Tag: IBC

The constitutional validity of the IBC upheld by the Apex Court

Sharing a summary of a landmark Judgement of Hon’ble Supreme Court (dated 25.1.2019) in Swiss Ribbons Pvt Ltd & Anr. vs. Union of India & Ors. The Constitutional validity of the Insolvency and Bankruptcy Code, 2016 (the Code or the IBC) was challenged by 10 writ petitions and an SLP. All these are disposed of off, holding that the IBC is constitutionally valid.;

The Judgement sets a wonderful background of the status of Lochner doctrine in the US before deciding on the Constitutional validity of IBC. 

It also in a way recognises observations of US Supreme Courts that 

(i) Legislative bodies have broad scope to experiment with economic problems. 
(ii) We refuse to sit as a super legislature to weigh the wisdom of legislation. 
(ii) we emphatically refuse to go back to the time when courts used the Due Process Clause ―to strike down state laws, regulatory of business and industrial conditions, because they may be unwise, improvident, or out of harmony with a particular school of thought. 

Some of the these and other observations are clearly drawing a line between Legislature and Judiciary and some of the Judgements of India holding that: 
(i) The court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved 
(ii) laws, including executive action relating to economic activities, should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion, etc. 

Summary of the Decision:
1. Considering the composition of selection committee set-up in 2015 for appointment of members of National Company Law Tribunal (NCLT) and National Company Law Appellate Tribunal (NCLAT) as well as amendment brought in 2018 to Section 412 of the Companies Act 2013, held appointment of members of NCLT and NCLAT to be valid.

2. Directs the Union of India to set up Circuit Benches of the NCLAT within a period of 6 months. 

3. Administration of IBC shall be transferred from MCA to the Ministry of Law and Justice. 

4. Classification between financial creditor and operational Creditor neither discriminatory, nor arbitrary, nor violative of article 14 of the Constitution Of India.

Financial creditors are clearly different from operational creditors and therefore, there is obviously an intelligible differentia between the two which has a direct relation to the objects sought to be achieved by the Code. 
The trigger for a financial creditor‘s application is non-payment of dues when they arise under loan agreements. It is for this reason that Section 433(e) of the Companies Act, 1956 has been repealed by the Code and a change in approach has been brought about. The legislative policy now is to move away from the concept of “inability to pay debts” to “determination of default”.

Four policy reasons have been stated by the learned Solicitor General for this shift in legislative policy. First is predictability and certainty. Secondly, the paramount interest to be safeguarded is that of the corporate debtor and admission into the insolvency resolution process does not prejudice such interest but, in fact, protects it. Thirdly, in a situation of financial stress, the cause of default is not relevant; protecting the economic interest of the corporate debtor is more relevant. Fourthly, the trigger that would lead to liquidation can only be upon failure of the resolution process. 

5. Section 12A passes the constitutional muster, for the reasons stated hereafter. Where before a committee of creditors is constituted (as per the timelines that are specified, a committee of creditors can be appointed at any time within 30 days from the date of appointment of the interim resolution professional. The Judgement makes it clear that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule 11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case. 

If the committee of creditors arbitrarily rejects a just settlement and/or withdrawal claim, the NCLT, and thereafter, the NCLAT can always set aside such decision under Section 60 of the Code. 

6. Evidence provided by private Information Utilities is only prima facie evidence of default, which is rebuttable by the corporate debtor.

7. Resolution Professional has no adjudicatory powers (He has administrative powers as opposed to quasi-judicial powers), whereas Liquidator has quasi-judicial powers in determining the claims filed with her/him against the Corporate Debtor in liquidation. 

8. Re-confirm its findings in ArcelorMittal’s case that a resolution applicant who applies under Section 29A(c) has no vested right to apply for being considered as a resolution applicant. The basis for one year under Section 29A(c) is the RBI Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances dated 01.07.2015. And after account becoming NPA, one more year is allowed before the account is to be treated as Doubtful Asset. And thus passes constitutional muster.

9. There is no vested right in an erstwhile promoter of a corporate debtor to bid for the immovable and movable property of the corporate debtor in liquidation, as section 29A is applicable to liquidation also – per the proviso to section 35(1)(f) of the Code. 

10. On Section 29A(j), held that the expression “related party” and “relative” contained in the definition Sections must be read noscitur a sociis with the categories of persons mentioned in Explanation I to Section 29A, and so read, would include only persons who are connected with the business activity of the resolution applicant. 

Also, an argument that the expression “connected person” in Explanation I, clause (ii) to Section 29A(j) cannot possibly refer to a person who may be in management or control of the business of the corporate debtor in future. This would be arbitrary as the explanation would then apply to an indeterminate person. This contention is also repelled by holding that the Explanation I seeks to make it clear that if a person is otherwise covered as a “connected person”, this provision would also cover a person who is in management or control of the business of the corporate debtor during the implementation of a resolution plan. Therefore, any such person is not indeterminate at all but is a person who is in the saddle of the business of the corporate debtor either at an anterior point of time or even during the implementation of the resolution plan.

11. Section 53 of the Code is valid. An argument has been made by the petitioners that in the event of liquidation, operational creditors will never get anything as they rank below all other creditors, including other unsecured creditors who happen to be financial creditors. And hence would render Section 53 and in particular, Section 53(1)(f) discriminatory and manifestly arbitrary and thus, violative of Article 14 of the Constitution of India. Held that differentiating between secured and unsecured debt is an Internationally accepted practice. Further, repayment of financial debts infuses capital into the economy inasmuch as banks and financial institutions are able, with the money that has been paid back, to further lend such money to other entrepreneurs for their businesses. This rationale creates an intelligible differentia between financial debts and operational debts which are unsecured, which is directly related to the object sought to be achieved by the Code. In any case, workmen‘s dues, which are also unsecured debts, have traditionally been placed above most other debts. Thus, it can be seen that unsecured debts are of various kinds, and so long as there is some legitimate interest sought to be protected, having relation to the object sought to be achieved by the statute in question, Article 14 does not get infracted. For these reasons, the challenge to Section 53 of the Code must also fail.

Provident fund, Pension fund and Gratuity to have priority over waterfall u/s.53 of IBC

NCLT, Mumbai in the matter of Precision Fasteners Ltd vs. Employees Provident Fund Organisation, Thane, Vapi and Vashi
Decision dated 12 Sept. 2018
M.A. 576 & 752 of 2018 in C.P. (IB) 1339 (MB) of 2017

Hon’ble NCLT holds that workmen’s due under the provident fund, pension fund and gratuity fund, even though remained unpaid for several years prior to liquidation commencement date of Corporate Debtor, shall not form part of liquidation estate. And hence such PF etc. dues to have priority over waterfall mechanism u/s.53 of the Insolvency and Bankruptcy Code 2016.

Facts:

Corporate Debtor failed to pay dues under EPF Act for 15 years to EPFO. And EPFO despite it proceeding against Corporate Debtor, could not realise the dues owing one or the other legal implications. However, EPFO could attach the assets of the Corporate Debtor. And that attachment is now challenged under IBC by the Liquidator.

Liquidator filed M.A. u/s. 60(5) of Insolvency and Bankruptcy Code, 2016 (‘IBC’) against EPFO seeking reliefs for declaring attachment of movable and immovable properties (‘Properties’) of the Corporate Debtor’s units at Kalwa, Silvassa and Mahad by EPFO as null and void, so as to enable the liquidator to dispose of the properties under IBC.

Properties of the Corporate Debtor were attached by EPFO for not depositing PF dues of workers/employees since long. Dues of workers/employees were determined u/s.7A of EPF Act.

Liquidator, while acting as Resolution Professional, had intimated EPF (APFC and Recovery officer) about his appointment under IBC and had requested for release of Properties.

EPFO filed its claim before the Liquidator of approx. Rs. 16.06 crores and refused to release the attachment of Properties stating that there is no provision to vacate attachment without receipt of the dues due to it.

The contention of the Liquidator before Hon’ble NCLT:
1. He requires Properties to form Liquidation Estate
2. Dues of EPF does not fall within the meaning of ’secured debt’ under IBC and hence cannot be considered as secured creditor on par with other secured creditors.
3. Properties attached by EPFO have been charged / mortgaged to various creditors (secured creditors) prior to attachment by EPFO. And hence attachment by EPFO cannot lie against the secured creditors. Thus, attachment by EPFO impairs the right of secured creditors.
4. Liquidator u/s.35(b) and (d) is required to take into his custody and control all the assets of the Corporate Debtor and take necessary measures to protect and preserve them.
5. U/s.36 Liquidator is entitled to include encumbered assets in the liquidation estate and hence EPFO be directed to release the attachment over Properties.
6. Section 36(4)(a)(iii) of IBC, dues of PF, Pension fund and gratuity fund fo any workmen or employees already credited to those accounts cannot be included in liquidation estate. But the funds that remained as arrears to be deposited with EPFO, is not required to be considered by the Liquidator and hence attachment over Properties by EPFO for arrears of dues of PF shall be released.
7. IBC overrides other laws including EPF Act 1952 per section 238 of the Code. Also IBC enacted later than EPF Act and hence shall override EPF Act 1952. And hence Liquidator in exercise of power conferred u/s.35 and u/s.36 of IBC can comprise the Properties already attached by EPF in liquidation estate.
8. Liquidator relied upon following judgements:
* Ananta Mills Ltd vs. City Dy. Collector (1972 Comp Cas 476), to say that attachment over an asset is only to prevent alienation of the asset but by mere such attachment of the assets, that creditor will not be conferred with any interest in the said asset. In view of this scenario, the attachment over the secured assets upon which already interest has been created in favour of some other creditors will not alter or nullify the rights of the secured creditors and therefore the attachments shall be declared illegal.
* Leo Edibles & Fats Ltd vs. Tax Recovery Officer & Ors. (WP no. 8560 of 2018, order dated 26.07.2018 passed by Hon’ble High Court of Hyderabad) to say that evenif attachments constitute an encumbrance on the property, still it will not have the effect of taking it out of the purview of section 36(3)(b) of IBC.
* Innoventive Industries Ltd vs. ICICI Bank and Ors. (2017 SCC OnLIne SC 1025) to say that one of the important objectives of the Code is to bring Insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process.
* To say that the Code has overriding effect over other enactments – relied upon (i) Raman Ispat Pvt Ltd vs Executive Engineer, Paschimanchal Vidyut Vitran Nigam Ltd & District Collector, Muzaffarpur Nagar, U.P. & Tahisildar, Office of Tahsildar Sadar, Muzaffarnagar, U.P. [Comp. Application. No. 88/ALD/2018 in C.P. (IB) 23/ALD/2017] and (ii) Surendra Kumar Joshi vs. REI Agro Limited and Mr. Anil Goel, Liquidator vs. Deputy Director, Directorate Enforcement, Delhi [CA (IB) No.453/KB/2018 in CP (IB) No.73/KB/2017] – but states that those cases not being related to PF issue, they are not applicable to present case.

The contention of the EPFO before Hon’ble NCLT:
1. EPFO is a statutory body established under EPF Act 1952
2. EPF Act is a social legislation with an endeavour to protect the weaker sections of the society i.e. workers employed in Factory and other establishments.

From the Judgement, it is not clear whether EPFO contended that dues of workmen, being their savings – which along with the contribution of employer i.e. the Corporate Debtor was not paid and hence there is unjust enrichment to the Corporate Debtor and which will be used to pay off other secured creditors.

Hon’ble NCLT framed the issue for the determination as under:
Whether or not the PF, Pension Fund due and payable to workers or employees of the Corporate Debtor will become part of Liquidation Estate in the light of section 36 of IBC?

Corporate Debtor failed to pay dues under EPF Act for 15 years to EPFO. And EPFO despite it proceeding against Corporate Debtor, could not realise the dues owing one or the other legal implications. However, EPFO could attach the assets of the Corporate Debtor. And that attachment is now challenged under IBC by the Liquidator.

Hon’ble NCLT analysed Section 36(4) of the IBC. It noted that legislature has enumerated five types of assets under clauses a, b, c, d and e of sub-section (4) of section 36 which shall not form part of liquidation estate to avoid ambiguity.
And under clause (a) of Sec.36(4), there are further five kinds of assets owned by a third party but in the possession of the Corporate Debtor. To know implications of these clauses and understand commonality in bringing in these clauses under one head of assets possessed by Corporate Debtor without title over it, Hon’ble NCLT analysed it as under:
1. Sec.36(4)(a)(i) – any asset lying in trust with the corporate debtor for the benefit of the third party, that asset shall be excluded from the liquidation estate.
2. Sec.36(4)(a)(ii) – in bailment contracts, if goods have been in possession of corporate debtor for a specific purpose, corporate debtor being bailee not having title over such asset, that asset shall not be included in liquidation estate.
3. Sec.36(4)(a)(iii) – sums due to any workmen or employees from the provident fund, pension fund and the gratuity fund shall not be included in the liquidation estate.
4. Sec.36(4)(a)(iv) – contractual arrangements or transferring title to Corporate Debtor except for use of the assets will not form part of liquidation estate.
5. Sec.36(4)(a)(v) – any assets notified but the Central Government in consultation with financial sector regulator, shall not be included in the liquidation estate.

Sec.36(4)(a) of IBC is an inclusive definition of assets which are in possession of Corporate Debtor without title over it and which shall not form part of liquidation estate. Since it is inclusive, its meaning cannot be restricted – as held in Oswal Fats and Oils Ltd vs. Additional Commissioner (administration), Bareilly Division, Bareilly and Others [MANU/SC/0216/2010 – para 25].
While Sec.36(4)(a)(i), (ii) and (iv) of IBC deals with the assets in possession of the Corporate Debtor without any title over such assets, Sec.36(4)(a)(iii) and (v) of IBC, need not be seen as to whether title is vested with the Corporate Debtor or not, it is by operation of law that says when provident fund is payable to the workmen or employees, such payment dues have to be deemed as an asset of worker or employees, it makes no difference whether it has been maintained in a separate account or not. In view of this deeming fiction, the workmen/employees need not prove that whether any sum (interest) has been explicitly vested with them or not. So is the case when an asset of the Corporate Debtor is notified by the Central Government in consultation with any financial sector regulator. By including sub-clauses (iii) and (v) along with sub-clauses (i), (ii) and (iv) of clause (a) of sub-section (4), an overreaching interest and title has been created in favour of the workmen in respect to provident fund, etc. and in favour of Government in respect of the asset notified treating these two assets under sub-clauses (iii) and (v) as not included in the liquidation estate.[para 25]

Hon’ble NCLT noted historical background of the legislation of interplay between Sec.529A of the Companies Act 1956 and Section 11 of EPF Act as held in Employees Provident Fund Commissioner vs. O.L. of Esskay Pharmaceuticals Ltd. (2011) 10 SCC 727, wherein it was held that Section 11(2) of EPF Act will have the first charge on the assets of the establishment (here in case of Corporate Debtor) and will become payable in priority to all other debts. In particular paras 15, 16 and 17 of the said judgement was relied upon. Further Hon’ble NCLT considered that from the said Judgement it is clear that EPF Act is a social legislation and in furtherance of the directive principles of State.

Further, Hon’ble NCLT considered Section 529 of Companies Act 1956 and noted that similar provision is retained u/Ss.326 and 327 of the Companies Act 2013. It concludes that by excluding asset of PF etc. dues of workmen/employees from liquidation estate, the rights of workmen/employees are further strengthened as it is left open to the workmen or the PF authority to realise their PF/Pension/Gratuity dues without standing in line of waterfall mechanism.
In view of above, Hon’ble NCLT held that if we go by the provisions of law and the judge made law, it is evident that duty is conferred upon the liquidator and the Tribunal to ensure that PF dues are excluded from liquidation estate so as to enable the workmen realise their savings, as well as the matching contribution, comes from the employer giving priority even above the costs of liquidator because the liquidator is also entitled to realise the costs from the liquidation estate only, whereas the workmen for PF dues need not remain in line to realise their PF dues from the liquidation estate. This right in fact emanated from the fundamental right of Right to life. [Para 29]

Further, Hon’ble NCLT referred to Bandhua Mukti Morcha vs. Union of India (1984 AIR 802), where Hon’ble Justice Bhagwati hold the right to live with dignity under Article 21 derives its right from the Directive Principles of State Policy, particularly from Article 39(e) and (f) and Articles 41 and 42 of the Constitution of India.

Then Hon’ble NCLT expressed the view that right of workmen to savings during working life for later part of life must not be diluted as it is right to life. And hence dues of workmen by way of PF dues are treated under IBC as assets lying with Corporate Debtor and not to be treated as par with other creditors. [Para 30]

When PF contribution from the workmen is deducted from the wages by the Corporate Debtor, it has to be deemed that matching contribution has been allocated by the Corporate Debtor. It makes no difference whether it has been released from the Corporate Debtor or not. Once deduction has been made from the wages of the workmen, it is to be deemed as the asset of the workmen and not as an asset of the Corporate Debtor or the company as the case may be. Hence argument of liquidator that per section 36(4)(a)(iii) of IBC only PF amount already released and lying with EPFO needs to be considered. [Para 31]

Hon’ble NCLT referred to the overriding effect of EPF Act per sections 8 and 11 thereof whereby dues of PF, Pension and Gratuity fund has to be paid in priority to all other debts in the distribution of the property to the insolvent or the assets of the company being wound up, as the case may be. [para 32]. And since the dues of PF, Pension and Gratuity are not forming part of the liquidation estate per section 36(4)(a)(iii) of IBC, the provisions of IBC will not be applicable for realisation of such dues from the assets of the Corporate Debtor. The intriguing aspect lying in thus scenario is that though it is a due payable by the Corporate Debtor, as to PF, Pension, Gratuity Fund dues are considered, the Code has treated it as an asset of the workmen lying with the Corporate Debtor. [para 33].

And hence the overriding effect of Section 238 will not have any bearing over assets of the Corporate Debtor because that asset is not considered as part of the liquidation estate. Further, there is no inconsistency between IBC and PF Act as section 36(4)(a)(iii) excludes PF dues lying with the Corporate Debtor from the liquidation estate and section 53 is not applicable to dues not forming part of liquidation estate. [para 34]

And the PF Act is having overriding effect over and is later in time of Presidency Insolvency Act, Provincial Insolvency Act and the Companies Act 1956. Further, in view of section 36(4)(a)(iii) of IBC, the dues under PF Act are assets of workmen/employees with the Corporate Debtor and hence IBC does not come in the way. [para 35]

It does not matter whether assets are secured or not for realisation of PF dues from the Corporate Debtor because charge created over the assets of the Corporate Debtor by operation of law (EPF Act) will have first charge over any asset of the Corporate Debtor notwithstanding whether it is secured or unsecured. And hence argument of Liquidator that since the charges is created over the assets of CD in favour of other creditors, EPFO is not at par with secured creditors, is rejected. The charge in relation to PF dues will be the first charge in priority to all other debts, including Liquidation cost because the PF dues have been excluded from the liquidation estate. [para 36]

And workmen dues has been assigned u/s.53(1)(b)(i) of IBC the same meaning as under section 326 of the Companies Act 2013 will not have any bearing over section 36(4)(a)(iii) of IBC. The term used in section 53(1)(b)(i) of IBC shall not be construed as PF dues become part of the distribution of assets pari passu basis along with secured creditors, as distribution u/s. 53 will be of assets comprised u/s.36 of IBC i.e. liquidation estate. [para 37]

In the facts of the case, it is held that by virtue of EPF Act and section 36(4)(a)(i) of IBC, the charge will remain in force against the assets of the Corporate Debtor until it has been paid off by Liquidator before making payment to any entity fall under waterfall mechanism devised u/s.53 of the Code. [para 38]

And since caveat is included in sec.36(3) that the same is subject to sec.36(4) of IBC and hence ratio decided in Leo Edibles & Fats Ltd vs. Tax recovery Officer & Ors. By Hon’ble High Court of Hyderabad will not have the effect of removing the charge over assets under PF Act. [para 39]

Since dues under PF Act is not forming part of liquidation estate per section 36 of IBC itself, ratio of Innoventive Industries Ltd vs. ICICI Bank Ltd is not applicable. [para 40]

It makes no difference whether attachments have been made prior to or subsequent to the admission of Company Petition under IBC, the statutory first charge having remained in force against the Corporate Debtor. [para 41]

Accordingly, liquidator was directed to pay the PF dues to EPFO from the liquidation estate before distributing the same to the claimants, as the liquidator has to sale the assets of the Corporate Debtor and pay off the PF dues in priority to all other claims.[para 42]

Comments:

In my view, considering that under section 53(1)(b)workmen’s due for the period of twenty-four months preceding the liquidation commencement date ranks equally with debts due to a secured creditor if such creditor relinquishes security u/s.52 and hence the liquidator is required to distribute the same equally – the conclusion of Hon’ble NCLT in para 37 is not totally correct. What the liquidator is required to do, in such a situation, as in the present case, is to sale liquidation estate, pay off dues of workmen under PF Act for a period prior to twenty-four months preceding the liquidation commencement date. And thereafter, whatever remains shall be paid as per section 53 of the IBC. This is so, as PF dues form part of workmen’s due under section 326 of Companies Act 2013 and hence also under section 53 of the IBC (in view of explanation (ii) to section 53 of IBC).

Transition from High Court to NCLT, compromise, arrangement, winding-up and other matters

The Insolvency and Bankruptcy Code, 2016 (31 of 2016)

 

Key words of Preamble to the Insolvency and Bankruptcy Code, 2016 (IBC):-

  • reorganization and insolvency resolution of- corporate person, partnership firms and individuals

– in a time bound manner

  • for maximization of value of assets
  • to promote entrepreneurship

  • availability of credit

  • balance the interest of all the stakeholders (including alteration in the order of priority of payment of Government dues)

  • to establish an Insolvency and Bankruptcy Board of India (IBB or IBBI)

 

What happened and when:

 

Date What
28/5/2016 IBC notified
05/08/2016 IBB related provisions notified
19/08/2016 Provisions empowering CG notified
29/08/2016 Salary Rules notified
01/10/2016 IBB established with office at New Delhi

Mr. M. S. Sahoo Chairperson

Ex-officio of Ministry of Finance, Ministry of Corporate Affairs, Ministry of Law and Justice and the Reserve Bank of India notified

01/11/2016 Provisions empowering IBB notified.

Also, Schedules to IBC notified – change in Central Excise, Service Tax, SICA

15/11/2016 Regulations for IPA and IP notified

Also, Schedules to IBC notified – change in SARFAESI, LLP Act 2008, Companies Act 2013, Payment and Settlement Systems Act, 2007

21/11/2016 IBBI (IPA) Regulations 2016 notified w.e.f. 21/11/2016
23/11/2016 IBBI (IP) Regulations 2016 notified w.e.f. 29/11/2016
30/11/2016 Ss. 4 to 32 – Provisions relating to Insolvency Resolution Process for Corporate Persons notified w.e.f. 01/12/2016

S. 236 Offences under IBC, triable by Special Court under CA 2013 – notified w.e.f. 01/12/2016

S.237 IBC overrides all other laws – notified w.e.f. 01/12/2016

S.231 No injunction notified w.e.f. 01/12/2016

S.239(2)(a) to (f) – CG to make Rules for application to NCLT

IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 notified w.e.f. 01/12/2016

01/12/2016 Ss. 4 to 32 of IBC notified (except for individuals, partnership firm and voluntary liquidation)

S. 60 transitory – for Court to NCLT for Personal Guarantor

01/12/2016 IB (Application to Adjudicating Authorities) Rules, 2016 notified

For filing applications u/s.7,8,9 of IBC

   

 

 

The Insolvency and Bankruptcy Code, 2016 (the ‘IBC’).

 

As you might be aware that the Government of India has notified the substantive provisions of the IBC with effect from 01 December 2016. The Government has also issued notifications for repeal of the Sick Industrial Companies (Special Provisions) Act, 1985 (the ‘SICA’). Thus, SICA is repealed with effect from 01st December 2016 and all proceedings, reference, inquiry or appeal before BIFR and AAIFR stands abated with effect from 01st December 2016.

 

Further with effect from 01st December, 2016, all matters relating to winding-up (except voluntary winding-up) of Companies and Limited Liability Partnerships (LLPs) are dealt with by the NCLT. Thus, High Courts (and in some part of the Country District Courts) do not have jurisdiction for dealing with new cases of winding-up on and after 01 December 2016. Cases of Voluntary winding-up to be dealt with by the NCLT on and after 01 April 2017.

 

Further, with effect from 15th December, 2016, cases relating to compromise, arrangement and reconstruction (including merger, amalgamation and demerger), reduction of share capital, variation of shareholder’s rights, recovery of property of company in wrongful possession of employees or ex-employees of Company etc. would be dealt with exclusively by the NCLT.

 

To have birds eye view of the transitory provisions for transfer of cases from High Courts to the NCLT, a tabular presentation is given below:

 

TRANSITORY PROVISIONS

 

The Insolvency and Bankruptcy Code, 2016 (the ‘IBC’).

National Company Law Tribunal (NCLT).

 

Section 434 (1) (c) of the Companies Act 2013 – as amended by Eleventh Schedule of IBC and further amendment by Order S.O. 3676(E) dated 7th December 2016.

 

Subject Matter Transferred to NCLT Retained with High Court
Winding-up under supervision of Court No. Yes.
Voluntary winding-up (Sec.484 of CA 1956)

(Rule 4)

No.

New cases to be filed with NCLT w.e.f. 01 April, 2017 as per the IBC.

Note that provisions relating to voluntary winding-up under the Companies Act, 2013 are omitted by the IBC.

 

Yes, for cases filed upto 31st March 2017.
Winding-up for inability to pay (Sec. 433(e) of CA 1956)

(Rule 5)

Yes, where petition has not been served on the Respondent.

Such petition to be treated as application u/Ss. 7, 8 or 9 of IBC.

Petitioner to submit additional information, including proposed insolvency professional, within 60 days from date of notification of the Rules on 07 December 2016. Thus, by 05 February, 2017. Failing which petition shall abate.

Yes, where petition has been served on the Respondent
Winding-up by Court

[Sec. 433(a) and (f)]

(Rule 6)

Only those cases where the petition has not been served on the respondent. Yes, where the petition has been served on the respondent.
BIFR u/s.20 of SICA

[S. 434(1)(d) of CA 2013 r/w Rule 5(2)]

w.e.f. 01/12/2016 Sick Industrial Companies (Special Provisions) Repeal Act, 2003 brought to force, including section 4(b) thereof.

No.

 

Proceedings before BIFR and AAIFR abates.

However, reference within 180 days can be made to NCLT as per Companies Act 2013.

Yes, where opinion has been forwarded by BIFR and no appeal is pending and winding up is initiated u/s. 20 of SICA.
Arbitration, Compromise, arrangement and reconstruction

(Second proviso to Section 434(1)(c) of CA 2013 read with Rule 3)

Yes, except those cases reserved for orders for allowing or otherwise, i.e. final disposal (cases heard but orders reserved) w.e.f. 15th December, 2016 Those cases reserved for orders for allowing or otherwise (Cases heard and pronouncement of order is pending or reserved) w.e.f. 15th December, 2016
Reduction of Capital (Sec. 100 of CA 1956 – corresponding Sec. 66 of CA 2013) As above As above
Cancellation or variation of rights of shareholders (Sec. 106 of CA 1956  –corresponding sec. 48(1) of CA 2013) As above As above
To restrain fraudulent persons from managing companies (Sec. 203 of CA 1956) As above As above
For order that affairs of a Company ought to be investigated (Sec. 237 of CA 1956 – corresponding sec. 213 of CA 2013) As above As above
Applications under section 439 for the winding-up of a company, or under section 583 for the winding up of an unregistered company, or under section 584 for the winding-up of a foreign company

(Corresponding Sec.376 of CA 2013)

As above As above
Applications for a declaration under section 542 (XI Schedule) in the course of proceedings under section 397 or 398 that a person who was knowingly a party to carrying on business in a fraudulent manner shall be personally liable for all or any of the debts or other liabilities of the company

(Corresponding Sec.339 of CA 2013)

As above As above
Applications by a creditor or member under section 543 (XI Schedule) in the course of proceedings under section 397 or 398, to enquire into the conduct of any of the persons mentioned in section 543 (XI Schedule) and compel him to repay or restore any money or property to the company or pay compensation.

(Corresponding Sec.340 of CA 2013)

As above As above
Applications under section 633(2) by an officer of a company for relief.

(Corresponding Sec.463 of CA 2013)

As above As above
Applications under section 560(6) to restore a company’s name to the Register of Companies

(Corresponding Sec.248 of CA 2013 – does not contain similar provision)

As above As above
Applications under section 579 to confirm the alteration in the form of the constitution of a company by substituting a memorandum and articles for a deed of settlement.

(No corresponding provision under CA 2013)

As above As above

 

All proceedings transferred from High Court to NCLT, to be dealt with as per the Companies Act, 1956 and the Company (Court) Rules, 1959. [Third proviso to Section 434(1)(c) of the Companies Act 2013].

All proceedings transferred from High Court to NCLT, to be dealt with from the same stage as were before their transfer. [Section 434(1)(c) of the Companies Act 2013].