Insolvency Proceedings Maintainable Even If Winding Up Petition Is Pending Against Corporate Debtor: Supreme Court

The Supreme Court held that a petition 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 bench comprising Justices RF Nariman and BR Gavai observed that a secured creditor stands outside the winding up and can realise its security de hors winding up proceedings. In this appeal, the appellant’s contention was that post admission of a winding up petition, no petition under Section 7 of the IBC can be filed. According to it, the effect of Section 446 of the Companies Act, 1956 (which is equivalent to Section 279 of the Companies Act, 2013) is that no suit or other legal proceeding can be initiated once there is admission of a winding up petition. Referring to provisions of the IBC, the bench observed IBC will prevail over the other statutes. It said:
Given the object of the IBC as delineated in paragraphs 25 to 28 of Swiss Ribbons (P) Ltd. v. Union of India, (2019) 4 SCC 17 [“Swiss Ribbons”], it is clear that the IBC is a special statute dealing with revival of companies that are in the red, winding up only being resorted to in case all attempts of revival fail. Vis-à-vis the Companies Act, which is a general statute dealing with companies, including companies that are in the red, the IBC is not only a special statute which must prevail in the event of conflict, but has a non-obstante clause contained in Section 238, which makes it even clearer that in case of conflict, the provisions of the IBC will prevail.