof proceedings such as winding up, execution and the like could neither be filed nor proceeded with, if filed. SICA, however, did not apply to all companies. It applied to only those industrial undertakings as were set out in the Schedule of the said Act. Experience showed that SICA though enacted with the laudatory object of revival of sick companies was being abused by promoters, who on account of the moratorium available under Section 22 were dragging on the proceedings either before the BIFR or AAIFR interminably, frustrating the object and purpose of the Act and defeating rights of creditors. IBC, on the other hand, as held by the Honble Supreme Court in the case of M/s Innoventive Industries Ltd. (supra) and Mobilox Innovations Private Limited (supra) has certain features which mark a healthy departure from the failings of SICA. Briefly stated they are: Gauri Gaekwad 32/53 CA-572-2017.doc1.
(i) IBC applies to all companies (public and private);
(ii) Since it is now well settled that a company has various stakeholders other than just shareholders like workmen, creditors etc. as held in National Textile Workers' Union v. P.R. Ramakrishnan & Ors. (supra), a company which has suffered a temporary financial set back maybe revived, by granting it a temporary reprieve by giving it an opportunity to put itself back on its feet.
(iii) Unlike in the case of the erstwhile winding up provisions of the 1956 Act or the 2013 Act, where a single creditor, whose debt was undisputed could wind up a company, thus bringing about its untimely financial death, IBC on the other hand mandatorily requires that an attempt at revival be made by appointing an IRP to examine whether such a company can be revived.
(iv) The process of insolvency resolution is strictly time bound and as held by the Supreme Court in Innoventive (supra) speed is of essence for the working of the bankruptcy code27. The Supreme Court has held that there cannot be any relaxation of the time lines prescribed in the Code28.
(v) The initial period of attempting a resolution process is 180 days from the admission of the Petition which can be extended by a further
27. Paragraph 16 page 7
28. Paragraph 16 page 7 and Paragraph 28 page 18 Gauri Gaekwad 33/53 CA-572-2017.doc1. period of 90 days only if 75% of the committee of creditors consent.
(vi) What is, however, of crucial importance is that unlike SICA, once an application filed under IBC either by a financial/operational creditor is admitted, the Board of Directors of the company are immediately displaced and the management of the company rests in the hands of IRP.
(vii) The function, power and duty of an IRP is to invite from any person proposal for resolution/revival of the Company in question, which in order to be binding upon the company and all its creditors must be approved by a majority of 75% of the committee of financial creditors (COC);
(viii) If on the other hand, (a) NCLT does not receive a resolution plan under Section 30(6) of IBC, within the expiry of the insolvency resolution process period of 180 days or its further extension by ninety days,29 or (b) it rejects the resolution plan under 31 for noncompliance of the requirements specified therein30 or (c) the resolution professional intimates NCLT that the committee of creditors decide to liquidate the corporate debtor31 or (d) the resolution plan approved by NCLT is contravened by the concerned corporate debtor and any person who is prejudicially affected by such a contravention makes application and upon
29. Section 31(1)(a) of the Code
30. Section 33(1)(b) of the Code
31. Section 33(2) of the Code Gauri Gaekwad 34/53 CA-572-2017.doc1. determination thereof, it is held that there has been such a contravention,32 NCLT would pass an order of liquidation under Section 33 of IBC. NCLT is mandatorily required to pass an order of liquidation under Section 33(b)(i) and (ii)and (iii) of IBC.
(III) IBC has Primacy :
51 As held by the Supreme Court of India in the case of Madura Coats Ltd. (Supra), that even during the regime of SICA, SICA was held to have primacy over the provisions of the Companies Act. By the virtue of Section 252 of IBC, SICA stands repealed with effect from 1st December 2016. Under section 4 (b) of the Repeal Act, all proceedings before the BIFR/AAIFR stood abated and in respect of such abated proceedings, provision has been made to permit a Company, to make a reference within a period of 180 days from 1st December 2016 to NCLT, which reference is required to be dealt with in accordance with the provisions of IBC.
52 In the present case, respondentapplicant had filed a reference which was pending before BIFR prior to the repeal of SICA. Respondent applicant has, within the prescribed period of 180 days, made an application to NCLT by an application under Section 10 of IBC. Of course, counsel for petitioner made certain grievance that respondentapplicant
32. Section 33(3) of the Code Gauri Gaekwad 35/53 CA-572-2017.doc1. waited until the last few days to make an application to NCLT under Section 10 of IBC and this Court had declined to grant further time or wait till the company applied to NCLT. In my view, these are all irrelevant so long as the application under Section 10 was made in time.
53 It has now been held by the Supreme Court in Bank of New York Mellon (Supra) that by virtue of Section 252 of IBC, even in the case of a company where a winding up order has been passed, it is open to such a company, whose reference was deemed to be pending with BIFR, to seek remedies under IBC before NCLT.
(IV) No carving out of existing winding up proceedings :
54 Section 252 of IBC has amended the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 in the manner specified in 8th Schedule of IBC. The 8th Schedule provides as under: In section 4, for subclause (b), the following subclause shall be substituted, namely " (b) On such date as may be notified by the Central Government in this behalf, any appeal preferred to the Appellate Authority or any reference made or inquiry pending to or before the Board or any proceeding of whatever nature pending before the Appellate Authority or the Board under the Sick Industrial Companies (Special Provisions) Act,1985 (1 of 1986) shall stand abated: Provided that a company in respect of which such appeal or reference or inquiry stands abated under this clause may make reference to the National Company Law Tribunal under the Insolvency and Bankruptcy Code, 2016 within one hundred and eighty days from the commencement of the Insolvency and Bankruptcy Code, 2016 in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016: Gauri Gaekwad 36/53 CA-572-2017.doc1.
55 The effect of this substituted Section 4(b) is therefore to confer an express power upon the company to make a reference to NCLT under IBC within 180 days of the commencement of IBC, i.e. 1.12.2016, which reference will be dealt with in accordance with the provisions of the Insolvency and Bankruptcy Code, 2016.
56 If what petitioner contends is correct, a reference sought to be made by a Company under the provisions of Section 252 of IBC, in a situation where a post notice winding up petition which is governed by the Companies Act, 1956 against the same company (and which is retained by the Company Court), cannot be entertained by NCLT and if entertained will be nullified. There is no express or implied saving of any substantive provisions of the Companies Act, 1956 to warrant this interpretation.
(V) Admission of a winding up petition does not entail stay of NCLT proceedings :
57 It was submitted, and I agree with Mr. Dwarkadas, that admission of the winding up petition by the jurisdictional High Court would not mean that NCLT either loses jurisdiction or cannot exercise jurisdiction in case of a petition which is filed by another creditor (financial, operational or the company itself under section 10 of IBC). The legislature is deemed to be aware of the provisions of an existing law, i.e., the Companies Act, whilst enacting the provisions of IBC (Competition Gauri Gaekwad 37/53 CA-572-2017.doc1. Commission of India v. Steel Authority of India Ltd. and Anr.)33 as well as the fact that company petitions that may have been filed prior to IBC coming into force may have been admitted and pending final disposal in the jurisdictional High Court.
58 In the transfer of proceedings rules dated 7th December 2016 it has been provided that winding up petitions in respect of which notice has been issued to the respondent company or which have been admitted, as held in the unreported judgment dated 23rd December 2016 of Gupte J. in West Hills Realty Pvt. Ltd (supra), remain with the jurisdictional high court whereas, all other winding up petitions get transferred to NCLT.
59 If the legislature intended, that those winding up petitions, of which the jurisdictional high court remain seized, would have primacy over NCLT proceedings which may be filed in respect of the same company by another creditor, the legislature would have said so, either in IBC or in the transfer rules Notification.
60 On the contrary, the provisions of Section 64 (2) of IBC would indicate that the legislature did not intend that the Company Court would have the power to injunct proceedings before NCLT. Furthermore, when IBC was enacted and the provisions of SICA were repealed by the Notification dated 21st December 2016, companies which had filed a 33.(2010) 10 SCC 744 Gauri Gaekwad 38/53 CA-572-2017.doc1. reference under SICA were given a period of 180 days to file a petition under the provisions of IBC. Thus, the period of moratorium which operated visvis winding up proceedings as a result of Section 22 of SICA could be continued (if found fit by NCLT) under IBC in the time prescribed by the said Notification.
61 It is pertinent to note that on 19th June 2015, respondent applicant filed a reference under Section 15(1) of SICA with BIFR. This was registered on 9th September 2015 and two hearings took place. On 1st December 2016 SICA came to be repealed. On 29th May 2017 respondentapplicant filed its petition under Section 10 before NCLT, Ahmedabad, i.e., within the prescribed period of 180 days.
62 In fact, the Honble Supreme Court in the case of Madura Coats Ltd. v. Modi Rubber Ltd. (supra) has held that the provisions of SICA would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under SICA. Therefore, since SICA is repealed and replaced by IBC (S. 252 read with VIII Schedule of IBC), the provisions of IBC should prevail over the provisions of the Companies Act, 2013.
(VI) Effect of Repeal :
63 Section 255 read with 11th Schedule of IBC has amended the Gauri Gaekwad 39/53 CA-572-2017.doc1. Companies Act 2013. In the 11th Schedule, Clause 34 (c) provides as under:
34. For section 434, the following section shall be substituted, namely: "434. (1) On such date as may be notified by the Central Government in this behalf, (a); (b); (c) all proceedings under the Companies Act, 1956 (1 of 1956), including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and the Tribunal may proceed to deal with such proceedings from the stage before their transfer: Provided that only such proceedings relating to the winding up of companies shall be transferred to the Tribunal that are at a stage as may be prescribed by the Central Government.
64 The Notification dated 7th December 2016 issued under the provisions of subsections (1) and (2) of Section 434 of the Companies Act, 2013 read with subsection (1) of section 239 of IBC states:
5. Transfer of pending proceedings of Winding up on the ground of inability to pay debts (1) All petitions relating to winding up under clause (e) of section
433 of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under subsection (4) of section 419 of the Act, exercising territorial jurisdiction and such petitions shall be treated as applications under sections 7, 8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the Code:
6. Transfer of pending proceedings of Winding up matters on the grounds other than inability to pay debts All petitions filed under clauses (a) and (f) of section 433 of the Companies Act, 1956 pending before a High Court and where the petition has not been served on the respondent as required under rule Gauri Gaekwad 40/53 CA-572-2017.doc1.
26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal exercising territorial jurisdiction and such petitions shall be treated as petitions under the provisions of the Companies Act, 2013 (18 of 2013).
65 The Companies (Removal of Difficulties) Fourth Order, 2016 issued under subsection (1) of section 470 of the Companies Act, 2013 states as under:
1. Short title and commencement. (1) This Order may be called the Companies (Removal of Difficulties) Fourth Order, 2016. (2) It shall come into force with effect from the 15th December, 2016.
2. In the Companies Act, 2013, in Section 434, in subsection (1), in clause (c), after the proviso, the following provisos shall be inserted, namely: Provided further that (i) ; or
(ii) the proceedings relating to winding up of companies which have not been transferred from the High Courts; shall be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959.
66 It is clear from a reading of the aforementioned notifications that while prenotice winding up proceedings (transferred to NCLT) are governed by the provisions of IBC, post notice winding up proceedings (retained in High Court) are required to be dealt with in accordance with provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959.
67 The fact that post notice winding up petitions continue to be governed by the Companies Act, 1956 only means that to those Gauri Gaekwad 41/53 CA-572-2017.doc1. proceedings it will be the Companies Act, 1956 which will apply. It does not, however, mean that if, in a postnotice winding up petition a new proceeding is filed under IBC, and where orders are passed by NCLT, including under Section 14 of IBC, the consequences provided for under IBC will not apply to post notice proceeding, whatever their stage may be. In fact, if petitioners arguments were to be accepted, it would mean that there is no right available for any person covered by Section 6 of IBC to file a proceeding under IBC, in respect of a Company, against whom a winding up petition is retained in the High Court. Such an interpretation is not supported by the language of IBC.
68 Further, there is express as well as an implied intention on the part of the legislature to (i) take away the right to file winding up petitions under the Companies Act, 1956; and (ii) to apply the provisions of IBC without exception to all proceedings undertaken regarding insolvency resolution and revival of companies. This is also apparent from the peremptory and express language of Sections 14, 63 and 64 (2) of IBC.
69 It is also clear from the Companies (Removal of Difficulties) Fourth Order that in fact what is saved are only the proceedings of winding up pending before the jurisdictional High Court and not the Company itself in relation to which such proceedings are saved. That is to say, such a Company is still subject to the provisions of IBC, if invoked and only the Gauri Gaekwad 42/53 CA-572-2017.doc1. post notice winding up proceedings, which are retained by the High Court, are saved. This does not mean that IBC is inapplicable to the said Company, if it is invoked.
70 It is clear from the above that the winding up petitions retained by the High Court are being decided under the Companies Act, 1956 only as a transitional provision. It only provides that winding up proceedings under Section 433 (1) (e) pending in the High Court would continue in the High Court Prasanta Kumar Mitra (Supra).
71 Furthermore, this transitional provision cannot in any way affect the remedies available to a person under IBC, visvis the company against whom a winding up petition is filed and retained in the High Court, as the same would amount to treating IBC as if it did not exist on the statute book and would deprive persons of the benefit of the new legislation. This is contrary to the plain language of IBC. If the contentions of petitioner were to be accepted, it would mean that in respect of companies, where a post notice winding up petition is admitted or a provisional liquidator appointed, provisions of IBC can never apply to such companies for all times to come.
72 Even under the 29th June 2017 Notification, it is only those petitions pending in the High Court where a notice may not have been issued which would not get transferred, if a winding up petition against Gauri Gaekwad 43/53 CA-572-2017.doc1. such a company has already been admitted. But even in such a case, there is no express or implied bar from other creditors of such a company or the corporate debtor from filing fresh proceedings under IBC. If at all, such creditors/corporate debtors are barred from approaching the High Court and not NCLT under IBC.
73 The mere fact that post notice winding up proceedings are to be dealt with in accordance with the provisions of the Companies Act, 1956 does not bar the applicability of the provisions of IBC in general to proceedings validly instituted under IBC, or does it mean that such proceeding can be suspended.
(VII) The Company Court does not have the jurisdiction to restrain NCLT, Ahmedabad, from proceeding with IBC Application :
74 This is clear from a perusal of the following provisions of IBC:
63. Civil court not to have jurisdiction: No civil court or authority shall have jurisdiction to entertain any suit or proceedings in respect of any matter on which National Company Law Tribunal or the National Company Law Appellate Tribunal has jurisdiction under this Code.
64. Expeditious disposal of applications: (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code.
231. Bar of jurisdiction: No civil court shall have jurisdiction in respect of any matter in which the Adjudicating Authority is empowered by, or under, this Code to pass any order and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any order passed by such Adjudicating Authority under this Code. Gauri Gaekwad 44/53 CA-572-2017.doc1.
75 The jurisdiction of the Company Court in relation to proceedings under IBC is expressly barred by virtue of section 63 of IBC. Further, by virtue of Section 64(2) of IBC, the Company Court is prohibited from injuncting NCLT from exercising its jurisdiction under IBC. By virtue of section 238 of IBC, it overrides the provisions of the Companies Act, 1956. The Apex Court has, in a few cases, considered provisions similar to Section 64 (2) of IBC. In GhanshyamSarda v. Shiv Shankar Trading Company (supra), the Honble Supreme Court considered the bar of the Civil Courts jurisdiction under the Sick Industrial Companies Act, 1985 (SICA), Insolvency and Bankruptcy Code, 2016 Sick Industrial Companies Act, 1985
64. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code.
26. Bar of Jurisdiction No order passed or proposal made under this Act shall be appealable except as provided therein and no civil court shall have jurisdiction in respect of any matter which the Appellate Authority or the Board is empowered by, or under, this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. The Honble Supreme Court held that in view of the express bar of jurisdiction contained in SICA, the jurisdiction of the Civil Court, even to grant temporary injunctive relief is completely excluded where the Gauri Gaekwad 45/53 CA-572-2017.doc1. jurisdiction of BIFR is correctly exercised. Paragraphs 29 to 31 read as under :
29. The Act is a selfcontained Code and has conferred upon the BIFR complete supervisory control over a sick industrial company to adopt such methodology as provided in Chapter III for detecting, reviving or winding up such sick company. The authority to determine the existence and extent of sickness of such company and to adopt methodology for its revival are, in the exclusive domain of the BIFR and by virtue of Section 26 there is an express exclusion of the jurisdiction of the Civil Court in that behalf.
30. As laid down by this Court the Act is a complete Code in itself. The Act gives complete supervisory control to the BIFR over the affairs of a sick Industrial Company from the stage of registration of reference and questions concerning status of sickness of such company are in the exclusive domain of the BIFR. Any submission or assertion by anyone including the Company that by certain developments the Company has revived itself and/or that its net worth since the stage of registration having become positive no such scheme for revival needs to be undertaken, must be and can only be dealt with by the BIFR. Any such assertion or claim has to be made before the BIFR and only upon the satisfaction of the BIFR that a sick company is no longer sick, that such company could be said to have ceased to be amenable to its supervisory control under the Act. The aspects of revival of such company being completely within its exclusive domain, it is the BIFR alone, which can determine the issue whether such company now stands revived or not. The jurisdiction of the civil court in respect of these matters stands completely excluded.
31. Unlike cases where the existence of jurisdictional fact or facts, on the basis of which alone a Tribunal can invoke and exercise jurisdiction, is or are doubted, stand on a different footing from the one where invocation and exercise of jurisdiction at the initial stage is not disputed but what is projected is that by subsequent or supervening circumstances the concerned Tribunal has lost jurisdiction. In the present case the fact that the company was registered as a sick company is not doubted nor has it been contended that the BIFR had wrongly assumed initial jurisdiction. But what is projected is that the net worth having become positive the BIFR has now lost jurisdiction over the company. In our view, the BIFR having correctly assumed jurisdiction and when all the financial affairs of such company were directly under the supervisory control of the Gauri Gaekwad 46/53 CA-572-2017.doc1. BIFR, the power to decide whether it has since then lost the jurisdiction or not, is also in the exclusive domain of the BIFR. The BIFR alone is empowered to determine whether net worth has become positive as a result of which it would cease to have such jurisdiction. Any inquiry into such issue regarding net worth by anyone outside the Act including civil court, would be against the express intent of the Act and would lead to incongruous and undesired results. The suit as framed seeking declaration that the company was no longer a sick company within the meaning of the Act, was therefore not competent and maintainable. The Civil Court was not right and justified in issuing injunction as it did. The counsel who represented the company before the BIFR on 04.04.2013, correctly submitted that before discharging the company the BIFR can examine the audited balance sheet and satisfy itself whether the net worth had turned positive.
76 In Mardia Chemicals Ltd. (supra), the Honble Supreme Court considered the bar of jurisdiction contained in Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 (SARFAESI Act). Insolvency and Bankruptcy Code, 2016 SARFAESI Act, 2002
64. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code
34. Civil Court not to have jurisdiction. No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993). Gauri Gaekwad 47/53 CA-572-2017.doc1. The Honble Supreme Court held as follows:
50. It has also been submitted that an appeal is entertainable before the Debt Recovery Tribunal only after such measures as provided in subsection (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debt Recovery Tribunal or the appellate Tribunal is empowered to determine. Thus before any action or measure is taken under subsection (4) of Section 13, it is submitted by Mr. Salve one of the counsel for respondents that there would be no bar to approach the civil court. Therefore, it cannot be said no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of section
34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That is to say the prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under subsection (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all such matters which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under subsection (4) of Section 13. (Emphasis supplied)
(VIII) No power to Injunct :
77 NCLT is not a court subordinate to the High Court and hence as prohibited by the provisions of Section 41 (b) of the Specific Relief Act, 1963 no injunction can be granted by the High Court against a corporate debtor from institution of proceedings in NCLT.
78 Section 41 (b) of the Specific Relief Act, 1963 states:
41. Injunction when refused.An injunction cannot be granted Gauri Gaekwad 48/53 CA-572-2017.doc1. (b) to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought. The Honble Supreme Court in the case of Nahar Industrial Enterprises Ltd. (Supra) has held that:
92. We have held that the Tribunals are neither civil courts nor courts subordinate to the High Court. The High Court ordinarily can be approached in exercise of its writ jurisdiction under Article 226 or its jurisdiction under Article 227 of the Constitution of India.
79 It has been held by this Honble Court in the case of Rentworks India Pvt. Ltd. (Supra) while considering whether DRT was subordinate to the High Court in paragraph 19 that:
19. It is, thus, clear that the DRT is not a court subordinate to this court when the latter exercises its ordinary original civil jurisdiction. If that is so, this court cannot, whilst hearing a suit in its ordinary original civil jurisdiction, injunct any bank from prosecuting a proceeding before the DRT.
80 In the case of Cotton Corporation of India Limited (Supra), the Honble Supreme Court has held in paragraph 9 : Viewed from a slightly different angle, it would appear that the legal system in our country envisages obtaining of redressal of wrong or relief against unjust denial thereof by approaching the court set up for the purpose and invested with power both substantive and procedural to do justice that is to grant relief against invasion or violation of legally protected interests which are jurisprudentially called rights. If a person complaining of invasion or violation of his rights, is injuncted from approaching the court set up to grant relief by an action brought by the opposite side against whom he has a claim and which he wanted to enforce through court, he would have first to defend the action establishing that he has a just claim and he cannot be restrained from approaching the court to obtain relief. A person having a legal right and complains of its violation or infringement, can approach the court and seek relief. When such person is injuncted from approaching the court, he has to vindicate the right and then when injunction is vacated, he has to approach Gauri Gaekwad 49/53 CA-572-2017.doc1. the court for relief. In other words, he would have to go through the gamut over again: When defending against a claim of injunction the person vindicates the claim and right to enforce the same. If successful he does not get relief but a door to court which was bolted in his face is opened. Why should he be exposed to multiplicity of proceedings? In order to avoid such a situation the Legislature enacted Section 41(b) and statutorily provided that an injunction cannot be granted to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought. At any rate the court is precluded by a statutory provision from granting an injunction restraining a person from instituting or prosecuting a proceeding in a court of coordinate jurisdiction or superior jurisdiction. (emphasis supplied)
81 It may also be noted that apart from there being no provision in the Companies Act, 1956 to injunct proceedings before NCLT instituted under IBC, petitioner cannot take recourse under the inherent powers of the High Court to support the impugned order. This argument has been expressly rejected by the Honble Supreme Court in Cotton Corporation of India Limited (supra) while holding at paragraph 21 : In view of the majority decision, it must be conceded that the court can in appropriate cases grant temporary injunction in exercise of its inherent power in cases not covered by 0.39 C.P.C. But while exercising this inherent power, the court should not overlook the statutory provision which clearly indicates that injunction to restrain initiation of proceeding cannot be granted. Section 41(b) is one such provision. And it must be remembered that inherent power of the court cannot be invoked to nullify or stultify a statutory provision.
82 Besides there is an express bar contained in Section 64 (2) of IBC which prevents any court, tribunal or authority from granting any injunction in respect of any action taken, or to be taken, in pursuance of Gauri Gaekwad 50/53 CA-572-2017.doc1. any power conferred on NCLT under IBC.
83 If petitioners arguments were to be accepted it would mean that under the Companies Act, 1956, even after a winding up petition was admitted (or a winding up order was passed) and a reference then came to be made to BIFR, Section 22 of SICA would not apply and the High Court seized of the winding up petition would have the power to injunct proceedings before BIFR. The Supreme Court in the case of Real Value Appliances Ltd. (supra) while considering this issue and whether the High Court had the power under the Companies Act, 1956, i.e., the very same provisions which petitioner is now relying on to contend that proceedings under the IBC can be injuncted, has held: Whether, once the BIFR had registered the reference dated 17.7.97 on 24.7.97 under Section 15 of the Act read with the Regulations, it was permissible for the Division Bench of the High Court to pass orders on 8.8.97 vacating the stay order dated 20.12.96 and confirming the appointment of provisional liquidator on the company side and also whether it was permissible for another Division Bench of the High court to appoint a Receiver on 28.7.97 in the proceedings arising out of the suit, in view of section 22 of the Act? Relying on the use of the word 'may' in Section 16(1) of the Act it has been contended in some High Courts that the word 'may' in that section shows that the BIFR has power to reject a reference summarily without going into merits and that it is only when the BIFR takes up the reference for consideration on merits under Section 16(1) that it can be said that the 'inquiry' as contemplated by section has commenced. It is argued that if the reference before the BIFR is only at the stage of registration under Section 15, then section 22 is not attracted. This contention, in our opinion, has no merit. In our view, when Section 16(1) says that the BIFR can conduct the inquiry "in such manner as it may deem fit", the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the Gauri Gaekwad 51/53 CA-572-2017.doc1. procedure it may follow for conducting an inquiry under Section 16(1) and nothing more. In fact, once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an inquiry. If one looks at the format of the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Company's assets, liabilities, etc. Indeed, it will be practically impossible for the BIFR to reject a reference outright without calling for information/documents or without hearing the Company or other parties. Further, the Act is intended to revive and rehabilitate sick industries before they can be wound up under the Companies Act, 1956. Whether the Company seeks a declaration that it is sick or some other body seeks to have it declared as a sick Company, it is, in our opinion, necessary that the Company be heard before any final decision is taken under the Act. It is also the legislative intention to see mat no proceedings against file assets are taken before any such decision is given by the BIFR for in the case the Company's assets are sold, or the company wound up it may indeed become difficult later to restore the status quo ante. Therefore, in our view, the High Court of Allahabad in Industrial Finance Corporation v. Maharashtra Steels Ltd., AIR1988All170 , the High Court of Andhra Pradesh in Sponge Iron India Ltd. v. Neelima Steels Ltd., the High Court of Himachal Pradesh in Orissa Sponge Iron Ltd. v. Rishab Ispat Ltd., (1993) 78 Comp. Cas 264 are right in rejecting such a contention and in holding that the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that from that time, action against the Company's assets must remain stayed as stated in section
22 till final decisions are taken by the BIFR. There can, therefore, be no difficulty in holding that after the amendment to Regulation 19 w.e.f. 24.3.1994, once the reference is registered and when once it is mandatory simultaneously to call for information/documents from the informant and such a direction is given, then inquiry under Section 16(1) must for the purposes of section 22 be deemed to have commenced. Section 22 and the prohibitions contained in it shall immediately come into play.
32. For the aforesaid reasons, the order passed by the Division Bench on 28.7.97 appointing Receiver and the order passed by another Bench of the High Court on 8.8.97 restoring the provisional liquidator, are set aside. The Civil appeals are accordingly allowed. There will be no order as to costs. The respondents are free, if need be, to approach the BIFR under section 22 and section 22A of the Act for further orders, if any, in addition to the orders already passed by the BIFR in this behalf. Gauri Gaekwad 52/53 CA-572-2017.doc1.
84 It has been held in the case of M/s. Rishabh Agro Industries Ltd. (Supra) that even after a winding up order is passed the provisions of Section 22 of SICA apply and the Court under the Companies Act, 1956 would have no power to injunct proceedings before BIFR in view of Section 22 of SICA: It is true that for invoking the applicability of Section 22 it has to be established that an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or sanctioned scheme is under implementation or an appeal under Section 25 to an industrial company is pending. But it cannot be said that despite existence of any of the aforesaid exigencies the provision of Section 22 would not be attracted after the order of winding up of the company is passed. The words "no proceeding for winding up of the industrial company or for execution distress or the like against any of the properties of the industrial company or for the appointment of receiver in respect thereof shall lie or be proceeded with further, leave no doubt in our mind that the effect of the section would be applicable even after the winding up order is passed as no proceeding even thereafter can be proceeded with further under the Companies Act. The High Court appears to have not taken note of the aforesaid words
i.e. to be proceeded with further. As the impugned judgment is based upon wrong assumption of the provision of law and completely ignoring the vital words noticed hereinabove, the same cannot be sustained.
85 In view of the above since the IBC is admittedly a successor statute to SICA, and Section 64 (2) of IBC being parimateria to Section 22 of SICA, the argument that the Company Court has the power to injunct proceedings before under NCLT in cases of pending winding up petitions is entirely misplaced and contrary to legislative intent.
(IX) The Company Court has the jurisdiction to recall an earlier order :
86 As per rule 6 of the Companies (Court) Rules, 1959, the Gauri Gaekwad 53/53 CA-572-2017.doc1. provisions of the Code of Civil Procedure, 1908, will apply to proceedings under the Companies Act, 1956, unless such application would be contrary to the express provisions of the said rules. Rule 9 of the Companies (Court) Rules, 1959, provides that the Company Court may exercise its inherent powers. Section 141 of the Code of Civil Procedure, 1908, makes it applicable to all proceedings in any court of civil jurisdiction. A combined reading will show that the Company Court has ample powers to recall any order previously passed by it [Dr. Writers Food Products Private Limited (supra)].
(X) An order can be recalled if it was passed without jurisdiction :
87 The Honble Supreme Court of India has held that an order may be recalled by a court or tribunal if there was an inherent lack of jurisdiction to pass such an order [Budhia Swain &Ors v. Gopinath Deb &Ors (supra)].
88 In the circumstances, there is no bar on NCLT, Ahmedabad from proceeding with IBC application. This application, therefore, has to succeed. The impugned order dated 19th July 2017 is recalled/vacated. Company application accordingly stands disposed. (K.R. SHRIRAM, J.) Gauri Gaekwad