Bombay High Court
Bank Of India vs State Of Maharashtra, Through ... on 25 October, 2016
Bench: S.C. Dharmadhikari
wp.4948.2013.dated.27.9.2016 (Colabawalla).doc
dik
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CIVIL APPELLATE JURISDICTION
WRIT PETITION NO. 4948 OF 2013
WITH
CIVIL APPLICATION NO. 2079 OF 2016
AND
CIVIL APPLICATION NO.2345 OF 2013
IN
WRIT PETITION NO.4948 OF 2013
JM Financial Asset Reconstruction
ig ]
Company Pvt. Ltd. a company incorporated ]
under the provisions of the Companies Act,1956, ]
and registered as a securitization and ]
reconstruction company under Section 3 of ]
Securitization and Reconstruction of Financial ]
Assets and Enforcement of Security Interest Act, ]
2002, having its registered office at 7, Cnergy ]
25 Appasaheb Marathe Marg, Prabhadevi, ]
Mumbai - 400 025 acting in its capacity as a ]
Trustee of the JMFARC-BOI Textile 2013-Trust ]
through its Authorized Representative Mr Sanjay ] ...Petitioner
vs
1. State of Maharashtra, through Chief ]
Secretary, State of Maharashtra having ]
its office at Madam Cama Marg, Hutatma ]
Rajguru Chowk, Mantralaya, Mumbai ]
400032 ]
2 Ministry of Energy & Labour Department ]
State of Maharashtra, having its office at ]
Madam Cama Marg, Hutatma Rajguru ]
Chowk, Mantralaya, Mumbai 400 032 ]
3 Collector & District Magistrate Kolhapur ]
having its office at the Office of the Collector ]
District Kolhapur, State of Maharashtra ]
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State of Maharashtra and having its ]
registered office at 17-E Shivparvati ]
Nagale Park, Kolhapur 416 003 ]
4 Maruti Cotex Ltd. ]
a company incorporated under the ]
Companies Act, 1 of 1956, having its ]
office at Plot T-17, Kagal-Hathkanangale ]
Lane, Five Star MIDC, Post Talandge, ]
Taluka Hathkanangale, District Kolhapur ]
416 603, State of Maharashtra ]...Respondents.
.....
Mr. S.U. Kamdar, Sr. counsel along with Mr O.A. Das for the
Petitioner & for Applicant.
Ms Sushma Bhende, AGP for Respondent Nos.1 to 3.
Mr Sanjay Jain a/w Mr Nishant Sasidharan, Mr Vasim Shaikh & Mr
Atul Jain i/b M/s Pravin Mehta & Mithi & Co. for Respondent No.4.
.....
CORAM : S. C. DHARMADHIKARI &
B.P.COLABAWALLA, JJ.
Reserved on : 7th September, 2016
Pronounced on : 25th October, 2016.
JUDGMENT [ Per B. P. Colabawalla J ]:
1. By this Writ Petition under Article 226 of the Constitution
of India, the Petitioner had originally challenged the notification
dated 11th June, 2014 issued by Respondent No.2 under the
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provisions of the Maharashtra Relief Undertakings (Special
Provisions) Act, 1958, [formerly known as the Bombay Relief
Undertakings (Special Provisions) Act, 1958] (for short "BRU Act").
This notification was valid for a period of one year from the date of its
issuance. It has thereafter been brought on record that subsequent
notifications have also been issued and the notification that is
currently in force is dated 18th June, 2016. This notification is valid
for a period of one year commencing from 18th June, 2016 till 17th
June, 2017 (both days inclusive). Under this notification,
Respondent No.4 is referred to therein as a 'Relief Undertaking' and
all of its rights, privileges, obligations or liabilities (except those
obligations or liabilities as specified therein) accrued or incurred
before 18th June, 2016, and any remedy for the enforcement thereof,
shall be suspended and all proceedings relating thereto pending
before any Court, Tribunal, Officer or Authority shall be stayed,
provided Respondent No.4 (the said Relief Undertaking) adopts all
necessary reforms mandatorily as decided by the State Government
during the said period.
2. When this matter was taken up on 11th June, 2013, a
Division Bench of this Court had observed that the effect of these
notifications issued under the provisions of the BRU Act, qua the
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provisions of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 (for short the
"SARFAESI Act") would require consideration. In these
circumstances, it was ordered that the Collector and District
Magistrate (Respondent No.3) shall not insist upon the Petitioner,
handing over possession of the properties, but at the same time the
Petitioner shall maintain status-quo in respect thereof. It was
further clarified that the Petitioner was at liberty to proceed with the
auction of the property of which possession was taken, but shall not
finalize the same until further orders of this Court. Thereafter, on 12
August, 2014, rule was issued in this Writ Petition and the ad-interim
relief granted on 11th June, 2013 was continued as interim relief
pending the hearing and final disposal of the Petition. The hearing of
this Writ Petition was also expedited. It is in these circumstances,
this Writ Petition has come up before us for hearing and final
disposal.
3. We must at the outset note that though the main relief in
the Writ Petition is to challenge the notifications issued by
Respondent No.2 under the provisions of the BRU Act, Mr Kamdar,
learned Sr. Counsel appearing on behalf of the Petitioner, has given
up that challenge and has addressed us only on the issue whether the
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provisions of the SARFAESI Act, and more particularly section 13
thereof, override the provisions of the BRU Act. In short, it was the
contention of the Petitioner that notwithstanding the notifications
issued under the provisions of the BRU Act, the Petitioner, being an
Asset Reconstruction Company ("ARC") as defined under the
provisions of the SARFAESI Act, is entitled to take recourse to the
provisions thereof in accordance with law and proceed to sell its
secured asset and recover its dues.
4. Before we deal with the contentions which have been
raised for our consideration, it would be necessary to set out some
few facts. They are as follows:-
(a) The Petitioner is a Securitization and Reconstruction
Company (now an ARC) registered under section 3 of the
SARFAESI Act. Respondent No.1 is the State of
Maharashtra and Respondent No.2 is the Ministry of
Energy and Labour Department who has issued the
impugned Notifications, the latest of them being dated
18th June, 2016. Respondent No.3 is the Collector and
District Magistrate, Kolhapur. Respondent No.4 is a
Company incorporated under the provisions of the
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Companies Act, 1956 and inter alia carrying on the
business in textile manufacturing and export thereof.
Respondent No.4 had originally taken financial assistance
and was the borrower of Bank of India as well as other
banks in the consortium. Thereafter, the debt, (alongwith
the underlying security interest) owed by Respondent
No.4 to Bank of India, was assigned in favour of the
Petitioner. ig In these circumstances, the Petitioner is
before us. Any reference to the Petitioner hereinafter,
shall mean JM Financial Asset Reconstruction Co. Pvt.
Ltd. and/or Bank of India, as the case may be.
(b) It is the case of the Petitioner that under a loan
sanctioned to Respondent No.4, the Petitioner from time
to time lent and advanced large amounts of money not
only through itself but also on behalf of consortium
Banks. Respondent No.4 set up their factory and was
carrying on business of manufacturing and export of
textile material and garments from the advances made by
the Petitioner and other consortium banks.
(c) In view of the fact that various defaults were committed
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by Respondent No.4 in servicing the loans and advances
granted to it, the Petitioner declared the account of
Respondent No.4 as a non-performing asset. Thereafter,
in or about 2nd May 2012, the Petitioner has for and on
behalf of itself as well as other consortium banks issued a
notice under section 13(2) of the SARFAESI Act calling
upon Respondent No.4 to pay an amount of
Rs.264,74,22,000/-
ig to the Petitioner and other
consortium banks.
(d) As Respondent No.4 did not discharge its liability, the
Petitioner issued a possession notice dated 5th November,
2012 under section 13(4) of the SARFAESI Act and
thereafter went to take possession of the property
mentioned in the said notice. Since Respondent No.4
refused to handover actual physical possession of the
property, symbolic possession was taken. Thereafter, the
Petitioner moved an application before Respondent No.3
herein under section 14 of the SARFAESI Act requesting
Respondent No.3 to take actual physical possession of the
said property. Accordingly, Respondent No.3 passed an
order on 11th March, 2013 directing that physical
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possession of the said property and which was secured as
a mortgage in favour of the Petitioner and other
consortium banks, be handed over by Respondent No.4.
Accordingly, and pursuant to the aforesaid order,
physical forcible possession of the said property was
taken by the Respondent No.3 and handed over to the
Petitioner on 29th April, 2013. The Petitioner has been in
actual physical possession of the mortgage property since
29th April, 2013.
(e) Thereafter, the Petitioner issued an advertisement of E-
Auction on 19th May, 2013 publishing the date of auction
as 20th June, 2013 of all the assets of Respondent No.4 of
which possession had been taken by the Petitioner in
exercise of the powers conferred under the provisions of
the SARFAESI Act. The reserve price fixed in the said E-
Auction was Rs.246 crores and the EMD was fixed at
Rs.24.60 crores.
(f) After all this, Respondent No.4 approached Respondent
Nos.1 and 2 and got a Notification issued by the State
Government under the provisions of sections 3 and 4 of
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the BRU Act. This Notification was dated 24th May, 2013
and was to be valid for a period of one year. Because of
the aforesaid Notification, Respondent No.3 issued a
letter dated 6th June, 2013 to the Petitioner inter alia
informing the Petitioner that since the aforesaid
Notification had been issued under the provisions of the
BRU Act, possession of the secured assets taken by the
Petitioner on 29th April, 2013 must be returned back to
Respondent No.4 within a period of two days from the
date of issuance of the said letter. This letter is also
impugned in this Writ Petition.
(g) In reply to the aforesaid letter, the Petitioner by its letter
dated 7th June, 2013 requested Respondent No.3 thirty
days' time for taking further course of action. It is the
case of the Petitioner that till the date of filing of the
present Petition, there has been no further
communication received from the Office of Respondent
No.3. Accordingly, to challenge the original Notification
issued on 24th May, 2013 as well as the letter issued by
Respondent No.3 dated 6th June 2013, this Writ Petition
was filed. Thereafter, the Notification issued under the
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BRU Act and which was to remain valid for a period of one
year, has been extended from time to time by issuance of
fresh Notifications under the provisions of the BRU Act,
the latest Notification being issued on 18th June, 2016
and which is valid till 17th June, 2017. Being aggrieved
by this action, the Petitioner is before us in our
extraordinary equitable and discretionary jurisdiction
under Article 226 of the Constitution of India.
5. In this factual backdrop, Mr Kamdar, learned Sr. Counsel
appearing on behalf of the Petitioner, submitted that initially, the
Legislature, finding that banks and financial institutions were
suffering considerable difficulties in recovering their loans and
advances due to the fact that the procedure existing then for
recovery was extremely time consuming and burdensome, and the
debts due to banks and financial institutions blocked a significant
portion of their funds in unproductive assets, the Recovery Of Debts
Due To Banks And Financial Institutions Act, 1993 was enacted.
Under this Act, exclusive jurisdiction was conferred upon the Debt
Recovery Tribunal ("DRT") [constituted under the said Act] for
adjudicating the debts due to the banks and financial institutions. Mr
Kamdar submitted that thereafter the Legislature found that the
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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 compared to other participants in the financial
markets of the world. The Legislature felt that notwithstanding the
RDDB Act, 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. It is in these
circumstances the Legislature thereafter enacted the SARFAESI Act.
He submitted that under the SARFEASI Act, the framework was such
that banks and financial institutions in whose favour a security was
created, could invoke the provisions of the Act and enforce their
security without the intervention of the Court. He submitted that
this being a special legislation and enacted for a greater public
purpose (which was to recover dues of banks and financial
institutions), was given primacy.
6. In this regard, Mr. Kamdar brought to our attention
several provisions of the SARFAESI Act. He submitted that Section
34 of the SARFAESI Act stipulated that no Civil Court would have
jurisdiction to entertain any suit or proceedings of any matter which
the DRT or the DRAT is empowered by the said Act to determine, and
no injunction could be granted by any Court or other authority in
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respect of any action taken or to be taken in pursuance of any powers
conferred by or under this Act or under the RDDB Act. He, thereafter
submitted that Section 35 stipulates that the provisions of the
SARFAESI Act would override other laws and would have effect
notwithstanding anything inconsistent therewith contained in any
other law for the time being in force or any instrument having effect
by virtue of any such law. He thereafter invited our attention to
Section 37 of the Act which provides that the provisions of the
SARFAESI Act or the rules made thereunder are in addition and not
in derogation of the Companies Act, 1956; Securities Contract
(Regulation) Act, 1956; the Securities and Exchange Board of India
Act, 1992; the RDDB Act; and any other law for the time being in
force. He submitted that what is important to note is that the BRU
Act was not one of the enactments listed in Section 37 to be in
addition to and not in derogation of the SARFAESI Act.
7. In contrast, Mr. Kamdar submitted that the BRU Act was
an enactment to make temporary provisions for industrial relations
and other matters to enable the State Government to conduct or to
provide loans, guarantee or financial assistance for the conduct of
certain industrial undertakings as a measure of preventing
unemployment or unemployment relief. He submitted that Section 4
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of BRU Act inter alia stipulated that notwithstanding any law, usage,
custom, contract, instrument, decree, order, award, submission,
settlement, standing order or other provision whatsoever, the State
Government, by notification in the official gazette, could direct that
in relation to any relief undertaking and in respect of the period for
which the relief undertaking continues as such under sub-section (2)
of Section 3, any right, privilege, obligation or liability accrued or
incurred before the undertaking was declared as a relief undertaking,
and any remedy for the enforcement thereof shall be suspended and
all proceedings relating thereto pending before any Court, Tribunal,
Officer or Authority shall be stayed.
8. Mr. Kamdar submitted that in the facts of the present
case, a notification (and renewed from time to time) as contemplated
under Section 4(1)(a)(iv) was issued by the State Government
declaring Respondent No.4 as a relief undertaking. He submitted
that by virtue of this notification, it was the contention of Respondent
No.4 that the proceedings under the SARFAESI Act could not
continue as there was a complete bar as set out in the said Section
read with said notification. He submitted that this provision was
directly inconsistent with the provisions of the SARFAESI Act and
more particularly Section 13 thereof which inter alia empowers the
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secured creditor to take action under the said Act and enforce its
security without the intervention of the Court. Placing strong
reliance on Section 35 of the SARFAESI Act, Mr Kamdar submitted
that the SARFAESI Act, being a special and a later Legislation
enacted for the purpose of ensuring that the security created in
favour of banks and financial institutions are enforced without any
hindrance, that the Legislature thought it fit to declare that the
provisions of the SARFAESI Act shall have effect notwithstanding
anything inconsistent therewith contained in any other law for the
time being in force or in any instrument by virtue of any such law.
He submitted that Section 4 and the notification issued thereunder
were clearly inconsistent with the rights of the secured creditor to
enforce its security under Section 13 of the SARFAESI Act, and
therefore, notwithstanding Section 4 of the BRU Act and the
notification issued thereunder, the secured creditor, under the
provisions of the SARFAESI Act, could take all steps to enforce its
security.
9. To support this argument, Mr Kamdar submitted that
this issue was no longer res-integra and was covered by a decision of
the Supreme Court in the case of Madras Petrochem Ltd. & Anr. Vs.
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Board of Industrial & Financial Reconstruction & Ors.1 He
submitted that what came up for consideration before the Supreme
Court was whether the provisions of the SARFAESI Act would
override the provisions of the Sick Industrial Companies (Special
Provisions) Act, 1985 ("SICA, 1985"). He submitted that just as in
the case of the BRU Act, where all proceedings are stayed against the
company in whose favour a notification has been issued under
Section 4, Section 22 of SICA, 1985 also provided for stay of all
proceedings against the sick industrial company that had preferred a
reference before the Board of Industrial and Financial
Reconstruction ("BIFR"). He submitted that the Supreme Court after
analyzing the law on the subject came to the conclusion that the
provisions of Section 22 of SICA, 1985 were inconsistent with the
provisions of the SARFAESI Act, and therefore held that
notwithstanding the fact that a reference of a sick industrial
company was pending before the BIFR, the secured creditor could
take recourse to the provisions of the SARFAESI Act and enforce its
security against the sick industrial company. On the same parity of
reasoning, Mr Kamdar submitted that we hold that the provisions of
the SARFAESI Act override the provisions of the BRU Act and
consequently, the letter dated 6th June, 2013, issued by Respondent
1 (2016) 4 SCC 1
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No.3 be quashed and set aside.
10. On the other hand, Mr Jain learned counsel appearing on
behalf of Respondent No.4 submitted that there was no inconsistency
between the provisions of the SARFAESI Act and the BRU Act so as to
hold that the provisions of the SARFAESI Act would override the
provisions of the BRU Act. He submitted that the BRU Act was an act
to make temporary provisions for industrial relations and other
matters to enable the State Government to conduct or to provide a
loan, guarantee or financial assistance for the conduct of certain
industrial undertakings as a measure of preventing unemployment
or of unemployment relief. He submitted that the Statement of
Objects and Reasons of this Act would indicate that this Act was
promulgated in order to mitigate hardship that may be caused to the
workers who are rendered jobless by closure of the undertaking.
11. In contrast he submitted that the SARFAESI Act was
brought into force to regulate securitisation and reconstruction of
financial assets and enforcement of security interest. This enactment
was brought into force to ensure that banks and financial institutions
in whose favour a security interest was created, could enforce their
security without the intervention of the Court and realise their dues.
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He submitted that the two Acts, namely, the SARFAESI Act and the
BRU Act operate in totally different fields and are enacted to achieve
totally different objects. According to Mr Jain, therefore, there was
no question of any inconsistency between the provisions of the
SARFAESI Act on the one hand and the BRU Act on the other.
12. Relying upon Article 246 of the Constitution of India, Mr
Jain submitted that Parliament had the exclusive power to make
laws with respect to any matters enumerated in List I in the Seventh
Schedule to the Constitution ("the Union List"). Similarly, the
Legislature of any State had the exclusive power to make laws for
such States or any part thereof for any of the matters enumerated in
List II in the Seventh Schedule of the Constitution ("the State List").
He submitted that over and above these two Lists, Parliament as well
as the Legislature of any State also had the power to make laws with
respect to any of the matters enumerated in List III in Seventh
Schedule of the Constitution ("the Concurrent List"). He submitted
that Article 254 provides for any repugnancy in the laws made by
Parliament and the laws made by the Legislature of a State. He
submitted that if any provision of a law made by the Legislature of a
State is repugnant to any provision of a law made by Parliament
which Parliament is competent to enact, or to any provision of an
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existing law with respect to one of the matters enumerated in the
Concurrent List, then, subject to the provisions of clause (2), the law
made by Parliament, whether passed before or after the law made by
the Legislature of such State, or, as the case may be, the existing law,
shall prevail and the law made by the Legislature of the State shall, to
the extent of the repugnancy, be void. He submitted that Clause (2)
of Article 254 stipulates that where a law made by the Legislature of
a State with respect to one of the matters enumerated in the
Concurrent List contains any provision repugnant to the provisions
of an earlier law made by Parliament or an existing law with respect
to that matter, then, the law so made by the Legislature of such State
shall, if it has been reserved for the consideration of the President
and has received his assent, prevail in that State. Looking to the
provisions of Article 246 and 254 of the Constitution of India, Mr
Jain submitted that the question of repugnancy would arise only in
relation to any entry in the Concurrent List. He submitted that in the
facts of the present case, the SARFAESI Act has been enacted by
virtue of entry 45 in the Union List whereas the BRU Act is enacted
by the State Government under the State List. This being the case,
there was no question of repugnancy between the provisions of the
BRU Act and the provisions of the SARFAESI Act.
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13. Mr. Jain then submitted that under Section 4(1)(a)(iv) of
the BRU Act, any right, privilege, obligation or liability accrued or
incurred before the undertaking was declared a relief undertaking,
and any remedy for the enforcement thereof shall be suspended, and
all proceedings relating thereto pending before any court, tribunal,
officer or authority shall be stayed. He submitted that this
suspension is not indefinite but for a limited period as set out in
Section 3(2) of the BRU Act. According to Mr Jain, the notification
issued under the provisions of the BRU Act was valid for period of 12
months from the date of its issuance and could be renewed from time
to time so that the total period in the aggregate did not exceed 15
years. He submitted that the suspension of the obligations and/or
liabilities of the 'Relief Undertaking' as contemplated under the
provisions of BRU Act being temporary in nature, there was no
question of holding that there was any inconsistency between the
provisions of the SARFAESI Act and that of the BRU Act.
14. In support of his arguments, Mr Jain relied upon the
following judgments:-
(i) Binod Mills Co. Pvt. Ltd. Ujjain (M.P.) Vs Suresh
Chandra Mahaveer Prasad Mantri, Bombay.2
2 (1987) 3 SCC 99
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(ii) Doburg Lager Breweries Pvt. Ltd. Vs. Dhariwal
Bottle Trading Co. & Anr.3
(iii) Vishal N Kalsaria Vs. Bank of India & Ors.4
(iv) Security Association of India Vs. Union of India
and Ors.5 and
(v) Modern Syndex (I) Ltd. Vs. Debts Recovery
Tribunal, Jaipur & Ors.6
15. We have heard the learned Advocates at length and
perused the papers and proceedings in the Writ Petition along with
the annexures thereto. Before we deal with the rival contentions, it
would be necessary to understand the purpose for which both the
enactments, namely the SARFAESI Act and the BRU Act, were
brought into force. 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 compared 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
3 (1986) 2 SCC 382
4 (2016) 3 SCC 762
5 (2014) 12 SCC 65
6 AIR 2001 Rajasthan 170
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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 financial
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 purposes of
examining banking sector reforms. These Committees inter alia
suggested enactment of a new legislation for securitization 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. There have been several
amendments to the SARFAESI Act, the latest being an amendment of
2016 that received the assent of the President on 12 August, 2016
and was published in the Official Gazette dated 16 August, 2016. It is
called the Enforcement of Security Interest and Recovery of Debts
Laws and Miscellaneous Provisions (Amendment) Act, 2016. The
preamble of this amending Act indicates that the same was intended
to further amend the SARFAESI Act, the RDDB Act, the Indian Stamp
Act, 1899 and the Depository Act, 1996 and for matters connected
therewith or incidental thereto.
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16. Section 2 of the SARFAESI Act is the definitions clause
and inter alia stipulates that in this Act, unless the context otherwise
requires, "secured asset" means the property on which a security
interest is created [Section 2(zc)]. In turn, "secured debt" is defined
to mean a debt secured by any security interest [section 2(ze)].
Thereafter, "security interest" has been defined in Section 2(zf) and
reads as under:-
"(zf) "security interest" means right, title or interest of any kind, other than
those specified in Section 31, upon property created in favour of any
secured creditor and includes--
(i) any mortgage, charge, hypothecation, assignment or any right, title
or interest of any kind, on tangible asset, retained by the secured
creditor as an owner of the property, given on hire or financial lease
or conditional sale or under any other contract which secures the
obligation to pay any unpaid portion of the purchase price of the
asset or an obligation incurred or credit provided to enable the
borrower to acquire the tangible asset; or
(ii) such right, title or interest in any intangible asset or assignment or
licence of such intangible asset which secures the obligation to pay
any unpaid portion of the purchase price of the intangible asset or
the obligation incurred or any credit provided to enable the
borrower to acquire the intangible asset or licence of intangible
asset;"
17. Section 13 of the SARFAESI Act provides for enforcement
of security interest. Insofar as the same is relevant for our purpose,
the same is reproduced hereunder:-
"13. Enforcem ent of security interest.--(1) Notwithstanding
anything contained in Section 69 or Section 69-A of the Transfer of
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Property Act, 1882 (4 of 1882), any security interest created in
favour of any secured creditor may be enforced, without the
intervention of the court or tribunal, by such creditor in accordance
with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor
under a security agreement, makes any default in repayment of
secured debt or any instalment thereof, and his account in respect of
such debt is classified by the secured creditor as non-performing
asset, then, the secured creditor may require the borrower by notice
in writing to discharge in full his liabilities to the secured creditor
within sixty days from the date of notice failing which the secured
creditor shall be entitled to exercise all or any of the rights under
sub-section (4).
Provided that--
(i) the requirement of classification of secured debt as non-
performing asset under this sub-section shall not apply to a
borrower who has raised funds through issue of debt
securities; and
(ii) in the event of default, the debenture trustee shall be entitled
to enforce security interest in the same manner as provided
under this section with such modifications as may be
necessary and in accordance with the terms and conditions of
security documents executed in favour of the debenture
trustee;
(3) The notice referred to in sub-section (2) shall give details of the
amount payable by the borrower and the secured assets intended to
be enforced by the secured creditor in the event of non-payment of
secured debts by the borrower.
(3-A) If, on receipt of the notice under sub-section (2), the borrower
makes any representation or raises any objection, the secured
creditor shall consider such representation or objection and if the
secured creditor comes to the conclusion that such representation or
objection is not acceptable or tenable, he shall communicate 2[within
fifteen days] of receipt of such representation or objection the
reasons for non-acceptance of the representation or objection to the
borrower:
Provided that the reasons so communicated or the likely action of
the secured creditor at the stage of communication of reasons shall
not confer any right upon the borrower to prefer an application to
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the Debts Recovery Tribunal under Section 17 or the Court of
District Judge under Section 17-A.
(4) In case the borrower fails to discharge his liability in full within
the period specified in sub-section (2), the secured creditor may take
recourse to one or more of the following measures to recover his
secured debt, namely:--
(a) take possession of the secured assets of the borrower
including the right to transfer by way of lease, assignment or
sale for realising the secured asset;
(b) take over the management of the business of the
borrower including the right to transfer by way of lease,
assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease,
assignment or sale shall be exercised only where the
substantial part of the business of the borrower is held as
security for the debt:
Provided further that where the management of whole of the
business or part of the business is severable, the secured
creditor shall take over the management of such business of
the borrower which is relatable to the security for the debt;]
(c) appoint any person (hereafter referred to as the manager),
to manage the secured assets the possession of which has
been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who
has acquired any of the secured assets from the borrower and
from whom any money is due or may become due to the
borrower, to pay the secured creditor, so much of the money
as is sufficient to pay the secured debt.
(5) ..........
(5A) ........
(5B) ........
(5C) ........
(6) ..........
(7) ..........
(8) ..........
(9) ..........
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(10) ........
(11) ........
(12) .........
(13) ........."
18. As can be seen from the above reproduction, Section
13(1) provides for a secured creditor to enforce its security interest
without the intervention of the Court or Tribunal in accordance with
the provisions of the SARFAESI Act. Section 13(2) contemplates a
notice being issued to the borrower and stipulates that where any
borrower makes any default in repayment of the secured debt or any
installment thereof, and such debt is classified by the secured
creditor as a non-performing asset, then the secured creditor can call
upon the borrower to discharge his liability within 60 days from the
date of the notice, failing which the secured creditor is entitled to
exercise all or any of the rights under Section 13(4). Section 13(4)
stipulates that in case the borrower fails to discharge his liability in
full within the time period specified under Section 13(2), then, the
secured creditor can take recourse to any one or more measures set
out in the said sub-section. One of the measures that the secured
creditor can take to enforce its security is to take possession of the
secured asset and thereafter transfer the same by way of lease,
assignment or sale. These rights that have been granted to the
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secured creditor under Section 13 to ensure that the secured creditor
can enforce its security without having to come to Court or institute
any legal proceedings in respect thereof.
19. Thereafter comes Section 14 which inter alia empowers
the Chief Metropolitan Magistrate or the District Magistrate to assist
the secured creditor in taking possession of the secured asset. This
section inter alia stipulates that where possession of any secured
asset is required to be taken by the secured creditor or if any secured
asset is required to be sold or transferred by the secured creditor
under the provisions of the SARFAESI Act, the secured creditor may,
for the purpose of taking possession or control of any such secured
asset, request in writing, the Chief Metropolitan Magistrate or the
District Magistrate within whose jurisdiction any secured asset or
other documents relating thereto maybe situated or found, to take
possession thereof and forward it to the secured creditor.
20. Section 17 of the SARFAESI Act provides for a remedy to
the borrower or any other aggrieved person to approach the DRT and
challenge any of the measures taken by the secured creditor in terms
of Section 13(4) of the SARFAESI Act. Another provision that must
be noted is Section 26-E which provides for priority to secured
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creditors and inter alia stipulates that notwithstanding anything
contained in any other law for the time being in force, after
registration of the security interest as provided in the said Act, the
debts due to any secured creditor shall be paid in priority over all
other debts and all revenues, taxes, cesses and other rates payable to
the Central Government or State Government or Local Authority.
The explanation to the said Section clarifies that on or after the
commencement of the Insolvency and Bankruptcy Code, 2016, in
cases where insolvency or bankruptcy proceedings are pending in
respect of secured assets of the borrower, priority to secured
creditors in payment of debt shall be subject to the provisions of that
Code.
21. Three other provisions of which we must make a note of
are Sections 34, 35 and 37 of the SARFAESI Act. Section 34
stipulates that no civil court shall have jurisdiction to entertain any
suit or proceeding in respect of any matter which a DRT or DRAT is
empowered by or under this Act to determine, and no injunction shall
be granted by any Court or other authority in respect of any action
taken or to be taken in pursuance of any power conferred by or under
this Act or under the RDDB Act. Section 35 stipulates that the
provisions of the SARFAESI Act are to override the provisions of
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other laws and reads thus:-
"35. The provisions of this Act to override other law s.--The
provisions of this Act shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time being
in force or any instrument having effect by virtue of any such law."
22. This Section stipulates that the provisions of the
SARFAESI Act shall have effect, notwithstanding anything
inconsistent therewith contained in any other law for the time being
in force or any instrument having effect by virtue of any such law.
Section 37 provides that the provisions of the SARFAESI Act or the
rules made thereunder shall be in addition to, and not in derogation
of, the Companies Act, 1956; the Securities Contracts (Regulation)
Act, 1956; the Securities and Exchange Board of India, Act, 1992; the
RDDB Act; or any other law for the time being in force. We must at
once note over there that the BRU Act is not one of the enactments
listed in Section 37 that is in addition to and not in derogation of the
SARFAESI Act. Even the words "or any other law for the time being
in force" have been interpreted by the Supreme Court in the case of
Madras Petrochem Ltd. 1, wherein the Supreme Court has held that
if a liberal meaning is given to the said expression, Section 35 of the
SARFAESI Act would become completely otiose as all other laws
would then be in addition to and not in derogation of the SARFAESI
1 (2016) 4 SCC 1
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Act. The Supreme Court opined that obviously this could not have
been the parliamentary intendment, and hence, by limiting the scope
of the expression "or any other law for the time being in force"
contained in Section 37, held that this expression will have to mean
any other laws having relation to the securities markets only, as the
RDDB Act is the only other special law, apart from the SARFAESI
Act, dealing with recovery of debts due to banks and financial
institutions.
23. When all these provisions are read together and as a
whole, what becomes abundantly clear is that the SARFAESI Act has
been brought into force to ensure that banks and financial
institutions are able to enforce their security interest and realise
their dues with minimum interference and hindrance. In fact, by
virtue of section 26-E, the dues of the secured creditor have even
been given priority over all dues including Government dues, subject
to the stipulations and exceptions contained therein. One can hardly
dispute that the SARFAESI Act has been enacted in larger public
interest to ensure that banks and financial institutions, who hold
monies of the public and are the key drivers in the economic progress
of the country, are able to recover their debts and outstandings as
quickly as possible, and with minimum interference.
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24. On the other hand, the statements of object and reasons of
the BRU Act would show that the same was enacted in order to
mitigate the hardship that may be caused to the workers who may be
thrown out of employment by the closure of the undertaking. In such
circumstances, the Government may take over such undertakings
either on lease or may run them as a measure of employment relief.
In such a case, the Government may have to fix revised terms of
employment of the workers or make other changes which may not be
in consonance with the existing labour laws or any agreements or
awards applicable to the undertaking. It may be necessary even to
exempt the undertaking from certain legal provisions. It is for this
reason that the BRU Act was brought into force. Section 2(2) defines
a "relief undertaking" to mean an industrial undertaking in respect of
which a declaration under section 3 is in force. Section 3 deals with
the declaration of the relief undertaking and reads as under:-
"3. (1) If at any time it appears to the State Government
necessary to do so, the State Government may, by notification
in the Official Gazette, declare that an industrial undertaking
specified in the notification whether started, acquired or
otherwise taken over by the State Government, and carried on
or proposed to be carried on by itself or under its authority, or
to which any loan, guarantee or other financial assistance has
been provided by the State Government shall, with effect from
the date specified for the purpose in the notification, be
conducted to serve as a measure of preventing unemployment
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or of unemployment relief and the undertaking shall accordingly
be deemed to be a relief undertaking for the purposes of this
Act.
(2) A notification under sub-section (1) shall have effect for
such period not exceeding twelve months as may be specified
in the notification; but it shall be renewable by like notifications
from time to time for further periods not exceeding twelve
months at a time, so however that all the periods in the
aggregate do not exceed fifteen years."
25. Thereafter comes Section 4 which deals with the power to
prescribe industrial relations and other facilities temporarily for a
relief undertaking. Section 4 of the BRU Act reads thus:-
"4. (1) Notwithstanding any law, usage, custom, contract,
instrument, decree, order, award, submission, settlement, standing
order or other provision whatsoever, the State Government may, by
notification in the official Gazettee, direct that -
(a) in relation to any relief undertaking and in respect of the
period for which the relief undertaking continues as such
under sub-section (2) of section 3 -
(i) all or any of the laws in the Schedule to this Act or any
provisions thereof shall not apply (and such relief
undertaking shall be exempt therefrom), or shall, if so
directed by the State Government, be applied with
such modifications (which do not however affect the
policy of the said laws) as may be specified in the
notification;
(ii) all or any of the agreements, settlements, awards or
standing orders made under any of the laws in the
Schedule to this Act, which may be applicable to the
undertaking immediately before it was acquired or
taken over by the State Government or before any
loan, guarantee or other financial assistance was
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provided to it by, or with the approval of, the State
Government, for being run as a relief undertaking, shall
be suspended in operation or shall, if so directed by
the State Government, be applied with such
modifications as may be specified in the notification;
(iii) rights, privileges, obligations and liabilities shall be
determined and be enforceable in accordance with
clauses (i) and (ii) and the notification ;
(iv) any right, privilege, obligation or liability accrued or
incurred before the undertaking was declared a relief
undertaking and any remedy for the enforcement
thereof shall be suspended and all proceedings relative
thereto pending before any court, tribunal, officer or
ig authority shall be stayed ;
(b) the right, privilege, obligation or liability referred to in clause
(a)(iv) shall, on the notification ceasing to have force, revive
and be enforceable and the proceedings referred to therein
shall be continued :
Provided that in computing the period of limitation for the
enforcement of such right, privilege, obligation or liability, the
period during which it was suspended under clause (a)(iv) shall
be excluded notwithstanding anything contained in any law
for the time being in force.
(2) A notification under sub-section (1) shall have effect from such
date not being earlier than the date referred to in sub-section (1) of
section 3, as may be specified therein, and the provisions of section
21 of the Bombay General Clauses Act, 1904, shall apply to the
power to issue such notification."
(emphasis supplied)
26. What can be seen from the aforesaid provisions is that
under Section 3, if at any time it appears necessary to the State
Government to do so, it may by notification in the Official Gazette
declare that an undertaking specified in the notification shall, with
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effect from the date specified for the purpose in the notification, be
deemed to be a relief undertaking for the purpose of the BRU Act.
Section 4 inter alia stipulates that notwithstanding any law, usage,
custom, contract instrument, decree, order, award, submission,
settlement, standing order, or any other provisions whatsoever, the
State Government may by notification in the Official Gazette direct
that in relation to any relief undertaking [in respect of which it
continues as such under the provisions of Section 3(2)], any right,
privilege, obligation or liability agreed or incurred before the
undertaking was declared a relief undertaking and remedy for the
enforcement thereof shall be suspended, and all proceedings relating
thereto pending before any court, tribunal, officer or authority shall
be stayed.
27. In the facts of the present case, the notification which is
in force at present is the notification dated 18th June, 2016. For
ready reference, the said notification is reproduced hereunder:
"INDUSTRIES, ENERGY AND LABOUR DEPARTMENT
Madam Cama Marg, Hutatma Rajguru Chowk,
Mantralaya, Mumbai 400 032, dated the 18 June, 2016.
NOTIFICATION
MAHARASHTRA RELIEF UNDERTAKINGS (SPECIAL PROVISIONS) ACT.
No. BRU. 1615/CR.57/15/Ind. 10. - In exercise of the powers conferred by
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sub-section (1) of section 3 and sub-clause (iv) of clause (a) of sub-
section (1) of section 4 of the Maharashtra Relief Undertakings (Special
Provisions) Act (XCVI of 1958), the Government of Maharashtra hereby -
(a) declares that, the industrial undertaking called the Messers Maruti
Cotex Limited, Plot No.T-17, Kagal Hatkanangale, Five Star
M.I.D.C., Post-Talandge, Taluka - Hatkanangale, District -
Kolhapur - 416 216, having its registered office a 17-E, Shiv
Parvati, Nagala Park, Kolhapur 416 003 (hereinafter referred to as
"the said relief undertaking'), to which financial assistance under
the Package Scheme of Incentives - 2001 of Rs.2,84,19,991
(Rupees Two Crores Eighty Four Lakhs, Nineteen Thousand, Nine
Hundred Ninety One only) has been provided by the Government
of Maharashtra through Chief Engineer (Electricity), Public Works
Department, Mumbai, as electricity duty exemption, shall, for a
period of One Year commencing on the 18th June 2016 and ending
on the 17th June, 2017 (both days inclusive), be conducted to
serve as a measure of preventing unemployment; and
(b) directs that, in relation to the said relief undertaking and in respect
of the said period of One Year commencing on the 18th June, 2016
and ending on the 17th June, 2017 (both days inclusive), for which
the said relief undertaking continues as such, any rights,
privileges, obligations or liabilities except the obligations or
liabilities incurred in favour of workmen of the said relief
undertaking, the dues of the Employees, State Insurance
Corporation and any liabilities incurred under the Employees
Provident Fund and Miscellaneous Provisions Act, 1952 (19 of
1952), the Maharashtra Land Revenue Code, 1966 (Mah. XLI of
1966), the Maharashtra State Tax on Professions, Trades,
Callings and Employments Act, 1975 (Mah. XVI of 1975) and the
Maharashtra Value Added Tax Act, 2002 (Mah. IX of 2005),
accrued or incurred before the 18th June, 2016 and any
remedy for the enforcement thereof shall be suspended and
all proceedings relating thereto pending before any court,
tribunal officer or authority shall be stayed, provided that the
said relief undertaking adopts all necessary reforms mandatorily
as decided by the State Government during the relief undertaking
period.
By order in the name of the Governor of Maharashtra,
SANJAY DEGAONKAR,
Deputy Secretary to Government."
(emphasis supplied)
28. This notification inter alia stipulates that it shall be valid
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for a period of one year commencing from 18th June, 2016 till 17th
June, 2017 and directs that in relation to Respondent No.4 (the relief
undertaking) any rights, privileges, obligations or liabilities (except
the obligations or liabilities mentioned therein) accrued or incurred
before 18th June, 2016, and any remedy for the enforcement thereof
shall be suspended, and all proceedings relating thereto pending
before any court, tribunal, officer or authority shall be stayed.
29.
Therefore, on a plain reading of the provisions of BRU Act
read with the notification issued thereunder (as reproduced above),
what becomes clear is that all liabilities and obligations of
Respondent No.4 stand suspended. This would include the liability
that Respondent No.4 has to the Petitioner. The effect of this would
be that by virtue of the provisions of Sections 3 and 4 of the BRU Act
read with notification issued thereunder, the Petitioner (ARC) would
be restrained from exercising its rights against Respondent No.4
under the provisions of the SARFAESI Act (and more particularly
under Section 13 thereof), which entitle the secured creditor (in the
present case an ARC) to enforce its security interest without the
intervention of the Court. This being the case, the provisions of
Sections 3 and 4 of the BRU Act, read with the notification issued
thereunder, would be clearly be a fetter on the secured creditor from
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exercising its statutory rights under section 13 of the SARFAESI Act.
In other words, by virtue of the provisions of Sections 3 and 4 of the
BRU Act read with the notification issued thereunder, the secured
creditor is restrained from exercising its statutory rights under the
provisions of the SARFAESI Act. To this extent, clearly there is an
overlap between the provisions of BRU Act and the provisions of the
SARFAESI Act. However, section 35 of the SARFAESI Act clearly
mandates that the provisions of the SARFAESI Act shall have effect,
notwithstanding anything inconsistent therewith contained in any
other law for the time being in force or any instrument having effect
by virtue of any such law. This being the position and considering the
mandate laid down in Section 35 of the SARFAESI Act and which is a
subsequent law enacted by Parliament, it would have to be held that
the provisions of the SARFAESI Act would have effect
notwithstanding the provisions of the BRU Act and any notification
issued thereunder, insofar as it restrains the secured creditor from
enforcing its security interest against the relief undertaking in whose
favour a notification has been issued.
30. In the view that we have taken, we are supported by a
decision of the Supreme Court in the case of Madras Petrochem
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Ltd.1 The issue involved before the Supreme Court was on the play
between the provisions of SICA, 1985 and the SARFAESI Act. The
Supreme Court, after noting all the relevant provisions of the
SARFAESI Act and SICA, 1985 along with their objects and reasons,
held as follows:
"36. A conspectus of the aforesaid decisions shows that the Sick
Industrial Companies (Special Provisions) Act, 1985 prevails in all
situations where there are earlier enactments with non obstante
clauses similar to the Sick Industrial Companies (Special Provisions)
Act, 1985. Where there are later enactments with similar non
obstante clauses, the Sick Industrial Companies (Special Provisions)
Act, 1985 has been held to prevail only in a situation where the
reach of the non obstante clause in the later Act is limited--such as
in the case of the Arbitration and Conciliation Act, 1996--or in the
case of the later Act expressly yielding to the Sick Industrial
Companies (Special Provisions) Act, 1985, as in the case of the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993. Where such is not the case, as in the case of Special Courts
Act, 1992, it is the Special Courts Act, 1992 which was held to
prevail over the Sick Industrial Companies (Special Provisions) Act,
1985.
37. We have now to undertake an analysis of the Acts in question.
The first thing to be noticed is the difference between Section 37 of
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 and Section 34 of the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993. Section 37 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 does
not include the Sick Industrial Companies (Special Provisions) Act,
1985 unlike Section 34(2) of the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993. Section 37 of the Securities and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 states that the said Act shall be in addition to and
not in derogation of four Acts, namely, the Companies Act, the
Securities Contracts (Regulation) Act, 1956, the Securities and
Exchange Board of India Act, 1992 and the Recovery of Debts Due
to Banks and Financial Institutions Act, 1993. It is clear that the first
1 (2016) 4 SCC 1
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three Acts deal with securities generally and the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 deals with
recovery of debts due to banks and financial institutions.
Interestingly, Section 41 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
makes amendments in three Acts--the Companies Act, the Securities
Contracts (Regulation) Act, 1956, and the Sick Industrial Companies
(Special Provisions) Act, 1985. It is of great significance that only
the first two Acts are included in Section 37 and not the third i.e. the
Sick Industrial Companies (Special Provisions) Act, 1985. This is for
the obvious reason that the framers of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 intended that the Sick Industrial Companies
(Special Provisions) Act, 1985 be covered by the non obstante clause
contained in Section 35, and not by the exception thereto carved out
by Section 37. Further, whereas the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 is expressly mentioned in
Section 37, the Sick Industrial Companies (Special Provisions) Act,
1985 is not, making the above position further clear. And this is in
stark contrast, as has been stated above, to Section 34(2) of the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993, which expressly included the Sick Industrial Companies
(Special Provisions) Act, 1985. The new legislative scheme qua
recovery of debts contained in the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002
has, therefore, to be given precedence over the Sick Industrial
Companies (Special Provisions) Act, 1985, unlike the old scheme for
recovery of debts contained in the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993.
38. Another interesting pointer to the same conclusion is the fact that
Section 35 of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 is not made
subject to Section 37 of the said Act. This statutory scheme is at
complete variance with the statutory scheme contained in Section 34
of the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 in which sub-section (1) of Section 34 containing the non
obstante clause is expressly made subject to sub-section (2)
[containing the Sick Industrial Companies (Special Provisions) Act,
1985] by the expression "save as provided under sub-section (2)".
39. This is what then brings us to the doctrine of harmonious
construction, which is one of the paramount doctrines that is applied
in interpreting all statutes. Since neither Section 35 nor Section 37 of
the Securitisation and Reconstruction of Financial Assets and
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Enforcement of Security Interest Act, 2002 is subject to the other, we
think it is necessary to interpret the expression "or any other law for
the time being in force" in Section 37. If a literal meaning is given to
the said expression, Section 35 will become completely otiose as all
other laws will then be in addition to and not in derogation of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. Obviously this could not
have been the parliamentary intendment, after providing in Section
35 that the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 will prevail over all other
laws that are inconsistent therewith. A middle ground has, therefore,
necessarily to be taken. According to us, the two apparently
conflicting sections can best be harmonised by giving meaning to
both. This can only be done by limiting the scope of the expression
"or any other law for the time being in force" contained in Section
37. This expression will, therefore, have to be held to mean other
laws having relation to the securities market only, as the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 is the only
other special law, apart from the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act, 2002,
dealing with recovery of debts due to banks and financial
institutions. On this interpretation also, the Sick Industrial
Companies (Special Provisions) Act, 1985 will not be included for
the obvious reason that its primary objective is to rehabilitate sick
industrial companies and not to deal with the securities market.
*************************
44. It will, thus, be seen that notwithstanding the non obstante
clauses in Sections 22(1) and (4), read with Section 32, Section 22 of
the Sick Industrial Companies (Special Provisions) Act, 1985 will
have to give way to the measures taken under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, more particularly referred to in Section 13 of the
said Act, and that this being the case, the sale notices issued both in
2003 and 2013 could continue without in any manner being thwarted
by Section 22 of the Sick Industrial Companies (Special Provisions)
Act, 1985.
**************************
57. The resultant position may be stated thus:
1. Section 22 of the Sick Industrial Companies (Special
Provisions) Act, 1985 will continue to apply in the case of
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unsecured creditors seeking to recover their debts from a sick
industrial company. This is for the reason that the Sick
Industrial Companies (Special Provisions) Act, 1985
overrides the provisions of the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993.
2. Where a secured creditor of a sick industrial company
seeks to recover its debt in the manner provided by Section
13(2) of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, such
secured creditor may realise such secured debt under Section
13(4) of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002,
notwithstanding the provisions of Section 22 of the Sick
Industrial Companies (Special Provisions) Act, 1985.
3. In a situation where there are more than one secured
creditor of a sick industrial company or it has been jointly
financed by secured creditors, and at least 60% of such
secured creditors in value of the amount outstanding as on a
record date do not agree upon exercise of the right to realise
their security under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002, Section 22 of the Sick Industrial Companies (Special
Provisions) Act, 1985 will continue to have full play.
4. Where, under Section 13(9) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002, in the case of a sick industrial
company having more than one secured creditor or being
jointly financed by secured creditors representing 60% or
more in value of the amount outstanding as on a record date
wish to exercise their rights to enforce their security under the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, Section 22 of the
Sick Industrial Companies (Special Provisions) Act, 1985,
being inconsistent with the exercise of such rights, will have
no play.
5. Where secured creditors representing not less than 75% in
value of the amount outstanding against financial assistance
decide to enforce their security under the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002, any reference pending under the
Sick Industrial Companies (Special Provisions) Act, 1985
cannot be proceeded with further--the proceedings under the
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Sick Industrial Companies (Special Provisions) Act, 1985 will
abate."
(emphasis supplied)
31. As can be seen from the aforesaid decision, the Supreme
Court has clearly come to a finding that Section 22 of SICA, 1985 and
which provides for suspension of legal proceedings, will have to give
way to section 13 of the SARFAESI Act. Incidentally, Section 22
provides that, where in respect of an industrial company, an inquiry
under Section 16 is pending or any scheme referred to in 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, 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 shall lie or be proceeded with further, except with the consent
of the Board or, as the case may be, the appellate authority. The
Supreme Court, whilst considering section 22, held that this
provision of SICA, 1985, by virtue of Section 35 of the SARFAESI Act,
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would have to give way to the measures taken by a secured creditor
under section 13 of the SARFAESI Act. On the same parity of
reasoning we have no hesitation in holding that the provisions of
Sections 3 and 4 of the BRU Act read with the notification issued
thereunder will have to give way to the measures taken, or to be
taken, by the secured creditor under section 13 of SARFAESI Act. As
stated earlier, the provisions of BRU Act have the effect of
restraining the secured creditor from exercising its statutory rights
under the provisions of Section 13 of the SARFAESI Act which
suspend/stay the enforcement of its security interest. This would
show that there is a clear inconsistency between the provisions of
Section 13 of the SARFAESI Act (which enable the secured creditor
to enforce its security interest without intervention of the Court) and
the provisions of the BRU Act (which restrain the secured creditor
from realising its dues by enforcing its security interest). In these
circumstances and by virtue of the clear mandate of Section 35 of the
SARFAESI Act, the provisions of Sections 3 and 4 of the BRU Act read
with the notification issued thereunder, would have to give way to
the provisions of the SARFAESI Act and more particularly Section 13
thereof, which inter alia deals with the right of the secured creditor
to enforce its security interest.
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32. Faced with this situation, Mr Jain sought to distinguish
the judgment of the Supreme Court in case of Madras Petrochem
Ltd.1 on the ground that both the Acts, namely, SARFAESI Act and
SICA, 1985 were enacted by Parliament by exercising power under
the Union List to the 7th schedule of the Constitution. In the present
case, the BRU Act has been enacted by the State Legislature by
exercising its powers under the State List of 7th Schedule to the
Constitution and which exclusively gives power to the State
Legislature to enact laws with reference to the entries mentioned in
the State List. He submitted that the question of inconsistency
between two Acts, one made by the Parliament and the other made
by the State Legislature, would arise only if the both the Acts were
enacted under the same entry in the Concurrent List. In the present
case, Mr. Jain submitted that the SARFAESI Act was enacted under
Entry 45 of the Union List whereas the BRU Act was enacted under
the State List. In these circumstances, he submitted that the
Judgment of the Madras Petrochem Ltd.1 is inapplicable in the facts
and circumstances of the present case.
33. Firstly, we must note that the BRU Act is not enacted
under any Entry in the State List but under Entry 23 of the
1 (2016) 4 SCC 1
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Concurrent List which deals with social security and social
insurance; employment and unemployment. Be that as it may, it
would be appropriate to refer to Articles 246 and 254 of the
Constitution of India in this regard. Article 246(1) stipulates that
notwithstanding anything in Article 246(2) and (3), Parliament has
exclusive power to make laws with respect to any matters
enumerated in List I ("the Union List"). Similarly, subject to clauses
(1) and (2) of Article 246, the State Legislature has exclusive power
to make laws for such State or any part thereof with respect to any
matter enumerated in List II ("the State List"). Over and above this,
Parliament, and subject to Article 246(1) the Legislature of any
State, also has the power to make laws with respect to any of the
matters enumerated in List III ("the Concurrent List"). The question
of repugnancy is dealt with in Article 254 and inter alia stipulates
that if any provision of a law made by the Legislature of the State is
repugnant to any provision of a law made by Parliament which
Parliament is competent to enact, or to any provision of an existing
law with respect to one of the matters enumerated in the Concurrent
List, then, subject to the provisions of Article 254(2), the law made
by Parliament, whether passed before or after the law made by the
Legislature of such State, or, as the case may be, the existing law,
shall prevail and the law made by the Legislature of the State shall, to
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the extent of the repugnancy, be void. In this regard, it would be
apposite to refer to a decision of the Supreme Court in the case of
Govt. of A.P. v. J.B. Educational Society,7 wherein the Supreme
Court has very succinctly set out as to how conflicts between laws
made by Parliament and by the State Legislature have to be
construed and/or resolved. Paragraphs 9 to 12 are very instructive
in this regard and read thus:-
"9. Parliament has exclusive power to legislate with respect to any
of the matters enumerated in List I, notwithstanding anything
contained in clauses (2) and (3) of Article 246. The non obstante
clause under Article 246(1) indicates the predominance or
supremacy of the law made by the Union Legislature in the event of
an overlap of the law made by Parliament with respect to a matter
enumerated in List I and a law made by the State Legislature with
respect to a matter enumerated in List II of the Seventh Schedule.
10. There is no doubt that both Parliament and the State Legislature
are supreme in their respective assigned fields. It is the duty of the
court to interpret the legislations made by Parliament and the State
Legislature in such a manner as to avoid any conflict. However, if
the conflict is unavoidable, and the two enactments are
irreconcilable, then by the force of the non obstante clause in clause
(1) of Article 246, the parliamentary legislation would prevail
notwithstanding the exclusive power of the State Legislature to make
a law with respect to a matter enumerated in the State List.
11. With respect to matters enumerated in List III (Concurrent List),
both Parliament and the State Legislature have equal competence to
legislate. Here again, the courts are charged with the duty of
interpreting the enactments of Parliament and the State Legislature
in such manner as to avoid a conflict. If the conflict becomes
unavoidable, then Article 245 indicates the manner of resolution of
such a conflict.
12. Thus, the question of repugnancy between the parliamentary
7 (2005) 3 SCC 212
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legislation and the State legislation can arise in two ways. First,
where the legislations, though enacted with respect to matters in
their allotted sphere, overlap and conflict. Second, where the two
legislations are with respect to matters in the Concurrent List and
there is a conflict. In both the situations, parliamentary legislation
will predominate, in the first, by virtue of the non obstante clause in
Article 246(1), in the second, by reason of Article 254(1). Clause (2)
of Article 254 deals with a situation where the State legislation
having been reserved and having obtained President's assent,
prevails in that State; this again is subject to the proviso that
Parliament can again bring a legislation to override even such State
legislation."
(emphasis supplied)
34.
Looking to what has been opined by the Supreme Court, it
is now well settled that both Parliament and the State Legislature are
supreme in their respective assigned fields. It is the duty of the Court
to interpret the legislations made by Parliament and the Legislature
of the State in such a manner so as to avoid any conflict. For this
purpose both the enactments have to be read as a whole. The Court
has to make every endeavor to ensure that both can stand together
without there being any conflict. However, if the conflict is
unavoidable and the two enactments or any provisions thereof are
irreconcilable, then by the force of the non-obstante in clause (1) of
Article 246, the Parliamentary Legislation would prevail
notwithstanding the exclusive power of the State Legislature to make
a law with respect to a matter enumerated in the State List. This
would also apply when Parliament makes a law in respect of a matter
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enumerated in the Union List and the State Legislature makes a law
with respect to a matter enumerated in the Concurrent List.
35. The two enactments that are being considered by us are
the SARFAESI Act and the BRU Act. Parliament has expressly stated
that the provisions of the SARFAESI Act (and which is a later
enactment to the BRU Act) shall have effect insofar as there is any
inconsistency between the provisions of the SARFAESI Act and any
other law for the time being in force. This stipulation does not mean
that the provisions of BRU Act or for that matter any other law are
repugnant to the provisions of the SARFAESI Act or are rendered
unconstitutional. There can certainly be a situation where there may
not be any repugnancy but one could still prevail over the other in
the event of an overlap. In this regard, it would also be apposite to
refer to a decision of the Supreme Court in the case of National
Engineering Industries Ltd. v. Shri Kishan Bhageria.8 Paragraphs
13 & 14 read thus:-
13. In Deep Chand v. State of U.P. [AIR 1959 SC 648 : 1959 Supp
(2) SCR 8, p. 43] Subba Rao, J., as the learned Chief Justice then
was, observed that the result of the authorities indicated was as
follows:
"Nicholas in his Australian Constitution, 2nd Edn., p. 303,
refers to three tests of inconsistency or repugnancy:
(1) There may be inconsistency in the actual terms of the
8 1988 Supp SCC 82
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competing statutes;
(2) Though there may be no direct conflict, a State law may be
inoperative because the Commonwealth law, or the award of
the Commonwealth Court, is intended to be a complete
exhaustive code; and
(3) Even in the absence of intention, a conflict may arise when
both State and Commonwealth seek to exercise their powers
over the same subject-matter."
14. Quoting the aforesaid observations, this Court in Hoechst
Pharmaceuticals Ltd. v. State of Bihar [1983) 4 SCC 45, 87 : 1983
SCC (Tax) 248] speaking through A.P. Sen, J. exhaustively dealt
with the principles of repugnancy and observed that one of the
occasions where inconsistency or repugnancy arose was when on the
same subject-matter, one law would be repugnant to the other.
Therefore, in order to raise a question of repugnancy two conditions
must be fulfilled. The State law and the Union law must operate on
the same field and one must be repugnant or inconsistent with the
other. These are two conditions which are required to be fulfilled.
These are cumulative conditions. Therefore, these laws must tread on
the same field and they must be repugnant or inconsistent with each
other. In our opinion, in this case there is a good deal of justification
to hold that these laws, the Industrial Disputes Act and the Rajasthan
Act tread on the same field and both laws deal with the rights of
dismissed workman or employee. But these two laws are not
inconsistent or repugnant to each other. The basic test of repugnancy
is that if one prevails the other cannot prevail. That is not the
position in this case. Learned counsel on behalf of the appellant,
however, contended that in this case, there had been an application
as indicated above under Section 28-A of the Rajasthan Act and
which was dismissed on ground of limitation. Sree Shankar Ghosh
tried to submit that there would be inconsistency or repugnancy
between the two decisions, one given on limitation and the other if
any relief is given under the Act. We are unable to accept this
position, because the application under Section 28-A of the
Rajasthan Act was dismissed not on merit but on limitation. There is
a period of limitation provided under the Rajasthan Act of six months
and it may be extended for reasonable cause. But there is no period
of limitation as such provided under the Industrial Disputes Act.
Therefore, that will be curtailment of the rights of the workmen or
employees under the Industrial Disputes Act. In the situation Section
37 declares that law should not be construed to curtail any of the
rights of the workmen. As Poet Tennyson observed -- "freedom
broadens from precedent to precedent" so also it is correct to state
that social welfare and labour welfare broadens from legislation to
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legislation in India. It will be a well settled principle of
interpretation to proceed on that assumption and Section 37 of the
Rajasthan Act must be so construed. Therefore in no way the
Rajasthan Act could be construed to curtail the rights of the
workman to seek any relief or to go in for an adjudication in case of
the termination of the employment. If that is the position in view of
the provisions 6 months' time in Section 28-A of the Rajasthan Act
has to be ignored and that cannot have any binding effect inasmuch
as it curtails the rights of the workman under the Industrial Disputes
Act and that Act must prevail. In the premises, there is no conflict
between the two Acts and there is no question of repugnancy.
(emphasis supplied)
36.
In view of these authoritative pronouncements of the
Supreme Court, we are unable to accept the submissions of Mr. Jain.
There is yet another reason for rejecting the argument of Mr. Jain. If
we were to accept the submission of Mr Jain it would effectively
amount to re-writing the words of Section 35 of the SARFAESI Act.
Section 35 of the SARFAESI Act clearly stipulates that the provisions
thereof shall have effect notwithstanding anything inconsistent
therewith contained in any other law for the time being in force, or
any instrument having effect by virtue of any such law. What is
important to note is that if we were to accept Mr Jain's contention, it
would effectively mean that "any other law" referred to in Section
35 would only mean a Central Law enacted by the Parliament
exercising its power under the Union List or the Concurrent List as
more particularly set out in Article 246 of the Constitution. We see
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no reason to limit the scope of the words "any other law" appearing
in Section 35 to mean only a law passed by Parliament either under
the Union List or the Concurrent List. In fact, if we were to do this,
we would be doing grave injustice to the plain and unambiguous
language of Section 35. We, therefore, have no hesitation in rejecting
this argument of Mr Jain.
37.
Having said this, what is left is to deal with the judgments
cited by Mr Jain. The first judgment cited by Mr Jain is the decision
of Supreme Court in the case of Binod Mills Co. Pvt. Ltd. Ujjain
(M.P.) Vs Suresh Chandra Mahaveer Prasad Mantri, Bombay.2
On a careful perusal of the said judgment, we fail to see how the same
is applicable to the facts of the present case. The facts of that case
would reveal that the Respondent therein filed a Summary Suit
against the Appellant in the Bombay High Court on its original side.
The Appellant before the Supreme Court did not contest the suit and
the same was accordingly decreed. Thereafter, the Respondent got
the decree transferred for execution to the District Judge, Ujjain
(M.P.) and thereafter applied for execution of the decree. The
Appellant before the Supreme Court thereafter resisted the execution
by filing objections pleading that it was a relief undertaking under the
2 (1987) 3 SCC 99
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provisions of the Madhya Pradesh Sahayata Upkram (Vishesh
Upbandh) Adhiniyam, 1978, and that the decree could not, therefore,
be executed against it in view of the bar contained under the
provisions of the said Act. The Respondent admitted the Appellant to
be a relief undertaking, but however, contended that the District
Judge had no jurisdiction to entertain any objection to the execution
of the decree validly passed by the Bombay High Court. This
contention of the Respondent was upheld by the District Judge.
Thereupon the Appellant filed a revision in the High Court which was
also rejected confirming the order of the District Judge. It is, in these
circumstances, that the Appellant approached the Supreme Court
and the question of law framed by the Supreme Court was whether on
a true construction of Section 5 of the Act, execution of the ex-parte
decree obtained by the Respondent against the Appellant at Bombay
can be instituted, commenced or proceeded with by the Respondent
even though the Appellant's textile undertaking was admittedly a
State Relief Undertaking under the Act. It is really this issue that
was decided in the aforesaid decision as can be clearly seen from
paragraphs 14, 22, and 23 to 26 of the said decision. In its decision,
after construing the provisions of the said Act, the Supreme Court
eventually held that if the contention of the Respondent was to be
accepted (namely, that execution of its decree could proceed
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notwithstanding the fact that the Appellant was declared a relief
undertaking), it would render Section 5 of the said Madhya Pradesh
Act a nullity and destroy the benefit conferred by that Section. The
Supreme Court held that nobody questions the validity of the decree
passed, but what is sought to be done is to suspend its animation for
the period mentioned in the notification. In the case before the
Supreme Court, there was no question of any inconsistency between
the two Acts mentioned therein coupled with a provision similar or
analogous to section 35 of the SARFAESI Act. We, therefore, find that
the reliance placed on this decision is wholly misconceived and
misplaced.
38. The next decision relied upon by Mr Jain is the decision of
the Supreme Court in the case of Doburg Lager Breweries Pvt. Ltd.
Vs. Dhariwal Bottle Trading Co. & Anr.3 Here we find that the
issue involved before the Supreme Court was not of any
inconsistency between the provisions of the BRU Act and that of any
other law. The facts of this case would reveal that the Appellant
before the Supreme Court was carrying on business and ran into
financial difficulties. As a result of this, winding up proceedings were
commenced against it. The 1st Respondent before the Supreme Court
3 (1986) 2 SCC 382
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and which was the partnership firm, filed a Company Petition as a
creditor, for winding up the Appellant Company. The Appellant
Company was carrying on business in a backward area in the State of
Maharashtra and had employed about 200 workers who would have
been rendered jobless if the Company was wound up. The Appellant
company had also borrowed about Rs.52.36 Lacs from SICOM.
Taking into consideration the financial position of the Company and
the consequences that were likely to ensue, the Government of
Maharashtra took action under the BRU Act by declaring it as a relief
undertaking and issued a notification to that effect. Once it was
declared as a relief undertaking, the proceedings for winding up the
Appellant filed by the 1st Respondent were also stayed by the
Company Judge of the High Court. This order of the Company Judge
was challenged before the Division Bench without any success and
this order became final. Having failed in its attempt in winding up
proceedings, Respondent No.1 filed a Writ Petition in the Bombay
High Court challenging the notification issued by the Government of
Maharashtra under the provisions of the BRU Act. This Writ Petition
was allowed by the learned Single Judge and the notification was
quashed on the ground that the notification issued under the Act did
not fulfill the conditions prescribed under Section 3 of the Act, which
was to give financial assistance to the sick unit under the Act, before
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issuing such a notification. The appeal filed from this order to the
Division Bench of the Bombay High Court was also dismissed. It is in
these circumstances that the matter came before the Supreme Court.
In these facts, the Supreme Court, after analyzing the provisions of
the BRU Act held that the decision of the High Court to the effect that
unless the loan is advanced by the State Government under the Act,
no declaration could be made under Section 3 thereof, was wholly
erroneous. Once again we fail to see how this Judgment is applicable
to the facts and circumstances of the present case. Even in the case
of Doburg Lager Breweries Pvt. Ltd.3 the issue before the Supreme
Court was not one of inconsistency between the provisions of the BRU
Act and that of any other law. We, therefore, find that the reliance
placed on this decision is also wholly misconceived and misplaced.
39. The next judgment relied upon by Mr Jain was a decision
of the Supreme Court in the case of Vishal N Kalsaria Vs. Bank of
India & Ors.4 On a careful perusal of this decision, we find that the
same is wholly inapplicable to the facts of the present case. The issue
that was raised before the Supreme Court and decided, was whether
the provisions of SARFAESI Act will override the provisions of the
3 (1986) 2 SCC 382
4 (2016) 3 SCC 762
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Rent Control Act. The question before the Supreme Court was how
can the rights of the "protected tenant" be preserved in cases where
the debtor landlord secures a loan by offering the very same property
as a security interest either to banks or financial institutions. After
reviewing the law on the subject, the Supreme Court came to the
conclusion that it was a settled position of law that once tenancy was
created, a tenant could be evicted only after following due process of
law as prescribed under the provisions of Rent Control Act. A tenant,
who had not mortgaged its tenancy with the bank or financial
institution, could not be arbitrarily evicted by using the provisions of
SARFAESI Act as that would amount to stultifying the statutory
rights vested in the tenants under the Rent Control Act. The Supreme
Court inter alia held that pre-existing genuine tenants (prior to
creation of the mortgage) could not be evicted by taking recourse to
the provisions of the SARFAESI Act. The logic behind the same was
quite simple. A tenant who had not mortgaged its tenancy rights with
the bank and had absolutely no privity with the bank or the loan
granted to the borrower (who happened to be the landlord of the
property), could not be summarily evicted by taking recourse to the
provisions of the SARFAESI Act and giving a complete go-by to the
provisions of the Rent Control Act. If the mortgage was created after
the tenancy and which tenancy was valid, then there was no question
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of evicting that tenant under the provisions of the SARFAESI Act.
What is important to note is that the Supreme Court inter alia held
that if the leasehold right is created after the property has been
mortgaged to the bank, the consent of the creditor had to be taken.
This itself postulates that the SARFAESI Act did not destroy the pre-
existing genuine rights of tenants that were in the property prior to
the mortgage being created. Thus, in these circumstances, the
Supreme Court held that the provisions of SARFAESI Act and more
particularly Section 35 thereof cannot override the provisions of the
Rent Control Legislation. The facts before us are totally different. In
the facts of the present case, Respondent No.4 is the borrower of the
Petitioner and this fact is undisputed. It is also undisputed that this
very borrower has got a notification issued in its favour under the
provisions of the BRU Act. It is the borrower's contention that by
virtue of this notification, all its liabilities and obligations are
suspended, and therefore, the secured creditor, namely the
Petitioner, cannot exercise its rights under the provisions of
SARFAESI Act and more particularly for enforcement of its security
under Section 13 thereof. This would clearly show that there is a
clear overlap between the provisions of the BRU Act read with the
notification issued thereunder on the one hand and Section 13 of the
SARFAESI Act on the other. Since, SARFAESI Act is an Act made by
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the Parliament and much later than when the BRU Act was brought
into force, coupled with the fact that Section 35 of the SARFAESI Act
clearly stipulates that the provisions of SARFAESI Act would have
effect notwithstanding anything inconsistent therewith in any other
law for the time being in force, the provisions of Section 13 of
SARFAESI Act would clearly prevail over the the provisions of BRU
Act and the notification issued thereunder. In these circumstances,
we find that the reliance placed by Mr Jain on the decision of the
Supreme Court in case of Vishal N Kalsaria Vs. Bank of India &
Ors.4 is also wholly misplaced.
40. The next judgment relied upon by Mr Jain is a decision of
the Supreme Court in case of Security Association of India Vs.
Union of India and Ors.5 This judgment too, we find is wholly
inapplicable to the facts of the present case. What was being
considered by the Supreme Court was the provisions of the Private
Security Agencies (Regulation) Act, 2005 (the Central Act made by
the Parliament) and the Maharashtra Private Security Guards
(Regulation of Employment and Welfare) Act, 1981 (State Act)
enacted by the Government of Maharashtra. In the facts of that case
4 (2016) 3 SCC 762
5 (2014) 12 SCC 65
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the validity of the State Act was challenged in light of the provisions
to the Central Act which was brought into force much after the
provisions of the State Act. It is, in these circumstances, that the
observations made by the Supreme Court in the said decision have to
be read and understood. In the facts before us, on the basis of the
SARFAESI Act, the Petitioner has not contended and rightly so, that
the provisions of the BRU Act are unconstitutional. The argument
before us is simply that the provisions of the SARFAESI Act, by
virtue of Section 35 thereof, shall have effect notwithstanding
anything inconsistent therewith in the BRU Act. Meaning thereby,
that the secured creditor can take recourse to Section 13 of the
SARFAESI Act notwithstanding Sections 3 & 4 of BRU Act and the
notification issued thereunder. In these circumstances, we find that
even the reliance placed on this decision is wholly without any merit
and has no application in the facts and circumstances of the present
case.
41. The last decision relied upon by Mr Jain is of the
Rajasthan High Court in the case of Modern Syndex (I) Ltd. Vs.
Debts Recovery Tribunal, Jaipur & Ors.6 On a careful perusal of the
aforesaid decision, we find that the Rajasthan High Court has held
6 AIR 2001 Rajasthan 170
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that the provisions of the RDDB Act will not override the provisions
of the Rajasthan Relief Undertakings (Special Provisions) Act, 1961
as well as the notification issued thereunder. We fail to see how this
judgment would apply to the facts of the present case as in the
present case, the issue involved is whether the provisions of the
SARFAESI Act would prevail over the provisions of the BRU Act,
rather than the provisions of the RDDB Act. In any event this
judgment is not binding on us and would only have persuasive value.
This being the case, and considering the ratio laid down by the
Supreme Court in the case of Madras Petrochem Ltd.1 we find that
the reliance placed on this decision of the Rajasthan High Court also
will not advance the case of Respondent No.4 any further.
42. In view of the forgoing discussion, we hold that the
secured creditor, as defined under the provisions of SARFAESI Act
can exercise its statutory rights under Section 13 thereof
notwithstanding the fact that the borrower has got a notification
issued in its favour under the provisions of BRU Act which suspends
all its obligations and liabilities to secured creditor. Having held so,
we also set aside the impugned letter dated 6th June, 2013 issued by
Respondent No.3.
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43. Rule is made absolute in the aforesaid terms. However, in
the facts and circumstances of the case, there shall be no order as to
costs.
44. In view of our detailed judgment, there is no need to pass
any orders in the pending Civil Applications, and the same are
disposed of accordingly.
( B.P.COLABAWALLA J. ) ( S.C.DHARMADHIKARI J )
45. After this judgment was pronounced, to be fair to the
advocate appearing for Respondent No.4, we record his oral request
for continuing of an order passed by this Court, which order
according to him, is in force from 11th June, 2013. The learned
advocate for the Petitioner opposes this request.
46. On 11th June, 2013, this Court recorded that the
Petitioner, in exercise of its powers under Section 13 of the
SARFAESI Act took possession of the properties. Thereafter, this
Notification and which we have declared to be not binding on the
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Petitioner, came to be issued. In the meanwhile, on 6th June, 2013,
the Collector and District Magistrate, Kolhapur (Respondent No.3)
called upon the Petitioner to hand over possession of the properties.
The Petitioner requested thirty days time to adopt appropriate
proceedings. The order passed on 11th June, 2013 wrongly refers to
Respondent No.4 as Petitioner. The Petitioner is an ARC and which
would not ordinarily ask for any interim relief. However, it was
forced to apply for interim reliefs as the property in question, the
possession of which was with it in terms of the measures under the
SARFAESI Act, was to be handed over or returned back to
Respondent No.4. Accordingly, whilst granting interim reliefs in
favour of the Petitioner, it was directed to maintain status-quo.
However, it was permitted to proceed with the auction but not
finalize the sale pursuant thereto, until further orders. This Court
did not prevent Respondent No.4 from adopting proceedings either
before this Court or the DRT under Section 17 of the SARFAESI Act.
Now, the order passed by this Court records that the Collector and
District Magistrate cannot insist on the Petitioner handing over the
possession of the property in question to Respondent No.4.
47. We do not have any record of the further steps taken
either by the Petitioner or by Respondent No.4 - Borrower. In these
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circumstances, we do not see any purpose of continuing this order.
We do not know whether the Petitioner before us has conducted the
auction, finalized it, and is now keen to hand over the possession of
the property to the successful bidder. Even if all this has been done,
we do not know what steps the successful bidder or auction
purchaser proposes to take. In these circumstances, and on some
vague understanding of the parties, we cannot continue this ad-
interim order. Rather, after the Petitioner has succeeded, there is no
point in restraining it from exercising its rights under the SARFAESI
Act. This is more so in the facts of the present case because
Respondent No.4 - Borrower is indebted to the Petitioner and other
consortium banks for more than Rs. 250 Crores (approximately),
and has not taken any steps to clear the debts. The request is
therefore refused.
(B. P. COLABAWALLA, J.) (S. C. DHARMADHIKARI, J.)
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