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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS._614-615  OF 2016 (ARISING OUT OF SLP(CIVIL) NOS. 26170-26171 OF 2008)

M/S MADRAS PETROCHEM LTD.  & ANR.          … APPELLANTS

VERSUS

BIFR & ORS.      … RESPONDENTS

J U D G M E N T

R.F. Nariman, J.

1. Leave granted.

2. The present  appeals  raise interesting  questions  on the

interplay  between  the  Sick  Industrial  Companies  (Special

Provisions) Act, 1985 and the Securitisation and Reconstruction

of Financial Assets and Enforcement of Security Interest Act,

2002.  The facts in appeals arising out of Special Leave Petition

(Civil) Nos.26170-26171 of 2008 are as follows.  

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3. The  net  worth  of  the  Appellant  No.1  Company, having

eroded  completely,  the  appellant  No.1  company  filed  a

reference under Section 15(1) of the Sick Industrial Companies

(Special  Provisions)  Act,  1985  before  the  BIFR,  which  was

registered as BIFR Case No.115 of 1989.  On 13.12.1989, after

making an inquiry  under  Section 16(1)  of  the Sick  Industrial

Companies  (Special  Provisions)  Act,  1985,  the  Appellant

company was declared sick and ICICI was appointed as the

Operating  Agency  to  formulate  a  rehabilitation  scheme.   On

3.7.1991,  the  first  rehabilitation  scheme  prepared  by  the

Operating  Agency  was  sanctioned,  which  envisaged  the

takeover of the appellant company by one Mahavir Plantation

Limited  -  i.e.  appellant  No.2.   The  first  scheme  was  finally

declared  a  failure,  and  the  Appellant  No.1  company,  on

17.1.1995,  was  directed  to  submit  a  fresh,  comprehensive,

revised  rehabilitation  scheme  which  was  duly  circulated.

Objections to the said scheme were heard by the BIFR and the

scheme  finally  sanctioned  was  in  the  form  of  a  change  of

management of the appellant no.1 company subject to various

modifications  to  be  carried  out.   After  the  Appellant  No.1

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company’s management changed hands, the second scheme,

after being reviewed from time to time, was declared as failed

on  16.5.2000.  Despite  efforts  by  the  Operating  Agency  to

attempt  to  revive  the  company,  all  such  efforts  failed,  and

ultimately,  on  30.4.2001,  BIFR,  on  the  basis  of  the

recommendation of the Operating Agency, formed a prima facie

opinion that the appellant No.1 company should be wound up

under Section 20(1) of the Sick Industrial Companies (Special

Provisions) Act, 1985.  On 27.7.2001, the BIFR confirmed its

prima  facie  opinion  after  noting  that  the  appellant  No.1

company had been enjoying protection under the Sick Industrial

Companies (Special Provisions) Act, 1985 for the last 12 years.

There being no acceptable viable rehabilitation proposal after

the failure of two schemes, the appellant no.1 company was not

likely to make its net worth exceed its accumulated losses, and

therefore BIFR recommended to the High Court of Bombay that

the said company be wound up.  On  4.2.2002,  appellant

No.1’s  challenge  to  the  BIFR  order  was  dismissed  by  the

AAIFR.  

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4. While  matters  stood  thus,  ICICI  issued  a  notice  dated

20.11.2002  under  Section  13(2)  of  the  Securitisation  and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 to the appellant No.1 company and followed

it up with a possession notice dated 9.5.2003.  On 8.8.2003,

ICICI issued a sale notice for and on behalf of all the secured

creditors of the appellant No.1 company.  Meanwhile, appellant

Nos. 1 & 2 filed a writ petition before the Delhi High Court being

Writ  Petition Nos.48-49 of  2004 challenging the AAIFR order

dated  4.2.2002  and  the  BIFR  order  dated  25.7.2001.   On

7.1.2004, the Delhi High Court stayed both the orders, which

stay  continued  until  24.7.2008,  when,  by  the  impugned

judgment, the Writ Petition was dismissed.

5. Meanwhile,  the sale notice of  8.8.2003 was challenged

before  the DRT by the  appellants.   The said  challenge was

unsuccessful, as a result of which an appeal was filed before

the DRAT, which, by its order dated 30.6.2005, upset the DRT

order and set aside the sale notice.  However, by a judgment of

the Madras High Court, in a challenge to the aforesaid order

dated 30.6.2005, the Madras High Court set aside the DRAT 4

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order.  The sale of movable assets for a sum of Rs.4.65 crores

was also confirmed by the Madras High Court in favour of one

M/s Rahamath Steel.   Vide  the said  order  the  Madras  High

Court also permitted the creditors of the Company to proceed

with the sale of its immovable property subject to a minimum

reserve price of Rs.25 crores.  This order was never challenged

and has attained finality.   

6. Meanwhile,  based on  a  winding  up  proceeding  by M/s

BHEL,  an  unsecured  creditor,  and  another  winding  up

proceeding based on the opinion of the BIFR under Section 20

of the Sick Industrial Companies (Special Provisions) Act, 1985,

the Bombay High Court wound up the appellant No.1 company.  

7.  While matters stood thus, the Delhi High Court passed the

impugned order on 24.7.2008, as has been stated hereinabove,

in which it was of the view that Section 15(1) proviso 3 of the

Sick Industrial Companies (Special Provisions) Act, 1985, when

construed to include all proceedings under the Sick Industrial

Companies  (Special  Provisions)  Act,  1985,  would  make  the

present  proceedings  under  the  Sick  Industrial  Companies

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(Special Provisions) Act, 1985, abate on the facts of this case.

Ultimately,  in  this  view  of  the  matter,  and  differing  with  a

judgment  of  the  Orissa  High  Court,  the  Delhi  High  Court

disposed  of  the  appellants’  writ  petition  as  having  become

infructuous.  

8. Appeals  have been filed  against  the  said  order  by  the

present  appellants  which  appeals,  as  has  been  stated

hereinabove, raise interesting questions of law on the interplay

of the Sick Industrial Companies (Special Provisions) Act, 1985

with the Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002.  

9. A few subsequent events also need to be stated for the

sake of completion.  On 20.11.2008, the Bombay High Court

modified its order dated 30.8.2007 and restrained the Official

Liquidator from taking possession of the secured assets of the

company, and permitted the creditors to pursue their remedies

under the Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002.  M/s. Alchemist

ARC Ltd. issued a sale notice on behalf of all the creditors of

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the appellant No.1 company for a sum of Rs.222.59 crores on

6.4.2013.  Appellant No.2, being the corporate guarantor of the

appellant  no.1 company, filed an appeal challenging the sale

notice of 6.4.2013.  On 13.5.2013, DRT Chennai dismissed this

petition.  Vide an order dated 19.3.2014, the DRAT, Chennai, in

an appeal made to it, directed, by way of an interim order, that

appellant No.2 pay a sum of Rs.53.77 crores within the time

stated therein.   This  DRAT order  was challenged before  the

Madras High Court which, by its order dated 21.4.2014, refused

to interfere with the said order dated 19.3.2014, and granted

some additional time to appellant No.2 to pay the said amount

of  Rs.53.77  crores.  We  have  been  informed  that  the  said

amount has not  been paid till  date.   The appellant No.2 has

challenged this order of 21.4.2014 before this Court.  However,

the said SLP is lying in defect as on date despite the expiry of

more than one and a half years.   

10. Mr. C.N. Sreekumar, learned counsel appearing on behalf

of  the appellant  No.1 company, submitted before us that  the

effect of the interim order of 7.1.2004 of the Delhi High Court is

that the reference made by the appellant No.1 company gets 7

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revived.  He further submitted that no winding up order could be

made in view of such revival, and that such orders are therefore

non  est,  and  the  present  appeals  cannot  be  regarded  as

infructuous.  He added that Section 22(1) of the Sick Industrial

Companies (Special Provisions) Act, 1985 would automatically

come  into  play  to  protect  the  assets  of  the  appellant  No.1

company.  He also submitted before us, that in any case, regard

being  had  to  the  object  of  the  Sick  Industrial  Companies

(Special  Provisions)  Act,  1985,  it  would  override  the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement of Security Interest Act, 2002.  For this purpose,

he relied on a judgment  by this Court in KSL & Industries Ltd.

v. Arihant Threads Ltd.,  (2015) 1 SCC 166, which held that

the  Sick Industrial  Companies (Special  Provisions)  Act,  1985

has  overridden  the  Recovery  Of  Debts  Due  To Banks  And

Financial  Institutions  Act,  1993.  The  said  Act,  being  a

predecessor  to  the  Securitisation  and  Reconstruction  of

Financial  Assets  and  Enforcement  of  Security  Interest  Act,

2002,  and  dealing  with  the  same  subject  matter  as  the

Securitisation  and  Reconstruction  of  Financial  Assets  and

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Enforcement of Security Interest Act, 2002 – namely, recovery

of debts due to banks and financial institutions, would lead to

the conclusion that the 2002 Act is also overridden. He further

contended  that  Section  37  of  the  Securitisation  and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 expressly refers to the Recovery Of Debts

Due To Banks And Financial Institutions Act, 1993, and since

Section 34(2)  of  the Recovery  Of  Debts  Due To Banks And

Financial  Institutions  Act,  1993,  refers  to  the  Sick  Industrial

Companies (Special  Provisions) Act,  1985, Section 37 of  the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement  of  Security  Interest  Act,  2002  should  also  be

construed so as to include a reference to the Sick Industrial

Companies  (Special  Provisions)  Act,  1985.  His  further

contention  is  that  on  a  true  construction  of  Section  15(1)

proviso 3 of the Sick Industrial Companies (Special Provisions)

Act, 1985, the Orissa High Court is correct and that since the

expression “reference”  would  only include the initial  stage of

filing  and  registration  of  a  reference  before  the  BIFR,  such

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stage having gone long ago, the proceedings before BIFR are

very much alive and have not abated.   

11. Shri  C.A. Sundaram, learned senior  counsel,  appearing

on  behalf  of  M/s  Alchemist  Asset  Reconstruction  Company

Limited, which is substituted in place of respondent Nos.2,3,4,6

and 9, has submitted that the effect of the interim order dated

7.1.2004 does not revive the reference of the appellant No.1

company before BIFR.  For this purpose he relied upon Shree

Chamundi  Mopeds  Ltd.  v.  Church  of  South  India  Trust

Assn., (1992) 3 SCC 1. He also submitted that in any event the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement of Security Interest Act, 2002 would override the

provisions of the Sick Industrial Companies (Special Provisions)

Act, 1985, so that even if the stay order dated 7.1.2004 had the

effect of reviving the reference, that in itself would not restrain

the secured creditors from proceeding under the Securitisation

and  Reconstruction  of  Financial  Assets  and  Enforcement  of

Security Interest Act, 2002, nor would it render the winding up

order  passed  by  Bombay  High  Court  non  est.   He  also

submitted that  a  large number  of  judgments  of  various High 10

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Courts have taken the view which is  taken in  the impugned

judgment, and that the expression “reference” would include all

stages of  a  proceeding under  the Sick  Industrial  Companies

(Special Provisions) Act, 1985 including the stage of operation

of a scheme.  For this purpose, in particular, he relied heavily

on  a  full  bench  decision  of  the  Madras  High  Court  in  M/s.

Salem Textiles Limited v. The Authorized Officer and Ors.,

reported in AIR 2013 Madras 229.  He also argued that since

the Recovery Of Debts Due To Banks And Financial Institutions

Act,  1993  expressly  named  the  Sick  Industrial  Companies

(Special  Provisions)  Act,  1985  in  Section  34(2),  the  Sick

Industrial Companies (Special Provisions) Act, 1985 obviously

overrode that Act.  What is significant is that the corresponding

section,  namely,  Section  37  of   the  Securitisation  and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act,  2002, expressly omits any reference to the Sick

Industrial Companies (Special Provisions) Act, 1985, making it

clear  that  the  Securitisation  and  Reconstruction  of  Financial

Assets and Enforcement of Security Interest Act,  2002 would

prevail over the Sick Industrial Companies (Special Provisions)

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Act,  1985.  That  being  the  case,  he  argued that  this  Court’s

judgment in KSL & Industries Ltd. Vs. Arihant  Threads Ltd.,

(2015)  1 SCC 166,  is,  therefore,  clearly  distinguishable.   He

also  argued  that  at  the  end  of  the  day,  since  the  movable

property of the appellant No.1 company had been sold off, and

since various High Courts – including Bombay and Madras –

have passed a number of orders, both winding up the company

and dismissing petitions challenging the action of his client in

proceedings  under  the  Securitisation  and  Reconstruction  of

Financial  Assets  and  Enforcement  of  Security  Interest  Act,

2002, all that remains is sale of the immovable property of the

appellant  No.1  Company  and  that,  therefore,  nothing  really

remains in these appeals, which have become infructuous.  

Discussion:-

12. The arguments of counsel have been wide ranging, but at

the end of the day various Sections of three statutes have to be

interpreted by this Court.  Before embarking on a consideration

of the arguments and the interpretation of these provisions, it

will be important to first set them out.  

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THE  SICK  INDUSTRIAL  COMPANIES  (SPECIAL PROVISIONS) ACT, 1985

“Section 15. Reference to Board

(1) When 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 the Board for the determination of  the  measures  which  shall  be  adopted  with respect to the company: Provided further that no reference shall be made to the  Board  for  Industrial  and  Financial Reconstruction  after  the  commencement  of  the Securitisation  and  Reconstruction  of  Financial Assets  and  Enforcement  of  Security  Interest  Act, 2002, where financial assets have been acquired by any  securitisation  company  or  reconstruction company under sub-section (1) of section 5 of that Act:  Provided also that on or after the commencement of the Securitisation  and  Reconstruction of  Financial Assets  and  Enforcement  of  Security  Interest  Act, 2002,  where  a  reference  is  pending  before  the Board  for  Industrial  and  Financial  Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors,

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have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act.

Section  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) Where the management of the sick industrial company is taken over or changed in pursuance of any  scheme  sanctioned  under  section  18 notwithstanding  anything  contained  in  the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such  company  or  any  instrument  having  effect under the said Act or other law

a) it shall not be lawful for the shareholders of such company  or  any  other  person  to  nominate  or appoint any person to be a director of the company;  

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b)  no  resolution  passed  at  any  meeting  of  the shareholders of such company shall be given effect to unless approved by the Board.  

(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, assurance 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  adoptions  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, 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,-  

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(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.

Section 32. Effect of the Act on other laws

(1)  The provisions of  this Act  and of  any rules or schemes  made  thereunder  shall  have  effect notwithstanding  anything  inconsistent  therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial  company  or  in  any  other  instrument having effect by virtue of any law other than this Act.

(2) Where there has been under any scheme under this  Act  an  amalgamation  of  a  sick  industrial company with another company, the provisions of

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section  72A  of  the  Income-tax  Act,  1961  (43  of 1961),  shall,  subject  to  the  modifications  that  the power of the Central Government under that section may be exercised by the Board without the Central Government  under  that  section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to the amalgamation of a company owning an industrial undertaking with another company.  

The  Recovery  Of  Debts  Due  To  Banks  And Financial Institutions Act, 1993

Section 17. Jurisdiction, powers and authority of Tribunals.

(1)  A  Tribunal  shall  exercise,  on  and  from  the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions.   

(2)  An  Appellate  Tribunal  shall  exercise,  on  and from the appointed day, the jurisdiction, powers and authority  to  entertain  appeals  against  any  order made, or deemed to have been made, by a Tribunal under this Act.   

Section 18. Bar of Jurisdiction.

On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction,  powers  or  authority  (except  the Supreme  Court,  and  a  High  Court  exercising jurisdiction  under  articles  226  and  227  of  the Constitution) in relation to the matters specified in section 17.

34. Act to have over-riding effect.—

(1)  Save  as  provided  under  sub-  section  (2),  the provisions  of  this  Act  shall  have  effect

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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).  

The  Securitisation  And  Reconstruction  Of Financial  Assets And Enforcement  Of Security Interest Act, 2002

Section 13. Enforcement of security interest   

(1)  Notwithstanding  anything  contained  in  section 69 or section 69A of the Transfer of Property Act, 1882 (4 of  1882),  any security interest  created in favour  of  any  secured  creditor  may  be  enforced, without the intervention of court or tribunal, by such creditor  in  accordance  with  the  provisions  of  this Act.   

(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default  in  repayment  of  secured  debt  or  any instalment  thereof,  and  his  account  in  respect  of such debt is classified by the secured creditor  as non-performing  asset,  then,  the  secured  creditor may  require  the  borrower  by  notice  in  writing  to discharge in full his liabilities to the secured creditor within  sixty  days  from  the  date  of  notice  failing which  the  secured  creditor  shall  be  entitled  to

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exercise all or any of the rights under sub- section (4).   

(3)  The notice  referred to in  sub-section (2)  shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.    

(3A) If,  on receipt of the notice under sub-section (2),  the  borrower  makes  any  representation  or raises  any  objection,  the  secured  creditor  shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation  or  objection  is  not  acceptable  or tenable, he shall communicate within one week of receipt  of  such  representation  or  objection  the reasons for non-acceptance of the representation or objection  to  the  borrower:    PROVIDED  that  the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to  prefer  an  application  to  the  Debts  Recovery Tribunal  under  section 17 or  the  Court  of  District Judge under section 17A.    

(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

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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  of  such  business  of  the  borrower which is relatable to the security for the debt.  

(c)  appoint any person (hereafter referred to as the manager),  to  manage  the  secured  assets  the possession of  which has been taken over  by the secured creditor;   

(d)   require  at  any time by  notice  in  writing,  any person who has acquired any of the secured assets from  the  borrower  and  from  whom any money is  

due or may become due to the borrower, to pay the secured  creditor,  so  much  of  the  money  as  is sufficient to pay the secured debt.

(5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower.  

(5A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price,  it  shall  be lawful  for  any officer  of  the secured creditor, if  so authorised by the  secured  creditor  in  this  behalf,  to  bid  for  the immovable  property  on  behalf  of  the  secured creditor at any subsequent sale.

(5B)  Where  the  secured  creditor,  referred  to  in sub-section (5A), is declared to be the purchaser of the immovable property at any subsequent sale, the amount  of  the  purchase  price  shall  be  adjusted towards  the  amount  of  the  claim  of  the  secured creditor  for  which  the  auction  of  enforcement  of

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security  interest  is  taken  by  the  secured  creditor, under sub-section (4) of section 13.

(5C)  The  provisions  of  section  9  of  the  Banking Regulation Act,  1949(10 of  1949)  shall,  as  far  as may be, apply to the immovable property acquired by secured creditor under sub-section (5A).]

(6)  Any  transfer  of  secured  asset  after  taking possession  thereof  or  take  over  of  management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.  

(7)  Where  any  action  has  been  taken  against  a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is  received  by  the  secured  creditor  shall,  in  the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs,  charges  and  expenses  and  secondly,  in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.  

(8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall  not  be  sold  or  transferred  by  the  secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.  

(9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured

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creditor shall be entitled to exercise any or all of the rights  conferred  on  him  under  or  pursuant  to sub-section  (4)  unless  exercise  of  such  right  is agreed upon by the secured creditors representing not less than sixty per cent in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors:  

PROVIDED  that  in  the  case  of  a  company  in liquidation,  the  amount  realised  from  the  sale  of secured assets shall  be distributed in  accordance with  the  provisions  of  section  529A  of  the Companies Act, 1956 (1 of 1956):  

PROVIDED  FURTHER  that  in  the  case  of  a company  being  wound  up  on  or  after  the commencement of this Act, the secured creditor of such  company,  who  opts  to  realise  his  security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the  sale  proceeds  of  his  secured  assets  after depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act:  

PROVIDED ALSO that the liquidator referred to in the  second  proviso  shall  intimate  the  secured creditors  the  workmen's  dues  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

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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.  

(10) Where dues of the secured creditor are not fully satisfied  with  the  sale  proceeds  of  the  secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts  Recovery  Tribunal  having  jurisdiction  or  a competent court, as the case may be, for recovery of the balance amount from the borrower.  

(11) Without prejudice to the rights conferred on the secured  creditor  under  or  by  this  section,  the secured creditor shall be entitled to proceed against the guarantors  or  sell  the pledged assets  without first taking any of the measures specified in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act.  

(12) The rights of a secured creditor under this Act may be exercised  by  one  or  more  of  his  officers authorised in this behalf in such manner as may be prescribed.  

(13)  No  borrower  shall,  after  receipt  of  notice referred  to  in  sub-section  (2),  transfer  by  way  of sale, lease or otherwise (other than in the ordinary

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course of his business) any of his secured assets referred  to  in  the  notice,  without  prior  written consent of the secured creditor.  

Section  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.   

Section 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.

Section 41. Amendments of certain enactments   

The enactments specified in the Schedule shall be amended in the manner specified therein.”

THE SCHEDULE    (Section 41)  

Year Act  No.

Short title            Amendment  

1956 1 The Companies Act 1956

In  section  4A  in sub-section  (1)  after clause  (vi)  insert  the following:--  "(vii)  the securitisation company or the  reconstruction company  which  has obtained  a  certificate  of

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registration  under sub-section (4) of section 3 of the Securitisation and Reconstruction  of Financial  Assets  and Enforcement  of  Security Interest Act 2002".

1956 42 The  Securities Contracts (Regulation) Act 1956

In section 2 in clause (h) after sub-clause (ib) insert the  following:--  "  (ic) security  receipt  as defined  in  clause  (zg)  of section  2  of  the Securitisation  and Reconstruction  of Financial  Assets  and Enforcement  of  Security Interest Act 2002".

1986 1 The  Sick Industrial Companies (Special Provisions)  Act 1985

In  section  15  in sub-section  (1)  after  the proviso  insert  the following:--  "PROVIDED FURTHER  that  no reference  shall  be  made to the Board for Industrial and  Financial Reconstruction  after  the commencement  of  the Securitisation  and Reconstruction  of Financial  Assets  and Enforcement  of  Security Interest  Act  2002  where financial  assets  have been  acquired  by  any securitisation company or reconstruction  company under  sub-section  (1)  of section 5 of that Act:  PROVIDED ALSO that on

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or  after  the commencement  of  the Securitisation  and Reconstruction  of Financial  Assets  and Enforcement  of  Security Interest Act 2002 where a reference  is  pending before  the  Board  for Industrial  and  Financial Reconstruction  such reference  shall  abate  if the  secured  creditors representing not less than three-fourth  in  value  of the  amount  outstanding against  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  that Act."

13. It is important at this stage to refer to the genesis of these

three legislations.  Each of them deals with different aspects of

recovery of debts due to banks and financial institutions.  Two

of them refer to creditors’ interests and how best to deal with

recovery of outstanding loans and advances made by them on

the one hand, whereas the Sick Industrial Companies (Special

Provisions)  Act,  1985,  on  the  other  hand,  deals  with  certain 26

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debtors  which  are  sick  industrial  companies  (i.e.  companies

running  industries  named  in  the  schedule  to  the  Industries

(Development  and  Regulation)  Act,  1951)  and  whether  such

“debtors”  having become “sick”,  are to be rehabilitated.   The

question, therefore, is whether the public interest in recovering

debts due to banks and financial institutions is to give way to

the public interest in rehabilitation of sick industrial companies,

regard  being  had  to  the  present  economic  scenario  in  the

country, as reflected in Parliamentary Legislation.  

14. We  begin,  first,  with  the  Sick  Industrial  Companies

(Special Provisions) Act, 1985. The Statement of Objects and

Reasons for this Act reads as under:

“THE  SICK  INDUSTRIAL  COMPANIES  (SPECIAL PROVISIONS) ACT, 1985

STATEMENT OF OBJECTS AND REASONS

The  ill  effects  of  sickness  in  industrial companies  such  as  loss  of  production,  loss  of employment,  loss  of  revenue  to  the  Central  and State  Governments  and  locking  up  of  investible funds  and  financial  institutions  are  of  serious concern to the Government and the society at large. The concern of the Government is accentuated by the alarming increase in the incidence of sickness in industrial companies.  It has been recognized that in order to fully utilize the productive industrial assets,

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afford  maximum  protection  of  employment  and optimize  the  use  of  the  funds  of  the  banks  and financial institutions, it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible.  It would also be equally imperative to salvage the productive assets and  realize  the  amounts  due  to  the  banks  and financial institutions, to the extent possible, from the non-viable  sick  industrial  companies  through liquidation of those companies.

It  has been the experience that  the existing institutional  arrangements  and  procedures  for revival  and  rehabilitation  of  potentially  viable  sick industrial  companies  are  both  inadequate  and time-consuming.  A multiplicity of laws and agencies makes  the  adoption  of  coordinated  approach  for dealing with  sick  industrial  companies  difficult.   A need  has,  therefore,  been  felt  to  enact  in  public interest  a  legislation  to  provide  for  timely determination  by  a  body  of  experts  of  the preventive,  ameliorative,  remedial  and  other measures  that  would  need  to  be  adopted  with respect to such companies and for enforcement of the  measures  considered  appropriate  with  utmost practicable despatch.  

The salient features of the Bill are-

(i) application of the legislation to the industries specified  in  the  First  Schedule  to  the  Industries (Development and Regulation) Act,  1951, with the initial exception of the scheduled industry relating to ships and other vessels drawn by power, which may however  be  brought  within  the  ambit  of  the legislation in due course; (ii) Identification  of  sickness  in  an  industrial company, registered for not less than seven years, on  the  basis  of  the  symptomatic  indices  of  cash losses  for  two  consecutive  financial  years  and accumulated losses equalling or exceeding the net

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worth of the company as at the end of the second financial year;

(iii) the onus of reporting sickness and impending sickness at the stage of erosion of fifty per cent. or more of the net worth of an industrial company is being  laid  on  the  Board  of  Directors  of  such company;  where  the  Central  Government  or  the Reserve  Bank  is  satisfied  that  an  industrial company has become sick, it may make a reference to  the  Board,  likewise  if  any  State  Government, scheduled bank or public financial institution having an interest in an industrial company is satisfied that the industrial company has become sick, it may also make a reference to the Board;

(iv) establishment of Board consisting of experts in various relevant fields with powers to enquire into and determine the incidence of sickness in industrial companies and devise suitable remedial measures through  appropriate  schemes  or  other  proposals and for proper implementation thereof;

(v) constitution  of  an  Appellate  Authority consisting  of  persons  who  are  or  have  been Supreme Court Judges, senior High Court Judges and Secretaries to the Government of India, etc., for hearing appeals against the order of the Board.”

15. A  cursory  reading  of  the  Act  shows  that  a  Board  for

Industrial  and Financial  Reconstruction is  set  up by the Act,

before which references are made.  Such references can be

made under  Section 15 of  the Act,  not  only  by an industrial

company as defined, which,  as has been stated above, is  a 29

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company which runs any of the industries specified in the first

schedule to the Industries (Development and Regulation) Act,

1951, but also by the Central or State Government, or public

financial  institution,  or  State  level  institution,  or  a  scheduled

bank, as the case may be.  Such reference can only be made if

the  company  concerned  has  turned  sick  i.e.  it  has  to  be  a

company   running   an  industry  mentioned   in   the   first

schedule to the Industries (Development and Regulation) Act,

1951,  and must  be  a  company  registered  for  not  less

than  5  years,  which  has  at  the  end  of  any  financial  year

accumulated losses equal to or exceeding its entire net worth.

An inquiry into the working of such “sick industrial company” is

to be made by the said Board on receipt of a reference or upon

application  or  suo  motu.   If  the  Board  is  satisfied  that  the

Company has indeed become a sick industrial  company, the

Board  shall  decide  as  to  whether  it  is  practicable  for  the

Company to make its  net  worth positive within a reasonable

time.  This it  may do under  Section 17 of the Act, by order

under sub-section (2) of Section 17. If this is not possible, then

the Board may appoint an Operating Agency who will prepare a

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scheme for  rehabilitation  mentioned in  Section  18 which the

Board may then sanction.  The scheme may provide for all or

any of the things mentioned in the said Section, and finally, the

scheme may work  successfully, resulting in the Company’s net

worth turning positive, or may be unsuccessful.  In the event of

it being unsuccessful, the Board may modify such scheme or

ask for the preparation of a new scheme.  If, at the end of the

day, the first scheme or any successive schemes ultimately fail,

the Board has then to be of the opinion that such Company is

not likely to make its net worth positive, and that therefore it is

to  forward  its  opinion  under  Section  20  of  the  Act  to  the

concerned High Court  to proceed with the winding up of  the

said company.  Section 22, which is of crucial importance in the

working  of  the  Act,  suspends  various  legal  proceedings,

contracts etc., while a reference before the Board is pending,

for  the  duration  of  the  inquiry  to  be  made  and/or  scheme

prepared and finally sanctioned, and for the entire period of the

working of the said scheme.  Both Section 22(1) and (4) contain

non obstante  clauses overriding  inter alia  the Companies Act

and any other law.  In order to better implement the provisions

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of  this  Act,  Section  32  also  contains  a  non obstante  clause

overriding all other laws including Memoranda and Articles of

Association of the industrial company or any other instrument

having  effect  by  virtue  of  any  other  law, except  the  Foreign

Exchange Regulation Act of 1973 and The Urban Land (Ceiling

and Regulation) Act, 1976.  

16. While this Act had worked for a period of about 7 years,

the Recovery of Debts Due to Banks and Financial Institutions

Act,  1993  was  brought  into  force,   pursuant  to  various

Committee reports.  The Statement of Objects and Reasons for

this Act reads as follows:-

“STATEMENT OF OBJECTS AND REASONS OF THE  RECOVERY  OF  DEBTS  DUE  TO  BANKS AND FINANCIAL INSTITUTIONS ACT, 1993

Banks  and  financial  institutions  at  present experience  considerable  difficulties  in  recovering loans and  enforcement  of  securities  charged with them. The existing procedure for recovery of debts due  to  the  banks  and  financial  institutions  has blocked  a  significant  portion  of  their  funds  in unproductive assets, the value of which deteriorates with  the  passage of  time.  The Committee on the Financial  System headed by Shri  M. Narasimham has  considered  the  setting  up  of  the  Special Tribunals  with  special  powers  for  adjudication  of such matters and speedy recovery as critical to the successful  implementation  of  the  financial  sector

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reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realized without  delay.  In  1981,  a  Committee  under  the Chairmanship  of  Shri  T. Tiwari  had  examined the legal  and  other  difficulties  faced  by  banks  and financial  institutions  and  suggested  remedial measures  including  changes  in  law.  The  Tiwari Committee had also suggested setting up of Special Tribunals  for  recovery  of  dues  of  the  banks  and financial  institutions  by  following  a  summary procedure. The setting up of Special Tribunals will not only fulfill  a long-felt need, but also will  be an important step in the implementation of the Report of  Narasimham  Committee.  Whereas  on  30th September, 1990 more than fifteen lakhs of cases filed  by  the  public  sector  banks  and  about  304 cases filed by the financial institutions were pending in various courts, recovery of debts involved more than Rs.5622 crores in dues of Public Sector Banks and about  Rs.391  crores of  dues of  the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilisation and recycling of the funds for the development of the country.   

The Bill seeks to provide for the establishment of Tribunal  and  Appellate  Tribunals  for  expeditious adjudication  and  recovery  of  debts  due  to  banks and financial institutions. Notes on clauses explain in detail the provisions of the Bill.”

17. The  Recovery  Of  Debts  Due  To Banks  And  Financial

Institutions Act,  1993 took away the jurisdiction of  the courts

and vested this jurisdiction in tribunals established by the Act so

as to ensure  speedy recovery of debts due to the banks and 33

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financial institutions mentioned therein. This Act also included

one appeal to the Appellate Tribunal, and transfer of all suits or

other proceedings pending before any court to tribunals set up

under  the Act.   The Act  contained a  non obstante  clause in

Section  34  stating  that  its  provisions  will  have  effect

notwithstanding  anything  inconsistent  contained  in  any  other

law for the time being in force or in any instrument having effect

by  virtue  of  any  other  law.  In  the  year  2000,  this  Act  was

amended so as to incorporate a new sub-section (2) in Section

34 together with a saving provision in sub-section (1).  It is of

some interest to note that this Act was to be in addition to and

not in derogation of various Financial Corporation Acts and the

Sick  Industrial  Companies  (Special  Provisions)  Act,  1985.

Clearly, therefore,  the  object  of  the  2000 amendment  to  the

Recovery of Debts due to Banks and Financial Institutions Act,

1993  was  to  make  The  Sick  Industrial  Companies  (Special

Provisions) Act, 1985 prevail over it.  

18. Regard being had to the poor working of the Recovery of

Debts Due to Banks and Financial Institutions Act,  1993,  the

Securitisation  and  Reconstruction  of  Financial  Assets  and 34

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Enforcement  of  Security  Interest Act,  2002  was  brought  into

force in the year 2002.  The statement of objects and reasons

for this Act reads as under:-

“STATEMENT OF OBJECTS AND REASONS OF THE SECURITISATION AND RECONSTRUCTION OF  FINANCIAL  ASSETS  AND  ENFORCEMENT OF SECURITY INTEREST ACT, 2002

The financial sector has been one of the key drivers in  India's  efforts  to  achieve  success  in  rapidly developing its economy. While the banking industry in  India  is  progressively  complying  with  the international  prudential  norms  and  accounting practices,  there  are  certain  areas  in  which  the banking  and  financial  sector  do  not  have  a  level playing field as compared to other participants in the financial  markets  in  the  world.  There  is  no  legal provision  for  facilitating  securitisation  of  financial assets of  banks and financial  institutions.  Further, unlike international banks, the banks and financial institutions  in  India  do  not  have  power  to  take possession of securities and sell them. Our existing legal framework relating to commercial transactions has  not  kept  pace  with  the  changing  commercial practices  and  financial  sector  reforms.  This  has resulted in slow pace of recovery of defaulting loans and  mounting  levels  of  nonperforming  assets  of banks  and  financial  institutions.  Narasimham Committee  I  and  II  and  Andhyarujina  Committee constituted  by  the  Central  Government  for  the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for  securitisation  and  empowering  banks  and financial  institutions  to  take  possession  of  the

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securities and to sell them without the intervention of  the  court.  Acting  on  these  suggestions,  the Securitisation  and  Reconstruction  of  Financial Assets  and  Enforcement  of  Security  Interest Ordinance,  2002  was  promulgated  on  the  21st June,  2002  to  regulate  securitisition  and reconstruction of financial assets and enforcement of  security  interest  and  for  matters  connected therewith or incidental thereto. The provisions of the Ordinance  would  enable  banks  and  financial institutions  to  realise  long-term  assets,  manage problem of liquidity, asset liability mismatches and improve  recovery  by  exercising  powers  to  take possession  of  securities,  sell  them  and  reduce nonperforming  assets  by  adopting  measures  for recovery or reconstruction.  

2. It is now proposed to replace the Ordinance by a Bill,  which,  inter  alia,  contains  provisions  of  the Ordinance to provide for—

(a)  registration  and  regulation  of  securitisation companies  or  reconstruction  companies  by  the Reserve Bank of India;  

(b)  facilitating  securitisation  of  financial  assets  of banks and financial institutions with or without the benefit of underlying securities;  

(c) facilitating easy transferability of financial assets by  the  securitisation  company  or  reconstruction company to acquire financial assets of banks and financial  institutions  by  issue  of  debentures  or bonds  or  any  other  security  in  the  nature  of  a debenture;  

(d)  empowering  securitisation  companies'  or reconstruction companies to raise funds by issue of security receipts to qualified institutional buyers;  

(e)  facilitating  reconstruction  of  financial  assets acquired  by  exercising  powers  of  enforcement  of

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securities  or  change  of  management  or  other powers which are proposed to be conferred on the banks and financial institutions;  

(f)  declaration  of  any  securitisation  company  or reconstruction company registered with the Reserve Bank of India as a public financial institution for the purpose of section 4A of the Companies Act, 1956;  

(g) defining 'security interest' as any type of security including  mortgage  and  change  on  immovable properties given for due repayment of any financial assistance given by any bank or financial institution;

(h)  empowering banks and financial  institutions to take  possession  of  securities  given  for  financial assistance and sell or lease the same or take over management  in  the  event  of  default,  i.e. classification  of  the  borrower's  account  as non-performing  asset  in  accordance  with  the directions given or under guidelines issued by the Reserve Bank of India from time to time;  

(i) the rights of a secured creditor to be exercised by one or more of its officers authorised in this behalf in accordance with the rules made by the Central Government;

(j)  an  appeal  against  the  action  of  any  bank  or financial  institution  to  the  concerned  Debts Recovery  Tribunal  and  a  second  appeal  to  the Appellate Debts Recovery Tribunal;  

(k)  setting  up  or  causing  to  be  set  up  a  Central Registry by the Central Government for the purpose of  registration  of  transactions  relating  to securitisation, asset reconstruction and creation of security interest;  

(l) application of the proposed legislation initially to banks and financial  institutions and empowerment of the Central Government to extend the application

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of the proposed legislation to non-banking financial companies and other entities;

(m) non-application of the proposed legislation to security  interests  in  agricultural  lands,  loans  not exceeding rupees one lakh and cases where eighty per cent, of the loans are repaid by the borrower.  

3. The Bill seeks to achieve the above objects.”

19. This  Act  was  brought  into  force  as  a  result  of  two

committee reports which opined that  recovery of debts due to

banks and financial institutions was not moving as speedily as

expected,  and  that,  therefore,  certain  other  measures  would

have to be put in place in order that these banks and financial

institutions would better be able to recover debts owing to them.

20. In  a  challenge  made  to  the  Securitisation  and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 in Mardia Chemicals Ltd. Etc. v. Union of

India (UOI) and Ors. Etc. Etc., (2004) 4 SCC 311, this Court

went into the circumstances under which the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 was enacted, as follows:-

“Some facts which need to be taken note of  are that  the  banks  and  the  financial  institutions  have

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heavily financed the petitioners and other industries. It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through  courts  is  lengthy  and  time  taken  is  not suited  for  recovery  of  such  dues.  For  financial assistance  rendered  to  the  industries  by  the financial  institutions,  financial  liquidity  is  essential failing which there is a blockade of large sums of amounts  creating  circumstances  which  retard  the economic progress followed by a large number of other consequential ill effects. Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 but  as  the  figures  show it  also  did  not  bring  the desired results. Though it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the Governments in creating Debts Recovery  Tribunals  and  appointing  presiding officers,  for  a  long  time.  Even  after  leaving  that margin, it is to be noted that things in the spheres concerned  are  desired  to  move  faster.  In  the present-day  global  economy it  may be  difficult  to stick to old and conventional methods of financing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards securitisation of the debts and to evolve means for faster recovery of NPAs  was  not  called  for  or  that  it  was superimposition  of  undesired  law  since  one legislation  was  already  operating  in  the  field, namely, the Recovery of Debts Due to Banks and Financial Institutions Act. It is also to be noted that the idea has not erupted abruptly to resort to such a legislation. It  appears that a thought was given to the problems and the Narasimham Committee was constituted  which  recommended  for  such  a legislation keeping in view the changing times and economic  situation  whereafter  yet  another  Expert Committee  was  constituted,  then  alone  the impugned  law  was  enacted.  Liquidity  of  finances and flow of money is essential for any healthy and

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growth-oriented economy. But certainly, what must be kept  in  mind  is  that  the  law should  not  be in derogation of the rights which are guaranteed to the people  under  the  Constitution.  The  procedure should also be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieved.  In its Second Report, the Narasimham Committee observed  that  NPAs  in  1992  were  uncomfortably high for most of the public sector banks. In Chapter VIII  of  the  Second  Report  the  Narasimham Committee  deals  about  legal  and  legislative framework and observed:

“8.1.  A  legal  framework  that  clearly  defines  the rights  and  liabilities  of  parties  to  contracts  and provides for speedy resolution of disputes is a sine qua  non  for  efficient  trade  and  commerce, especially  for  financial  intermediation.  In  our system, the evolution of the legal framework has not kept  pace with changing commercial  practice and with  the  financial  sector  reforms.  As  a  result,  the economy has not been able to reap the full benefits of the reforms process. As an illustration, we could look at the scheme of mortgage in the Transfer of Property Act, which is critical to the work of financial intermediaries….”

One  of  the  measures  recommended  in  the circumstances was to vest the financial institutions through special  statutes,  the power of  sale of  the assets  without  intervention  of  the  court  and  for reconstruction of assets. It is thus to be seen that the question of non-recoverable or delayed recovery of  debts  advanced  by  the  banks  or  financial institutions  has  been  attracting  attention  and  the matter was considered in depth by the Committees specially constituted consisting of the experts in the field. In the prevalent situation where the amounts of dues are huge and hope of early recovery is less,

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it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to.  It  is  again  to  be noted that  after  the Report of the Narasimham Committee, yet another Committee  was  constituted  headed  by  Mr. Andhyarujina for  bringing about  the needed steps within  the  legal  framework.  We  are  therefore, unable to find much substance in  the submission made  on  behalf  of  the  petitioners  that  while  the Recovery  of  Debts  Due  to  Banks  and  Financial Institutions Act was in operation it was uncalled for to have yet another legislation for the recovery of the  mounting  dues.  Considering  the  totality  of circumstances and the financial climate world over, if it was thought as a matter of policy to have yet speedier legal method to recover the dues, such a policy  decision  cannot  be  faulted  with  nor  is  it  a matter  to  be  gone  into  by  the  courts  to  test  the legitimacy of  such a  measure relating to financial policy.

We may now consider the main enforcing provision which is pivotal  to the whole controversy, namely, Section 13 in Chapter III of the Act. It provides that a secured creditor may enforce any security interest without  intervention  of  the  court  or  tribunal irrespective  of  Section  69  or  Section  69-A of  the Transfer  of  Property  Act  where  according  to sub-section  (2)  of  Section  13,  the  borrower  is  a defaulter in repayment of the secured debt or any instalment  of  repayment  and  further  the  debt standing  against  him  has  been  classified  as  a non-performing  asset  by  the  secured  creditor. Sub-section (2) of Section 13 further provides that before taking any steps in the direction of realizing the dues, the secured creditor must serve a notice in writing to the borrower requiring him to discharge the liabilities within a period of 60 days failing which the secured creditor would be entitled to take any of the  measures  as  provided  in  sub-section  (4)  of

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Section  13.  It  may  also  be  noted  that  as  per sub-section (3) of Section 13 a notice given to the borrower must  contain the details  of  the amounts payable and the secured assets against which the secured creditor proposes to proceed in the event of non-compliance  with  the  notice  given  under sub-section (2) of Section 13.” [at para 34,36 and 38]

21. The “pivotal” provision namely Section 13 of the said Act

makes it clear that banks and financial institutions would now

no  longer  have  to  wait  for  a  Tribunal  judgment  under  the

Recovery of Debts Due to Banks and Financial Institutions Act,

1993 to be able to recover debts owing to them.  They could, by

following  the  procedure  laid  down in  Section  13,  take  direct

action  against  the  debtors  by  taking  possession  of  secured

assets  and  selling  them;  they  could  also  take  over  the

management of the business of the borrower. They could also

appoint any person to manage the secured assets possession

of which has been taken over by them, and could require, at

any time by notice in writing to any person who has acquired

any of the secured assets from the borrower and from whom

any money is due or may become due from the borrower, to

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pay the secured creditor so much of the money as is sufficient

to pay the secured debt.  

22. In order to  further the objects of  the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002, the Act contains a  non obstante  clause in

Section 35 and also contains various Acts in Section 37 which

are  to  be  in  addition  to  and  not  in  derogation  of  the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement  of  Security  Interest  Act,  2002.   Three  of  these

Acts,  namely,  the  Companies  Act,  1956,  the  Securities

Contracts  (Regulation)  Act,  1956  and  the  Securities  and

Exchange  Board  of  India  Act,  1992,  relate  to  securities

generally, whereas the Recovery Of Debts Due To Banks And

Financial Institutions Act, 1993 relates to recovery of debts due

to banks and financial institutions.  Significantly, under Section

41  of  this  Act,  three  Acts  are,  by  the  schedule  to  this  Act,

amended.   We  are  concerned  with  the  third  of  such  Acts,

namely, the Sick Industrial Companies (Special Provisions) Act,

1985, in Section 15(1) of which two provisos have been added.

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It is the correct interpretation of the second of these provisos on

which the fate of these appeals ultimately hangs.  

23. It is in this background  that we need to embark on the

next step, namely, to consider the following two questions which

arise on the facts of this case:  

(1) Whether  the  Securitisation  and  Reconstruction  of

Financial Assets and Enforcement of Security Interest Act, 2002

prevails over the Sick Industrial Companies (Special Provisions)

Act, 1985; and

(2) Whether the expression “where a reference is pending” in

Section  15  (1)  proviso  3  of  the  Sick  Industrial  Companies

(Special  Provisions)  Act,  1985 would  include all  proceedings

before  the  BIFR  or  only  proceedings  at  the  initial  reference

stage.  

24. The  occasion  for  answering  question  no.  1  is  Shri

Sreekumar’s argument that the effect of the Delhi High Court’s

stay order dated 7.1.2004 is that the reference before the BIFR

springs  back  into  life,  and  with  it  Section  22(1)  of  the  Sick

Industrial Companies (Special Provisions) Act, 1985.  It is also

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occasioned  by a further argument that the winding  up order

passed by the Bombay High Court dated 30.8.2007 being in the

teeth of  the stay order  and Section 22 of  the Sick Industrial

Companies  (Special  Provisions)  Act,  1985,   is  non  est and

therefore  the  appeals  before  this  Court  have  not  become

infructuous.   If  Shri  C.N.  Sreekumar  is  right,  then  after

enactment of the Securitisation and Reconstruction of Financial

Assets  and  Enforcement  of  Security  Interest  Act,  2002,

because of the presence of Section 22(1) of the Sick Industrial

Companies  (Special  Provisions)  Act,  1985,  none  of  the

measures taken by the secured creditors under Section 13 of

Securitisation Act can be proceeded with because of the bar

contained  in  Section  22(1)  of  the  Sick  Industrial  Companies

(Special  Provisions)  Act,  1985.   Hence,  we  have  first  to

determine  whether  the  Securitisation  and  Reconstruction  of

Financial Assets and Enforcement of Security Interest Act, 2002

overrides Section 22 of the Sick Industrial Companies (Special

Provisions) Act, 1985 as such overriding is only to the extent of

the  inconsistency  between  the  two  enactments.    Such

inconsistency is  found in  Section 22(1)  of  the Sick  Industrial

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Companies (Special Provisions) Act, 1985, by which any action

taken to realize debts owing to the secured creditors of  sick

industrial companies cannot be proceeded with under the 2002

Act unless the BIFR accords permission under Section 22(1) of

the Sick Industrial Companies (Special Provisions) Act, 1985.  

25. It is now necessary to undertake a survey of the case law

laid  down  by  this  court  in  relation  to  the  Sick  Industrial

Companies (Special Provisions) Act, 1985 and its relation with

other enactments. In an early judgment, namely, Maharashtra

Tubes Ltd. v. State Industrial And Investment, (1993) 2 SCC

144, this Court had to deal with the  Sick Industrial Companies

(Special  Provisions)  Act,  1985,  vis-à-vis  the  State  Financial

Corporations Act, 1951.  In paragraph 9 of the judgment it was

held that both Acts were special Acts, the 1951 Act dealing with

the recovery of debts of a company pre-sickness and the 1985

Act dealing with such recovery post-sickness.  Since both the

Acts contained non obstante clauses, it was held that the 1985

Act, being later in point of time, would prevail over the 1951 Act.

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26. On the other hand, in Solidaire India Ltd. v. Fairgrowth

Financial Services Ltd. and Ors., (2001) 3 SCC 71, it was the

Special  Courts  (Trial  of  Offences Relating to  Transactions in

Securities), Act, 1992 which came up for consideration vis-à-vis

the Sick Industrial Companies (Special Provisions) Act, 1985.

In  paragraphs 9  and 10 of  this  Court’s  judgment,  this  Court

noted that both Acts were special Acts. In a significant extract

from a Special  Court  judgment,  which was approved by this

Court, it was stated that The Special Courts Act, 1992, being a

later  enactment  and  also  containing  a  non  obstante  clause,

would  prevail  over  the  Sick  Industrial  Companies  (Special

Provisions) Act, 1985.  Had the legislature wanted to exclude

the  provisions  of  the  Sick  Industrial  Companies  (Special

Provisions)  Act,  1985,  from  the  ambit  of  the  said  Act,  the

legislature would specifically have so provided (Emphasis ours).

The  fact  that  the  legislature  did  not  specifically  so  provide

necessarily  means  that  the  legislature  intended  that  the

provisions of the said Act were to prevail over the provisions of

the Sick Industrial Companies (Special Provisions) Act, 1985.

In short, when property of notified persons under the Special

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Courts Act, 1992 stands attached, it is only the Special Court

which can give directions to the custodian under the said Act as

to disposal of such property of a notified party.  The legislature

expressly overrode Section 22 of the Sick Industrial Companies

(Special Provisions) Act, 1985 and permitted the custodian to

give  directions  under  Section  11 of  the  Special  Courts  Act,

1979,  notwithstanding  Section  22  of  the  Sick  Industrial

Companies (Special Provisions) Act, 1985.

27. In Jay Engineering Works Ltd. v. Industry Facilitation

Council and Anr., (2006) 8 SCC 677, this time this Court had

to deal with the Interest on Delayed Payment to Small  Scale

and  Ancillary  Industrial  Undertakings  Act,  1993  vis-à-vis  the

Sick Industrial Companies (Special Provisions) Act, 1985.  Both

Acts contained non obstante clauses.  This Court referred to the

1994  amendment  to  the  Sick  Industrial  Companies  (Special

Provisions) Act, 1985 and stated that the amending Act being

later than the 1993 Act, the Sick Industrial Companies (Special

Provisions) Act, 1985 would, therefore, prevail. (See paragraph

27).  

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28. Similarly, in  Morgan Securities and Credit Pvt. Ltd. v.

Modi  Rubber  Ltd., (2006)  12  SCC 642,  the  Arbitration  and

Conciliation  Act,  1996  contained  a  non  obstante  clause  in

Section 5 thereof.  Despite this being a later Act, vis-à-vis the

Sick Industrial Companies (Special Provisions) Act, 1985, this

Court  held  that  the  Sick  Industrial  Companies  (Special

Provisions)  Act,  1985  would  prevail,  inasmuch  as  the  non

obstante  clause  contained  in  the  Arbitration  and  Conciliation

Act, 1996 had only a limited application - it applied only insofar

as the extent of judicial intervention in arbitration proceedings is

concerned. (See paragraph nos. 66 and 68).  

29. In  an  interesting  concurring  judgment,

Balasubramanyan,J., in paragraph 76 held:

“Occasions  are  not  infrequent  when  not  so scrupulous  debtors  approach  B.I.F.R.  to  stall  the proceedings and to keep their creditors at bay. The delay  before  the  B.I.F.R.  is  sought  to  be  taken advantage of. The Parliament has apparently taken note  of  this  and  has  repealed  SICA by  the  Sick Industrial  Companies  (Special  Provisions)  Repeal Act, 2003. The vacuum, thus created has been filled by an amendment to the Companies Act. But, so far, the  provisions  of  the  Amending  Act  and  the Companies Act introduced, have not been brought

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into force. It appears to be time to consider whether these enactments should not be notified.”

30. Similarly,  in  Tata  Motors  Ltd. v. Pharmaceutical

Products of India Ltd. and Anr., (2008) 7 SCC 619, it  was

held,  following  the  judgment  in  NFEF  Ltd.  v.  Chandra

Developers (P) Ltd., (2005) 8 SCC 219, that the Companies

Act being a general enactment would have to give way to the

Sick Industrial Companies (Special Provisions) Act, 1985 which

is a later and special enactment. (see paragraphs 22 to 24).

31. And in  Raheja Universal Limited v.  NRC Limited and

Ors., (2012) 4 SCC 148, the Transfer of Property Act,1882 had

to yield to the Sick Industrial Companies (Special Provisions)

Act,  1985 being a general Act,  as against the Sick Industrial

Companies (Special Provisions) Act, 1985 which was a special

Act,  together  with  a  reading  of  the  non  obstante  clause

contained in the Sick Industrial Companies (Special Provisions)

Act, 1985 (see paragraphs 91 to 93).

32. In  KSL  &  Industries  Ltd. v. Arihant   Threads  Ltd.,

(2015) 1 SCC 166, it was the turn of the  Recovery Of Debts

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Due To Banks And Financial Institutions Act, 1993 vis-à-vis the

Sick Industrial Companies (Special Provisions) Act, 1985. This

Court  in  resolving  the  controversy  in  favour  of  the  Sick

Industrial Companies (Special Provisions) Act, 1985 held:-

“Sub-section  (2)  was  added to  Section  34  of  the RDDB Act w.e.f. 17-1-2000 by Act 1 of 2000. There is no doubt that when an Act provides, as here, that its  provisions  shall  be  in  addition  to  and  not  in derogation of another law or laws, it means that the legislature  intends  that  such  an  enactment  shall coexist along with the other Acts. It is clearly not the intention of the legislature, in such a case, to annul or  detract  from the  provisions  of  other  laws.  The term  “in  derogation  of”  means  “in  abrogation  or repeal of”. The Black's Law Dictionary sets forth the following meaning for “derogation”:

“derogation.—The partial repeal or abrogation of a law by a later Act that limits its scope or impairs its utility and force.” It  is  clear  that  sub-section  (1)  contains  a  non obstante clause, which gives the overriding effect to the RDDB Act. Sub-section (2) acts in the nature of an exception to such an overriding effect. It states that  this  overriding  effect  is  in  relation  to  certain laws and that the RDDB Act shall be in addition to and  not  in  abrogation  of,  such  laws.  SICA  is undoubtedly one such law.

There is no doubt that both are special laws. SICA is a special law, which deals with the reconstruction of  sick  companies  and  matters  incidental  thereto, though it is general as regards other matters such as  recovery  of  debts.  The  RDDB  Act  is  also  a special law, which deals with the recovery of money

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due  to  banks  or  financial  institutions,  through  a special  procedure,  though  it  may  be  general  as regards other matters such as the reconstruction of sick companies which it does not even specifically deal  with.  Thus  the  purpose  of  the  two  laws  is different.

Parliament must be deemed to have had knowledge of the earlier law i.e. SICA, enacted in 1985, while enacting the RDDB Act, 1993. It  is with a view to prevent a clash of procedure, and the possibility of contradictory  orders  in  regard  to  the  same  entity and its properties, and in particular, to preserve the steps  already  taken  for  reconstruction  of  a  sick company in relation to the properties of such sick company, which may be charged as security with the banks  or  financial  institutions,  that  Parliament has specifically enacted sub-section (2). SICA had been  enacted  in  respect  of  specified  and  limited companies  i.e.  those  which  owned  industrial undertakings specified in the Schedule to the IDR Act,  as mentioned earlier, whereas the RDDB Act deals with all persons, who may have taken a loan from  a  bank  or  a  financial  institution  in  cash  or otherwise, whether secured or unsecured, etc.

In  view  of  the  observations  of  this  Court  in  the decisions referred to and relied on by the learned counsel for the parties we find that, the purpose of the two enactments is entirely different. As observed earlier, the purpose of one is to provide ameliorative measures for reconstruction of sick companies, and the purpose of  the other is  to  provide for  speedy recovery of debts of banks and financial institutions. Both the Acts are “special” in this sense. However, with  reference  to  the  specific  purpose  of reconstruction  of  sick  companies,  SICA  must  be held  to  be  a  special  law,  though  it  may  be considered to  be  a  general  law in  relation  to  the recovery of debts. Whereas, the RDDB Act may be

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considered  to  be  a  special  law  in  relation  to  the recovery of debts and SICA may be considered to be a general law in this regard. For this purpose we rely on the decision in LIC v. Vijay Bahadur [(1981) 1 SCC 315 : 1981 SCC (L&S) 111] . Normally the latter of the two would prevail on the principle that the legislature was aware that  it  had enacted the earlier Act and yet chose to enact the subsequent Act  with  a  non  obstante  clause.  In  this  case, however, the express intendment  of  Parliament in the   non obstante   clause of the RDDB Act does not permit us to take that view. Though the RDDB Act is the later enactment, sub-section (2) of Section 34 thereof  specifically  provides that  the provisions of the Act  or the Rules made thereunder shall  be in addition to, and not in derogation of, the other laws mentioned therein including SICA.” [at paras 36, 39, 40, and 48]

33. A conspectus of the aforesaid decisions shows that the

Sick  Industrial  Companies  (Special  Provisions)  Act,  1985

prevails in all situations where there are earlier enactments with

non obstante  clauses similar to the Sick Industrial Companies

(Special  Provisions)  Act,  1985.   Where  there  are  later

enactments  with  similar  non  obstante  clauses,  the  Sick

Industrial Companies (Special Provisions) Act, 1985 has been

held to prevail only in a situation where the reach of the  non

obstante clause in the later Act is limited – such as in the case

of the Arbitration and Conciliation Act, 1996 – or in the case of

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the later Act expressly yielding to the Sick Industrial Companies

(Special Provisions) Act, 1985, as in the case of the Recovery

Of Debts Due To Banks And Financial Institutions Act,  1993.

Where such is not the case, as in the case of Special Courts

Act, 1992, it is the Special Courts Act, 1992 which was held to

prevail over the Sick Industrial Companies (Special Provisions)

Act, 1985.   

34. 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  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 54

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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,

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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.  

35. 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 56

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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  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)”.  

36. This is what then brings us to the doctrine of harmonious

construction, which is one of the paramount doctrines that is

applied in interpreting all statutes.  Since   neither Section 35

nor  Section   37 of  the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002

is subject to the other, we think it is necessary to interpret the

expression  “or  any  other  law for  the  time being  in  force”  in

Section 37.  If a literal meaning is given to the said expression,

Section 35 will become completely otiose as all other laws will

then be in addition to and not in derogation of the Securitisation

and  Reconstruction  of  Financial  Assets  and  Enforcement  of

Security Interest Act, 2002.  Obviously this could not have been

the Parliamentary intendment, after providing in Section 35 that 57

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the Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 will prevail over all

other laws that are inconsistent therewith.  A middle ground has

therefore  necessarily  to  be taken.   According to  us,  the two

apparently  conflicting  Sections  can  best  be  harmonized  by

giving meaning to both.  This can only be done by limiting the

scope of the expression “or any other law for the time being in

force” contained in Section 37.  This expression will therefore

have  to  be  held  to  mean  other  laws  having  relation  to  the

securities market only, as the Recovery of Debts Due to Banks

and Financial Institutions Act, 1993 is the only other special law,

apart  from the Securitisation and Reconstruction of  Financial

Assets and Enforcement of Security Interest Act, 2002, dealing

with recovery of debts due to banks and financial institutions.

On  this  interpretation  also,  the  Sick  Industrial  Companies

(Special  Provisions)  Act,  1985  will  not  be  included  for  the

obvious reason that its primary objective is to rehabilitate sick

industrial companies and not to deal with the securities market.

37.   An interesting pointer  to  the direction Parliament  has

taken after enactment of the Securitisation and Reconstruction 58

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of Financial  Assets and Enforcement of  Security Interest Act,

2002 is  also of  some relevance in  this  context.    The Eradi

Committee  Report  relating  to  insolvency  and  winding  up  of

companies dated 31.7.2000, observed that out of 3068 cases

referred to the BIFR from 1987 to 2000 all but 1062 cases have

been disposed of.   Out  of  the  cases disposed of, 264 cases

were  revived,  375  cases  were  under  negotiation  for  revival

process, 741  cases  were  recommended  for winding  up,  and

626  cases  were  dismissed  as  not  maintainable.  These

facts and figures speak for themselves and place a big question

mark on the utility  of  the Sick  Industrial  Companies (Special

Provisions) Act, 1985. The Committee further pointed out that

effectiveness  of  the  Sick  Industrial  Companies  (Special

Provisions) Act, 1985 as has been pointed out earlier, has been

severely  undermined  by  reason  of  the  enormous  delays

involved in the disposal of cases by the BIFR. (See paragraphs

5.8, 5.9 and 5.15 of the Report). Consequently, the Committee

recommended  that  the  Sick  Industrial  Companies  (Special

Provisions)  Act,  1985  be  repealed  and  the  provisions

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thereunder for revival and rehabilitation should be telescoped

into the structure of the Companies Act, 1956 itself.  

38. Pursuant to the Eradi Committee report, the Companies

Act was amended in 2002 by providing for the constitution of a

National  Company  Law  Tribunal  as  a  substitute  for  the

Company Law Board, the High Court, the BIFR and the AAIFR.

The  Eradi  Committee  Report  was  further  given  effect  to  by

inserting Sections 424A to 424H into the Companies Act, 1956

which, with a few changes, mirrored the provisions of Sections

15 to 21 of the Sick Industrial Companies (Special Provisions)

Act,  1985.   Interestingly,  the  Companies  Amendment  Act  of

2002 omitted a provision similar  to Section 22(1) of  the Sick

Industrial  Companies  (Special  Provisions)  Act,  1985.

Consequently,  creditors  were  given  liberty  to  file suits  or

initiate   other   proceedings   for   recovery  of  dues despite

pendency of proceedings for the revival or rehabilitation of sick

companies before the National Company Law Tribunal.  

39. This  Amendment  Act  came  under  challenge,  which

challenge  culminated  in  the  Constitution  Bench  decision  in

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Union  of  India v.  R,  Gandhi,  President,  Madras  Bar

Association,  (2010)  11 SCC  10  by  which  the  amendments

were  upheld,  with  certain  changes  recommended  by  the

Constitution Bench of this Court.   

40. Close  on  the  heels  of  the  amendment  made  to  the

Companies Act came The Sick Industrial Companies (Special

Provisions) Repeal Act, 2003. This particular Act was meant to

repeal the Sick Industrial Companies (Special Provisions) Act,

1985 consequent  to  some of  its  provisions being telescoped

into the Companies Act.  Thus, the Companies Amendment Act

of 2002 and the SICA Repeal Act formed part of one legislative

scheme, and neither has yet been brought into force.  In fact,

even the Companies Act, 2013, which repeals the Companies

Act,  1956, contains Chapter 19 consisting of Sections 253 to

269 dealing with revival  and rehabilitation of  sick companies

along  the  lines  of  Sections  424A to  424H  of  the  amended

Companies  Act,  1956.   Conspicuous  by  its  absence  is  a

provision akin to Section 22(1) of the Sick Industrial Companies

(Special Provisions) Act, 1985 in the 2013 Act.  However, this

Chapter is also yet to be brought into force.  These statutory 61

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provisions,  though  not  yet  brought  into  force,  are  also  an

important  pointer  to  the  fact  that  Section  22(1)  of  the  Sick

Industrial Companies (Special Provisions) Act, 1985 has been

statutorily  sought  to  be excluded,  Parliament  veering around

from  wanting  to  protect  sick  industrial  companies  and

rehabilitate  them  to  giving  credence  to  the  public  interest

contained in the recovery of public monies owing to banks and

financial  institutions.   These  provisions  also  show  that  the

aforesaid  construction  of  the  provisions  of  the  Securitisation

and  Reconstruction  of  Financial  Assets  and  Enforcement  of

Security  Interest  Act,  2002  vis-à-vis  the  Sick  Industrial

Companies   (Special Provisions) Act, 1985, leans in favour of

creditors  being  able  to  realize  their  debts  outside  the  court

process  over  sick  industrial  companies  being  revived  or

rehabilitated. In fact, another interesting document is the Report

on Trend and Progress of Banking in India 2011-2012 for the

year ended 30.6.2012 submitted by the Reserve Bank of India

to  the  Central  Government  in  terms of  Section  36(2)  of  the

Banking  Regulation  Act,  1949.   In  table  IV.14  the  report

provides statistics regarding trends in  Non-performing Assets

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bank-wise,  group-wise.   As  per  the  said  table,  the  opening

balance of Non-performing Assets in public sector banks for the

year 2011-2012 was Rs.746 billion but the closing balance for

2011-2012  was  Rs.1,172  billion  only.  The  total  amount

recovered  through  the  Securitisation  and  Reconstruction  of

Financial Assets and Enforcement of Security Interest Act, 2002

during  2011-2012  registered  a  decline  compared  to  the

previous year, but, even then, the amounts recovered under the

said Act constituted 70 percent of the total amount recovered.

The amounts recovered under the Recovery Of Debts Due To

Banks And Financial Institutions Act, 1993 constituted only 28

per cent.  All this would go to show that the amounts that public

sector  banks and financial  institutions have to recover are in

staggering  figures  and  at  long  last  at  least  one  statutory

measure has proved to be of some efficacy.  This Court would

be loathe to give such an interpretation as would thwart  the

recovery process under the Securitisation and Reconstruction

of Financial Assets and Enforcement of Security Interest Act,

2002 which Act alone seems to have worked to some extent at

least.  

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41. It will thus be seen that notwithstanding the non obstante

clauses in Section 22(1) and (4), read with Section 32, Section

22 of the Sick Industrial  Companies (Special Provisions) Act,

1985 will  have to give way to the measures taken under the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement  of  Security  Interest  Act,  2002  more  particularly

referred to in Section 13 of the said Act, and that this being the

case,  the  sale  notices  issued  both  in  2003  and  2013  could

continue without in any manner being thwarted by Section 22 of

the Sick Industrial Companies (Special Provisions) Act, 1985.  

42. It  remains  to  consider  one  argument  of  Shri  C.N.

Sreekumar.  Learned counsel  argued that  Section 37 of  the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement  of  Security  Interest  Act,  2002  refers  to  the

Recovery of Debts Due to Banks and Financial Institutions Act,

1993 which in turn contains Section 34(2) which makes the Sick

Industrial  Companies  (Special  Provisions)  Act,  1985  prevail

over  the  Recovery  of  Debts  Due  to  Banks  and  Financial

Institutions  Act,  1993.   It  was  therefore  argued  that  since

Section 37 refers to the Recovery of Debts Due to Banks and 64

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Financial Institutions Act, 1993 and since Section 34(2) of the

Recovery of Debts Due to Banks and Financial Institutions Act,

1993  refers  to  the  Sick  Industrial  Companies  (Special

Provisions) Act, 1985, Section 37 should also be construed so

as  to  include  a  reference  to  the  Sick  Industrial  Companies

(Special  Provisions)  Act,  1985.  Quite  apart  from  driving  a

coach-and-four through the object sought to be achieved by the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement of Security Interest Act, 2002, this argument does

not commend itself to us for the obvious reason that Section

34(2)  refers  to  the  Sick  Industrial  Companies  (Special

Provisions) Act, 1985 only for the purpose of the Recovery Of

Debts Due To Banks And Financial Institutions Act, 1993 and for

no other purpose.  This is quite apart from the fact that, as has

been  noted  hereinabove,  the  non-reference  to  the  Sick

Industrial Companies (Special Provisions) Act, 1985 in Section

37 of the Securitisation and Reconstruction of Financial Assets

and Enforcement of Security Interest Act, 2002 was deliberate,

as has been held by us hereinabove.   

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43. Shri  Sundaram  is  also  correct  when  he  refers  to  the

judgment  of this Court in Shree Chamundi Mopeds v. Church

of South India Trust Association, (1992) 3 SCC 1.  In the said

judgment, this Court has held:

“In  the  instant  case,  the  proceedings  before  the Board  under  Sections 15 and 16 of  the  Act  had been terminated by order of the Board dated April 26, 1990 whereby the Board, upon consideration of the  facts  and  material  before  it,  found  that  the appellant-company had become economically  and commercially  non-viable  due  to  its  huge accumulated  losses  and  liabilities  and  should  be wound  up.  The  appeal  filed  by  the appellant-company  under  Section 25 of  the  Act against said order of the Board was dismissed by the Appellate Authority  by order  dated January 7, 1991. As a result of these orders, no proceedings under the Act was pending either before the Board or  before the Appellate  Authority  on February 21, 1991 when the Delhi High Court passed the interim order  staying  the  operation  of  the  Appellate Authority  dated  January  7,  1991.  The  said  stay order of the High Court  cannot have the effect  of reviving the proceedings which had been disposed of  by  the  Appellate  Authority  by  its  order  dated January 7, 1991. While considering the effect of an interim  order  staying  the  operation  of  the  order under-challenge,  a  distinction  has  to  be  made between quashing of an order and stay of operation of  an  order.  Quashing  of  an  order  results  in  the restoration of the position as it stood on the date of the passing of the order which has been quashed. The  stay  of  operation  of  an  order  does  not, however, lead to such a result. It only means that the  order  which  has  been  stayed  would  not  be

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operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an  order  passed  by  the  Appellate  Authority  is quashed  and  the  matter  is  remanded,  the  result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the  Appellate  Authority  after  the  quashing  of  the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of  the Appellate Authority because in spite of  the said order, the order of  the Appellate Authority continues to exist in law and so long as it exists, it cannot be said that the appeal which has been disposed of  by the said order has not  been disposed of and is still pending. We are, therefore, of the opinion that the passing of the interim order dated  February  21,1991  by  the  Delhi  High  Court staying the operation of the order of the Appellate Authority dated January 7,1991 does not have the effect  of  reviving  the  appeal  which  had  been dismissed  by  the  Appellate  authority  by  its  order dated January 7,  1991 and it  cannot be said that after  February  21,  1991,  the  said  appeal  stood revived  and  was  pending  before  the  Appellate Authority. In  that  view of  the matter, it  cannot  be said  that  any  proceedings  under  the  Act  were pending before the Board or the Appellate Authority on the date of the passing of the order dated August 14,  1991  by  the  learned  Single  Judge  of  the Karnataka  High  Court  for  winding  up  of  the company  or  on  November  6,  1991  when  the Division  Bench  passed  the  order  dismissing O.S.A.No.  16  of  1991  filed  by  the  appellant company  against  the  order  of  the  learned  Single Judge dated August 14, 1991. Section 22(1) of the Act could not, therefore, be invoked and there was no impediment in the High Court  dealing with the

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winding up petition filed by the respondents…..” [at para 10]  

44. A reading of the said judgment also shows that the order

of stay of the BIFR’s opinion to wind up the company and the

dismissal of the appeal therefrom by the AAIFR would not in

any  manner  revive  the  reference  under  Section  15  of  the

Appellant No. 1 Company.  For this reason also, it is clear that

after the orders of the BIFR and AAIFR have been upheld by

dismissal of the writ petition filed before the Delhi High Court by

the impugned judgment, there can be said to be no revival of

reference proceedings before the BIFR.  

45. However, Shri Sreekumar referred to three judgments in

support  of  the  proposition  that  interim  orders  preserve  the

status quo and that, therefore, the interim order of stay has to

be obeyed during the pendency of  the Writ  Petition.  For this

purpose, he cited Kihoto Hollohan v. Zachillhu & Ors., (1992)

Supp. (2) SCC 651,  Ravi S. Naik v. Union of India & Ors.,

(1994)  Supp.  (2)  SCC  641  and  BPL  Ltd.  &  Ors.  v.  R.

Sudhakar  &  Ors.,  (2004)  7  SCC  219.   Each  of  these

judgments  was  delivered  in  different  contexts.   The  first 68

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judgment of  Kihoto Hollohan was delivered in the context of

landslide changes that would have taken place had a stay order

not  been passed  in  the  context  of  the  10th Schedule  to  the

Constitution of India, which was enacted to remedy the evil of

defection.   The second judgment, namely,  Ravi S.  Naik was

also delivered in the same context and the third judgment was

delivered  in  the  context  of  Section  33(2)(b)  of  the  Industrial

Disputes Act, 1947.  None of these judgments has any direct

bearing on the facts before us, which can be said to be covered

directly  by  the  judgment  in  Shree  Chamundi  Mopeds  Ltd.

(supra).  

46. Question No.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 the 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 are Madras, 69

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Delhi,  Bombay,  Kerala,  Punjab,  Gujarat   and   Calcutta.     All

these  judgments  are  referred  to  in  an  exhaustive  full  bench

decision  of  the  Madras  High  Court  in  M/s.  Salem  Textiles

Limited v. The Authorized Officer and Ors.,  reported in AIR

2013 Madras  229.   The  only  dissenting  voice  is  that  of  the

Orissa High Court in a judgment reported in  Noble Aqua Pvt.

Ltd. v. State Bank of India, AIR 2008 Orissa 103, which has

held  that  the  expression  “reference”  would  only  refer  to  the

initial  stage of  filing a reference before the BIFR and not  to

subsequent  stages  thereof,  namely  inquiry,  preparation  and

sanction of schemes.  It has to be determined as to which of

these two sets of judgments is a correct exposition of the law.  

47. It  is  clear  that  a  purely  literal  interpretation  of  the

expression “where a reference is pending” can yield the result

that the Orissa High Court reached.  In fact, Chapter III of the

Sick  Industrial  Companies  (Special  Provisions)  Act,  1985

specifically  refers,  in  the  Chapter  heading,  to  references,

inquiries and schemes.  While Section 15 of the Sick Industrial

Companies  (Special  Provisions)  Act,  1985  deals  with

references, Section 16 deals with inquiries into the working of 70

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Sick  Industrial  Companies.   Section  18  then  deals  with

preparation and sanction of schemes.  

48. What  has to  be examined is  whether  this  purely  literal

rendering of the expression “where a reference is pending” is

correct or not.  First and foremost, it is important to note that the

third proviso to Section 15(1) uses the words “is pending”.  A

reference  has  been  held  to  be  pending  the  moment  it  is

received  by  the  Board.   In  Real  Value  Appliances  Ltd.  v.

Canara Bank & Ors.,   (1998) 5 SCC 554, this Court had to

decide whether the mere registration of a reference by the BIFR

would result in the automatic cessation of all proceedings which

are pending in civil  courts and the company court against its

assets.  It was argued that in order that Section 22 of the Act

can come into  operation,  the BIFR must,  subsequent  to  the

registration of the reference under Section 15, apply its mind

and consider whether it is necessary under Section 16 to make

an  inquiry.   Unless  an  inquiry  is  pending,  the  provisions  of

Section 22 of the Act do not get attracted.  It was held that once

the  reference  is  registered  after  a  preliminary  scrutiny,  it  is

mandatory for the BIFR to conduct an inquiry.  This being so, it 71

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is  in  furtherance  of  the  legislative  intention  to  see  that  no

proceedings  against  the  assets  are  taken  before  the  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

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Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002, the moment a reference is registered.  And

this Court has held that the moment the reference is registered,

an inquiry as contemplated by Section 16 shall be deemed to

commence. If that is so, then a reference can never be said to

be pending after an inquiry commences, if learned counsel for

the Appellants is correct. This can never be the case.  It is clear,

therefore, that the expression “where a reference is pending”

would necessarily include the inquiry stage before the Board

under  Section  16  of  the  Act.   If  this  be  the  case,  then  the

reference can be said to be pending not only when an inquiry is

instituted, but also after preparation and sanction of a scheme

right till the stage the scheme has worked out successfully or till

the BIFR gives its opinion to wind up the company.  

49. The expression “reference” used in Section 15(1) proviso

3 is used in contra distinction to the expression “proceedings” in

Section 22. “Proceedings” under Section 22 are actions taken

against  the  sick  company,  whereas  “references”  are  actions

initiated by a sick company – it is perhaps for this reason that

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the  third  proviso  to  Section  15(1)  uses  the  expression

“reference” instead of the expression “proceedings”.  

50. Another  important  aspect  as  to  the  construction  of  the

third proviso to Section 15(1) is the meaning of the expression

“such  reference  shall  abate”.   One  of  the  meanings  of  the

expression “abate” is “to put an end to; to curtail; to come to

naught”.  (See  Ramanatha  Aiyar’s  Law Lexicon).  A reference

can be said to abate in one or several ways. One obvious way

that a reference abates is where the Board, after inquiry, rejects

the reference for the reason that the Board is satisfied that the

Company is not a sick industrial company as defined under the

Act.  Another way in which a reference can abate is where a

scheme  is  implemented  successfully,  and  the  sick  industrial

company is taken out of the woods successfully.  A third manner

in which a reference can abate is when a scheme or schemes

have failed in respect of the sick industrial company, and in the

opinion of the BIFR, the said Company ought to be wound up.

A fourth instance of abatement is provided by the third proviso

to  Section  15(1)  of  the  Sick  Industrial  Companies  (Special

Provisions)  Act,  1985.  And that  is  that  a  reference  which  is 74

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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 the 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 that, if 3/4 th or more of

the  secured  creditors  get  together  to  take  measures  under

Section  13(4)  of  the  Securitisation  and  Reconstruction  of

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Financial  Assets  and  Enforcement  of  Security  Interest  Act,

2002, they will not be thwarted by the provisions of Section 22

of  Sick  Industrial  Companies  (Special  Provisions)  Act,  1985,

and it will not be necessary for them to obtain BIFR permission

before taking any such measures.  This construction of the third

proviso to Section 15(1) is in keeping with the march of events

post  2002,  when  the  Securitisation  and  Reconstruction  of

Financial Assets and Enforcement of Security Interest Act, 2002

came to be enacted pursuant to various committee reports, and

for the reasons outlined hereinabove.  

51. A  recent  judgment  of  this  Court  in  Pegasus  Assets

Reconstruction P. Ltd. v. M/s. Haryana Concast Limited &

Anr., (Civil Appeal No. 3646 of 2011), has held, agreeing with a

judgment of the Delhi High Court, and disapproving a judgment

of the Punjab and Haryana High Court, that a Company Court

exercising jurisdiction under the Companies Act, has no control

in respect of sale of a secured asset by a secured creditor in

exercise  of  powers  available  to  such  creditor  under  the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement  of  Security  Interest  Act,  2002.  Some  of  the 76

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observations  made  by  this  Court  are  interesting  in  that  this

Court has held that the Securitisation Act is a complete code in

itself, and that earlier judgments rendered in the context of the

State Financial Corporation Act, 1951 or the Recovery Of Debts

Due To Banks And Financial Institutions Act, 1993 cannot be

held  applicable  to  the  Securitisation  Act.   Further,  the  very

incorporation of certain provisions of the Companies Act in the

Securitisation Act themselves harmonise the latter Act with the

Companies Act in respect of workers debts under Section 529A

of the Companies Act.   In a significant paragraph, this Court

has held:   

“The  aforesaid  view  commends  itself  to  us  also because  of  clear  intention  of  the  Parliament expressed in Section 13 of the SARFAESI Act that a secured creditor has the right to enforce its security interest  without  the  intervention  of  the  court  or tribunal.  At the same time, this Act takes care that in  case  of  grievance,  the  borrower,  which  in  the case of  a company under  liquidation would mean the  liquidator,  will  have  the  right  of  seeking redressal  under  Sections  17  and  18  of  the SARFAESI Act.” (At para 25)

52. The matter can be viewed from a slightly different angle

also.  There are many situations in which Section 22 of the Sick

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Industrial  Companies  (Special  Provisions)  Act,  1985  will  not

apply.   One  such  situation  is  a  situation  where  an  eviction

petition is filed under a State Rent Act for eviction on the ground

of non-payment of rent. Such eviction petitions have been held

not to be suits for recovery of money.  Consequently, Section 22

of the Sick Industrial Companies (Special Provisions) Act, 1985

has been held not to apply - See Gujarat Steel Tube Co. Ltd.

v.  Virchandbhai B. Shah, (1999) 8 SCC P.11 (paragraphs 9

and 10).   

53. Similarly,  in  Kailash  Nath  Agarwal v.  Pradeshiya

Industrial & Investment Corpn. of U.P. Ltd.,  (2003) 4 SCC

305, the U.P. Act  under which recovery proceedings initiated

against  guarantors  at  a  post-decree  stage  were  held  to  be

outside  the  purview  of  Section  22  of  the  Sick  Industrial

Companies (Special Provisions) Act, 1985. (see paragraph 35).  

54. 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

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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 per cent of

such secured creditors in value of the amount outstanding

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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 per

cent 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.  

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5. Where secured  creditors  representing not  less  than 75

per  cent  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.

55. In  conclusion,  it  is  held  that  the  interim  order  dated

17.1.2004 by the Delhi High Court would not have the effect of

reviving the reference so as to thwart taking of any steps by the

respondent  creditors  in  this  case  under  Section  13  of  the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement of Security Interest Act, 2002. This is because the

Securitisation  and  Reconstruction  of  Financial  Assets  and

Enforcement  of  Security  Interest  Act,  2002 prevails  over  the

Sick Industrial Companies (Special Provisions) Act, 1985 to the

extent  of  inconsistency  therewith.   Section  15(1)  proviso  3

covers  all  references  pending  before  the  BIFR,  no  matter 81

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whether such reference is at the inquiry stage, scheme stage,

or winding up stage.   The Orissa High Court is not correct in its

conclusion on the interpretation of Section 15(1) proviso 3 of

the Sick Industrial Companies (Special Provisions) Act, 1985.

This being so, it is clear that in any case the present reference

under Section 15(1) of the Appellant No. 1 company has abated

inasmuch as more than 3/4th of the secured creditors involved

have taken steps under Section 13(4) of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002.  The appeals are accordingly dismissed.  

……………………J. (Kurian Joseph)

……………………J. (R.F. Nariman)

New Delhi; January 29, 2016.  

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