Case Note & Summary
The case involves the right of a secured creditor, Kotak Mahindra Bank Ltd., to file a winding up petition under the Companies Act, 1956, after having obtained a decree from the Debts Recovery Tribunal (DRT) and a recovery certificate. The respondent bank advanced loans to the appellant companies totaling approximately INR 48 crores. The bank approached the DRT, Mumbai, which delivered judgments on 16.01.2015 allowing the applications. Recovery certificates were issued on 12.08.2015 under Section 19(19) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Despite attempts to auction the secured properties, no recovery was made. The bank then issued statutory notices under Sections 433 and 434 of the Companies Act, 1956, and filed a company petition on 03.07.2015. The petition was admitted on 26.07.2017 on the ground of commercial insolvency. The appellants appealed to the Division Bench of the Bombay High Court, arguing that once a secured creditor has obtained a DRT order and recovery certificate, it cannot file a winding up petition because the Recovery of Debts Act is a special statute vesting exclusive jurisdiction in the DRT. They also argued that a secured creditor must give up its security to file a winding up petition. The Division Bench dismissed the appeals. The Supreme Court considered the relevant provisions of both Acts. The court held that the Recovery of Debts Act does not bar a secured creditor from filing a winding up petition under the Companies Act, as the two remedies are independent. The court distinguished the earlier judgment in Allahabad Bank v. Canara Bank, noting that it dealt with the requirement of leave from the company court when a winding up proceeding is pending, not with the maintainability of a winding up petition by a secured creditor who has already obtained a DRT decree. The court further held that the election to relinquish security arises only after a winding up order is passed, at the stage of proof of claims under Section 529 of the Companies Act read with Section 47 of the Provincial Insolvency Act, 1920. The court dismissed the appeals, upholding the High Court's decision that the winding up petition was maintainable.
Headnote
A) Banking Law - Recovery of Debts - Secured Creditor's Right to File Winding Up Petition - Sections 17, 18, 19(19) of Recovery of Debts Due to Banks and Financial Institutions Act, 1993; Sections 434, 439, 529 of Companies Act, 1956 - The issue was whether a secured creditor who has obtained a DRT decree and recovery certificate can maintain a winding up petition without relinquishing security. The Supreme Court held that the Recovery of Debts Act does not bar a secured creditor from filing a winding up petition under the Companies Act, as the two remedies are independent. The election to relinquish security arises only after a winding up order is passed, not at the stage of filing the petition. (Paras 2-10) B) Company Law - Winding Up - Deemed Inability to Pay Debts - Section 434(1)(a) of Companies Act, 1956 - The court held that a secured creditor can invoke Section 434(1)(a) by serving a statutory notice demanding payment, and if the company neglects to pay for three weeks, the creditor can file a winding up petition. The fact that the creditor has also obtained a DRT decree does not preclude this remedy. (Paras 6-10) C) Insolvency Law - Secured Creditor - Election to Relinquish Security - Section 529 of Companies Act, 1956 read with Section 47 of Provincial Insolvency Act, 1920 - The court clarified that the requirement for a secured creditor to either realise or relinquish security applies only after the winding up order is made, at the stage of proof of claims. Until then, the secured creditor can file a winding up petition without giving up security. (Paras 8-10)
Issue of Consideration
Whether a secured creditor who has obtained a decree from the Debts Recovery Tribunal and a recovery certificate can file a winding up petition under the Companies Act, 1956, without giving up its security.
Final Decision
The Supreme Court dismissed the appeals, holding that the winding up petition filed by the secured creditor is maintainable despite the DRT decree and recovery certificate. The court clarified that the secured creditor need not relinquish its security at the stage of filing the petition; the election to do so arises only after a winding up order is passed.
Law Points
- Secured creditor can maintain winding up petition without relinquishing security before admission
- Recovery of Debts Act does not bar winding up proceedings
- Section 434(1)(a) Companies Act applies to secured creditors
- Election to relinquish security arises only after winding up order
