4 October, 2018
A question that has often come up since the Companies Act, 2013 (the 2013 Act) came into force is how will proceedings ongoing before the High Courts be transferred to the National Companies Law Tribunal (NCLT)? Section 434(1)(c) of the 2013 Act deals with transfer of “all proceedings” under the Companies Act, 1956[1] to the NCLT.
For winding up proceedings, this provision states that only such proceedings relating to winding up, which are at a certain stage as prescribed by central Government, are to be transferred to the NCLT.
Another part of this provision, meanwhile, deals with cases other than winding up proceedings, which may not be transferred to the NCLT.[2] A reading of all the various provisions leads to the conclusion that not all proceedings under the 1956 Act pending before the District Courts and High Courts are to be transferred to the NCLT.
A recent division bench judgment of the Calcutta High Court in Prasanta Kumar Mitra & Ors. v. India Steam Laundry (P) Ltd. & Ors attempted to throw light on the issue. The question before the Court was: “Whether the term “all” and “including” in Section 434(1)(c) of the 2013 [Companies] Act are expansive in nature or the same is to be read in a restrictive manner?” [3] The Court held: “The term ‘including’ in section 434(1)(c) of the 2013 Act is extensive and expansive and not restrictive in nature.
Accordingly, Section 434(1)(c) of the 2013 Act that states “all proceedings under the Companies Act 2013 including proceedings relating to…” would include all matters, without any exception, pending before the District High Courts and High Court and all such matters would have to be transferred to the NCLT.”
The use of the phrase “all matters” in this decision seems to be at variance with the Section itself as well as with the Transfer Rules and the provisos added to Section 434(1)(c) by the 2016 Order, which provide that certain matters will not be transferred. Did the Calcutta High Court actually then mean “all matters” under Section 434? We examine the issue.
What the Case Held
The case before the Calcutta High Court pertained to an oppression and mismanagement proceeding that was filed in 1988. Thereafter, the 1988 Amendment to the Companies Act came in, which granted jurisdiction to the Company Law Board to hear such matters; its effect was to retain jurisdiction of the High Courts in such proceedings under the Companies Act, 1956 that were already pending before the High Courts.[4]
The issue before the Court was whether: (i) proceedings before the High Court as a result of the 1988 Amendment were included in the phrase “all proceedings” of Section 434(1)(c); and (ii) whether oppression and mismanagement cases could be brought within Section 434(1)(c) such that they would also have to be transferred to the NCLT.
The Court answered both the questions in the positive. This has led to the confusion of whether even excepted proceedings were now to be transferred as a result of this decision. That is however not the case.
First, the Court’s interpretation of the words “all” and “including” were in light of the above two specific questions.
Second, and more importantly, the exceptions have been accounted for, although not by the Division Bench directly, but by the single judge whose “unexceptional judgment” the Division Bench upheld. The Single Judge in his order stated: “Perhaps the only exception that has been carved out is by the Companies (Removal of Difficulties) Fourth Order, 2016…The present proceeding is not one where orders have been reserved after conclusion of hearing and thus does not come within the exception.”
This makes it amply clear that the Court was conscious of the exceptions and when stating all matters need to be transferred it did not include the exceptions. Perhaps the only reason the exceptions do not find mention in the Division Bench’s decision is because the present case did not fall under such exceptions.
The Exceptions Live On
The issue has been similarly decided in other decisions. The Bombay High Court in Ashok Commercial Enterprises v. Parekh Aluminex Ltd. (a case pertaining to transfer of winding up proceedings) was faced with the question of whether the exclusive jurisdiction for winding up petitions vests with the NCLT after the enactment of the Insolvency and Bankruptcy Code, 2016.[5] The Court therein relied on the Transfer Rules to hold that depending on the stage of the case, not all proceedings are to be transferred to the NCLT. A similar position has been taken by the Bombay High Court in West Hills Realty Private Ltd. v. Nellkamal Realtors Tower Pvt. Ltd.[6]The Gujarat High Court also in Official Liquidator of Prasad v. Bhupendra Bhagwatprasad Patel[7] has accepted this position.
Interestingly, this may not be the final word on the Transfer Rules and the exceptions created therein. The validity of Rule 5 (pertaining to winding up petitions) of the Transfer Rules have been challenged in a writ petition before the Madras High Court as being ultra vires Section 434 of the Companies Act, 2013.[8] The matter is still pending before the Madras High Court but the writ petition has been admitted. The Court has granted an interim stay on the transfer of proceedings to the NCLT for the time being on the grounds that prima facie Rule 5 of the Transfer Rules appears to be inconsistent with Section 434 of the 2013 Act. [9] It remains to be seen whether the Court declares Rule 5 to be an inappropriate exercise of the executive’s legislative powers.
For litigants, however, these issues remain important until transfers to the NCLT as a result of the 2013 Act are ironed out and the confusion surrounding them reduced. Perhaps the Supreme Court will decide this matter once and for all in the future.
For further information, please contact:
Shaneen Parikh, Partner, Cyril Amarchand Mangaldas
shaneen.parikh@cyrilshroff.com
[1] The provision also states, “including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending…before any District Court or High Court”
[2] The second proviso, which has been added by the Companies (Removal of Difficulties) Fourth Order, 2016 (“2016 Order”), deals with cases other than those relating to winding up and sets out further exceptions for matters which are not to be transferred to the NCLT. Similarly, such exceptions are also found in the Companies (Transfer of Pending proceedings) Rules, 2016 (“Transfer Rules”).
[3] Prasanta Kumar Mitra & Ors. V. India Steam Laundry (P) Ltd. & Ors., decided on September 5, 2018 (Division Bench, High Court of Calcutta).
[4] The Companies (Amendment) Act, 1988. Section 68 of the 1988 Amendment was a transitional provision which made the 1988 Amendment prospective in nature.
[5] Ashok Commercial Enterprises vs. Parekh Aluminex Ltd, decided on 11 April, 2017 (Bombay High Court).
[6] West Hills Realty Private Ltd. v. Nellkamal Realtors Tower Pvt. Ltd., decided on December 23, 2016 (Bombay High Court).
[7] Liquidator Of Prasad v. Bhupendra Bhagwatprasad Patel, decided on July 25, 2017 (Gujarat High Court)
[8] Renault Nissan Automotive v. Union of India, WP No. 2333 of 2018 (Madras High Court)
[9] Renault Nissan Automotive v. Union of India, Order dated February 2, 2018 (Madras High Court).
