2011 (3) TMI 1451 - HC - Companies Law

orders of the AAIFR and BIFR - the dues of State Bank of India (SBI) and Bank of India (BOI), who had taken action under section 13(4) of SARFAESI Act were more than 75 per cent of the total secured debt of the company - reference under section 15(1) of SICA on the basis of modified balance sheet.

Issues Involved:
1. Abatement of reference under section 15(1) of SICA.
2. Compliance with the requirement of three-fourths of secured creditors under section 13(4) of SARFAESI Act.
3. Jurisdiction of BIFR/AAIFR to adjudicate the legality of actions under SARFAESI Act.
4. Rehabilitation consideration based on remaining units of the petitioner company.

Detailed Analysis:

1. Abatement of reference under section 15(1) of SICA:
The petitioner challenged the order by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) dismissing the appeal against the Board of Industrial and Financial Reconstruction (BIFR) order dated 30-8-2010. The BIFR held that the reference under section 15(1) of SICA had abated because the dues of State Bank of India (SBI) and Bank of India (BOI), who had taken action under section 13(4) of SARFAESI Act, were more than 75% of the total secured debt of the company. This decision was based on precedents from Sheel International's case and orders from the High Courts of Delhi, Chennai, and Bombay.

2. Compliance with the requirement of three-fourths of secured creditors under section 13(4) of SARFAESI Act:
The petitioner argued that the condition necessary for abatement under the 3rd proviso of section 15(1) of SICA was not met because SBI and BOI did not represent 75% of the secured debt. They contended that BIFR failed to hold an inquiry to ascertain conclusively whether the three-fourths requirement was met. The AAIFR held that the three-fourths requirement flows from section 13(9) of SARFAESI Act, which mandates that no secured creditor shall exercise rights unless agreed upon by secured creditors representing not less than three-fourths in value of the amount outstanding.

3. Jurisdiction of BIFR/AAIFR to adjudicate the legality of actions under SARFAESI Act:
The AAIFR held that once action under section 13(4) is taken, it is presumed to be in accordance with law, and BIFR/AAIFR will not go into the correctness or legality of such action. The power to challenge an order under section 13(4) of SARFAESI Act lies elsewhere, not with BIFR/AAIFR. The Tribunal also rejected the plea that BIFR and DRT have concurrent jurisdiction, citing NGF Ltd. v. Chandra Developers (P.) Ltd., where the Supreme Court held that Company Court and BIFR do not exercise concurrent jurisdiction.

4. Rehabilitation consideration based on remaining units of the petitioner company:
The petitioner argued that even if one manufacturing unit was taken over, two industrial units remained under the company's ownership, and BIFR should have considered the rehabilitation of the company based on these units. The respondents granted liberty to the petitioner to file a fresh reference under section 15(1) of SICA with a modified balance sheet, considering the profound impact of taking over one unit on the company's financial profile. The court found this approach reasonable and not illegal or unsustainable.

Conclusion:
The court dismissed the writ petition, finding no grounds to interfere with the orders of AAIFR and BIFR. The orders were not deemed illegal, unsustainable, or perverse, and the petitioner's arguments did not justify any direction to continue the reference with the remaining units. The court upheld the abatement of the reference under section 15(1) of SICA based on the measures taken by three-fourths of the secured creditors under SARFAESI Act.

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