A. NAVINCHANDRA STEELS PRIVATE LIMITED versus SREI EQUIPMENT FINANCE LIMITED & ORS. on 1 March 2021

[2021] 3 S.C.R. 597

A. NAVINCHANDRA STEELS PRIVATE LIMITED

v.

SREI EQUIPMENT FINANCE LIMITED & ORS.

(Civil Appeal Nos.4230-4234 of 2020)

MARCH 01, 2021

[ROHINTON FALI NARIMAN AND B. R. GAVAI, JJ.]

Insolvency and Bankruptcy Code, 2016 – ss.7, 9 – CompaniesAct, 1956 – ss.391-393, 446 – Companies Act, 2013 – ss.230(1),279, fifth proviso to s.434(1)(c) – Winding up proceedings pending– Petition u/s.7 filed before NCLT – Maintainability of – Held: Apetition either u/s.7 or s.9, IBC is an independent proceedingunaffected by winding up proceedings that may be filed qua thesame company – Any “suppression” of the winding up proceedingwould not be of any effect in deciding a s.7 petition which is to betried on its own merits – Discretionary jurisdiction under the fifthproviso to s.434(1)(c), 2013 Act, cannot prevail over the undoubtedjurisdiction of the NCLT under the IBC once the parameters of s.7and other provisions of the IBC have been met – Plea of appellantthat respondent no.1 suppressed the winding up proceeding in itsapplication u/s.7, IBC before the NCLT is of no avail – Winding uppetition does not trump any subsequent attempt at revival of thecompany through a petition u/s.7 or s.9, IBC – Further, on facts,nothing can be said to have become irretrievable in the sensementioned in paragraph 31 of Action Ispat and Power Pvt. Ltd. v.Shyam Metalics and Energy Ltd. reported as 2020 SCC OnLine SC1025 – Interim order vacated.

Insolvency and Bankruptcy Code, 2016 – Object of vis-à-visCompanies Act – Discussed.

Interpretation of Statutes:

Special Law v. General Law – Discussed – Insolvency andBankruptcy Code, 2016 – Companies Act.

Non-obstante clause – Insolvency and Bankruptcy Code, 2016– s.238 – Held: Non-obstante clause in s.238 makes it even clearerthat in case of conflict, the provisions of the IBC will prevail –Companies Act.

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ADismissing the appeal, the Court

HELD: 1.1 The IBC is a special statute dealing with revivalof companies that are in the red, winding up only being resortedto in case all attempts of revival fail. Vis-à-vis the Companies Act,which is a general statute dealing with companies, includingBcompanies that are in the red, the IBC is not only a special statutewhich must prevail in the event of conflict, but has a non-obstanteclause contained in Section 238, which makes it even clearerthat in case of conflict, the provisions of the IBC will prevail.[Para 14][606-G-H]

CSwiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC17 : [2019] 3 SCR 535; Allahabad Bank v. CanaraBank, (2000) 4 SCC 406 : [2000] 2 SCR 1102;Bakemans Industries (P) Ltd. v. New Cawnpore FlourMills, (2008) 15 SCC 1 : [2008] 9 SCR 705; MadrasPetrochem Ltd. v. BIFR, (2016) 4 SCC 1 : [2016] 11DSCR 419 – relied on.

1.2 A petition either under Section 7 or Section 9 of theIBC is an independent proceeding which is unaffected by windingup proceedings that may be filed qua the same company. Giventhe object sought to be achieved by the IBC, it is clear that onlyEwhere a company in winding up is near corporate death that notransfer of the winding up proceeding would then take place tothe NCLT to be tried as a proceeding under the IBC. Short of anirresistible conclusion that corporate death is inevitable, everyeffort should be made to resuscitate the corporate debtor in theFlarger public interest, which includes not only the workmen ofthe corporate debtor, but also its creditors and the goods itproduces in the larger interest of the economy of the country. Itis, thus, not possible to accede to the argument on behalf of theAppellant (an operational creditor of Respondent No.2, thecompany under winding up) that given Section 446 of theGCompanies Act, 1956 / Section 279 of the Companies Act, 2013,once a winding up petition is admitted, the winding up petitionshould trump any subsequent attempt at revival of the companythrough a Section 7 or Section 9 petition filed under the IBC.While it is true that Sections 391 to 393 of the Companies Act,1956 may, in a given factual circumstance, be availed of to pullH

the company out of the red, Section 230(1) of the CompaniesAct, 2013 is instructive. What is clear by this Section is that acompromise or arrangement can also be entered into in an IBCproceeding if liquidation is ordered. However, what is ofimportance is that under the Companies Act, it is only windingup that can be ordered, whereas under the IBC, the primaryemphasis is on revival of the corporate debtor through infusionof a new management. On facts also, in the present case,nothing can be said to have become irretrievable in the sensementioned in paragraph 31 of Action Ispat. [Paras 23, 24][617-D-G; 618-D-F]

Jaipur Metals & Electricals Employees Organization v.Jaipur Metals & Electricals Ltd., (2019) 4 SCC 227 :[2018] 14 SCR 926; Duncans Industries Ltd. v. AJAgrochem, (2019) 9 SCC 725 : [2019] 12 SCR 830;Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC407 : [2017] 8 SCR 33; Kaledonia Jute and Fibres Pvt.Ltd. v. Axis Nirman and Industries Ltd., 2020 SCCOnLine SC 943; Forech (India) Ltd. v. Edelweiss AssetsReconstruction Co. Ltd. (2019) 18 SCC 549 – reliedon.

Action Ispat and Power Pvt. Ltd. v. Shyam Metalics andEnergy Ltd., 2020 SCC OnLine SC 1025 – referredto.

1.3 A secured creditor stands outside the winding up andcan realise its security dehors winding up proceedings. Indiabulls,a secured creditor of the corporate debtor, viz. Respondent No.2has in enforcement of its debt by a mortgage, sold the mortgagedproperty outside the winding up. The aforesaid sale is the subjectmatter of proceedings in the Bombay High Court filed by theprovisional liquidator. If the aforesaid sale is set aside, the assetof respondent No.2 that has been sold will come back to theprovisional liquidator for the purposes of winding up. If the saleis upheld, equally, there are other assets of respondent No.2which continue to be in the hands of the provisional liquidator forthe purposes of winding up. On the facts of this case, though noapplication for transfer of the winding up proceeding pending inthe High Court has been filed, the High Court has itself, by theorders dated 28.11.2019 and 23.01.2020, directed the provisional AB

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Aliquidator to hand over the records and assets of respondent no.2to the interim resolution professional (IRP) in the Section 7proceeding that is pending before the NCLT. This has not yetbeen done as the IRP has not yet been able to pay the requisiteamount to the provisional liquidator for his expenses.[Paras 25, 26][618-F; 620-C-F]BM.K. Ranganathan v. Govt. of Madras, [1955] 2 SCR374 – relied on.

Central Bank of India v. Elmot Engineering Co., (1994)4 SCC 159 : [1994] 3 SCR 766; Industrial Credit andCInvestment Corpn. of India Ltd. v. Srinivas Agencies,(1996) 4 SCC 165 : [1996] 2 SCR 960; Board ofTrustees, Port of Mumbai v. Indian Oil Corpn., (1998)4 SCC 302 : [1998] 2 SCR 774 – referred to.

1.4 Section 7 is an independent proceeding which has to beDtried on its own merits. Any “suppression” of the winding upproceeding would, therefore, not be of any effect in deciding apetition on the basis of the provisions contained in the IBC.Equally, it cannot be said that any subterfuge has been availed offor the same reason that Section 7 is an independent proceedingthat stands by itself. A discretionary jurisdiction under the fifthEproviso to Section 434(1)(c) of the Companies Act, 2013 cannotprevail over the undoubted jurisdiction of the NCLT under theIBC once the parameters of Section 7 and other provisions ofthe IBC have been met. The interim order passed by this Courton 18.12.2020 stands vacated. [Para 27][621-A-B]

FCase Law Reference

A. NAVINCHANDRA STEELS PRIVATE LIMITED v. SREIEQUIPMENT FINANCE LIMITED

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 4230-4234 of 2020.

From the Judgment and Order dated 07.02.2020 and 21.09.2020of the National Company Law Appellant Tribunal, New Delhi inCompany Appeal (AT) (Insolvency) No. 1434 of 2019 and I.A Nos.811/2020, 917/2020, 962/2020 and 1587 of 2020.

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Dr. Abhishek Manu Singhvi, Mr. Ranjit Kumar, Sr. Advs., ArvindKumar Gupta, Amit Bhandari, Ms. Henna George, Ms. Shivani Sharma,Ravindra Sadanand Chingale, Advs.for the Appellant.

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Gopal Jain, Shyam Divan, Sr. Advs., Abhijeet Sinha, ArijitMazumdar, Shambo Nandy, Ms. Akanksha Kaushik, Manan Shishodia,Snehasish Mukherjee, Anirudh Sanganeria, Santosh Kumar Ray, Ms.Rituparna Sanyal, Saswata Ganguly, Gaurav Kejriwal, Aditya Kanoria,Ankit Kohli, Pankaj Singal, Dhaval Vussonji, Rubin Vakil, Ms. SonamMhatre, Ms. Saloni Sulakhe, Ms. Kritya Sinha, Saurabh Chaudhary, Ms.Anne Mathew, Advs. for the Respondents.

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The Judgment of the Court was delivered by

R. F. NARIMAN, J.

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1. This appeal arises out of the judgment dated 07.02.2020, ascorrected by order dated 21.09.2020, by the National Company LawAppellate Tribunal [“NCLAT”]. The Appellant is an operational creditorof Respondent No.2 herein – M/s. Shree Ram Urban InfrastructureLimited[“SRUIL”], the company under winding up – and has a decreedated 07.10.2015 in its favour passed by the Bombay High Court inSummary Suit No.626 of 2014. Vide order dated 06.10.2016, the DivisionBench stayed the order dated 07.10.2015 and directed SRUIL to depositINR14 crore with the Prothonotary and Senior Master of the High Courtor furnish a bank guarantee for the same, failing which the stay orderwould get vacated. The said appeal is pending as on date. We are also G

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Ainformed that an execution application, being Execution Application (L)No.934 of 2016 was filed by the Appellant before the Bombay HighCourt and the same is also pending as on date.

2. Sometime in 2015, the Appellant had filed a winding up petition,being Company Petition No.1039 of 2015 against SRUIL before theBBombay High Court, the same being pending as on date.

3. A winding up petition, being Company Petition No.1066/2015filed by Respondent No.3 herein, M/s Action Barter Pvt. Ltd. [“ActionBarter”] against SRUIL, by a conditional order dated 05.10.2016, stoodadmitted on the failure of SRUIL to deposit INR 5.90 crore. The appealCinstituted by SRUIL against this order was dismissed by the DivisionBench of the High Court on 17.01.2017, whereas the appeal institutedby Action Barter was allowed vide the same order and the amount to bedeposited by SRUIL was enhanced from INR 5.90 crore to INR 18crore. Vide order dated 27.02.2017, this Court disposed of SLP(C)No.5849/2017 filed by SRUIL, after recording a statement by the counselDfor SRUIL that SRUIL would deposit INR three crore the same day,and the balance of INR 15 crore within six months from the date of theorder. The parties then filed consent terms before the Single Judge ofthe Bombay High Court on 22.03.2017, wherein Action Barter agreedto accept a sum of INR 15 crore, payable in instalments. Apart from theEpayment of the first instalment of INR 25 lakh, no further instalmentwas paid, as a result of which the winding up petition stood revived on24.08.2017.On 17.04.2018, the provisional liquidator took over thephysical possession of the assets of SRUIL.

4. While this winding up petition was pending, Indiabulls HousingFFinance Ltd. [“Indiabulls”], a secured creditor of SRUIL, filed a petitionunder Section 7 of the Insolvency and Bankruptcy Code, 2016 [“IBC”]before the National Company Law Tribunal [“NCLT”], which wasdismissed by the NCLT vide order dated 18.05.2018 as being notmaintainable as a winding up petition had already been admitted by theBombay High Court. An appeal to the NCLAT suffered a similar fate asGthe appeal was dismissed on 30.05.2018. However, on 06.08.2018, theSupreme Court admitted a Civil Appeal from the NCLAT order, whichis pending as on date.

5. An application filed by Indiabulls for the following relief:

“The Hon’ble Court be pleased to direct the Provisional Liquidatorto handover physical possession of the said Mortgaged Propertyi.e. all the pieces and parcels of land bearing C.S. Nos. 288, 289(part), 1/1540 (part), 2/1540(part) and 3/1540 (part), collectivelyforming Plot Nos.5B and 6 admeasuring approximately 28,409.57square meters situated at Worli Estate, Lower ParelDivision,Mumbai to the Secured Creditor herein, in accordance withandpursuant to the provisions of the Companies Act, 1956 and theSecuritisation and Reconstruction of Financial Assets andEnforcement of Security InterestAct, 2002 …”

resulted in an order dated 07.02.2019 by which the learnedCompany Judge allowed the aforesaid application in favour of Indiabulls.Indiabulls isa secured creditor who stood outside the winding up, andwho sought to realise its security outside such winding up proceeding,notices having already been issued under Sections 13(2) and 13(4) ofthe Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 [“SARFAESI Act”]. TheCourt referred to an order of 12.04.2018, by which the provisionalliquidator was to take physical possession of the assets of SRUIL withinone week of the date of that order. Importantly, paragraph 2 of the saidorder stated:

“2. Ms. Maitra states that the secured creditors have alreadycommenced proceedings under SARFAESI against the company.As and when the banks may take out an application for bankssubmissions to hand over that part of the assets secured to thebank, appropriate orders will be passed.”

6. This being the case, the learned Company Judge allowed theapplication in the following terms:

“13. For the reasons aforesaid, the present Application is allowed.The Provisional Liquidator is directed to forthwith handoverpossession of the Mortgaged Property to the Applicant. However,the Applicant shall conduct the sale of the property in consultationwith the Official Liquidator. The Applicant shall also deposit thesale proceeds or part thereof with this Court as and when theCourt directs the Applicant to do so, for the purpose of makingpayments to workers as prescribed in section 529A of theCompanies Act, 1956.”

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A7. As per the aforesaid order dated 07.02.2019, the provisionalliquidator handed over possession of the property mortgaged withIndiabulls to Indiabulls, who then conducted a sale of the said propertyto M/s. Honest Shelters Pvt. Ltd. [“HonestShelters”], RespondentNo.4 herein, for a sum of INR 705 crore, in which not only was themortgaged property sold, but also the superstructure standing thereon,Btogether with two other flats. We have since been informed that threesale certificates were issued to Honest Shelters on 26.06.2019 byIndiabulls on receiving the said payment of INR 705 crore. We havealso been informed that the ex-Directors of SRUIL had challenged theaforesaid sale in the Debt Recovery Tribunal and the Debt RecoveryCAppellate Tribunal unsuccessfully. The provisional liquidator has alsochallenged the said sale in the Bombay High Court, alleging that theconditions of the order dated 07.02.2019 were flouted, and that whatwas sold was much more than what was mortgaged to the securedcreditor, and that too at a gross undervalue. We are informed that thenext date in these pending proceedings is 23.03.2021.D

8. Meanwhile, Respondent No.1 before us, i.e., SREI EquipmentFinance Limited [“SREI”] filed a petition under Section 7 of the IBCbefore the NCLT, which petition was admitted by the NCLT on06.11.2019. An appeal was then filed by Action Barter against theaforesaid NCLT order in which, after setting out this Court’s judgmentEin Forech (India) Ltd. v. Edelweiss Assets Reconstruction Co.Ltd., (2019) 18 SCC 549 [“Forech”], the NCLAT dismissed the appealwith the following observations:

“5. The case of the Appellant is covered by the decision of theHon’ble Supreme Court in Forech India Ltd (supra), therefore,Fwe hold that the Application under Section 7 of the I&B Codefiled by the Respondent – SREI Equipment Finance Limited isnot maintainable. In so far as pending winding up petition beforethe Hon’ble Bombay High Court is concerned, the Appellant interms of the decision of the Hon’ble Supreme Court in ForechGIndia Ltd (supra) may move before the Hon’ble High Court ofBombay.

The Appeal is dismissed with the aforesaid observations. No costs.”

9. By an order dated 21.09.2020, the NCLAT corrected the orderby deleting the word “not” that occurred in paragraph 5 of the orderHdated 07.02.2020.

10. An appeal was then filed to this Court by Action Barter on08.10.2020, in which this Court, by order dated 27.10.2020, issued noticeand directed the parties to maintain status quo qua the mortgaged propertyand also stayed further proceedings before the NCLAT. An appeal wasalso filed by the Appellanton 09.12.2020, in which this Court, by orderdated 18.12.2020, issued notice and stayed further proceedings beforethe NCLTand tagged the appeal with the appeal filed by Action Barter.

11. We have been informed that pursuant to a settlement betweenAction Barter and the purchaser of the mortgaged property, i.e., HonestShelters, Action Barter has now withdrawn its appeal that was filedbefore this Court. Thus, the only surviving appeal before us is Civil AppealNos.4230-4234 of 2020, filed by A. Navinchandra Steels Pvt. Ltd.

12. Dr. Abhishek Manu Singhvi and Shri Ranjit Kumar, learnedSenior Advocates appearing on behalf of the Appellant, argued that inview of the judgment in Action Ispat and Power Pvt. Ltd. v. ShyamMetalics and Energy Ltd., 2020 SCC OnLine SC 1025 [“ActionIspat”], this matter is concluded in their favour in asmuch as irreversiblesteps have been taken in a winding up petition that has already beenadmitted by the Bombay High Court in that the plot on which a 72-storey building stands, has now been sold, as a result of which it is nowclear that the Section 7 petition that was filed by SREI on 30.05.2019under the IBC, would have to be held to be non-maintainable. They alsoargued that the effect of Section 446 of the Companies Act, 1956 (whichis equivalent to Section 279 of the Companies Act, 2013) is that no suitor other legal proceeding can be initiated once there is admission of awinding up petition. This being the case, post admission of a winding uppetition, no petition under Section 7 of the IBC can be filed. They alsoargued that it is a misnomer to think that winding up proceedings mustresult in corporate death. On the contrary, according to them, Sections391 to 393 of the Companies Act, 1956 would apply if the companywere to be restructured, as a result of which the winding up court couldthen stay the winding up and order restructuring. The learned counselhave also argued that there are gross malafides in the present case asSREI was not only aware of the winding up petition before the BombayHigh Court, but has also participated in the winding up proceeding andfiled its claim before the provisional liquidator. All this has been suppressedin the petition filed under Section 7 of the IBC. Further, the only routeavailable to SREI was really to ask for transfer of the company petition AB

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Ain winding up from the Bombay High Court to the NCLT, which routehas been circumvented by filing a Section 7 petition and suppressing thewinding up proceeding.

13. Shri Abhijeet Sinha, learned counsel appearing on behalf ofSREI, took us through various judgments of this Court, including theBlatest judgment in Action Ispat (supra). According to him, a Section 7proceeding under the IBC is an independent proceeding, which can beinitiated at any time, even after a winding up order is made. He arguedthat this was a result of our decisions and that Section 238 of the IBC,which contains a non-obstante clause, clearly comes to his rescue as, ifthere is any conflict between Section 446 of the Companies Act, 1956 /CSection 279 of the Companies Act, 2013 and the IBC, the IBC willprevail. According to him, this point is no longer resintegra. He alsoargued, in the alternative, that there are no irretrievable steps that havebeen taken in the winding up proceeding in the present case, as theprovisional liquidator continues to be seized of other assets of SRUIL.DHe further argued that a private sale by a secured creditor outside thewindingup is not the irretrievable step that is spoken of in Action Ispat(supra), such step having to be taken by the provisional liquidator himselfin selling the assets of the company in the process of winding up thecompany. He also added that, on facts, two orders dated 28.11.2019 and20.01.2020 of the Bombay High Court would indicate that the CompanyECourt itself had directed the provisional liquidator to hand over the recordsand assets of SRUIL to the interim resolution professional [“IRP”] thathad been appointed in the Section 7 proceeding. Doubtless, such assetshad not been handed over because they were only to the handed overtwo weeks after certain payments had been made by the IRP to theFprovisional liquidator, which payments have not yet been made.

14. Having heard learned counsel for all the parties, it is importantto restate a few fundamentals. Given the object of the IBC as delineatedin paragraphs 25 to 28 of Swiss Ribbons (P) Ltd. v. Union of India,(2019) 4 SCC 17 [“Swiss Ribbons”], it is clear that the IBC is a specialstatute dealing with revival of companies that are in the red, winding upGonly being resorted to in case all attempts of revival fail. Vis-à-vis theCompanies Act, which is a general statute dealing with companies,including companies that are in the red, the IBC is not only a specialstatute which must prevail in the event of conflict, but has a non-obstanteclause contained in Section 238, which makes it even clearer that inHcase of conflict, the provisions of the IBC will prevail.

15. In Allahabad Bank v. Canara Bank, (2000) 4 SCC 406, thisCourt had to deal with whether the Recovery of Debts Due to Banksand Financial Institutions Act, 1993 [“RDB Act”] was a special statutequa the Companies Act, 1956. This Court held that the Companies Actis a general Act and does not prevail against the RDB Act, which was alater Act and which has a non-obstante clause that clearly excludes theprovisions of the Companies Act in case of conflict. This was stated bythe Court as follows:

“Special law v. general law

38. At the same time, some High Courts have rightly held thatthe Companies Act is a general Act and does not prevail underthe RDB Act. They have relied upon Union of India v. IndiaFisheries (P) Ltd. [AIR 1966 SC 35 : (1965) 3 SCR 679 : (1965)57 ITR 331].

39. There can be a situation in law where the same statute istreated as a special statute vis-à-vis one legislation and again as ageneral statute vis-à-vis yet another legislation. Such situationsdo arise as held in LIC of India v. D.J. Bahadur[(1981) 1 SCC315 : 1981 SCC (L&S) 111 : AIR 1980 SC 2181]. It was thereobserved:

“… for certain cases, an Act may be general and for certainother purposes, it may be special and the court cannot blur adistinction when dealing with the finer points of law”.

For example, a Rent Control Act may be a special statute ascompared to the Code of Civil Procedure. But vis-à-vis an Actpermitting eviction from public premises or some special class ofbuildings, the Rent Control Act may be a general statute. In factin Damji Valji Shahv.LIC of India[AIR 1966 SC 135 : (1965) 3SCR 665] (already referred to), this Court has observed that vis-à-vis the LIC Act, 1956, the Companies Act, 1956 can be treatedas a general statute. This is clear from para 19 of that judgment.It was observed:

“Further, the provisions of the special Act, i.e., the LIC Act, willoverride the provisions of the general Act, viz., the CompaniesAct which is an Act relating to companies in general.”

(emphasis in original)

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Thus, some High Courts rightly treated the Companies Act as ageneral statute, and the RDB Act as a special statute overridingthe general statute.

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Special law v. special law

40. Alternatively, the Companies Act, 1956 and the RDB Act canBboth be treated as special laws, and the principle that when thereare two special laws, the latter will normally prevail over the formerif there is a provision in the latter special Act giving it overridingeffect, can also be applied. Such a provision is there in the RDBAct, namely, Section 34. A similar situation arose in MaharashtraCTubes Ltd. v. State Industrial and Investment Corpn. ofMaharashtra Ltd. [(1993) 2 SCC 144] where there wasinconsistency between two special laws, the Finance CorporationAct, 1951 and the Sick Industries Companies (Special Provisions)Act, 1985. The latter contained Section 32 which gave overridingeffect to its provisions and was held to prevail over the former. ItDwas pointed out by Ahmadi, J. that both special statutes containednon obstante clauses but that the

“1985 Act being a subsequent enactment, the non obstanteclause therein would ordinarily prevail over the non obstanteclause in Section 46-B of the 1951 Act unless it is found thatthe 1985 Act is a general statute and the 1951 Act is a specialone”. (SCC p. 157, para 9)

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Therefore, in view of Section 34 of the RDB Act, the said Actoverrides the Companies Act, to the extent there is anythinginconsistent between the Acts.”

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16. Likewise, in Bakemans Industries (P) Ltd. v. NewCawnpore Flour Mills, (2008) 15 SCC 1, this Court, in the context ofthe State Financial Corporations Act, 1951 [“SFC Act”] and theCompanies Act, 1956, held that though the SFC Act was an earlier Actof 1951, yet, it would prevail over the winding up proceedings before aCompany Judge, given that the SFC Act is a special statute qua thegeneral powers of the Company Judge under the Companies Act. Thiswas stated as follows:

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“37. The 1951 Act indisputably is a special statute. If a financialcorporation intends to exercise a statutory power under Section H

29 of the 1951 Act, the same will prevail over the general powersof the Company Judge under the Companies Act.

38. There cannot be any doubt whatsoever that the proceedingsunder Section 29 of the 1951 Act would prevail over a winding-upproceeding before a Company Judge in view of the decision ofthis Court in International Coach Builders Ltd. v. KarnatakaState Financial Corpn. [(2003) 10 SCC 482] wherein it has beenheld: (SCC p. 496, para 26)

“26. We do not really see a conflict between Section 29 of theSFC Act and the Companies Act at all, since the rights underSection 29 were not intended to operate in the situation ofwinding up of a company. Even assuming to the contrary, if aconflict arises, then we respectfully reiterate the view takenby the Division Bench of this Court in A.P. State FinancialCorpn. Case[A.P. State Financial Corpn. v. OfficialLiquidator, (2000) 7 SCC 291]. This Court pointed out thereinthat Section 29 of the SFC Act cannot override the provisionsof Sections 529(1) and 529-A of the Companies Act, 1956,inasmuch as SFCs cannot exercise the right under Section 29ignoring a pari passu charge of the workmen.”

The view taken therein was reiterated by a three-Judge Bench ofthis Court in Rajasthan State Financial Corpn. v. OfficialLiquidator[(2005) 8 SCC 190] wherein it was stated: (SCC pp.201-02, para 18)

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

(i) A Debts Recovery Tribunal acting under the Recovery ofDebts Due to Banks and Financial Institutions Act, 1993 wouldbe entitled to order the sale and to sell the properties of thedebtor, even if a company-in-liquidation, through its RecoveryOfficer but only after notice to the Official Liquidator or theLiquidator appointed by the Company Court and after hearinghim.

(ii) A District Court entertaining an application under Section31 of the SFC Act will have the power to order sale of theassets of a borrower company-in-liquidation, but only after A

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notice to the Official Liquidator or the Liquidator appointed bythe Company Court 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 adebtor company-in-liquidation, the said power could beexercised by it only after obtaining the appropriate permissionfrom the Company Court and acting in terms of the directionsissued by that court as regards associating the OfficialLiquidator with the sale, the fixing of the upset price or thereserve price, confirmation of the sale, holding of the saleproceeds and the distribution thereof among the creditors interms of Section 529-A and Section 529 of the CompaniesAct.

(iv) In a case where proceedings under the Recovery of DebtsDue to Banks and Financial Institutions Act, 1993 or the SFCAct are not set in motion, the creditor concerned is to approachthe Company Court for appropriate directions regarding therealisation of its securities consistent with the relevant provisionsof the Companies Act regarding distribution of the assets ofthe company-in-liquidation.”

(See also ICICI Bank Ltd. v. SIDCO Leathers Ltd. [(2006) 10SCC 452 : (2006) 5 Scale 27])”

17. In Madras Petrochem Ltd. v. BIFR, (2016) 4 SCC 1, thisCourt had to deal with whether a predecessor statute to the IBC, whichhas been repealed by the IBC, namely, the Sick Industrial Companies(Special Provisions) Act, 1985, prevails over the SARFAESI Act to theextent of inconsistency therewith. This Court noted that in the case oftwo statutes which contain non-obstante clauses, the laterAct will normallyprevail, holding:

“36. A conspectus of the aforesaid decisions shows that the SickIndustrial Companies (Special Provisions) Act, 1985 prevails inall situations where there are earlier enactments with non obstanteclauses similar to the Sick Industrial Companies (SpecialProvisions) Act, 1985. Where there are later enactments withsimilar non obstante clauses, the Sick Industrial Companies (SpecialProvisions) Act, 1985 has been held to prevail only in a situationwhere the reach of the non obstante clause in the later Act is limited—such as in the case of the Arbitration and ConciliationAct, 1996—or in the case of the later Act expressly yielding tothe Sick Industrial Companies (Special Provisions) Act, 1985, asin the case of the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993. Where such is not the case, as in the caseof Special Courts Act, 1992, it is the Special Courts Act, 1992which was held to prevail over the Sick Industrial Companies(Special Provisions) Act, 1985.

37. We have now to undertake an analysis of the Acts in question.The first thing to be noticed is the difference between Section 37of the Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 and Section 34 of theRecovery of Debts Due to Banks and Financial Institutions Act,1993. Section 37 of the Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002does not include the Sick Industrial Companies (Special Provisions)Act, 1985 unlike Section 34(2) of the Recovery of Debts Due toBanks and Financial Institutions Act, 1993. Section 37 of theSecurities and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 states that the saidAct shall be in addition to and not in derogation of four Acts,namely, the Companies Act, the Securities Contracts (Regulation)Act, 1956, the Securities and Exchange Board of India Act, 1992and the Recovery of Debts Due to Banks and Financial InstitutionsAct, 1993. It is clear that the first three Acts deal with securitiesgenerally and the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993 deals with recovery of debts due to banksand financial institutions. Interestingly, Section 41 of theSecuritisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002 makes amendmentsin three Acts—the Companies Act, the Securities Contracts(Regulation) Act, 1956, and the Sick Industrial Companies (SpecialProvisions) Act, 1985. It is of great significance that only the firsttwo Acts are included in Section 37 and not the third i.e. the SickIndustrial Companies (Special Provisions) Act, 1985. This is forthe obvious reason that the framers of the Securitisation andReconstruction of Financial Assets and Enforcement of SecurityInterest Act, 2002 intended that the Sick Industrial Companies(Special Provisions) Act, 1985 be covered by the non obstante A

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Aclause contained in Section 35, and not by the exception theretocarved out by Section 37. Further, whereas the Recovery of DebtsDue to Banks and Financial Institutions Act, 1993 is expresslymentioned in Section 37, the Sick Industrial Companies (SpecialProvisions) Act, 1985 is not, making the above position furtherclear. And this is in stark contrast, as has been stated above, toBSection 34(2) of the Recovery of Debts Due to Banks andFinancial Institutions Act, 1993, which expressly included the SickIndustrial Companies (Special Provisions) Act, 1985. The newlegislative scheme qua recovery of debts contained in theSecuritisation and Reconstruction of Financial Assets andCEnforcement of Security Interest Act, 2002 has, therefore, to begiven precedence over the Sick Industrial Companies (SpecialProvisions) Act, 1985, unlike the old scheme for recovery of debtscontained in the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993.”

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D18. Indeed, this position has been echoed in several judgments ofthis Court. In Jaipur Metals & Electricals Employees Organizationv. Jaipur Metals & Electricals Ltd., (2019) 4 SCC 227 [“JaipurMetals”], this Court, in dealing with whether proceedings under theSick Industrial Companies (Special Provisions) Act, 1985 were to betransferred to the NCLT under the IBC, held:E

“19. However, this does not end the matter. It is clear thatRespondent 3 has filed a Section 7 application under the Code on11-1-2018, on which an order has been passed admitting suchapplication by NCLT on 13-4-2018. This proceeding is anindependent proceeding which has nothing to do with the transferFof pending winding-up proceedings before the High Court. It wasopen for Respondent 3 at any time before a winding-up order ispassed to apply under Section 7 of the Code. This is clear from areading of Section 7 together with Section 238 of the Code whichreads as follows:

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“238. Provisions of this Code to override other laws.—Theprovisions of this Code shall have effect, notwithstandinganything inconsistent therewith contained in any other law forthe time being in force or any instrument having effect by virtueof any such law.”

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20. Shri Dave’s ingenious argument that since Section 434 of theCompanies Act, 2013 is amended by the Eleventh Schedule to theCode, the amended Section 434 must be read as being part of theCode and not the Companies Act, 2013, must be rejected for thereason that though Section 434 of the Companies Act, 2013 issubstituted by the Eleventh Schedule to the Code, yet Section434, as substituted, appears only in the Companies Act, 2013 andis part and parcel of that Act. This being so, if there is anyinconsistency between Section 434 as substituted and the provisionsof the Code, the latter must prevail. We are of the view that NCLTwas absolutely correct in applying Section 238 of the Code to anindependent proceeding instituted by a secured financial creditor,namely, the Alchemist Asset Reconstruction Company Ltd. Thisbeing the case, it is difficult to comprehend how the High Courtcould have held that the proceedings before NCLT were withoutjurisdiction. On this score, therefore, the High Court judgmenthas to be set aside. NCLT proceedings will now continue fromthe stage at which they have been left off. Obviously, the companypetition pending before the High Court cannot be proceeded withfurther in view of Section 238 of the Code. The writ petitions thatare pending before the High Court have also to be disposed of inlight of the fact that proceedings under the Code must run theirentire course. We, therefore, allow the appeal and set aside theHigh Court’s judgment [Jaipur Metals and Electricals Ltd., Inre, 2018 SCC OnLine Raj 1472].”

19. Likewise, in Forech (supra),in a situation in which notice hadbeen issued in a winding up petition and the said petition was ordered tobe transferred to the NCLT,to be treated as a proceeding under theIBC, this Court clearly held:

“22. This section is of limited application and only bars a corporatedebtor from initiating a petition under Section 10 of the Code inrespect of whom a liquidation order has been made. From areading of this section, it does not follow that until a liquidationorder has been made against the corporate debtor, an insolvencypetition may be filed under Section 7 or Section 9 as the case maybe, as has been held by the Appellate Tribunal. Hence, anyreference to Section 11 in the context of the problem before us iswholly irrelevant. However, we decline to interfere with the ABC

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Aultimate order passed by the Appellate Tribunal because it is clearthat the financial creditor’s application which has been admittedby the Tribunal is clearly an independent proceeding which mustbe decided in accordance with the provisions of the Code.”

20. In Duncans Industries Ltd. v. AJ Agrochem, (2019) 9BSCC 725, this Court was faced with a situation of conflict betweenSection 16-G(1)(c) of the Tea Act, 1953, under which winding up/liquidation proceedings were to take place (and which could not takeplace without prior consent of the Central Government), and aproceedinginitiated under Section 9 of the IBC. After relying upon the judgment ofthis Court in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1CSCC 407 and Swiss Ribbons (supra), this Court held:

“7.4. Section 16-G(1)(c) refers to the proceeding for winding upof such company or for the appointment of receiver in respectthereof. Therefore, as such, the proceedings under Section 9 IBCshall not be limited and/or restricted to winding up and/orDappointment of receiver only. The winding up/liquidation of thecompany shall be the last resort and only on an eventuality whenthe corporate insolvency resolution process fails. As observed bythis Court in Swiss Ribbons (P) Ltd.[Swiss Ribbons (P)Ltd. v. Union of India, (2019) 4 SCC 17 : AIR 2019 SC 739],Ereferred to hereinabove, the primary focus of the legislation whileenacting IBC is to ensure revival and continuation of the corporatedebtor by protecting the corporate debtor from its ownmanagement and from a corporate debt by liquidation and suchcorporate insolvency resolution process is to be completed in atime-bound manner. Therefore, the entire “corporate insolvencyFresolution process” as such cannot be equated with “winding upproceedings”. Therefore, considering Section 238 IBC, which isa subsequent Act to the Tea Act, 1953, shall be applicable and theprovisions of IBC shall have an overriding effect over the TeaAct, 1953. Any other view would frustrate the object and purposeGof IBC. If the submission on behalf of the appellant that beforeinitiation of proceedings under Section 9 IBC, the consent of theCentral Government as provided under Section 16-G(1)(c) of theTea Act is to be obtained, in that case, the main object and purposeof IBC, namely, to complete the “corporate insolvency resolutionprocess” in a time-bound manner, shall be frustrated. The sum H

and substance of the above discussion would be that the provisionsof IBC would have an overriding effect over the Tea Act, 1953and that no prior consent of the Central Government before initiationof the proceedings under Section 7 or Section 9 IBC would berequired and even without such consent of the Central Government,the insolvency proceedings under Section 7 or Section 9 IBCinitiated by the operational creditor shall be maintainable.”

21. In Kaledonia Jute and Fibres Pvt. Ltd. v. Axis Nirmanand Industries Ltd., 2020 SCC OnLine SC 943 [“Kaledonia”], thisCourt decided as to whether a winding up proceeding in the CompanyCourt could be transferred despite the fact that the winding up order hadbeen passed and then been kept in abeyance. This Court, in paragraph27, held:

“27. Apart from providing for the transfer of certain types ofwinding up proceedings by operation of law, Section 434(1)(c)also gives a choice to the parties to those proceedings to seek atransfer of such proceedings to the NCLT. This is under the fifthproviso to Clause (c).”

The Court then went on to hold that in a winding up proceedingthat has been admitted, since all creditors would be parties to suchproceeding in rem, a secured creditor being such a party could, therefore,move the Company Court under the fifth proviso to Section 434(1)(c) ofthe Companies Act, 2013 to transfer the aforesaid proceeding to theNCLT to be tried as a proceeding under Section 7 or Section 9, as thecase may be.

22. In Action Ispat (supra), this Court was faced with aproceeding in which a winding up petition had been admitted by the HighCourt and then transferred to the NCLT to be tried as a proceedingunder the IBC. After referring to the judgments in Jaipur Metals (supra),Forech (supra), and Kaledonia (supra), and after setting out variousSections dealing with winding up of companies under the CompaniesAct, 2013, this Court then held:

“20. What becomes clear upon a reading of the three judgmentsof this Court is the following:

(i) So far as transfer of winding up proceedings is concerned, theCode began tentatively by leaving proceedings relating to winding AB

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up of companies to be transferred to NCLT at a stage as may beprescribed by the Central Government.

(ii) This was done by the Transfer Rules, 2016 [Companies(Transfer of Pending Proceedings) Rules, 2016] which came intoforce with effect from 15.12.2016. Rules 5 and 6 referred to threetypes of proceedings. Only those proceedings which are at thestage of pre-service of notice of the winding up petition standcompulsorily transferred to the NCLT.

(iii) The result therefore was that post notice and pre admissionof winding up petitions, parallel proceedings would continue underboth statutes, leading to a most unsatisfactory state of affairs.This led to the introduction of the 5[th] proviso to section 434(1)(c)which, as has been correctly pointed out in Kaledonia[KaledoniaJute & Fibres Pvt. Ltd. v. Axis Nirman & Industries Ltd., 2020SCC OnLine SC 943], is not restricted to any particular stage ofa winding up proceeding.

(iv) Therefore, what follows as a matter of law is that even postadmission of a winding up petition, and after the appointment of aCompany Liquidator to take over the assets of a company soughtto be wound up, discretion is vested in the Company Court totransfer such petition to the NCLT. The question that arises beforeus in this case is how is such discretion to be exercised?”

xxx xxx xxx

“31. Given the aforesaid scheme of winding up under ChapterXX of the Companies Act, 2013, it is clear that several stages arecontemplated, with the Tribunal retaining the power to control theproceedings in a winding up petition even after it is admitted. Thus,in a winding up proceeding where the petition has not been servedin terms of Rule 26 of the Companies (Court) Rules, 1959 at apre-admission stage, given the beneficial result of the applicationof the Code, such winding up proceeding is compulsorilytransferable to the NCLT to be resolved under the Code. Evenpost issue of notice and pre admission, the same result wouldensue. However, post admission of a winding up petition and afterthe assets of the company sought to be wound up becomein custodia legis and are taken over by the Company Liquidator,section 290 of the Companies Act, 2013 would indicate that the

Company Liquidator may carry on the business of the company,so far as may be necessary, for the beneficial winding up of thecompany, and may even sell the company as a going concern. Solong as no actual sales of the immovable or movable propertieshave taken place, nothing irreversible is done which would warranta Company Court staying its hands on a transfer application madeto it by a creditor or any party to the proceedings. It is only wherethe winding up proceedings have reached a stage where it wouldbe irreversible, making it impossible to set the clock back that theCompany Court must proceed with the winding up, instead oftransferring the proceedings to the NCLT to now be decided inaccordance with the provisions of the Code. Whether this stageis reached would depend upon the facts and circumstances ofeach case.”

23. A conspectus of the aforesaid authorities would show that apetition either under Section 7 or Section 9 of the IBC is an independentproceeding which is unaffected by winding up proceedings that may befiled qua the same company. Given the object sought to be achieved bythe IBC, it is clear that only where a company in winding up is nearcorporate death that no transfer of the winding up proceeding wouldthen take place to the NCLT to be tried as a proceeding under the IBC.Short of an irresistible conclusion that corporate death is inevitable, everyeffort should be made to resuscitate the corporate debtor in the largerpublic interest, which includes not only the workmen of the corporatedebtor, but also its creditors and the goods it produces in the larger interestof the economy of the country. It is, thus, not possible to accede to theargument on behalf of the Appellant that given Section 446 of theCompanies Act, 1956 / Section 279 of the Companies Act, 2013,once awinding up petition is admitted, the winding up petition should trump anysubsequent attempt at revival of the company through a Section 7 orSection 9 petitionfiled under the IBC. While it is true that Sections 391 to393 of the Companies Act, 1956 may, in a given factual circumstance,be availed of to pull the company out of the red, Section 230(1) of theCompanies Act, 2013 is instructive and provides as follows:

“230. Power to compromise or make arrangements withcreditors and members.—(1) Where a compromise orarrangement is proposed—

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(a) between a company and its creditors or any class of them;or A

(b) between a company and its members or any class of them,the Tribunal may, on the application of the company or of anycreditor or member of the company, or in the case of a companywhich is being wound up, of the liquidator, appointed under thisAct or under the Insolvency and Bankruptcy Code, 2016, as thecase may be, order a meeting of the creditors or class of creditors,or of the members or class of members, as the case may be, to becalled, held and conducted in such manner as the Tribunal directs.

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Explanation.—For the purposes of this sub-section,arrangement includes a reorganisation of the company’s sharecapital by the consolidation of shares of different classes or bythe division of shares into shares of different classes, or by bothof those methods.

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What is clear by this Section is that a compromise or arrangementcan also be entered into in an IBC proceeding if liquidation is ordered.However, what is of importance is that under the Companies Act, it isonly winding up that can be ordered, whereas under the IBC, the primaryEemphasis is on revival of the corporate debtor through infusion of a newmanagement.

24. On facts also, in the present case, nothing can be said to havebecome irretrievable in the sense mentioned in paragraph 31 of ActionIspat (supra).

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25. It is settled law that a secured creditor stands outside thewindingup and can realise its security dehors winding up proceedings. InM.K. Ranganathan v. Govt. of Madras, (1955) 2 SCR 374, this Courtheld:

“The position of a secured creditor in the winding up of a companyhas been thus stated by Lord Wrenbury in FoodController v. Cork [1923 Appeal Cases 647]:

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“The phrase ‘outside the winding up’ is an intelligible phrase ifused, as it often is, with reference to a secured creditor, say amortgagee. The mortgagee of a company in liquidation is in a H

position to say “the mortgaged property is to the extent of themortgage my property. It is immaterial to me whether mymortgage is in winding up or not. I remain outside the windingup” and shall enforce my rights as mortgagee. This is to becontrasted with the case in which such a creditor prefers toassert his right, not as a mortgagee, but as a creditor. He maysay ‘I will prove in respect of my debt’. If so, he comes intothe winding up”.

It is also summarised in Palmer’s Company Precedents Vol. II,page 415:

“Sometimes the mortgagee sells, with or without theconcurrence of the liquidator, in exercise of a power of salevested in him by the mortgage. It is not necessary to obtainliberty to exercise the power of sale, although orders givingsuch liberty have sometimes been made”.

The secured creditor is thus outside the winding up and can realisehis security without the leave of the winding up Court, though ifhe files a suit or takes other legal proceedings for the realisationof his security he is bound under Section 231 (corresponding withSection 171 of the Indian Companies Act) to obtain the leave of,the winding up Court before he can do so although such leavewould almost automatically be granted. Section 231 has been readtogether with Section 228(1) and the attachment, sequestration,distress or execution referred to in the latter have reference toproceedings taken through the Court and if the creditor has resortto those proceedings he cannot put them in force against the estateor effects of the Company after the commencement of the windingup without the leave of the winding up Court. The provisions inSection 317 are also supplementary to the provisions of Section231 and emphasise the position of the secured creditor as oneoutside the winding up, the secured creditor being, in regard to theexercise of those rights and privileges, in the same position as hewould be under the Bankruptcy Act.

The corresponding provisions of the Indian Companies Act havebeen almost bodily incorporated from those of the EnglishCompanies Act and if there was nothing more, the position of thesecured creditor here also would be the same as that obtaining in A

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AEngland and he would also be outside the winding up and a saleby him without the intervention of the Court would be valid andcould not be challenged as void under Section 232(1), IndianCompanies Act.”

(at pages 383, 384)

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This principle has been followed in Central Bank of India v.Elmot Engineering Co., (1994) 4 SCC 159 (at paragraph 14),Industrial Credit and Investment Corpn. of India Ltd. v. SrinivasAgencies, (1996) 4 SCC 165 (at paragraph 2), and Board of Trustees,Port of Mumbai v. Indian Oil Corpn., (1998) 4 SCC 302 (at paragraphC12).

26. Indiabulls, a secured creditor of the corporate debtor, viz.SRUIL, has, in enforcement of its debt by a mortgage, sold the mortgagedproperty outside the windingup. The aforesaid sale is the subject matterof proceedings in the Bombay High Court filed by the provisionalDliquidator. If the aforesaid sale is set aside, the asset of SRUIL that hasbeen sold will come back to the provisional liquidator for the purposes ofwinding up. If the sale is upheld, equally, there are other assets of SRUILwhich continue to be in the hands of the provisional liquidator for thepurposes of winding up. We may also add that on the facts of this case,though no application for transfer of the winding up proceeding pendingEin the Bombay High Court has been filed, the Bombay High Court hasitself, by the orders dated 28.11.2019 and 23.01.2020, directed theprovisional liquidator to handover the records and assets of SRUIL tothe IRPin the Section 7 proceeding that is pending before the NCLT. Nodoubt, this has not yet been done as the IRP has not yet been able to payFthe requisite amount to the provisional liquidator for his expenses.

27. Dr. Singhvi and Shri Ranjit Kumar have vehemently arguedthat SREI has suppressed the winding up proceeding in its applicationunder Section 7 of the IBC before the NCLT and has resorted to Section7 only as a subterfuge to avoid moving a transfer application before theGHigh Court in the pending winding up proceeding. These arguments donot avail the Appellant for the simple reason that Section 7 is an independentproceeding, as has been held in catena of judgments of this Court, whichhas to be tried on its own merits. Any “suppression” of the winding upproceeding would, therefore, not be of any effect in deciding a Section 7petition on the basis of the provisions contained in the IBC. Equally, itH

cannot be said that any subterfuge has been availed of for the samereason that Section 7 is an independent proceeding that stands by itself.As has been correctly pointed out by Shri Sinha, a discretionary jurisdictionunder the fifth proviso to Section 434(1)(c) of the Companies Act, 2013cannot prevail overthe undoubted jurisdiction of the NCLT under theIBC once the parameters of Section 7 and other provisions of the IBChave been met. For all these reasons, therefore, the appeal is dismissedand the interim order that has been passed by this Court on 18.12.2020shall stand immediately vacated.

Divya Pandey

Appeal dismissed.

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