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2007 Supreme(Mad) 484
High Court of Judicature at Madras
THE HONOURABLE CHIEF JUSTICE MR. A.P. SHAH & THE HONOURABLE MR. JUSTICE K. CHANDRU
Golden Weaving Mills (P) Ltd., Madurai
Versus
The Tamil Nadu Industrial Investment Corporation Ltd., Chennai & Another
Writ Petition No.12158 of 2005
Decided On : 06-02-2007
For the Petitioner:Sivam Sivanandaraj, Advocate. For the Respondents:Jayesh Dolia, Advocate.
A creditor is entitled to choose one or more cumulative remedies unless precluded by statutory provisions or by the doctrine of election.
Headnote:
SARFAESI Act - Financial Assets - SFC Act, SICA - Section 29, 31, 41 of SARFAESI Act - The court discussed the provisions of the SFC Act and the SARFAESI Act, highlighting the rights and remedies available to the financial institutions and the procedures for recovery of dues. The court emphasized the non-obstante clause in Section 46-B of the SFC Act and the amendments introduced by Section 41 of the SARFAESI Act, which abate the reference pending before the BIFR if secured creditors take measures to recover their debts under Section 13(4) of the SARFAESI Act. The judgment also referenced the Supreme Court's decision in A.P. State Financial Corporation vs. Gar Re-Rolling Mills, (1994) 2 S.C.C. 647 and Transcore vs. Union of India, 2006 (5) C.T.C. 753, to establish the principle that a creditor is entitled to choose one or more cumulative remedies unless precluded by statutory provisions or by the doctrine of election.
Fact of the Case:
The petitioner, a private limited company engaged in manufacturing, challenged the respondent's action under Section 13(4) of the SARFAESI Act, claiming that it was barred by the SFC Act and the SICA. The respondent had initiated proceedings to recover outstanding dues from the petitioner's merged units, which were declared as a Sick Undertaking under the SICA. The petitioner argued that the respondent's resort to the SARFAESI Act would render the provisions of the SFC Act redundant and that the respondent did not represent 75% of the secured creditors to initiate action under the SARFAESI Act.
Finding of the Court:
The court found that the respondent was entitled to take action under Section 13 of the SARFAESI Act, as the provisions of the SFC Act and the SICA did not preclude such action. The court emphasized that the doctrine of election did not apply in this case, as the respondent was solely invoking the provisions of the SARFAESI Act and the other remedies under the SFC Act were not available to the respondent. The court dismissed the writ petition, stating that the respondent's action under the SARFAESI Act was justified.
Issues: The issues involved the interpretation of the provisions of the SFC Act, SICA, and the SARFAESI Act, and whether the respondent's action under Section 13(4) of the SARFAESI Act was valid in light of the petitioner's contentions.
Ratio Decidendi: The court held that the respondent's action under the SARFAESI Act was justified, as the provisions of the SFC Act and the SICA did not preclude such action. The court also emphasized that the doctrine of election did not apply in this case, as the respondent was solely invoking the provisions of the SARFAESI Act and the other remedies under the SFC Act were not available to the respondent.
Final Decision: The writ petition was dismissed, and no costs were awarded to either party. The writ petition was closed, and the related W.P.M.P. No.13283 of 2005 was also closed.
A.P. Shah, CJ.
The petitioner Golden Weaving Mills (P) Ltd. has filed this writ petition under Article 226 of the Constitution of India for the issuance of a writ of prohibition or any other appropriate writ, order or direction in the nature of writ, prohibiting the respondent Tamil Nadu Industrial Investment Corporation Limited from taking action under Section 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act).
2. Briefly stated, the facts giving rise to this petition are as follows :
The petitioner is a private limited company incorporated under the provisions of the Companies Act and is engaged in manufacturing of yarns, fabrics and other materials. Previously, there were three industrial units, namely M/s. Sivagami Muthukamatchi Textiles (P) Ltd., M/s. Subha Textiles and M/s. Vinotha Textiles, which have now been merged as Golden Weaving Mills Pvt. Ltd., i.e., the petitioner herein. The respondent has been established under Section 3 of the State Financial Corporations Act, 1951 (hereinafter referred to as the SFC Act). The three previous units had obtained financial assistance from the respondent to the tune of Rs.55,24,000/-, Rs.37,59,000/-and Rs.26,92,000/- respectively and the said three units had failed to repay the availed loan amount to the respondent. Consequently, the respondent initiated proceedings under Section 29 of the SFC Act and took possession of the units. At that stage, the management of the petitioner-company approached the respondent and offered to take over the above above three units. At the time of taking over an amount of Rs.1,56,00,000/- was due to the respondent from the above three units. The units were taken over by the petitioner but the petitioner failed to repay the loan amount, and consequently, the respondent again initiated proceedings under Section 29 of the SFC Act to recover the balance amount due. The petitioner challenged the action of the respondent in W. P.No.2288 of 2001 and interim stay was granted subject to the payment of the balance amount in instalments. During the pendency of this writ petition, the petitioner approached the Board of Financial Reconstruction (BIFR in short) and a reference came to be registered as Case No.56 of 2002. The petitioner-Company was declared as a Sick Undertaking under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the SICA") and the Indian Overseas Bank was appointed as the Operating Agency to formulate a Draft Rehabilitation Scheme. In view of the bar created by Section 22 of the SICA the respondent was unable to initiate any action under the SFC Act. In the meanwhile, Parliament has enacted the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). Section 41 of the SARFAESI Act has introduced an amendment to Section 15 of the SICA, whereby proceedings before the BIFR will abate if more than three-fourths of the Secured Creditors have taken any measures to recover their secured debt under Sub-section 4 of Section 13 of the SARFAESI Act. By resorting to the provisions of the SARFEASI Act, the respondent issued a notice dated 2. 2005 under Section 13(2) of the SARFAESI Act demanding repayment of the dues to the respondent. The respondent has set out in the above notice that if the demand is not complied within sixty days from the date of receipt of the notice, the respondent would proceed further under Section 13 (4) of the SARFAESI Act. The legality and validity of the notice issued under Section 13 (4) of the SARFAESI Act is questioned in the present writ petition.
3. Mr. Sivam Sivanandaraj, learned counsel appearing for the writ petitioner strenuously contended that the respondent-Corporation is governed by the special legislation, namely the SFC Act, which gives wide and sweeping powers to the responden
