A secured creditor is outside the winding up process of a company, unless he files a suit for the realisation of his security

Last updated: 10 March 2021

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This Supreme Court judgement clarifies the position of secured creditors in company winding-up proceedings. Generally, a secured creditor is considered outside the winding-up process. However, this exclusion does not apply if the creditor initiates legal action to realise their security. The case involves an operational creditor with a decree against a company that is undergoing winding up.

Court :
Supreme Court of India

Brief :
This appeal arises out of the judgment dated 07.02.2020, as corrected by order dated 21.09.2020, by the National Company Law Appellate Tribunal [“NCLAT”]. The Appellant is an operational creditor of Respondent No.2 herein – M/s. Shree Ram Urban Infrastructure Limited [“SRUIL”], the company under winding up

Citation :
CIVIL APPEAL NOs.4230-4234 OF 2020

IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOs.4230-4234 OF 2020
A. Navinchandra Steels Private Limited …Appellant
VERSUS
SREI Equipment Finance Limited & Ors. …Respondents
J U D G M E N T

R.F. Nariman, J.

1. This appeal arises out of the judgment dated 07.02.2020, as corrected by order dated 21.09.2020, by the National Company Law Appellate Tribunal [“NCLAT”]. The Appellant is an operational creditor of Respondent No.2 herein – M/s. Shree Ram Urban Infrastructure Limited [“SRUIL”], the company under winding up – and has a decree dated 07.10.2015 in its favour passed by the Bombay High Court in Summary Suit No.626 of 2014. Vide order dated 06.10.2016, the Division Bench stayed the order dated 07.10.2015 and directed SRUIL to deposit INR14 crore with the Prothonotary and Senior Master of the High Court or furnish a bank guarantee for the same, failing which the stay order would get vacated. The said appeal is pending as on date. We are also informed that an execution application, being Execution Application (L) No.934 of 2016 was filed by the Appellant before the Bombay High Court and the same is also pending as on date.

2. Sometime in 2015, the Appellant had filed a winding up petition, being Company Petition No.1039 of 2015 against SRUIL before the Bombay High Court, the same being pending as on date.

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FAQ :

A secured creditor is typically excluded from the winding-up process of a company.

A secured creditor is not excluded if they file a suit for the realisation of their security.

The appeal concerns the rights of an operational creditor with a decree against a company that is currently being wound up.

The appellant has obtained a decree, had it stayed by the Bombay High Court with a condition for deposit or bank guarantee, and has pending execution proceedings.