Navigating Corporate Liquidation: Delhi High Court

Corporate Liquidation is a critical process involving the winding up and dissolution of company‘s operations with an aim to ensure an orderly distribution of assets to creditors and shareholders. In one of the recent case of Citicorp International Limited Versus Shiv-Vani Oil & Gas Exploration Services Ltd., ruled by Delhi High Court sheds light on intricacies and complexities involved in corporate liquidation and the indispensable role of National Company Law Tribunal (NCLT). The case centered on various parties seeking impleadment, secured creditors’ interests and the transfer of proceedings to the NCLT. The case incorporated the imposition of a provisional liquidator and dispute over possession of valuable properties owned by the company under liquidation. This article will scrutinize the implications of judgment and its broader significance in the context of corporate insolvency and liquidation.

Let’s delve into one of the important provisions of Companies Act which has been explored in this case. The Companies Act 2013 has been evolved over time and shares a significant history. The Companies Act 1956 became The Companies Act 2013 which introduced two types of winding up process; voluntary and compulsory. In the recent year, The Companies Act 2013 has undergone significant changes with the introduction of Insolvency and Bankruptcy Code, 2016. One of the aspects of The Companies Act, 2013, involves appointing a liquidator to manage the company’s affair such as orderly dissolution and distribution of assets to creditors and shareholders. This process is providing for winding up the companies which came into highlight in this case.

In this case, the CITICROP International Limited sought impleadment as a necessary part in the ongoing winding up petition. CITICROP claimed to be the sole and absolute owner of certain properties, leased to a subsidiary of the company in liquidation. The contention was that the company had failed to hand over the possession of the properties to CITICROP, leading to an unresolved dispute.

The High Court appointed a Provisional Liquidator in 2017, to reach the winding up proceedings to advanced stage. However, it was observed that no auction had been conducted, and no claims had been invited, indicating that the winding up process did not reached advanced stage and the winding up process could take considerable time.

The key issue that arises before the court was the transfer of winding up proceedings to the NCLT in accordance with the provisions of Section 434 of the Companies Act, 2013. The Hon’ble Delhi High Court looking at the precedent ruling of Supreme Court in Action Ispat and Power Limited v. Shyam Metalics and Energy Limited, commented that transfer to the NCLT was appropriate when the winding up process had not reached an advance stage. The court found that the winding up is in early stage in this matter, which justifies the transfer to the NCLT.

The transfer of winding up proceedings to the NCLT has significant implications for both secured creditors and the company under liquidation. The NCLT, being an expert Tribunal under the Insolvency and Bankruptcy Code, can expedite the process and ensure effective resolution. This was a crucial factor in the case, as the company owned valuable oil rigs and other assets of high value that required timely and efficient handling.

Furthermore, the transfer to the NCLT allows for comprehensive consideration of various applications related to the winding up, immovable assets, and movable assets, including machinery and rigs. The NCLT can determine the status of these assets and decide on their sale or disposal, thus preserving their value.

The Hon’ble Delhi High Court put forward the concern of securing assets during the transfer process. The Official Liquidator had incurred significant expenses to safeguard the company’s properties. Thus, the Hon’ble Delhi High Court ruled that these expenses be reimbursed by the secured creditors, SBI and PNB, who can claim them as a part of the company’s debt. Furthermore, the NCLT was directed to pass appropriate orders to secure the assets.

The case significantly highlights the importance of timely and efficient winding up proceedings and the role of NCLT in expediting resolution. The court’s decision to transfer to the NCLT at an early stage, ensures that the winding up proceedings safeguard the valuable assets owned by company under liquidation.