Page 20 - Banking Finance November 2019

LEGAL UPDATE

Builders in the dock over Company case transferred to NCLT
land acquisition Merely because the company court had ordered the winding up of a company,
it does not follow that it should necessar-
The Supreme Court prevented the ily be liquidated and dissolved. Other op-
attempt of tions are available, namely, to resolve or
builders who revive the company. They should always be
buy land explored for which purpose the National
cheap from Company Law Tribunal (NCLT) is invested
farmers af- with jurisdiction unless irrevocable steps
ter the towards liquidation have already been undertaken, The Delhi High Court stated
government’s publication of acquisi- in its judgment in Action Ispat & Power vs Shyam Metallics & Energy.
tion and claim higher compensation.
While the winding-up petition was pending and a liquidator was appointed, State
Such transactions, whether by power
Bank of India, a secured creditor, sought transfer of the company case to the
of attorney, will or other modes,
would be void, the court stated in its NCLT. This was allowed by the company judge. Action Ispat challenged it in the
judgment in Shiv Kumar vs Union of Delhi High Court, which dismissed the appeal. The judgment stated that the
India. process under the Insolvency and Bankruptcy Code is meant to find the best
possible solution in a given case which is beneficial to the company concerned,
The law is to benefit landowners in as well as its creditors and other stakeholders.
their rehabilitation.“The buyer has
Therefore, in the interest of equity and justice, and keeping in mind the special
not been deprived of his livelihood
nature of the Code, if the company judge found it fit to transfer the winding-up
but is a purchaser under a void trans-
petition to the NCLT on the application of a secured creditor, the high court
action the outcome of exploitative
tactics played upon poor farmers would not ordinarily interfere in the order. The company judge rightly recalled
who were unable to defend them- the order of appointment of the liquidator since the liquidation was at its initial
selves,” the judgment emphasised stage.
and observed that “we have come
across instances in which after noti- Fraud charge does not bar arbitration
fications acquiring land, the property The question whether an arbitration clause could be invoked when there are
was purchased at throwaway prices allegations of fraud in the functioning of a
by the builders and unscrupulous partnership was discussed by the Supreme
persons. Court in its judgment in the case, Rashid
It would be unfair and profoundly un- Raza vs Sadaf Akhtar.
just and against the policy of the law When there are serious allegations involving
to permit such a person to claim re- disputed issues of facts and evidence, the
settlement or claim higher compen- court has earlier held that they should be
sation”. A purchaser cannot be said decided by a civil court. But if there are only “simple allegations”, the arbitra-
to be a landowner, according to the tion clause would be operative. In this case, there was a partnership deed with
definition in land acquisition law. The an arbitration clause. When disputes arose between the partners, one of them
Supreme Court thus dismissed the accused the other of financial irregularities and lodged a complaint with the
appeals of the buyers and upheld the police.
ruling of the Delhi High Court. Inci-
dentally, the apex court also set One partner invoked the arbitration clause and move the high court for appoint-
aside a 2017 judgment of its own ment of an arbitrator. The application was dismissed stating that there were
(Manav Dharam Trust), as it was compled questions, which only a civil court could handle. In the appeal, the
delivered by a smaller Bench, which Supreme Court reversed that judgment and appointed a retired judge as arbi-
had ignored the correct law laid trator. It observed that this case fell on the side of “simple allegations” as
down earlier by larger Benches. there was no allegation of fraud, which would vitiate the partnership deed as a
whole.

20 | 2019 | NOVEMBER | BANKING FINANCE