TaxTMI 
TaxTMI 
2006 (3) TMI 343
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....litation Scheme dated 18-1-2005 circulated by the first respondent and consequently to direct the first respondent namely Board for Industrial and Financial Reconstruction (BIFR), New Delhi to sanction the Draft Rehabilitation Scheme (DRS) dated 18-1-2005 respectively. 3. The case of the petitioner is that the petitioner Company was declared as sick industrial company under section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 on 20-12-2002. The State Bank of India was its operating Agency to examine the viability for rehabilitation as per section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) by the Board for Industrial and Financial Reconstruction (BIFR). A scheme was submitted for revival involving the One Time Settlement (OTS) of the dues to the second respondent and rescheduling of the dues to the third respondent as per the norms of Reserve Bank of India. The BIFR has allowed the petitioner and the respondents 2 and 3 to arrive at One Time Settlement (OTS) and submit a proposal for revival. The operating agency, by their letter dated 20-3-2004 to the BIFR stated that in the meeting held on 15-3-2004 there was consensus a....
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.... matter with the 2nd respondent. The petitioner has filed W.P. No. 8262 of 2005 praying for a writ of Declaration as stated above. 6. In the counter-affidavit filed by the second respondent, it is stated that the second respondent is a Government Company incorporated under the Indian Companies Act sponsored by the State of Tamil Nadu. As per section 46 of the State Financial Corporations Act, 1951, certain provisions are made applicable for the purpose of speedy recovery of dues to the Corporation. 7. According to the second respondent, the petitioner company which is a public limited Company has applied for a loan to start an industry to manufacture textile and the second respondent has sanctioned a term loan of Rs. 90,00,000 on 19-11-1994 and the petitioner has availed the loan in full. The second respondent has sanctioned the second loan of Rs. 57,00,000 on 28-1-1997. The petitioner has installed 3,024 spindles and later another 2,016 spindles and the petitioner was a chronic defaulter from the inception of the loan. The petitioner was allowed the facility of repaying of loan in 28 quarterly instalments and the last instalment of the first loan was on 1-4-2004 and the seco....
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....as not paid. In such circumstances, the petitioner is not entitled to question the action taken under section 13(2) of the SARFAESI Act, 2002. It is the petitioner who has not acted as per the terms of the DRS even though, the same has not been approved by the first respondent. The first respondent-BIFR has no jurisdiction to issue direction if the second respondent initiated action under the provisions of SARFAESI Act, 2002. 12. It is also the case of the second respondent that as against the impugned notice under section 13(2) of the SARFAESI Act, 2002, it was for the petitioner to give objection which may or may not be accepted by the second respondent by passing an order with reason under section 13(4) of the SARFAESI Act. In this case that the objection filed by the petitioner on 5-9-2005 to the impugned notice sent under section 13(2) of the SARFAESI Act, 2002 was duly examined and rejected by the second respondent on 14-10-2005. 13. In such circumstances, the petitioner has got an alternative remedy available under the SARFAESI Act, 2002 before the Debts Recovery Tribunal. It is also the case of the second respondent that in view of the amendment effected to section 15....
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.... Act of 2002, the BIFR stands abated. Since the BIFR has failed its duty there is no question of any direction to be given by this Court to the BIFR. 16. Mr. H. Karthik Seshadri appearing for M/s. Iyer and Thomas, learned counsel for the petitioner would submit that while in the present case admittedly, the matter is pending before the first respondent-BIFR and the DRS with the consent of all the parties is pending approval before the quasi-judicial authority namely, the first respondent invoking of the coercive steps by the respondents 2 and 3 under section 13(2) of the SARFAESI Act, 2002 is not only unwarranted but is against the basic tenets of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) read with the provisions the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). According to him, under section 19(2) of the SICA, 1985 when the scheme is consented by every person within a period of 60 days or any further 60 days as extended by the Board there is deemed consent and thereafter the approval of the Board is only consequential, therefore, the scheme has come into operation. In the present c....
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....n 19(3) of SICA, 1985 would show that the law makers wanted to give importance to the rehabilitation scheme, for in cases of companies like that of the petitioner which has already become sick there was absolutely no possibility for recovery by invoking section 13(2) of SARFAESI Act, 2002 except the steps are taken for revival of the company as per the BIFR in accordance with the DRS formulated under section 19 of the SICA, 1985. Therefore, according to the learned counsel for the petitioner since the approval of the scheme by BIFR is only a consequential one, there is a legal duty on the part of the first respondent-BIFR to approve the scheme when it is consented by all the parties. As per the reading of the said section 19(3) of the SICA, 1985, the second and third respondents cannot go back from the consent which they have already given for the scheme. Consequently, they have no right to invoke their powers under section 13(2) of the SARFAESI Act, 2002. Therefore, according to the learned counsel for the petitioner that the impugned notice issued by the second respondent dated 13-10-2005 is liable to be set aside and the second and third respondents should be directed not to go ....
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....l 2005 CLC 1124 in W.P. No. 4481 of 2005, dated 19-7-2005 wherein the Division Bench consisting of the Hon'ble the Chief Justice Mr. Justice Markandey Katju and Justice D. Murugesan has clearly held about the procedures to be followed under sections 13(2), 13(4) and 17 and not by resorting to filing of writ petition. He also relied upon another judgment of the Division Bench of this Court in G. Kailasam v. Tamil Nadu Industrial Investment Corpn. Ltd. AIR 2005 Mad. 297 to show that a defaulting party cannot be given rescue under article 226 of the Constitution of India under the concept of equity. 24. According to the learned counsel as per the second proviso to section 15(1) of SICA, 1985 when the second and third respondents who are the secured creditors holding more than three-fourth of the value of the amount outstanding have consented to invoke the section 13(4) of SARFAESI Act, 2002, the reference under section 15(1) of the SICA before BIFR is deemed to be abated and, therefore, it cannot be said as if the second and third respondents have no jurisdiction to invoke the SARFAESI Act, 2002. 25. It is the further contention of the learned counsel that it was only after the ....
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....002 gives overriding effect to the said Act notwithstanding any inconsistency with any other law for the time being in force and, therefore, even assuming that the consent under section 19(2) of the SICA, 1985 is available, by virtue of the overriding of the effect of the SARFAESI Act, 2002, the second and third respondents are entitled under the SARFAESI Act and there was no question of any sanction by the first respondent-BIFR. He would submit that having consented to the DRS it was the petitioner who has acted in utter violation of the same by opening the bank account in another Bank and siphoning the amount instead of paying it to the secured creditor like that of the third respondent and in such circumstances, the third respondent cannot be expected to be a mute spectator as if the consent has been given and it was in those circumstances the consent was rightly withdrawn. 29. While reiterating his earlier contention that the three-fourth of the secured creditors under section 15(1) second proviso to SICA, 1985 has to be read along with section 13(4) of the SARFAESI Act according to which the word secured creditor refer to only one creditor and it does not contemplate the se....
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....ly with an object of rapidly developing the economy of the country by creating the effective machinery and system for the purpose of fast recovery of defaulting loans and preventing the mounting up of levels of non-performing assets of banks and financial institutions. 32. While explaining the laudable objects of SARFAESI Act, 2002, the Hon'ble Apex Court in the judgment rendered in Mardia Chemicals Ltd.'s case (supra) dealing with the submission that the said law is not envisaged in any civilised law governed by the rule of law has observed as follows : ". . . As discussed earlier as well, it may be observed that though the transaction may have the character of a private contract yet the question of great importance behind such transactions as a whole having far-reaching effect on the economy of the country cannot be ignored, purely restricting it to individual transactions, more particularly when financing is through banks and financial institutions utilising the money of the people in general, namely, the depositors in the banks and public money at the disposal of the financial institutions. Therefore, wherever public interest to such a large extent is involved and it may ....
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....02 which runs as follows :- "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." 35. Even though, an attempt is made on behalf of the petitioner that the overriding effect of the SARFAESI Act, 2002 is subjected to the situation that the terms are not inconsistent with any other laws, I am of the view that the overriding provision shows that notwithstanding with any inconsistency contained in any other law, the SARFAESI Act, 2002 will have overriding effect. That apart, there is no similar provision under SICA, 1985 except section 32 which makes the Act or Scheme made under the said Act shall have effect notwithstanding anything inconsistent with any other law except relating to certain Acts like Foreign Exchange Regulations Act etc. In any event, the SARFAESI Act, 2002 being the later Act with a clear overriding effect under section 35, there is absolutely no difficulty to come to the conclusion that the SARFAESI Act, 2002 is entitled to be given preference when com....
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....ay require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4). (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:- (a)take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b)take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realise the secured asset; (c )appoint any person (hereafter referred to as 'the manager'), to manage the secured assets the possession of which has been taken ....
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....er article 226 of the Constitution of India. 44. The next submission made by the learned counsel for the petitioner namely that under section 19(2) of SICA, 1985, the parties are expected to give consent within 60 days and if not given the consent to the proposed scheme is deemed to be given. 45. It is admitted that the petitioner as also the respondents 2 and 3 have given consent for the DRS framed under the provisions of SICA, 1985 and the same was admittedly referred to the first respondent namely the BIFR. A reference to the order of the BIFR when the matter was heard on 19-7-2005 also would show that the Board has not yet approved the scheme. The Board has in fact elicited the stand taken by the second and third respondents that the second respondent has invoked its powers under section 13(2) of SARFAESI Act, 2002. While admittedly, the DRS is under the reference stage, there is no question of the scheme having any statutory force even though it is argued by the learned counsel for the petitioner that the sanctioning of the scheme by the Board is only consequential one, nevertheless the fact remains that such sanction has not yet been made by the competent authority name....
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....ties and, therefore, granting of sanction by the Board namely the first respondent is not a matter of right on the part of the debtor. It can never be said that such sanction is only a consequential. The sanction is to be passed by the Board only after taking into account all the aspects and, therefore, it is clear that the term "may" used under section 19(3) of SICA, 1985 can never be termed as "shall". It is in this regard section 19(4) of SICA, 1985 is also relevant, which says, that in cases where the consent has not been given by any person required by the scheme to provide financial assistance, it is open to the Board to adopt other methods like winding up of sick industries as it is deemed fit. This would strengthen the fact that the scheme will come into operation only after the same is sanctioned by the Board which is neither consequential to the consent nor a matter of right for the debtor. 50. Now coming to section 15 of SICA, 1985 as I have stated earlier the learned counsel would contend that for the purpose of enforcement of the rights of secured creditors under section 13(4) of SARFAESI Act, 2002, it must be a single secured creditor who must have 3/4th in the val....