2016 (11) TMI 25 - HC - Indian Laws

Court upholds SARFAESI Act over BRU Act, secures creditor's rights for asset enforcement.

The court held that the SARFAESI Act overrides the BRU Act and notifications issued under it. The secured creditor's rights under the SARFAESI Act to ... Enforcement of security interest without intervention of court - non obstante provision and legislative primacy - conflict between central enactment and state relief legislation - suspension of remedies by notification declaring relief undertaking - harmonious construction and repugnancy under Articles 246/254Enforcement of security interest without intervention of court - non obstante provision and legislative primacy - conflict between central enactment and state relief legislation - Provisions of the SARFAESI Act, particularly Section 13 read with Section 35, prevail over Sections 3 and 4 of the BRU Act and notifications issued thereunder insofar as those provisions suspend or stay the secured creditor's rights to enforce security. - HELD THAT: - The court analysed the objects, scope and interplay of the SARFAESI Act and the BRU Act. Section 13 of the SARFAESI Act enables a secured creditor to enforce security without court intervention and Section 35 contains a non obstante clause giving the Act effect notwithstanding inconsistency with any other law. The BRU Act and the notifications under Sections 3 and 4 operate to suspend pre-existing rights and stay proceedings against a declared relief undertaking. The court found that this suspension directly fetters the statutory rights conferred by Section 13 of the SARFAESI Act and therefore creates an unavoidable conflict. Applying principles of harmonious construction and having regard to the legislative scheme (including the narrower scope of Section 37 of SARFAESI as explained by the Supreme Court in Madras Petrochem Ltd.), the court held that where inconsistency is unavoidable the later and specific parliamentary enactment with a non obstante clause must prevail. The court rejected the State-law/Union-law distinction urged by Respondent, noting Article 246/254 jurisprudence does not compel limiting the words 'any other law' in Section 35 to central enactments only. On this basis the court concluded that Sections 3 and 4 of the BRU Act read with the notification cannot restrain a secured creditor from exercising rights under Section 13 of the SARFAESI Act. [Paras 29, 31, 36, 41, 42]Section 13 of the SARFAESI Act, supported by Section 35, overrides the effect of Sections 3 and 4 of the BRU Act and the notification insofar as they suspend or stay enforcement of security by a secured creditor.Suspension of remedies by notification declaring relief undertaking - enforcement of security interest without intervention of court - The letter dated 6th June, 2013 issued by the Collector and District Magistrate directing return of possession is quashed and set aside. - HELD THAT: - Having held that the SARFAESI Act prevails over the BRU Act to the extent of inconsistency, the court applied that conclusion to the impugned administrative direction dated 6th June, 2013 which sought to compel the secured creditor to relinquish possession. The directive conflicted with the statutory rights of the secured creditor under Section 13 and the assistance powers under Section 14 of the SARFAESI Act. For that reason the court set aside the letter and made the rule absolute, while recording no order as to costs. [Paras 42, 43]The Collector's letter dated 6th June, 2013 is quashed and set aside; rule made absolute and no order as to costs.Final Conclusion: The writ petition is allowed to the extent that the Court holds the SARFAESI Act (Sections 13 and 35) overrides inconsistent provisions of the BRU Act and the notification therein so as to permit the secured creditor to enforce its security; the Collector's letter of 6 June 2013 is quashed and set aside; rule made absolute and no order as to costs. Issues Involved:1. Whether the provisions of the SARFAESI Act override the provisions of the BRU Act.2. The validity and effect of notifications issued under the BRU Act.3. The rights of the secured creditor under the SARFAESI Act.4. The implications of the notification declaring the Respondent as a relief undertaking.Detailed Analysis:1. Whether the provisions of the SARFAESI Act override the provisions of the BRU Act:The primary issue addressed was whether the SARFAESI Act, which allows secured creditors to enforce their security interests without court intervention, overrides the BRU Act, which provides temporary relief to industrial undertakings by suspending their liabilities. The court noted that Section 35 of the SARFAESI Act stipulates that its provisions shall have effect notwithstanding anything inconsistent in any other law. Given this, the court concluded that the SARFAESI Act, being a later and special legislation aimed at ensuring the recovery of debts by banks and financial institutions, overrides the BRU Act. This conclusion was supported by the Supreme Court's decision in Madras Petrochem Ltd., which held that the SARFAESI Act prevails over other laws with similar non-obstante clauses.2. The validity and effect of notifications issued under the BRU Act:The Petitioner challenged the notifications issued under the BRU Act that declared the Respondent as a relief undertaking, thereby suspending its liabilities. The court examined the notifications and found that they were intended to prevent unemployment by providing temporary relief to industrial undertakings. However, the court held that these notifications could not impede the rights of secured creditors under the SARFAESI Act. The court emphasized that the SARFAESI Act's provisions, especially Section 13, which allows secured creditors to enforce their security interests, must prevail.3. The rights of the secured creditor under the SARFAESI Act:The court reiterated that the SARFAESI Act was enacted to provide a mechanism for banks and financial institutions to recover their dues without court intervention. The Act allows secured creditors to take possession of secured assets and sell them to recover debts. The court highlighted that the SARFAESI Act's framework was designed to address the inefficiencies and delays in the recovery process under previous laws. The court emphasized that the secured creditor's rights under the SARFAESI Act could not be suspended or stayed by the BRU Act's provisions or the notifications issued under it.4. The implications of the notification declaring the Respondent as a relief undertaking:The court examined the notification dated 18th June 2016, which declared the Respondent as a relief undertaking and suspended its liabilities. The court found that this notification, by suspending the Respondent's liabilities, effectively restrained the Petitioner from enforcing its security interests under the SARFAESI Act. The court held that such a suspension was inconsistent with the SARFAESI Act's provisions, which allow secured creditors to enforce their security interests without court intervention. Consequently, the court ruled that the SARFAESI Act's provisions must prevail, and the secured creditor could proceed with enforcing its security interests.Conclusion:The court concluded that the SARFAESI Act overrides the BRU Act and the notifications issued under it. The secured creditor's rights under the SARFAESI Act to enforce security interests without court intervention must be upheld. The court set aside the impugned letter dated 6th June 2013, which directed the Petitioner to return possession of the secured assets to the Respondent. The court made the rule absolute, allowing the Petitioner to proceed with the enforcement of its security interests under the SARFAESI Act.Post-Judgment:After pronouncing the judgment, the court refused the Respondent's request to continue the interim order that maintained the status quo regarding the possession of the properties. The court noted that the Petitioner had succeeded and there was no point in restraining it from exercising its rights under the SARFAESI Act, especially given the Respondent's significant debt and lack of steps to clear it.