Kerala High Court
M/S Emtex International Ltd vs Union Of India
Author: P.V.Asha
Bench: P.V.Asha
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT:
THE HONOURABLE SMT. JUSTICE P.V.ASHA
FRIDAY, THE 16TH DAY OF DECEMBER 2016/25TH AGRAHAYANA, 1938
WP(C).No. 11400 of 2009 (T)
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PETITIONER(S):
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M/S EMTEX INTERNATIONAL LTD.,
DIWANS ROAD, ERNAKULAM, COCHIN -16,
REP.BY MANAGING DIRECTOR,
DR.VARGHESE MUNDACKAL.
BY DR.VARGHESE MUNDAKKAL (PARTY-IN-PERSON).
RESPONDENT(S):
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1. UNION OF INDIA, REP. BY SECRETARY,
MINISTRY OF COMMERCE AND BANKING,
NEW DELHI.
2. BOARD FOR INDUSTRIAL & FINANCIAL RECONSTRUCTION,
TOLSTOY MARG -1, NEW DELHI- 110 001.
*3. RESERVE BANK OF INDIA, NEW DELHI. (CORRECTED)
* THE ADDRESS OF R3 IS CORRECTED AS
RESERVE BANK OF INDIA,
REP.BY GOVERNOR OF RESERVE BANK OF INDIA,
S.B.S. MARG, BOMBAY-400 001.
AS PER ORDER DATED 25/06/2009 IN I.A. NO.7513/2009.
4. THE CHAIRMAN & MANAGING DIRECTOR,
FEDERAL BANK LTD., HEAD OFFICE, ALWAYE.
.....2/-
-: 2 :-
WP(C).No. 11400 of 2009 (T)
** ADDL. R5 IMPLEADED
5. POST MASTER, SPEED POST CENTRE,
ERNAKULAM, KOCHI-682 011.
** ADDL. R5 IS IMPLEADED AS PER ORDER DATED 13/10/2009 IN
I.A. NO.9777/2009.
R1, R2 & ADDL. R5 BY SRI.N. NAGARESH, ASST. S.G. OF INDIA.
SRI.T.SANJAY,CGC.
R4 BY ADV. SRI.M.G.KARTHIKEYAN.
BY ADV. DR.VINCENT PANIKULANGARA.
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD
ON 16-12-2016, THE COURT ON THE SAME DAY DELIVERED
THE FOLLOWING:
rs.
WP(C).No. 11400 of 2009 (T)
APPENDIX
PETITIONER'S EXHIBITS:-
EXT.P1 COPY OF THE ORDER DATED 13/02/2002 ISSUED BY THE BIFR
DECLARING EMTEX INTERNATIONAL LTD. AS SICK AND ORDER
FOR REVIVAL DIRECTING FEDERAL BANK.
EXT.P2 COPY OF THE LETTER DATED 20/09/2000 OF PETITIONER TO
4TH RESPONDENT.
EXT.P3 COPY OF THE LETTER OF REVIVAL PROPOSAL DATED 10/04/2003
OF PETITIONER TO 4TH RESPONDENT.
EXT.P4 COPY OF THE PETITION FOR LEAVE TO PROCEED WITH
RECOVERY DATED 03/01/2005 PRESENTED TO BIBR BY
4TH RESPONDENT.
EXT.P5 COPY OF THE CERTIFIED COPY OF THE POSTAL COVER OF THE SAID
COMMUNICATION OF BIFR SHOWING THE DATE OF
DISPATCH 25/07/2007.
EXT.P6 COPY OF THE EXPARTE ORDER DATED 17/07/2007 BY THE BIFR
DEREGISTERING THE CASE NO.76/2000.
EXT.P7 COPY OF THE PETITION DATED 09/01/2009 FILED BY PETITIONER
BEFORE BIFR TO RECALL SUO MOTU THE EXPARTE ORDER.
EXT.P8 COPY OF THE LETTER OF BENCH OFFICER OF BIFR
DATED 10TH FEBRUARY 2009.
EXT.P8A COPY OF THE LETTER OF SPEED POST CIRCLE ERNAKULAM
DATED 22/07/2009.
EXT.P9 COPY OF THE WHICH GO ORDER DATED 21/05/1990.
EXT.P10 COPY OF THE LETTER DATED 18/06/1997 ADDRESSED TO BANK.
EXT.P11 LETTER ADDRESSED TO BANK PER FAX DATED 10/02/1998
FROM SWITZERLAND.
EXT.P12 COPY OF THE ORDER DATED 17/08/2000 BIFR.
EXT.P13 DEMAND NOTICE DATED 24/04/2002 OF DRT.
.....2/-
WP(C).No. 11400 of 2009 (T)
EXT.P13A PAPER PUBLICATION DATED 24/09/2003 IN DRC NO.719 IN
OA NO.46/99 OF DRT.
EXT.P14 COPY OF THE LETTER OF EUROPE COSMETIQUE DATED 10/12/2001.
EXT.P14A COPY OF THE LETTER EUROPE COSMETIQUE DATED 09/07/2002.
EXT.P14B COPY OF THE AIRFREIGHT INVOICE DATED 22/03/2002.
EXT.P14C SAMPLES PRODUCED AND TESTED FOR EXPORT TO EUROPE.
EXT.P14D COPY OF THE TEST RESULT DATED 13/09/2002 TEXTILES EN BIAS
FRANCE.
EXT.P15 COPY OF THE LETTER ADDRESSED TO CHAIRMAN, FEDERAL BANK
DATED 20/09/2000 V/N NO.311.
EXT.P15A COPY OF THE LETTER DATED 20/09/2000 NO.V/N 310 TO
DY.GENERAL MANAGER, FEDERAL BANK.
EXT.P16 COPY OF THE ONE TIME SETTLEMENT PROPOSAL DATED 22/10/2008
COUNTER SIGNED BY BANK MANAGER TO PRESENT BEFORE THE
BOARD FOR APPROVAL.
EXT.P17 COPY OF THE LETTER DATED 07/01/2009 ADDRESSED TO RBI.
RESPONDENT'S EXHIBITS:-
EXT.R2A COPY OF THE APPLICATION DATED 03/01/2005.
EXT.R2B COPY OF THE NOTICE DATED 19/06/2007.
EXT.R2C COPY OF THE PROCEEDINGS OF THE HEARING HELD IN THE BIFR.
EXT.R2D COPY OF THE DISPATCH RECORD DATED 22/06/2007.
EXT.R2E COPY OF THE POSTAL REMARKS.
EXT.R2F COPY OF THE LETTER DATED 10/02/2009.
EXT.R4A COPY OF THE REQUEST DATED 28/09/2001 SUBMITTED BY THE
PETITIONER TO THE 4TH RESPONDENT.
....3/-
WP(C).No. 11400 of 2009 (T)
EXT.R4B COPY OF THE COMMUNICATION DATED 28/02/2002 ISSUED BY THE
BANK TO THE MANAGING DIRECTOR OF THE PETITIONER COMPANY.
EXT.R4C COPY OF THE MINUTES OF THE MEETING DATED 02/09/2002.
EXT.R4D COPY OF THE PETITION DATED 03/01/2005 FILED BEFORE THE
BOARD FOR INDUSTRIAL AND FINANCIAL RECONSTRUCTION,
NEW DELHI BY THE PETITIONER.
EXT.R4E COPY OF THE PHOTOS OF THE NOTICE.
EXT.R4F COPY OF THE MAHAZAR DATED 20/09/2008 PREPARED BY THE
VILLAGE OFFICER, ERNAKULAM.
EXT.R4G COPY OF THE MAHAZAR DATED 27/11/2008 PREPARED BY THE
VILLAGE OFFICER, KOTHAMANGALAM.
EXT.R4H COPY OF THE REQUEST AND UNDERTAKING DATED 20/09/2008
GIVEN TO THE 4TH RESPONDENT.
//TRUE COPY//
P.S.TO JUDGE
rs.
P.V.ASHA, J.
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W.P(C) No.11400 of 2009-T
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Dated this the 16th day of December, 2016
JUDGMENT
The petitioner M/s.Emtex International Ltd. is challenging the de-registration ordered by the 2nd respondent - Board for Industrial & Financial Reconstruction (hereinafter referred to as the `BIFR' for short) in Ext.P6, on the ground that it is vitiated by fraud as it was ordered before the notice intimating the date of hearing was dispatched. Further contention is that once the petitioner company was declared `sick', the BIFR has no jurisdiction to order de-registration and permit the creditor bank to proceed for recovery. According to the petitioner, the notice of hearing was sent from the office of the BIFR only after the hearing was over and orders were passed and therefore, the order of the BIFR is vitiated by fraud and hence it is liable to be declared null and void.
2. According to the petitioner, it is a public limited company with equity participation of Kerala State Industrial Development Corporation; it was registered under the W.P(C) No.11400 of 2009-T 2 Companies Act and it was engaged in the manufacture of cotton textiles and ready made garments; its project was financed by the Federal Bank-the 4th respondent; but the project failed since the Government refused to provide supply of power; since the unit could not be functioned, the orders secured by it got cancelled; on account of the financial crisis, the company could not repay the loan and the bank initiated coercive steps; even though its obligation for repayment arose only after regular commercial production was started, the 4th respondent Bank initiated proceedings for recovery well before that. It is also alleged that the financial crisis of the petitioner's industrial company is contribution of the bank, apart from that of KSEB, Government, etc.
3. The Bank filed O.A. 46 of 1999 before the Debt Recovery Tribunal, Ernakulam ('DRT' for short)on 14.1.1999. When the O.A was pending, the petitioner approached the BIFR with an application to declare the company as sick and for revival of the same. The 4th respondent was permitted to continue with the proceedings in the suit on condition that execution/recovery proceedings shall be taken only after getting permission of the BIFR.
W.P(C) No.11400 of 2009-T 3
4. Ext.P1 proceedings dated 13.2.2002 in case no.76 of 2000 of the BIFR would show that, the petitioner was declared as a sick company and the 4th respondent the Federal Bank, was appointed as the co-ordinating agency directing to formulate a revival scheme. It would also show that the BIFR had noticed the absence of the petitioner and the dispute of the Bank regarding the number of employees under the petitioner. Taking into account the willingness of the Bank to attempt for a rehabilitation Scheme, the BIFR on 13.2.2002, directed the 4th respondent to issue an advertisement for change of management of the company within 2 weeks and to submit a report within a further period of four weeks after receiving the responses.
5. The Bank, thereafter filed Ext.P4 petition dated 3.1.2005 seeking the permission of the BIFR to proceed with the recovery based on the recovery certificate issued by the DRT on 4.3.2002 allowing it to recover Rupees (Rs.44578944.65) Four crore forty five lakhs seventy eight thousand nine hundred and forty four paise sixty five only along with interest. In the hearing held on 17.7.2007, the BIFR again noticed the absence of the petitioner and after hearing the 4th respondent Bank, KSEB and other parties found that the petitioner's unit was already closed W.P(C) No.11400 of 2009-T 4 and it had not engaged any workers during the last several years and hence it ceased to be an industrial undertaking. The reference filed by the petitioner was accordingly de-registered.
6. This writ Petition was filed on 30.3.2009, challenging the proceedings Ext.P6 with respect to the orders passed by BIFR on 17.7.2007. The contention of the petitioner is that the respondent bank had filed Ext.P4 petition without serving a copy of it to the petitioner; on such a petition, the BIFR, without serving an advance copy or notice to the petitioner, ordered de- registration, without jurisdiction; the BIFR did not have any jurisdiction to order de-registration or to allow the 4th respondent Bank to proceed with proceedings for recovery. Producing the certified copy of the postal cover Ext.P5, the petitioner contends that the postal stamp affixed on the cover enclosing the notice sent to the petitioner from the BIFR, would reveal that the notice informing the date of hearing scheduled on 17.7.2007 was dispatched only on 25.07.2007. The petitioner submits that the Bank managed to obtain an ex-parte order by playing fraud. It is alleged that the respondent/bank managed to obtain the impugned order of de-registration by manipulation with the connivance of the staff of the BIFR and playing fraud by W.P(C) No.11400 of 2009-T 5 ensuring that notice of hearing was dispatched to it only after the hearing of the case was over. Accordingly it was only after the hearing was held and order was passed on 17.7.2007, that the notice of hearing was posted on 25.07.2007 to the address of the petitioner in Ernakulam; it was returned to the office of the BIFR as the petitioner was out of station at the relevant time. According to the petitioner, when it came to know about it on 1.1.2009, its Managing Director flew from Switzerland to Delhi on 31.12.2008 and obtained copies of the orders relating to the case of the petitioner, he got the certified copies of the proceedings for communication and from those certified copies, it is clear that it was dispatched only after the hearing was over. It is also alleged that the bank officials intimidated the petitioner without even serving a copy of the order. Therefore, it is alleged that Ext.P6 order dated 17.7.2007 de-registering the company is null and void.
7. The petitioner further stated that immediately after filing the application, the BIFR had directed the management to discuss the matter with the 4th respondent bank in order to settle the issues and for the purpose of revival; though the petitioner approached the Bank as per Ext.P2 letter on 20.09.2000, the W.P(C) No.11400 of 2009-T 6 bank did not respond to that letter. Thus according to the petitioner, the bank itself sabotaged the revival scheme to their advantages since they were very well aware of the fact that they would be compelled to write off the entire interest due to it and repayment would be automatically extended, in tune with the directives of the Reserve Bank of India. Subsequent to the issuance of Ext.P1 order by the BIFR also, the bank did not take any steps in tune with its undertaking before the BIFR even after several requests made by the petitioner, including suggestions for one time settlement.
8. In effect the case of the petitioner is that Ext.P6 order of de-registration was passed without issuing notice to the petitioner in accordance with law and without affording him an opportunity of hearing and is vitiated by fraud. Hence it is liable to be set aside. The petitioner submits that he had filed Ext.P7 petition dated 09.01.2009 in order to recall the exparte order.
9. The 4th respondent filed a counter affidavit stating that the 4th respondent had granted various credit facilities to the petitioner company for installation of plant and machinery in 1994 and 1995 by way of 2 term loans of Rs.20 lakhs and Rs.170 lakhs and a PCL of Rs.12 lakhs, which was enhanced to Rs.80 W.P(C) No.11400 of 2009-T 7 lakhs on 18.01.1996 apart from another limit of Rs.89 lakhs. It further states that anticipating power problem in Kerala, in- house generator was envisaged in the project. Since the project could not be completed in time, the bank rescheduled the term loan granted on 30.09.1996. Even though the bank had extended all facilities for the project, since there was no improvement, the bank had no other alternative than to classify the accounts as NPA and proceed to file a suit before the DRT on 14.1.1999. In the meanwhile there were disputes in between the directors, on account of which there were several litigations also. The request of the bank to the directors to sort out a viable plan to settle the liabilities did not evoke any positive result. The petitioner had filed application before the BIFR only on 24.12.1999. On 13.2.2002, when the Board had, by Ext.P1, declared the company as sick, the Board had noticed that the absence of the petitioner despite the service of notice, indicated its unwillingness to revive the company. However it appointed the bank as the coordinating agency. According to the bank, the Managing Director Sri Varghese Mundackal himself had in Ext.R4(a) letter on 28.09.2001 sought for a one time settlement of this loan by remitting a sum of Rs.3 crores, in which he stated W.P(C) No.11400 of 2009-T 8 that the bank was kind enough to bear with him in his effort to revive the unit. He had also stated that the petitioner was not interested in a revival package as it would take several years for finalisation; on the basis of his request the Bank had taken a decision to accept a sum of Rs.3,05,00,000/- in full settlement in case it was remitted before 31.03.2002 and Ext.R4(b) letter was sent to the Managing Director. Further it is stated that the bank was very much interested in the rehabilitation of the company and was taking up keen follow up action as the coordinating agency. At the same time, the Managing Director Sri Varghese Mundackal was always in Switzerland. The bank has produced Ext.R4(c) minutes of the meeting held on 2.9.2002 by the branch manager and the then A.G.M with Sri Varghese Mundackal when he informed the bank that there was a prospective buyer for the company. But even after a long time, the revival did not materialize due to the non cooperation of the petitioner. Moreover, the petitioner did not have any complaint against the Bank regarding any inaction for the revival. Regarding the allegations against the de-registration, it is stated that the Bank had sent copy of Ext.P4 petition filed before the BIFR to the company by registered post which was returned with the W.P(C) No.11400 of 2009-T 9 endorsement "addressee left"; the officials of the bank had also personally gone to the registered office of the company on 14.01.2005 in order to serve the copy of the petition; but the notice could not be served since there was nobody in the office and hence the notice dated 3.1.2005 was affixed on the wall of the registered office in presence of 2 witnesses; it was after producing the report of the affixture along with Ext.R4(d) that the matter was heard by the BIFR and the BIFR issued orders granting leave to the bank to proceed with the recovery proceedings, which is very well within the powers of the BIFR under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (`SICA' for short). The D.R.T had already issued a recovery certificate and based on that the demand notice was served on the petitioner on 4.3.2002. In Ext.P6 BIFR found that that the unit was not engaging any workers for the past several years and there was a full closure and it ceased to be an industrial undertaking. It was accordingly that the company was de-registered.
10. The BIFR has filed a counter affidavit, pointing out that the petitioner was not present for the hearing held on 13.2.2002. After the 4th respondent Bank filed Ext.P4 petition, W.P(C) No.11400 of 2009-T 10 the BIFR issued notice on 26.6.2007 fixing the date of hearing on 17.7.2007, to the petitioner and other parties by speed post. It has produced the copy of the notice along with the receipt in respect of the notice sent to the petitioner by Speed Post, as Ext.R2(b). It has produced the copy of the dispatch record also as Ext.R2(d). The dispatch record of the summary of proceedings of 17.7.2007, sent to the petitioner on 25.7.2007 and returned undelivered is also produced as Ext.R2(e). It is stated that the article sent to the petitioner on 25.7.2007 was the summary of proceedings of 17.7.2007 and not that of the hearing. It is stated that the petitioner could have taken up the matter in appeal.
11. The petitioner has filed reply affidavits disputing the statements of both the respondents and reiterating the contention that the notice was sent to it after the hearing was over.
12. Relying on the judgments in Noble Acqua Pvt. Ltd. & Ors. v. State Bank of India and Ors : 2008 KHC 7984, Jay Engineering Works Ltd. v. Industry Facilitation Council and Anr. (2006) 8 SCC 677, Meghamala & Ors. v.
V.G.Narasimha Reddy and Ors : (2008) 3 SCC 383. Raheja W.P(C) No.11400 of 2009-T 11 Universal Limited v. NRC Ltd. and Ors ::(2012) 4 SCC 148, and KSL & Industries Ltd. v. Arihant Threads Ltd. : (2015) 1 SCC 166, etc. the petitioner argued that Ext.P6 order is liable to be set aside and the Bank should not have been permitted to enforce the proceedings of DRT in the light of the specific bar in Section 22 of SICA.
13. In Raheja Universal's case (supra) the scope of section 22 of the SICA as well as its overriding application over the provisions of Transfer of Property Act, 1882 i.e with reference to Sections 53A and 54 of the Transfer of Property Act, was considered and it was held that the provisions contained in SICA are having overriding powers.
14. The learned Counsel for the 4th respondent pointed out that the bank had already taken possession of the company and sold the secured assets i.e the property at Ernakulam and machinery at Kothamangalam under the SARFAESI Act. The petitioner has filed the writ petition concealing all these facts. The possession was taken over by the 4th respondent in accordance with Section 13(4) of the SARFAESI Act. It is further stated that the registered office of the company at Kochi was taken possession in presence of the M.D Sri Varghese W.P(C) No.11400 of 2009-T 12 Mundackal itself as evident from the mahazars and even on that day he stated that he would settle the matter with the bank in 45 days and requested for permissive occupation of the portion of the building where he conducted his office as a lawyer. Producing Ext.R4(b) request of the M.D Sri Varghese Mundackal for permissive occupation, undertaking to vacate the premises after 45 days, it is stated that the petitioner has approached this court suppressing all these facts. Apart from that the petitioner has instituted several litigations against the bank either through himself or his proxy filing original suit in various courts and in all these cases it was brought to the notice of the petitioner that de-registration was already ordered. Adv. M.G Karthikeyan argued that in the light of the Full Bench judgment of the Madras High Court in M/s.Salem Textiles Limited v. M/s.Phoenix ARC Pvt. Ltd. (FB) [AIR 2013 Madras 229] rendered in identical circumstances, the proceedings before the BIFR has to be treated as abated in a case where orders are issued under Section 13(4) of the Secularizations and Reconstruction of Financial Assets and Enforcement of Security Interest Act (`SARFAESI Act' for short). The learned counsel relied on the judgments in Shamken Spinners Ltd. v. State of W.P(C) No.11400 of 2009-T 13 U.P [AIR 2011 Allahabad 56, Integrated Rubian Exports Ltd. v. I.F. Corpn. of India Ltd. [AIR 2009 Ker.76] and Inderjeet Arya v. ICICI Bank Ltd. [(2014) 2 SCC 229] also and argued that in view of these decisions when there is an order under the SARFAESI Act, the proceedings under the SARFAESI Act will prevail over the proceedings under the SICA.
15. The learned counsel appearing for the BIFR argued that the writ petition was filed 2 years after the de-registration was ordered. Moreover, it was pointed out that there are disputed questions of facts alone in this writ petition and therefore this is not a matter to be adjudicated under Article 226 of the Constitution of India. As against orders passed by the BIFR there is a provision for appeal under Section 25 of SICA. However, there cannot be an adjudication of questions of fact. Even under the provisions of SICA there is no provision to reopen the proceedings before the BIFR. The learned Standing Counsel relied on the judgment of the apex court in Central Bank of India V Rooplal Bansal [(1999) 9 SCC 254], Orissa Agro Industries Corporation Ltd & others V Bharati Industries [(2005) 12 SCC 725] and State of Kerala & others V M.K. Jose [(2015) 9 SCC 433].
W.P(C) No.11400 of 2009-T 14
16. I have carefully considered the contentions raised by Sri. Varghese Mundakkal, who himself is the Managing Director and who appeared in person on behalf of the petitioner company, Sri. T.Sanjay, the learned Counsel for BIFR, Sri. M.G Karthikeyan, the learned Counsel for the 4th respondent Bank and the learned Counsel appearing for the other respondents.
17. The petitioner raised very serious allegations as to the procedure adopted in issuing notice to it from the office of the BIFR asserting that the notice was dispatched only after the order Ext.P6 de-registering it, was passed. It is asserted that the impugned order is vitiated by fraud played by the 4th respondent in connivance with the staff of BIFR. BIFR has stoutly denied these contentions producing the records with them saying that the notice fixing the date of hearing to 17.7.2007 was dispatched in June 2007 itself and the notices which the petitioner claims to have sent after the order was passed was the communication regarding the summary of proceedings of 17.7.2007. The 4th respondent has explained all the efforts they made for serving the notice and the affixture of notice on the registered office producing records for the same. Therefore, the factual circumstances pointed out by the petitioner are in serious W.P(C) No.11400 of 2009-T 15 dispute. The petitioner has to prove the fraud behind the order Ext.P6. It is relevant to note that in all the proceedings including Exts.P1 and P6, the BIFR had noticed the absence of the petitioner. Therefore, it is difficult to seen any bonafides also in the contention of the petitioner regarding the fraud. At any rate, the matter requires adjudication after adducing evidence. This court, under Article 226 of the Constitution of India, is not supposed to adjudicate on factually disputed questions, as rightly contended by Sri. Sanjay, the learned Counsel for the 2nd respondent relying on the apex court judgments in Rooplal bansal 's case, Orissa Agro Industries Corporation Ltd and in M.K. Jose's case (supra).
18. It is pertinent to note that BIFR allowed the 4th respondent to proceed with SARFAESI only after de-registering it. The question whether the proceedings under SICA will prevail over the proceedings under SARFAESI will arise for consideration only if it is found that Ext.P6 order is vitiated by fraud. Now there is no proof for the fraud. The BIFR declared the petitioner as SICK as per Ext.P1 order in the year 2002. Ext.P6 order was passed after being convinced of the fact that the petitioner had already ceased to function and a revival was W.P(C) No.11400 of 2009-T 16 not feasible coupled with the non-co-operation of the petitioner also. It was in those circumstances that the BIFR found that it was no longer necessary to keep in abeyance the recovery proceedings initiated by the Bank. Such an order, passed 5 years after the order in Ext.P1, was perfectly in tune with the provisions contained in Section 22 of the SICA, which read as follows:
22. Suspension of legal proceedings, contracts, etc.--(1) Where in respect of an industrial company, an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.
(2)xxxx (3) Where an inquiry under Section 16 is pending or any scheme referred to in Section 17 is under preparation or during the period of consideration of any scheme under Section 18 or where any such scheme is sanctioned thereunder, for due 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 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 W.P(C) No.11400 of 2009-T 17 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, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly,--
(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and
(b) on the declaration ceasing to have effect--
(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and
(ii) any proceeding so remaining stayed shall be proceeded with subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed.
(5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded.
22-A. Direction not to dispose of assets.--The Board may, if it is of opinion that any direction is necessary in the interest of the sick industrial company or creditors or shareholders or in the public interest, by order in writing, direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets
--
(a) during the period of preparation or consideration of the scheme under Section 18; and
(b) during the period beginning with the recording of opinion by the Board for winding up of the company under sub-section (1) of Section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court."
19. At the same time the provisions contained in Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 provides as follows:
34. Act to have overriding effect.--(1) Save as provided under W.P(C) No.11400 of 2009-T 18 sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.
(2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) and the Small Industries Development Bank of India Act, 1989 (39 of 1989).
20. In this case the Bank had already initiated proceedings under SARFAESI Act, 2002, a subsequent enactment. The provisions in that Act differ from those contained in RDDB Act. The issue arising in this case is similar to that considered by the Full Bench of the Madras High Court in M/s.Salem Textiles Limited (supra) relied on by the 4th respondent. It is also relevant to note that in Inderjeet Arya v. ICICI Bank Ltd. (supra) it was held that in the case of conflict between SICA and Recovery of Debts Due to Banks and Financial Institutions Act 1993 (RDDB), the provisions in RDDB Act, 1993 will prevail over SICA so far as public revenue recoveries are concerned. It was also held therein that the term 'suit' would apply only to proceedings in civil court and not to actions or recovery proceedings filed by the banks and financial institutions before a Tribunal such as DRT. It was held therein that the W.P(C) No.11400 of 2009-T 19 appellants who were guarantors in that case can obtain the direction of Section 22(1) of the SICA only if the action filed by the bank comes within the ambit of the term 'suit' and if the action filed by the bank is in the nature of 'proceedings' and not a 'suit', protection would not be available under Section 22. It was also observed that the term 'suit' has to be confined in the context of section 22(1) of SICA to those actions which are dealt with under C.P.C and not in the comprehensive overarching proceedings so as to apply to any original proceedings.
21. The petitioner argued that the issue is covered by the judgment in KSL & Industries Ltd. v. Arihant Threads Ltd., [(2015) 1 SCC 166]. In that case a 3 judges bench of the apex court, after considering a reference as to the overriding effect of the provisions in both the Acts, i.e SICA 1985 and RDDB Act, held that there is nothing contrary in the intention of SICA to exclude a recovery application from the purview of Section 22 and there could be no reason for such exclusion since the purpose of the provision is to protect the properties of a sick company. It was also held that provisions of SICA would prevail over the provisions in RDDB Act.
22. But the provisions in SARFAESI Act, are not similar to W.P(C) No.11400 of 2009-T 20 those in RDDB Act. Under Section 35, SARFAESI Act is having overriding effect over all other laws inconsistent with it. It reads as follows:
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.
It further provides in Section 37 that the provisions in it shall be in addition and not in derogation of certain enactments mentioned therein. Section 37 reads as follows:
37. Application of other laws not barred.--The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force.
The SICA is not included in Section 37, while RDDB Act is included. The provisions in Section 13 of the SARFAESI provides for the enforcement of securities.
23. In a recent decision, the apex court has in Madras Petrochem Ltd. v. BIFR, [(2016) 4 SCC 1], after considering the provisions in SICA and SARFAESI Act held as follows:
"37. We have now to undertake an analysis of the Acts in question. The first thing to be noticed is the difference between Section 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Section 37 of the Securitisation and Reconstruction of Financial Assets and W.P(C) No.11400 of 2009-T 21 Enforcement of Security Interest Act, 2002 does not include the Sick Industrial Companies (Special Provisions) Act, 1985 unlike Section 34(2) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Section 37 of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 states that the said Act shall be in addition to and not in derogation of four Acts, namely, the Companies Act, the Securities Contracts (Regulation) Act, 1956, the Securities and Exchange Board of India Act, 1992 and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It is clear that the first three Acts deal with securities generally and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 deals with recovery of debts due to banks and financial institutions. Interestingly, Section 41 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 makes amendments in three Acts
--the Companies Act, the Securities Contracts (Regulation) Act, 1956, and the Sick Industrial Companies (Special Provisions) Act, 1985. It is of great significance that only the first two Acts are included in Section 37 and not the third i.e. the Sick Industrial 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 in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
Another interesting pointer to the same conclusion is the fact that Section 35 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is not made subject to Section 37 of the said Act. This statutory scheme is at complete variance with the statutory scheme contained in Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 in which sub- section (1) of Section 34 containing the non obstante clause W.P(C) No.11400 of 2009-T 22 is expressly made subject to sub-section (2) [containing the Sick Industrial Companies (Special Provisions) Act, 1985] by the expression "save as provided under sub-section (2)".
Finally it was held as follows:
"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 reason that the Sick Industrial Companies (Special Provisions) Act, 1985 overrides the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
2. Where a secured creditor of a sick industrial company seeks to recover its debt in the manner provided by Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, such secured creditor may realise such secured debt under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, notwithstanding the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
3. In a situation where there are more than one secured creditor of a sick industrial company or it has been jointly financed by secured creditors, and at least 60% of such secured creditors in value of the amount outstanding as on a record date do not agree upon exercise of the right to realise 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 will continue to have full play.
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 W.P(C) No.11400 of 2009-T 23 (Special Provisions) Act, 1985 will abate."
24. In this case it is seen that the bank had already secured a recovery certificate against the petitioner. When the secured creditor, the 4th respondent Bank decided to enforce the security, proceedings before the BIFR has to be treated as abated in the light of 3rd proviso to Section 15 of SICA and the provisions contained in Section 13(4) of the SARFAESI Act. In the light of the judgment of the apex court in Madras Petrochem (supra), the petitioner cannot avail any benefit under the SICA.
Under the above circumstances, none of the contentions of the petitioner can be accepted. I do not find any reason to interfere with the order Ext.P6. Hence the writ petition is dismissed.
Sd/-
(P.V.ASHA, JUDGE) rtr/