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TMI Blog2019 (1) TMI 1443X X X X Extracts X X X X X X X X Extracts X X X X ..... as execution or other process in the form of a recovery certificate had not been issued by the Recovery Officer till 12.08.2015, i.e., till after the company petition was filed. For this reason also, it is clear that this contention of the learned counsel appearing for the appellant must be rejected. We may only end by saying that cases like the present one have to be decided by balancing the interest of creditors to whom money is owing, with a debtor company which will now go in the red since a winding up petition is admitted against it. 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. We may also hasten to add that 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. When secured creditors like the respondent are driven from pillar to post to recover what is legitimately due to them, in attempting to avail of more than one remedy at the same time, they do not “blow hot and cold”, but they blow hot and hotter. - CIVIL APPEAL NO. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p petition as the Recovery of Debts Act is a special Act which vests exclusive jurisdiction in the DRT. Also, a secured creditor can file a winding up petition only on giving up its security, which has not been done in the present case. These contentions did not find favour with the Division Bench who then dismissed the appeals in question. 4. Shri K. Parameshwar, learned advocate, appearing on behalf of the appellants, has urged a number of points before us. He first argued that this Court has held that the Recovery of Debts Act is a special statute qua the general statute of the Companies Act, 1956, and that this Court has further held that exclusive jurisdiction is vested in the DRT under the Recovery of Debts Act to the exclusion of the Company Court. As this is so, once the DRT has been approached, the necessary corollary is that a winding up petition to realize the same debt would be expressly barred on a conjoint reading of Sections 17 and 18 of the Recovery of Debts Act. He further argued that in any case, the secured creditor is put to an election where it must either relinquish its security and stand in line in the winding up proceeding or realize its security outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been repaid so far and the debt owed by these companies, which is mounting, amounts to a staggering figure of INR 48 crores. According to the learned counsel, therefore, the High Court was right in dismissing the appeal filed by the appellants. 6. After hearing learned counsel for both sides, it is important to first set out the relevant provisions of the Companies Act, 1956 and the Recovery of Debts Act, 1993. Section 434(1) of the Companies Act, 1956 reads as follows: 434. Company when deemed unable to pay its debts.-(1) A company shall be deemed to be unable to pay its debts- (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding one lakh rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; (b) if execution or other process issued on a decree or order of any Court or Tribunal in favour of a creditor of the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dged insolvent: xxx xxx xxx The reference made in Section 529 of the Companies Act, 1956 is to Section 47 of the Provincial Insolvency Act, 1920 which reads as follows: 47. Secured creditors.-(1) Where a secured creditor realises his security, he may prove for the balance due to him, after deducting the net amount realised. (2) Where a secured creditor relinquishes his security for the general benefit of the creditors, he may prove for his whole debt. (3) Where a secured creditor does not either realise or relinquish his security, he shall, before being entitled to have his debt entered in the schedule, state in his proof the particulars of his security, and the value at which he assesses it, and shall be entitled to receive a dividend only in respect of the balance due to him after deducting the value so assessed. (4) Where a security is so valued, the Court may at any time before realisation redeem it on payment to the creditor of the assessed value. (5) Where a creditor, after having valued his security, subsequently realises it, the net amount realised shall be substituted for the amount of any valuation previously made by the creditor, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... very is issued against a company as defined under the Companies Act, 2013 (18 of 2013) and such company is under liquidation, the Tribunal may by an order direct that the sale proceeds of secured assets of such company be distributed in the same manner as provided in Section 326 of the Companies Act, 2013 or under any other law for the time being in force. xxx xxx xxx 34. Act to have overriding effect.-(1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. xxx xxx xxx 8. In Allahabad Bank v. Canara Bank (supra), this Court dealt with whether the secured creditor, namely, Allahabad Bank in that case, was obliged to seek the leave of the Company Court under the Companies Act, 1956, and whether the Company Court can stay recovery proceedings which had been initiated under the Recovery of Debts Act in the event of a winding up order being passed under the Companies Act, 1956. In this context, this Court held, adverting to Sections 17 and 18 of the Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be decided only by the Tribunal under the RDB Act and in accordance with Section 19(19) read with Section 529- A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993 are to the above extent inconsistent with the provisions of the Companies Act, 1956 and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding-up petition against the debtor Company and also after a winding-up order is passed. No leave of the Company Court is necessary for initiating or continuing the proceedings under the RDB Act, 1993. Points 2 and 3 are decided accordingly in favour of the appellant and against the respondents. 10. It is important to note that the aforesaid statement of the law was made in the context of non-requirement of leave of the Company Court to initiate, continue with, and execute orders passed under the Recovery of Debts Act. What is important to note is that the Companies Act, 1956 is overridden to the extent of the inconsistency between the Companies Act, 1956 and the Recovery of Debts Act only qua recovery of debts due to banks and financial institutions. 11. It is settled law that a wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amalgamated Commercial Traders (supra) as well as in Harinagar Sugar Mills (supra), recognize the fact that 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 Act. 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. 14. In point of fact, a Division Bench of the Bombay High Court in Viral Filaments Ltd. v. Indusind Bank Ltd., (2001) 3 Mah LJ 552 reached this very conclusion after closely examining the judgment in Allahabad Bank v. Canara Bank (supra) of this Court. We approve of the reasoning contained in the aforesaid Bombay High Court judgment. 15. However, Shri K. Parameshwar, appearing on behalf of the appellants, also relied upon Rajasthan State Financial Corporation v. Official Liquidator, (2005) 8 SCC 190, and paragraph 18 of the aforesaid judgment, in particular ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o similar effect is the judgment of this Court in Official Liquidator v. Allahabad Bank, (2013) 4 SCC 381, where this Court held as follows: 24. From the aforesaid authorities, it clearly emerges that the sale has to be conducted by DRT with the association of the Official Liquidator. We may hasten to clarify that as the present controversy only relates to the sale, we are not going to say anything with regard to the distribution. However, it is noticeable that under Section 19(19) of the RDB Act, the legislature has clearly stated that distribution has to be done in accordance with Section 529-A of the 1956 Act. The purpose of stating so is that it is a complete code in itself and the Tribunal has the exclusive jurisdiction for the purpose of sale of the properties for realisation of the dues of the banks and financial institutions. xxx xxx xxx 31. The aforesaid analysis makes it luculent that DRT has exclusive jurisdiction to sell the properties in a proceeding instituted by the banks or financial institutions, but at the time of auction and sale, it is required to associate the Official Liquidator. The said principle has also been reiterated in Pravin Gada v. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hetty says that both in bankruptcy and windingup the law is the same and the petitioning-creditor, if he is a secured creditor, must conform to the rule in Section 9(2). He relied upon M.K. Ranganathan v. Government of Madras [AIR 1955 SC 604] and Hansraj v. Official Liquidators, Dehradun Mussorie Electric Trading Company Limited [AIR 1929 Allahabad 353]. The observation in Ranganathan s case [AIR 1955 SC 604] relied upon is this: Section 229 recognises the position of the secured creditor generally as outside the winding up but enables him in the event of his desiring to take the benefit of the winding up proceedings to prove his debt, to value the same and share in the distribution pro rata of the assets of the company just in the same way as he would be able to do in the case of insolvency under the Presidency Towns Insolvency Act or the Provincial Insolvency Act . In Hansraj s case [AIR 1929 Allahabad 353] it was observed: .. I am, therefore, of opinion that the rules contained in any Section of the Provincial Insolvency Act, the rules, if any, made under the Act and any appropriate established rules of practice in insolvency proceedings are imported into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 9(2) of the Provincial Insolvency Act, 1920, which reads as follows: 9. Conditions on which creditor may petition.- xxx xxx xxx (2) If the petitioning creditor is a secured creditor, he shall in his petition either state that he is willing to relinquish his security for the benefit of the creditors in the event of the debtor being adjudged insolvent, or give an estimate of the value of the security. In the latter case, he may be admitted as a petitioning creditor to the extent of the balance of the debt due to him after deducting the value so estimated in the same way as if he were an unsecured creditor. What is conspicuous by its absence is a provision akin to Section 9(2) of the Provincial Insolvency Act, 1920 in Section 439 of the Companies Act, 1956. In point of fact, 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. In fact, 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 inso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re and contingent liabilities; and (c) the respective rights of secured and unsecured creditors; as are in force for the time being under the law of insolvency with respect to the estates of persons adjudged insolvent. Under sub-section (2) of section 529, all persons who in any such case would be entitled to prove, for and receive dividends out of the assets of the company, may come in under the winding up, and make such claims against the company as they respectively are entitled to make by virtue of the section. Section 529-A provides an overriding preferential priority to the dues of the workmen and to the debts due to secured creditors to the extent to which such debts rank pari passu under clause (c) of the proviso to sub-section (1) of section 529 with such dues. The rules of insolvency which are attracted to proceedings of winding up are inter alia those pertaining to the proof of debts. This is after the stage of the winding up order. This principle has been enunciated in a judgment of Mr. Justice M.N. Venkatachaliah (as the learned Chief Justice then was) speaking for a Division Bench of the Karnataka High Court in Hegde and Golay Limited v. State Bank of India, ILR 1987 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the whole of the debt as an unsecured creditor; or (c) estimate the value of the property subject to her security, and prove for the balance of the debt after deducting the estimated value; or (d) rely on the security and not prove in the winding up proceedings. [Pennington's Company Law (Fourth edition, page 762)]. A secured creditor has the option of relinquishing his security and/or proving the entirety of his debt in the course of winding up. If the secured creditor does so in the course of winding up proceedings, the security will enure for the benefit of the body of creditors. On the other hand, it is open to a secured creditor to prove in the course of winding up proceedings to the extent of debt which has not been realised outside the proceedings for winding up by either accounting for the amount that has been so realised or by estimating the value of the property subject to security so as to enable him to prove in respect of the balance of the debt. On either view of the matter, that stage is still to arrive. 18. In fact, even in Jitendra Nath Singh v. Official Liquidator, (2013) 1 SCC 462, this Court, after referring to Section 47 of the Provincial Insolve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 this case, we may state that the company petition was filed only on 03.07.2015, pursuant to a notice under Section 433 of the Companies Act, 1956 dated 15.04.2015. 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 12.08.2015, i.e., till after the company petition was filed. For this reason also, it is clear that this contention of the learned counsel appearing for the appellant must be rejected. 20. We may only end by saying that ca ..... 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