2015 (5) TMI 1260 - HC - Indian Laws

Refusal to entertain an application for suspension of proceedings before the Debt Recovery Tribunal (DRT) - Section 17 of the Sick Industrial Companies (Special Provisions) Act 1985 - HELD THAT - It is evident from a plain reading of Section 17 of the SICA that upon receiving a reference BIFR is authorised to consider if and to what extent a sick company can be rehabilitated. As a first step in doing so it could take recourse to the power enumerated under Section 17(2). That authorises BIFR with the consent of the secured creditors entitled to claim amounts and assets of the sick company to draw a rehabilitation package and place mechanisms for a limited duration. It is in the event of failure of this exercise or if in the first instance under Section 17(1) BIFR feels that it is not possible to revive the company within the existing parameters that under Section 17(4) it proceeds to take the measures which ultimately culminate in a rehabilitation scheme under Section 18(1). The facts discussed in the present case clearly demonstrate that BIFR was to first explore the possibility of revival of the company by issuing the directions it did on 27.12.1999. The order no doubt refers to a package but that is not in the sense as understood in Section 18(1). It is not the case of the parties that draft rehabilitation scheme was ever circulated considered objected to revised or finally sanctioned by BIFR. This Court cannot fault the DRAT s reasoning that there was no rehabilitation package pending for monitoring by the BIFR which acted as an embargo by Section 22 of SICA. The arguments with respect to the operation or application of third proviso to Section 15(1) of SICA do not arise since the first essential condition for its applicability was pending reference or any sanctioned scheme subject to BIFR. Having concluded that no such reference or scheme existed there was no question of operation or applicability of Section 15 in the circumstances of the case. The petition is unmerited and accordingly dismissed.

Summary

Issues:
Challenge to DRAT order refusing to entertain application for suspension of proceedings before DRT, interpretation of rehabilitation scheme under SICA, applicability of Section 22 of SICA, invocation of SARFAESI Act and RDDBFI Act, contention regarding permission from BIFR for legal proceedings, examination of BIFR orders dated 27.12.1999 and 4.10.2001, analysis of BIFR's jurisdiction under SICA, consideration of Section 17 and Section 18 of SICA, determination of applicability of third proviso to Section 15(1) of SICA.

Detailed Analysis:

The petitioner challenged the DRAT's order declining to entertain an application for suspension of proceedings before the DRT, citing a pending scheme under Section 17 of SICA. The petitioner argued that the scheme originally considered and sanctioned was under Section 18 of the Act, emphasizing the terms agreed upon with secured creditors for settlement. The BIFR had directed the company to make its net worth exceed accumulated losses and allowed for exemptions from certain taxes, with ICICI monitoring the repayment progress as per the settlement package (para 1).

The BIFR, after considering the company's progress, concluded that it was no longer a sick industrial company and discharged it from the purview of SICA, while unfulfilled obligations under the approved package were to be honored. Subsequently, legal proceedings were initiated under SARFAESI Act and RDDBFI Act by the respondent company, leading to challenges by the petitioner (para 3).

The petitioner contended that without seeking permission from BIFR, proceedings before DRT could not continue, citing Section 18 of SICA. The respondent company argued that no impediment existed for invoking SARFAESI Act and RDDBFI Act as they provided separate remedies independent of SICA (para 6).

The Court examined the BIFR orders and jurisdiction under SICA, emphasizing that the orders did not constitute a sanction under Section 18(1) but were exploratory in nature under Section 17(1) and (2). It was clarified that no rehabilitation scheme was finalized under Section 18, and hence, the proceedings could proceed independently under other statutes (para 9).

Consequently, the Court dismissed the petition, ruling that no rehabilitation package was pending for monitoring by BIFR, thereby negating the application of Section 22 of SICA and the third proviso to Section 15(1) in the absence of a sanctioned scheme or pending reference (para 10).