SWARAJ INFRASTRUCTURE PVT. LTD. versus KOTAK MAHINDRA BANK LTD. on 29 January 2019

SUPREME COURT REPORTS

[2019] 1 S.C.R.

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SWARAJ INFRASTRUCTURE PVT. LTD.

v.

KOTAK MAHINDRA BANK LTD.

(Civil Appeal No. 1291 of 2019)

BJANUARY 29, 2019

[R. F. NARIMAN AND NAVIN SINHA, JJ.]

Companies Act, 1956:

ss. 439, 434(1)(a) and (1)(b), 441(2) and 529 – Winding upCpetition – By the secured creditor/respondent-Bank, after obtainingdecree from Debts Recovery Tribunal and a recovery certificatebased thereon – Maintainability of the petition – Plea of debtorcompanies inter alia that the petition was barred by provisions ins.17 r/w. s.18 of Recovery of Debts Act; that the creditor must eitherrelinquish its security and stand in line in winding up proceedingDor realize its security outside the winding up proceeding; and thatin the present case s.434(1)(b) would be attracted and nots.434(1)(a) – On appeal, held: Winding up proceeding is not aproceeding for realization of debts and therefore would not becovered by the language of s.17 r/w. ss.18 and s.34 of DebtsERecovery Act – u/s. 439, a secured creditor’s petition for windingup is maintainable without any requirement for relinquishing itssecurity – In view of s.529(1)(c), s.47 would be applicable and nots.9(2) of the Provincial Insolvency Act and hence winding up petitioncannot be deemed to commence at the time of presentation of thepetition – Reliance on s.441(2) by the debtors, is misplaced – At theFstage at which the winding up petition was filed, the same could nothave been filed u/s.434(1)(b) and hence s.434(1)(b) was inapplicable– Winding up petition was maintainable – Recovery of Debts Dueto Banks and Financial Institutions Act, 1993 – ss.17, 18 and 34 –Provincial Insolvency Act, 1920 – ss.9(2) and 47.G

ss.434(1)(a) and (1)(b) – Applicability of the provisions –Held: Applicability of sub-s.(b) of s.434(1) does not mean thatprovision under sub-clause (a) of s.434(1) shall cease to beapplicable – Each one of the sub-clauses of s.434(1) are not mutuallyexclusive.

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Dismissing the appeals, the Court

HELD:1. A winding up proceeding is not a proceeding thatcan be referred to as a proceeding for realization of debts andwould, therefore, not be covered by the language of Section 17read with Section 18 of the Recovery of Debts Due to Banks andFinancial Institutions Act, 1993. When it comes to a winding upproceeding under the Companies Act, 1956, since such aproceeding is not “for recovery of debts” due to banks, the barcontained in Section 18 read with Section 34 of the Recovery ofDebts Act would not apply to winding up proceedings under theCompanies Act, 1956. [Para 13][695-G-H; 696-A]

Amalgamated Commercial Traders (P.) Ltd. v. A.C.K.Krishnaswami and Ors. (1965) 35 Comp Cas 456 (SC);M/s IBA Health (India) Pvt. Ltd. v. M/s Info-DriveSystems Sdn. Bhd. (2010) 10 SCC 553 : [2010] 12SCR 137 – relied on.

Viral Filaments Ltd. v. Indusind Bank Ltd. (2001) 3 MahLJ 552 – approved.

Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan [1966]3 SCR 948; Rajasthan State Financial Corporation v.Official Liquidator (2005) 8 SCC 190 : [2005] 3 Suppl.SCR 1073; Official Liquidator v. Allahabad Bank(2013) 4 SCC 381 : [2013] 4 SCR 207 – referred to.

2.1 It is not correct to say that as per s. 441(2) of CompaniesAct, the winding up of a company shall be deemed to commenceat the time of presentation of the petition for winding up, and thatthe stage at which a secured creditor has to give up his securityis at the stage of the filing of the winding up petition itself. [Para17][700-C-D]

2.2 Under Section 439 of the Companies Act, 1956, asecured creditor’s petition for winding up is maintainable withoutany requirement of it having to give up or relinquish its security.This is in contrast to Section 9(2) of the Provincial InsolvencyAct, 1920. A provision akin to s. 9(2) of Provincial InsolvencyAct is absent in s. 439 of the Companies Act, 1956. [Para 17][700-D-E, G-H]

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A2.3 Section 529(1)(c) of the Companies Act, 1956 specificallyrefers to the right of a secured creditor under the law of insolvency“with respect to the estates of persons adjudged insolvent”. Theexpress language of Section 529(1)(c) of the Companies Act, 1956makes it clear that it is Section 47 of the Provincial InsolvencyAct, 1920 alone that is attracted, and not Section 9(2). Section 47Bof the Provincial Insolvency Act, 1920 occurs only at the stagewhere an adjudication order has already been passed, which isthe stage referred to by Section 529 of the Companies Act, 1956.[Para 17][701-A-B; 700-H]

2.4 Reliance on Section 441(2) of the Companies Act, 1956Cis misplaced for yet another reason. Section 441(2) has to beread with Section 441(1), and so read, makes it clear that it becamenecessary to enact sub-section (2), because a petition for voluntarywinding up of a company presented before the Tribunal would besaid to commence at an anterior point of time, namely, at theDtime of the passing of the resolution whereby the companyresolves to voluntarily wind itself up. In contrast, therefore,Section 441(2) says “in any other case”, i.e., in cases other thanthose falling under sub-section (1) of Section 441 of the CompaniesAct, 1956, the winding up of a company by the Tribunal shall bedeemed to commence at the time of presentation of the petitionEfor winding up. The context of the provision, therefore, makes itclear that it cannot be read so as to introduce Section 9(2) of theProvincial Insolvency Act, 1920 by the back door, as it were,when no such provision is contained in Section 439 of theCompanies Act, 1956 itself. [Para 17][701-C-E]

FJitendra Nath Singh v. Official Liquidator (2013) 1 SCC462 : [2012] 13 SCR 339 – relied on.

Hegde & Golay Limited v. State Bank of India ILR 1987KAR 2673; Asian Power Controls Ltd. v. Bubbles Goyal(2013) 3 Mah LJ 811 17 – approved.G

3. It cannot be said that s. 434(1)(b) was applicable in thepresent case. Section 434(1)(b) is attracted only if execution orother process is issued in respect of an order of a Tribunal infavour of a creditor of the company is returned unsatisfied in wholeor in part. This is only one of three instances in which a companyH

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shall be deemed to be unable to pay its debts. If the fact situationfits sub-clause (b) of Section 434(1), then a company may be saidto be deemed to be unable to pay its debts. However, this doesnot mean that each one of the sub-clauses of Section 434(1) aremutually exclusive in the sense that once Section 434(1)(b)applies, Section 434(1)(a) ceases to be applicable. Also, on thefacts of the present case, the company petition was filed pursuantto a notice under Section 433 of the Companies Act, 1956. Thispetition was filed under Section 433(e) read with Section 434(1)(a)of the Companies Act, 1956. At the stage at which the petitionwas filed, it could not possibly have been filed under Section434(1)(b) of the Companies Act, 1956, as execution or otherprocess in the form of a recovery certificate had not been issuedby the Recovery Officer till after the company petition was filed.[Para 19][705-A-D]

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4. The cases like the present one have to be decided bybalancing the interest of creditors. It is not open for persons likethe appellant to resist a winding up petition which is otherwisemaintainable without there being any bona fide defence to thesame. The respondent cannot be said to be blowing hot and coldin pursuing a remedy under the Recovery of Debts Act and awinding up proceeding under the Companies Act, 1956simultaneously. [Para 20][705-E-F]

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Lissenden v. C.A.V. Bosch, Ltd. [1940] 1 All E.R. 425 –referred to.

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Lissenden v. C.A.V. Bosch, Ltd. [1940] 1 All E.R. 425 –referred to.

Case Law Reference

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A[2012] 13 SCR 339relied onPara 18[1940] 1 All E.R. 425referred toPara 20

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1291of 2019.

BFrom the Judgment and Order dated 28.01.2018 of the High Courtof Judicature at Bombay in Appeal No. 339 of 2017.

WITH

Civil Appeal Nos. 1292, 1294, 1293 of 2019.

K. Parameshwar, Udit Gupta (For M/s. Udit Kishan andCAssociates), Advs. for the Appellant.

Shyam Divan, Sr. Adv., Ms. Sonia Dube, S. Chakraborty, Ms.Surbhi Anand, Ms. Harshita Verma, Ms. Kanchan Yadav (For M/s. LegalOptions, Advs.), Advs. for the Respondent.

DThe Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. Leave granted.

2. The present case involves the right of a secured creditor to filea winding up petition after such secured creditor has obtained a decreefrom the Debts Recovery Tribunal [“DRT”] and a recovery certificateEbased thereon.

3. Several appeals were taken up together for hearing by theDivision Bench of the Bombay High Court. The brief facts necessary todecide the present appeals are as follows:

FThe respondent, Kotak Mahindra Bank Limited, advanced variousloans to the companies in question. The outstanding amount against thesecompanies as on date, together with interest, is stated to be in the regionof INR 48 crores. The respondent approached the Debts RecoveryTribunal, Mumbai by filing three separate original applications to recoverthe debt owed to them. The Debts Recovery Tribunal delivered threeGseparate judgments on 16.01.2015 allowing the applications filed by therespondent bank. Apparently, the said orders are final as no appealshave been preferred to the Debts Recovery Appellate Tribunal[“DRAT”], Mumbai. Recovery certificates dated 12.08.2015 for thesaid amounts were then issued by the Recovery Officer under Section H

19(19) of the Recovery of Debts Due to Banks and Financial InstitutionsAct, 1993 [“Recovery of Debts Act”]. We have been informed thatvarious attempts were made to auction the properties that were securityfor the loans granted, but each of these attempts has yielded no results.

In the meanwhile, the respondent issued statutory notices dated15.04.2015 under Sections 433 and 434 of the Companies Act, 1956. Asno payments were forthcoming, a company petition was filed before theBombay High Court on 03.07.2015. By an order dated 26.07.2017, thesaid petition was admitted as the companies in question were said to becommercially insolvent. In the appeals that were filed to the DivisionBench of the Bombay High Court, the main point argued was that oncea secured creditor has obtained an order from the DRT, and a recoverycertificate has been issued thereupon, such secured creditor cannot filea winding up petition as the Recovery of Debts Act is a special Actwhich vests exclusive jurisdiction in the DRT. Also, a secured creditorcan file a winding up petition only on giving up its security, which has notbeen done in the present case. These contentions did not find favourwith the Division Bench who then dismissed the appeals in question.

4. Shri K. Parameshwar, learned advocate, appearing on behalfof the appellants, has urged a number of points before us. He first arguedthat this Court has held that the Recovery of Debts Act is a specialstatute qua the general statute of the Companies Act, 1956, and that thisCourt has further held that exclusive jurisdiction is vested in the DRTunder the Recovery of Debts Act to the exclusion of the Company Court.As this is so, once the DRT has been approached, the necessary corollaryis that a winding up petition to realize the same debt would be expresslybarred on a conjoint reading of Sections 17 and 18 of the Recovery ofDebts Act. He further argued that in any case, the secured creditor isput to an election where it must either relinquish its security and stand inline in the winding up proceeding or realize its security outside the windingup proceeding. On the facts of the present case, it has filed a successfulaction to realize its security outside the winding up proceeding, as aresult of which, the winding up proceeding filed by it, without giving upthe mortgaged security, would not be maintainable. It was further arguedthat, in any event, Section 434(1)(b) of the Companies Act, 1956 wouldbe attracted, and not Section 434(1)(a), and that since the security hasnot yet been realized, the winding up petition dressed up under Section434(1)(a), but really under Section 434(1)(b), would not be maintainable.

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AAlso, reliance on certain High Court judgments by the impugned judgmentis completely misplaced for the reason that the provisions of theCompanies Act, 1956 would show that the secured creditor has torelinquish its security when it files a winding up petition, and not thereafter,as has been held in these judgments.

B5. In answer to these contentions, Shri Shyam Divan, learnedSenior Advocate appearing on behalf of the respondent, has argued,relying upon Section 439 of the Companies Act, 1956 in particular, that asecured creditor can maintain a winding up petition in the fact situationas obtains in the present case. According to him, the judgment reliedupon by the appellant, namely, Allahabad Bank v. Canara Bank, (2000)C4 SCC 406, is distinguishable in that the context of that judgment waswhether leave had to be obtained from the Company Court when awinding up proceeding is either pending, or a winding up order is made,in order to pursue a debt recovery proceeding under the Recovery ofDebts Act. He also argued before us that the election that is to takeDplace with the secured creditor giving up its security is at the stage ofproof of claims, which is only after a winding up order has been passed,and which stage has not yet arrived on the facts of the present case.Also, according to him, the petition has been filed only on the ground ofinability to pay debts, and once the statutory presumption is raised underSection 434(1)(a) of the Companies Act, 1956, it is clear that winding upEmust follow in the absence of payment of outstanding amounts of debtsowed. According to the learned Senior Advocate, his client has gonefrom pillar to post in an attempt to recover the loans made to the appellantsand has not yet succeeded in any endeavour to do so. Also, nothing hasbeen repaid so far and the debt owed by these companies, which is Fmounting, amounts to a staggering figure of INR 48 crores. Accordingto the learned counsel, therefore, the High Court was right in dismissingthe appeal filed by the appellants.

6. After hearing learned counsel for both sides, it is important tofirst set out the relevant provisions of the Companies Act, 1956 and theGRecovery of Debts Act, 1993.

Section 434(1) of the Companies Act, 1956 reads as follows:

“434. Company when deemed unable to pay its debts.—(1)A company shall be deemed to be unable to pay its debts—

SWARAJ INFRASTRUCTURE PVT. LTD. v. KOTAKMAHINDRA BANK LTD. [R. F. NARIMAN, J.]

(a) if a creditor, by assignment or otherwise, to whom theAcompany is indebted in a sum exceeding one lakh rupeesthen due, has served on the company, by causing it to bedelivered at its registered office, by registered post orotherwise, a demand under his hand requiring the companyto pay the sum so due and the company has for three weeksBthereafter neglected to pay the sum, or to secure orcompound for it to the reasonable satisfaction of the creditor; (b)if execution or other process issued on a decree or orderof any Court or Tribunal in favour of a creditor of thecompany is returned unsatisfied in whole or in part; or C

(c) if it is proved to the satisfaction of the Tribunal that thecompany is unable to pay its debts, and, in determiningwhether a company is unable to pay its debts, the Tribunalshall take into account the contingent and prospectiveliabilities of the company.

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Section 439(1)(b) and Section 439(2) of the Companies Act, 1956read as follows:

“439. Provisions as to applications for winding up.—(1) Anapplication to theTribunal for the winding up of a company shallbe by petition presented, subject to the provisions of this section—

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(b) by any creditor or creditors, including any contingent orprospective creditor or creditors; or F

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(2) A secured creditor, the holder of any debentures (includingdebenture stock), whether or not any trustee or trustees havebeen appointed in respect of such and other like debentures, andthe trustee for the holders of debentures, shall be deemed to beGcreditors within the meaning of clause (b) of sub-section (1).

Section 441, which deals with commencement of winding up, readsas follows:

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A“441. Commencement of winding up by Tribunal.—(1)Where, before the presentation of a petition for the winding up ofa company by the Tribunal, a resolution has been passed by thecompany for voluntary winding up, the winding up of the companyshall be deemed to have commenced at the time of the passing ofthe resolution, and unless the Tribunal, on proof of fraud or mistake,Bthinks fit to direct otherwise, all proceedings taken in the voluntarywinding up shall be deemed to have been validly taken.

(2) In any other case, the winding up of a company by the Tribunalshall be deemed to commence at the time of the presentation ofthe petition for the winding up.”

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Section 529(1) of the Companies Act reads as follows:

“529. Application of insolvency rules in winding up ofinsolvent companies.—(1) In the winding up of an insolventcompany, the same rules shall prevail and be observed with regardDto—

(a) debts provable;

(b) the valuation of annuities and future and contingent liabilities;and

(c) the respective rights of secured and unsecured creditors;Eas are in force for the time being under the law of insolvency withrespect to the estates of persons adjudged insolvent:

The reference made in Section 529 of the Companies Act, 1956Fis to Section 47 of the Provincial Insolvency Act, 1920 which reads asfollows:

“47. Secured creditors.—(1) Where a secured creditor realiseshis security, he may prove for the balance due to him, afterdeducting the net amount realised.

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(2) Where a secured creditor relinquishes his security for thegeneral benefit of the creditors, he may prove for his whole debt.

(3) Where a secured creditor does not either realise or relinquishhis security, he shall, before being entitled to have his debt enteredin the schedule, state in his proof the particulars of his security,H

and the value at which he assesses it, and shall be entitled toreceive a dividend only in respect of the balance due to him afterdeducting the value so assessed.

(4) Where a security is so valued, the Court may at any timebefore realisation redeem it on payment to the creditor of theassessed value.

(5) Where a creditor, after having valued his security, subsequentlyrealises it, the net amount realised shall be substituted for theamount of any valuation previously made by the creditor, and shallbe treated in all respects as an amended valuation made by thecreditor.

(6) Where a secured creditor does not comply with the provisionsof this section, he shall be excluded from all share in any dividend.”

7. The relevant provisions of the Recovery of Debts Act, 1993,read as follows:

“17. Jurisdiction, powers and authority of Tribunals.—(1) ATribunal shall exercise, on and from the appointed day, thejurisdiction, powers and authority to entertain and decideapplications from the banks and financial institutions for recoveryof debts due to such banks and financial institutions.

(1-A) Without prejudice to sub-section (1),—

(a) the Tribunal shall exercise, on and from the date to beappointed by the Central Government, the jurisdiction,powers and authority to entertain and decide applicationsunder Part III of Insolvency and Bankruptcy Code, 2016; (b)the Tribunal shall have circuit sittings in all districtheadquarters.

(2) An Appellate Tribunal shall exercise, on and from the appointedday, the jurisdiction, powers and authority to entertain appealsagainst any order made, or deemed to have been made, by aTribunal under this Act.

(2-A) Without prejudice to sub-section (2), the Appellate Tribunalshall exercise, on and from the date to be appointed by the CentralGovernment, the jurisdiction, powers and authority to entertain A

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appeals against the order made by the Adjudicating Authority underPart III of the Insolvency and Bankruptcy Code, 2016.”

“18. Bar of jurisdiction.—On and from the appointed day, nocourt or other authority shall have, or be entitled to exercise, anyjurisdiction, powers or authority (except the Supreme Court, anda High Court exercising jurisdiction under Articles 226 and 227 ofthe Constitution) in relation to the matters specified in Section 17:

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Provided that any proceedings in relation to the recovery of debtsdue to any multi-State co-operative bank pending before the dateof commencement of the Enforcement of Security Interest andRecovery of Debts Laws (Amendment) Act, 2012 under the Multi-State Co-operative Societies Act, 2002 ((39 of 2002) shall becontinued and nothing contained in this section shall, after suchcommencement, apply to such proceedings.”

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“19. Application to the Tribunal.—

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(19) Where a certificate of recovery is issued against a companyas defined under the Companies Act, 2013 (18 of 2013) and suchcompany is under liquidation, the Tribunal may by an order directthat the sale proceeds of secured assets of such company bedistributed in the same manner as provided in Section 326 of theCompanies Act, 2013 or under any other law for the time being inforce.

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“34. Act to have overriding effect.—(1) Save as provided undersub-section (2), the provisions of this Act shall have effectnotwithstanding anything inconsistent therewith contained in anyother law for the time being in force or in any instrument havingeffect by virtue of any law other than this Act.

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8. In Allahabad Bank v. Canara Bank (supra), this Court dealtwith whether the secured creditor, namely, Allahabad Bank in that case,was obliged to seek the leave of the Company Court under the CompaniesAct, 1956, and whether the Company Court can stay recoveryproceedings which had been initiated under the Recovery of Debts Act H

in the event of a winding up order being passed under the CompaniesAct, 1956. In this context, this Court held, adverting to Sections 17 and18 of the Recovery of Debts Act, that the jurisdiction of the Tribunal inregard to adjudication of applications for recovery of debts under Section17 is exclusive. No dual jurisdiction is contemplated, particularly havingregard to Section 34 of the said Act, which has overriding effect overother statutes including the Companies Act, 1956 – see paragraphs 21 to23. The said judgment further goes on to state:

“23. …… The provisions of Section 34(1) clearly state that theRDB Act overrides other laws to the extent of “inconsistency”.In our opinion, the prescription of an exclusive Tribunal bothfor adjudication and execution is a procedureclearly inconsistent with realisation of these debts in any othermanner.”

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“25. Thus, the adjudication of liability and the recovery of theamount by execution of the certificate are respectively withinthe exclusive jurisdiction of the Tribunal and the Recovery Officerand no other court or authority much less the civil court or theCompany Court can go into the said questions relating to the liabilityand the recovery except as provided in the Act. Point 1 is decidedaccordingly.”

9. In answering whether the Recovery of Debts Act overridesthe provisions of Sections 442 and 537 and 446 of the Companies Act,1956, this Court held that the Recovery of Debts Act is a special statutewhich would necessarily override the aforesaid provisions of the moregeneral statute, namely, the Companies Act, 1956. Even otherwise, ifboth are treated as special laws, since the Recovery of Debts Act islater in point of time, together with a non-obstante clause contained inSection 34, the said Act will prevail to the extent set out in the Recoveryof Debts Act. This Court then concluded:

“50. For the aforesaid reasons, we hold that at the stageof adjudication under Section 17 and execution of the certificateunder Section 25 etc. the provisions of the RDB Act, 1993 conferexclusive jurisdiction on the Tribunal and the Recovery Officer in A

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Arespect of debts payable to banks and financial institutions andthere can be no interference by the Company Court under Section442 read with Section 537 or under Section 446 of the CompaniesAct, 1956. In respect of the monies realised under the RDB Act,the question of priorities among the banks and financial institutionsand other creditors can be decided only by the Tribunal under theBRDB Act and in accordance with Section 19(19) read with Section529-A of the Companies Act and in no other manner. Theprovisions of the RDB Act, 1993 are to the above extentinconsistent with the provisions of the Companies Act, 1956 andthe latter Act has to yield to the provisions of the former. ThisCposition holds good during the pendency of the winding-up petitionagainst the debtor Company and also after a winding-up order ispassed. No leave of the Company Court is necessary for initiatingor continuing the proceedings under the RDB Act, 1993. Points 2and 3 are decided accordingly in favour of the appellant and againstthe respondents.”D

10. It is important to note that the aforesaid statement of the lawwas made in the context of non-requirement of leave of the CompanyCourt to initiate, continue with, and execute orders passed under theRecovery of Debts Act. What is important to note is that the CompaniesAct, 1956 is overridden to the extent of the inconsistency between theECompanies Act, 1956 and the Recovery of Debts Act only qua recoveryof debts due to banks and financial institutions.

11. It is settled law that a winding up proceeding initiated underSection 433(e) and 434 of the Companies Act, 1956 is not a means ofseeking to enforce payment of a debt. This Court, in AmalgamatedCommercial Traders (P.) Ltd. v. A.C.K. Krishnaswami and Ors.,(1965) 35 Comp Cas 456 (SC) [“Amalgamated CommercialTraders”], has held:

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“13. It is well-settled that “a winding up petition is not a legitimatemeans of seeking to enforce payment of the debt which is bonafide disputed by the company. A petition presented ostensibly fora winding up order but really to exercise pressure will be dismissed,and under circumstances may be stigmatized as a scandalous abuseof the process of the court.”

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This statement of the law has subsequently been followed inseveral judgments, one of which is M/s IBA Health (India) Pvt. Ltd.v. M/s Info-Drive Systems Sdn. Bhd., (2010) 10 SCC 553 (atparagraph 21).

12. However, it was pointed out that a subsequent judgment ofthis Court, of the selfsame strength of three learned Judges, in HarinagarSugar Mills Co. Ltd. v. M.W. Pradhan, (1966) 3 SCR 948 [“HarinagarSugar Mills”], has held as follows:

“5. …… Can it be said that the petition filed by the Receiver forwinding up of the Company is not a mode of realisation of thedebt due to the joint family from the Company? In Palmer’sCompany Precedents, Part II, 1960 Edn., at p. 25, the followingpassage appears:

“A winding up petition is a perfectly proper remedy forenforcing payment of a just debt. It is the mode of executionwhich the Court gives to a creditor against a company unableto pay its debts.”

This view is supported by the decisions in Bowes v. Hope LifeInsurance and Guarantee Co. [(1865) II HLC 388], Re GeneralCompany for Promotion of Land Credit [(1870) LR 5 Ch D380] and Re National Permanent Building Society [(1869) LR5 Ch D 309]. It is true that “a winding up order is not a normalalternative in the case of a company to the ordinary procedure forthe realisation of the debts due to it”; but nonetheless it is a formof equitable execution……”

13. It is true that this Court has stated that a winding up petition isa form of equitable execution of a debt, but this is qualified by statingthat a winding up order is not a normal alternative to the ordinaryprocedure for realization of debts due to a creditor. We are of the viewthat both the judgments contained in Amalgamated CommercialTraders (supra) as well as in Harinagar Sugar Mills (supra), recognizethe fact that a winding up proceeding is not a proceeding that can bereferred to as a proceeding for realization of debts and would, therefore,not be covered by the language of Section 17 read with Section 18 of theRecovery of Debts Act. When it comes to a winding up proceedingunder the Companies Act, 1956, since such a proceeding is not “forrecovery of debts” due to banks, the bar contained in Section 18 read A

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Awith Section 34 of the Recovery of Debts Act would not apply to windingup proceedings under the Companies Act, 1956.

14. In point of fact, a Division Bench of the Bombay High Courtin Viral Filaments Ltd. v. Indusind Bank Ltd., (2001) 3 Mah LJ 552reached this very conclusion after closely examining the judgment inBAllahabad Bank v. Canara Bank (supra) of this Court. We approveof the reasoning contained in the aforesaid Bombay High Court judgment.

15. However, Shri K. Parameshwar, appearing on behalf of theappellants, also relied upon Rajasthan State Financial Corporation v.Official Liquidator, (2005) 8 SCC 190, and paragraph 18 of the aforesaidCjudgment, in particular. Paragraph 18 reads as follows:

“18. In the light of the discussion as above, we think it proper tosum up the legal position thus:

(i) A Debts Recovery Tribunal acting under the Recovery ofDebts Due to Banks and Financial Institutions Act, 1993 wouldDbe entitled to order the sale and to sell the properties of the debtor,even if a company-in-liquidation, through its Recovery Officerbut only after notice to the Official Liquidator or the Liquidatorappointed by the Company Court and after hearing him.

(ii) A District Court entertaining an application under Section 31Eof the SFC Act will have the power to order sale of the assets ofa borrower company-in-liquidation, but only after notice to theOfficial Liquidator or the Liquidator appointed by the CompanyCourt and after hearing him.

(iii) If a financial corporation acting under Section 29 of theSFC Act seeks to sell or otherwise transfer the assets of a debtorcompany-in-liquidation, the said power could be exercised by itonly after obtaining the appropriate permission from the CompanyCourt and acting in terms of the directions issued by that court asregards associating the Official Liquidator with the sale, the fixingof the upset price or the reserve price, confirmation of the sale,holding of the sale proceeds and the distribution thereof amongthe creditors in terms of Section 529-A and Section 529 of theCompanies Act.

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(iv) In a case where proceedings under the Recovery of DebtsDue to Banks and Financial Institutions Act, 1993 or the SFC Act H

are not set in motion, the creditor concerned is to approach theCompany Court for appropriate directions regarding the realisationof its securities consistent with the relevant provisions of theCompanies Act regarding distribution of the assets of the company-in-liquidation.”

As a matter of fact, sub-paragraphs (i) and (iv) of paragraph 18would show that proceedings before the DRT, and winding up proceedingsunder the Companies Act, 1956, can carry on in parallel streams. That iswhy paragraph 18(i) states that a Debts Recovery Tribunal, acting underthe Recovery of Debts Act, would be entitled to order sale, and sell theproperties of the debtor, even of a company in liquidation, but only aftergiving notice to the Official Liquidator, or to the Liquidator appointed bythe Company Court, and after hearing him.

16. To similar effect is the judgment of this Court in OfficialLiquidator v. Allahabad Bank, (2013) 4 SCC 381, where this Courtheld as follows:

“24. From the aforesaid authorities, it clearly emerges that thesale has to be conducted by DRT with the association of theOfficial Liquidator. We may hasten to clarify that as the presentcontroversy only relates to the sale, we are not going to sayanything with regard to the distribution. However, it is noticeablethat under Section 19(19) of the RDB Act, the legislature hasclearly stated that distribution has to be done in accordance withSection 529-A of the 1956 Act. The purpose of stating so is that itis a complete code in itself and the Tribunal has the exclusivejurisdiction for the purpose of sale of the properties for realisationof the dues of the banks and financial institutions.”

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“31. The aforesaid analysis makes it luculent that DRT hasexclusive jurisdiction to sell the properties in a proceeding institutedby the banks or financial institutions, but at the time of auction andsale, it is required to associate the Official Liquidator. The saidprinciple has also been reiterated in Pravin Gada v. Central Bankof India [(2013) 2 SCC 101 : (2013) 1 SCC (Civ) 988].

32. Once the Official Liquidator is associated, needless to say, hehas a role to see that there is no irregularity in conducting the A

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Aauction and appropriate price is obtained by holding an auction ina fair, transparent and non-arbitrary manner in consonance withthe Rules framed under the RDB Act.”

17. The second important point raised by learned counsel for theappellant is that a conjoint reading of the Companies Act, 1956 and theBProvincial Insolvency Act, 1920, would make it clear that the securedcreditor must, at the time of filing the petition for winding up, state that ithas given up his security, or else, such winding up petition would not bemaintainable. In Hegde & Golay Limited v. State Bank of India,ILR 1987 KAR 2673, a learned single Judge of the Karnataka HighCourt, Venkatachaliah, J. (as he then was), dealt with this point as follows:C

“12. Re: Point (a):

The contention is that the Bank which is a secured creditor cannotmaintain a winding-up petition without making an election eitherto give-up the security or value it as required by Section 9(2) ofDthe Provincial Insolvency Act, 1920. It is urged that by Section529(1) of the Act, the Rules of Insolvency in Section 9(2) areattracted.

Section 9(2) of the Provincial Insolvency Act reads:

“If the petitioning creditor, is a secured creditor, he shall in hisEPetition either state that he is willing to relinquish hissecurityfor the benefit of the creditors in the event of the debtor beingadjudged insolvent or given an estimate of the value of thesecurity. In the latter case, he may be admitted as a petitioning-creditor to the extent of the balance of the debt due to himafter deducting the value so estimated in the same way as ifFhe were an unsecured creditor”.

13. The contention is that a secured-creditor may stand outsideinsolvency; but if he brings-up a creditor’s winding-up petition hemust, in his petition, state that he is either willing to relinquish thesecurity for the benefit of the body of creditors or give an estimateof the value of the security. Learned Company-Judge has takenthe view, if we may say so with respect, quite rightly, that this ruleof Insolvency Law is not attracted to the presentation of a winding-up petition.

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14. Sri Shetty says that both in bankruptcy and winding-up thelaw is the same and the petitioning-creditor, if he is a securedcreditor, must conform to the rule in Section 9(2). He relied uponM.K. Ranganathan v. Government of Madras [AIR 1955 SC604] and Hansraj v. Official Liquidators, Dehradun MussorieElectric Trading Company Limited [AIR 1929 Allahabad 353].The observation in Ranganathan’s case [AIR 1955 SC 604] reliedupon is this:

“Section 229 recognises the position of the secured creditorgenerally as outside the winding up but enables him in the eventof his desiring to take the benefit of the winding up proceedingsto prove his debt, to value the same and share in the distributionpro rata of the assets of the company just in the same way ashe would be able to do in the case of insolvency under thePresidency Towns Insolvency Act or the Provincial InsolvencyAct”.

In Hansraj’s case [AIR 1929 Allahabad 353] it was observed:

“…….. I am, therefore, of opinion that the rules contained inany Section of the Provincial Insolvency Act, the rules, if any,made under the Act and any appropriate established rules ofpractice in insolvency proceedings are imported into theCompanies Act, unless there is something in the CompaniesAct itself already providing for the matter in question, or inconflict with the rule which it is proposed to import”.

These observations, in our opinion, do not advance the contentionof Sri Shetty any further. Section 529(1) of the ‘Act’ attracts therules of insolvency to winding-up in relation to “the respectiverights of secured and unsecured creditors” and confines theseRules so attracted to matters that arise between these two classesof creditors. Sections 528 and 529 of the ‘Act’ are in the chapter“Proof and Ranking of Claims” and deal with the question ofproof of debts and the rights of secured and unsecured creditors.Section 529(2) itself, in so far it expressly envisages, and providesfor, the contingency that if a secured-creditor proceeds to realisehis security he should pay the expenses incurred by the Liquidator,by implication, rules out the construction contended for by SriShetty. The words “in winding-up of insolvent company” in Section A

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A529(1) of the ‘Act’ has obvious reference to a post winding-upstage.

The point to note is that this rule of insolvency is attracted towinding-up in the matter of proof of debts. That is after the stageof the winding-up order. A secured creditor is, under Section 439(2)Bof the ‘Act’ as much a creditor entitled to present a winding uppetition as any other. The law in regard to the right of a SecuredCreditor to present a petition for adjudication under the Insolvencylaw is different from the right of a secured creditor to present awinding-up petition……”

CShri Parameshwar took exception to this statement of the law,and referred to Section 441 of the Companies Act, 1956, in particular,sub-section (2) thereof, to state that this judgment has missed the factthat the winding up of a company shall be deemed to commence at thetime of presentation of the petition for winding up, and that, if this is so,the stage at which a secured creditor has to give up his security is at theDstage of the filing of the winding up petition itself. We are afraid that wecannot agree. First and foremost, it is important to notice that underSection 439 of the Companies Act, 1956, a secured creditor’s petitionfor winding up is maintainable without any requirement of it having togive up or relinquish its security. This is in contrast to Section 9(2) of theEProvincial Insolvency Act, 1920, which reads as follows:

“9. Conditions on which creditor may petition.—

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(2) If the petitioning creditor is a secured creditor, he shall in hispetition either state that he is willing to relinquish his security forFthe benefit of the creditors in the event of the debtor being adjudgedinsolvent, or give an estimate of the value of the security. In thelatter case, he may be admitted as a petitioning creditor to theextent of the balance of the debt due to him after deducting thevalue so estimated in the same way as if he were an unsecuredGcreditor.”

What is conspicuous by its absence is a provision akin to Section9(2) of the Provincial Insolvency Act, 1920 in Section 439 of theCompanies Act, 1956. In point of fact, Section 47 of the ProvincialInsolvency Act, 1920 occurs only at the stage where an adjudication H

order has already been passed, which is the stage referred to by Section529 of the Companies Act, 1956. In fact, Section 529(1)(c) of theCompanies Act, 1956 specifically refers to the right of a secured creditorunder the law of insolvency “with respect to the estates of personsadjudged insolvent”. The express language of Section 529(1)(c) of theCompanies Act, 1956 makes it clear that it is Section 47 of the ProvincialInsolvency Act, 1920 alone that is attracted, and not Section 9(2), aswas contended by learned counsel for the appellants before us. We mayalso add that reliance on Section 441(2) of the Companies Act, 1956 ismisplaced for yet another reason. Section 441(2) has to be read withSection 441(1), and so read, makes it clear that it became necessary toenact sub-section (2), because a petition for voluntary winding up of acompany presented before the Tribunal would be said to commence atan anterior point of time, namely, at the time of the passing of the resolutionwhereby the company resolves to voluntarily wind itself up. In contrast,therefore, Section 441(2) says “in any other case”, i.e., in cases otherthan those falling under sub-section (1) of Section 441 of the CompaniesAct, 1956, the winding up of a company by the Tribunal shall be deemedto commence at the time of presentation of the petition for winding up.The context of the provision, therefore, makes it clear that it cannot beread so as to introduce Section 9(2) of the Provincial Insolvency Act,1920 by the back door, as it were, when no such provision is contained inSection 439 of the Companies Act, 1956 itself. The absence, therefore,of any provision akin to Section 9(2) of the Provincial Insolvency Act,1920 in Section 439 of the Companies Act, 1956; the language of Section529(1)(c) of the Companies Act, 1956, which expressly refers only toSection 47 and not to Section 9(2) of the Provincial Insolvency Act,1920; and the context in which Section 441(2) of the Companies Act,1956 appears, namely, to contrast winding up petitions that have beenfiled under the Act with voluntary winding up petitions, all lead to theconclusion that there is no need to revisit the correct statement of thelaw by the learned single Judge of the Karnataka High Court. Indeed,this statement of the law has been followed subsequently by a DivisionBench of the Bombay High court in Asian Power Controls Ltd. v.Bubbles Goyal, (2013) 3 Mah LJ 811 as follows:

“10. Section 529(1) of the Companies Act, 1956, provides that inthe winding up of an insolvent company, the same rules shall prevailand be observed with regard to (a) debts provable; (b) the valuation ABCDEFG

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Aof annuities and future and contingent liabilities; and (c) therespective rights of secured and unsecured creditors; as are inforce for the time being under the law of insolvency with respectto the estates of persons adjudged insolvent. Under sub-section(2) of section 529, all persons who in any such case would beentitled to prove, for and receive dividends out of the assets of theBcompany, may come in under the winding up, and make such claimsagainst the company as they respectively are entitled to make byvirtue of the section. Section 529-A provides an overridingpreferential priority to the dues of the workmen and to the debtsdue to secured creditors to the extent to which such debts rankCpari passu under clause (c) of the proviso to sub-section (1) ofsection 529 with such dues. The rules of insolvency which areattracted to proceedings of winding up are inter alia those pertainingto the proof of debts. This is after the stage of the winding uporder. This principle has been enunciated in a judgment of Mr.Justice M.N. Venkatachaliah (as the learned Chief Justice thenDwas) speaking for a Division Bench of the Karnataka High Courtin Hegde and Golay Limited v. State Bank of India, ILR 1987KAR 2673. The judgment of the Company Judge of this Court inCanfin Homes Ltd. (supra) has also followed the principle thatthe scheme of the provisions relating to winding up, particularlyEthose in sections 528 and 529 would indicate that the stage ofproving a claim of a debt arises after an order of winding up ispassed. In Canffin Homes Ltd., this Court held as follows:—

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“15. The secured creditor who seeks to prove the whole of hisdebt in the course of the proceedings of winding up must beforehe can prove hisdebt relinquish his security for the benefit ofthe general body of the creditors. If he surrenders his securityfor the benefit of the general body of creditors, he may provethe whole of his debt. If the secured creditor has realised hissecurity, he may prove for the balance due to him afterdeducting the net amount that has been realised. The stage forrelinquishing security arises when a secured creditor seeks toprove the whole of his debt in the course of winding up. If, heelects to prove in the course of winding up the whole of thedebt due and owing to him, he has to necessarily surrender hissecurity for the benefit of the general body creditors.”

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(emphasis in original)

Having regard to the position in law as consistently followed inthe judgments of the Madras, Calcutta and Karnataka High Courtsand as reiterated in the judgment of the Company Court in CanfinHomes Ltd., it is not possible to accept the submission which wasurged on behalf of the appellant. The law does not impose anunreasonable condition of requiring a secured creditor to forsakehis security before he asserts a right to urge that a company whichis unable to pay its debts should be wound up. The respondent hasstated before the learned Company Judge, when the petition forwinding up came up for hearing that it was not possible for therespondent to recover her dues by the sale of the land in respectof which a security has been created in favour of the respondent.The claim of the respondent is still to be proved in the course ofthe winding up proceedings. A secured creditor who has amortgage, charge or lien on the property of the company as securityfor her debt may either: (a) enforce the security and prove in thewinding up for the balance of the debt after deducting the amountrealised; or (b) surrender the security to the Liquidator and provefor the whole of the debt as an unsecured creditor; or (c) estimatethe value of the property subject to her security, and prove for thebalance of the debt after deducting the estimated value; or (d)rely on the security and not prove in the winding up proceedings.[Pennington’s Company Law (Fourth edition, page 762)]. Asecured creditor has the option of relinquishing his security and/orproving the entirety of his debt in the course of winding up. If thesecured creditor does so in the course of winding up proceedings,the security will enure for the benefit of the body of creditors. Onthe other hand, it is open to a secured creditor to prove in thecourse of winding up proceedings to the extent of debt which hasnot been realised outside the proceedings for winding up by eitheraccounting for the amount that has been so realised or by estimatingthe value of the property subject to security so as to enable him toprove in respect of the balance of the debt. On either view of thematter, that stage is still to arrive.”

18. In fact, even in Jitendra Nath Singh v. Official Liquidator,(2013) 1 SCC 462, this Court, after referring to Section 47 of theProvincial Insolvency Act, 1920 and Section 529 of the Companies Act,1956, held as follows:

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“16.1. A secured creditor has only a charge over a particularproperty or asset of the company. The secured creditor has theoption to either realise his security or relinquish his security. If thesecured creditor relinquishes his security, like any other unsecuredcreditor, he is entitled to prove the debt due to himand receivedividends out of the assets of the company in the winding-upproceedings. If the secured creditor opts to realise his security, heis entitled to realise his security in a proceeding other than thewinding-up proceeding but has to pay to the liquidator the costs ofpreservation of the security till he realises the security.”

(emphasis supplied)

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“17. In support of our aforesaid conclusions, we may now citesome authorities. In Allahabad Bank v. Canara Bank [(2000) 4SCC 406], a two-Judge Bench of this Court speaking through M.Jagannadha Rao, J. discussed these rights of the secured creditorsin paras 62, 63, 64 and 65 of the judgment as reported in SCC,which are extracted hereinbelow: (SCC pp. 435-36)

“62. Secured creditors fall under two categories. Those whodesire to go before the Company Court and those who like tostand outside the winding up.

63. The first category of secured creditors mentioned aboveare those who go before the Company Court for dividend byrelinquishing their security in accordance with the insolvencyrules mentioned in Section 529. The insolvency rules are thosecontained in Sections 45 to 50 of the Provincial InsolvencyAct. Section 47(2) of that Act states that a secured creditorwho wishes to come before the Official Liquidator has to provehis debt and he can prove his debt only if he relinquishes hissecurity for the benefit of the general body of creditors. In thatevent, he will rank with the unsecured creditors and has totake his dividend as provided in Section 529(2). Till today,Canara Bank has not made it clear whether it wants to comeunder this category.

19. We now come to the argument based on Section 434(1)(b) ofthe Companies Act, 1956. It is obvious that Section 434(1)(b) is attractedonly if execution or other process is issued in respect of an order of aTribunal in favour of a creditor of the company is returned unsatisfied inwhole or in part. This is only one of three instances in which a companyshall be deemed to be unable to pay its debts. If the fact situation fitssub-clause (b) of Section 434(1), then a company may be said to bedeemed to be unable to pay its debts. However, this does not mean thateach one of the sub-clauses of Section 434(1) are mutually exclusive inthe sense that once Section 434(1)(b) applies, Section 434(1)(a) ceasesto be applicable. Also, on the facts of this case, we may state that thecompany petition was filed only on 03.07.2015, pursuant to a notice underSection 433 of the Companies Act, 1956 dated 15.04.2015. This petitionwas filed under Section 433(e) read with Section 434(1)(a) of theCompanies Act, 1956. At the stage at which the petition was filed, itcould not possibly have been filed under Section 434(1)(b) of theCompanies Act, 1956, as execution or other process in the form of arecovery certificate had not been issued by the Recovery Officer till12.08.2015, i.e., till after the company petition was filed. For this reasonalso, it is clear that this contention of the learned counsel appearing forthe appellant must be rejected.

20. We may only end by saying that cases like the present onehave to be decided by balancing the interest of creditors to whom moneyis owing, with a debtor company which will now go in the red since awinding up petition is admitted against it. It is not open for persons likethe appellant to resist a winding up petition which is otherwise maintainablewithout there being any bona fide defence to the same. We may alsohasten to add that the respondent cannot be said to be blowing hot andcold in pursuing a remedy under the Recovery of Debts Act and a windingup proceeding under the Companies Act, 1956 simultaneously. Here, itis important to refer to the judgment of Lord Atkin in Lissenden v.C.A.V. Bosch, Ltd., [1940] 1 All E.R. 425, at 436-437, which says:

“The doctrine of election could have no place in the present case.The applicant is not faced with alternative rights. It is the sameright that he claims, but in larger degree. In Mills v. Duckworth,[1938] 1 All E.R. 318, a plaintiff who had been awarded damagesfor negligence had taken the judgment sum out of a larger sumpaid into Court and had then appealed against the quantum of AB

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Adamages, and was met by a similar objection to his appeal. Greer,L.J., in overruling the objection, pointedly said, at p. 321:

“He [the plaintiff] said: “I am not going to blow hot and cold. Iam going to blow hotter.”

Here the applicant is not faced with a choice between alternativeBrights. He has exercised an undisputed right to compensation, andclaims to have a right to more. One has not lost one’s right to asecond helping because one has taken the first.”

When secured creditors like the respondent are driven from pillar to post to recover what is legitimately due to them, in attempting to availCof more than one remedy at the same time, they do not “blow hot andcold”, but they blow hot and hotter. The appeals are accordingly dismissedwith no order as to costs.

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Appeals dismissed.

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