Companies Act, 1956:
ss. 439, 434(1)(a) and (1)(b), 441(2) and 529 – Winding up petition – By the secured creditor/respondent-Bank, after obtaining decree from Debts Recovery Tribunal and a recovery certificate based thereon – Maintainability of the petition – Plea of debtor companies inter alia that the petition was barred by provisions in s.17 r/w. s.18 of Recovery of Debts Act; that the creditor must either relinquish its security and stand in line in winding up proceeding or realize its security outside the winding up proceeding; and that in the present case s.434(1)(b) would be attracted and not s.434(1)(a) – On appeal, held: Winding up proceeding is not a proceeding for realization of debts and therefore would not be covered by the language of s.17 r/w. ss.18 and s.34 of Debts Recovery Act – u/s. 439, a secured creditor’s petition for winding up is maintainable without any requirement for relinquishing its security – In view of s.529(1)(c), s.47 would be applicable and not s.9(2) of the Provincial Insolvency Act and hence winding up petition cannot be deemed to commence at the time of presentation of the petition – Reliance on s.441(2) by the debtors, is misplaced – At the stage at which the winding up petition was filed, the same could not have been filed u/s.434(1)(b) and hence s.434(1)(b) was inapplicable – Winding up petition was maintainable – Recovery of Debts Due to Banks and Financial Institutions Act, 1993 – ss.17, 18 and 34 – Provincial Insolvency Act, 1920 – ss.9(2) and 47. ss.434(1)(a) and (1)(b) – Applicability of the provisions – Held: Applicability of sub-s.(b) of s.434(1) does not mean that provision under sub-clause (a) of s.434(1) shall cease to be applicable – Each one of the sub-clauses of s.434(1) are not mutually exclusive.
Dismissing the appeals, the Court
HELD:1. A winding up proceeding is not a proceeding that can be referred 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 the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. When it comes to a winding up proceeding under the Companies Act, 1956, since such a proceeding is not “for recovery of debts” due to banks, the bar contained in Section 18 read with Section 34 of the Recovery of Debts Act would not apply to winding up proceedings under the Companies 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-Drive Systems Sdn. Bhd. (2010) 10 SCC 553 : [2010] 12 SCR 137 – relied on.
Viral Filaments Ltd. v. Indusind Bank Ltd. (2001) 3 Mah LJ 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 Companies Act, the winding up of a company shall be deemed to commence at the time of presentation of the petition for winding up, and that the stage at which a secured creditor has to give up his security is at the stage of the filing of the winding up petition itself. [Para 17][700-C-D]
2.2 Under Section 439 of the Companies Act, 1956, a secured creditor’s petition for winding up is maintainable without any requirement of it having to give up or relinquish its security. This is in contrast to Section 9(2) of the Provincial Insolvency Act, 1920. A provision akin to s. 9(2) of Provincial Insolvency Act is absent in s. 439 of the Companies Act, 1956. [Para 17][700D-E, G-H]
2.3 Section 529(1)(c) of the Companies Act, 1956 specifically refers to the right of a secured creditor under the law of insolvency “with respect to the estates of persons adjudged insolvent”. The express language of Section 529(1)(c) of the Companies Act, 1956 makes it clear that it is Section 47 of the Provincial Insolvency Act, 1920 alone that is attracted, and not Section 9(2). Section 47 of the Provincial Insolvency Act, 1920 occurs only at the stage where an adjudication order has already been passed, which is the 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, 1956 is misplaced for yet another reason. Section 441(2) has to be read with Section 441(1), and so read, makes it clear that it became necessary to enact sub-section (2), because a petition for voluntary winding up of a company presented before the Tribunal would be said to commence at an anterior point of time, namely, at the time of the passing of the resolution whereby the company resolves to voluntarily wind itself up. In contrast, therefore, Section 441(2) says “in any other case”, i.e., in cases other than those falling under sub-section (1) of Section 441 of the Companies Act, 1956, the winding up of a company by the Tribunal shall be deemed to commence at the time of presentation of the petition for winding up. The context of the provision, therefore, makes it clear that it cannot be read 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 in Section 439 of the Companies Act, 1956 itself. [Para 17][701-C-E] Jitendra Nath Singh v. Official Liquidator (2013) 1 SCC
462 : [2012] 13 SCR 339 – relied on.
Hegde & Golay Limited v. State Bank of India ILR 1987 KAR 2673; Asian Power Controls Ltd. v. Bubbles Goyal (2013) 3 Mah LJ 811 17 – approved.
3. It cannot be said that s. 434(1)(b) was applicable in the present case. Section 434(1)(b) is attracted only if execution or other process is issued in respect of an order of a Tribunal in favour of a creditor of the company is returned unsatisfied in whole or in part. This is only one of three instances in which a company shall be deemed to be unable to pay its debts. If the fact situation fits sub-clause (b) of Section 434(1), then a company may be said to be deemed to be unable to pay its debts. However, this does not mean that each one of the sub-clauses of Section 434(1) are mutually exclusive in the sense that once Section 434(1)(b) applies, Section 434(1)(a) ceases to be applicable. Also, on the facts of the present case, the company petition was filed pursuant to a notice under Section 433 of the Companies Act, 1956. This petition was filed under Section 433(e) read with Section 434(1)(a) of the Companies Act, 1956. At the stage at which the petition was filed, it could not possibly have been filed under Section 434(1)(b) of the Companies Act, 1956, as execution or other process in the form of a recovery certificate had not been issued by the Recovery Officer till after the company petition was filed. [Para 19][705-A-D]
4. The cases like the present one have to be decided by balancing the interest of creditors. It is not open for persons like the appellant to resist a winding up petition which is otherwise maintainable without there being any bona fide defence to the same. The respondent cannot be said to be blowing hot and cold in pursuing a remedy under the Recovery of Debts Act and a winding up proceeding under the Companies Act, 1956 simultaneously. [Para 20][705-E-F]
Lissenden v. C.A.V. Bosch, Ltd. [1940] 1 All E.R. 425 – referred to.
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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