Ongoing winding-up proceedings not a deterrent against filing insolvency petitions: Supreme Court
Insolvency application either under Section 7 or Section 9 of the Insolvency and Bankruptcy Code is an independent proceeding which is unaffected by winding-up proceedings that may be filed against the same company, the Supreme Court said in an order recently.
The court made this statement while hearing a plea filed by Navinchandra Steels Private, an operational creditor of corporate debtor Shree Ram Urban Infrastructure Limited, against insolvency petition filed by SREI Equipment Finance Limited.
The appellant has opposed insolvency petitions against the corporate debtor — Shree Ram Urban Infrastructure Limited – as winding-up proceedings are underway against the company.
The court said 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.
The court said that it is not possible to accede to the argument on behalf of the appellant that given Section 446 of the Companies Act, 1956/Section 279 of the Companies Act 2013, once a winding up petition is admitted, the winding up petition should trump any subsequent attempt at revival of the company through a Section 7 or Section 9 petition filed under the IBC.
Citing Section 230(1) of the Companies Act 2013, which says a compromise or arrangement can also be entered into in an IBC proceeding if liquidation is ordered, the court says that while under the Companies Act, it is only winding up that can be ordered, the primary emphasis of IBC is on revival of the corporate debtor through infusion of a new management.
On appellant’s argument that SREI Equipment Finance 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, the Supreme Court held that these arguments do not avail the appellant for the simple reason that Section 7 is an independent proceeding, as has been held in similar 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,” maintained the court.
