The Hon’ble Supreme Court in Swaraj Infrastructure Pvt. Ltd. v. Kotak Mahindra Bank Ltd. (Civil Appeal No. 1291 of 2019) has held that the a secured creditor has the right 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.
Facts of the case:
The Kotak Mahindra Bank (‘Respondent’) had obtained a recovery certificate against Swaraj Infrastructure Pvt. Ltd. (‘Appellant’) from the DRT, Mumbai, but various attempts to auction the secured assets yielded no results. In consequence, the Respondent filed a winding up petition against the Appellant which was admitted by the Bombay High Court.
Aggrieved by the admission of the winding up petition, the Appellant appealed before the Division Bench of the Bombay High Court and argued that i) 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 and Bankruptcy Act, 1993 (“the RDB Act”) is a special act which vests exclusive jurisdiction in the DRT and ii) a secured creditor can file a winding up petition after giving up its security. However, these contentions did not find favour with the Division Bench, which dismissed the appeals in question. The Appellant thus preferred the present appeal before the Supreme Court.
Supreme Court's observations and findings:
The Supreme Court has analysed various provisions of the Companies Act, 1956 and the RDB Act to hold that the a winding up petition cannot 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 RDB Act. Further, as winding up under the Companies Act is not “for recovery of debts” due to banks, the bar contained in Section 18 read with Section 24 of the RDB Act would not apply to such winding up proceedings. Therefore, the Supreme Court held that a secured creditor is not barred from initiating winding up proceeding after obtaining a recovery certificate.
The Supreme Court further observed that the Companies Act, 1956 does not require the secured creditor to relinquishing its security before filing the winding up petition. The secured creditor is required to elect on the relinquishment of its security only after the debtor is adjudged insolvent.
Although the Supreme Court dismissed the appeal, it held that a secured creditor should not “blow hot and cold” in attempting to avail more than one remedy at the same time to recover its legitimate dues.
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