Delhi High Court: Transfer Nascent Stage Winding Up Proceedings To NCLT

Delhi High Court: Transfer Nascent Stage Winding Up Proceedings To NCLT

Justice Dharmesh Sharma of the Delhi High Court emphasized that winding-up proceedings in their early stages before High Courts should be transferred to the National Company Law Tribunal (NCLT).

Justice Dharmesh Sharma held that: “It is but evident that the present company petition has not yet reached an advanced stage, and no substantive orders have been passed towards the winding up of the respondent company.”

The company in question operates within the oil and gas sector, providing drilling services, and is registered as a foreign entity under the Companies Act, 1956. After discussions and negotiations, this company issued a purchase order to the petitioner involving the supply of casing material to Kolkata Port, with a total value of US$ 738,380. Disputes arose regarding delayed payment charges, leading to subsequent correspondence and eventually an agreement specifying a 1% per month charge for delayed payments while waiving liquidated damages. Additionally, another purchase order was issued by the respondent for US$199,466.50.

The petitioner asserted that it fulfilled its obligation by delivering the goods as per the orders and raising invoices totaling US$ 818,496.58. The respondent company made partial payments totaling US$147,111.66, with the last payment made in August 2015, but failed to settle the remaining amount. Additionally, invoices for delayed payment charges amounted to US$66,957.34. Despite numerous assurances and reminders, the respondent did not fulfill its outstanding dues, prompting the petitioner to issue a statutory legal notice under Section 434 of the Companies Act. Although the respondent acknowledged receiving the notice, it did not respond or comply with the demand. Subsequently, the petitioner sought relief from the Delhi High Court for the winding-up of the respondent company.

The High Court observed that the petition stemmed from the respondent company's failure to settle outstanding dues totaling US$ 723,193.03, along with accrued interest. As per the definition outlined in Section 2(10) of the Companies Act, a company encompasses entities formed and registered under the Act or existing companies as defined in clause (2), which refers to companies incorporated under previous company laws as per Section 3.

The High Court observed that the respondent company, due to its failure to settle its debts, fell within the scope of an unregistered company subject to winding up under Section 583(4) of the Companies Act, 1956. This provision states that an unregistered company can be wound up if it is incapable of paying its debts, dissolved, or has ceased to conduct business except for winding-up purposes, or if it is deemed just and equitable to wind it up. Additionally, the High Court referred to Section 375 of the Companies Act, 2013, which bears resemblance to Section 583 of the 1956 Act.

Considering that the proceedings were in their initial stages without any significant orders issued regarding the actual winding up of the respondent company, the High Court took into account the legislative amendments introduced by the Insolvency and Bankruptcy Code, 2016, and the Companies Act, 2013. Section 434 of the Companies Act, 2013, stipulates the transfer of winding-up proceedings from the High Courts to the National Company Law Tribunal (NCLT).

Drawing from the Supreme Court decision in Action Ispat v. Shyam Metalics, the High Court determined that winding-up proceedings lacking significant progress should be transferred to the NCLT. Since no substantial steps had been taken in the current case, the High Court deemed it fitting to transfer the winding-up proceedings to the NCLT.

The parties were instructed to appear before the NCLT on July 9, 2024.