IN THE HIGH COURT OF KERALA AT ERNAKULAM
WP(C).No. 27033 of 2008(R)
1. STATE BANK OF INDIA
... Petitioner
Vs
1. PRIMA AGRO LTD, AND ANOTHER
... Respondent
For Petitioner :SRI.K.JAYAKUMAR
For Respondent :SRI.SATHISH NINAN
The Hon'ble MR. Justice S.SIRI JAGAN
Dated :09/07/2009
O R D E R
S. SIRI JAGAN, J.
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WP(C) NO. 27033 OF 2008 &
WP(C) NO. 27104 OF 2008
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DATED THIS THE 9TH DAY OF JULY 2009
JUDGMENT
Since the very same issue arises in both these writ
petitions, the same are heard and disposed of by this
common judgment.
2. The petitioner bank is a member of two consortia of
Banks, who advanced loan amounts to the respective 1st
respondent in these two writ petitions. The other
respondents in the two writ petitions are the other
members of the consortia. The 1st respondent in both the
writ petitions, who are sister companies, defaulted
repayment of the loan amounts. The petitioner bank filed
applications before the Debt Recovery Tribunal, Ernakulam
for recovery of the loan amounts. Simultaneously they also
initiated proceedings under the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest, Act 2002 (the Securitisation Act). Both
the 1st respondent companies in the two writ petitions
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filed references before the Board of Industrial Finance
and Reconstruction (BIFR), under Section 15 of the
Sick Industrial Companies (Special provisions) Act,
1985 (SICA). While those references were pending,
the consortia, in both of which the petitioner bank
was member, initiated measures under Sec.13(4)of
the Securitisation Act. Thereafter they represented
before the BIFR in the references pending before the
BIFR that, since the consortia, which represent 75% or
more of the value of the amounts outstanding against
the financial assistance disbursed to the 1st
respondent companies, have taken measures to
recover their secured debt under Sub Section 4 of
Section 13 of the Securitisation Act, by virtue of the
3rd proviso to Sec.15(1) of the SICA, the references
stand abated. This representation was considered by
the BIFR, in their sitting held on 22-1-2007. By Ext.P6
in WP(C) No. 27033/08 and Ext.P2 in the other case,
the BIFR, in view of the submission made by the 1st
respondent company that they have no objection in
the references being declared as abated the BIFR
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declared that the references have abated, under the
3rd proviso to Sec.15(1) of the SICA. Both the 1st
respondent companies filed appeals before the
Appellate Authority for Industrial and Financial
Reconstruction (AAIFR), contending that in view of the
subsequent developments, by which the consortia
have extended to them one time settlement facilities
to pay off the loans by virtue of Sec.13(8) of the
Securitisation Act, there is no subsisting cause for
abatement of the references. Accepting the
contentions of the 1st respondent companies, by
Ext.P7 order in WP(C) No.27033/08 and Ext.P3 in the
other writ petition, the AAIFR set aside the orders of
the BIFR and remanded the matter to the BIFR for
further proceedings under the SICA on the references.
The petitioner Bank is challenging the said Exts.P7
and P3 orders respectively, of the AAIFR in these two
writ petitions.
3. The contention raised by the bank is that
abatement of the references does not depend upon
any order of the BIFR, but the same is automatic by
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operation of the 3rd proviso to Sec.15(1) of the SICA
and therefore there are no orders as such of the BIFR,
as contemplated under the SICA, against which the
AAIFR could have entertained appeals and therefore
the Exts.P7 and P3 orders are without jurisdiction.
4. The petitioner would further contend that even
assuming that the AAIFR had jurisdiction to deal with
the appeals, the conclusion reached in the impugned
orders are perverse, for two reasons. First is that
Sec.13(8) does not contemplate restitution of the
measures taken under Sec.13(4). Secondly, it is
contended that mere offers of one time settlement
facilities to the first respondent companies do not
take away the cause for abatement of the reference
and that S.13(8) would apply only if, as provided
therein, the borrower actually tenders the dues to the
secured creditor together with all cost/charge
incurred by the secured creditor. The petitioner bank
points out that, that eventuality has not happened in
these cases in so far as the 1st respondent companies
in the two writ petitions never bothered to avail of the
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one time settlement facilities offered to them, by
paying off the dues of the consortia within the time
stipulated in the offers. It is pointed out that even in
the subsequent communications of the 1st respondent
companies viz. Ext.R1(23) in WP(C) No. 27033/08 and
R1(21) in the other writ petition, they still speak of
repayment of the amounts within a maximum period
of 14 years, which would go to show that the 1st
respondent companies never had any intention
whatsoever to repay the amount even belatedly, as
per the one time settlement facilities offered to them,
the period of validity of which had also expired long
back.
5. Very detailed counter affidavits have been filed
by the 1st respondent in both the writ petitions taking
several contentions to resist the writ petitions. But I
don’t think that I should consider all those
contentions in view of the specific admission made by
the respondent companies before the BIFR to the
effect that they have no objection to the abatement of
the references. That being so all what I need to
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consider in these two writ petitions is as to whether
the AAIFR had jurisdiction to entertain the appeals
filed by the 1st respondent companies and whether
even if they had the jurisdiction to consider the same
the decisions of the AAIFR to the effect that in view of
the one time settlement facilities offered to the 1st
respondent companies, by virtue of Sec.13(8),
measures under Sec.13(4) is to be reversed and that
there is no subsisting cause for abatement of the
reference.
6. In respect of the first contention the counsel for
the petitioner pointed out that even without
considering the 3rd proviso to Sec.15(1) of the SICA, in
view of Sec.35 of the Securitisation Act, the provisions
of the Securitisation Act overrides the SICA and
therefore once the consortia initiated proceedings
under the Securitisation Act, the BIFR could not have
validly taken any further proceedings under the SICA.
Sec.35 of the Securitisation Act reads thus:-
“The provisions of this Act shall have effect,
notwithstanding anything inconsistent
therewith contained in any other law for theWP(C)27033/2008 & WPC(C) 27104/2008
7time being in force or any instrument
having effect by virtue of any such law.”
3rd proviso to Sec.15(1) of the SICA reads thus:-
” 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, have taken any
measures to recover their secured debt
under sub-section (4) of section 13 of that
Act.
If, as contended by the learned counsel for the
petitioner, by virtue of Sec. 35 of the Securitisation
Act, the Securitisation Act overrides SICA, then it was
not necessary for the Parliament to amend Sec.15 of
the SICA to introduce the 3rd proviso, that too after
Sec.35 of the Securitisation Act was enacted, as per
which the reference before the BIFR would abate only
when a measure under Sec.13(4)of the Securitisation
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Act is taken by the secured creditor. Therefore I have
considerable doubt about the sustainability of the
proposition that by virtue of Sec.35 of the
Securitisation Act, that Act overrides the SICA. Further
the abatement arises only when measures under Sec.
13(4) is taken, which have to be preceded by a notice
and a representation from the borrower as
contemplated under Sec. 13(2), which is not sufficient
for abatement. But I am not inclined to pronounce on
that question finally in these writ petitions in so far as
even without going into that question the petitioner is
entitled to succeed in these writ petition.
7. As is clear from the 3rd proviso to Sec.15(1) of
the SICA, when secured creditors, representing not
less than >th of the value of the amount outstanding
against the financial assistance disbursed to the
borrower of the secured creditors, have taken any
measures to recover the secured assets under Sub
Section 4 of Section 13, the reference to the BIFR
shall abate. Therefore, without any positive action
either from the parties to the reference or from the
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BIFR for that matter, by virtue of the operation of the
statute itself the reference automatically abates. All
what the BIFR has to do is to recognize the same and
formally close the reference as abated on the parties
bringing to the attention of the BIFR that the secured
creditors have taken measures under Sec.13(4) of the
Securitisation Act. That order, if at all it is an order
under the SICA made by the BIFR, is not an order of
the BIFR appealable under Sec.25 thereof. Therefore I
am of the opinion that AAIFR did not have jurisdiction
to entertain an appeal against Exts.P6 and P2 in the
two writ petitions respectively, which are formal
closure of the reference as abated in view of the 3rd
proviso to Sec.15(1) of the SICA, on being notified of
the fact that the secured creditors have taken
measures under Sec. 13(4) of the Securitisation Act.
8. The 1st respondent companies in their counter
affidavits have taken a contention based on the
decision of the Division Bench of the Orissa High
Court in the case of ‘Noble Aqua Pvt.Ltd. & Ors. Vs.
State Bank of India & Ors. reported in AIR 2008
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Orissa 103. In that decision the Orissa High Court
took the view that once the BIFR declares a company
as a sick industrial company, thereafter there is no
reference pending to abate and that the protection
given to sick industrial companies under the SICA is
not taken away by the Securitisation Act. I respectfully
disagree with the said view. I am of the opinion that
under the SICA there is no procedure stipulated of
declaring a company as a sick company on a reference
and thereafter initiating a separate proceedings in
respect of taking measures prescribed in the SICA.
Once the Board of Directors of the company makes a
reference to the BIFR, firstly that reference has to be
registered under Sec.15 and the BIFR has to make an
inquiry as to whether the industrial company has
become a sick industrial company. Thereafter based
on the such inquiry if the Board is satisfied that the
company has become a sick industrial company, the
Board has to consider whether it is practicable for the
company to make it’s net worth exceed its
accumulated loss within a reasonable time. No
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procedure of formally declaring the company as a
sick industrial company is contemplated by the Act.
But further proceedings on the reference is to be
taken only on the BIFR being satisfied that the
Company has become a sick industrial company.
Thereafter if the BIFR decides that it is practicable for
the company to make it’s net worth exceed the
accumulated loss within a reasonable time they shall
by order in writing, give such company as it may deem
fit, an opportunity to make it’s net worth exceed the
accumulated loss. If the Board is of the opinion that it
is not practicable for the company to make it’s net
worth exceed the accumulated loss, then it will have
to take measures under Section 18 of the Act like
sanction of a scheme for revival of the company.
Ultimately the proceedings before the BIFR has to
either result in rehabilitation of the sick industrial
company or a recommendation to the Company Court
to wind up the Company. That being the procedure
prescribed under the SICA, all throughout, the entire
proceedings of the BIFR is on the reference made to it
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by the Board of Directors of the Company. Therefore
unless and until either the company is rehabilitated or
the BIFR recommends to the Company Court to wind
up the company, and perhaps in view of Sec. 20(4) of
the SICA, even till the company judge orders winding
up of the company, the reference would continue to
be pending and the entire proceedings are in the
reference itself. Hence the reference never ceases to
exist until all the procedures contemplated in the SICA
are completed either by rehabilitation or by
recommending winding up. Therefore I am of the
opinion that the 3rd proviso to Sec.15(1) would apply
whichever be the stage of the proceedings pending
before the BIFR, since all the proceedings of the BIFR
are in that reference itself and no other separate
proceedings are contemplated under the SICA, other
than in the reference. I am also of the opinion that
the findings to the contrary, in the decision of the
Orissa High Court, are clearly without appreciating the
scheme of SICA.
9. Even otherwise as far as this case is concerned,
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that also may not be relevant in so far as the 1st
respondent companies do not have a case that the
reference before the BIFR had resulted in the
declaration of the company as a sick industrial
company in order to apply the ratio of the Orissa High
Court decision. Therefore by virtue of the 3rd proviso
of Section 15(1) of the SICA, the reference before the
BIFR had abated and BIFR could not have validly taken
any further steps as contemplated under the Act on
the reference which has abated. Consequently the
AAIFR also had no jurisdiction to entertain an appeal
against the formal recording of the factum of
abatement, by virtue of the operation of the 3rd
proviso of Section 15(1) of the SICA by the BIFR.
10. Apart from that, on merits also the findings of
the AAIFR are clearly vitiated. The findings are to
effect that in view of the one time settlement facility
offered by the consortium, by virtue of Sec.13(8), the
consortia are bound to reverse the measures initiated
under Section 13(4). Section 13(4) reads thus:-
” In case the borrower fails to
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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 debit, namely:-
(a) take possession of the secured
assets of the borrower including the right
to transfer by way of lease, assignment or
sale for realisation the secured asset;
(b) take over the management of
the business of the borrower including the
right to transfer by way of lease,
assignment or sale for realising the
secured asset:
Provided that the right to transfer by
way of lease, assignment or sale shall be
exercised only where the substantial part
of the business of the borrower is held as
security for the debt:
Provided further that where the
management of whole, of the business or
part of the business is severable, the
secured creditor shall take over the
management of such business of the
borrower which is relatable to the security
or the debit;
(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
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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.
Sec.13(8) reads thus:-
“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 steps
shall be taken by him for transfer or sale of
that secured asset.”
First of all, for attracting Section 13(8), it is not merely
sufficient that the borrower and the secured creditor
have come to an agreement for settling the dues.
What Sub Section 8 of Section 13 stipulates is that if
the dues of the secured creditor are tendered
to the secured creditor, no further steps shall be
taken by the secured creditor for transferring and sale
of the secured asset. Therefore unless and until the
borrower tenders the dues to the secured creditor
there is no question of application of Sec.13(8). Here
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admittedly the 1st respondent companies have not
chosen to tender the dues to the consortium banks.
In fact even today, after two years of the offer of one
time settlement facility, the period of which has
already expired, the 1st respondent companies have
not chosen to avail of the same by tendering the dues
so as to attract the provisions of S.13(8). Going by
the correspondence produced by the 1st respondent
companies themselves, they still want further
concessions in the matter of payment. In fact they
requested for 14 years’ time to pay off the dues,
which cannot, by any stretch of imagination, be
considered as compliance with the provisions of
Sec.13(8). As such, AAIFR went wrong in holding that
in view of the agreement arrived at between the
parties by virtue of operation of Sec.13(8), the
measures taken by the consortium banks under
Sec.13(4) have to be reversed and there is no
subsisting cause for abatement of the references.
11. Even otherwise, the fulfilment of the conditions of
Sec.13(8) does not mean that automatically the
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consortium banks have to reverse the measures taken
by them under Section 13(4). Sec.13(8) does not say
so, it only says that no further steps shall be taken by
the secured creditor for transfer or sale of the secured
asset. That means that there is no reversal of the
abatement also. According to me even in such an
event, what the first respondent companies could do
or seek is another reference under the SICA after
closing the loan accounts with the consortium banks.
12. For all the above reasons Exts.P7 and P3 orders
of the AAIFR, produced in the two writ petitions,
respectively, are unsustainable and are liable to be
quashed. I do so. Writ petitions are allowed as above.
S. SIRI JAGAN (JUDGE)
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