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TMI Blog2017 (1) TMI 1113X X X X Extracts X X X X X X X X Extracts X X X X ..... stration ordered by the 2nd respondent - Board for Industrial Financial Reconstruction (hereinafter referred to as the `BIFR' for short) in Ext.P6, on the ground that it is vitiated by fraud as it was ordered before the notice intimating the date of hearing was dispatched. Further contention is that once the petitioner company was declared `sick', the BIFR has no jurisdiction to order de-registration and permit the creditor bank to proceed for recovery. According to the petitioner, the notice of hearing was sent from the office of the BIFR only after the hearing was over and orders were passed and therefore, the order of the BIFR is vitiated by fraud and hence it is liable to be declared null and void. 2. According to the petitioner, it is a public limited company with equity participation of Kerala State Industrial Development Corporation; it was registered under the Companies Act and it was engaged in the manufacture of cotton textiles and ready made garments; its project was financed by the Federal Bank-the 4th respondent; but the project failed since the Government refused to provide supply of power; since the unit could not be functioned, the orders secured by it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. This writ Petition was filed on 30.3.2009, challenging the proceedings Ext.P6 with respect to the orders passed by BIFR on 17.7.2007. The contention of the petitioner is that the respondent bank had filed Ext.P4 petition without serving a copy of it to the petitioner; on such a petition, the BIFR, without serving an advance copy or notice to the petitioner, ordered deregistration, without jurisdiction; the BIFR did not have any jurisdiction to order de-registration or to allow the 4th respondent Bank to proceed with proceedings for recovery. Producing the certified copy of the postal cover Ext.P5, the petitioner contends that the postal stamp affixed on the cover enclosing the notice sent to the petitioner from the BIFR, would reveal that the notice informing the date of hearing scheduled on 17.7.2007 was dispatched only on 25.07.2007. The petitioner submits that the Bank managed to obtain an ex-parte order by playing fraud. It is alleged that the respondent/bank managed to obtain the impugned order of de-registration by manipulation with the connivance of the staff of the BIFR and playing fraud by ensuring that notice of hearing was dispatched to it only after the hearing o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y way of 2 term loans of ₹ 20 lakhs and ₹ 170 lakhs and a PCL of ₹ 12 lakhs, which was enhanced to ₹ 80 lakhs on 18.01.1996 apart from another limit of ₹ 89 lakhs. It further states that anticipating power problem in Kerala, inhouse generator was envisaged in the project. Since the project could not be completed in time, the bank rescheduled the term loan granted on 30.09.1996. Even though the bank had extended all facilities for the project, since there was no improvement, the bank had no other alternative than to classify the accounts as NPA and proceed to file a suit before the DRT on 14.1.1999. In the meanwhile there were disputes in between the directors, on account of which there were several litigations also. The request of the bank to the directors to sort out a viable plan to settle the liabilities did not evoke any positive result. The petitioner had filed application before the BIFR only on 24.12.1999. On 13.2.2002, when the Board had, by Ext.P1, declared the company as sick, the Board had noticed that the absence of the petitioner despite the service of notice, indicated its unwillingness to revive the company. However it appointed the bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r on 4.3.2002. In Ext.P6 BIFR found that that the unit was not engaging any workers for the past several years and there was a full closure and it ceased to be an industrial undertaking. It was accordingly that the company was de-registered. 10. The BIFR has filed a counter affidavit, pointing out that the petitioner was not present for the hearing held on 13.2.2002. After the 4th respondent Bank filed Ext.P4 petition, the BIFR issued notice on 26.6.2007 fixing the date of hearing on 17.7.2007, to the petitioner and other parties by speed post. It has produced the copy of the notice along with the receipt in respect of the notice sent to the petitioner by Speed Post, as Ext.R2(b). It has produced the copy of the dispatch record also as Ext.R2(d). The dispatch record of the summary of proceedings of 17.7.2007, sent to the petitioner on 25.7.2007 and returned undelivered is also produced as Ext.R2(e). It is stated that the article sent to the petitioner on 25.7.2007 was the summary of proceedings of 17.7.2007 and not that of the hearing. It is stated that the petitioner could have taken up the matter in appeal. 11. The petitioner has filed reply affidavits disputing the stateme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat in the light of the Full Bench judgment of the Madras High Court in M/s.Salem Textiles Limited v. M/s.Phoenix ARC Pvt. Ltd. (FB) [AIR 2013 Madras 229] rendered in identical circumstances, the proceedings before the BIFR has to be treated as abated in a case where orders are issued under Section 13(4) of the Secularizations and Reconstruction of Financial Assets and Enforcement of Security Interest Act (`SARFAESI Act' for short). The learned counsel relied on the judgments in Shamken Spinners Ltd. v. State of U.P [AIR 2011 Allahabad 56, Integrated Rubian Exports Ltd. v. I.F. Corpn. of India Ltd. [AIR 2009 Ker.76] and Inderjeet Arya v. ICICI Bank Ltd. [(2014) 2 SCC 229] also and argued that in view of these decisions when there is an order under the SARFAESI Act, the proceedings under the SARFAESI Act will prevail over the proceedings under the SICA. 15. The learned counsel appearing for the BIFR argued that the writ petition was filed 2 years after the de-registration was ordered. Moreover, it was pointed out that there are disputed questions of facts alone in this writ petition and therefore this is not a matter to be adjudicated under Article 226 of the Constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jay, the learned Counsel for the 2nd respondent relying on the apex court judgments in Rooplal bansal 's case, Orissa Agro Industries Corporation Ltd and in M.K. Jose' s case (supra). 18. It is pertinent to note that BIFR allowed the 4th respondent to proceed with SARFAESI only after de-registering it. The question whether the proceedings under SICA will prevail over the proceedings under SARFAESI will arise for consideration only if it is found that Ext.P6 order is vitiated by fraud. Now there is no proof for the fraud. The BIFR declared the petitioner as SICK as per Ext.P1 order in the year 2002. Ext.P6 order was passed after being convinced of the fact that the petitioner had already ceased to function and a revival was not feasible coupled with the non-co-operation of the petitioner also. It was in those circumstances that the BIFR found that it was no longer necessary to keep in abeyance the recovery proceedings initiated by the Bank. Such an order, passed 5 years after the order in Ext.P1, was perfectly in tune with the provisions contained in Section 22 of the SICA, which read as follows: 22. Suspension of legal proceedings, contracts, etc.-(1) Where in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 been reached when the proceedings became stayed. (5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly to proceedings in civil court and not to actions or recovery proceedings filed by the banks and financial institutions before a Tribunal such as DRT. It was held therein that the appellants who were guarantors in that case can obtain the direction of Section 22(1) of the SICA only if the action filed by the bank comes within the ambit of the term 'suit' and if the action filed by the bank is in the nature of 'proceedings' and not a 'suit', protection would not be available under Section 22. It was also observed that the term 'suit' has to be confined in the context of section 22(1) of SICA to those actions which are dealt with under C.P.C and not in the comprehensive overarching proceedings so as to apply to any original proceedings. 21. The petitioner argued that the issue is covered by the judgment in KSL Industries Ltd. v. Arihant Threads Ltd., [(2015) 1 SCC 166]In that case a 3 judges bench of the apex court, after considering a reference as to the overriding effect of the provisions in both the Acts, i.e SICA 1985 and RDDB Act, held that there is nothing contrary in the intention of SICA to exclude a recovery application from the purv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the said Act shall be in addition to and not in derogation of four Acts, namely, the Companies 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 b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 3. 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% 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. 4. Where, under Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, in the case of a sick industrial company having more than one secured creditor or being jointly financed by secured creditors representing 60% or more in value of the amount outstanding as on a record date wish to exercise their rights to enforce their secu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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