REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5225 OF 2008
ARISING OUT OF
SPECIAL LEAVE PETITION (CIVIL) NO. 5041 OF 2006
KSL & INDUSTRIES LTD. ...
APPELLANT
VERSUS
M/S ARIHANT THREADS LTD. & ORS. ... RESPONDENTS
J U D G M E N T
C.K. THAKKER, J.
1. Leave granted.
2. The present appeal raises a
question of great public importance having far-
reaching consequences. The appeal is filed by
KSL & Industries Ltd. (`appellant' for short)
against final judgment and order passed by the
Division Bench of High Court of Delhi on
February 23, 2006 in Writ Petition (Civil) Nos.
2041-42 of 2006. By the said judgment, the High
2
Court, set aside the order passed by the Debt
Recovery Appellate Tribunal, Delhi (`DRAT' for
short) and held that in view of the provisions
of Section 22 of the Sick Industrial Companies
(Special Provisions) Act, 1985 (hereafter
referred to as `SICA'), no recovery proceedings
could be effected against the first respondent-
Company in the light of the bar contained
therein.
Factual Background
3. To understand the controversy in
its proper perspective, it is necessary to keep
in mind the factual matrix of the case.
Respondent No. 1 (M/s. Arihant Threads Ltd.)
(`Company' for short) was incorporated as a
joint venture with Punjab State Industrial
Development Corporation. It set up an export
oriented spinning unit for manufacturing cotton
yarn in the industrial area of Amritsar
District of the State of Punjab. In 1992,
Goindwal Sahib Industrial & Investment
3
Corporation allotted Plot No. 454, Flocal Point
of Goindwal Sahib Industrial Area by way of
lease to the Company for a period of 99 years
with a specific condition that the lessee will
not transfer the interest in the property for
first fifteen years without prior permission of
the lessor. The lessee was to enjoy the right
of possession so long as it continued paying
instalments of the premium by due-date and
abide by other terms and conditions of the
lease. It was, however, stated that the lessee
would be entitled to mortgage lease-hold rights
to a Bank, Punjab Financial Corporation or Life
Insurance Corporation of India as security for
a loan to be raised for construction of factory
building, purchase of raw materials, etc. The
Industrial Development Bank of India (`IDBI'
for short) which was the predecessor of the
Stressed Assets Stabilisation Fund (`SASF' for
short), financed the project undertaken by the
Company by way of foreign currency loan and
also working capital of Rs. 93.1 million.
4
4. It was the case of the Company
that due to overall recession in Textile
Industry, the Company suffered huge loss and
could not repay the amount of loan. Since the
Company failed to pay instalments, IDBI filed
Original Application No. 1368 of 2001 on
December 20, 2001 in Debt Recovery Tribunal,
Chandigarh (`DRT' for short) for recovery of
Rs.25,26,60,836/- under the Recovery of Debts
Due to Banks and Financial Institutions Act,
1993 (hereinafter referred to as the `RDDB'
Act). On June 10, 2002, M/s Roland Exports
(successor of Goindwal Industrial & Investment
Corporation) cancelled the lease agreement on
account of non-payment of lease money amounting
to Rs.3,19,94,149/-. The Company did not remain
present before the DRT though duly served. On
July 15, 2003, therefore, an ex-parte final
order in favour of IDBI (SAFS) for recovery of
Rs.25,26,60,836/- along with interest @ 7.8%
p.a. was passed by DRT.
5
5. The Tribunal in operative part
of the order stated;
"The application for recovery of a
sum Rs.25,26,60,836.00 is decreed
against defendant company and the
defendant company is ordered to pay:-
i. A sum of Rs.
25,26,60,836.00 alongwith
pendent elite and future
interest @ 7.8% per annum
with half yearly rests
jointly and severally
from the date of filing
of the suit till
realization;
ii. Pay the cost of litigation;
iii. Pay the said amount
within 30 days from the
date of receipt of this
order.
2. In the event of failure on the part of
defendants to pay the above amount
within the stipulated period, the
applicant bank shall be entitled to
recover the said amount from the sale
of mortgaged properties of the
defendants. Even if the said amount
is not so realized, it shall be
recovered from the sale of personal
properties of the defendants.
3. Copy of the judgment be sent to the
defendants and the recovery
certificate be issued accordingly.
4. Parties to appear before the Recovery
Officer, DRT, Chandigarh on
22.8.2003."
6
6. A recovery certificate was
issued against the Company. On September 9,
2003, the Recovery Officer issued a composite
demand notice under Rule 2 of Second Schedule
of the Income Tax Act, 1961 against the Company
demanding payment of Rs.28,60,87,384/-. He also
directed the Company to appear on October 23,
2003 for settling terms and conditions of the
proclamation of sale and for disclosure of its
movable and immovable assets. Harnek Singh,
Security Guard who was present at the Company
premises was served and he signed the summons
in token of acceptance of notice on behalf of
the Company. Service Report was filed by one
Rajesh Mahajan, Advocate for certificate holder
affirming Dasti service on the Company. Another
service report was also filed along with
affidavit by the same advocate on October 6,
2003. On January 3, 2004, Mr. Vivek Verma,
Local Commissioner appointed by the Recovery
Officer, visited the site and filed his report
7
wherein he stated that two machines were
missing. He also recorded that the unit was in
running condition. At the instance of SASF,
North India Technical Consultancy Association
Ltd. (`NITCO' for short) filed a valuation
report in January, 2004 assessing the fixed
assets at Rs.17.51 crores. It is alleged that
on July 1, 2004, the Company created illegal
tenancy in favour of M/s Roland Exports. On
September 16, 2004, the Recovery Officer fixed
the reserve price of the property at Rs.12.50
crores (Rs.4.50 crores for movables and Rs.8.00
crores for immovables). He also fixed the date
for sale of immovable property as October 27,
2004 and for movable property as October 30,
2004. The auction was, however, adjourned. The
Company on October 18, 2004, filed an appeal
against the order dated September 16, 2004
fixing reserve price of Rs. 12.50 crores in the
DRT being Appeal No. 52 of 2004 under Section
30 of the RDDB Act. On October 27, 2004, DRT
allowed auction sale to proceed but ordered
8
that the sale should not be confirmed till
further orders. On October 30, 2004, auction
was concluded and the appellant herein was
declared the highest and successful bidder at
Rs.12.52 crores. It deposited 25% of the
reserve price. On November 2, 2004, on an
application by the appellant, DRT appointed
representative of the appellant as a receiver
to prepare inventory of auctioned property.
7. On November, 11, 2004, the
appellant made an application to DRT praying
for acceptance of the bank guarantee in lieu of
payment of the remaining amount of 75% and also
by refunding the amount deposited (25%). DRT
dismissed the said application and the
appellant-auction purchaser, on the same day,
i.e. November 11, 2004 deposited the balance
amount of 75% of the purchase money i.e.
Rs.9,39,00,000/- by a Bank draft. On December
13, 2004, the receiver lodged a First
Information Report (FIR) and filed an affidavit
before DRT complaining that the agent of the
9
Company had forcibly dispossessed him by using
criminal force. On December 15, 2004, the
Company moved an application for setting aside
ex-parte final order passed on July 15, 2003 by
DRT, Chandigarh which was registered as M.A.
No. 103 of 2004. The appellant filed an
application objecting the prayer of the Company
with an added prayer to implead it in Appeal
No. 52 of 2004 as also in M.A. No. 103 of 2004.
The DRT allowed the impleadment application of
the appellant vide order dated December 17,
2004. On March 28, 2005, the appellant filed an
application for hearing preliminary issue as to
maintainability of appeal filed by the Company
(Appeal No. 52 of 2004). On April 8, 2005, a
suit for permanent injunction was filed by
Roland Exports against the Company in the Civil
Court at Tarantaran, District Amritsar.
Status quo with regard to possession was
ordered to be maintained by the Court. An
appeal against the said order is said to have
been pending in the High Court. Meanwhile, the
10
Company got the property valued by Himachal
Consultancy Organisation Ltd. (`HIMCO' for
short), according to which the realizable value
of the property had been increased to Rs.20.22
crores. On July 26, 2005, DRT-I, Delhi allowed
Appeal No. 52 of 2004, set aside the auction
sale subject to the Company fulfilling terms
and conditions with regard to payment of
certain amount, interest, expenses etc.
8. The Tribunal, while granting
relief to the Company, ordered;
"In my humble opinion, natural
justice requires that the appeal be
allowed but with some conditions so
that further progress of recovery be
not stalled by the appellant. In
these circumstances, this appeal is
allowed, subject to the following
conditions:-
(i) That the appellant will
pay 5% of the amount
deposited by the auction
purchaser within 10 days
as a penalty as per rule
60 of the Second Schedule
of Income Tax Act.
(ii) The appellant will pay an
interest on the amount
deposited by the auction
purchaser @ 9% p.a.
calculated from the date
11
of deposit of the same
till today. The interest
accumulated on the FDRs of
auctioned amount till date
will be paid to the CH Fl
who will adjust this
amount against the
outstanding dues of the
appellant.
(iii) The appellant will also
bear all the expenditure
incurred by the CH FI in
conducting the sale. The
details of the same will
be given by the CH FI
within a week and
thereafter within 10 days,
this amount will be
deposited by the appellant
with the CH FI.
Failing to comply all the above
three conditions, this appeal will be
treated as dismissed and the restraint
order passed by this Tribunal will
stand vacated and the Ld. Recovery
Officer will be at liberty to pass the
necessary orders as per law and if,
the above conditions are fulfilled by
the appellant, the Ld. Recovery
Officer is directed to re-auction this
property as early as possible, within
75 days as per law and release the
amount deposited by the auction
purchaser immediately. The present
appeal bearing Transfer Appeal No.
1/2005 (Appeal NO. 52/04) stands
disposed off accordingly. A copy of
this order be given dasti to all the
parties. A copy of this order be also
sent to the Recovery Officer, DRT
Chandigarh for necessary action and
information. RC file be also sent
12
immediately back to the DRT Chandigarh
by special messenger along with copy
of this order. File be consigned to
records".
9. The Company, objecting the
conditions imposed by DRT, filed an appeal
against the said order to the DRAT, Delhi being
Appeal No. 167 of 2005. The appellant also
filed an appeal being aggrieved by the setting
aside the sale. DRAT stayed operation of the
order dated July 26, 2005 which had set aside
ex-parte order passed by DRT. It also directed
refund of sale amount to the appellant. Appeals
were then heard and the judgment was reserved.
10. Meanwhile, on December 21, 2005,
the Company filed a Reference before the Board
of Industrial Finance & Reconstruction (`BIFR'
for short) under SICA which was registered as
BIFR Case No. 4 of 2006. On February 10, 2006,
DRAT dismissed the appeal filed by the Company
and allowed the appeal of the appellant and
confirmed auction-sale in favour of the
13
appellant on depositing the sale price. DRAT,
in the operative part of the order stated;
"In view of the detailed discussion
made on the issues which are relevant
for the purpose deciding these appeals,
the Miscellaneous Appeal 167/2005 filed
by the judgment-debtor shall stand
dismissed. The Miscellaneous Appeal
173/2005 filed by the auction purchaser
shall stand allowed. Consequently, the
appeal filed by the judgment-debtor in
Appeal 52/2004 before the Presiding
Officer, DRT, Chandigarh which is
renumbered on transfer to DRT-I, Delhi
as Transfer Appeal No. 1/2005 shall
stand dismissed. Points formulated for
consideration are answered accordingly.
No costs.
Since, the appeal filed by the
auction-purchaser is allowed, the
Recovery Officer, DRT, Chandigarh shall
confirm the sale and shall take all
steps immediately for handling over the
possession of properties in question,
to the auction purchaser, if necessary,
by taking assistance from all
authorities concerned. The auction
purchaser, who was permitted to
withdraw the auction amount deposited
towards sale price without prejudice to
its rights during pending of these
appeals, shall forthwith deposit the
entire amount and thereafter the
Recovery Officer shall proceed to
complete the other requirements
according to law forthwith."
14
11. By a separate order of even
date, DRAT ordered the Recovery Officer,
Chandigarh to act upon and execute the
directions issued by it. The appellant
deposited Rs.12.50 crores on the same day. But
the sale could not be confirmed since the
Presiding Officer was on leave. The appellant
moved an application before DRAT for
appointment of Recovery Officer, DRT, Delhi for
confirmation of sale. Within three days,
however, the Company filed two Writ Petitions
being C.W. Nos. 2041 and 2042 of 2006 in the
High Court of Delhi on February 13, 2006
against an order of DRAT dated February 10,
2006. The High Court of Delhi, as already
mentioned earlier, allowed the writ petitions
on February 23, 2006, set aside the order
passed by DRAT on the ground that Section 22 of
SICA operated as a complete bar to recovery
proceedings and no order could have been passed
by the Tribunal.
Subsequent development
15
12. Being aggrieved by the order
passed by the High Court, the appellant filed
Special Leave Petition in this Court on March
6, 2006. Notice was issued on March 27, 2006 by
this Court and the appellant was allowed to
withdraw sale price without prejudice to its
rights and contentions. The matter was,
thereafter, adjourned from time to time. It was
ordered to be heard finally. For completion of
record, it may be stated that on April 3, 2006,
the BIFR rejected the Reference of the Company.
The Company preferred an appeal against the
said order which is pending before the
Appellate Authority for Industrial & Financial
Reconstruction (AAIFR). On September 15, 2006,
second Reference was filed by the Company which
has been registered as BIFR Case No. 18 of
2006. On February 22, 2007, the BIFR declared
the Company as a `sick Company' and appointed
LSAS, respondent No. 5 as the Operating Agency
to prepare Rehabilitation Scheme.
Submissions of the appellant
16
13. The Court has heard the learned
counsel for the parties. Learned counsel for
the appellant raised several contentions. He
urged that the High Court has committed an
error of law in holding that the proceedings
were barred by Section 22 of the SICA and DRAT
was wrong in issuing directions. The
proceedings were neither covered by the first
part nor by the second part of Section 22 and
the High Court ought to have decided the case
on merits. It was also submitted that Section
34 of RDDB Act has an `overriding effect' and
even on that ground, the matter ought to have
been decided. It was contended that the appeal
preferred by the Company against fixation of
reserve price was not maintainable under
Section 30 of the RDDB Act and could not have
been entertained by DRT. So far as ex-parte
decree passed by DRT is concerned, the counsel
submitted that the Company was duly served and
in spite of that, it failed to appear before
the Tribunal. A grievance was also made that in
17
an appeal against fixing reserve price (which
was not maintainable), DRT granted interim
relief on certain terms and conditions. But
even those conditions had not been complied
with by the Company. Reserve price fixed was
proper, sufficient and reasonable and DRT ought
not to have set aside the order passed by the
Recovery Officer.
14. The counsel vehemently contended
that the High Court ought to have taken into
account over all conduct of the party,
particularly when the Company had invoked
discretionary and equitable jurisdiction under
Article 226 of the Constitution. In exercising
writ jurisdiction, submitted the counsel, the
conduct of the petitioner is indeed a relevant
and extremely important consideration. In the
instant case, the Company had not come with
clean hands. It had not repaid the loan
amount; did not appear before DRT in spite of
service of summons; an ex parte final order
was, therefore, rightly passed against it; the
18
Company filed an appeal before DRT against an
`order' which was not appealable; failed to
comply with even the interim order under which
protection was obtained and no payment was
made; by committing criminal trespass and
unlawfully entering the property, it
dispossessed the receiver appointed by the
Tribunal; the action of taking over possession
of the property by act of highhandedness could
not be approved; the Company also removed
machinery and other movable property from the
disputed premises; created unlawful tenancy
rights in favour of third party by accepting
substantial amount from him, etc. The counsel,
therefore, urged that even if the case was
covered by SICA and Section 22 got attracted,
the High Court, in exercise of extraordinary
and special jurisdiction, ought not to have
granted relief in favour of the Company. On all
these grounds, it was submitted that the appeal
deserves to be allowed.
19
15. The learned counsel for the
supporting respondents adopted the arguments
advanced by the learned counsel for the
appellant.
Submissions of respondent
16. The learned counsel for the
Company, on the other hand, supported the order
passed by the High Court. According to him, no
doubt the High Court was exercising powers
under Article 226 of the Constitution. But in
exercising constitutional powers, the Court
would undoubtedly keep in mind statutory
provisions of SICA and precisely that has been
done by the Court. If the proceedings could not
have been initiated or continued in view of bar
of Section 22 of SICA, it cannot be said that
the High Court was wrong in passing the
impugned order. No grievance, hence, can be
made against such order. As to ex-parte final
order said to have been passed by DRT, it was
submitted that no opportunity of hearing was
afforded to the Company and the order was
20
violative of principles of natural justice and
fair play. The appeal filed by the Company
against fixation of reserve price before DRT
was maintainable under Section 30 of the RDDB
Act as the appeal lies against "an order of the
Recovery Officer made under the Act" and an
order of fixation of reserve price is also an
`order' within the meaning of the Act.
Regarding non-depositing of amount as per
interim order, it was submitted that the
Company was not in a position to comply with
the conditions of stay and the directions
issued and hence, in accordance with law, it
challenged the said order by filing an appeal
before DRAT. It was the right of the Company to
take such action and the appellant cannot
object against such course being adopted by the
Company. It was, therefore, submitted that the
High Court was wholly justified in allowing the
petitions filed by the Company and no case has
been made out by the appellant for interference
against the said order by this Court.
21
High Court's order
17. At the outset, it may be noted
that the High Court had disposed of the
petitions only on one ground as to
applicability of SICA and held that the
proceedings were barred under Section 22 of the
said Act. This is amply clear from paragraph 13
of the order which reads as under:
Several arguments have been
advanced before us by learned counsel
for the parties, but we are of the
opinion that this petition deserves to
be allowed on the very first
submission of Dr. Abhishek M. Singhvi,
learned senior counsel for the
petitioner, namely that the
proceedings are barred by Section 22
read with Section 32 of the SICA.
(emphasis
supplied)
18. Referring to the relevant
provisions of SICA and keeping in view the
ratio laid down in the decisions cited before
it, the Court ruled that the petition filed by
the Company was required to be allowed.
22
Accordingly, in the operative part (para 36),
the High Court concluded:
For the reasons given above, the
petition is allowed and the impugned
order dated 10.2.2006 passed by the
DRAT is set aside and it is held that
no recovery can take place against the
petitioner in view of the bar of
Section 22 of the SICA.
(emphasis supplied)
19. As already adverted to, before
the Court the arguments had been advanced by
all the parties on continuation or otherwise of
proceedings and also on the merits of the
matter. In view of the fact, however, that the
High Court has not entered into merits of the
case and disposed of petitions holding that the
proceedings could not be continued because of
the bar of Section 22 of SICA, I do not wish to
enter into allegations and counter allegations
levelled by the parties. At the same time, I am
of the view that the conclusion arrived at by
the High Court that the proceedings were barred
under Section 22 of SICA is not well-founded
23
and the decision of the High Court on that
point deserves to be set aside.
SICA - Ambit and scope
20. So far as SICA is concerned, it
has been stated in the Preamble that the Act
has been enacted in public interest "with a
view to securing the timely detection of sick
and potentially sick companies owning
industrial undertakings, the speedy
determination by a Board of experts of the
preventive, ameliorative, remedial and other
measures which need to be taken with respect to
such companies and the expeditious enforcement
of the measures so determined and for matters
connected therewith or incidental thereto".
While interpreting various provisions of the
Act, the said object has to be kept in mind by
Courts. Section 2 is in the form of
`declaration' and declares that the Act has
been enacted for giving effect to the policy of
the State towards securing the principles
24
specified in clauses (b) and (c) of Article 39
of the Constitution. Section 3 defines various
terms used in the Act. Chapter II relates to
establishment of Board and Appellate Authority,
term of office, conditions of service of
officials and working of the Board and
Appellate Authority. References, Inquiries and
Schemes have been dealt with in Chapter III.
Whereas Section 15 provides for Reference to
Board, Section 16 speaks of Inquiry into
working of sick industrial companies. Section
17 empowers the Board to make suitable order on
the completion of inquiry. Sections 18, 19 and
19A deal with Preparation of Schemes,
Rehabilitation and Arrangement for continuing
operations during inquiry. Winding up of sick
industrial company is found in Section 20.
Section 21 allows Operating Agency to prepare
inventory. Under Section 22A, directions can be
issued preventing disposal of assets in certain
cases.
25
21. Section 22 is a material
provision which relates to suspension of legal
proceedings, contracts, etc. Sub-section (1)
is important and may be reproduced;
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.
26
..... ..... .....
......
22. Chapter IV covers potentially
sick industrial Companies, misfeasance
proceedings, appeals and other miscellaneous
matters with which the Court is not concerned
in the present case except Section 32 which
gives `overriding effect' to the provisions of
the Act. It reads as under:
32. Effect of the Act on other laws.--
(1) The provisions of this Act and of
any rules or schemes made thereunder
shall have effect notwithstanding
anything inconsistent therewith
contained in any other law except the
provisions of the Foreign Exchange
Regulation Act, 1973 (46 of 1973) and
the Urban Land (Ceiling and
Regulation) Act, 1976 (33 of 1976) for
the time being in force or in the
Memorandum or Articles of Association
of an industrial company or in any
other instrument having effect by
virtue of any law other than this Act.
(2) Where there has been under any
scheme under this Act an amalgamation
of a sick industrial company with
another company, the provisions of
section 72A of the Income-tax Act,
27
1961 (43 of 1961), shall, subject to
the modifications that the power of
the Central Government under that
section may be exercised by the Board
without any recommendation by the
specified authority referred to in
that section, apply in relation to
such amalgamation as they apply in
relation to the amalgamation of a
company owning an industrial
undertaking with another company.
RDDB Act - Ambit and scope
23. The RDDB Act (Recovery of Debts
Due to Banks and Financial Institutions Act,
1993) has been enacted with a view "to provide
for the establishment of Tribunals for
expeditious adjudication and recovery of debts
due to banks and financial institutions and for
matters connected therewith or incidental
thereto". Chapter I is Preliminary in nature
and Section 2 defines various terms. Chapter II
provides for establishment of Tribunals and
Appellate Tribunals, their composition,
qualifications and term of office of the staff,
salaries, allowances, etc. Jurisdiction, powers
28
and authority of Tribunals are found in Chapter
III. The Tribunals are required to follow
procedure laid down in Chapter IV. Chapter V
relates to `Recovery of debt determined by the
Tribunal'. Section 29 declares that the
provisions of the Second and Third Schedules of
the Income Tax Act, 1961 will apply to the
recovery of amount due under the RDDB Act.
Chapter VI is Miscellaneous. One section,
however, is of extreme importance. It is
Section 34 which allows `overriding effect' to
the provisions of the Act over other laws. It
is a crucial provision and may be quoted in
extenso;
34. Act to have overriding effect.--(1)
Save as provided under sub-section
(2), the provisions of this Act shall
have effect notwithstanding anything
inconsistent therewith contained in
any other law for the time being in
force or in any instrument having
effect by virtue of any law other than
this Act.
(2) The provisions of this Act or
the rules made thereunder shall be in
29
addition to, and not in derogation of,
the Industrial Finance Corporation
Act, 1948, the State Financial
Corporations Act, 1951, the Unit Trust
of India Act, 1963, the Industrial
Reconstruction Bank of India Act, 1984
and the Sick Industrial Companies
(Special Provisions) Act, 1985 and the
Small Industries Development Bank of
India Act, 1989. (emphasis supplied)
24. According to the Company, there
is a bar against initiation or continuation of
proceedings under Section 22 of SICA against
sick companies. The High Court was, therefore,
right in allowing the petitions filed by the
Company. The case of the appellant and
supporting respondents, on the other hand, is
that Section 22 of SICA has no application to
the case on hand and the High Court was in
error in invoking the said section and denying
relief to the auction purchaser as well as
other creditors by wrongly extending benefit of
the said provision to the Company. The
appellant alternatively contended that even if
the proceedings pending against the Company are
30
covered by Section 22 of SICA, non-obstante
clause in Section 34 of RDDB Act, which is a
subsequent legislation will operate and
recovery could not have been suspended, stalled
or arrested.
Interpretation of statutes
25. The question, therefore, is
whether the High Court was right in holding
that the proceedings were barred under Section
22 of SICA. I have extracted the relevant part
of the said section. It has two limbs. The
first part enacts that "no proceeding for the
winding up of the industrial company or for
execution, distress or the like against any of
the properties of the industrial company or for
the appointment of a receiver in respect
thereof ... shall lie or be proceeded with
further, except with the consent of the Board
or, as the case may be, the Appellate
Authority." The second part which is
31
independent of the first part declares that "no
suit for the recovery of money or for the
enforcement of any security against the
industrial company or of any guarantee in
respect of any loans or advance granted to the
industrial company shall lie or be proceeded
with further, except with the consent of the
Board or, as the case may be, the Appellate
Authority." The two parts use two different
expressions; (i) `proceeding' and (ii) `suit'.
Case law
26. In Kailash Nath Agarwal & Ors.
v. Pradeshiya Industrial & Investment
Corporation of U.P. Ltd. & Anr., (2003) 4 SCC
305, this Court had an occasion to consider the
meaning of these two expressions. The Court
noted that sometimes two different words are
used in one and the same statute to convey the
same meaning, but "that is exception rather
than the rule". The general rule is that when
32
two different words are used by a statute,
prima facie one has to construe different words
as carrying different meanings.
27. The Court stated;
"The word "suit" and "proceeding" have
not been used interchangeably in
SICA."
28. Referring to Pandurang R.
Mandlik v. Shantibai R. Ghatge, 1989 Supp (2)
SCC 627, the Court observed that in its
comprehensive sense, the word `suit' is
understood to apply to any proceeding in a
Court of Justice by which an individual pursues
a remedy which the law affords. The modes of
proceedings may be various, but if a right is
litigated between parties in a Court of
Justice, the proceedings by which the decision
of the Court is sought may be a suit. The word
`suit' ordinarily means and, apart from some
context, must be taken to mean a civil
33
proceeding instituted by the presentation of a
plaint". (vide Hansraj Gupta v. Dehra Dun -
Mussoorie Electric Trameray Co. Ltd.; 60 IA
13 : AIR 1933 PC 63).
29. In the instant case, proceedings
had been initiated by the Bank not before a
Civil Court by invoking Section 9 of the Code
of Civil Procedure, 1908, but before DRT by
taking recourse to jurisdiction under RDDB Act.
It is, therefore, contended that the
proceedings could not be said to be a "suit"
falling within the mischief of Section 22 of
SICA. In any case, according to the learned
counsel for the appellant, ex parte final order
was passed by DRT as back as on July 15, 2003
and hence even if it is assumed that the
connotation "suit" should be construed
liberally so as to take within its sweep all
proceedings including an application before
DRT, in view of final order passed by DRT in
34
2003, bar envisaged by Section 22 of SICA
cannot operate.
30. So far as "proceedings" are
concerned, it was submitted by the appellant
that the final order had been passed by DRT
under RDDB Act. A Certificate had been issued
under Section 19 and in accordance with Section
29 of the Act, procedure laid down in Second
and Third Schedules to the Income Tax Act, 1961
had been followed. Reserve price was fixed.
Sale-proclamation was published. Auction was
held. The appellant was found to be the
highest bidder and its bid was accepted.
Necessary amount was deposited. All actions
were thus in conformity with law. If the
Company felt aggrieved by auction sale, it
ought to have proceeded in accordance with
Rules 60 to 62 of the Rules in the Second
Schedule. Rule 60 permits a person adversely
affected by the sale to apply to the Tax
Recovery Officer within thirty days from the
35
date of sale to set aside such sale on his
depositing the entire amount with interest
thereon and penalty. Admittedly, the Company
did not avail the said remedy. Rule 61 allows
an application to set aside sale of immovable
property on the ground of non-service of notice
or material irregularity in publishing or
conducting the sale. The said rule also
provides for deposit of amount recoverable
under the Certificate. The Company failed to
do so. Under Rule 62, sale can be set aside
when defaulter has no saleable interest. No
such case had been put forward by the Company
by applying under Rule 62. The Company,
therefore, could not make grievance against the
auction sale.
31. Strong reliance was placed on
behalf of the appellant on Rule 63 which states
that where no application is made for setting
aside the sale or where such application is
made and is dismissed, the Tax Recovery Officer
36
shall make an order confirming the sale and
thereupon the sale shall become absolute. It
was submitted that none of the Rules had been
invoked by the Company by applying to the Tax
Recovery Officer and by depositing the amount.
The Tax Recovery Officer, hence, was enjoined
to confirm sale as per the mandate of Rule 63.
An appeal filed by the Company under Section 30
of RDDB Act before DRT against the order of Tax
Recovery Officer fixing reserve price was ill-
conceived and not maintainable as there was no
`order' within the meaning of RDDB Act which
was appealable. Attention of the Court in this
connection was invited by the learned counsel
to Rule 53 [Contents of proclamation]. It
provides that a proclamation of sale shall
specify, inter alia, "the reserve price, if
any, below which the property may not be sold"
[Clause (cc)]. It was submitted that fixation
of `reserve price' is not mandatory, condition
precedent or sine qua non and if reserve price
is not fixed, the order cannot be said to be
37
non est, contrary to law or unlawful. In any
case, when reserve price was fixed and property
was sold not below such price, the only remedy
available to the Company or any person whose
interest was affected was to apply under Rule
60 or 61 or 62. The appeal before DRT was thus
totally misconceived and ought not to have been
entertained by the Tribunal.
32. According to the Company,
reserve price was grossly inadequate. The
Company was aggrieved and preferred an appeal
under Section 30 of RDDB Act as the order
fixing reserve price was also an `order' within
the meaning of the Act. To buttress the
submission, the counsel relied upon a decision
of this Court in Union of India & Anr. v.
Delhi High Court Bar Association & Ors., (2002)
4 SCC 275. In Delhi High Court Bar
Association, while upholding the validity of
RDDB Act, this Court considered various
safeguards and remedies available to the
38
aggrieved party. In paragraph 30 of the
decision, it was inter alia observed;
Furthermore, Section 30, after
amendment by the Amendment Act, 2000,
gives a right to any person aggrieved
by an order of the Recovery Officer,
to prefer an appeal to the Tribunal.
Thus now an appellate forum has been
provided against any orders of the
Recovery Officer which may not be in
accordance with law. There is,
therefore, sufficient safeguard which
has been provided in the event of the
Recovery Officer acting in an
arbitrary or an unreasonable manner.
The provisions of Sections 25 and 28
are, therefore, not bad in law
33. I express no opinion one way or
the other on the controversy. As noted earlier,
the High Court allowed the petitions filed by
the Company only on the ground of bar of
Section 22 of SICA. Since I am of the view
that the High Court was not right in coming to
that conclusion, the matter must go back to the
High Court for deciding all points not dealt
and decided.
39
34. The learned counsel for the
Company emphatically argued that Section 32 of
SICA is explicitly clear and uses non-obstante
clause ("Notwithstanding anything inconsistent
therewith contained in any other law"). It was
urged that SICA is a `self-contained Code' and
makes detailed and exhaustive provisions in
respect of sick companies. It is also a
`special law' and effect must be given to the
provisions of the Act. The argument of the
appellant on the other hand is that Section 34
of RDDB Act is a subsequent legislation which
also contains a similar non-obstante clause and
that Act should prevail over SICA.
35. The learned counsel for the
parties, in support of their respective
submissions, referred to several decisions.
Let us consider few of them.
36. In Maharashtra Tubes Ltd. v.
State Industrial & Investment Corporation of
40
Maharashtra Ltd. & Anr., (1993) 2 SCC 144, this
Court was called upon to consider the
provisions of SICA and State Financial
Corporation Act, 1951. Observing that the word
`proceedings' in sub-section (1) of Section 22
of SICA could not be given narrow or restricted
meaning to limit the legal proceedings, the
Court held that if Section 22(1) is attracted,
the proceedings must be held to be barred.
36. Keeping in view the underlying
object of enacting SICA, the Court stated;
Now we come to the impugned
decision. The High Court was
considerably influenced by the fact
that the appellant-company owed
crores of rupees to banks and felt
that so far as such creditors are
concerned, different considerations
may come into play but the High Court
with respect failed to appreciate
that the 1985 Act was enacted
primarily to assist sick industrial
undertakings which inter alia failed
to meet their financial obligations.
It is, therefore, difficult to accept
the view of the High Court that where
the creditors of a sick industrial
concern happen to be Banks or State
41
Financial Corporations different
considerations would come into play.
It must be realised that in the
modern industrial environment large
industries are generally financed by
banks and statutory corporations
created specially for that purpose
and if they are permitted to resort
to independent action in total
disregard of the pending inquiry
under Sections 15 to 19 of the 1985
Act the entire exercise under the
said provisions would be rendered
nugatory by the time the BIFR is able
to evolve a scheme of revival or
rehabilitation of the sick industrial
concern by : device of the Financial
Corporation resorting to Section 29
of the 1951 Act. We are, therefore,
of the opinion that where an inquiry
is pending under Section 16/17 or an
appeal is pending under Section 25 of
the 1985 Act there should be
cessation of the coercive activities
of the type mentioned in Section 22
(1) to permit the BIFR to consider
what remedial measures it should take
with respect to the sick industrial
company. The expression 'proceedings'
in Section 22(1), therefore, cannot
be confined to legal proceedings
understood in the narrow sense of
proceedings in a Court of law or a
legal tribunal for attachment and
sale of the debtor's property.
38. In Deputy Commercial Tax Officer
& Ors. v. Corromandal Pharmaceuticals & Ors.,
(1997) 10 SCC 649, this Court held that the
42
embargo under Section 22(1) would not apply to
payment of tax collected by the sick industrial
company after the date of the sanctioned scheme
and legitimately belonged to the Revenue. "Any
other construction will be unreasonable and
unfair and will lead to a state of affairs
enabling the sick industrial unit to collect
amounts due to the Revenue and withhold it
indefinitely and unreasonably. Such a
construction which is unfair, unreasonable and
against the spirit of the statute in a
business sense, should be avoided." (emphasis
supplied)
39. Justice Jeevan Reddy was much
more emphatic. In a concurrent judgment, His
Lordship stated;
Looking at the provisions of the
Sick Industrial Companies (Special
Provisions) Act, 1985 [the Act], I was
wondering how out of tune the Act has
become with the economic policies being
pursued now in this country. Since
43
1991-92, we are launched upon, what is
being called, liberalisation of our
economy. We have given up the policy of
protecting our industries against
foreign competition on the ground that
it has given rise to an inefficient and
outdated industrial system in our
country. Our industries are suddenly
being asked to compete with foreign
companies, many of whom being giant
multi-nationals have vast resources at
their disposal. [They are merrily
gobbling up our poor native companies.
Many local industries, unable to stand
the said competition are joining the
foreign giants in one form of venture
or other. Several hundreds of small-
scale and medium scale units in telecom
sector, for example have suffered
enormously because of our love for
foreign companies and their capital.
The state of several public sector
companies is no better. I am not saying
that we have totally embraced, what may
be called "Reaganism" or "Thatcherism".
The fact, however, remains that it is
no longer thought advisable to keep
alive inefficient and uneconomic
industries by injecting public funds or
in the name of safeguarding the
employment of the workers. And here is
this Act, a product of the era of
protectionism, seeking to keep alive
"sick" companies by pumping in funds -
mostly public funds - and by providing
various concessions. In the process,
nobody inquires why a particular
industrial company has become sick,
viz., whether it is an induced one or
whether it is on account of factors
beyond their control. The object of the
Act is undoubtedly laudatory but it
must also provide for appropriate
44
measures against persons responsible
where it is found that sickness is
caused by factors other than
circumstances beyond the control of the
management. It is also a well-known
fact that the proceedings before the
Board of Industrial and Financial
Reconstruction take a long time to
conclude and all the while the
protective umbrella of Section 22 is
held over the company which has
reported sick. We have come across
cases where unfair advantage is sought
to be taken of the provisions of
Section 22 by certain industrial
companies - and the wide language
employed in the section is providing
them a cover. We are sure Section 22
was not meant to breed dishonesty nor
can it be so operated as to encourage
unfair practices. The ultimate
prejudice to public monies should not
be overlooked in the process of
promoting industrial progress. We are
quite sure that the Government is fully
alive to the situation and are equally
certain that they must be thinking of
necessary modifications in the Act.
These few observations are meant merely
to record the need for changes in the
Act. (emphasis supplied)
40. In Real Value Appliances Ltd. v.
Canara Bank & Ors., (1998) 5 SCC 554, a
contention was advanced on behalf of the
creditors that the conduct of the Company was
far from satisfactory and highly objectionable.
45
It suppressed several facts from the Court.
Contradictory and inconsistent pleas were taken
and fraud was practised on the Court.
41. This Court agreed with what was
submitted and observed;
This conduct of the appellant, in
our view, was certainly very unfair to
the High Court and, therefore, the
High Court had rightly depreciated the
same. In our view, there was a clear
attempt to keep the Court in the dark"
42. The Court, however, proceeded to
state that on that count reference-application
to the BIFR would not become bad and if the
Company was entitled to the benefit of SICA, it
could not be denied the said benefit.
43. In Rishabh Agro Industries Ltd.
v. P.N.B. Capital Services Ltd., (2000) 5 SCC
515, this Court held that where conditions
precedent for applicability of SICA were
46
satisfied, then notwithstanding that the order
for winding up of the Company had been passed,
the bar would get attracted.
44. In Patheja Bros. Forgings &
Stamping & Anr. v. ICICI Ltd. & Ors., (2000) 6
SCC 545, this Court held that without requisite
sanction under Section 22 of SICA, no suit can
be proceeded with.
45. In Jai Engineering Works Ltd. v.
Industry Facilitation Council & Anr., (2006) 8
SCC 677, after referring to all leading
decisions on the point and describing 1985 Act
as a `complete Code', this Court stated;
The 1985 Act was enacted in
public interest. It contains special
provisions. The said special
provisions had been made with a view
to secure the timely detection of sick
and potentially sick companies owning
industrial undertakings, the speedy
determination by a Board of experts
for preventive, ameliorative, remedial
and other measures which need to be
taken with respect to such companies
47
and the expeditious enforcement of the
measures so determined and for matters
connected therewith or incidental
thereto.
46. In my view, however, the learned
counsel for the appellant is right in
submitting that RDDB Act is a `special law' and
also a subsequent legislation, i.e. later law.
It is well-settled that when any law has been
enacted, the Legislature must be presumed to be
aware of all existing laws. When RDDB Act was
enacted in 1993, SICA was very much in force
since it was enacted in 1985. In spite of
that, Parliament was pleased to give
`overriding effect' to RDDB Act by using non-
obstante clause in Section 34. Sub-section (1)
expressly stated that the provisions of the Act
"shall have effect notwithstanding anything
inconsistent therewith contained in any other
law for the time being in force".
48
47. I am thus at a point where two
statutes employ non-obstante clause having
`overriding effect'. Such a conflict, as laid
down in several cases, may be resolved by
judiciary on various considerations; such as
the policy underlying the enactments, the
language used, the object intended to be
achieved; or mischief sought to be remedied,
etc. One of the tests applied by Courts is that
normally a later enactment should prevail over
the former. The Courts would also try to
reconcile both Acts by adopting harmonious
interpretation and applying them in their
respective fields so that both may operate
without coming into conflict with each-other.
In resolving the clash, the Court may further
examine whether one of the two enactments is
`special' and the other one is `general'.
There can also be a situation in law where one
and the same statute may be held to be a
`special' statute vis-`-vis one legislation and
`general' statute vis-`-vis another
49
legislation. On the basis of one or more tests,
the Court will try to salvage the situation by
giving effect to non obstante clause in both
the legislations.
48. Let me consider some of the
decisions of this Court on this vexed issue.
49. In Shri Ram Narain v. Simla
Banking & Industrial Co. Ltd., 1956 SCR 603,
two competing statutes came up for
consideration before this Court being the
Banking Companies Act, 1949 (as amended by Act
52 of 1953) and the Displaced Persons (Debt
Adjustment) Act, 1951. Section 45-A of the
Banking Companies Act (introduced by the
amending Act of 1953) and Section 13 of the
Displaced Persons Act, 1951 both contained a
non-obstante clause stating that certain
provisions of the Act shall have effect
"notwithstanding anything inconsistent
therewith in any other law for the time being
50
in force". This Court resolved the conflict by
considering the object and purpose of the two
laws and giving primacy to the Banking
Companies Act. The Court indicated that when
two Acts contain provisions giving overriding
effect, it would be a difficult question as to
which Act should prevail.
50. The Court stated--
"It is, therefore, desirable to
determine the overriding effect of one
or the other of the relevant
provisions in these two Acts, in a
given case, on much broader
considerations of the purpose and
policy underlying the two Acts and the
clear intendment conveyed by the
language of the relevant provisions
therein".
51. In Shri Sarwan Singh & Anr. v.
Shri Kasturi Lal, (1977) 1 SCC 750, two
provisions were before this Court. Section 19
of the Slum Areas (Improvement and Clearance)
Act, 1956 (as amended by Act 43 of 1964)
provided that proceedings for eviction of
51
tenants could not be taken without permission
of the competent authority "notwithstanding
anything contained in any other law for the
time being in force". Section 39 of the Act
further declared that the provisions of the Act
shall take effect "notwithstanding anything
inconsistent therewith contained in any other
law". The other statute was the Delhi Rent
Control Act, 1958 (as amended by Act 18 of
1976). Section 14-A as inserted by the
amendment Act conferred a right on a landlord
to recover immediate possession of any premises
let out by him in case he was required to
vacate any residential premises allotted to him
by the Central Government or by a local
Authority. The conferment of the right was
"notwithstanding anything contained elsewhere
in this Act or in any other law for the time
being in force". Section 25-B laid down special
procedure for enforcement of right conferred by
Section 14-A. Section 25-A stated that the
provisions in Section 25-B shall have effect
52
"notwithstanding anything inconsistent
therewith contained elsewhere in this Act or in
any other law for the time being in force".
The Court held that the right to immediate
possession conferred by Section 14-A of the
Delhi Rent Act was not controlled by the Slum
Clearance Act and the right could be enforced
in the manner provided in Section 25-B without
obtaining prior permission of the competent
Authority under the Slum Clearance Act.
52. Speaking for the Court
Chandrachud, J. (as His Lordship then was)
observed:
"For resolving such inter se
conflicts, one other test may also be
applied though the persuasive force of
such a test is but one of the factors
which combine to give a fair meaning
to the language of the law. That test
is that the later enactment must
prevail over the earlier one. Section
14A and Chapter IIIA having been
enacted with effect from December 1,
1975 are later enactments in reference
to Section 19 of the Slum Clearance
Act which, in its present form, was
53
placed on the statute book with effect
from February 28, 1965 and in
reference to Section 39 of the same
Act, which came into force in 1956
when the Act itself was passed. The
legislature gave overriding effect to
Section 14A and Chapter IIIA with the
knowledge that Sections 19 and 39 of
the Slum Clearance Act contained non
obstante clauses of equal efficacy.
Therefore the later enactment must
prevail over the former".
(emphasis supplied)
53. In Sanwarmal Kejriwal v. Vishwa
Co-operative Housing Society Ltd & Ors., (1990)
2 SCC 288, this Court applied the test as to
`general' and `special' Act and held that
special law would have primacy over the general
law.
54. In Life Insurance Corporation of
India v. D.J. Bahadur & Ors., (1981) 1 SCC 315,
before this Court two Acts came up for
consideration; (1) Industrial Disputes Act,
1947 (ID Act), and (2) Life Insurance
Corporation Act, 1956 (LIC Act). One of the
54
questions before the Court was which of the two
should be considered as `special law'. It was
urged that the Industrial Disputes Act should
be regarded as `general law' relating to
workmen and Life Insurance Corporation Act
should be considered as `special law' in
relation to employees engaged by LIC. It was,
therefore, submitted that when a complaint is
made by an employee of LIC, he cannot invoke
the provisions of ID Act and the matter must be
decided in accordance with LIC Act.
55. Krishna Iyer, J. described the
question as `crucial' which demanded an answer
about the statute being `general' or `special'.
The well known doctrine of generalia
specialibus non derogant (general provisions
will not abrogate special provisions) was also
noted and it was observed that if LIC Act was
considered `special', it must operate over ID
Act treating ID Act to be `general' law.
Noticing, however, the long title of LIC Act
55
and its object for providing nationalization of
life insurance business in the country and the
matters connected therewith, the Court observed
that the primary purpose of the Act was to
nationalize private insurance business by
establishing Life Insurance Corporation of
India. Incidentally, the said Act provided for
transfer of service of existing employees of
the insurers to the Corporation, their
conditions of service, etc. But it was `plain
and beyond doubt' that it was not concerned
with disputes between employer and employee.
The principal object of the Act was
nationalization of insurance business and it
was a `special' legislation so far as business
purpose was concerned. Disputes between
employer and employee had been dealt with by ID
Act which was a `special' law covering that
field and if there is dispute between employer
and employee in Life Insurance Corporation, LIC
Act must be treated as `general law' vis-`-vis
56
ID Act which should be treated as `special
law'.
56. His Lordship, therefore, made
the following pertinent observations:
"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 relativity
not absolutes-so too in life".
(emphasis supplied)
57. It was, therefore, concluded
that ID Act was a special statute devoted only
to investigation and settlement of industrial
disputes and since LIC Act was a general
statute, in cases of disputes between an
employer and employee, ID Act would have
primacy over LIC Act.
57
58. In Maharashtra Tubes Ltd., a
conflict between provisions of two special
statutes, viz. (1) the State Financial
Corporation Act, 1951 and (2) the Sick
Industrial Companies (Special Provisions) Act,
1985 (SICA) was highlighted. Both contained
non-obstante clause. The conflict was resolved
by this Court by giving overriding effect to
SICA on the ground that SICA was a subsequent
enactment (1985) and non-obstante clause
therein would prevail over the non-obstante
clause in the State Financial Corporation Act
(1951).
59. The Court, speaking through
Ahmadi, J. (as His Lordship then was),
observed:
"Having reached the conclusion
that both the 1951 Act and the 1985
Act are special statutes dealing with
different situations--the former
providing for the grant of financial
assistance to industrial concerns with
a view to boost up industrialisation
58
and the latter providing for revival
and rehabilitation of sick industrial
undertakings, if necessary, by grant
of financial assistance, we cannot
uphold the contention urged on behalf
of the respondent that the 1985 Act is
a general statute covering a larger
number of industrial concerns than the
1951 Act and, therefore, the latter
would prevail over the former in the
event of conflict. Both the statutes
have competing non-obstante
provisions. Section 46B of the 1951
Act provides that the provision of the
statute and of any rule or order made
thereunder shall have effect
notwithstanding anything inconsistent
therewith contained in any other law
for the time being in force whereas
Section 32(1) of the 1985 Act also
provides that the provisions of the
said Act and of any rules or schemes
made thereunder shall have effect
notwithstanding anything inconsistent
therewith contained in any other law.
Section 22(1) also carries a non-
obstante clause and says that the said
provision shall apply notwithstanding
anything contained in Companies Act,
1956 or any other law. The 1985 Act
being a subsequent enactment, the non-
obstante clause therein would
ordinarily prevail over the non-
obstante clause found in Section 46B
of the 1951 Act unless it is found
that the 1985 Act is a general statute
and the 1951 Act is a special one. In
that event the maxim generalia
specialibus non derogant would apply.
But in the present case on a
consideration of the relevant
provisions of the two statues we have
come to the conclusion that the 1951
59
Act deals with post-sickness
situation. It is, therefore, not
possible to agree that the 1951 Act is
a special statute vis-a-vis the 1985
Act which is a general statute. Both
are special statutes dealing with
different situations notwithstanding a
slight overlap here and there, for
example, both of them provide for
grant of financial assistance though
in different situations. We must,
therefore, hold that in case of sick
industrial undertakings the provisions
contained in the 1985 Act would
ordinarily prevail and govern".
(emphasis supplied)
60. A similar conflict came to light
between two statutes, namely, (i) the State
Financial Corporations Act, 1951 and (ii) the
Companies Act, 1956 in A.P. State Financial
Corporation v. Official Liquidator, (2000) 7
SCC 291. The Court treated 1951 Act as a
`special Act' for grant of financial assistance
to the industrial concerns with a view to boost
up industrialization and also recovery of
financial assistance if it becomes bad.
Likewise, the Companies Act dealt with
60
Companies including winding up of such
Companies. The Court, however, held that the
proviso to sub-section (1) of Section 529 and
Section 529-A being a subsequent enactment, the
non-obstante clause in Section 529-A would
prevail over Section 29 of the 1951 Act.
Highlighting the underlying object of non-
obstante clause in Section 529-A of the
Companies Act and a social purpose underlying
therein to ensure payment of dues to the
workmen in priority over all other debts, the
Court concluded that "if conditions are not
imposed to protect the right of the workmen,
there is every possibility that the secured
creditor may frustrate the above pari passu
right of the workmen".
61. In Allahabad Bank v. Canara Bank
& Anr., (2000) 4 SCC 406, a similar question
was raised before this Court. There the Court
considered two Acts, (i) RDDB Act, 1993 and
Companies Act, 1956. It was held that even
61
where a winding up petition was pending or a
winding up order had been passed against a
Company for debt payable to banks and financial
institutions, governing law was RDDB Act. No
leave of Company Court as envisaged under the
Company Act, therefore, was necessary. The
Court held that though both the laws could be
treated as `special laws' in respect of
recovery of dues by banks and financial
institutions, it was 1993 Act which should be
considered as `special' vis-`-vis Company Law.
62. I may refer to a recent decision
of this Court in M/s. Transcore v. Union of
India & Anr., (2008) 1 SCC 125, wherein this
Court considered the provisions of RDDB Act,
1993 and Securitization and Reconstruction of
Financial Assets and Enforcement of Security
Interest Act, 2002. Considering the scheme of
both the laws, the Court held that 1993 Act was
a `complete Code' by itself as far as recovery
of debt is concerned. It was a `special law' in
62
the matters of recovery of dues and the
provisions of the said Act would prevail over
other laws.
63. It may also be profitable to
refer to a three Judge Bench decision of this
Court in Solidaire India Ltd. v. Fairgrowth
Financial Services Ltd. & Ors., (2001) 3 SCC
71. In that case, S took loan of Rs. one crore
from F. The amount was not repaid. F,
therefore, instituted proceedings under the
Special Court (Trial of Offences Relating to
Transactions in Securities) Act, 1992 for the
recovery of the amount. The Special Court came
to the conclusion that S had not repaid the
loan and accordingly ordered S to pay the
amount with interest. During the pendency of
the appeal before this Court, S became sick and
proceedings were initiated under SICA. One of
the contentions raised before this Court by S
was that in view of special provisions
contained in SICA, no proceedings could have
63
been initiated or continued under the Special
Court Act. This Court admitted that SICA was a
`special' Act. The Court was also aware of the
non-obstante clause in Section 32 of SICA. It
noted that the effect of the said provision was
that SICA will have effect "notwithstanding
anything inconsistent therewith contained in
any other law for the time being in force".
But it noted that there was a similar non-
obstante clause in Section 13 of the Special
Court Act which was as under:
"13. Act to have overriding
effect.--The provisions of this Act
shall have effect notwithstanding
anything inconsistent therewith
contained in any other law for the
time being in force or in any
instrument having effect by virtue of
any law, other than, this Act, or in
any decree or order of any court,
tribunal or other authority."
64. The Court then stated; "This
Court has laid down in no uncertain terms that
in such an event it is the later Act which must
prevail". The Court referred to a decision
64
rendered by a Special Court in Bhoruka Steel
Ltd. vs. Fairgrowth Financial Services Ltd.,
[(1997) 89 Comp Cas 547] wherein the Special
Court stated:
"Where there are two special
statues which contain non-obstante
clauses the later statute must
prevail. This is because at the time
of enactment of the later statute, the
Legislature was aware of the earlier
legislation and its non-obstante
clause. If the Legislature still
confers the later enactment with a
non-obstante clause it means that the
Legislature wanted that enactment to
prevail. If the Legislature does not
want the later enactment to prevail
then it could and would provide in the
later enactment that the provisions of
the earlier enactment continue to
apply.
The Special Court (Trial of
Offences Relating to Transactions in
Securities) Act, 1992, provides in
Section 13, that its provisions are to
prevail over any other Act. Being a
later enactment, it would prevail over
the Sick Industrial Companies (Special
Provisions) Act, 1985. Had the
Legislature wanted to exclude the
provisions of the Sick Companies Act
from the ambit of the said Act, the
Legislature would have specifically so
provided. The fact that the
Legislature did not specifically so
65
provide necessarily means that the
Legislature intended that the
provisions of the said Act were to
prevail even over the provisions of
the Sick Companies Act.
..... ....
...... .....
It is a settled rule of
interpretation that if one
constructions leads to a conflict,
whereas on another construction, two
Acts can be harmoniously constructed
then the latter must be adopted. If an
interpretation is given that the Sick
Industrial Companies (Special
Provisions) Act, 1985, is to prevail
then there would be a clear conflict.
However, there would be no conflict if
it is held that the 1992 Act is to
prevail. On such an interpretation the
objects of both would be fulfilled and
there would be no conflict. It is
clear that the Legislature intended
that public monies should be recovered
first even from sick companies.
Provided the sick company was in a
position to first pay back the public
money, there would be no difficulty in
reconstruction. The Board for
Industrial and Financial
Reconstruction considering a scheme
for reconstruction has to keep in mind
the fact that it is to be paid off or
directed by the Special Court. The
Special Court can, if it is convinced,
grant time or instalments."
66
65. Approving the above
observations, this Court stated:
"We are in agreement with the
aforesaid decision of the case, more
so when we find that whenever the
legislature wishes to do so it makes
appropriate provisions in the Act in
that behalf. Mr. Shiraz Rustomjee has
drawn our attention to Section 34 of
the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993
wherein after giving an overriding
effect to the 1993 Act it is
specifically provided that the said
Act will be in addition to and not in
derogation of a number of other Acts
including the 1985 Act. Similarly
under Section 32 of the 1985 Act the
applicability of the Foreign Exchange
Regulation Act and the Urban Land
Ceiling Act is not excluded."
Legal position
66. From the above discussion, in my
judgment, the law is fairly well settled. A
provision beginning with non-obstante clause
("notwithstanding anything inconsistent
contained therein in any other law for the time
being in force'") must be enforced and
67
implemented by giving effect to the provisions
of the Act and by limiting the provisions of
other laws. But, it cannot be gainsaid that
sometimes one may come across two or more
enactments containing similar non-obstante
clause operating in the same or similar
direction. Obviously, in such cases, the Court
must attempt to find out the intention of the
Legislature by examining the nature of
controversy, object of the Act, proceedings
initiated, relief sought and several other
relevant considerations. From the case-law
referred to above, it is clear that Courts have
applied several workable tests. They, inter
alia, include to keep in view whether the Act
is `general' or `special', whether the Act is a
subsequent legislation, whether there is
reference to the former law and the non-
obstante clause therein. The above tests are
merely illustrative and by no means they should
be considered as exhaustive. It is for the
Court when it is called upon to resolve such
68
conflict by harmoniously interpreting the
provision of both the competing statutes and by
giving effect to one over the other.
Primacy of RDDB Act
67. Applying the above tests in the
instance case, to me, it is crystal clear that
the provisions of RDDB Act should be given
priority and primacy over SICA. I may concede
that both the Acts are `special Acts' in the
sense that they have been enacted for a
specific purpose and object in view. Whereas
SICA has been enacted in the public interest
with a view to securing the timely detection of
sick or potentially sick companies owning
industrial undertakings, the speedy
determination by a Board of Experts of the
preventive, ameliorative, remedial and other
measures which need to be taken with respect to
such companies and the expeditious enforcement
of the measures so determined and for matters
69
connected therewith or incidental thereto, RDDB
Act has been enacted to secure and protect
public revenue and for expeditious adjudication
and recovery of debts due to banks and
financial institutions. RDDB Act is subsequent
Act in the point of time being 1993 Act. It
must, therefore, be presumed even in absence of
any specific provision in the 1993 Act that
Parliament was aware of all statutes which had
been enacted prior to 1993 including SICA of
1985. In spite of that, in sub-section (1) of
Section 34 of RDDB Act, non-obstante clause has
been inserted so as to ensure expeditious
adjudication and recovery of debts due to banks
and financial institutions.
68. But it is not only on the ground
that the RDDB Act is a later Act and SICA is a
former Act that I am holding that the RDDB Act
will prevail over SICA. There is an additional
factor also which is of extreme importance and
supports the view which I am inclined to take.
70
It is sub-section (2) of Section 34. To recall,
sub-section (2) of Section 34 of RDDB Act
declares that the provisions of this Act (RDDB
Act of 1993) are "in addition to and not in
derogation of", certain enactments referred to
in the said sub-section. SICA has been
expressly mentioned in the said sub-section. As
already adverted to earlier, RDDB Act, 1993 has
been enacted with a view "to provide for the
establishment of the Tribunals for expeditious
adjudication and recovery of debts due to banks
and financial institutions" (Preamble of the
Act). All other laws, therefore, whether
general or special, prior or subsequent, must,
in my considered view, be interpreted and
applied keeping in view the above object of
enacting 1993 Act. I have, therefore, no
hesitation in holding that even though both the
conflicting statutes, (SICA of 1985 and RDDB
Act of 1993) contain non-obstante clause, in
case of conflict, RDDB Act, 1993 will prevail
71
over SICA, 1985 so far as recovery of public
revenue is concerned.
Final Order
69. For the aforesaid reasons, I
hold that the High Court has committed an error
of law in invoking and applying provisions of
Section 22 of SICA and in dropping proceedings
against the Company. The order of the High
Court, therefore, deserves to be set aside and
I do accordingly. The matter is remitted to the
High Court to decide it afresh on all points
including the conduct of the Company after
hearing the parties. All contentions of all
parties are kept open.
70. Before parting with the matter,
I may clarify that any observation on merits
which might have been made in this judgment is
only for the purpose of deciding the
preliminary question as to maintainability of
72
proceedings against the Company since the High
Court has allowed the petitions filed by the
Company only on that ground. I make it clear
that I may not be understood to have expressed
any opinion on other issues and as and when the
matter will come up before the High Court, the
same will be decided on its own merits without
being inhibited by such observations.
71. The appeal is accordingly
allowed with costs.
.........................................................J.
New Delhi; (C.K. THAKKER)
August 25, 2008.
73
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No. 5225 of 2008
(Arising out of SLP(C) No.5041 of 2006)
KSL & Industries Limited ...
Appellant
Vs.
M/s Arihant Threads Limited & Ors ...Respondents
J U D G M E N T
ALTAMAS KABIR,J.
1. I have had the benefit of going through the draft judgment prepared by my
learned Brother and while I agree with the conclusion arrived at by His
Lordship, that the High Court erred in applying the provisions of Section 22 of
the Sick Industrial Companies (Special Provisions) Act, 1985, and dropping
the proceedings against the Company, with utmost respect I find myself
unable to accept the legal reasoning on which His Lordship's conclusion is
based. I would like to traverse a different route in arriving at the same
conclusion as arrived at by my learned brother.
2. Since my learned Brother has set out the facts involved in detail, I shall only
highlight some of the facts which compel me to pen my views in a separate
judgment.
74
3. The respondent No.1-Company, M/s Arihant Threads Limited, was
incorporated as a Joint Venture Company with Punjab State Industrial
Development Corporation. In 1992 the said Company was granted lease of
Plot No.454 for 99 years by Goindwal Sahib Industrial and Investment
Corporation in the Goindwal Sahib Industrial Area. The lease contained a
specific provision disentitling the lessee from transferring its interest in the
demised property for the first 15 years of the lease without the prior
permission of the lessor. However, it was also provided that the lessee
would be entitled to mortgage its leasehold rights to a Bank, the Punjab
Financial Corporation or the Life Insurance Corporation of India as security
for development of the demised premises by constructing factory buildings
and for purchase of raw-material etc. In view of the said provision, the
Industrial Development Bank of India (hereinafter referred to as `IDBI'),
which was the predecessor of the Stressed Assets Stabilisation Fund
(hereinafter referred to as `SASF'), financed the project undertaken by the
Company.
4. As it appears from the records, the respondent no.1- Company was unable to
repay the loan and IDBI filed Original Application No.1368 of 2001 in the
Debts Recovery Tribunal, Chandigarh, (hereinafter referred to as `DRT,
Chandigarh') on 20.12.2001, for recovery of Rs.25,26,60,836/-, under the
Recovery of Debts Due to Banks and Financial Institutions Act, 1993
(hereinafter referred to as the `RDDB Act'). Despite service of notice of the
said proceedings, the respondent No.1 Company remained unrepresented
before the DRT and on 15.7.2003 an ex-parte final order was passed in favour
of IDBI for recovery of Rs.25,26,60,836/- together with interest at the rate of
7.8% per annum and a Recovery Certificate was also issued against the
respondent No.1-Company.
5. In keeping with Section 29 of the RDDB Act, the Recovery Officer issued a
composite demand notice to the respondent No.1-Company on 9.9.2003
under Rule 2 of the Second Schedule to the Income Tax Act, 1961, demanding
payment of Rs. 28,60,87,384/-. A separate direction was given to the
Company to appear before the Recovery Officer on 23.10.2003 for settling
terms and conditions relating to the proclamation of sale and for disclosure of
its movable and immovable assets.
6. A Valuation Report was also obtained from the Local Commissioner,
appointed by the Recovery Officer, who in his report indicated that two
machines were missing from the Company's factory. A further Valuation
Report was obtained from the North-India Technical Consultancy Association
Limited in January 2004, wherein the assets of the Respondent No.1-Company
was valued at Rs.17.5 crores on 16.9.2004. The reserve price of the property
was fixed at Rs.12.50 crores by the Recovery Officer and two separate dates
75
were fixed for sale of the immovable and movable properties of the Company.
The respondent No.1 - Company filed an appeal, being Appeal No.52 of
2004, before the DRT on 18.10.2004 under Section 30 of the RDDB Act
questioning the fixation of the reserve price by the Recovery Officer at
Rs.12.50 crores. The proposed auction sale was, therefore, cancelled till the
DRT by its order dated 27.10.2004 allowed the auction sale to proceed but
restrained the Recovery Officer from confirming the same till further orders.
Consequently, the auction was held and concluded on 30.10.2004 and the
appellant herein was declared to be the successful bidder. Consequently, as
per rules laid down, the appellant deposited 25% of the reserve price
immediately. On 11.11.2004, the appellant made an application to the DRT
for accepting bank guarantee for the remaining balance of 75% of the sale
price. On the said application being dismissed the appellant-auction purchaser
on the same day deposited the balance amount of 75% of the sale price by a
bank draft. It is only after the sale had been conducted and concluded on
30.10.2004 that an application was made by the respondent-Company on
15.12.2004 in the pending appeal for setting aside the ex-parte final order
passed by the DRT, Chandigarh, on 15.7.2003 and the same was registered as
M.A.No.103/2004. The appellant herein filed an application for being added
as a party in Appeal No.52 of 2004 and also in M.A. No.103 of 2004 to enable
it to oppose the prayer of the Company for setting aside the final order passed
by the DRT, Chandigarh, on 15.7.2003. Such prayer for impleadment was
allowed by the DRT by its order dated 17.12.2004.
7. At this juncture it may be indicated that on 10.6.2002 M/s Roland Exports,
which had succeeded to the interests of Goindwal Sahib Industrial
Corporation, cancelled the lease of the respondent No.1-Company on account
of non-payment of lease dues amounting to Rs.3,19,94,149/-. On 8.4.2005
M/s Roland Exports filed a suit for permanent injunction against the
respondent No.1-Company in the Civil Court at Tarantaran, District Amritsar,
wherein an order of status-quo with regard to possession was passed.
8. On 26.7.2005, DRT-I, Delhi, allowed Appeal No.52 of 2004 and set aside the
auction sale subject to the Company fulfilling certain terms and conditions
laid down in the order. One of the conditions imposed by the Tribunal was
that the Company would have to pay 5% of the amount deposited by the
auction purchaser within 10 days as penalty in terms of Rule 60 of the Second
Schedule of the Income Tax Act, 1961. Objecting to the said terms and
conditions imposed by the DRT the Company filed an appeal with DRAT,
Delhi, being Appeal No.167 of 2005. The appellant herein also filed an appeal
against the setting aside of the auction sale. The DRAT stayed the operation of
the order dated 26.7.2005 by which the DRT-I, Delhi, had allowed Appeal
No.52 of 2004 and had set aside the auction sale. The DRAT also directed
refund of the sale amount to the appellant.
76
9. While the matter was pending before the DRAT, the respondent-Company
filed a Reference before the Board for Industrial and Financial Reconstruction
(hereinafter referred to as `BIFR'), on 21.12.2005 under the provisions of the
Sick Industrial Companies (Special Provisions) Act, 1985, and the same was
registered as BIFR Case No.4 of 2006.
10. On 10.2.2006 the DRAT dismissed the appeal filed by the Company and
allowed the appeal of the appellant and confirmed the auction sale in favour of
the appellant, subject to its depositing the sale price. By a separate order
passed on the same day the DRAT ordered the Recovery Officer, Chandigarh,
to implement the directions issued by it. However, despite the appellant
depositing the full purchase price on the very same day, the sale could not be
confirmed as the Presiding Officer was on leave. The appellant moved the
DRAT for appointment of a Recovery Officer for confirmation of the sale.
While the said matters were pending, the respondent-Company filed two writ
petitions being C.W. Nos.2041 and 2042 of 2006, in the High Court of Delhi,
against the order dated 10.2.2006 passed by DRAT dismissing the Company's
appeal. The Delhi High Court allowed the writ petitions filed by the
respondent-Company and by its order dated 23.2.2006 set aside the order
passed by the DRAT on the ground that Section 22 of the Sick Industrial
Companies (Special Provisions) Act, 1985 operated as a complete bar for
taking recovery proceedings and no order could therefore have been passed by
the Tribunal confirming the sale.
11. It is against the said order of the Delhi High Court that the Special Leave
Petitions were filed on 26.3.2006 wherein leave has since been granted.
12. It may be significant to note at this stage that on 3.4.2006 the BIFR rejected
the Reference made by the Company and that on 15.9.2006 another Reference
was filed by the respondent-Company which was registered as BIFR Case
No.18 of 2006. It is in the said Reference that on 22.2.2007 the BIFR declared
the Company to be a "sick company" and the respondent No.5 was appointed
as the Operating Agency for preparation of a rehabilitation scheme.
13. Learned counsel for the appellant submitted that the High Court had erred in
law in holding that the recovery proceedings initiated under the provisions of
the RDDB Act were barred by Section 22 of the SICA. It was submitted that
Section 22 of SICA was not attracted to the proceedings and the High Court
should have decided the matter on merits. It was also submitted on behalf of
the appellant that Section 34 of the RDDB Act had an overriding effect over
the provisions of SICA and that the High Court should have decided the
matter on merits on such grounds as well. It was further contended that the
77
appeal preferred by the respondent-Company under Section 30 of the RDDB
Act, against the order of the Recovery Officer fixing the reserve price at
Rs.12.5 crores, was not maintainable and ought not to have been entertained
by the DRT-I,Delhi.
14. As has been indicated by my learned Brother in his judgment, it had been
forcefully contended on behalf of the appellant that when the respondent-
Company had invoked the discretionary and equitable jurisdiction of the High
Court under Article 226 of the Constitution, the High Court should have taken
into account the overall conduct of the party as the respondent-Company had
not come to the writ court with clean hands. Not only had it not repaid the
loan amount, but it did not appear before the DRT inspite of service of
summons and the ex-parte final order was, therefore, rightly passed on the
Original Application filed by the IDBI. The respondent- Company also filed
an appeal against the order of the Recovery Officer before the DRT-I, Delhi,
under Section 30 of the RDDB Act, and failed to comply with the directions
contained in the interim order under which directions for payment were made,
but no payment was made as directed. To make matters worse, the respondent-
Company forcibly entered the property in question and dispossessed the
Receiver appointed by the Tribunal and removed machinery and other
movable properties from the said premises and created an unlawful tenancy in
favour of a third party. In such background it was submitted that even if the
case was covered under Section 22 of SICA, the High Court, in exercise of its
extra-ordinary jurisdiction, ought not to have allowed the writ petition filed by
the Company.
15. Learned counsel for the respondent No.1-company submitted that the appeal
preferred by the Company under Section 30 of the RDDB Act against the
order of the Recovery Officer fixing the reserve price, was maintainable since
the same was an order passed by the Recovery Officer under the Act. It was
contended that since such a course of action was available to the respondent-
Company it was not incumbent upon the Company to deposit the amounts
indicated in the order of the DRT-I, Delhi, while allowing appeal No.52 of
2004 as a pre-condition for setting aside the auction sale. It was contended that
the High Court was fully justified in allowing the writ petitions filed by the
respondent-Company in keeping with the bar imposed under Section 22 of
SICA.
16. As has been pointed out by my learned Brother, the writ petitions filed by the
respondent-Company were allowed by the High Court on the sole ground that
the recovery proceedings under the RDDB Act were barred under Section 22
of the SICA. Having once come to the conclusion that the proceedings were
barred under Section 22 of the SICA, the High Court did not go into any other
question with regard to the merits of the matter and set aside the order of the
DRAT confirming the auction sale on that one ground alone.
78
17. My learned brother has discussed in detail the relevant provisions of SICA and
the RDDB Act and has observed that Section 34 of the RDDB Act is of
extreme importance since it allows "overriding effect" to the provisions of the
Act over other laws. Inasmuch as my learned Brother's judgment is based on
an interpretation of Section 34 of the RDDB Act in relation to Section 22 of
SICA, the same is reproduced hereinbelow to consider the effect thereof :
"34. Act to have over-riding effect-(1) Save as otherwise
provided in sub-section (2), the provisions of this Act shall
have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force or in any
instrument have effect by virtue of any law other than this Act
(2) The provisions of this act or the rules made thereunder shall
be in addition to, and not in derogation of, the Industrial
Finance Corporation Act, 1948 (15 of 1948), the State
Financial Corporations Act, 1951 (63 of 1951), the Unit Trust
of India Act, 1963 (52 of 1963), the Industrial Reconstruction
Bank of India Act, 1984 (62 of 1984), the Sick Industrial
Companie (Special Provisions) Act, 1985 and the Small
Industries Development Bank of India Act, 1989."
18. My learned Brother has relied on the non-obstante provision contained in Sub-
section (1) of Section 34 in arriving at a finding that the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993, would have an overriding
effect over other enactments. Since the Sick Industrial Companies (Special
Provisions) Act, 1985, also contains a similar non-obstante clause in Section
22, His Lordship has considered in detail the effect of the two non-obstante
clauses in the two separate enactments governing the same field and has held
that since the RDDB Act was a later Act it would prevail over the SICA which
was an earlier Act.
19. It is at this point that I am unable to travel the same path which my learned
Brother has chosen to traverse.
20. The opening words of Sub-section (1) of Section 34 of the RDDB Act clearly
make the provisions thereof subject to the provisions of Sub-section (2) which
in unambiguous term provides that the provisions of the Act or the Rules
made thereunder would be in addition to and not in derogation of, certain
statutes indicated therein, including the Sick Industrial Companies (Special
79
Provisions) Act, 1985. It is, therefore, clear that while the RDDB Act would
have an over-riding effect over other enactments, its provisions would only be
supplemental to those of the SICA and consequently the provisions of the
SICA would prevail over the provisions of the RDDB Act. Accordingly, if it is
held that the situation in this case is covered by the provisions of SICA, then
the view taken by the High Court would have to be upheld. If, however, it is
found that the provisions of SICA do not apply to the facts of this case, then
there can be no doubt that the judgment of the High Court would have to be
set aside.
21. During the course of arguments, counsel for the parties did make submissions
with regard to the merits of the matter, which may have to be considered in the
light of the view which I am inclined to take in the matter. Furthermore, if it
is found that the provisions of SICA, and consequently Section 22 thereof, are
not attracted to the facts of this case, the discussion with regard to the RDDB
Act being a later Act having an overriding effect over the SICA becomes
redundant for the purposes of deciding this appeal. For the aforesaid purpose
it would be necessary to consider a few dates which have been mentioned
hereinbefore.
22. The first date which is relevant for our purpose is 15.7.2003 when the ex-parte
final order was passed by the DRT, Chandigarh, for recovery of the sum
claimed by IDBI, along with interest @ 7.8% per annum, and a Recovery
Officer was appointed.
23. The second relevant date is 9.9.2003 when the Recovery Officer issued a
demand notice under Rule 2 of the Second Schedule of the Income Tax Act,
1961, to the respondent-Company for payment of a sum of Rs.25,26,60,836/-
as directed by the DRT, Chandigarh, in its final order. It is only after the
Recovery Officer fixed the reserve price for the auction sale of the Company's
assets that the respondent-Company filed an appeal before the DRT on
18.10.2004 under Section 30 of the RDDB Act against the said order of the
Recovery Officer. It has also to be noted that on 27.10.2004 the DRT allowed
the auction sale to proceed but directed that the sale should not be confirmed
until further orders.
24. The next relevant date is 30.10.2004 when the auction was concluded and the
appellant was declared to be the highest bidder and the entire sale price was
deposited by the appellant auction purchaser on 11.11.2004.
25. It is significant to note that in the appeal, being Appeal No.52 of 2004 under
Section 30 of the RDDB Act, an application was moved by the respondent-
80
Company on 15.12.2004 for setting aside the ex-parte final order passed on
15.7.2003 and the appellant also filed an application for impleadment to
enable it to oppose the prayer for setting aside the final order.
26. The next date of significance is 26.7.2005 when Appeal No.52 of 2004 filed
by the respondent-Company under Section 30 of the RDDB Act against the
order of the Recovery Officer fixing the reserve price of the Company's assets
was allowed by DRT-I, Delhi, subject to the Company fulfilling certain terms
and conditions as indicated in the order.
27. It is only thereafter on 21.12.2005 that the respondent-Company filed a
Reference before the BIFR which was registered as BIFR case No.4 of 2006
and the same came to be dismissed on 3.4.2006.
28. In the meantime, the appeal preferred by the respondent-Company before the
Debts Recovery Appellate Tribunal against the order of DRT-I, Delhi,
allowing the Company's Appeal No.52 of 2004 was dismissed and the sale in
favour of the appellant herein was confirmed, subject to deposit of the entire
sale price.
29. It will be of interest to note that the proceedings taken by the respondent-
Company after the passing of the final order by DRT, Chandigarh, on
15.7.2003, were directed against fixation of the reserve price by the Recovery
Officer though in Appeal No.52 an application was made by the Company for
setting aside the final order passed by the DRT Chandigarh. The same was
however, of no consequence as the appeal was preferred against the order of
the Recovery Officer fixing the reserve price of the Company's assets and not
the final order, which, in any event, could not have been challenged in the said
proceedings. In effect, the final order passed by the DRT, Chandigarh,
directing the respondent-Company to pay the dues of IDBI remained
unchallenged and attained finality. The two courses available to the
respondent No.1-Company for preferring an appeal under Section 20 of the
RDDB Act or by way of an application for setting aside the sale under Rule 60
of the Second Schedule of the Income Tax Act, 1961, were not resorted to by
the respondent-Company. Instead, it chose to adopt a path restricted to the
setting aside of the auction sale on the ground that the reserve price of the
Company's assets had not been correctly fixed by the Recovery Officer prior
to the auction sale.
30. Consequently, the scope of the appeal preferred by the respondent-Company
was confined only to the question as to whether the reserve price had been
correctly fixed by the Recovery Officer.
81
31. This brings us to the next question regarding the applicability of Section 22 of
SICA in the proceedings initiated by IDBI for recovery of its dues under the
provisions of the RDDB Act, 1993.
32. As will be seen from what has been indicated hereinabove, the final order was
passed on 15.7.2003 by DRT, Chandigarh, at a point of time when no
Reference had at all been made by the respondent-Company to the BIFR for
being declared a "sick company". The auction was held and concluded on
30.10.2004, again before a Reference had been made by the respondent-
Company to the BIFR. It is only on 21.12.2005 that the Company filed a
Reference before the BIFR which was rejected on 3.4.2006. In between, the
appeal preferred by the respondent-Company (No.52 of 2004) before the DRT
under Section 30 of the RDDB Act was allowed and the auction sale was set
aside, but the final order passed by DRT, Chandigarh, remained untouched.
The appeal preferred by the appellant herein against the order of the DRT
allowing Appeal No.52 of 2004 was subsequently decided in favour of the
appellant on 10.2.2006 and the auction sale was confirmed in favour of the
appellant with a direction upon the Recovery Officer and the other concerned
authorities to complete the sale in favour of the appellant herein. It is only on
15.9.2006, after all the aforesaid orders had been passed that a second
Reference was filed by the respondent-Company before the BIFR on
15.9.2006 and on 22.2.2007 the Company was declared to be a "sick
company" by the BIFR.
33. The above dates will amply show that the proceedings had been taken by the
IDBI under Section 19 of the RDDB Act and the final order had been passed
therein long before the BIFR came on to the scene. Even the auction sale was
concluded in favour of the appellant before the first Reference was made by
the Company to the BIFR. The sale was confirmed by the DRAT before the
writ petitions were allowed by the High Court on the ground that the recovery
proceedings were barred under Section 22 of SICA. Ultimately, the
Company's first Reference was rejected by the BIFR and only upon a second
reference filed by the respondent-Company on 15.9.2006 was the Company
declared by the BIFR to be a "sick company" on 22.2.2007.
34. In other words, the final order in the recovery proceedings under Section 19 of
the RDDB Act was passed and the auction sale was concluded before the first
Reference was filed by the respondent-Company with the BIFR and long
before the respondent-Company was declared to be a sick Company on
22.2.2007. It is, therefore, clear that the provisions of the Sick Industrial
Companies (Special Provisions) Act, 1985, were sought to be invoked by the
respondent No.1-Company after the recovery proceedings had been concluded
82
in favour of the appellant who had also deposited the sale price in respect of
his offer which had been accepted by the Recovery Officer.
35. For reasons which are obvious, the respondent-Company chose not to take
recourse either to Section 20 of the RDDB Act or Rule 60 of the Second
Schedule of the Income Tax Act, 1961, and took a chance of filing an appeal
under Section 30 of the RDDB Act with regard to the fixation of the reserve
price of the Company's assets by the Recovery Officer for the purposes of the
auction sale and the scope of the appeal was limited to such issue alone.
36. Since the respondent-Company did not challenge the final order of the DRT,
Chandigarh, the same continued to be in force and was carried to its logical
conclusion by the holding of auction sale and confirmation thereof in favour
of the appellant herein.
37. The order passed by the DRAT on 10.2.2006 confirming the sale in favour of
the appellant was made long before the respondent-Company was declared to
be a "sick company" on 22.2.2007. The High Court was, therefore, in error in
applying the provisions of Section 22 of the SICA when the sale had already
been confirmed in favour of the appellant and the purchase price had already
been deposited. Furthermore, the first Reference made by the respondent-
Company was also rejected by the BIFR on 3.4.2006.
38. Apart from the above, even on merits, the conduct of the respondent No.1-
company leaves much to be desired. Without challenging the final order
passed by the DRT, Chandigarh, allowing the Bank's claim of
Rs.25,26,60,836/- together with interest @ 7.8% per annum, the said
respondent questioned the order of the Recovery Officer, fixing the reserve
price of the Company's assets for the purposes of the auction sale, under
Section 30 of the RDDB Act, having full knowledge of the fact that the final
order of the DRT, Chandigarh, could not be challenged in such appeal. The
steps taken by the respondent No.1, Company were far from bona fide and
were only aimed at stalling the auction sale. Even at the time of auction of the
company's assets, no attempt was made by the Respondent No.1-Company to
secure a bid higher than that of the appellant.
39. Having regard to the above, in my view nothing further remains to be decided
by the High Court.
83
40. The appeal is accordingly allowed and the order of the High Court impugned
in the appeal is set aside with costs assessed at Rs.50,000/-.
..........................................J.
(ALTAMAS KABIR)
Dated : 25.08.2008
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.5225 OF 2008
(Arising out of SLP (Civil) No.5041 of 2006
KSL & Industries Ltd. Appellant(s)
Versu
s
M/s Arihant Threads Ltd. & Respondent
Ors. (s)
O R D E R
Although, both of us held that the
appeal deserves to be allowed and the
order of the High Court is to be set
aside, in view of the difference of
opinion on interpretation of Section 34 of
the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993, the
84
Registry is directed to place the papers
before the Hon'ble the Chief Justice of
India for taking appropriate action in
accordance with law.
..............
...J.
[ C.K.
THAKKER ]
.................J.
[ALTAMAS
KABIR]
NEW DELHI,
AUGUST 25, 2008.
