IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 31ST DAY OF JULY, 2019 BEFORE:
THE HON’BLE MRS. JUSTICE S.SUJATHA COMPANY PETITION No.202/2016 BETWEEN:
MILESTONE REAL ESTATE FUND, A TRUST REGISTERED WITH THE SECURITIES AND EXCHANGE BOARD OF INDIA, HAVING ITS REGISTERED OFFICE AT 602, HALLMARK BUSINESS PLAZA SANT DYANESHWAR MARG, BANDRA (EAST), MUMBAI - 400 051 REP BY ITS AUTHORISED SIGNATORY Mr. DEBI SARANGI. ... PETITIONER AND:
(BY SRI K.G.RAGHAVAN, SENIOR COUNSEL FOR SMT.NAMRATA KOLAR, ADV.) PRISHA PROPERTIES INDIA PRIVATE LIIMITED A COMPANY INCORPORATED UNDER THE COMPANIES ACT, 1956 HAVING ITS REGISTERED OFFICE AT NO.869, FIRST FLOOR, 80 FEET ROAD, 8TH BLOCK, KORAMANGALA BENGALURU – 560095 REP BY ITS MANAGING DIRECTOR. …RESPONDENT (BY SRI A.MURALI, ADV. FOR RESPONDENT; SRI S.M.CHANDRASHEKAR, SENIOR COUNSEL FOR SRI H.E.RAMESHA, ADV. FOR IMPLEADING APPLICANT IN C.A.No.357/2017; SRI P.RAVISHANKAR, ADV. FOR IMPLEADING APPLICANT IN C.A.No.36/2018; SRI C.K.NANDA KUMAR, ADV. FOR 3RD PARTY (i.e., IN M/s GARDEN CITY REALTY PVT. LTD.) THIS COMPANY PETITION FILED UNDER 433(E) R/W 434(1)(A), SECTION 433(F) AND SECTION 439 OF THE COMPANIES ACT, PRAYING TO DIRECTING THAT THE RESPONDENT COMPANY, PRISHA PROPERTIES INDIA PRIVATE LIMITED, BE WOUND UP UNDER THE RELEVANT PROVISIONS OF THE COMPANIES ACT, 1956 AND ETC.
THIS PETITION HAVING BEEN HEARD AND RESERVED, IS COMING ON FOR PRONOUNCEMENT OF ORDER THIS DAY, THE COURT PASSED THE FOLLOWING:
O R D E R The petitioner – Milestone Real Estate Fund has filed this Company Petition under Sections 433(e) and 433(f) read with 434 and 439 of the Companies Act, 1956.
2. BACKGROUND FACTS:
It is submitted that in the year 2013, the respondent Company – Prisha Properties India Private Limited was in need of financial assistance in repaying an existing loan and for developing the project and accordingly, approached the petitioner to subscribe to the respondent’s securities. Based on the representations, warranties and covenants agreed to be provided by the respondent and its promoter, the petitioner agreed to invest a sum of Rs.30,00,00,000/- (Rupees Thirty Crores) in the respondent - Company by way of subscription to 300 secured redeemable optionally fully convertible debentures of face value of Rs.10,00,000/- (Rupees Ten Lakhs) each (Debentures). The respondent, promoter and petitioner entered into an Investment Agreement dated 23.02.2013.
3. As per the said Investment Agreement, the First Tranche Debentures were required to be redeemed at an agreed repurchase price within thirty business days upon the expiry of twenty four months from the First Tranche Completion date (as defined under the Investment Agreement) and the Second Tranche Debentures were required to be redeemed at the agreed repurchase price within seven business days upon expiry of thirty months from the First Tranche Completion date. The debentures were also secured by the respondent through first exclusive charges on lands as described in the Investment Agreement and other securities. Pursuant to the creation of the securities in favour of the petitioner, other agreements were also entered into between the respondent and the petitioner along with other relevant parties. Multiple letters and reminders were issued by the petitioner for the default committed by the respondent - Company in not complying with the terms of the Investment Agreement. In view of the failure of the respondent to redeem the debentures despite several reminders and requests, the petitioner had issued the statutory legal notice dated 14,07.2016, detailing its liability towards the petitioner and demanding the outstanding amount of Rs.41,29,71,205/- (Rupees Forty One Crores Twenty Nine Lakhs Seventy One Thousand Two Hundred Five) calling upon the respondent - Company to make payments of the outstanding amount within twenty one days from receipt of the notice, failing which the proceedings will be initiated under Sections 433 and 434 of the Companies Act, 1956 to initiate winding up proceedings against the respondent – Company.
4. In response to the said legal notice, the respondent issued a reply dated 05.08.2016 in which the respondent categorically admitted to all the demand letters addressed by the petitioner to the respondent and did not contest any of the demands made by the petitioner previously. It was further stated that it had, in the past, expressed its inability to pay the outstanding amounts and redeem the debentures due to unfavourable market conditions and it is due to such reasons that the respondent had sought for an extension in the time period provided under the Investment Agreement for redemption of the debentures. It is based on the unequivocal admission of debt owed to the petitioner by the respondent – Company and its inability to pay the same, the present petition is filed.
5. Relevant Contentions of the Petitioner:
In view of the respondent’s failure to pay admitted debt owed to the petitioner and its conduct in
present proceedings, clearly establishes the inability to pay the admitted debt by the petitioner. Indeed, the respondent has finally admitted that it has no liquidity to discharge the debt owed to the petitioner. Further, in order to protract the proceedings, some attempts were made to infuse M/s. Garden City Realty Private Limited, but ultimately failed. Impleading applicant is projected claiming to be the agreement holder of the flat to delay the proceedings. Hence, the Company petition deserves to be allowed, winding up the respondent Company under Sections 433(e) and (f) of the Companies Act 1956 dismissing the applications filed by the impleading applicants.
6. Relevant Contentions of the respondent/orders of the Court:
[a] In the statement of objections, the respondent has not denied or disputed the debt owed by it to the petitioner in any manner whatsoever. On the contrary, the respondent has in paragraph 1[f] of its statement of objections admitted that it had approached the petitioner for monies as it wanted funds to pay off certain other loans that had been incurred by it. As such, the averments made by the respondent itself are indicative of the state of its commercial affairs and its inability to pay its debts.
[b] In the course of proceedings in the present company petition, the respondent failed to provide any concrete proof to substantiate its alleged ability to pay its debts and instead, made repeated assertions that it has sufficient assets to meet its liabilities and hence, cannot be regarded as an insolvent company.
[c] This Court vide order dated 27.07.2017 had directed the respondent to deposit the amount of Rs.5,00,00,000/- [Rupees Five Crores only] . This was prior to the admission of the petition on November 22, 2017. However, the respondent has failed to pay the said amount. In view of the continuous lapses on the part of the respondent, the present company petition was admitted vide order of this Court dated 22.11.2017. However, the respondent has given another opportunity to repay the outstanding amount within a period of six weeks and the publication of the advertisement was deferred by the period of six weeks. Despite providing sufficient opportunity, the respondent failed to deposit the outstanding amount within a period of six weeks as directed vide order dated 22.11.2017. The petitioner was permitted to carryout the publication of the advertisement of admission of the petition on January 14, 2018. Again this Court provided various opportunities to the respondent to establish its bonafides. The respondent has failed to adhere to the directions issued by this Court to deposit Rs.5,00,00,000/- [Rupees Five Crores Only] to show its bonafides. When the matter was heard at length on 08.06.2018, the respondent categorically submitted and undertook that it would pay an amount of Rs.41,00,00,000/- [Rupees Forty One Crores Only] to the petitioner by 15.07.2018 as full and final settlement in the matter, placing reliance on the alleged infusion of funds by M/s. Garden City Realty Private Limited a third party that had purportedly come forward to take over the Project.
[d] After six months of inaction on part of the respondent and Garden City, this Court in its order dated 14.12.2018 directed M/s. Garden City to file an affidavit setting out a concrete offer for its proposed take over of the project. No such affidavit has been filed to the said effect. The order of this Court dated 04.04.2019 depicts that the respondent has submitted that it has no liquidity at this stage and prayed the Court to pass appropriate orders in accordance with law. The respondent thus submitted itself to the jurisdiction of this Court and sought for necessary orders to be passed admitting that it has no liquidity. It is thus clear that despite providing adequate opportunities, the respondent has failed to pay even relatively small part of its total debt to the petitioner, thereby failing to establish its bonafides.
7. Contentions of the Impleading Applicant:
C.A.No.357/17 has been filed by the applicant- Ashok Kumar Javeri – claiming to be the purchasers of the flat/financial creditors to implead the applicant in the present proceedings. CA No.274/2018 has been filed by the impleading applicant seeking transfer of the present proceedings to the National Company Law Tribunal (NCLT) or to dismiss the winding up petition.
The questions raised by the impleading applicant for consideration before this Court are as under:-
a) Whether Company Petition in the present form is maintainable and can be proceeded further for the winding up of the Company on the ground of Inability/unable to pay its debt?
b) Whether winding up proceedings is maintainable on coming into force of the Insolvency Bankruptcy Code, 2016? and Whether any pending winding up proceeding before the Hon’ble High Court wherein the application made by the Financial creditor is required to be transferred to the National Company Law Tribunal in exercise of its Power under Section 434 of the Companies Act, 2013?
c) Whether Section 238 of the Insolvency Bankruptcy Code, 2016 would bar any proceedings for winding up in derogation of the procedure prescribed therein?
The said application has been objected by the petitioner on the following grounds:
1) No impleading application is maintainable in the Company Petition.
2) Second proviso to Section 434[1](c) of the Companies Act, 2013 is not applicable in the present set of facts.
8. Arguments of the learned Senior counsel for the impleading applicant.
[a] The learned Senior counsel for the applicant argued that the new Companies Act, 2013 provides for winding up of the company on the ground of inability to pay its debts until 01.12.2016. The Insolvency and Bankruptcy Code, 2016 (‘Code, 2016’) was enacted with effect from 01.12.2016 to deal with all the situation comprehensively under one umbrella with one single legislation dealing with all aspects of corporate entity. After the promulgation of the XI Schedule of the Code, 2016, the ground of inability to pay its debt no more survives under the provisions of the Act, 2013. The winding up petition is not maintainable when the Companies Act old regime is weighed against the Code, 2016 in light of Section 6 of the General Clauses Act, 1897. Amendment to Act, 2013 with effect from 29th August, 2013 has brought about sea change in the matter of corporate insolvency proceedings as a consequence of the said amendment to Section 434 of the Act, 2013 and amendment to Code, 2016, all proceedings relating to winding up of companies under the Act, 1956 shall stand transferred to NCLT on an application for transfer. The proceedings so transferred shall be dealt with by the NCLT as an application for initiation of corporate insolvency resolution process under the Code, 2016. Irrespective of the stage at which the winding up proceedings are pending in the High Court in order to ensure that the process of reconstruction, rehabilitation and resuscitation (revive/resurrect/rescue} are undertaken to save the company from liquidation proceedings, the proceedings are required to be transferred to NCLT.
[b] Inviting the attention to Rule 2(16) of the National Company Law Tribunal Rules, 2016, it was argued that ‘party’ means a person who prefers an appeal or application or petition before the Tribunal and includes respondent or any person interested in the said appeal or application or petition including the Registrar of Companies or the Regional Director or Central Government or State Government or Official Liquidator and any person who has a right under the Act, or the Reserve Bank of India Act, 1934 (2 of 1934) to make suggestions or submissions or objections or reply. In the absence of the definition of the ‘party’ or ‘other parties’ under the Act, 2013 and the Companies (Transfer of Pending Proceedings) Rules, 2016 (‘Transfer Rules, 2016’), the definition provided under Rule 2(16) of the National Company Law Tribunal Rules, 2016 requires to be adopted. Reference was made to Section 238 of the Code, 2016 in support of the submission that the said provision would override other laws. Thus, it was argued that winding up of the corporate entity for ‘unable to pay its debts’ is no longer available in the statute under the changed scenario. In terms of Section 434 of the Act, 2013, the proceedings be transferred to the Tribunal or the company petition has to be dismissed.
9. Arguments of the learned Senior counsel for the petitioner:
i) During the course of proceedings in the present company petition, the respondent has failed to substantiate its alleged ability to pay its debts and made repeated assertions to contend that it cannot be regarded as an insolvent company. If a debt is undisputedly owing, then it has to be paid. If the company refuses to pay such admitted debts, liquidation proceedings requires to be considered and winding up order has to be passed. Proof of the debt and that inability on the part of the company to pay the debt, calls for winding up order.
[ii] The impleading applicant is not a party to the proceedings. Now in a desperate attempt to maintain the company application has made a futile exercise to come on record as a party to the proceedings on the basis of a sale agreement dated November 13, 2015, executed between himself and the respondent in relation to a unit in the project called “Orchids”. This application is filed only to delay and protract the hearing in the present proceedings. Both the applications filed by the impleading applicant neither maintainable in law nor in the facts of the present case. The impleading applicant has not followed the Companies [Court] Rules 1959 which envisages a specific procedure under Rule 34 and Rule 103 to allow interested person to participate in the winding up proceedings in a limited capacity, by way of an affidavit which may be filed either to support or oppose the winding up petition. Further, 103 of the Company Court Rules provides for filing of an affidavit-in-opposition. Though the impleading applicant is claiming his rights to participate in the proceedings on the basis of the sale agreement, another impleading application [CA.No.36/2018] has been filed by Mr.M.Chandra Reddy wherein reliance is placed on the sale deed dated October, 17, 2017 executed between Mr.M.Chandra Reddy and the respondent in respect of the same property for which the impleading applicant is claiming his right on the basis of the agreement dated November 13, 2015. These factual aspects clearly demonstrates that the impleading applicant is colluding with the respondent by making a false claim, only to delay the proceedings. Referring to Section 557 of Act 1956, learned senior counsel has argued that the said provisions provides for meetings to ascertain wishes of creditors in relation to winding up of a company wherein “regard shall be had to the value of each creditor’s debt”, the alleged debt owed to the impleading applicant by the respondent is Rs.44,79,000/- [Rupees Forty Four Lakhs Seventy Nine Thousand Only] whereas the admitted debt owed by the respondent to the petitioner is Rs.65 Crores. Therefore, the present petition cannot be transferred to the NCLT on the whims of one creditor while putting at risk the rights of the substantial creditors of the respondent. The secured creditor is entitled to move for winding up petition since it would be inappropriate to exercise the action of relinquishing the security, when the company petition is filed, that stage would arise only when the debt is to be proved. Learned senior counsel has placed reliance on host of judgments of the Hon'ble Apex Court as well as this Court in support of his contentions.
10. Analysis:
Sections 433(e) and (f) of the Companies Act, 1956 (‘Act 1956’) contemplates the circumstances in which company may be wound up by the Court i.e., (e) if the company is unable to pay its debts;
(f) if the court is of the opinion that it is just and equitable that the company should be wound up.
Section 434 of the Act, 1956 envisages when a company shall be deemed to be unable to pay its debts.
11. Section 434(1)(c) and the proviso thereof of the Act, 2013 reads thus:-
“434(1)(c). all proceedings under the Companies Act, 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.”
(inserted w.e.f.15.11.2016) 12. Rule 5 of the Companies (Transfer of Pending Proceedings) Rules, 2016 reads thus:-
“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 sub-section (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;
Provided that the petitioner shall submit all information, other than information forming part of the records transferred in accordance with Rule 7, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including the details of the proposed insolvency professional to the Tribunal within sixty days from date of this notification, failing which the petition shall abate.
(2) All cases where opinion has been forwarded by Board for Industrial and Financial Reconstruction, for winding up of a company to a High Court and where no appeal is pending, the proceedings for winding up initiated under the Act, pursuant to section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall continue to be dealt with by such High Court in accordance with the provisions of the Act.”
13. A conjoint reading of these two provisions envisages two types of transfers to the NCLT.
(1) By Statutory operation of law.
(2) On the application made by party or parties to any proceedings relating to the winding up of companies pending before the Court.
14. Rules 26 and 27 of the Companies (Court) Rules 1959 reads as follows:-
“Rule 26. Service of petition – Every petition shall be served on the respondent, if any, named in the petition and on such other persons as the Act or these rules may require or as the Judge of the Registrar may direct. Unless otherwise ordered, a copy of the petition shall be served along with the notice of the petition.
Rule 27. Notice of petition and time of service – Notice of every petition required to be served upon any person shall be in Form No.6, and shall, unless otherwise ordered by Court or provided by these rules, be served not less than 14 days before the date of hearing.
Provided always that such notice when by the Act or under these Rules is required to be served on the Central Government, the same shall, unless otherwise ordered by the Court, be served not less than 28 clear days before the date of hearing.”
15. In Forech India Ltd., vs. Edelweiss Assets Reconstruction Co. Ltd., in Civil Appeal No.818/2018 (D.D. 22.01.2019), a winding up petition was filed by the appellant therein before the High Court of Delhi on 10.01.2014, against respondent No.2 - Company therein alleging inability to pay debts under Section 433[e] of the Act, 1956. Notice in the said petition had been served by the Hon’ble High Court of Delhi. The said liability, in fact, was admitted by the respondent - Company. Respondent No.1 therein, being a financial creditor of the self-same corporate debtor, moved the NCLT in an insolvency petition filed under Section 7 of the Code sometime in May/June 2017. The said petition was admitted on 07.08.2018, against which an appeal was filed by the appellant therein which was dismissed by the Appellate Tribunal, in which Section 11 of the Code was referred to, since there was no winding up order by the High Court, the financial creditor’s petition would be maintainable, as a result of which the appeal filed by the appellant therein has been dismissed. In the said context, the Hon'ble Apex Court has analyzed the XI Schedule to the Code, 2016 and the various amendments made to the Act, 2013 vis-à-vis Section 238 of the Code, 2016. It is observed in paragraph 17 as under:
"17. The resultant position in law is that, as a first step, when the Code was enacted, only winding up petitions, where no notice under Rule 26 of the Companies (Court) Rules was served, were to be transferred to the NCLT and treated as petitions under the Code. However, on a working of the Code, the Government realized that parallel proceedings in the High Court as well as before the adjudicating authority in the Code would stultify the objective sought to be achieved by the Code, which is to resuscitate the corporate debtors who are in the red. In accordance with this objective, the Rules kept being amended, until finally Section 434 was itself substituted in 2018, in which a proviso was added by which even in winding up petitions where notice has been served and which are pending in the High Courts, any person could apply for transfer of such petitions to the NCLT under the Code, which would then have to be transferred by the High Court to the adjudicating authority and treated as an insolvency petition under the Code. This statutory scheme has been referred to, albeit in the context of Section 20 of the SICA, in our judgment which is contained in Jaipur Metals & Electricals Employees Organization Through General Secretary Mr. Tej Ram Meena vs. Jaipur Metals & Electricals Ltd., Through its Managing Director & Ors., being a judgment by a Division Bench of this Court dated 12.12.2018.”
Finally, the Hon'ble Apex Court declined to interfere with the order passed by the Appellate Tribunal observing that the financial creditor’s application which has been admitted by the Tribunal is clearly an independent proceeding which must be decided in accordance with the provisions of the Code. However, liberty was reserved to the appellant therein to apply under the proviso to Section 434 of the Companies Amendment Act, 2018 to transfer the winding up proceeding pending before the High Court of Delhi to the NCLT, which can then be treated as a proceeding under Section 9 of the Code.
16. In Reserve Bank of India vs. Sahara India Financial Corporation Ltd., the Hon’ble High Court of Allahabad has held that it is no doubt correct that the power under the second proviso to Section 434 is given to the Court to transfer any winding up proceedings which is pending before the High Court on 06.06.2018 The proviso no doubt be applicable to such proceedings which are not transferred under the Transfer Rules 2016. However, the proviso does not say that these proceedings would automatically stand transferred. Rather it leaves the discretion with the Court, where the winding up proceedings are pending, to transfer the same or not to transfer the same. For want of reasons, the Hon’ble Court negated the request for transfer moved by the respondents through an application.
17. In State Bank of India V/s. Uco Bank and Others, in the context of the applicant bank intending to join as party respondent in the winding up petition, the Hon'ble High Court of Gujarat observed that a secured creditor can come before the Court and oppose the petition and/or seek appropriate order and request the Court not to pass order of winding up against the company to defer the proceedings. However, when a person wants/intends to oppose [or support] a winding up petition and when specific procedure for such purpose is prescribed then the person seeking to support or oppose the petition must follow such procedure and Court cannot permit any other procedure. Thus, when procedure is prescribed for issuing and service “Notice of intention” for the secured creditor or other creditor or contributory or “any person” who wants to oppose or support winding up petition, then, any other short cut or procedure cannot be allowed. Since, the right to seek order of winding up against a debtor is a right created by statute, it has to be exercised and can be allowed to be exercised and must be carried out and implemented/enforced only in the manner prescribed by the Act and the Rules. The applicant without following the procedure prescribed under Rule 34 but insisting to join, as a party respondent in a winding up petition taken up by the third party wherein petitioner has not prayed for any relief against the applicant is not justifiable.
18. In the case of Madusudhan Gordhandas V/s. Madhu Woolen Industries Private Limited, [1971] 3 SCC 632, the Hon'ble Apex Court has held thus:
“Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt (See Re. A Company 94 S.J. 369). Where however there is no doubt that the company owes the creditor a debt entitling him to a winding up order but the exact amount of the debt is disputed the court will make a winding up order without requiring the creditor to quantity the debt precisely (See Re. Tweeds Garages Ltd.) The principles on which the court acts are first that the defence of the company is in good faith and one of substance, secondly, the defence is likely to succeed in point of law and thirdly the company adduces prima facie proof of the facts on which the defence depends.”
19. In Hegde and Golay Limited, V/s. State bank of India, ILR 1987 KAR 2673, the Division Bench of this Court has observed thus:
“41. But it appears to us that it is not necessary to examine the question whether the Company is insolvent in this larger sense, which in turn depends on the correctness of the Valuation Reports Exhibits R- 4 and R-ll. It is unnecessary to be gone into it as, even assuming that the Company was not insolvent in the larger sense, the finding that it was unable to repay its current liabilities and demands on which we entirely agree with the Learned Company Judge - would itself be sufficient to support the conclusion that the Company is unable to pay its debts. We, therefore, find no substance in the challenge to this finding.”
20. In the light of these judgments and the relevant provisions referred to above vis-à-vis as well as the submissions of the respondent company, it can be held that the respondent company undisputedly owing a debt has failed to pay the same despite providing sufficient opportunities. Moreover, has failed to show the bonafides to prove the solvency. However, it is not necessary to examine the question whether the company is insolvent, the admission of debts and its inability to repay its current liabilities and demands would itself be sufficient to support the conclusion that the company is unable to pay its debts. It is true that an order of winding up is an order of last resort and should be exercised with great circumspection. The Court having been satisfied for ordering the winding up looking that the defence and conduct of the respondent company. More particularly, proof of the debt and the inability on the part of the company to pay the debt being established, winding up of the company cannot be denied. The arguments of the learned counsel for the applicant that no winding up proceedings is maintainable subsequent to the Code, 2016 and amendment to Section 434 of the Act, 2013 coming into force cannot be countenanced since the first amendment to Section 434 of the Act, 2013 with effect from 01.12.2016 conceptulates automatic transfer from the High Court to the NCLT relating to only such proceedings of the winding up of companies, where no notice under Rule 26 of the Companies [Court] Rules was served. In view of the subsequent amendment with effect from 06.06.2018, it is only on the application made by any party or parties to any proceedings relating to the winding up of companies, such proceedings may be transferred to NCLT. As discussed in the preceding paragraphs, the applicant is not a party to the present proceedings but making efforts to come on record as an impleading applicant.
21. It is trite that under the company proceedings, any person, who intends to appear at the hearing of a petition is required to serve on the petitioner advocate notice of its intention in terms of Rule 34 of the Company [Court] Rules. Such notice shall be in Form No.9, with such variations as the circumstances may require, and where such person intends to oppose the petition, the grounds of his opposition, or a copy of his affidavit, if any, shall be furnished along with the notice. Any person who has failed to comply with this rule shall not except with the leave of the Hon’ble Judge, be allowed to appear at the hearing of the petition. In terms of Rule 103 any affidavit intended to be used in opposition to the petitioner shall be filed not less than five days before the date fixed for hearing of the petition and a copy of the affidavit shall be served on the petitioner or his advocate forthwith. Copies of the affidavit shall also be given to any creditor or contributory appearing in support of the petition who may required the same, on payment of the prescribed charges. It is settled law that when something is required to be done in particular manner under the statue, then it must be done in that particular manner and not in any other manner. Thus, the procedure prescribed for issuing and serving notice of intendment who wants to oppose or support winding up petition, has to be exercised in terms of Rules 34 and 103 only and not by way of an impleading application. Hence, the impleading application deserves to be rejected. If so, the application of the applicant to seek for transfer of the proceedings to NCLT would not survive for consideration. No winding up power exercisable under Section 433 [e] and [f] of the Act, 1956 is taken away subsequent to the Code, 2016 coming into force inasmuch as the pending company petitions are concerned in view of the clear declaration of the Legislature in Section 434.
22. Sub clause (2) of the Companies (Removal of Difficulties) fourth order 2016 contemplates that the proceedings relating to winding up of companies which have not been transferred from the High Courts shall be dealt with in accordance with the provisions of the Act, 1956 and companies Court Rules 1959. Third proviso to Section 434(1)(c) inserted with effect from 29.06.2017 further makes it clear inasmuch as company petitions pending before this Court. The said proviso is quoted hereunder for ready reference:
“3[Provided also that]-
(i) all proceedings under the Companies Act, 1956 other than the cases relating to winding up of companies that are reserved for orders for allowing or otherwise such proceedings; 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.”
The resultant position, therefore, is that the company petitions not transferred to NCLT under Section 434-(1)(C) not falling under the first proviso thereof shall be proceeded with, in accordance with the provisions of Companies Act 1956. Cases falling under second proviso to 434-(1)(C) cannot be transferred automatically unless the party/parties to the proceedings makes an application. Neither the petitioner nor the respondent has made any such application for transfer. Rule 2(16) of the NCLT Rules, 2016 cannot be imported to the Companies Act, 2013 to interpret the phrase ‘party’ or ‘parties’ employed in the proviso to Section 434(1)(C) of the Act, 2013 unless the Legislature specifies so. Neither by reference nor by incorporation, the definition clause of other enactment could be borrowed to interpret the words under the Act, 2013. Hence, the arguments of the learned Senior counsel for the applicant has to be negated. Applicant in C.A.No.36/2018 has failed to show its bonafides. Accordingly, the following:
ORDER I. Company petition is allowed and an order is made to wind up the respondent-company with immediate effect.
II. The Official Liquidator attached to this Court is appointed as the Liquidator of the company.
III. Petitioner is directed to file a copy of the order made by this Court with the Registrar of Companies within 30 days from today.
IV. Petitioner shall publish the order made by this Court in one edition of ‘TIMES OF INDIA’ Newspaper and in one edition of ‘VIJAYA KARNATAKA’ Newspaper within 14 days from today.
V. Petitioner shall deposit a sum of Rs.40,000/- with the official Liquidator for implementation of the order made by this Court. Ordered accordingly.
VI. All the pending Company Applications including Company Application Nos.357/2017, 36/2018 and 274/2018 are dismissed.
Sd/- JUDGE PMR.