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Petition u/s.7 or s.9 IBC is independent proceeding unaffected by winding up proceedings: SC

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. [Para 27]



A.NAVINCHANDRA STEELS PRIVATE LIMITED VERSUS SREI EQUIPMENT FINANCE LIMITED & ORS

CIVIL APPEAL NOs.4230-4234 OF 2020

Decided on March 1st, 2021

The present case was decided by a division bench of the Supreme Court consisting of Justice Rohinton Fali Nariman and Justice B.R. Gavai

The Appellant is an operational creditor of Respondent No.2 herein – M/s. Shree Ram Urban Infrastructure Limited [“SRUIL”], the company under winding up. A winding up petition, being Company Petition No.1066/2015 filed by Respondent No.3 herein, M/s Action Barter Pvt. Ltd. [“Action Barter”] against SRUIL, by a conditional order dated 05.10.2016, stood admitted on the failure of SRUIL to deposit INR 5.90 crore. The appeal instituted by SRUIL against this order was dismissed by the Division Bench of the High Court on 17.01.2017, whereas the appeal instituted by Action Barter was allowed vide the same order and the amount to be deposited by SRUIL was enhanced from INR 5.90 crore to INR 18 crore. Vide order dated 27.02.2017, this Court disposed of SLP(C) No.5849/2017 filed by SRUIL, after recording a statement by the counsel for SRUIL that SRUIL would deposit INR three crore the same day, and the balance of INR 15 crore within six months from the date of the order.


The parties then filed consent terms before the Single Judge of the Bombay High Court on 22.03.2017, wherein Action Barter agreed to accept a sum of INR 15 crore, payable in instalments. Apart from the payment of the first instalment of INR 25 lakh, no further instalment was paid, as a result of which the winding up petition stood revived on 24.08.2017.The respondent issued a Code of Ethics and Rules of Conduct in 2015 to govern the terms of the relationship between the respondent and the ADSs. However, in April, 2019, upon logging into the respondent’s website, the petitioners noted that they could not access their ABO account, or view their LoS. They could only access their account as a PC. The respondent’s Major Accounts Manager, who informed them that their account had been reclassified as a ‘PC’ account, since they have not complied with the criteria of are corded re-sale related purchase in the last 12 months.

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.

Meanwhile, Respondent No.1 before us, i.e., SREI Equipment Finance Limited [“SREI”] filed a petition under Section 7 of the IBC before the NCLT, which petition was admitted by the NCLT on 06.11.2019. An appeal was then filed by Action Barter against the aforesaid NCLT order in which, after setting out this Court’s judgment in Forech (India) Ltd. v. Edelweiss Assets Reconstruction Co. Ltd., (2019) 18 SCC 549 [“Forech”], the NCLAT dismissed the appeal.

The learned Senior Advocates appearing on behalf of the Appellant, argued that in view of the judgment in Action Ispat and Power Pvt. Ltd. v. Shyam Metalics and Energy Ltd., 2020 SCC OnLine SC 1025 [“Action Ispat”], this matter is concluded in their favour inasmuch as irreversible steps have been taken in a winding up petition that has already been admitted by the Bombay High Court in that the plot on which a 72-storey building stands, has now been sold, as a result of which it is now clear that the Section 7 petition that was filed by SREI on 30.05.2019 under the IBC, would have to be held to be non-maintainable. [Para 12]


The learned counsel appearing on behalf of SREI, took us through various judgments of this Court, including the latest judgment in Action Ispat (supra). According to him, a Section 7 proceeding under the IBC is an independent proceeding, which can be initiated at any time, even after a winding up order is made. He argued that this was a result of our decisions and that Section 238 of the IBC, which contains a non-obstante clause, clearly comes to his rescue as, 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. [Para 13]


A conspectus of the aforesaid authorities would show 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. (Para 23)


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. 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. [Para 27]


Thus, the Supreme Court held 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.



Keerthana R


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