SC| Secured creditor can file winding up petition even after obtaining a recovery certificate from DRT

Supreme Court: In a case dealing with companies defaulting a loan of Rs. 48 Crores including interest from Kotak Mahindra Bank, the question relating to 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 arose before the bench of RF Nariman and Navin Sinha, JJ. On the issue, the bench said:

“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.”

The Court said that 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 to jurisdiction 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. It further added:

“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.”

Citing Lord Atkin’s judgment in Lissenden v. C.A.V. Bosch, Ltd., [1940] 1 All E.R. 425 at 436-437, where he said that one has not lost one’s right to a second helping because one has taken the first, the Court said that the Bank 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, in fact:

“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.”

[Swaraj Infrastructure Pvt. Ltd. v. Kotak Mahindra Bank Ltd., 2019 SCC OnLine SC 92, decided on 29.01.2019]

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