HC stays proceedings before NCLT in Nissan-Renault case

The Madras High Court today stayed proceedings related to the winding up petition involving car makers Nissan Motor India and Renault Nissan Automotive India before the National Company Law Tribunal (NCLT).
The First Bench comprising Chief Justice Indira Banerjee and Justice Abdul Quddhose gave the interim order on a petition filed by the two companies challenging the transfer of the winding up petition earlier heard by the high court to the NCLT.
The petition was transferred to the NCLT under the new Insolvency and Bankruptcy Code (IBC).
The petitioner sought to declare the provisions of the Companies (Transfer of Pending Proceedings) Rules as ultra vires of the Constitution and beyond the legislative competence of Parliament.

The rules enable winding up proceedings filed under the Companies Act before the high court to be treated as an application under the IBC to be adjudicated by the NCLT.
Staying the proceedings before the NCLT, the bench ordered issuance of notice, returnable by March 2, to the Union Ministry of Corporate Affairs, NCLT, and SRL Advisors LLP, a firm providing financial, tax and accounting services.

The issue pertains to a winding up proceeding initiated by SRL Advisors, which was formerly engaged by the petitioners for services, relating to finance, tax and accounting.
Subsequently, noticing "enormous and serious frauds in the dealings," the petitioners terminated the services of the firm on July 24, 2014.

While the termination letter remained unchallenged, the firm issued a statutory winding up notice under section 434 (1) (a) of the Companies Act on March 17, 2015 and commenced proceedings before the high court.
The petitioners opposed the winding up notice contending that the SRL Advisors had filed an "utterly misconceived, frivolous, and untenable petition".
The dispute was referred for mediation, which failed. It was then posted back to the high court for adjudication before being transferred to the NCLT.
The petitioners submitted that the impugned rules providing for transfer of pending company petitions wherein notice was not served upon the respondent had been misconstrued and erroneously applied to the winding up petition in which the entire pleadings were already over.

Transferring such cases to be adjudicated by the NCLT under Insolvency Code was "impermissible, prejudicial to its rights, interest and entitlements besides also being wholly unconstitutional in all respects," the petitioners said.
"The insolvency resolution mechanism under the Code is substantially different from the mechanism for winding up under the Companies Act and as such, without a specific statutory provision to the contrary, existing provisions cannot be altered or abated," the petitioners contended.