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TMI Blog2016 (2) TMI 132X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian Joseph and R.F. Nariman, JJ. For The Petitioner : MR. C. N. SREE KUMA For The Respondent : MR. HIMANSHU MUNSHI JUDGMENT R.F. Nariman, J. 1. Leave granted. 2. The present appeals raise interesting questions on the interplay between the Sick Industrial Companies (Special Provisions) Act, 1985 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The facts in appeals arising out of Special Leave Petition (Civil) Nos.26170-26171 of 2008 are as follows. 3. The net worth of the Appellant No.1 Company, having eroded completely, the appellant No.1 company filed a reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 before the BIFR, which was registered as BIFR Case No.115 of 1989. On 13.12.1989, after making an inquiry under Section 16(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, the Appellant company was declared sick and ICICI was appointed as the Operating Agency to formulate a rehabilitation scheme. On 3.7.1991, the first rehabilitation scheme prepared by the Operating Agency was sanctioned, which envisaged the takeover of the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenged before the DRT by the appellants. The said challenge was unsuccessful, as a result of which an appeal was filed before the DRAT, which, by its order dated 30.6.2005, upset the DRT order and set aside the sale notice. However, by a judgment of the Madras High Court, in a challenge to the aforesaid order dated 30.6.2005, the Madras High Court set aside the DRAT order. The sale of movable assets for a sum of ₹ 4.65 crores was also confirmed by the Madras High Court in favour of one M/s Rahamath Steel. Vide the said order the Madras High Court also permitted the creditors of the Company to proceed with the sale of its immovable property subject to a minimum reserve price of ₹ 25 crores. This order was never challenged and has attained finality. 6. Meanwhile, based on a winding up proceeding by M/s BHEL, an unsecured creditor, and another winding up proceeding based on the opinion of the BIFR under Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985, the Bombay High Court wound up the appellant No.1 company. 7. While matters stood thus, the Delhi High Court passed the impugned order on 24.7.2008, as has been stated hereinabove, in whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel appearing on behalf of the appellant No.1 company, submitted before us that the effect of the interim order of 7.1.2004 of the Delhi High Court is that the reference made by the appellant No.1 company gets revived. He further submitted that no winding up order could be made in view of such revival, and that such orders are therefore non est, and the present appeals cannot be regarded as infructuous. He added that Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 would automatically come into play to protect the assets of the appellant No.1 company. He also submitted before us, that in any case, regard being had to the object of the Sick Industrial Companies (Special Provisions) Act, 1985, it would override the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. For this purpose, he relied on a judgment by this Court in KSL Industries Ltd. v. Arihant Threads Ltd., (2015) 1 SCC 166, which held that the Sick Industrial Companies (Special Provisions) Act, 1985 has overridden the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993. The said Act, being a predecessor to the Securitis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld it render the winding up order passed by Bombay High Court non est. He also submitted that a large number of judgments of various High Courts have taken the view which is taken in the impugned judgment, and that the expression reference would include all stages of a proceeding under the Sick Industrial Companies (Special Provisions) Act, 1985 including the stage of operation of a scheme. For this purpose, in particular, he relied heavily on a full bench decision of the Madras High Court in M/s. Salem Textiles Limited v. The Authorized Officer and Ors., reported in AIR 2013 Madras 229. He also argued that since the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993 expressly named the Sick Industrial Companies (Special Provisions) Act, 1985 in Section 34(2), the Sick Industrial Companies (Special Provisions) Act, 1985 obviously overrode that Act. What is significant is that the corresponding section, namely, Section 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, expressly omits any reference to the Sick Industrial Companies (Special Provisions) Act, 1985, making it clear that the Securitisation a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nancial assets have been acquired by any securitisation company or reconstruction company under sub-section (1) of section 5 of that Act: Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act. Section 22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding, anything contained in the Companies Act, 1956 (1 of 1956) or any other law or the memorandum and articles of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed seven years in the aggregate. (4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act, or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly,- (a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and (b) on the declaration ceasing to have effect- (i) any right, privilege, obligation or liability so remaining suspended or modified shall become revived and enforceable as if the declaration had never been made; and (ii) any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the matters specified in section 17. 34. Act to have over-riding 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 (15 of 1948), the State Financial 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) and the Small Industries Development Bank of India Act, 1989 (39 of 1989). The Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 Section 13. Enforcement of security interest (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the business of the borrower is held as security for the debt: PROVIDED FURTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (5A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess exercise of such right is agreed upon by the secured creditors representing not less than sixty per cent in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: PROVIDED that in the case of a company in liquidation, the amount realised from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956): PROVIDED FURTHER that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realise his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act: PROVIDED ALSO that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Section 37. Application of other laws not barred The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force. Section 41. Amendments of certain enactments The enactments specified in the Schedule shall be amended in the manner specified therein. THE SCHEDULE (Section 41) Year Act No. Short title Amendment 1956 1 The Companies Act 1956 In section 4A in sub-section (1) after clause (vi) insert the following:-- (vii) the securitisation company or the reconstruction company which has obtained a certificate of registration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he public interest in recovering debts due to banks and financial institutions is to give way to the public interest in rehabilitation of sick industrial companies, regard being had to the present economic scenario in the country, as reflected in Parliamentary Legislation. 14. We begin, first, with the Sick Industrial Companies (Special Provisions) Act, 1985. The Statement of Objects and Reasons for this Act reads as under: THE SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 STATEMENT OF OBJECTS AND REASONS The ill effects of sickness in industrial companies such as loss of production, loss of employment, loss of revenue to the Central and State Governments and locking up of investible funds and financial institutions are of serious concern to the Government and the society at large. The concern of the Government is accentuated by the alarming increase in the incidence of sickness in industrial companies. It has been recognized that in order to fully utilize the productive industrial assets, afford maximum protection of employment and optimize the use of the funds of the banks and financial institutions, it would be imperative to revive and rehabilitate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the incidence of sickness in industrial companies and devise suitable remedial measures through appropriate schemes or other proposals and for proper implementation thereof; (v) constitution of an Appellate Authority consisting of persons who are or have been Supreme Court Judges, senior High Court Judges and Secretaries to the Government of India, etc., for hearing appeals against the order of the Board. 15. A cursory reading of the Act shows that a Board for Industrial and Financial Reconstruction is set up by the Act, before which references are made. Such references can be made under Section 15 of the Act, not only by an industrial company as defined, which, as has been stated above, is a company which runs any of the industries specified in the first schedule to the Industries (Development and Regulation) Act, 1951, but also by the Central or State Government, or public financial institution, or State level institution, or a scheduled bank, as the case may be. Such reference can only be made if the company concerned has turned sick i.e. it has to be a company running an industry mentioned in the first schedule to the Industries (Development and Regulation) Act, 1951, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tutions Act, 1993 was brought into force, pursuant to various Committee reports. The Statement of Objects and Reasons for this Act reads as follows:- STATEMENT OF OBJECTS AND REASONS OF THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 Banks and financial institutions at present experience considerable difficulties in recovering loans and enforcement of securities charged with them. The existing procedure for recovery of debts due to the banks and financial institutions has blocked a significant portion of their funds in unproductive assets, the value of which deteriorates with the passage of time. The Committee on the Financial System headed by Shri M. Narasimham has considered the setting up of the Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realized without delay. In 1981, a Committee under the Chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by banks a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Provisions) Act, 1985 prevail over it. 18. Regard being had to the poor working of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was brought into force in the year 2002. The statement of objects and reasons for this Act reads as under:- STATEMENT OF OBJECTS AND REASONS OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of management or other powers which are proposed to be conferred on the banks and financial institutions; (f) declaration of any securitisation company or reconstruction company registered with the Reserve Bank of India as a public financial institution for the purpose of section 4A of the Companies Act, 1956; (g) defining 'security interest' as any type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any bank or financial institution; (h) empowering banks and financial institutions to take possession of securities given for financial assistance and sell or lease the same or take over management in the event of default, i.e. classification of the borrower's account as non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time; (i) the rights of a secured creditor to be exercised by one or more of its officers authorised in this behalf in accordance with the rules made by the Central Government; (j) an appeal against the action of any bank or financial institution to the concerned Debts Recovery Tribun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the Governments in creating Debts Recovery Tribunals and appointing presiding officers, for a long time. Even after leaving that margin, it is to be noted that things in the spheres concerned are desired to move faster. In the present-day global economy it may be difficult to stick to old and conventional methods of financing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards securitisation of the debts and to evolve means for faster recovery of NPAs was not called for or that it was superimposition of undesired law since one legislation was already operating in the field, namely, the Recovery of Debts Due to Banks and Financial Institutions Act. It is also to be noted that the idea has not erupted abruptly to resort to such a legislation. It appears that a thought was given to the problems and the Narasimham Committee was constituted which recommended for such a legislation keeping in view the changing times and economic situation whereafter yet another Expert Committee was constituted, then alone the impugned law was enacted. Liquidity of finances and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peration it was uncalled for to have yet another legislation for the recovery of the mounting dues. Considering the totality of circumstances and the financial climate world over, if it was thought as a matter of policy to have yet speedier legal method to recover the dues, such a policy decision cannot be faulted with nor is it a matter to be gone into by the courts to test the legitimacy of such a measure relating to financial policy. We may now consider the main enforcing provision which is pivotal to the whole controversy, namely, Section 13 in Chapter III of the Act. It provides that a secured creditor may enforce any security interest without intervention of the court or tribunal irrespective of Section 69 or Section 69-A of the Transfer of Property Act where according to sub-section (2) of Section 13, the borrower is a defaulter in repayment of the secured debt or any instalment of repayment and further the debt standing against him has been classified as a non-performing asset by the secured creditor. Sub-section (2) of Section 13 further provides that before taking any steps in the direction of realizing the dues, the secured creditor must serve a notice in writing to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies (Special Provisions) Act, 1985, in Section 15(1) of which two provisos have been added. It is the correct interpretation of the second of these provisos on which the fate of these appeals ultimately hangs. 23. It is in this background that we need to embark on the next step, namely, to consider the following two questions which arise on the facts of this case: (1) 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; and (2) 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. 24. The occasion for answering question no. 1 is Shri Sreekumar s argument that the effect of the Delhi High Court s stay order dated 7.1.2004 is that the reference before the BIFR springs back into life, and with it Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. It is also occasioned by a further argument that the winding up order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces Relating to Transactions in Securities), Act, 1992 which came up for consideration vis- -vis the Sick Industrial Companies (Special Provisions) Act, 1985. In paragraphs 9 and 10 of this Court s judgment, this Court noted that both Acts were special Acts. In a significant extract from a Special Court judgment, which was approved by this Court, it was stated that The Special Courts Act, 1992, being a later enactment and also containing a non obstante clause, would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the legislature wanted to exclude the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, from the ambit of the said Act, the legislature would specifically have so provided (Emphasis ours). The fact that the legislature did not specifically so provide necessarily means that the legislature intended that the provisions of the said Act were to prevail over the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. In short, when property of notified persons under the Special Courts Act, 1992 stands attached, it is only the Special Court which can give directions to the custodian under the said Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eutical Products of India Ltd. and Anr., (2008) 7 SCC 619, it was held, following the judgment in NFEF Ltd. v. Chandra Developers (P) Ltd., (2005) 8 SCC 219, that the Companies Act being a general enactment would have to give way to the Sick Industrial Companies (Special Provisions) Act, 1985 which is a later and special enactment. (see paragraphs 22 to 24). 31. And in Raheja Universal Limited v. NRC Limited and Ors., (2012) 4 SCC 148, the Transfer of Property Act,1882 had to yield to the Sick Industrial Companies (Special Provisions) Act, 1985 being a general Act, as against the Sick Industrial Companies (Special Provisions) Act, 1985 which was a special Act, together with a reading of the non obstante clause contained in the Sick Industrial Companies (Special Provisions) Act, 1985 (see paragraphs 91 to 93). 32. In KSL Industries Ltd. v. Arihant Threads Ltd., (2015) 1 SCC 166, it was the turn of the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993 vis- -vis the Sick Industrial Companies (Special Provisions) Act, 1985. This Court in resolving the controversy in favour of the Sick Industrial Companies (Special Provisions) Act, 1985 held:- Sub-section ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lier, whereas the RDDB Act deals with all persons, who may have taken a loan from a bank or a financial institution in cash or otherwise, whether secured or unsecured, etc. In view of the observations of this Court in the decisions referred to and relied on by the learned counsel for the parties we find that, 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, 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 SICA may be considered to be a general law in this regard. For this purpose we rely on the decision in LIC v. Vijay Bahadur [(1981) 1 SCC 315 : 1981 SCC (L S) 111] . Normally the latter of the two would prevail on the principle that the legislature was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 and the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993. It is clear that the first three Acts deal with securities generally and the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993 deals with recovery of debts due to banks and financial institutions. Interestingly, Section 41 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 makes amendments in three Acts the Companies Act, the Securities Contracts (Regulation) Act, 1956, and the Sick Industrial Companies (Special Provisions) Act, 1985. It is of great significance that only the first two Acts are included in Section 37 and not the third i.e. the Sick Industrial Companies (Special Provisions) Act, 1985. This is for the obvious reason that the framers of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 intended that the Sick Industrial Companies (Special Provisions) Act, 1985 be covered by the non obstante clause contained in Section 35, and not by the exception thereto ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uritisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 will prevail over all other laws that are inconsistent therewith. A middle ground has therefore necessarily to be taken. According to us, the two apparently conflicting Sections can best be harmonized by giving meaning to both. This can only be done by limiting the scope of the expression or any other law for the time being in force contained in Section 37. This expression will therefore have to be held to mean other laws having relation to the securities market only, as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is the only other special law, apart from the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, dealing with recovery of debts due to banks and financial institutions. On this interpretation also, the Sick Industrial Companies (Special Provisions) Act, 1985 will not be included for the obvious reason that its primary objective is to rehabilitate sick industrial companies and not to deal with the securities market. 37. An interesting pointer to the direction Parliament has taken after enactmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith certain changes recommended by the Constitution Bench of this Court. 40. Close on the heels of the amendment made to the Companies Act came The Sick Industrial Companies (Special Provisions) Repeal Act, 2003. This particular Act was meant to repeal the Sick Industrial Companies (Special Provisions) Act, 1985 consequent to some of its provisions being telescoped into the Companies Act. Thus, the Companies Amendment Act of 2002 and the SICA Repeal Act formed part of one legislative scheme, and neither has yet been brought into force. In fact, even the Companies Act, 2013, which repeals the Companies Act, 1956, contains Chapter 19 consisting of Sections 253 to 269 dealing with revival and rehabilitation of sick companies along the lines of Sections 424A to 424H of the amended Companies Act, 1956. Conspicuous by its absence is a provision akin to Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 in the 2013 Act. However, this Chapter is also yet to be brought into force. These statutory provisions, though not yet brought into force, are also an important pointer to the fact that Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill have to give way to the measures taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 more particularly referred to in Section 13 of the said Act, and that this being the case, the sale notices issued both in 2003 and 2013 could continue without in any manner being thwarted by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. 42. It remains to consider one argument of Shri C.N. Sreekumar. Learned counsel argued that Section 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 refers to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 which in turn contains Section 34(2) which makes the Sick Industrial Companies (Special Provisions) Act, 1985 prevail over the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It was therefore argued that since Section 37 refers to the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and since Section 34(2) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 refers to the Sick Industrial Companies (Special Provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the Appellate Authority after the quashing of the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of the Appellate Authority because in spite of the said order, the order of the Appellate Authority continues to exist in law and so long as it exists, it cannot be said that the appeal which has been disposed of by the said order has not been disposed of and is still pending. We are, therefore, of the opinion that the passing of the interim order dated February 21,1991 by the Delhi High ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same context and the third judgment was delivered in the context of Section 33(2)(b) of the Industrial Disputes Act, 1947. None of these judgments has any direct bearing on the facts before us, which can be said to be covered directly by the judgment in Shree Chamundi Mopeds Ltd. (supra). 46. Question No.2 arises on the facts of this case because of a conflict between the High Courts on the interpretation of Section 15(1) proviso 3. A large number of High Courts have, in judgments differing in detail only, taken the broad view that the expression where a reference is pending under Section 15(1) proviso 3 would include all proceedings before the BIFR right till the stage of the successful culmination of a scheme for reconstruction or the recommendation for winding up of the sick industrial company. These High Courts are Madras, Delhi, Bombay, Kerala, Punjab, Gujarat and Calcutta. All these judgments are referred to in an exhaustive full bench decision of the Madras High Court in M/s. Salem Textiles Limited v. The Authorized Officer and Ors., reported in AIR 2013 Madras 229. The only dissenting voice is that of the Orissa High Court in a judgment reported in Noble Aqua Pvt. Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce or information or upon its knowledge reduced to writing by the Board. This being the case, this Court held that once the reference is registered and once it is mandatory to simultaneously call for information/documents from the informant, then an inquiry under Section 16 must be deemed to have commenced. In that view of the matter, Section 22 would immediately come into play. It is clear, therefore, that if a literal meaning were to be applied to the expression where a reference is pending , the third proviso to Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 would be rendered otiose and the purpose for which it was inserted would completely fail. On a literal reading of the provision, such reference shall abate on steps being taken by the secured creditors to recover their secured debts under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the moment a reference is registered. And this Court has held that the moment the reference is registered, an inquiry as contemplated by Section 16 shall be deemed to commence. If that is so, then a reference can never be said to be pendi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial Assets and Enforcement of Security Interest Act, 2002. It is clear that the third proviso to Section 15(1) seeks to strike a balance between getting a sick industrial company out of the woods and secured creditors being able to recover the debt owed to them by such company. The legislature has thought it fit to annul all proceedings before the BIFR only when at least 3/4th of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors have taken the measures listed in Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The balance is therefore struck by the figure of not less than 3/4th . The legislature has inserted this provision so that, if 3/4th or more of the secured creditors get together to take measures under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, they will not be thwarted by the provisions of Section 22 of Sick Industrial Companies (Special Provisions) Act, 1985, and it will not be necessary for them to obtain BIFR permission before taking any such measures. This construc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iction petitions have been held not to be suits for recovery of money. Consequently, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 has been held not to apply - See Gujarat Steel Tube Co. Ltd. v. Virchandbhai B. Shah, (1999) 8 SCC P.11 (paragraphs 9 and 10). 53. Similarly, in Kailash Nath Agarwal v. Pradeshiya Industrial Investment Corpn. of U.P. Ltd., (2003) 4 SCC 305, the U.P. Act under which recovery proceedings initiated against guarantors at a post-decree stage were held to be outside the purview of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. (see paragraph 35). 54. The resultant position may be stated thus: 1. 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. 2. Where a secured creditor of a sick industrial company seeks to recover its debt in the manner provided by Section ..... X X X X Extracts X X X X X X X X Extracts X X X X
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