2017 (1) TMI 1113 - HC - Indian Laws

De-registration ordered by BIFR - whether it is vitiated by fraud as it was ordered before the notice intimating the date of hearing was dispatched - whether once the petitioner company was declared sick , the BIFR has no jurisdiction to order de-registration and permit the creditor bank to proceed for recovery? - Held that - In this case it is seen that the bank had already secured a recovery certificate against the petitioner. When the secured creditor, the 4th respondent Bank decided to enforce the security, proceedings before the BIFR has to be treated as abated in the light of 3rd proviso to Section 15 of SICA and the provisions contained in Section 13(4) of the SARFAESI Act.

Summary

Issues Involved:
1. Jurisdiction of BIFR to order de-registration and permit creditor bank to proceed for recovery.
2. Allegations of fraud and manipulation in the de-registration process.
3. Compliance with procedural requirements for serving notice.
4. Conflict between SICA and SARFAESI Act regarding recovery proceedings.

Detailed Analysis:

Jurisdiction of BIFR to Order De-registration and Permit Creditor Bank to Proceed for Recovery:
The petitioner challenged the de-registration ordered by BIFR, arguing that once a company is declared 'sick,' BIFR has no jurisdiction to order de-registration and allow the creditor bank to proceed with recovery. However, the court noted that BIFR's decision to de-register the company and permit recovery was in accordance with the provisions of Section 22 of SICA. The court found that BIFR had acted within its jurisdiction, especially given the petitioner's non-cooperation and the company's ceased operations.

Allegations of Fraud and Manipulation in the De-registration Process:
The petitioner alleged that the de-registration was vitiated by fraud, claiming that the notice for the hearing was dispatched only after the hearing was over. The court examined the records and found that BIFR had dispatched the notice in June 2007, well before the hearing on 17.7.2007. The court noted that the petitioner had to prove the alleged fraud, which required adjudication after adducing evidence. Since this involved disputed questions of fact, the court held that it was not appropriate to adjudicate these under Article 226 of the Constitution of India.

Compliance with Procedural Requirements for Serving Notice:
The petitioner contended that the bank filed the petition without serving a copy to the petitioner, and BIFR ordered de-registration without proper notice. The court found that the bank had made multiple attempts to serve the notice, including affixing it on the registered office's wall in the presence of witnesses. BIFR also produced records showing the notice was dispatched in June 2007. Given these efforts, the court concluded that procedural requirements were met.

Conflict between SICA and SARFAESI Act Regarding Recovery Proceedings:
The court addressed the conflict between SICA and SARFAESI Act, noting that SARFAESI Act, being a subsequent enactment, has overriding provisions under Section 35. The court cited the Supreme Court's decision in Madras Petrochem Ltd. v. BIFR, which held that SARFAESI Act would prevail over SICA in cases involving secured creditors. The court concluded that since the bank had already initiated proceedings under SARFAESI Act and secured a recovery certificate, the proceedings before BIFR had to be treated as abated under Section 13(4) of SARFAESI Act.

Conclusion:
The court dismissed the writ petition, finding no reason to interfere with the BIFR's order of de-registration. The court held that BIFR acted within its jurisdiction, procedural requirements were met, and SARFAESI Act's provisions prevailed over SICA in this context.