The Official Liquidator High ... vs Lifeline Industries Limited
2016 Latest Caselaw 4619 Bom

                                                                             8.olr.629.2015.doc

dik




                                                                                    
           IN THE HIGH COURT OF JUDICATURE AT BOMBAY
                     ORDINARY ORIGINAL CIVIL JURISDICTION




                                                            
                            OLR NO. 629 OF 2015/LIQN.V
                                        IN
                         COMPANY PETITION NO. 103 OF 2011
                                       WITH




                                                           
                         COMPANY PETITION NO.104 OF 2011
                                       WITH
                         COMPANY PETITION NO.375 OF 2010




                                                
                                     ig   In the matter of Companies Act, I of 1956;

                                                             And

                                          In the matter of M/s Lifeline Industries Ltd.
                                   
                                          (In Liqn.)

      M/s Kotak Mahindra Prime Ltd.                          ...Petitioner
                   Vs.
         

      M/s Lifeline Industries Ltd. (In Liqn.)                ...Respondents.

                                          .....

Mr Sanjaya Verma Asstt OL present.

Ms Jane Cox for Workers.

Mr Satish S. Shetye i/b Barsha Parulekar for Ex-Directors. Ms Kirti Kanakia, Ex-Director present.

Ms Nupur Awasti, i/b M/s Consulta Juris for ARCIL .....

CORAM : B. P. COLABAWALLA J.

AUGUST 11, 2016 [ORAL JUDGEMENT]

1. By this Official Liquidator's Report ("OLR"), the following

directions are sought:-

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(i) to direct the Ex-Director of the Company (in liqn.)

(Mr Nikunj Kanakia) to deposit the advertisement

charges of Rs.25,749/- with the Official Liquidator

and permit the Official Liquidator to pay the same to

the advertising agency; and

(ii) to direct Indian Overseas Bank ("IOB") to take

physical possession of the factory premises situated

at B-10, MIDC Industrial Area, Akkalkot Road,

Solapur ("factory premises"), and to appoint

Security Guards in relation thereto. In the

alternative, it is prayed that the Official Liquidator

be allowed to take physical possession of the factory

premises.

2. Mr Shetye, learned counsel appearing on behalf of the Ex-

Directors, at the outset submitted that no reliefs in this OLR can be

granted in view of the fact that the Company (in Liqn.) [M/s Lifeline

Industries Ltd.] has filed a reference before the BIFR and which is

pending. He submitted that there is a complete bar by virtue of

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

1985 ("SICA, 1985") from proceeding with the present OLR or for

that matter, any further proceedings in winding up.

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3. On the other hand, Ms Nupur Awasthi, appearing on

behalf of ARCIL stated that the debts owed by the Company (in Liqn.)

to IOB have been assigned in favour of ARCIL pursuant to a Deed of

Assignment dated 12 November, 2014 and which was subsequently

registered on 23 January, 2015. A reference, on behalf of the

Company (in Liqn.), was filed before the BIFR only thereafter on 21

November, 2015. Looking to these facts, Ms Awasthi on behalf of

ARCIL as well as Ms. Jane Cox appearing on behalf of the workers,

submitted that by virtue of the 2nd proviso to section 15(1) of SICA

1985, there was a complete bar on the Company (in Liqn.) from

approaching the BIFR. They, therefore, submitted that the

proceedings before the BIFR are non-est in the eyes of law, and

therefore, no protection can be claimed under section 22 of SICA,

1985. To support this argument, both counsel placed reliance on a

decision of a Division Bench of this Court in the case of Paper Prints

(India) Pvt. Ltd. Vs. Phoenix ARC Pvt. Ltd.1 as well as my decision

in the case of ICICI Bank Ltd. Vs. S. Kumars Nationwide Ltd.2

Relying upon the aforesaid two decisions, and the 2nd proviso to

section 15(1) of SICA, 1985, the learned Counsel contended that

there was no bar under section 22 of SICA, 1985 to proceed with the 1 (2012) 6 Mah L J 427 : (2013) 2 Bom CR 371 2 Company Petition No.511 of 2014 and other connected Petitions decided on 1 July, 2016 Pg 3 of 13

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present OLR.

4. I have heard the learned Counsel for the parties at length

and perused the papers and proceedings in this OLR. As far as the

objection raised by Mr Shetye that this OLR cannot proceed by virtue

of the fact that the Company (in Liqn) is before the BIFR, I find the

same to be without any substance. The facts of the present case

clearly disclose that the debt owed by the Company (in Liqn) to IOB

was assigned in favour of ARCIL on 12 November, 2014 and which

Deed of Assignment was even registered on 23 January, 2015. The

reference of the Company (in Liqn) was filed before the BIFR only

thereafter on 21 November, 2015. The 2nd proviso to section 15(1) of

SICA 1985, clearly stipulates that no reference shall be made to the

BIFR after the commencement of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 ("SARFAESI Act"), where financial assets have

been acquired by any securitisation company or reconstruction

company under sub-section 1 of section 5 of the SARFAESI Act. The

2nd proviso to section 15(1) of SICA, 1985 reads thus:

"Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets

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have been acquired by any securitisation company or reconstruction

company under sub-section (1) of Section 5 of that Act:"

5. Incidently, this proviso along with the 3rd proviso were

inserted into section 15 of SICA, 1985 by section 41 of the SARFAESI

Act. As can be seen from the said provision, once the debt has been

assigned to a securitisation or reconstruction company, there is a

complete bar from filing a reference before the BIFR. In the facts of

the present case, two things are undisputed:-

(i) Firstly, the debt owed by the Company (in Liqn.) to

IOB has been assigned in favour of ARCIL, which is

admittedly a securitisation or reconstruction

company as contemplated under the provisions of

the SARFAESI Act; and

(ii) This assignment in favour of ARCIL was much prior

in point of time to the reference filed on behalf of the

Company (in Liqn) before the BIFR.

6. This being the factual scenario, the bar under the 2nd

proviso to section 15(1) of SICA 1985, would clearly come into play

and no reference could be filed before the BIFR on behalf of the

Company (in Liqn.). Consequently, any reference so filed, would be in

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the teeth of this statutory provision [namely the 2nd proviso to

section 15(1) of the SICA, 1985], and would therefore be non-est in

the eyes of law. The protection as contemplated under section 22 of

SICA 1985, would get attracted only if a valid reference has been

made before the BIFR. If no reference in law could have been filed

before the BIFR, the question of claiming protection under section 22

of SICA, 1985 cannot and does not arise.

7.

This issue is no longer res-integra and has been

considered by a Division Bench of this Court in the case of Paper

Prints (India) Pvt. Ltd. 1 The facts of this case would disclose that

DBS Bank Ltd. had granted an overdraft facility in the sum of Rs.2.50

Crores to Paper Prints (India) Pvt. Ltd., in terms of which, financial

facilities were extended by the Bank. Since there were defaults in

making payment, the Bank issued a demand notice calling upon

Paper Prints (India) Pvt. Ltd. to pay its dues. Since, Paper Prints

(India) Pvt. Ltd. failed to comply, the Bank moved the Debt Recovery

Tribunal ("DRT") for recovery of an amount of Rs.2.46 Crores

together with interest. Thereafter, by a Deed of Assignment dated 9

December, 2009, DBS Bank Ltd. assigned its debt in favour of

Phoenix ARC Pvt. Ltd. (which is an ARC), whereas the reference to

1 (2012) 6 Mah L J 427 : (2013) 2 Bom CR 371 Pg 6 of 13

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the BIFR was made by Paper Prints (India) Pvt. Ltd. only on 26

November, 2010. In these circumstances, the Division Bench held

that in view of the specific and unambiguous language of the 2nd

proviso to section 15(1) of the SICA 1985, the reference filed by

Paper Prints (India) Pvt. Ltd. was not maintainable. The relevant

portion of the said decision reads thus:

"6. The submission of the Appellant is that the Respondent is an unsecured creditor and that consequently the reference under the SICA, 1985 will not abate unless secured creditors representing

three-fourths in value of the amount outstanding have taken measures to recover their secured debt under section 13(4).

7. There is no merit in the submission. The first proviso to section 15(1) of the SICA, 1985 as introduced by the provisions of the Securitisation Act applies specifically to a situation where financial assets have been acquired by any securitisation company or by a reconstruction company under sub-section (1) of section 5 of the

Securitisation Act. The second proviso applies to a situation where a reference is pending before the BIFR after the commencement of the

Securitisation Act. The second proviso provides the eventuality in which the reference would abate. That eventuality is where the secured creditors representing not less than three-fourth in value of the amount outstanding against the financial assistance disbursed to

the borrowers have taken measures under section 13(4).

8. The first and second proviso to sub-section (1) of section 15 of the SICA, 1985 operate in different fields. The first proviso is a specific provision made in relation to a securitisation company or

reconstruction company, which has acquired financial assets after the commencement of the Securitisation Act, 2002 under section 5(1). The expression "financial asset" is defined in section 2(1) as follows:

"(1) "financial asset" means debt or receivables and includes--

(i) a claim to any debt or receivables or part thereof, whether secured or unsecured; or

(ii) any debt or receivables secured by, mortgage of, or charge on, immovable property; or Pg 7 of 13

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(iii) a mortgage, charge, hypothecation or pledge of movable

property; or

(iv) any right or interest in the security, whether full or part underlying such debt or receivables; or

(v) any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent; or

(vi) any financial assistance."

Sub-clause (i) of clause (1) includes a claim to any debt or receivables whether secured or unsecured. Therefore, the intent of

Parliament when it introduced the two amendments to section 15(1) is clear. A special provision has been made in case of securitisation

and reconstruction companies, where a financial asset within the meaning of section 2(1) has been acquired after the enactment of the Securitisation Act of 2002. In such a case, no reference can lie before the BIFR. The second proviso in contradistinction applies to a

situation where a reference has been made validly. Such a reference can abate where measures under section 13(4) have been taken by the secured creditors representing not less than three-fourths in value of the amount outstanding against financial assistance

disbursed to the borrower. The first proviso does not contain any reference to a secured creditor at all. It refers to the acquisition of a financial asset by a securitisation or reconstruction company which

as noted earlier includes among other things a debt or receivables whether secured or unsecured. As a matter of fact, it may be noted that an express provision has been made in sub-section (4) of section 5 of the Securitisation Act in respect of suits, appeals or other

proceedings which are pending on the date of the acquisition of the financial asset. Section 5(4) reads as follows:

"(4) If, on the date of acquisition of financial asset under sub- section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or

against the bank or financial institution, save as provided in the third proviso to sub-section (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the securitisation company or reconstruction company, as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the securitisation company or reconstruction company, as the case may be."

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9. In the present case, the order of the learned Single Judge admitting the Company Petition for winding up was passed on 21 October, 2010. Prior thereto on 9 December, 2009 the Respondent

had acquired the financial assets in question being the debts and receivables of DBS Bank Ltd. under section 5(1) of the Securitisation Act. The reference to the BIFR was made on 26 November, 2010. Clearly in view of the specific language of the first proviso to section

15(1) of the SICA, 1985, the reference was not maintainable.

10. For these reasons we do not find any merit in the contention of the Appellant based on the provisions of section 22 of the SICA, 1985."

(emphasis supplied)

8. I must mention here that reference to the 1st proviso to

section 15(1) of SICA, 1985 in the aforesaid decision is factually

incorrect and should be read as the 2nd proviso. The 1st proviso to

section 15(1) inter alia stipulates that if the Board of Directors had

sufficient reasons, even before the finalisation of the duly audited

accounts of the company, to form the opinion that the company had

become a sick industrial company, the Board of Directors had to,

within sixty days after it has formed such opinion, make a reference

to the BIFR for determination of the measures which ought to be

adopted with respect to such company. I must also mention here that

the decision of this Court in Paper Prints (India) Pvt. Ltd. 1 was

challenged before the Supreme Court by filing a Special Leave

Petition, which was dismissed on 9 January, 2013.

    1    (2012) 6 Mah L J 427 : (2013) 2 Bom CR 371
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9. Following the decision of the Division Bench of this Court

in Paper Prints (India) Pvt. Ltd.,1 as well as considering the

judgment of the Delhi High Court in the case of Asset Reconstruction

Company India Pvt. Ltd. Vs. Shamken Spinners Ltd. & Ors.3 and

another decision of the Andhra Pradesh High Court in the case of

M/s SVPCL Ltd. Vs. State Bank of India and Anr.4, I have, in my

decision in the case of ICICI Bank Ltd. Vs. S. Kumars Nationwide

Ltd.,2 considered the law on this subject and thereafter held that a

reference cannot be filed by a company before the BIFR after its debts

or part thereof, have been assigned in favour of a securitisation or

reconstruction company under section 5(1) of the SARFAESI Act.

10. In view of the law laid down by this court, I find

considerable force in the contentions canvassed by Ms Cox as well as

Ms Awasthi. In the facts of the present case also, the debts owed by

the Company (in Liqn.) to IOB have been assigned to ARCIL [which

admittedly is an ARC] long before the reference [on behalf of the

Company (in Liqn.)] was filed before the BIFR. This being the factual

scenario, as per the 2nd proviso to section 15(1) of SICA, 1985, the

1 (2012) 6 Mah L J 427 : (2013) 2 Bom CR 371 3 AIR 2011 Delhi 17.

4 2015 SCC OnLine Hyd 111 : (2015) 191 Comp Cases 214 (AP) 2 Company Petition No.511 of 2014 and other connected Petitions decided on 1 July, 2016 Pg 10 of 13

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reference itself was not maintainable and non-est in the eyes of law.

Consequently, there is no question of the Company (in Liqn.) and/or

its Ex-Directors contending that the Company (in Liqn.) gets

protection under section 22 of SICA, 1985. In view of this clear

enunciation of the law, I have no hesitation in rejecting the argument

of Mr Shetye that this OLR cannot proceed because the Company (in

Liqn.) is before the BIFR.

11.

As far as the prayers in the OLR are concerned, Mr

Shetye points out that as far as the advertisement charges of

Rs.25,749/- are concerned [prayer clause (a)], the said directions

have already been complied with. The representative of the Official

Liquidator who is present in Court today, has also confirmed this fact.

In this view of the matter, no directions in this regard are necessary

save and except that the Official Liquidator is directed to pay the

charges of the advertising agency out of the sum of Rs.25,749/-

already deposited with the Official Liquidator.

12. In addition to the above directions, the Official Liquidator

has also sought a direction against IOB to take the physical

possession of the factory premises and appoint security guards for

the same [prayer clause (b)]. Ms Awasthi, appearing on behalf of

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ARCIL states that symbolic possession of the factory premises was

taken by IOB and thereafter IOB also made an application under

section 14 of the SARFAESI Act for the purposes of taking physical

possession. This application under section 14 of the SARFAESI Act

was allowed by the Magistrate vide his order dated 29 November,

2011 and appointed the authorized officer of IOB to take the physical

possession of the factory premises. Thereafter, Mr Nikumbh

Kanakiya and others filed a Securitisation Application No. 111 of

2011 before the DRT-III challenging the actions initiated by IOB.

Though, initially the DRT has passed an interim injunction

restraining IOB from proceeding under the SARFAESI Act, on 8

December, 2012, the said SA was dismissed for default. Thereafter,

IOB has assigned the debts owed by the Company (in Liqn.), in favour

of ARCIL. ARCIL is in the process of amending / modifying the order

passed by the Magistrate on 29 November, 2011 for taking physical

possession of the factory premises in the name of ARCIL instead of

IOB. This Application is still pending.

13. Considering that IOB had already taken steps under the

SARFAESI Act for taking possession of the factory premises, and

even ARCIL has now taken the steps in that regard, the directions

sought in prayer clause (b) of the OLR are rendered infructuous.

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14. It is made clear that considering the fact that the

Company has already been ordered to be wound up and the Official

Liquidator has already been appointed, there is no question of the

Company and/or its Ex-Directors carrying on its business after the

date of the winding up order.

15. The OLR is disposed of in the aforesaid terms.

( B. P. COLABAWALLA J. )

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