Supreme Court: SICA Section 22 Prevails Over RDDB Act

The Supreme Court ruled that Section 22 of the Sick Industrial Companies (Special Provisions) Act prevails over the Recovery of Debts Due to Banks and Financial Institutions Act in protecting sick companies from recovery proceedings. The Court emphasized fulfilling the purposes of both Acts and upheld the auction sale and recovery proceedings under the RDDB Act, dismissing the company's writ petitions. The Delhi High Court's decision was set aside, affirming the priority of SICA in such cases.

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Issues Involved:
1. Interpretation of Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act).
2. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on recovery proceedings.
3. Priority and primacy between RDDB Act and SICA.
4. Validity of recovery proceedings and auction sale under RDDB Act.
5. Impact of BIFR proceedings on recovery actions.

Detailed Analysis:

1. Interpretation of Section 34 of the RDDB Act:
The Supreme Court was tasked with interpreting Section 34 of the RDDB Act, which includes a non-obstante clause giving it an overriding effect over other laws. However, sub-section (2) of Section 34 specifies that the RDDB Act is in addition to and not in derogation of certain other Acts, including SICA. This created a legal conundrum on whether RDDB Act proceedings could supersede SICA provisions.

2. Applicability of Section 22 of SICA on Recovery Proceedings:
Section 22 of SICA provides for the suspension of legal proceedings against a sick industrial company during the pendency of an inquiry or scheme under SICA. The Supreme Court had to determine whether this suspension applied to recovery proceedings under the RDDB Act. The Court concluded that Section 22 of SICA did indeed cover and interdict applications for recovery under the RDDB Act, thereby protecting the properties of sick companies from being proceeded against by creditors.

3. Priority and Primacy between RDDB Act and SICA:
The judgment highlighted the conflicting non-obstante clauses in both RDDB Act and SICA. The Court noted that while both Acts are special laws, the RDDB Act is special concerning the recovery of debts, whereas SICA is special concerning the reconstruction of sick companies. The Court emphasized that the purpose of both enactments must be fulfilled as far as possible. It concluded that the provisions of SICA, particularly Section 22, should prevail over the RDDB Act due to the specific provision in Section 34(2) of the RDDB Act that it is not in derogation of SICA.

4. Validity of Recovery Proceedings and Auction Sale under RDDB Act:
The Court examined the sequence of events, including the ex-parte order by DRT, the auction sale, and subsequent appeals. It was noted that the recovery proceedings under the RDDB Act had been concluded before the company invoked SICA provisions. The auction sale was confirmed by DRAT, and the appellant had deposited the sale price. The Court found that the High Court erred in setting aside the DRAT's order based on the bar under Section 22 of SICA, as the recovery proceedings had already concluded.

5. Impact of BIFR Proceedings on Recovery Actions:
The Court acknowledged that the company had filed a reference before the BIFR, which was initially rejected but later accepted, declaring the company as a sick industrial company. However, since the recovery proceedings under the RDDB Act had been concluded before the BIFR reference, the company was not entitled to relief under Section 22 of SICA. The Court emphasized the intention of Parliament to protect the properties of sick companies during reconstruction and rehabilitation processes under SICA.

Conclusion:
The Supreme Court set aside the judgment and order of the Delhi High Court, which had quashed the DRAT's order confirming the auction sale. The Court held that Section 22 of SICA prevails over the RDDB Act provisions for recovery of debts, and the writ petitions filed by the company were dismissed. The appeal was allowed, affirming the auction sale and recovery proceedings under the RDDB Act.

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