Thursday, 15 December 2016

MCA NOTIFIES EFFECTIVE DATES FOR CORPORATE RESTRUCTURING, WINDING-UP PROVISIONS AND SEVERAL OTHER SECTIONS OF THE COMPANIES ACT, 2013

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Earlier vide notification no. S.O. 3594(E) dated November 30, 2016 the Ministry of Corporate Affairs (“MCA”) notified December 1, 2016 as the effective date from which the provisions of the Corporate Insolvency Resolution Process under the Bankruptcy and Insolvency Code, 2016 (“IBCode, 2016”) shall come into effect, thus paving way for faster mechanism for corporate insolvency resolution and liquidation of corporate persons with adjudicating authority as National Company Law Tribunal (“Tribunal”).

Moving ahead with effecting the major provisions of corporate restructuring, winding up and other provisions of the Companies Act, 2013, the MCA vide notifications dated December 07, 2016 has notified several sections/ provisions of the Companies Act, 2013; issued directions for transfer of proceedings under the Companies Act, 1956 from the Hon’ble High Courts to respective Tribunals having territorial jurisdictions and issued Companies removal of difficulties order in relation to the these:

December 15, 2016 to be the effective date for:
A brief summary of the Companies (Transfer of Pending Proceedings) Rules, 2016 are provided below:
  S.No.ParticularsExplanationEffective DateRemarks
  1.Transfer of pending proceedings relating to cases other than Winding UpAll proceedings under the Companies Act, 1956 including proceedings relating to arbitration, compromise, arrangements and reconstruction, shall stand transferred to the Benches of the National Company Law Tribunal (“the Tribunal”) exercising respective territorial jurisdiction. 15th December, 2016
Proceedings which are reserved for order
Shall not be transferred to the Tribunal.
Proceedings which are not reserved for order
Shall be transferred to the Tribunal.
2.Pending proceeding relating to Voluntary Winding up:All applications and petitions relating to voluntary winding up of companies under Companies Act, 1956 pending before the High Court on the date of commencement of this rule, shall continue with and dealt with by:1st April, 2017Voluntary Liquidation of Corporate Persons (including company) under u/s 59 of the IB Code, 2016 not yet made effective.
No clarity provided how would freshvoluntary winding up matters can be filed till April 1, 2017
High CourtTill 1st April, 2017
the TribunalOn or after 2nd  April, 2017
3.Transfer of pending proceedings of Winding up on the ground of inability to pay debtsWhere the petition has not been served on to the Respondent under Rule 26 of the Companies (Court) Rules, 1959
 Petitions relating to winding up under clause (e) of section 433 of the Companies Act, 1956   pending before a High Court shall stand transferred to the Benches of the Tribunalexercising respective territorial jurisdiction and such petitions shall be treated as applications under sections 7, 8 or 9 of IBCode, 2016 .
 Further, petitioner shall also submit information (other than forming part of the records transferred), required for admission of the petition under sections 7, 8 or 9 of the IB Code, 2016 including details of the proposed insolvency professional to the Tribunal within sixty days from date of this notification, failing which the petition shall abate.

Where Board for Industrial and Financial Reconstruction (“BIFR”)has forwarded an opinion for Winding Up of company , under Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 to High Court
15th December, 2016Pursuant to the transfer of proceedings if the  Petitioner does not furnish additional details regarding proposed Insolvency Professional or otherwise required within 60 days from date of this notification the petition shall stand abated.
Where no appeal is pendingShall be dealt by High Court and will not be transferred to the Tribunal.
4.Transfer of pending proceedings of Winding up matters on the grounds other than inability to pay debtsWhere the petition has not been served on to the Respondent under Rule 26 of the Companies (Court) Rules, 1959
 All petitions filed under clauses (a) and (f) of section 433 of the Companies Act, 1956 pending before a High Court, shall be transferred to the Bench of the Tribunal exercising respective territorial jurisdiction and such petitions shall be treated as petitions under the provisions of the Companies Act, 2013.
15th December, 2016
5.Transfer of RecordsRelevant records pursuant to the transfer of proceedings shall also be transferred by the respective High Courts to the Tribunal Benches having territorial jurisdiction forthwith over the cases so transferred.15th December, 2016
6.Fees not to be paidNotwithstanding 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.15th December, 2016
  1. MCA vide notification dated December 07, 2016, notified the following sections.
S. No.SectionDescription of sections under Companies Act,2013
1Clause (23) of Section 2Definition of Company Liquidator
Eleventh Schedule of Insolvency and Bankruptcy Code, 2016 has amended the definition of the term “Company Liquidator” which states that "Company Liquidator" means a person appointed by the  Tribunal as the Company Liquidator in accordance with the provisions of Section 275 for the winding up of a company under Companies Act, 2013.
2Clause ( c )and ( d ) of sub-section ( 7 ) of Section 7As per Section 7(7) of the Act, where a company has been incorporated by furnishing any false or incorrect information or representation or by suppressing any material facts or information , then the Tribunal may:
( a )…..…
( b )……..
( c ) direct removal of the name of the company from the register of the companies; or
( d ) pass an order for winding up of the company
3Sub-section ( 9 ) of Section 8Section 8(9) deals with the transfer of proceeds of winding up of companies incorporated under Section 8 of the Act.
4Section 48Variation of Shareholder’s Rights
5Section 66Reduction of share capital
6Sub-section (2) of Section 224Power of Central Government to file a petition for the winding up of company  on the basis of inspectors report
7Section 226Voluntary winding up of the company, etc, not to stop investigation proceeding
8Section 230 [ except sub-section (11) and     ( 12 )],Power to compromise and make arrangements with creditors and members, except the case of Takeover as specified in Section 230(11) and Section 230(12).
9Section 231 to 233 & Section 235 to 240Compromises, Arrangements and Amalgamations (Chapter XV of the Act)
10Section 270 to 288 & Section 290 to 303Winding up by The Tribunals (Part I of Chapter XX of the Act)
11Section 324Debts of all descriptions to be admitted to proof
12Section 326 to 365Provisions applicable to every mode of Winding Up (Part III of Chapter XX of the Act)
13Proviso to section 370Section 370 : Continuation of pending legal proceedings
14Section 372Power of court to stay or restrain proceedings
15Section 373Suits stayed on winding up order
16Section 375 to 378Winding up of unregistered companies (Part II of Chapter XXI of the Act)
17Sub-section (2) of Section 391Section 391 : Application of Sections 34 (Criminal Liability for misstatement in prospectus) and Section 36 (Punishment for fraudulently inducing person to invest money) and Chapter XX (Winding Up)
18Clause (c) of sub-section (1) of Section 434Section 434 : Transfer of certain pending proceedings (Transfer of proceedings from High Court to the Tribunal)
  1. Further the Ministry of Corporate Affairs has issued Companies (Removal of Difficulties) Fourth Order, 2016 dated December 07, 2016 on transfer of pending proceedings under the Companies Act, 1956 from the High Court to the Tribunal, which shall also come into effect from December 15, 2016.
  • Proceedings (other than Winding-up) under the Companies Act, 1956 for which Orders are not reserved by the High Court shall be transferred to the National Company Law Tribunal w,e,f. December 15, 2016.
  • All Proceedings under the Companies Act, 1956 (other than the Winding-up matters) were order are reserved; and also Winding-up proceedings which are not transferred to Tribunal as per the December 7, 2016 notification shall be dealt in accordance with the provisions of the Companies Act, 1956 and the Companies (Court) Rules, 1959.

Comment: 

Pursuant to the notification becoming effective, National Company Law Tribunal will become the adjudicating authority for largely most of the matters under the Companies Act, 2013 (at present corporate restructuring like mergers, demergers etc., capital reduction, and winding-ups were dealt with by the High Courts exercising territorial jurisdiction over companies in accordance with the provisions of the Companies Act, 1956.

The proposed transfer of proceedings are aimed at making the adjudication process faster and time bound and ensure smother transition.  This also paves way for swifter mergers in between small companies and between parent company and its wholly owned subsidiary which may be effected without the approval of the Tribunal.  It appears going forward voluntary winding up matters will largely be effected under the IBCode, 2016 once the relevant provision is made effective as the corresponding provisions of the Companies Act, 2013 related to voluntary winding up under section 304 to 323 has been deleted vide notification under the IBCode, 2016.  At present there seems to be void till the time provisions of the IBCode, 2016 are notified for voluntary winding up.  

Further, provisions under the IBCode, 2016 has already been effected for seeking corporate insolvency resolution process against corporate persons (including companies) in cases where there is default in payment to an operational creditor or a financial creditor.  With the change in definition of ‘company liquidator’ the role of insolvency professionals governed under the Insolvency and Bankruptcy Board of India regime has already been recognised both under the Companies Act, 2013 and IBCode, 2016.

With the aforesaid notifications of December 7, 2016 substantial part of the Companies Act, 2013 has been notified and only a handful of sections remain to be notified.  Overall the changes will foster in ease of doing business in India as well as allow the businesses to be liquidated in short time span should the revival scheme or the resolution plan is not preferred or is otherwise voted out by the creditors.  

Click to the below links for the said notifications.
Companies (Transfer of Pending Proceedings) Rules, 2016
Notification regarding enactment of certain provisions of the Companies Act, 2013
Companies (Removal of Difficulties) Fourth Order, 2016


For more information contact author: Pankaj Jain, Email: pankaj.jain@vedalegal.in Mobile: 8447778422

Readers are requested to refer to original text of the notification.  
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