2007 (2) TMI 339 - HC - Companies Law

Issues Involved:
1. Legality and validity of the respondent's action under Section 13(4) of the SARFAESI Act.
2. Applicability of the doctrine of election concerning the remedies under the SFC Act and the SARFAESI Act.
3. Impact of Section 22 of the SICA on the respondent's actions.
4. Whether the respondent represents 75% of the secured creditors to initiate action under the SARFAESI Act.
5. Whether the amendment to the SICA applies during the pendency of the reference before the BIFR.

Issue-wise Detailed Analysis:

1. Legality and Validity of the Respondent's Action under Section 13(4) of the SARFAESI Act:
The petitioner, Golden Weaving Mills (P.) Ltd., challenged the respondent, Tamil Nadu Industrial Investment Corporation Ltd., for taking action under Section 13(4) of the SARFAESI Act. The court held that the respondent is a financial institution within the meaning of Section 2(1)(m) of the SARFAESI Act and is entitled to take appropriate action under Section 13 thereof. The court found that the respondent's notice under Section 13(2) demanding repayment was valid and that the respondent could proceed further under Section 13(4) if the demand was not met.

2. Applicability of the Doctrine of Election:
The petitioner argued that the respondent could not bypass the provisions of the SFC Act and exploit the SARFAESI Act, invoking the doctrine of election. The court referred to the Supreme Court's decision in A.P. State Financial Corporation v. Gar Re-rolling Mills, which held that the doctrine of election does not apply when the ambit and scope of the two remedies are essentially different. The court also cited Transcore v. Union of India, which clarified that the SARFAESI Act is an additional remedy to the SFC Act, and the doctrine of election does not apply. Therefore, the respondent could choose to proceed under the SARFAESI Act without being barred by the doctrine of election.

3. Impact of Section 22 of the SICA:
The petitioner contended that Section 22 of the SICA barred the respondent from taking action under the SFC Act. However, the court noted that Section 37 of the SARFAESI Act states that its provisions are in addition to, and not in derogation of, other laws. The court found that the respondent's remedies under the SFC Act were not available due to the bar under Section 22 of the SICA, but this did not preclude the respondent from proceeding under the SARFAESI Act. The court concluded that there was no express or implied bar in the SFC Act against proceeding under the SARFAESI Act.

4. Whether the Respondent Represents 75% of the Secured Creditors:
The petitioner argued that the respondent did not represent 75% of the secured creditors, which is required to initiate action under the SARFAESI Act. The court found that both the respondent and the Indian Overseas Bank had taken measures under the SARFAESI Act, satisfying the requirement that secured creditors representing not less than three-fourths in value of the amount outstanding have taken measures to recover their secured debts. Therefore, the respondent was justified in initiating action under the SARFAESI Act.

5. Whether the Amendment to the SICA Applies During the Pendency of the Reference Before the BIFR:
The petitioner contended that the amendment to the SICA, introduced by the SARFAESI Act, would not apply since the BIFR had already declared the petitioner as a sick undertaking. The court rejected this argument, stating that the reference was still pending before the BIFR. According to the amended Section 15 of the SICA, the reference would abate if secured creditors representing not less than three-fourths in value of the amount outstanding have taken measures under Section 13(4) of the SARFAESI Act. Thus, the amendment applied, and the respondent's action was valid.

Conclusion:
The court found no substance in the writ petition and dismissed it. The respondent's actions under the SARFAESI Act were upheld as valid and lawful, and the doctrine of election did not bar the respondent from proceeding under the SARFAESI Act. The court also concluded that the amendment to the SICA applied during the pendency of the reference before the BIFR, and the respondent represented the requisite percentage of secured creditors to initiate action under the SARFAESI Act.

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