Supreme Court: Section 7 or Section 9 proceedings under IBC are independent of winding up proceeding

In 2015 a winding up petition was filed against SRUIL before the Bombay High Court. While this winding up petition was pending, Indiabulls Housing Finance Ltd. [“Indiabulls”], a secured creditor of SRUIL, filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 [“IBC”] before the National Company Law Tribunal [“NCLT”], which was dismissed by the NCLT vide order dated 18.05.2018 as being not maintainable as a winding up petition had already been admitted by the Bombay High Court.

However, on 06.08.2018, the Supreme Court admitted a Civil Appeal from the NCLAT order, which is pending as on date.In this appeal, the appellant’s contention was that “Post admission of a winding up petition, no petition under Section 7 of the IBC can be filed.

According to it, 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.”Dr. Singhvi and Shri Ranjit Kumar have vehemently argued that SREI has suppressed the winding up proceeding in its application under Section 7 of the IBC before the NCLT and has resorted to Section 7 only as a subterfuge to avoid moving a transfer application before the High Court in the pending winding up proceeding.

These arguments do not avail the Appellant for the simple reason that Section 7 is an independent proceeding, as has been held in catena of judgments of this 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. 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.

The court said that “Given the object of the IBC as delineated in paragraphs 25 to 28 of Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 [“Swiss Ribbons”], 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-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.”

For all these reasons, therefore, the appeal is dismissed and the interim order that has been passed by this Court on 18.12.2020 shall stand immediately vacated.A. Navinchandra Steels Private Limited vs. SREI Equipment Finance Limited [CIVIL APPEAL NOs.4230-4234 OF 2020].

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