2008 (1) TMI 630 - HC - Companies Law

Whether there is substantial compliance of section 13(3A) of the Securitisation Act ? - Held that - It is crystal clear that the said objections filed by the petitioner vide annexure P13 dated March 2, 2007, stand disposed of by the respondents vide their reply dated March 7, 2007 (annexure P14) meaning thereby that there is substantial compliance of section 13(3A) of the Securitisation Act enabling the respondent-Corporation to take further steps as provided under section 13(4) of the Securitisation Act. Even otherwise to our mind, the writ petition on this account is premature as no steps under section 13(4) of the Securitisation Act have been taken by the respondents which can be further challenged and which is also appealable under section 17 of the Securitisation Act before the Debts Recovery Tribunal having jurisdiction in the matter. W.P. dismissed.

Issues Involved:
1. Maintainability of the writ petition challenging the notice under section 13(2) of the Securitisation Act.
2. Applicability of section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) in light of the pending proceedings before the Board for Industrial and Financial Reconstruction (BIFR).
3. Compliance with section 13(3A) of the Securitisation Act by the respondents.

Issue-Wise Detailed Analysis:

1. Maintainability of the writ petition challenging the notice under section 13(2) of the Securitisation Act:
The petitioner challenged the action of respondent No. 1 for initiating proceedings under section 13(2) of the Securitisation Act and sought to quash the notice dated January 9, 2007. The respondents argued that the writ petition is not maintainable as the secured creditors have the right to enforce security for repayment of the loan without court intervention, subject to the provisions of the Act. The court found that the petitioner had defaulted on loan repayments, justifying the issuance of the notice under section 13(2). It was also noted that no further steps under section 13(4) had been taken, which could be challenged or appealed under section 17 of the Securitisation Act before the Debts Recovery Tribunal. Thus, the writ petition was deemed premature and not maintainable.

2. Applicability of section 22(1) of the SICA in light of the pending proceedings before the BIFR:
The petitioner argued that since the unit was declared sick by the BIFR and proceedings were pending, no action could be taken under the Securitisation Act, citing section 22(1) of the SICA, which stays all recoveries of dues. However, the court noted the amendment in section 15 of the SICA via section 41 of the Securitisation Act, which states that any reference pending before the BIFR shall abate if secured creditors representing not less than three-fourths in value of the outstanding amount have taken measures to recover their secured debt. Additionally, section 35 of the Securitisation Act has an overriding effect over other laws. Consequently, the court rejected the petitioner's contention, stating that the proceedings before the BIFR abate once action under the Securitisation Act is initiated by the secured creditors.

3. Compliance with section 13(3A) of the Securitisation Act by the respondents:
The petitioner contended that the respondents failed to communicate reasons for non-acceptance of objections within a week, as required under section 13(3A) of the Securitisation Act, thus precluding them from taking action under section 13(4). The court found that the respondents had disposed of the objections and communicated the same to the petitioner, indicating substantial compliance with section 13(3A). The court cited the Supreme Court's ruling in Mardia Chemicals Ltd. v. Union of India, which established that reasons communicated after considering the borrower's reply do not give the borrower the right to approach the Debts Recovery Tribunal at that stage. The borrower can file an appeal under section 17 only after measures under section 13(4) are taken. Hence, the court concluded that the writ petition was premature as no steps under section 13(4) had been taken, and an appeal under section 17 was available.

Conclusion:
The court dismissed the writ petition, finding it devoid of merit. The petitioner's arguments regarding the stay of recovery proceedings under section 22(1) of the SICA were rejected in light of the amendments and overriding provisions of the Securitisation Act. The respondents' compliance with section 13(3A) was deemed sufficient, and the petition was considered premature as no actionable steps under section 13(4) had been taken.

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