TaxTMI 
TaxTMI 
2006 (4) TMI 257
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....Industrial Companies (Special Provisions) Act, 1985 (hereinafter called SICA) by order dated 9-7-2002. Attempts to rehabilitate proved unsuccessful. BIFR ultimately recommended that SIV Industries Limited should be wound up under section 20(1) of SICA vide order dated 25-9-2003. Before BIFR, ICICI requested permission to take possession of the assets under section 20(4) of the SICA. Accordingly, BIFR appointed ICICI as selling agent to dispose of the properties of SIV Industries Limited under section 20(4) of the Act and to deposit the sale proceeds to the concerned High Court for distribution under section 529 and other provisions of the Companies Act, 1956. However, it appears that ICICI did not take any steps to sell the property. Meanwhile, by order dated 28-4-2004 SIV Industries Limited was ordered to be wound up by the Company Court and the Official Liquidator was appointed as Liquidator. The Official Liquidator has taken possession of the assets and has sold certain movables on 21-2-2005 and 11-5-2005. The Official Liquidator has also got the valuation done of certain properties and an application for sale has been filed for the sale of two residential flats belonging to the....
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....nk v. Canara Bank [2000] 4 SCC 406 was an authority in support of the proposition that the provisions of Securitisation Act would prevail over the provisions of Companies Act, since Securitisation Act being a special enactment made for protecting the interests of banks and financial institutions. Learned Senior Counsel submitted that the decision of the Supreme Court in Rajasthan State Financial Corpn. v. Official Liquidator [2005] 8 SCC 190^1 also support the stand of the appellant that the appellant-company which is a securitisation company and having purchased the security interest from ICICI Bank Limited and also having obtained consent from other secured creditors of the company under liquidation is entitled to be associated in the sale of assets along with the Official Liquidator. The learned Senior Counsel submitted that in the event of inconsistency between section 457 of the Companies Act and second proviso to section 13(9) of the Securitisation Act, the Securitisation Act shall prevail and the secured creditor/securitisation company is entitled to take over the assets, and sell the same. He submitted that the Securitisation Act being the later enactment overrides the prov....
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....evant provisions of the Securitisation Act. It is seen from the preamble of the said Act that it has been enacted with a view to regulate the securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected thereto. The Act enables the banks and financial institutions to realize long-term assets, manage problems of liquidity to the assets liability, and to improve recovery by exercising powers to take possession of security, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. The Act further enables for setting up of Assets Reconstruction Companies which are empowered to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realize the secured assets and take over the management of the business of the borrower. The validity of the provisions of the said Act was upheld by the Supreme Court in Mardia Chemicals Ltd. v. Union of India AIR 2004 SC 2371 except that of sub-section (2) of section 17 which provided deposit of 75 per cent before entertaining an appeal by the DRT under section 17 of the Act. In Mardia Chemicals....
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....iderable difficulties in recovery of dues from the clients and enforcement of security charged to them due to the delay in the legal processes. A significant portion of the funds of banks and financial institutions is thus blocked in unproductive assets, the values of which keep deteriorating with the passage of time. Banks also incur substantial amounts of expenditure by way of legal charges which add to their overheads. The question of speeding up the process of recovery was examined in great detail by a Committee set up by the Government under the Chairmanship of the late Shri Tiwari. The Tiwari Committee recommended, inter alia, the setting up of Special Tribunals which could expedite the recovery process'... . The Committee also suggested some legislative measures to meet the situation. 36. In its Second Report, the Narasimham Committee observed that the NPAs in 1992 were uncomfortably high for most of the public sector banks. In Chapter VIII of the Second Report of Narasimham Committee deals about legal and legislative framework and observed : '8.1 A legal framework that clearly defines the rights and liabilities of parties to contracts and provides....
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.... or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993). Section 35. The provisions of this Act to override other laws.-The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law." 8. The relevant provision of the Securitisation Act about the rights of secured creditor in section 13 is as under:- "Section 13. Enforcement of Security Interest - (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or Tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in r....
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....er the management of such business of the borrower which is relatable to the security for the debt. (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower. (6) Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset. (7) Where any action has been taken against a borrower under the provisions ....
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....f the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator: Provided also that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator: Provided also that the secured creditor shall furnish an undertaking to the liquidator to nay the balance of the workmen's dues, if any. Explanation.-For the purposes of this sub-section, - (a) 'record date' means the date agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding on such date; (b) 'amount outstanding' shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the bo....
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....urity Interest Act, 2002. Where a financial assets have been acquired by any securitisation company or reconstruction company under sub-section (1) of section 5 of that Act: Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 where a reference is pending before the Board for Industrial and Financial Reconstruction, such a reference shall abate if the secured creditors representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act." 10. Amendment on similar lines has been made to section 424A of the Companies Act, 1956. Amended Section is as under :- "424A. Reference to Tribunal.-(1) Where an industrial company, has become sick industrial company, the Board of Directors of such company shall make a reference to the Tribunal, and prepare a scheme of its revival and rehabilitation and submit the same to the Tribunal along with an application containing such particulars ....
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....Companies Act stood ousted. Hence, no leave of the Company Court was necessary for initiating proceedings under the Recovery of Debts Act. Even the priorities among various creditors, could be decided only by the Debts Recovery Tribunal in accordance with section 19(19) of the Recovery of Debts Act read with section 529A of the Companies Act and in no other manner. The Court took into account the fact that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was a legislation subsequent in point of time to the introduction of section 529A of the Companies Act by Act 35 of 1985 and it had overriding effect. But it noticed that by virtue of section 19(19) of the Recovery of Debts Act, the priorities among various creditors had to be decided by the Recovery Tribunal only in terms of section 529A of the Companies Act and section 19(19) did not give priority to all secured creditors. Hence, it was necessary to identify the limited class of secured creditors who have priority over all others in accordance with section 529A of the Companies Act. The Court also held that the occasion for a claim by a secured creditor against the realization by other creditors of the debt....
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....he Company Court the right to ensure that the distribution of the assets in terms of section 529A of the Companies Act takes place. In the case on hand, admittedly, the appellants have not set in motion any proceeding under the SFC Act. What we have is only a liquidation proceeding pending and the secured creditors, the financial corporations approaching the Company Court for permission to stand outside the winding up and to sell the properties of the company-in-liquidation. The Company Court has rightly directed that the sale be held in association with the Official Liquidator representing the workmen and that the proceeds will be held by the Official Liquidator until they are distributed in terms of section 529A of the Companies Act under its supervision. The directions thus, made, clearly are consistent with the provisions of the relevant Acts and the views expressed by this Court in the decisions referred to above. In this situation, we find no reason to interfere with the decision of the High Court. We clarify that there is no inconsistency between the decisions in Allahabad Bank v. Canara Bank [2000] 4 SCC 406 and in International Coach Builders Ltd. v. Karnataka State Financ....
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....tor or the Liquidator appointed by the Company Court and after hearing him. (iii) If a financial corporation acting under section 29 of the SFC Act seeks to sell or otherwise transfer the assets of a debtor company-in-liquidation, the said power could be exercised by it only after obtaining the appropriate permission from the Company Court and acting in terms of the directions issued by that Court as regards associating the Official Liquidator with the sale, the fixing of the upset price or the reserve price, confirmation of the sale, holding of the sale proceeds and the distribution thereof among the creditors in terms of section 529A and section 529 of the Companies Act. (iv) In a case where proceedings under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or the SFC Act are not set in motion, the creditor concerned is to approach the Company Court for appropriate directions regarding the realization of its securities consistent with the relevant provisions of the Companies Act regarding distribution of the assets of the company-in-liquidation." (p. 200) 13. In the light of the law laid down by the Rajasthan State Financial Corpn.'s ca....