Provisions of I&B Code must prevail over Section 434 of Companies Act if there is any inconsistency: SC

Supreme Court: A Bench comprising of R.F. Nariman and M.R. Shah, JJ. allowed an appeal filed against the order of Rajasthan High Court whereby it refused to transfer winding up proceedings pending before it to National Company Law Tribunal (NCLT).

The account of Jaipur Metals and Electrical Ltd. had become a non-performing asset. A reference was made to Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 (SIC Act), which forwarded opinion to the High Court that company ought to be wound up. Ultimately, the High Court appointed official liquidator and the winding up process has begun. Meanwhile, Alchemist Asset Reconstruction Co. (financial Creditor) filed an application under Section 7 of Insolvency and Bankruptcy Code, 2016 before NCLT for initiation of Corporate Insolvency Resolution Process which was admitted. Thereafter, the High Court passed the order impugned where it refused to transfer winding up proceedings pending before it and set aside NCLT’s order. Aggrieved thereby, the appellants preferred instant appeal.

The Supreme Court perused in detail various Sections of the Companies Act, 2013 as well as I&B Code. Focus was laid on Section 434 of Companies Act, 2013 which deals with “transfer of certain pending proceedings”. Section 238 I&B Code, Rules 5 & 6 of Companies (Transfer of Pending Proceedings) Rules, 2016 were considered in detail. The Court explained, “all proceedings under Section 20 of the SIC Act pending before the High Court are to continue as such until a party files an application before the High Court for transfer of such proceedings post 17-08-2018 (when Section 434, Companies Act was amended).  Once this is done, the High Court must transfer such proceedings to the NCLT which will then deal with such proceedings as an application for initiation of the corporate insolvency resolution process under the Code.” Furthermore, the proceedings under Section 7, I&B Code application were independent which had nothing to do with the transfer of winding up proceedings. It was open to Alchemist at any time before winding up order was passed to apply under Section 7 of the Code. It was also clarified that if there is any inconsistency between Section 434, Companies Act and provisions of the Code, the latter must prevail. In such view of the matter, it was held that NCLT was correct in admitting the application. The order of the High Court was set aside and NCLT proceedings were directed to continue from the stage where they had been left off. The appeal was allowed.[ Jaipur Metal & Electricals Employee Organization v. Jaipur Metals & Electricals Ltd.,2018 SCC OnLine SC 2801, decided on 12-12-2018]

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