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TMI Blog2016 (8) TMI 170X X X X Extracts X X X X X X X X Extracts X X X X ..... ferent Petitioners seeking to wind up the Respondent Company on the ground that it is unable to pay its debts. I have been informed that out of this entire group, Company Petition Nos.698 of 2014, 739 of 2014, 79 of 2015, 265 of 2015, 674 of 2015 and 964 of 2015 have not yet been admitted. 2 Even though no affidavit in reply has been filed by the Respondent Company disputing the claim of many of the Petitioners on merits, one composite affidavit dated 22 June, 2016, has been filed inter alia contending that the Respondent Company has filed a reference before the Board for Industrial and Financial Reconstruction ("BIFR") and which was registered on 10 December, 2015, and therefore, these Petitions cannot proceed in view of the bar contained in Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short "SICA, 1985"). 3 In contrast, it is the contention of the Petitioners that by virtue of the 2nd proviso to Section 15(1) of SICA, 1985, the reference filed by the Respondent Company before the BIFR is non-est in the eyes of law and, therefore, there is no question of any protection being granted to the Respondent Company under Section 22 of SICA, 1985. Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India) Ltd., also executed a corporate guarantee dated 16 September 2009, a declaration dated 17 September, 2009 and a memorandum of entry dated 18 September, 2009 to create a first paripassu charge over its immovable properties and a Deed of Hypothecation dated 16 September, 2009 creating a first paripassu charge over its fixed assets and second paripassu charge over its current assets in favour of the Petitioner. 8 Pursuant to all these documents, the Petitioner disbursed 240 Crores to the Respondent Company in a single tranche, which was received and availed of by the Respondent Company without any demur. In terms of the Facility Agreement, the Respondent Company was required to repay the principal amount in quarterly installments as per the repayment schedule set out in the Sanction Letter and the Corporate Rupee Term Loan Facility Agreement and to pay interest at the agreed rate on a monthly basis. It is the case of the Petitioner that commencing from August 2012, the Company committed various defaults and breaches in respect of the facilities granted to it. Therefore, correspondence was exchanged between the parties whereby the Respondent Company was inter alia called upon t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pursuant to the orders dated 25 August, 2014 read with the orders dated 28 August, 2014 and 15 September, 2014 and gave consequential directions for advertising the same in two local newspapers which is the "Free Press Journal" (in English) and "Navshakti" (in Marathi) and also in the Maharashtra Government Gazette. Pursuant to these directions, the Company Petition was duly advertised and now the same has come up before me for hearing and final disposal. 10 Mr Ravi Kadam, learned senior counsel appearing on behalf of the Respondent Company, whilst not disputing the claim of the Petitioner on merits, submitted that since a reference of the Respondent Company was registered on 10 December, 2015 by the BIFR and the same is pending, this Petition cannot proceed. He submitted that by virtue of Section 22 of SICA, 1985 this Court was barred from proceeding further with this winding up Petition without the permission/ consent of BIFR. He submitted that admittedly no such consent or permission has been obtained from the BIFR to proceed with this Company Petition and therefore the same should be adjourned sine-die with liberty to the parties to apply after the proceedings before BIFR com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on behalf of the Petitioner submitted that it is an admitted fact that the debts owed by the Respondent Company to certain Banks were assigned in favour of certain Asset Reconstruction Companies ("ARCs") as follows:- Sr. No. Date of Assignment to & Acquisition of Debts & Assets by the ARCs Original Lender/Creditor which assigned thedebt ARCs to which the Debt has been assigned 1 28.03.2014 EXIM Bank Edelweiss ARC 2 29.03.2014 Bank of India JM Financial ARC 3 30.06.2014 SBI Edelweiss ARC 4 Prior to Oct 2014 Indian Overseas Bank ARCIL Mr. Thakkar submitted that it is also an admitted fact that the reference filed by the Respondent Company was registered by the BIFR only on 10 December, 2015. This being the factual position, Mr Thakkar placed reliance on the 2nd proviso to Section 15(1) of SICA, 1985 to contend that no reference could be made to the BIFR after the commencement of the SARFAESI Act, where financial assets were acquired by any securitisation company or reconstruction company under sub-section (1) of Section 5 of the SARFAESI Act. To put it simply, according to Mr. Thakkar, in the present factual scenario, the Respondent Company was barred from filing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere was also an increase in the incidences of sickness in industrial companies. In order to fully utilize the productive industrial assets, afford maximum protection of employment and optimize the use of the funds of banks and financial institutions, the Government felt that it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible. The Government was also of the view that 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 sick industrial companies through liquidation of those companies. In view of all these facts, the Government felt the need to enact in public interest, a legislation to provide for timely determination, by a body of experts, 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 dispatch. Keeping these objects in mind SICA, 1985 was enacted. In other words, SICA, 1985 was enacted with the avowed object of identifying sick and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revival and rehabilitation, should be telescoped into the structure of the Companies Act, 1956 itself. A detailed analysis of the Eradi Committee report can be found in a Full Bench decision of the Madras High Court in the case of M/s. Salem Textiles Limited Vs. M/s. Phoenix ARC Private Ltd. & Ors. 2013 SCC OnLine Mad 1450 : (2013) 3 CTC 257 (FB) [Paras 25 to 29] The reason why I have adverted to the report of the Eradi Committee is because it throws light on how SICA, 1985, despite its laudable objects, has, at least in spirit, failed to achieve the purpose for which it was enacted. 17 Be that as it may, in contrast, the statements of object and reasons of the SARFAESI Act indicate that the financial sector, being one of the key drivers in India's efforts to achieve success in rapidly developing its economy, did not have a level playing field as compared to other participants in the financial markets of the world. There was no legal provision for facilitating securitisation of financial assets of banks and financial institutions, and unlike international banks, the banks and financial institutions in India did not have the power to take possession of securities and sell them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company 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 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." (emphasis supplied) 19 On a plain reading of the 2nd proviso, it is clear that no reference can be made to the BIFR after the commencement of the SARFAESI Act where the financial assets have been acquired by any securitisation or reconstruction company under Section 5(1) of the SARFAESI Act. In contrast, the 3rd proviso stipulates that, afte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to section 15(1) of SICA, 1985. In this regard, the reliance placed by Mr Thakkar on a decision of the Division Bench of this Court in the case of Paper Prints (India) Pvt. Ltd. (2012) 6 Mah LJ 427 : (2013) 2 Bom CR 371 is well founded. The facts of this case would reveal that DBS Bank Ltd. had granted an overdraft facility in the amount of Rs. 2.5 Crores to the Appellants, in terms of which, financial facilities were extended by the Bank. Since, there was default in making payment, the Bank issued a demand notice calling upon the Appellant to pay its dues. Since the Appellant failed to comply, the Bank moved Debt Recovery Tribunal for recovery of an amount of Rs. 2.46 Crores due as on 31 January, 2009 together with interest. Thereafter, by a deed of assignment dated 9 December, 2009, DBS Bank Ltd. assigned its debts in favour of the Respondent (Phoenix ARC Pvt. Ltd.). The Respondent (Phoenix ARC Pvt. Ltd. ) issued a notice dated 15 April, 2010 under Section 433, 434 of the Companies Act, 1956 and thereafter filed a winding up petition. When the petition came up for admission, the learned Company Judge directed the petition be admitted and advertised. It was urged on behalf of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by, mortgage of, or charge on, immovable property; or (iii) a mortgage, charge, hypothecation or pledge of movable property; or (iv) any right or interest in the security, whether full or part underlying such debt or receivables; or (v) any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent; or (vi) any financial assistance." Sub-clause (i) of clause (1) includes a claim to any debt or receivables whether secured or unsecured. Therefore, the intent of Parliament when it introduced the two amendments to section 15(1) is clear. A special provision has been made in case of securitisation and reconstruction companies, where a financial asset within the meaning of section 2(1) has been acquired after the enactment of the Securitisation Act of 2002. In such a case, no reference can lie before the BIFR. The second proviso in contradistinction applies to a situation where a reference has been made validly. Such a reference can abate where measures under section 13(4) have been taken by the secured creditors representing not less than threefourths in value o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d unambiguous language of the 2nd proviso to Section 15(1), the reference itself was not maintainable and non-est in the eyes of law. Consequently, there is no question of the Respondent Company contending that it gets the protection under Section 22 of SICA, 1985. I must mention here that the decision of this Court in Paper Prints (India) Pvt. Ltd. (2012) 6 Mah LJ 427 : (2013) 2 Bom CR 371 was challenged in the Supreme Court by filing a Special Leave Petition which was dismissed on 9 January, 2013. 21 Faced with this situation, Mr Kadam learned senior Counsel appearing on behalf of the Respondent Company, placed reliance on a decision of a division bench of Delhi High Court in the case of Asset Reconstruction Co. India P. Ltd. Vs. Shamken Spinners Ltd. & Ors. AIR 2011 DELHI 17 Relying upon the aforesaid decision, Mr Kadam submitted that a literal interpretation of the 2nd proviso will defeat the objects of SICA, 1985 namely, to prevent unemployment and other loss that occurs from closure of the sick company. He submitted that, therefore, as done by the Delhi High Court, the condition of 75% as set out in the 3rd proviso to section 15(1), ought to be read also into the 2nd proviso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is enacted by the legislature, which prescribes a condition at one place but not at some other place in the same provision, the only reasonable interpretation which can be resorted to by the courts is that such was the intention of the legislature and that the provision was consciously enacted in that manner. In such cases, it will be wrong to presume that such omission was inadvertent or that by incorporating the condition at one place in the provision the legislature also intended the condition to be applied at some other place in that provision. (emphasis supplied) 23 In view of this clear enunciation of the law, with great respect, I am unable to agree with the view expressed by the Delhi High Court in the case of Asset Reconstruction Co. India P. Ltd. AIR 2011 DELHI 17 24 It would not be out of place to mention that the Judgment of Delhi High Court in the case of Asset Reconstruction Co. India P. Ltd. AIR 2011 DELHI 17 came up for consideration before a division bench of the Andhra Pradesh High Court in the case of M/s SVPCL Ltd. Vs. State Bank of India and Anr. 2015 SCC OnLine Hyd 111 : (2015) 191 Comp Cas 214 (AP) Even the Andhra Pradesh High Court, after analyzing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bank, are obligated to obtain the consent of BIFR to realise the security in accordance with the provisions of the SARFAESI Act and the Rules made thereunder. J. SHOULD THE CONDITIONS STIPULATED UNDER THE THIRD PROVISO BE READ INTO THE SECOND PROVISO OF SECTION 15(1) OF SICA: The next question which arises for consideration is whether the conditions prescribed in the third proviso must be read into the second proviso to Section 15(1) of SICA, and the second proviso held to apply only when the conditions in the third proviso are satisfied? In Asset Reconstruction Co. India P. Ltd.5, a Division bench of the Delhi High Court held that a literal interpretation of the second proviso to Section 15(1) which, unlike the third proviso thereto, does not require atleast 75% of the secured debt to be purchased by an asset reconstruction company or a securitization company, will defeat the object of SICA which is to prevent unemployment and loss of revenue to the state exchequer, and other ills which arise from the closure of an industry; if such an interpretation is adopted, a purchaser of a very minuscule amount of the debt of a sick company can frustrate its revival, which will result in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question whether the policy it embodies is wise or unwise, or whether it leads to consequences just or unjust, beneficial or mischievous. (Cooke v.Charles A. Vogeler Co). As long as there is no ambiguity in the statutory language resort to any interpretative process to unfold the legislative intent becomes impermissible. The supposed intention of the legislature cannot then be appealed to whittle down the statutory language which is otherwise unambiguous. If the intendment is not in the words used it is nowhere else. The need for interpretation arises when the words used in the statute are, on their own terms, ambivalent and do not manifest the intention of the legislature. (Keshavji Ravji & Co. v. CIT). Individual cases of hardship and injustice do not and cannot have any bearing for rejecting the natural construction by attributing normal meaning to the words used since hard cases do not make bad laws. The statute should be interpreted on the basis of the language used therein, and not dehors the same. No words ought to be added, and only the language used ought to be considered, so as to ascertain the proper meaning and intent of the legislation. The court is to ascribe a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the correct law. 26 In these circumstances, I have no hesitation in holding that the reference filed by the Respondent Company before the BIFR and which was registered on 10 December, 2015, is not non-est in the eyes of law, and therefore, there is no question of the Respondent Company getting protection under Section 22 of SICA, 1985. I am, therefore, unable to accept the submission of Mr Kadam that this Petition cannot proceed and/or be heard and finally disposed of. 27 As far as the facts of Company Petition No.511 of 2014 are concerned, it is not in dispute that a huge amount is due and payable by the Respondent Company to the Petitioner. In fact, in the consent terms filed in this Court dated 19 June, 2014, the Respondent Company has expressly admitted its liability to the Petitioner in the sum of Rs. 95.32 Crores. Admittedly, this amount has not been paid. In fact, Mr Kadam very fairly conceded before me that as far as merits of this Petition are concerned, the Respondent Company has no defence and the only point canvassed before me was the one dealt by me earlier. In this view of the matter, I find that the Respondent Company is indebted to the Petitioner for huge amounts ..... X X X X Extracts X X X X X X X X Extracts X X X X
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