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Tuesday, January 6, 2015

CIVIL APPEAL No. 5225 OF 2008 KSL & INDUSTRIES LTD. …. APPELLANT VERSUS M/S ARIHANT THREADS LTD. & ORS. …. RESPONDENTS

                                                                  REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL No. 5225 OF 2008




KSL & INDUSTRIES LTD.                       …. APPELLANT



                                   VERSUS



M/S ARIHANT THREADS LTD. & ORS.      …. RESPONDENTS


                                      1


                                      2


                            3           JUDGMENT



S. A. BOBDE, J.



1.    This appeal is placed before us by way of a reference, made by a  two-
Judge Bench of this Court, C.K. Thakker and Altamas Kabir, JJ.  which  heard
the matter on an earlier occasion and held that the appeal  deserves  to  be
allowed and that the Judgment and Order passed by the High Court  is  liable
to be set aside.  In view of a difference of opinion having  arisen  on  the
interpretation of Section 34 of the Recovery  of  Debts  Due  to  Banks  and
Financial Institutions Act, 1993 (hereinafter  referred  to  as  the  `RDDB'
Act) the matter has been referred for decision to this Bench by the  Hon’ble
Chief Justice of India.

2.    The present appeal is preferred by KSL & Industries Ltd.  (`appellant'
for short) against the final Judgment and Order  dated  23.02.06  passed  by
the Delhi High Court in Writ Petition Nos.  2041-2042  OF  2006.   The  High
Court set aside the Order passed by the Debt  Recovery  Appellate  Tribunal,
Delhi (`DRAT' for short) and held that in  view  of  the  bar  contained  in
Section 22 of the Sick Industrial Companies (Special Provisions)  Act,  1985
(hereafter referred to as `SICA') no recovery proceedings could be  effected
against Respondent No. 1 (M/s. Arihant Threads Ltd.) (‘Company' for short).

3.    The Company set up an export oriented spinning unit for  manufacturing
cotton yarn in Amritsar District, in the State of Punjab. The  Company  took
on lease, Plot No. 454 in 1992 for a period of 99 years from Goindwal  Sahib
Industrial & Investment Corporation,  on  a  condition  that  it  would  not
transfer the interest in the property for the first  fifteen  years  without
prior permission of the lessor. The Company had a right to  mortgage  lease-
hold rights to  a  Bank,  the  Punjab  Financial  Corporation  or  the  Life
Insurance Corporation of India as security for a loan.  It got  its  project
financed by the Industrial Development Bank of India (`IDBI' for  short)  by
way of foreign currency loan and a working capital of Rs. 93.1 million.

4.    Since the Company  failed  to  repay  loan  installments,  IDBI  filed
Original Application No. 1368 of 2001 on December 20.12.01 in Debt  Recovery
Tribunal, Chandigarh (`DRT' for short) for recovery  of  Rs.  25,26,60,836/-
under the RDDB Act. In the proceedings before the DRT the  Company  remained
absent, although, duly served. On  15.07.03,  an  ex-parte  final  order  in
favour of IDBI for recovery of above mentioned sum i.e.  Rs.  25,26,60,836/-
along with interest @ 7.8% p.a. was passed by DRT.   DRT expressly  directed
that in the event of failure on the part of the Company to pay the  decretal
amount, IDBI will be entitled to sell the mortgaged property of the  company
and recover the amount.  If the amount remained unrecovered  even  then,  it
shall be recovered from the sale of personal properties  of  the  defendants
therein.

5.    On 09.09.03, the Recovery Officer issued  a  composite  demand  notice
under Rule 2 of Second Schedule of the Income  Tax  Act,  1961  against  the
Company demanding payment of Rs. 28,60,87,384/-. He directed the Company  to
appear for settling terms and conditions of the  proclamation  of  sale  and
for disclosure of its movable and immovable assets.

6.    On 16.09.04, the Recovery Officer  fixed  the  reserve  price  of  the
movable  and  immovable  properties  at            Rs.  12.50  crores.    On
18.10.04, the Company filed an  appeal  under  Section 30 of  the  RDDB  Act
against the order dated 16.09.04 fixing reserve price  of  the  movable  and
immovable properties at Rs. 12.50 crores.   On 30.10.04, the  appellant  was
declared the highest bidder at Rs. 12.52 crores and was thus successful.  On
15.12.04, the Company moved an application for setting  aside  the  ex-parte
final order, passed on  15.07.03  by  DRT  Chandigarh  in  favour  of  IDBI,
directing recovery of Rs. 25,26,60,836/- along with  interest  @  7.8%  p.a.
The appellant,  who  had  become  the  auction-purchaser  of  the  company’s
properties objected to the prayer of the Company for setting aside  the  ex-
parte order and applied for impleadment.  Meanwhile,  the  Company  got  its
property valued by Himachal  Consultancy  Organisation Ltd.  The  realizable
value of the company’s property had been valued at       Rs. 20.22 crores.

7.    On 26.07.05, DRT-I, Delhi allowed the  Company’s  appeal  filed  under
Section 30 of the RDDB Act against fixation of reserve price  at  Rs.  12.50
crores.  DRT-I, Delhi, set aside the auction sale subject to  payment  of  a
certain amount, interest, expenses, etc.

8.    Objecting to these conditions, the Company  filed  an  appeal  to  the
DRAT, Delhi.  The appellant also filed an  appeal  being  aggrieved  by  the
setting aside of the sale in its favour.  The DRAT stayed  the  order  dated
26.07.05 by which the ex-parte order against the Company was set  aside  and
directed refund of sale amount to the appellant.

9.    On 21.12.05, the Company invoked the provisions of SICA.  It  filed  a
Reference before the Board of Industrial Finance  &  Reconstruction  (`BIFR'
for short).  On 10.02.06,  the  DRAT  dismissed  the  appeal  filed  by  the
Company and allowed the  appeal  of  the  appellant.    The  DRAT  confirmed
auction-sale in favour of the appellant on depositing the sale  price.   The
DRAT directed that steps to handover  possession  of  the  property  to  the
auction-purchaser (appellant) be taken  by  the  Recovery  Officer  and  the
appellant shall deposit the entire amount.

10.   Before the formalities directed by the DRAT could  be  completed,  the
Company filed two Writ Petitions before the Delhi  High  Court  against  the
order of the DRAT, Delhi.  The Delhi High Court allowed the  Writ  Petitions
vide impugned order dated 23.02.06 and set aside the  order  passed  by  the
DRAT, Delhi on the ground that in view of the  bar  of  Section  22  of  the
SICA, the recovery proceedings could not be pursued against the Company  and
no order ought to have been passed by the DRAT, Delhi.

11.   Subsequent to the order of the  High  Court,  the  BIFR  rejected  the
Reference of the Company and the  Company  preferred  an  appeal,  which  is
pending  before  the  Appellate  Authority  for   Industrial   &   Financial
Reconstruction (AAIFR). The second Reference has  also  been  filed  by  the
Company which has been registered as BIFR Case No. 18 of 2006, in which  the
Company has  been  declared  as  a  `sick  Company'  and  respondent  No.  5
[Stressed Assets Stablization Fund, Mumbai] has been appointed as  Operating
Agency to prepare Rehabilitation Scheme.

12.   As stated earlier, the matter was earlier heard by a two  Judge  Bench
of this Court.  One of  the  learned  Judges,  Thakker,  J.  held  that  the
provisions of RDDB Act should be given priority and  primacy  over  SICA  by
virtue of Section 34 of the RDDB  Act  as  it  is  a  subsequent  enactment.
Therefore it may be presumed even in the absence of any specific  provision,
that Parliament was aware of all the statutes enacted  prior  thereto;  that
the  non-obstante  clause  had   been   inserted   to   ensure   expeditious
adjudication and recovery of debts due to banks and financial  institutions.
 Thakker, J. also held that in view of sub-section (2) of Section 34 of  the
RDDB Act, which provides that the provisions of the Act are “in addition  to
and not in derogation of” inter alia SICA, which  is  an  additional  factor
why the RDDB Act shall prevail.  Kabir, J. as His Lordship  then  was,  held
that the non-obstante clause in Section 34(1) contains an exception,  to  be
found in sub-section (2).  Sub-section (2) provides that the  Act  shall  be
in addition to and not in derogation of inter alia the SICA.  Further,  that
the overriding effect of RDDB Act  would  have  an  overriding  effect  over
other enactments but supplemental to the provisions of SICA, and  therefore,
the provisions of SICA would prevail over the provisions of the RDDB Act.

13.   Kabir, J. further held that since the  proceedings  for  recovery  had
long been over, before the Company invoked provisions of the SICA Act,   the
Company would therefore not be  entitled  to  any  relief  before  the  High
Court.

14.    Kabir,  J.  referred  to  the  following  facts  for   drawing   this
conclusion. It was only on 21.12.05, that  the  Company  filed  a  Reference
before the BIFR which was dismissed on 10.02.06.  Before this, the  Recovery
Officer had issued a demand notice under Rule 2 of the  Second  Schedule  to
the  Income  Tax  Act,  1961  demanding   payment   of                   Rs.
28,60,87,384/-, as directed by the  DRT,  Chandigarh  in  the  final  order.
Thereafter, several events had taken place,  such  as,  on  27.10.2004,  DRT
allowed  the  auction  sale  proceedings  but  directed  it  should  not  be
confirmed; on 30.10.04, the appellant was declared to be the highest  bidder
and had deposited the entire sale price on 11.11.04;  in  the  appeal  under
Section 30 of the RDDB Act, the Company moved  an  application  for  setting
aside the ex-parte order against fixation of reserve price and  this  appeal
was allowed on 26.07.2005  subject  to  fulfillment  of  certain  terms  and
conditions.  It was observed that the appeal filed by the Company  was  only
against fixation of the reserve price and not against the final order.   The
Company had not even availed of an appeal under Section 20 of the  RDDB  Act
or for setting aside the sale under Rule 60 of the Second  Schedule  of  the
Income Tax Act, 1961 but only chose the path  for  having  the  auction-sale
set aside on the ground that the reserve price of the Company’s  assets  had
not been correctly fixed. In  effect,  proceedings  had  been  concluded  in
favour of the IDBI under Section 19 of the RDDB Act  long  before  the  BIFR
came into the scene. That auction sale of the properties under the RDDB  Act
was confirmed by the DRAT before the writ  petitions  were  allowed  by  the
High Court.
15.   The Company's first Reference was rejected by the BIFR  and  only  the
second reference made on 15.09.06, had been  allowed  i.e.  after  the  High
Court’s order dated 23.02.06.  Since  the  recovery  proceedings  have  been
concluded in favour of the appellant and the appellant  had  also  deposited
the sale price, the respondent was not entitled to any relief by  virtue  of
Section 22 of the SICA before the High Court.

16.   In the circumstances, both the  learned  Judges  held,  for  different
reasons, that the appeal deserves to be allowed and the Judgment  and  Order
of the High Court is liable to be set aside.  Since, there was a  difference
of opinion on the question of law, a reference was made to a larger Bench.

SCHEME AND PURPOSE OF THE SICK  INDUSTRIAL  COMPANIES  (SPECIAL  PROVISIONS)
ACT, 1985 [SICA]



17.    The  Statement  of  Objects  and  Reasons  for  the  Sick  Industrial
Companies (Special Provisions) Act, 1985, sets out the following:

      While interpreting which of the two  Acts  i.e.  The  Sick  Industrial
Companies (Special Provisions) Act, 1985 [SICA] or  the  Recovery  of  Debts
due to  Banks  and  Financial  Institutions  Act,  1993  [RDDB  Act]  should
prevail, in view of the non obstante clause contained in both,  one  of  the
important tests is the purpose of the two enactments.  It  is  important  to
recognize and ensure that the purpose  of  both  enactments  is  as  far  as
possible, fulfilled.

18.   The SICA was enacted to provide for timely determination of a body  of
experts for providing preventive, ameliorative, remedial and other  measures
that would need  to  be  adopted  to  sick  companies.  The  ill-effects  of
sickness in industrial  companies  such  as  loss  of  production,  loss  of
employment, loss of  revenue  to  the  Central  and  State  Governments  and
locking up of investible funds of banks and financial institutions  were  of
serious concern to the Government and the society at  large.   In  order  to
fully utilize the productive industrial assets,  afford  maximum  protection
of employment and optimize the use of  funds  of  the  banks  and  financial
institutions, it  was  found  imperative  to  revive  and  rehabilitate  the
potentially liable sick industrial companies.  19. Multiplicity of laws  and
agencies made the adoption of a coordinated approach for dealing  with  sick
industrial companies difficult.  The  Sick  Industrial  Companies  Bill  was
introduced in the Parliament to enact legislation for  timely  determination
of a body of experts for providing preventive,  ameliorative,  remedial  and
other measures.

20.   As would appear significant in the scheme of things relevant  to  this
matter, an important reference is made to  the  “multiplicity  of  laws  and
agencies” making the adoption of a coordinated  approach  for  dealing  with
sick industrial companies difficult.

21.   The term “sick  industrial  company”  has  been  defined  to  mean  an
industrial company (being a  company  registered  for  not  less  than  five
years) which has at the end of any financial year accumulated  losses  equal
to or exceeding its  entire  net  worth,  vide  Section  3(o).   “Industrial
Company” means a company which owns one  or  more  industrial  undertakings,
vide Section 3(e).  “Industrial Undertaking” has been  defined  to  mean  an
undertaking pertaining to a scheduled industry carried on  in  one  or  more
factories by any company, vide Section 3(f).

22.   In effect a “sick industrial company” is a company owning one or  more
industrial undertakings pertaining to a scheduled industry  as  contemplated
by the Industries (Development and Regulation) Act, 1951 (IDRA).

23.   The Act thus aims to revive and rehabilitate, not all  sick  companies
but those in the schedule to the IDRA, presumably vital to  the  economy  of
the nation.

24.   The Act provides for an Inquiry into  whether  a  company  is  a  sick
industrial company, an assessment whether it can  be  made  viable  and  the
preparation  and  sanction  of  a  scheme  for  inter  alia  the   financial
reconstruction of the sick industrial company. It provides  for  the  proper
management of the sick industrial company, amalgamation, sale or lease of  a
part or whole of an industrial undertaking of the sick  company  etc.,  vide
Sections 16, 17 and 18 of the SICA Act.

25.   The Act confers wide powers on the Board to provide in  the  scheme  -
amalgamation of the sick industrial company with a transferee  company,  the
alteration of the memorandum or articles of association,  reduction  of  the
interest or rights  of  the  shareholders  and  for  continuation  of  legal
proceedings, the sale or lease of the industrial undertaking etc.

26.   It  is  in  this  background  that  Section  22,  which  provides  for
suspension of legal proceedings, is enacted.   To the extent it is  relevant
here, the Section reads as under:


4 “22. SUSPENSION OF LEGAL PROCEEDINGS, CONTRACTS, ETC.


(1) Where in respect of an industrial company, an inquiry under  Section  16
is pending, or any scheme referred to under Section 17 is under  preparation
or consideration or a sanctioned scheme is under implementation or where  an
appeal under Section 25 relating to an industrial company is pending,  then,
notwithstanding anything contained in the Companies Act, 1956  (1  of  1956)
or any other law or the  memorandum  and  articles  of  association  of  the
industrial company or any other instrument having effect under the said  Act
or other law, no proceedings for the winding-up of  the  industrial  company
or for execution, distress or the like against any of the properties of  the
industrial company or for the appointment of a receiver in  respect  thereof
and no suit for  the  recovery  of  money  or  for  the enforcement  of  any
security against the industrial company or of any guarantee  in  respect  of
any loans, or advance granted to the industrial  company  shall  lie  or  be
proceeded with further, except with the consent of  the  Board  or,  as  the
case may be, the Appellate Authority.”


27.   The Section is enacted       against  the  backdrop  of  the  existing
multitude of remedies which creditors  may  avail  of  against  an  indebted
company and its properties bringing them to attachments, auction sale  etc.,
making it difficult for the authorities entrusted  with  its  reconstruction
under the SICA to evolve a scheme for reconstruction.  The Section  is  also
given primacy by way of a non-obstante clause vide Section 32 of SICA  which
reads as follows:-


“32. Effect of the Act on other laws


(1) The provisions of this Act and of any rules or schemes made there  under
shall have effect notwithstanding anything inconsistent therewith  contained
in any other law except the provisions of the  Foreign  Exchange  Regulation
Act, 1973 (46 of 1973) and the Urban  land  (Ceiling  and  Regulation)  Act,
1976 (33 of 1976) for the time being  in  force  or  in  the  Memorandum  or
Articles of Association of an industrial company or in any other  instrument
having effect by virtue of any law other than this Act.


(2) Where there has been under any scheme under this Act an amalgamation  of
a sick industrial company with another company, the  provisions  of  Section
72A of the  Income-tax  Act,  1961  (43  of  1961)  shall,  subject  to  the
modifications that the power of the Central Government  under  that  section
may be exercised by the Board without any recommendation  by  the  specified
authority  referred  to  in  that  section,  apply  in  relation   to   such
amalgamation as they apply in relation to  the  amalgamation  of  a  company
owning an industrial undertaking with another company.”


 28.  It may also be noted  that  the  Section,  along  with  the  SICA  was
enacted in 1985.  At that time the remedies which were later on provided  by
the RDDB Act 1993, for recovery by a creditor through an application to  the
Debt Recovery Tribunal were not in existence  nor  contemplated.   There  is
naturally no reference to such a mode of recovery in the  SICA  and  neither
is a stay contemplated of such a proceedings in express terms.  We say  this
in  view  of  the  submission  advanced  before  us  that  Section  22  only
contemplates a stay of proceedings for the  distress  or  execution  of  the
properties of the sick company and suits for recovery and that therefore  an
application for recovery under the RDDB  Act  cannot  be  stayed,  and  must
proceed. We might  also  observe  that  the  consequence  of  accepting  the
submission that Section 22 cannot affect or render untenable an  application
for  recovery  under  the  RDDB  Act,  would  result  in  an  anomaly.   The
submission is that Section 22 lays down that only proceeding for winding  up
or execution, distress or the like shall not lie or be proceeded with  where
an enquiry is pending or a scheme is under preparation or  consideration  or
a sanction scheme is under implementation etc.;  whereas  a  proceeding  for
recovery of a debt may proceed.  To put it another way,  that  a  proceeding
for recovery shall lie against a sick company but an order made in it  could
not be executed against any of the properties  of  the  industrial  company,
the effect being that the proceedings may continue without any  consequence.
 Thus there cannot be any execution or distraint against the  properties  of
the company but creditors may continue to  apply  for  recovery  before  the
DRT.  We do not think that such an anomalous purpose can  be  attributed  to
Parliament in the present legislative scheme.   Though  there  is  no  doubt
that Parliament may expressly bring about such a situation if  it  considers
it desirable. Even otherwise, it appears that the  legislative  purpose  for
reconstruction of companies could be thwarted if creditors  are  allowed  to
encumber the properties of the company with decrees of  the  DRT  while  the
BIFR is engaged in  reviving  the  company,  if  necessary,  by  leasing  or
selling the properties of the company for which there is an express power.


29.   Plainly, the purpose of laying down that no proceedings for  execution
and distraint or the like or a suit  for  recovery  shall  not  lie,  is  to
protect the properties of  the  sick  industrial  company  and  the  company
itself from being proceeded against by its creditors who may  wish  to  seek
the winding up of the company or levy  execution  or  distress  against  its
properties.  It protects the company from all  such  proceedings.   It  also
protects  the  company  from  suits  for  recovery  of  money  or  for   the
enforcement of any security or of any guarantee in respect of any loans,  or
advances granted to  the  industrial  company.   But  as  is  apparent,  the
immunity is not absolute.  Such proceeding which  a  creditor  may  wish  to
institute, may be instituted or continued with the consent of the  Board  or
the Appellate Authority.  In the Section as originally  enacted,  the  words
“and no suit for the  recovery  of  money  or  for  the enforcement  of  any
security ……………” were not there.  These words appear to  have  been  inserted
to expressly provide, rather clarify that  no  suits  for  the  recovery  of
money etc. would lie or be proceeded with against such a company.


30.   At this juncture, it would apposite to notice  the  judgment  of  this
Court  in  Kailash  Nath  Agarwal  and  Ors.  Vs.  Pradeshiya  Industrial  &
Investment Corporation of U.P. Ltd. & Anr.[1], where this  Court  considered
whether Section 22 afforded protection to guarantors of the sick company  or
only to the sick company.  It was contended that Section  22  prohibits  the
filing of a suit for recovery of money or for enforcement of  any  guarantee
in respect of a loan or advance granted to an industrial  company.   It  was
claimed that if proceedings  for  recovery  through  a  court  of  law  were
prohibited under Section 22(1), there was no reason that  protection  should
be refused when action was sought to be taken  without  recourse  to  Court.
The Court held that the words “proceedings” and “suit” had to  be  construed
differently as carrying different meanings,  since, they had  been  used  to
denote different things.   The  Court  concluded  that  Section  22(1)  only
prohibits  recovery  against  the  industrial  company  and  there   is   no
protection offered to guarantors against the recovery proceedings.


31.   On the strength of this decision in Kailash Nath  Agarwal  (supra)  it
was contended that the application for recovery against  the  Company  filed
under the RDDB Act in the execution of which  the  appellant  had  purchased
the property of the Company was neither a “proceeding” nor a  “suit”  within
the meaning of Section 22.  Therefore, the proceedings  in  the  application
for recovery remained ineffective by Section 22.   We  find,  however,  that
the judgment in Kailash Nath Agarwal  does  not  come  to  the  aid  of  the
appellant.  That judgment did not consider the question that has  arisen  in
this case.  It dealt with the question regarding  the  scope  of  protection
afforded to guarantors under Section 22(1) of the SICA, and held that  there
was no protection afforded to guarantors as distinct from the  sick  company
under Section 22(1), since the expression “suit” was used only  in  relation
to  sick  industrial  companies  and  not  to  guarantors.   Similarly,  the
expression “proceeding” in relation to distress and execution, was  used  to
denote something other than a “suit”.   No  such  question  arises  in  this
case.


32.   As observed earlier, sub-section (1) of  Section  22  may  be  divided
into two  parts.   In  one  part,  it  provides  that  “no  proceedings”  be
instituted for the winding up of the industrial company  or  for  execution,
distress or the like against  any  of  the  properties  of  such  industrial
company, and in the second part it provides that “no suit” for the  recovery
of money or for the enforcement  of  any  security  against  the  industrial
company or of any guarantee in respect of any loans or advances  granted  to
the industrial company, “shall lie or  be  proceeded  with  further,  except
with the consent of the  Board  or,  as  the  case  may  be,  the  Appellate
Authority.”


33.   Undoubtedly, the present proceedings viz. “application  for  recovery”
cannot specifically be described as proceedings for execution,  distress  or
the like against any of the properties, but it  is  certainly  a  proceeding
which results in and in fact had resulted  in  the  execution  and  distress
against the property of the Company and is therefore liable to be  construed
as a proceeding for the execution, distress or the like against any  of  the
properties of the industrial company.  We  are  of  the  view  that  such  a
construction would be within  the  intendment  of  Parliament  wherever  the
proceedings for recovery of a debt which has been secured by a  mortgage  or
pledge of the property of the borrower are instituted.  Surely, there is  no
purpose in construing that Parliament intended that such an application  for
recovery by summary procedure should lie or be proceeded with, but only  its
execution be interdicted or inhibited especially.  In this context,  it  may
be remembered that the proceedings by way of  an  application  for  recovery
according to a summary procedure as provided under  the  RDDB  Act  are  not
referred to in Section 22 simply because the RDDB  Act  had  not  then  been
enacted.

SCHEME AND PURPOSE OF THE RECOVERY OF  DEBTS  DUE  TO  BANKS  AND  FINANCIAL
INSTITUTIONS ACT, 1993 (RDDB ACT)



34.   In 1993, Parliament passed the Recovery of  Debts  due  to  Banks  and
Financial Institutions Act, 1993, i.e.  the  RDDB  Act.   The  Statement  of
Objects and Reasons recited that more than fifteen lakhs of cases  filed  by
the public  sector  banks  and  about  304  cases  filed  by  the  financial
institutions involving recovery of debts of more than       Rs. 5622  crores
in dues of Public Sector Banks and about Rs.  391  crores  of  dues  of  the
financial institutions were pending.  The locking of such  huge  amounts  of
public money prevented proper utilisation and recycling  of  the  funds  for
the development of the country.  The RDDB Act was thus  enacted  to  prevent
such stagnation of  huge  amounts  of  public  money  due  to  the  existing
procedure for recovery of debts.  The urgent need to  work  out  a  suitable
mechanism through which the debts of the banks  and  financial  institutions
could be realised without delay was in the form of Special Tribunals,  which
would follow summary procedure.   These  Tribunals  eventually  came  to  be
known as Debt Recovery Tribunals.

35.   The ‘debt’ contemplated by  the  RDDB  Act  refers  to  the  liability
claimed as due, by a bank  or  a  financial  institution  from  any  person,
whether secured or unsecured or whether payable under a decree or  order  of
any civil court or any arbitration award or under  a  mortgage  and  legally
recoverable, vide Section 2 (g).  Applications for  recovery  were  required
to be made to a Tribunal established under Section 3. Appeals  were  to  lie
before the Appellate Tribunal under Section 20.  Upon  the  adjudication  of
the application/appeal by the Tribunal, the certificate of recovery is  made
executable by Chapter V under      Section  25.   The  Recovery  Officer  on
receipt of the copy of certificate is required to  proceed  to  recover  the
amount of debt specified in the certificate by attachment and  sale  of  the
movable or immovable property  of  the  defendant  etc.,  vide  Section  25.
Section 18 bars the jurisdiction of any court or any  authority  except  the
Supreme Court and a High Court, in relation to an application  for  recovery
of debts due to banks and financial institutions.  Section  34,  with  which
we are concerned, confers an overriding  effect  on  the  RDDB  Act  in  the
following terms:

“34. Act to have overriding effect.--(1) Save as provided under  Sub-section
(2), the provisions of this Act shall have effect  notwithstanding  anything
inconsistent therewith contained in any other law  for  the  time  being  in
force or in any instrument having effect by virtue of  any  law  other  than
this Act.

(2) The provisions of this Act or the rules  made  thereunder  shall  be  in
addition to, and not in derogation of, the  Industrial  Finance  Corporation
Act, 1948, the State Financial Corporations Act, 1951,  the  Unit  Trust  of
India Act, 1963, the Industrial  Reconstruction  Bank  of  India  Act,  1984
and the Sick Industrial Companies (Special  Provisions)  Act,  1985 and  the
Small Industries Bank of India Act, 1989.”

36.   This special law, which deals with the recovery of debts due to  banks
and financial institutions, makes the procedure for recovery of  such  debts
exclusive and even unique.   The  non-obstante  clause  in  sub-section  (1)
confers  an  overriding  effect  on  the  provisions   of   the   RDDB   Act
notwithstanding anything inconsistent therewith contained in any  other  law
for the time being in force.   Sub-section (2), however, makes the RDDB  Act
additional to and not in derogation or annulment of the five Acts  mentioned
therein i.e. Industrial Finance Corporation Act, 1948; the  State  Financial
Corporations Act, 1951; the Unit Trust of India Act,  1963;  the  Industrial
Reconstruction Bank of India Act, 1984  and the  Sick  Industrial  Companies
(Special Provisions) Act, 1985.

37.   Sub-section (2) was added to SICA w.e.f.  17.01.2000 by Act No.  1  of
2000.  There is no doubt that when  an  Act  provides,  as  here,  that  its
provisions shall be in addition to and not in derogation of another  law  or
laws, it means that the Legislature intends that such an enactment shall co-
exist along with the other Acts.  It is clearly not  the  intention  of  the
Legislature, in such a case, to annul or  detract  from  the  provisions  of
other laws.  The term “in derogation of”  means  “in  abrogation  or  repeal
of.”  The Black’s Law  Dictionary  sets  forth  the  following  meaning  for
“derogation”:

“The partial repeal or abrogation of a law by a later act  that  limits  its
scope or impairs its utility and force.”

It is clear that sub-section  (1)  contains  a  non-obstante  clause,  which
gives the overriding effect to the RDDB Act.   Sub-section (2) acts  in  the
nature of an exception to such an overriding effect.  It  states  that  this
overriding effect is in relation to certain  laws  and  that  the  RDDB  Act
shall be in addition to and not in abrogation of, such laws.   The  SICA  is
undoubtedly one such law.

38.   The effect of sub-section (2) must  necessarily  be  to  preserve  the
powers of the authorities under the  SICA  and  save  the  proceedings  from
being overridden by the later Act i.e. the RDDB Act.

39.   We, thus, find a harmonious scheme in relation to the proceedings  for
reconstruction  of  the  company  under  the  SICA,   which   includes   the
reconstruction of debts and even the sale or lease  of  the  sick  company’s
properties for the purpose, which may or may not be a part of  the  security
executed by the sick company in favour of a bank or a financial  institution
on the one hand, and the  provisions  of  the  RDDB  Act,  which  deal  with
recovery of debts due to banks or financial institutions,  if  necessary  by
enforcing the security charged with the bank or  financial  institution,  on
the other.

40.   There is no doubt that both are special laws.  SICA is a special  law,
which  deals  with  the  reconstruction  of  sick  companies   and   matters
incidental thereto, though it is general as regards other  matters  such  as
recovery of debts.  The RDDB Act is also a special  law,  which  deals  with
the recovery of money due to banks  or  financial  institutions,  through  a
special procedure, though it may be general as regards  other  matters  such
as the reconstruction of sick companies which it does not even  specifically
deal with.  Thus the purpose of the two laws is different.

41.   Parliament must be deemed to have had knowledge  of  the  earlier  law
i.e. SICA, enacted in 1985, while enacting the RDDB Act, 1993.  It  is  with
a  view  to  prevent  a  clash  of  procedure,  and   the   possibility   of
contradictory orders in regard to the same entity and  its  properties,  and
in particular, to preserve the steps already taken for reconstruction  of  a
sick company in relation to the properties of such sick company,  which  may
be charged as security  with  the  banks  or  financial  institutions,  that
Parliament has specifically enacted sub-section  (2).   The  SICA  had  been
enacted in respect of specified and  limited  companies   i.e.  those  which
owned industrial undertakings specified in the schedule to the IDR  Act,  as
mentioned earlier, whereas the RDDB Act deals  with  all  persons,  who  may
have taken a loan from  a  bank  or  a  financial  institution  in  cash  or
otherwise, whether secured or unsecured etc.

42.   Indeed, the question as to which Act shall prevail must be  considered
with respect to the purpose of the two enactments; which of the two Acts  is
the general or special; which is later.  It must also be considered  whether
they can be harmoniously construed.

43.   The conflict that is said to arise is between Section 22 of  the  SICA
which purports to make untenable “proceedings”  for  recovery  of  the  debt
against the sick company and “suits” for recovery on the  one  hand  and  on
the other hand Section 34 of the RDDB Act contains an overriding  effect  to
its own provision, obviously including those for recovery  of  debts.   Some
of the decisions of this Court dealing with this aspect may  be  noticed  in
Ram Narain Vs. Simla Banking & Industrial Co. Ltd.[2].  Two  statutes,  both
containing non-obstante clauses providing that the particular provisions  of
the Act shall have effect (notwithstanding anything  inconsistent  contained
therein  in  any  other  law  for  the  time  being  in  force)   fell   for
consideration.  The two Acts were the  Banking  Company  Act  1949  and  the
Displaced Persons (Debt Adjustment) Act, 1951.  This Court gave  primacy  to
the Banking Companies Act.  While doing so, this Court observed:-

“7. ….. It is therefore, desirable to determine  the  overriding  effect  of
one or the other of the relevant provisions in these two Acts,  in  a  given
case, on much broader considerations of the purpose  and  policy  underlying
the two Acts and the clear  intendment  conveyed  by  the  language  of  the
relevant provisions therein.”



44.   In a subsequent case, this Court held that  the  right  to  possession
enacted by the Delhi Rent Control Act, 1958 was not controlled by  the  Slum
Clearance Act and the right could be enforced  in  the  manner  provided  in
Section 25-B without obtaining prior permission of the  competent  authority
under the Slum Clearance Act.  The conflict arose since the  Slum  Clearance
Act contained a non-obstante clause, to  the  effect  that  proceedings  for
eviction of tenants could not be  taken  without  prior  permission  of  the
competent authority.  The Delhi Rent Control Act  conferred  a  right  under
Section 14-A to recover immediate possession in case  the  landlord  had  to
vacate residential premises allotted  to  him  by  the  Central  Government.
This right was conferred with a non-obstante clause. This  Court  held  that
for resolving such conflicts, one test which may  be  adopted  is  that  the
later enactment must prevail over the earlier  one.   Having  observed  that
the relevant provisions of the Delhi Rent Control Act had been enacted  from
01.12.1975 alongwith a non-obstante  clause  with  the  knowledge  that  the
overriding provision of the Slum Clearance Act  was  already  in  existence,
the later enactment must prevail over the former.

45.   In LIC Vs. D.J. Bahadur[3]  this Court considered the question  as  to
which of the two laws i.e. the Industrial Disputes Act, 1947  (the  ID  Act)
and the Life Insurance Corporation Act, 1956 (the LIC Act),  was  a  special
law.  Having regard to the doctrine of generalia  specialibus  non  derogant
(general provisions will not abrogate special provisions), it was  submitted
that an employee of the LIC cannot invoke the provisions of the  ID  Act  in
his complaint, and the matter would have to be decided  in  accordance  with
the LIC Act.  The Court observed that the LIC Act was “special”  as  regards
nationalization of the life insurance business.  But however,  the  disputes
between employer and employee had to be dealt with under the  ID  Act  which
was a special law for  resolving  such  disputes  and  if  a  dispute  arose
between employer and employee in the Life  Insurance  Corporation,  the  LIC
Act must be treated as “general law” and the ID Act  should  be  treated  as
“special law.”  The Court thus observed:-

“52. In determining whether a statute is a special or  a  general  one,  the
focus  must  be  on  the  principal  subject-matter  plus   the   particular
perspective.  For certain purposes, an Act may be general  and  for  certain
other purposes it may be  special  and  we  cannot  blur  distinctions  when
dealing with finer points of law.  In law, we have a  cosmos  of  relatively
no absolutes - so too in life.”

46.   In Maharashtra Tubes Ltd. Vs. State Industrial & Investment Corpn.  Of
Maharashtra Ltd. [4], the conflict arose between two  special  statues  i.e.
the  State  Financial  Corporations  Act,  1951  and  the  Sick   Industrial
Companies (Special Provisions) Act, 1985 (SICA).  This  Court  came  to  the
conclusion that the 1951 Act deals with the pre-sickness situation,  whereas
the 1985 Act deals with the post-sickness situation, and therefore,  it  was
not possible to agree that the 1951 Act is a special statute  vis-à-vis  the
1985 Act which is a general statute.  The Court observed:-

“Both are special statues dealing with different situations  notwithstanding
a slight overlap here and there, for  example,  both  of  them  provide  for
grant of financial assistance though  in  different  situations.   We  must,
therefore,  hold  that  in  cases  of  sick  industrial   undertakings   the
provisions contained in the 1985 Act would ordinarily prevail and govern.”

47.   In a subsequent decision in Allahabad Bank Vs.  Canara  Bank[5],  this
Court held that with reference to the Companies Act, the RDDB Act should  be
considered as a “special law” though both laws could be treated as  “special
laws” in respect of recovery of dues by banks  and  financial  institutions.
In a later case the question arose in the context of  Special  Court  (Trial
of offences Relating to Transactions in Securities) Act, 1992 and SICA.   It
was contended that in view of the special provisions contained  in  SICA  no
proceedings could have been initiated under  the  Special  Court  Act.   The
Court observed that though Section 32 of the SICA contained  a  non-obstante
clause, there was a  similar  non-obstante  clause  in  Section  13  of  the
Special Court Act.  The Court observed:-

“9… This Court has laid down in no uncertain terms that in such an event  it
is the later Act which must prevail.”



48.   This Court approved the observations  of  the  Special  Court  to  the
effect that if the legislature confers a  non-obstante  clause  on  a  later
enactment, it means that the legislature intends that  the  later  enactment
should prevail.  Further, it is a settled rule  of  interpretation  that  if
one construction leads to a conflict, whereas on  another  construction  two
Acts can be harmoniously construed, then the latter must be adopted.

49.   In view of the observations of this Court in  the  decisions  referred
to and relied on by the learned counsel for the parties we  find  that,  the
purpose of the two enactments is entirely different.  As  observed  earlier,
the purpose of one is to provide ameliorative  measures  for  reconstruction
of sick companies, and the purpose of the other is  to  provide  for  speedy
recovery of debts of banks and financial institutions.  Both  the  Acts  are
“special” in this sense.  However, with reference to  the  specific  purpose
of reconstruction of sick companies, the SICA must be held to be  a  special
law, though it may be considered to be a general  law  in  relation  to  the
recovery of debts.  Whereas, the RDDB Act may be considered to be a  special
law in relation to the recovery of debts and the SICA may be  considered  to
be a general law in this regard.  For this purpose we rely on  the  decision
in LIC Vs. Vijay Bahadur (supra).  Normally the  latter  of  the  two  would
prevail on the principle that the Legislature was aware that it had  enacted
the earlier Act and yet chose to  enact  the  subsequent  Act  with  a  non-
obstante  clause.   In  this  case,  however,  the  express  intendment   of
Parliament in the non-obstante clause of the RDDB Act does not permit us  to
take that view.  Though the RDDB Act is  the  later  enactment,  sub-section
(2) of Section 34 specifically provides that the provisions of  the  Act  or
the rules thereunder shall be in addition to, and not in derogation of,  the
other laws mentioned therein including SICA.

50.   The term “not  in  derogation”  clearly  expresses  the  intention  of
Parliament not to detract from or abrogate the provisions  of  SICA  in  any
way.  This, in effect must mean that  Parliament  intended  the  proceedings
under SICA for reconstruction of a sick  company  to  go  on  and  for  that
purpose further intended that all other proceedings against the company  and
its properties should be  stayed  pending  the  process  of  reconstruction.
While the term “proceedings” under Section 22  did  not  originally  include
the RDDB  Act,  which  was  not  there  in  existence.   Section  22  covers
proceedings under the RDDB Act.

51.   The purpose of the two Acts is entirely different  and  where  actions
under the two laws may  seem  to  be  in  conflict,  Parliament  has  wisely
preserved the proceedings under the SICA, by specifically providing for sub-
section (2), which lays down that the later Act RDDB shall  be  in  addition
to and not in derogation of the SICA.

52.   We might  add  that  this  conclusion  has  been  guided  by  what  is
considered to be one of the most crucial principles of  interpretation  viz.
giving effect to the intention of the Legislature.  The difficulty arose  in
this case  mainly  due  to  the  absence  of  specific  words  denoting  the
intention of Parliament to cover applications for recovery  of  debts  under
the RDDB Act while enacting Section 22 of the SICA.   As  observed  earlier,
the obvious reason for this absence is the fact that the  SICA  was  enacted
earlier.  It is  the  duty  of  this  Court  to  consider  SICA,  after  the
enactment of the RDDB Act to  ascertain  the  true  intent  and  purpose  of
providing that no proceedings for execution or  distraints  or  suits  shall
lie  or  be  proceeded  with.   Undoubtedly,  in  the  narrower   sense   an
application for recovery of debt can be giving a restricted meaning  i.e.  a
proceeding which  commences  on  filing  and  terminates  at  the  judgment.
However, there is no need to give such a restricted meaning, since the  true
purpose of an application for recovery is to proceed to the logical  end  of
execution and recovery itself, that is by way of  execution  and  distraint.
We thus have no hesitation in coming  to  the  conclusion  that  Section  22
clearly covers and interdicts such an application for  recovery  made  under
the provisions of the RDB Act. We might remind ourselves of  the  oft-quoted
statement of the principles of contextual construction  laid  down  by  this
Court  in  Reserve  Bank  of  India  Versus  Peerless  General  Finance  and
Investment Co. Ltd. & Ors.[6], where this Court has observed:-

            “33. Interpretation must depend on the  text  and  the  context.
They are the bases of interpretation. One may well say if the  text  is  the
texture, context is what gives the colour. Neither can be ignored. Both  are
important.  That  interpretation   is   best   which   makes   the   textual
interpretation match the contextual. A statute is best interpreted  when  we
know why it was enacted. With this knowledge,  the  statute  must  be  read,
first as a whole and then section by section, clause by  clause,  phrase  by
phrase and word by word. If a statute is looked at, in the  context  of  its
enactment, with the glasses of the statute-maker, provided by such  context,
its scheme, the sections, clauses, phrases and words  may  take  colour  and
appear different than when the statute is  looked  at  without  the  glasses
provided by the context. With these glasses we must look at  the  Act  as  a
whole and discover what each section, each  clause,  each  phrase  and  each
word is meant and designed to say as to fit into the scheme  of  the  entire
Act. No part of a statute and no word of  a  statute  can  be  construed  in
isolation. Statutes have to be construed so that every word has a place  and
everything is in its place.”

53.   Moreover, we have found nothing contrary in the intention of the  SICA
to exclude a recovery application from the purview  of  Section  22,  indeed
there could be no reason  for  such  exclusion  since  the  purpose  of  the
provision is to protect the properties of a sick company, so that  they  may
be dealt with in the best possible way for the purpose  of  its  revival  by
the BIFR.  In State of Punjab Vs. The Okara Grain Buyers Syndicate  Ltd.[7],
the Court articulated the importance of preserving  the  beneficent  purpose
of the statute and observed:-
            “14. ……..  We shall therefore proceed to examine the  provisions
of the Act on  the  footing  that  the  test  for  determining  whether  the
Government is bound by a statute is whether it is  expressly  named  in  the
provision which it is contended binds it, or whether it  “is  manifest  that
from the terms of the statute, that it was the intention of the  legislature
that it shall be bound”, and that the intention to  bind  would  be  clearly
made  out  if  the  beneficent  purpose  of  the  statute  would  be  wholly
frustrated unless the Government were bound.”


54.   Having answered the reference, we hold that the  provisions  of  SICA,
in particular Section 22, shall prevail over the provision for the  recovery
of debts in the RDDB Act.  In these circumstances, as  already  directed  by
the two-Judge Bench of this Court, the Judgment and Order dated 23.02.06  of
the High Court of Delhi is set aside.  As far  as  the  writ  petitions  are
concerned, whether on the ground that Section 22 of the SICA acts as  a  bar
to the recovery proceedings under the RDDB Act or whether the protection  of
SICA  is  not  available  to  the  appellant  company  since  the   recovery
proceedings under the RDDB Act had been concluded, the writ petitions  would
have to be dismissed and are accordingly dismissed. The  present  appeal  is
allowed.



                                                ……………………….…..........…..CJI.
                                                                 [H.L.DATTU]




                                       ................................………J.
                                                                [S.A. BOBDE]




                                        ...............................………J.
                                                       [ABHAY MANOHAR SAPRE]





NEW DELHI,
OCTOBER 27, 2014
-----------------------
[1]

      [2] (2003) 4 SCC 305
[3]

      [4] AIR 1956 SC 614 : 1956 SCR 603
[5]

      [6] (1981) 1 SCC 315
[7]

      [8]  (1993) 2 SCC 144
[9]

      [10]  (2000) 4 SCC 406
[11]

      [12] (1987)1 SCC 424
[13]

      [14] AIR 1964 SC 669


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