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M/s MADRAS PETROCHEM LTD. AND ANR. Versus BIFR & ORS.

Interplay between the Sick Industrial Companies (Special Provisions) Act, 1985 and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - 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? - Whether the expression “where a reference is pending” in Section 15 (1) proviso 3 of the Sick Industrial Companies (Spe .....

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ial 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 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, such secured creditor may realise such secured debt under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, notwithstanding the provisions of Section 22 of the Sick .....

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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 .....

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nd 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. - In conclusion, it is held that the interim order dated 17.1.2004 by the Delhi 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 Sect .....

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winding up stage. The Orissa High Court is not correct in its conclusion on the interpretation of Section 15(1) proviso 3 of the Sick Industrial Companies (Special Provisions) Act, 1985. This being so, it is clear that in any case the present reference under Section 15(1) of the Appellant No. 1 company has abated inasmuch as more than 3/4th of the secured creditors involved have taken steps under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securi .....

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Security Interest Act, 2002. The facts in appeals arising out of Special Leave Petition (Civil) Nos.26170-26171 of 2008 are as follows. 3. The net worth of the Appellant No.1 Company, having eroded completely, the appellant No.1 company filed a reference under Section 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 (S .....

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e, revised rehabilitation scheme 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.1 company subject to various modifications to be carried out. After the Appellant No.1 company s management changed hands, the second scheme, after being reviewed from time to time, was declared as failed on 16.5.2000. Despite efforts by the Operating Agency to attempt to revive the company .....

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2 years. There being no acceptable viable rehabilitation proposal after the failure of two schemes, the appellant no.1 company was not likely to make its net worth exceed its accumulated losses, and therefore BIFR recommended to the High Court of Bombay that the said company be wound up. On 4.2.2002, appellant No.1 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 Reconstruct .....

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elhi High Court stayed both the orders, which stay continued until 24.7.2008, when, by the impugned judgment, the Writ Petition was dismissed. 5. Meanwhile, the sale notice of 8.8.2003 was challenged before the DRT by the appellants. The said challenge was unsuccessful, as a 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 notice. However, by a judgment of the Madras High Court, in a challenge to the aforesaid or .....

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roceeding by M/s BHEL, 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.1 company. 7. While matters stood thus, the Delhi High Court passed the 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 Industrial Companies (Special Provisions) Act, 1985, wh .....

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ellants which appeals, as has been stated hereinabove, raise interesting questions of law 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 order dated 30.8.2007 and restrained the Official Liquidator from taking possession of the .....

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RT Chennai dismissed this petition. Vide an order dated 19.3.2014, the DRAT, Chennai, in an appeal made to it, directed, by way of an interim order, that appellant No.2 pay a sum of ₹ 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 ₹ 53.77 crores. We have bee .....

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e further submitted that no winding up order could be made in view of such revival, and that such orders are therefore non est, and the 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.1 company. He also submitted before us, that in any case, regard being had to the object of the Sick Industrial Companies (Special Provisions) A .....

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n 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 Enforcement 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 .....

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5. His further contention is that on a true construction of Section 15(1) 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 initial stage of filing and registration of a reference before the BIFR, 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 of M/s Alche .....

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ould 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, 2002, nor would it render the winding up order passed by Bombay High Court non est. He also submitted that a large number of judgments of va .....

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covery Of Debts Due To Banks And Financial Institutions Act, 1993 expressly named the Sick Industrial Companies (Special Provisions) Act, 1985 in Section 34(2), the Sick Industrial Companies (Special Provisions) Act, 1985 obviously overrode that Act. What is significant is that the corresponding section, namely, Section 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, expressly omits any reference to the Sick Industrial Companies (Sp .....

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ompany had been sold 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 Securitisation 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.1 Company and that, therefore, nothing really remains in these appeals, which have become in .....

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of the company, shall, within sixty days from the date of 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 shall 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 .....

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company or reconstruction company under sub-section (1) of section 5 of that Act: Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending 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 financial assistance disbursed to .....

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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 .....

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aw or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company; b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board. (3) where an inquiry under section 16 is pending or any scheme referred to in section 17 .....

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uch sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adoptions and in such manner as may be specified by the Board. Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year, at a time so, however, that the total peri .....

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anding order and accordingly,- (a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and (b) on the declaration ceasing to have effect- (i) any right, privilege, obligation or liability so remaining suspended or modified shall become revived and enforceable as .....

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ect 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 a .....

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hat 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. The Recovery Of Debts Due To Banks And Financial Institutions Act, 1993 Section 17. Jurisdiction, powers and authority of Tribunals. (1) A Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts .....

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under articles 226 and 227 of the Constitution) in relation to the matters specified in section 17. 34. Act to have over-riding effect.- (1) Save as provided under sub- section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not .....

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002 Section 13. Enforcement of security interest (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of court or tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured .....

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ount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower. (3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within o .....

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within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:- (a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: PROVIDED that .....

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assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. (5) Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person a valid discharge as .....

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red to be the purchaser of the immovable property at any subsequent sale, the amount of the purchase price shall be adjusted towards the amount of the claim of the secured creditor for which the auction of enforcement of security interest is taken by the secured creditor, under sub-section (4) of section 13. (5C) The provisions of section 9 of the Banking Regulation Act, 1949(10 of 1949) shall, as far as may be, apply to the immovable property acquired by secured creditor under sub-section (5A). .....

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inion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in .....

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ng of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than sixty per cent in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: PROVIDED that in the case of a company in liquidation, the amount realised from the sale of sec .....

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r depositing the workmen's dues with the liquidator in accordance with the provisions of section 529A of that Act: PROVIDED ALSO that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen's dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen's dues cannot be ascertained, the liquidator shall intimate the estimated amount of workmen's dues under that section to the secure .....

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urnish an undertaking to the liquidator to pay the balance of the workmen's dues, if any. Explanation: For the purposes of this sub-section,- (a) "record date" means the date agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding on such date; (b) "amount outstanding" shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of a .....

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l be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act. (12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorised in this behalf in such manner as may be prescribed. (13) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or other .....

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f this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force. Section 41. Amendments of certain enactments The enactments specified in the Schedule shall be amended in the ma .....

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) Act 1956 In section 2 in clause (h) after sub-clause (ib) insert the following:- " (ic) security receipt as defined in clause (zg) of section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002". 1986 1 The Sick Industrial Companies (Special Provisions) Act 1985 In section 15 in sub-section (1) after the proviso insert the following:- "PROVIDED FURTHER that no reference shall be made to the Board for Industrial and Financi .....

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ndustrial and Financial Reconstruction such reference shall abate if the secured creditors representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act." 13. It is important at this stage to refer to the genesis of these three legislations. Each of them deals with different aspects of recovery of .....

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are to be rehabilitated. The question, therefore, is whether the public interest in recovering debts due to banks and financial institutions is to give way to the public interest in rehabilitation of sick industrial companies, regard being had to the present economic scenario in the country, as reflected in Parliamentary Legislation. 14. We begin, first, with the Sick Industrial Companies (Special Provisions) Act, 1985. The Statement of Objects and Reasons for this Act reads as under: THE SICK I .....

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n recognized that in order to fully utilize the productive industrial assets, afford maximum protection of employment and optimize the use of the funds of the banks and financial institutions, it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible. It would also be equally imperative to salvage the productive assets and realize the amounts due to the banks and financial institutions, to the extent possible, from the non-viable si .....

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determination by a body of experts of the preventive, ameliorative, remedial and other measures that would need to be adopted with respect to such companies and for enforcement of the measures considered appropriate with utmost practicable despatch. The salient features of the Bill are- (i) application of the legislation to the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, with the initial exception of the scheduled industry relating to ship .....

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f erosion of fifty per cent. or more of the net worth of an industrial company is being laid on the Board of Directors of such company; where the Central Government or the Reserve Bank is satisfied that an industrial company has become sick, it may make a reference to the Board, likewise if any State Government, scheduled bank or public financial institution having an interest in an industrial company is satisfied that the industrial company has become sick, it may also make a reference to the B .....

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s against the order of the Board. 15. A cursory reading of the Act shows that a Board for Industrial and Financial Reconstruction is set up by the Act, before which references are made. Such references can be made under Section 15 of the Act, not only by an industrial company as defined, which, as has been stated above, is a company which runs any of the industries specified in the first schedule to the Industries (Development and Regulation) Act, 1951, but also by the Central or State Governmen .....

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e working of such sick industrial company is to be made by the said Board on receipt of a reference or upon application or suo motu. If the Board is satisfied that the Company has indeed become a sick industrial company, the Board shall decide as to whether it is practicable for the Company to make its net worth positive within a reasonable time. This it may do under Section 17 of the Act, by order under sub-section (2) of Section 17. If this is not possible, then the Board may appoint an Operat .....

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e schemes ultimately fail, the Board has then to be of the opinion that such Company is not likely to make its net worth positive, and that therefore it is to forward its opinion under Section 20 of the Act to the concerned High Court to proceed with the winding up of the said company. Section 22, which is of crucial importance in the working of the Act, suspends various legal proceedings, contracts etc., while a reference before the Board is pending, for the duration of the inquiry to be made a .....

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he Foreign Exchange Regulation Act of 1973 and The Urban Land (Ceiling and Regulation) Act, 1976. 16. While this Act had worked for a period of about 7 years, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 was brought into force, pursuant to various Committee reports. The Statement of Objects and Reasons for this Act reads as follows:- STATEMENT OF OBJECTS AND REASONS OF THE RECOVERY OF DEBTS DUE TO BANKS AND FINANCIAL INSTITUTIONS ACT, 1993 Banks and financial instituti .....

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of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, felt to work out a suitable mechanism through which the dues to the banks and financial institutions could be realized without delay. In 1981, a Committee under the Chairmanship of Shri T. Tiwari had examined the legal and other difficulties faced by banks and financial institutions and suggested remedial measures including changes in law. The Tiwari Co .....

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ous courts, recovery of debts involved more than ₹ 5622 crores in dues of Public Sector Banks and about ₹ 391 crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilisation and recycling of the funds for the development of the country. The Bill seeks to provide for the establishment of Tribunal and Appellate Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions. .....

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p under the Act. The Act contained a non obstante clause in Section 34 stating that its provisions will have effect notwithstanding anything inconsistent contained in any other law for the time being in force or in any instrument having effect by virtue of any other law. In the year 2000, this Act was amended so as to incorporate a new sub-section (2) in Section 34 together with a saving provision in sub-section (1). It is of some interest to note that this Act was to be in addition to and not i .....

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al Assets and Enforcement of Security Interest Act, 2002 was brought into force in the year 2002. The statement of objects and reasons for this Act reads as under:- STATEMENT OF OBJECTS AND REASONS OF THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying w .....

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em. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of nonperforming assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal sys .....

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cial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce nonperforming assets by adopting measures for recovery or reconstruction. 2. It is now proposed to replace the Ordinance by a Bill, .....

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titutions by issue of debentures or bonds or any other security in the nature of a debenture; (d) empowering securitisation companies' or reconstruction companies to raise funds by issue of security receipts to qualified institutional buyers; (e) facilitating reconstruction of financial assets acquired by exercising powers of enforcement of securities or change of management or other powers which are proposed to be conferred on the banks and financial institutions; (f) declaration of any sec .....

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stance and sell or lease the same or take over management in the event of default, i.e. classification of the borrower's account as non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time to time; (i) the rights of a secured creditor to be exercised by one or more of its officers authorised in this behalf in accordance with the rules made by the Central Government; (j) an appeal against the action of any bank or financial .....

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posed legislation to non-banking financial companies and other entities; (m) non-application of the proposed legislation to security interests in agricultural lands, loans not exceeding rupees one lakh and cases where eighty per cent, of the loans are repaid by the borrower. 3. The Bill seeks to achieve the above objects. 19. This Act was brought into force as a result of two committee reports which opined that recovery of debts due to banks and financial institutions was not moving as speedily .....

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ction of Financial Assets and Enforcement of Security Interest Act, 2002 was enacted, as follows:- Some facts which need to be taken note of are that the banks and the financial institutions have heavily financed the petitioners and other industries. It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through courts is lengthy and time taken is not suited for recovery of such dues. For financial assistance rendered to the industries by the financ .....

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inaction on the part of the Governments in creating Debts Recovery Tribunals and appointing presiding officers, for a long time. Even after leaving that margin, it is to be noted that things in the spheres concerned are desired to move faster. In the present-day global economy it may be difficult to stick to old and conventional methods of financing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards securitisation of the debts and to evolve means for faster rec .....

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tion whereafter yet another Expert Committee was constituted, then alone the impugned law was enacted. Liquidity of finances and flow of money is essential for any healthy and growth-oriented economy. But certainly, what must be kept in mind is that the law should not be in derogation of the rights which are guaranteed to the people under the Constitution. The procedure should also be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and obje .....

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intermediation. In our system, the evolution of the legal framework has not kept pace with changing commercial practice and with the financial sector reforms. As a result, the economy has not been able to reap the full benefits of the reforms process. As an illustration, we could look at the scheme of mortgage in the Transfer of Property Act, which is critical to the work of financial intermediaries…. One of the measures recommended in the circumstances was to vest the financial instituti .....

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ery is less, it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the Report of the Narasimham Committee, yet another Committee was constituted headed by Mr. Andhyarujina for bringing about the needed steps within the legal framework. We are therefore, unable to find much substance in the submission made on behalf of the petitioners that while the Recovery of Debts Due to Banks and Financial I .....

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ing provision which is pivotal to the whole controversy, namely, Section 13 in Chapter III of the Act. It provides that a secured creditor may enforce any security interest without intervention of the court or tribunal irrespective of Section 69 or Section 69-A of the Transfer of Property Act where according to sub-section (2) of Section 13, the borrower is a defaulter in repayment of the secured debt or any instalment of repayment and further the debt standing against him has been classified as .....

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e given to the borrower must contain the details of the amounts payable and the secured assets against which the secured creditor proposes to proceed in the event of non-compliance with the notice given under sub-section (2) of Section 13. [at para 34,36 and 38] 21. The pivotal provision namely Section 13 of the said Act makes it clear that banks and financial institutions would now no longer have to wait for a Tribunal judgment under the Recovery of Debts Due to Banks and Financial Institutions .....

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ed assets from the borrower and from whom any money is due or may become due from the borrower, to pay the secured creditor so much of the money as is sufficient to pay the secured debt. 22. In order to further the objects of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Act contains a non obstante clause in Section 35 and also contains various Acts in Section 37 which are to be in addition to and not in derogation of the Securitisa .....

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e schedule to this Act, amended. We are concerned with the third of such Acts, namely, the Sick Industrial Companies (Special Provisions) Act, 1985, in Section 15(1) of which two provisos have been added. It is the correct interpretation of the second of these provisos on which the fate of these appeals ultimately hangs. 23. It is in this background that we need to embark on the next step, namely, to consider the following two questions which arise on the facts of this case: (1) Whether the Secu .....

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at the effect of the Delhi High Court s stay order dated 7.1.2004 is that the reference before the BIFR springs back into life, and with it Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. It is also occasioned by a further argument that the winding up order passed by the Bombay High Court dated 30.8.2007 being in the teeth of the stay order and Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, is non est and therefore the appeals before th .....

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Special Provisions) Act, 1985. Hence, we have first to determine whether the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 overrides Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 as such overriding is only to the extent of the inconsistency between the two enactments. Such inconsistency is found in Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, by which any action taken to realize .....

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rial And Investment, (1993) 2 SCC 144, this Court had to deal with the Sick Industrial Companies (Special Provisions) Act, 1985, vis-à-vis the State Financial Corporations Act, 1951. In paragraph 9 of the judgment it was held that both Acts were special Acts, the 1951 Act dealing with the recovery of debts of a company pre-sickness and the 1985 Act dealing with such recovery post-sickness. Since both the Acts contained non obstante clauses, it was held that the 1985 Act, being later in po .....

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cial Court judgment, which was approved by this Court, it was stated that The Special Courts Act, 1992, being a later enactment and also containing a non obstante clause, would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the legislature wanted to exclude the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, from the ambit of the said Act, the legislature would specifically have so provided (Emphasis ours). The fact that the legislature .....

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22 of the Sick Industrial Companies (Special Provisions) Act, 1985 and permitted the custodian to give directions under Section 11 of the Special Courts Act, 1979, notwithstanding Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. 27. In Jay Engineering Works Ltd. v. Industry Facilitation Council and Anr., (2006) 8 SCC 677, this time this Court had to deal with the Interest on Delayed Payment to Small Scale and Ancillary Industrial Undertakings Act, 1993 vis-à-vi .....

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Conciliation Act, 1996 contained a non obstante clause in Section 5 thereof. Despite this being a later Act, vis-à-vis the Sick Industrial Companies (Special Provisions) Act, 1985, this Court held that the Sick Industrial Companies (Special Provisions) Act, 1985 would prevail, inasmuch as the non obstante clause contained in the Arbitration and Conciliation Act, 1996 had only a limited application - it applied only insofar as the extent of judicial intervention in arbitration proceedings .....

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ated has been filled by an amendment to the Companies Act. But, so far, the provisions of the Amending Act and the Companies Act introduced, have not been brought into force. It appears to be time to consider whether these enactments should not be notified. 30. Similarly, in Tata Motors Ltd. v. Pharmaceutical Products of India Ltd. and Anr., (2008) 7 SCC 619, it was held, following the judgment in NFEF Ltd. v. Chandra Developers (P) Ltd., (2005) 8 SCC 219, that the Companies Act being a general .....

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he non obstante clause contained in the Sick Industrial Companies (Special Provisions) Act, 1985 (see paragraphs 91 to 93). 32. In KSL & Industries Ltd. v. Arihant Threads Ltd., (2015) 1 SCC 166, it was the turn of the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993 vis-à-vis the Sick Industrial Companies (Special Provisions) Act, 1985. This Court in resolving the controversy in favour of the Sick Industrial Companies (Special Provisions) Act, 1985 held:- Sub-secti .....

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repeal of . The Black's Law Dictionary sets forth the following meaning for derogation : derogation.-The partial repeal or abrogation of a law by a later Act that limits its scope or impairs its utility and force. It is clear that sub-section (1) contains a non obstante clause, which gives the overriding effect to the RDDB Act. Sub-section (2) acts in the nature of an exception to such an overriding effect. It states that this overriding effect is in relation to certain laws and that the RDD .....

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regards other matters such as the reconstruction of sick companies which it does not even specifically deal with. Thus the purpose of the two laws is different. Parliament must be deemed to have had knowledge of the earlier law i.e. SICA, enacted in 1985, while enacting the RDDB Act, 1993. It is with a view to prevent a clash of procedure, and the possibility of contradictory orders in regard to the same entity and its properties, and in particular, to preserve the steps already taken for recon .....

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n in cash or otherwise, whether secured or unsecured, etc. In view of the observations of this Court in the decisions referred to and relied on by the learned counsel for the parties we find that, the purpose of the two enactments is entirely different. As observed earlier, the purpose of one is to provide ameliorative measures for reconstruction of sick companies, and the purpose of the other is to provide for speedy recovery of debts of banks and financial institutions. Both the Acts are speci .....

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ormally the latter of the two would prevail on the principle that the legislature was aware that it had enacted the earlier Act and yet chose to enact the subsequent Act with a non obstante clause. In this case, however, the express intendment of Parliament in the non obstante clause of the RDDB Act does not permit us to take that view. Though the RDDB Act is the later enactment, sub-section (2) of Section 34 thereof specifically provides that the provisions of the Act or the Rules made thereund .....

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mpanies (Special Provisions) Act, 1985 has been held to prevail only in a situation where the reach of the non obstante clause in the later Act is limited - such as in the case of the Arbitration and Conciliation Act, 1996 - or in the case of the later Act expressly yielding to the Sick Industrial Companies (Special Provisions) Act, 1985, as in the case of the Recovery Of Debts Due To Banks And Financial Institutions Act, 1993. Where such is not the case, as in the case of Special Courts Act, 19 .....

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Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 does not include the Sick Industrial Companies (Special Provisions) Act, 1985 unlike Section 34(2) of the Recovery of Debts Due To Banks and Financial Institutions Act, 1993. Section 37 of the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 states that the said Act shall be in addition to and not in derogation of four Acts, namely, the Companies Act, the Securities .....

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st 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, .....

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ection 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 .....

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ub-section (1) of Section 34 containing the non obstante clause is expressly made subject to sub-section (2) (containing the Sick Industrial Companies (Special Provisions) Act, 1985) by the expression save as provided under sub-section (2) . 36. This is what then brings us to the doctrine of harmonious construction, which is one of the paramount doctrines that is applied in interpreting all statutes. Since neither Section 35 nor Section 37 of the Securitisation and Reconstruction of Financial As .....

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Parliamentary intendment, after providing in Section 35 that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 will prevail over all other laws that are inconsistent therewith. A middle ground has therefore necessarily to be taken. According to us, the two apparently conflicting Sections can best be 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 forc .....

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al Provisions) Act, 1985 will not be included for the obvious reason that its primary objective is to rehabilitate sick industrial companies and not to deal with the securities market. 37. An interesting pointer to the direction Parliament has taken after enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is also of some relevance in this context. The Eradi Committee Report relating to insolvency and winding up of companies dated .....

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er pointed out that effectiveness of the Sick Industrial Companies (Special Provisions) Act, 1985 as has been pointed out earlier, has been severely undermined by reason of the enormous delays involved in the disposal of cases by the BIFR. (See paragraphs 5.8, 5.9 and 5.15 of the Report). Consequently, the Committee 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 s .....

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s (Special Provisions) Act, 1985. Interestingly, 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 proceedings for the revival or rehabilitation of sick companies before the National Company Law Tribunal. 39. This Amendment Act came under challenge, which challenge culminated .....

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ovisions 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. Conspicuous by its absence is a p .....

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m 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-à-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 industr .....

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or banks for the year 2011-2012 was ₹ 746 billion but the closing balance for 2011-2012 was ₹ 1,172 billion only. The total amount recovered through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 during 2011-2012 registered a decline compared to the previous year, but, even then, the amounts recovered under the said Act constituted 70 percent of the total amount recovered. The amounts recovered under the Recovery Of Debts Due .....

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2 which Act alone seems to have worked to some extent at least. 41. It will thus be seen that notwithstanding the non obstante 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, and that this being the ca .....

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tion 34(2) which makes the Sick Industrial Companies (Special Provisions) Act, 1985 prevail over the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. It was therefore argued that since Section 37 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 37 should also be const .....

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Banks And Financial Institutions Act, 1993 and for no other purpose. This is quite apart from the fact that, as has been noted hereinabove, the non-reference to the Sick Industrial Companies (Special Provisions) Act, 1985 in Section 37 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was deliberate, as has been held by us hereinabove. 43. Shri Sundaram is also correct when he refers to the judgment of this Court in Shree Chamundi Mopeds .....

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al filed by the appellant-company under Section 25 of the Act against said order of the Board was dismissed by the Appellate Authority by order dated January 7, 1991. As a result of these orders, no proceedings under the Act was pending either before the Board or before the Appellate Authority on February 21, 1991 when the Delhi High Court passed the interim order staying the operation of the Appellate Authority dated January 7, 1991. The said stay order of the High Court cannot have the effect .....

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ver, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the Appe .....

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im order dated February 21,1991 by the Delhi High Court staying the operation of the order of the Appellate Authority dated January 7,1991 does not have the effect of reviving the appeal which had been dismissed by the Appellate authority by its order dated January 7, 1991 and it cannot be said that after February 21, 1991, the said appeal stood revived and was pending before the Appellate Authority. In that view of the matter, it cannot be said that any proceedings under the Act were pending be .....

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th the winding up petition filed by the respondents….. [at para 10] 44. A reading of the said judgment also shows that the order of stay of the BIFR s opinion to wind up the company and the dismissal of the appeal therefrom by the AAIFR would not in any manner revive the reference under Section 15 of the Appellant No. 1 Company. For this reason also, it is clear that after the orders of the BIFR and AAIFR have been upheld by dismissal of the writ petition filed before the Delhi High Court .....

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1 and BPL Ltd. & Ors. v. R. Sudhakar & Ors., (2004) 7 SCC 219. Each of these judgments was delivered in different contexts. The first judgment of Kihoto Hollohan was delivered in the context of landslide changes that would have taken place had a stay order not been passed in the context of the 10th Schedule to the Constitution of India, which was enacted to remedy the evil of defection. The second judgment, namely, Ravi S. Naik was also delivered in the same context and the third judgmen .....

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hat the expression where a reference is pending under Section 15(1) proviso 3 would include all proceedings before the BIFR right till the stage of the successful culmination of a scheme for reconstruction or the recommendation for winding up of the sick industrial company. These High Courts are Madras, Delhi, Bombay, Kerala, Punjab, Gujarat and Calcutta. All these judgments are referred to in an exhaustive full bench decision of the Madras High Court in M/s. Salem Textiles Limited v. The Author .....

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xposition of the law. 47. It is clear that a purely literal interpretation of the expression where a reference is pending can yield the result that the Orissa High Court reached. In fact, Chapter III of the Sick Industrial Companies (Special Provisions) Act, 1985 specifically refers, in the Chapter heading, to references, inquiries and schemes. While Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 deals with references, Section 16 deals with inquiries into the working .....

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Court had to decide whether the mere registration of a reference by the BIFR would result in the automatic cessation of all proceedings which are pending in civil courts and the company court against its assets. It was argued that in order that Section 22 of the Act can come into operation, the BIFR must, subsequent to the registration of the reference under Section 15, apply its mind and consider whether it is necessary under Section 16 to make an inquiry. Unless an inquiry is pending, the pro .....

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menced upon the receipt by the Board of any reference or information or upon its knowledge reduced to writing by the Board. This being the case, this Court held that once the reference is registered and once it is mandatory to simultaneously call for information/documents from the informant, then an inquiry under Section 16 must be deemed to have commenced. In that view of the matter, Section 22 would immediately come into play. It is clear, therefore, that if a literal meaning were to be applie .....

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Act, 2002, the moment a reference is registered. And this Court has held that 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, if learned counsel for the Appellants is correct. 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 S .....

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ompany, 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 . 50. 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 . (See Ramanatha Aiyar s Law Lexicon). A ref .....

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mes have failed in respect of the sick industrial company, and in the opinion of the BIFR, the said Company ought to be wound up. A fourth instance of abatement is provided by the third proviso to Section 15(1) of the 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 3/4th in value of the amount outstanding against the financial assistance disbursed to t .....

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t 3/4th of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors have taken the measures listed in Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The balance is therefore struck by the figure of not less than 3/4th . The legislature has inserted this provision so that, if 3/4th or more of the secured creditors get together to take measures under Section 13(4) of the Secur .....

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Security Interest Act, 2002 came to be enacted pursuant to various committee reports, and for the reasons outlined hereinabove. 51. A recent judgment of this Court in Pegasus Assets Reconstruction P. Ltd. v. M/s. Haryana Concast Limited & Anr., (Civil Appeal No. 3646 of 2011), has held, agreeing with a judgment of the Delhi High Court, and disapproving a judgment of the Punjab and Haryana High Court, that a Company Court exercising jurisdiction under the Companies Act, has no control in res .....

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inancial Institutions Act, 1993 cannot be held applicable to the Securitisation Act. Further, the very incorporation of certain provisions of the Companies Act in the Securitisation Act themselves harmonise the latter Act with the Companies Act in respect of workers debts under Section 529A of the Companies Act. In a significant paragraph, this Court has held: The aforesaid view commends itself to us also because of clear intention of the Parliament expressed in Section 13 of the SARFAESI Act th .....

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Industrial Companies (Special Provisions) Act, 1985 will not apply. One such situation is a situation where an eviction petition is filed under a State Rent Act for eviction on the ground of non-payment of rent. Such eviction petitions have been held not to be suits for recovery of money. Consequently, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 has been held not to apply - See Gujarat Steel Tube Co. Ltd. v. Virchandbhai B. Shah, (1999) 8 SCC P.11 (paragraphs 9 and .....

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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. 2. Where a secured creditor of a sick industrial company seeks to recover its debt in the manner provided by Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Se .....

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ecured creditors in value of the amount outstanding as on a record date do not agree upon exercise of the right to realise their security under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will continue to have full play. 4. Where, under Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, in .....

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Notification: List of Exempted supply of services under the CGST Act

Notification: Rates for supply of services under CGST Act

Highlight: Acceptance of deposits by companies from its members - conditions relaxed in case of Specified IFSC Public company and a private company - Rule 3 amended

Notification: Rate of exchange of conversion of the foreign currency with effect from 8th September, 2017

News: Tax Payers Advised To Confirm Identities Of Income Tax Search Authorities

Notification: Amendment in Appendix 3 (SCOMET items) to Schedule- 2 of ITC (HS) Classification of Export and Import Items 2012

Forum: GST Invoice

Notification: The Customs and Central Excise Duties Drawback Rules, 2017

Circular: The Customs and Central Excise Duties Drawback Rules, 2017 and All Industry Rates (AIRs) of Drawback related changes -reg.

News: GST implementation smoother than expected: Jaitley

Forum: GST - TRAN1 - filed - Data uploaded with Remarks Processed with Error - Not coming in Electronic credit ledger - need suggession guidance

Forum: 3B mistake

Forum: Input tax credit

Forum: Excise duty credit on finished stock at additional place of business.

Forum: Due date of Filing TRAN-1

Highlight: Diversion of income at source - Joint venture agreement - 97% of the receipt transfer to M/s TRG Industries (P) Ltd. - scope of the agreement - it is diversion by overriding title - not taxable in the hands of assessee - HC

Highlight: Expenditure on eligible projects or schemes u/s 35AC - After 01.04.2017 the legislature desired to withdraw such deduction. - The Union legislature was competent to introduce such amendment - HC

Highlight: Transfer of trading assets at cost price, the profit component also stood transferred to the outgoing Directors, which otherwise belonged to the Company - the fact that AO has made the addition in the hands of the Directors would not make any difference - additions confirmed - HC

Highlight: The interest u/s 234B of the Act cannot go beyond the stage of S.245D(I) before the Settlement Commission - HC

Highlight: Galvanized iron pipe is a different commercial commodity than a iron pipe, therefore the activity of galvanization in our considered opinion amounts to manufacture - Deduction u/s 80-IB allowed - HC

Highlight: Penalty u/s 271C - non deduction of TDS on interest paid to sister concerns in terms of Section 194A - Levy of penalty confirmed - HC

Highlight: Disallowance of interest - reference to section 179 - The legislature has also recognised, that the doctrine of lifting of veil in the matter of tax dues is to be applied to prevent fraud etc. and not where the company has suffered despite its normal bona fide function. - HC

News: RBI Reference Rate for US $

Notification: Amendment in Notification No. S.O. 3118(E), dated the 3rd October, 2016

Highlight: Discount on ESOP to be allowed as business expenditure u/s 37(1), during the years of vesting on the basis of percentage of vesting during such period, subject to upward or downward adjustment at the time of exercise of option.

Notification: Central Government appoints the 20th September, 2017 as the date on which proviso to clause (87) of section 2 of the Companies Act 2013, shall come into force

Notification: Companies (Restriction on number of layers) Rules, 2017

Highlight: Penalty u/s 271(1)(c) - additional income disclosure - surrender of income post survey u/s 133A - he disclosure made by the assessee is voluntary in nature, in the revised return - no penalty

Highlight: Reopening of assessment - notice u/s 148 issued on the directions of JCIT / CIT - a perusal of reasons for initiating reassessment proceedings clearly show that they are against the sprit of provisions u/s 147

Highlight: MAT - Adjustment to book profit - computation u/clause (f) of Explanation-1 to section 115JB(2) is to be made without resorting to the computation as contemplated u/s 14A r.w.Rule 8D of I.T. Rules.

Highlight: Addition on account of alleged suppression of service value received - the addition made simply believing the Form 26AS will be an arbitrary exercise of power which cannot be sustained

Notification: Exempts intra state supply of heavy water and nuclear fuels from DAE to NPCIL

Notification: Seeks to amend notification No. 12/2017-UTT(R) to exempt right to admission to the events organised under FIFA U-17 World Cup 2017

Notification: Seeks to amend notification No. 11/2017- UTT(R) to reduce CGST rate on specified supplies of Works Contract Services

Highlight: Liability to pay duty on import of software - Though no authorization was given by the appellant to DHL, it is an undisputed position that the software has, in fact, been ordered by the appellant and have been delivered to them by DHL - the appellant is to be considered as the importer



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