By TIOL News Service

NEW DELHI, FEB 11, 2016: THE issue is: Whether the reference pending before the Board for Industrial & Financial Reconstruction can be revived once the secured creditors of the company have initiated steps under Section 13 of the SARFAESI Act. NO is the answer.

Facts of the case

The Madras Petrochemical Ltd (the Appellant Company) filed a reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) before the Board for Industrial & Financial Reconstruction/ BIFR (the Respondent). After making a detailed inquiry, the appellant company was declared sick in the year 1989. ICICI was appointed as the Operating Agency to formulate a rehabilitation scheme. The first and the second scheme of rehabilitation of the appellant failed. When all the efforts of revival of the appellant failed ultimately BIFR passed the winding up orders u/s 20(1) of SICA. In 2002, the respondent recommended to the High Court of Bombay to wound up the appellant company as the same was not likely to make its net worth exceed its accumulated losses. The Appellant Company approached the Appellate Authority for Industrial and Financial Reconstruction /AAIFR, against the order of the respondent but did not get any relief. In the year 2003, ICICI issued possession and sale notice on behalf of the secured creditors of the appellant company which were duly executed through the order of Madras High Court. Meanwhile, the appellant filed a writ petition before the Delhi High Court in 2004, challenging the impugned orders of the Respondent and AAIFR as a result the Delhi High Court stayed both the orders which continued till 24.7.2008, but by the impugned judgment, the Writ Petition was also dismissed. The Delhi High Court was of the view that Section 15(1) proviso 3 of SICA, when construed to include all proceedings under it, would make the present proceedings under SICA, abate on the facts of this case. Aggrieved by this, the Appellants approached the Supreme court through special leave petition.

Reasoning

1. SICA prevails in all situations where there are earlier enactments with non obstante clauses similar to it. Where there are later enactments with similar non obstante clauses, SICA has been held to prevail only in a situation where the reach of the non obstante clause in the later Act is limited – such as in the case of the Arbitration and Conciliation Act, 1996 – or in the case of the later Act expressly yielding to the SICA, as in the case of the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993 /DRT Act. Where such is not the case, as in the case of Special Courts Act, 1992, it is the Special Courts Act, 1992 which was held to prevail over SICA. Therefore SARFAESI Act, 2002 to be given precedence over SICA like the old scheme for recovery of debts contained in the DRT Act, 1993.

2. The non obstante clauses in Section 22(1) and (4), read with Section 32, Section 22 of SICA will have to give way to the measures taken under SARFAESI 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 SICA.

2. If a literal meaning were to be applied to the expression "where a reference is pending", the third proviso to Section 15(1) of SICA 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 SARFAESI Act, 2002.

3. Various judgement shows that the order of stay of the BIFR's opinion to wind up the company and the dismissal of the appeal therefrom by the AAIFR would not in any manner revive the reference under Section 15 of the Appellant Company. For this reason also, it is clear that after the orders of the BIFR and AAIFR have been upheld by dismissal of the writ petition filed before the Delhi High Court by the impugned judgment, there can be said to be no revival of reference proceedings before the BIFR.

4. The expression "reference" used in Section 15(1) proviso 3 of SICA is used in contra distinction 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"

5. The expression "such reference shall abate" used in third proviso of section 15(1) has great relevance. One of the meanings of the expression "abate" is "to put an end to; to curtail; to come to naught" A reference can be said to abate in one or several ways. One such instance of abatement is provided by the third proviso to Section 15(1) of SICA. 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 or more of the secured creditors get together to take measures under Section 13(4) of SARFAESI Act, they will not be thwarted by the provisions of Section 22 of SICA, and it will not be necessary for them to obtain BIFR permission before taking any such measures.

6. In conclusion, it is held that the interim order dated 17.1.2004 by the Delhi High Court would not have the effect of reviving the reference so as to thwart taking of any steps by the respondent creditors in this case under Section 13 of the SARFAESI Act This is because the SARFAESI Act, 2002 prevails over the SICA to the extent of inconsistency therewith. Section 15(1) proviso 3 covers all references pending before the BIFR, no matter whether such reference is at the inquiry stage, scheme stage, or winding up stage. This being so, it is clear that in any case the present reference under Section 15(1) of the Appellant Company has abated inasmuch as more than 3/4th of the secured creditors involved have taken steps under Section 13(4) of the SARFAESI Act, 2002. The appeals are accordingly dismissed.

(See 2016-TIOL-11-SC-MISC)