India: Landmark judgement passed on institution of applications under IBC

February 2, 2018



In proceedings with regards to the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘IBC’) the Bombay High Court has passed a landmark judgement ruling that an application under IBC may be made even in cases where a Winding-Up petition has been admitted by a Company Court. Such an Application under the IBC, would not be permitted, only in such a scenario where final order of Winding-Up has been passed under Section 481 of the Companies Act, 1956.

Brief Facts of the Case

Jotun Private Limited (hereinafter referred to as ‘the Appellant’) was an Operational Creditor of the company PSL Limited (hereinafter called ‘the Respondent’). On March 10, 2015[1] the Appellant had filed a Company Petition claiming an unresolved sum with interest in respect of unpaid accounts for goods supplied. The Appellant through this means sought Winding-Up of the Respondent under Section 433 and 434 of the Companies Act, 1956. However, an Official Liquidator was not yet appointed since all assets were secured. The Court stated that it would appoint such liquidator at a later stage depending on the requirement.

On June 19, 2015, during the pendency of the above petition, the respondent approached the Board for Industrial and Financial Reconstruction (BIFR)under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). However, SICA got repealed after the implementation of IBC, 2016. The IBC granted a window/time limit for all pending cases before BIFR to be filed before the NCLT. Thereafter, the respondent filed an application before the NCLT, Ahmedabad under Section 10 of IBC, 2016, for corporate insolvency resolution process.

The appellant immediately filed a Company Application in the Bombay High Court seeking the appointment of a Provisional Liquidator. After hearing the case in length, a single Judge bench of the Bombay High Court passed an order restraining NCLT, Ahmedabad, from continuing with the application filed by the Respondent. Thereafter, the respondent filed an application before the Bombay High Court to recall the above order.

The question before the Bombay High Court in this case was whether the Court (or any Company Court for that matter) has jurisdiction to stay proceedings filed by a Corporate Debtor before the National Company Law Tribunal (hereinafter referred to as ‘NCLT’), even though a previously instituted Company Petition was admitted, but where a Provisional Liquidator had not been appointed.


The Bombay High Court has observed that, while under the Companies Act 2013, Winding-Up would be a matter for the Court alone to decide, under IBC, Creditors Committee is left to decide the fate of the company.[2] The provisions of the Companies Act 1956 Act, the Companies Act 2013 Act and IBC must be read in a harmonious and purposive manner. The Hon’ble Bombay High Court relying upon the judgement of Supreme Court of India in the case of
Madura Coats Ltd. (Supra)[3] held that before it was repealed, SICA was held to have primacy over the provisions of the Companies Act. But through the benefit of Section 252 of IBC, SICA stood repealed with effect from December 1, 2016. Under Section 4 (b) of the Repealed Act, all proceedings before the Board for Industrial and Financial Reconstruction/Appellate Authority for Industrial and Financial Reconstruction stood halted and in respect of such halted proceedings, provision have been made to permit a Company, to make a reference to NCLT within a period of 180 days from December 1, 2016 to NCLT, where reference is required to be dealt with in accordance with the provisions of IBC.

Moreover, since the IBC is admittedly a replacement to SICA, and Section 64 (2) of IBC being pari-materia to Section 22 of SICA, the contention that the Company Court has power to order injunction in proceedings before NCLT in cases of pending winding up petitions is entirely erroneous and contrary to legislative intent. Thus it was ultimately held that, there was no bar on NCLT, Ahmedabad from proceeding with IBC application.

In the same judgment, the Court has also held that,

“Winding up petitions retained by the High Court are being decided under the Companies Act, 1956, only as a transitional provision. Which cannot in any way affect the remedies available to a person under IBC, as the same would amount to treating IBC as if it did not exist on the statute book and would deprive persons of the benefit of the new legislation. But even in such a case, there is no express or implied bar from other creditors of such company or the corporate debtor from filing fresh proceedings under IBC.”


Thus, we see that this case has not only held up the primacy of the Insolvency and Bankruptcy Act 2016, but has also cleared the position as to the overlapping provisions of the Companies Act as to insolvency and winding up. What remains to be seen is whether this judgment gives rise to a situation wherein a race would ensue between filling a winding up application and an Insolvency Petition between the parties, keeping the newly formed IBC in sight, which has been considered as the primary tool for dealing with cases related to winding up, insolvency and resolution process.

[1]Psl Limited vs Jotun India Pvt. Ltd

[2] BHC C.A. no. 572 of 2017 in C.P. no. 434 of 2015

[3] (2004) 4 SCC 311 para 41

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