A. Navinchandra Steels (P) Ltd v. SREI Equipment Finance Ltd & Others 2011 Comp LJ 368 (SC)

Quick Summary

Key point: CIRP under IBC Section 7 can go on even if winding up has begun under the Companies Act. The Supreme Court said IBC is a special, later law with an overriding clause (s.238). Winding up and CIRP are independent paths: courts should favour revival of viable companies for workers, creditors, and the wider economy.

Citation

2011 Comp LJ 368 (SC)

Court

Supreme Court of India

Keywords

IBC s.7, CIRP priority, Companies Act winding up, s.238 override, revival

Issues

• Do CIRP proceedings under IBC s.7 prevail over winding up proceedings under the Companies Act?
• Are CIRP and winding up independent so that one does not bar the other?
• Should courts prefer revival where death of the company is not inevitable?

Rules

• Independence: CIRP (IBC s.7/s.9) runs independently of winding up under the Companies Act.
• Override: Section 238 IBC gives IBC an overriding effect in case of conflict.
• Revival-first: If possible, choose resolution that protects workmen, creditors, and productive assets.

Facts (Timeline)

Arguments

Judgment (Supreme Court)

• Appeal Rejected: Interim stay (18.12.2020) vacated; CIRP continues.
• Priority: A valid s.7 IBC application is not ousted by s.434 Companies Act.
• Independence: CIRP commencement does not nullify winding up steps; tracks are distinct.
• Override: In conflicts of special laws, the later one with a non-obstante clause (IBC s.238) prevails.

Ratio

IBC is a revival-first code. Where s.7 conditions are met, CIRP may proceed even alongside winding up. The IBC’s overriding clause ensures it prevails in case of conflict.

Why It Matters

• Protects value by allowing resolution despite parallel liquidation steps.
• Guides tribunals on jurisdiction clashes between IBC and Companies Act.
• Signals policy: try revival before corporate death.

Key Takeaways

1. CIRP ≠ Winding Up: Different purposes, can run in parallel.
2. s.238 IBC: Overrides conflicting provisions elsewhere.
3. Revival Bias: Courts favour going concern solutions.
4. Jurisdiction: s.434 transfer powers don’t defeat a proper s.7 admission.

Mnemonic + 3-Step Hook

Mnemonic: “R-O-P” — Revival first, Override by s.238, Parallel tracks possible.

1. Check s.7 ingredients: default, debt, evidence.
2. Apply s.238 if conflicts arise.
3. Proceed with CIRP even if winding up steps exist.

IRAC Outline

Issue: Do IBC s.7 CIRP proceedings override/withstand parallel winding up?

Rule: IBC is special, later law; s.238 overrides; CIRP & winding up are independent processes.

Application: With s.7 satisfied, CIRP could be admitted despite HC winding up acts; revival takes priority.

Conclusion: Appeal dismissed; CIRP may continue; interim stay vacated.

Glossary

CIRP

Corporate Insolvency Resolution Process under the IBC, aimed at revival.

Section 7 (IBC)

Financial creditor’s route to trigger CIRP on proof of default.

Section 238 (IBC)

Overriding clause giving IBC primacy over inconsistent laws.

Student FAQs

Related Cases

• Cases affirming IBC’s non-obstante primacy.
• Decisions on transfer of winding up to NCLT under s.434.