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2016 (2) TMI 132 - SC - Indian LawsInterplay between the Sick Industrial Companies (Special Provisions) Act, 1985 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Whether the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 prevails over the Sick Industrial Companies (Special Provisions) Act, 1985? - Whether the expression where a reference is pending in Section 15 (1) proviso 3 of the Sick Industrial Companies (Special Provisions) Act, 1985 would include all proceedings before the BIFR or only proceedings at the initial reference stage Held that - Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will continue to apply in the case of unsecured creditors seeking to recover their debts from a sick industrial company. This is for the reason that the Sick Industrial Companies (Special Provisions) Act, 1985 overrides the provisions of the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993. Where a secured creditor of a sick industrial company seeks to recover its debt in the manner provided by Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, such secured creditor may realise such secured debt under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, notwithstanding the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. In a situation where there are more than one secured creditor of a sick industrial company or it has been jointly financed by secured creditors, and at least 60 per cent of such secured creditors in value of the amount outstanding as on a record date do not agree upon exercise of the right to realise their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will continue to have full play. Where, under Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, in the case of a sick industrial company having more than one secured creditor or being jointly financed by secured creditors representing 60 per cent or more in value of the amount outstanding as on a record date wish to exercise their rights to enforce their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, being inconsistent with the exercise of such rights, will have no play. Where secured creditors representing not less than 75 per cent in value of the amount outstanding against financial assistance decide to enforce their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, any reference pending under the Sick Industrial Companies (Special Provisions) Act, 1985 cannot be proceeded with further the proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 will abate. In conclusion, it is held that the interim order dated 17.1.2004 by the Delhi High Court would not have the effect of reviving the reference so as to thwart taking of any steps by the respondent creditors in this case under Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. This is because the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 prevails over the Sick Industrial Companies (Special Provisions) Act, 1985 to the extent of inconsistency therewith. Section 15(1) proviso 3 covers all references pending before the BIFR, no matter whether such reference is at the inquiry stage, scheme stage, or winding up stage. The Orissa High Court is not correct in its conclusion on the interpretation of Section 15(1) proviso 3 of the Sick Industrial Companies (Special Provisions) Act, 1985. This being so, it is clear that in any case the present reference under Section 15(1) of the Appellant No. 1 company has abated inasmuch as more than 3/4th of the secured creditors involved have taken steps under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The appeals are accordingly dismissed.
Issues Involved:
1. Interplay between the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). 2. Whether SARFAESI Act prevails over SICA. 3. Interpretation of "where a reference is pending" in Section 15(1) proviso 3 of SICA. Issue-Wise Detailed Analysis: 1. Interplay between SICA and SARFAESI Act: The judgment examines the interaction between SICA and SARFAESI Act, focusing on how these statutes, both dealing with debt recovery, coexist. SICA aims at the rehabilitation of sick industrial companies, while SARFAESI Act facilitates the recovery of debts by banks and financial institutions without court intervention. The court scrutinizes the legislative intent behind these acts and their respective non obstante clauses to determine their precedence. 2. Whether SARFAESI Act prevails over SICA: The court concludes that SARFAESI Act prevails over SICA to the extent of inconsistency. This conclusion is drawn from the legislative scheme and the specific provisions within SARFAESI Act, notably Section 35, which states that SARFAESI Act will override other laws. The court emphasizes that SARFAESI Act, being a later enactment and containing a broader non obstante clause, is intended to take precedence over SICA, particularly in the context of secured creditors recovering their debts. 3. Interpretation of "where a reference is pending" in Section 15(1) proviso 3 of SICA: The court interprets the term "where a reference is pending" in Section 15(1) proviso 3 of SICA to include all stages of proceedings before the BIFR, not just the initial reference stage. This interpretation is essential to ensure that the legislative intent of allowing secured creditors to recover their debts under SARFAESI Act is not thwarted by pending proceedings under SICA. The court rejects the narrower interpretation by the Orissa High Court, which limited "reference" to the initial filing stage, and supports a broader interpretation that encompasses the entire process until the final resolution by BIFR. Conclusion: The Supreme Court holds that SARFAESI Act prevails over SICA in cases of inconsistency, allowing secured creditors to proceed with debt recovery measures under SARFAESI Act without being hindered by the protections offered to sick industrial companies under SICA. The court also clarifies that the term "where a reference is pending" in SICA includes all stages of proceedings before BIFR, ensuring that the objectives of SARFAESI Act are not undermined. Consequently, the appeals are dismissed, affirming the precedence of SARFAESI Act over SICA in the context of secured debt recovery.
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