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2010 (2) TMI 599 - HC - Companies LawWhere there is an action under the State Financial Corporations, Act, 1951 ( SFC Act ) and under Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ( RDB Act ), can the company court exercise powers under section 391(6) of the Companies Act, 1956 ( Act of 1956 ) pending application under section 391 of the Act of 1956 and stay the proceedings initiated under RDB Act and SFC Act pending before the respective judicial forums? Held that - The proceedings of RDB Act are not liable to be stayed under section 391(6) of the Act of 1956. To that extent the findings of learned Single Judge that application under section 391 of the Act can be maintained cannot be considered to be laying down a good law. This is held that as and when there are proceedings pending under the RDB Act exercise of jurisdiction under section 391 of the Act of 1956 cannot be considered to be lawfully available. As regards exercise of jurisdiction under section 391(6) of the Act of 1956, it would not be available in view of overriding provisions of RDB Act/SFC Act, it may be noticed here as well that the Hon ble Supreme Court has decided in the cases noticed by learned Single Judge that as and when there is proceedings under SFC Act the same should not be interfered under article 226 of the Constitution, a jurisdiction which is very wide and the jurisdiction under section 391(6) is only limited that too circumscribed by terms which can be imposed. Therefore, also in view of the fact that the appellant-company has not made any payment to the objector financial institutions over and above a paltry sum, may be around ₹ 60 lakh. That being the position, the conduct of the appellant-company is also of the nature which does not call for exercise of discretionary jurisdiction in its favour. Appeal of appellant-company fails
Issues Involved:
1. Maintainability of application under Section 391 of the Companies Act, 1956. 2. Conflict between the Companies Act, 1956 and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act). 3. Conflict between the Companies Act, 1956 and the State Financial Corporations Act, 1951 (SFC Act). 4. Overriding effect of special statutes (RDB Act and SFC Act) over the Companies Act, 1956. 5. Discretionary jurisdiction under Section 391(6) of the Companies Act, 1956. Issue-wise Detailed Analysis: 1. Maintainability of Application under Section 391 of the Companies Act, 1956: The court held that an application under Section 391 of the Companies Act, 1956 is maintainable. The learned Company Judge referred to a previous judgment in the case of Core Health Care Ltd., which established that applications under Section 391 read with Section 394 are maintainable. The Judge also noted that the scope of application under Section 391(6) is separate from its maintainability and that each case must be decided on its own facts and merits. 2. Conflict between the Companies Act, 1956 and the RDB Act: The court discussed the exclusive jurisdiction of the Debts Recovery Tribunal (DRT) under the RDB Act for the recovery of debts due to banks and financial institutions. The non obstante clause in Section 34 of the RDB Act grants it overriding effect over other laws. The court observed that the RDB Act is a special statute with a specific objective of speedy recovery of debts, which conflicts with the Companies Act, 1956's provision for restructuring debts under Section 391. The court concluded that the RDB Act would override the Companies Act, 1956 in matters of debt recovery. 3. Conflict between the Companies Act, 1956 and the SFC Act: The court examined the special powers conferred on State Financial Corporations under Section 29 of the SFC Act, which includes taking possession of mortgaged assets for recovery. It was observed that the SFC Act also contains a non obstante clause, giving it precedence over other laws. The court held that the exercise of statutory rights under Section 29 of the SFC Act cannot be interfered with by the company court under Section 391(6) of the Companies Act, 1956. 4. Overriding Effect of Special Statutes (RDB Act and SFC Act) over the Companies Act, 1956: The court emphasized that the RDB Act and SFC Act are special statutes with non obstante clauses, granting them overriding effect over the Companies Act, 1956. The court cited various judgments to support this view, including the case of Allahabad Bank v. Canara Bank, where the Supreme Court held that the RDB Act overrides the Companies Act to the extent of inconsistency. The court noted that the legislative intent was to prioritize the recovery of public monies, which would be frustrated by allowing the company court to stay proceedings under the RDB Act and SFC Act. 5. Discretionary Jurisdiction under Section 391(6) of the Companies Act, 1956: The court held that the discretionary jurisdiction under Section 391(6) of the Companies Act, 1956 cannot be exercised to stay proceedings under the RDB Act and SFC Act. The court reasoned that such an exercise would conflict with the special statutes' objective of speedy recovery of debts. The court also noted that the conduct of the appellant-company, which had defaulted on payments, did not warrant the exercise of discretionary jurisdiction in its favor. Conclusion: The court concluded that the RDB Act and SFC Act have overriding effect over the Companies Act, 1956 in matters of debt recovery. The application under Section 391 of the Companies Act, 1956 is maintainable, but the jurisdiction under Section 391(6) cannot be exercised to stay proceedings under the RDB Act and SFC Act. The appeals were decided accordingly, with the appeal of the appellant-company failing and the appeal of the objector succeeding to the extent indicated. The effect and operation of the judgment were stayed until 29-3-2010 to allow the parties to approach the Supreme Court.
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