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TMI Blog2010 (2) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... ere as well that the Hon’ble Supreme Court has decided in the cases noticed by learned Single Judge that as and when there is proceedings under SFC Act the same should not be interfered under article 226 of the Constitution, a jurisdiction which is very wide and the jurisdiction under section 391(6) is only limited that too circumscribed by terms which can be imposed. Therefore, also in view of the fact that the appellant-company has not made any payment to the objector financial institutions over and above a paltry sum, may be around ₹ 60 lakh. That being the position, the conduct of the appellant-company is also of the nature which does not call for exercise of discretionary jurisdiction in its favour. Appeal of appellant-company fails - O.J. APPEAL NOS. 67 AND 109 OF 2009 - - - Dated:- 25-2-2010 - BHAGWATI PRASAD AND BANKIM N. MEHTA, JJ. Mihir Thakore, S.N. Soparkar, Mihir Joshi and A.L. Shah for the Appearing Parties. JUDGMENT Bhagwati Prasad, J. - These two appeals which are being decided by this common judgment, are filed against the decision in Company Application No. 1 of 2009 in Company Application No. 648 of 2008 rendered by learned Company J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proposed scheme. The appellant-company also preferred an application on 31-12-2008 under section 391(6) of the Act of 1956. This application was preferred apprehending that though the meeting as per the orders of the company court passed on 26-12-2008 will be held, SICOM Ltd. may take action in pursuance of its notice dated 18-7-2008 against the mortgaged and hypothecated assets. On this application, learned Company Judge issued notice and made it returnable on 19-1-2009. On 2-1-2009 learned Company Judge passed order that SICOM Ltd., one of the secured creditors of the appellant-company, is restrained from taking possession of any property or assets of the appellant-company in exercise of authority under section 29 of the SFC Act. A further condition was put on the appellant-company that it shall not create any interest or encumbrance or charge, in any manner, over the assets and property until finalisation of the scheme under section 391 of the Act of 1956. It was further ordered that status quo in relation to all assets and property shall be maintained. 5. The meeting of the secured creditors of the appellant-company is claimed to have been held on 4-2-2009 pursuant to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Company Judge has observed that a learned Single Judge of this Court had already taken a view in the matter of Core Health Care Ltd., In re [2007] 79 SCL 47 that application under section 391 read with section 394 would be maintainable. It was also observed that application under section 391 of the Act of 1956 is not limited the scheme for restructuring debt. In that view of the matter, being bound by a co-ordinate Bench Judgment, application under section 391 of the Act of 1956 was held maintainable despite the objection raised by the objector. It was also held that an application under section 391(6) of the Act of 1956 would also be maintainable as the application under section 391(1) of the Act of 1956 is maintainable, if circumstances so required. Learned Company Judge has further held that scope of application is separate issue than its maintainability because there may arise a question that an order may not be feasible in view of the action of the objector under section 29 of the SFC Act and proceedings under section 19 of the RDB Act. Learned Company Judge further observed that a stay as prayed for is not available automatically or mechanically on presentation of an appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Finance Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986). 9.9 The extent of the primacy that the Legislature intended to confer on the RDB Act and particularly on sections 17 to 20, 25 and 28 thereof is evident and becomes clear also from the conjoint reading of the provisions under sections 18 and 17 which, by cumulative effect, mandate that the DRT shall have plenary and exclusive jurisdiction. The said sections read, thus : 18. Bar of jurisdiction. On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matters specified in section 17. 17. Jurisdiction, powers and authority of Tribunal. (1) A Tribunal shall exercise, on and from the appointed day, the jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1956 Act operates in different field as against the SFC Act and/or RDB Act, occasion of RDB Act overriding the 1956 Act does not arise, the question, which comes out is whether overlapping or conflict may arise between statutes which may be operating in different fields." 13. Learned Company Judge has further proceeded to consider various decisions and held as under : "11( a ) While considering the controversy which arose in light of the provisions of Public Premises (Eviction of Unauthorised Occupants) Act, 1971 and Delhi Rent Control Act, 1958, the Apex Court has, in the case between Jain Ink Manufacturing Co. v. Life Insurance Corporation of India AIR 1981 SC 670, held that : 7. It is true that in both the Acts there is a non obstante clause but the question to be determined is whether the non obstante clauses operate in the same field or have two different spheres though there may be some amount of overlapping. ..... 8. In the light of the principles laid down in the aforesaid cases, we would test the position in the present case. So far as the Premises Act is concerned, it operates in a very limited field in that it applies only to a limited nature of premi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to confer benefits on the tenants and at the same time to balance the interest of the landlords by providing for expeditious adjudication of proceedings between landlords and tenant. The Apex Court further observed that : This shows that the Public Premises Act has been enacted to deal with mischief of rampant unauthorised occupation of public premises by providing a speedy machinery for the eviction of persons in unauthorised occupation. In order to secure this object the said Act prescribed the time period for the various steps which are required to be taken for securing eviction of the persons in unauthorised occupation. The object underlying the enactment is to safeguard public interest by making available for public use premises belonging to Central Government. Companies in which the Central Government has substantial interest, Corporations owned or controlled by the Central Government and certain autonomous bodies and to prevent misuse of such premises. Having, thus, noticed the objectives of the two statutes, the Apex Court held that : In our opinion, therefore, keeping in view the object and purpose underlying both the enactments, viz., the Rent Control Act an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( d ) In the judgment in the case between Shri Ram Narain v. Simla Banking Industrial Co. Ltd. AIR 1956 SC 614, the Apex Court considered the provisions under Banking Companies Act, 1949 and Displaced Persons (Debt Adjustment) Act, 1951 and held that : On the other hand, if the rule as to the later Act overriding an earlier Act is to be applied to the present case, it is the Banking Companies (Amendment) Act, 1953, that must be treated as the later Act and held to override the provisions of the earlier Displaced Persons (Debt Adjustment) Act, 1951. It has been pointed out, however, that section 13, Displaced Persons (Debt Adjustment) Act, uses the phrase notwithstanding anything inconsistent therewith in any other law for the time being in force and it was suggested that this phrase is wide enough to relate even to a future Act if in operation when the overriding effect has to be determined. But it is to be noted that section 45A, Banking Companies Act has also exactly the same phrase. What the connotation of the phrase, for the time being is and which is to prevail when there are two provisions like the above each containing the same phrase, are question which a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilist considering the scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or instalments. There can, therefore, be no stay of any proceedings for recovery against a sick company so far as the Special Court under the 1992 Act is concerned. In the said judgment, it is further observed that : The Special Court (Trial of Offences Relation to Transactions in Securities) Act, 1992, provides in section 13, that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 537 of the 1956 Act. 13.6 ( f ) The RDB Act came to be enacted and brought in force with effect from 27th August, 1993, i.e., after the 1956 Act which contains, by virtue of sub-section (6) of section 391, the power to stay the commencement or continuation of any suit or proceedings against the company and yet the provisions under sections 18 and 19 and section 34 came to be incorporated in the RDB Act in 1993 and the RDB Act came to be further amended in 1995 (by Act 28 of 1995) and then in 2000 (by Act 1 of 2000) when sub-section (19) of section 19 also came to be added and still the said provision, i.e., sub-section (6) of section 391 of the 1956 is not included in the purview of sub-section (2) of section 34 of RDB Act. Differently put, despite the fact that the provision under section 391(6) was in existence at the time of enactment of sections 18, 19 and 34 of RDB Act, the section 391(6) is not taken under the protective umbrella of section 34(2) and it is not saved, like the other six statutes which have found place in sub-section (2), from the effect of the provisions of RDB Act and its overriding effect. 13.6 ( g ) From the non-inclusion section 391(6) of the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle. Section 391(6) cannot cast its shadow on the proceedings before the DRT and cannot stay the proceedings otherwise it would result into company court truncating the powers of DRT and regulating DRT s proceedings." 16. The aforesaid discussion summarised pertains to the implication of the RDB Act and in its later part of the judgment learned Company Judge considered the questions in relation to the proceedings under section 29 of the SFC Act and relying on certain decisions of the Hon ble Supreme Court came to the conclusion that while the proceeding under section 29 of the SFC Act has not been considered appropriate to be stayed appropriate even under section 226 of the Constitution of India, learned Company Judge has observed at paragraph No. 16.16, thus : "Consequently, I am inclined to hold, in light of earlier discussion with regard to the scope and effect of non obstante clause that when the Legislature has, in the public interest, conferred such special power on the Corporation coupled with a provision having non obstante clause, it would not be in consonance with the provisions or the legislative policy to hold that such exercise of the statutory right u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of sections 391 to 394 of the Act of 1956 on the one hand and the provisions of the RDB Act and SFC Act on the other hand. ( ii )Whether the provisions of the RDB Act and SFC Act (section 29) lay down an exhaustive code in respect of the subject-matter of section 391 to section 394 of the Act of 1956. ( iii )Whether the provisions of section 391 to section 394 of the Act of 1956 on the one hand and the provisions of the RDB Act/SFC Act on the other hand occupy the same field. The question is not whether the provisions of the RDB Act and SFC Act generally override all the provisions of the Act of 1956. To illustrate reliance is placed on the decision in the matter of Allahabad Bank v. Canara Bank [2000] 101 Comp. Cas. 64 (SC) wherein the Hon ble Supreme Court held that RDB Act will override only sections 442, 446 and 557 of the Act of 1956 and not the whole of the Act of 1956. There is no dispute that winding up petition under sections 433 and 434 of the Act of 1956 for winding up of the company is certainly maintainable even when proceedings before the DRT are pending because there is no conflict between sections 433 and 434 of the Act of 1956 and the prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 68B of the Motor Vehicles Act, 1939, read with section 6(4) thereof. It is thereafter that court considers that the Defence of India Act is special statute passed to meet an emergency arising out of Chinese invasion in 1962 and would, therefore, prevail. (paras 12, 14) ( ii ) Jain Ink Manufacturing Co. v. Life Insurance Corporation AIR 1981 SC 670 - It is evident from the facts that not only there is direct conflict between the Delhi Rent Control Act and the Public Premises (Eviction of Unauthorised Occupancy Act) but they occupy the same field qua public premises and the Public Premises Act is exhaustive Code qua their eviction. The court holds that there is direct conflict between Slums Areas (Improvement and Clearance) Act, 1956 and the Public Premises Act. ( iii ) Sarwan Singh v. Kasturi Lal AIR 1977 SC 265 - The Supreme Court while considering the Delhi Rent Control Act, 1958 (as amended in 1975) and Slums Areas (Improvements and Clearance) Act, 1956, has in fact held when two or more laws operate in the same field and each contains a non obstante clause, the later Act will prevail, (paras 20, 21 and 22) ( iv ) Ashoka Marketing Ltd. v. Punjab Na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding conflict between the provisions of the Bombay Sales Tax Act and Kerala General Sales Tax Act vis-a-vis the overriding effect of RDB Act and the Securitisation Act in view of sections 34 and 35 of the said Acts respectively, the Hon ble Supreme Court has referred to the judgment of Allahabad Bank s case ( supra ) and explained that the provisions of RDB Act provide for exclusive jurisdiction only for adjudication, execution and determination of priority and are in no way conflicting with the provisions of the above referred Sales Tax Act. In the said judgment, the Hon ble Supreme Court has laid down that where there is no conflict, there is no question of applying the overriding provisions of the RDB Act and the Securitisation Act. In the instant case also : (1)There is no direct conflict between sections 391 to 394 of the Act of 1956 on the one hand and the RDB Act or the SFC Act on the other. (2)The RDB Act and the SFC Act do not lay down any exhaustive code which covers the subject-matter of sections 391 to 394 of the Act of 1956. The RDB Act is exclusiveness is limited as stated above. (3)The two laws, i.e., on one hand sections 391 to 394 of the Act of 1956 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and/or SFC Act on the other hand and/therefore, the scheme proceedings under sections 391 to 394 of the Act of 1956 are maintainable in spite of pendency of any proceedings before the DRT under the RDB Act. 25. Learned counsel in his written submission has submitted that the very object of section 391(1) and (2) would be frustrated, if the court is not able to restrain a bank or financial institution from taking any coercive action under RDB Act or SFC Act pending consideration of a (statutory) scheme, for by the time the scheme is considered and sanctioned by the court, if the mortgaged asset of the appellant-company is taken possession of and disposed of by SICOM Ltd. and the very purpose of proposing/sanctioning the scheme would stand frustrated. Learned counsel has drawn strength from the following decisions : ( i ) Deepika Chit Fund (P.) Ltd., In re [2004] 56 SCL 566 (AP) and ( ii ) Unreported judgment of this Court in Core Healthcare Ltd. case ( supra ). 26. Learned counsel has further submitted that provision of section 391(6) being only enabling provision it can never be in conflict with any other provision. It only entitles the court to pass an order whose lif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1956. Therefore, the question of conflict being not there, the powers under section 391(6) of the Act of 1956 are liable to be exercised. 29. Per contra Mr. S.N. Soparkar, learned senior counsel appearing for SICOM Ltd., submitted that learned Company Judge has no jurisdiction to grant relief as prayed for under section 391(6) of the Act of 1956. He further submitted that the question of jurisdiction and whether to exercise the same are two distinct questions. The question of jurisdiction depends on the dominating positions of the law which governs the case and according to learned counsel, under section 17 read with section 19 of the RDB Act has contained code for the recovery of the debts due to banks and financial institutions. So also the proceedings under section 29 of the SFC Act has a purpose of realisation of the funds from the defaulting institutions. Learned counsel has relied on the findings of learned Company Judge in paragraph Nos. 13, 15 and 16.15 of the judgment. Learned counsel submitted that the legislative scheme and intention of both the Acts convey that they have primacy over the Act of 1956, the reasons are: ( a )Both contains non obstante clause. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a ), Sarwan Singh case ( supra ), Jain Ink Manufacturing Co. s case ( supra ) and Ashoka Marketing Ltd. s case ( supra ). ( g )There is a direct conflict between RDB Act/SFC Act on one hand and section 391 of the Act of 1956 on the other. At least in relation to section 391(6) there is a direct conflict. It is for the DRT to decide whether to grant or not to grant interim order, including injunction or appointment of receiver. It is for the SFC to decide whether to take over possession, sell or transfer possession of an industrial unit. These rights are not qualified under the respective special statutes. If it is assumed that under section 391(6) of the Act of 1956, a company court would have the power to prevent FI/SFC from taking action under the Acts, their exclusive jurisdiction is made amenable to jurisdiction of a company court. The Hon ble Supreme Court has in the above judgments repeatedly held that even seeking permission from other body/authority/court on enactment of a special Act would stand repealed, the natural corollary is that in relation to the proceedings before the DRT or the proceedings that a SFC may take, company court cannot exercise prohibitive powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conflict with section 391 of the Act of 1956 and, therefore, they supersede. 32. Replying to this argument, Mr. Mihir Thakore, learned senior counsel for respondent No. 1, submitted that since the arguments were not carried further; it would be deemed that learned counsel has given up the challenge otherwise he would have asked to refer the matter to a larger Bench and could have submitted that he seeks to argue the matter and it could not have been left to the discretion of the court. 33. We have heard learned counsel for the parties, perused the records and have given our thoughtful consideration. 34. To start with, we would like to make a reference to what has been submitted on behalf of the appellant in the written submissions which is quoted hereinbelow : "The very object of section 391(1) and (2) would be frustrated, if the court is not able to restrain a bank or financial institution from taking any coercive action under RDB Act or SFC Act pending consideration of a (statutory) scheme, for by the time the scheme is considered and sanctioned by the court, if the mortgaged asset of the (appellant) company is taken possession of and disposed of (by Sicom) and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 56 then the original contract in between the parties, i.e., the company and the financial institutions undergoes a radical change. The contracting parties cannot relegate on the original contract. Thus, there is a direct interference by exercise of jurisdiction under section 391 of the Act of 1956 on the original contract entered into, in between the contracting parties. This directly means that the financial institutions cannot execute a contract entered into by them originally. The sanctioning of a scheme under the Act of 1956 has an inhibiting effect on exercise of the powers of the financial institutions, which otherwise can be exercised by them, taking recourse to RDB Act and SFC Act qua the original contract. Thus, there is a direct impediment as to the scope and operation of RDB Act and SFC Act, because once there is an exercise of jurisdiction under section 391 of the Act of 1956 the original contract gets modified in terms of the orders of the company court. 36. The powers available to the financial institutions under sections 17, 18 and 19 are very wide. Most specifically when it comes to safeguard its money by issuing attachment and appointing receivers. With the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Act where the recoveries are provided expeditiously. Thus, the object and purpose of RDB Act and SFC Act are frustrated, if any injunction is granted against the financial institutions under section 391(6) of the Act of 1956. This would not be in conformity with the law laid down by the various decisions of the Hon ble Supreme Court. For ready reference, a reference is made to paragraph No. 23 of the judgment in the case of Sarwan Singh ( supra ) which is reproduced as under : "The argument of implied repeal has also no substance in it because our reason for according priority to the provisions of the Delhi Rent Act is not that the Slum Clearance Act stands impliedly repealed pro tanto. Bearing in mind the language of the two laws, their object and purpose, and the fact that one of them is later in point of time and was enacted with the knowledge of the non obstante clauses in the earlier law, we have come to the conclusion that the provisions of section 14A and Chapter III of the Rent Control Act must prevail over those contained in sections 19 and 39 of the Slum Clearance Act." 40. May be that the RDB Act does not envisage a compromise between the parties but it en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the RDB Act the Legislature has omitted the Act of 1956 to be included and this omission is considered by us to be a conscious omission so as to give primacy to the RDB Act and SFC Act. 44. The argument of learned counsel for the appellant that in the case of Allahabad Bank ( supra ) the Hon ble Supreme Court has not held that the provisions of RDB Act and SFC Act would have primacy over section 391(6) of the Act of 1956 and it has only dealt with import of sections 442, 446 and 557. It may be worthwhile to mention here that the Hon ble Court in that case was not called upon to decide the question of the implication of section 391 of the Act of 1956 and, therefore, if there is no finding to that effect in the judgment in the Allahabad Bank case ( supra ) it cannot be said that the Hon ble Supreme Court has held that there is no conflict in between the provisions of section 391 of the Act of 1956 and the provisions of RDB Act. 45. Finding of the Apex Court in the case of Allahabad Bank ( supra ) if carefully examined, throws a considerable light on the controversy involved in this case. The Hon ble Supreme Court has held at paragraph No. 25 of the judgment as under : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have to stop a speedy and summary remedy and wait for its money upto a time fixed in new scheme. A conflicting situation. 49. In the very same judgment, the Apex Court referring the judgment in the case of Maharashtra Tubes Ltd. ( supra ) has held as under : "Therefore in view of section 34 of the RDB Act, the said Act overrides the Companies Act, to the extent there is anything inconsistent between the Acts." 50. This is a clear statement of law regarding the overriding effect of the RDB Act. We have noticed inconsistencies above, therefore, also the RDB Act will have primacy over section 391 of the Act of 1956. In the very same judgment, the Hon ble Supreme Court has observed that : "But the position under the RDB Act is different. Sections 442, 446 and 537 are not saved by the RDB Act. Even section 34(2) of the RDB Act does not save the provisions of the Companies Act." 51. The aforesaid observation clearly enunciates that there being a conscious omission of Act of 1956 from section 34 of the RDB Act. It has no savings from the RDB Act. 52. The non-inclusion of Act of 1956 in section 34 of the RDB Act cannot be seen to be an omission without intention. As a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the instant case. Any modification in the contract is not envisaged in the scheme of the RDB Act. Thus, such exclusive jurisdiction is required to be given primacy resultantly an overriding effect of the RDB Act over Act of 1956. Argument of the respondent that the provision of RDB Act are enabling provisions. Therefore, they cannot come in conflict is required to be noticed to be rejected in view of the discussions noted hereinabove. 56. In the matters of recovery by the financial institutions, non obstante clause is used in section 34 of RDB Act. It would, thus, have primacy over the provisions of section 391 of the Act of 1956 so far it relates to the recovery of the contracted amount in between the parties in terms of the original contract. To that extent, the provisions of the RDB Act will eclipse provisions of section 391 of the Act of 1956 and in that view of the matter as and when proceedings under RDB Act for recovery are instituted, the exercise of jurisdiction by company court under section 391 of the Act of 1956 would be of no consequence because it would be futile to pass a scheme under section 391 of the Act of 1956. Thus, the proceedings of RDB Act are not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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