TaxTMI 
TaxTMI 
2010 (12) TMI 1284
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....ssues raised in all these writ petitions. Writ Petition No. 56270 of 2009 has been filed by Shamken Spinners Limited, which is a registered company under the Companies Act, 1956. The Petitioner Company started commercial production with capital investment of about Rs. 45 crores. The Respondent No. 4 is registered under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act, 2002) as a Securitisation and Construction Company. The Petitioner availed term loan from ICICI Bank, Bank of India, IDBI - SASF, Bank of Baroda, China Trust Bank, DCB, IFCI, J & K Bank, SICOM, Syndicate Bank, UCO Bank, PICUP and ING Vysya. The Petitioner also availed working capital facilities from ICICI Bank, Bank of India, China Trust Bank, Federal Bank, Indian Overseas Bank, Punjab & Sind Bank, SICON, Syndicate Bank, Axis Bank, PICUP and ING Vysya. The lenders of the term loan are holding the first charge over the assets of the Company whereas the working capital bankers/lenders are holding the second charge. After 30th September, 2003 the Company started incurring losses which eroded the net worth of the Company. ....
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....itioner, the Respondent No. 4 and other secured creditors agreed for liquidating the debt through intervention of the Court and also by third party investor. The Petitioner filed an application before this Court under Sections 391-394 of the Companies Act for approving the scheme of compromise. Under the orders of the Company Judge a meeting of secured creditors was convened to consider the scheme. An objection was raised by one of the secured creditors (ING Vysya) that this Court has no jurisdiction to consider any scheme, the matter being pending with BIFR. By an order dated 18th January, 2010 the objections of the ING Vysya were rejected. After rejection of objections, the scheme for confirmation was submitted before the Company Judge. Again objections were raised which was rejected by the learned Company Judge on 9th August, 2010. Special appeals under Chapter VIII, Rule 5 of the Rules of the Court being Special Appeal Nos. 1395 of 2010 and 1397 of 2010 were filed by the ING Vysya challenging the orders passed by the learned Company Judge rejecting its objections. Both the special appeals have been allowed by the Division Bench of this Court on 8th September, 2010 holding that ....
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....t, however, since results were not declared on account of application filed by ING Vysya, an affidavit was filed by Respondent No. 4 withdrawing the consent to the scheme. It is claimed in the counter affidavit that Respondent No. 4 has consent of three-fourth secured creditors in value of the principal amount. 7. Writ Petition No. 56251 of 2009 (Shamken Multifabs Limited v. State of U.P. and Ors.) challenges the notice dated 26th May, 2006 issued by Respondent No. 4 under Section 13(2) of the SARFAESI Act, 2002 with further prayer of mandamus restraining the Respondents from taking any of the measures under Section 13(4) of the SARFAESI Act, 2002. The Respondent No. 4 was assigned debts from ICICI Bank, Bank of India, Axis Bank, Indian Overseas Bank and Development Credit Bank as contemplated under Section 5(1)(b) of the SARFAESI Act, 2002. The Petitioner Company also made first and second references, which were decided by the orders of BIFR and AAIFR as noted above. 8. Writ Petition No. 56251 of 2009 (Shamken Cotsyn Limited v. State of U.P. and Ors.) prays for quashing the notice dated 26th May, 2006 issued by Respondent No. 4 under Section 13(2) of the SARFAESI Act, 2002 a....
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....o. 9557 of 2007 has upheld the interpretation that in second proviso to Section 15 of the 1985 Act there has to be assignment of 75% to the value of the amount outstanding against financial assistance disbursed to the borrowers. (iv) Section 22 of the 1985 Act bars notice under Section 13(2) of the SARFAESI Act, 2002. Due to bar of Section 22 of the 1985 Act, no recovery proceeding could have been initiated against the Company, hence the notice under Section 13(2) of the SARFAESI Act, 2002 is without jurisdiction. The notice under Section 13(2) of the SARFAESI Act, 2002 being without jurisdiction, the bar of alternate remedy shall also not be applicable. (v)The question as to whether secured creditors represent not less than three-fourth value of the amount outstanding against the financial assistance disbursed to the borrowers as provided under Section 13(9) of the SARFAESI Act, 2002, is a question which has to be determined by the BIFR where the reference is pending and unless there is such adjudication reference cannot be treated to be abated nor it is open to take any action under Section 13(4) of the SARFAESI Act, 2002 by the secured creditors before such det....
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....creditors have been purchased by the asset reconstruction company or not. It is submitted that under the second proviso to Section 15 of the 1985 Act, there is no requirement of three-fourth of secured assets by an asset reconstruction company. It is, however, submitted that since in the present case the Respondent No. 4 has written consent of more than three-fourth of dues of secured creditors, under third proviso to Section 15 of the 1985 Act it is fully competent to take all recourse measures under Section 13(4) of the SARFAESI Act, 2002. Learned Counsel for the Respondent No. 4 has also placed reliance on various judgments of the High Courts as well as the Apex Court which shall be considered while considering the submissions in detail. 12. We have considered the respective submissions of learned Counsel for the parties and perused the record. 13. From the facts, as noticed above, it is clear that the submissions raised by learned Counsel for the Petitioner in first two writ petitions are common whereas in third writ petition, i.e. writ petition of Shamken Cotsyn Limited the reference before the BIFR having ultimately been rejected and no reference having been pending, th....
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....es, 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 filing application, appeal, revision, etc. and the particular legislation contains a detailed mechanism for redressal of his grievance. 46. It must be remembered that stay of an action initiated by the State and/or its agencies/ instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discha....
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.... 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 that if the Board of Directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company. (2) Without prejudice to the provisions of Sub-section (1), the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank may, if it has sufficient reasons to believe that any industrial company has become, for the purposes of this Act, a sick industrial company, make a reference in respect of such company to the Board for determination of the measures which may be adopted with respect to such company: Provided that a reference shall not be made under this Sub-section in respect of any industrial company by (a) the Government of any State ....
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....ue implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any. 1 Subs. by Act 12 of 1994, s. 11. 2 Subs. by s. 12, ibid. 3 Ins. by s. 12, ibid. 17 of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board: Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate. (4) Any declaration made under Sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law, ....
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....n writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under Sub-section (4). (3) ... (4) In case the borrower fails to discharge his liability in full within the period specified in Sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely: (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: PROVIDED that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: PROVIDED FURTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management o....
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....tor: PROVIDED ALSO that in case the secured creditor deposits the estimated amount of workmen's dues, such creditor shall be liable to pay the balance of the workmen's dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator: PROVIDED ALSO that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any. Explanation: For the purposes of this Sub-section,- (a) "record date" means the date agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding on such date; (b) amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor. 19. Section 35 of the SARFAESI Act, 2002 gives overriding effect to the provisions of the said Act. Section 35 of the SARFAESI Act, 2002 is quoted below: 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 oth....
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.... 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 SARFAESI Act, 2002. Thus if secured creditors representing three-fourth of the value decides to take any measure to recover its debt, the reference shall abate. For abatement in consequence to the measures taken in the aforesaid manner, neither any formal order is contemplated nor any adjudication is contemplated by third proviso. A Division Bench of the Bombay High Court in Writ Petition No. 358 of 2009 (Rama Shree Conductors Limited v. The Appellate Authority for Industrial and Financial Reconstruction and Ors.) decided on 12th September, 2009 has taken the view which supports the interpretation put by us. Following was laid down in paragraph 5 of the said judgment: 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 Financ....
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.... 23. Learned Counsel for Respondent No. 4 has submitted that even if it is assumed that second proviso to Section 15 of the 1985 Act is not to be pressed into service in the present case, the Respondent No. 4 has every right to take recourse of measures under Section 13(4) of the SARFAESI Act, 2002 by virtue of third proviso to Section 15 of the 1985 Act. In the counter affidavit filed by Respondent No. 4, it has been specifically pleaded in paragraph 14 that Respondent No. 4 has consent of three-fourth secured creditors in the value of the principal amount outstanding. The consent letters have been filed as Annexure CA-4 to the writ petition. Paragraph 14 of the counter affidavit is quoted below: 14. With reference to paras 29 & 30 of the writ petition, the contentions are denied as being false and misleading. This Respondent is having consent of three-fourth secured creditors in the value of the principal amount outstanding. The copies of the said consent letters from the other secured creditors are annexed hereto and marked as Annexure CA-4 (colly). 24. In paragraph 41 of the rejoinder affidavit, the specific pleading in paragraph 14 of the counter affidavit is not even de....
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....forcement of Security Interest Act, 2002 (54 of 2002), if no such action had been taken earlier under that Act: Provided further that any application made under the first proviso for seeking permission from the Debts Recovery Tribunal to withdraw the application made under Sub-section (1) shall be dealt with by it as expeditiously as possible and disposed of within thirty days from the date of such application: Provided also that in case the Debts Recovery Tribunal refuses to grant permission for withdrawal of the application filed under this Sub-section, it shall pass such orders after recording the reasons therefor. 25. The question came for consideration as to whether without withdrawing the application filed before the Debt Recovery Tribunal powers under Section 13(2) and 13(4) of the SARFAESI Act, 2002 can be invoked by the secured creditors under the SARFAESI Act, 2002. The Apex Court had laid down that withdrawal of the application pending before the Debt Recovery Tribunal is not a precondition for taking recourse under the NPA Act. In the said context, the Apex Court noted the object and purpose of the SARFAESI Act, 2002. It is relevant to quote paragraphs 61, 64 a....
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....ithdraw. We do not wish to spell out those circumstances because the said first proviso to Section 19(1) is an enabling provision, which provision may deal with my riad circumstances which we do not wish to spell out herein. 26. In view of the aforesaid, it is to be held that there is no illegality in the notice given under Section 13(2) of the SARFAESI Act, 2002 and the notice under Section 13(2) of the SARFAESI Act, 2002 cannot be held to be without jurisdiction. 27. Reliance has also been placed on the judgment of the Apex Court in the case of Maharashtra Tubes Ltd. (supra) by counsel for the Petitioner. The question which came up for consideration in the above case was as to whether the a financial corporation can take recourse to Sections 29 and 31 of the State Financial Corporation Act, 1951 notwithstanding the bar of Section 22 of the 1985 Act. The Apex Court considered the issue and held that both the Acts being special Acts and the 1985 Act being latter in point of time, the non-obstante clause in the 1985 Act shall override the non-obstante clause of the 1951 Act. Following was observed in paragraph 9 of the said judgment: 19. Having reached the conclusion that b....
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....n the present case since here the Acts which are under consideration are the 1985 Act and the SARFAESI Act, 2002. Both the Acts are special Acts containing non-obstante clause and on the proposition as laid down in Maharashtra Tubes Ltd. case (supra), the SARFAESI Act, 2002 has to be given overriding effect. 29. The learned Counsel for the Respondents is further right in her submission that in the event any measure is taken by Respondent No. 4 under Section 13(4) of the SARFAESI Act, 2002 and the Petitioner has still grievance that the said action is not supported by the secured creditors representing three-fourth of the value of the principal amount due against the borrowers, the remedy of the Petitioner is to proceed under the provisions as contemplated in the SARFAESI Act, 2002, i.e. by taking recourse to Section 17 of the SARFAESI Act, 2002. 30. In United Bank of India v. Satyawati Tondon's case (supra), the Apex Court was considering a case where action taken by the secured creditors under Section 13 of the SARFAESI Act, 2002 was challenged in a writ petition under Article 226 of the Constitution of India. The Apex Court held that if the Respondent had any grievance ....
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.... Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection. 56. Insofar as this case is concerned, we are convinced that the High Court was not at all justified in injuncting the Appellant from taking action in furtherance of notice issued under Section 13(4) of the Act. In the result, the appeal is allowed and the impugned order is set aside. Since the Respondent has not appeared to contest the appeal, the costs are made easy. 31. Another submission, which has been pressed by the learned Counsel for the Petitioner, is that the claim which was made by Respondent No. 4 by giving notice under Section 13(2) of the SARFAESI Act, 2002, was waived and abandoned by Respondent No. 4 itself since it did not proceed to take action under Section 13(4) of the SARFAESI Act, 2002 and in view of giving its consent for scheme, which was presented before the Company Judge of this Court by application under Sections 391-394 of the Companies Act, its claim has to be treat....
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.... that the Company Court would have no jurisdiction to entertain the application, which was moved under Sections 391-394 of the Companies Act, which it entertained. Applying the law laid down earlier, the impugned order would be a 'judgment' within the meaning of Rule 5 Chapter VIII of the Allahabad High Court Rules. The order has been passed by a Court without jurisdiction and, considering the law declared by the Supreme Court in Midnapore People's Coop. Bank Ltd. (supra), the special appeals, as filed, are maintainable. 15. Considering the aforesaid findings, the special appeals, as filed by the Bank, will have to be allowed. Accordingly, they are allowed. The impugned orders passed by the learned Single Judge are set aside. The Company Applications filed under Sections 391-394 of the Companies Act, are dismissed. 33. A waiver is an international relinquishment of a known right as was observed by the Apex Court while defining the word 'waiver' in the case of Associated Hotels of India Ltd. v. S.B. Sardar Ranjit Singh reported in A.I.R. 1968 SC 933 (At 937). No material has been brought on the record by the Petitioner to indicate that there is any communic....