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A. Navinchandra Steels Pvt. Ltd. v. SREI Equipment Finance Limited & Ors.

Civil Appeal · 2021 INSC 128Decided 1 Mar 2021
Civil Appeal Nos. 4230-4234 of 2020
Justice Rohinton Fali Nariman · Justice B.R. Gavai

Background

A company, Shree Ram Urban Infrastructure Limited (SRUIL), was already the subject of a long-pending winding-up petition before the Bombay High Court, with a provisional liquidator appointed and some of its mortgaged assets already handed over to and sold by a secured creditor (Indiabulls) outside the winding-up process. While that winding-up proceeding was still pending, another creditor, SREI Equipment Finance, separately filed a fresh application under Section 7 of the Insolvency and Bankruptcy Code (IBC) before the NCLT, which was admitted. The appellant, another creditor pursuing its own claims through the winding-up route, challenged the maintainability of SREI's Section 7 IBC petition, arguing that once a winding-up petition is admitted it should take precedence and block any later IBC proceeding against the same company.

Decision Breakdown

The Supreme Court held that a petition under Section 7 or Section 9 of the IBC is an independent proceeding that stands on its own merits and is not barred merely because a winding-up petition against the same company is already pending or admitted, drawing on its own precedents (Forech, Jaipur Metals, Kaledonia, Action Ispat) on the relationship between the two regimes. It explained that only when a company's winding up has reached an irreversible, "point of no return" stage (such as genuine corporate death) should the Company Court decline to allow matters to shift to the IBC framework, since the IBC's object is to prioritise revival of distressed companies over liquidation wherever still possible. On facts, nothing irreversible had occurred in SRUIL's winding up, and SREI's non-disclosure of the pending winding-up proceeding in its IBC application did not invalidate the IBC petition since it is to be decided purely on its own statutory parameters; the appeal was accordingly dismissed and the interim stay earlier granted by the Supreme Court was vacated.

Lesson Learnt

Creditors are not locked into whichever insolvency-resolution route was filed first: a fresh IBC insolvency application against a company can proceed on its own merits even while an older winding-up case is pending in the High Court, unless the company's liquidation has already reached a point of no return.

Official source (sci.gov.in)View Judgment (PDF)

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