TaxTMI 
TaxTMI 
TaxTMI 
2016 (11) TMI 25
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.... of one year commencing from 18th June, 2016 till 17th June, 2017 (both days inclusive). Under this notification, Respondent No.4 is referred to therein as a 'Relief Undertaking' and all of its rights, privileges, obligations or liabilities (except those obligations or liabilities as specified therein) accrued or incurred before 18th June, 2016, and any remedy for the enforcement thereof, shall be suspended and all proceedings relating thereto pending before any Court, Tribunal, Officer or Authority shall be stayed, provided Respondent No.4 (the said Relief Undertaking) adopts all necessary reforms mandatorily as decided by the State Government during the said period. 2. When this matter was taken up on 11th June, 2013, a Division Bench of this Court had observed that the effect of these notifications issued under the provisions of the BRU Act, qua the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short the "SARFAESI Act") would require consideration. In these circumstances, it was ordered that the Collector and District Magistrate (Respondent No.3) shall not insist upon the Petitioner, handing o....
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....bt, (alongwith the underlying security interest) owed by Respondent No.4 to Bank of India, was assigned in favour of the Petitioner. In these circumstances, the Petitioner is before us. Any reference to the Petitioner hereinafter, shall mean JM Financial Asset Reconstruction Co. Pvt. Ltd. and/or Bank of India, as the case may be. (b) It is the case of the Petitioner that under a loan sanctioned to Respondent No.4, the Petitioner from time to time lent and advanced large amounts of money not only through itself but also on behalf of consortium Banks. Respondent No.4 set up their factory and was carrying on business of manufacturing and export of textile material and garments from the advances made by the Petitioner and other consortium banks. (c) In view of the fact that various defaults were committed by Respondent No.4 in servicing the loans and advances granted to it, the Petitioner declared the account of Respondent No.4 as a non-performing asset. Thereafter, in or about 2nd May 2012, the Petitioner has for and on behalf of itself as well as other consortium banks issued a notice under section 13(2) of the SARFAESI Act calling upon Respondent No.4 to pay an amount of Rs. 264,7....
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....7th June, 2013 requested Respondent No.3 thirty days' time for taking further course of action. It is the case of the Petitioner that till the date of filing of the present Petition, there has been no further communication received from the Office of Respondent No.3. Accordingly, to challenge the original Notification issued on 24th May, 2013 as well as the letter issued by Respondent No.3 dated 6th June 2013, this Writ Petition was filed. Thereafter, the Notification issued under the BRU Act and which was to remain valid for a period of one year, has been extended from time to time by issuance of fresh Notifications under the provisions of the BRU Act, the latest Notification being issued on 18th June, 2016 and which is valid till 17th June, 2017. Being aggrieved by this action, the Petitioner is before us in our extraordinary equitable and discretionary jurisdiction under Article 226 of the Constitution of India. 5. In this factual backdrop, Mr Kamdar, learned Sr. Counsel appearing on behalf of the Petitioner, submitted that initially, the Legislature, finding that banks and financial institutions were suffering considerable difficulties in recovering their loans and advance....
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....n to Section 37 of the Act which provides that the provisions of the SARFAESI Act or the rules made thereunder are in addition and not in derogation of the Companies Act, 1956; Securities Contract (Regulation) Act, 1956; the Securities and Exchange Board of India Act, 1992; the RDDB Act; and any other law for the time being in force. He submitted that what is important to note is that the BRU Act was not one of the enactments listed in Section 37 to be in addition to and not in derogation of the SARFAESI Act. 7. In contrast, Mr. Kamdar submitted that the BRU Act was an enactment to make temporary provisions for industrial relations and other matters to enable the State Government to conduct or to provide loans, guarantee or financial assistance for the conduct of certain industrial undertakings as a measure of preventing unemployment or unemployment relief. He submitted that Section 4 of BRU Act inter alia stipulated that notwithstanding any law, usage, custom, contract, instrument, decree, order, award, submission, settlement, standing order or other provision whatsoever, the State Government, by notification in the official gazette, could direct that in relation to any relief un....
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....bmitted that what came up for consideration before the Supreme Court was whether the provisions of the SARFAESI Act would override the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 ("SICA, 1985"). He submitted that just as in the case of the BRU Act, where all proceedings are stayed against the company in whose favour a notification has been issued under Section 4, Section 22 of SICA, 1985 also provided for stay of all proceedings against the sick industrial company that had preferred a reference before the Board of Industrial and Financial Reconstruction ("BIFR"). He submitted that the Supreme Court after analyzing the law on the subject came to the conclusion that the provisions of Section 22 of SICA, 1985 were inconsistent with the provisions of the SARFAESI Act, and therefore held that notwithstanding the fact that a reference of a sick industrial company was pending before the BIFR, the secured creditor could take recourse to the provisions of the SARFAESI Act and enforce its security against the sick industrial company. On the same parity of reasoning, Mr Kamdar submitted that we hold that the provisions of the SARFAESI Act override the provisions....
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....the Concurrent List"). He submitted that Article 254 provides for any repugnancy in the laws made by Parliament and the laws made by the Legislature of a State. He submitted that if any provision of a law made by the Legislature of a State is repugnant to any provision of a law made by Parliament which Parliament is competent to enact, or to any provision of an existing law with respect to one of the matters enumerated in the Concurrent List, then, subject to the provisions of clause (2), the law made by Parliament, whether passed before or after the law made by the Legislature of such State, or, as the case may be, the existing law, shall prevail and the law made by the Legislature of the State shall, to the extent of the repugnancy, be void. He submitted that Clause (2) of Article 254 stipulates that where a law made by the Legislature of a State with respect to one of the matters enumerated in the Concurrent List contains any provision repugnant to the provisions of an earlier law made by Parliament or an existing law with respect to that matter, then, the law so made by the Legislature of such State shall, if it has been reserved for the consideration of the President and has r....
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....e for which both the enactments, namely the SARFAESI Act and the BRU Act, were brought into force. The statements of object and reasons of the SARFAESI Act indicate that the financial sector, being one of the key drivers in India's efforts to achieve success in rapidly developing its economy, did not have a level playing field as compared to other participants in the financial markets of the world. There was no legal provision for facilitating securitisation of financial assets of banks and financial institutions, and unlike international banks, the banks and financial institutions in India did not have the power to take possession of securities and sell them. The Legislature felt that our existing legal framework had not kept pace with the changing commercial practices and financial sector reforms, which resulted in delays in recovery of defaulting loans. This in turn had the effect of mounting levels of non-performing assets of banks and financial institutions. In order to bring the Indian Banking Sector on par with International Standards, the Government set up two Narasimhan Committees and the Andhyarujina Committee for the purposes of examining banking sector reforms. Thes....
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....sofar as the same is relevant for our purpose, the same is reproduced hereunder:- "13. Enforcement of security interest.-(1) Notwithstanding anything contained in Section 69 or Section 69-A 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 repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may 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). Provided that- (i) the requirement of classification of secured debt as non-performing asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt secur....
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.... 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) to 13 ** ** **" 18. As can be seen from the above reproduction, Section 13(1) provides for a secured creditor to enforce its security interest without the intervention of the Court or Tribunal in accordance with the provisions of the SARFAESI Act. Section 13(2) contemplates a notice being issued to the borrower and stipulates that where any borrower makes any default in repayment of the secured debt or any installment thereof, and such debt is classified by the secured creditor as a non-performing asset, then the secured creditor can call upon the borrower to discharge his liability within 60 days from the date of the notice, failing which the secured creditor is entitled to exercise all or any of the rights under Section 13(4). Section 13(4) stipulates that in case the borrower fails to discharge his liabilit....
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....t shall be subject to the provisions of that Code. 21. Three other provisions of which we must make a note of are Sections 34, 35 and 37 of the SARFAESI Act. Section 34 stipulates that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a DRT or DRAT is empowered by 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 RDDB Act. Section 35 stipulates that the provisions of the SARFAESI Act are to override the provisions of other laws and 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." 22. This Section stipulates that the provisions of the SARFAESI 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 37 pr....
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....ut of employment by the closure of the undertaking. In such circumstances, the Government may take over such undertakings either on lease or may run them as a measure of employment relief. In such a case, the Government may have to fix revised terms of employment of the workers or make other changes which may not be in consonance with the existing labour laws or any agreements or awards applicable to the undertaking. It may be necessary even to exempt the undertaking from certain legal provisions. It is for this reason that the BRU Act was brought into force. Section 2(2) defines a "relief undertaking" to mean an industrial undertaking in respect of which a declaration under section 3 is in force. Section 3 deals with the declaration of the relief undertaking and reads as under:- "3. (1) If at any time it appears to the State Government necessary to do so, the State Government may, by notification in the Official Gazette, declare that an industrial undertaking specified in the notification whether started, acquired or otherwise taken over by the State Government, and carried on or proposed to be carried on by itself or under its authority, or to which any loan, guarantee or other ....
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....ility accrued or incurred before the undertaking was declared a relief undertaking and any remedy for the enforcement thereof shall be suspended and all proceedings relative thereto pending before any court, tribunal, officer or authority shall be stayed ; (b) the right, privilege, obligation or liability referred to in clause (a)(iv) shall, on the notification ceasing to have force, revive and be enforceable and the proceedings referred to therein shall be continued : Provided that in computing the period of limitation for the enforcement of such right, privilege, obligation or liability, the period during which it was suspended under clause (a)(iv) shall be excluded notwithstanding anything contained in any law for the time being in force. (2) A notification under sub-section (1) shall have effect from such date not being earlier than the date referred to in sub-section (1) of section 3, as may be specified therein, and the provisions of section 21 of the Bombay General Clauses Act, 1904, shall apply to the power to issue such notification." (emphasis supplied) 26. What can be seen from the aforesaid provisions is that under Section 3, if at any time it appears necessary to ....
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.... the 18th June 2016 and ending on the 17th June, 2017 (both days inclusive), be conducted to serve as a measure of preventing unemployment; and (b) directs that, in relation to the said relief undertaking and in respect of the said period of One Year commencing on the 18th June, 2016 and ending on the 17th June, 2017 (both days inclusive), for which the said relief undertaking continues as such, any rights, privileges, obligations or liabilities except the obligations or liabilities incurred in favour of workmen of the said relief undertaking, the dues of the Employees, State Insurance Corporation and any liabilities incurred under the Employees Provident Fund and Miscellaneous Provisions Act, 1952 (19 of 1952), the Maharashtra Land Revenue Code, 1966 (Mah. XLI of 1966), the Maharashtra State Tax on Professions, Trades, Callings and Employments Act, 1975 (Mah. XVI of 1975) and the Maharashtra Value Added Tax Act, 2002 (Mah. IX of 2005), accrued or incurred before the 18th June, 2016 and any remedy for the enforcement thereof shall be suspended and all proceedings relating thereto pending before any court, tribunal officer or authority shall be stayed, provided that the said relief....
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.... having effect by virtue of any such law. This being the position and considering the mandate laid down in Section 35 of the SARFAESI Act and which is a subsequent law enacted by Parliament, it would have to be held that the provisions of the SARFAESI Act would have effect notwithstanding the provisions of the BRU Act and any notification issued thereunder, insofar as it restrains the secured creditor from enforcing its security interest against the relief undertaking in whose favour a notification has been issued. 30. In the view that we have taken, we are supported by a decision of the Supreme Court in the case of Madras Petrochem Ltd. [2016] 4 SCC 1. The issue involved before the Supreme Court was on the play between the provisions of SICA, 1985 and the SARFAESI Act. The Supreme Court, after noting all the relevant provisions of the SARFAESI Act and SICA, 1985 along with their objects and reasons, held as follows: "36. A conspectus of the aforesaid decisions shows that the Sick Industrial Companies (Special Provisions) Act, 1985 prevails in all situations where there are earlier enactments with non obstante clauses similar to the Sick Industrial Companies (Special Provisions) ....
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....al Companies (Special Provisions) Act, 1985. This is for the obvious reason that the framers of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 intended that the Sick Industrial Companies (Special Provisions) Act, 1985 be covered by the non obstante clause contained in Section 35, and not by the exception thereto carved out by Section 37. Further, whereas the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 is expressly mentioned in Section 37, the Sick Industrial Companies (Special Provisions) Act, 1985 is not, making the above position further clear. And this is in stark contrast, as has been stated above, to Section 34(2) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, which expressly included the Sick Industrial Companies (Special Provisions) Act, 1985. The new legislative scheme qua recovery of debts contained in the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 has, therefore, to be given precedence over the Sick Industrial Companies (Special Provisions) Act, 1985, unlike the old scheme for recovery of debts contained i....
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....ts due to banks and financial institutions. On this interpretation also, the Sick Industrial Companies (Special Provisions) Act, 1985 will not be included for the obvious reason that its primary objective is to rehabilitate sick industrial companies and not to deal with the securities market. ** ** ** 44. It will, thus, be seen that notwithstanding the non obstante clauses in Sections 22(1) and (4), read with Section 32, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will have to give way to the measures taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, more particularly referred to in Section 13 of the said Act, and that this being the case, the sale notices issued both in 2003 and 2013 could continue without in any manner being thwarted by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. ** ** ** 57. The resultant position may be stated thus: 1. Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will continue to apply in the case of unsecured creditors seeking to recover their debts from a sick industrial company. This is for the ....
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.... 31. As can be seen from the aforesaid decision, the Supreme Court has clearly come to a finding that Section 22 of SICA, 1985 and which provides for suspension of legal proceedings, will have to give way to section 13 of the SARFAESI Act. Incidentally, Section 22 provides that, where in respect of an industrial company, an inquiry under Section 16 is pending or any scheme referred to in 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, 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 shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority. The Supreme Court, whilst considering section 22, held that this....
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....as the BRU Act was enacted under the State List. In these circumstances, he submitted that the Judgment of the Madras Petrochem Ltd.1 is inapplicable in the facts and circumstances of the present case. 33. Firstly, we must note that the BRU Act is not enacted under any Entry in the State List but under Entry 23 of the Concurrent List which deals with social security and social insurance; employment and unemployment. Be that as it may, it would be appropriate to refer to Articles 246 and 254 of the Constitution of India in this regard. Article 246(1) stipulates that notwithstanding anything in Article 246(2) and (3), Parliament has exclusive power to make laws with respect to any matters enumerated in List I ("the Union List"). Similarly, subject to clauses (1) and (2) of Article 246, the State Legislature has exclusive power to make laws for such State or any part thereof with respect to any matter enumerated in List II ("the State List"). Over and above this, Parliament, and subject to Article 246(1) the Legislature of any State, also has the power to make laws with respect to any of the matters enumerated in List III ("the Concurrent List"). The question of repugnancy is dealt w....
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.... State Legislature in such manner as to avoid a conflict. If the conflict becomes unavoidable, then Article 245 indicates the manner of resolution of such a conflict. 12. Thus, the question of repugnancy between the parliamentary legislation and the State legislation can arise in two ways. First, where the legislations, though enacted with respect to matters in their allotted sphere, overlap and conflict. Second, where the two legislations are with respect to matters in the Concurrent List and there is a conflict. In both the situations, parliamentary legislation will predominate, in the first, by virtue of the non obstante clause in Article 246(1), in the second, by reason of Article 254(1). Clause (2) of Article 254 deals with a situation where the State legislation having been reserved and having obtained President's assent, prevails in that State; this again is subject to the proviso that Parliament can again bring a legislation to override even such State legislation." (emphasis supplied) 34. Looking to what has been opined by the Supreme Court, it is now well settled that both Parliament and the State Legislature are supreme in their respective assigned fields. It is t....
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....ention, a conflict may arise when both State and Commonwealth seek to exercise their powers over the same subject-matter." 14. Quoting the aforesaid observations, this Court in Hoechst Pharmaceuticals Ltd. v. State of Bihar [1983) 4 SCC 45, 87 : 1983 SCC (Tax) 248] speaking through A.P. Sen, J. exhaustively dealt with the principles of repugnancy and observed that one of the occasions where inconsistency or repugnancy arose was when on the same subject-matter, one law would be repugnant to the other. Therefore, in order to raise a question of repugnancy two conditions must be fulfilled. The State law and the Union law must operate on the same field and one must be repugnant or inconsistent with the other. These are two conditions which are required to be fulfilled. These are cumulative conditions. Therefore, these laws must tread on the same field and they must be repugnant or inconsistent with each other. In our opinion, in this case there is a good deal of justification to hold that these laws, the Industrial Disputes Act and the Rajasthan Act tread on the same field and both laws deal with the rights of dismissed workman or employee. But these two laws are not inconsistent or r....
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.... of the SARFAESI Act clearly stipulates that the provisions thereof 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. What is important to note is that if we were to accept Mr Jain's contention, it would effectively mean that "any other law" referred to in Section 35 would only mean a Central Law enacted by the Parliament exercising its power under the Union List or the Concurrent List as more particularly set out in Article 246 of the Constitution. We see no reason to limit the scope of the words "any other law" appearing in Section 35 to mean only a law passed by Parliament either under the Union List or the Concurrent List. In fact, if we were to do this, we would be doing grave injustice to the plain and unambiguous language of Section 35. We, therefore, have no hesitation in rejecting this argument of Mr Jain. 37. Having said this, what is left is to deal with the judgments cited by Mr Jain. The first judgment cited by Mr Jain is the decision of Supreme Court in the case of Binod Mills Co. Pvt. Ltd. Ujjain (M.P.) v. Suresh Chandra MahaveerPras....
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....nobody questions the validity of the decree passed, but what is sought to be done is to suspend its animation for the period mentioned in the notification. In the case before the Supreme Court, there was no question of any inconsistency between the two Acts mentioned therein coupled with a provision similar or analogous to section 35 of the SARFAESI Act. We, therefore, find that the reliance placed on this decision is wholly misconceived and misplaced. 38. The next decision relied upon by Mr Jain is the decision of the Supreme Court in the case of Doburg Lager Breweries Pvt. Ltd. v. Dhariwal Bottle Trading Co. & Anr [1986] 2 SCC 382. Here we find that the issue involved before the Supreme Court was not of any inconsistency between the provisions of the BRU Act and that of any other law. The facts of this case would reveal that the Appellant before the Supreme Court was carrying on business and ran into financial difficulties. As a result of this, winding up proceedings were commenced against it. The 1st Respondent before the Supreme Court and which was the partnership firm, filed a Company Petition as a creditor, for winding up the Appellant Company. The Appellant Company was carr....
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.... decision, we find that the same is wholly inapplicable to the facts of the present case. The issue that was raised before the Supreme Court and decided, was whether the provisions of SARFAESI Act will override the provisions of the Rent Control Act. The question before the Supreme Court was how can the rights of the "protected tenant" be preserved in cases where the debtor landlord secures a loan by offering the very same property as a security interest either to banks or financial institutions. After reviewing the law on the subject, the Supreme Court came to the conclusion that it was a settled position of law that once tenancy was created, a tenant could be evicted only after following due process of law as prescribed under the provisions of Rent Control Act. A tenant, who had not mortgaged its tenancy with the bank or financial institution, could not be arbitrarily evicted by using the provisions of SARFAESI Act as that would amount to stultifying the statutory rights vested in the tenants under the Rent Control Act. The Supreme Court inter alia held that pre-existing genuine tenants (prior to creation of the mortgage) could not be evicted by taking recourse to the provisions ....
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.... Act and the notification issued thereunder. In these circumstances, we find that the reliance placed by Mr Jain on the decision of the Supreme Court in case of Vishal N Kalsaria v. Bank of India & Ors. [2016] 3 SCC 762 is also wholly misplaced. 40. The next judgment relied upon by Mr Jain is a decision of the Supreme Court in case of Security Association of India v. Union of India and Ors. [2014] 12 SCC 65. This judgment too, we find is wholly inapplicable to the facts of the present case. What was being considered by the Supreme Court was the provisions of the Private Security Agencies (Regulation) Act, 2005 (the Central Act made by the Parliament) and the Maharashtra Private Security Guards (Regulation of Employment and Welfare) Act, 1981 (State Act) enacted by the Government of Maharashtra. In the facts of that case the validity of the State Act was challenged in light of the provisions to the Central Act which was brought into force much after the provisions of the State Act. It is, in these circumstances, that the observations made by the Supreme Court in the said decision have to be read and understood. In the facts before us, on the basis of the SARFAESI Act, the Petitione....
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....the pending Civil Applications, and the same are disposed of accordingly. 45. After this judgment was pronounced, to be fair to the advocate appearing for Respondent No.4, we record his oral request for continuing of an order passed by this Court, which order according to him, is in force from 11th June, 2013. The learned advocate for the Petitioner opposes this request. 46. On 11th June, 2013, this Court recorded that the Petitioner, in exercise of its powers under Section 13 of the SARFAESI Act took possession of the properties. Thereafter, this Notification and which we have declared to be not binding on the Petitioner, came to be issued. In the meanwhile, on 6th June, 2013, the Collector and District Magistrate, Kolhapur (Respondent No.3) called upon the Petitioner to hand over possession of the properties. The Petitioner requested thirty days time to adopt appropriate proceedings. The order passed on 11th June, 2013 wrongly refers to Respondent No.4 as Petitioner. The Petitioner is an ARC and which would not ordinarily ask for any interim relief. However, it was forced to apply for interim reliefs as the property in question, the possession of which was with it in terms of t....