Case: Viral Filaments Limited, Mumbai Vs. Indusind Bank Limited, Mumbai

will be necessary for the DRT to decide questions of priority bearing in mind the principles underlying section 73 of the Code of Civil Procedure inasmuch as section 22 of the RDB Act gives sufficiently wide power to the Tribunal/ Appellate Tribunal to decide such questions of priorities, subject only to the principles of natural justice. In fact, as the Supreme Court pointed out, the powers under section 22 of the RDB Act are much wider than those of Civil Courts and the only restriction on its powers is that principles of natural justice are to be followed. 17.Upon a careful consideration of the judgment in Allahabad Bank (supra), we are unable to agree with the learned Counsel for the Appellant that this judgment in any manner supports the contention that merely because the petitioning creditor before the Company Court is a bank/financial institution or because an application has already been filed before the DRT under the provisions of the RDB Act, the petition for winding up would not be maintainable. 18.Mr. Shah raised a subsidiary contention that the role placed by the Company Court under section 433 of the Companies Act and the DRT under the RDB Act is more or less equivalent since in the Company Petition also the Company Court has to adjudicate the amount due to the petitioning creditor before it can admit petition under section 433(e) of the Companies Act, 1956. In our view, this contention is misconceived. As we have already observed the admission of petition for winding up under section 433(e) need not be preceded by an adjudicated liability of the Company. It proceeds upon the inability of the Company to pay its debts. Section 434(1)(a) prescribes a statutory presumption of such inability on the part of the Company if the conditions prescribed therein are fulfilled. We recount the oft-quoted words of Lord Asquith in East End Dwelling Co. Ltd. vs. Finsbury Borough Council, (1951) 2 ALL ER 587 (HL), "If you are bidden to treat an imaginary state of affairs as real, you must surely, unless prohibited from doing so, also imagine as real the consequence and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it. The Statute says that you must imagine a certain state of affairs; it does not say that having done so, you must cause or permit your imagination to boggle when it comes to the inevitable corollaries of that state of affairs." (Followed by the Supreme Court with approval in State of Bombay vs. Pandurang Vinayak and others, AIR 1953 SC 244 , CIT, Delhi vs. S. Teja Singh, AIR 1959 SC 352 and Chief Inspector of Mines vs. Karam Chand Thapar, AIR 1961 SC 838 ). Thus, if the statute says that the Company must be deemed to be unable to pay its debts, the logical result would be to admit the petition for winding up to investigate it. We find it difficult to accept the contention that the admission of the petition can only follow upon the adjudicated liability of the Company towards the petitioning creditor. 19.Mr. Shah then made an argument which appears to us to be one of desperation. He contends that an order of winding up is an discretionary order and where it is possible to ascertain that a large number of employees are likely to be rendered jobless as a result of the order, or where there are other circumstances indicating that the financial stringency is a temporary phase and the Company is able to get out of it, there is no need for the Company Court to make an order for winding up. He relied on the judgment of the Company Court of the Gujarat High Court in Rishi Enterprises In re, Vol. 73, 1992 Company Cases 271 and the judgment of the Punjab and Haryana High Court in State Trading Corporation of India Ltd. vs. Punjab Tanneries Ltd., Vol. 66 1989 Company Cases 634. What has been held in these two judgments is unexceptionable. If there is a silver lining, then the dark clouds need not impel the Company Court into admitting the petition for winding up the Company. But is there a silver lining at all in the Appellants case is the crucial question. We have already referred to the gist of the affidavit in reply filed to oppose admission of the winding up petition. One would have expected the argument to be based on surer foundation. If there was any material presented before the Company Court to indicate that the Companys assets far exceeded its liabilities, or that the cash crunch was only a temporary phase, and given a little breathing time, the Company would soon come out of straits, the argument could have been considered. After anxiously scanning the affidavit in reply, we find neither any pleading, nor any material particulars which could have satisfied the learned Company Judge on this issue. Thus, the learned Company Judge had nothing but the statutory presumption to fall upon, which he rightly followed up with an order of admission of the petition. Hence, we are unable to say that the learned Company Judge in any way erred in admitting the petition for winding up. 20.For all the aforesaid reasons, we agree with the order made by the learned Single Judge admitting the petition for winding up. We see no reason to interfere with it. In fact, much of the discussion with regard to adjustment of the priorities is really uncalled for in the facts of the present case, for the petition has just been admitted. As to how and in what manner the question of priorities has to be dealt with in a situation of conflict between RDB Act and the provisions of sections 529 and 529A of the Companies Act, 1956, we need express no opinion; nor do we do so. The Appeal is dismissed as without substance. However, there will be no order as to costs.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]5.Section 18 of the RDB Act provides that, on and from the appointed day, jurisdiction of Courts and other authorities in relation to matters specified in section 17 is barred. Section 17 provides that on and from the appointed day, a Tribunal constituted under the RDB Act shall exercise the jurisdiction, powers and authority "to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions." Thus, it is obvious that the exclusion of the jurisdiction of all other Courts and authorities is only to the extent the jurisdiction is specifically vested in the DRT. That jurisdiction under section 17 is only the jurisdiction to entertain and decide applications from banks and financial institutions for recovery of debts due toargument of Mr. Shah that what could be done by the Company Court can equally be done by the DRT under the RDB Act is erroneous. There is no provision in the RDB Act empowering the Tribunal to wind up a Company which owes the debt to the applicant financial institution. The jurisdiction of the Tribunal under the RDB Act is only to adjudicate the liability of the respondent before it, ascertain the "debt" due to the bank/ financial institution and issue a certificate for recovery thereof. Once such a certificate of recovery is issued to the Recovery Officer, the Recovery Officer is empowered to execute the same in the manner prescribed under the RDB Act. We find that the jurisdiction to wind up the Company is wholly unavailable to the DRT. Hence, what could be done by the Company Court under section 433(e) could obviously not be done byto Point (1), the Supreme Court held (paragraph 23) that it is not the intendment of the RDB Act that while the basic liability of the Defendant is to be decided by the Tribunal under section 17, the banks/financial institutions should go to the Civil Court or the Company Court or some other authority outside the Act for the actual realisation of the amount. Placing reliance on the provisions of section 34(1) of the RDB Act, Supreme Court held that the RDB Act overrides other laws to the extent of "inconsistency" and that the prescription of an exclusive Tribunal both for adjudication and execution is a procedure clearly inconsistent with realisation of these debts in any other manner. It was held that the adjudication of the liability and the recovery of amount by execution of the certificate are, respectively, within the exclusive jurisdiction of the DRT and the Recovery Officer and no other Court or authority, much less the Civil Court or the Company Court, can go into the said question relating to the liability and the recovery except as provided in the Act. 11.Dealing with Point 2, the Supreme Court holds in Allahabad Banks case (supra) that as the Company Court had no jurisdiction to decide questions which were exclusively left to the jurisdiction of the DRT and would have no "jurisdiction to transfer the application pending before the DRT to itself for trial, no purpose would be served by insisting on leave being asked from the Company Court before the application could be proceeded with before the DRT. For this reason, the Supreme Court was inclined to hold that there was no need for the Appellant Bank to seek leave of the Company Court to proceed with its claim before DRT or in respect of the execution proceedings before the Recovery Officer. It was also held that such proceedings could not be transferred to the Company Court.16.Dealing with the argument based on sections 529 and529A of the Companies Act, 1956,in the light of the provisions of the RDB Act, the Supreme Court held that it will be necessary for the DRT to decide questions of priority bearing in mind the principles underlying section 73 of the Code of Civil Procedure inasmuch as section 22 of the RDB Act gives sufficiently wide power to the Tribunal/ Appellate Tribunal to decide such questions of priorities, subject only to the principles of natural justice. In fact, as the Supreme Court pointed out, the powers under section 22 of the RDB Act are much wider than those of Civil Courts and the only restriction on its powers is that principles of natural justice are to be followed.we have already observed the admission of petition for winding up under section 433(e) need not be preceded by an adjudicated liability of the Company. It proceeds upon the inability of the Company to pay its debts. Section 434(1)(a) prescribes a statutory presumption of such inability on the part of the Company if the conditions prescribed therein areanxiously scanning the affidavit in reply, we find neither any pleading, nor any material particulars which could have satisfied the learned Company Judge on this issue. Thus, the learned Company Judge had nothing but the statutory presumption to fall upon, which he rightly followed up with an order of admission of the petition. Hence, we are unable to say that the learned Company Judge in any way erred in admitting the petition for winding up. 20.For all the aforesaid reasons, we agree with the order made by the learned Single Judge admitting the petition for winding up. We see no reason to interfere with it. In fact, much of the discussion with regard to adjustment of the priorities is really uncalled for in the facts of the present case, for the petition has just been admitted. As to how and in what manner the question of priorities has to be dealt with in a situation of conflict between RDB Act and the provisions of sections 529 and529A of the Companies Act, 1956,we need express no opinion; nor do we do so. The Appeal is dismissed as without substance. However, there will be no order as to costs.