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IN THE HIGH COURT OF PUNJAB AND HARYANA
Kuldip Singh, Hemant Gupta, JJ.
MSD Industrial Enterprises Ltd. – Appellant
Versus
Debts Recovery Appellate Tribunal and Others — Respondent
CWP No. 19666 of 2014
Decided On : 26-09-2014
For the Appellant :B.B. Bagga, Advocates
Section 13(9) of the SARFAESI Act is a beneficial provision for the secured creditor and not for the debtor, aiming to protect the interests of other secured creditors and give weightage to their opinion.
Headnote:
SICA Act - Challenge to order passed by Debts Recovery Appellate Tribunal - Sections 13(2) and 13(9) of SARFAESI Act - [SICA Act, 1985 - Sections 13(2) and 13(9) of SARFAESI Act, 2002] - The court discussed the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and the Securitization and Reconstruction of Financial Asset and Enforcement of Security Interest Act, 2002. It highlighted the interpretation of Section 13(9) of the SARFAESI Act, emphasizing that it is a beneficial provision for the secured creditor and not for the debtor. The court also referenced relevant case law to support its interpretation.
Fact of the Case:
The petitioner challenged an order passed by the Debts Recovery Appellate Tribunal and a sale notice, alleging contravention of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA Act). The petitioner had availed financial assistance from multiple entities and was declared a sick company. The respondent No. 2 initiated action under Section 13(2) of the SARFAESI Act, leading to the dismissal of the appeal by the Tribunal and the Appellate Tribunal.
Finding of the Court:
The court dismissed the writ petition, emphasizing that the respondent-Corporation, despite initially having a smaller share, became the sole secured creditor and could take recourse to the provisions of the SARFAESI Act. It cited case law to support its finding and rejected the petitioner's argument.
Issues: Challenge to order passed by Debts Recovery Appellate Tribunal, contravention of SICA Act provisions, interpretation of Section 13(9) of SARFAESI Act, settlement of dues with creditors.
Ratio Decidendi: The court held that Section 13(9) of the SARFAESI Act is a beneficial provision for the secured creditor and not for the debtor. It emphasized that the benchmark provided in the provision aims to protect the interests of other secured creditors and give weightage to their opinion.
Final Decision: The court dismissed the writ petition.
Hemant Gupta, J.
The challenge in the present writ petition is to an order passed by the Debts Recovery Appellate Tribunal (for short 'the Appellate Tribunal') on 02.07.2014 (Annexure P-20) as well as sale notice dated 22.01.2013 said to be in contravention of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short 'SICA Act'). The petitioner availed financial assistance from respondent No. 2 i.e. Punjab State Industrial Development Corporation (for short 'the Corporation') as well as from State Bank of India and Small Industrial Development Bank of India (for short 'SIDBI'). The loan share of the Corporation was 12.78%; share of State Bank of India was 76.13% and that of SIDBI was 11.09%. The petitioner was declare a sick Company on 04.02.2002 and State Bank of India was appointed as an Operating Agency. The draft Rehabilitation Scheme was circulated for revival of the Company on 02.06.2009. At that time, the total amount due to respondent No. 2 from the petitioner was Rs. 4.5 crores. The petitioner was required to pay a sum of Rs. 1 crore against the principle outstanding towards respondent No. 2 i.e. Rs. 44.30 lacs as part of the Rehabilitation Scheme framed by the Operating Agency. The Rehabilitation Scheme was sanctioned by the Board for Industrial and Financial Reconstruction under the provisions of SICA Act on 02.12.2009 (Annexure P-6).
2. During the pendency of an appeal against the said order, the respondent No. 2 initiated action under Section 13(2) of the Securitization and Reconstruction of Financial Asset and Enforcement of Security Interest Act, 2002 (for short the SARFAESI Act'). The Debts Recovery Tribunal (for short 'the Tribunal') dismissed the appeal filed by the petitioner on 21.02.2012 (Annexure P-16). The appeal against the said order was dismissed by the learned Appellate Tribunal on 02.07.2014 (Annexure P-20). It is the said order which is subject matter of challenge in the present writ petition.
3. At this stage, it may be noticed that an appeal filed by respondent No. 2 under the SICA Act was dismissed as abated by Appellate Authority for Industrial & Financial Reconstruction (for short 'AAIFR') on 31.08.2012 (Annexure P-17) in view of the provisions of the SARFAESI Act. Consequently, an order declaring the company as sick and the Rehabilitation Scheme came to be set aside. The said orders have not been set aside. It is also the stand of the petitioner that it entered into one time settlement with SIDBI when it agreed to settle the loan account on payment of a sum of Rs. 40.47 lacs along with interest. A certificate by SIDBI of no due was issued on 01.09.2006 (Annexure P-3). The petitioner also settled the dues of the lead creditor i.e. State Bank of India and liquidated the loan account on 29.08.2011 (Annexure P-15). Thus, the petitioner is said to have settled more than 87% of its secured creditors.
4. The sole argument raised by learned counsel for the petitioner is that the respondent-Corporation has only 12.78% shares in the total loan accounts, therefore, in terms of Section 13(9) of the SARFAESI Act, a creditor who has less than 'three-fourth' (now 'sixty per cent') of the shares of the secured creditors cannot be permitted to take recourse of the provisions of the Act.
5. We find such contention to be wholly untenable. Firstly, it is the pleaded case of the petitioner itself that the loan account of other two creditors stand settled. The respondent No. 2 is now the sole secured creditor, thus it is a creditor to the extent of 100%, though at one stage, it had only 12.78% shares.
6. Still further, a Division Bench of Delhi High Court in Chemstar Organics India Limited Vs. Bank of Baroda and Others, (2013) 1 BC 21, examined the provisions of Section 13(9) of the SARFAES1 Act. It has been held that it is a beneficial provision for the secured creditor and not for the debtor. Therefore, the borrower cannot take benefit of such lack of consent. The Court held
