2011 (3) TMI 1473 - HC - Companies Law

Court affirms DRAT's interim directions on Securitization Act, emphasizes procedural compliance. Writ petition dismissed.

Sand Plast (India) Ltd. Versus Punjab National Bank

The court upheld the interim directions issued by the Debt Recovery Appellate Tribunal (DRAT) in a case challenging an order by the Debt Recovery ... Writ petition – interim order - Debt Recovery Tribunal has prima facie recorded that the recovery of the dues by the two secured creditors before it i.e., PNB and HUDCO approximates about Rs. 70 crores and that even the petitioner was admitting liability approximating about Rs. 10 crores. It has thus been directed that the petitioner would pay Rs. 5 crores each to PNB and HUDCO by 31-3-2010 and thereafter would deposit Rs. 50 lakhs per month with PNB and HUDCO as a condition of the stay of the notices issued by PNB under section 13 of Act No. 54 of 2002 - condition of Rs. 50 lakhs per month being deposited with PNB and HUDCO has been waived. The requirement to deposit Rs. 5 crores each with PNB and HUDCO has been maintained – Held that:- secured creditors representing more than 75 per cent of the secured debt can take recourse to section 13 of Act No. 54 of 2002 notwithstanding any proceeding pending before BIFR. no material to prima facie establish that PNB had the consent of HUDCO to proceed under section 13 of Act No. 54 of 2002 and since the debt due to PNB was not representing 3/4th in value of the secured debt, action initiated by PNB was void. appeal under section 17 of Act No. 54 of 2002 by a party aggrieved against a measure taken by a secured creditor under section 13(4) of the said Act, inheres in DRT power to pass interim directions and the Tribunal would be empowered to pass such orders as it may consider appropriate and necessary in relation to the recourse taken by the secured creditors under sub-section 4 of section 13 of the Act. No scope to interdict the interim measure directed by the DRAT of maintaining status quo but upon the condition of the petitioner depositing Rs. 5 crores each with PNB and HUDCO. writ petition dismissed Issues:Challenge to order by Debt Recovery Appellate Tribunal; Interpretation of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002; Limitation period for action by secured creditors; Effect of pending proceedings under Sick Industrial Companies (Special Provisions) Act 1985; Consent of multiple secured creditors for action under Securitization Act; Jurisdiction of Debt Recovery Tribunal and Appellate Tribunal in passing interim orders.Analysis:The judgment in this case dealt with a writ petition challenging an order by the Debt Recovery Appellate Tribunal, which was a result of an appeal against an interim order passed by the Debt Recovery Tribunal under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002. The petitioner, a company, had defaulted on loans from secured creditors PNB and HUDCO, leading to proceedings initiated by the creditors. The court noted the history of defaults and actions taken by the creditors, including a one-time settlement proposal by PNB which was later withdrawn due to defaults by the petitioner.The court addressed three main issues raised during arguments. Firstly, the petitioner claimed that the action by PNB under the Securitization Act in 2008 was barred by limitation since the mortgage was created in 1992. The court found this argument lacking merit as the actions by the creditors were taken within the prescribed time limits. Secondly, the petitioner argued that the pending proceedings under the Sick Industrial Companies Act should prevent the sale of secured assets. The court clarified that secured creditors could proceed under the Securitization Act despite pending proceedings before BIFR. Lastly, the petitioner questioned the consent of HUDCO for PNB's action, but the court noted that HUDCO had granted the necessary consent, though the final decision on this issue was pending before the DRT.The court emphasized the jurisdiction of the DRT and DRAT to pass interim orders under the Securitization Act, citing relevant case law. It upheld the interim directions issued by the DRAT, requiring the petitioner to deposit funds with the creditors while extending the compliance deadline. The judgment focused on procedural adherence and jurisdictional bounds, refraining from delving into the merits of the decision. Ultimately, the writ petition was dismissed, with an extended deadline for compliance with the DRAT's directions provided to the petitioner.