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Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd. & Ors.

Civil Appeal · 2018 INSC 1196Decided 12 Dec 2018
Civil Appeal No. 12023 of 2018
Justice Rohinton Fali Nariman · Justice M.R. Shah

Background

The respondent company had been declared a sick industrial unit years earlier, and winding-up proceedings based on the Board for Industrial and Financial Reconstruction's opinion were pending before the Rajasthan High Court. Separately, a financial creditor filed an application under Section 7 of the Insolvency and Bankruptcy Code before the National Company Law Tribunal (NCLT), which admitted it and began insolvency proceedings. The High Court then held that the NCLT's order was without jurisdiction and refused to transfer the winding-up case to the NCLT, prompting an employees' union to appeal to the Supreme Court.

Decision Breakdown

The Court held that under Rule 5(2) of the Companies (Transfer of Pending Proceedings) Rules, 2016, winding-up cases that originated from a BIFR opinion under the Sick Industrial Companies Act continue with the High Court rather than automatically transferring to the NCLT, so the High Court's refusal to transfer that specific proceeding was, on this narrow point, not wrong (though it had cited the wrong Rule). However, the Court held that a creditor's independent application under Section 7 of the Insolvency Code is a completely separate proceeding, and Section 238 of the Code (which overrides inconsistent provisions in other laws) meant the NCLT was correct to admit it regardless of the pending High Court winding-up case. The Court therefore set aside the High Court's order quashing the NCLT's admission, held that the insolvency proceedings before the NCLT must continue from where they left off, and directed that the High Court's company petition and connected writ petitions be disposed of since the Code proceedings must now run their full course. The appeal was allowed.

Lesson Learnt

Once a financial creditor's insolvency application is validly admitted by the NCLT under the Insolvency and Bankruptcy Code, it overrides and effectively supersedes a parallel winding-up case pending in a High Court over the same company: the Code's insolvency process takes precedence and must be allowed to run its course.

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

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