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TMI Blog2010 (5) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... logical end, which action is protected by the sweep of the third proviso to section 15(1) of the Act of 1985 qua the Respondent No. 5-bank being the sole secured creditor at the relevant point of time. Appeal dismissed. - WRIT PETITION NO. 2079 OF 2010 - - - Dated:- 19-5-2010 - A.M. KHANWILKAR AND R.M. SAVANT, JJ. Janak Dwarkadas, S. Jagtiani, Shiraj Dhruv and Aditya Hegde for the Petitioner. Ms. Jyoti Singh, Ms. Mrudula Khedekar, S.P. Thorat, Aspi Chinoy, Z.A. Jariwala and Vikram Mehta for the Respondent. JUDGMENT A.M. Khanwilkar, J. - Heard counsel for the parties. 2. This Petition, under Article 226 of the Constitution of India, takes exception to the order passed by the Appellate Authority for Industrial Financial Reconstruction, New Delhi, dated 13-1-2010, whereby the prayer for interim relief during the pendency of Appeal preferred by the Petitioner has been rejected. The Petitioner, by the said Appeal, had questioned the correctness of the order passed by the Board for Industrial and Financial Reconstruction (BIFR) dated 7-1-2009. 3. Briefly stated, the question that arises for our consideration is in the context of the fact that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... status quo with regard to the company s property till the disposal of the Appeal. This prayer has been considered by the Appellate Authority in the impugned judgment. The Appellate Authority has declined to grant any interim protection to the Petitioner for the reasons recorded in paragraphs 10 and 11 of the impugned decision. The substance of the reason is that the sale in favour of the Respondent No. 7 has been concluded long back and because the action, under section 13(4) has been taken to its logical end, it was not open to interdict that process and more so because the BIFR proceedings have abated. 4. The argument canvassed before us is essentially founded on the mandate of section 22 of The Sick Industrial Companies (Special Provisions) Act, 1985. It was argued that the proceeding resorted to by the Respondent No. 5-bank were covered by the sweep of section 22 of the Act of 1985 and, therefore, the same could not have proceeded further in absence of consent of the Board. The argument, though attractive, does not commend to us. 5. We make it clear that our observations in this order be treated as only, prima facie, to consider the question regarding grant of interi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns or advance 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." 7. Significantly, the third proviso has been introduced in the year 2002 by Act 54 of 2002 which corresponded with the coming into force of the Securitisation Act of 2002. The same has been inserted as per section 41 of the Securitisation Act. The third proviso to section 15(1) of the Act of 1985 postulates two requirements so that the reference before the BIFR would abate, namely : ( i )The secured creditors must represent not less than three-fourth in value of the amount outstanding against the financial assistance disbursed to the borrower; and ( ii )Such secured creditors have taken any measures to recover this secured debt under section 13(4) of the Act of 2002. This proviso is an enabling provision which permits the specified number of secured creditors to take measures to recover their secured debt under section 13(4) of the Act of 2002 and if action is so taken by them, then it would automatically entail in abatement of the reference proceedings before the BIFR. This proviso is in the nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 2002. 11. In the present case, the Respondent No. 5-bank claims to be the only secured creditor who has had provided financial assistance to the Respon- dent No. 3-company, at the relevant point of time. This factual position has not been challenged in the application filed by the Petitioner before the Board. This is a crucial matter which ought to have been asserted by the Petitioner only when it could have succeeded in persuading the Board that the proceeding before the BIFR has not abated in law. On the other hand, if the Respondent No. 5 qualified the requirement of the secured creditors representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower, the question of taking consent of the Board would not arise and, at the same time, by operation of law, the proceeding before the BIFR would abate without requiring to do anything further. 12. That, however, does not mean that the BIFR would have no jurisdiction to examine the factual position as to whether the secured creditors who intend to or have invoked the provisions of the Act of 2002 would constitute the requisite strength of not less than three- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted with respect to the company." Once the measures have been determined, the reference is exhausted and it can no longer be said that the Reference is pending. In that situation, the third proviso to section 15(1) of the Act of 1985 will have no application. It was argued that in the present case, the BIFR has not only declared the Respondent No. 3 as a sick company, as back as on 25-8-1999, within the meaning of section 3(1)( o ) of the Act of 1985, but has also framed and sanctioned the scheme for revival of the Respondent No. 3-Company to which the Respondent No. 5-Bank was party-being the Secured Creditor. In such a situation, the third proviso to section 15(1) of the Act of 1985 cannot be invoked by the Secured Creditor such as Respondent No. 5-Bank. To buttress this submission, emphasis is placed on the opinion of the Orissa High Court in the above decision, which reads thus : "This Court is unable to appreciate the aforesaid contention. The proviso makes it very clear that same will come into force where a reference is pending before the BIFR. Such reference will abate if the secured creditors representing not less than three-fourths in value of the amount outstanding aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder section 22(1) of the Act of 1985, which was opposed for and on behalf of the Company on the ground that such permission would delay the revival of the company. The permission asked by the opposite party-bank under section 22(1) was refused by order dated 14-11-2006. That order had become final. In the mean time, the Company had filed Petition before the DRT on 10-7-2006 for suspension of further proceedings before DRT. What is relevant to notice is that the opposite party-Bank vide letter dated 26-12-2006 emphasised about the DRT proceedings and stated that the DRT will take measures for seizure of the factory premises and other fixed assets of the company for sale through public auction for recovery of the decreetal dues of the bank. Thereafter, notice under section 13(4) of the Securitisation Act was issued to the Company. In this background, the Company rushed to the High Court by way of Writ Petition challenging the said notice under section 13(4) of the Securitisation Act received by it being in contravention of provisions of section 22 of the Act of 1985. The bank, on the other hand, asserted that on invocation of action under section 13 of the Securitisation Act, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apex Court was whether the Company Judge had jurisdiction to issue any direction to the Company to execute a deed of sale, which amounted to grant of a decree for specific performance of a contract. That issue was considered essentially keeping in mind the efficacy of section 22 of the Act of 1985. Even this decision will be of no avail to examine the purport of third proviso to section 15(1) of the Act of 1985, which, in our view, is an exception to carve out or remove the special cases from the general proceedings or actions covered under section 22 of the Act of 1985. 21. Similarly in the case of Jay Engg. Works Ltd. ( supra ), the Apex Court was called upon to consider the sweep of section 22 of the Act of 1985 and whether the same would be applicable in respect of action initiated by the Respondent therein in terms of provisions of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. The Supreme Court interpreted section 6(2) of the Act of 1993, which is non obstante clause and postulates that any party to dispute may make a reference to the Industry Facilitation Council for acting as an arbitrator or conciliator in respect of m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utions to the extent possible from the non-viable sick industrial companies through liquidation of those companies, as is mentioned in the Statement of Objects and Reasons of the Act of 1985. 24. Asaforesaid, none of these decisions have any bearing on the interpretation of the third proviso to section 15(1) of the Act of 1985. With utmost respect to the Division Bench of Orissa High Court, which has decided the case of Noble Aqua (P.) Ltd. ( supra ), we are in disagreement with their opinion that the reference does not abate because the Company has already been declared as a sick company. The fact that upon submission of reference, the Board is immediately called upon to determine the measures to be adopted with respect to the Company in question; and as a consequence of which the Board may either initiate enquiry into the working of the company by taking recourse to section 16 of the Act or make suitable order on the completion of enquiry in exercise of powers under section 17 of the Act and frames a scheme and issue direction under section 18 of the Act, does not mean that the reference is not pending before the Board. There are only two situations, which may result in di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l under section 25 is pending in contradistinction to the expression "reference is pending" used in the third proviso to section 15(1), does not mean that upon issuing direction to initiate inquiry under section 16 of the Act, the said reference comes to an end. In our view, the language of section 22 does not further this argument as it is noticed that it includes the proceedings in appeal under section 25 of the Act of 1985 - which in turn can be filed even in respect of an order of the BIFR passed at the stage of section 15, 16, 17 or 18 of that Act - which plainly means it is continuation of that stage and can be treated as "reference is pending" within the meaning of the third proviso to section 15(1) of that Act. For, the appeal provision (section 25) of that Act makes no distinction between the different stages under Chapter III of that Act. Moreover, section 22 merely describes the different stages except the initial direction to be issued by the Board to determine the measures to be adopted. The expression "reference" used in the third proviso to section 15(1) of the Act of 1985 is a generic term, which has not been defined in that Act. It will have to be given purposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oblem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. " [Emphasis supplied] A priori, we find it difficult to agree with the opinion of the Orissa High Court in Noble Aqua (P.) Ltd. s case ( supra ), that there is clear statutory bar under section 22 of the Act of 1985. We are conscious of the fact that the Orissa High Court has adverted to section 37 of the Securitisation Act of 2002. The purport of section 37 is to make it clear that the provisions of the Act of 2002 will not be in derogation of any other Law for the time being in force. Relying on this provision, it has been held by the Orissa High Court that the protection which has been given to a sick industrial company under the provisions of special statute, namely, Act of 1985, has not been taken away by section 37 of the Securitisation Act. It is on that premises the Division Bench of the Orissa High Court opined that the proceedings under the Act of 1985 cannot abate once the company has been declared a sick industrial company and therefore, it was not op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticular the third proviso to section 15(1) read with section 22 of the Act of 1985 itself. Thus, section 37 of the Securitisation Act cannot be pressed into service to whittle down the sweep of the third proviso to section 15(1) of the Act of 1985. 26. The Respondents have justly pressed into service four decisions of different High Courts. The Punjab and Haryana High Court in the case of Nabha Industries Ltd. v. Punjab State Industrial Development Corpn. [2010] 154 Comp. Cas. 646 (Punj. Har.) dealt with the case where the Company was already declared sick on 23-6-1997. After preparing rehabilitation scheme, eventually recommended winding up of the Company. Against that decision, the Company preferred the appeal. During pendency of that appeal, the financial institution resorted to action under provisions of the Securitisation Act. The company accordingly, preferred Writ Petition before the High Court, in which it was contended that the company had paid dues as per the one time settlement scheme. As a result, the proceedings under the Securitisation Act cannot be resorted to. The Court on examining the relevant provisions of the Act of 1985, including section 22 thereof, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the progress of the said BIFR proceedings, the Bank resorted to action under section 13 of the Securitisation Act. The Court went on to hold that proviso to section 15(1) has been specifically incorporated, which permits the secured creditor to invoke section 13(4) of the Securitisation Act. It is held that the fact that the Bank has been appointed as operating agency does not denude it of the right to take recourse to remedy under section 13 of the Securitisation Act when it is a sole secured creditor. On invocation of action under section 13 of the Securitisation Act, the reference would abate by virtue of the third proviso to section 15(1) of the Act. 28. In the case of Madras Petrochem Ltd. v. BIFR [2009] 149 Comp. Cas. 402 (Delhi), the challenge was once again to divesting of jurisdiction of the BIFR, due to invocation of action under section 13 of the Securitisation Act by the Financial Institution. This Judgment has also referred to the decision in Noble Aqua (P.) Ltd. s case ( supra ) and has understood that Judgment as having dealt with only the impact of section 22 of the Act of 1985 vis-a-vis section 13(4) of the Securitisation Act. It has been noticed that, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... third proviso to section 15(1) of the Act of 1985. 29. A priori, even if we were to accept the contention of the Petitioners that the scheme for revival of the Respondent No. 3-company has already been sanctioned by the Board and was being implemented, during which the Respondent No. 5-bank resorted to action under section 13 of the Securitisation Act. The fact remains that the Respondent No. 5-bank claims that it was the sole secured creditor of the Respondent No. 3-Company when it invoked action under section 13(4) of the Securitisation Act. Thus, Respondent No. 5 constituted requisite strength of not less than three-fourth in value of the amount outstanding against the Respondent No. 3-Company at the relevant time. It is not the case of the Petitioner that the strength of the Respondent No. 5 was less than three-fourth in value of the amount outstanding against the Respondent No. 3-Company. Only if the said plea was to be specifically taken in the application filed before the Board, the Board would have been obliged to examine that limited question. If that question was to be answered in favour of the Petitioner, it would necessarily follow that the action resorted to by suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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