Company Court Can Transfer Winding-Up Proceedings To NCLT Without Formal Application: Calcutta High Court

The Calcutta High Court on 8 June held that a Company Court may transfer a pending winding-up proceeding to the National Company Law Tribunal (NCLT) even in the absence of a formal application by any party, provided it applies its mind and finds that the liquidation has not reached an irreversible stage.

A Division Bench of Justices Debangsu Basak and Md. Shabbar Rashidi dismissed an appeal filed by creditor Anil Kumar Murarka and upheld the Company Court's order transferring the winding-up proceedings against CFL Capital Financial Services Ltd to the NCLT, Kolkata. The judges held:

"In the facts and circumstances of the present case, the impugned order discloses application of judicial mind by the Company Court in directing transfer of the proceedings. Company Court called for the status report. Company Court considered the status report. Company Court did not find the winding up petition to reach an irreversible/irretrievable stage preventing its transfer. Consequently the order directing transfer of the winding up petition cannot be faulted."

The dispute arose from winding-up proceedings against CFL Capital Financial Services Ltd, which had been ordered to be wound up on 6 October 2015. Murarka, claiming dues of about Rs. 5.69 lakh as a creditor, challenged the transfer order, contending that the Company Court could not transfer the proceedings suo motu and that the proviso to Section 434(1)(c) of the Companies Act required a party to file a transfer application before such an order could be passed.

The High Court rejected the contention. Referring to the Supreme Court's decisions in Kaledonia Jute and Fibres Pvt. Ltd. and Action Ispat and Power Pvt. Ltd., it held that pending winding-up proceedings may be transferred to the NCLT unless they have progressed to an irreversible stage where it is impossible to restore the parties to their earlier position.

The Bench also noted that although the Official Liquidator had taken possession of certain assets, no immovable property had been sold and no irreversible step had been taken in the liquidation process. The Company Court had called for and considered the Official Liquidator's status report before directing the transfer, demonstrating due application of mind.

Further, the judges held that the last proviso to Section 434(1)(c) merely enables a party to seek transfer and does not make such an application a mandatory precondition for the Company Court to order transfer. They observed:

"As noted above, Section 434(1)(c) mandates transfer of all proceedings under the Companies Act, 1956 including proceeding for winding up pending immediately before the date from which, the NCLT became established. While, the mandatory provisions of transfer, under Section 434(1)(c) of the Act 2016, is a genus, Rule 5 of the Companies (Transfer of Pending Proceedings) Rules 2016 is a specie thereunder. The last proviso to Section 434(1)(c) of the Act of 2016 permits a party to proceeding to file an application for transfer."

Holding that the Company Court had validly exercised its discretion after considering the Official Liquidator's report and finding that the proceedings had not reached an irreversible stage, the Bench found no infirmity in the transfer order.

Accordingly, the High Court dismissed the appeal.