2016 (8) TMI 1606 - HC - Indian Laws

Financial institutions and guarantors can enter compromise agreements in Section 9 applications despite BIFR proceedings

The Bombay HC rejected an appeal challenging disposal of mortgaged property under earlier orders. The court held that financial institutions and ... Direction to maintain status quo on disposal of the subject mortgaged property, sale of which was undertaken under earlier orders - Enforcement of consent orders in light of Section 22 of SICA - HELD THAT:- There is no bar that the financial institution and the guarantor cannot enter into a compromise in a Section 9 application. The parties filed consent terms and had proceeded accordingly. The sale has been confirmed upto the Supreme Court. Therefore, the further consequential steps and proceedings in the present case, cannot be halted, at the instance of the appellants, who have themselves filed the consent terms and the parties having proceeded accordingly. There was nothing wrong when the consent terms were recorded and modified further by agreement. The rights have been crystalised, at least between the Respondent and the guarantor (whose property is in question) much before the filing of BIFR application by Respondent No.1. The impugned order is in consequent to it. The scope of inquiry under section 22 is somewhat different as the consent terms were between Respondent/financial institution and the guarantor, prior to the invocation of the BIFR proceedings by the Respondent-Industry. A statement is also made by the learned Counsel for the Appellants that the property involved in the present proceedings is not the property owned by the company/undertaking but of the guarantor only and that the same is not subject matter of the proceedings before the BIFR. Thus the sale of property and the consequential ministerial act of its execution of conveyance in the background in the facts of the case cannot be halted at the instance of Appellant even though it arose out of Section 9 proceedings, pending arbitration before the Arbitral Tribunal and/or even the BIFR proceedings in question. All are the distinct and separable proceedings. There is no executable order passed under Section 9 application against the company and/or its property. There is no coercive steps taken in this proceeding against the Respondent -Industry/Company or its property pending BIFR proceedings. Therefore, in view of the consent terms finality so attained, there are no reason to interfere with the order so passed by the learned Judge. The impugned order requires no interference. The appeal is without any merit and is accordingly rejected. Issues Involved:1. Status quo on the disposal of mortgaged property.2. Execution of a deed of conveyance for the sold properties.3. Impact of pending BIFR proceedings on the sale of mortgaged properties.4. Enforcement of consent orders in light of Section 22 of SICA.5. Relevance of judicial decisions in Armada (Singapore) Pte. Ltd. and Ankur Drugs and Pharma Ltd.Issue-wise Detailed Analysis:1. Status Quo on Disposal of Mortgaged Property:The appellants sought a directive for the respondents to maintain the status quo on the disposal of the mortgaged property. The court noted that the sale of the property was a result of a consent order dated 19 June 2012, where parties agreed to sell the properties through a private receiver. The court emphasized that the sale process was already confirmed by the Division Bench and upheld by the Supreme Court, leaving only the execution of the conveyance deed as a ministerial act. Thus, the request for maintaining the status quo was not tenable.2. Execution of a Deed of Conveyance:The court addressed the appellants' resistance to executing the deed of conveyance, as directed by the learned Single Judge. The execution was necessary to finalize the sale confirmed by previous orders. The appellants' objections, including concerns about capital gains tax, were deemed irrelevant to the core terms of the sale agreement. The court upheld the learned Single Judge's directive for the appellants to execute the deed, emphasizing the finality of the sale process.3. Impact of Pending BIFR Proceedings:The appellants argued that the pending BIFR proceedings should prevent the execution of the conveyance. However, the court reiterated that the properties in question belonged to the guarantors, not the company under BIFR proceedings. The learned Single Judge had previously ruled that Section 22 of SICA did not bar the enforcement of consent orders. The court found no reason to reopen this issue, as it was conclusively settled by the earlier orders and confirmed by the Apex Court.4. Enforcement of Consent Orders in Light of Section 22 of SICA:The court analyzed the applicability of Section 22 of SICA, which provides limited protection to guarantors in proceedings against a sick industrial company. The learned Single Judge had determined that the consent terms constituted an agreement, and steps taken under such an agreement were not barred by Section 22. The court agreed, noting that the consent order was a valid compromise between the financial institution and the guarantors, unaffected by the BIFR proceedings.5. Relevance of Judicial Decisions in Armada (Singapore) Pte. Ltd. and Ankur Drugs and Pharma Ltd.:The appellants relied on these decisions to support their contention that BIFR proceedings should halt the sale process. The court distinguished these cases, noting that Armada involved a foreign award against a company with pending BIFR proceedings, which was not analogous to the present case. Similarly, Ankur Drugs dealt with arbitration proceedings against a company in liquidation, lacking the element of a consent order for property sale. The court concluded that these cases did not apply to the present circumstances, where the sale was confirmed by consent and judicial orders.Conclusion:The court dismissed both appeals, affirming the learned Single Judge's orders. The appellants were directed to execute the deed of conveyance, and the sale process was deemed final and enforceable. The pending BIFR proceedings and cited judicial decisions did not alter the legal standing of the confirmed sale.