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Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Limited

Civil Appeal · 2020 INSC 699Decided 15 Dec 2020
Civil Appeal No. 4041 of 2020
Justice Rohinton Fali Nariman · Justice K.M. Joseph · Justice Krishna Murari

Background

Shyam Metalics filed a winding-up petition against Action Ispat in the Delhi High Court over an unpaid dues of about Rs. 4.55 crore for goods supplied, and the Company Judge admitted the petition and appointed an Official Liquidator. Later, State Bank of India, a secured creditor owed much larger sums, applied to transfer the winding-up proceeding to the National Company Law Tribunal (NCLT) because an insolvency application under Section 7 of the Insolvency and Bankruptcy Code was already pending there. The Company Judge allowed the transfer, and the Division Bench of the High Court upheld that transfer, leading to these appeals by Action Ispat.

Decision Breakdown

The Supreme Court examined when a winding-up proceeding already admitted by a Company Court can still be transferred to the NCLT under the Insolvency and Bankruptcy Code. It held that so long as the winding-up process has not reached an "irreversible" stage, i.e., no actual sale of the company's assets has taken place, the Company Court retains discretion to transfer the matter to the NCLT at the request of a creditor, since the Code's beneficial, time-bound revival mechanism should ordinarily be given a chance. Since no irreversible steps had been taken despite the liquidator taking possession of records and premises, the Court found both the Company Judge and the High Court had correctly exercised discretion in transferring the case, and dismissed the appeals, including a related set of appeals seeking relief that depended on the same transfer.

Lesson Learnt

A company undergoing winding-up proceedings in a High Court can still be moved into the insolvency resolution process under the IBC at a creditor's request, as long as the winding-up has not progressed to an irreversible stage like actual sale of assets: courts favour giving companies a chance at revival under the Code over liquidation.

Official source (sci.gov.in)View Judgment (PDF)

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