TaxTMI 
TaxTMI 
2019 (1) TMI 1443
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....respondent approached the Debts Recovery Tribunal, Mumbai by filing three separate original applications to recover the debt owed to them. The Debts Recovery Tribunal delivered three separate judgments on 16.01.2015 allowing the applications filed by the respondent bank. Apparently, the said orders are final as no appeals have been preferred to the Debts Recovery Appellate Tribunal ["DRAT"], Mumbai. Recovery certificates dated 12.08.2015 for the said amounts were then issued by the Recovery Officer under Section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ["Recovery of Debts Act"]. We have been informed that various attempts were made to auction the properties that were security for the loans granted, but each of these attempts has yielded no results. In the meanwhile, the respondent issued statutory notices dated 15.04.2015 under Sections 433 and 434 of the Companies Act, 1956. As no payments were forthcoming, a company petition was filed before the Bombay High Court on 03.07.2015. By an order dated 26.07.2017, the said petition was admitted as the companies in question were said to be commercially insolvent. In the appeals that were filed ....
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....m Divan, learned Senior Advocate appearing on behalf of the respondent, has argued, relying upon Section 439 of the Companies Act, 1956 in particular, that a secured creditor can maintain a winding up petition in the fact situation as obtains in the present case. According to him, the judgment relied upon by the appellant, namely, Allahabad Bank v. Canara Bank, (2000) 4 SCC 406, is distinguishable in that the context of that judgment was whether leave had to be obtained from the Company Court when a winding up proceeding is either pending, or a winding up order is made, in order to pursue a debt recovery proceeding under the Recovery of Debts Act. He also argued before us that the election that is to take place with the secured creditor giving up its security is at the stage of proof of claims, which is only after a winding up order has been passed, and which stage has not yet arrived on the facts of the present case. Also, according to him, the petition has been filed only on the ground of inability to pay debts, and once the statutory presumption is raised under Section 434(1)(a) of the Companies Act, 1956, it is clear that winding up must follow in the absence of payment of outs....
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....of such and other like debentures, and the trustee for the holders of debentures, shall be deemed to be creditors within the meaning of clause (b) of sub-section (1). xxx xxx xxx" Section 441, which deals with commencement of winding up, reads as follows: "441. Commencement of winding up by Tribunal.-(1) Where, before the presentation of a petition for the winding up of a company by the Tribunal, a resolution has been passed by the company for voluntary winding up, the winding up of the company shall be deemed to have commenced at the time of the passing of the resolution, and unless the Tribunal, on proof of fraud or mistake, thinks fit to direct otherwise, all proceedings taken in the voluntary winding up shall be deemed to have been validly taken. (2) In any other case, the winding up of a company by the Tribunal shall be deemed to commence at the time of the presentation of the petition for the winding up." Section 529(1) of the Companies Act reads as follows: "529. Application of insolvency rules in winding up of insolvent companies.-(1) In the winding up of an insolvent company, the same rules shall prevail and be observed with regard....
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....olvency and Bankruptcy Code, 2016; (b) the Tribunal shall have circuit sittings in all district headquarters. (2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act. (2-A) Without prejudice to sub-section (2), the Appellate Tribunal shall exercise, on and from the date to be appointed by the Central Government, the jurisdiction, powers and authority to entertain appeals against the order made by the Adjudicating Authority under Part III of the Insolvency and Bankruptcy Code, 2016." "18. Bar of jurisdiction.-On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under Articles 226 and 227 of the Constitution) in relation to the matters specified in Section 17: Provided that any proceedings in relation to the recovery of debts due to any multi-State co-operative bank pending before the date of commencement of the Enforcement of Securit....
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....f the certificate are respectively within the exclusive jurisdiction of the Tribunal and the Recovery Officer and no other court or authority much less the civil court or the Company Court can go into the said questions relating to the liability and the recovery except as provided in the Act. Point 1 is decided accordingly." (emphasis in original) 9. In answering whether the Recovery of Debts Act overrides the provisions of Sections 442 and 537 and 446 of the Companies Act, 1956, this Court held that the Recovery of Debts Act is a special statute which would necessarily override the aforesaid provisions of the more general statute, namely, the Companies Act, 1956. Even otherwise, if both are treated as special laws, since the Recovery of Debts Act is later in point of time, together with a non-obstante clause contained in Section 34, the said Act will prevail to the extent set out in the Recovery of Debts Act. This Court then concluded: "50. For the aforesaid reasons, we hold that at the stage of adjudication under Section 17 and execution of the certificate under Section 25 etc. the provisions of the RDB Act, 1993 confer exclusive jurisdiction on the Tribunal ....
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....rive Systems Sdn. Bhd., (2010) 10 SCC 553 (at paragraph 21). 12. However, it was pointed out that a subsequent judgment of this Court, of the selfsame strength of three learned Judges, in Harinagar Sugar Mills Co. Ltd. v. M.W. Pradhan, (1966) 3 SCR 948 ["Harinagar Sugar Mills"], has held as follows: "5. ...... Can it be said that the petition filed by the Receiver for winding up of the Company is not a mode of realisation of the debt due to the joint family from the Company? In Palmer's Company Precedents, Part II, 1960 Edn., at p. 25, the following passage appears: "A winding up petition is a perfectly proper remedy for enforcing payment of a just debt. It is the mode of execution which the Court gives to a creditor against a company unable to pay its debts." This view is supported by the decisions in Bowes v. Hope Life Insurance and Guarantee Co. [(1865) II HLC 388], Re General Company for Promotion of Land Credit [(1870) LR 5 Ch D 380] and Re National Permanent Building Society [(1869) LR 5 Ch D 309]. It is true that "a winding up order is not a normal alternative in the case of a company to the ordinary procedure for the realisation of the debts due ....
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.... after hearing him. (iii) If a financial corporation acting under Section 29 of the SFC Act seeks to sell or otherwise transfer the assets of a debtor company-in-liquidation, the said power could be exercised by it only after obtaining the appropriate permission from the Company Court and acting in terms of the directions issued by that court as regards associating the Official Liquidator with the sale, the fixing of the upset price or the reserve price, confirmation of the sale, holding of the sale proceeds and the distribution thereof among the creditors in terms of Section 529-A and Section 529 of the Companies Act. (iv) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the creditor concerned is to approach the Company Court for appropriate directions regarding the realisation of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation." As a matter of fact, sub-paragraphs (i) and (iv) of paragraph 18 would show that proceedings before the DRT, and winding up proceedings under the ....
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....v. State Bank of India, ILR 1987 KAR 2673, a learned single Judge of the Karnataka High Court, Venkatachaliah, J. (as he then was), dealt with this point as follows: "12. Re: Point (a): The contention is that the Bank which is a secured creditor cannot maintain a winding-up petition without making an election either to give-up the security or value it as required by Section 9(2) of the Provincial Insolvency Act, 1920. It is urged that by Section 529(1) of the Act, the Rules of Insolvency in Section 9(2) are attracted. Section 9(2) of the Provincial Insolvency Act reads: "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 given 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". (emphasis in original) 13. The contention is that a secured-creditor may stand outside....
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.... it expressly envisages, and provides for, the contingency that if a secured-creditor proceeds to realise his security he should pay the expenses incurred by the Liquidator, by implication, rules out the construction contended for by Sri Shetty. The words "in winding-up of insolvent company" in Section 529(1) of the 'Act' has obvious reference to a post winding-up stage. The point to note is that this rule of insolvency is attracted to winding-up in the matter of proof of debts. That is after the stage of the winding-up order. A secured creditor is, under Section 439(2) of the 'Act' as much a creditor entitled to present a winding up petition as any other. The law in regard to the right of a Secured Creditor to present a petition for adjudication under the Insolvency law is different from the right of a secured creditor to present a winding-up petition......" Shri Parameshwar took exception to this statement of the law, and referred to Section 441 of the Companies Act, 1956, in particular, subsection (2) thereof, to state that this judgment has missed the fact that the winding up of a company shall be deemed to commence at the time of presentation of the petition for wi....
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....solves 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. The absence, therefore, of any provision akin to Section 9(2) of the Provincial Insolvency Act, 1920 in Section 439 of the Companies Act, 1956; the language of Section 529(1)(c) of the Companies Act, 1956, which expressly refers only to Section 47 and not to Section 9(2) of the Provincial Insolvency Act, 1920; and the context in which Section 441(2) of the Companies Act, 1956 appears, namely, to contrast winding up petitions that have been filed under the Act with voluntary winding up petitions, all lead to the conclusion that there is no need to revisit the correct statement of the law ....
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....s debt. If the secured creditor has realised his security, he may prove for the balance due to him after deducting the net amount that has been realised. The stage for relinquishing security arises when a secured creditor seeks to prove the whole of his debt in the course of winding up. If, he elects to prove in the course of winding up the whole of the debt due and owing to him, he has to necessarily surrender his security for the benefit of the general body creditors." (emphasis in original) Having regard to the position in law as consistently followed in the judgments of the Madras, Calcutta and Karnataka High Courts and as reiterated in the judgment of the Company Court in Canfin Homes Ltd., it is not possible to accept the submission which was urged on behalf of the appellant. The law does not impose an unreasonable condition of requiring a secured creditor to forsake his security before he asserts a right to urge that a company which is unable to pay its debts should be wound up. The respondent has stated before the learned Company Judge, when the petition for winding up came up for hearing that it was not possible for the respondent to recover her dues by t....
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....ll he realises the security." (emphasis supplied) xxx xxx xxx "17. In support of our aforesaid conclusions, we may now cite some authorities. In Allahabad Bank v. Canara Bank [(2000) 4 SCC 406], a two-Judge Bench of this Court speaking through M. Jagannadha Rao, J. discussed these rights of the secured creditors in paras 62, 63, 64 and 65 of the judgment as reported in SCC, which are extracted hereinbelow: (SCC pp. 435-36) "62. Secured creditors fall under two categories. Those who desire to go before the Company Court and those who like to stand outside the winding up. 63. The first category of secured creditors mentioned above are those who go before the Company Court for dividend by relinquishing their security in accordance with the insolvency rules mentioned in Section 529. The insolvency rules are those contained in Sections 45 to 50 of the Provincial Insolvency Act. Section 47(2) of that Act states that a secured creditor who wishes to come before the Official Liquidator has to prove his debt and he can prove his debt only if he relinquishes his security for the benefit of the general body of creditors. In that event, he will rank....