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2014 (12) TMI 1023 - SC - Companies LawRecovery of Debts - Whether provisions of SICA would prevail over the RDDB Act Company failed to repay loan installments - Difference of opinion regarding - Decision of larger bench of Apex Court - The High Court set aside the Order passed by the Debt Recovery Appellate Tribunal, Delhi (DRAT) and held that in view of the bar contained in Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) no recovery proceedings could be effected against M/s. Arihant Threads Ltd. - Held that - sub-section (1) of Section 22 may be divided into two parts. In one part, it provides that no proceedings be instituted for the winding up of the industrial company or for execution, distress or the like against any of the properties of such industrial company, and in the second part it provides that no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advances granted to the industrial company, shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. Application for recovery cannot specifically be described as proceedings for execution, distress or the like against any of the properties, but it is certainly a proceeding which results in and in fact had resulted in the execution and distress against the property of the Company and is therefore liable to be construed as a proceeding for the execution, distress or the like against any of the properties of the industrial company - such a construction would be within the intendment of Parliament wherever the proceedings for recovery of a debt which has been secured by a mortgage or pledge of the property of the borrower are instituted - Surely, there is no purpose in construing that Parliament intended that such an application for recovery by summary procedure should lie or be proceeded with, but only its execution be interdicted or inhibited especially - the proceedings by way of an application for recovery according to a summary procedure as provided under the RDDB Act are not referred to in Section 22 simply because the RDDB Act had not then been enacted. The Court found a harmonious scheme in relation to the proceedings for reconstruction of the company under the SICA, which includes the reconstruction of debts and even the sale or lease of the sick company s properties for the purpose, which may or may not be a part of the security executed by the sick company in favour of a bank or a financial institution on the one hand, and the provisions of the RDDB Act, which deal with recovery of debts due to banks or financial institutions, if necessary by enforcing the security charged with the bank or financial institution, on the other. The purpose of the two enactments is entirely different. As observed earlier, the purpose of one is to provide ameliorative measures for reconstruction of sick companies, and the purpose of the other is to provide for speedy recovery of debts of banks and financial institutions. Both the Acts are special in this sense. However, with reference to the specific purpose of reconstruction of sick companies, the SICA must be held to be a special law, though it may be considered to be a general law in relation to the recovery of debts. Whereas, the RDDB Act may be considered to be a special law in relation to the recovery of debts and the SICA may be considered to be a general law in this regard. For this purpose we rely on the decision in LIC v. D.J. Bahadur 1980 (11) TMI 157 - SUPREME COURT OF INDIA . - Normally the latter of the two would prevail on the principle that the Legislature was aware that it had enacted the earlier Act and yet chose to enact the subsequent Act with a non-obstante clause. In this case, however, the express intendment of Parliament in the non-obstante clause of the RDDB Act does not permit us to take that view. Though the RDDB Act is the later enactment, sub-section (2) of Section 34 specifically provides that the provisions of the Act or the rules thereunder shall be in addition to, and not in derogation of, the other laws mentioned therein including SICA. The term not in derogation clearly expresses the intention of Parliament not to detract from or abrogate the provisions of SICA in any way. This, in effect must mean that Parliament intended the proceedings under SICA for reconstruction of a sick company to go on and for that purpose further intended that all other proceedings against the company and its properties should be stayed pending the process of reconstruction. While the term proceedings under Section 22 did not originally include the RDDB Act, which was not there in existence. Section 22 covers proceedings under the RDDB Act. The provisions of SICA, in particular Section 22, shall prevail over the provision for the recovery of debts in the RDDB Act.
Issues Involved:
1. Interpretation of Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act). 2. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on recovery proceedings. 3. Priority and primacy between RDDB Act and SICA. 4. Validity of recovery proceedings and auction sale under RDDB Act. 5. Impact of BIFR proceedings on recovery actions. Detailed Analysis: 1. Interpretation of Section 34 of the RDDB Act: The Supreme Court was tasked with interpreting Section 34 of the RDDB Act, which includes a non-obstante clause giving it an overriding effect over other laws. However, sub-section (2) of Section 34 specifies that the RDDB Act is in addition to and not in derogation of certain other Acts, including SICA. This created a legal conundrum on whether RDDB Act proceedings could supersede SICA provisions. 2. Applicability of Section 22 of SICA on Recovery Proceedings: Section 22 of SICA provides for the suspension of legal proceedings against a sick industrial company during the pendency of an inquiry or scheme under SICA. The Supreme Court had to determine whether this suspension applied to recovery proceedings under the RDDB Act. The Court concluded that Section 22 of SICA did indeed cover and interdict applications for recovery under the RDDB Act, thereby protecting the properties of sick companies from being proceeded against by creditors. 3. Priority and Primacy between RDDB Act and SICA: The judgment highlighted the conflicting non-obstante clauses in both RDDB Act and SICA. The Court noted that while both Acts are special laws, the RDDB Act is special concerning the recovery of debts, whereas SICA is special concerning the reconstruction of sick companies. The Court emphasized that the purpose of both enactments must be fulfilled as far as possible. It concluded that the provisions of SICA, particularly Section 22, should prevail over the RDDB Act due to the specific provision in Section 34(2) of the RDDB Act that it is not in derogation of SICA. 4. Validity of Recovery Proceedings and Auction Sale under RDDB Act: The Court examined the sequence of events, including the ex-parte order by DRT, the auction sale, and subsequent appeals. It was noted that the recovery proceedings under the RDDB Act had been concluded before the company invoked SICA provisions. The auction sale was confirmed by DRAT, and the appellant had deposited the sale price. The Court found that the High Court erred in setting aside the DRAT's order based on the bar under Section 22 of SICA, as the recovery proceedings had already concluded. 5. Impact of BIFR Proceedings on Recovery Actions: The Court acknowledged that the company had filed a reference before the BIFR, which was initially rejected but later accepted, declaring the company as a sick industrial company. However, since the recovery proceedings under the RDDB Act had been concluded before the BIFR reference, the company was not entitled to relief under Section 22 of SICA. The Court emphasized the intention of Parliament to protect the properties of sick companies during reconstruction and rehabilitation processes under SICA. Conclusion: The Supreme Court set aside the judgment and order of the Delhi High Court, which had quashed the DRAT's order confirming the auction sale. The Court held that Section 22 of SICA prevails over the RDDB Act provisions for recovery of debts, and the writ petitions filed by the company were dismissed. The appeal was allowed, affirming the auction sale and recovery proceedings under the RDDB Act.
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