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TMI Blog2010 (9) TMI 1304X X X X Extracts X X X X X X X X Extracts X X X X ..... the exclusive first charge as per a Deed of Hypothecation and under the terms of the insurance policy securing the goods read with the Deed of Hypothecation, the petitioner bank was entitled to receive the amount from the insurance company directly. 3. A fire took place at the premises of respondent No. 1 on 09.04.1998 which destroyed the raw materials, finished goods, etc. A claim was lodged with the insurance company which settled the claim amount at only Rs. 33.15 lakhs. Respondent No. 1 company aggrieved by the same filed a petition before the National Consumer Dispute Redressal Commission (for short, 'NCDRC) which gave a favourable verdict for an amount of Rs. 1.49 crores with interest @ 12% p.a. from October, 1998 till date of payment as per the judgment dated 23.02.2007. The appeal filed by the insurance company before the Supreme Court was dismissed in limine on 10.07.2007. 4. Respondent No. 1 company went into financial difficulties in the meantime and, thus, filed an application under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, 'SICA'). Since the net worth of respondent No. 1 company stood eroded, it was declared as a sick ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved. 4. Future expenses/cost, if any, shall be borne by the party. 5. This is without prejudice to the Bank's right to recover the entire dues in the event of party's failure to pay the compromise amount as per settlement sanction. 6. Please confirm adjustment of amount kept in "No lien a/c". 7. Branch shall inform RO/CO about the details of payments made by the company. If the dues are not settled as per the terms of sanction, the concession granted shall stand revoked and the entire dues shall be recovered as per the original terms. We request you to convey the sanction to the party against an acknowledgement and their acceptance for the terms of the sanction shall be obtained, under information to Branch with instructions to collect the offer amount as per terms of sanction. Please keep us informed of the developments." (emphasis supplied) 7. A perusal of the aforesaid shows that the only concession shown was by waiver of penal interest by waiver of Rs. 11.57 lakhs as on 30.06.2007. A sum of Rs. 40 lakhs lying in the no-lien account (for short, 'NLA‟) was adjusted. The balance settlement amount of Rs. 76 lakhs had to be paid on or before 30.09.2007. 8. Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed upon your reporting regarding the developments before the Supreme Court of India from time to time. At the time of consideration of your request for OTS, the fact about the order of National Commission was a material factor. The Bank was informed that the Insurance Co. had filed already a Special Leave Petition before the Hon'ble Supreme Court of India against the orders of NCDRC and the same was pending. Since the probable time that would be taken by the Hon'ble Supreme Court of India and also it was not sure whether the Supreme Court could confirm the award or reduce it, instead of waiting for the final disposal of SLP, the bank took up the proposal for OTS for consideration. Now it is noticed that the SLP filed by the Insurance Co. was disposed off on 10.07.2007 itself dismissing the appeal filed by the Insurance Co. It is observed that the Hon'ble Supreme Court heard the counsel appearing for the parties. Hence, it is very clear that you appeared in the Supreme Court through your counsel on 10.07.2007, supported the award of NCDRC for Rs. 149.44 lakh with interest at 12% and opposed the SLP filed by the Insurance Co. You are also aware that on 10.7.2007 the Supreme Court h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, thus, arose whether the petitioner bank could have withdrawn the OTS on 20.09.2007 primarily in view of the receipt of the amount from the insurance company on 19.09.2007 having acted on the OTS by appropriating the sum of Rs. 40 lakhs ostensibly on the ground that while proposing the OTS, respondent No. 1 had not intimated the factum of dismissal of the appeal by the Supreme Court four days before, though the bank was aware of the order of the NCDRC in favour of respondent No. 1. It is the case of respondent No. 1 that the petitioner bank being a party to the proceedings could hardly claim lack of knowledge and, in fact, knew of all the proceedings and with open eyes accepted the OTS. It is also the case of respondent No. 1 that the approval letter dated 04.09.2007 itself shows that the amount was settled at Rs. 127.57 lakhs as on 30.06.2007 with only waiver of penal interest of Rs. 11.57 lakhs with write off being 'NIL‟. Only future interest from 01.07.2007 to 30.09.2007 was waived. Despite this, the bank appropriated a sum of Rs. 1,78,75,733/- besides the sum of Rs. 40,00,175/- totalling to Rs. 2,18,75,908/-, which apart from any other reason, shows that huge amount has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... directions of the Bench / BIFR. The petitioner bank was further discharged from the responsibility of an OA and Canara Bank was appointed as the OA. 15. The appeal filed by the petitioner was finally dismissed by the AAIFR on 20.10.2008. The appeal order records that the basic point urged by the petitioner bank was that respondent No. 1 company acquired the goods on the basis of loans / advances obtained from the bank and the goods were hypothecated with the bank with no other party having a charge on the goods. Since these goods had been destroyed in a fire, respondent No. 1 company was compensated by insurance company as per the orders passed by NCDRC affirmed by the Supreme Court, the bank had the first right on the compensation received. This was stated to be as per the terms of the Deed of Hypothecation and the BIFR had no jurisdiction to set aside the terms of the contract or to go into the question whether the petitioner bank was right in going back from the OTS Agreement. It had further been pleaded by the petitioner bank that no declaration had been made under Section 22(3) of the SICA and no scheme had been sanctioned to supersede the contract between the parties. A ple ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been filed seeking to set aside the aforesaid order passed by the AAIFR on 20.10.2008. 18. Learned senior counsel for the petitioner-bank has once again before us argued the case as before the AAIFR. It is the plea of the petitioner that Section 22 of the SICA would have no application to appropriation of the insurance claim especially as no special declaration had been made by the BIFR suspending the operation of any contract. In this behalf, learned senior counsel relied upon the observations of the Supreme Court in Morgan Securities & Credit (P) Ltd. v. Modi Rubber Ltd., (2006) 12 SCC 642 wherein it was observed that a statutory distinction has been made by the legislature as regard initiation and / or continuation of proceedings on the one hand and suspension thereof on the other. Thus, under Section 22(1) of the SICA, no specific order was required to be passed by the BIFR, while a specific declaration was required to be made under Section 22(3) in relation to the matters enumerated thereunder. In the former case, statutory impact was to be automatic, whereas in the latter case, the BIFR is required to apply its mind having regard to the facts and circumstances of each ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned order that the bank had the right to decide upon the terms of the settlement between itself and the contracting party and in case of breach, the matter could not be adjudicated upon by the BIFR or the AAIFR. 23. Lastly, it was contended that in view of the claim pending before the Karnataka High Court, the BIFR and the AAIFR should have held their hand. 24. Learned counsel for respondent No. 1 has emphasized on the fact that the OTS was agreed upon on 04.09.2007 and in pursuance thereto a letter was issued to respondent No.1 company on 05.09.2007 communicating the acceptance of OTS and giving time till 30.09.2007 to pay the amount settled. The sum of Rs. 40 lakhs lying in NLA was immediately adjusted on 13.09.2007 and the balance of Rs. 76 lakhs had to be paid on or before 30.09.2007. Before expiry of that date on 17.09.2007, the petitioner bank wrote to the insurance company requesting that the amount awarded by NCDRC as affirmed by the Supreme Court be directly remitted to it and the insurance company duly remitted the amount of Rs. 273.54 lakhs on 19.09.2007. In terms of the OTS, the petitioner could have adjusted only the amount of Rs. 76 lakhs. On the other hand, havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... JT 1998 (3) SC 715, a similar view has been taken in respect of pending proceedings under the Companies Act, 1956. 29. In Rishabh Agro Industries Ltd. V. P.N.B. Capital Services Ltd; (2000) 5 SCC 515, it was held that the deemed date of commencement of enquiry for purposes of Section 22 of SICA was the date of submission of reference under Section 15 of SICA. In company proceedings, where the debtor had agreed to pay instalments and failed to pay the same, an order of winding up against the company was passed. This order was stayed by the Division Bench and thereafter a reference was filed by the company under Section 15(1) of SICA. The application filed by the company before the High Court under Section 22 of SICA was held to be valid in these facts. 30. Lastly, a reference was made to NGEF Ltd. V. Chandra Developers (P) Ltd.; (2005) 8 SCC 219 where it was held that till a company remains sick, the BIFR alone shall have jurisdiction as regards the sale of its assets and even the Company Court in a winding up proceedings would not have jurisdiction. 31. Learned counsel sought to distinguish the judgments relied upon by learned senior counsel for the petitioner bank and contended ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme may require sacrifices both by secured and unsecured creditors. The catena of judgments cited by learned counsel for R-1 show that primacy of the BIFR in respect of all matters of the sick company and that the powers to be exercised under SICA preserving the assets would supersede the powers under different statutes including specific legislations like the State Financial Corporations. 36. We are of the view that the legal position is quite clear that remedy of courts and specialized tribunals to recover amounts is not permissible for a creditor so long as the proceedings are pending before the BIFR and the BIFR alone is the 'master of ceremonies‟. 37. In the facts of the present case, the question of suspension of any contracts, agreements, settlements, awards, etc. is not involved for which a specific order has to be passed by the BIFR under sub-section (3) of Section 22 of the SICA. To appreciate the distinction between sub-section (1) and sub-section (3) of Section 22 of the SICA, we reproduce both of them as under: "22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under Section 16 is pending, or any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rance company was that in case of loss of goods, the amount would be directly remitted to the petitioner bank for securing the financial assistance given by the petitioner bank to respondent No. 1. Thus, the monies received in case of loss of goods by the bank were actually monies of the company, which would go towards the settlement of the claim of the bank. 39. It is in the aforesaid circumstances that learned counsel for respondent No. 1 has rightly distinguished the judgment of learned Single Judge in Enchante Jewellery‟s case (supra) where the vehicle in question remained the property of the bank till the entire finance was not paid with the right to repossess the vehicle. This is, of course, apart from the fact that it was not even disclosed to the bank that the company was already before the BIFR. 40. The monies received by the petitioner bank from respondent No. 1, as observed aforesaid, were monies of respondent No. 1 company and in view of the pendency of proceedings before the BIFR could not have been unilaterally appropriated without the prior permission of the BIFR. Undoubtedly, no permission of the BIFR was obtained. The strange aspect is that the petitioner b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o quickly liquidate it and appropriate the amount contrary to the interest of other secured creditors and unsecured creditors. This can hardly be permitted and would defeat the very object of the SICA where the disbursement of funds is an important aspect for purposes of rehabilitation and where sacrifices may be called for from both secured and unsecured creditors. The petitioner bank is not the only secured creditor, there being two secured creditors and the endeavour of the petitioner bank to steal a march over the other secured creditor, i.e., KSIIDC cannot be appreciated. Thus, KSIIDC rightly objected before the BIFR to such unilateral appropriation of the insurance amount by the petitioner bank leaving KSIIDC high and dry and in an unequal bargaining position in case rehabilitation scheme was to be propounded. The secured creditors are liable to be treated at par. The improper conduct of the petitioner bank has even resulted in it being replaced as OA. 44. The interim directions of the BIFR dated 23.10.2007 as contained in para 6(b) and para 6(c) directing the petitioner bank to explain its stand of unilateral appropriating the insurance claim without making a reference to t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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