Recovery Impact Not Valid Ground To Oppose Transfer Of Winding-Up Proceedings To NCLT: Bombay High Court

The Bombay High Court has recently observed that objections raised by secured creditors and the Official Liquidator to the transfer of winding-up proceedings from the High Court to the National Company Law Tribunal (NCLT) cannot be sustained merely because such a transfer may affect their recovery actions.

Justice Arif S. Doctor made the observation while allowing a company application filed by Sahjun Impex Trading Pvt. Ltd. The application sought transfer of a pending winding-up petition concerning KSL & Industries Ltd. from the Bombay High Court to the National Company Law Tribunal under Section 434(1)(c) of the Companies Act.

“To my mind, it is plain that the real objection to the transfer by IFCI and the Official Liquidator is that such a transfer would affect their position as secured creditors and impact proceedings initiated by them for recovery. That, however, cannot be a valid ground to oppose transfer, having regard to the legislative intent and the larger public interest sought to be achieved by the IBC,” the court said.

The application was filed in 2018. Sahjun Impex had acquired various debts of KSL & Industries Ltd. and represents more than 50% of its total financial debt. The company has been under winding-up since February 4, 2008.

Sahjun Impex argued that the Official Liquidator had taken only limited steps over the years and contended that the winding-up proceedings had not reached an irreversible stage amounting to the company's “corporate death”.

Opposing the transfer, IFCI submitted that several assets had already been taken over or sold in recovery proceedings before the Debt Recovery Tribunal. The Official Liquidator argued that a shift from the High Court to the IBC regime would prejudice workmen and affect the position of secured creditors.

The court rejected these objections.

It held that the sale of assets by secured creditors standing outside the winding-up proceedings does not, by itself, bar transfer of the case from the High Court to the NCLT. The court further held that the question of whether resolution is ultimately feasible lies exclusively within the jurisdiction of the NCLT and must be decided in accordance with the statutory framework of the Insolvency and Bankruptcy Code.

The court also clarified that the failure of revival under the Sick Industrial Companies Act cannot lead to a presumption that revival under the IBC would also fail.

“The determination of whether resolution is ultimately possible or not lies squarely within the exclusive domain of the NCLT,” the bench said.

Allowing the application, the court held that issues of revival and resolution must now be examined by the NCLT. It granted Sahjun Impex one week to file an application before the tribunal for initiation of the corporate insolvency resolution process against the debtor.