# [2016] 11S.C.R.419 MIS MADRAS PETROCHEM LTD. & ANR v. BIFR& ORS

- **Citation:** [2016] 11 S.C.R. 419
- **Court:** Supreme Court of India
- **Decided:** 2016-01-29
- **Case number:** Civil Appeal Nos. 614-615 of2016
- **Bench:** Kurian Joseph, R.F. Nariman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/2016-11s-c-r-419-mis-madras-petrochem-ltd-anr-v-bifr-ors-31168
- **Pages:** 57

## Headnote

Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act) - ss. 13,
35, 37 and 41 - Sick Industrial Companies (Special Provisions)
·Act, 1985 (SICA) - ss. 15; 22 and 32 - Whether the SARFAESI Act
prevails over the SICA Act - Held: SARFAESI Act prevails over the
SICA to the extent of inconsistency therewith - Where a secured
creditor of a sick industrial company seeks to recover its. debt in the
manner provided by s.13 (2) of the SARFAESI Act, such secured
creditor may realise such secured debt uls. 13(4) of the SARFAESI
Act, notwithstanding the provisions of s.22 of SICA - In a situation
where there are more than one secured creditor of a sick industrial
company or it has been jointly financed by secured creditors, and
at least 60% of such secured creditors in value of the amount
outstanding as on a record date do not agree upon exercise of the
right to realise their secitrity under the SARFAESI Act, s.22 of SICA
will continue to have fall play -Where, uls.13 (9) of the SARFAESI
Act, in the case of a sick industrial company having more than one
secured creditor or being jointly financed by secured creditors
representing 60%. or more in value of the amount outstanding as on
a record date wish to exercise their rights to enforce their security
under the SARFAESI Act, s.22 of SICA, being inconsistent with the
exercise of such rights, will have no play - Where secured creditors
representing not less than 75% in value of the amount outstanding
against financial assistance decide to enforce their security under
the SARFAESI Act, any reference pending under the SICA cannot
be further proceeded with and proceedings under the SICA will
abate - However, s.22 of the SICA will continue to apply in the case
of unsecured creditors seeking to recover their debts from a sick
industrial company - This is for the reason that the SICA o;verrides
the provisions of the DRT Act - Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 (DRT Act) - ss. 17, 18 and 34.
'
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SUPREME COURT REPORTS
(2016] 11 S.C.R.
Sick Industrial Compa1111:' (Special .Provisions) Act, 1985
(SICA) - s.15(1), proviso 3 - Expression "where a reference is
pending" in s.15 (1) proviso 3 - Interpretation of - Whether the
said expression would include all proceedings before the BIFR or
only proceedings at the initial reference stage - Held: s.15(1) proviso
3 covers all references pending before the BJFR, no matter whether
such reference is at the inquiry stage, scheme stage, or winding up
stage.
Dismissing the appeals, the Court
HELD: Whether the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
prevails over the Sick Industrial Companies (Special Provisions)
Act, 1985
1.1 The Sick Industrial Companies (Special Provisions) Act,
1985 prevails in all situations where there are earlier enactments
with non obstante clauses similar to the Sick Industrial Companies
(Special Provisions) Act, 1985. Where there are later enactments
with similar 11011 obstante clauses, the Sick Industrial Companies
(Special Provisions) Act, 1985 bas been held to prevail only in a
situation where the reach of the 11011 obstante clause in the later
Act is limited - such as in the case of the Arbitration and
Conciliation Act, 1996 - or in the case of the later Act expressly
yielding to the Sick Industrial. Companies (Special Provisions)
Act, 1985, as in the case of the Recovery Of Debts Due To Banks
And Financial Institutions Act, 1993. [Para 33) [462-A-C)
l.2 Section 37 of the Securitisation and Reconstruction of
Firiancia.l Assets and Enforcement of Security Interest Act, 2002
does not include the Sick Industrial Companies (Special
Provisions) Act, 1985 unlike Section 34(2) of the Recovery of
Debts Due To Banks and Financial Institutions Act, 1993. Section
37 of the Securities and Reconstruction of Financial Assets and
Enforcement of Security Inte

## Text

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.[2016] 11S.C.R.419
MIS MADRAS PETROCHEM LTD. & ANR
v.
BIFR& ORS.
(Civil Appeal Nos. 614-615 of2016)
JANUARY 29, 2016
(KURIAN JOSEPH AND R.F. NARIMAN, JJ.]
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (SARFAESI Act) - ss. 13,
35, 37 and 41 - Sick Industrial Companies (Special Provisions)
·Act, 1985 (SICA) - ss. 15; 22 and 32 - Whether the SARFAESI Act
prevails over the SICA Act - Held: SARFAESI Act prevails over the
SICA to the extent of inconsistency therewith - Where a secured
creditor of a sick industrial company seeks to recover its. debt in the
manner provided by s.13 (2) of the SARFAESI Act, such secured
creditor may realise such secured debt uls. 13(4) of the SARFAESI
Act, notwithstanding the provisions of s.22 of SICA - In a situation
where there are more than one secured creditor of a sick industrial
company or it has been jointly financed by secured creditors, and
at least 60% of such secured creditors in value of the amount
outstanding as on a record date do not agree upon exercise of the
right to realise their secitrity under the SARFAESI Act, s.22 of SICA
will continue to have fall play -Where, uls.13 (9) of the SARFAESI
Act, in the case of a sick industrial company having more than one
secured creditor or being jointly financed by secured creditors
representing 60%. or more in value of the amount outstanding as on
a record date wish to exercise their rights to enforce their security
under the SARFAESI Act, s.22 of SICA, being inconsistent with the
exercise of such rights, will have no play - Where secured creditors
representing not less than 75% in value of the amount outstanding
against financial assistance decide to enforce their security under
the SARFAESI Act, any reference pending under the SICA cannot
be further proceeded with and proceedings under the SICA will
abate - However, s.22 of the SICA will continue to apply in the case
of unsecured creditors seeking to recover their debts from a sick
industrial company - This is for the reason that the SICA o;verrides
the provisions of the DRT Act - Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 (DRT Act) - ss. 17, 18 and 34.
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SUPREME COURT REPORTS
(2016] 11 S.C.R.
Sick Industrial Compa1111:' (Special .Provisions) Act, 1985
(SICA) - s.15(1), proviso 3 - Expression "where a reference is
pending" in s.15 (1) proviso 3 - Interpretation of - Whether the
said expression would include all proceedings before the BIFR or
only proceedings at the initial reference stage - Held: s.15(1) proviso
3 covers all references pending before the BJFR, no matter whether
such reference is at the inquiry stage, scheme stage, or winding up
stage.
Dismissing the appeals, the Court
HELD: Whether the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
prevails over the Sick Industrial Companies (Special Provisions)
Act, 1985
1.1 The Sick Industrial Companies (Special Provisions) Act,
1985 prevails in all situations where there are earlier enactments
with non obstante clauses similar to the Sick Industrial Companies
(Special Provisions) Act, 1985. Where there are later enactments
with similar 11011 obstante clauses, the Sick Industrial Companies
(Special Provisions) Act, 1985 bas been held to prevail only in a
situation where the reach of the 11011 obstante clause in the later
Act is limited - such as in the case of the Arbitration and
Conciliation Act, 1996 - or in the case of the later Act expressly
yielding to the Sick Industrial. Companies (Special Provisions)
Act, 1985, as in the case of the Recovery Of Debts Due To Banks
And Financial Institutions Act, 1993. [Para 33) [462-A-C)
l.2 Section 37 of the Securitisation and Reconstruction of
Firiancia.l Assets and Enforcement of Security Interest Act, 2002
does not include the Sick Industrial Companies (Special
Provisions) Act, 1985 unlike Section 34(2) of the Recovery of
Debts Due To Banks and Financial Institutions Act, 1993. Section
37 of the Securities and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 states that the said
Act shall be in addition to and not in derogation of four Acts,
namelyt the Companies Act, the Securities Contracts (Regulation)
Act, 1956, the Securities and Exchange Board of India Act, 1992
and the Recovery Of Debts Due To Banks And Financial
Institutions Act, 1993. It is clear that the first three Acts deal
with securities generally and the Recovery Of Debts Due To
MIS MADRAS PETROCHEM LTD.& ANR. v. BIFR & ORS.
Banks And Financial Institutions Act, 1993 deals with recovery
of debts due to banks and financial institutions. Interestingly,
Section 41 of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 makes
amendments in three Acts - the Companies Act, the Securities
Contracts (Regulation) Act, 1956, and the Sick Industrial
Companies (Special Provisions) Act, 1985. It is of great
significance that only the first two Acts are included in Section 37
and not the third i.e. the Sick Industrial Companies (Special
Provisions) Act, 1985. This is for the obvious reason that the
framers of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 intended
that the Sick Industrial Companies (Special Provisions) Act, 1985
be covered by the 11011 obstante clause contained in Section 35,
and not by the exception thereto carved out by Section 37.
Further, whereas the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 is expressly mentioned in Section
37, the Sick Industrial Companies (Special Provisions) Act, 1985
is not, making the above position further clear. And this is in
stark contrast to Section 34(2) of the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993, which expressly
included the Sick Industrial Companies (Special Provisions) Act,
1985. The new legislative scheme qua recovery of debts contained
in the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 has therefore to be
given precedence over the Sick Industrial Companies (Special
Provisions) Act, 1985, unlike the old scheme for recovery of debts
contained in the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993. [Para 34) (462-E-H; 463-A-D)
1.3 Further, Section 35 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 is not made subject to Section 37 of the said
Act. This statutory scheme is at complete variance with the
statutory scheme contained in Section 34 of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 in which subsection (1) of Section 34 containing the 11011 obstante clause is
expressly made subject to sub-section (2) (containing the Sick
Industrial Companies (Special Provisions) Act, 1985) by the
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[2016] II S.C.R.
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expres!>ion "save as provided under sub-section (2)". [Para 35]
[463-E-F]
1.4 Since neither Section 35 nQr Section 37 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 is subject to the other,
B · if is necessary to interpret the expression "or any other law for
the time being in force" in Section 37. The two apparently
conflicting Sections can best be harmonized by giving meaning
to both. This can only be done by limiting the scope of the
expression "or any other law for the time being in force"
contained in Section 37. This expression will therefore have to
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be held to mean other laws having relation to the securities
market only, as the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 is the only other special law, apart from
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, dealing with recovery
of debts due to banks and financial institutions. On this
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interpretation also, the Sick Industrial Companies (Special
Provisions) Act, 1985 will not be included for the ob\'~ous reason
that its primary objective is to rehabilitate sick industrial
companies and not to deal with the securities market. [Para 36]
[463-F-G; 464-B-D]
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1.5 The Eradi Committee relating to insolvency and winding
up of companies recommended that the Sick Industrial
Companies (Special Provisions) Act, 1985 be repealed and the
provisions thereunder for revival and rehabilitation should be
telescoped into the structure of the Companies Act, 1956 itself.
Pursuant to the Eradi Committee report, the Companies Act was
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amended in 2002 by providing for the constitution of a National
Company Law Tribunal as a substitute for the Company Law
Board, the· High Court, the BIFR and the AAIFR. The Eradi
Committee Report was further given effect to by inserting
Sections 424A to 424H into the Companies Act, 1956 which, with
a few changes, mirrored the provisions of Sections 15 to 21 of
G. the Sick Industrial Companies (Special Provisions) Act, 1985.
H
The Companies Amendment Act of 2002 omitted a provision
similar to Section 22(1) of the Sick Industrial Companies (Special
Provisions) Act, 1985. Consequently, creditors were given liberty
to file suits or initiate
other proceedings for recovery of dues
despite pendency of prnceedings for the revival or rehabilitation
MIS MADRAS PETROCHEM LTD.& ANR. v. BIFR & ORS.
of sick companies before the National Company Law Tribunal.
Close on the heels of the amendment made to the Companies
Act came The Sick Industrial Companies (Special Provisions)
·Repeal Act, 2003. This particular Act was meant to repeal the
Sick Industrial Companies (Special Provisions) Act, 1985
consequent to some of its provisions being telescoped into the
Companies Act. Thus, the Companies Amendment Act of 2002
and the SICA Repeal Act formed part of one legislative scheme,
and neither has yet been brought into force. In fact, even the
Companies Act, 2013, which repeals the Companies· Act, 1956,
contains Chapter 19· consisting of Sections 253 to 269 dealing
with revival and rehabilitation of sick companies along the lines
of Sections 424A to 424H of the amended Companies Act, 1956.
Conspic.uous by its absence is a provision akin to Section 22(1)
of the Sick Industrial Companies (Special Provisions) Act, 1985
in the 2013 Act. However, this Chapter is also yet to be brought
into force. These statutory provisions, though not yet brought
into force, are also an important pointer to the fact that Section
22(1) of the Sick Industrial Companies (Special Provisions) Act,
1985 has been statutorily sought to be excluded, Parliament
veering around from wanting to protect sick industrial companies
and rehabilitate them to giving credence to the public interest
contained in the recovery of public monies owing to banks and
financial institutions. These provisions also show that the aforesaid
construction of the provisions of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 vis-a-vis the Sick Industrial Companies (Special
Provisions) Act, 1985, leans in favour of creditors being able to
realize their debts outside- the court process over sick industrial
companies being revived or rehabilitated. [Paras 37, 38 and 40]
[464-G-H; 465-A-C, D-H, 466-A-B]
1.6 It is seen that notwithstanding the non ohstante clauses
in Section 22(1) and (4), read with Section 32, Section 22 of the
Sick Industrial Companies (Special Provisions) Act, 1985 will have
to give way to the measures taken under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 more particularly referred to in Section 13 of
the said Act. [Para 41] (466-F-G]
·
·
Kihoto Hollohan v. Zachillhu & Ors. (1992) Supp. (2)
SCC 651 : 1992 (1) SCR 686; Ravi S. Naik v. Union qf
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India & Ors. (1994) Supp. (2) SCC 641 : 1994 (1)
SCR 754; and BPL Ltd. & Ors. v. R. Sudhakar & Ors.
(2004) 7 sec 219 : 2004 (2) Suppl. SCR 414 -
distinguished.
KSL & Industries Ltd. v. Arihant Threads Ltd. (2015) 1
SCC 166; Mardia Chemicals Ltd. Etc. v. Union of India
(UOI) and Ors. ~tc. Etc. (2004) 4 SCC 311 : 2004 (3)
SCR 982; Maharashtra Tubes Ltd. v. State Industrial
And Investment (1993) 2 SCC 144 : 1993 (1) SCR
340; Solidaire India Ltd. v. Fairgrowth Financial
Services Ltd. and Ors. (2001) 3 SCC 71 : 2001 (1) SCR
932; Jay Engineering Works Ltd. v. Industry Facilitation
Council and Anr. (2006) 8 SCC 677 : 2006 (6) Suppl.
SCR 189; Morgan Securities and Credit Pvt. Ltd. v. Modi
Rubber Ltd. (2006) 12 SCC 642 : 2006 (10) Suppl.
SCR 1022; Tata Motors Ltd. v. Pharmaceutical Products
of India Ltd. and Anr. (2008) 7 SCC 619 : 2008 (9)
SCR 267; NFEF Ltd. v. Chandra Developers (P) Ltd.
(2005) 8 SCC 219 : 2005 (3) Suppl. SCR_747; Raheja
Universal Limited v. NRC Limited and Ors. (2012) 4
SCC 148 : 2012 (3) SCR 388; Union of India v. R,
Gandhi, President, Madras Bar Association (2010) 11
SCC 10; Shree Chamundi Mopeds v. Church of South
India Trust Association (1992) 3 SCC 1 : 1992 (2) SCR
999 - referred to.
Whether the expression "where a reference is pending" in
Section 15 (1) proviso 3 of the Sick Industrial Companies (Special
F
Provisions) Act, 1985 would include all proceedings before the
BIFR or only proceedings at the initial reference stage
2.1 First and foremost, it is important to note that the third
proviso to Section 15(1) uses the words "is pending". A reference
has been held to be pending the moment it is received by the
G
Board. If a literal meaning were to be applied to the expression
"where a reference is pending", the third proviso to Section 15(1)
of the Sick Industrial Companies (Special Provisions) Act, 1985
would be rendered otiose and the purpose for which it was
inserted would completely fail. On a liternl 1·cading of the
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M/S MADRAS PETROCHEM LTD.& ANR. v. BIFR & ORS.
provision, such reference shall abate on steps being taken by
the secured creditors to recover their secured debts under
Section 13(4) of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, the
moment a reference is registered. And the moment the reference
is registered, an inquiry as contemplated by Section 16 shall be
deemed to commence. If that is so, then a reference can never
be said to be pending after an inquiry commences. This can never
be the case. It is clear, therefore, that the expression "where a
reference is pending" would necessarily include the inquiry stage
before the Board under Section 16 of the Act. If this be the case,
· then the reference can be said to be pending not only when an
inquiry is instituted, but also after preparation and sanction of a
scheme right till the stage the scheme has worked out
successfully or till the BIFR gives its opinion to. wind up the
company. [Para 48] [470-E-F; 471-B-F]
·
2.2 The expression "reference" used in Section 15(1)
proviso 3 is used in contra distinction to the expression
"proceedings" in Section 22. "Proceedings" under Section 22
are actions taken against the sick company, whereas "references"
are actions initiated by a sick company - it is perhaps for this
reason that the third proviso to Section 15(1) uses the expression
"reference" instead of the expression "proceedings". [Para 49]
[471-F-G]
2.3 Another important aspect as to the construction of the
third proviso to Section 15(1) is· the meaning of the ~expression
"such reference shall abate". One of the meanings of the
expression "abate" is "to put an end to; to curtail; to ,come to
naught". A reference can be said to abate in one or several ways.
One obvious way that a reference abates is where the Board,
after inquiry, rejects the reference for the reason that the Board
is satisfied that the Company is not a sick industrial company as
defined under the Act. Another way in which a reference can abate
is where a scheme is implemented successfully, and the sick
industrial company is taken out of the woods successfully. A third
manner in which a reference can abate is when a scheme or
scnemes haye failed in respect of the sick industrial company,
and in the opinion of the BIFR, the said Company ought. to be ·
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SUPREME COURT REPORTS
[2016] l l S.C.R.
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wound up. A fourth instance of abatement is provided by the third
proviso to Section 15(1)-0fthe Sick Industrial Companies (Special
Provisions) Act, 1985. And that is that a reference which is
pending in the sense understood hereinabove shall abate if the
secured creditors of not less than 3/4•h in value of the amount
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outstanding against the financial assistance disbursed to the
borrower, have taken measures to recover secured debts under
Section 13(4) of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2fl02. It is
clear that the third proviso to Section 15(1) seeks to strike a
balance between getting a sick industrial company out of the
C woods and secured creditors being able to recover the debt owed
to them by such company. The legislature has thought it fit to
annul all proceedings before the BIFR only when at least 3/41h of
the amount_ outstanding against financial assistance disbursed to
the borrower of such secured creditors have taken the measures
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listed in Section 13(4) of the Securitisation and Reconstruction
of Fio,ancial Assets and Enforcement of Security Interest Act,
2002. The balance is therefore struck by the figure of "not less
than 3/4th". The legislature llas inserted this provision so that, if
3/4•h or more of the secured creditors get together to take
measures under Section 13( 4) of the Securitisation and
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Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, they will not be thwarted by the provisions of
Section 22 of Sick Industrial Companies (Special Provisions) Act,
1985, and it will not be necessary for them to obtain BIFR
permission before taking any such measures. This construction
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of the third proviso to Section 15(1) is in keeping with the march
of events post 2002, when the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
2002 came to be enacted. [Para 50) [471-G-H; 472-A-H]
Noble Aqua Pvt. Ltd. v. State Bank of India AIR 2008
Orissa 103 - overruled.
Mis. Salem Textiles Limited v. The Authorised Officer
and Ors. AIR (2013) Madras 229 - approved. '
Real Value Appliances Ltd. v. Canara Bank & Ors.
_(1998) 5 SCC 554: 1998 (3) SCR 170; Pegasus Assets
MIS MADRAS PETROCHEM LTD.& ANR. v. BIFR & ORS.
Reconstruction P. Ltd. 1i Mis. Haryana Concast Limited
& Anr. 2016 (1) SCALE 1; Gujarat Steel Tube Co. Ltd.
v. Virchandbhai B. Shah (1999) 8 SCC 11 : 1999 (3)
Suppl. SCR 624; Kai/ash Nath Agarwal v. Pradeshiya
Industrial & Investment Corpn. of U.P. Ltd. (2003) 4
SCC 305 : 2003 (1) SCR 1159 -
referred to.
Conclusion:
3.1 Section 22 of the Sick Industrial Companies (Special
Provisions) Act, 1985 will continue to apply in the case of
unsecured creditors seeking to recover their debts from a sick
industrial company. This is for the reason that the Sick Industrial
Companies (Special Provisions) Act, 1985 overrides the
provisions of the Recovery Of Debts Due To Banks And Financial
Institutions Act, 1993. Where a secured creditor of a sick
industrial company seeks to recover its debt in the manner
provided by Section 13(2) of the Securitisat,ion and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
2002, such secured creditor may realise such secured debt under
Section 13(4) of the Securitisation and Reconstruction ofFinancial
Assets and Enforcement of Security Interest Act, 2002,
notwithstanding the provisions of Section 22 of the Sick Industrial
Companies (Special Provisions) Act, 1985. In a situation where
there are more than one secured creditor of a sick industrial
company or it bas been jointly financed by secured creditors, and
at least 60 per cent of such secured creditors in value of the·
amount outstanding as on a record date do not agree upon exercise
of the right to realise their security under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, Section 22 of the Sick Industrial Companies
(Special Provisions) Act, 1985 will continue to have full play.
Where, under Section 13(9) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, in the case of a sick industrial company having
more than one secured creditor or being jointly financed by
secured creditors representing 60 per cent or more in value of
the amount outstanding as on a record date wish to exercise their
rights to enforce their security under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
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[2016] 11 S.C.R.
Interest Act, 2002, Section 22 of the Sick Industrial Companies
(Special Provisions) Act, 1985, being inconsistent with the
exercise of such rights, will have no play. Where secured creditors
representing not less than 75 per cent in value of the amount
outstanding against financial assistance decide to enforce their
security under the Securitisation and Reco·nstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, any
reference pending under the Sick Industrial Companies (Special
Provisions) Act, 1985 cannot be proceeded with further - the
proceedings under the Sick Industrial Companies (Special
Provisions) Act, 1985 will abate. [Para 54] [474-B-H; 475-A-D]
3.2 In the instant case, the interim order by the ~lhi High
Court would not have the effect of reviving the reference so as
to thwart taking of any steps by the respondent creditors in this
case under Section 13 of the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
D 2002. This is because the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
prevails over the Sick Industrial Companies (Special Provisions)
Act, 1985 to the extent of inconsistency therewith. Section 15(1)
proviso 3 covers all references pending before the BIFR, no
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matter whether such reference is at the inquiry stage, scheme
stage, or winding up stage. In any case the present reference
under Section 15(1) of the Appellant No. 1 company has abated
inasmuch as more than 3/4'h of the secured creditors involved
have taken steps under Section 13(4) oLthe Securitisation and
Reconstruction of Financial Assets and Enforcement of Security .
Interest Act, 2002. [Para 55] [475-D-G]
(201~) 1 sec 166
2004 (3) SCR 982
Case Law Reference
referred to
referred to
G
1993 (1) SCR 340
2001 (1) SCR 932
referred to
referred to
Para IO
Para 20
Para25
Para 26
Para 27
Para 28
2006 (6) Suppl. SCR 189
2006 (10) Suppl. SCR 1022
H
'·
referred to
referred to
MIS MADRAS PETROCHEM LTD.& ANR. v. BIFR & ORS.
429
2008 (9) SCRl67
referred to
Para30
A
2005 (3) Suppl. SCR 747
referred to
Para30
. ,_
,: _,,,
-" 2012 (3) SCR388.
referred to
Para31
(2010) 11 sec 10
referred to
Para39 ..
1992 (2) SCR 999
referred to
Para43
B
1992 (1) SCR 686
distinguished
Para45
1994 (1) SCR 754
distinguished
Para 45
•
'V,
2004'(2) Suppl. SCR 414
distinguishe.d
Para45
AIR (2013) Madras 229
approved
Para46.
c
AIR 2008 Orissa 103
overruled
Para 46
1998 (3) SCR 170 ·
referred to
Para48
2016 (1) SCALE 1
referred to·
Para51
D
1999 (3) Suppl. SCR 624
referred to
Para 52
2003 (1) SCR 1159
referred to
Para 53
CIVIL APPELLATE JURISDICTION: CiviIAppeal Nos. ?14-615 ·
of2016.
from the Judgment and Order dated 24.07.2008 of the High Court
E
of Delhi at New Delhi in Writ Petition No. 48-49 of2004.
C. N. Sree Kumar, Amit Sharma, P. R. Navak; Rahul Kumar,
Advs. for the Appellants; .
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C. A. Sundaram , Subranionium Prasad, Sr. Advs, Pankaj Jain,
F
Bijoy Kumar .Jain, Ms. Rohiti.i Musa, Abhishek Gupta,. Zafar Inayat,
Suresh Dutt Dobhal, Gauiav Agrawal, Yugank Goel, Ms. Sonakshi
D_himan, Himanshu Munshi, Mis. Temple Law Finn, Vikas Mehta, Vipin
'Kumar Jai, Advs. for the Respondents. .
The Judgment of the Court was delivered by
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--R. F. NARIMAN, J. I. Leave granted.
2. The present appeals raise interesting questions on the interplay
between the Sick Industrial Companies (Special Provisions) Act, 1985
and the Securitisation and Reconstruction of Fmancial Assets and
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Enforcement of Security Interest Act, 2002. The facts in appeals aris ·g
out of Special Leave Petition (Civil) Nos.26170-26171 of 2008 are as
follows.
· ·
3. The net worth of the AppellantNo. l Company, having eroded
completely, the appellant No. I company filed a reference under Section
B
15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985
before the BIFR, which was registered as BIFR Case No.115 of 1989.
On 13.12.1989, after making an inquiry under Section 16(1) of the Sick
Industrial Companies (Special Provisions) Act, 1985, the Appellant
company was declared sick and ICICI was appointed as the Operating·
Agency to formulate a rehabilitation scheme. On 3.7.1991, the first
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rehabilitation scheme prepared by the Operating Agency was sanctioned,
which envisaged the takeover of the appellant company by one Mahavir
"Plantation Limited - i.e. appellant No.2. The first scheme was finally
declared a failure, and the Appellant No. I company, on 17.1.1995, was
directed to submit a fresh, comprehensive, revised rehabilitation scheme
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which was duly circulated. Objections to the said scheme were heard
by the BIFR and the scheme finally sanctioned was in the form of a
change of management of the appellant no. I company subject to various
modifications to be carried out. After the Appellant No. I company's
management changed hands, the second scheme, after being reviewed
· · frqm time to time, was declared as failed on 16.5.2000. Despite efforts
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by the Operating Agency to attempt to revive the company, all such
efforts failed, and ultimately, on 30.4.2001, BIFR, on the basis of the
recommendation of the Operating Agency, formed-a primafacie opinion
that the appellant No. I company should be wound up under Section
20( I) of the Sick Industrial Companies (Special Provisions) Act, 1985.
F
On 27.7.2001, the BIFR confirmed its primafacie opinion after noting
that the appellant No. I company had been enjoying protection under the
Sick Industrial Companies (Special Provisions)Act, 1985 forthe last 12
years. There being no acceptable viable rehabilitation proposal after the
failure of two schemes, the appellant no. I company was not likely to
make its net worth exceed its accumulated losses, and therefore BIFR
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recommended to the High Court of Bombay thl!_t the said company be
wound up. On 4.2.2002, appellant No.l's challenge to the BIFR order
was dismissed by the AAIFR.
· -
4. While matters stood thus, ICICI issued a notice dated 20.11.2002
under Section 13(2) of the Securitisation and Reconstruction of Financial
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MIS MADRAS PETROCHEM LTD.& ANR. v. BIFR & OR'S.
43'1
[R. F. NARIMAN, J.]
Assets and Enforcement of Security Interest Act, 2002 to the appellant . A -
No.1 company and followed it up with a possession notice dated 9 .5 .2003.
On 8.8.2003, ICICI issued a sale notice for and on behalf of all the ·
secured creditors of the appellant No.1 company. Meanwhile, appellant
Nos. 1 & 2 filed a writ petition before the Delhi High Court being Writ __
Petition Nos.48-49 of2004 challenging the AAIFR order dated 4.2.2002
_and th~ BIFR-0rderdated 25.7.2001. On 7.1.2004, the Delhi High Court
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stayed both the orders, which stay continued until 24.7.2008, when, by
the impugtied judgment, the Writ Petition was dismissed.
5. Meanwhile, the sale notice of8.8.2003. was challenged before
the DRT by the appellants. The said challenge was unsuccessful, as a
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result of which an appeal was filed before the DRAT, which, by its order
dated 30;6.2005, upset the DRT order and set aside the sale no~ice.
However, by a judgment of the Madras High Court, in Ii challenge to the
aforesaid order dated 30.6.2005, the Madras High Court set aside the
DRAT order. The sale of movable assets for a sum of Rs.4.65 crores
was a)so confirmed by the Madras High Court in favou~ of one M/s
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Rahamath Steel. Vide the said order the Madras High Court also
permitted the creditors of the Company to proceed with the sale of its
immovable property subject to a minimum reserve price ofRs.25 crores.
This order was never challenged and has attained finality.
v>
6. Meanwhile, based on a winding up proceeding by :Mis BHEL, ~· E
an unsecured creditor, and another winding up proceeding based on the
opinion of the BIFR under Section 20 of the Sick Industrial Companies
(Special Provisions) Act, 1985, the Bombay High Court wound up the
appellant No. I company.
'
.
7. While matters.stood thus,,the Delhi Ifigh Court passed the
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impugned order on 24. 7.2008, as has been stated hereinabove, in which
it was of the view that Section 15(1) proviso 3 of the Sick Industriai
Companies (Special Provisions) Act, 1985, when construed to include
aliproc~edings under the Smk Industrial Companies (Special Provisions)
Act, 1985, would make the present proceedings under the Sick Industrial
Companies (Special Provisions) Act, 1985, abate on the facts of this
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case." Ultimately, in this view of the matter, and differing with a judgment
of the Orissa High Court, the Delhi l:ljgh Court disposed of the appellants'
writ petition as having become infructuous.
8. Appeals have been filed against the said order by the present
appellants whiCh appeals, as has been stated hereinabove, raise interesting
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[2016] 11 S.C.R.
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questions oflaw on the interplay of the Sick Industrial Companies (Special
Provisions) Act, 1985 with the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002.
9. A few subsequent events also· need to be stated for the sake·
of completion. On 20.11.2008, the Bombay High Court modified its
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order dat_ed 30.8.2007 and restrained the Official Liquidator from taking
possession of the secured assets of the company, and permitted the
credit ors to pursue their remedies under. the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Inte~est
Act, 2002. Mis. Alchemist ARC Ltd. issued a sale notice on behalf of
C · all the creditors of the appellant No.1 company for a sum ofRs.222.59
crores on 6.4.2013. Appellant No.2, being the corporate guarantor of
the appellant no. l company, filed an appeal challenging the sale notice
of6.4.2013. On 13.5.2013, ORT Chennai dismissed this petition. Vide
an order dated I 93~2014, the DRAT, Chennai, in an appeal made to it,
directed, by way of an interim order, that appellant No.2 pay a sum of
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Rs.53.77 crores within the time stated therein. This DRAT order was
challenged before the Madras High Court which, by its order dated
21.4.2014, refused to interfere with the said order dated 19.3.2014, and
granted some additional time to appellant No.2 to pay the said amount of
Rs.53.77 crores. We have been informed that the said amount haSJ1ot
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been paid till date. The appellant No.2 has challenged this order of
21.41Q)7l before this Court. However, the said SLP is lying in defect as
on date despite the expiry of more than one and a. half years.
10. Mr. C.N. Sreekumar, learned counsel appearing on behalf of
the appellant No. I company, submitted before us that the effect of the.
interim order of 7 .1.2004 of the Delhi High Court is that the reference
made by the appellant No. I company gets revived. He further submitted
that no winding up order could be made in view of such revival, and that
~uch orders are therefore 11011 est, and th~ present appeals cannot be
regarded as infructuous. He added that Section 22(1) of the Sick Industrial
Companies (Special Provisions) Act, 1985 would automatically come
into play to protect the assets of the appellant No. l company. He also
submitted before us, that in any case, regard being had to the object of
the Sick Industrial Companies (Special Provisipns) Act, 1985, it would
override the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. For this purpose, he relied
011 a judgment by this Court in KSL & Industries Ltd. v. Arihant
MIS MADRAS PETROCHEM LTD.& ANR. v. BIFR & ORS.
[R. F. NARIMAN, J.]
Threads Ltd., (2015) 1 SCC 166, which held that the Sick Industrial
Companies (Special Provisions) Act, 1985 has overridden the Recovery
Of Debts Due To Banks And Financial Institutions Act, 1993. The said
Act, being a predecessor to the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002, and
dealing with the same subject matter as the Securitisation and
Reconstruction of Financial Assets and Enforce~~nt of Security Interest
Act, 2002 - namely, recovery of debts due to banks and financial
· institutions, would lead to the conclusion that the 2002 Act is also
overridden. He further contended that Section 37 of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 expressly refers to the Recovery Of Debts Due To
Banks And Financial Institutions Act, 1993, and since Section 34(2) of
the Recovery Of Debts Due To Banks And Financial Institutions Act,
1993, refers to the Sick Industrial Companies (Special Provisions) Act,
1985, Section 3 7 of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 should also be
construed so as to include a reference to the Si~k Industrial Companies
(Special Provisions) Act, 1985. His further contention is that on a true
construction of Section 15( I) proviso 3 of the Sick Industrial Companies
(Special Provisions) Act, 1985, the Orissa High Court is correct and that
since the expression "reference" would only include the initiai stage of
fifing and registration of a reference before the !31FR, such stage having
gone long ago, the proceedings before BIFR are very much alive and
have not abated.
11. Shri C.A. Sundaram, learned senior counsel, appearing on
behalf ofM/s Alchemist Asset Reconstruction Company Limited, which
is subst.ituted in place of respondent Nos.2,3,4,6 and 9, has submitted
that the effect of the interim order dated 7.1.2004 does not revive the
reference of the appellant No. I company before BIFR. For this purpose
he relied upon Shree Chamandi Mopeds Ltd. v. Church of South
India Trust Assn., (1992) 3 SC:C I. He also submitted that in any
event the Securitisation and Recunstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 would override the provisions
of the Sick Industrial Companies (Special Provisions) Act, 1985, so that
even if the stay order dated 7 .1.2004 had the effect of reviving the
reference, that in itself would not restrain the secured creditors from
proceeding under the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, ;!002, nor would- it
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render the winding up order passed by Bombay High Court non est. He
also submitted that a large number of judgments ofvarrous High Courts
ha.ye taken the"' iew which is taken in the impugnedjudgrnen_t_,;md that
fhe expression "reference" would include all stages of a proceeding
under the Sick Industrial Companies (Special Provisfons) Act, 1985
B including the stage of operation .o·f a scheme. For this purpose; in
particular, he relied heavily on a full bench decision of the Madras High
Court in ... M/s. Salem Textiles Limite!,1 v. The'A:utborized Officer
and Ors., reported in AIR 20!3 Madras 229. He also argued that since
" . the Recovery Of Debts Due To Banks And Financial Institutions Act,
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1993 expressly named the Sick Industrial Companies (Special Proyisions)
Act, 1985 in Section 34(2), the Sick Industrial Companies (Special
Provisions) Act, 1985 obviously overrode thaf'Act. What is significant is
that.the corresponding section, namely, Section 3 7,of the Securitisation
and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, expressly omits any reference to the Sick Industrial
Companies (Special Provisions) Act, 1985, making it clear that the
Securitisation and Reconstruction ofFinancial Assets and Enforcement
of'Securi-ty Interest Act, 2002 would prevail over the Sick Industrial
. ,Companies (Spe~ial Provisions) Act, 1985. That being the case, he argued
that this Court's· judgment in KSL &'Industries Ltd. Vs. ArihantTbreads Ltd., (2015) I SCC 166, is, therefore, clearly.distinguishable: .
He also argued that at the end of the day, since the movable property of
the appellant No. I company had been so1d off, and since various High
Courts - including Bombay and._ Madras - have passed a number. of
orders, both winding up the company and dismissing petitions challenging
the action of his client in proceedings under the S.ecuritisation and
Reconstruction of Financial Assets and Enforcement of Security Interest
Act, 2002, all that remains is sale of the immovable property of the,
appellant No. I Company and that, therefore, nothing ·really remains in
these appeals, which have becometnfructuous.
Discussion:- ·
12. The argu_ments of counse"I hav.e been wide fanging, but at the ·
end of the day various Sections of three statutes have to be interpreted
by this Court. Before embarking on a consideration of the arguments
and the interpretation of these provisions, it will be important to first set
them out.
· ----
MIS MADRAS PETROCHEM LTD.& ANR. v. BIFR & ORS.
435
[R. F. NARIMAN, J.]
THE
SI.CK
INDUSTRIAL
COMPANIES
(SPECIAL
A
PROVISIONS) ACT, 1985
"Section 15. Reference to Board
(1 )When an industrial company has become a sick industrial
company, the Board of Directors of the company, shall, within
sixty days from the date 0f finalisation of the duly audited
accounts of the company for the financial year as at the-end of
which the company has become a sick industrial company, make
a reference to.the Board for determination of the measures which
sha11 be adopted with respect to the company:
Provided that if the Board of Directors had sufficient reasons
.even before such finalisation to form the opinion that the company
had become a sick industrial company, the Board pf directors
shall, within sixty days after it has formed such opinion, make a
reference to the Board for the determination of the measures
which shall be adopted with reospect to the company:
Provided further that no reference.shall be made to the Board
for Industrial and Financial Reconstruction after the
commencement of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002,
where financial assets have been acquired by any securitisation
company or reconstruction company und.er sub-section (1) of
section 5 of that Act:
Provided also that on or after the commencement of the
Securitisation and ReconstructiotJ, qf Financial Assets and
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,,.~Enforcement of Security Interest Act, 2002, where a reference
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is pendin·g before the Board for Industrial and Financial _,
Reconstruction, such reference shall abate if the secured
creditors, representing not less than three-fourth in value of the
amount outstanding against financi~I assistance disbursed to the
_borrower of such secured creditors, have taken any measures
to reco.vef thei~ secured debt under sub-section ( 4) of section 13
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ofthatAcL ..
Section 22 .. Suspension of legal proceedings, contracts,
etc.
(1 )Where in respect ofan industrial company, an inquiry under
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