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TMI Blog2010 (2) TMI 599X X X X Extracts X X X X X X X X Extracts X X X X ..... n the company court exercise powers under section 391(6) of the Companies Act, 1956 ('Act of 1956') pending application under section 391 of the Act of 1956 and stay the proceedings initiated under RDB Act and SFC Act pending before the respective judicial forums? 2. The applicant before learned Single Judge Mafatlal Denim Ltd., availed various loans from different banks and financial institutions which includes AXIS Bank, EXIM Bank and SICOM Ltd. The outstanding dues of all. these three institutions payable by the appellant as on 4-2-2009, the date on which the meeting of the secured creditors was held pursuant to the orders of learned Company Judge, were as follows : (a) SICOM Ltd. Rs. 3,057 lakh, (b) AXIS Bank Ltd. Rs. 6,922 lakh, (c) EXIM Bank Rs. 2,626 lakh. 3. The appellant-company having defaulted in making the payment to the banks and financial institutions, it felt that the loans are required to be restructured. For that purpose, a scheme was required to be framed under section 391 of the Act of 1956. For that matter an application was contemplated before the company court. While the company court was being considered to be moved by company for getting the scheme sanctio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest which fell due against the appellant-company. On 23-1-2009 the objector filed an affidavit in reply objecting to the prayer which was sought for under section 391(6) of the Act of 1956 by stating that the application under section 391(6) of the Act of 1956 was not maintainable and that the objector was not in favour of the scheme. 7. In the meanwhile, there came another notice issued by the objector on 29-1-2009 informing the appellant-company that they have decided to take over possession of the assets mortgaged/hypothecated to it to recover the dues as mentioned in the recall notice dated 16-1-2009. The further development was that the objector during the proceeding and hearing of the application, informed the court that on 29-1-2009 the objector has filed an application under section 19 read with section 17 of the RDB Act and has put the proceedings in motion before the Debts Recovery Tribunal ('DRT') at Mumbai. 8. The appellant-company has claimed that during the meeting on 4-2-2009 the proposed scheme having been accepted by statutory majority as prescribed under section 391 of the Act of 1956, Company Petition No. 34 of 2009 in Company Application No. 648 of 2008 h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to stay, when it may be necessary and justified, the commencement and continuation of such suits and proceedings on such terms and conditions as may be necessary and appropriate, until the application is disposed of." 11. It was further held by learned Company Judge in paragraph Nos. 9.7, 9.8, 9.9, and 9.10 which are reproduced hereinafter : "9.7 At such times competing situation and/or overlapping or conflict between the two proceedings under the two statutes arises, i.e., the question as to which one can have precedence over the other, arises. It would be so far the reason that the creditor FI would want its application before the DRT decided expeditiously and as per the scheme and time frame provided under section 19, whereas the debtor company would urge that in exercise of the power under section 391(6) the company court may stay the commencement of suit or proceeding while the application and thereby the scheme, under section 391 read with section 394 can be examined by the company court. 9.8 The Legislature has, so as to make its intention clear and to emphasise the aforesaid object of the RDB Act, made provision by incorporating section 34 in RDB Act which, ordinarily, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the recovery of debts of FIs when any application under section 19 read with section 17 is being considered by the DRT. Further, section 19 prescribes, in detail, exhaustive procedure for deciding the application. The procedure required to be followed for this purpose has been exhaustively laid down in sections 17 to 20 and sections 25 to 28 which, conjointly and collectively constitute a complete code in itself. Therefore, a conjoint reading of sections 17, 18 and 19 read with sections 25 to 28 of RDB Act paints clear picture of the policy and intention of Legislature which is highlighted by section 34 of the RDB Act." 11.1 Learned Company Judge has further considered the following decisions in his judgment : u Kishorebhai Khamchand Goyal v. State of Gujarat 2004 AIR SC 1006. u Jay Engineering Works Ltd. v. Industry Facilitation Council [2006] 8 SCC 677/71 SCL 189. u NGEF Ltd. v. Chandra Developers (P.) Ltd. [2005] 8 SCC 219/64 SCL 1 . u Bakemans Industries (P.) Ltd. v. New Cawnpore Flour Milk [2008] 84 SCL 489 (SC). u Tata Motors Ltd. v. Pharmaceutical Products of India Ltd. [2008] 7 SCC 619/ 84 SCL 355. u Maharashtra Tubes Ltd. v. State Industrial & Investment Corpn. of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not fall within the limited exceptions indicated in section 2 of the Premises Act. The object of the Rent Act is to afford special protection to all the tenants or private landlords or landlords who are neither a Corporation nor Government or Corporate Bodies. It would be seen that even under the Rent Act, by virtue of an amendment a special category has been carved out under section 25B which provides for special procedure for eviction to landlords who require premises for their personal necessity. Thus, section 25B itself becomes a special law within the Rent Act. On a parity of reasoning, therefore, there can be no doubt that the Premises Act as compared to the Rent Act, which has a very broad spectrum is a special Act and override the provisions of the Rent Act. In the said judgment, although the Apex Court noticed that both the scope and the object of the Premises Act is quite different from that of the Rent Act, the Apex Court held that the Premises Act being Special Act would override the provisions of the Rent Act. 11.1 (b) Subsequently, in the judgment in the case between Ashoka Marketing Ltd. v. Punjab National Bank AIR 1991 SC 855, it has been observed that : This ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions contained in the Rent Control Act.' and after having noticed the differences between the two statutes, the Apex Court held that the Public Premises Act would prevail over the Rent Control Act. 11.1 (c) The Hon'ble Apex Court also considered an earlier decision in the case between Kumaon Motor Owner's Union Ltd. v. State of Uttar Pradesh AIR 1966 SC 785 wherein also, has recorded in para 58 that : 58. . . . There was conflict between the provisions contained in rule 131(2)(gg) and (I) of the Defence of India Rules, 1962 and Chapter IVA of the Motor Vehicles Act, 1939. Section 68B gave overriding effect to the provisions of Chapter-IV(A) of the Motor Vehicles Act whereas section 43 of the Defence of India Act, 1962, gave overriding effect to the provisions contained in the Defence of India Rules. This court held that the Defence of India Act was later than the Motor Vehicles Act and, therefore, if there was anything repugnant, the provisions of the later Act should prevail. This court also looked into object behind the two statutes, namely, Defence of India Act and Motor Vehicles Act and on that basis also it was held that the provisions contained in the Defence of Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fences Relating to Transactions and Securities) Act, 1992 vis-a-vis the Sick Industrial Companies (Special Provisions) Act, 1986, and held that : 9. It is clear that both these Acts are special Acts. This court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. In the judgment, the Hon'ble Supreme Court considered the scope of the provisions of the two statutes and observed that : The whole aim of these provisions is to ensure that monies which are siphoned off from banks and financial institutions into private pockets are returned to the hanks and financial institutions. The time and manner of distribution is to be decided by the Special Court only. Under section 22 of the 1985 Act, recovery proceedings can only be with the consent of the Board for Industrial and Financial Reconstruction or the Appellate Authority under that Act. The Legislature being aware of the provisions of section 22 under the 1985 Act still empowered only the Special Court under the 1992 Act to give directions to recovery and to distribute the assets of the notified persons in the manner set out under section 11(2) of the 1992 Act. This can only mean that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ections should have effect." [Emphasis Supplied] 14. Having discussed the implications of the arguments and various decisions which were cited at the bar, learned Company Judge has delineated his findings as under : "13.6 (a) The RDB Act is a special and also a latter statute vis-a-vis the 1956 Act. 13.6 (b) Besides the aforesaid two crucial aspects the RDB Act is also conferred with non obstante clause which even otherwise, gives overriding effect to the provisions whereas the 1956 Act is a general and earlier statute. 13.6 (c) It is also pertinent that by virtue of the provision in section 1(4) the Legislature has set pecuniary jurisdiction for the Tribunal which provides that the Tribunal will exercise jurisdiction in those matters where the claim is of more than Rs. 10 lakh. The Legislature has, thus, placed such claims/dues of FIs in a different league and thereby conferred extra priority to all direct and incidental or ancillary matters connected with the adjudication and the recovery of the dues of FIs. 13.6 (d) By enacting the RDB Act and inserting section 18 and the non obstante clause (section 34) even while the section 391(6) existed, the Legislature has created an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is 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 would and would provide in the later enactment that the provisions of the earlier enactment continue to apply." 13.6 (h) The later enactment of the RDB Act and provision in the nature of section 18 and section 34 (read with the Statement of Objects and Reasons) are the clear pointers of the Legislature's intention to ensure elimination of the mischief it felt acute, viz., the delays (including procedural) in adjudication, working out of priorities and recovery of dues of Banks/FIs." 15. In his ultimate conclusion, learned Company Judge has found as under: "To my mind when the Legislature enacts, with a specific object and policy, a statute and creates a special forum thereunder and confers exclusivity to the forum, then the courts have to not only give effect but also precedence to such special intention and policy of the Legi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined : "(i )The provisions of special Act will override the provisions of general Act. (ii )The provisions of a later Act will override the provision of an earlier. (iii)Whether later enactment having a non obstante (such as section 34 of RDB Act and section 46B of SFC Act) will override the provisions of prior enactments, the following questions need to be answered first: (a )Whether there is a direct conflict between the provisions of the two enactments? (b )Whether Legislature intended to lay down an exhaustive code in respect of the subject-matter replacing the earlier law? (c )Whether the two laws occupy the same field?" If there is a 'direct conflict' between two provisions and they cannot stand together on harmonious construction, only then the court has to decide which will prevail. If there is no direct conflict, the court will then have to see whether the later Act is enacted to lay down an exhaustive code as the subject-matter replacing the earlier Act or whether two Acts occupy the same field. For determining this, the court may consider the object and purpose of the Act. In any event, unless the court answers any of three questions in the affirmative, there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or modification of the rights and contracts between the parties. RDB Act gives exclusive jurisdiction to the DRT only in respect of : (i) the adjudication of the claim of banks and financial institutions; (ii) the enforcement thereof, and (iii) to determine the priorities inter se between the banks, financial institutions and workers (sections 17, 18 and 19 of the RDB Act). 19. Learned counsel for the appellant submitted that RDB Act does not give any jurisdiction to the DRT to effect a compromise between the debtor bank/financial institution and the creditor as is conferred by section 391 to section 394 of the Act of 1956 upon the High Court. According to learned counsel, the RDB Act or SFC Act does not in any manner lay down any exhaustive code in respect of the subject-matter under section 391 to section 394 of the Act of 1956. Thus, there is no question of considering any overriding effect of sections 17, 18, 34 of the RDB Act or section 29 and section 46B of the SFC Act over section 391 to section 394 including section 391(6) of the Act of 1956. Learned counsel has tried to explain in his written submission the impact of certain decisions which have been considered by learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of the RDB Act. No other provisions, much less sections 391 to 394 of the Act of 1956 have been even remotely considered by the Hon'ble Supreme Court. It is in this context of the above referred provisions (i.e., sections 442, 446 and 537) of the Act of 1956 that the Hon'ble Supreme Court has taken the view that the provisions of the RDB Act will prevail over the said provisions only and not the entire Act of 1956. In doing so, the Hon'ble Supreme Court has categorically observed that the DRT has exclusive jurisdiction in respect of adjudication, execution and distribution of the sale proceeds and working out priorities as between banking and financial institutions and other creditors of the company so far as the money realised under the RDB Act. The Hon'ble Supreme Court has nowhere observed that under the RDB Act, DRT has exclusive jurisdiction on all issues - i.e., issues falling under sections 391 to 394 of the Act of 1956. In fact, the RDB Act does not cover the issue of proposing the scheme (as contemplated under sections 391 to 394 of the Act of 1956) and sanction thereof. In the circumstances, there is no conflict between the RDB Act and the Act of 1956 vis-a-vis sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act of 1956 on the other in respect of the sick company, the provisions of SICA would override the provisions of the Act of 1956. In fact the judgment in the case of Tata Motors Ltd.'s case (supra) clearly establishes that sections 391 to 394 are conflicting with SICA which provides for a scheme of restructuring. However, the said provisions of sections 391 to 394 of the Act of 1956 would not have any conflict with RDB Act or SFC Act as the said RDB Act and SFC Act do not have any provisions of any nature whatsoever for restructuring the debt of the company vis-a-vis the banks and financial institutions. 23. Learned counsel submitted that this court in the matter of Core Healthcare case (supra) and a Division Bench of the Kerala High Court have taken the view that the scheme under section 391 of the Act of 1956 is maintainable even if proceedings are pending before the DRT under the RDB Act and that there is no conflict. The objector when confronted with the judgment of Core Healthcare Ltd. case (supra) has conceded to this position as observed by learned Single Judge in paragraph No. 7.2 of the said judgment. 24. In view of the above, learned counsel for the appellant submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, a wrong application of law has been made by learned Company Judge. The purpose and intent of the exercise of power under section 391(6) of the Act of 1956 is to enable the court to pass adequate orders to see that the final order that the court may pass under section 391(1) of the Act of 1956 remains implementable. Finally, learned counsel has submitted the following in the written submission : "In the event the relief under section 391(6) is refused, the company petition itself will not survive and the question of considering the scheme becomes academic, SICOM Ltd., by its aggressive conduct is trying to pressurise the appellant to pay more/get better terms than the one offered in the scheme and thereby steal a march over the other two secured creditors who constitute more than 75 per cent and are supporting the scheme. The refusal of relief under section 391(6) to the appellant, in the facts of the present case, therefore, necessarily means prematurely dismissing the company petition itself and rejection of the scheme." 28. Mr. Mihir Joshi, learned senior counsel for respondent Nos. 2 and 3 while supporting the arguments, submitted that even the provisions of the RDB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of Act of 1956 to the extent of conflict. To examine whether there is any conflict, one must examine the legislative intent and purpose. It is not correct to state that there would be conflict between two laws only if observance of one law leads to breach of another law. There would be conflict between two laws if one law (which is general and earlier in point of time) comes in the way of fulfilment of the object and purpose of another special and subsequent law, brought in for larger public good. If the legislative desire of enactment of the latter law is likely to be frustrated by even the procedural operation of the earlier law, then for larger public good the earlier law is to be treated as inapplicable - Sarwan Singh's case (supra). (f)In fact, even the requirement of a law to seek only permission and nothing more from the body/authority/court under a general law is regarded as repealed, the moment a special law is enacted covering the same issue on the short ground that once a special forum is created every other authority/ body/court would lose jurisdiction. In this connection strong reliance is placed on the following judgments : 1. Solidaire India Ltd.'s cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 391(1) was questioned by his client before learned Company Judge but faced with difficulty that learned Single Judge of this court has already taken a view which would be binding, the arguments were not stretched because of judicial propriety. However, the challenge to section 391 has not been given up by his client as is understood by the appellant. 31. In the appeal being OJ Appeal No. 109 of 2009, filed by SICOM Ltd., Mr. A.L. Shah, learned advocate with Mr. Sanjay A. Mehta for the appellant submitted that it is not correct to assume that the maintainability of application under section 391 has been given up by learned counsel appearing on behalf of his client but the arguments were not carried further only because there is already a judgment of this Court in the matter of Core Healthcare Ltd. case (supra) and the same being binding on learned Single Judge, the arguments were not carried further and all these arguments are available before this court and are being advanced and, thus, adopted the arguments advanced by Mr. S.N. Soparkar, learned senior counsel, that in view of various decisions of the Hon'ble Supreme Court which learned Single Judge has considered, the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion of consideration of the scheme itself under section 391 of the Act of 1956 will become academic. Thus, according to the submissions of the appellant itself, a conflict would depend on the order which is passed under section 391(6) of the Act of 1956. According to the learned counsel for the appellant, the very purpose of proposing/sanctioning the scheme would stand frustrated. These submissions on behalf of the appellant per se exhibit that there is a direct bearing of the exercise of the jurisdiction under the provisions of section 391(6) of the Act of 1956 on the ultimate outcome. If the proceedings under RDB Act and SFC Act are continued the very purpose and object of the proposed scheme under section 391 of the Act of 1956 would get frustrated. By pondering over these consequences it can safely be concluded that there can be a conflict in between the provisions of two set of Acts (i.e., Act of 1956 and RDB Act/SFC Act) and that conflict may arise out of the negative nature of the order under section 391(6) of the Act of 1956. 35. The question of conflict can be examined from different angle. As and when any order of sanction of a new scheme is passed under section 391 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of two set of Acts are inconsistent and in conflict with each other. Thus, the first question as has been canvassed by learned counsel for the appellant-company that whether there is a direct conflict in between the provisions of section 391 of the Act of 1956 and RDB Act and SFC Act stands answered against the company. 39. Now what has to be seen is whether two Acts RDB Act and SFC Act lay down an exhaustive code in respect of the matters specified in sections 391 to 394 of the Act of 1956. It can be seen that under section 391 of the Act of 1956 the company court sanctions a fresh scheme, then the course as provided under RDB Act and SFC Act for immediate recovery is interfered. Recovery of money of the financial institutions become delayed. The object and purpose of RDB Act has a clear providence that the financial institutions at present are experiencing a considerable difficulty in recovering loan and enforcement of security charges. That purpose gets frustrated. Once the object and the purpose of RDB Act gets frustrated by providing a new scheme of repayment under section 391 of the Act of 1956 by the company court, it interferes with the scheme of RDB Act and SFC Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act of 1956 provides deferment of that recovery in accordance with the scheme to be formulated and sanctioned by it. Thus, to that extent that the two set of laws has a tendency of interference with the application of each other, they occupy the same field one delays the payment, another expedites it. Thus, to the extent that Act of 1956 provides for the deferment of the recovery and RDB Act and SFC Act are meant for speedy recovery will be holding the field. Once it is held that in the field of recovery RDB Act and SFC Act will hold the field the Act of 1956 will have to make way for their operations. 43. Law regarding the conflict of statutes has been summarised by learned Single Judge in great detail which has been quoted by us hereinabove. We are avoiding repetition of the same but we are of the considered opinion that in view of the mandate of Legislature in favour of RDB Act and SFC Act that there should be speedy recovery the same cannot be permitted to be frustrated by permitting the company court to frame a scheme under section 391 of the Act of 1956 when recovery proceedings are pending. It may further be noticed that under section 34 of the RDB Act the Legislatur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the Supreme Court in favour of jurisdiction and powers of the company court in Sudarsan Chits (I) Ltd. case [1984] 4 SCC 657, and other cases the said principle, in our view, cannot be invoked in the present case against the Debts Recovery Tribunal in view of the superior purpose of the RDB Act and the special provision contained therein. In our opinion, the very same principle mentioned above equally applies to the Tribunal/Recovery Officer under the RDB Act, 1993 because the purpose of the said Act is something more important than the purpose of sections 442, 446 and 537 of the Companies Act. It was intended that there should be a speedy and summary remedy for recovery of thousands of crores which were due to the banks and to financial institutions, so that the delays occurring in winding up proceedings could be avoided." 48. The reasoning of the Apex Court quoted hereinabove applies with full force on the controversy involved in the present case. Purpose of permitting the company to pay under a new scheme would frustrate the very purpose of enacting the RDB Act. This will mean that the financial institutions will have to stop a speedy and summary remedy and wait for its mone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s realised under the RDB Act, the question of priorities among the banks and financial institutions and other creditors can be decided only by the Tribunal under the RDB Act and in accordance with section 19(19) read with section 529A of the Companies Act and in no other manner. The provisions of the RDB Act, 1993, are to the above extent inconsistent with the provisions of the Companies Act, 1956 and the latter Act has to yield to the provisions of the former. This position holds good during the pendency of the winding up petition against the debtor company and also after a winding up order is passed. No leave of the company court is necessary for initiating or continuing the proceedings under the RDB Act, 1993. Points 2 and 3 are decided accordingly in favour of the appellant and against the respondents." 55. In addition to the adjudication, the RDB Act has exclusive jurisdiction for execution for the monies recoverable by the financial institutions. The order passed under section 391 of the Act of 1956 will not permit such execution. This execution relates to the original contract in the instant case. Any modification in the contract is not envisaged in the scheme of the RDB Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X
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