Corporate Death Not Inevitable | Himachal Pradesh High Court Upholds Transfer To NCLT | Effort Must Be Made To Revive Corporate Debtor In Public Interest
Sanchayita Lahkar
The Division Bench of the Himachal Pradesh High Court, comprising Justice Tarlok Singh Chauhan and Justice Sushil Kukreja, upheld the order transferring a company winding-up petition to the National Company Law Tribunal (NCLT), rejecting the appellant's contention that the respondent company had reached an irreversible stage of financial collapse. The Court reaffirmed that unless corporate death is inevitable, efforts must be made to revive a corporate debtor under the Insolvency and Bankruptcy Code, 2016 (IBC), rather than pursuing winding-up proceedings under the Companies Act.
The appeal arose from the order dated August 2, 2024, by the learned Company Judge, which directed the transfer of a company petition to the NCLT at Chandigarh. The petitioner, Elecon Engineering Company Limited, had originally filed a winding-up petition against M/s Inox Wind Limited and another respondent. The petition alleged that the respondent company had failed and neglected to pay the outstanding sum of ₹3,25,78,000, comprising ₹1,41,78,000 for supply of H.G. Wind Gear Box materials and ₹1,84,00,000 towards a refundable security deposit. The petitioner asserted that the respondent company had lost its substratum, was commercially insolvent, and unable to pay its dues.
During the pendency of the petition, the respondent company filed an application under Section 434(1)(c) of the Companies Act, seeking transfer of the matter to NCLT. The Company Judge allowed this application, prompting the present appeal.
The appellant, represented by Advocates V.D. Khidtta and Nishan Khidtta, vehemently argued that the learned Company Judge’s decision was erroneous and perverse. They contended that undue reliance was placed on the Supreme Court’s decision in Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Limited, 2021 (2) SCC 641, which was factually distinguishable. Reliance was also placed on a decision of the Karnataka High Court in M/s Magnifico Minerals Pvt. Ltd. v. M/s Saravana Alloys Steels Pvt. Ltd. to assert that judicial discretion must be exercised judiciously and not mechanically.
On the other hand, the respondents, represented by Senior Advocate Sunil Mohan Goel, along with Advocates Vipul Sharda and Radiya Katochi, contended that the order was passed strictly in accordance with law. They submitted that the Company Judge correctly applied Section 434(1)(c) of the Companies Act, considering the amendments and transfer rules that govern such cases.
The High Court examined the evolution of Section 434(1)(c), noting its multiple amendments, particularly through the Companies (Transfer of Pending Proceedings) Rules, 2016. The Court also reviewed the relevant provisions under the IBC and stated the primacy of revival proceedings over liquidation, as stated in multiple Supreme Court decisions.
The Court observed that the amendments to Section 434(1)(c) and the corresponding transfer rules indicate a legislative preference for resolving financial distress through revival under the IBC rather than liquidation under the Companies Act. The Bench recorded: “Unless the Court is convinced that the companies have to suffer inevitable corporate death, the first choice would be to make an all-out attempt to revive the company.”
Relying extensively on the Supreme Court’s judgment in Action Ispat and Power Pvt. Ltd., the Bench noted: “So long as no actual sales of the immovable or movable properties have taken place, nothing irreversible is done which would warrant a Company Court staying its hands on a transfer application.” The Court further observed that only where winding-up proceedings have reached a stage that makes it impossible to set the clock back, should the Company Court decline to transfer the proceedings to the NCLT.
The Court rejected the appellant’s contention that the reliance on Action Ispat was misplaced. It clarified that the Supreme Court itself had reaffirmed the principles in A. Navinchandra Steels Pvt. Ltd. v. Srei Equipment Finance Ltd. (2021) 4 SCC 435, underscoring the preference for revival over liquidation even after the admission of a winding-up petition.
The Bench recorded: “Short of an irresistible conclusion that corporate death is inevitable, every effort should be made to resuscitate the corporate debtor in the larger public interest, which includes not only the workmen of the corporate debtor, but also its creditors and the goods it produces in the larger interest of the economy of the country.”
In light of these considerations, the Court concluded that the learned Company Judge had correctly exercised his discretion in transferring the case to the NCLT, and there was no ground to interfere with the said order.
The High Court dismissed the appeal, upholding the transfer of the company petition to the NCLT. The Court observed: “We see no reason to interfere with the view taken by the learned Company Judge. Consequently, we find no merit in this appeal and the same is accordingly dismissed.”
No costs were awarded, and the parties were left to bear their own expenses.
Advocates Representing the Parties
For the Appellant: V.D. Khidtta and Nishan Khidtta, Advocates.
For the Respondents: Sunil Mohan Goel, Senior Advocate with Vipul Sharda and Radiya Katochi, Advocates.
Case Title: Elecon Engineering Company Limited v. M/s Inox Wind Limited & Anr.
Neutral Citation: 2025: HHC:11215
Case Number: Company Appeal No. 1 of 2024
Bench: Justice Tarlok Singh Chauhan and Justice Sushil Kukreja
[Read/Download order]
