IBC is special statute, must prevail over Companies Act 2013. Section 7 IBC Petition maintainable post admission of winding up Petition – SC
ABCAUS Case Law Citation
ABCAUS 3461 (2021) (03) SC
Important case law relied referred:
Action Ispat and Power Pvt. Ltd. vs Shyam Metalics and Energy Ltd. 2020 SCC OnLine SC 1025
Swiss Ribbons (P) Ltd. vs Union of India, (2019) 4 SCC 17
In the instant case the issue was on the maintainability of Section 7 petition filed under the Insolvency and Bankruptcy Code, (IBC) post admission of a winding up Petition under Companies Act.
It was the contention of the appellants that the effect of Section 446 of the Companies Act, 1956 (which is equivalent to Section 279 of the Companies Act 2013) is that no suit or other legal proceeding can be initiated once there is admission of a winding up petition.
Whereas, the submission of the respondent was that a Section 7 proceeding under IBC is an independent proceeding, which can be initiated at any time, even after a winding up order is made. It was argued that this view is supported by decisions of Hon’ble Supreme Court and Section 238 of the IBC, which contains a non-obstante clause. Therefore, if there is any conflict between Section 446 of the Companies Act, 1956 / Section 279 of the Companies Act, 2013 and the IBC, the IBC will prevail.
The Hon’ble Supreme Court observed that as held by it clearly 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-à-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.
The Hon’ble Supreme Court observed that in several cases involving Recovery of Debts Due to Banks and Financial Institutions Act 1993, State Financial Corporations Act 1951, Tea Act, 1953, SARFAESI Act, Sick Industrial Companies (Special Provisions) Act, 1985 etc. it has been held that those are the special statute qua the Companies Act which is a general Act.
The Apex Court stated that the law settled by the decisions shows that 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.
The Hon’ble Supreme Court stated that 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.
The Hon’ble Supreme Court pointed out that it is settled law that a secured creditor stands outside the winding up and can realise its security dehors winding up proceedings.
The appellant had alleged that the secured creditor has suppressed the winding up proceeding in its application under Section 7 of the IBC before the NCLT and had resorted to Section 7 only as a subterfuge to avoid moving a transfer application before the High Court in the pending winding up proceeding.
However, the Hon’ble Supreme Court rejected this argument and stated that Section 7 is an independent proceeding, as has been held in catena of judgments of the Court, which has to be tried on its own merits. 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.
The Division Bench held that 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.
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