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Secured Creditor Can File Winding Up Petition Despite Obtaining Recovery Certificate From DRT

In CIVIL APPEAL NO. 1291 of 2019, SWARAJ INFRASTRUCTURE PVT. LTD. vs KOTAK MAHINDRA BANK LTD., the Respondent Bank had granted loan to the Applicant which turned NPA and suit was filed before the DRT which was allowed and recovery certificated were issued. However while various attempts were made to auction the secured assets, each of these attempts has yielded no results. In the meanwhile, the respondent issued statutory notices under Sections 433 and 434 of the Companies Act, 1956. As no payments were forthcoming, a company petition was filed before the Bombay High Court and the said petition was admitted as the companies in question were said to be commercially insolvent. The borrower appealed before the Division Bench contending that 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 Act is a special Act which vests exclusive jurisdiction in the DRT. Also, a secured creditor can file a winding up petition only on giving up its security, which has not been done in the present case. The appeal was rejected.

The Apex court bench upheld the high court view and observed 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 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. The court also dismissed the contention that the winding up of a company shall be deemed to commence at the time of presentation of the petition for winding up, and that, if this is so, the stage at which a secured creditor has to give up his security is at the stage of the filing of the winding up petition itself.


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