Advanced Liquidation Cannot Be Shifted To NCLT Merely Because Assets Are Unsold: Karnataka High Court

The Karnataka High Court on 23 June, held that winding up proceedings cannot be transferred to the National Company Law Tribunal (NCLT) merely because the company's assets have not yet been sold. It noted that once liquidation has progressed substantially in time and substance, transfer would disrupt a mature liquidation process and is not warranted.

Justice Suraj Govindaraj dismissed an application filed under the fifth proviso to Section 434(1)(c) of the Companies Act, 2013 (which empowers the Court to transfer certain pending winding up proceedings to the NCLT at its discretion), seeking transfer of a 14 year old winding up proceeding concerning Broadcast Infratel India Private Limited to the NCLT. He held:

“...the winding-up proceedings have crossed the stage where a transfer can be treated as a simple, consequence-free forum change. Even if there has been no completed sale of assets, the proceedings have progressed, both in time and in substance, to a stage where transfer would unsettle a mature liquidation process and is therefore not warranted.”

The application arose from a winding up petition filed in 2010 against Broadcast Infratel India Private Limited on the ground that it had failed to discharge its admitted debts. The High Court admitted the petition on 11 November 2011 and, by an order dated 9 January 2012, directed the company to be wound up after recording that Rs. 32.65 lakh was due and payable to the petitioner, Santosh Umakand Jawadar, a former director of the company.

The company subsequently sought recall of the winding up order. However, the High Court dismissed those applications in 2018 after finding that the company had failed to establish its bona fides.

In 2025, Jawadar moved an application under Section 434 of the Companies Act, 2013 seeking transfer of the winding up proceedings to the NCLT. He argued that although a winding up order had been passed, the liquidation had not reached an irreversible stage because the company's assets had not yet been sold.

The Official Liquidator opposed the application, contending that a former director lacked locus to seek transfer of the proceedings. It also argued that the application, filed after substantial progress in the liquidation, was belated and would only delay the process to the detriment of creditors.

Rejecting the plea, the High Court held that the application was barred by unexplained delay and laches. It observed that the applicant had acquiesced in the continuation of the winding up proceedings for several years and that the belated request lacked bona fides.

It examined the fifth proviso to Section 434(1)(c), and held that while any party to winding up proceedings may seek their transfer to the NCLT, the provision confers discretion on the Court and does not mandate transfer. The Court further noted that since the winding up petition had already been admitted and had culminated in a winding up order, the case did not fall within the category of automatic transfers. It observed:

“The word employed in the proviso is 'may'. That word cannot be ignored or treated as surplusage. Where the Legislature intended automatic transfer, it provided a specific scheme through the Rules tied to the stage of service under Rule 26; where it intended post-stage transfer upon application, it used language of permission and judicial choice.”

Referring to the Supreme Court's decision in Action Ispat and Power Pvt. Ltd. v. Shyam Metalics & Energy Ltd., the Court noted that transfer may be permitted even after admission of a winding up petition if the liquidation has not reached an irreversible stage. However, it held that the present case had crossed that threshold, observing that “applying that very judgment to the present facts, this Court finds that the matter has progressed too far, in time and in substance, for transfer to be judicially appropriate.”

The Bench further clarified that legal irreversibility does not depend solely on the sale of assets. It held that once a court supervised liquidation has progressed into a structured process involving possession, investigations, recovery steps, compliance proceedings, statutory defaults and stakeholder interests, it cannot be reversed without causing disruption, duplication or prejudice.

Accordingly, the High Court dismissed the application, concluding that the liquidation had advanced beyond the stage where transfer could be treated as a mere change of forum.

For Applicant: Advocate Anirudh Suresh

For Respondent: Advocate Krutika Raghavan