TMI Blog2010 (11) TMI 1056X X X X Extracts X X X X X X X X Extracts X X X X ..... the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company: Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 'where financial assets have been acquired' certain consequences will follow. Since the word 'assets' has been used in the plural, then, by the same principles of judicial interpretation referred to above, it follows that the consequences will not occur if a single financial asset out of the many such assets possessed by the company is acquired by an asset reconstruction company. 17.The question that we are now required to answer is how the word'assets' is to be interpreted; whether the word 'assets' in plural refers to all the assets of the company or to some of them. In our opinion there is an element of flexibility in the construction of the second proviso. Had it been the legislative intention to refer to all the assets of the company, the same would have been made specific in the proviso itself by stating 'where all financial assets of the company' which is not the case here. There is no doubt that if all the financial assets of the company are acquired then the second proviso would automatically and immediately come into force. However, the question we ask ourselves is when all financial assets have not been acquired, how much acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the securitisation company takes an action under Section 13(4) of the SARFAESI Act, thereby causing the abatement of the reference. It also needs to be noted that an acquisition can take place at any stage in the life of a sick company. If an acquisition takes place when the reference is under consideration, then the asset reconstruction company merely replaces a bank(s) Fl(s) and it makes no difference to the reference and its prognosis (unless of course third proviso is invoked). It is also not unknown that sick companies have arrived at OTS with asset reconstruction companies during the pendency of a reference and revival schemes have been formulated on that basis. ( 4. ) The basic contention on behalf of the Petitioner is that there should be literal construction of the 2nd proviso i.e., since there is no requirement of any minimum percentage of the financial assets to be purchased by an asset reconstruction company or a securitization company, therefore, even if, any percentage of assets, whether secured or unsecured of a sick company are purchased by an asset reconstruction company or securitization company then, there cannot be reference under SICA. It is contended that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 54 of 2002 which amended Section 15 of SICA after promulgation of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. As a result of this amendment, a third proviso has been brought about in Sub-section (1) of Section 15 that the secured creditors who represent not less than 3/4th in the value of the amount outstanding against financial assistance disbursed to the sick company can bring about an abatement of proceedings pending before BIFR. This proviso reads as under: Provided also that on or after the commencement of 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 debut under Sub-section(4) of Section 13 of that Act. A plain reading of this proviso added by the Act 54 of 2002 shows that the consent of at least 3/4th of the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors who do prevail, meaning thereby minority secured creditors cannot frustrate a scheme which is propounded by the majority of the secured creditors. If a minority secured creditor cannot frustrate a scheme of composition under Section 391 to Section 394 of the Companies Act, 1956, there is no reason why a minority shareholder should be able to frustrate the revival and rehabilitation of a sick industrial company by refusing to accept a reduced amount and a statutory settlement which is brought about by approval of a rehabilitation scheme by BIFR as per the proposal of the operating agency and arrived at after duly considering the suggestions and objections of all the concerned stake holders including the creditors under Section 18(3)(b) of the SICA. SICA after all is for imposition of a valid statutory settlement which forms part of a sanctioned scheme. The second aspect is that by virtue of Section 529-A of the Companies Act, the dues of the workers are to be treated as equal to the dues payable to a secured creditor. Therefore, dues of even one of the workers can be in a manner of speaking be said to be the dues claimed by a secured creditor, but can it be contended that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roposed to be amended to bring about an amalgam between the functions of BIFR, Company Law Board and the Civil Court dealing with winding up proceedings under the Companies Act, it has been specifically provided that there cannot be prevented a reference to BIFR unless 75% or more of the secured creditors of a sick company propose to take action under Section 13(4) of the SARFAESI Act. The provisions similar to the provisos of Section 15(1) of the present SICA are to be found in the provisos to proposed Section 424A in the proposed amended Companies Act, 1956 and the said provisos read as under: Provided also that in case any reference had been made before the Tribunal and a scheme for revival and rehabilitation submitted before the commencement of the Enforcement of Security Interest and Recovery of Debts Laws (Amendment) Ordinance, 2004, such reference shall abate if the secured creditors representing three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower have taken measures to recover their secured debt under Sub-section (4) of Section 13 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amework of the statute. We will not view the provisions as abstract principles separated from the motive force behind. We will consider the provisions in the circumstances to which they owe their origin. We will consider the provisions to ensure coherence and consistency within the law as a whole and to avoid undesirable consequences. One also can refer to the decisions of the Supreme Court reported as National Insurance Co. Ltd. v. Laxmi Narain Dhut, 2007 3 SCC 700 and Surjit Singh v. Mahanagar Telephone Nigam Limited, 2009 16 SCC 722, which also lay down the same ratio as in the case of Kehar Singh (supra). Para 27 of National Insurance Co. Ltd. and paras 21 and 22 of Surjit Singh s case read as under: 27. 'Golden rule' of interpretation of statutes is that statutes are to be interpreted according to grammatical and ordinary sense of the word in grammatical or literal meaning unmindful of consequence of such interpretation. It was the predominant method of reading statutes. More often than not, such grammatical and literal interpretation leads to unjust results which the legislature never intended. The golden rule of giving undue importance to grammatical and litera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stry. Also, if we adopt the interpretation that a purchaser of a very minuscule amount of a debt of a sick company can frustrate the revival of a sick company then the same will result in an avoidable stalemate and which will arise because the secured creditor would be able to prevent a reference for revival and rehabilitation of a sick company but he would not be able to pursue his remedy under the SARFAESI Act because he would not have the cut off percentage of 75% as required by Section 13(9) of the SARFAESI Act. To the extent possible, different provisions of Acts which are cognate and allied Acts must be interpreted harmoniously with each other and the object of the legislature will have to be understood by reading of all the special statutes taken together. ( 9. ) The learned Additional Solicitor General, appearing on behalf of the Union of India, has sought to contend that on account of the provisions of the SARFAESI Act, and more particularly Section 9 which requires the asset reconstruction company and the securitization company to have regard to the guidelines framed by the Reserve Bank of India, since guidelines have been framed by the Reserve Bank of India in a guida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n provides as under: Clause 4: (a)A SC/RC may effect change in or take over the management of thebusiness of the borrower, where the amount due to it from the borrower is not less than 25% of the total assets owned by the borrowed; and (b)Where the borrower is financed by more than one secured creditor(including SC/RC), secured creditors (including SC/Rc) holding not less than 75% of the outstanding security receipts agree to such action. 17. Therefore, it is respectfully submitted that adequate safeguards have been provided by the Reserve Bank of India by way of Guidance Note . ( 10. ) The guidance notes of the Reserve Bank of India on behalf of the Union of India also provide as under: The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 had come into effect from June 21, 2002. In exercise of the powers conferred therein, the Bank has framed Guidelines and Directions to Securitisation Companies and Reconstruction Companies relating to registration and other matters like acquisition of financial assets, prudential norms relating to income recognition, classification of assets, provisioning, accounting standards, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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