Transfer of Proceedings

Ministry of Corporate Affairs notified the Companies (Transfer of Pending Proceedings) Rules, 2016 on 7^th December 2016. These Rules shall come into effect on 15^th December 2016. In this post, we will discuss these rules.

Transfer of proceedings

According to Rule 3 of the Companies (transfer of Pending Proceedings) Rules, 2016, all proceedings under the Act, including proceedings relating to –

• arbitration,
• compromise,
• arrangements and
• reconstruction,

on the date of coming into force of these rules shall stand transferred to the Benches of the Tribunal exercising respective territorial jurisdiction.

However, proceedings relating to winding up shall not be transferred. According to proviso to rule 3, all those proceedings which are reserved for orders for allowing or otherwise of such proceedings shall not be transferred.

Proceeding relating to Voluntary Winding up

According to rule 4 of the Companies (transfer of Pending Proceedings) Rules, 2016, all applications and petitions relating to voluntary winding up of companies pending before a High Court on the date of commencement of this rule, shall continue with and dealt with by the High Court in accordance with provisions of the Act.

There will be not transfer of pending proceedings relating to voluntary winding up.

Proceedings of Winding up on the ground of inability to pay debts

This is big transformation. This may be first signature of Insolvency and Bankruptcy Code, 2016.

According to sub – rule (1) of rule 5 of the Companies (transfer of Pending Proceedings) Rules, 2016, all petitions relating to winding up under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub-section (4) of section 419 of the Act, exercising territorial jurisdiction and such petitions shall be treated as applications under sections 7, 8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the Code.

This is not only a transfer of case from High Court to bench of Tribunal but also transfer from company jurisdiction to insolvency jurisdiction. Now, it is under is time bound approach. Obviously, all petitioners shall submit additional information as per the Insolvency and Bankruptcy Code, 2016.

According to proviso to sub – rule (1) of rule 5 of the Companies (transfer of Pending Proceedings) Rules, 2016, the petitioner shall submit all information, other than information forming part of the records transferred in accordance with Rule 7, required for admission of the petition under sections 7, 8 or 9 of the Code, as the case may be, including details of the proposed insolvency professional to the Tribunal within sixty days from date of this notification, failing which the petition shall abate.

According to sub – section (3) of section 7 of the Insolvency and Bankruptcy Code, 2016, the financial creditor shall, along with the application furnish—

• record of the default recorded with the information utility or such other record or evidence of default as may be specified;
• the name of the resolution professional proposed to act as an interim resolution professional; and
• any other information as may be specified by the Board.

According to sub – section (3) of section 9 of the Insolvency and Bankruptcy Code, 2016, the operational creditor shall furnish following documents along with application made under sub – section (1) —

• a copy of the invoice demanding payment or demand notice delivered by the operational creditor to the corporate debtor;
• an affidavit to the effect that there is no notice given by the corporate debtor relating to a dispute of the unpaid operational debt;
• a copy of the certificate from the financial institutions maintaining accounts of the operational creditor confirming that there is no payment of an unpaid operational debt by the corporate debtor; and
• such other information as may be specified.

Section 8 is a supporting section to section 9 and has no direct relevance to this rule.

BIFR Cases

According to sub – rule (2) of rule 5 of the Companies (transfer of Pending Proceedings) Rules, 2016, all cases where opinion has been forwarded by Board for Industrial and Financial Reconstruction, for winding up of a company to a High Court and where no appeal is pending, the proceedings for winding up initiated under the Act, pursuant to section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 shall continue to be dealt with by such High Court in accordance with the provisions of the Act.

Proceedings of Winding up on the ground other than inability to pay debts

According to rule 6 of the Companies (transfer of Pending Proceedings) Rules, 2016, all petitions filed under clauses (a) and (f) of section 433 of the Companies Act, 1956 pending before a High Court and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal exercising territorial jurisdiction and such petitions shall be treated as petitions under the provisions of the Companies Act, 2013 (18 of 2013).

Fee not to be paid

According to rule 8 of the Companies (transfer of Pending Proceedings) Rules, 2016, notwithstanding anything contained in the National Company Law Tribunal Rules, 2016, no fee shall be payable in respect of any proceedings transferred to the Tribunal in accordance with these rules.