Bombay High Court

Icici Bank Limited vs S. Kumars Nationwide Limited (Cin ... on 1 July, 2016

Bench: B.P. Colabawalla

                                                              ICICI BANK 902.cp.511.2014.doc

dik                                  




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




                                                            
                             COMPANY PETITION NO. 511 OF 2014

                 ICICI Bank Ltd.                               ...Petitioner




                                                           
                                   vs
                 S. Kumars Nationwide Ltd.                     ...Respondent

                                                   WITH
                              COMPANY PETITION NO. 30 OF 2014




                                                     
                 Edelweiss Asset Reconstruction Co. Ltd.
                                              ig               ...Petitioner
                                   vs
                 S. Kumars Nationwide Ltd.                     ...Respondent
                                            
                                                     WITH
                             COMPANY PETITION NO. 322 OF 2014

                 L & T Finance Ltd.                            ...Petitioner
                                   vs
                   


                 S. Kumars Nationwide Ltd.                     ...Respondent
                



                                                     WITH
                             COMPANY PETITION NO. 382 OF 2014

                 Australia & New Zealand Banking Group Ltd. ...Petitioners





                 & Ors.
                                   vs
                 S. Kumars Nationwide Ltd.                     ...Respondent

                                                     WITH





                             COMPANY PETITION NO. 698 OF 2014

                 Grey Worldwide India Pvt. Ltd.                ...Petitioner
                                   vs
                 S. Kumars Nationwide Ltd.                     ...Respondent

                                                     WITH
                             COMPANY PETITION NO. 739 OF 2014

                 Messrs Sathe & Sons Partnership firm          ...Petitioner
                                   vs

                                                                                   Pg 1 of 35

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                                                     ICICI BANK 902.cp.511.2014.doc

    S. Kumars Nationwide Ltd.                        ...Respondent




                                                                          
                                      WITH
                 COMPANY PETITION NO. 79 OF 2015




                                                  
    M/A Kabadi Shankarsa Clothing Co.                ...Petitioner
                      vs
    S. Kumars Nationwide Ltd.                        ...Respondent




                                                 
                                      WITH
                COMPANY PETITION NO. 265 OF 2015

    M/s Shiv Baba Enterprises through Sole




                                       
    Proprietor Mrs Sushila Kumari                    ...Petitioner
                      vs        
    S. Kumars Nationwide Ltd.                        ...Respondent

                                      WITH
                               
                COMPANY PETITION NO. 674 OF 2015

    M/s Sunrise Media & Effects (P) Ltd.             ...Petitioner
                      vs
    S. Kumars Nationwide Ltd.                        ...Respondent
      


                                      WITH
   



                COMPANY PETITION NO. 964 OF 2015

    IL and FS Financial Services Ltd.                ...Petitioner
                      vs





    S. Kumars Nationwide Ltd.                        ...Respondent

                                          .....

Mr Nitin Thakkar, Sr. Advocate a/w Mr Shyam Kapadia a/w Ms Shreevardhini Parchure a/w Mr Yuvraj Singh i/b M/s Desai & Diwanji for the Petitioner in CP No.511 of 2014

Ms Priyanka Ladoia i/b Trilegal Advocates for the Petitioner in CP No.177 of 2014 Mr Nilesh Bamne i/b M/s V. Deshpande & Co for the Petitioner in CP No.30 of 2014 Mrs S.I.Joshi a/w Mr Anand Poojari a/w Nikita Pawar, Jalpa Pithadia & Vihar Paymode i/b S.I.Joshi & Co. for the Petitioner in CP No.322 of 2014 Ms J. P. Garasia i/b Consulta Juris for the Petitioner in CP No.382 of 2014 Ms Kavisha Shah i/b India Law Aliance for the Petitioner in CP No.698 of

Mr Akhileshwar Sharma for the Petitioner in CP No.79 of 2015 Mr Reshant Shah i/b Lex Conseiller for the Petitioner in CP No. 265 of 2015

Pg 2 of 35

ICICI BANK 902.cp.511.2014.doc

Ms Priyanka Rathi i/b Shamin & Co. for the Petitioner in CP No. 674 of

Mr Ashutosh Kaushik a/w Mr Vijayendra Purohit i/b M.K.Ambalal & Co. for the Petitioner in CP No. 964 of 2015

Mr Ravi Kadam, Sr. Advocate a/w Mr Chirag Mody a/w Ms Samindara Surve a/w Mr Aditya Singh i/b Little & Co. for the Respondent Co. in all the Petitions.

.....

CORAM : B. P. COLABAWALLA J.

JULY 01, 2016 ORAL JUDGMENT :

1 This entire bunch of Petitions have been filed by different

Petitioners seeking to wind up the Respondent Company on the

ground that it is unable to pay its debts. I have been informed that

out of this entire group, Company Petition Nos.698 of 2014, 739 of

2014, 79 of 2015, 265 of 2015, 674 of 2015 and 964 of 2015 have

not yet been admitted.

2 Even though no affidavit in reply has been filed by the

Respondent Company disputing the claim of many of the Petitioners

on merits, one composite affidavit dated 22 June, 2016, has been

filed inter alia contending that the Respondent Company has filed a

reference before the Board for Industrial and Financial

Reconstruction ("BIFR") and which was registered on 10 December,

2015, and therefore, these Petitions cannot proceed in view of the

bar contained in Section 22 of the Sick Industrial Companies (Special

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ICICI BANK 902.cp.511.2014.doc

Provisions) Act, 1985 (for short "SICA, 1985").

3 In contrast, it is the contention of the Petitioners that by

virtue of the 2nd proviso to Section 15(1) of SICA, 1985, the reference

filed by the Respondent Company before the BIFR is non-est in the

eyes of law and, therefore, there is no question of any protection

being granted to the Respondent Company under Section 22 of SICA,

1985. According to the Petitioners, the protection under Section 22

can be availed of by the Respondent Company only once a valid

reference is made before the BIFR. Since the filing of a reference

before the BIFR was barred by virtue of the 2nd proviso to Section

15(1) of SICA, there was no valid reference filed by the Respondent

Company and consequently, there is no impediment in these

Company Petitions being heard and finally disposed of.

4 In the alternative, it was the contention of all the

Petitioners that in any event, by virtue of the 3 rd proviso to Section

15(1) of SICA, 1985 the reference filed by the Respondent Company

before the BIFR has automatically abated because the conditions set

out in the said proviso have been duly fulfilled. The reference having

abated, the provisions of Section 22 of SICA, 1985 do not come into

play and therefore, these Petitions can be heard on merits and

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disposed of by this Court.

5 Before I deal with these legal contentions, it would be

necessary to set out a few facts. Since I have heard Mr Thakkar,

learned senior counsel on behalf of the Petitioner in Company

Petition No.511 of 2014, I shall briefly advert to the facts in this

Petition.

The facts of this Petition reveal that by a sanction letter

dated 14 July, 2009, a Rupee Term Loan of Rs.275 Crores was

sanctioned to the Respondent Company on the terms and conditions

more particularly set out therein. Thereafter, pursuant to

discussions between the Petitioners and the Respondent Company,

the said sanction letter came to be amended on 28 August, 2009 as

well as 14 September, 2009. In furtherance of the aforesaid sanction

letters, the Respondent Company executed a Corporate Rupee Term

Loan Facility Agreement along with the schedules thereto.

7 To secure the aforesaid Facility Agreement, the

Respondent Company also executed (i) a Pledge Agreement dated 16

September, 2009 pledging its 26 % shareholding in its subsidiary

Reid and Taylor (India) Ltd., (ii) a Deed of Hypothecation dated 16

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September, 2009 creating a first paripassu charge over its fixed

assets and second paripassu charge over its current assets in respect

of movable properties of the Company and (iii) a memorandum of

entry dated 18 September, 2009 creating a first paripassu charge in

respect of all its immovable properties. To secure the Petitioner, the

subsidiary of the Respondent, namely, Reid and Taylor (India) Ltd.,

also executed a corporate guarantee dated 16 September 2009, a

declaration dated 17 September, 2009 and a memorandum of entry

dated 18 September, 2009 to create a first paripassu charge over its

immovable properties and a Deed of Hypothecation dated 16

September, 2009 creating a first paripassu charge over its fixed

assets and second paripassu charge over its current assets in favour

of the Petitioner.

8 Pursuant to all these documents, the Petitioner disbursed

240 Crores to the Respondent Company in a single tranche, which

was received and availed of by the Respondent Company without any

demur. In terms of the Facility Agreement, the Respondent Company

was required to repay the principal amount in quarterly installments

as per the repayment schedule set out in the Sanction Letter and the

Corporate Rupee Term Loan Facility Agreement and to pay interest

at the agreed rate on a monthly basis. It is the case of the Petitioner

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that commencing from August 2012, the Company committed

various defaults and breaches in respect of the facilities granted to it.

Therefore, correspondence was exchanged between the parties

whereby the Respondent Company was inter alia called upon to pay

its outstanding dues. Finally, in view of the continued failure of the

Respondent Company in repaying the dues of the Petitioner, the

Petitioner issued a statutory notice dated 18 February, 2014 under

Sections 433 and 434 of the Companies Act, 1956, calling upon the

Company to pay a sum of Rs.95.32 Crores (outstanding as on 15

December, 2013), failing which winding up proceedings would be

initiated. It is not in dispute that this statutory notice has been duly

served upon the Respondent Company at its registered address and

has been received by it. In reply to the said statutory notice, the

Respondent Company, by its letter dated 5 March, 2014, did not

dispute its liability in respect of the amounts outstanding to the

Petitioner. In fact it reiterated the very same reasons for not making

payment as was done by them in the earlier correspondence. It was

further stated that it had tied up with a lender for infusion of funds to

tide over its financial crisis, and that the administrative process for

disbursement of the funds was in progress and sought further sixty

days' time to pay the same. Despite this, no payment was made. It is,

in these circumstances, that the present Petition was filed.

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ICICI BANK 902.cp.511.2014.doc

9 I must mention here that no affidavit in reply has been

filed on behalf of the Respondent Company contesting the claim of the

Petitioner on merits. When this Company Petition came up for

admission, the parties entered into consent terms dated 19 June,

2014. These consent terms were filed in this Court on 12 August,

2014. The consent terms were taken on record and thereafter this

Petition was placed on board for directions on 25 August, 2014. In

these consent terms, the Respondent Company admitted its liability

to the extent of Rs.95.32 Crores and agreed to pay a sum of Rs.86.60

Crores in full and final settlement of the Petitioner's claim. This

payment was to be made in installments as more particularly set out

in paragraph 3 of the consent terms. The consent terms further

provided that in case of default, the Petitioner could approach this

Court for admission of the Company Petition as well as other

consequential directions. It is not in dispute before me that,

admittedly there was a default in making payment of the very first

installment that was due on 31 July, 2014 and therefore, this Court,

after recording of all the facts admitted the Company Petition

pursuant to the orders dated 25 August, 2014 read with the orders

dated 28 August, 2014 and 15 September, 2014 and gave

consequential directions for advertising the same in two local

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newspapers which is the "Free Press Journal" (in English) and

"Navshakti" (in Marathi) and also in the Maharashtra

Government Gazette. Pursuant to these directions, the Company

Petition was duly advertised and now the same has come up before

me for hearing and final disposal.

10 Mr Ravi Kadam, learned senior counsel appearing on

behalf of the Respondent Company, whilst not disputing the claim of

the Petitioner on merits, submitted that since a reference of the

Respondent Company was registered on 10 December, 2015 by the

BIFR and the same is pending, this Petition cannot proceed. He

submitted that by virtue of Section 22 of SICA, 1985 this Court was

barred from proceeding further with this winding up Petition without

the permission/ consent of BIFR. He submitted that admittedly no

such consent or permission has been obtained from the BIFR to

proceed with this Company Petition and therefore the same should be

adjourned sine-die with liberty to the parties to apply after the

proceedings before BIFR come to an end.

11 Mr. Kadam submitted that the contention of the

Petitioner that the reference before the BIFR has abated, is

canvassed on an incorrect interpretation of the 3 rd proviso to Section

Pg 9 of 35

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15(1) of SICA, 1985. He submitted that the 3 rd proviso to Section

15(1) stipulates that after the commencement of the Securitisation

and Reconstruction of Financial Assets and Enforcement of Security

Interest Act, 2002 ("SARFAESI Act"), where a reference is

pending before the BIFR, such reference shall abate if the secured

creditors, representing not less than three-fourth in value of the

amount outstanding against financial assistance disbursed to the

borrower of such secured creditors, have taken any measures to

recover their secured debt under sub-section (4) of Section 13 of that

Act. Mr Kadam submitted that in the facts of the present case, only

IDBI had taken measure under Section 13(4) of the said Act which

constituted far less than 3/4th in value of the amount outstanding to

the secured creditors from the borrower as required by the 3 rd

proviso to Section 15(1) of SICA, 1985. He submitted that merely by

obtaining the consent of other secured creditors to take measures

under Section 13(4) of the said Act would not be enough to fulfill the

mandate of the 3rd proviso to Section 15(1) of SICA, 1985. According

to Mr. Kadam, the secured creditors holding 3/4 th in value of the

financial assistance disbursed to the borrower, would have to take

measures under Section 13(4) of the SARFAESI Act, before it could

be held that the reference pending before the BIFR has abated. In

this regard Mr. Kadam drew my attention to the possession notice

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issued under section 13(4) of the SAEFAESI Act by IDBI Bank which,

according to him states that they have taken measures under Section

13(4) of the Act only in relation to the debt due and payable to IDBI.

He, therefore, submitted that admittedly the action taken by IDBI

was not for and on behalf of all the secured creditors but only for

their own benefit. This being the case, the conditions as required by

the 3rd proviso to Section 15(1) of SICA, 1985 were not fulfilled for

the reference to automatically abate. He, therefore, submitted that

the Respondent Company continues to get protection under Section

22 of SICA, 1985 and this Petition, therefore, cannot proceed.

12 On the other hand Mr Thakkar, learned senior counsel

appearing on behalf of the Petitioner submitted that it is an admitted

fact that the debts owed by the Respondent Company to certain

Banks were assigned in favour of certain Asset Reconstruction

Companies ("ARCs") as follows:-

Sr. Date of Assignment to Original Lender/ ARCs to which

No. & Acquisition of Debts Creditor which the Debt has & Assets by the ARCs assigned thedebt been assigned 1 28.03.2014 EXIM Bank Edelweiss ARC 2 29.03.2014 Bank of India JM Financial ARC 3 30.06.2014 SBI Edelweiss ARC 4 Prior to Oct 2014 Indian Overseas ARCIL Bank

Pg 11 of 35

ICICI BANK 902.cp.511.2014.doc

Mr. Thakkar submitted that it is also an admitted fact that the

reference filed by the Respondent Company was registered by the

BIFR only on 10 December, 2015. This being the factual position, Mr

Thakkar placed reliance on the 2nd proviso to Section 15(1) of SICA,

1985 to contend that no reference could be made to the BIFR after

the commencement of the SARFAESI Act, where financial assets

were acquired by any securitisation company or reconstruction

company under sub-section (1) of Section 5 of the SARFAESI Act. To

put it simply, according to Mr. Thakkar, in the present factual

scenario, the Respondent Company was barred from filing any

reference before the BIFR and therefore, any reference filed by it

would be in the teeth of the 2nd proviso to section 15(1) of SICA, 1985

rendering it non-est in the eyes of law. In support of this proposition,

Mr. Thakkar relied upon a decision of a Division Bench of this Court

in the case of Paper Prints (India) Pvt. Ltd. Vs. Phoenix ARC

Pvt. Ltd. 1

13 In the alternative, Mr Thakkar submitted that in any

event the reference before the BIFR has abated by virtue of the 3 rd

proviso to Section 15(1) of SICA, 1985 in view of the fact that the

secured creditors holding approximately 85% in value of the financial

assistance disbursed to the borrower, have taken measures under 1 (2012) 6 Mah LJ 427 : (2013) 2 Bom CR 371

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Section 13(4) of the SARFAESI Act. In this regard, Mr Thakkar

handed over across the bar a letter dated 11 February, 2016

addressed by IDBI Bank to the Registrar, BIFR, New Delhi, along with

the annexures thereto. This letter clearly stipulates that IDBI Bank

has taken measures under section 13(4) of the SARFAESI Act for

and on behalf of all the secured creditors mentioned therein (which

comes to approximately 85% in value). I must state over here that

this letter has not been filed on record through any affidavit of the

Petitioner and the same was only handed over across the bar. Be

that as it may, it was therefore the submission of Mr Thakkar that,

the reference filed by the Respondent Company before the BIFR

automatically abated and therefore, the protection / bar of Section 22

of SICA, 1985 did not come into play. There was therefore no

impediment in proceeding with the present Company Petition, was

the submission of Mr. Thakkar.

14 I have heard the learned counsel for the parties at length

and perused the papers and proceedings in the Company Petition as

well as the affidavits filed by the respective parties. To understand

this controversy it would be necessary to briefly advert to the objects

and reasons for which SICA, 1985 as well as the SARFAESI Act were

enacted.

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15 The statement of objects and reasons for enacting SICA,

1985 reveal that the Government found the ill effects of sickness in

industrial companies such as loss of production, loss of employment,

loss of revenue to the Central and State Governments and locking up

of investible funds of financial institutions as a serious concern to the

Government and the society at large. There was also an increase in

the incidences of sickness in industrial companies. In order to fully

utilize the productive industrial assets, afford maximum protection

of employment and optimize the use of the funds of banks and

financial institutions, the Government felt that it would be

imperative to revive and rehabilitate the potentially viable sick

industrial companies as quickly as possible. The Government was

also of the view that it would also be equally imperative to salvage the

productive assets and realize the amounts due to the banks and

financial institutions, to the extent possible, from the non-viable sick

industrial companies through liquidation of those companies. In view

of all these facts, the Government felt the need to enact in public

interest, a legislation to provide for timely determination, by a body

of experts, the preventive, ameliorative, remedial and other

measures that would need to be adopted with respect to such

companies and for enforcement of the measures considered

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appropriate with utmost practicable dispatch. Keeping these objects

in mind SICA, 1985 was enacted. In other words, SICA, 1985 was

enacted with the avowed object of identifying sick and potentially

sick companies and then try to revive and rehabilitate them. This Act

created a two tier mechanism in the form of a BIFR and the Appellate

Authority for Industrial and Financial Reconstruction ("AAIFR").

The Board was vested with the power to conduct an inquiry into the

sickness of an industrial company, to prepare and sanction schemes

for the reconstruction and for proper management of the company or

for the winding up, if the sickness was found to be irreversible. Since

the object of this Act was to turn sick industrial companies into

healthy ones, perhaps by waving a magic wand, this Act also granted

an immunity in terms of Section 22, against any kind of proceedings

for the recovery of dues, during the pendency of an inquiry or the

preparation or operation of a Scheme.

16 Since the Government felt that BIFR and AAIFR have not

been able to fulfil the purpose and mandate as envisaged under SICA,

1985 of providing viable schemes for the revival of sick companies in

a reasonable short time frame, in the year 1999, the Government

constituted a Committee under the Chairmanship of Justice V.

Balakrishna Eradi, ("the Eradi Committee" ) a retired Judge of the

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Supreme Court, to review the law relating to Insolvency and Winding

up of Companies. The Committee presented a Report on 31.7.2000,

under the caption "Report of The High Level Committee on Law

Relating to Insolvency and Winding up of Companies". This

Committee, after hearing all the parties and analysing the statistical

data made available to it, opined that the facts and figures spoke for

themselves and they placed a big question-mark on the utility of the

institution of the BIFR and SICA, 1985. The problem of endemic

delays inherent in SICA, 1985 procedures of revival and

reconstruction was to a great extent exacerbated by the large scale

abuse of the provisions relating to suspension of legal proceedings,

suits and enforcement of contracts and other remedies contained in

Section 22 of the Act. The Eradi Committee pointed out that the

effectiveness of SICA had been severely undermined by reason of the

enormous delays involved in the disposal of cases by BIFR. The

Committee also observed that the success rate of revival of sick

companies had fallen far too short of the expectations. Consequently,

the Committee recommended that SICA, 1985 should be repealed and

the provisions contained therein for revival and rehabilitation,

should be telescoped into the structure of the Companies Act, 1956

itself. A detailed analysis of the Eradi Committee report can be found

in a Full Bench decision of the Madras High Court in the case of M/s.

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Salem Textiles Limited Vs. M/s. Phoenix ARC Private Ltd.

& Ors. 2 The reason why I have adverted to the report of the Eradi

Committee is because it throws light on how SICA, 1985, despite its

laudable objects, has, at least in spirit, failed to achieve the purpose

for which it was enacted.

17 Be that as it may, in contrast, the statements of object and

reasons of the SARFAESI Act indicate that the financial sector, being

one of the key drivers in India's efforts to achieve success in rapidly

developing its economy, did not have a level playing field as com-

pared to other participants in the financial markets of the world.

There was no legal provision for facilitating securitisation of financial

assets of banks and financial institutions, and unlike international

banks, the banks and financial institutions in India did not have the

power to take possession of securities and sell them. The Legislature

felt that our existing legal framework had not kept pace with the

changing commercial practices and financial sector reforms, which

resulted in delays in recovery of defaulting loans. This in turn had

the effect of mounting levels of non-performing assets of banks and fi-

nancial institutions. In order to bring the Indian Banking Sector on

par with International Standards, the Government set up two

Narasimhan Committees and the Andhyarujina Committee for the 2 2013 SCC OnLine Mad 1450 : (2013) 3 CTC 257 (FB) [Paras 25 to 29]

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purposes of examining banking sector reforms. These Committees in-

ter alia suggested enactment of a new legislation for securitisation

and empowering banks and financial institutions to take possession

of the securities and to sell them without the intervention of the

Court. Accepting these recommendations, the SARFAESI Act was

brought into force with w.r.e.f. 21-06-2002.

18 What is important to note is that the SARFAESI Act not

only brought a fresh enactment providing for a special procedure for

recovery of dues of banks and financial institutions, but also sought

to amend three other enactments, namely, (i) The Companies

Act, 1956, (ii) The Securities Contracts (Regulation) Act,

1956, and (iii) SICA, 1985. It is, by virtue of Section 41 of the

SARFAESI Act read with the Schedule thereto, that two provisos

were inserted under the already existing proviso to sub-section (1) of

Section 15 of SICA, 1985. Section 15(1) of SICA, 1985 as amended by

Section 41 of the SARFAESI Act, reads as under:-

"15. Reference to Board.--(1) Where an industrial company has become a sick industrial company, the Board of Directors of the company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company: Provided that if the Board of Directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall,

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

to the Board for the determination of the measures which shall be adopted with respect to the company:

Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction

company under sub-section (1) of Section 5 of that Act: Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is

pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors,

representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their

secured debt under sub-section (4) of Section 13 of that Act."

(emphasis supplied)

19 On a plain reading of the 2 nd proviso, it is clear that no

reference can be made to the BIFR after the commencement of the

SARFAESI Act where the financial assets have been acquired by any

securitisation or reconstruction company under Section 5(1) of the

SARFAESI Act. In contrast, the 3rd proviso stipulates that, after the

commencement of the SARFAESI Act, where a reference is pending

before the BIFR, such reference shall abate if the secured creditors

representing not less than 3/4th in value of the amount outstanding

against the financial assistance disbursed to the borrower of such

secured creditors, have taken any measures to recover their secured

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debt under Section 13(4) of the SARFAESI Act. As can be seen from

the aforesaid two provisos, they operate in two totally different fields.

The 2nd proviso to Section 15(1) comes into operation where no

reference has yet been filed by the sick company and the financial

assets of that company have been acquired by a securitisation and

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

other words, after the commencement of the SARFAESI Act, if a debt

of a sick company is assigned to a securitisation company or a

reconstruction company, then filing of a reference by the said sick

company before the BIFR is wholly barred by virtue of the 2 nd proviso

to Section 15(1). In contrast, the 3rd proviso to Section 15(1) deals

with a situation where on the commencement of the SARFAESI Act, a

reference is already pending. In this scenario, the 3 rd proviso

stipulates that such a reference shall abate if the secured creditors

representing not less than 3/4th in value of the amount outstanding

against the financial assistance disbursed to the borrower of such

secured creditors, have taken any measures to recover their secure

debt under Section 13(4) of the SARFAESI Act.

20 Having analyzed both the aforesaid provisions, I find

considerable force in the arguments of Mr Thakkar that the

Respondent Company was barred under the 2 nd proviso to Section

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15(1) from filing any reference before the BIFR. The facts in this

case would reveal and which are really undisputed, is that the debts

owed by the Respondent Company to certain banks and financial

institutions, as set out above, were assigned to certain ARCs. This

was done way back in the year 2014. The reference of the

Respondent Company was filed before the BIFR and registered only

on 10 December, 2015. In this factual scenario and on a plain

reading of the 2nd proviso to Section 15(1), it is clear that no

reference could have been filed by the Respondent Company before

the BIFR, and if the same was filed, it was non-est in the eyes of law

as it was in the teeth of the 2nd proviso to section 15(1) of SICA, 1985.

In this regard, the reliance placed by Mr Thakkar on a decision of the

Division Bench of this Court in the case of Paper Prints (India)

Pvt. Ltd. 1 is well founded. The facts of this case would reveal that

DBS Bank Ltd. had granted an overdraft facility in the amount of

Rs.2.5 Crores to the Appellants, in terms of which, financial facilities

were extended by the Bank. Since, there was default in making

payment, the Bank issued a demand notice calling upon the Appellant

to pay its dues. Since the Appellant failed to comply, the Bank moved

Debt Recovery Tribunal for recovery of an amount of Rs.2.46 Crores

due as on 31 January, 2009 together with interest. Thereafter, by a

deed of assignment dated 9 December, 2009, DBS Bank Ltd. assigned 1 (2012) 6 Mah LJ 427 : (2013) 2 Bom CR 371

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its debts in favour of the Respondent (Phoenix ARC Pvt. Ltd.). The

Respondent (Phoenix ARC Pvt. Ltd. ) issued a notice dated 15 April,

2010 under Section 433, 434 of the Companies Act, 1956 and

thereafter filed a winding up petition. When the petition came up for

admission, the learned Company Judge directed the petition be

admitted and advertised. It was urged on behalf of the Appellant that

the Appellant had moved a reference before the BIFR under Section

15, and therefore, under the provisions of Section 22, the learned

Company Judge could not have proceeded with the Company

Petition. The Division Bench of this Court noted that DBS Bank had

assigned its debts to the Respondent (which was an ARC) by a Deed

of Assignment dated 9 December, 2009, whereas the reference to the

BIFR was made on 26 November, 2010. The Division Bench,

therefore, held that in view of the specific language of the 2 nd proviso

to Section 15(1) of SICA, 1985 the reference filed by the Appellant

was not maintainable. The relevant portion of the said decision reads

as under:-

"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

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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

(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

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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."

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."

I find that this judgment squarely covers the issue before me and

supports the contentions as canvassed by Mr Thakkar. In the facts of

the present case also the debts of certain Banks were assigned to

ARCs long before the reference was filed by the Respondent Company

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before the BIFR. This being the case and the clear and unambiguous

language of the 2nd proviso to Section 15(1), the reference itself was

not maintainable and non-est in the eyes of law. Consequently, there

is no question of the Respondent Company contending that it gets the

protection under Section 22 of SICA, 1985. I must mention here that

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

challenged in the Supreme Court by filing a Special Leave Petition

which was dismissed on 9 January, 2013.

21 Faced with this situation, Mr Kadam learned senior

Counsel appearing on behalf of the Respondent Company, placed

reliance on a decision of a division bench of Delhi High Court in the

case of Asset Reconstruction Co. India P. Ltd. Vs. Shamken

Spinners Ltd. & Ors. 3 Relying upon the aforesaid decision, Mr

Kadam submitted that a literal interpretation of the 2 nd proviso will

defeat the objects of SICA, 1985 namely, to prevent unemployment

and other loss that occurs from closure of the sick company. He

submitted that, therefore, as done by the Delhi High Court, the

condition of 75% as set out in the 3 rd proviso to section 15(1), ought

to be read also into the 2nd proviso. In other words, he submitted that

the bar of filing a reference under the 2 nd proviso would come into

1 (2012) 6 Mah LJ 427 : (2013) 2 Bom CR 371 3 AIR 2011 DELHI 17.

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play only when 75% of the entire secured debt owed by the

Respondent Company is acquired by a reconstruction company or a

securitisation company.

22 I am unable to agree with this submission for more than

one reason. Firstly, there is a direct decision on this point of this

Court which is binding on me. Secondly, even otherwise I find that I

am unable, with great respect, to subscribe to the view of the Delhi

High Court in the case of Asset Reconstruction Co. India P.

Ltd. 3 To my mind the words of the statute are absolutely clear and

unambiguous, and therefore, have to be construed accordingly. I

cannot, under the guise of interpretation, supply words in the statute

which are conspicuous by their absence. Whilst, interpreting a

provision, it is not only important to pay attention to what is said in

the statute but also to what is not said. When two provisions are

inserted at the same time and a condition is imposed in one and

conspicuously left out from the other, the Courts have to proceed on

the basis that the Legislature deliberately intended to do so. The

Court cannot proceed on the basis that looking to the so called

intendment of the statute, the Legislature committed some mistake

or inadvertent error. To my mind this would be against all the

cannons and rules of interpretation. This view that I have taken is

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supported by the decision of the Supreme Court in the case of Mohd.

Shahabuddin Vs State of Bihar and Ors. 4 Paragraphs 179 and

180 of this decision read thus:-

"179. Even otherwise, it is a well-settled principle in law that the court cannot read anything into a statutory provision which is plain

and unambiguous. The language employed in a statute is a determinative factor of the legislative intent. If the language of the enactment is clear and unambiguous, it would not be proper for the courts to add any words thereto and evolve some legislative intent, not found in the statute. Reference in this regard may be made to a

recent decision of this Court in Ansal Properties & Industries Ltd. v. State of Haryana [(2009) 3 SCC 553]

180. Further, it is a well-established principle of statutory

interpretation that the legislature is specially precise and careful in its choice of language. Thus, if a statutory provision is enacted by the legislature, which prescribes a condition at one place but not at some other place in the same provision, the only reasonable interpretation which can be resorted to by the courts is that such

was the intention of the legislature and that the provision was consciously enacted in that manner. In such cases, it will be wrong

to presume that such omission was inadvertent or that by incorporating the condition at one place in the provision the legislature also intended the condition to be applied at some other place in that provision.

(emphasis supplied)

23 In view of this clear enunciation of the law, with great

respect, I am unable to agree with the view expressed by the Delhi

High Court in the case of Asset Reconstruction Co. India P.

Ltd. 3

4 (2010) 4 SCC 653 3 AIR 2011 DELHI 17.

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24 It would not be out of place to mention that the Judgment

of Delhi High Court in the case of Asset Reconstruction Co. India

P. Ltd. 3 came up for consideration before a division bench of the

Andhra Pradesh High Court in the case of M/s SVPCL Ltd. Vs.

State Bank of India and Anr. 5 Even the Andhra Pradesh High

Court, after analyzing the provisions of the 2nd and 3rd proviso to

Section 15(1) of SICA, 1985, was unable to agree with the view taken

by Delhi High Court. The relevant portion of the Andhra Pradesh

High Court decision reads thus:

"I. CONSENT OF THE BIFR IS NOT REQUIRED, TO CONTINUE PROCEEDINGS UNDER THE SARFAESI ACT, IN VIEW OF THE SECOND PROVISO TO SECTION 15(1) OF SICA:

Let us now examine whether, in the facts of the present case, the

petitioners can claim the protection of SICA, and prevent the first respondent-bank from taking possession of its immovable properties

in accordance with the provisions of the SARFAESI Act. The obligation to make a reference to the BIFR is placed, by Section 15(1) of SICA and its first proviso, on the board of directors of the sick industrial company. Once a reference is made by the board of

directors, the BIFR is required to make an enquiry under Section 16, and take remedial measures under Sections 17 to 19 of SICA, for the revival and rehabilitation of the sick industrial company. It is with a view to ensure that the BIFR exercises its jurisdiction, under Sections 16 and 17 without hindrance, that Section 22(1) of SICA provides for the suspension of legal proceedings where an enquiry

under Section 16 is pending, or a scheme under Section 17 is under preparation, and consideration, or a sanctioned scheme is under implementation.

From the proceedings of the BIFR dated 21.01.2014, it is evident that the assets of the petitioner, mortgaged to Karur Vysya Bank Ltd.

and Axis Bank Ltd. were acquired from them by IARC (a securitisation company). The requirement of Section 5(1) of the SARFAESI Act was, therefore, satisfied. Consequently the second proviso to Section 15(1) was attracted, and the petitioner was 5 2015 SCC OnLine Hyd 111 : (2015) 191 Comp Cas 214 (AP)

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prohibited from making a reference to the BIFR by their letter dated

10.10.2013, more than a decade after the SARFAESI Act, 2002 came into force on 21.06.2002. The pre-condition for the BIFR to cause an enquiry under Section 16 is, a reference made to it, by the board of

directors of a sick industrial company, under Section 15(1) of SICA and its first proviso. As no reference could have been made by the petitioner to the BIFR, in view of the embargo placed on it by the second proviso to Section 15(1) of SICA, the non-obstante clause

under Section 22(1) of SICA has no application, and neither the securitisation company nor the first respondent-bank, are obligated to obtain the consent of BIFR to realise the security in accordance with the provisions of the SARFAESI Act and the Rules made thereunder.

J. SHOULD THE CONDITIONS STIPULATED UNDER THE THIRD PROVISO BE READ INTO THE SECOND PROVISO OF

SECTION 15(1) OF SICA:

The next question which arises for consideration is whether the

conditions prescribed in the third proviso must be read into the second proviso to Section 15(1) of SICA, and the second proviso held to apply only when the conditions in the third proviso are satisfied? In Asset Reconstruction Co. India P. Ltd. 5, a Division bench of the Delhi High Court held that a literal interpretation of

the second proviso to Section 15(1) which, unlike the third proviso thereto, does not require atleast 75% of the secured debt to be

purchased by an asset reconstruction company or a securitization company, will defeat the object of SICA which is to prevent unemployment and loss of revenue to the state exchequer, and other ills which arise from the closure of an industry; if such an

interpretation is adopted, a purchaser of a very minuscule amount of the debt of a sick company can frustrate its revival, which will result in an avoidable stalemate arising because of the ability of the secured creditor to prevent a reference for revival and rehabilitation of a sick company, but his inability to pursue his remedy under the SARFAESI Act because he would not have the cut off percentage of

75% as required by Section 13 (9) thereof; to the extent possible, different provisions of cognate and allied Acts must be interpreted harmoniously with each other, and the object of the legislature will have to be understood by reading all the special statutes taken together; a literal interpretation, of the 2 nd proviso to Section 15(1) of SICA, does not require any minimum percentage of the secured assets to be purchased by an asset reconstruction company, or a securitization company acting under the SARFAESI Act; the literal interpretation results in an absurdity and a stalemate which can and should be avoided; and, in the 2nd proviso to Section 15(1), the asset reconstruction company or the securitisation company must be

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required to purchase atleast 75% or more of the secured assets of a

sick industrial company before it can claim to bring into effect the second proviso to Section 15(1).

We must express our inability to agree with the opinion of the Division bench of the Delhi High Court, in Asset Reconstruction Co. India (P) Ltd., since the language of the 2 nd proviso to Section 15(1) of SICA is plain and unambiguous, and must be enforced. It is, normally, not the concern of Courts to examine its reasonableness or

consider its consequences. (Cape Brandy Syndicate v. IRC). If the meaning of the provision is reasonably clear, Courts have no jurisdiction to mitigate harshness. (Canadian Eagle Oil Co. Ltd v. R; IRC v. Ross & Coulter (Bladnock Distillery Co. Ltd).

Courts of law have nothing to do with the reasonableness or unreasonableness of a provision of a Statute except in so far as it may help it in interpreting what the legislature has said. If the

language of a statute be plain, admitting of only one meaning, the legislature must be taken to have meant and intended what it has plainly expressed, and whatever it has in clear terms enacted must

be enforced though it should lead to absurd or mischievous results. The language of the second proviso to Section 15(1) of SICA must, since its language is plain and unambiguous, be enforced and the Court, sitting judicially, is not concerned with the question whether the policy it embodies is wise or unwise, or whether it leads to

consequences just or unjust, beneficial or mischievous. (Cooke v.Charles A. Vogeler Co).

As long as there is no ambiguity in the statutory language resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the legislature cannot then

be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words used it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the legislature. (Keshavji Ravji & Co. v. CIT). Individual cases of hardship and injustice do not and

cannot have any bearing for rejecting the natural construction by attributing normal meaning to the words used since hard cases do not make bad laws. The statute should be interpreted on the basis of the language used therein, and not dehors the same. No words ought to be added, and only the language used ought to be considered, so as to ascertain the proper meaning and intent of the legislation. The court is to ascribe a natural and ordinary meaning to the words used by the legislature and the court ought not, under any circumstances, to substitute its own impression and ideas in the place of the legislative intent as is available from a plain reading of the statutory provisions. (Orissa State Warehousing Corporation v. CIT). It is no

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function of the Court to add words to the second proviso to Section

15(1) of SICA on the premise that it would, otherwise, defeat the objects of SICA. Hardship if any, which may possibly result, is for the legislative branch of the State to consider.

K. DISTINCTION BETWEEN THE SECOND AND THIRD PROVISO TO SECTION 15(1) OF SICA:

The distinction between the second and third provisos to Section

15(1) of SICA is not without significance. Both these provisos are applicable in two different and distinct situations. While the second proviso prohibits even a reference being made to the BIFR, the third proviso brings to an end the proceedings pending before the BIFR. As noted herein above, the board of directors of the petitioner

company made a reference to the BIFR by their letter dated 10.10.2013, long after the respondent-bank had initiated

proceedings against them under Section 13(4) and 14 of the SARFAESI Act. The endorsement on the reference, by the Secretary of the BIFR under Regulation 19(4) of the Regulations, or

registration of the reference under Regulation 19(5) thereof, are events posterior to the reference made to the BIFR, by the board of directors of the sick industrial company, under Regulation 19(1). In view of the bar under the second proviso to Section 15(1) of SICA, the very reference to the BIFR is without jurisdiction, and

consequently the subsequent act of registration of the reference as Case No. 89 of 2013, or commencement of the enquiry under Section

16(1) of SICA or for that matter remedial measures being taken under Section 17 to 19 of SICA, by the BIFR are also without jurisdiction and a nullity. Once the jurisdiction of the BIFR has been divested by the mandatory impact of the second proviso to Section

15(1), the BIFR cannot pass any orders under SICA. (Punjab National Bank)."

(emphasis supplied)

25 I am in full agreement with the view expressed by the

Andhra Pradesh High Court in the case of M/s SVPCL Ltd. 5 as I,

for one, am of the firm opinion that it lays down the correct law.

26 In these circumstances, I have no hesitation in holding 5 2015 SCC OnLine Hyd 111 : (2015) 191 Comp Cas 214 (AP)

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that the reference filed by the Respondent Company before the BIFR

and which was registered on 10 December, 2015, is not non-est in the

eyes of law, and therefore, there is no question of the Respondent

Company getting protection under Section 22 of SICA, 1985. I am,

therefore, unable to accept the submission of Mr Kadam that this

Petition cannot proceed and/or be heard and finally disposed of.

27 As far as the facts of Company Petition No.511 of 2014

are concerned, it is not in dispute that a huge amount is due and

payable by the Respondent Company to the Petitioner. In fact, in the

consent terms filed in this Court dated 19 June, 2014, the

Respondent Company has expressly admitted its liability to the

Petitioner in the sum of Rs.95.32 Crores. Admittedly, this amount

has not been paid. In fact, Mr Kadam very fairly conceded before me

that as far as merits of this Petition are concerned, the Respondent

Company has no defence and the only point canvassed before me was

the one dealt by me earlier. In this view of the matter, I find that the

Respondent Company is indebted to the Petitioner for huge amounts

and therefore commercially insolvent and unable to pay its debts. In

this view of the matter, the Company Petition is allowed in terms of

prayer clauses (a) and (b) which read as under:-

(a) that the Company viz. S. Kumars Nationwide

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Limited, be wound up by and under the orders

and directions of this Hon'ble Court under the provisions of the Companies Act, 1956, and the

Official Liquidator attached to this Hon'ble Court be appointed as the Liquidator of the Company

and all its assets, books of accounts, vouchers, files, documents etc. with all powers under the Companies Act, 1956;

(b) that pending hearing and final disposal of this

Petition, the Official Liquidator of this Hon'ble Court or some other fit and proper person be

appointed Provisional Liquidator of the Company i.e. S. Kumars Nationwide Limited with all powers under the Companies Act, 1956,

including power to take charge of all the assets,

properties, stock-in-trade, books of accounts and Bank accounts of the Company.

28 In view of the fact that I have already ordered winding of

the Respondent Company in Company Petition No.511 of 2014,

nothing survives in other Company Petitions and the same are

disposed of accordingly with liberty to the respective Petitioners to

file their proof of claim / proof of debt before the Official Liquidator.

29 I must mention here that I have not opined on the

contention of Mr. Thakkar that in any event the reference filed by the

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Respondent Company before the BIFR has abated by virtue of the 3 rd

proviso to Section 15(1) of SICA, 1985. The reason why I haven't

examined this contention is because I have already held that the