2015 (3) TMI 416 - HC - Companies Law

Appeal against order of admitting Winding up petition - Held that - From the provisions contained in the RDB Act, 1993 it is evident that a Debts Recovery Tribunal does not have any jurisdiction to wind up a debtor company. The power of the company court to wind up a company, under the Companies Act, 1956 is in conflict with any provision of the RDB Act, 1993 and the provisions of Section 34 of the RDB Act, 1993 has any application in case of winding up application by a bank or financial institution. Thus, the ratio of the decision of the Supreme Court in the case of Allahabad Bank From the provisions contained in the RDB Act, 1993 it is evident that a Debts Recovery Tribunal does not have any jurisdiction to wind up a debtor company. The power of the company court to wind up a company, under the Companies Act, 1956 is in conflict with any provision of the RDB Act, 1993 and the provisions of Section 34 of the RDB Act, 1993 has any application in case of winding up application by a bank or financial institution. Thus, the ratio of the decision of the Supreme Court in the case of Allahabad Bank vs. Canara Bank (Supra), laying down that in case of a conflict between the Companies Act, 1956 and the RDB Act, 1993 the provisions of the latter special Act shall override the previous general Act, has no manner of application in this case. , laying down that in case of a conflict between the Companies Act, 1956 and the RDB Act, 1993 the provisions of the latter special Act shall override the previous general Act, has no manner of application in this case. We are also supported in our view by a judgment of the Supreme Court in the case of Haryana Telecom Ltd. 1999 (7) TMI 545 - SUPREME COURT OF INDIA . The Supreme Court held that arbitrator having no such power could not have entertained the petition and, therefore, the application made to the High Court for referring the matter to arbitration was misconceived. In our considered view, the principle laid down in the said judgment of the Supreme Court with regard to the exclusive power of company court to wind up a company squarely applies to the instant case before us. The Debt Recovery Tribunal not having been invested with the power to wind up a company, it would not be possible to urge before the company court that the petition should not be heard. we agree with the order made by the learned Single Judge admitting the petition for winding up. The appeal is dismissed as without substance.

Issues Involved:
1. Admission of winding up petition against the appellant company.
2. Jurisdiction of the Company Court versus the Debt Recovery Tribunal (DRT).

Detailed Analysis:

Issue 1: Admission of Winding Up Petition
The appellant company appealed against an order admitting a winding up petition for a sum of Rs. 7,00,29,142/-. The learned Single Judge granted the appellant company an opportunity to liquidate its dues in twelve monthly installments, with a provision for advertisement of the winding up application upon failure to pay any installment. The appellant did not dispute the factual findings of the learned Single Judge or raise any bona fide dispute regarding the respondent's claim.

The appellant's counsel argued that the respondent, being a secured creditor holding various immovable properties as security, should not have had the winding up petition admitted. They relied on a previous decision in Kotak Mahindra Bank Ltd. Vs. Eastern Spinning Mills and Industries Ltd, where it was held that the court has discretion not to admit a winding up application if the security is efficacious and adequate. However, the Division Bench had set aside this decision, and the Supreme Court later dismissed the special leave petition, implying that secured creditors can file winding up applications.

The learned Judge noted that the securities held by the petitioning creditor were subject to charges by other creditors, making the security non-efficacious. The appellant's counsel could not dispute the finding that Rs. 7,00,29,142/- was due and payable, nor that the securities were not efficacious. Thus, the court upheld the admission of the winding up petition.

Issue 2: Jurisdiction of the Company Court versus the Debt Recovery Tribunal (DRT)
The appellant's counsel argued that the Company Court lacked jurisdiction to entertain the winding up application because the respondent, a bank, had already initiated proceedings before the DRT. They contended that Sections 17, 18, 19, and 34 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDB Act) conferred exclusive jurisdiction on the DRT for recovery of debts. They relied on the Supreme Court decision in Allahabad Bank vs. Canara Bank, which held that the RDB Act overrides other laws to the extent of inconsistency.

The respondent's counsel countered that the winding up petition served a different purpose than debt recovery, aiming to address the company's commercial insolvency. They presented financial documents showing the appellant company's substantial losses and asset sales, indicating impending commercial insolvency. The court noted that winding up proceedings are not for debt recovery but for addressing a company's insolvency.

The court examined the object of the RDB Act, which aims to establish Tribunals for expeditious adjudication and recovery of debts. The DRT's jurisdiction is limited to issuing orders for debt recovery and does not extend to winding up companies. The court highlighted that winding up proceedings under the Companies Act, 1956 are distinct from debt recovery and aim to address a company's commercial insolvency.

The court cited the Supreme Court's decision in Haryana Telecom Ltd. vs. Sterlite Industries (India) Ltd., which held that winding up petitions are not claims for money but for addressing commercial insolvency. The DRT lacks the jurisdiction to wind up companies, and the RDB Act does not override the Companies Act in this context.

The court concluded that the RDB Act does not bar the Company Court's jurisdiction to entertain winding up petitions filed by banks or financial institutions. The appeal was dismissed, and the order admitting the winding up petition was upheld.

Conclusion:
The High Court dismissed the appeal, upholding the admission of the winding up petition and affirming the Company Court's jurisdiction to entertain the petition despite the pending DRT proceedings. The court emphasized that winding up proceedings address commercial insolvency, distinct from debt recovery actions under the RDB Act.

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