{"id":19867,"date":"2009-07-09T00:00:00","date_gmt":"2009-07-08T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/state-bank-of-india-vs-prima-agro-ltd-on-9-july-2009"},"modified":"2018-08-18T14:27:01","modified_gmt":"2018-08-18T08:57:01","slug":"state-bank-of-india-vs-prima-agro-ltd-on-9-july-2009","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/state-bank-of-india-vs-prima-agro-ltd-on-9-july-2009","title":{"rendered":"State Bank Of India vs Prima Agro Ltd on 9 July, 2009"},"content":{"rendered":"
Kerala High Court<\/div>\n
State Bank Of India vs Prima Agro Ltd on 9 July, 2009<\/div>\n
       \n\n  \n\n  \n\n \n \n  IN THE HIGH COURT OF KERALA AT ERNAKULAM\n\nWP(C).No. 27033 of 2008(R)\n\n\n1. STATE BANK OF INDIA\n                      ...  Petitioner\n\n                        Vs\n\n\n1. PRIMA AGRO LTD, AND ANOTHER\n                       ...       Respondent\n\n                For Petitioner  :SRI.K.JAYAKUMAR\n\n                For Respondent  :SRI.SATHISH NINAN\n\nThe Hon'ble MR. Justice S.SIRI JAGAN\n\n Dated :09\/07\/2009\n\n O R D E R\n                       S. SIRI JAGAN, J.\n              -----------------------------\n                  WP(C) NO. 27033 OF 2008 &\n\n                  WP(C) NO. 27104 OF 2008\n             --------------------------------\n            DATED THIS THE 9TH DAY OF JULY 2009\n\n\n                       JUDGMENT\n<\/pre>\n
     Since the very same issue arises in both these writ
\npetitions, the same are heard and disposed of by this
\ncommon judgment.\n<\/p>\n
2.   The petitioner bank is a member of two consortia of
\nBanks, who advanced loan amounts to the respective 1st
\nrespondent in these two writ petitions.           The other
\nrespondents in the two writ petitions are the other
\nmembers of the consortia. The 1st respondent in both the
\nwrit petitions, who are sister companies, defaulted
\nrepayment of the loan amounts. The petitioner bank filed
\napplications before the Debt Recovery Tribunal, Ernakulam
\nfor recovery of the loan amounts. Simultaneously they also
\ninitiated proceedings      under   the   Securitisation and
\nReconstruction of Financial Assets and Enforcement of
\nSecurity Interest, Act 2002 (the Securitisation Act). Both
\nthe 1st respondent companies in the two writ petitions<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   2<\/span><\/p>\n
filed references before the Board of Industrial Finance
\nand Reconstruction (BIFR), under Section 15 of the
\nSick Industrial Companies (Special provisions) Act,
\n1985 (SICA). While those references were pending,
\nthe consortia, in both of which the petitioner bank
\nwas member, initiated measures under Sec.13(4)of
\nthe Securitisation Act.          Thereafter they represented
\nbefore the BIFR in the references pending before the
\nBIFR that, since the consortia, which represent 75% or
\nmore of the value of the amounts outstanding against
\nthe   financial     assistance      disbursed   to  the   1st
\nrespondent companies,              have taken measures to
\nrecover their secured debt under Sub Section 4 of
\nSection 13 of the Securitisation Act, by virtue of the
\n3rd proviso to Sec.15(1) of the SICA, the references
\nstand abated. This representation was considered by
\nthe BIFR, in their sitting held on 22-1-2007. By Ext.P6
\nin WP(C) No. 27033\/08 and Ext.P2 in the other case,
\nthe BIFR, in view of the submission made by the 1st
\nrespondent company that they have no objection in
\nthe references being declared as abated the BIFR<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   3<\/span><\/p>\n
declared that the references have abated, under the
\n3rd proviso to Sec.15(1) of the SICA.       Both the 1st
\nrespondent companies filed appeals before the
\nAppellate Authority for Industrial and Financial
\nReconstruction (AAIFR), contending that in view of the
\nsubsequent developments, by which the consortia
\nhave extended to them one time settlement facilities
\nto pay off the loans by virtue of Sec.13(8) of the
\nSecuritisation Act, there is no subsisting cause for
\nabatement       of   the     references.  Accepting the
\ncontentions of the 1st respondent companies, by
\nExt.P7 order in WP(C) No.27033\/08 and Ext.P3 in the
\nother writ petition, the AAIFR set aside the orders of
\nthe BIFR and remanded the matter to the BIFR for
\nfurther proceedings under the SICA on the references.
\nThe petitioner Bank is challenging the said Exts.P7
\nand P3 orders respectively, of the AAIFR in these two
\nwrit petitions.\n<\/p>\n
3.   The contention raised by the bank is that
\nabatement of the references does not depend upon
\nany order of the BIFR, but the same is automatic by<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   4<\/span><\/p>\n
operation of the 3rd proviso to Sec.15(1) of the SICA
\nand therefore there are no orders as such of the BIFR,
\nas contemplated under the SICA, against which the
\nAAIFR could have entertained appeals and therefore
\nthe Exts.P7 and P3 orders are without jurisdiction.\n<\/p>\n
4.   The petitioner would further contend that even
\nassuming that the AAIFR had jurisdiction to deal with
\nthe appeals, the conclusion reached in the impugned
\norders are perverse, for two reasons. First is that
\nSec.13(8) does not contemplate restitution of the
\nmeasures taken under Sec.13(4).           Secondly, it is
\ncontended that mere offers of one time settlement
\nfacilities to the first respondent companies do not
\ntake away the cause for abatement of the reference
\nand that      S.13(8) would apply only if, as provided
\ntherein, the borrower actually tenders the dues to the
\nsecured     creditor      together   with all cost\/charge
\nincurred by the secured creditor. The petitioner bank
\npoints out that, that eventuality has not happened in
\nthese cases in so far as the 1st respondent companies
\nin the two writ petitions never bothered to avail of the<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   5<\/span><\/p>\n
one time settlement facilities offered to them, by
\npaying off the dues of the consortia within the time
\nstipulated in the offers. It is pointed out that even in
\nthe subsequent communications of the 1st respondent
\ncompanies viz. Ext.R1(23) in WP(C) No. 27033\/08 and
\nR1(21) in the other writ petition, they still speak of
\nrepayment of the amounts within a maximum period
\nof 14 years, which would go to show that the 1st
\nrespondent companies never had any              intention
\nwhatsoever to repay the amount even belatedly, as
\nper the one time settlement facilities offered to them,
\nthe period of validity of which had also expired long
\nback.\n<\/p>\n
5.   Very detailed counter affidavits have been filed
\nby the 1st respondent in both the writ petitions taking
\nseveral contentions to resist the writ petitions. But I
\ndon’t   think     that     I   should consider all those
\ncontentions in view of the specific admission made by
\nthe respondent companies before the BIFR to the
\neffect that they have no objection to the abatement of
\nthe references. That being so all what I need to<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   6<\/span><\/p>\n
consider in these two writ petitions is as to whether
\nthe AAIFR had jurisdiction to entertain the appeals
\nfiled by the 1st respondent companies and whether
\neven if they had the jurisdiction to consider the same
\nthe decisions of the AAIFR to the effect that in view of
\nthe one time settlement facilities offered to the 1st
\nrespondent       companies,        by virtue    of   Sec.13(8),
\nmeasures under Sec.13(4) is to be reversed and that
\nthere is no subsisting cause for abatement of the
\nreference.\n<\/p>\n
6.   In respect of the first contention the counsel for
\nthe   petitioner      pointed      out  that    even   without
\nconsidering the 3rd proviso to Sec.15(1) of the SICA, in
\nview of Sec.35 of the Securitisation Act, the provisions
\nof the Securitisation Act overrides the SICA and
\ntherefore once the consortia initiated proceedings
\nunder the Securitisation Act, the BIFR could not have
\nvalidly taken any further proceedings under the SICA.
\nSec.35 of the Securitisation Act reads thus:-\n<\/p>\n
       “The provisions of this Act shall have effect,
\n       notwithstanding       anything   inconsistent
\n       therewith contained in any other law for the<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   7<\/span><\/p>\n
       time being in force or any instrument
\n       having effect by virtue of any such law.”\n<\/p><\/blockquote>\n
3rd proviso to Sec.15(1) of the SICA reads thus:-\n<\/p>\n
       ” Provided also that on or after the
\n       commencement of the Securitisation and
\n       Reconstruction of Financial Assets and
\n       Enforcement of Security Interest Act, 2002,
\n       where a reference is pending before the
\n       Board      for  Industrial    and  Financial
\n       Reconstruction, such reference shall abate
\n       if the secured creditors, representing not
\n       less than three-fourth in value of the
\n       amount      outstanding     against  financial
\n       assistance disbursed to the borrower of
\n       such secured creditors, have taken any
\n       measures to recover their secured debt
\n       under sub-section (4) of section 13 of that
\n       Act.\n<\/p><\/blockquote>\n
If, as contended by the learned counsel for the
\npetitioner, by virtue of Sec. 35 of the Securitisation
\nAct, the Securitisation Act overrides SICA, then it was
\nnot necessary for the Parliament to amend Sec.15 of
\nthe SICA to introduce the 3rd proviso, that too after
\nSec.35 of the Securitisation Act was enacted, as per
\nwhich the reference before the BIFR would abate only
\nwhen a measure under Sec.13(4)of the Securitisation<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   8<\/span><\/p>\n
Act is taken by the secured creditor. Therefore I have
\nconsiderable doubt about the sustainability of the
\nproposition       that    by    virtue of Sec.35 of   the
\nSecuritisation Act, that Act overrides the SICA. Further
\nthe abatement arises only when measures under Sec.
\n13(4) is taken, which have to be preceded by a notice
\nand    a    representation         from the borrower    as
\ncontemplated under Sec. 13(2), which is not sufficient
\nfor abatement. But I am not inclined to pronounce on
\nthat question finally in these writ petitions in so far as
\neven without going into that question the petitioner is
\nentitled to succeed in these writ petition.\n<\/p>\n
7.   As is clear from the 3rd proviso to Sec.15(1) of
\nthe SICA, when secured creditors, representing not
\nless than >th of the value of the amount outstanding
\nagainst the financial assistance disbursed to the
\nborrower of the secured creditors, have taken any
\nmeasures to recover the secured assets under Sub
\nSection 4 of Section 13, the reference to the BIFR
\nshall abate. Therefore, without any positive action
\neither from the parties to the reference or from the<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   9<\/span><\/p>\n
BIFR for that matter, by virtue of the operation of the
\nstatute itself the reference automatically abates. All
\nwhat the BIFR has to do is to recognize the same and
\nformally close the reference as abated on the parties
\nbringing to the attention of the BIFR that the secured
\ncreditors have taken measures under Sec.13(4) of the
\nSecuritisation Act. That order, if at all it is an order
\nunder the SICA made by the BIFR, is not an order of
\nthe BIFR appealable under Sec.25 thereof. Therefore I
\nam of the opinion that AAIFR did not have jurisdiction
\nto entertain an appeal against Exts.P6 and P2 in the
\ntwo writ petitions respectively, which are formal
\nclosure of the reference as abated in view of the 3rd
\nproviso to Sec.15(1) of the SICA, on being notified of
\nthe fact that the secured creditors have taken
\nmeasures under Sec. 13(4) of the Securitisation Act.\n<\/p>\n
8.   The 1st respondent companies in their counter
\naffidavits have taken a contention based on the
\ndecision of the       Division Bench of the Orissa High
\nCourt in the case of ‘Noble Aqua Pvt.Ltd. & Ors. Vs.
\nState Bank of India & Ors. reported in         AIR 2008<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   10<\/span><\/p>\n
Orissa 103. In that decision the Orissa High Court
\ntook the view that once the BIFR declares a company
\nas a sick industrial company, thereafter there is no
\nreference pending to abate and that the protection
\ngiven to sick industrial companies under the SICA is
\nnot taken away by the Securitisation Act. I respectfully
\ndisagree with the said view. I am of the opinion that
\nunder the SICA there is no procedure stipulated of
\ndeclaring a company as a sick company on a reference
\nand thereafter initiating a separate proceedings in
\nrespect of taking measures prescribed in the SICA.
\nOnce the Board of Directors of the company makes a
\nreference to the BIFR, firstly that reference has to be
\nregistered under Sec.15 and the BIFR has to make an
\ninquiry as to whether the industrial company has
\nbecome a sick industrial company. Thereafter based
\non the such inquiry if the Board is satisfied that the
\ncompany has become a sick industrial company, the
\nBoard has to consider whether it is practicable for the
\ncompany to make it’s net worth              exceed its
\naccumulated loss within a reasonable time.          No<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   11<\/span><\/p>\n
procedure of formally declaring the      company as a
\nsick industrial company is contemplated by the Act.
\nBut further proceedings on the reference is to be
\ntaken only on the BIFR being satisfied that the
\nCompany has become a sick industrial company.
\nThereafter if the BIFR decides that it is practicable for
\nthe company to make it’s net worth exceed the
\naccumulated loss within a reasonable time they shall
\nby order in writing, give such company as it may deem
\nfit, an opportunity to make it’s net worth exceed the
\naccumulated loss. If the Board is of the opinion that it
\nis not practicable for the company to make it’s net
\nworth exceed the accumulated loss, then it will have
\nto take measures under Section 18 of the Act like
\nsanction of a scheme for revival of the company.
\nUltimately the proceedings before the BIFR has to
\neither result in rehabilitation of the sick industrial
\ncompany or a recommendation to the Company Court
\nto wind up the Company. That being the procedure
\nprescribed under the SICA, all throughout, the entire
\nproceedings of the BIFR is on the reference made to it<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   12<\/span><\/p>\n
by the Board of Directors of the Company. Therefore
\nunless and until either the company is rehabilitated or
\nthe BIFR recommends to the Company Court to wind
\nup the company, and perhaps in view of Sec. 20(4) of
\nthe SICA, even till the company judge orders winding
\nup of the company, the reference would continue to
\nbe pending and the entire proceedings are in the
\nreference itself. Hence the reference never ceases to
\nexist until all the procedures contemplated in the SICA
\nare   completed        either     by  rehabilitation or by
\nrecommending winding up.             Therefore I am of the
\nopinion that the 3rd proviso to Sec.15(1) would apply
\nwhichever be the stage of the proceedings pending
\nbefore the BIFR, since all the proceedings of the BIFR
\nare in that reference itself and no other separate
\nproceedings are contemplated under the SICA, other
\nthan in the reference. I am also of the opinion that
\nthe findings to the contrary, in the decision of the
\nOrissa High Court, are clearly without appreciating the
\nscheme of SICA.\n<\/p>\n
9.   Even otherwise as far as this case is concerned,<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   13<\/span><\/p>\n
that also may not be relevant in so far as the 1st
\nrespondent companies do not have a case that the
\nreference before the BIFR had resulted             in the
\ndeclaration of the company as a sick industrial
\ncompany in order to apply the ratio of the Orissa High
\nCourt decision. Therefore by virtue of the 3rd proviso
\nof Section 15(1) of the SICA, the reference before the
\nBIFR had abated and BIFR could not have validly taken
\nany further steps as contemplated under the Act on
\nthe reference which has abated.          Consequently the
\nAAIFR also had no jurisdiction to entertain an appeal
\nagainst the formal recording of the factum of
\nabatement,        by virtue of the operation of the 3rd
\nproviso of Section 15(1) of the SICA by the BIFR.\n<\/p>\n
10. Apart from that, on merits also the findings of
\nthe AAIFR are clearly vitiated.        The findings are to
\neffect that in view of the one time settlement facility
\noffered by the consortium, by virtue of Sec.13(8), the
\nconsortia are bound to reverse the measures initiated
\nunder Section 13(4). Section 13(4) reads thus:-\n<\/p>\n
                 ” In case the borrower fails to<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   14<\/span><\/p>\n
           discharge his liability in full within the
\n           period specified in sub-section (2), the
\n           secured creditor may take recourse to one
\n           or more of the following measures to
\n           recover his secured debit, namely:-\n<\/p>\n
                 (a)  take possession of the secured
\n           assets of the borrower including the right
\n           to transfer by way of lease, assignment or
\n           sale for realisation the secured asset;\n<\/p>\n
                 (b)  take over the management of
\n           the business of the borrower including the
\n           right  to   transfer    by  way   of   lease,
\n           assignment or sale for realising the
\n           secured asset:\n<\/p>\n
                 Provided that the right to transfer by
\n           way of lease, assignment or sale shall be
\n           exercised only where the substantial part
\n           of the business of the borrower is held as
\n           security for the debt:\n<\/p>\n
                 Provided further that where the
\n           management of whole, of the business or
\n           part of the business is severable, the
\n           secured creditor shall take over the
\n           management of such business of the
\n           borrower which is relatable to the security
\n           or the debit;\n<\/p>\n
                 (c)  appoint any person(hereafter
\n           referred to as the manager), to manage the
\n           secured assets the possession of which has
\n           been taken over by the secured creditor;\n<\/p>\n
                 (d)  require at any time by notice in
\n           writing, any person who has acquired any
\n           of the secured assets from the borrower<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                    15<\/span><\/p>\n
           and from whom any money is due or may
\n           become due to the borrower, to pay the
\n           secured creditor, so much of the money as
\n           is sufficient to pay the secured debt.\n<\/p>\n
           Sec.13(8) reads thus:-\n<\/p>\n
                 “If the dues of the Secured Creditor
\n           together with all costs, charges and
\n           expenses incurred by him are tendered to
\n           the secured creditor at any time before the
\n           date fixed for sale or transfer, the secured
\n           asset shall not be sold or transferred by
\n           the Secured Creditor, and no further steps
\n           shall be taken by him for transfer or sale of
\n           that secured asset.”\n<\/p>\n
First of all, for attracting Section 13(8), it is not merely
\nsufficient that the borrower and the secured creditor
\nhave come to an agreement for settling the dues.
\nWhat Sub Section 8 of Section 13 stipulates is that if
\nthe dues of the secured creditor                    are tendered
\nto the secured creditor, no further steps shall be
\ntaken by the secured creditor for transferring and sale
\nof the secured asset. Therefore unless and until the
\nborrower tenders the dues to the secured creditor
\nthere is no question of application of Sec.13(8). Here<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   16<\/span><\/p>\n
admittedly the 1st respondent companies have not
\nchosen to tender the dues to the consortium banks.
\nIn fact even today, after two years of the offer of one
\ntime settlement facility, the period of which has
\nalready expired, the 1st respondent companies have
\nnot chosen to avail of the same by tendering the dues
\nso as to attract the provisions of         S.13(8). Going by
\nthe correspondence produced by the 1st respondent
\ncompanies       themselves,        they still want   further
\nconcessions in the matter of payment. In fact they
\nrequested for 14 years’ time to pay off            the dues,
\nwhich cannot, by any stretch of imagination, be
\nconsidered as compliance with the provisions of
\nSec.13(8). As such, AAIFR went wrong in holding that
\nin view of the agreement arrived at between the
\nparties by virtue of operation of Sec.13(8), the
\nmeasures taken by the consortium banks under
\nSec.13(4) have to be reversed and              there is no
\nsubsisting cause for abatement of the references.\n<\/p>\n
11. Even otherwise, the fulfilment of the conditions of
\nSec.13(8) does not mean that automatically the<\/p>\n
WP(C)27033\/2008 & WPC(C) 27104\/2008
\n                                   17<\/span><\/p>\n
consortium banks have to reverse the measures taken
\nby them under Section 13(4). Sec.13(8) does not say
\nso, it only says that no further steps shall be taken by
\nthe secured creditor for transfer or sale of the secured
\nasset. That means that there is no reversal of the
\nabatement also.        According to me even in such an
\nevent, what the first respondent companies could do
\nor seek is      another reference under the SICA after
\nclosing the loan accounts with the consortium banks.\n<\/p>\n
12. For all the above reasons Exts.P7 and P3 orders
\nof the AAIFR, produced in the two writ petitions,
\nrespectively, are unsustainable and are liable to be
\nquashed. I do so. Writ petitions are allowed as above.\n<\/p>\n
                                      S. SIRI JAGAN (JUDGE)
\npkk<\/p>\n","protected":false},"excerpt":{"rendered":"
Kerala High Court State Bank Of India vs Prima Agro Ltd on 9 July, 2009 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 […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,21],"tags":[],"class_list":["post-19867","post","type-post","status-publish","format-standard","hentry","category-high-court","category-kerala-high-court"],"yoast_head":"\nState Bank Of India vs Prima Agro Ltd on 9 July, 2009 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/state-bank-of-india-vs-prima-agro-ltd-on-9-july-2009\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"State Bank Of India vs Prima Agro Ltd on 9 July, 2009 - 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