FORECH INDIA LTD. versus EDELWEISS ASSETS RECONSTRUCTION CO. LTD.

Citation: [2019] 2 S.C.R. 477 · Decided: 22-01-2019 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Disposed off

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Judgment (excerpt)

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FORECH INDIA LTD.
v.
 EDELWEISS ASSETS RECONSTRUCTION CO. LTD.
(Civil Appeal No. 818 of 2018)
JANUARY 22, 2019
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
Insolvency & Bankruptcy Code, 2016 – ss.7, 9, 11, 238, 255
and The Eleventh Schedule – Proceedings u/ss.7 and 9, if
independent of winding up process pending in High Court – Winding
up petition filed by the appellant before High Court, against
Respondent No.2-Company, alleging inability to pay dues –
Respondent No.1, financial creditor of the self-same corporate
debtor, filed insolvency petition u/s.7 of the 2016 Code before
National Company Law Tribunal (NCLT) – Petition admitted – Appeal
filed by the appellant against the order – Dismissed by Appellate
Tribunal – Plea of appellant inter alia that notice u/r.26 of the 1959
Rules was served much prior to the commencement of the Code,
hence, the winding up petition should be allowed to carry on and
not proceedings filed by other creditors under the Code – Held:
When the Code was enacted, only winding up petitions, where no
notice u/r.26 of the 1959 Rules was served, were to be transferred
to the NCLT and treated as petitions under the Code – However, on
working of the Code, the Government realized that parallel
proceedings in the High Courts and before the adjudicating authority
in the Code would stultify the objective sought to be achieved by
the Code, i.e. to resuscitate the corporate debtors who are in the
red – Accordingly, the Rules kept being amended, until finally s.434,
2013 Act was itself substituted in 2018, adding a proviso by which
even in winding up petitions where notice was served and pending
in the High Courts, any person could apply for transfer of such
petitions to the NCLT, which would then be transferred by the High
Court to the adjudicating authority and treated as insolvency petition
under the Code – Appellate Tribunal’s reasoning is not correct as
reference to s.11 of the Code in the context of the present problem is
wholly irrelevant – However, the ultimate order passed by the
Appellate Tribunal is not interfered with because Respondent No.1’s
application admitted by the Tribunal is an independent proceeding
to be decided in accordance with the provisions of the Code –
 [2019] 2 S.C.R. 477
    477
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SUPREME COURT REPORTS
[2019] 2 S.C.R.
However, the appellant is granted liberty to apply under the proviso
to s.434 of the 2013 Act (added in 2018), to transfer the winding
up proceeding pending before the High Court to the NCLT, which
can then be treated as proceeding u/s.9 of the Code – Companies
Act, 1956 – s.433(e) – Companies Act, 2013 – s.434 – Companies
(Transfer of Pending Proceedings) Rules, 2016 – r.5 –
Companies(Transfer of Pending Proceedings) Second Amendment
Rules, 2017 – Companies (Court) Rules, 1959– rr.26 and 27.
Companies (Court) Rules, 1959 – rr.26 and 27 – Notice under
– Pre-admission or post-admission – Held: Rules 26 and 27 clearly
refer to a pre-admission scenario making it clear that the notice
contained in Form No. 6 appended to r.27 has to be served in not
less than 14 days before the date of hearing – Hence, the expression
“was admitted” in Form No. 6 only means that notice has been
issued in the winding up petition which is then “fixed for hearing
before the Company Judge” on a certain day.
Disposing of the appeal, the Court
HELD: 1.1 Rules 26 and 27, Companies (Court) Rules,
1959 clearly refer to a pre-admission scenario as is clear from a
plain reading of Rules 26 and 27, which make it clear that the
notice contained in Form No. 6 has to be served in not less than
14 days before the date of hearing. Hence, the expression “was
admitted” in Form No. 6 only means that notice has been issued
in the winding up petition which is then “fixed for hearing before
the Company Judge” on a certain day.  Thus, the Madras High
Court view in M/s. M.K. & Sons Engineering case is plainly
incorrect whereas the Bombay High Court view in Ashok
Commercial Enterprises case is correct in law. [Para 16]
[489-A-B]
1.2  As a first step, when the Insolvency & Bankruptcy
Code, 2016 (the Code) was enacted, only winding up petitions,
where no notice under Rule 26 of the Companies (Court) Rules
was served, were to be transferred to the NCLT and treated as
petitions under the Code. However, on a working of the Code,
the Government realized that parallel proceedings in the High
Courts as well as before the adjudicating authority in the Code
would stultify the objective s

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