TaxTMI 
TaxTMI 
2010 (5) TMI 398
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....No. 5-bank claims to be the sole secured creditor of the Respondent No. 3-borrower. The Reference was pending before the BIFR for revival of the Respondent No. 3-company. During the pendency of the said proceedings, the Respondent No. 5-bank invoked remedy under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("Securitisation Act") and proceeded with the sale of properties of Respondent No. 3. Consequent thereto, the movable and immovable properties in Respondent No. 3-company were sold in public auction as back as in July, 2008. That sale has been confirmed by the DRT and possession of the said property has also been made over to the Respondent No. 7. These facts are not disputed. However, the Petitioner, claiming to have business conducting agreement executed by the Respondent No. 3-company in its favour and also in the capacity of one of the unsecured creditor, moved the BIFR for a direction against the Respondent No. 5-bank not to proceed with the further steps under the Securitisation Act; and stay the implementation of the proposed actions to be taken by the bank. Further, it was prayed that the Respon....
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....ndency of appeal before the Appellate Authority, to the Petitioner, as prayed. 6. On analysing the provisions of section 22 of the Act of 1985 read with section 15 of the same Act, we have no hesitation in taking the view that the case on hand would fall within the parameters of third proviso to section 15(1) of the Act of 1985. The third proviso reads thus: "15. Reference to Board - (1) When an industrial company has become a sick industrial company, the Board of Directors of the company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company - ****** 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 reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding agains....
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.... Act of 1985. The bar under section 22 of the Act of 1985 is automatically lifted on fulfilment of the conditions specified in the third proviso to section 15(1) of the same Act. 8. Besides, counsel for the Respondents have relied on section 35 of the Act of 2002 which reads thus: "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." 9. According to the Respondents, in view of the non obstante clause in the Act of 2002, the question of taking consent of the Board in terms of section 22 of the Act of 1985, irrespective of the strength of the secured creditors, does not arise. We are not inclined to accept this extreme argument made before us by the Respondents - that even a single secured creditor or even secured creditors representing less than three-fourth in value of the amount outstanding against the financial assistance disbursed to the borrower could invoke the provisions of the Act of 2002, without taking consent of the Board under section 22 of the Act of 1985. 10....
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....disbursed to the borrower of such secured creditors at the relevant point of time. That is a matter which ought to be examined by the Board, if called upon to do so. If the Board were to hold that the secured creditors who have invoked provisions of the Act of 2002 do not qualify the said requirement, in that situation, the provisions of section 22 of the Act of 1985 would operate and any steps taken by such secured creditors albeit under the provision of Act of 2002, would be of no avail and will have to be treated as non est in the eyes of law, considering the purport of section 22 of the Act of 1985. Only this interpretation would sub-serve the legislative intent behind the two enactments. 13. In our opinion, since the Petitioner has nowhere asserted that the strength of Respondent No. 5-bank was less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower or such secured creditor at the relevant point of time, therefore, the question of the Petitioner succeeding in their application does not arise. 14. The contention that the scheme to be formulated by the BIFR would bind all the secured creditors by virtue of section 18 of ....
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....r secured debt under sub-section (4) of section 13 of the Securitisation Act. In the instant case, admittedly the notice under sub-section (4) of section 15 of the Securitisation Act has been issued on 7-4-2007. But long before that, the company has been declared a sick industrial company by an order of the BIFR dated 14-11-2006. Therefore, the proceeding under the SICA was not at the stage of reference. The proceeding has gone far ahead of that and culminated in an order by which the company was declared sick on 14-11-2006. The said order was passed by the BIFR after hearing the bank and by the said order the bank was appointed an operating agency with a direction to prepare the revival scheme. Therefore, in the facts of this case, the reference cannot abate since the matter under SICA is not pending in reference before the BIFR. Even though the bank is a party to the said order, it has neither filed any appeal therefrom nor has it asked for consent under section 22 to proceed against the petitioner company. Therefore, this argument raised by the learned Counsel for the Bank cannot be accepted." 17. It was vehemently argued that the opinion so recorded by the Orissa High Court a....
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....e Act of 1985 is no longer available. The Orissa High Court, after considering the provisions contained in proviso to section 15(1) of the Act of 1985 read with section 22 of the Act of 1985, negatived the stand of the Bank. Instead, held that the third proviso will come into force where reference is pending before BIFR. It held that the notice under section 13(4) of the Securitisation Act was issued on 7-4-2007. But long before that the Company was already declared sick company by order dated 14-11-2006, therefore, the proceedings before the BIFR were not at the stage of reference, as such. But the same had proceeded far ahead and culminated with the order of company being declared sick on 14-11-2006. Moreover, the said order was passed by the BIFR after hearing the Bank and the Bank was appointed as operating agency with direction to prepare the revival scheme. 19. In substance, the Orissa High Court proceeded on the finding that no reference was pending before the BIFR at the relevant time, when the bank invoked action under section 13 of the Securitisation Act. It however, held that the Bank can still take recourse to remedy under section 13 of the Securitisation Act after tak....
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.... or conciliation were pursuant to an arbitration agreement referred to in sub-section (1) of section 7 of that Act. Section 10 of the said Act of 1993 provides that the provision of that Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. The Supreme Court tested the provisions of the said Act of 1993 and juxtaposed it with section 22 of the Act of 1985. It has held that the Act of 1985 is a complete Code by itself and section 22 of the Act provides for special provisions. Even this decision will be of no avail to the case on hand, as we are called upon to consider the efficacy of the third proviso to section 15(1) of the Act, which, as aforesaid is in the nature of exception to the general cases covered by section 22 of the Act. 22. The other decision, relied by the Orissa High Court, is of Morgan Securities & Credit (P.) Ltd.'s case (supra ). Once again, in this decision, the principal question considered by the Apex Court was whether the provisions of the Arbitration and Conciliation Act would prevail over the provisions of the Act of 1985. There is no provision in the Arbitration and Conciliation Act, 19....
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....its entirety or otherwise and taken to its logical end one way or the other. So long as the scheme is being operated or implemented, the reference submitted under section 15 would continue to remain pending. Suffice it to observe that the reference envisaged in the third proviso to section 15(1) of the Act of 1985, is ascribable to reference proceedings till the same are finally terminated one way or the other. The steps of enquiry and suitable orders to be passed on completion of enquiry or of preparation of scheme and other incidental actions-are integral part of the said reference submitted before the Board. The extreme argument of the Petitioner, if accepted, would result in a pedantic approach of construing the third proviso to section 15(1) of the Act of 1985 and would result in rendering the same as otiose. We say so because, immediately on submission of reference under section 15(1) of the Act of 1985, the Board is obliged to pass some direction with promptitude to exercise powers under section 16 and then proceed further under Chapter III of the said Act. According to the Petitioner, on issuing initial direction upon submission of the reference, the reference comes to an e....
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....on 15(1) of the Act, 1985, which was contemporaneous with coming into force of Securitisation Act of 2002. The Objects and Reasons for introducing Securitisation Act, 2002 can be culled out from the statement of objects and reasons, which read thus : "Statement of Objects and Reasons.-The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and ....
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.... to consider is to examine the efficacy of the third proviso to section 15(1) of the Act of 1985. On bare perusal of the said provision, it is seen that it is in the nature of carving out exception to the general category of cases referred to in section 22 of the Act of 1985. The fact that company has already been declared as sick company or that the Board has propounded a scheme and which is being implemented, does not take the matter any further and will have no impact on the exception provided in the third proviso to section 15(1) of the Act. The reference even at the stage of implementation of the scheme, for all purposes, will have to be treated as pending before the Board and more particularly in the context of the third proviso to section 15(1) of the Act of 1985. Ordinarily, if the scheme is framed under the provisions of Act of 1985, that would bind all the creditors in terms of section 18(8) of that Act. But, once the secured creditors representing not less than three fourth in value of the amount outstanding against the financial assistance disbursed take measures to recover their secured debt, under section 13(4) of the Securitisation Act, the reference would abate. Wit....
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.... of this view, it has relied on the earlier decision of the same Court in the case of Triveni Yarns Ltd. v. Punjab Financial Corpn. [2010] 154 Comp. Cas. 635 (Punj. & Har.). It preferred to rely on the said decision instead of the opinion of the Orissa High Court in the case of Noble Aqua (P.) Ltd. (supra). Insofar as Noble Aqua (P.) Ltd.'s case (supra) is concerned, the Punjab and Haryana High Court commented that it does not make reference to section 35 of the Securitisation Act, although reference has been made to sections 37 and 41 of the Securitisation Act. Failure to refer to section 35 of the Securitisation Act renders the Judgment per in cuarium. It conclusively held that the Securitisation Act overrides the Act of 1985 and mere pendency of a reference will not be a bar to proceed under Securitisation Act. Relying on the observation in the third last paragraph of this decision, that in certain exceptional situation, where the scheme is already approved, the issue can be gone into in writ jurisdiction, it was contended that the argument now canvassed before us on behalf of the Petitioner that the reference does not remain pending after issuance of initial direction/order is ....
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....on 15(1) of the Act of 1985 stipulates that the pendency of the reference, the reference would include even preparation of revival scheme pursuant to the reference. In other words, taking of any action by BIFR including preparation of a scheme pursuant to the reference is pendency of reference. Significantly, in the case before the Delhi High Court, no scheme was framed. The Delhi High Court proceeded to observe that even if a scheme had been framed, that would make no difference to the purport of third proviso to section 15(1) of the Act of 1987. The Delhi High Court has disagreed with the opinion of the Orissa High Court on the above reasoning. We are in agreement with the opinion of the Delhi High Court in Madras Petrochem Ltd.'s case (supra). The Delhi High Court opined that the jurisdiction of BIFR would be divested by the mandatory impact of the third proviso to section 15(1) of the Act of 1985. The Delhi High Court has also analysed the expression "have taken measures". Suffice it to observe that the conclusion reached by the Delhi High Court is that the action under the previsions of the Securitisation Act would prevail. In this decision, Delhi High Court has relied upon it....