In a significant ruling reinforcing the primacy of the Insolvency and Bankruptcy Code (IBC) over previous company law provisions, the Himachal Pradesh High Court has held that winding-up proceedings initiated under the Companies Act, 1956 should be transferred to the National Company Law Tribunal (NCLT) if they have not reached an irreversible or advanced stage. This decision emphasizes the objective of corporate revival and restructuring rather than liquidation, as laid down by the IBC. The ruling came in a case where a company facing a winding-up petition sought the court's permission to transfer its matter to the NCLT for revival under the provisions of the IBC.
The petitioner company argued that the IBC offers a more comprehensive and structured mechanism for the resolution of corporate insolvency and emphasized the scope for revival that the Code provides through the corporate insolvency resolution process (CIRP). It was submitted that since the winding-up proceedings were still at a preliminary stage and no irreversible steps such as appointment of a liquidator had been taken, the matter ought to be transferred to the NCLT in accordance with the spirit and scheme of the IBC. The petitioner also stressed that the primary legislative intent of the IBC was to ensure that viable companies are given a chance for resolution rather than being subjected to immediate liquidation.
The High Court, after considering the legal submissions and reviewing the stage of the winding-up proceedings, observed that the Companies Act must yield to the IBC where there exists a possibility of revival. The Court relied on precedents from the Supreme Court and other High Courts which have consistently held that in cases where no irrevocable steps have been taken in the winding-up process, it is appropriate to transfer such proceedings to the NCLT so that the company has an opportunity to explore a resolution under the IBC framework. The Court noted that such a course aligns with the modern insolvency law regime in India, which favors rescue and revival of financially distressed but potentially viable companies over their outright dissolution.
Further, the Court underscored that continuing with winding-up proceedings under the 1956 Act when an alternative, more efficient mechanism for corporate insolvency resolution is available under the IBC, would defeat the purpose of the new insolvency regime. It highlighted the importance of giving precedence to the Code, especially considering its objective to maximize the value of assets, protect the interests of stakeholders, and promote entrepreneurship. Accordingly, the High Court directed the transfer of the winding-up petition to the NCLT, affirming that as long as proceedings have not reached a conclusive stage, the company must be given an opportunity to revive itself through the resolution process under the IBC.
This ruling reaffirms the judiciary's approach in harmonizing older company law proceedings with the contemporary insolvency regime and prioritizing revival over liquidation, consistent with the economic intent behind the IBC.
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