Judgment The court ruled that the transferability, by operation of law, of winding up proceedings, other than those covered by the 4th Proviso, will depends upon the stage at which they are pending before the Company Court. But this, the court said, is left by the law makers to be determined through subordinate legislation, in the form of Rules.
The present case of winding up on account of inability to pay debts was covered by Rule 5 of 2016 Rules, the court noted. As per Rule 5, the transferability of a winding up proceeding is directly linked to the service of the winding up petition on the respondent under Rule 26 of the Companies (Court) Rules, 1959, it added.
“If the winding up petition has already been served on the respondent in terms of Rule 26 of the 1959 Rules, the proceedings are not liable to be transferred. But if service of the winding up petition on the respondent in terms of Rule 26 had not been completed, such winding up proceedings, shall peremptorily be transferred to the NCLT,” the court said.
Thus, the normal requirement of Rule 26, is that the copy of the petition under the Act shall be served on the respondent along with the notice of the petition. However, the court adverted to the changes made to Section 434 in 2018 by which the crucial 5th proviso was added. As per the same transfer of proceedings at the instance of parties to the case became permissible.
“After Section 434 was substituted by a new provision under Act 31 of 2016 and the 5th proviso was inserted by Act 26 of 2018, the transfer of the winding up proceedings, even at the instance of the party or parties to the proceedings became permissible,” the court noted.
This led the court to the question of whether any of the creditors would be considered a “party to the proceedings.” This was answered in affirmative by placing reliance on a plethora of provisions in the Companies Act of 1956 and 2013. This included Sections 278 and 292 of the 2013 Act, Sections 447, 454(6, 457 and 460 of the 1956 Act.
Based on the above, the court concluded that Kaledonia will come within the definition of the expression “party” appearing in the 5th proviso to Section 434(1)(c) of the Companies Act, 2013 and is entitled to seek transfer of proceedings to NCLT. “Therefore, the appeal is allowed, the impugned order is set aside and the proceedings for winding up pending before the Company Court (Allahabad High Court) against the first respondent herein, is ordered to be transferred to the NCLT, entitled to seek a transfer of the pending winding up proceedings against the first respondent, to the NCLT,” the court ruled. On