Jayant Nath, J. (Oral)

CA 1025/2018

1. This application is filed by Mr. Chandra Shekhar who is said to have booked a commercial space in one of the projects of the respondent company seeking appropriate orders for transferring of the present petition to NCLT. The applicant states that he has also moved an application under section 7 of the Insolvency and Bankruptcy Code, 2016 before NCLT on which NCLT on 25.5.2018 has passed orders appointing IRP (Interim Resolution Professional). Hence, it is prayed that this petition be transferred to NCLT.

2. The petitioner has filed her reply in court. The same is taken on record and is sent to the Registry for scanning.

3. Learned counsel for the applicant has relied upon judgment of the Division Bench of the Bombay High Court in Jotun India Private Limited v. Psl Limited, 2018 SCC OnLine Bom 1952 to contend that the Insolvency Code would have precedence over the Companies Act, 1956 and that as per the said judgment, where revival/resolution proceedings are initiated, NCLT would have precedence. However, he submits that to avoid any conflict it would be in the interest of justice that this court may in exercise of powers under proviso to section 434 of the Companies Act, 2013 transfer the present petition to NCLT.

4. Learned counsel appearing for the OL and for the petitioner have opposed the present application. It has been pointed out that the petition was admitted and the OL was appointed as the Provisional Liquidator way back on 11.1.2017. Thereafter the entire assets of the respondent company have been sealed and taken into custody by the OL and the process of valuation of the assets is going on. In the meantime, on 29.5.2018 noticing that the Ex. Directors were guilty of siphoning off money this Court had directed SFIO to investigate into the affairs of the company. It was also noticed that against most of the Ex. Directors FIRs have been registered and they continue to be in judicial custody.

5. section 434 of the Companies Act, 2013 reads as follows:

“[434. (1) On such date as may be notified by the Central Government in this behalf—

(a) all matters, proceedings or cases pending before the Board of Company Law Administration (herein in this section referred to as the Company Law Board) constituted under sub-section (1) of section 10E of the Companies Act, 1956 (1 of 1956), immediately before such date shall stand transferred to the Tribunal and the Tribunal shall dispose of such matters, proceedings or cases in accordance with the provisions of this Act;

(b) any person aggrieved by any decision or order of the Company Law Board made before such date may file an appeal to the High Court within sixty days from the date of communication of the decision or order of the Company Law Board to him on any question of law arising out of such order: Provided that the High Court may if it is satisfied that the appellant was prevented by sufficient cause from filing an appeal within the said period, allow it to be filed within a further period not exceeding sixty days; and

(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.

Provided further that any party or parties to any proceedings relating the winding up of companies pending before any Court immediately before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018, may file an application for transfer of such proceedings and the Court may by order transfer such proceedings to the Tribunal and the proceedings so transferred shall be dealt with by the Tribunal as an application for initiation of corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016.

(2) The Central Government may make rules consistent with the provisions of this Act to ensure timely transfer of all matters, proceedings or cases pending before the Company Law Board or the courts, to the Tribunal under this section.”

6. As per the proviso to Section 434(1)(c) any party or parties to the proceedings relating to the winding up of companies may file an application for transfer of such proceedings to the NCLT. The proviso further adds that this court may by an order transfer the winding up proceedings to NCLT. I may note that the applicant is not a party to the present proceedings.

7. It has not been argued before me that in the proviso to Section 434(1)(c) of the Act the word ‘may’ as used therein, namely, that the court may by order transfer such proceedings to the tribunal is mandatory in nature. In my opinion, the same is a discretionary power which has to be exercised in the facts and circumstances of the case.

8. In this context reference may be had to the judgment of the Supreme Court in The Official Liquidator v. Dharti Dhan (P) Ltd. ., (1977) 2 SCC 166. The Supreme Court was in that case interpreting the powers of the court under Section 442(b) of The Companies Act, 1956 which provides that where a suit is pending against a company in any other court, the company or creditor may apply to restrain further proceedings in the suit. The Supreme Court held as follows:—

“7. Sections 442 and 446 of the Act have to be read together. It is only where the object of the two sections, when read together, is served by a stay order that the stay order could be justified. That object is to expeditiously decide and dispose of pending claims in the course of winding up proceedings. A stay is not to be granted if the object of applying for it appears to be, as it does in the case before us, merely to delay adjudication on a claim, and, thereby to defeat justice. In other words, a stay order, under Section 442, cannot be made mechanically, or, as a matter of course, on showing fulfilment of some fixed and prescribed conditions. It can only be made judiciously upon an examination of the totality of the facts which vary from case to case. It follows that the order to be passed must be discretionary and the power to pass it must, therefore, be directory and not mandatory. In other words, the word “may”, used before “stay” in Section 442 of the Act really means “may” and not “must” or “shall” in such a context. In fact, it is not quite accurate to say that the word “may”, by itself, acquires the meaning of “must” or “shall’ sometimes. This word, however, always signifies a conferment of power. That power may, having regard to the context in which it occurs, and the requirements contemplated for its exercise, have annexed to it an obligation which compels its exercise in a certain way on facts and circumstances from which the obligation to exercise it in that way arises. In other words, it is the context which can attach the obligation to the power compelling its exercise in a certain way. The context, both legal and factual, may impart to the power that obligatoriness.

8. Thus, the question to be determined in such cases always is whether the power conferred by the use of the word “may” has, annexed to it, an obligation that, on the fulfilment of certain legally prescribed conditions, to be shown by evidence, a particular kind of order must be made. If the statute leaves no room for discretion the power has to be exercised in the manner indicated by the other legal provisions which provide the legal context. Even then the facts must establish that the legal conditions are fulfilled. A power is exercised even when the court rejects an application to exercise it in the particular way in which the applicant desires it to be exercised. Where the power is wide enough to cover both an acceptance and a refusal of an application for its exercise, depending upon facts, it is directory or discretionary. It is not the conferment of a power which the word “may” indicates that annexes any obligation to its exercise but the legal and factual context of it. This as we understand it, was the principle laid down in the case cited before us: Frederic Guilder Julius v. Right Rev. Lord Bishop of Oxford: Re v. Thomas Thellusson Carter, [5 AC 214].

10. The principle laid down above has been followed consistently by this Court whenever it has been contended that the word “may” carries with it the obligation to exercise a power in a particular manner or direction. In such a case, it is always the purpose of the power which has to be examined in order to determine the scope of the discretion conferred upon the donee of the power. If the conditions in which the power is to be exercised in particular cases are also specified by a statute then, on the fulfilment of those conditions, the power conferred becomes annexed with a duty to exercise it in that manner. This is the principle we deduce from the cases of this Court cited before us: Bhaiya Punjalal Bhagwandin v. Dave Bhagwatprasad Prabhuprasad, [(1963) 3 SCR 312 : AIR 1963 SC 120 : (1963) 2 SCJ 441], State Of Uttar Pradesh v. Jogendra Singh ., [(1964) 2 SCR 197 : AIR 1963 SC 1618 : (1963) 2 Lab LJ 444], Sardar Govindrao v. State of M.P., [(1965) 1 SCR 678 : AIR 1965 SC 1222 : (1966) 1 SCJ 480], Shri A.C. Aggarwal, Sub-Divisional Magistrate, Delhi v. Smt. Ram Kali, [(1968) 1 SCR 205 : AIR 1968 SC 1 : 1968 Cri LJ 82], Bashira v. State Of U.P ., [(1969) 1 SCR 32 : AIR 1968 SC 1313 : 1968 Cri LJ 1495] and Prakash Chand Agarwal v. Hindustan Steel Ltd. [(1970) 2 SCC 806 : (1971) 1 SCR 405].”

9. A perusal of Section 434(1)(c) does not show existence of any accompanying facts which would show that the power has to be exercised in fulfilment of any legally prescribed conditions. Clearly, the word ‘may’ here has to be read as discretionary power to be exercised in the facts and circumstance of the case so as to expeditiously deal with the proceedings/winding up.

10. I may now look at the judgment of the Division Bench of Bombay High Court in Jotun India Private Limited v. Psl Limited, 2018 SCC OnLine Bom 1952 (supra) relied upon by the learned counsel for the applicant. In that case the Bombay High Court was dealing with a case where the respondent company was subject to proceedings before BIFR. The petitioner approached the company court and the petition was admitted by the learned company judge. With the repeal of SICA, a corporate debtor thereafter filed an application before NCLT under section 10 of the IBC. The learned judge by an order restrained NCLT from continuing with the IBC application. Subsequently, on an application filed by the corporate debtor seeking vacation of the said injunction, the learned single judge vacated the order holding that there is no bar on NCLT from proceedings with IBC application. In those facts the Division Bench of the Bombay High Court has taken the following view:—

“45. In view of the afore-stated reasoning and the case laws cited, we are of the considered opinion that the Company Court while dealing with the winding up petitions (saved petitions) shall have no jurisdiction to stay the proceedings before the NCLT in respect of revival or resolution issue. We may further state that in case the forum under the IBC, 2016 i.e. NCLT fails to revive or successfully implement the resolution plan, then the Company Judge seized with the winding up petitions (saved petitions) would deal with the petition in accordance with law. We are of the view that allowing both the forums i.e. Company Court and the NCLT to go ahead with the liquidation proceedings/winding up proceedings simultaneously would not serve any purpose. There is likelihood of creation of confusion and complexity. To harmonize this likely situation, we observe that the Company Judge, in saved petitions, would exercise jurisdiction in case revival efforts by NCLT fails.”

11. The facts of this case are slightly different. In this case on 17.01.2017 this court admitted the petition and appointed the OL attached to this court as the provisional liquidator of the respondent company. The liquidator was directed to take all assets, books of accounts and records of the respondent company forthwith. Citation was also directed to be published. These steps have already been taken.

12. On 29.5.2018 this court passed the following order:—

CA 890/2017

This application is filed by the applicant under Rule 9 of the Companies Court Rules seeking directions amongst others to request SFIO to enquire into the accounts of the respondent company. Learned counsel appearing for the applicant relies upon the chargesheet issued by the Court of Shri Saurabh Kulshrestha, CMM, Tis Hazari Courts in FIR No. 46/2016 where observations have been made as follows:—

“Accused Sushant Muttreja disclosed without fear, pressure at his own will that he confirmed his previous disclosures statement and further disclosed that his company M/s. Cosmic Structure Ltd. has set up following sister concerns, Associate Companies/take over the companies to increase the business and invested money in these companies from M/s. Cosmic Structure Ltd.:—

S. No. Entities incorporate by Cosmic Structures ltd. Total Receipts Total payments Net balance 1 Cosmick Eagle Realtors Pvt. Ltd. 1,416,212 156,914,116 15,539,790 2 Cosmic Orange Yojna Pvt. Ltd./Cosmic Townplanners 2,940,000 23,781,042 20,841,042 3 Cosmic Orange Infraventures Pvt. Ltd. (HS Madhukar) 2,675,689 2,675,689 4 Cosmic Orange Infraventures Pvt. LTd. (HS Madhukar) 53,000,000 53,000,000 5. Cosmic Yojna Infotech Pvt. Ltd. 4,400,000 134,560,870 130, 160,870 6 Jaguar Infrastructure 100,000 100,000 7 51, Rohini Infra Developers Pvt. Ltd. 15,649,798 23,990,971 8,341,173 8 Cosmic Hotels & Resorts 90,000 261,543 171,543 9 Cosmic Infradevelopers Pvt. LTd. 112,138 112,138 10. Cosmic Meditech Pvt. Ltd. 13,891,075 34,609,598 20,808,523 11 Eagle Techno Infra Park Pvt. Ltd. 12,400 12,400 12 R 794 First Floor Infra Pvt. Ltd. 19,416,422 38,924,449 19,508,027 13 R 794 Ground Floor, Infra Pvt. Ltd. 130,023 130,023 14. Trigometric Technobuild Pvt. LTd. 318,000 14,912,623 14,594,623 15. Cosmic International Structures Ltd. 452,000 452,000 16. Growth Infinity Structures Pvt. Ltd. 160,000 160,000 17. Growth Nucleus Pvt. Ltd. 160,000 160,000 18. Growth Realty Infraplanners Pvt. Ltd. 160,000 160,000 19. Growth Unlimited Structures Pvt. Ltd. 100,000 160,000 60,000 20. Pragati Infraplanners Pvt. LTd. 166,000 166,000 21 Premier League Structures Pvt. Ltd. 75,000 75,000 22 Growth Inche Infratech Pvt. LTd. 336996 2107811 1770815 23 Cosmic India Structures Ltd. 647000 647000 24 Cosmic Infradevelopers Pvt. Ltd. 10,000 100,000 90,000 25 Cosmic Townplanners Pvt. Ltd. 100,000 100,000 26. Sun Infrarealty Pvt. Ltd. 100,000 100,000 TOTAL 58,478,503 488,373,273 429,794,770 Entities taken over by cosmic for purpose of land purchase Total receipts Total payments Net balance 1. Bluebell Infra Developers & Realtors Pvt. Ltd. 5,439,215 5,439,215 2 Amiras India 97,583,400 97,583,400 3 Amplex Technology Parks Pvt. Ltd. 30,534,000 30,534,000 4 Minimax Computers & Software Pvt. Ltd. 250,625,000 250,625,000 5 Splendor Infopark Pvt. Ltd. 2,100,000 2,100,000 6 Bluebell Infra Developers 100,000 100,000 Total 386,381,615 386,381,615 Trusts Incorporated for CSR Initiatives Total receipts Total payments Net balance 1. Subhash Muttreja Foundation 5,950 12,509,324 12,503,374 2. Mission India Development Forum 86,000 86,000 Total 5,950 12,595,324 12,589,374 Other related entities Total receipts Total payments Net balance 1 Cosmic Eagle Brands Pvt. Ltd. 29,750,000 51,227,389 21,477,389

Based on the above averments, he submits that large amounts have been siphoned off to different companies and it is absolutely necessary that proper investigation is carried out by SFIO.

Learned counsel appearing for the OL has objected to SFIO investigation pointing out that a Chartered Accountant appointed by the OL has scrutinised the account but there has been a delay, on account of the delay by the Chartered Accountant who was earlier appointed. He submits that two parallel investigations may create some difficulties.

Learned counsel appearing for the Ex. Directors admits that the Directors are in custody since July 2016. He also submits that there are five FIRs registered against the said Ex. Directors and five chargesheets have been filed. He also states that 6000 people have invested in various projects and in case an opportunity is given to the Ex. Directors. They will be able to repay the dues of the investors and satisfy them with appropriate immovable properties. He further states that the Directors have moved a revival scheme and hence this court may refrain from passing any directions for SFIO.

Mr. Jagjit Singh, Advocate relies upn judgment of this court in Sunair Hotels Limited v. Union of India, 240 (2017) DLT 535 where this court held as under:—

“62. The ground on which investigation was found to be warranted is ‘public interest within the meaning of the provisions of Section 212 of the 2013 Act. The Black's Law Dictionary, Sixth Edition, defines the expression ‘public interest’ to mean something in which the public, the community at large, has some pecuniary interest, or some interest by which their legal rights or liabilities are affected.”

In my opinion a perusal of the chargesheet clearly shows that there has been prima facie an attempt to siphon off money from the respondent company. This aspect would require further examination and it will be necessary that SFIO is appointed in the interest of various investors.

This is a fit case to direct SFIO to carry out investigations under section 212 of the Companies Act against the respondent company. Copy of this order be sent to SFIO who may expeditiously take steps and file their report.

List on 13.8.2018.”

13. A perusal of the above order would show that there are allegations of fraud and misappropriation on the part of the Ex. Directors. I am informed that the Ex. Directors Mr. Sushant Mutreja and Mr. Nishant Mutreja are still in judicial custody pursuant to lodging of different FIRs against them.

14. Keeping in view the observations in the chargesheet, this court has already ordered investigation by the SFIO. The liquidation proceedings are at an advanced stage. Much time has passed since the order appointing the OL as the Provisional Liquidator was passed.

15. In view of the above, in my opinion, there is no ground made out to transfer the petition to NCLT.

16. I may also note that the learned counsel for the applicant had pleaded that this fact that this court has admitted this petition and appointed the OL as the provisional liquidator was brought to the notice of NCLT. However, a perusal of the order of NCLT dated 25.05.2018 does not show any reference to the fact that the proceedings are pending in this court.

17. I may only note that the issue as to whether NCLT can initiate Insolvency Resolution Process when a company has been directed to be wound up by this court is pending before the Supreme Court In State Bank of India v. Shakti Bhog Foods Ltd., civil appeal No. 4536/2018. That appeal was filed against the judgment of NCLAT which had held that where winding up proceedings have been initiated by the High Court, there is no question of filing of any application under section 10 or initiation of Insolvency Resolution Process. The tribunal held as follows:

“20. In the present case, as admittedly the High Court has already admitted the winding up proceedings and ordered for winding-up of the respondent- ‘Corporate Debtor’, we hold that the question of initiation of ‘Corporate Insolvency Resolution Process’ against same ‘Corporate Debtor’ does not arise.”

18. Application is dismissed.

Co. Pet.152/2016

19. List on 15.2.2019.

CA Nos. 768/2018 & 773/2018 & 381/2018

20. These applications are filed by some of the flat buyers seeking relief of continuing with the proceedings before the Consumer Court.

21. Learned counsel for the applicants seek to withdraw the present applications with liberty to file a claim before the OL.

22. Granting leave and liberty present applications are disposed of.