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TMI Blog2016 (8) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... ebted to the Petitioner for huge amounts and therefore commercially insolvent and unable to pay its debts. In this view of the matter, the Company Petition is allowed in terms of prayer clauses (a) and (b) which read as under:- (a) that the Company viz. S. Kumars Nationwide Limited, be wound up by and under the orders and directions of this Hon'ble Court under the provisions of the Companies Act, 1956, and the Official Liquidator attached to this Hon'ble Court be appointed as the Liquidator of the Company and all its assets, books of accounts, vouchers, files, documents etc. with all powers under the Companies Act, 1956; (b) that pending hearing and final disposal of this Petition, the Official Liquidator of this Hon'ble Court or some other fit and proper person be appointed Provisional Liquidator of the Company i.e. S. Kumars Nationwide Limited with all powers under the Companies Act, 1956, including power to take charge of all the assets, properties, stock-in-trade, books of accounts and Bank accounts of the Company. As the learned counsel appearing on behalf of the Respondent Company, prays that the operation of this order be stayed for a period of four weeks from today ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions) Act, 1985 (for short SICA, 1985 ). 3 In contrast, it is the contention of the Petitioners that by virtue of the 2nd proviso to Section 15(1) of SICA, 1985, the reference filed by the Respondent Company before the BIFR is non-est in the eyes of law and, therefore, there is no question of any protection being granted to the Respondent Company under Section 22 of SICA, 1985. According to the Petitioners, the protection under Section 22 can be availed of by the Respondent Company only once a valid reference is made before the BIFR. Since the filing of a reference before the BIFR was barred by virtue of the 2nd proviso to Section 15(1) of SICA, there was no valid reference filed by the Respondent Company and consequently, there is no impediment in these Company Petitions being heard and finally disposed of. 4 In the alternative, it was the contention of all the Petitioners that in any event, by virtue of the 3rd proviso to Section 15(1) of SICA, 1985 the reference filed by the Respondent Company before the BIFR has automatically abated because the conditions set out in the said proviso have been duly fulfilled. The reference having abated, the provisions of Section 22 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Letter and the Corporate Rupee Term Loan Facility Agreement and to pay interest at the agreed rate on a monthly basis. It is the case of the Petitioner that commencing from August 2012, the Company committed various defaults and breaches in respect of the facilities granted to it. Therefore, correspondence was exchanged between the parties whereby the Respondent Company was inter alia called upon to pay its outstanding dues. Finally, in view of the continued failure of the Respondent Company in repaying the dues of the Petitioner, the Petitioner issued a statutory notice dated 18 February, 2014 under Sections 433 and 434 of the Companies Act, 1956, calling upon the Company to pay a sum of ₹ 95.32 Crores (outstanding as on 15 December, 2013), failing which winding up proceedings would be initiated. It is not in dispute that this statutory notice has been duly served upon the Respondent Company at its registered address and has been received by it. In reply to the said statutory notice, the Respondent Company, by its letter dated 5 March, 2014, did not dispute its liability in respect of the amounts outstanding to the Petitioner. In fact it reiterated the very same reasons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that by virtue of Section 22 of SICA, 1985 this Court was barred from proceeding further with this winding up Petition without the permission/ consent of BIFR. He submitted that admittedly no such consent or permission has been obtained from the BIFR to proceed with this Company Petition and therefore the same should be adjourned sine-die with liberty to the parties to apply after the proceedings before BIFR come to an end. 11 Mr. Kadam submitted that the contention of the Petitioner that the reference before the BIFR has abated, is canvassed on an incorrect interpretation of the 3rd proviso to Section 15(1) of SICA, 1985. He submitted that the 3rd proviso to Section 15(1) stipulates that after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( SARFAESI Act ), where a reference is pending before the BIFR, 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 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 Prior to Oct 2014 Indian Overseas Bank ARCIL Mr. Thakkar submitted that it is also an admitted fact that the reference filed by the Respondent Company was registered by the BIFR only on 10 December, 2015. This being the factual position, Mr Thakkar placed reliance on the 2nd proviso to Section 15(1) of SICA, 1985 to contend that no reference could be made to the BIFR after the commencement of the SARFAESI Act, where financial assets were acquired by any securitisation company or reconstruction company under sub-section (1) of Section 5 of the SARFAESI Act. To put it simply, according to Mr. Thakkar, in the present factual scenario, the Respondent Company was barred from filing any reference before the BIFR and therefore, any reference filed by it would be in the teeth of the 2nd proviso to section 15(1) of SICA, 1985 rendering it non-est in the eyes of law. In support of this proposition, Mr. Thakkar relied upon a decision of a Division Bench of this Court in the case of Paper Prints (India) Pvt. Ltd. Vs. Phoenix ARC Pvt. Ltd. (2012) 6 Mah LJ 427 : (2013) 2 Bom CR 371 13 In the alternative, Mr Thakkar submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat it would also be equally imperative to salvage the productive assets and realize the amounts due to the banks and financial institutions, to the extent possible, from the non-viable sick industrial companies through liquidation of those companies. In view of all these facts, the Government felt the need to enact in public interest, a legislation to provide for timely determination, by a body of experts, the preventive, ameliorative, remedial and other measures that would need to be adopted with respect to such companies and for enforcement of the measures considered appropriate with utmost practicable dispatch. Keeping these objects in mind SICA, 1985 was enacted. In other words, SICA, 1985 was enacted with the avowed object of identifying sick and potentially sick companies and then try to revive and rehabilitate them. This Act created a two tier mechanism in the form of a BIFR and the Appellate Authority for Industrial and Financial Reconstruction ( AAIFR ). The Board was vested with the power to conduct an inquiry into the sickness of an industrial company, to prepare and sanction schemes for the reconstruction and for proper management of the company or for the winding up, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is because it throws light on how SICA, 1985, despite its laudable objects, has, at least in spirit, failed to achieve the purpose for which it was enacted. 17 Be that as it may, in contrast, the statements of object and reasons of the SARFAESI Act indicate that the financial sector, being one of the key drivers in India's efforts to achieve success in rapidly developing its economy, did not have a level playing field as compared to other participants in the financial markets of the world. There was no legal provision for facilitating securitisation of financial assets of banks and financial institutions, and unlike international banks, the banks and financial institutions in India did not have the power to take possession of securities and sell them. The Legislature felt that our existing legal framework had not kept pace with the changing commercial practices and financial sector reforms, which resulted in delays in recovery of defaulting loans. This in turn had the effect of mounting levels of non-performing assets of banks and financial institutions. In order to bring the Indian Banking Sector on par with International Standards, the Government set up two Narasimhan Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets 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. (emphasis supplied) 19 On a plain reading of the 2nd proviso, it is clear that no reference can be made to the BIFR after the commencement of the SARFAESI Act where the financial assets have been acquired by any securitisation or reconstruction company under Section 5(1) of the SARFAESI Act. In contrast, the 3rd proviso stipulates that, after the commencement of the SARFAESI Act, where a reference is pending before the BIFR, such reference shall abate if the secured creditors representing not less than 3/4th in value of the amount outstanding against the financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under Section 13(4) of the SARFAESI Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n terms of which, financial facilities were extended by the Bank. Since, there was default in making payment, the Bank issued a demand notice calling upon the Appellant to pay its dues. Since the Appellant failed to comply, the Bank moved Debt Recovery Tribunal for recovery of an amount of ₹ 2.46 Crores due as on 31 January, 2009 together with interest. Thereafter, by a deed of assignment dated 9 December, 2009, DBS Bank Ltd. assigned its debts in favour of the Respondent (Phoenix ARC Pvt. Ltd.). The Respondent (Phoenix ARC Pvt. Ltd. ) issued a notice dated 15 April, 2010 under Section 433, 434 of the Companies Act, 1956 and thereafter filed a winding up petition. When the petition came up for admission, the learned Company Judge directed the petition be admitted and advertised. It was urged on behalf of the Appellant that the Appellant had moved a reference before the BIFR under Section 15, and therefore, under the provisions of Section 22, the learned Company Judge could not have proceeded with the Company Petition. The Division Bench of this Court noted that DBS Bank had assigned its debts to the Respondent (which was an ARC) by a Deed of Assignment dated 9 December, 2009, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... les, whether such interest is existing, future, accruing, conditional or contingent; or (vi) any financial assistance. Sub-clause (i) of clause (1) includes a claim to any debt or receivables whether secured or unsecured. Therefore, the intent of Parliament when it introduced the two amendments to section 15(1) is clear. A special provision has been made in case of securitisation and reconstruction companies, where a financial asset within the meaning of section 2(1) has been acquired after the enactment of the Securitisation Act of 2002. In such a case, no reference can lie before the BIFR. The second proviso in contradistinction applies to a situation where a reference has been made validly. Such a reference can abate where measures under section 13(4) have been taken by the secured creditors representing not less than threefourths in value of the amount outstanding against financial assistance disbursed to the borrower. The first proviso does not contain any reference to a secured creditor at all. It refers to the acquisition of a financial asset by a securitisation or reconstruction company which as noted earlier includes among other things a debt or receivables wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court in Paper Prints (India) Pvt. Ltd. (2012) 6 Mah LJ 427 : (2013) 2 Bom CR 371 was challenged in the Supreme Court by filing a Special Leave Petition which was dismissed on 9 January, 2013. 21 Faced with this situation, Mr Kadam learned senior Counsel appearing on behalf of the Respondent Company, placed reliance on a decision of a division bench of Delhi High Court in the case of Asset Reconstruction Co. India P. Ltd. Vs. Shamken Spinners Ltd. Ors. AIR 2011 DELHI 17 Relying upon the aforesaid decision, Mr Kadam submitted that a literal interpretation of the 2nd proviso will defeat the objects of SICA, 1985 namely, to prevent unemployment and other loss that occurs from closure of the sick company. He submitted that, therefore, as done by the Delhi High Court, the condition of 75% as set out in the 3rd proviso to section 15(1), ought to be read also into the 2nd proviso. In other words, he submitted that the bar of filing a reference under the 2nd proviso would come into play only when 75% of the entire secured debt owed by the Respondent Company is acquired by a reconstruction company or a securitisation company. 22 I am unable to agree with this submission for mor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sly enacted in that manner. In such cases, it will be wrong to presume that such omission was inadvertent or that by incorporating the condition at one place in the provision the legislature also intended the condition to be applied at some other place in that provision. (emphasis supplied) 23 In view of this clear enunciation of the law, with great respect, I am unable to agree with the view expressed by the Delhi High Court in the case of Asset Reconstruction Co. India P. Ltd. AIR 2011 DELHI 17 24 It would not be out of place to mention that the Judgment of Delhi High Court in the case of Asset Reconstruction Co. India P. Ltd. AIR 2011 DELHI 17 came up for consideration before a division bench of the Andhra Pradesh High Court in the case of M/s SVPCL Ltd. Vs. State Bank of India and Anr. 2015 SCC OnLine Hyd 111 : (2015) 191 Comp Cas 214 (AP) Even the Andhra Pradesh High Court, after analyzing the provisions of the 2nd and 3rd proviso to Section 15(1) of SICA, 1985, was unable to agree with the view taken by Delhi High Court. The relevant portion of the Andhra Pradesh High Court decision reads thus: I. CONSENT OF THE BIFR IS NOT REQUIRED, TO CONTINUE PROCEEDING ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ION 15(1) OF SICA: The next question which arises for consideration is whether the conditions prescribed in the third proviso must be read into the second proviso to Section 15(1) of SICA, and the second proviso held to apply only when the conditions in the third proviso are satisfied? In Asset Reconstruction Co. India P. Ltd. 5 , a Division bench of the Delhi High Court held that a literal interpretation of the second proviso to Section 15(1) which, unlike the third proviso thereto, does not require atleast 75% of the secured debt to be purchased by an asset reconstruction company or a securitization company, will defeat the object of SICA which is to prevent unemployment and loss of revenue to the state exchequer, and other ills which arise from the closure of an industry; if such an interpretation is adopted, a purchaser of a very minuscule amount of the debt of a sick company can frustrate its revival, which will result in an avoidable stalemate arising because of the ability of the secured creditor to prevent a reference for revival and rehabilitation of a sick company, but his inability to pursue his remedy under the SARFAESI Act because he would not have the cut off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words used it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the legislature. (Keshavji Ravji Co. v. CIT). Individual cases of hardship and injustice do not and cannot have any bearing for rejecting the natural construction by attributing normal meaning to the words used since hard cases do not make bad laws. The statute should be interpreted on the basis of the language used therein, and not dehors the same. No words ought to be added, and only the language used ought to be considered, so as to ascertain the proper meaning and intent of the legislation. The court is to ascribe a natural and ordinary meaning to the words used by the legislature and the court ought not, under any circumstances, to substitute its own impression and ideas in the place of the legislative intent as is available from a plain reading of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and therefore, there is no question of the Respondent Company getting protection under Section 22 of SICA, 1985. I am, therefore, unable to accept the submission of Mr Kadam that this Petition cannot proceed and/or be heard and finally disposed of. 27 As far as the facts of Company Petition No.511 of 2014 are concerned, it is not in dispute that a huge amount is due and payable by the Respondent Company to the Petitioner. In fact, in the consent terms filed in this Court dated 19 June, 2014, the Respondent Company has expressly admitted its liability to the Petitioner in the sum of ₹ 95.32 Crores. Admittedly, this amount has not been paid. In fact, Mr Kadam very fairly conceded before me that as far as merits of this Petition are concerned, the Respondent Company has no defence and the only point canvassed before me was the one dealt by me earlier. In this view of the matter, I find that the Respondent Company is indebted to the Petitioner for huge amounts and therefore commercially insolvent and unable to pay its debts. In this view of the matter, the Company Petition is allowed in terms of prayer clauses (a) and (b) which read as under:- (a) that the Company viz. S. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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