TaxTMI 
TaxTMI 
2014 (1) TMI 965
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....any before the Board for Industrial and Financial Reconstruction (hereinafter called the "BIFR") in the Month of October, 2010. The reference was registered as BIFR Case No. 53/2010. The Board proceeded with the reference and called for certain informations and in its proceedings dated 12/12/2011 recorded that the company has become a sick industrial company under Section 3(1) (o) of the Act, 1985. A direction was issued for preparation of Draft Rehabilitation Scheme for the company. The State Bank of Bikaner and Jaipur was appointed as Operating Agency under Section 17 (3) of the Act, 1985 who were to prepare a Draft Rehabilitation Scheme. Draft Rehabilitation scheme claims to have been prepared in the month of December, 2012. The petitioners' company was granted various credit facilities by way of financial assistance by consortium of banks. The consortium of banks appointed the State Bank of Bikaner and Jaipur as their Lead Bank for all legal proceedings. The consortium of banks issued a notice dated 01/8/2012, under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter called the "Act, 2002") to th....
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....s situate in District Gautambudh Nagar. Another application was also filed by the Bank under Section 14 of the 2002, before the District Magistrate, Jaipur on 09/4/2013 praying for handing over the physical possession of the mortgaged assets. The Bank claims to have taken symbolic possession of the secured assets i.e. residential plot at Jaipur as well as secured assets at District Gautambudh Nagar. At this juncture, petitioners filed Writ Petition No.48250/2013 on 06/9/2013 in this Court praying for following reliefs: "i)Issue, a writ, order or direction in the nature of certiorari quashing the impugned proceedings/communication dated 11.3.2013 and 9.4.2013 (Annexure No. 7 and 8 to the Writ Petition) under Section 14 of the SARFAESI Act 2002. ii) Issue, a writ, order or direction in the nature of mandamus restraining the Respondent No.2 and its agents and Respondent No.3 and 4 and their agents from taking forcible physical possession of properties of the Petitioners i.e. (i)Plot No.D-149,Sector 63 Phase III Noida, District Gautam Budh Nagar and (ii) 13, L....
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....ry object and purpose of the Act, 1985. It is submitted that the BIFR before whom the matter is pending has all powers which can be exercised under the Act, 2002 hence no power under the Act, 2002 can be exercised by the Bank by virtue of Section 22 of the Act, 1985. It is further submitted that the proceedings under the Act, 2002 if any, can be initiated by the respondent bank only after seeking permission from the BIFR. It is submitted that the Bank having already filed M.A. No.103/2012, seeking an order from the BIFR as to whether the proceedings before the BIFR shall abate or not the Bank has to press the said application and when no decision of the BIFR has come on the said application, the Bank ought not to have proceeded under Section 13(4) of the Act, 2002. It is submitted that the Act, 1985 is a special act enacted with an object and purpose and the Act, 2002 shall have no overriding effect on the provisions of the Act, 1985. He further submits that the action of the Bank including the issuance of notice under Sections 13(2) and 13(4) of the Act, 2002 are liable to be struck down relegating the Bank before the BIFR to seek its remedy in accordance with the Act, 1985. Sh....
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....e issues which arises for consideration in these writ petitions. (1) Whether the writ petitions be dismissed on the ground that the Bank having invoked Section 13(4) of the Act, 2002, petitioners are to seek statutory remedy under Section 17 of the Act, 2002 and the Court may not enter into the submissions on merit. (2) Whether the Reference No.53/2010 registered before the BIFR on an application submitted by the petitioners stands abated in accordance with the third proviso to Section 15 of the Act, 1985 on taking measures by the respondent Bank under Section 13 (4) of the Act, 2002. (3) Whether the words "reference is pending" as used in third proviso to Section 15 of the Act, 1985 shall be treated to mean the period till which the reference is not registered or a declaration is not made under Section 3(1) (o) of the Act, 1985. (4) Whether after the registration of the reference when proceedings under Sections 16,17,18 and 19 of the Act, 1985 have begun, the reference cannot be treated to be pending disabling the secured creditors to ....
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....a person must exhaust the remedies available under the relevant statute. 44. While expressing the aforesaid view, we are conscious that the powers conferred upon the High Court under Article 226 of the Constitution to issue to any person or authority, including in appropriate cases, any Government, directions, orders or writs including the five prerogative writs for the enforcement of any of the rights conferred by Part III or for any other purpose are very wide and there is no express limitation on exercise of that power but, at the same time, we cannot be oblivious of the rules of self-imposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution. 45.It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and pass interim order ignoring the fact that the petitioner can avail effective alternative remedy by ....
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....e, namely, K.S.Rashid & Son Vs. Income Tax Investigation Commissioner, AIR 1954 SC 207 which reiterated the above proposition and held that where alternative remedy existed, it would be a sound exercise of discretion to refuse to interfere in a petition under Article 226. This proposition was, however, qualified by the significant words, "unless there are good grounds therefor", which indicated that alternative remedy would not operate as an absolute bar and that writ petition under Article 226 could still be entertained in exceptional circumstances. 17. A specific and clear rule was laid down in State of U.P. vs. Mohd. Nooh, AIR 1958 SC 86, as under : "But this rule requiring the exhaustion of statutory remedies before the writ will be granted is a rule of policy, convenience and discretion rather than a rule of law and instances are numerous where a writ of certiorari has been issued in spite of the fact that the aggrieved party had other adequate legal remedies." 18. This proposition was co....
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....on, in spite of the alternative statutory remedies, is not affected, specially in a case where the authority against whom the writ is filed is shown to have had no jurisdiction or had purported to usurp jurisdiction without any legal foundation." One of the grounds on which the High Court can entertain a writ petition under Article 226 of the Constitution of India despite availability of alternative remedy is the ground of lack of jurisdiction in the authority whose action has been challenged. In the present case the petitioners have questioned the jurisdiction of the respondent bank in invoking Section 13(4) of the Act, 2002 on the ground that the third proviso to Section 15 of the Act, 1985 is not applicable and further on the ground that due to prohibitions under Section 22 of the Act, 1985, the respondent Bank cannot exercise its power under Section 13(4) of the Act, 2002. Shri R. Venkatramani, learned Senior Counsel appearing for the petitioners having challenged the very jurisdiction of the Bank to exercise power under Section 13(4) of the Act, 2002, we deem it a fit case to examine such contention on merits and not to throw out the writ petitions at the thresh hold. ....
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....of any State unless all or any of the industrial undertakings belonging to such company are situated in such State; (b) a public financial institution or a State level institution or a scheduled bank unless it has, by reason of any financial assistance or obligation rendered by it, or undertaken by it, with respect to, such company, an interest in such company. 22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof 3[and no suit for the recovery....
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.... of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly,- (a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and (b) on the declaration ceasing to have effect- (i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and (ii) any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed. (5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be....
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....URTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over 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) ........... (6) ........... (7) ........... (8) ........... (9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to subsection (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such....
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....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." Section 41 of the SARFAESI Act, 2002 provides for amendment in certain enactments as specified in the schedule. Section 41 read with schedule inserts two proviso (second and third proviso) in Section 15 of the 1985 Act. Relevant part of the schedule is as follows:- THE SCHEDULE (See Section 41) Year Act No. Short title Amendment 1986 1 The Sick Industrial Companies (Special Provisions) Act 1985. In section 15 in sub-section (1) after the proviso insert the following:-- "PROVIDED FURTHER that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 where financial assets have been acquired by any securitisation company or reconstruction company un....
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....ns. Whether the third proviso to Section 15 of the Act, 1985 is applicable in the facts of the present case, and whether the Bank can take measures under Section 13(4) of the Act, 2002 resulting in abatement of proceedings before the BIFR are the questions to be answered. Third proviso to Section 15 of the Act, 1985 reads as under: "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 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." What is the meaning and scope of the phrase used in the third proviso to Section 15 of the Act, 1985 "where a reference is pending before the Board for Industrial and Financial Reconstruction", the submission of Shri R.Venkatramani,....
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....t company; (ii) in Form AA in respect of a Government Company,] and shall be accompanied by five further copies thereof alongwith four copies each of all the enclosures thereto. [(2) Every reference to the Board under sub-section (2) of section 15 shall be made-- (i) in Form B in respect of an industrial company other than a Government company; (ii) in Form BB in respect of a Government company,] and shall be accompanied by five further copies thereof alongwith four copies each of all the enclosures thereto. (3) A reference may be filed, either by delivering it at the office of the Board or by sending it by registered post. [(4) On receipt of a reference, the Secretary, or as the case may be, the Registrar shall cause to be endorsed on each reference, the date on which it is filed or received in the office of the Board.] (5) If on scrutiny, the reference is found to be in order, it shall be registered, assigned a serial number and submitted to the Chairman or assigning it to a Bench. Simultaneously, remaining information/documents required, if any, shall be called for from the informant. (6) If on scrutiny, the reference is not found to be in order, the Secr....
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.... the second proviso of Section 15 of the Act, 1985. The intent is clear that when financial assets have been acquired under sub-section (1) of Section 5 of the Act, 2002, reference to the Board is prohibited. The third proviso to Section 15 of the Act, is with regard to the reference which is pending before the BIFR and obviously which reference was made before the financial assets have been acquired under sub-section (1) of Section 5 of the Act, 2002. The abatement of reference pending before the Board is to take place when secured creditors 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 the Act, 2002. The intent is clear that when secured creditors not less than three-fourth in value of the amount outstanding decides to take measure under Section 13(4) of the Act, 2002, proceedings before the BIFR stands abated. In case the interpretation put by the learned senior counsel appearing for the petitioners on the third proviso to Section 15 of the Act, 1985 is accepted, there may be two category of....
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....ce issued under Section 13(4) of the Act, 2002 on the ground that such notice is contrary to Section 22 of the Act, 1985. The Orissa High Court took the view that before invoking Section 13(4) of the Act, 2002, reference had proceeded and was not at the stage of reference, hence protection under section 22 of the Act, 1985 was available. It is useful to quote paragraphs 18,20 and 21 which are as under: "18. In the instant case, admittedly the notice under Sub-section (4) of Section 13 of the Securitization 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 unde....
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....ia & Ors, filed Special Leave to Appeal (Civil) No(s).13284/2008 in which the appeal the apex court passed the following order on 23/3/2012. "UPON hearing counsel the Court made the following ORDER IA8/11 has been filed on behalf of the respondents/applicants, praying that the Special Leave Petition be disposed of, since the matter has been settled between the parties. Having heard learned counsel for the respective parties and also having considered the contents in the order of 27th September, 2010, while disposing of the Special Leave Petition has having become infructuous, we leave the question referred to in the said order of 27th September, 2010, open for decision in a further case." The Apex Court left the questions open to be decided in a future case and the Special Leave Petition was disposed of in terms of the settlement. The judgment of the Orissa High Court which has been heavily relied on by the learned Senior Counsel appearing for the petitioners has been disagreed by the other High Court's namely: Madras High Court, Gujarat High Court and Bombay High Court. In Bank of Rajasthan Vs. Shobhagya Steels Ltd, Chennai & Anr,(2007) 4 MLJ, 1129, the company w....
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.... Section 22 of the Act, 1985. The judgment of the Orissa High Court in Noble Aqua Pvt. Ltd. (supra) was relied on by the company before the Gujarat High Court. The Gujarat High Court considered the submissions of the parties and after noticing the relevant facts took the view that reference takes into its sweep, Sections 16,17,18 and 19 of the Act and continues and remain pending when the scheme is sanctioned, modified and reviewed. It is useful to quote paragraphs 16,17,18,22 and 26 of the judgment which are as under: "16.That, reference takes into its sweep, Sections 16,17,18 and 19 of the Act and continues and remain pending when the scheme is sanctioned, modified, reviewed, monitored and operates successfully or in case of failure, result into forwarding opinion by the Board under Section 20 to concerned High Court subject to order if any appeal under Section 25 of the Act before appellate Board. The above findings are in consonance with object and reason of the Act inasmuch as function of the Board is to inquire into sickness and suggest measures to be adopted for removal of suck sickness so that sick industrial c....
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....s also in agreement with the decision given by the above High Court (supra) with regard to interpretation to third proviso to Section 15(1) of SIC Act, 1985 as introduced by Act 54 of 2002 and Section 41 and Schedule to SARFAESI Act, 2002 and other provisions of Sections 35, 37 etc. also of SARFAESI Act, 2002, and therefore, contention of learned Advocate for the petitioner that it is incumbent upon respondent Bank to obtain permission under Section 22 of SIC Act, 1985 fails. It is held that reference under Chapter III of SIC Act is a genus and inquiry under Section 16, orders under Section 17 and measures for revival and rehabilitation of sick industrial company under Sections 18 and 19 of the Act are species, and therefore, though order under Sections 17(1), (2) or (3) of the Act, as the case may be is passed, reference under Chapter III of the Act continues to hold field and remain pending, but once a measure under Section 13(4) of SARFAESI Act, 2002is taken, by virtue of insertion of unnumbered third proviso to Section 15(1) by Act 54 of 2002, reference stands abated, and therefore, no permission under Section 22 of SIC Act, 1985 is necessary. All other objections about validit....
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....nd, the Company rushed to the High Court by way of writ petition challenging the said notice under Sec.13(4) of the SRFAESI Act received by it being in contravention of provisions of Sec.22 of the Act of 1985. The bank, on the other hand, asserted that on invocation of action under Sec.13 of the SRFAESI Act, the proceedings before the BIFR abates and the protection which the Company claims under Sec.22 of the Act of 1985 is no longer available. The Orissa High Court, after considering the provisions contained in proviso to Sec.15(1) of the Act of 1985 read with Sec. 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 the BIFR. It held that the notice under Sec.13(4) of the SRFAESI Act was issued on 7th April, 2007. But long before that the Company was already declared sick company by order dated 14th November, 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 14th November, 2006. Moreover, the said order was passed by the BIFR after hearing the ....
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....he reference, the reference comes to an end. In other words, as soon as the direction to initiate inquiry under Sec. 16 is passed, the action on reference as per Sec.15 is complete and therefore it comes to an end for the purpose of that provision and cannot be treated as pending within the meaning of the third proviso to Sec. 15(1) of the Act of 1985. Notably, the time gap between the submission of reference and passing of such initial direction/order may vary, depending on the facts of each case. We cannot countenance the interpretation that the expression "reference" occurring in the third proviso is only referable to the stage of determining the measures and it will cease to be a reference after passing of such initial direction/ order by the Board. The fact that Sec. 22 of the Act of 1985 uses the expression of : (i) an inquiry under Sec. 16 is pending; or (ii) any scheme referred to under Sec. 17 is under preparation or consideration; or (iii) a sanctioned scheme is under implementation; or (iv) where an appeal under Sec. 25 is pending - in contradistinction to the expression "reference is pending" used in the third proviso to Sec. 15(1), does not mean that upo....
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..... This has resulted in slow pace of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on 21st June, 2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them ....
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.... of the reference, the scheme will have no legal effect whatsoever and thus, cannot continue to bind the specified class of secured creditors, who have invoked the provisions of the SRFAESI Act. In absence of provision, such as the third proviso to Sec.15(1) of the Act of 1985, it would have been possible to contend that upon framing of the scheme under Sec. 18 of the Act of 1985, the secured creditor would be bound by the same and cannot resort to any other action without the consent of the Board. But the third proviso under Sec. 15(1) of the Act of 1985 relieves the specified strength of secured creditors from that shackle and permits them to pursue their remedy under the provisions of SRFAESI Act, which have been introduced as a special enactment to further the cause of financial sector and the financial institutions to which the same is applicable. Suffice it to observe that the above position is reinforced from the provisions and in particular the third proviso to Sec.15(1) read with Sec.22 of the Act of 1985 itself. Thus, Sec.37 of the SRFAESI Act cannot be pressed into service to whittle down the sweep of the third proviso to Sec.15(1) of the Act of 1985." A Full Bench of....
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....extreme view that SRFAESI Act, 2002 overrides SICA in view of Section 35 and hence one need not even take recourse to the third proviso to Section 15(1) of SICA, the other High Courts stop only with the opinion that the expression "reference" would include (a) an enquiry under Section 16, (b) declaration of sickness under Section 17(1), (c) appointment of Operating Agency under Section 17 (3), (d) preparation and sanction of Schemes under Section 18, (e) rehabilitation under Section 19 and (f) winding up under Section 20. (iii) The divergence of views expressed by various High Courts, appears to have arisen primarily on account of two things, namely, (a) that under Section 32(1) of SICA 1985, the provisions of the Act and even the Schemes made thereunder, were given effect notwithstanding anything inconsistent with any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (now FEMA 1999) and the Urban Land (Ceiling and Regulation) Act, 1976; (b) that though the SRFAESI Act, 2002 also contained a similar provision under Section 35, a confusion was created by Section 37 of the SRFAESI Act, 2002, retaining the application of other laws. Section 37 did not mer....
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....e stage of Sections 16 to 19 of the Act. A Division Bench judgment of this Court in which one of us (Hon'ble Ashok Bhushan,J) was a member in Shamken Spinners Limited Vs. State of U.P. & Ors, 2011 (2) ADJ, 18 had occasion to consider the third proviso to Section 15 of the Act, 1985 as well as Section 22 of the Act, 1985 and the provisions of the Act, 2002. In the above case, an application for reference was filed by the Company under Section 15 of the BIFR on 06/4/2004. The reference was rejected by the Board on 04/9/2006, against which an appeal was filed. Second reference was again filed in the year 2006 by the petitioner Company which was rejected on 30/5/2007. Against the said order an appeal was filed which was allowed by the AAIFR on 29/11/2007, remanding the matter to the BIFR for reconsideration. The secured creditors in the meantime has issued notice dated 26/5/2009 under Section 13(2) of the Act, 2002. Writ petition was filed by the company praying for quashing the notice dated 26/5/2009 and for issuing a mandamus restraining the respondents from taking any of the measures under Section 13(4) of the Act, 2002. The submission was raised by the company that in view of....
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.... "5. Perusal of the above quoted provisions shows that if there is a valid action taken under Section 13(4), then one of the consequence is that any reference pending in relation to that company before BIFR automatically abates. In our opinion, provisions of Section 15 do not contemplate any order being passed by the Board for Industrial and Financial Reconstruction in relation to the abatement. The abatement of the reference is a consequence, which occurs automatically on a valid action being taken under Section 13(4). In our opinion, therefore, the AAIFR was perfectly justified in taking the view that if it is the case of the Petitioner that the action taken by Respondent No.3 under Section 13(4)is invalid for any reason, the appropriate remedy for the Petitioner was to approach the D.R.T., which is the Forum provided by the Securitisation Act for deciding such questions. If the finding is recorded by that Forum that the action taken under Section 13(4) is invalid as it lacks consent of three-fourth secured creditors, then the Reference of the Petitioner-company pending in the BIFR will automatically stand revived and no order will be necessary to be passed by any aut....
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....ication before the BIFR for an order of abatement also cannot be accepted. The application M.A. No.103/2012, which is on the record has not been filed by the Bank so that an abatement order be passed rather, his prayer in the application is that proceedings having been abated a direction be issued accordingly. The abatement of pending proceedings of reference is automatic when 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 the Act, no formal order is contemplated. In view of the foregoing discussion, our answer to issue nos. 2 to 5 are as follows: (2) On taking measures under Section 13(4) of the Act, 2002 i.e. by the respondent no.2 by issuing possession notice dated 07/10/2012, the reference pending before the BIFR being Case No.53/2010 stands abated. (3) The words "reference is pending" as used in third proviso to Section 15 of the Act, 1985 shall mean the reference which is at the stage of Section 15 of the Act, 1985 or is at any stage of Sections 16,17,18 and 19 of the Act, 1985. R....