TMI Blog2021 (3) TMI 38X X X X Extracts X X X X X X X X Extracts X X X X ..... s Court had to deal with whether the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 [RDB Act] was a special statute qua the Companies Act, 1956. This Court held that the Companies Act is a general Act and does not prevail against the RDB Act, which was a later Act and which has a non-obstante clause that clearly excludes the provisions of the Companies Act in case of conflict. A petition either under Section 7 or Section 9 of the IBC is an independent proceeding which is unaffected by winding up proceedings that may be filed qua the same company. Given the object sought to be achieved by the IBC, it is clear that only where a company in winding up is near corporate death that no transfer of the winding up proceeding would then take place to the NCLT to be tried as a proceeding under the IBC. Short of an irresistible conclusion that corporate death is inevitable, every effort should be made to resuscitate the corporate debtor in the larger public interest, which includes not only the workmen of the corporate debtor, but also its creditors and the goods it produces in the larger interest of the economy of the country. It is, thus, not possible to accede to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dh Sanganeria, AOR Mr. Gaurav Kejriwal, AOR Mr. Dhaval Vussonji, Adv. Mr. Rubin Vakil, Adv. Ms. Sonam Mhatre, Adv. Ms. Saloni Sulakhe, Adv. Ms. Kritya Sinha, Adv. Mr. Saurabh Chaudhary, Adv. Ms. Anne Mathew, AOR JUDGMENT R. F. Nariman, J. 1. This appeal arises out of the judgment dated 07.02.2020, as corrected by order dated 21.09.2020, by the National Company Law Appellate Tribunal [ NCLAT ]. The Appellant is an operational creditor of Respondent No.2 herein M/s. Shree Ram Urban Infrastructure Limited [ SRUIL ], the company under winding up and has a decree dated 07.10.2015 in its favour passed by the Bombay High Court in Summary Suit No.626 of 2014. Vide order dated 06.10.2016, the Division Bench stayed the order dated 07.10.2015 and directed SRUIL to deposit INR14 crore with the Prothonotary and Senior Master of the High Court or furnish a bank guarantee for the same, failing which the stay order would get vacated. The said appeal is pending as on date. We are also informed that an execution application, being Execution Application (L) No.934 of 2016 was filed by the Appellant before the Bombay High Court and the same is also pending as on date. 2. Sometime in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1540 (part), collectively forming Plot Nos.5B and 6 admeasuring approximately 28,409.57 square meters situated at Worli Estate, Lower Parel Division, Mumbai to the Secured Creditor herein, in accordance with and pursuant to the provisions of the Companies Act, 1956 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 resulted in an order dated 07.02.2019 by which the learned Company Judge allowed the aforesaid application in favour of Indiabulls. Indiabulls is a secured creditor who stood outside the winding up, and who sought to realise its security outside such winding up proceeding, notices having already been issued under Sections 13(2) and 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [ SARFAESI Act ]. The Court referred to an order of 12.04.2018, by which the provisional liquidator was to take physical possession of the assets of SRUIL within one week of the date of that order. Importantly, paragraph 2 of the said order stated: 2. Ms. Maitra states that the secured creditors have already commenced proceedings under SARFAESI against the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the appeal with the following observations: 5. The case of the Appellant is covered by the decision of the Hon ble Supreme Court in Forech India Ltd (supra), therefore, we hold that the Application under Section 7 of the I B Code filed by the Respondent SREI Equipment Finance Limited is not maintainable. In so far as pending winding up petition before the Hon ble Bombay High Court is concerned, the Appellant in terms of the decision of the Hon ble Supreme Court in Forech India Ltd (supra) may move before the Hon ble High Court of Bombay. The Appeal is dismissed with the aforesaid observations. No costs. 9. By an order dated 21.09.2020, the NCLAT corrected the order by deleting the word not that occurred in paragraph 5 of the order dated 07.02.2020. 10. An appeal was then filed to this Court by Action Barter on 08.10.2020, in which this Court, by order dated 27.10.2020, issued notice and directed the parties to maintain status quo qua the mortgaged property and also stayed further proceedings before the NCLAT. An appeal was also filed by the Appellant on 09.12.2020, in which this Court, by order dated 18.12.2020, issued notice and stayed further proceedings ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e winding up proceeding. 13. Shri Abhijeet Sinha, learned counsel appearing on behalf of SREI, took us through various judgments of this Court, including the latest judgment in Action Ispat (supra). According to him, a Section 7 proceeding under the IBC is an independent proceeding, which can be initiated at any time, even after a winding up order is made. He argued that 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, if there is any conflict between Section 446 of the Companies Act, 1956 / Section 279 of the Companies Act, 2013 and the IBC, the IBC will prevail. According to him, this point is no longer res integra. He also argued, in the alternative, that there are no irretrievable steps that have been taken in the winding up proceeding in the present case, as the provisional liquidator continues to be seized of other assets of SRUIL. He further argued that a private sale by a secured creditor outside the winding up is not the irretrievable step that is spoken of in Action Ispat (supra), such step having to be taken by the provisional liquidator himself in selling the assets of the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India v. D.J. Bahadur [(1981) 1 SCC 315 : 1981 SCC (L S) 111 : AIR 1980 SC 2181]. It was there observed: for certain cases, an Act may be general and for certain other purposes, it may be special and the court cannot blur a distinction when dealing with the finer points of law . For example, a Rent Control Act may be a special statute as compared to the Code of Civil Procedure. But vis- -vis an Act permitting eviction from public premises or some special class of buildings, the Rent Control Act may be a general statute. In fact in Damji Valji Shah v. LIC of India [AIR 1966 SC 135 : (1965) 3 SCR 665] (already referred to), this Court has observed that vis- -vis the LIC Act, 1956, the Companies Act, 1956 can be treated as 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, will override the provisions of the general Act, viz., the Companies Act which is an Act relating to companies in general. (emphasis in original) Thus, some High Courts rightly treated the Companies Act as a general statute, and the RDB Act as a special statute overriding the general statute. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been held: (SCC p. 496, para 26) 26. We do not really see a conflict between Section 29 of the SFC Act and the Companies Act at all, since the rights under Section 29 were not intended to operate in the situation of winding up of a company. Even assuming to the contrary, if a conflict arises, then we respectfully reiterate the view taken by the Division Bench of this Court in A.P. State Financial Corpn. Case [A.P. State Financial Corpn. v. Official Liquidator, (2000) 7 SCC 291]. This Court pointed out therein that Section 29 of the SFC Act cannot override the provisions of Sections 529(1) and 529-A of the Companies Act, 1956, inasmuch as SFCs cannot exercise the right under Section 29 ignoring a pari passu charge of the workmen. The view taken therein was reiterated by a three-Judge Bench of this Court in Rajasthan State Financial Corpn. v. Official Liquidator [(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 proper to sum up the legal position thus: (i) A Debts Recovery Tribunal acting under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would be entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er enactments with similar non obstante clauses, the Sick Industrial Companies (Special Provisions) Act, 1985 has been held to prevail only in a situation where the reach of the non obstante clause in the later Act is limited-such as in the case of the Arbitration and Conciliation Act, 1996-or in the case of the later Act expressly yielding to the Sick Industrial Companies (Special Provisions) Act, 1985, as in the case of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Where such is not the case, as in the case of Special Courts Act, 1992, it is the Special Courts Act, 1992 which 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 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Section 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 does not include the Sick Industrial Companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to Banks and Financial Institutions Act, 1993. 18. Indeed, this position has been echoed in several judgments of this Court. In Jaipur Metals Electricals Employees Organization v. Jaipur Metals Electricals Ltd., (2019) 4 SCC 227 [ Jaipur Metals ], this Court, in dealing with whether proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 were to be transferred to the NCLT under the IBC, held: 19. However, this does not end the matter. It is clear that Respondent 3 has filed a Section 7 application under the Code on 11-1-2018, on which an order has been passed admitting such application by NCLT on 13-4-2018. This proceeding is an independent proceeding which has nothing to do with the transfer of pending winding-up proceedings before the High Court. It was open for Respondent 3 at any time before a winding-up order is passed to apply under Section 7 of the Code. This is clear from a reading of Section 7 together with Section 238 of the Code which reads as follows: 238. Provisions of this Code to override other laws.-The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e context of the problem before us is wholly irrelevant. However, we decline to interfere with the ultimate order passed by the Appellate Tribunal because it is clear that the financial creditor's application which has been admitted by the Tribunal is clearly an independent proceeding which must be decided in accordance with the provisions of the Code. 20. In Duncans Industries Ltd. v. AJ Agrochem, (2019) 9 SCC 725, this Court was faced with a situation of conflict between Section 16-G(1)(c) of the Tea Act, 1953, under which winding up/liquidation proceedings were to take place (and which could not take place without prior consent of the Central Government), and a proceeding initiated under Section 9 of the IBC. After relying upon the judgment of this Court in Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC 407 and Swiss Ribbons (supra), this Court held: 7.4. Section 16-G(1)(c) refers to the proceeding for winding up of such company or for the appointment of receiver in respect thereof. Therefore, as such, the proceedings under Section 9 IBC shall not be limited and/or restricted to winding up and/or appointment of receiver only. The winding up/liquidation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iso to Clause (c). The Court then went on to hold that in a winding up proceeding that has been admitted, since all creditors would be parties to such proceeding in rem, a secured creditor being such a party could, therefore, move the Company Court under the fifth proviso to Section 434(1)(c) of the Companies Act, 2013 to transfer the aforesaid proceeding to the NCLT to be tried as a proceeding under Section 7 or Section 9, as the case may be. 22. In Action Ispat (supra), this Court was faced with a proceeding in which a winding up petition had been admitted by the High Court and then transferred to the NCLT to be tried as a proceeding under the IBC. After referring to the judgments in Jaipur Metals (supra), Forech (supra), and Kaledonia (supra), and after setting out various Sections dealing with winding up of companies under the Companies Act, 2013, this Court then held: 20. What becomes clear upon a reading of the three judgments of this Court is the following: (i) So far as transfer of winding up proceedings is concerned, the Code began tentatively by leaving proceedings relating to winding up of companies to be transferred to NCLT at a stage as may be prescr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he immovable or movable properties have taken place, nothing irreversible is done which would warrant a Company Court staying its hands on a transfer application made to it by a creditor or any party to the proceedings. It is only where the winding up proceedings have reached a stage where it would be irreversible, making it impossible to set the clock back that the Company Court must proceed with the winding up, instead of transferring the proceedings to the NCLT to now be decided in accordance with the provisions of the Code. Whether this stage is reached would depend upon the facts and circumstances of each case. 23. A conspectus of the aforesaid authorities would show that a petition either under Section 7 or Section 9 of the IBC is an independent proceeding which is unaffected by winding up proceedings that may be filed qua the same company. Given the object sought to be achieved by the IBC, it is clear that only where a company in winding up is near corporate death that no transfer of the winding up proceeding would then take place to the NCLT to be tried as a proceeding under the IBC. Short of an irresistible conclusion that corporate death is inevitable, every effort s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is settled law that a secured creditor stands outside the winding up and can realise its security dehors winding up proceedings. In M.K. Ranganathan v. Govt. of Madras, (1955) 2 SCR 374, this Court held: The position of a secured creditor in the winding up of a company has been thus stated by Lord Wrenbury in Food Controller v. Cork [1923 Appeal Cases 647]: The phrase outside the winding up is an intelligible phrase if used, as it often is, with reference to a secured creditor, say a mortgagee. The mortgagee of a company in liquidation is in a position to say the mortgaged property is to the extent of the mortgage my property. It is immaterial to me whether my mortgage is in winding up or not. I remain outside the winding up and shall enforce my rights as mortgagee. This is to be contrasted with the case in which such a creditor prefers to assert his right, not as a mortgagee, but as a creditor. He may say I will prove in respect of my debt . If so, he comes into the winding up . It is also summarised in Palmer s Company Precedents Vol. II, page 415: Sometimes the mortgagee sells, with or without the concurrence of the liquidator, in exercise of a pow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the provisional liquidator. If the aforesaid sale is set aside, the asset of SRUIL that has been sold will come back to the provisional liquidator for the purposes of winding up. If the sale is upheld, equally, there are other assets of SRUIL which continue to be in the hands of the provisional liquidator for the purposes of winding up. We may also add that on the facts of this case, though no application for transfer of the winding up proceeding pending in the Bombay High Court has been filed, the Bombay High Court has itself, by the orders dated 28.11.2019 and 23.01.2020, directed the provisional liquidator to hand over the records and assets of SRUIL to the IRP in the Section 7 proceeding that is pending before the NCLT. No doubt, this has not yet been done as the IRP has not yet been able to pay the requisite amount to the provisional liquidator for his expenses. 27. Dr. Singhvi and Shri Ranjit Kumar have vehemently argued that SREI has suppressed the winding up proceeding in its application under Section 7 of the IBC before the NCLT and has resorted to Section 7 only as a subterfuge to avoid moving a transfer application before the High Court in the pending winding up pro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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