the right of a secured creditor to file a winding up petition after such secured creditor has obtained a decree from the Debts Recovery Tribunal [“DRT”] and a recovery certificate based thereon.


Hon’ble Mr. Justice R.F. Nariman

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.1291_______ of 2019
(ARISING OUT OF SLP (CIVIL) NO.6221 OF 2018)
SWARAJ INFRASTRUCTURE PVT. LTD. …APPELLANT
VERSUS
KOTAK MAHINDRA BANK LTD. …RESPONDENT
WITH
CIVIL APPEAL NO.1292___ of 2019
(ARISING OUT OF SLP (CIVIL) NO.6458 OF 2018)
CIVIL APPEAL NO.1294___ of 2019
(ARISING OUT OF SLP (CIVIL) NO.6571 OF 2018)
CIVIL APPEAL NO.1293___ of 2019
(ARISING OUT OF SLP (CIVIL) NO.6597 OF 2018)
J U D G M E N T
R.F. Nariman, J.

  1. Leave granted.
    1
  2. The present case involves the right of a secured creditor to file
    a winding up petition after such secured creditor has obtained a
    decree from the Debts Recovery Tribunal [“DRT”] and a recovery
    certificate based thereon.
  3. Several appeals were taken up together for hearing by the
    Division Bench of the Bombay High Court. The brief facts necessary to
    decide the present appeals are as follows:
    The respondent, Kotak Mahindra Bank Limited, advanced
    various loans to the companies in question. The outstanding amount
    against these companies as on date, together with interest, is stated to
    be in the region of INR 48 crores. The 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
    2
    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 to the
    Division Bench of the Bombay High Court, the main point argued was
    that once a secured creditor has obtained an order from the DRT, and
    a recovery certificate has been issued thereupon, such secured
    creditor cannot file a winding up petition as the Recovery of Debts Act
    is a special Act which vests exclusive jurisdiction in the DRT. Also, a
    secured creditor can file a winding up petition only on giving up its
    security, which has not been done in the present case. These
    contentions did not find favour with the Division Bench who then
    dismissed the appeals in question.
  4. Shri K. Parameshwar, learned advocate, appearing on behalf of
    the appellants, has urged a number of points before us. He first argued
    3
    that this Court has held that the Recovery of Debts Act is a special
    statute qua the general statute of the Companies Act, 1956, and that
    this Court has further held that exclusive jurisdiction is vested in the
    DRT under the Recovery of Debts Act to the exclusion of the Company
    Court. As this is so, once the DRT has been approached, the
    necessary corollary is that a winding up petition to realize the same
    debt would be expressly barred on a conjoint reading of Sections 17
    and 18 of the Recovery of Debts Act. He further argued that in any
    case, the secured creditor is put to an election where it must either
    relinquish its security and stand in line in the winding up proceeding or
    realize its security outside the winding up proceeding. On the facts of
    the present case, it has filed a successful action to realize its security
    outside the winding up proceeding, as a result of which, the winding up
    proceeding filed by it, without giving up the mortgaged security, would
    not be maintainable. It was further argued that, in any event, Section
    434(1)(b) of the Companies Act, 1956 would be attracted, and not
    Section 434(1)(a), and that since the security has not yet been
    realized, the winding up petition dressed up under Section 434(1)(a),
    but really under Section 434(1)(b), would not be maintainable. Also,
    reliance on certain High Court judgments by the impugned judgment is
    4
    completely misplaced for the reason that the provisions of the
    Companies Act, 1956 would show that the secured creditor has to
    relinquish its security when it files a winding up petition, and not
    thereafter, as has been held in these judgments.
  5. In answer to these contentions, Shri Shyam 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
    5
    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 outstanding amounts of debts owed. According
    to the learned Senior Advocate, his client has gone from pillar to post
    in an attempt to recover the loans made to the appellants and has not
    yet succeeded in any endeavour to do so. Also, nothing has been
    repaid so far and the debt owed by these companies, which is
    mounting, amounts to a staggering figure of INR 48 crores. According
    to the learned counsel, therefore, the High Court was right in
    dismissing the appeal filed by the appellants.
  6. After hearing learned counsel for both sides, it is important to
    first set out the relevant provisions of the Companies Act, 1956 and the
    Recovery of Debts Act, 1993.
    Section 434(1) of the Companies Act, 1956 reads as follows:
    “434. Company when deemed unable to pay its
    debts.—(1) A company shall be deemed to be unable to
    pay its debts—
    (a) if a creditor, by assignment or otherwise, to
    whom the company is indebted in a sum
    exceeding one lakh rupees then due, has
    served on the company, by causing it to be
    delivered at its registered office, by registered
    post or otherwise, a demand under his hand
    requiring the company to pay the sum so due
    6
    and the company has for three weeks
    thereafter neglected to pay the sum, or to
    secure or compound for it to the reasonable
    satisfaction of the creditor;
    (b) if execution or other process issued on a
    decree or order of any Court or Tribunal in
    favour of a creditor of the company is
    returned unsatisfied in whole or in part; or
    (c) if it is proved to the satisfaction of the
    Tribunal that the company is unable to pay its
    debts, and, in determining whether a
    company is unable to pay its debts, the
    Tribunal shall take into account the
    contingent and prospective liabilities of the
    company.
    xxx xxx xxx”
    Section 439(1)(b) and Section 439(2) of the Companies Act, 1956 read
    as follows:
    “439. Provisions as to applications for winding up.—
    (1) An application to the Tribunal for the winding up of a
    company shall be by petition presented, subject to the
    provisions of this section—
    xxx xxx xxx
    (b) by any creditor or creditors, including any
    contingent or prospective creditor or
    creditors; or
    xxx xxx xxx
    (2) A secured creditor, the holder of any debentures
    (including debenture stock), whether or not any trustee
    or trustees have been appointed in respect 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”
    7
    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 to—
    (a) debts provable;
    (b) the valuation of annuities and future and
    contingent liabilities; and
    (c) the respective rights of secured and
    unsecured creditors;
    as are in force for the time being under the law of
    insolvency with respect to the estates of persons
    adjudged insolvent:
    xxx xxx xxx”
    8
    The reference made in Section 529 of the Companies Act, 1956 is to
    Section 47 of the Provincial Insolvency Act, 1920 which reads as
    follows:
    “47. Secured creditors.—(1) Where a secured creditor
    realises his security, he may prove for the balance due to
    him, after deducting the net amount realised.
    (2) Where a secured creditor relinquishes his security for
    the general benefit of the creditors, he may prove for his
    whole debt.
    (3) Where a secured creditor does not either realise or
    relinquish his security, he shall, before being entitled to
    have his debt entered in the schedule, state in his proof
    the particulars of his security, and the value at which he
    assesses it, and shall be entitled to receive a dividend
    only in respect of the balance due to him after deducting
    the value so assessed.
    (4) Where a security is so valued, the Court may at any
    time before realisation redeem it on payment to the
    creditor of the assessed value.
    (5) Where a creditor, after having valued his security,
    subsequently realises it, the net amount realised shall be
    substituted for the amount of any valuation previously
    made by the creditor, and shall be treated in all respects
    as an amended valuation made by the creditor.
    (6) Where a secured creditor does not comply with the
    provisions of this section, he shall be excluded from all
    share in any dividend.”
  7. The relevant provisions of the Recovery of Debts Act, 1993,
    read as follows:
    “17. Jurisdiction, powers and authority of Tribunals.
    —(1) A Tribunal shall exercise, on and from the
    appointed day, the jurisdiction, powers and authority to
    9
    entertain and decide applications from the banks and
    financial institutions for recovery of debts due to such
    banks and financial institutions.
    (1-A) Without prejudice to sub-section (1),—
    (a) the Tribunal shall exercise, on and from the
    date to be appointed by the Central
    Government, the jurisdiction, powers and
    authority to entertain and decide applications
    under Part III of Insolvency 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 Security Interest and Recovery of Debts
    Laws (Amendment) Act, 2012 under the Multi-State Cooperative Societies Act, 2002 ((39 of 2002) shall be
    10
    continued and nothing contained in this section shall,
    after such commencement, apply to such proceedings.”
    “19. Application to the Tribunal.—
    xxx xxx xxx
    (19) Where a certificate of recovery is issued against a
    company as defined under the Companies Act, 2013 (18
    of 2013) and such company is under liquidation, the
    Tribunal may by an order direct that the sale proceeds of
    secured assets of such company be distributed in the
    same manner as provided in Section 326 of the
    Companies Act, 2013 or under any other law for the time
    being in force.
    xxx xxx xxx”
    “34. Act to have overriding effect.—(1) Save as
    provided under sub-section (2), the provisions of this Act
    shall have effect notwithstanding anything inconsistent
    therewith contained in any other law for the time being in
    force or in any instrument having effect by virtue of any
    law other than this Act.
    xxx xxx xxx”
  8. In Allahabad Bank v. Canara Bank (supra), this Court dealt
    with whether the secured creditor, namely, Allahabad Bank in that
    case, was obliged to seek the leave of the Company Court under the
    Companies Act, 1956, and whether the Company Court can stay
    recovery proceedings which had been initiated under the Recovery of
    Debts Act in the event of a winding up order being passed under the
    Companies Act, 1956. In this context, this Court held, adverting to
    11
    Sections 17 and 18 of the Recovery of Debts Act, that the jurisdiction
    of the Tribunal in regard to adjudication of applications for recovery of
    debts under Section 17 is exclusive. No dual jurisdiction is
    contemplated, particularly having regard to Section 34 of the said Act,
    which has overriding effect over other statutes including the
    Companies Act, 1956 – see paragraphs 21 to 23. The said judgment
    further goes on to state:
    “23. …… The provisions of Section 34(1) clearly state
    that the RDB Act overrides other laws to the extent of
    “inconsistency”. In our opinion, the prescription of an
    exclusive Tribunal both for adjudication and execution is
    a procedure clearly inconsistent with realisation of these
    debts in any other manner.”
    xxx xxx xxx
    “25. Thus, the adjudication of liability and the recovery of
    the amount by execution of 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
    12
    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 and the Recovery Officer in respect of debts
    payable to banks and financial institutions and there can
    be no interference by the Company Court under Section
    442 read with Section 537 or under Section 446 of the
    Companies Act, 1956. In respect of the monies realised
    under the RDB Act, the question of priorities among the
    banks and financial institutions and other creditors can
    be decided only by the Tribunal under the RDB Act and
    in accordance with Section 19(19) read with Section 529-
    A of the Companies Act and in no other manner. The
    provisions of the RDB Act, 1993 are to the above extent
    inconsistent with the provisions of the Companies Act,
    1956 and the latter Act has to yield to the provisions of
    the former. This position holds good during the pendency
    of the winding-up petition against the debtor Company
    and also after a winding-up order is passed. No leave of
    the Company Court is necessary for initiating or
    continuing the proceedings under the RDB Act, 1993.
    Points 2 and 3 are decided accordingly in favour of the
    appellant and against the respondents.”
  10. It is important to note that the aforesaid statement of the law
    was made in the context of non-requirement of leave of the Company
    13
    Court to initiate, continue with, and execute orders passed under the
    Recovery of Debts Act. What is important to note is that the
    Companies Act, 1956 is overridden to the extent of the inconsistency
    between the Companies Act, 1956 and the Recovery of Debts Act only
    qua recovery of debts due to banks and financial institutions.
  11. It is settled law that a winding up proceeding initiated under
    Section 433(e) and 434 of the Companies Act, 1956 is not a means of
    seeking to enforce payment of a debt. This Court, in Amalgamated
    Commercial Traders (P.) Ltd. v. A.C.K. Krishnaswami and Ors.,
    (1965) 35 Comp Cas 456 (SC) [“Amalgamated Commercial
    Traders”], has held:
    “13. It is well-settled that “a winding up petition is not a
    legitimate means of seeking to enforce payment of the
    debt which is bona fide disputed by the company. A
    petition presented ostensibly for a winding up order but
    really to exercise pressure will be dismissed, and under
    circumstances may be stigmatized as a scandalous
    abuse of the process of the court.”
    This statement of the law has subsequently been followed in several
    judgments, one of which is M/s IBA Health (India) Pvt. Ltd. v. M/s
    Info-Drive Systems Sdn. Bhd., (2010) 10 SCC 553 (at paragraph
    21).
    14
  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 to it”; but nonetheless it is a
    form of equitable execution……”
  13. It is true that this Court has stated that a winding up petition is a
    form of equitable execution of a debt, but this is qualified by stating
    that a winding up order is not a normal alternative to the ordinary
    procedure for realization of debts due to a creditor. We are of the view
    that both the judgments contained in Amalgamated Commercial
    Traders (supra) as well as in Harinagar Sugar Mills (supra),
    15
    recognize the fact that a winding up proceeding is not a proceeding
    that can be referred to as a proceeding for realization of debts and
    would, therefore, not be covered by the language of Section 17 read
    with Section 18 of the Recovery of Debts Act. When it comes to a
    winding up proceeding under the Companies Act, 1956, since such a
    proceeding is not “for recovery of debts” due to banks, the bar
    contained in Section 18 read with Section 34 of the Recovery of Debts
    Act would not apply to winding up proceedings under the Companies
    Act, 1956.
  14. In point of fact, a Division Bench of the Bombay High Court in
    Viral Filaments Ltd. v. Indusind Bank Ltd., (2001) 3 Mah LJ 552
    reached this very conclusion after closely examining the judgment in
    Allahabad Bank v. Canara Bank (supra) of this Court. We approve of
    the reasoning contained in the aforesaid Bombay High Court
    judgment.
  15. However, Shri K. Parameshwar, appearing on behalf of the
    appellants, also relied upon Rajasthan State Financial Corporation
    v. Official Liquidator, (2005) 8 SCC 190, and paragraph 18 of the
    aforesaid judgment, in particular. Paragraph 18 reads as follows:
    16
    “18. In the light of the discussion as above, we think it
    proper to sum up the legal position thus:
    (i) A Debts Recovery Tribunal acting under the
    Recovery of Debts Due to Banks and Financial
    Institutions Act, 1993 would be entitled to order the sale
    and to sell the properties of the debtor, even if a
    company-in-liquidation, through its Recovery Officer but
    only after notice to the Official Liquidator or the
    Liquidator appointed by the Company Court and after
    hearing him.
    (ii) A District Court entertaining an application under
    Section 31 of the SFC Act will have the power to order
    sale of the assets of a borrower company-in-liquidation,
    but only after notice to the Official Liquidator or the
    Liquidator appointed by the Company Court and 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.”
    17
    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 Companies Act, 1956, can carry on in parallel streams. That
    is why paragraph 18(i) states that a Debts Recovery Tribunal, acting
    under the Recovery of Debts Act, would be entitled to order sale, and
    sell the properties of the debtor, even of a company in liquidation, but
    only after giving notice to the Official Liquidator, or to the Liquidator
    appointed by the Company Court, and after hearing him.
  16. To similar effect is the judgment of this Court in Official
    Liquidator v. Allahabad Bank, (2013) 4 SCC 381, where this Court
    held as follows:
    “24. From the aforesaid authorities, it clearly emerges
    that the sale has to be conducted by DRT with the
    association of the Official Liquidator. We may hasten to
    clarify that as the present controversy only relates to the
    sale, we are not going to say anything with regard to the
    distribution. However, it is noticeable that under Section
    19(19) of the RDB Act, the legislature has clearly stated
    that distribution has to be done in accordance with
    Section 529-A of the 1956 Act. The purpose of stating so
    is that it is a complete code in itself and the Tribunal has
    the exclusive jurisdiction for the purpose of sale of the
    properties for realisation of the dues of the banks and
    financial institutions.”
    xxx xxx xxx
    “31. The aforesaid analysis makes it luculent that DRT
    has exclusive jurisdiction to sell the properties in a
    18
    proceeding instituted by the banks or financial
    institutions, but at the time of auction and sale, it is
    required to associate the Official Liquidator. The said
    principle has also been reiterated in Pravin Gada v.
    Central Bank of India [(2013) 2 SCC 101 : (2013) 1 SCC
    (Civ) 988].
  17. Once the Official Liquidator is associated, needless
    to say, he has a role to see that there is no irregularity in
    conducting the auction and appropriate price is obtained
    by holding an auction in a fair, transparent and nonarbitrary manner in consonance with the Rules framed
    under the RDB Act.”
  18. The second important point raised by learned counsel for the
    appellant is that a conjoint reading of the Companies Act, 1956 and the
    Provincial Insolvency Act, 1920, would make it clear that the secured
    creditor must, at the time of filing the petition for winding up, state that
    it has given up his security, or else, such winding up petition would not
    be maintainable. In Hegde & Golay Limited 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.
    19
    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)
  19. The contention is that a secured-creditor may stand
    outside insolvency; but if he brings-up a creditor’s
    winding-up petition he must, in his petition, state that he
    is either willing to relinquish the security for the benefit of
    the body of creditors or give an estimate of the value of
    the security. Learned Company-Judge has taken the
    view, if we may say so with respect, quite rightly, that this
    rule of Insolvency Law is not attracted to the presentation
    of a winding-up petition.
  20. Sri Shetty says that both in bankruptcy and windingup the law is the same and the petitioning-creditor, if he
    is a secured creditor, must conform to the rule in Section
    9(2). He relied upon M.K. Ranganathan v. Government
    of Madras [AIR 1955 SC 604] and Hansraj v. Official
    Liquidators, Dehradun Mussorie Electric Trading
    Company Limited [AIR 1929 Allahabad 353]. The
    observation in Ranganathan’s case [AIR 1955 SC 604]
    relied upon is this:
    “Section 229 recognises the position of the
    secured creditor generally as outside the
    winding up but enables him in the event of his
    desiring to take the benefit of the winding up
    proceedings to prove his debt, to value the
    same and share in the distribution pro rata of
    the assets of the company just in the same way
    as he would be able to do in the case of
    20
    insolvency under the Presidency Towns
    Insolvency Act or the Provincial Insolvency Act”.
    In Hansraj’s case [AIR 1929 Allahabad 353] it was
    observed:
    “…….. I am, therefore, of opinion that the rules
    contained in any Section of the Provincial
    Insolvency Act, the rules, if any, made under the
    Act and any appropriate established rules of
    practice in insolvency proceedings are imported
    into the Companies Act, unless there is
    something in the Companies Act itself already
    providing for the matter in question, or in
    conflict with the rule which it is proposed to
    import”.
    These observations, in our opinion, do not advance the
    contention of Sri Shetty any further. Section 529(1) of the
    ‘Act’ attracts the rules of insolvency to winding-up in
    relation to “the respective rights of secured and
    unsecured creditors” and confines these Rules so
    attracted to matters that arise between these two classes
    of creditors. Sections 528 and 529 of the ‘Act’ are in the
    chapter “Proof and Ranking of Claims” and deal with the
    question of proof of debts and the rights of secured and
    unsecured creditors. Section 529(2) itself, in so far 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
    21
    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 winding up, and that, if this is so,
    the stage at which a secured creditor has to give up his security is at
    the stage of the filing of the winding up petition itself. We are afraid that
    we cannot agree. First and foremost, it is important to notice that
    under Section 439 of the Companies Act, 1956, a secured creditor’s
    petition for winding up is maintainable without any requirement of it
    having to give up or relinquish its security. This is in contrast to Section
    9(2) of the Provincial Insolvency Act, 1920, which reads as follows:
    “9. Conditions on which creditor may petition.—
    xxx xxx xxx
    (2) 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 give
    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
    22
    value so estimated in the same way as if he were an
    unsecured creditor.”
    What is conspicuous by its absence is a provision akin to Section 9(2)
    of the Provincial Insolvency Act, 1920 in Section 439 of the Companies
    Act, 1956. In point of fact, Section 47 of the Provincial Insolvency Act,
    1920 occurs only at the stage where an adjudication order has already
    been passed, which is the stage referred to by Section 529 of the
    Companies Act, 1956. In fact, Section 529(1)(c) of the Companies Act,
    1956 specifically refers to the right of a secured creditor under the law
    of insolvency “with respect to the estates of persons adjudged
    insolvent”. The express language of Section 529(1)(c) of the
    Companies Act, 1956 makes it clear that it is Section 47 of the
    Provincial Insolvency Act, 1920 alone that is attracted, and not Section
    9(2), as was contended by learned counsel for the appellants before
    us. We may also add that reliance on Section 441(2) of the Companies
    Act, 1956 is misplaced for yet another reason. Section 441(2) has to
    be read with Section 441(1), and so read, makes it clear that it became
    necessary to enact sub-section (2), because a petition for voluntary
    winding up of a company presented before the Tribunal would be said
    to commence at an anterior point of time, namely, at the time of the
    23
    passing of the resolution whereby the company resolves 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 by the
    learned single Judge of the Karnataka High Court. Indeed, this
    statement of the law has been followed subsequently by a Division
    24
    Bench of the Bombay High court in Asian Power Controls Ltd. v.
    Bubbles Goyal, (2013) 3 Mah LJ 811 as follows:
    “10. Section 529(1) of the Companies Act, 1956,
    provides that in the winding up of an insolvent company,
    the same rules shall prevail and be observed with regard
    to (a) debts provable; (b) the valuation of annuities and
    future and contingent liabilities; and (c) the respective
    rights of secured and unsecured creditors; as are in force
    for the time being under the law of insolvency with
    respect to the estates of persons adjudged insolvent.
    Under sub-section (2) of section 529, all persons who in
    any such case would be entitled to prove, for and receive
    dividends out of the assets of the company, may come in
    under the winding up, and make such claims against the
    company as they respectively are entitled to make by
    virtue of the section. Section 529-A provides an
    overriding preferential priority to the dues of the workmen
    and to the debts due to secured creditors to the extent to
    which such debts rank pari passu under clause (c) of the
    proviso to sub-section (1) of section 529 with such dues.
    The rules of insolvency which are attracted to
    proceedings of winding up are inter alia those pertaining
    to the proof of debts. This is after the stage of the
    winding up order. This principle has been enunciated in a
    judgment of Mr. Justice M.N. Venkatachaliah (as the
    learned Chief Justice then was) speaking for a Division
    Bench of the Karnataka High Court in Hegde and Golay
    Limited v. State Bank of India, ILR 1987 KAR 2673. The
    judgment of the Company Judge of this Court in Canfin
    Homes Ltd. (supra) has also followed the principle that
    the scheme of the provisions relating to winding up,
    particularly those in sections 528 and 529 would indicate
    that the stage of proving a claim of a debt arises after an
    order of winding up is passed. In Canffin Homes Ltd.,
    this Court held as follows:—
    “15. The secured creditor who seeks to prove
    the whole of his debt in the course of the
    25
    proceedings of winding up must before he can
    prove his debt relinquish his security for the
    benefit of the general body of the creditors. If he
    surrenders his security for the benefit of the
    general body of creditors, he may prove the
    whole of his 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 the sale of the land in respect of
    which a security has been created in favour of the
    respondent. The claim of the respondent is still to be
    proved in the course of the winding up proceedings. A
    secured creditor who has a mortgage, charge or lien on
    the property of the company as security for her debt may
    either: (a) enforce the security and prove in the winding
    up for the balance of the debt after deducting the amount
    realised; or (b) surrender the security to the Liquidator
    and prove for the whole of the debt as an unsecured
    26
    creditor; or (c) estimate the value of the property subject
    to her security, and prove for the balance of the debt
    after deducting the estimated value; or (d) rely on the
    security and not prove in the winding up proceedings.
    [Pennington’s Company Law (Fourth edition, page 762)].
    A secured creditor has the option of relinquishing his
    security and/or proving the entirety of his debt in the
    course of winding up. If the secured creditor does so in
    the course of winding up proceedings, the security will
    enure for the benefit of the body of creditors. On the
    other hand, it is open to a secured creditor to prove in
    the course of winding up proceedings to the extent of
    debt which has not been realised outside the
    proceedings for winding up by either accounting for the
    amount that has been so realised or by estimating the
    value of the property subject to security so as to enable
    him to prove in respect of the balance of the debt. On
    either view of the matter, that stage is still to arrive.”
  21. In fact, even in Jitendra Nath Singh v. Official Liquidator,
    (2013) 1 SCC 462, this Court, after referring to Section 47 of the
    Provincial Insolvency Act, 1920 and Section 529 of the Companies Act,
    1956, held as follows:
    “16.1. A secured creditor has only a charge over a
    particular property or asset of the company. The secured
    creditor has the option to either realise his security or
    relinquish his security. If the secured creditor
    relinquishes his security, like any other unsecured
    creditor, he is entitled to prove the debt due to him and
    receive dividends out of the assets of the company in the
    winding-up proceedings. If the secured creditor opts to
    realise his security, he is entitled to realise his security in
    a proceeding other than the winding-up proceeding but
    has to pay to the liquidator the costs of preservation of
    the security till he realises the security.”
    (emphasis supplied)
    27
    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.
  22. 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 with the unsecured creditors
    and has to take his dividend as provided in
    Section 529(2). Till today, Canara Bank has not
    made it clear whether it wants to come under
    this category.
    xxx xxx xxx”
  23. We now come to the argument based on Section 434(1)(b) of
    the Companies Act, 1956. It is obvious that Section 434(1)(b) is
    attracted only if execution or other process is issued in respect of an
    28
    order of a Tribunal in favour of a creditor of the company is returned
    unsatisfied in whole or in part. This is only one of three instances in
    which a company shall be deemed to be unable to pay its debts. If the
    fact situation fits sub-clause (b) of Section 434(1), then a company
    may be said to be deemed to be unable to pay its debts. However, this
    does not mean that each one of the sub-clauses of Section 434(1) are
    mutually exclusive in the sense that once Section 434(1)(b) applies,
    Section 434(1)(a) ceases to be applicable. Also, on the facts of this
    case, we may state that the company petition was filed only on
    03.07.2015, pursuant to a notice under Section 433 of the Companies
    Act, 1956 dated 15.04.2015. This petition was filed under Section
    433(e) read with Section 434(1)(a) of the Companies Act, 1956. At the
    stage at which the petition was filed, it could not possibly have been
    filed under Section 434(1)(b) of the Companies Act, 1956, as
    execution or other process in the form of a recovery certificate had not
    been issued by the Recovery Officer till 12.08.2015, i.e., till after the
    company petition was filed. For this reason also, it is clear that this
    contention of the learned counsel appearing for the appellant must be
    rejected.
    29
  24. We may only end by saying that cases like the present one
    have to be decided by balancing the interest of creditors to whom
    money is owing, with a debtor company which will now go in the red
    since a winding up petition is admitted against it. It is not open for
    persons like the appellant to resist a winding up petition which is
    otherwise maintainable without there being any bona fide defence to
    the same. We may also hasten to add that the respondent cannot be
    said to be blowing hot and cold in pursuing a remedy under the
    Recovery of Debts Act and a winding up proceeding under the
    Companies Act, 1956 simultaneously. Here, it is important to refer to
    the judgment of Lord Atkin in Lissenden v. C.A.V. Bosch, Ltd., [1940]
    1 All E.R. 425, at 436-437, which says:
    “The doctrine of election could have no place in the
    present case. The applicant is not faced with alternative
    rights. It is the same right that he claims, but in larger
    degree. In Mills v. Duckworth, [1938] 1 All E.R. 318, a
    plaintiff who had been awarded damages for negligence
    had taken the judgment sum out of a larger sum paid into
    Court and had then appealed against the quantum of
    damages, and was met by a similar objection to his
    appeal. Greer, L.J., in overruling the objection, pointedly
    said, at p. 321:
    “He [the plaintiff] said: “I am not going to blow
    hot and cold. I am going to blow hotter.”
    Here the applicant is not faced with a choice between
    alternative rights. He has exercised an undisputed right
    30
    to compensation, and claims to have a right to more.
    One has not lost one’s right to a second helping because
    one has taken the first.”
    When secured creditors like the respondent are driven from pillar to
    post to recover what is legitimately due to them, in attempting to avail
    of more than one remedy at the same time, they do not “blow hot and
    cold”, but they blow hot and hotter. The appeals are accordingly
    dismissed with no order as to costs.
    ……………………J.
    (R.F. Nariman)
    ……………………J.
    New Delhi (Navin Sinha)
    January 29, 2019
    31