TaxTMI 
TaxTMI 
2015 (4) TMI 1197
X X X X Extracts X X X X
X X X X Extracts X X X X
....a partnership firm in the year 1992. It was later converted into a public limited company in the year 1999. While the petitioner's manufacturing activities were initially confined to Vijayawada, a new unit was set up by them at Hyderabad in the year 1999-2000; and, thereafter, a third unit was set up by them in the Visakhapatnam SEZ area. The overseas branch of the 1st respondent Bank had sanctioned a term loan of Rs. 12.44 crores to the petitioner in the year 2006. The sanctioned limits of the term loan was later enhanced to Rs. 19.06 crores. As security for the said loan, the petitioner company created an equitable mortgage over their immovable properties. The loan amount of the petitioner became a non-performing asset ("NPA" for short). The 1st respondent bank initiated proceedings, and issued notice dated 27.08.2009 under Section 13(2) of the SARFAESI Act, demanding payment of Rs. 19,07,21,161/-. A similar notice dated 03.11.2010 was issued through the Stressed Asset Management branch of the respondent bank demanding payment of Rs. 22,38,78,147/-. As the said amount was not paid, the respondent bank instituted proceedings before the Debt Recovery Tribunal (for short the "DRT") ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ant to deposit fifty per cent of the debt due from him as claimed by the Bank, or determined by the DRT, whichever was less; the third proviso conferred power on the DRAT to reduce the amount of fifty per cent, to be deposited, to an amount not less than twenty five per cent of the debt referred to in the second proviso; in view of the second and third provisos to Section 18(1), the order passed by the DRAT on 17.06.2011, granting a blanket stay, was ex facie illegal; the DRAT had, therefore, modified the said order by its order dated 08.09.2011, and had directed the petitioner to deposit Rs. 6.00 crores on or before 30.09.2011; and the order of the DRAT dated 08.09.2011 was in accordance with the third proviso to Section 18 (1) of the SARFAESI Act. The Division bench further observed that, while issuing notice before admission on 29.09.2011, they had directed the petitioner to deposit Rs. 3.00 crores within a period of six weeks, and another Rs. 3.00 crores within a period of six weeks thereafter; this order had not been complied with; this was also one reason why they were not inclined to exercise their discretion in favour of the petitioner; as the Legislature mandated the appel....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... amounts due, the latest letter being 13.11.2013 by which the petitioner had informed the respondent-bank that they had identified a suitable buyer for the company, it was in the final stage of negotiation, and they were about to sign the necessary documents; they had further stated, in the said letter, that the process would be completed by 22.11.2013, by which date the petitioner along with the potential buyer would visit the Bank; after the Bank's concurrence, the first payment would be directly made to the bank; though an Advocate Commissioner was appointed by the Chief Metropolitan Magistrate, Hyderabad by his order dated 22.07.2013 in Crl.M.P.No.2559 of 2013, on an application made under Section 14 of the SARFAESI Act to takeover physical possession of the secured assets, the respondent-bank had not proceeded further since the petitioner had come forward to settle the outstanding amount; the Writ Petition was not bonafide; though a legal issue was sought to be raised in the Writ Petition, contending that the first respondent Bank could not take any further steps under the SARFAESI Act since proceedings were pending before the BIFR, the Court was not inclined to go into the sa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the IARC within a period of one week. All the concerned parties, including the IARC, were directed to file their objections on the sickness of the company, within a period of three weeks, with a copy to the company; and the petitioner was directed to file its reply to the objections on the sickness of the company, if received, within a further period of two weeks thereafter, with a copy to the respective parties. The next date of hearing was fixed as 02.04.2014. The fact, however, remains that, though more than one year has since elapsed, no orders have been passed till date by the BIFR on the maintainability of the reference made by the petitioner under Section 15(1) of SICA. A counter-affidavit is filed, on behalf of the 1st respondent-bank, wherein it is stated that the petitioner invoked the jurisdiction of this Court by way of W.P. No.27357 of 2011 questioning the order of the DRAT dated 08.09.2011; the said Writ Petition was dismissed as devoid of merits; thereafter the petitioner filed W.P. No.32980 of 2013 which was disposed of by order dated 19.11.2013; the petitioner is estopped from filing the present Writ Petition on the very same ground, and the present Writ Petition ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ry, the BIFR is empowered to prepare a scheme, under Section 18 of SICA, for reconstruction of the sick industry; where any proceedings are pending before the BIFR, Section 22 of SICA requires consent of the BIFR to be obtained before other proceedings are initiated; any action taken by the 1st respondent-bank, for sale of the secured assets, would be in violation of the mandatory provisions of SICA; while the 1st respondent-bank is at liberty to approach the BIFR and obtain necessary orders, it cannot proceed independently when the matter is seized of by the BIFR; the petitioner is in possession and enjoyment of its assets, including immovable properties which were given as security to the loan transactions; pursuant to the orders in Crl.M.P. No.2559 of 2013 dated 22.07.2013 passed by the Chief Metropolitan Magistrate, Hyderabad, when the 1st respondent-bank tried to take possession of the petitioner's registered office, they were constrained to approach this Court and file W.P. No.32980 of 2013 which was disposed of by order dated 19.11.2013; while disposing of the Writ Petition, this Court had directed the petitioner to approach the 1st respondent bank for grant of relief if any....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ings pending under the SARFAESI Act, and that the second proviso to Section 15(1) of SICA is not attracted, could and ought to have been raised in W.P.No.32980 of 2013. An adjudication is conclusive and final not only as to the actual matter determined, but as to every other matter which the parties might and ought to have litigated and have had it decided as incidental to or essentially connected with the subject-matter of the litigation, and every matter coming within the legitimate purview of the original action both in respect of the matters of claim or defence. The principle underlying Explanation IV to Section 11 CPC is that where the parties have had an opportunity of controverting a matter that should be taken to be the same thing as if the matter had been actually controverted and decided. (Forward Construction Co. v. Prabhat Mandal (Regd.)(1986) 1 SCC 100). As the Division bench of this Court, by its order in W.P. No.32980 of 2013 dated 19.11.2013, expressed its disinclination, in view of the petitioner's conduct, to examine the legal issue that the respondent-bank could not take further steps under the SARFAESI Act since proceedings were pending before the BIFR, the peti....
X X X X Extracts X X X X
X X X X Extracts X X X X
....espondent-bank thereafter. They have not paid a single rupee to the 1st respondent-bank for the past more than three and half years, despite the directions of the DRAT and this Court to pay Rs. 6.00 Crores as early as on 08.09.2011 and 30.09.2011 respectively. They have also, at the same time, used the legal process to prevent the 1st respondent-bank from taking possession of their secured assets, and putting them to sale. The present Writ Petition has been filed only to drag on proceedings, again prevent the respondent-bank from taking possession of their immoveable properties, and in realising even a part of the mounting debt by putting the secured assets to sale. The present Writ Petition is clearly an abuse of process of Court, and is liable to be dismissed as such. Though the Writ Petition is liable to be dismissed on the aforesaid two grounds, we shall examine the contentions urged by Sri C.B.Rammohan Reddy, Learned Counsel for the petitioner, on the scope of the relevant provisions of SICA and the SARFAESI Act, as these issues would frequently arise. C. SECTION 22 OF SICA HAS NO APPLICATION TO CASES WHERE THE SECOND PROVISO TO SECTION 15(1) IS ATTRACTED SICA, a complete ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nce, the date on which it is filed or received in the office of the BIFR. Regulation 19(5) stipulates that, if on scrutiny, the reference is found to be in order, it shall be registered, assigned a serial number and submitted to the chairman for assigning it to a bench. Under Regulation 19(7), a reference declined to be registered shall be deemed not to have been made. Section 16(1) of SICA enables the BIFR to make such inquiry, as it may deem fit, for determining whether any industrial company has become a sick industrial company (a) upon receipt of a reference with respect to such company under Section 15; or (b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company. Section 16(2) enables the BIFR, if it deems it necessary or expedient so to do for the expeditious disposal of an inquiry under sub-section (1), to require, by order, any operating agency to enquire into and make a report with respect to such matters as may be specified in the order. Section 22 of SICA relates to suspension of legal proceedings and, under sub-section (1) thereof, where, in respect of an industrial company, an inquiry under Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n 5 thereof. The second proviso to Section 15(1) stipulates that, once a securitisation company or a reconstruction company acquires an asset under Section 5(1) of the SARFAESI Act, the board of directors of the sick industrial company cannot make a reference to the BIFR for determination of the measures which shall be adopted with respect to the company. In such a case, as the company cannot be declared sick, no advantage can be taken of Section 22 of SICA. (Asset Reconstruction Company (India) Ltd. v. M.H.Mills & Industries Ltd. 2011 GLH (3) 712 : (2012) GLR 790). Under the third proviso to Section 15(1) of SICA, on or after the commencement of the SARFAESI Act, where a reference is pending before the BIFR, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against the financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under Section 13(4) of the SARFAESI Act. The words "on or after", in the third proviso, describe time in successive and continuous sequence of days, and fix the point from which the succeeding time area, it descr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....egistered under the Companies Act, 1956 for the purpose of securitisation. Section 2 (zc) defines "secured asset" to mean the property on which security interest is created. Section 2 (zd) defines "secured creditor" to mean any bank or financial institution or any consortium or group of banks or financial institutions. Section 2 (ze) defines "secured debt" to mean a debt which is secured by any security interest. Section 2 (zf) defines "security interest" to mean right, title and interest of any kind whatsoever upon property created in favour of any secured creditor, and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31. Section 5 of the SARFAESI Act relates to acquisition of rights or interest in financial assets and, under sub-section (1) thereof, notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution by the methods prescribed in clause (a) and (b) thereof. The SARFAESI Act proceeds on the basis that the security interest vests in the bank/financial institution. Authority ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t over any other law in force as is mentioned in the non-obstante clause. It is equivalent to saying that, inspite of the laws mentioned in the non-obstante clause, the provision following it will have full operation, or the laws embraced in the non-obstance clause will not be an impediment for the operation of the enactment or the provision in which the non-obstante clause occurs. (State of Bihar v. Bihar Rajya M.S.E.S.K.K. Mahasangh(2005 (9) SCC 129); South India Corpn. (P) Ltd. v. Secretary, Board of Revenue, Trivandrum (AIR 1964 SC 207). Normally the use of a phrase by the legislature in a statutory provision like "not withstanding anything to the contrary contained in any other law for the time being in force" is equivalent to saying that no other law in force shall be an impediment to the measure. Use of such an expression is another way of saying that the provision in which the non-obstante clause occurs would wholly prevail over any other law for the time being in force. Non-obstante clauses are to be regarded as clauses which remove all obstructions which might arise out of the provisions of any other law in the way of the operation of the principal enacting provision to w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ontained in SICA would, ordinarily, prevail and govern. I n Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. (1997) 89 Comp Cas 547), it was contended that recovery proceedings under the Special Courts Act should be stayed, in view of the provisions of SICA. The Special Court held that, where there are two special statutes which contain non-obstante clauses, the later statute must prevail; this is because, at the time of enactment of the later statute, the legislature was aware of the earlier legislation and its non obstante clause; if the legislature still conferred the later enactment with a non obstante clause, it meant that the legislature wanted that enactment to prevail; and, if the legislature did not want the later enactment to prevail, it could and would then have provided in the later enactment that the provisions of the earlier enactment continue to apply. In Allahabad Bank v. Canara Bank (AIR 2000 SC 1535 (2000) 4 SCC 406) the Supreme Court held that, in view of Section 34 of the DRT Act, the provisions of the DRT Act overrides the provisions of the Companies Act to the extent there is anything inconsistent between both the Acts. In A.P. State Financial Corpn.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ial institutions to take possession of the securities, and sell them without the intervention of the Court; and enables banks and financial institutions to realise long-term assets, manage problems of liquidity, asset liability mismatches and improve recovery exercising the power to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. Like SICA, the SARFAESI Act is also a special enactment and the conflict between the non-obstante clauses in both these Acts cannot be resolved applying the maxim generalia specialibus non-derogant. On a natural and ordinary meaning being accorded, and on a fair construction of the words used in the enacting part of Section 35 of the SARFAESI Act, it is clear that, if any other law for the time being in force (in this case "SICA") is inconsistent with the provisions of the SARFAESI Act, it is the provisions of the SARFAESI Act which shall have effect, notwithstanding the inconsistency. (Asset Reconstruction Company (India) Ltd. 2011 GLH (3) 712 : (2012) GLR 790). For resolving the inter-se conflict between competing non-obstante clauses in two different enactments, one other te....
X X X X Extracts X X X X
X X X X Extracts X X X X
.....166 defines "derogation" to mean the act of annulling or breaking a law, or some part of it. P. Ramanatha Aiyer's The Law Lexicon - 2nd Edition - Reprint 2002 defines "derogation" to mean, taking away, lessening or impairing the authority, position or dignity. Black's Law Dictionary - Sixth Edition defines "derogation" to mean the partial repeal or abolishing of a law, as by a subsequent act which limits its scope or impairs its utility and force. Oxford Dictionary defines "derogation" to mean an exemption from, or relaxation of, a rule or law. In view of Section 37, the provisions of any other law in force shall also apply along with the provisions of the SARFAESI Act, the scope of any other such law is not limited or restricted, and its application would not nullify or annul or impair the effect of the provisions of any other law in force. The heading of Section 37 makes it clear that the application of other laws are not barred. The effect of Section 37 would, therefore, be that, in addition to the provisions contained under the SARFAESI Act, in respect of proceedings initiated under the said Act, it will be in order for a party to fall back upon the provisions of the other Ac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....chieve this object that, simultaneously, certain restrictions were placed in other enactments to further the objects for which the SARFAESI Act was made. Section 41 of the SARFAESI Act has the effect of amending certain other enactments specified in the Schedule in the manner specified therein. The Schedule refers to SICA, and envisages insertion of two provisos after the existing proviso in Section 15(1). (M/s.Kanakadhara Spinning Mills v. The Registrar, BIFR, New Delhi). It is a rule of legal policy that law should be altered deliberately rather than casually. Legislature does not make radical changes in the law `by a side wind, but only by measured and considered provisions'. (Francis Bennion's Statutory Interpretation, Butterworths, 1984, para 133; Byram Pestonji Gariwala's; Central Bank of India(2009) 4 SCC 94). Insertion of the second and third provisos to Section 15(1) of SICA, as provided in Section 41 and the Schedule to the SARFAESI Act, makes it clear that Parliament intended to make a radical change to the law and, as against the provisions of the DRT Act, to provide a legal frame work whereby banks and financial instructions could take possession of securi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... legal proceedings where an enquiry under Section 16 is pending, or a scheme under Section 17 is under preparation, and consideration, or a sanctioned scheme is under implementation. From the proceedings of the BIFR dated 21.01.2014, it is evident that the assets of the petitioner, mortgaged to Karur Vysya Bank Ltd. and Axis Bank Ltd were acquired from them by IARC (a securitisation company). The requirement of Section 5(1) of the SARFAESI Act was, therefore, satisfied. Consequently the second proviso to Section 15(1) was attracted, and the petitioner was prohibited from making a reference to the BIFR by their letter dated 10.10.2013, more than a decade after the SARFAESI Act, 2002 came into force on 21.06.2002. The pre-condition for the BIFR to cause an enquiry under Section 16 is, a reference made to it, by the board of directors of a sick industrial company, under Section 15(1) of SICA and its first proviso. As no reference could have been made by the petitioner to the BIFR, in view of the embargo placed on it by the second proviso to Section 15(1) of SICA, the non-obstante clause under Section 22(1) of SICA has no application, and neither the securitisation company nor the fir....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o Section 15(1). We must express our inability to agree with the opinion of the Division bench of the Delhi High Court, in Asset Reconstruction Co. India (P) Ltd2011 GLH (3) 712 : (2012) GLR 790, since the language of the 2nd proviso to Section 15(1) of SICA is plain and unambiguous, and must be enforced. It is, normally, not the concern of Courts to examine its reasonableness or consider its consequences. (Cape Brandy Syndicate v. IRC). If the meaning of the provision is reasonably clear, Courts have no jurisdiction to mitigate harshness. (Canadian Eagle Oil Co. Ltd v. R; IRC v. Ross & Coulter (Bladnock Distillery Co. Ltd ). Courts of law have nothing to do with the reasonableness or unreasonableness of a provision of a Statute except in so far as it may help it in interpreting what the legislature has said. If the language of a statute be plain, admitting of only one meaning, the legislature must be taken to have meant and intended what it has plainly expressed, and whatever it has in clear terms enacted must be enforced though it should lead to absurd or mischievous results. The language of the second proviso to Section 15(1) of SICA must, since its language is plain and unambi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IFR by their letter dated 10.10.2013, long after the respondent-bank had initiated proceedings against them under Section 13(4) and 14 of the SARFAESI Act. The endorsement on the reference, by the Secretary of the BIFR under Regulation 19(4) of the Regulations, or registration of the reference under Regulation 19(5) thereof, are events posterior to the reference made to the BIFR, by the board of directors of the sick industrial company, under Regulation 19(1). In view of the bar under the second proviso to Section 15(1) of SICA, the very reference to the BIFR is without jurisdiction, and consequently the subsequent act of registration of the reference as Case No.89 of 2013, or commencement of the enquiry under Section 16(1) of SICA or for that matter remedial measures being taken under Section 17 to 19 of SICA, by the BIFR are also without jurisdiction and a nullity. Once the jurisdiction of the BIFR has been divested by the mandatory impact of the second proviso to Section 15(1), the BIFR cannot pass any orders under SICA. (Punjab National Bank28). L. INVALIDITY OF AN ORDER, WHICH SUFFERS FROM INHERENT LACK OF JURISDICTION, CAN BE SET UP EVEN IN COLLATERAL PROCEEDINGS: The peti....