Financial Corporations cannot invoke sections 29/31 of State Financial Corporations Act during pending BIFR proceedings under SICA 1985

The SC held that Financial Corporations cannot invoke sections 29/31 of the State Financial Corporations Act, 1951 when proceedings are pending under the Sick Industrial Companies Act, 1985. The Court ruled that "proceedings" in section 22(1) of the 1985 Act encompasses broader coercive activities beyond narrow legal proceedings. During pending BIFR inquiries or appeals, Financial Corporations must cease coercive actions to allow rehabilitation schemes to be considered. The appeal was allowed, HC judgment set aside, but corporations may seek Appellate Authority consent for action under the 1951 Act.

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Issues Involved:
1. Applicability of Sections 29 and 31 of the State Financial Corporations Act, 1951 in light of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Interpretation of the term "proceedings" under Section 22(1) of the 1985 Act.
3. Conflict between the non-obstante clauses in the 1951 Act and the 1985 Act.

Issue-wise Detailed Analysis:

1. Applicability of Sections 29 and 31 of the State Financial Corporations Act, 1951 in light of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:

The primary question was whether the Financial Corporation could invoke Sections 29 and/or 31 of the 1951 Act despite the bar under Section 22 of the 1985 Act. The 1951 Act provides for the establishment of State Financial Corporations to extend financial assistance to industrial concerns. Section 29 allows the Financial Corporation to take over the management or possession of the industrial concern's assets in case of default. Section 31 allows the Corporation to apply to the District Judge for various reliefs, including the sale of pledged property.

The 1985 Act, on the other hand, was enacted to address the problem of industrial sickness and to provide for the revival and rehabilitation of sick industrial companies. Section 22(1) of the 1985 Act imposes a bar on proceedings for winding up, execution, distress, or the like against the properties of a sick industrial company during the pendency of an inquiry or an appeal under the Act.

The Court concluded that the 1951 Act deals with pre-sickness situations, while the 1985 Act deals with post-sickness situations. Therefore, in cases of sick industrial undertakings, the provisions of the 1985 Act would ordinarily prevail.

2. Interpretation of the term "proceedings" under Section 22(1) of the 1985 Act:

The Court examined whether the term "proceedings" under Section 22(1) should be limited to legal proceedings or include actions like those under Section 29 of the 1951 Act. The marginal note to Section 22 uses the term "legal proceedings." However, the Court noted that marginal notes cannot be used to construe the section's meaning.

Section 22(1) states that no proceedings for winding up, execution, distress, or the like against any properties of the sick industrial company shall lie or be proceeded with further, except with the consent of the BIFR or the Appellate Authority. The Court interpreted the term "proceedings" broadly to include coercive actions like those under Section 29 of the 1951 Act. The Court held that allowing the Financial Corporation to take over the management and assets of a sick industrial company under Section 29 would render the rehabilitation process under the 1985 Act nugatory.

3. Conflict between the non-obstante clauses in the 1951 Act and the 1985 Act:

Both the 1951 Act and the 1985 Act contain non-obstante clauses. Section 46B of the 1951 Act states that the provisions of the Act shall have effect notwithstanding anything inconsistent with any other law. Similarly, Section 32(1) of the 1985 Act states that the provisions of the Act shall have effect notwithstanding anything inconsistent with any other law.

The Court held that the 1985 Act, being a subsequent enactment, would ordinarily prevail over the 1951 Act unless the latter is considered a special statute. However, the Court concluded that both Acts are special statutes dealing with different situations. Therefore, in cases of sick industrial undertakings, the provisions of the 1985 Act would prevail.

Conclusion:

The Court allowed the appeal, setting aside the High Court's judgment. It clarified that the Financial Corporation could seek the consent of the Appellate Authority under Section 25 of the 1985 Act for taking action under Section 29 of the 1951 Act. The Court emphasized that the term "proceedings" in Section 22(1) should be broadly construed to include actions under Section 29 of the 1951 Act, thereby ensuring that the rehabilitation process under the 1985 Act is not frustrated.

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