2010 (2) TMI 594 - HC - Companies Law

Whether once the first respondent, ARCIL obtained permission from the other two secured creditors to proceed against the petitioner to exercise any rights conferred on it or pursuant to sub-section (4) of section 13, it is the proceedings before the BIFR which gets abated? Held that - As it is not disputed before us that the other secured creditors have not taken any measures to secure the debt from the petitioner, the industrial company. Further, even if we assume that SASF has given consent to take measures on January 10, 2005, its finance is only 46.7 per cent. of the loan lent. The loan lent by the first respondent comes to 22.5 per cent. If put together the finance given by both of them comes to 69.2 per cent. which is less than three-fourths of the amount borrowed by the petitioner. Similar consent has not been given by the IFCI Limited except for exercising the rights under section 13(4) of the SARFAESI Act, which the first respondent can only exercise on getting the proceedings before the BIFR abated. Since it is now brought to our notice that during the pendency of the writ petitions, SASF acting on behalf of IDBI agreed to sell the assets of the petitioner to Global Profiles Limited and certain amounts have been deposited which have to be distributed between the secured creditors or adjusted as per the books of account between the first respondent, SASF and IFCI, the matter requires to be remitted to the Tribunal to pass appropriate orders in the securitisation appeal after taking note of the same. Writ petitions are accordingly allowed and the matter is remitted to the Tribunal.

Issues Involved:
1. Validity of notice under section 13(2) of the SARFAESI Act.
2. Abatement of BIFR proceedings under section 15 of the SICA.
3. Consent of secured creditors under section 13(9) of the SARFAESI Act.
4. Compliance with SARFAESI Act and Enforcement Rules by the Mandal Executive Magistrate.

Detailed Analysis:

1. Validity of notice under section 13(2) of the SARFAESI Act:
The petitioner-company contended that the notice issued under section 13(2) of the SARFAESI Act by ARCIL was invalid. They argued that since the creditors representing not less than three-fourths in the value of the amount outstanding had not taken any measures to recover their secured debt under sub-section (4) of section 13, the consent obtained by ARCIL under section 13(9) was not a measure for recovery of the amounts due. Therefore, the issuance of the notice under section 13(2) and the consequential proceedings were liable to be set aside.

2. Abatement of BIFR proceedings under section 15 of the SICA:
The Tribunal initially held that the proceedings before the BIFR shall not abate unless the secured creditors representing not less than three-fourths in value of the amount outstanding have taken steps to recover their secured debt under section 13(4) of the SARFAESI Act. The Appellate Tribunal, however, held that the proceedings before the BIFR stand abated when action is taken by all the lenders representing not less than three-fourths in value of the amount outstanding. The High Court clarified that for the proceedings before the BIFR to abate, the secured creditors not less than three-fourths in value of the amount outstanding must take measures as contemplated under section 13(4) of the SARFAESI Act. Since the other secured creditors had not taken any measures to recover their secured debt, the proceedings before the BIFR did not abate.

3. Consent of secured creditors under section 13(9) of the SARFAESI Act:
The High Court emphasized that the consent obtained under section 13(9) of the SARFAESI Act is for the purpose of taking measures under section 13(4) either when the proceedings before the BIFR get abated or when the secured creditor has obtained consent from the BIFR to proceed under the SARFAESI Act. The consent obtained by ARCIL from SASF and IFCI was not sufficient to abate the BIFR proceedings because the other secured creditors had not taken any measures to recover their secured debt, and the total consented amount was less than three-fourths of the outstanding amount.

4. Compliance with SARFAESI Act and Enforcement Rules by the Mandal Executive Magistrate:
The Tribunal found that the Mandal Executive Magistrate had not followed the provisions of the SARFAESI Act and the Enforcement Rules in conducting the proceedings. Consequently, the proceedings taken by ARCIL under the SARFAESI Act were set aside. The High Court did not specifically address this issue in detail but remitted the matter to the Tribunal to pass appropriate orders in light of the subsequent developments.

Conclusion:
The High Court set aside the impugned orders passed by the Appellate Tribunal and remitted the matter to the Tribunal to pass appropriate orders in the securitisation appeals, taking into consideration the subsequent events during the pendency of the writ petition. The writ petitions were allowed, and the matter was remitted to the Tribunal to ensure compliance with the legal provisions and address the subsequent developments.

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