TaxTMI 
TaxTMI 
2024 (7) TMI 452
X X X X Extracts X X X X
X X X X Extracts X X X X
....jendra Soni, AAG with Ms. Archana, Mr. Yashodhar Pandey, Mr. Jaivardhan Singh for Mr. R.P. Singh, AAG Ms. Nidhi Khandelwal JUDGMENT ( Per Hon'ble the Chief Justice ) : 1. Instant appeal is directed against the order dated 18.03.2010 passed by the learned Single Judge, whereby writ petition filed by the appellant-company, in the matter of challenge to the order dated 12.01.2009 of the Appellate Authority for Industrial and Financial Reconstruction (hereinafter referred to as 'AAIFR') as also the order dated 21.05.2007 passed by the Board of Industrial and Financial Reconstruction (hereinafter referred to as 'BIFR'), has been dismissed. Relevant factual matrix of the case : 2. Relevant facts for adjudication of the controversy involved in this case are that the appellant No.1 is a company incorporated under the Companies Act and appellant No.2 is the promoter. The case of the appellant/writ petitioner was that the appellant company was incorporated in joint sector with the Rajasthan State Industrial Development and Investment Corporation (hereinafter referred to as 'RIICO') for manufacturing and sale of cement. For the purposes of incorporation and commencement of the produc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gistrate to take possession of the land, could not be given effect to. 4. In the meanwhile, the lead financial institution i.e. IDBI assigned the entire debts owned by the appellant-company to M/s. Raghupati Cement Private Limited under two separate loan agreements in the month of January, 2007. On 01.03.2007, the BIFR issued a fresh show cause notice for winding up of the appellant-company. M/s. Raghupati Cement Private Limited also moved an application before BIFR for substitution in place of IDBI. M/s. Raghupati Cement Private Limited filed an appeal before the AAIFR, wherein an interim order was passed on 18.09.2007. In that appeal, appellant-company moved an affidavit in support of the appeal and prayed for restraining BIFR to take steps towards winding up of the appellant-company. 5. At this stage, an application was moved for abatement of reference in view of the provisions under Section 15(1) of the SICA, which was allowed vide impugned order dated 12.01.2009 declaring that the proceedings, in the matter of rehabilitation of the appellant-company pending before the BIFR, had abated per force law. The aforesaid order came to be challenged by filing writ petition. 6. Befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he AAIFR in allowing the application and declaring the entire reference proceedings as abated. It was also submitted that the sick company had been given repeated chance of revival, but as it failed to fulfill the condition, an order for liquidation was passed and therefore, notice towards winding up was issued. As M/s. Asset Care Enterprise Limited was the secured creditor as defined under Section 2(zd) of the SARFAESI Act, the application filed under Section 15(1) of the SICA was maintainable under the law. M/s. Asset Care Enterprise Limited was the only secured creditor, which initiated proceedings to recover the debt under the SARFAESI Act. M/s. Raghupati Cement Private Limited was not the secured creditor as defined under Section 2(zd) of the SARFAESI Act. It was also the case of the respondent that as the writ petition was filed challenging the show cause notice dated 16.02.1994, but that notice was not acted upon and a fresh show cause notice was issued for winding up of the company on 01.03.2007, therefore, revival of the writ petition in the matter of challenge to the show cause notice dated 18.02.1994 in which an interim order was passed, would not affect the proceedings ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y the appellant-company, the order passed by the AAIFR declaring that reference proceedings pending before BIFR had abated, is in accordance with law. 12. Assailing correctness and validity of the order passed by the learned Single Judge, the instant appeal has been filed. Submissions on behalf of appellant: 13. Learned Senior Counsel appearing on behalf of the appellant would argue that the appellant had filed Writ Petition No.1071/1994 assailing notice dated 16.02.1994 regarding winding up proceedings wherein interim order was passed on 25.02.1994. Though, the writ petition was dismissed in default on 30.01.2004 and restoration application had also been rejected on 01.03.2007, on SLP being filed before the Hon'ble Supreme Court while issuing notice on 30.03.2007, notice on interim relief was also issued which was duly communicated to BIFR to stay hand till decision in the SLP, but that prayer was illegally rejected. As Hon'ble Supreme Court passed order dated 06.08.2007 restoring the writ petition, interim order, which was earlier passed on 25.02.1994, stood revived. He would further point out that in view of the interim order which was passed on 25.02.1994 in Writ Petition N....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... any measure to recover their secured debt under Sub-section (4) of Section 13 of the SARFAESI Act as per law. Where measure under Sub-section (4) of Section 13 has been taken in violation of the provisions of the SARFAESI Act, the consequence of abatement as provided under the law would not ensue. The AAIFR, while declaring that the reference proceedings have abated, failed to properly construe the provisions contained in the third proviso to Sub-section (1) of Section 15 of the SICA. 17. Next submission of the learned counsel for the appellant is that the AAIFR, while deciding the application, did not decide specific objection taken by the appellant that AAIFR could not have undertaken the exercise of examining whether reference proceedings have been abated or not. In fact, application for declaration that the reference proceedings have abated was not maintainable directly before the AAIFR as that aspect could be examined only by the BIFR. Objections in this regard were not examined by the AAIFR. The AAIFR usurped the jurisdiction of the BIFR in deciding that the reference proceedings have abated thereby depriving the appellant of its valuable right of appeal to AAIFR. 18. Last....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... would next contend that though M/s. Raghupati Cement Private Limited had filed petition against the order dated 12.01.2009 of the AAIFR, by which declaration of abatement of reference proceedings were ordered, later on, it withdrew its petition. As the impugned order dated 12.01.2009 was passed by the AAIFR in an appeal filed by M/s. Raghupati Cement Private Limited, the writ petition filed by the appellant was not maintainable as appellant had not preferred any appeal against the order dated 21.05.2007 of the BIFR. Referring to possession notice (Annexure-R/8 filed with return), it is submitted that the outstanding amount is clearly stated as Rs.52,84,08,000/- as on 30.09.2007. He would submit that M/s. Asset Case Enterprise Limited having acquired the debts of various financial institutions, thus, acquired the legal status of a secured creditor representing not less than 3/4th in value of the amount outstanding against the financial assistance disbursed to the appellant by financial institutions. He would further submit that M/s. Assets Care Enterprise Limited had also issued demand notice under Section 13(2) of the SARFAESI Act clearly stating that the account has become N.P.A.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Private Limited by filing an appeal before AAIFR and no appeal was filed by the appellant-company, it could neither challenge the winding up order nor any other order passed in appeal including an order declaring abatement of reference proceedings. His argument is that the appellant having not challenged the winding up order dated 21.05.2007, it is precluded from assailing order passed by the AAIFR in appeal, more so when M/s. Raghupati Cement Private Limited withdrew its petition in the matter of challenge to AAIFR order dated 12.01.2009. He would further submit that interpretation of third proviso to Sub-section (1) of Section 15 of the SICA assailed by the appellant is against the express provision of law. Learned Senior Counsel for respondent No.4 further argued that in any case, in view of repeal and saving clause as contained under Section 42 of the SARFAESI Act, any pending reference, as also, reference proceedings before the BIFR attained its natural demise. Referring to provisions of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (hereinafter referred to as 'SIC Repeal Act of 2003'), he would submit that all reference proceedings irre....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... conclusion was arrived at that the company had become non-viable in the long run and it is not possible to rehabilitate. The BIFR, therefore, opined that it would be just, equitable and in public interest that the appellant-company should be wound up. The next meeting was fixed on 30.05.1994 for hearing objections/suggestions, if any, against the proposed action of winding up of the company. Accordingly, notices were issued. At this stage, the appellant-company and its promoter, Mr. U.S. Sitani, filed Writ Petition No. 1071/1994 wherein an interim order came to be passed on 25.02.1994 that notification for liquidation of the company shall not be published. However, the writ petition was, later on, dismissed for want of prosecution. Application for restoration of the writ petition was also dismissed for want of prosecution vide order dated 01.03.2007, which order was assailed by filing SLP before the Hon'ble Supreme Court. 23. The undisputed facts on record are that in the interregnum period, notice issued on 16.02.1994 was also subsequently cancelled by the BIFR on 07.04.1994. The BIFR, however, again proceeded with the matter and in its hearing on 01.03.2007, it formed an opin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gh Court along with copy of all orders and proceedings. 24. Though, Writ Petition No. 1071/1994 was dismissed for want of prosecution and restoration application was also rejected on 01.03.2007, the appellant-company approached the Hon'ble Supreme Court by filing SLP. The said SLP was finally allowed on 06.08.2007 and Writ Petition No. 1071/1994 was restored and the case was remanded back for reconsideration. It appears that the fact that in the meantime, notice dated 16.02.1994 was itself cancelled on 07.04.1994 and the aforesaid writ petition had otherwise become infructuous, was not brought to the notice of the Hon'ble Supreme Court. Moreover, there is nothing on record to show that issuance of fresh notice on 01.03.2007 and its confirmation on 21.05.2007 for proceeding to wind up the company was informed to the Hon'ble Supreme Court. It is also not in dispute that in the pending Writ Petition No. 1071/1994, neither notice dated 01.03.2007, nor order dated 21.05.2007 were assailed. The aforesaid writ petition came to be finally dismissed on 03.04.2018 by clearly observing that notice dated 16.02.1994 having already been cancelled by the BIFR on 07.04.1994 and subsequent notice ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing No.281/2010. This judgment would, however, not curtail rights of the petitioner company, if wants to challenge the show cause notice and the order dated 21st May, 2007." It is not the case of the appellant that order dated 03.04.2018 passed in Writ Petition No. 1071/1994 was assailed before the Hon'ble Supreme Court or any review petition was filed. Therefore, order dated 03.04.2018 passed in Writ Petition No. 1071/1994, having attained finality, in these proceedings, the appellant cannot be heard saying that revival of Writ Petition No. 1071/1994 and interim order dated 25.02.1994 had the effect of restraining the BIFR or the AAIFR to proceed further in the matter. As a matter of fact, order dated 21.05.2007 passed by the BIFR was assailed by filing an appeal, not by the appellantcompany, but by M/s. Raghupati Cement Private Limited before the AAIFR. The proceedings before the AAIFR were appellate proceedings wherein legality and validity of order dated 21.05.2007 passed by the BIFR were assailed. If notice dated 01.03.2007 and order dated 21.05.2007 were not eclipsed by pendency of Writ Petition No. 1071/1994, it is difficult to accept that appellate proceedings arising out....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 27. We shall now advert to the main submission advanced by learned counsel for the appellant that in the facts and circumstances of the present case, third proviso to sub-section (1) of Section 15 of the SICA, as amended, is not attracted and, therefore, there was no abatement of the proceedings of reference followed by sanction of rehabilitation scheme. To appreciate this submission, we consider it apposite to refer to the relevant provision, which is extracted hereinbelow: "15. Reference to Board.-(1) Where an industrial company has become a sick industrial company, the Board of Directors of the company shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company: Provided 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovides that no reference shall be made to the BIFR after the commencement of the SARFAESI Act where financial assets have been acquired by any securitisation company or reconstruction company under sub-section (1) of Section (5) of that Act. Third proviso to sub-section (1) of Section 15 of the SICA provides that on or after the commencement of the SARFAESI Act, where reference is pending before the BIFR, such reference shall abate if the secured creditors, representing not less than threefourth in value of the amount outstanding against financial assistance disbursed to the borrower of such creditors, have taken any measures to recover their secured debt under sub-section (4) of Section 13 of the SARFAESI Act. 28. A close analysis and interpretation of third proviso to subsection (1) of Section 15 of the SICA would reveal that where secured creditors take any measure to recover their secured debt under the provisions of the SARFAESI Act, as provided therein, the reference shall abate by operation of law. The abatement would follow as necessary consequence under the law where the secured creditors represent not less than three-fourth of the amount outstanding. Therefore, it is vi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h M/s. Raghupati Cement Private Limited has also purchased loan liability of the appellant-company insofar as financial assistance provided by IDBI and PNB is concerned, there is nothing on record, much less, established from any pleadings or documents of the appellant that M/s. Raghupati Cement Private Limited is covered by the definition of secured creditor as defined in clause (zd) of sub-section (1) of Section 2 of the SARFAESI Act. This is because it is neither bank or financial institution, nor an asset reconstruction company, nor debenture trustees appointed by any bank or financial institution, much less, covered under the definition of trustees holding securities on behalf of a bank or financial institution. It was admittedly only an asset reconstruction company which, for the purpose of third proviso to sub-section (1) of Section 15 of the SICA, is included in the definition of secured creditor. Now, if we look into the provisions contained in third proviso to sub-section (1) of Section 15 of the SICA, what is of significance is that secured creditors must be representing not less than three-fourth in value of the amount which was outstanding against financial assistance ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ditor or creditors takes/take measures to recover their secured debt, abatement of the proceedings would follow. 32. The legislative scheme, after enactment of the SARFAESI Act and consequential amendment by addition of two provisos in subsection (1) of Section 15 of the SICA, reveals interplay between the scheme of revival of a sick company and at the same time, protecting the interest of secured creditors. The legislative scheme seeks to strike balance between the interest of a borrower and the interest of a secured creditor. The scheme of revival through reference proceedings under the SICA has to yield to interest of the secured creditors in certain circumstances and on fulfillment of certain conditions expressly mentioned in the third proviso to subsection (1) of Section 15 of the SICA. The legislative scheme is, thus, clear that in certain circumstances and on fulfillment of certain conditions, overriding effect has been given to enforce secured interest of secured creditors. Interpretation of the provisions as suggested by learned counsel for the appellant would frustrate the object of the enactment and will not only be against literal construction, but also frustrate the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator: 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 [sixty per cent.] 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 credi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Companies (Special Provisions) Act, 1985." 35. Another submission of learned counsel for the appellant that third proviso to sub-section (1) of Section 15 of the SICA would be attracted only when rehabilitation scheme has been framed and not when the proceedings have travelled beyond the stage of reference and the rehabilitation scheme is sanctioned, cannot be accepted and has to be rejected in view of what has been held by the Hon'ble Supreme Court in the aforesaid case of Madras Petrochem Limited & Another Vs. Board for Industrial and Financial Reconstruction & Others (supra). The observations made by the Hon'ble Supreme Court in this regard read thus: "49. Question 2 arises on the facts of this case because of a conflict between the High Courts on the interpretation of Section 15(1) proviso 3. A large number of High Courts have, in judgments differing in detail only, taken the broad view that the expression "where a reference is pending" under Section 15(1) proviso 3 would include all proceedings before BIFR right till the stage of the successful culmination of a scheme for reconstruction or the recommendation for winding up of the sick industrial company. These High Courts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... see that no proceedings against the assets are taken before BIFR decides, after the inquiry, to continue with the reference. It was thus held, having particular regard to Section 16(3) Explanation, that an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its knowledge reduced to writing by the Board. This being the case, this Court held that once the reference is registered and once it is mandatory to simultaneously call for information/documents from the informant, then an inquiry under Section 16 must be deemed to have commenced. In that view of the matter, Section 22 would immediately come into play. It is clear, therefore, that if a literal meaning were to be applied to the expression "where a reference is pending", the third proviso to Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 would be rendered otiose and the purpose for which it was inserted would completely fail. On a literal reading of the provision, such reference shall abate on steps being taken by the secured creditors to recover their secured debts under Section 13(4) of the Securitisation and Reconstruction of Financial ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....so to Section 15 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985. And that is that a reference which is pending in the sense understood hereinabove shall abate if the secured creditors of not less than 3/4th in value of the amount outstanding against the financial assistance disbursed to the borrower, have taken measures to recover secured debts under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. It is clear that the third proviso to Section 15(1) seeks to strike a balance between getting a sick industrial company out of the woods and secured creditors being able to recover the debt owed to them by such company. The legislature has thought it fit to annul all proceedings before BIFR only when at least 3/4th of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors have taken the measures listed in Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The balance is, therefore, struck by the figure of "not less than 3/4th". The legislature has inserted this provision so t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y. 4. Where, under Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, in the case of a sick industrial company having more than one secured creditor or being jointly financed by secured creditors representing 60% or more in value of the amount outstanding as on a record date wish to exercise their rights to enforce their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, being inconsistent with the exercise of such rights, will have no play. 5. Where secured creditors representing not less than 75% in value of the amount outstanding against financial assistance decide to enforce their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, any reference pending under the Sick Industrial Companies (Special Provisions) Act, 1985 cannot be proceeded with further-the proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 will abate." Therefore, the view which we have taken her....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndia P. Ltd. Vs. Shamken Spinners Ltd. & Ors. (W.P. (C) No. 9557/2007 decided by Delhi High Court on 22.11.2010); and Global Infrastructure Technologies Limited v. Kotak Mahindra Bank Limited & Others, 2014 SCC OnLine Del 1502 do not come to the aid of the appellant to support its case. 38. In the cases of Oman International Bank S.A.O.G. v. Appellate Authority for Industrial and Financial Reconstruction (supra) and Asset Reconstruction Co. India [2023:RJ-JP:41451-DB] (40 of 42) [SAW-281/2010] P. Ltd. Vs. Shamken Spinners Ltd. & Ors. (supra), Delhi High Court dealt with interpretation of second proviso to Section 15(1) of the SICA. Order passed in the case of Global Infrastructure Technologies Limited v. Kotak Mahindra Bank Limited & Others (supra) was set aside by the Hon'ble Supreme Court. In the case of Usha Sinha Vs. Dina Ram & Others (supra), the issue which arose for consideration before the Hon'ble Supreme Court was with regard to execution of an ex-parte decree. The decision of the Hon'ble Supreme Court in the case of Mardia Chemicals Ltd. & Others Vs. Union of India & Others (supra) also does not support the case of the appellant insofar as issue of abatement under the sc....