2008 (8) TMI 799 - SC - Companies Law

Supreme Court: Recovery proceedings not barred by SICA. RDDB Act prevails. Appeal not maintainable.

The Supreme Court held that the recovery proceedings were not barred by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) ... Whether the High Court was right in holding that the proceedings were barred under Section 22 of SICA? Whether the reserve price had been correctly fixed by the Recovery Officer? Held that:- The order passed by the DRAT on 10.2.2006 confirming the sale in favour of the appellant was made long before the respondent-Company was declared to be a “sick company” on 22.2.2007. The High Court was, therefore, in error in applying the provisions of Section 22 of the SICA when the sale had already been confirmed in favour of the appellant and the purchase price had already been deposited. Furthermore, the first Reference made by the respondent- Company was also rejected by the BIFR on 3.4.2006. Even on merits, the conduct of the respondent No.1- company leaves much to be desired. Without challenging the final order passed by the DRT, Chandigarh, allowing the Bank’s claim of Rs.25,26,60,836/- together with interest @ 7.8% per annum, the said respondent questioned the order of the Recovery Officer, fixing the reserve price of the Company’s assets for the purposes of the auction sale, under Section 30 of the RDDB Act, having full knowledge of the fact that the final order of the DRT, Chandigarh, could not be challenged in such appeal. The steps taken by the respondent No.1, Company were far from bona fide and were only aimed at stalling the auction sale. Even at the time of auction of the company’s assets, no attempt was made by the Respondent No.1-Company to secure a bid higher than that of the appellant. Appeal allowed. Issues Involved:1. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).2. Overriding effect of Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act).3. Conduct of the respondent-Company in invoking discretionary and equitable jurisdiction under Article 226 of the Constitution.4. Maintainability of the appeal under Section 30 of the RDDB Act.5. Merits of the auction sale and fixing of reserve price.Issue-wise Detailed Analysis:1. Applicability of Section 22 of SICA:The High Court had allowed the writ petitions filed by the Company on the ground that the recovery proceedings were barred by Section 22 of SICA. The Supreme Court, however, held that the High Court's conclusion was not well-founded. It was noted that Section 22 of SICA has two parts: the first part bars proceedings for winding up, execution, distress, or the appointment of a receiver without the consent of the Board; the second part bars suits for recovery of money or enforcement of any security against the industrial company without such consent. The Court emphasized that the proceedings initiated by the Bank under the RDDB Act were not covered by the bar under Section 22 of SICA.2. Overriding Effect of Section 34 of RDDB Act:The Supreme Court highlighted that Section 34 of the RDDB Act has an overriding effect over other laws, including SICA. It was noted that RDDB Act is a subsequent legislation with a non-obstante clause, indicating that it should prevail over SICA. The Court held that the provisions of RDDB Act should be given priority and primacy over SICA, especially in matters of recovery of public revenue due to banks and financial institutions.3. Conduct of the Respondent-Company:The Supreme Court observed that the Company had not come to the writ court with clean hands. The Company had not repaid the loan amount, did not appear before the DRT despite being served, and forcibly dispossessed the receiver appointed by the Tribunal. The Court emphasized that the High Court, in exercising its extraordinary jurisdiction under Article 226, should have considered the overall conduct of the Company, which was far from bona fide.4. Maintainability of the Appeal under Section 30 of the RDDB Act:The Supreme Court noted that the appeal filed by the Company under Section 30 of the RDDB Act against the order of the Recovery Officer fixing the reserve price was not maintainable. The Court observed that the order fixing the reserve price was not an 'order' within the meaning of the RDDB Act that could be appealed. The proper remedy for the Company was to apply under Rules 60, 61, or 62 of the Second Schedule of the Income Tax Act, 1961, which the Company failed to do.5. Merits of the Auction Sale and Fixing of Reserve Price:The Supreme Court held that the reserve price fixed by the Recovery Officer was proper, sufficient, and reasonable. The auction sale was conducted in accordance with the law, and the highest bid was accepted. The Court noted that the Company did not avail the remedies provided under the Income Tax Act to challenge the auction sale. The appeal filed by the Company against the fixation of the reserve price was ill-conceived and not maintainable.Separate Judgment by Altamas Kabir, J.:Justice Altamas Kabir agreed with the conclusion that the High Court erred in applying Section 22 of SICA but differed in legal reasoning. He emphasized that the opening words of Sub-section (1) of Section 34 of the RDDB Act make its provisions subject to Sub-section (2), which states that the provisions of the RDDB Act shall be in addition to and not in derogation of SICA. Therefore, if the situation is covered by SICA, its provisions would prevail. However, he concluded that since the final order in the recovery proceedings was passed and the auction sale was concluded before the Company was declared sick, the provisions of SICA were not applicable. He also criticized the conduct of the Company and held that the appeal should be allowed, and the order of the High Court should be set aside.Final Order:The appeal was allowed, and the order of the High Court was set aside. The matter was remitted to the High Court to decide it afresh on all points, including the conduct of the Company. All contentions of all parties were kept open. The Supreme Court directed the Registry to place the papers before the Chief Justice of India for taking appropriate action due to the difference of opinion on the interpretation of Section 34 of the RDDB Act.