Ksl & Industries
Ltd. Vs. M/S. Arihant Threads Ltd. & Ors.  INSC 1421 (25 August 2008)
IN THE SUPREME COURT
OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 5225 OF 2008 ARISING OUT
OF SPECIAL LEAVE PETITION (CIVIL) NO. 5041 OF 2006 KSL & INDUSTRIES LTD.
C.K. THAKKER, J.
present appeal raises a question of great public importance having far-
reaching consequences. The appeal is filed by KSL & Industries Ltd.
(`appellant' for short) against final judgment and order passed by the Division
Bench of High Court of Delhi on February 23, 2006 in Writ Petition (Civil) Nos.
2041-42 of 2006. By the said judgment, the High 2 Court, set aside the order
passed by the Debt Recovery Appellate Tribunal, Delhi (`DRAT' for short) and
held that in view of the provisions of Section 22 of the Sick Industrial
Companies (Special Provisions) Act, 1985 (hereafter referred to as `SICA'), no
recovery proceedings could be effected against the first respondent- Company in
the light of the bar contained therein.
understand the controversy in its proper perspective, it is necessary to keep
in mind the factual matrix of the case.
Respondent No. 1
(M/s. Arihant Threads Ltd.) (`Company' for short) was incorporated as a joint
venture with Punjab State Industrial Development Corporation. It set up an
export oriented spinning unit for manufacturing cotton yarn in the industrial
area of Amritsar District of the State of Punjab. In 1992, Goindwal Sahib Industrial
& Investment 3 Corporation allotted Plot No. 454, Flocal Point of Goindwal
Sahib Industrial Area by way of lease to the Company for a period of 99 years
with a specific condition that the lessee will not transfer the interest in the
property for first fifteen years without prior permission of the lessor. The
lessee was to enjoy the right of possession so long as it continued paying
instalments of the premium by due-date and abide by other terms and conditions
of the lease. It was, however, stated that the lessee would be entitled to
mortgage lease-hold rights to a Bank, Punjab Financial Corporation or Life
Insurance Corporation of India as security for a loan to be raised for
construction of factory building, purchase of raw materials, etc. The Industrial
Development Bank of India (`IDBI' for short) which was the predecessor of the
Stressed Assets Stabilisation Fund (`SASF' for short), financed the project
undertaken by the Company by way of foreign currency loan and also working
capital of Rs. 93.1 million.
was the case of the Company that due to overall recession in Textile Industry,
the Company suffered huge loss and could not repay the amount of loan. Since
the Company failed to pay instalments, IDBI filed Original Application No. 1368
of 2001 on December 20, 2001 in Debt Recovery Tribunal, Chandigarh (`DRT' for
short) for recovery of Rs.25,26,60,836/- under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 (hereinafter referred to as the
`RDDB' Act). On June 10, 2002, M/s Roland Exports (successor of Goindwal
Industrial & Investment Corporation) cancelled the lease agreement on
account of non-payment of lease money amounting to Rs.3,19,94,149/-. The
Company did not remain present before the DRT though duly served. On July 15,
2003, therefore, an ex-parte final order in favour of IDBI (SAFS) for recovery
of Rs.25,26,60,836/- along with interest @ 7.8% p.a. was passed by DRT.
Tribunal in operative part of the order stated;
for recovery of a sum Rs.25,26,60,836.00 is decreed against defendant company
and the defendant company is ordered to pay:- i. A sum of Rs.
alongwith pendent elite and future interest @ 7.8% per annum with half yearly
rests jointly and severally from the date of filing of the suit till
ii. Pay the cost of
iii. Pay the said
amount within 30 days from the date of receipt of this order.
2. In the event of
failure on the part of defendants to pay the above amount within the stipulated
period, the applicant bank shall be entitled to recover the said amount from
the sale of mortgaged properties of the defendants. Even if the said amount is
not so realized, it shall be recovered from the sale of personal properties of
3. Copy of the judgment
be sent to the defendants and the recovery certificate be issued accordingly.
4. Parties to appear
before the Recovery Officer, DRT, Chandigarh on 22.8.2003."
recovery certificate was issued against the Company. On September 9, 2003, the
Recovery Officer issued a composite demand notice under Rule 2 of Second
Schedule of the Income Tax Act, 1961 against the Company demanding payment of
Rs.28,60,87,384/-. He also directed the Company to appear on October 23, 2003
for settling terms and conditions of the proclamation of sale and for
disclosure of its movable and immovable assets. Harnek Singh, Security Guard
who was present at the Company premises was served and he signed the summons in
token of acceptance of notice on behalf of the Company. Service Report was
filed by one Rajesh Mahajan, Advocate for certificate holder affirming Dasti
service on the Company. Another service report was also filed along with
affidavit by the same advocate on October 6, 2003. On January 3, 2004, Mr.
Vivek Verma, Local Commissioner appointed by the Recovery Officer, visited the
site and filed his report 7 wherein he stated that two machines were missing.
He also recorded that the unit was in running condition. At the instance of
SASF, North India Technical Consultancy Association Ltd. (`NITCO' for short)
filed a valuation report in January, 2004 assessing the fixed assets at
Rs.17.51 crores. It is alleged that on July 1, 2004, the Company created
illegal tenancy in favour of M/s Roland Exports. On September 16, 2004, the
Recovery Officer fixed the reserve price of the property at Rs.12.50 crores
(Rs.4.50 crores for movables and Rs.8.00 crores for immovables). He also fixed
the date for sale of immovable property as October 27, 2004 and for movable
property as October 30, 2004. The auction was, however, adjourned. The Company
on October 18, 2004, filed an appeal against the order dated September 16, 2004
fixing reserve price of Rs. 12.50 crores in the DRT being Appeal No. 52 of 2004
under Section 30 of the RDDB Act. On October 27, 2004, DRT allowed auction sale
to proceed but ordered 8 that the sale should not be confirmed till further
orders. On October 30, 2004, auction was concluded and the appellant herein was
declared the highest and successful bidder at Rs.12.52 crores. It deposited 25%
of the reserve price. On November 2, 2004, on an application by the appellant,
DRT appointed representative of the appellant as a receiver to prepare
inventory of auctioned property.
November, 11, 2004, the appellant made an application to DRT praying for
acceptance of the bank guarantee in lieu of payment of the remaining amount of
75% and also by refunding the amount deposited (25%). DRT dismissed the said
application and the appellant-auction purchaser, on the same day, i.e. November
11, 2004 deposited the balance amount of 75% of the purchase money i.e.
Rs.9,39,00,000/- by a Bank draft. On December 13, 2004, the receiver lodged a
First Information Report (FIR) and filed an affidavit before DRT complaining
that the agent of the 9 Company had forcibly dispossessed him by using
criminal force. On December 15, 2004, the Company moved an application for
setting aside ex-parte final order passed on July 15, 2003 by DRT, Chandigarh
which was registered as M.A. No. 103 of 2004. The appellant filed an
application objecting the prayer of the Company with an added prayer to implead
it in Appeal No. 52 of 2004 as also in M.A. No. 103 of 2004.
The DRT allowed the
impleadment application of the appellant vide order dated December 17, 2004. On
March 28, 2005, the appellant filed an application for hearing preliminary
issue as to maintainability of appeal filed by the Company (Appeal No. 52 of
2004). On April 8, 2005, a suit for permanent injunction was filed by Roland
Exports against the Company in the Civil Court at Tarantaran, District
Status quo with
regard to possession was ordered to be maintained by the Court. An appeal
against the said order is said to have been pending in the High Court.
Meanwhile, the 10 Company got the property valued by Himachal Consultancy
Organisation Ltd. (`HIMCO' for short), according to which the realizable value
of the property had been increased to Rs.20.22 crores. On July 26, 2005, DRT-I,
Delhi allowed Appeal No. 52 of 2004, set aside the auction sale subject to the
Company fulfilling terms and conditions with regard to payment of certain
amount, interest, expenses etc.
Tribunal, while granting relief to the Company, ordered;
"In my humble
opinion, natural justice requires that the appeal be allowed but with some
conditions so that further progress of recovery be not stalled by the
appellant. In these circumstances, this appeal is allowed, subject to the
following conditions:- (i) That the appellant will pay 5% of the amount
deposited by the auction purchaser within 10 days as a penalty as per rule 60
of the Second Schedule of Income Tax Act.
(ii) The appellant
will pay an interest on the amount deposited by the auction purchaser @ 9% p.a.
calculated from the date 11 of deposit of the same till today. The interest
accumulated on the FDRs of auctioned amount till date will be paid to the CH Fl
who will adjust this amount against the outstanding dues of the appellant.
(iii) The appellant
will also bear all the expenditure incurred by the CH FI in conducting the
sale. The details of the same will be given by the CH FI within a week and
thereafter within 10 days, this amount will be deposited by the appellant with
the CH FI.
Failing to comply all
the above three conditions, this appeal will be treated as dismissed and the
restraint order passed by this Tribunal will stand vacated and the Ld. Recovery
Officer will be at liberty to pass the necessary orders as per law and if, the
above conditions are fulfilled by the appellant, the Ld. Recovery Officer is
directed to re-auction this property as early as possible, within 75 days as
per law and release the amount deposited by the auction purchaser immediately.
The present appeal bearing Transfer Appeal No. 1/2005 (Appeal NO. 52/04) stands
disposed off accordingly. A copy of this order be given dasti to all the
parties. A copy of this order be also sent to the Recovery Officer, DRT
Chandigarh for necessary action and information. RC file be also sent 12
immediately back to the DRT Chandigarh by special messenger along with copy of
this order. File be consigned to records".
Company, objecting the conditions imposed by DRT, filed an appeal against the
said order to the DRAT, Delhi being Appeal No. 167 of 2005. The appellant also
filed an appeal being aggrieved by the setting aside the sale. DRAT stayed
operation of the order dated July 26, 2005 which had set aside ex-parte order
passed by DRT. It also directed refund of sale amount to the appellant. Appeals
were then heard and the judgment was reserved.
on December 21, 2005, the Company filed a Reference before the Board of
Industrial Finance & Reconstruction (`BIFR' for short) under SICA which was
registered as BIFR Case No. 4 of 2006. On February 10, 2006, DRAT dismissed the
appeal filed by the Company and allowed the appeal of the appellant and
confirmed auction-sale in favour of the 13 appellant on depositing the sale
price. DRAT, in the operative part of the order stated;
"In view of the
detailed discussion made on the issues which are relevant for the purpose
deciding these appeals, the Miscellaneous Appeal 167/2005 filed by the
judgment-debtor shall stand dismissed. The Miscellaneous Appeal 173/2005 filed
by the auction purchaser shall stand allowed. Consequently, the appeal filed by
the judgment-debtor in Appeal 52/2004 before the Presiding Officer, DRT,
Chandigarh which is renumbered on transfer to DRT-I, Delhi as Transfer Appeal
No. 1/2005 shall stand dismissed. Points formulated for consideration are
No costs. Since, the
appeal filed by the auction-purchaser is allowed, the Recovery Officer, DRT,
Chandigarh shall confirm the sale and shall take all steps immediately for
handling over the possession of properties in question, to the auction
purchaser, if necessary, by taking assistance from all authorities concerned.
The auction purchaser, who was permitted to withdraw the auction amount
deposited towards sale price without prejudice to its rights during pending of
these appeals, shall forthwith deposit the entire amount and thereafter the
Recovery Officer shall proceed to complete the other requirements according to
a separate order of even date, DRAT ordered the Recovery Officer, Chandigarh to
act upon and execute the directions issued by it. The appellant deposited
Rs.12.50 crores on the same day. But the sale could not be confirmed since the
Presiding Officer was on leave. The appellant moved an application before DRAT
for appointment of Recovery Officer, DRT, Delhi for confirmation of sale.
Within three days, however, the Company filed two Writ Petitions being C.W.
Nos. 2041 and 2042 of 2006 in the High Court of Delhi on February 13, 2006
against an order of DRAT dated February 10, 2006. The High Court of Delhi, as
already mentioned earlier, allowed the writ petitions on February 23, 2006, set
aside the order passed by DRAT on the ground that Section 22 of SICA operated
as a complete bar to recovery proceedings and no order could have been passed
by the Tribunal.
aggrieved by the order passed by the High Court, the appellant filed Special
Leave Petition in this Court on March 6, 2006. Notice was issued on March 27,
2006 by this Court and the appellant was allowed to withdraw sale price without
prejudice to its rights and contentions. The matter was, thereafter, adjourned
from time to time. It was ordered to be heard finally. For completion of
record, it may be stated that on April 3, 2006, the BIFR rejected the Reference
of the Company.
The Company preferred
an appeal against the said order which is pending before the Appellate
Authority for Industrial & Financial Reconstruction (AAIFR). On September
15, 2006, second Reference was filed by the Company which has been registered
as BIFR Case No. 18 of 2006. On February 22, 2007, the BIFR declared the
Company as a `sick Company' and appointed LSAS, respondent No. 5 as the
Operating Agency to prepare Rehabilitation Scheme.
Submissions of the
Court has heard the learned counsel for the parties. Learned counsel for the
appellant raised several contentions. He urged that the High Court has
committed an error of law in holding that the proceedings were barred by
Section 22 of the SICA and DRAT was wrong in issuing directions. The
proceedings were neither covered by the first part nor by the second part of
Section 22 and the High Court ought to have decided the case on merits. It was
also submitted that Section 34 of RDDB Act has an `overriding effect' and even
on that ground, the matter ought to have been decided. It was contended that
the appeal preferred by the Company against fixation of reserve price was not
maintainable under Section 30 of the RDDB Act and could not have been
entertained by DRT. So far as ex-parte decree passed by DRT is concerned, the counsel
submitted that the Company was duly served and in spite of that, it failed to
appear before the Tribunal. A grievance was also made that in 17 an appeal
against fixing reserve price (which was not maintainable), DRT granted interim
relief on certain terms and conditions. But even those conditions had not been
complied with by the Company. Reserve price fixed was proper, sufficient and
reasonable and DRT ought not to have set aside the order passed by the Recovery
counsel vehemently contended that the High Court ought to have taken into
account over all conduct of the party, particularly when the Company had
invoked discretionary and equitable jurisdiction under Article 226 of the
Constitution. In exercising writ jurisdiction, submitted the counsel, the
conduct of the petitioner is indeed a relevant and extremely important
consideration. In the instant case, the Company had not come with clean hands.
It had not repaid the loan amount; did not appear before DRT in spite of
service of summons; an ex parte final order was, therefore, rightly passed
against it; the 18 Company filed an appeal before DRT against an `order' which
was not appealable; failed to comply with even the interim order under which
protection was obtained and no payment was made; by committing criminal
trespass and unlawfully entering the property, it dispossessed the receiver
appointed by the Tribunal; the action of taking over possession of the property
by act of highhandedness could not be approved; the Company also removed
machinery and other movable property from the disputed premises; created
unlawful tenancy rights in favour of third party by accepting substantial
amount from him, etc. The counsel, therefore, urged that even if the case was
covered by SICA and Section 22 got attracted, the High Court, in exercise of
extraordinary and special jurisdiction, ought not to have granted relief in
favour of the Company. On all these grounds, it was submitted that the appeal
deserves to be allowed.
learned counsel for the supporting respondents adopted the arguments advanced
by the learned counsel for the appellant.
learned counsel for the Company, on the other hand, supported the order passed
by the High Court. According to him, no doubt the High Court was exercising
powers under Article 226 of the Constitution. But in exercising constitutional
powers, the Court would undoubtedly keep in mind statutory provisions of SICA
and precisely that has been done by the Court. If the proceedings could not
have been initiated or continued in view of bar of Section 22 of SICA, it
cannot be said that the High Court was wrong in passing the impugned order. No
grievance, hence, can be made against such order. As to ex-parte final order
said to have been passed by DRT, it was submitted that no opportunity of
hearing was afforded to the Company and the order was 20 violative of
principles of natural justice and fair play. The appeal filed by the Company
against fixation of reserve price before DRT was maintainable under Section 30
of the RDDB Act as the appeal lies against "an order of the Recovery
Officer made under the Act" and an order of fixation of reserve price is
also an `order' within the meaning of the Act.
non-depositing of amount as per interim order, it was submitted that the
Company was not in a position to comply with the conditions of stay and the
directions issued and hence, in accordance with law, it challenged the said
order by filing an appeal before DRAT. It was the right of the Company to take
such action and the appellant cannot object against such course being adopted
by the Company. It was, therefore, submitted that the High Court was wholly
justified in allowing the petitions filed by the Company and no case has been
made out by the appellant for interference against the said order by this
21 High Court's
the outset, it may be noted that the High Court had disposed of the petitions
only on one ground as to applicability of SICA and held that the proceedings
were barred under Section 22 of the said Act. This is amply clear from
paragraph 13 of the order which reads as under:
have been advanced before us by learned counsel for the parties, but we are of
the opinion that this petition deserves to be allowed on the very first
submission of Dr. Abhishek M. Singhvi, learned senior counsel for the
petitioner, namely that the proceedings are barred by Section 22 read with
Section 32 of the SICA.
to the relevant provisions of SICA and keeping in view the ratio laid down in
the decisions cited before it, the Court ruled that the petition filed by the
Company was required to be allowed.
22 Accordingly, in
the operative part (para 36), the High Court concluded:
For the reasons given
above, the petition is allowed and the impugned order dated 10.2.2006 passed by
the DRAT is set aside and it is held that no recovery can take place against
the petitioner in view of the bar of Section 22 of the SICA.
already adverted to, before the Court the arguments had been advanced by all
the parties on continuation or otherwise of proceedings and also on the merits
of the matter. In view of the fact, however, that the High Court has not
entered into merits of the case and disposed of petitions holding that the
proceedings could not be continued because of the bar of Section 22 of SICA, I
do not wish to enter into allegations and counter allegations levelled by the
parties. At the same time, I am of the view that the conclusion arrived at by
the High Court that the proceedings were barred under Section 22 of SICA is not
well-founded 23 and the decision of the High Court on that point deserves to
be set aside. SICA - Ambit and scope
far as SICA is concerned, it has been stated in the Preamble that the Act has
been enacted in public interest "with a view to securing the timely
detection of sick and potentially sick companies owning industrial
undertakings, the speedy determination by a Board of experts of the preventive,
ameliorative, remedial and other measures which need to be taken with respect
to such companies and the expeditious enforcement of the measures so determined
and for matters connected therewith or incidental thereto".
various provisions of the Act, the said object has to be kept in mind by
Courts. Section 2 is in the form of `declaration' and declares that the Act has
been enacted for giving effect to the policy of the State towards securing the
principles 24 specified in clauses (b) and (c) of Article 39 of the
Constitution. Section 3 defines various terms used in the Act. Chapter II
relates to establishment of Board and Appellate Authority, term of office,
conditions of service of officials and working of the Board and Appellate
Authority. References, Inquiries and Schemes have been dealt with in Chapter
Whereas Section 15
provides for Reference to Board, Section 16 speaks of Inquiry into working of
sick industrial companies. Section 17 empowers the Board to make suitable order
on the completion of inquiry. Sections 18, 19 and 19A deal with Preparation of
Schemes, Rehabilitation and Arrangement for continuing operations during
inquiry. Winding up of sick industrial company is found in Section 20.
Section 21 allows
Operating Agency to prepare inventory. Under Section 22A, directions can be
issued preventing disposal of assets in certain cases.
22 is a material provision which relates to suspension of legal proceedings,
contracts, etc. Sub-section (1) is important and may be reproduced;
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.
26 ..... ..... .....
22. Chapter IV covers
potentially sick industrial Companies, misfeasance proceedings, appeals and
other miscellaneous matters with which the Court is not concerned in the
present case except Section 32 which gives `overriding effect' to the
provisions of the Act. It reads as under:
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 section 72A of the Income-tax
Act, 27 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 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
RDDB Act - Ambit and
RDDB Act (Recovery of Debts Due to Banks and Financial Institutions Act, 1993)
has been enacted with a view "to provide for the establishment of
Tribunals for expeditious adjudication and recovery of debts due to banks and financial
institutions and for matters connected therewith or incidental thereto".
Chapter I is Preliminary in nature and Section 2 defines various terms. Chapter
II provides for establishment of Tribunals and Appellate Tribunals, their
composition, qualifications and term of office of the staff, salaries,
allowances, etc. Jurisdiction, powers 28 and authority of Tribunals are found
in Chapter III. The Tribunals are required to follow procedure laid down in
Chapter IV. Chapter V relates to `Recovery of debt determined by the Tribunal'.
Section 29 declares that the provisions of the Second and Third Schedules of
the Income Tax Act, 1961 will apply to the recovery of amount due under the
Chapter VI is
Miscellaneous. One section, however, is of extreme importance. It is Section 34
which allows `overriding effect' to the provisions of the Act over other laws.
It is a crucial provision and may be quoted in extenso;
34. Act to have
overriding effect.--(1) Save as provided under sub-section (2), the provisions
of this Act shall have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or in any instrument
having effect by virtue of any law other than this Act.
(2) The provisions of
this Act or the rules made thereunder shall be in 29 addition to, and not in
derogation of, the Industrial Finance Corporation Act, 1948, the State
Financial Corporations Act, 1951, the Unit Trust of India Act, 1963, the
Industrial Reconstruction Bank of India Act, 1984 and the Sick Industrial
Companies (Special Provisions) Act, 1985 and the Small Industries Development
Bank of India Act, 1989. (emphasis supplied)
to the Company, there is a bar against initiation or continuation of
proceedings under Section 22 of SICA against sick companies. The High Court
was, therefore, right in allowing the petitions filed by the Company. The case
of the appellant and supporting respondents, on the other hand, is that Section
22 of SICA has no application to the case on hand and the High Court was in
error in invoking the said section and denying relief to the auction purchaser
as well as other creditors by wrongly extending benefit of the said provision
to the Company. The appellant alternatively contended that even if the proceedings
pending against the Company are 30 covered by Section 22 of SICA, non-obstante
clause in Section 34 of RDDB Act, which is a subsequent legislation will
operate and recovery could not have been suspended, stalled or arrested.
Interpretation of statutes
question, therefore, is whether the High Court was right in holding that the
proceedings were barred under Section 22 of SICA. I have extracted the relevant
part of the said section. It has two limbs. The first part enacts that "no
proceeding 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 ... shall lie or be
proceeded with further, except with the consent of the Board or, as the case
may be, the Appellate Authority." The second part which is 31 independent
of the first part declares that "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." The two parts use two
different expressions; (i) `proceeding' and (ii) `suit'. Case law
Kailash Nath Agarwal & Ors. v. Pradeshiya Industrial & Investment
Corporation of U.P. Ltd. & Anr., (2003) 4 SCC 305, this Court had an
occasion to consider the meaning of these two expressions. The Court noted that
sometimes two different words are used in one and the same statute to convey
the same meaning, but "that is exception rather than the rule". The
general rule is that when 32 two different words are used by a statute, prima
facie one has to construe different words as carrying different meanings.
"suit" and "proceeding" have not been used interchangeably
to Pandurang R. Mandlik v. Shantibai R. Ghatge, 1989 Supp (2) SCC 627, the
Court observed that in its comprehensive sense, the word `suit' is understood
to apply to any proceeding in a Court of Justice by which an individual pursues
a remedy which the law affords. The modes of proceedings may be various, but if
a right is litigated between parties in a Court of Justice, the proceedings by
which the decision of the Court is sought may be a suit. The word `suit'
ordinarily means and, apart from some context, must be taken to mean a civil
33 proceeding instituted by the presentation of a plaint". (vide Hansraj
Gupta v. Dehra Dun - Mussoorie Electric Trameray Co. Ltd.; 60 IA 13 : AIR 1933
the instant case, proceedings had been initiated by the Bank not before a Civil
Court by invoking Section 9 of the Code of Civil Procedure, 1908, but before
DRT by taking recourse to jurisdiction under RDDB Act.
It is, therefore,
contended that the proceedings could not be said to be a "suit" falling
within the mischief of Section 22 of SICA. In any case, according to the
learned counsel for the appellant, ex parte final order was passed by DRT as
back as on July 15, 2003 and hence even if it is assumed that the connotation
"suit" should be construed liberally so as to take within its sweep
all proceedings including an application before DRT, in view of final order
passed by DRT in 34 2003, bar envisaged by Section 22 of SICA cannot operate.
far as "proceedings" are concerned, it was submitted by the appellant
that the final order had been passed by DRT under RDDB Act. A Certificate had
been issued under Section 19 and in accordance with Section 29 of the Act,
procedure laid down in Second and Third Schedules to the Income Tax Act, 1961
had been followed. Reserve price was fixed.
published. Auction was held. The appellant was found to be the highest bidder
and its bid was accepted.
Necessary amount was
deposited. All actions were thus in conformity with law. If the Company felt
aggrieved by auction sale, it ought to have proceeded in accordance with Rules
60 to 62 of the Rules in the Second Schedule. Rule 60 permits a person
adversely affected by the sale to apply to the Tax Recovery Officer within
thirty days from the 35 date of sale to set aside such sale on his depositing
the entire amount with interest thereon and penalty. Admittedly, the Company
did not avail the said remedy. Rule 61 allows an application to set aside sale
of immovable property on the ground of non-service of notice or material
irregularity in publishing or conducting the sale. The said rule also provides
for deposit of amount recoverable under the Certificate. The Company failed to
do so. Under Rule 62, sale can be set aside when defaulter has no saleable
interest. No such case had been put forward by the Company by applying under
Rule 62. The Company, therefore, could not make grievance against the auction
reliance was placed on behalf of the appellant on Rule 63 which states that
where no application is made for setting aside the sale or where such
application is made and is dismissed, the Tax Recovery Officer 36 shall make
an order confirming the sale and thereupon the sale shall become absolute. It
was submitted that none of the Rules had been invoked by the Company by
applying to the Tax Recovery Officer and by depositing the amount.
The Tax Recovery
Officer, hence, was enjoined to confirm sale as per the mandate of Rule 63.
An appeal filed by
the Company under Section 30 of RDDB Act before DRT against the order of Tax
Recovery Officer fixing reserve price was ill- conceived and not maintainable
as there was no `order' within the meaning of RDDB Act which was appealable.
Attention of the Court in this connection was invited by the learned counsel to
Rule 53 [Contents of proclamation]. It provides that a proclamation of sale
shall specify, inter alia, "the reserve price, if any, below which the
property may not be sold"
[Clause (cc)]. It was
submitted that fixation of `reserve price' is not mandatory, condition
precedent or sine qua non and if reserve price is not fixed, the order cannot
be said to be 37 non est, contrary to law or unlawful. In any case, when
reserve price was fixed and property was sold not below such price, the only remedy
available to the Company or any person whose interest was affected was to apply
under Rule 60 or 61 or 62. The appeal before DRT was thus totally misconceived
and ought not to have been entertained by the Tribunal.
to the Company, reserve price was grossly inadequate. The Company was aggrieved
and preferred an appeal under Section 30 of RDDB Act as the order fixing
reserve price was also an `order' within the meaning of the Act. To buttress
the submission, the counsel relied upon a decision of this Court in Union of
India & Anr. v. Delhi High Court Bar Association & Ors., (2002) 4 SCC
275. In Delhi High Court Bar Association, while upholding the validity of RDDB
Act, this Court considered various safeguards and remedies available to the 38
aggrieved party. In paragraph 30 of the decision, it was inter alia observed;
30, after amendment by the Amendment Act, 2000, gives a right to any person
aggrieved by an order of the Recovery Officer, to prefer an appeal to the
Thus now an appellate
forum has been provided against any orders of the Recovery Officer which may
not be in accordance with law. There is, therefore, sufficient safeguard which
has been provided in the event of the Recovery Officer acting in an arbitrary
or an unreasonable manner.
The provisions of
Sections 25 and 28 are, therefore, not bad in law
express no opinion one way or the other on the controversy. As noted earlier,
the High Court allowed the petitions filed by the Company only on the ground of
bar of Section 22 of SICA. Since I am of the view that the High Court was not
right in coming to that conclusion, the matter must go back to the High Court
for deciding all points not dealt and decided.
learned counsel for the Company emphatically argued that Section 32 of SICA is
explicitly clear and uses non-obstante clause ("Notwithstanding anything
inconsistent therewith contained in any other law"). It was urged that
SICA is a `self-contained Code' and makes detailed and exhaustive provisions in
respect of sick companies. It is also a `special law' and effect must be given
to the provisions of the Act. The argument of the appellant on the other hand
is that Section 34 of RDDB Act is a subsequent legislation which also contains
a similar non-obstante clause and that Act should prevail over SICA.
learned counsel for the parties, in support of their respective submissions,
referred to several decisions.
Let us consider few
Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of 40
Maharashtra Ltd. & Anr., (1993) 2 SCC 144, this Court was called upon to
consider the provisions of SICA and State Financial Corporation Act, 1951.
Observing that the word `proceedings' in sub-section (1) of Section 22 of SICA
could not be given narrow or restricted meaning to limit the legal proceedings,
the Court held that if Section 22(1) is attracted, the proceedings must be held
to be barred.
in view the underlying object of enacting SICA, the Court stated;
Now we come to the
impugned decision. The High Court was considerably influenced by the fact that
the appellant-company owed crores of rupees to banks and felt that so far as
such creditors are concerned, different considerations may come into play but
the High Court with respect failed to appreciate that the 1985 Act was enacted
primarily to assist sick industrial undertakings which inter alia failed to
meet their financial obligations.
It is, therefore,
difficult to accept the view of the High Court that where the creditors of a
sick industrial concern happen to be Banks or State 41 Financial Corporations
different considerations would come into play.
It must be realised
that in the modern industrial environment large industries are generally
financed by banks and statutory corporations created specially for that purpose
and if they are permitted to resort to independent action in total disregard of
the pending inquiry under Sections 15 to 19 of the 1985 Act the entire exercise
under the said provisions would be rendered nugatory by the time the BIFR is
able to evolve a scheme of revival or rehabilitation of the sick industrial
concern by : device of the Financial Corporation resorting to Section 29 of the
1951 Act. We are, therefore, of the opinion that where an inquiry is pending
under Section 16/17 or an appeal is pending under Section 25 of the 1985 Act
there should be cessation of the coercive activities of the type mentioned in
Section 22 (1) to permit the BIFR to consider what remedial measures it should
take with respect to the sick industrial company. The expression 'proceedings'
in Section 22(1), therefore, cannot be confined to legal proceedings understood
in the narrow sense of proceedings in a Court of law or a legal tribunal for
attachment and sale of the debtor's property.
Deputy Commercial Tax Officer & Ors. v. Corromandal Pharmaceuticals &
Ors., (1997) 10 SCC 649, this Court held that the 42 embargo under Section
22(1) would not apply to payment of tax collected by the sick industrial
company after the date of the sanctioned scheme and legitimately belonged to
the Revenue. "Any other construction will be unreasonable and unfair and
will lead to a state of affairs enabling the sick industrial unit to collect
amounts due to the Revenue and withhold it indefinitely and unreasonably. Such
a construction which is unfair, unreasonable and against the spirit of the
statute in a business sense, should be avoided." (emphasis supplied)
Jeevan Reddy was much more emphatic. In a concurrent judgment, His Lordship
Looking at the
provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 [the
Act], I was wondering how out of tune the Act has become with the economic
policies being pursued now in this country. Since 43 1991-92, we are launched
upon, what is being called, liberalisation of our economy. We have given up the
policy of protecting our industries against foreign competition on the ground
that it has given rise to an inefficient and outdated industrial system in our
country. Our industries are suddenly being asked to compete with foreign
companies, many of whom being giant multi-nationals have vast resources at
their disposal. [They are merrily gobbling up our poor native companies.
industries, unable to stand the said competition are joining the foreign giants
in one form of venture or other. Several hundreds of small- scale and medium
scale units in telecom sector, for example have suffered enormously because of
our love for foreign companies and their capital.
The state of several
public sector companies is no better. I am not saying that we have totally
embraced, what may be called "Reaganism" or "Thatcherism".
The fact, however,
remains that it is no longer thought advisable to keep alive inefficient and
uneconomic industries by injecting public funds or in the name of safeguarding
the employment of the workers. And here is this Act, a product of the era of protectionism,
seeking to keep alive "sick" companies by pumping in funds - mostly
public funds - and by providing various concessions. In the process, nobody
inquires why a particular industrial company has become sick, viz., whether it
is an induced one or whether it is on account of factors beyond their control.
The object of the Act is undoubtedly laudatory but it must also provide for appropriate
44 measures against persons responsible where it is found that sickness is
caused by factors other than circumstances beyond the control of the
management. It is also a well-known fact that the proceedings before the Board
of Industrial and Financial Reconstruction take a long time to conclude and all
the while the protective umbrella of Section 22 is held over the company which
has reported sick. We have come across cases where unfair advantage is sought
to be taken of the provisions of Section 22 by certain industrial companies -
and the wide language employed in the section is providing them a cover. We are
sure Section 22 was not meant to breed dishonesty nor can it be so operated as
to encourage unfair practices. The ultimate prejudice to public monies should
not be overlooked in the process of promoting industrial progress. We are quite
sure that the Government is fully alive to the situation and are equally
certain that they must be thinking of necessary modifications in the Act.
observations are meant merely to record the need for changes in the Act.
Real Value Appliances Ltd. v. Canara Bank & Ors., (1998) 5 SCC 554, a
contention was advanced on behalf of the creditors that the conduct of the
Company was far from satisfactory and highly objectionable.
45 It suppressed
several facts from the Court.
inconsistent pleas were taken and fraud was practised on the Court.
Court agreed with what was submitted and observed;
This conduct of the
appellant, in our view, was certainly very unfair to the High Court and,
therefore, the High Court had rightly depreciated the same. In our view, there
was a clear attempt to keep the Court in the dark"
Court, however, proceeded to state that on that count reference-application to
the BIFR would not become bad and if the Company was entitled to the benefit of
SICA, it could not be denied the said benefit.
Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., (2000) 5 SCC 515,
this Court held that where conditions precedent for applicability of SICA were
46 satisfied, then notwithstanding that the order for winding up of the Company
had been passed, the bar would get attracted.
Patheja Bros. Forgings & Stamping & Anr. v. ICICI Ltd. & Ors.,
(2000) 6 SCC 545, this Court held that without requisite sanction under Section
22 of SICA, no suit can be proceeded with.
Jai Engineering Works Ltd. v. Industry Facilitation Council & Anr., (2006)
8 SCC 677, after referring to all leading decisions on the point and describing
1985 Act as a `complete Code', this Court stated;
The 1985 Act was
enacted in public interest. It contains special provisions. The said special
provisions had been made with a view to secure the timely detection of sick and
potentially sick companies owning industrial undertakings, the speedy
determination by a Board of experts for preventive, ameliorative, remedial and
other measures which need to be taken with respect to such companies 47 and
the expeditious enforcement of the measures so determined and for matters
connected therewith or incidental thereto.
my view, however, the learned counsel for the appellant is right in submitting
that RDDB Act is a `special law' and also a subsequent legislation, i.e. later
It is well-settled
that when any law has been enacted, the Legislature must be presumed to be
aware of all existing laws. When RDDB Act was enacted in 1993, SICA was very
much in force since it was enacted in 1985. In spite of that, Parliament was
pleased to give `overriding effect' to RDDB Act by using non- obstante clause
in Section 34. Sub-section (1) expressly stated that the provisions of the Act
"shall have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force".
am thus at a point where two statutes employ non-obstante clause having
`overriding effect'. Such a conflict, as laid down in several cases, may be
resolved by judiciary on various considerations; such as the policy underlying
the enactments, the language used, the object intended to be achieved; or
mischief sought to be remedied, etc. One of the tests applied by Courts is that
normally a later enactment should prevail over the former. The Courts would
also try to reconcile both Acts by adopting harmonious interpretation and
applying them in their respective fields so that both may operate without
coming into conflict with each-other.
In resolving the
clash, the Court may further examine whether one of the two enactments is
`special' and the other one is `general'.
There can also be a
situation in law where one and the same statute may be held to be a `special'
statute vis-`-vis one legislation and `general' statute vis-`-vis another 49
legislation. On the basis of one or more tests, the Court will try to salvage
the situation by giving effect to non obstante clause in both the legislations.
me consider some of the decisions of this Court on this vexed issue.
Shri Ram Narain v. Simla Banking & Industrial Co. Ltd., 1956 SCR 603, two
competing statutes came up for consideration before this Court being the
Banking Companies Act, 1949 (as amended by Act 52 of 1953) and the Displaced
Persons (Debt Adjustment) Act, 1951. Section 45-A of the Banking Companies Act
(introduced by the amending Act of 1953) and Section 13 of the Displaced
Persons Act, 1951 both contained a non-obstante clause stating that certain
provisions of the Act shall have effect "notwithstanding anything
inconsistent therewith in any other law for the time being 50 in force".
This Court resolved the conflict by considering the object and purpose of the
two laws and giving primacy to the Banking Companies Act. The Court indicated
that when two Acts contain provisions giving overriding effect, it would be a
difficult question as to which Act should prevail.
Court stated-- "It is, therefore, desirable to determine the overriding
effect of one or the other of the relevant provisions in these two Acts, in a
given case, on much broader considerations of the purpose and policy underlying
the two Acts and the clear intendment conveyed by the language of the relevant
Shri Sarwan Singh & Anr. v. Shri Kasturi Lal, (1977) 1 SCC 750, two
provisions were before this Court. Section 19 of the Slum Areas (Improvement
and Clearance) Act, 1956 (as amended by Act 43 of 1964) provided that
proceedings for eviction of 51 tenants could not be taken without permission
of the competent authority "notwithstanding anything contained in any
other law for the time being in force". Section 39 of the Act further
declared that the provisions of the Act shall take effect "notwithstanding
anything inconsistent therewith contained in any other law". The other
statute was the Delhi Rent Control Act, 1958 (as amended by Act 18 of 1976).
Section 14-A as inserted by the amendment Act conferred a right on a landlord
to recover immediate possession of any premises let out by him in case he was
required to vacate any residential premises allotted to him by the Central
Government or by a local Authority. The conferment of the right was
"notwithstanding anything contained elsewhere in this Act or in any other
law for the time being in force". Section 25-B laid down special procedure
for enforcement of right conferred by Section 14-A. Section 25-A stated that
the provisions in Section 25-B shall have effect 52 "notwithstanding
anything inconsistent therewith contained elsewhere in this Act or in any other
law for the time being in force".
The Court held that
the right to immediate possession conferred by Section 14-A of the Delhi Rent
Act was not controlled by the Slum Clearance Act and the right could be
enforced in the manner provided in Section 25-B without obtaining prior
permission of the competent Authority under the Slum Clearance Act.
for the Court Chandrachud, J. (as His Lordship then was) observed:
such inter se conflicts, one other test may also be applied though the
persuasive force of such a test is but one of the factors which combine to give
a fair meaning to the language of the law. That test is that the later
enactment must prevail over the earlier one. Section 14A and Chapter IIIA
having been enacted with effect from December 1, 1975 are later enactments in
reference to Section 19 of the Slum Clearance Act which, in its present form,
was 53 placed on the statute book with effect from February 28, 1965 and in
reference to Section 39 of the same Act, which came into force in 1956 when the
Act itself was passed. The legislature gave overriding effect to Section 14A
and Chapter IIIA with the knowledge that Sections 19 and 39 of the Slum
Clearance Act contained non obstante clauses of equal efficacy.
Therefore the later
enactment must prevail over the former".
Sanwarmal Kejriwal v. Vishwa Co-operative Housing Society Ltd & Ors.,
(1990) 2 SCC 288, this Court applied the test as to `general' and `special' Act
and held that special law would have primacy over the general law.
Life Insurance Corporation of India v. D.J. Bahadur & Ors., (1981) 1 SCC
315, before this Court two Acts came up for consideration; (1) Industrial
Disputes Act, 1947 (ID Act), and (2) Life Insurance Corporation Act, 1956 (LIC
Act). One of the 54 questions before the Court was which of the two should be
considered as `special law'. It was urged that the Industrial Disputes Act
should be regarded as `general law' relating to workmen and Life Insurance
Corporation Act should be considered as `special law' in relation to employees
engaged by LIC. It was, therefore, submitted that when a complaint is made by
an employee of LIC, he cannot invoke the provisions of ID Act and the matter
must be decided in accordance with LIC Act.
Iyer, J. described the question as `crucial' which demanded an answer about the
statute being `general' or `special'.
The well known
doctrine of generalia specialibus non derogant (general provisions will not
abrogate special provisions) was also noted and it was observed that if LIC Act
was considered `special', it must operate over ID Act treating ID Act to be
the long title of LIC Act 55 and its object for providing nationalization of
life insurance business in the country and the matters connected therewith, the
Court observed that the primary purpose of the Act was to nationalize private
insurance business by establishing Life Insurance Corporation of India.
Incidentally, the said Act provided for transfer of service of existing
employees of the insurers to the Corporation, their conditions of service, etc.
But it was `plain and beyond doubt' that it was not concerned with disputes
between employer and employee.
The principal object
of the Act was nationalization of insurance business and it was a `special'
legislation so far as business purpose was concerned. Disputes between employer
and employee had been dealt with by ID Act which was a `special' law covering
that field and if there is dispute between employer and employee in Life
Insurance Corporation, LIC Act must be treated as `general law' vis-`-vis 56
ID Act which should be treated as `special law'.
Lordship, therefore, made the following pertinent observations:
whether a statute is a special or a general one, the focus must be on the
principal subject matter plus the particular perspective. For certain purposes,
an Act may be general and for certain other purposes it may be special and we
cannot blur distinctions when dealing with finer points of law. In law, we have
a cosmos of relativity not absolutes-so too in life".
was, therefore, concluded that ID Act was a special statute devoted only to
investigation and settlement of industrial disputes and since LIC Act was a
general statute, in cases of disputes between an employer and employee, ID Act
would have primacy over LIC Act.
Maharashtra Tubes Ltd., a conflict between provisions of two special statutes,
viz. (1) the State Financial Corporation Act, 1951 and (2) the Sick Industrial
Companies (Special Provisions) Act, 1985 (SICA) was highlighted. Both contained
non-obstante clause. The conflict was resolved by this Court by giving
overriding effect to SICA on the ground that SICA was a subsequent enactment
(1985) and non-obstante clause therein would prevail over the non-obstante
clause in the State Financial Corporation Act (1951).
Court, speaking through Ahmadi, J. (as His Lordship then was), observed:
the conclusion that both the 1951 Act and the 1985 Act are special statutes
dealing with different situations--the former providing for the grant of
financial assistance to industrial concerns with a view to boost up
industrialisation 58 and the latter providing for revival and rehabilitation
of sick industrial undertakings, if necessary, by grant of financial
assistance, we cannot uphold the contention urged on behalf of the respondent
that the 1985 Act is a general statute covering a larger number of industrial
concerns than the 1951 Act and, therefore, the latter would prevail over the
former in the event of conflict. Both the statutes have competing non-obstante
provisions. Section 46B of the 1951 Act provides that the provision of the
statute and of any rule or order made there under shall have effect
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force whereas Section 32(1) of the 1985 Act also provides
that the provisions of the said Act and of any rules or schemes made there under
shall have effect notwithstanding anything inconsistent therewith contained in
any other law.
Section 22(1) also
carries a non- obstante clause and says that the said provision shall apply
notwithstanding anything contained in Companies Act, 1956 or any other law. The
1985 Act being a subsequent enactment, the non- obstante clause therein would
ordinarily prevail over the non- obstante clause found in Section 46B of the
1951 Act unless it is found that the 1985 Act is a general statute and the 1951
Act is a special one. In that event the maxim generalia specialibus non
derogant would apply.
But in the present
case on a consideration of the relevant provisions of the two statues we have
come to the conclusion that the 1951 59 Act deals with post-sickness
situation. It is, therefore, not possible to agree that the 1951 Act is a
special statute vis-a-vis the 1985 Act which is a general statute. Both are
special statutes dealing with different situations notwithstanding a slight
overlap here and there, for example, both of them provide for grant of
financial assistance though in different situations. We must, therefore, hold
that in case of sick industrial undertakings the provisions contained in the
1985 Act would ordinarily prevail and govern".
similar conflict came to light between two statutes, namely, (i) the State
Financial Corporations Act, 1951 and (ii) the Companies Act, 1956 in A.P. State
Financial Corporation v. Official Liquidator, (2000) 7 SCC 291. The Court
treated 1951 Act as a `special Act' for grant of financial assistance to the
industrial concerns with a view to boost up industrialization and also recovery
of financial assistance if it becomes bad.
Companies Act dealt with 60 Companies including winding up of such Companies.
The Court, however, held that the proviso to sub-section (1) of Section 529 and
Section 529-A being a subsequent enactment, the non-obstante clause in Section
529-A would prevail over Section 29 of the 1951 Act.
underlying object of non- obstante clause in Section 529-A of the Companies Act
and a social purpose underlying therein to ensure payment of dues to the
workmen in priority over all other debts, the Court concluded that "if
conditions are not imposed to protect the right of the workmen, there is every
possibility that the secured creditor may frustrate the above pari passu right
of the workmen".
Allahabad Bank v. Canara Bank & Anr., (2000) 4 SCC 406, a similar question
was raised before this Court. There the Court considered two Acts, (i) RDDB
Act, 1993 and Companies Act, 1956. It was held that even 61 where a winding up
petition was pending or a winding up order had been passed against a Company
for debt payable to banks and financial institutions, governing law was RDDB
Act. No leave of Company Court as envisaged under the Company Act, therefore,
was necessary. The Court held that though both the laws could be treated as
`special laws' in respect of recovery of dues by banks and financial
institutions, it was 1993 Act which should be considered as `special' vis-`-vis
may refer to a recent decision of this Court in M/s. Transcore v. Union of
India & Anr., (2008) 1 SCC 125, wherein this Court considered the
provisions of RDDB Act, 1993 and Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002. Considering the scheme
of both the laws, the Court held that 1993 Act was a `complete Code' by itself
as far as recovery of debt is concerned. It was a `special law' in 62 the
matters of recovery of dues and the provisions of the said Act would prevail
over other laws.
may also be profitable to refer to a three Judge Bench decision of this Court
in Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. & Ors.,
(2001) 3 SCC
71. In that case, S
took loan of Rs. one crore from F. The amount was not repaid. F, therefore,
instituted proceedings under the Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992 for the recovery of the amount. The
Special Court came to the conclusion that S had not repaid the loan and
accordingly ordered S to pay the amount with interest. During the pendency of
the appeal before this Court, S became sick and proceedings were initiated
under SICA. One of the contentions raised before this Court by S was that in
view of special provisions contained in SICA, no proceedings could have 63
been initiated or continued under the Special Court Act. This Court admitted
that SICA was a `special' Act. The Court was also aware of the non-obstante
clause in Section 32 of SICA. It noted that the effect of the said provision
was that SICA will have effect "notwithstanding anything inconsistent
therewith contained in any other law for the time being in force".
But it noted that
there was a similar non- obstante clause in Section 13 of the Special Court Act
which was as under:
"13. Act to have
overriding effect.--The provisions of this Act shall have effect
notwithstanding anything inconsistent therewith contained in any other law for
the time being in force or in any instrument having effect by virtue of any
law, other than, this Act, or in any decree or order of any court, tribunal or
Court then stated; "This Court has laid down in no uncertain terms that in
such an event it is the later Act which must prevail". The Court referred
to a decision 64 rendered by a Special Court in Bhoruka Steel Ltd. vs.
Fairgrowth Financial Services Ltd., [(1997) 89 Comp Cas 547] wherein the
Special Court stated:
"Where there are
two special statues which contain non-obstante clauses the later statute must
prevail. This is because at the time of enactment of the later statute, the
Legislature was aware of the earlier legislation and its non-obstante clause. If
the Legislature still confers the later enactment with a non-obstante clause it
means that the Legislature wanted that enactment to prevail. If the Legislature
does not want the later enactment to prevail then it could and would provide in
the later enactment that the provisions of the earlier enactment continue to
The Special Court
(Trial of Offences Relating to Transactions in Securities) Act, 1992, provides
in Section 13, that its provisions are to prevail over any other Act. Being a
later enactment, it would prevail over the Sick Industrial Companies (Special
Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of
the Sick Companies Act from the ambit of the said Act, the Legislature would
have specifically so provided. The fact that the Legislature did not
specifically so 65 provide necessarily means that the Legislature intended
that the provisions of the said Act were to prevail even over the provisions of
the Sick Companies Act.
It is a settled rule
of interpretation that if one constructions leads to a conflict, whereas on
another construction, two Acts can be harmoniously constructed then the latter
must be adopted. If an interpretation is given that the Sick Industrial
Companies (Special Provisions) Act, 1985, is to prevail then there would be a
However, there would
be no conflict if it is held that the 1992 Act is to prevail. On such an
interpretation the objects of both would be fulfilled and there would be no
conflict. It is clear that the Legislature intended that public monies should
be recovered first even from sick companies.
Provided the sick
company was in a position to first pay back the public money, there would be no
difficulty in reconstruction. The Board for Industrial and Financial
Reconstruction considering a scheme for reconstruction has to keep in mind the
fact that it is to be paid off or directed by the Special Court. The Special
Court can, if it is convinced, grant time or instalments."
the above observations, this Court stated:
"We are in
agreement with the aforesaid decision of the case, more so when we find that
whenever the legislature wishes to do so it makes appropriate provisions in the
Act in that behalf. Mr. Shiraz Rustomjee has drawn our attention to Section 34
of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993
wherein after giving an overriding effect to the 1993 Act it is specifically
provided that the said Act will be in addition to and not in derogation of a number
of other Acts including the 1985 Act. Similarly under Section 32 of the 1985
Act the applicability of the Foreign Exchange Regulation Act and the Urban Land
Ceiling Act is not excluded."
the above discussion, in my judgment, the law is fairly well settled. A
provision beginning with non-obstante clause ("notwithstanding anything
inconsistent contained therein in any other law for the time being in
force'") must be enforced and 67 implemented by giving effect to the provisions
of the Act and by limiting the provisions of other laws. But, it cannot be
gainsaid that sometimes one may come across two or more enactments containing
similar non-obstante clause operating in the same or similar direction.
Obviously, in such cases, the Court must attempt to find out the intention of
the Legislature by examining the nature of controversy, object of the Act,
proceedings initiated, relief sought and several other relevant considerations.
From the case-law referred to above, it is clear that Courts have applied
several workable tests. They, inter alia, include to keep in view whether the
Act is `general' or `special', whether the Act is a subsequent legislation,
whether there is reference to the former law and the non- obstante clause
therein. The above tests are merely illustrative and by no means they should be
considered as exhaustive. It is for the Court when it is called upon to resolve
such 68 conflict by harmoniously interpreting the provision of both the
competing statutes and by giving effect to one over the other.
Primacy of RDDB Act
the above tests in the instance case, to me, it is crystal clear that the
provisions of RDDB Act should be given priority and primacy over SICA. I may
concede that both the Acts are `special Acts' in the sense that they have been
enacted for a specific purpose and object in view. Whereas SICA has been
enacted in the public interest with a view to securing the timely detection of
sick or potentially sick companies owning industrial undertakings, the speedy
determination by a Board of Experts of the preventive, ameliorative, remedial
and other measures which need to be taken with respect to such companies and
the expeditious enforcement of the measures so determined and for matters 69
connected therewith or incidental thereto, RDDB Act has been enacted to secure
and protect public revenue and for expeditious adjudication and recovery of
debts due to banks and financial institutions. RDDB Act is subsequent Act in
the point of time being 1993 Act. It must, therefore, be presumed even in
absence of any specific provision in the 1993 Act that Parliament was aware of
all statutes which had been enacted prior to 1993 including SICA of 1985. In
spite of that, in sub-section (1) of Section 34 of RDDB Act, non-obstante
clause has been inserted so as to ensure expeditious adjudication and recovery
of debts due to banks and financial institutions.
it is not only on the ground that the RDDB Act is a later Act and SICA is a
former Act that I am holding that the RDDB Act will prevail over SICA. There is
an additional factor also which is of extreme importance and supports the view
which I am inclined to take.
70 It is sub-section
(2) of Section 34. To recall, sub-section (2) of Section 34 of RDDB Act
declares that the provisions of this Act (RDDB Act of 1993) are "in
addition to and not in derogation of", certain enactments referred to in
the said sub-section. SICA has been expressly mentioned in the said
sub-section. As already adverted to earlier, RDDB Act, 1993 has been enacted
with a view "to provide for the establishment of the Tribunals for
expeditious adjudication and recovery of debts due to banks and financial
institutions" (Preamble of the Act). All other laws, therefore, whether
general or special, prior or subsequent, must, in my considered view, be
interpreted and applied keeping in view the above object of enacting 1993 Act.
I have, therefore, no hesitation in holding that even though both the
conflicting statutes, (SICA of 1985 and RDDB Act of 1993) contain non-obstante
clause, in case of conflict, RDDB Act, 1993 will prevail 71 over SICA, 1985 so
far as recovery of public revenue is concerned.
the aforesaid reasons, I hold that the High Court has committed an error of law
in invoking and applying provisions of Section 22 of SICA and in dropping
proceedings against the Company. The order of the High Court, therefore,
deserves to be set aside and I do accordingly. The matter is remitted to the
High Court to decide it afresh on all points including the conduct of the
Company after hearing the parties. All contentions of all parties are kept
parting with the matter, I may clarify that any observation on merits which
might have been made in this judgment is only for the purpose of deciding the
preliminary question as to maintainability of 72 proceedings against the
Company since the High Court has allowed the petitions filed by the Company
only on that ground. I make it clear that I may not be understood to have
expressed any opinion on other issues and as and when the matter will come up
before the High Court, the same will be decided on its own merits without being
inhibited by such observations.
appeal is accordingly allowed with costs.
New Delhi; (C.K.
THAKKER) August 25, 2008.
73 IN THE SUPREME
COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL No. 5225 of 2008
(Arising out of SLP(C) No.5041 of 2006) KSL & Industries Limited ...
Appellant M/s Arihant
Threads Limited & Ors ...Respondents
1. I have had the
benefit of going through the draft judgment prepared by my learned Brother and
while I agree with the conclusion arrived at by His Lordship, that the High
Court erred in applying the provisions of Section 22 of the Sick Industrial
Companies (Special Provisions) Act, 1985, and dropping the proceedings against
the Company, with utmost respect I find myself unable to accept the legal
reasoning on which His Lordship's conclusion is based. I would like to traverse
a different route in arriving at the same conclusion as arrived at by my
2. Since my learned
Brother has set out the facts involved in detail, I shall only highlight some
of the facts which compel me to pen my views in a separate judgment.
3. The respondent
No.1-Company, M/s Arihant Threads Limited, was incorporated as a Joint Venture
Company with Punjab State Industrial Development Corporation. In 1992 the said
Company was granted lease of Plot No.454 for 99 years by Goindwal Sahib
Industrial and Investment Corporation in the Goindwal Sahib Industrial Area.
The lease contained a specific provision disentitling the lessee from
transferring its interest in the demised property for the first 15 years of the
lease without the prior permission of the lessor. However, it was also provided
that the lessee would be entitled to mortgage its leasehold rights to a Bank,
the Punjab Financial Corporation or the Life Insurance Corporation of India as
security for development of the demised premises by constructing factory
buildings and for purchase of raw-material etc. In view of the said provision,
the Industrial Development Bank of India (hereinafter referred to as `IDBI'),
which was the predecessor of the Stressed Assets Stabilisation Fund
(hereinafter referred to as `SASF'), financed the project undertaken by the
4. As it appears from
the records, the respondent no.1- Company was unable to repay the loan and IDBI
filed Original Application No.1368 of 2001 in the Debts Recovery Tribunal,
Chandigarh, (hereinafter referred to as `DRT, Chandigarh') on 20.12.2001, for
recovery of Rs.25,26,60,836/-, under the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 (hereinafter referred to as the `RDDB Act').
Despite service of notice of the said proceedings, the respondent No.1 Company
remained unrepresented before the DRT and on 15.7.2003 an ex-parte final order
was passed in favour of IDBI for recovery of Rs.25,26,60,836/- together with
interest at the rate of 7.8% per annum and a Recovery Certificate was also
issued against the respondent No.1-Company.
5. In keeping with
Section 29 of the RDDB Act, the Recovery Officer issued a composite demand
notice to the respondent No.1-Company on 9.9.2003 under Rule 2 of the Second
Schedule to the Income Tax Act, 1961, demanding payment of Rs. 28,60,87,384/-.
A separate direction was given to the Company to appear before the Recovery
Officer on 23.10.2003 for settling terms and conditions relating to the
proclamation of sale and for disclosure of its movable and immovable assets.
6. A Valuation Report
was also obtained from the Local Commissioner, appointed by the Recovery
Officer, who in his report indicated that two machines were missing from the
Company's factory. A further Valuation Report was obtained from the North-India
Technical Consultancy Association Limited in January 2004, wherein the assets
of the Respondent No.1-Company was valued at Rs.17.5 crores on 16.9.2004. The
reserve price of the property was fixed at Rs.12.50 crores by the Recovery
Officer and two separate dates 75 were fixed for sale of the immovable and
movable properties of the Company.
The respondent No.1 -
Company filed an appeal, being Appeal No.52 of 2004, before the DRT on
18.10.2004 under Section 30 of the RDDB Act questioning the fixation of the
reserve price by the Recovery Officer at Rs.12.50 crores. The proposed auction
sale was, therefore, cancelled till the DRT by its order dated 27.10.2004
allowed the auction sale to proceed but restrained the Recovery Officer from
confirming the same till further orders.
auction was held and concluded on 30.10.2004 and the appellant herein was
declared to be the successful bidder. Consequently, as per rules laid down, the
appellant deposited 25% of the reserve price immediately. On 11.11.2004, the
appellant made an application to the DRT for accepting bank guarantee for the
remaining balance of 75% of the sale price. On the said application being
dismissed the appellant-auction purchaser on the same day deposited the balance
amount of 75% of the sale price by a bank draft. It is only after the sale had
been conducted and concluded on 30.10.2004 that an application was made by the
respondent-Company on 15.12.2004 in the pending appeal for setting aside the
ex-parte final order passed by the DRT, Chandigarh, on 15.7.2003 and the same
was registered as M.A.No.103/2004. The appellant herein filed an application
for being added as a party in Appeal No.52 of 2004 and also in M.A. No.103 of
2004 to enable it to oppose the prayer of the Company for setting aside the
final order passed by the DRT, Chandigarh, on 15.7.2003. Such prayer for
impleadment was allowed by the DRT by its order dated 17.12.2004.
7. At this juncture
it may be indicated that on 10.6.2002 M/s Roland Exports, which had succeeded
to the interests of Goindwal Sahib Industrial Corporation, cancelled the lease
of the respondent No.1-Company on account of non-payment of lease dues
amounting to Rs.3,19,94,149/-. On 8.4.2005 M/s Roland Exports filed a suit for
permanent injunction against the respondent No.1-Company in the Civil Court at
Tarantaran, District Amritsar, wherein an order of status-quo with regard to
possession was passed.
8. On 26.7.2005,
DRT-I, Delhi, allowed Appeal No.52 of 2004 and set aside the auction sale
subject to the Company fulfilling certain terms and conditions laid down in the
order. One of the conditions imposed by the Tribunal was that the Company would
have to pay 5% of the amount deposited by the auction purchaser within 10 days
as penalty in terms of Rule 60 of the Second Schedule of the Income Tax Act,
1961. Objecting to the said terms and conditions imposed by the DRT the Company
filed an appeal with DRAT, Delhi, being Appeal No.167 of 2005. The appellant
herein also filed an appeal against the setting aside of the auction sale. The
DRAT stayed the operation of the order dated 26.7.2005 by which the DRT-I,
Delhi, had allowed Appeal No.52 of 2004 and had set aside the auction sale. The
DRAT also directed refund of the sale amount to the appellant.
9. While the matter
was pending before the DRAT, the respondent-Company filed a Reference before
the Board for Industrial and Financial Reconstruction (hereinafter referred to
as `BIFR'), on 21.12.2005 under the provisions of the Sick Industrial Companies
(Special Provisions) Act, 1985, and the same was registered as BIFR Case No.4
10. On 10.2.2006 the
DRAT dismissed the appeal filed by the Company and allowed the appeal of the
appellant and confirmed the auction sale in favour of the appellant, subject to
its depositing the sale price. By a separate order passed on the same day the
DRAT ordered the Recovery Officer, Chandigarh, to implement the directions
issued by it. However, despite the appellant depositing the full purchase price
on the very same day, the sale could not be confirmed as the Presiding Officer
was on leave. The appellant moved the DRAT for appointment of a Recovery
Officer for confirmation of the sale.
While the said
matters were pending, the respondent-Company filed two writ petitions being
C.W. Nos.2041 and 2042 of 2006, in the High Court of Delhi, against the order
dated 10.2.2006 passed by DRAT dismissing the Company's appeal. The Delhi High
Court allowed the writ petitions filed by the respondent-Company and by its
order dated 23.2.2006 set aside the order passed by the DRAT on the ground that
Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985
operated as a complete bar for taking recovery proceedings and no order could
therefore have been passed by the Tribunal confirming the sale.
11. It is against the
said order of the Delhi High Court that the Special Leave Petitions were filed
on 26.3.2006 wherein leave has since been granted.
12. It may be
significant to note at this stage that on 3.4.2006 the BIFR rejected the
Reference made by the Company and that on 15.9.2006 another Reference was filed
by the respondent-Company which was registered as BIFR Case No.18 of 2006. It
is in the said Reference that on 22.2.2007 the BIFR declared the Company to be
a "sick company" and the respondent No.5 was appointed as the
Operating Agency for preparation of a rehabilitation scheme.
13. Learned counsel
for the appellant submitted that the High Court had erred in law in holding
that the recovery proceedings initiated under the provisions of the RDDB Act
were barred by Section 22 of the SICA. It was submitted that Section 22 of SICA
was not attracted to the proceedings and the High Court should have decided the
matter on merits. It was also submitted on behalf of the appellant that Section
34 of the RDDB Act had an overriding effect over the provisions of SICA and
that the High Court should have decided the matter on merits on such grounds as
well. It was further contended that the 77 appeal preferred by the
respondent-Company under Section 30 of the RDDB Act, against the order of the
Recovery Officer fixing the reserve price at Rs.12.5 crores, was not
maintainable and ought not to have been entertained by the DRT-I,Delhi.
14. As has been
indicated by my learned Brother in his judgment, it had been forcefully contended
on behalf of the appellant that when the respondent- Company had invoked the
discretionary and equitable jurisdiction of the High Court under Article 226 of
the Constitution, the High Court should have taken into account the overall
conduct of the party as the respondent-Company had not come to the writ court
with clean hands. Not only had it not repaid the loan amount, but it did not
appear before the DRT inspite of service of summons and the ex-parte final
order was, therefore, rightly passed on the Original Application filed by the
IDBI. The respondent- Company also filed an appeal against the order of the
Recovery Officer before the DRT-I, Delhi, under Section 30 of the RDDB Act, and
failed to comply with the directions contained in the interim order under which
directions for payment were made, but no payment was made as directed. To make
matters worse, the respondent- Company forcibly entered the property in
question and dispossessed the Receiver appointed by the Tribunal and removed
machinery and other movable properties from the said premises and created an
unlawful tenancy in favour of a third party. In such background it was
submitted that even if the case was covered under Section 22 of SICA, the High
Court, in exercise of its extra-ordinary jurisdiction, ought not to have
allowed the writ petition filed by the Company.
15. Learned counsel
for the respondent No.1-company submitted that the appeal preferred by the
Company under Section 30 of the RDDB Act against the order of the Recovery Officer
fixing the reserve price, was maintainable since the same was an order passed
by the Recovery Officer under the Act. It was contended that since such a
course of action was available to the respondent- Company it was not incumbent
upon the Company to deposit the amounts indicated in the order of the DRT-I,
Delhi, while allowing appeal No.52 of 2004 as a pre-condition for setting aside
the auction sale. It was contended that the High Court was fully justified in
allowing the writ petitions filed by the respondent-Company in keeping with the
bar imposed under Section 22 of SICA.
16. As has been
pointed out by my learned Brother, the writ petitions filed by the
respondent-Company were allowed by the High Court on the sole ground that the
recovery proceedings under the RDDB Act were barred under Section 22 of the
SICA. Having once come to the conclusion that the proceedings were barred under
Section 22 of the SICA, the High Court did not go into any other question with
regard to the merits of the matter and set aside the order of the DRAT
confirming the auction sale on that one ground alone.
17. My learned
brother has discussed in detail the relevant provisions of SICA and the RDDB
Act and has observed that Section 34 of the RDDB Act is of extreme importance
since it allows "overriding effect" to the provisions of the Act over
other laws. Inasmuch as my learned Brother's judgment is based on an
interpretation of Section 34 of the RDDB Act in relation to Section 22 of SICA,
the same is reproduced hereinbelow to consider the effect thereof :
"34. Act to have
over-riding effect-(1) Save as otherwise provided in sub-section (2), the
provisions of this Act shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force or in any
instrument have 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 Companie (Special Provisions) Act,
1985 and the Small Industries Development Bank of India Act, 1989."
18. My learned
Brother has relied on the non-obstante provision contained in Sub- section (1)
of Section 34 in arriving at a finding that the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993, would have an overriding effect over
other enactments. Since the Sick Industrial Companies (Special Provisions) Act,
1985, also contains a similar non-obstante clause in Section 22, His Lordship
has considered in detail the effect of the two non-obstante clauses in the two
separate enactments governing the same field and has held that since the RDDB
Act was a later Act it would prevail over the SICA which was an earlier Act.
19. It is at this
point that I am unable to travel the same path which my learned Brother has
chosen to traverse.
20. The opening words
of Sub-section (1) of Section 34 of the RDDB Act clearly make the provisions
thereof subject to the provisions of Sub-section (2) which in unambiguous term
provides that the provisions of the Act or the Rules made thereunder would be
in addition to and not in derogation of, certain statutes indicated therein,
including the Sick Industrial Companies (Special 79 Provisions) Act, 1985. It
is, therefore, clear that while the RDDB Act would have an over-riding effect
over other enactments, its provisions would only be supplemental to those of
the SICA and consequently the provisions of the SICA would prevail over the
provisions of the RDDB Act. Accordingly, if it is held that the situation in
this case is covered by the provisions of SICA, then the view taken by the High
Court would have to be upheld. If, however, it is found that the provisions of
SICA do not apply to the facts of this case, then there can be no doubt that
the judgment of the High Court would have to be set aside.
21. During the course
of arguments, counsel for the parties did make submissions with regard to the
merits of the matter, which may have to be considered in the light of the view
which I am inclined to take in the matter. Furthermore, if it is found that the
provisions of SICA, and consequently Section 22 thereof, are not attracted to
the facts of this case, the discussion with regard to the RDDB Act being a
later Act having an overriding effect over the SICA becomes redundant for the purposes
of deciding this appeal. For the aforesaid purpose it would be necessary to
consider a few dates which have been mentioned hereinbefore.
22. The first date
which is relevant for our purpose is 15.7.2003 when the ex-parte final order
was passed by the DRT, Chandigarh, for recovery of the sum claimed by IDBI,
along with interest @ 7.8% per annum, and a Recovery Officer was appointed.
23. The second
relevant date is 9.9.2003 when the Recovery Officer issued a demand notice
under Rule 2 of the Second Schedule of the Income Tax Act, 1961, to the
respondent-Company for payment of a sum of Rs.25,26,60,836/- as directed by the
DRT, Chandigarh, in its final order. It is only after the Recovery Officer
fixed the reserve price for the auction sale of the Company's assets that the
respondent-Company filed an appeal before the DRT on 18.10.2004 under Section
30 of the RDDB Act against the said order of the Recovery Officer. It has also
to be noted that on 27.10.2004 the DRT allowed the auction sale to proceed but
directed that the sale should not be confirmed until further orders.
24. The next relevant
date is 30.10.2004 when the auction was concluded and the appellant was
declared to be the highest bidder and the entire sale price was deposited by
the appellant auction purchaser on 11.11.2004.
25. It is significant
to note that in the appeal, being Appeal No.52 of 2004 under Section 30 of the
RDDB Act, an application was moved by the respondent- 80 Company on 15.12.2004
for setting aside the ex-parte final order passed on 15.7.2003 and the
appellant also filed an application for impleadment to enable it to oppose the
prayer for setting aside the final order.
26. The next date of
significance is 26.7.2005 when Appeal No.52 of 2004 filed by the
respondent-Company under Section 30 of the RDDB Act against the order of the
Recovery Officer fixing the reserve price of the Company's assets was allowed
by DRT-I, Delhi, subject to the Company fulfilling certain terms and conditions
as indicated in the order.
27. It is only
thereafter on 21.12.2005 that the respondent-Company filed a Reference before
the BIFR which was registered as BIFR case No.4 of 2006 and the same came to be
dismissed on 3.4.2006.
28. In the meantime,
the appeal preferred by the respondent-Company before the Debts Recovery
Appellate Tribunal against the order of DRT-I, Delhi, allowing the Company's
Appeal No.52 of 2004 was dismissed and the sale in favour of the appellant
herein was confirmed, subject to deposit of the entire sale price.
29. It will be of
interest to note that the proceedings taken by the respondent- Company after
the passing of the final order by DRT, Chandigarh, on 15.7.2003, were directed
against fixation of the reserve price by the Recovery Officer though in Appeal
No.52 an application was made by the Company for setting aside the final order
passed by the DRT Chandigarh. The same was however, of no consequence as the
appeal was preferred against the order of the Recovery Officer fixing the
reserve price of the Company's assets and not the final order, which, in any
event, could not have been challenged in the said proceedings. In effect, the
final order passed by the DRT, Chandigarh, directing the respondent-Company to
pay the dues of IDBI remained unchallenged and attained finality. The two
courses available to the respondent No.1-Company for preferring an appeal under
Section 20 of the RDDB Act or by way of an application for setting aside the
sale under Rule 60 of the Second Schedule of the Income Tax Act, 1961, were not
resorted to by the respondent-Company. Instead, it chose to adopt a path
restricted to the setting aside of the auction sale on the ground that the
reserve price of the Company's assets had not been correctly fixed by the
Recovery Officer prior to the auction sale.
30. Consequently, the
scope of the appeal preferred by the respondent-Company was confined only to
the question as to whether the reserve price had been correctly fixed by the
31. This brings us to
the next question regarding the applicability of Section 22 of SICA in the
proceedings initiated by IDBI for recovery of its dues under the provisions of
the RDDB Act, 1993.
32. As will be seen
from what has been indicated hereinabove, the final order was passed on
15.7.2003 by DRT, Chandigarh, at a point of time when no Reference had at all
been made by the respondent-Company to the BIFR for being declared a "sick
company". The auction was held and concluded on 30.10.2004, again before a
Reference had been made by the respondent- Company to the BIFR. It is only on
21.12.2005 that the Company filed a Reference before the BIFR which was
rejected on 3.4.2006. In between, the appeal preferred by the
respondent-Company (No.52 of 2004) before the DRT under Section 30 of the RDDB
Act was allowed and the auction sale was set aside, but the final order passed
by DRT, Chandigarh, remained untouched.
The appeal preferred
by the appellant herein against the order of the DRT allowing Appeal No.52 of
2004 was subsequently decided in favour of the appellant on 10.2.2006 and the
auction sale was confirmed in favour of the appellant with a direction upon the
Recovery Officer and the other concerned authorities to complete the sale in
favour of the appellant herein. It is only on 15.9.2006, after all the
aforesaid orders had been passed that a second Reference was filed by the
respondent-Company before the BIFR on 15.9.2006 and on 22.2.2007 the Company
was declared to be a "sick company" by the BIFR.
33. The above dates
will amply show that the proceedings had been taken by the IDBI under Section
19 of the RDDB Act and the final order had been passed therein long before the
BIFR came on to the scene. Even the auction sale was concluded in favour of the
appellant before the first Reference was made by the Company to the BIFR. The
sale was confirmed by the DRAT before the writ petitions were allowed by the
High Court on the ground that the recovery proceedings were barred under
Section 22 of SICA. Ultimately, the Company's first Reference was rejected by
the BIFR and only upon a second reference filed by the respondent-Company on
15.9.2006 was the Company declared by the BIFR to be a "sick company"
34. In other words,
the final order in the recovery proceedings under Section 19 of the RDDB Act
was passed and the auction sale was concluded before the first Reference was
filed by the respondent-Company with the BIFR and long before the
respondent-Company was declared to be a sick Company on 22.2.2007. It is,
therefore, clear that the provisions of the Sick Industrial Companies (Special
Provisions) Act, 1985, were sought to be invoked by the respondent No.1-Company
after the recovery proceedings had been concluded 82 in favour of the
appellant who had also deposited the sale price in respect of his offer which
had been accepted by the Recovery Officer.
35. For reasons which
are obvious, the respondent-Company chose not to take recourse either to
Section 20 of the RDDB Act or Rule 60 of the Second Schedule of the Income Tax
Act, 1961, and took a chance of filing an appeal under Section 30 of the RDDB
Act with regard to the fixation of the reserve price of the Company's assets by
the Recovery Officer for the purposes of the auction sale and the scope of the
appeal was limited to such issue alone.
36. Since the
respondent-Company did not challenge the final order of the DRT, Chandigarh,
the same continued to be in force and was carried to its logical conclusion by
the holding of auction sale and confirmation thereof in favour of the appellant
37. The order passed
by the DRAT on 10.2.2006 confirming the sale in favour of the appellant was
made long before the respondent-Company was declared to be a "sick
company" on 22.2.2007. The High Court was, therefore, in error in applying
the provisions of Section 22 of the SICA when the sale had already been
confirmed in favour of the appellant and the purchase price had already been
deposited. Furthermore, the first Reference made by the respondent- Company was
also rejected by the BIFR on 3.4.2006.
38. Apart from the
above, even on merits, the conduct of the respondent No.1- company leaves much
to be desired. Without challenging the final order passed by the DRT,
Chandigarh, allowing the Bank's claim of Rs.25,26,60,836/- together with
interest @ 7.8% per annum, the said respondent questioned the order of the
Recovery Officer, fixing the reserve price of the Company's assets for the
purposes of the auction sale, under Section 30 of the RDDB Act, having full
knowledge of the fact that the final order of the DRT, Chandigarh, could not be
challenged in such appeal. The steps taken by the respondent No.1, Company were
far from bona fide and were only aimed at stalling the auction sale. Even at
the time of auction of the company's assets, no attempt was made by the
Respondent No.1-Company to secure a bid higher than that of the appellant.
39. Having regard to
the above, in my view nothing further remains to be decided by the High Court.
40. The appeal is
accordingly allowed and the order of the High Court impugned in the appeal is
set aside with costs assessed at Rs.50,000/-.
(ALTAMAS KABIR) Dated
: 25.08.2008 IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL
APPEAL NO.5225 OF 2008 (Arising out of SLP (Civil) No.5041 of 2006 KSL &
Industries Ltd. Appellant(s) Versu s M/s Arihant Threads Ltd. & Respondent
Ors. (s) O R D E R Although, both of us held that the appeal deserves to be
allowed and the order of the High Court is to be set aside, in view of the
difference of opinion on interpretation of Section 34 of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993, the 84 Registry is directed
to place the papers before the Hon'ble the Chief Justice of India for taking
appropriate action in accordance with law.
...J. [ C.K. THAKKER ]
DELHI, AUGUST 25, 2008.