Insolvency and Bankruptcy Code, 2016 – ss.7, 9 – Companies Act, 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: A petition either u/s.7 or s.9, IBC is an independent proceeding unaffected by winding up proceedings that may be filed qua the same company – Any “suppression” of the winding up proceeding would not be of any effect in deciding a s.7 petition which is to be tried on its own merits – Discretionary jurisdiction under the fifth proviso to s.434(1)(c), 2013 Act, cannot prevail over the undoubted jurisdiction of the NCLT under the IBC once the parameters of s.7 and other provisions of the IBC have been met – Plea of appellant that respondent no.1 suppressed the winding up proceeding in its application u/s.7, IBC before the NCLT is of no avail – Winding up petition does not trump any subsequent attempt at revival of the company through a petition u/s.7 or s.9, IBC – Further, on facts, nothing can be said to have become irretrievable in the sense mentioned in paragraph 31 of Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd. reported as 2020 SCC OnLine SC 1025 – Interim order vacated.
Insolvency and Bankruptcy Code, 2016 – Object of vis-à-vis Companies Act – Discussed.
Interpretation of Statutes:
Special Law v. General Law – Discussed – Insolvency and Bankruptcy Code, 2016 – Companies Act.
Non-obstante clause – Insolvency and Bankruptcy Code, 2016 – s.238 – Held: Non-obstante clause in s.238 makes it even clearer that in case of conflict, the provisions of the IBC will prevail – Companies Act.
Dismissing the appeal, the Court
HELD: 1.1 The IBC is a special statute dealing with revival of companies that are in the red, winding up only being resorted to in case all attempts of revival fail. Vis-à-vis the Companies Act, which is a general statute dealing with companies, including companies that are in the red, the IBC is not only a special statute which must prevail in the event of conflict, but has a non-obstante clause contained in Section 238, which makes it even clearer that in case of conflict, the provisions of the IBC will prevail. [Para 14][606-G-H]
Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC
17 : [2019] 3 SCR 535; Allahabad Bank v. Canara Bank, (2000) 4 SCC 406 : [2000] 2 SCR 1102;
Bakemans Industries (P) Ltd. v. New Cawnpore Flour Mills, (2008) 15 SCC 1 : [2008] 9 SCR 705; Madras Petrochem Ltd. v. BIFR, (2016) 4 SCC 1 : [2016] 11 SCR 419 – relied on.
1.2 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 argument on behalf of the Appellant (an operational creditor of Respondent No.2, the company under winding up) that given Section 446 of the Companies Act, 1956 / Section 279 of the Companies Act, 2013, once a winding up petition is admitted, the winding up petition should trump any subsequent attempt at revival of the company through 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 pull the company out of the red, Section 230(1) of the Companies Act, 2013 is instructive. What is clear by this Section is that a compromise or arrangement can also be entered into in an IBC proceeding if liquidation is ordered. However, what is of importance is that under the Companies Act, it is only winding up that can be ordered, whereas under the IBC, the primary emphasis is on revival of the corporate debtor through infusion of a new management. On facts also, in the present case, nothing can be said to have become irretrievable in the sense mentioned 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. AJ Agrochem, (2019) 9 SCC 725 : [2019] 12 SCR 830; Innoventive Industries Ltd. v. ICICI Bank, (2018) 1 SCC
407 : [2017] 8 SCR 33; Kaledonia Jute and Fibres Pvt. Ltd. v. Axis Nirman and Industries Ltd., 2020 SCC OnLine SC 943; Forech (India) Ltd. v. Edelweiss Assets Reconstruction Co. Ltd. (2019) 18 SCC 549 – relied on.
Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd., 2020 SCC OnLine SC 1025 – referred to.
1.3 A secured creditor stands outside the winding up and can realise its security dehors winding up proceedings. Indiabulls, a secured creditor of the corporate debtor, viz. Respondent No.2 has in enforcement of its debt by a mortgage, sold the mortgaged property outside the winding up. The aforesaid sale is the subject matter of proceedings in the Bombay High Court filed by the provisional liquidator. If the aforesaid sale is set aside, the asset of respondent No.2 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 respondent No.2 which continue to be in the hands of the provisional liquidator for the purposes of winding up. On the facts of this case, though no application for transfer of the winding up proceeding pending in the High Court has been filed, the 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 respondent no.2 to the interim resolution professional (IRP) in the Section 7 proceeding that is pending before the NCLT. 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. [Paras 25, 26][618-F; 620-C-F]
M.K. Ranganathan v. Govt. of Madras, [1955] 2 SCR
374 – relied on.
Central Bank of India v. Elmot Engineering Co., (1994)
4 SCC 159 : [1994] 3 SCR 766; Industrial Credit and Investment Corpn. of India Ltd. v. Srinivas Agencies, (1996) 4 SCC 165 : [1996] 2 SCR 960; Board of Trustees, 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 be tried on its own merits. Any “suppression” of the winding up proceeding would, therefore, not be of any effect in deciding a petition on the basis of the provisions contained in the IBC. Equally, it cannot be said that any subterfuge has been availed of for the same reason that Section 7 is an independent proceeding that stands by itself. A discretionary jurisdiction under the fifth proviso to Section 434(1)(c) of the Companies Act, 2013 cannot prevail over the undoubted jurisdiction of the NCLT under the IBC once the parameters of Section 7 and other provisions of the IBC have been met. The interim order passed by this Court on 18.12.2020 stands vacated. [Para 27][621-A-B]
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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