Secured creditor enforcement under SARFAESI can proceed despite a winding up petition, without first relinquishing security.

Until a winding up order is made and no provisional liquidator is appointed, the Company Court cannot restrain a secured creditor from pursuing SARFAESI measures, because Sections 34 and 35 give that statute overriding effect and the company retains remedies under Sections 17 and 18. A secured creditor that has filed a winding up petition may still stand outside winding up in respect of the secured asset and enforce that security independently, provided it does not seek to prove the whole debt in winding up without relinquishing the security. The doctrine of election was held not to bar concurrent SARFAESI enforcement and a winding up petition for the balance debt.

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Issues: (i) Whether the Company Court could restrain secured creditors from pursuing measures under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 in the absence of a winding up order or appointment of a provisional liquidator. (ii) Whether secured creditors who had filed a winding up petition could still be treated as standing outside winding up in respect of secured assets and simultaneously enforce those securities without first relinquishing them.

Issue (i): Whether the Company Court could restrain secured creditors from pursuing measures under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002 in the absence of a winding up order or appointment of a provisional liquidator.

Analysis: Section 34 and Section 35 of the SARFAESI Act give overriding effect to the statutory machinery created under that enactment. The Court held that, where no winding up order has been passed and no provisional liquidator has been appointed, the Company Court cannot interdict proceedings taken by a secured creditor under SARFAESI. The pendency of a winding up petition by itself does not disable the secured creditor from proceeding under the special recovery mechanism, and the company also had statutory remedies under Sections 17 and 18 of the SARFAESI Act against the measures taken under Section 13(4).

Conclusion: The objection to the SARFAESI proceedings was rejected and the Company Court was held not to have jurisdiction to restrain them in the facts of the case.

Issue (ii): Whether secured creditors who had filed a winding up petition could still be treated as standing outside winding up in respect of secured assets and simultaneously enforce those securities without first relinquishing them.

Analysis: The Court distinguished the rule that a secured creditor who seeks to prove the whole debt in winding up must relinquish security from the distinct position of a secured creditor who merely files a winding up petition while retaining security. It held that the doctrine of election did not bar the creditors from pursuing SARFAESI remedies in respect of the secured asset while also seeking winding up for the balance debt. The decisions relied on by the appellant were held not to conflict with the principle that relinquishment arises only at the stage of proof of debt, not at the stage of presenting a winding up petition. On the facts, the secured creditors had expressly stated that they were standing outside winding up as to the secured asset.

Conclusion: The secured creditors were held entitled to maintain the winding up petition without relinquishing the security and to enforce the secured asset independently.

Final Conclusion: The appeal failed because the secured creditors' SARFAESI action was permissible and the filing of the winding up petition did not amount to surrender of the secured interest.

Ratio Decidendi: Until a winding up order is made, a secured creditor may stand outside winding up, retain its security, and enforce that security under a special statute; relinquishment is required only when the creditor elects to prove the whole debt in winding up.

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