2010 (6) TMI 326 - HC - Companies Law

Whether the stay granted by the DRAT in M. A. No. 56 of 2006 as against the order passed in I. A. No. 538 of 2005 by the DRT, Coimbatore, would amount to nullify or invalidate the action that had already been taken by the petitioner-bank under section 13(4) of the SARFAESI Act? Held that - A reading of the third proviso shows that, if any measures had already been taken under sub-section (4) of section 13 of the SARFAESI Act then the reference under section 15(1) cannot be maintained. In the instant case, already the petitioner had initiated action under section 13(4). The stay granted by the DRAT in M. A. No. 56 of 2006 in the appeal filed by the third respondent will not nullify or invalidate the action already taken by the petitioner-bank. The said stay of the DRAT is only to prevent the petitioner-bank from taking any further action, till the disposal of the appeal. Under such circumstances, I am of the opinion that the order passed by the AAIFR, setting aside the order of the BIFR, is not sustainable and hence, the same is liable to be set aside. Thus the writ petition is allowed and the impugned order passed by the first respondent AAIFR is set aside

Issues Involved:
1. Validity of the AAIFR's order setting aside the BIFR's abatement order.
2. Impact of DRAT's stay on the SARFAESI action already taken by the petitioner-bank.
3. Interpretation of the third proviso to section 15(1) of the SICA in relation to SARFAESI actions.

Detailed Analysis:

1. Validity of the AAIFR's Order Setting Aside the BIFR's Abatement Order:
The petitioner-bank challenged the AAIFR's order, which set aside the BIFR's decision that the reference under section 15(1) of the SICA had abated due to the bank's actions under section 13(4) of the SARFAESI Act. The AAIFR held that since the DRAT had stayed the bank's actions, the BIFR's abatement order was not justified. However, the court found that the AAIFR's reasoning was flawed because the stay by the DRAT was only for future actions and did not invalidate the actions already taken by the bank under section 13(4). Therefore, the AAIFR's order was not legally sustainable and was set aside.

2. Impact of DRAT's Stay on the SARFAESI Action Already Taken by the Petitioner-Bank:
The core issue was whether the stay granted by the DRAT nullified the actions already taken by the bank under section 13(4) of the SARFAESI Act. The court observed that the bank had issued a notice under section 13(4) on March 9, 2004, and took possession of the property on December 5, 2005. The DRAT's stay, granted in M.A. No. 56 of 2006, was intended to prevent further actions but did not invalidate the actions already taken. Consequently, the court held that the stay did not nullify the bank's prior actions, and the AAIFR's decision to set aside the BIFR's abatement order was incorrect.

3. Interpretation of the Third Proviso to Section 15(1) of the SICA in Relation to SARFAESI Actions:
The third proviso to section 15(1) of the SICA states that a reference to the BIFR shall abate if secured creditors representing not less than three-fourths in value of the outstanding amount have taken measures under section 13(4) of the SARFAESI Act. The court noted that the petitioner-bank, representing three-fourths of the outstanding value, had already taken such measures. Therefore, the BIFR's abatement order was justified. The court emphasized that the DRAT's stay did not affect the validity of the actions already taken by the bank, and thus, the reference before the BIFR had rightly abated.

Conclusion:
The writ petition was allowed, and the AAIFR's order was set aside. The court concluded that the actions taken by the petitioner-bank under section 13(4) of the SARFAESI Act were valid and that the reference under section 15(1) of the SICA had abated as per the third proviso. The DRAT's stay did not nullify the bank's prior actions, and the AAIFR's reasoning was incorrect. Consequently, the BIFR's abatement order was reinstated.

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