2010 (5) TMI 398 - HC - Companies Law

Efficacy of the third proviso to section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 questioned Held that - The third proviso under section 15(1) of the Act of 1985 relieves the specified strength of secured creditors from that shackle and permits them to pursue their remedy under the provisions of Securitisation Act, which have been introduced as a special enactment to further the cause of financial sector and the financial institutions to which the same is applicable. Suffice it to observe that the above position is reinforced from the provisions and in particular the third proviso to section 15(1) read with section 22 of the Act of 1985 itself. Thus, section 37 of the Securitisation Act cannot be pressed into service to whittle down the sweep of the third proviso to section 15(1) of the Act of 1985. Thus there is no question of finding fault with the action taken by the Respondent No. 5-bank of invoking remedy under section 13 of the Securitisation Act and taking the same to its logical end, which action is protected by the sweep of the third proviso to section 15(1) of the Act of 1985 qua the Respondent No. 5-bank being the sole secured creditor at the relevant point of time. Appeal dismissed.

Issues Involved:
1. Jurisdiction and authority of BIFR after the sale of assets under the Securitisation Act.
2. Applicability and interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
3. Interaction between the Securitisation Act, 2002, and the Sick Industrial Companies (Special Provisions) Act, 1985.
4. Validity of actions taken by secured creditors under the Securitisation Act without BIFR's consent.
5. Abatement of BIFR proceedings upon secured creditors invoking the Securitisation Act.

Detailed Analysis:

1. Jurisdiction and Authority of BIFR After the Sale of Assets under the Securitisation Act:
The core issue was whether the BIFR retained jurisdiction over the company's case after the sale of its assets under the Securitisation Act. The court noted that the BIFR had taken the view that since the sale had been completed and action under Section 13(4) of the Securitisation Act had been taken to its logical end and upheld by the DRT, the Board had lost its jurisdiction. This decision was challenged in the appeal before the AIFR, which declined to grant interim protection to the petitioner, emphasizing that the sale had been concluded long back and the BIFR proceedings had abated.

2. Applicability and Interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:
The petitioner argued that the proceedings initiated by the secured creditor bank were covered by Section 22 of the Act of 1985, which necessitated the consent of the BIFR. However, the court did not accept this argument, emphasizing the third proviso to Section 15(1) of the Act of 1985, which allows the abatement of BIFR proceedings if secured creditors representing not less than three-fourths in value of the amount outstanding take measures under Section 13(4) of the Securitisation Act.

3. Interaction Between the Securitisation Act, 2002, and the Sick Industrial Companies (Special Provisions) Act, 1985:
The court analyzed the provisions of Section 22 of the Act of 1985 along with the third proviso to Section 15(1) and Section 35 of the Securitisation Act. It concluded that if secured creditors representing not less than three-fourths in value of the amount outstanding invoke the Securitisation Act, the BIFR proceedings would automatically abate. This interpretation was reinforced by the non obstante clause in Section 35 of the Securitisation Act, which overrides other laws.

4. Validity of Actions Taken by Secured Creditors Under the Securitisation Act Without BIFR's Consent:
The court rejected the extreme argument that even a single secured creditor could invoke the Securitisation Act without BIFR's consent. It clarified that secured creditors representing less than three-fourths in value would require BIFR's consent under Section 22 of the Act of 1985. However, if the secured creditors met the threshold of three-fourths in value, they could proceed without such consent, leading to the abatement of BIFR proceedings.

5. Abatement of BIFR Proceedings Upon Secured Creditors Invoking the Securitisation Act:
The court emphasized that the reference to BIFR would abate if the secured creditors representing not less than three-fourths in value took measures under Section 13(4) of the Securitisation Act. This interpretation was consistent with the legislative intent behind the Securitisation Act, which aimed to empower financial institutions to recover their dues efficiently. The court disagreed with the Orissa High Court's decision in Noble Aqua (P.) Ltd., which held that the reference does not abate if the company has already been declared sick.

Conclusion:
The court dismissed the petition, affirming that the BIFR proceedings had abated due to the secured creditor bank's actions under the Securitisation Act. The court's observations were tentative, meant only to consider the interim relief, and the Appellate Authority was directed to decide the pending appeal on its merits.

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