2015 (3) TMI 621 - HC - Indian Laws

Stay granted by DRT - Action taken under 13(4) of SARFAESI Act - Abatement of proceedings before BIFR - Held that - In the opinion of this Court, mere direction to maintain status quo vis-a-vis a particular property would not mean that the legal effect of the notice has been effaced at least that is the essential purport or intent of third proviso to Section 15(1) of SICA. The Court notices that the intention of the Parliament while enacting the third proviso to Section 15(1) of SICA was to avoid possible conflict between the provisions of SICA and SARFAESI given that both could potentially be construed as special enactments and that there was a degree of overlap, especially in the case of sick industrial debtors. To obviate this conflict, an express provision, making abatement conditional rather than universal was provided for. In the present case, this objective factor alone apart from the measures to be taken under Section 13(4) was the subject matter of enquiry before the BIFR. As is evident from the extract of the BIFR s order, all the secured creditors unanimously consented to the abatement of the proceedings. In these circumstances, the submission of the borrower that the petitioner did not represent the views of the 3/4th or more of such secured creditors has no force. In the absence of any special form or proceeding to record such consent, it has to be held that if such consent is expressed in the course of proceedings, especially before the BIFR or any other authority under the SICA, such consent is deemed valid. As far as the main contention which apparently found favour with the AAIFR with respect to the status quo order which operated in respect of Section 13(4) notice is concerned, this Court is of the opinion that the reasoning is meritless. The validity of Section 13(4) or for that matter any statutory matter cannot be judged on the basis of what an interim order states or purports to state. An interim order is only an aid or an arrangement which entitles the parties to the main proceedings, to work-out the modalities till final adjudication. Till the measures themselves are set-aside under Section 13(4), it cannot be said to be invalid or illegal. It goes without saying that a statutory order, till declared to be so in a legally constituted proceedings, would have to be accepted and given effect to.Refer case law is 1991 (8) TMI 328 - SUPREME COURT . For the foregoing reasons, the impugned order is set aside. It is held that the proceedings before BIFR stood abated upon the service of the notice under Section 13(4). - Decided in favour of appellant.

Summary

Issues:
1. Abatement of proceedings before BIFR under SICA.
2. Validity of status quo order issued by DRT.
3. Interpretation of Section 13(4) of SARFAESI Act.
4. Consent of secured creditors for abatement of proceedings.
5. Judicial review of AAIFR's decision.

Issue 1: Abatement of proceedings before BIFR under SICA
The case involved a dispute regarding the abatement of proceedings before the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The petitioner bank contended that the proceedings had abated, while the respondent borrower challenged this assertion. The BIFR had initially held that the proceedings had abated, but the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) disagreed with this decision. The AAIFR concluded that the abatement of the reference would not be justified, setting aside the BIFR's order and directing further necessary action according to law.

Issue 2: Validity of status quo order issued by DRT
The respondent borrower had approached the Debt Recovery Tribunal (DRT) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), seeking a stay on actions under Section 13(4) of SARFAESI. The DRT had issued a status quo order, which was later modified to stay all actions under Section 13(4) until final disposal of the appeal. The AAIFR analyzed the impact of this status quo order on the abatement of proceedings and concluded that the abatement would not be justified due to the stay on Section 13(4) actions.

Issue 3: Interpretation of Section 13(4) of SARFAESI Act
The interpretation of Section 13(4) of the SARFAESI Act was crucial in determining the validity of the actions taken by the petitioner bank. The AAIFR considered whether the actions under Section 13(4) had been nullified or invalidated by the DRT's stay order. The AAIFR emphasized the significance of the measures under Section 13(4) for secured creditors to recover their debts and the impact of the stay on these actions.

Issue 4: Consent of secured creditors for abatement of proceedings
The key issue revolved around the consent of secured creditors for the abatement of proceedings under SICA. The AAIFR and the High Court analyzed whether the secured creditors, representing not less than 3/4th of the outstanding amounts, had consented to the abatement of proceedings. The unanimous consent of all secured creditors was crucial in determining the validity of the abatement, as per the provisions of SICA and SARFAESI.

Issue 5: Judicial review of AAIFR's decision
The High Court conducted a judicial review of the AAIFR's decision, focusing on the reasoning provided and the legal interpretations made. The High Court disagreed with the AAIFR's conclusions regarding the abatement of proceedings and the impact of the status quo order issued by the DRT. The High Court ultimately set aside the AAIFR's order, holding that the proceedings before BIFR had abated upon the service of the notice under Section 13(4) of SARFAESI.

This detailed analysis provides a comprehensive overview of the legal judgment, highlighting the critical issues, interpretations, and conclusions reached by the courts involved in the case.