"Scattering Litigation Causes Multiplicity Of Litigation": Gujarat HC Recommends Transfer Of Winding Up Proceedings To NCLT

The Bench of Justice Dr. Vineet Kothari and Justice B. N. Karia was hearing the plea involving parties who not only indulged in filing Civil Suits, Writ Petitions, and Letters Patent Appeals under Article 226 of the Constitution of India but they also tried their hand at forum shopping.

Facts in brief

Before the winding-up proceedings could be taken up, the assets of the Defaulter Company - M/s. GPPML were taken over by GSFC in the exercise of its statutory powers under Section 29 of the SFC Act, 1951, and sold away to SIL at a price that was the subject matter of challenge.

The action on the part of GSFC in the matter right from beginning against GPPML and SIL was required to be re-examined and reassessed on the anvil of IBC provisions in CIRP.

The Court observed that it was a matter, which was needed to be looked into by the NCLT as there was a hurried One Time Settlement of GSFC with SIL in favor of which, even the major part of the auction price was converted into a term loan by GSFC and in the repayment of which, SIL defaulted, still instead of again taking over the assets and re-auctioning them, GSFC entered into One Time Settlement with SIL at a mere Rs.60 lakhs.

Further, the Court also noted that the SIL stopped its production activities and the assets of GPPML sold to SIL way back in the year 1990 are still in disuse or are not being used for any productive activity.

Court's observations

The Court emphasized that all these aspects can't obviously be looked into by the High Court in writ jurisdiction or even a winding-up Court while seized of the winding-up proceedings, but a Special Body like NCLT can definitely look into all the aspects of the matter as it is vested with the powers of CIRP (Corporate Insolvency Resolution Process) as enacted in the provisions of IBC, 2016, as defined in Chapter-2, Sections 6 to 32A of the IBC, 2016

Further, regarding the practice of parties approaching different courts, the Court said that such malpractices deserved to be seriously checked by enacting some kind of filters where the parties to one lis essentially are restricted to one competent Forum to avoid any such chance of conflicting orders and forum shopping.

Further, the Court opined that even if different Forums entertain litigation launched by any of the parties to one lis before them, it is appropriate to transfer the proceedings to the competent Forum or return other(s) the plaint for proper presentation as soon as they come to know or are made aware of the pendency of the proceedings before that forum

"…restricting the adjudication by one competent Forum is considered very essential in such circumstances and that is why after a detailed hearing of the matter not on merits of the claims and counter-claims, but on the question of appropriateness of the Forum which should decide these issues, we are of the considered opinion that NCLT would be the best suited Forum in these circumstances to the said all the concerned and connected issues in this case," remarked the Court.

Adverting to the facts of the Case, the Court noted that the parties not only indulged in filing Civil Suits, Writ Petitions and Letters Patent Appeals under Article 226 of the Constitution of India but they also tried their hand at forum shopping.

"…sheer passing of the different orders which may or may not be conflicting orders inter-se by different Forums, who apparently would have the competent jurisdiction to be seized of those proceedings and passed those orders, ultimately may result in an utter messy confusion of the things and unresolved problems for long time," remarked the Court.

Therefore, the Court requested the Company Judge, who is seized of the winding-up proceedings to consider all the aforesaid relevant aspects of the matter and then take appropriate decision in the matter to transfer the winding-up proceedings to NCLT, Ahmedabad Bench.

"…we feel that the development of new law in the form of IBC is an opportunity for all these stakeholders to get their claims adjudicated and corporate insolvency resolved in a best appropriate manner on the Forum of NCLT which is the most competent body under the law as available now for these issues," remarked the Court.

Click here To download Order

Read Order