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TMI Blog2024 (7) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... ence under the law where the secured creditors represent not less than three-fourth of the amount outstanding. Therefore, it is vividly clear that such a provision has been made for the benefit of a secured creditor. The expression, such secured creditors clearly manifests legislative intention that the outstanding amount must be of such secured creditors who have taken any measure to recover their secured debt under subsection (4) of Section 13 of the SARFAESI Act. To put it differently, if there are number of secured creditors who have taken any measure to recover their secured debt under subsection (4) of Section 13 of the SARFAESI Act and the secured debt, which is outstanding, is not less than three-fourth of the outstanding amount which was disbursed to the borrower by those secured creditors, third proviso to sub-section (1) of Section 15 of the SICA would be attracted to result in abatement of the proceedings by operation of law. Thus, it is already held that even before repeal of the SICA vide the SIC Repeal Act of 2003, the reference proceedings abated in view of the provisions contained in third proviso to sub-section (1) of Section 15 of the SICA, the third proviso to c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h by virtue of rehabilitation scheme prepared by O.A., a mining lease was to be transferred in favour of the appellantcompany, the State cancelled the lease granted in favour of RIICO on 06.11.1990, which was challenged before the Mining Tribunal. The Mining Tribunal set aside the said order. 3. In the on-going proceedings before the BIFR, an order was passed on 06.01.1994, whereby the BIFR, upon reviewing progress of implementation of the scheme, directed the appellant No.2-promoter to deposit a sum of Rs.2.00 crore in the lien account with the Punjab National Bank by 31.01.1994, failing which proceedings for winding up of the appellant-company would be initiated. The said amount having not been deposited, eventually BIFR issued a notice on 16.02.1994 for winding up of the appellant-company. A writ petition was filed, in which a restraint order was passed against publication of the notification for liquidation of the appellant-company. The said writ petition, however, was dismissed on 05.10.2004. However, even before that, the BIFR cancelled its notice dated 18.02.1994 vide its order dated 07.04.1994. Later on, the writ petition filed by the appellant-company, which was dismissed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as SARFAESI Act ). For the reasons that respondent M/s. Asset Care Enterprise Limited cannot be said to be representing 3/4th value of outstanding amount as M/s. Raghupati Cement Private Limited was holding 60% of the secured debt, under no circumstance, abatement of reference proceedings would follow by operation of law. Therefore, allowing an application and declaring that reference proceedings before the BIFR had abated, is in violation of the statutory scheme. An issue was also raised that the BIFR was not authorised to issue notice for winding up as earlier notice dated 16.02.1994 issued by the BIFR was subject matter in the writ petition pending before the Court, wherein interim order was passed and operating. The BIFR issued new notice for winding up only for the reason that the writ petition stood dismissed due to non-appearance of the counsel. However, once an order was passed by Hon ble Supreme Court resulting in restoration of the petition, interim order also stood automatically revived. 7. Another argument was raised that even if the order of abatement was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l for the parties, the learned Single Judge was of the view that M/s. Asset Care Enterprise Limited (respondent in the writ petition) was a secured creditor as defined under Section 2(zd) of the SARFAESI Act and further the learned Single Judge opined in view of the provisions contained under Section 15 of the SICA that under the law, M/s. Asset Care Enterprises Limited was the only secured creditor as the loan was taken by the appellant-company and financial assistance was taken by the appellant-company from IFCI, ICICI, IDBI and PNB and the debts of IFCI and ICICI were taken over by M/s. Asset Care Private Limited. Though, the debts of PNB and IDBI were taken over by M/s. Raghupati Cement Private Limited, but that company did not fall within the definition of secured creditor. The learned Single Judge recorded a finding that this was an admitted factual position on record. 10. The learned Single Judge also held that revival of Writ Petition No.1071/1994 would not come in the way of proceedings inasmuch as the BIFR had not acted upon the notice, which was assailed in the writ petition but had issued fresh notice dated 01.03.2007 followed by order dated 21.05.2007. As notice dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... abatement of reference proceedings, particularly when the AAIFR itself has passed an interim order on 18.10.2007. 15. Further submission is that the respondent No.1 M/s. Asset Care Enterprise Ltd. had acquired the debt liabilities of the IFCI and Kotak Mahindra Bank. It gave notice under Section 13(4) of the SARFAESI Act to the appellant only in respect of debts of IFCI which is less than 3/4th of the debts of the borrower. As such, it is contended that the abatement clause as incorporated in third proviso to Sub-section (1) of Section 15 of the SICA, as amended, is not attracted and there is no abatement. It is also submitted that specific ground was raised by the appellant on categoric pleadings giving clear break up with regard to the amount of debt acquired by respondents M/s. Asset Care Enterprise Ltd. and M/s. Raghupati Cement Private Limited, which was not disputed in return filed by the respondents in the writ proceedings. That being admitted factual position, it could not be said that respondent M/s. Asset Care Enterprise Ltd. is a secured creditor represented not less than 3/4th in value of the amount outstanding against financial assistance disbursed to the appellant of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading Company (which purchased the assets of M/s. Asset Care Enterprise Limited) opposed relief sought in the appeal and supported the order passed by the learned Single Judge by submitting that having purchased the assets of M/s. Asset Care Enterprise Limited, it seeks to defend the order passed by the AAIFR declaring reference proceedings as having abated. It is contended that in view of definition of a secured creditor as contained under Section 2(zd) of the SARFAESI Act, M/s. Asset Care Enterprise Limited was the only secured creditor which gave a valid notice under Section 13(4) of the SARFAESI Act to the appellant and having acquired the debt of various financial institutions, in the eyes of law, it was a secured creditor representing not less than 3/4th in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditor. He would further argue that the word outstanding as occurs in the third proviso to Sub-section (1) of Section 15 of the SICA manifests legislative intention that once a secured creditor representing 3/4th in value of the amount outstanding, as distinguished from total amount borrowed, takes any measure to secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led by the appellant had already been dismissed on 30.04.2010. He would next submit that in fact, certificate of sale of various movable and immovable assets was issued by M/s. Asset Care Enterprise Limited in favour of respondent No.8 M/s. Mansoon Trading Company on 17.05.2010, which is on record. This fact has been mentioned in I.A. No.29884/2010 filed in the present case and this Court also observed this fact recorded in the order dated 28.05.2010 that M/s. Asset Care Enterprise Limited had sold its assets to M/s. Mansoon Trading Company. Thereafter on 18.10.2010, it was observed that the affect of such sale shall be considered at the time of final hearing. He would also submit that in any case, challenge to notice under Section 13(2) and measures taken under Section 13(4) of the SARFAESI Act is no longer maintainable as the said challenge though initially made in the petition, was withdrawn while making an application which was allowed on 10.12.2009. Therefore, arguments to assail the correctness and validity of the notice under Section 13(2) and measures taken under Section 13(4) of the SARFAESI Act are liable to be rejected at the threshold. 20. Learned senior counsel appeari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by learned counsel for the appellant is that upon revival and restoration of Writ [2023:RJ-JP:41451-DB] (16 of 42) [SAW-281/2010] Petition No. 1071/1994 as also interim order dated 25.02.1994 passed therein, the BIFR could not have reinitiated winding up proceedings by forming an opinion and issuing notice dated 01.03.2007, nor could the BIFR draw any proceedings. Both the BIFR and the AAIFR ought to have stayed their hands in view of the interim order passed in Writ Petition No. 1071/1994. Therefore, the order passed by the AAIFR, declaring the proceedings as having abated, is nullity. Undisputed facts extracted from the chequered history of the present case are that the appellant-company, namely, M/s. Swadeshi Cement Limited, became sick and for its revival and rehabilitation, the BIFR sanctioned rehabilitation scheme on 26.02.1990. It, however, appears that the measures taken under the revival scheme did not yield desired result showing any sign of revival of the company. It is also on record that the company was required to deposit Rs. 2.00 crores in No Lien Account in Punjab National Bank by 31.01.1994 and submit revised proposal without altering the basic framework/parameter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n of Writ Petition No. 1071/1994 wherein notices were issued. It also recorded that no order staying the proceedings was passed, but a prayer was made for adjourning the case. The BIFR also took into consideration the submission of the appellant-company that unless mining lease was granted in its favour, it was not possible to revive the company. Representatives of M/s. Raghupati Cement Private Limited, which had acquired a part of company s debt, were also heard. Representatives of the Department of Central Excise, RIICO, Punjab National Bank and consultants representing others were also heard. It was finally observed that the unit had been lying closed for the past 18 years which was permanent closure and, therefore, the company ceased to be an industrial undertaking. The company did not have any mining lease. It was also observed that no draft of rehabilitation scheme has been submitted to the operating agency, namely, IDBI. The BIFR, therefore, came to a conclusion that despite having allowed enough time and opportunity to all concerned, it had not been possible to formulate any acceptable revival scheme for the company enabling it to meet its net worth exceeding the accumulate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding consideration before the Division Bench. The outcome of the pending appeal before the Division Bench would decide inter se dispute between the parties therein. Learned counsel for the petitioner company, however, made a reference of the order passed by the Apex Court after dismissal of the application by this Court for restoration of the writ petition. It was at the stage when after the interim order, not of the status quo, as stated by learned counsel for the petitioner company, the writ petition was dismissed for non-prosecution. The restoration application thereupon was also dismissed by this Court. On an appeal before the Apex Court, the application for restoration was allowed vide order dated 06th August, 2007. On the restoration of the petition, it has been heard by this Court. In absence of challenge to show cause notice and subsequent order, the adjudication of the issue in reference to it cannot be made. It cannot be on the stay application without a challenge to it in the writ petition. In view of the above, what we find is that the relief claimed in the writ petition has rendered infructuous in view of the subsequent developments and, for that, interim order passed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s moved before the AAIFR that the proceedings before the BIFR arising out of a reference in the matter of sanction of rehabilitation scheme and rehabilitation stood abated by operation of law, nothing prevented the AAIFR from examining this pure legal issue as to whether the reference proceedings at all could continue further after secured creditors having taken measures under Section 13(4) of the SARFAESI Act. To say that such application could be filed only before the BIFR and the AAIFR could not have examined this legal issue, is misconceived in law as it ignores the principle that the appeal is continuation of original proceedings. The application could be filed either before the BIFR or it could be brought to the notice of the AAIFR or the BIFR regarding abatement of the proceedings. Since an appeal was pending before the AAIFR, the application was moved before the AAIFR which was considered and opinion rendered. The aforesaid consideration incidentally answers the other objection raised by learned counsel for the appellant that the AAIFR usurped the jurisdiction of the BIFR in considering the application and declaring that reference proceedings have abated. Therefore, impugne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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.] (2) xxxxxx It is relevant to mention here that second and third provisos to Section 15(1) of the SICA were introduced vide Act 54 of 2002, S.41 and Sch. with effect from 21.06.2002. It would not be out of place to further mention that the SARFAESI Act was enacted by the Parliament and as provided under Section 1(3) thereof, it was deemed to have come into force on 21st day of June, 2002. The SARFAESI Act was enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest and to provide for a central database of security interests created on property rights and for matters connected therewith and incidental thereto. Section 13 of the SARFAESI Act provides for enforcement of security interest, which inter alia, provides that any security interest created in favour of any secured creditor may be enforced without the intervention of the court or tribunal, by such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) debenture trustee registered with [the Board and appointed] for secured debt securities; or (v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created by any borrower for due repayment of any financial assistance.;] In view of the aforesaid wide definition, secured creditors are not only any bank or financial institution or any consortium or group of banks or financial institutions, but also debenture trustees, asset reconstruction company and class of trustees as mentioned in sub-clauses of the definition clause of secured creditor. 29. The other important provision is that the creditors must represent not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors. On rational construction of the aforesaid expression in the third proviso to sub-section (1) of Section 15 of the SICA, if there are more than one secured creditor, they all must represent not less than three-fourth in value of the amount which is outstanding against the financial assistance which has been disbursed to the borrower and must be of such creditors. Onc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed to the borrower by those secured creditors, third proviso to sub-section (1) of Section 15 of the SICA would be attracted to result in abatement of the proceedings by operation of law. 31. Learned counsel for the appellant vehemently submitted that the word, outstanding as mentioned in third proviso to subsection (1) of Section 15 of the SICA is required to be interpreted liberally, so as to include the entire amount of financial assistance disbursed to the borrower of such secured creditors. We are unable to accept this submission as it would do violence to the rule of literal construction, but also of the legislative intent behind introduction of an overriding clause in favour of secured creditors by adding third proviso to sub-section (1) of Section 15 of the SICA. The object of the legislation was to allow the secured creditors to recover their outstanding amount standing against the borrower and there is no warrant for substituting the word, outstanding by expression, entire amount borrowed . Moreover, it is important to note that the expression, such secured creditors , also manifests the legislative scheme of linking the outstanding amount which has been disbursed to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13(9) of the SARFAESI Act clearly provides as below: 13. Enforcement of security interest. (1) xxxxx (2) xxxxx (3) xxxxx (9) [Subject to the provisions of the Insolvency and Bankruptcy Code, 2016, in the case of] financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless 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 subsection (1) of section 52 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 15 of the SICA as the proviso essentially lays down statutory scheme with regard to interplay between the SICA and the SARFAESI Act. Therefore, we have no hesitation to hold that the expression, amount outstanding as occurring in third proviso to sub-section (1) of Section 15 of the SICA is the amount which is explained in Section 13(9) of the SARFAESI Act and no other amount, nor can it be read as total amount of financial assistance disbursed to the borrower by the secured creditors. Such an interpretation goes completely against the meaning of expression amount outstanding as per explanation appended in Section 13(9) of the SARFAESI Act. 34. In the case of Madras Petrochem Limited Another Vs. Board for Industrial and Financial Reconstruction Others (2016) 4 SCC 1, the interplay of the SICA and the SARFAESI Act was examined by the Hon ble Supreme Court. It was pertinently observed as below: 44. It will, thus, be seen that notwithstanding the non obstante clauses in Sections 22(1) and (4), read with Section 32, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will have to give way to the measures taken under the Securitisation and Reconstruction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1985 specifically refers, in the Chapter heading, to references, inquiries and schemes. While Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 deals with references, Section 16 deals with inquiries into the working of sick industrial companies. Section 18 then deals with preparation and sanction of schemes. 51. What has to be examined is whether this purely literal rendering of the expression where a reference is pending is correct or not. First and foremost, it is important to note that the third proviso to Section 15(1) uses the words is pending . A reference has been held to be pending the moment it is received by the Board.In Real Value Appliances Ltd. V. Canara Bank (1998) 5 SCC 554, this Court had to decide whether the mere registration of a reference by BIFR would result in the automatic cessation of all proceedings which are pending in civil courts and the company court against its assets. It was argued that in order that Section 22 of the Act can come into operation, BIFR must, subsequent to the registration of the reference under Section 15, apply its mind and consider whether it is necessary under Section 16 to make an inquiry. Unless an inquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the expression proceedings in Section 22. Proceedings under Section 22 are actions taken against the sick company, whereas references are actions initiated by a sick company it is perhaps for this reason that the third proviso to Section 15(1) uses the expression reference instead of the expression proceedings . In the aforesaid decision, third proviso to sub-section (1) of Section 15 of the SICA was also analysed by the Hon ble Supreme Court as under: 53. Another important aspect as to the construction of the third proviso to Section 15(1) is the meaning of the expression such reference shall abate . One of the meanings of the expression abate is to put an end to; to curtail; to come to naught . (See Ramanatha Aiyar s Law Lexicon). A reference can be said to abate in one or several ways. One obvious way that a reference abates is where the Board, after inquiry, rejects the reference for the reason that the Board is satisfied that the Company is not a sick industrial company as defined under the Act. Another way in which a reference can abate is where a scheme is implemented successfully, and the sick industrial company is taken out of the woods successfully. A third manner in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenge to those reliefs by making specific application which was also allowed vide order dated 10.12.2009. This fact has been clearly mentioned by the learned Single Judge in the opening paragraph of the impugned order. Therefore, such submission made before this Court has no legs to stand and deserves outright rejection. Though, learned counsels appearing on behalf of the respondents have also brought on record certain notices purporting to be under Section 13(2) of the SARFAESI Act, we are not inclined to dwell into that aspect as the same is outside the scope of challenge in the present appeal. 37. In view of above discussion, the decisions of the Hon ble Supreme Court as also Delhi High Court cited by learned counsel for the appellant at the Bar rendered in the cases of Usha Sinha Vs. Dina Ram Others (Appeal (Civil) 1998 of 2008 decided by the Hon ble Supreme Court on 14.03.2008); Kalabharati Advertising Vs. Hemant Vimalnath Narichania Others (SLP (C) No. 25043-25045 of 2008 decided by the Hon ble Supreme Court on 06.09.2010); Vareed Jacob Vs. Sosamma Geevarghese Others (Appeal (Civil) 2634 of 2004 decided by the Hon ble Supreme Court on 21.04.2004); Mardia Chemicals Ltd. Ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osamma Geevarghese Others (supra), the issue which arose for consideration before the Hon ble Supreme Court was as to whether on restoration of a suit, an order of injunction passed is automatically revived or not. In the case in hand, this Court has examined the facts of the case and taken note that notice dated 16.02.1994, which was subject matter of Writ Petition No. 1071/1994, was otherwise cancelled subsequently and while the writ petition stood dismissed, fresh proceedings were initiated and opinion was formed on 21.05.2007 which was subjected to challenge by an appeal before the AAIFR and at that stage, application seeking declaration of abatement of reference proceedings was filed on the basis of subsequent event that the secured creditors had taken measures under Section 13(4) of the SARFAESI Act. Therefore, the aforesaid decision also does not come to the aid of the appellant in the present case. 39. An argument has been advanced on behalf of the respondents that in any case, the SICA having been repealed vide the SIC Repeal Act of 2003 (Act No. 1 of 2004), reference proceedings would otherwise abate. The SIC Repeal Act of 2003 came into force with effect from 25.11.2016 ..... 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