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2021 (3) TMI 38 - SC - IBCInitiation of CIRP when winding up petition was pending before the High Court - Overriding provisions of IBC over Companies Act - seeking direction to Provisional Liquidator to handover physical possession of the said Mortgaged Property - HELD THAT - Given the object of the IBC as delineated in paragraphs 25 to 28 of Swiss Ribbons (P) Ltd. v. Union of India, 2019 (1) TMI 1508 - SUPREME COURT , it is clear that 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- -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. In Allahabad Bank v. Canara Bank, 2000 (4) TMI 757 - SUPREME COURT , this 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 argument on behalf of the Appellant 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 - As per Section 230(1) of the Companies Act, 2013, 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 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 - Any suppression of the winding up proceeding would, therefore, not be of any effect in deciding a Section 7 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. As has been correctly pointed out by Shri Sinha, 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. Appeal dismissed.
Issues Involved:
1. Validity and maintainability of Section 7 IBC petition post-admission of winding-up proceedings. 2. Impact of Section 446 of the Companies Act, 1956 / Section 279 of the Companies Act, 2013 on IBC proceedings. 3. Role and rights of secured creditors in winding-up proceedings. 4. Interpretation and precedence of IBC over other laws, including the Companies Act. 5. Allegations of suppression and subterfuge in filing Section 7 IBC petition. Issue-wise Detailed Analysis: 1. Validity and Maintainability of Section 7 IBC Petition Post-Admission of Winding-Up Proceedings: The court reaffirmed that a petition under Section 7 of the IBC is an independent proceeding unaffected by the admission of winding-up petitions. The judgment highlighted that only where a company in winding-up is near corporate death should the winding-up petition prevail over IBC proceedings. The court emphasized that the primary focus of the IBC is on the revival of companies rather than their liquidation, and this objective should guide the handling of conflicts between IBC and winding-up proceedings. 2. Impact of Section 446 of the Companies Act, 1956 / Section 279 of the Companies Act, 2013 on IBC Proceedings: The court rejected the argument that Section 446 of the Companies Act, 1956, or Section 279 of the Companies Act, 2013, should prevent the initiation of proceedings under Section 7 of the IBC post-admission of a winding-up petition. The court noted that while the Companies Act allows for restructuring through Sections 391 to 393, the IBC provides a more robust mechanism for the revival of companies through new management. 3. Role and Rights of Secured Creditors in Winding-Up Proceedings: The court reiterated that a secured creditor stands outside the winding-up proceedings and can realize its security independently. The judgment cited previous rulings, including M.K. Ranganathan v. Govt. of Madras, to support this principle. In the present case, Indiabulls, a secured creditor, had sold the mortgaged property outside the winding-up proceedings, which was permissible under the law. 4. Interpretation and Precedence of IBC Over Other Laws, Including the Companies Act: The judgment underscored that the IBC, being a special statute with a non-obstante clause in Section 238, prevails over the Companies Act in cases of conflict. The court referenced several precedents, including Swiss Ribbons (P) Ltd. v. Union of India and Jaipur Metals & Electricals Employees Organization v. Jaipur Metals & Electricals Ltd., to affirm that the IBC's provisions take precedence over conflicting provisions in other laws, including the Companies Act. 5. Allegations of Suppression and Subterfuge in Filing Section 7 IBC Petition: The court dismissed the allegations of suppression and subterfuge against SREI, noting that a Section 7 petition under the IBC is an independent proceeding that must be evaluated on its own merits. The court clarified that any suppression of the winding-up proceeding would not affect the validity of the Section 7 petition. The court also stated that the discretionary jurisdiction under the fifth proviso to Section 434(1)(c) of the Companies Act, 2013, cannot override the jurisdiction of the NCLT under the IBC. Conclusion: The appeal was dismissed, and the interim order passed by the court on 18.12.2020 was vacated. The court reaffirmed the precedence of the IBC over the Companies Act in cases of conflict and emphasized the independent nature of Section 7 IBC proceedings.
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