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TMI Blog2014 (12) TMI 1023X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006. The High Court set aside the Order passed by the Debt Recovery Appellate Tribunal, Delhi ('DRAT' for short) and held that in view of the bar contained in Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereafter referred to as 'SICA') no recovery proceedings could be effected against Respondent No. 1 (M/s. Arihant Threads Ltd.) ('Company' for short). 3. The Company set up an export oriented spinning unit for manufacturing cotton yarn in Amritsar District, in the State of Punjab. The Company took on lease, Plot No. 454 in 1992 for a period of 99 years from Goindwal Sahib Industrial & Investment Corporation, on a condition that it would not transfer the interest in the property for the first fifteen years without prior permission of the lessor. The Company had a right to mortgage lease-hold rights to a Bank, the Punjab Financial Corporation or the Life Insurance Corporation of India as security for a loan. It got its project financed by the Industrial Development Bank of India ('IDBI' for short) by way of foreign currency loan and a working capital of Rs. 93.1 million. 4. Since the Company failed to repay loan insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to these conditions, the Company filed an appeal to the DRAT, Delhi. The appellant also filed an appeal being aggrieved by the setting aside of the sale in its favour. The DRAT stayed the order dated 26.07.05 by which the ex-parte order against the Company was set aside and directed refund of sale amount to the appellant. 9. On 21.12.05, the Company invoked the provisions of SICA. It filed a Reference before the Board of Industrial Finance & Reconstruction ('BIFR' for short). On 10.02.06, the DRAT dismissed the appeal filed by the Company and allowed the appeal of the appellant. The DRAT confirmed auction-sale in favour of the appellant on depositing the sale price. The DRAT directed that steps to handover possession of the property to the auction-purchaser (appellant) be taken by the Recovery Officer and the appellant shall deposit the entire amount. 10. Before the formalities directed by the DRAT could be completed, the Company filed two Writ Petitions before the Delhi High Court against the order of the DRAT, Delhi. The Delhi High Court allowed the Writ Petitions vide impugned order dated 23.02.06 and set aside the order passed by the DRAT, Delhi on the ground that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he BIFR which was dismissed on 10.02.06. Before this, the Recovery Officer had issued a demand notice under Rule 2 of the Second Schedule to the Income Tax Act, 1961 demanding payment of Rs. 28,60,87,384/-, as directed by the DRT, Chandigarh in the final order. Thereafter, several events had taken place, such as, on 27.10.2004, DRT allowed the auction sale proceedings but directed it should not be confirmed; on 30.10.04, the appellant was declared to be the highest bidder and had deposited the entire sale price on 11.11.04; in the appeal under Section 30 of the RDDB Act, the Company moved an application for setting aside the ex-parte order against fixation of reserve price and this appeal was allowed on 26.07.2005 subject to fulfillment of certain terms and conditions. It was observed that the appeal filed by the Company was only against fixation of the reserve price and not against the final order. The Company had not even availed of an appeal under Section 20 of the RDDB Act or for setting aside the sale under Rule 60 of the Second Schedule of the Income Tax Act, 1961 but only chose the path for having the auction-sale set aside on the ground that the reserve price of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve and rehabilitate the potentially liable sick industrial companies. 19. Multiplicity of laws and agencies made the adoption of a coordinated approach for dealing with sick industrial companies difficult. The Sick Industrial Companies Bill was introduced in the Parliament to enact legislation for timely determination of a body of experts for providing preventive, ameliorative, remedial and other measures. 20. As would appear significant in the scheme of things relevant to this matter, an important reference is made to the "multiplicity of laws and agencies" making the adoption of a coordinated approach for dealing with sick industrial companies difficult. 21. The term "sick industrial company" has been defined to mean an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth, vide Section 3(o). "Industrial Company" means a company which owns one or more industrial undertakings, vide Section 3(e). "Industrial Undertaking" has been defined to mean an undertaking pertaining to a scheduled industry carried on in one or more factories by any company, vide Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority." 27. The Section is enacted against the backdrop of the existing multitude of remedies which creditors may avail of against an indebted company and its properties bringing them to attachments, auction sale etc., making it difficult for the authorities entrusted with its reconstruction under the SICA to evolve a scheme for reconstruction. The Section is also given primacy by way of a non-obstante clause vide Section 32 of SICA which reads as follows:- "32. Effect of the Act on other laws (1) The provisions of this Act and of any rules or schemes made there under shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act. (2) Where there has been under any scheme under this Act an amalgamation of a sick ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it appears that the legislative purpose for reconstruction of companies could be thwarted if creditors are allowed to encumber the properties of the company with decrees of the DRT while the BIFR is engaged in reviving the company, if necessary, by leasing or selling the properties of the company for which there is an express power. 29. Plainly, the purpose of laying down that no proceedings for execution and distraint or the like or a suit for recovery shall not lie, is to protect the properties of the sick industrial company and the company itself from being proceeded against by its creditors who may wish to seek the winding up of the company or levy execution or distress against its properties. It protects the company from all such proceedings. It also protects the company from suits for recovery of money or for the enforcement of any security or of any guarantee in respect of any loans, or advances granted to the industrial company. But as is apparent, the immunity is not absolute. Such proceeding which a creditor may wish to institute, may be instituted or continued with the consent of the Board or the Appellate Authority. In the Section as originally enacted, the words "and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... note something other than a "suit". No such question arises in this case. 32. As observed earlier, 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." 33. Undoubtedly, the present proceedings viz. "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 industri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Tribunal, the certificate of recovery is made executable by Chapter V under Section 25. The Recovery Officer on receipt of the copy of certificate is required to proceed to recover the amount of debt specified in the certificate by attachment and sale of the movable or immovable property of the defendant etc., vide Section 25. Section 18 bars the jurisdiction of any court or any authority except the Supreme Court and a High Court, in relation to an application for recovery of debts due to banks and financial institutions. Section 34, with which we are concerned, confers an overriding effect on the RDDB Act in the following terms: "34. Act to have overriding effect.--(1) Save as provided under Sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948, the State Financial Corporations Act, 1951, the Unit Trust of India Act, 1963, the Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se 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. 40. There is no doubt that both are special laws. SICA is a special law, which deals with the reconstruction of sick companies and matters incidental thereto, though it is general as regards other matters such as recovery of debts. The RDDB Act is also a special law, which deals with the recovery of money due to banks or financial institutions, through a special procedure, though it may be general as regards other matters such as the reconstruction of sick companies which it does not even specifically deal with. Thus the purpose of the two laws is different. 41. Parliament must be deemed to have had knowledge of the earlier law i.e. SICA, enacted in 1985, while enacting the RDDB Act, 1993. It is with a view to prevent a clash of procedure, and the possibility of contradictory ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight could be enforced in the manner provided in Section 25-B without obtaining prior permission of the competent authority under the Slum Clearance Act. The conflict arose since the Slum Clearance Act contained a non-obstante clause, to the effect that proceedings for eviction of tenants could not be taken without prior permission of the competent authority. The Delhi Rent Control Act conferred a right under Section 14-A to recover immediate possession in case the landlord had to vacate residential premises allotted to him by the Central Government. This right was conferred with a non-obstante clause. This Court held that for resolving such conflicts, one test which may be adopted is that the later enactment must prevail over the earlier one. Having observed that the relevant provisions of the Delhi Rent Control Act had been enacted from 01.12.1975 alongwith a non-obstante clause with the knowledge that the overriding provision of the Slum Clearance Act was already in existence, the later enactment must prevail over the former. 45. In LIC v. D.J. Bahadur [1981] 1 SCC 315 this Court considered the question as to which of the two laws i.e. the Industrial Disputes Act, 1947 (the ID ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could be treated as "special laws" in respect of recovery of dues by banks and financial institutions. In a later case the question arose in the context of Special Court (Trial of offences Relating to Transactions in Securities) Act, 1992 and SICA. It was contended that in view of the special provisions contained in SICA no proceedings could have been initiated under the Special Court Act. The Court observed that though Section 32 of the SICA contained a non-obstante clause, there was a similar non-obstante clause in Section 13 of the Special Court Act. The Court observed:- "9... This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail." 48. This Court approved the observations of the Special Court to the effect that if the legislature confers a non-obstante clause on a later enactment, it means that the legislature intends that the later enactment should prevail. Further, it is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction two Acts can be harmoniously construed, then the latter must be adopted. 49. In view of the observations of this Court in the decisions referr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onclusion has been guided by what is considered to be one of the most crucial principles of interpretation viz. giving effect to the intention of the Legislature. The difficulty arose in this case mainly due to the absence of specific words denoting the intention of Parliament to cover applications for recovery of debts under the RDDB Act while enacting Section 22 of the SICA. As observed earlier, the obvious reason for this absence is the fact that the SICA was enacted earlier. It is the duty of this Court to consider SICA, after the enactment of the RDDB Act to ascertain the true intent and purpose of providing that no proceedings for execution or distraints or suits shall lie or be proceeded with. Undoubtedly, in the narrower sense an application for recovery of debt can be giving a restricted meaning i.e. a proceeding which commences on filing and terminates at the judgment. However, there is no need to give such a restricted meaning, since the true purpose of an application for recovery is to proceed to the logical end of execution and recovery itself, that is by way of execution and distraint. We thus have no hesitation in coming to the conclusion that Section 22 clearly cove ..... X X X X Extracts X X X X X X X X Extracts X X X X
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