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2014 (1) TMI 965 - HC - Companies LawReference u/s 15 - Abatement of proceedings - Whether the writ petitions be thrown out on the ground of availability of alternative remedy under Section 17 of the Act 2002 since the Bank has already invoked Section 13(4) of the Act 2002 - Held that - A reference was made by the petitioners under Section 15 of the Act 1985 in the month of October 2010. The said application was registered as Case No. 53/2010. The Board considered the application on different dates and vide proceedings dated 12/12/2011 the Board was satisfied that the Company has become a sick industrial company under Section 3(1) (o) of the Act 1985. The respondent bank which has been treated to be the lead bank by the consortium of bank which is the secured creditor issued a notice dated 01/8/2012 under Section 13(2) of the Act 2002 which was served on the petitioners on 03/8/2012 and 04/8/2012 respectively. The petitioners having failed to discharge their liabilities the Bank invoked Section 13(4) of the Act 2002 by issuing possession notice dated 07/10/2012. The Bank thereafter filed an application under Section 14 of the Act 2002 before the District Magistrate for taking physical possession on 11/3/2013 and 09/4/2013. Petitioners case further in the writ petition is that the scheme of rehabilitation was prepared and submitted in December 2011 before the BIFR and the matter is pending before the BIFR for taking measures for rehabilitation of the petitioners company. Reference does not comes to an end after its registration or after declaration of its sickness is granted by the Board. The Scheme of Section 15 of the Act, 1985 as amended by Act No. 54 of 2002 indicates that after enforcement of the Act 2002 no reference can be made to the BIFR where financial assets have been acquired by any securitisation company or reconstruction company which is provided in the second proviso of Section 15 of the Act 1985. The intent is clear that when financial assets have been acquired under sub-section (1) of Section 5 of the Act 2002 reference to the Board is prohibited. The third proviso to Section 15 of the Act is with regard to the reference which is pending before the BIFR and obviously which reference was made before the financial assets have been acquired under sub-section (1) of Section 5 of the Act 2002. The abatement of reference pending before the Board is to take place when secured creditors not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors have taken any measures to recover their secured debt under sub-section (4) of Section 13 of the Act 2002. The intent is clear that when secured creditors not less than three-fourth in value of the amount outstanding decides to take measure under Section 13(4) of the Act 2002 proceedings before the BIFR stands abated. Reference which has been pending before the Board at any stage is to abate on the measures taken under Section 13(4) of the Act 2002 by not less than three-fourth of the secured creditors. The distinction between the two category of reference i.e. firstly registered and secondly proceedings after registration is an artificial distinction whereas the Legislature never intended any kind of distinction in the references pending before the Board - protection which has been given to a sick industrial company under a previous special statute namely SICA of 1985 has not been taken away by Section 37 of the Securitization Act. The aforesaid amendment which has been made in Section 41 of the Securitisation Act has been discussed above and this Court has also held that as a result of such amendment the present proceeding under SICA cannot abate. Since the proceeding under SICA cannot abate and the petitioner has been declared a sick industrial company the bank cannot proceed against the petitioner in respect of its notice under Section 13(4) of the Securitization Act in view of the statutory bar created under Section 22 of SICA. If a reference under Section 15 of the Act 1985 remains pending even if it is at the stage of Sections 16 17, 18 and 19 of the Act 1985 the reference cannot be said to be not pending after its registration under Section 15 of the Act 1985 or after declaration of the company as a sick unit - scheme for rehabilitation or reconstructing of a sick industrial company undertaken by a specialised body like BIFR/AAIFR should as far as legally permissible remain obstruction free - Even if the reference is proceeding under Section 16 17, 18 and 19 of the Act, 1985 the secured creditors are fully empowered to take measures under Section 13(4) of the Act 2002 in accordance with the third proviso to Section 15 of the Act 1985. Respondent no.2 is fully entitled to proceed under Section 13(4) of the Act 2002 and reference being Case No. 53/2010 having abated on taking measures under Section 13(4) of the Act 2002 petitioners are not entitled for the benefit under Section 22 of the Act 1985 - proceedings initiated by the Bank under Section 13(4) of the Act 2002 are not without jurisdiction. The reference being Case No.53/2010 stands abated. However it is still open for the petitioners to avail their statutory remedy under Section 17 of the Act 2002 against any of the measures taken by the Bank under Section 13(4) of the Act 2002 - Decided against Petitioner.
Issues Involved:
1. Availability of alternative remedy under Section 17 of the SARFAESI Act, 2002. 2. Abatement of reference under the third proviso to Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985. 3. Interpretation of the phrase "reference is pending" in the third proviso to Section 15 of the Act, 1985. 4. Continuation of reference proceedings under Sections 16, 17, 18, and 19 of the Act, 1985. 5. Applicability of Section 22 of the Act, 1985 to the proceedings under the SARFAESI Act, 2002. Detailed Analysis: 1. Availability of Alternative Remedy under Section 17 of the SARFAESI Act, 2002: The court considered whether the writ petitions should be dismissed due to the availability of an alternative remedy under Section 17 of the SARFAESI Act, 2002, after the Bank invoked Section 13(4). The court cited the Supreme Court's decision in United Bank of India Vs. Satyawati Tandon, which emphasized that the High Court should not entertain a writ petition if an effective remedy is available, particularly in matters involving recovery of public dues. However, the court noted that one exception to this rule is when the jurisdiction of the authority is challenged. Since the petitioners questioned the Bank's jurisdiction under Section 13(4) of the SARFAESI Act, 2002, the court decided to examine the merits of the case rather than dismissing the petitions outright. 2. Abatement of Reference under the Third Proviso to Section 15 of the Act, 1985: The court examined whether the reference registered before the BIFR abated under the third proviso to Section 15 of the Act, 1985, upon the Bank taking measures under Section 13(4) of the SARFAESI Act, 2002. The court concluded that the reference abates automatically when secured creditors representing not less than three-fourths in value of the amount outstanding take measures under Section 13(4). No formal order or adjudication by the BIFR is required for abatement. 3. Interpretation of the Phrase "Reference is Pending" in the Third Proviso to Section 15 of the Act, 1985: The court interpreted the phrase "reference is pending" to mean that the reference continues to be pending at any stage, including under Sections 16, 17, 18, and 19 of the Act, 1985. The court rejected the argument that the reference ends upon registration or declaration of sickness by the BIFR. The court emphasized that the reference remains pending until all proceedings under the Act, 1985, are completed. 4. Continuation of Reference Proceedings under Sections 16, 17, 18, and 19 of the Act, 1985: The court held that even if the reference is proceeding under Sections 16, 17, 18, and 19 of the Act, 1985, the secured creditors are fully empowered to take measures under Section 13(4) of the SARFAESI Act, 2002. The court noted that the third proviso to Section 15 of the Act, 1985, applies irrespective of the stage of the reference proceedings. 5. Applicability of Section 22 of the Act, 1985 to the Proceedings under the SARFAESI Act, 2002: The court determined that the petitioners are not entitled to protection under Section 22 of the Act, 1985, once the reference abates due to the secured creditors' actions under Section 13(4) of the SARFAESI Act, 2002. The court concluded that the proceedings initiated by the Bank under Section 13(4) of the SARFAESI Act, 2002, are not without jurisdiction. Conclusion: The court dismissed both writ petitions, holding that the reference before the BIFR abated upon the secured creditors taking measures under Section 13(4) of the SARFAESI Act, 2002. The petitioners were advised to avail their statutory remedy under Section 17 of the SARFAESI Act, 2002, against any measures taken by the Bank.
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