2007 (10) TMI 409 - HC - Companies Law

Court upholds BIFR abatement decision, allowing secured creditors to act during proceedings.

The High Court upheld the order of the Single Judge, dismissing the writ application challenging the BIFR's declaration of proceedings abated under SICA ... Mandamus appeal - secured creditor action - Held that:- As huge amount of money is due and payable and, in such circumstances, the act on the part of the secured creditor cannot be said to be without jurisdiction so as to maintain a writ application without availing of the statutory remedy contained in section 17 of the Securitisation Act of section 25 of the SICA. We further had substance in the contention of the learned counsel for the secured creditors that the two banks mentioned above being the sole secured creditors as would appear from the balance-sheet of the writ petitioners which they annexed to the stay application, the proviso to section 15 of the SICA was clearly attracted, inasmuch as they invoked the full amount of the secured loan of the debtor. Therefore, we find no reason to interfere with the order passed by the learned single judge. Thus mandamus-appeal, thus, is devoid of any substance and is dismissed accordingly. Issues:Challenge to order of BIFR declaring proceedings abated under SICA, Challenge to action of secured creditors under Securitisation Act, Justification of dismissal of writ application by Single JudgeAnalysis:1. The case involves a mandamus appeal against the order of a learned Single Judge dismissing a writ application challenging the order of the Board for Industrial and Financial Reconstruction (BIFR) declaring a case abated under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The appeal also contests the actions of secured creditors under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act).2. The appellant failed to repay debts owed to Bank of India and Central Bank of India, leading to initiation of proceedings under the Securitisation Act by the banks. Subsequently, the appellant approached BIFR for rehabilitation under SICA, and the BIFR appointed Central Bank of India as the operating agency.3. The BIFR issued a notice fixing a hearing date, but before that, Bank of India took action under Securitisation Act, leading to the BIFR declaring the proceedings abated. The appellants challenged this order through a writ application under Article 226 of the Constitution of India.4. The appellants argued that the actions of secured creditors under Securitisation Act were mala fide and aimed at rendering BIFR proceedings ineffective. They contended that once a secured creditor is appointed as an operating agency under SICA, they cannot exercise power under Securitisation Act.5. The secured creditors, however, argued that the law allows them to invoke Securitisation Act even after being appointed as the operating agency under SICA. They maintained that the writ application was not maintainable as there were avenues for appeal provided under SICA and Securitisation Act.6. The High Court, after considering the arguments and provisions of SICA and Securitisation Act, found that the legislature permits secured creditors to invoke Securitisation Act even during BIFR proceedings. The Court held that the actions of secured creditors were not without jurisdiction, especially considering the substantial amount due.7. The Court also noted that the banks were the sole secured creditors and had invoked the full amount of the secured loan, thus attracting the proviso to section 15 of SICA. Consequently, the Court upheld the order of the learned Single Judge dismissing the writ application.8. The mandamus appeal was deemed devoid of substance and dismissed, with no order as to costs. The interim order was vacated, and the judgment was agreed upon by both judges.