Ksl & Industries Ltd vs M/S. Arihant Threads Ltd. & Ors

2041-42 of 2006. By the said judgment, the High 2

Court, set aside the order passed by the Debt

Recovery Appellate Tribunal, Delhi (`DRAT' for

short) and held that in view of the provisions

of Section 22 of the Sick Industrial Companies

(Special Provisions) Act, 1985 (hereafter

referred to as `SICA'), no recovery proceedings

could be effected against the first respondent-

Company in the light of the bar contained

therein.

Factual Background

3. To understand the controversy in

its proper perspective, it is necessary to keep

in mind the factual matrix of the case.

Respondent No. 1 (M/s. Arihant Threads Ltd.)

(`Company' for short) was incorporated as a

joint venture with Punjab State Industrial

Development Corporation. It set up an export

oriented spinning unit for manufacturing cotton

yarn in the industrial area of Amritsar

District of the State of Punjab. In 1992,

Goindwal Sahib Industrial & Investment 3

Corporation allotted Plot No. 454, Flocal Point

of Goindwal Sahib Industrial Area by way of

lease to the Company for a period of 99 years

with a specific condition that the lessee will

not transfer the interest in the property for

first fifteen years without prior permission of

the lessor. The lessee was to enjoy the right

of possession so long as it continued paying

instalments of the premium by due-date and

abide by other terms and conditions of the

lease. It was, however, stated that the lessee

would be entitled to mortgage lease-hold rights

to a Bank, Punjab Financial Corporation or Life

Insurance Corporation of India as security for

a loan to be raised for construction of factory

building, purchase of raw materials, etc. The

Industrial Development Bank of India (`IDBI'

for short) which was the predecessor of the

Stressed Assets Stabilisation Fund (`SASF' for

short), financed the project undertaken by the

Company by way of foreign currency loan and

also working capital of Rs. 93.1 million. 4

4. It was the case of the Company

that due to overall recession in Textile

Industry, the Company suffered huge loss and

could not repay the amount of loan. Since the

Company failed to pay instalments, IDBI filed

Original Application No. 1368 of 2001 on

December 20, 2001 in Debt Recovery Tribunal,

Chandigarh (`DRT' for short) for recovery of

Rs.25,26,60,836/- under the Recovery of Debts

Due to Banks and Financial Institutions Act,

1993 (hereinafter referred to as the `RDDB'

Act). On June 10, 2002, M/s Roland Exports

(successor of Goindwal Industrial & Investment

Corporation) cancelled the lease agreement on

account of non-payment of lease money amounting

to Rs.3,19,94,149/-. The Company did not remain

present before the DRT though duly served. On

July 15, 2003, therefore, an ex-parte final

order in favour of IDBI (SAFS) for recovery of

Rs.25,26,60,836/- along with interest @ 7.8%

p.a. was passed by DRT.

5

5. The Tribunal in operative part

of the order stated;

"The application for recovery of a sum Rs.25,26,60,836.00 is decreed against defendant company and the defendant company is ordered to pay:-

i. A sum of Rs.

25,26,60,836.00 alongwith pendent elite and future interest @ 7.8% per annum with half yearly rests jointly and severally from the date of filing of the suit till realization;

ii. Pay the cost of litigation; iii. Pay the said amount within 30 days from the date of receipt of this order.

2. In the event of failure on the part of defendants to pay the above amount within the stipulated period, the applicant bank shall be entitled to recover the said amount from the sale of mortgaged properties of the defendants. Even if the said amount is not so realized, it shall be recovered from the sale of personal properties of the defendants.

3. Copy of the judgment be sent to the defendants and the recovery certificate be issued accordingly.

4. Parties to appear before the Recovery Officer, DRT, Chandigarh on 22.8.2003."

6 6. A recovery certificate was

issued against the Company. On September 9,

2003, the Recovery Officer issued a composite

demand notice under Rule 2 of Second Schedule

of the Income Tax Act, 1961 against the Company

demanding payment of Rs.28,60,87,384/-. He also

directed the Company to appear on October 23,

2003 for settling terms and conditions of the

proclamation of sale and for disclosure of its

movable and immovable assets. Harnek Singh,

Security Guard who was present at the Company

premises was served and he signed the summons

in token of acceptance of notice on behalf of

the Company. Service Report was filed by one

Rajesh Mahajan, Advocate for certificate holder

affirming Dasti service on the Company. Another

service report was also filed along with

affidavit by the same advocate on October 6,

2003. On January 3, 2004, Mr. Vivek Verma,

Local Commissioner appointed by the Recovery

Officer, visited the site and filed his report 7

wherein he stated that two machines were

missing. He also recorded that the unit was in

running condition. At the instance of SASF,

North India Technical Consultancy Association

Ltd. (`NITCO' for short) filed a valuation

report in January, 2004 assessing the fixed

assets at Rs.17.51 crores. It is alleged that

on July 1, 2004, the Company created illegal

tenancy in favour of M/s Roland Exports. On

September 16, 2004, the Recovery Officer fixed

the reserve price of the property at Rs.12.50

crores (Rs.4.50 crores for movables and Rs.8.00

crores for immovables). He also fixed the date

for sale of immovable property as October 27,

2004 and for movable property as October 30,

2004. The auction was, however, adjourned. The

Company on October 18, 2004, filed an appeal

against the order dated September 16, 2004

fixing reserve price of Rs. 12.50 crores in the

DRT being Appeal No. 52 of 2004 under Section

30 of the RDDB Act. On October 27, 2004, DRT

allowed auction sale to proceed but ordered 8

that the sale should not be confirmed till

further orders. On October 30, 2004, auction

was concluded and the appellant herein was

declared the highest and successful bidder at

Rs.12.52 crores. It deposited 25% of the

reserve price. On November 2, 2004, on an

application by the appellant, DRT appointed

representative of the appellant as a receiver

to prepare inventory of auctioned property.

7. On November, 11, 2004, the

appellant made an application to DRT praying

for acceptance of the bank guarantee in lieu of

payment of the remaining amount of 75% and also

by refunding the amount deposited (25%). DRT

dismissed the said application and the

appellant-auction purchaser, on the same day,

i.e. November 11, 2004 deposited the balance

amount of 75% of the purchase money i.e.

Rs.9,39,00,000/- by a Bank draft. On December

13, 2004, the receiver lodged a First

Information Report (FIR) and filed an affidavit

before DRT complaining that the agent of the 9

Company had forcibly dispossessed him by using

criminal force. On December 15, 2004, the

Company moved an application for setting aside

ex-parte final order passed on July 15, 2003 by

DRT, Chandigarh which was registered as M.A.

No. 103 of 2004. The appellant filed an

application objecting the prayer of the Company

with an added prayer to implead it in Appeal

No. 52 of 2004 as also in M.A. No. 103 of 2004.

The DRT allowed the impleadment application of

the appellant vide order dated December 17,

2004. On March 28, 2005, the appellant filed an

application for hearing preliminary issue as to

maintainability of appeal filed by the Company

(Appeal No. 52 of 2004). On April 8, 2005, a

suit for permanent injunction was filed by

Roland Exports against the Company in the Civil

Court at Tarantaran, District Amritsar.

Status quo with regard to possession was

ordered to be maintained by the Court. An

appeal against the said order is said to have

been pending in the High Court. Meanwhile, the 10

Company got the property valued by Himachal

Consultancy Organisation Ltd. (`HIMCO' for

short), according to which the realizable value

of the property had been increased to Rs.20.22

crores. On July 26, 2005, DRT-I, Delhi allowed

Appeal No. 52 of 2004, set aside the auction

sale subject to the Company fulfilling terms

and conditions with regard to payment of

certain amount, interest, expenses etc.

8. The Tribunal, while granting

relief to the Company, ordered;

"In my humble opinion, natural justice requires that the appeal be allowed but with some conditions so that further progress of recovery be not stalled by the appellant. In these circumstances, this appeal is allowed, subject to the following conditions:-

(i) That the appellant will pay 5% of the amount deposited by the auction purchaser within 10 days as a penalty as per rule 60 of the Second Schedule of Income Tax Act.

(ii) The appellant will pay an interest on the amount deposited by the auction purchaser @ 9% p.a. calculated from the date 11

of deposit of the same till today. The interest accumulated on the FDRs of auctioned amount till date will be paid to the CH Fl who will adjust this amount against the outstanding dues of the appellant.

(iii) The appellant will also bear all the expenditure incurred by the CH FI in conducting the sale. The details of the same will be given by the CH FI within a week and thereafter within 10 days, this amount will be deposited by the appellant with the CH FI.

Failing to comply all the above three conditions, this appeal will be treated as dismissed and the restraint order passed by this Tribunal will stand vacated and the Ld. Recovery Officer will be at liberty to pass the necessary orders as per law and if, the above conditions are fulfilled by the appellant, the Ld. Recovery Officer is directed to re-auction this property as early as possible, within 75 days as per law and release the amount deposited by the auction purchaser immediately. The present appeal bearing Transfer Appeal No. 1/2005 (Appeal NO. 52/04) stands disposed off accordingly. A copy of this order be given dasti to all the parties. A copy of this order be also sent to the Recovery Officer, DRT Chandigarh for necessary action and information. RC file be also sent 12

immediately back to the DRT Chandigarh by special messenger along with copy of this order. File be consigned to records".

9. The Company, objecting the

conditions imposed by DRT, filed an appeal

against the said order to the DRAT, Delhi being

Appeal No. 167 of 2005. The appellant also

filed an appeal being aggrieved by the setting

aside the sale. DRAT stayed operation of the

order dated July 26, 2005 which had set aside

ex-parte order passed by DRT. It also directed

refund of sale amount to the appellant. Appeals

were then heard and the judgment was reserved.

10. Meanwhile, on December 21, 2005,

the Company filed a Reference before the Board

of Industrial Finance & Reconstruction (`BIFR'

for short) under SICA which was registered as

BIFR Case No. 4 of 2006. On February 10, 2006,

DRAT dismissed the appeal filed by the Company

and allowed the appeal of the appellant and

confirmed auction-sale in favour of the 13

appellant on depositing the sale price. DRAT,

in the operative part of the order stated;

"In view of the detailed discussion made on the issues which are relevant for the purpose deciding these appeals, the Miscellaneous Appeal 167/2005 filed by the judgment-debtor shall stand dismissed. The Miscellaneous Appeal 173/2005 filed by the auction purchaser shall stand allowed. Consequently, the appeal filed by the judgment-debtor in Appeal 52/2004 before the Presiding Officer, DRT, Chandigarh which is renumbered on transfer to DRT-I, Delhi as Transfer Appeal No. 1/2005 shall stand dismissed. Points formulated for consideration are answered accordingly. No costs.

Since, the appeal filed by the auction-purchaser is allowed, the Recovery Officer, DRT, Chandigarh shall confirm the sale and shall take all steps immediately for handling over the possession of properties in question, to the auction purchaser, if necessary, by taking assistance from all authorities concerned. The auction purchaser, who was permitted to withdraw the auction amount deposited towards sale price without prejudice to its rights during pending of these appeals, shall forthwith deposit the entire amount and thereafter the Recovery Officer shall proceed to complete the other requirements according to law forthwith."

14 11. By a separate order of even

date, DRAT ordered the Recovery Officer,

Chandigarh to act upon and execute the

directions issued by it. The appellant

deposited Rs.12.50 crores on the same day. But

the sale could not be confirmed since the

Presiding Officer was on leave. The appellant

moved an application before DRAT for

appointment of Recovery Officer, DRT, Delhi for

confirmation of sale. Within three days,

however, the Company filed two Writ Petitions

being C.W. Nos. 2041 and 2042 of 2006 in the

High Court of Delhi on February 13, 2006

against an order of DRAT dated February 10,

2006. The High Court of Delhi, as already

mentioned earlier, allowed the writ petitions

on February 23, 2006, set aside the order

passed by DRAT on the ground that Section 22 of

SICA operated as a complete bar to recovery

proceedings and no order could have been passed

by the Tribunal.

Subsequent development 15

12. Being aggrieved by the order

passed by the High Court, the appellant filed

Special Leave Petition in this Court on March

6, 2006. Notice was issued on March 27, 2006 by

this Court and the appellant was allowed to

withdraw sale price without prejudice to its

rights and contentions. The matter was,

thereafter, adjourned from time to time. It was

ordered to be heard finally. For completion of

record, it may be stated that on April 3, 2006,

the BIFR rejected the Reference of the Company.

The Company preferred an appeal against the

said order which is pending before the

Appellate Authority for Industrial & Financial

Reconstruction (AAIFR). On September 15, 2006,

second Reference was filed by the Company which

has been registered as BIFR Case No. 18 of

2006. On February 22, 2007, the BIFR declared

the Company as a `sick Company' and appointed

LSAS, respondent No. 5 as the Operating Agency

to prepare Rehabilitation Scheme.

Submissions of the appellant 16

13. The Court has heard the learned

counsel for the parties. Learned counsel for

the appellant raised several contentions. He

urged that the High Court has committed an

error of law in holding that the proceedings

were barred by Section 22 of the SICA and DRAT

was wrong in issuing directions. The

proceedings were neither covered by the first

part nor by the second part of Section 22 and

the High Court ought to have decided the case

on merits. It was also submitted that Section

34 of RDDB Act has an `overriding effect' and

even on that ground, the matter ought to have

been decided. It was contended that the appeal

preferred by the Company against fixation of

reserve price was not maintainable under

Section 30 of the RDDB Act and could not have

been entertained by DRT. So far as ex-parte

decree passed by DRT is concerned, the counsel

submitted that the Company was duly served and

in spite of that, it failed to appear before

the Tribunal. A grievance was also made that in 17

an appeal against fixing reserve price (which

was not maintainable), DRT granted interim

relief on certain terms and conditions. But

even those conditions had not been complied

with by the Company. Reserve price fixed was

proper, sufficient and reasonable and DRT ought

not to have set aside the order passed by the

Recovery Officer.

14. The counsel vehemently contended

that the High Court ought to have taken into

account over all conduct of the party,

particularly when the Company had invoked

discretionary and equitable jurisdiction under

Article 226 of the Constitution. In exercising

writ jurisdiction, submitted the counsel, the

conduct of the petitioner is indeed a relevant

and extremely important consideration. In the

instant case, the Company had not come with

clean hands. It had not repaid the loan

amount; did not appear before DRT in spite of

service of summons; an ex parte final order

was, therefore, rightly passed against it; the 18

Company filed an appeal before DRT against an

`order' which was not appealable; failed to

comply with even the interim order under which

protection was obtained and no payment was

made; by committing criminal trespass and

unlawfully entering the property, it

dispossessed the receiver appointed by the

Tribunal; the action of taking over possession

of the property by act of highhandedness could

not be approved; the Company also removed

machinery and other movable property from the

disputed premises; created unlawful tenancy

rights in favour of third party by accepting

substantial amount from him, etc. The counsel,

therefore, urged that even if the case was

covered by SICA and Section 22 got attracted,

the High Court, in exercise of extraordinary

and special jurisdiction, ought not to have

granted relief in favour of the Company. On all

these grounds, it was submitted that the appeal

deserves to be allowed.

19

15. The learned counsel for the

supporting respondents adopted the arguments

advanced by the learned counsel for the

appellant.

Submissions of respondent

16. The learned counsel for the

Company, on the other hand, supported the order

passed by the High Court. According to him, no

doubt the High Court was exercising powers

under Article 226 of the Constitution. But in

exercising constitutional powers, the Court

would undoubtedly keep in mind statutory

provisions of SICA and precisely that has been

done by the Court. If the proceedings could not

have been initiated or continued in view of bar

of Section 22 of SICA, it cannot be said that

the High Court was wrong in passing the

impugned order. No grievance, hence, can be

made against such order. As to ex-parte final

order said to have been passed by DRT, it was

submitted that no opportunity of hearing was

afforded to the Company and the order was 20

violative of principles of natural justice and

fair play. The appeal filed by the Company

against fixation of reserve price before DRT

was maintainable under Section 30 of the RDDB

Act as the appeal lies against "an order of the

Recovery Officer made under the Act" and an

order of fixation of reserve price is also an

`order' within the meaning of the Act.

Regarding non-depositing of amount as per

interim order, it was submitted that the

Company was not in a position to comply with

the conditions of stay and the directions

issued and hence, in accordance with law, it

challenged the said order by filing an appeal

before DRAT. It was the right of the Company to

take such action and the appellant cannot

object against such course being adopted by the

Company. It was, therefore, submitted that the

High Court was wholly justified in allowing the

petitions filed by the Company and no case has

been made out by the appellant for interference

against the said order by this Court.

21

High Court's order

17. At the outset, it may be noted

that the High Court had disposed of the

petitions only on one ground as to

applicability of SICA and held that the

proceedings were barred under Section 22 of the

said Act. This is amply clear from paragraph 13

of the order which reads as under:

Several arguments have been advanced before us by learned counsel for the parties, but we are of the opinion that this petition deserves to be allowed on the very first submission of Dr. Abhishek M. Singhvi, learned senior counsel for the petitioner, namely that the proceedings are barred by Section 22 read with Section 32 of the SICA.

(emphasis supplied)

18. Referring to the relevant

provisions of SICA and keeping in view the

ratio laid down in the decisions cited before

it, the Court ruled that the petition filed by

the Company was required to be allowed. 22

Accordingly, in the operative part (para 36),

the High Court concluded:

For the reasons given above, the petition is allowed and the impugned order dated 10.2.2006 passed by the DRAT is set aside and it is held that no recovery can take place against the petitioner in view of the bar of Section 22 of the SICA.

(emphasis supplied)

19. As already adverted to, before

the Court the arguments had been advanced by

all the parties on continuation or otherwise of

proceedings and also on the merits of the

matter. In view of the fact, however, that the

High Court has not entered into merits of the

case and disposed of petitions holding that the

proceedings could not be continued because of

the bar of Section 22 of SICA, I do not wish to

enter into allegations and counter allegations

levelled by the parties. At the same time, I am

of the view that the conclusion arrived at by

the High Court that the proceedings were barred

under Section 22 of SICA is not well-founded 23

and the decision of the High Court on that

point deserves to be set aside.

SICA - Ambit and scope

20. So far as SICA is concerned, it

has been stated in the Preamble that the Act

has been enacted in public interest "with a

view to securing the timely detection of sick

and potentially sick companies owning

industrial undertakings, the speedy

determination by a Board of experts of the

preventive, ameliorative, remedial and other

measures which need to be taken with respect to

such companies and the expeditious enforcement

of the measures so determined and for matters

connected therewith or incidental thereto".

While interpreting various provisions of the

Act, the said object has to be kept in mind by

Courts. Section 2 is in the form of

`declaration' and declares that the Act has

been enacted for giving effect to the policy of

the State towards securing the principles 24

specified in clauses (b) and (c) of Article 39

of the Constitution. Section 3 defines various

terms used in the Act. Chapter II relates to

establishment of Board and Appellate Authority,

term of office, conditions of service of

officials and working of the Board and

Appellate Authority. References, Inquiries and

Schemes have been dealt with in Chapter III.

Whereas Section 15 provides for Reference to

Board, Section 16 speaks of Inquiry into

working of sick industrial companies. Section

17 empowers the Board to make suitable order on

the completion of inquiry. Sections 18, 19 and

19A deal with Preparation of Schemes,

Rehabilitation and Arrangement for continuing

operations during inquiry. Winding up of sick

industrial company is found in Section 20.

Section 21 allows Operating Agency to prepare

inventory. Under Section 22A, directions can be

issued preventing disposal of assets in certain

cases.

25

21. Section 22 is a material

provision which relates to suspension of legal

proceedings, contracts, etc. Sub-section (1)

is important and may be reproduced;

22. Suspension of legal proceedings, contracts, etc.--(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. 26

..... ..... ..... ......

22. Chapter IV covers potentially

sick industrial Companies, misfeasance

proceedings, appeals and other miscellaneous

matters with which the Court is not concerned

in the present case except Section 32 which

gives `overriding effect' to the provisions of

the Act. It reads as under:

32. Effect of the Act on other laws.--

(1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act.

(2) Where there has been under any scheme under this Act an amalgamation of a sick industrial company with another company, the provisions of section 72A of the Income-tax Act, 27

1961 (43 of 1961), shall, subject to the modifications that the power of the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to the amalgamation of a company owning an industrial undertaking with another company.

RDDB Act - Ambit and scope

23. The RDDB Act (Recovery of Debts

Due to Banks and Financial Institutions Act,

1993) has been enacted with a view "to provide

for the establishment of Tribunals for

expeditious adjudication and recovery of debts

due to banks and financial institutions and for

matters connected therewith or incidental

thereto". Chapter I is Preliminary in nature

and Section 2 defines various terms. Chapter II

provides for establishment of Tribunals and

Appellate Tribunals, their composition,

qualifications and term of office of the staff,

salaries, allowances, etc. Jurisdiction, powers 28

and authority of Tribunals are found in Chapter

III. The Tribunals are required to follow

procedure laid down in Chapter IV. Chapter V

relates to `Recovery of debt determined by the

Tribunal'. Section 29 declares that the

provisions of the Second and Third Schedules of

the Income Tax Act, 1961 will apply to the

recovery of amount due under the RDDB Act.

Chapter VI is Miscellaneous. One section,

however, is of extreme importance. It is

Section 34 which allows `overriding effect' to

the provisions of the Act over other laws. It

is a crucial provision and may be quoted in

extenso;

34. Act to have overriding effect.--(1) Save as provided under sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act.

(2) The provisions of this Act or the rules made thereunder shall be in 29

addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948, the State Financial Corporations Act, 1951, the Unit Trust of India Act, 1963, the Industrial Reconstruction Bank of India Act, 1984 and the Sick Industrial Companies (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989. (emphasis supplied)

24. According to the Company, there

is a bar against initiation or continuation of

proceedings under Section 22 of SICA against

sick companies. The High Court was, therefore,

right in allowing the petitions filed by the

Company. The case of the appellant and

supporting respondents, on the other hand, is

that Section 22 of SICA has no application to

the case on hand and the High Court was in

error in invoking the said section and denying

relief to the auction purchaser as well as

other creditors by wrongly extending benefit of

the said provision to the Company. The

appellant alternatively contended that even if

the proceedings pending against the Company are 30

covered by Section 22 of SICA, non-obstante

clause in Section 34 of RDDB Act, which is a

subsequent legislation will operate and

recovery could not have been suspended, stalled

or arrested.

Interpretation of statutes

25. The question, therefore, is

whether the High Court was right in holding

that the proceedings were barred under Section

22 of SICA. I have extracted the relevant part

of the said section. It has two limbs. The

first part enacts that "no proceeding for the

winding up of the industrial company or for

execution, distress or the like against any of

the properties of the industrial company or for

the appointment of a receiver in respect

thereof ... shall lie or be proceeded with

further, except with the consent of the Board

or, as the case may be, the Appellate

Authority." The second part which is 31

independent of the first part declares that "no

suit for the recovery of money or for the

enforcement of any security against the

industrial company or of any guarantee in

respect of any loans or advance granted to the

industrial company shall lie or be proceeded

with further, except with the consent of the

Board or, as the case may be, the Appellate

Authority." The two parts use two different

expressions; (i) `proceeding' and (ii) `suit'.

Case law

26. In Kailash Nath Agarwal & Ors.

v. Pradeshiya Industrial & Investment

Corporation of U.P. Ltd. & Anr., (2003) 4 SCC

305, this Court had an occasion to consider the

meaning of these two expressions. The Court

noted that sometimes two different words are

used in one and the same statute to convey the

same meaning, but "that is exception rather

than the rule". The general rule is that when 32

two different words are used by a statute,

prima facie one has to construe different words

as carrying different meanings.

27. The Court stated;

"The word "suit" and "proceeding" have not been used interchangeably in SICA."

28. Referring to Pandurang R.

Mandlik v. Shantibai R. Ghatge, 1989 Supp (2)

SCC 627, the Court observed that in its

comprehensive sense, the word `suit' is

understood to apply to any proceeding in a

Court of Justice by which an individual pursues

a remedy which the law affords. The modes of

proceedings may be various, but if a right is

litigated between parties in a Court of

Justice, the proceedings by which the decision

of the Court is sought may be a suit. The word

`suit' ordinarily means and, apart from some

context, must be taken to mean a civil 33

proceeding instituted by the presentation of a

plaint". (vide Hansraj Gupta v. Dehra Dun -

Mussoorie Electric Trameray Co. Ltd.; 60 IA

13 : AIR 1933 PC 63).

29. In the instant case, proceedings

had been initiated by the Bank not before a

Civil Court by invoking Section 9 of the Code

of Civil Procedure, 1908, but before DRT by

taking recourse to jurisdiction under RDDB Act.

It is, therefore, contended that the

proceedings could not be said to be a "suit"

falling within the mischief of Section 22 of

SICA. In any case, according to the learned

counsel for the appellant, ex parte final order

was passed by DRT as back as on July 15, 2003

and hence even if it is assumed that the

connotation "suit" should be construed

liberally so as to take within its sweep all

proceedings including an application before

DRT, in view of final order passed by DRT in 34

2003, bar envisaged by Section 22 of SICA

cannot operate.

30. So far as "proceedings" are

concerned, it was submitted by the appellant

that the final order had been passed by DRT

under RDDB Act. A Certificate had been issued

under Section 19 and in accordance with Section

29 of the Act, procedure laid down in Second

and Third Schedules to the Income Tax Act, 1961

had been followed. Reserve price was fixed.

Sale-proclamation was published. Auction was

held. The appellant was found to be the

highest bidder and its bid was accepted.

Necessary amount was deposited. All actions

were thus in conformity with law. If the

Company felt aggrieved by auction sale, it

ought to have proceeded in accordance with

Rules 60 to 62 of the Rules in the Second

Schedule. Rule 60 permits a person adversely

affected by the sale to apply to the Tax

Recovery Officer within thirty days from the 35

date of sale to set aside such sale on his

depositing the entire amount with interest

thereon and penalty. Admittedly, the Company

did not avail the said remedy. Rule 61 allows

an application to set aside sale of immovable

property on the ground of non-service of notice

or material irregularity in publishing or

conducting the sale. The said rule also

provides for deposit of amount recoverable

under the Certificate. The Company failed to

do so. Under Rule 62, sale can be set aside

when defaulter has no saleable interest. No

such case had been put forward by the Company

by applying under Rule 62. The Company,

therefore, could not make grievance against the

auction sale.

31. Strong reliance was placed on

behalf of the appellant on Rule 63 which states

that where no application is made for setting

aside the sale or where such application is

made and is dismissed, the Tax Recovery Officer 36

shall make an order confirming the sale and

thereupon the sale shall become absolute. It

was submitted that none of the Rules had been

invoked by the Company by applying to the Tax

Recovery Officer and by depositing the amount.

The Tax Recovery Officer, hence, was enjoined

to confirm sale as per the mandate of Rule 63.

An appeal filed by the Company under Section 30

of RDDB Act before DRT against the order of Tax

Recovery Officer fixing reserve price was ill-

conceived and not maintainable as there was no

`order' within the meaning of RDDB Act which

was appealable. Attention of the Court in this

connection was invited by the learned counsel

to Rule 53 [Contents of proclamation]. It

provides that a proclamation of sale shall

specify, inter alia, "the reserve price, if

any, below which the property may not be sold"

[Clause (cc)]. It was submitted that fixation

of `reserve price' is not mandatory, condition

precedent or sine qua non and if reserve price

is not fixed, the order cannot be said to be 37

non est, contrary to law or unlawful. In any

case, when reserve price was fixed and property

was sold not below such price, the only remedy

available to the Company or any person whose

interest was affected was to apply under Rule

60 or 61 or 62. The appeal before DRT was thus

totally misconceived and ought not to have been

entertained by the Tribunal.

32. According to the Company,

reserve price was grossly inadequate. The

Company was aggrieved and preferred an appeal

under Section 30 of RDDB Act as the order

fixing reserve price was also an `order' within

the meaning of the Act. To buttress the

submission, the counsel relied upon a decision

of this Court in Union of India & Anr. v.

Delhi High Court Bar Association & Ors., (2002)

4 SCC 275. In Delhi High Court Bar

Association, while upholding the validity of

RDDB Act, this Court considered various

safeguards and remedies available to the 38

aggrieved party. In paragraph 30 of the

decision, it was inter alia observed;

Furthermore, Section 30, after amendment by the Amendment Act, 2000, gives a right to any person aggrieved by an order of the Recovery Officer, to prefer an appeal to the Tribunal.

Thus now an appellate forum has been provided against any orders of the Recovery Officer which may not be in accordance with law. There is, therefore, sufficient safeguard which has been provided in the event of the Recovery Officer acting in an arbitrary or an unreasonable manner. The provisions of Sections 25 and 28 are, therefore, not bad in law

33. I express no opinion one way or

the other on the controversy. As noted earlier,

the High Court allowed the petitions filed by

the Company only on the ground of bar of

Section 22 of SICA. Since I am of the view

that the High Court was not right in coming to

that conclusion, the matter must go back to the

High Court for deciding all points not dealt

and decided.

39

34. The learned counsel for the

Company emphatically argued that Section 32 of

SICA is explicitly clear and uses non-obstante

clause ("Notwithstanding anything inconsistent

therewith contained in any other law"). It was

urged that SICA is a `self-contained Code' and

makes detailed and exhaustive provisions in

respect of sick companies. It is also a

`special law' and effect must be given to the

provisions of the Act. The argument of the

appellant on the other hand is that Section 34

of RDDB Act is a subsequent legislation which

also contains a similar non-obstante clause and

that Act should prevail over SICA.

35. The learned counsel for the

parties, in support of their respective

submissions, referred to several decisions.

Let us consider few of them.

36. In Maharashtra Tubes Ltd. v.

State Industrial & Investment Corporation of 40

Maharashtra Ltd. & Anr., (1993) 2 SCC 144, this

Court was called upon to consider the

provisions of SICA and State Financial

Corporation Act, 1951. Observing that the word

`proceedings' in sub-section (1) of Section 22

of SICA could not be given narrow or restricted

meaning to limit the legal proceedings, the

Court held that if Section 22(1) is attracted,

the proceedings must be held to be barred.

36. Keeping in view the underlying

object of enacting SICA, the Court stated;

Now we come to the impugned decision. The High Court was considerably influenced by the fact that the appellant-company owed crores of rupees to banks and felt that so far as such creditors are concerned, different considerations may come into play but the High Court with respect failed to appreciate that the 1985 Act was enacted primarily to assist sick industrial undertakings which inter alia failed to meet their financial obligations. It is, therefore, difficult to accept the view of the High Court that where the creditors of a sick industrial concern happen to be Banks or State 41

Financial Corporations different considerations would come into play. It must be realised that in the modern industrial environment large industries are generally financed by banks and statutory corporations created specially for that purpose and if they are permitted to resort to independent action in total disregard of the pending inquiry under Sections 15 to 19 of the 1985 Act the entire exercise under the said provisions would be rendered nugatory by the time the BIFR is able to evolve a scheme of revival or rehabilitation of the sick industrial concern by : device of the Financial Corporation resorting to Section 29 of the 1951 Act. We are, therefore, of the opinion that where an inquiry is pending under Section 16/17 or an appeal is pending under Section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in Section 22 (1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. The expression 'proceedings' in Section 22(1), therefore, cannot be confined to legal proceedings understood in the narrow sense of proceedings in a Court of law or a legal tribunal for attachment and sale of the debtor's property.

38. In Deputy Commercial Tax Officer

& Ors. v. Corromandal Pharmaceuticals & Ors.,

(1997) 10 SCC 649, this Court held that the 42

embargo under Section 22(1) would not apply to

payment of tax collected by the sick industrial

company after the date of the sanctioned scheme

and legitimately belonged to the Revenue. "Any

other construction will be unreasonable and

unfair and will lead to a state of affairs

enabling the sick industrial unit to collect

amounts due to the Revenue and withhold it

indefinitely and unreasonably. Such a

construction which is unfair, unreasonable and

against the spirit of the statute in a

business sense, should be avoided." (emphasis

supplied)

39. Justice Jeevan Reddy was much

more emphatic. In a concurrent judgment, His

Lordship stated;

Looking at the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 [the Act], I was wondering how out of tune the Act has become with the economic policies being pursued now in this country. Since 43

1991-92, we are launched upon, what is being called, liberalisation of our economy. We have given up the policy of protecting our industries against foreign competition on the ground that it has given rise to an inefficient and outdated industrial system in our country. Our industries are suddenly being asked to compete with foreign companies, many of whom being giant multi-nationals have vast resources at their disposal. [They are merrily gobbling up our poor native companies. Many local industries, unable to stand the said competition are joining the foreign giants in one form of venture or other. Several hundreds of small-

scale and medium scale units in telecom sector, for example have suffered enormously because of our love for foreign companies and their capital. The state of several public sector companies is no better. I am not saying that we have totally embraced, what may be called "Reaganism" or "Thatcherism". The fact, however, remains that it is no longer thought advisable to keep alive inefficient and uneconomic industries by injecting public funds or in the name of safeguarding the employment of the workers. And here is this Act, a product of the era of protectionism, seeking to keep alive "sick" companies by pumping in funds - mostly public funds - and by providing various concessions. In the process, nobody inquires why a particular industrial company has become sick, viz., whether it is an induced one or whether it is on account of factors beyond their control. The object of the Act is undoubtedly laudatory but it must also provide for appropriate 44

measures against persons responsible where it is found that sickness is caused by factors other than circumstances beyond the control of the management. It is also a well-known fact that the proceedings before the Board of Industrial and Financial Reconstruction take a long time to conclude and all the while the protective umbrella of Section 22 is held over the company which has reported sick. We have come across cases where unfair advantage is sought to be taken of the provisions of Section 22 by certain industrial companies - and the wide language employed in the section is providing them a cover. We are sure Section 22 was not meant to breed dishonesty nor can it be so operated as to encourage unfair practices. The ultimate prejudice to public monies should not be overlooked in the process of promoting industrial progress. We are quite sure that the Government is fully alive to the situation and are equally certain that they must be thinking of necessary modifications in the Act.

These few observations are meant merely to record the need for changes in the Act. (emphasis supplied)

40. In Real Value Appliances Ltd. v.

Canara Bank & Ors., (1998) 5 SCC 554, a

contention was advanced on behalf of the

creditors that the conduct of the Company was

far from satisfactory and highly objectionable. 45

It suppressed several facts from the Court.

Contradictory and inconsistent pleas were taken

and fraud was practised on the Court.

41. This Court agreed with what was

submitted and observed;

This conduct of the appellant, in our view, was certainly very unfair to the High Court and, therefore, the High Court had rightly depreciated the same. In our view, there was a clear attempt to keep the Court in the dark"

42. The Court, however, proceeded to

state that on that count reference-application

to the BIFR would not become bad and if the

Company was entitled to the benefit of SICA, it

could not be denied the said benefit.

43. In Rishabh Agro Industries Ltd.

v. P.N.B. Capital Services Ltd., (2000) 5 SCC

515, this Court held that where conditions

precedent for applicability of SICA were 46

satisfied, then notwithstanding that the order

for winding up of the Company had been passed,

the bar would get attracted.

44. In Patheja Bros. Forgings &

Stamping & Anr. v. ICICI Ltd. & Ors., (2000) 6

SCC 545, this Court held that without requisite

sanction under Section 22 of SICA, no suit can

be proceeded with.

45. In Jai Engineering Works Ltd. v.

Industry Facilitation Council & Anr., (2006) 8

SCC 677, after referring to all leading

decisions on the point and describing 1985 Act

as a `complete Code', this Court stated;

The 1985 Act was enacted in public interest. It contains special provisions. The said special provisions had been made with a view to secure the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts for preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies 47

and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto.

46. In my view, however, the learned

counsel for the appellant is right in

submitting that RDDB Act is a `special law' and

also a subsequent legislation, i.e. later law.

It is well-settled that when any law has been

enacted, the Legislature must be presumed to be

aware of all existing laws. When RDDB Act was

enacted in 1993, SICA was very much in force

since it was enacted in 1985. In spite of

that, Parliament was pleased to give

`overriding effect' to RDDB Act by using non-

obstante clause in Section 34. Sub-section (1)

expressly stated that the provisions of the Act

"shall have effect notwithstanding anything

inconsistent therewith contained in any other

law for the time being in force".

48

47. I am thus at a point where two

statutes employ non-obstante clause having

`overriding effect'. Such a conflict, as laid

down in several cases, may be resolved by

judiciary on various considerations; such as

the policy underlying the enactments, the

language used, the object intended to be

achieved; or mischief sought to be remedied,

etc. One of the tests applied by Courts is that

normally a later enactment should prevail over

the former. The Courts would also try to

reconcile both Acts by adopting harmonious

interpretation and applying them in their

respective fields so that both may operate

without coming into conflict with each-other.

In resolving the clash, the Court may further

examine whether one of the two enactments is

`special' and the other one is `general'.

There can also be a situation in law where one

and the same statute may be held to be a

`special' statute vis-`-vis one legislation and

`general' statute vis-`-vis another 49

legislation. On the basis of one or more tests,

the Court will try to salvage the situation by

giving effect to non obstante clause in both

the legislations.

48. Let me consider some of the

decisions of this Court on this vexed issue.

49. In Shri Ram Narain v. Simla

Banking & Industrial Co. Ltd., 1956 SCR 603,

two competing statutes came up for

consideration before this Court being the

Banking Companies Act, 1949 (as amended by Act

52 of 1953) and the Displaced Persons (Debt

Adjustment) Act, 1951. Section 45-A of the

Banking Companies Act (introduced by the

amending Act of 1953) and Section 13 of the

Displaced Persons Act, 1951 both contained a

non-obstante clause stating that certain

provisions of the Act shall have effect

"notwithstanding anything inconsistent

therewith in any other law for the time being 50

in force". This Court resolved the conflict by

considering the object and purpose of the two

laws and giving primacy to the Banking

Companies Act. The Court indicated that when

two Acts contain provisions giving overriding

effect, it would be a difficult question as to

which Act should prevail.

50. The Court stated--

"It is, therefore, desirable to determine the overriding effect of one or the other of the relevant provisions in these two Acts, in a given case, on much broader considerations of the purpose and policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions therein".

51. In Shri Sarwan Singh & Anr. v.

Shri Kasturi Lal, (1977) 1 SCC 750, two

provisions were before this Court. Section 19

of the Slum Areas (Improvement and Clearance)

Act, 1956 (as amended by Act 43 of 1964)

provided that proceedings for eviction of 51

tenants could not be taken without permission

of the competent authority "notwithstanding

anything contained in any other law for the

time being in force". Section 39 of the Act

further declared that the provisions of the Act

shall take effect "notwithstanding anything

inconsistent therewith contained in any other

law". The other statute was the Delhi Rent

Control Act, 1958 (as amended by Act 18 of

1976). Section 14-A as inserted by the

amendment Act conferred a right on a landlord

to recover immediate possession of any premises

let out by him in case he was required to

vacate any residential premises allotted to him

by the Central Government or by a local

Authority. The conferment of the right was

"notwithstanding anything contained elsewhere

in this Act or in any other law for the time

being in force". Section 25-B laid down special

procedure for enforcement of right conferred by

Section 14-A. Section 25-A stated that the

provisions in Section 25-B shall have effect 52

"notwithstanding anything inconsistent

therewith contained elsewhere in this Act or in

any other law for the time being in force".

The Court held that the right to immediate

possession conferred by Section 14-A of the

Delhi Rent Act was not controlled by the Slum

Clearance Act and the right could be enforced

in the manner provided in Section 25-B without

obtaining prior permission of the competent

Authority under the Slum Clearance Act.

52. Speaking for the Court

Chandrachud, J. (as His Lordship then was)

observed:

"For resolving such inter se conflicts, one other test may also be applied though the persuasive force of such a test is but one of the factors which combine to give a fair meaning to the language of the law. That test is that the later enactment must prevail over the earlier one. Section 14A and Chapter IIIA having been enacted with effect from December 1, 1975 are later enactments in reference to Section 19 of the Slum Clearance Act which, in its present form, was 53

placed on the statute book with effect from February 28, 1965 and in reference to Section 39 of the same Act, which came into force in 1956 when the Act itself was passed. The legislature gave overriding effect to Section 14A and Chapter IIIA with the knowledge that Sections 19 and 39 of the Slum Clearance Act contained non obstante clauses of equal efficacy. Therefore the later enactment must prevail over the former".

(emphasis supplied)

53. In Sanwarmal Kejriwal v. Vishwa

Co-operative Housing Society Ltd & Ors., (1990)

2 SCC 288, this Court applied the test as to

`general' and `special' Act and held that

special law would have primacy over the general

law.

54. In Life Insurance Corporation of

India v. D.J. Bahadur & Ors., (1981) 1 SCC 315,

before this Court two Acts came up for

consideration; (1) Industrial Disputes Act,

1947 (ID Act), and (2) Life Insurance

Corporation Act, 1956 (LIC Act). One of the 54

questions before the Court was which of the two

should be considered as `special law'. It was

urged that the Industrial Disputes Act should

be regarded as `general law' relating to

workmen and Life Insurance Corporation Act

should be considered as `special law' in

relation to employees engaged by LIC. It was,

therefore, submitted that when a complaint is

made by an employee of LIC, he cannot invoke

the provisions of ID Act and the matter must be

decided in accordance with LIC Act.

55. Krishna Iyer, J. described the

question as `crucial' which demanded an answer

about the statute being `general' or `special'.

The well known doctrine of generalia

specialibus non derogant (general provisions

will not abrogate special provisions) was also

noted and it was observed that if LIC Act was

considered `special', it must operate over ID

Act treating ID Act to be `general' law.

Noticing, however, the long title of LIC Act 55

and its object for providing nationalization of

life insurance business in the country and the

matters connected therewith, the Court observed

that the primary purpose of the Act was to

nationalize private insurance business by

establishing Life Insurance Corporation of

India. Incidentally, the said Act provided for

transfer of service of existing employees of

the insurers to the Corporation, their

conditions of service, etc. But it was `plain

and beyond doubt' that it was not concerned

with disputes between employer and employee.

The principal object of the Act was

nationalization of insurance business and it

was a `special' legislation so far as business

purpose was concerned. Disputes between

employer and employee had been dealt with by ID

Act which was a `special' law covering that

field and if there is dispute between employer

and employee in Life Insurance Corporation, LIC

Act must be treated as `general law' vis-`-vis 56 ID Act which should be treated as `special

law'.

56. His Lordship, therefore, made

the following pertinent observations:

"In determining whether a statute is a special or a general one, the focus must be on the principal subject matter plus the particular perspective. For certain purposes, an Act may be general and for certain other purposes it may be special and we cannot blur distinctions when dealing with finer points of law. In law, we have a cosmos of relativity not absolutes-so too in life".

(emphasis supplied)

57. It was, therefore, concluded

that ID Act was a special statute devoted only

to investigation and settlement of industrial

disputes and since LIC Act was a general

statute, in cases of disputes between an

employer and employee, ID Act would have

primacy over LIC Act.

57

58. In Maharashtra Tubes Ltd., a

conflict between provisions of two special

statutes, viz. (1) the State Financial

Corporation Act, 1951 and (2) the Sick

Industrial Companies (Special Provisions) Act,

1985 (SICA) was highlighted. Both contained

non-obstante clause. The conflict was resolved

by this Court by giving overriding effect to

SICA on the ground that SICA was a subsequent

enactment (1985) and non-obstante clause

therein would prevail over the non-obstante

clause in the State Financial Corporation Act

(1951).

59. The Court, speaking through

Ahmadi, J. (as His Lordship then was),

observed:

"Having reached the conclusion that both the 1951 Act and the 1985 Act are special statutes dealing with different situations--the former providing for the grant of financial assistance to industrial concerns with a view to boost up industrialisation 58

and the latter providing for revival and rehabilitation of sick industrial undertakings, if necessary, by grant of financial assistance, we cannot uphold the contention urged on behalf of the respondent that the 1985 Act is a general statute covering a larger number of industrial concerns than the 1951 Act and, therefore, the latter would prevail over the former in the event of conflict. Both the statutes have competing non-obstante provisions. Section 46B of the 1951 Act provides that the provision of the statute and of any rule or order made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force whereas Section 32(1) of the 1985 Act also provides that the provisions of the said Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law. Section 22(1) also carries a non- obstante clause and says that the said provision shall apply notwithstanding anything contained in Companies Act, 1956 or any other law. The 1985 Act being a subsequent enactment, the non-

obstante clause therein would ordinarily prevail over the non-

obstante clause found in Section 46B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is a special one. In that event the maxim generalia specialibus non derogant would apply.

But in the present case on a consideration of the relevant

provisions of the two statues we have come to the conclusion that the 1951 59

Act deals with post-sickness situation. It is, therefore, not possible to agree that the 1951 Act is a special statute vis-a-vis the 1985 Act which is a general statute. Both are special statutes dealing with different situations notwithstanding a slight overlap here and there, for example, both of them provide for grant of financial assistance though in different situations. We must, therefore, hold that in case of sick industrial undertakings the provisions contained in the 1985 Act would ordinarily prevail and govern".

(emphasis supplied)

60. A similar conflict came to light

between two statutes, namely, (i) the State

Financial Corporations Act, 1951 and (ii) the

Companies Act, 1956 in A.P. State Financial

Corporation v. Official Liquidator, (2000) 7

SCC 291. The Court treated 1951 Act as a

`special Act' for grant of financial assistance

to the industrial concerns with a view to boost

up industrialization and also recovery of

financial assistance if it becomes bad.

Likewise, the Companies Act dealt with 60

Companies including winding up of such

Companies. The Court, however, held that the

proviso to sub-section (1) of Section 529 and

Section 529-A being a subsequent enactment, the

non-obstante clause in Section 529-A would

prevail over Section 29 of the 1951 Act.

Highlighting the underlying object of non-

obstante clause in Section 529-A of the

Companies Act and a social purpose underlying

therein to ensure payment of dues to the

workmen in priority over all other debts, the

Court concluded that "if conditions are not

imposed to protect the right of the workmen,

there is every possibility that the secured

creditor may frustrate the above pari passu

right of the workmen".

61. In Allahabad Bank v. Canara Bank

& Anr., (2000) 4 SCC 406, a similar question

was raised before this Court. There the Court

considered two Acts, (i) RDDB Act, 1993 and

Companies Act, 1956. It was held that even 61

where a winding up petition was pending or a

winding up order had been passed against a

Company for debt payable to banks and financial

institutions, governing law was RDDB Act. No

leave of Company Court as envisaged under the

Company Act, therefore, was necessary. The

Court held that though both the laws could be

treated as `special laws' in respect of

recovery of dues by banks and financial

institutions, it was 1993 Act which should be

considered as `special' vis-`-vis Company Law.

62. I may refer to a recent decision

of this Court in M/s. Transcore v. Union of

India & Anr., (2008) 1 SCC 125, wherein this

Court considered the provisions of RDDB Act,

1993 and Securitization and Reconstruction of

Financial Assets and Enforcement of Security

Interest Act, 2002. Considering the scheme of

both the laws, the Court held that 1993 Act was

a `complete Code' by itself as far as recovery

of debt is concerned. It was a `special law' in 62

the matters of recovery of dues and the

provisions of the said Act would prevail over

other laws.

63. It may also be profitable to

refer to a three Judge Bench decision of this

Court in Solidaire India Ltd. v. Fairgrowth

Financial Services Ltd. & Ors., (2001) 3 SCC

71. In that case, S took loan of Rs. one crore

from F. The amount was not repaid. F,

therefore, instituted proceedings under the

Special Court (Trial of Offences Relating to

Transactions in Securities) Act, 1992 for the

recovery of the amount. The Special Court came

to the conclusion that S had not repaid the

loan and accordingly ordered S to pay the

amount with interest. During the pendency of

the appeal before this Court, S became sick and

proceedings were initiated under SICA. One of

the contentions raised before this Court by S

was that in view of special provisions

contained in SICA, no proceedings could have 63

been initiated or continued under the Special

Court Act. This Court admitted that SICA was a

`special' Act. The Court was also aware of the

non-obstante clause in Section 32 of SICA. It

noted that the effect of the said provision was

that SICA will have effect "notwithstanding

anything inconsistent therewith contained in

any other law for the time being in force".

But it noted that there was a similar non-

obstante clause in Section 13 of the Special

Court Act which was as under:

"13. Act to have overriding effect.--The provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law, other than, this Act, or in any decree or order of any court, tribunal or other authority."

64. The Court then stated; "This

Court has laid down in no uncertain terms that

in such an event it is the later Act which must

prevail". The Court referred to a decision 64

rendered by a Special Court in Bhoruka Steel

Ltd. vs. Fairgrowth Financial Services Ltd.,

[(1997) 89 Comp Cas 547] wherein the Special

Court stated:

"Where there are two special statues which contain non-obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a non-obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply.

The Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, provides in Section 13, that its provisions are to prevail over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so 65

provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over the provisions of the Sick Companies Act.

..... .... ...... .....

It is a settled rule of interpretation that if one

constructions leads to a conflict, whereas on another construction, two Acts can be harmoniously constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial Companies (Special Provisions) Act, 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction considering a scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed by the Special Court. The Special Court can, if it is convinced, grant time or instalments."

66 65. Approving the above

observations, this Court stated:

"We are in agreement with the aforesaid decision of the case, more so when we find that whenever the legislature wishes to do so it makes appropriate provisions in the Act in that behalf. Mr. Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 wherein after giving an overriding effect to the 1993 Act it is specifically provided that the said Act will be in addition to and not in derogation of a number of other Acts including the 1985 Act. Similarly under Section 32 of the 1985 Act the applicability of the Foreign Exchange Regulation Act and the Urban Land Ceiling Act is not excluded."

Legal position

66. From the above discussion, in my

judgment, the law is fairly well settled. A

provision beginning with non-obstante clause

("notwithstanding anything inconsistent

contained therein in any other law for the time

being in force'") must be enforced and 67

implemented by giving effect to the provisions

of the Act and by limiting the provisions of

other laws. But, it cannot be gainsaid that

sometimes one may come across two or more

enactments containing similar non-obstante

clause operating in the same or similar

direction. Obviously, in such cases, the Court

must attempt to find out the intention of the

Legislature by examining the nature of

controversy, object of the Act, proceedings

initiated, relief sought and several other

relevant considerations. From the case-law

referred to above, it is clear that Courts have

applied several workable tests. They, inter

alia, include to keep in view whether the Act

is `general' or `special', whether the Act is a

subsequent legislation, whether there is

reference to the former law and the non-

obstante clause therein. The above tests are

merely illustrative and by no means they should

be considered as exhaustive. It is for the

Court when it is called upon to resolve such 68

conflict by harmoniously interpreting the

provision of both the competing statutes and by

giving effect to one over the other.

Primacy of RDDB Act

67. Applying the above tests in the

instance case, to me, it is crystal clear that

the provisions of RDDB Act should be given

priority and primacy over SICA. I may concede

that both the Acts are `special Acts' in the

sense that they have been enacted for a

specific purpose and object in view. Whereas

SICA has been enacted in the public interest

with a view to securing the timely detection of

sick or potentially sick companies owning

industrial undertakings, the speedy

determination by a Board of Experts of the

preventive, ameliorative, remedial and other

measures which need to be taken with respect to

such companies and the expeditious enforcement

of the measures so determined and for matters 69

connected therewith or incidental thereto, RDDB

Act has been enacted to secure and protect

public revenue and for expeditious adjudication

and recovery of debts due to banks and

financial institutions. RDDB Act is subsequent

Act in the point of time being 1993 Act. It

must, therefore, be presumed even in absence of

any specific provision in the 1993 Act that

Parliament was aware of all statutes which had

been enacted prior to 1993 including SICA of

1985. In spite of that, in sub-section (1) of

Section 34 of RDDB Act, non-obstante clause has

been inserted so as to ensure expeditious

adjudication and recovery of debts due to banks

and financial institutions.

68. But it is not only on the ground

that the RDDB Act is a later Act and SICA is a

former Act that I am holding that the RDDB Act

will prevail over SICA. There is an additional

factor also which is of extreme importance and

supports the view which I am inclined to take. 70

It is sub-section (2) of Section 34. To recall,

sub-section (2) of Section 34 of RDDB Act

declares that the provisions of this Act (RDDB

Act of 1993) are "in addition to and not in

derogation of", certain enactments referred to

in the said sub-section. SICA has been

expressly mentioned in the said sub-section. As

already adverted to earlier, RDDB Act, 1993 has

been enacted with a view "to provide for the

establishment of the Tribunals for expeditious

adjudication and recovery of debts due to banks

and financial institutions" (Preamble of the

Act). All other laws, therefore, whether

general or special, prior or subsequent, must,

in my considered view, be interpreted and

applied keeping in view the above object of

enacting 1993 Act. I have, therefore, no

hesitation in holding that even though both the

conflicting statutes, (SICA of 1985 and RDDB

Act of 1993) contain non-obstante clause, in

case of conflict, RDDB Act, 1993 will prevail 71

over SICA, 1985 so far as recovery of public

revenue is concerned.

Final Order

69. For the aforesaid reasons, I

hold that the High Court has committed an error

of law in invoking and applying provisions of

Section 22 of SICA and in dropping proceedings

against the Company. The order of the High

Court, therefore, deserves to be set aside and

I do accordingly. The matter is remitted to the

High Court to decide it afresh on all points

including the conduct of the Company after

hearing the parties. All contentions of all

parties are kept open.

70. Before parting with the matter,

I may clarify that any observation on merits

which might have been made in this judgment is

only for the purpose of deciding the

preliminary question as to maintainability of 72

proceedings against the Company since the High

Court has allowed the petitions filed by the

Company only on that ground. I make it clear

that I may not be understood to have expressed

any opinion on other issues and as and when the

matter will come up before the High Court, the

same will be decided on its own merits without

being inhibited by such observations.

71. The appeal is accordingly

allowed with costs.

.........................................................J. New Delhi; (C.K. THAKKER) August 25, 2008.

73

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 5225 of 2008

(Arising out of SLP(C) No.5041 of 2006)

KSL & Industries Limited ...

Appellant

Vs.

M/s Arihant Threads Limited & Ors ...Respondents

J U D G M E N T

ALTAMAS KABIR,J.

1. I have had the benefit of going through the draft judgment prepared by my learned Brother and while I agree with the conclusion arrived at by His Lordship, that the High Court erred in applying the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, and dropping the proceedings against the Company, with utmost respect I find myself unable to accept the legal reasoning on which His Lordship's conclusion is based. I would like to traverse a different route in arriving at the same conclusion as arrived at by my learned brother.

2. Since my learned Brother has set out the facts involved in detail, I shall only highlight some of the facts which compel me to pen my views in a separate judgment.

74

3. The respondent No.1-Company, M/s Arihant Threads Limited, was incorporated as a Joint Venture Company with Punjab State Industrial Development Corporation. In 1992 the said Company was granted lease of Plot No.454 for 99 years by Goindwal Sahib Industrial and Investment Corporation in the Goindwal Sahib Industrial Area. The lease contained a specific provision disentitling the lessee from transferring its interest in the demised property for the first 15 years of the lease without the prior permission of the lessor. However, it was also provided that the lessee would be entitled to mortgage its leasehold rights to a Bank, the Punjab Financial Corporation or the Life Insurance Corporation of India as security for development of the demised premises by constructing factory buildings and for purchase of raw-material etc. In view of the said provision, the Industrial Development Bank of India (hereinafter referred to as `IDBI'), which was the predecessor of the Stressed Assets Stabilisation Fund (hereinafter referred to as `SASF'), financed the project undertaken by the Company.

4. As it appears from the records, the respondent no.1- Company was unable to repay the loan and IDBI filed Original Application No.1368 of 2001 in the Debts Recovery Tribunal, Chandigarh, (hereinafter referred to as `DRT, Chandigarh') on 20.12.2001, for recovery of Rs.25,26,60,836/-, under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the `RDDB Act'). Despite service of notice of the said proceedings, the respondent No.1 Company remained unrepresented before the DRT and on 15.7.2003 an ex-parte final order was passed in favour of IDBI for recovery of Rs.25,26,60,836/- together with interest at the rate of 7.8% per annum and a Recovery Certificate was also issued against the respondent No.1-Company.

5. In keeping with Section 29 of the RDDB Act, the Recovery Officer issued a composite demand notice to the respondent No.1-Company on 9.9.2003 under Rule 2 of the Second Schedule to the Income Tax Act, 1961, demanding payment of Rs. 28,60,87,384/-. A separate direction was given to the Company to appear before the Recovery Officer on 23.10.2003 for settling terms and conditions relating to the proclamation of sale and for disclosure of its movable and immovable assets.

6. A Valuation Report was also obtained from the Local Commissioner, appointed by the Recovery Officer, who in his report indicated that two machines were missing from the Company's factory. A further Valuation Report was obtained from the North-India Technical Consultancy Association Limited in January 2004, wherein the assets of the Respondent No.1-Company was valued at Rs.17.5 crores on 16.9.2004. The reserve price of the property was fixed at Rs.12.50 crores by the Recovery Officer and two separate dates 75

were fixed for sale of the immovable and movable properties of the Company. The respondent No.1 - Company filed an appeal, being Appeal No.52 of 2004, before the DRT on 18.10.2004 under Section 30 of the RDDB Act questioning the fixation of the reserve price by the Recovery Officer at Rs.12.50 crores. The proposed auction sale was, therefore, cancelled till the DRT by its order dated 27.10.2004 allowed the auction sale to proceed but restrained the Recovery Officer from confirming the same till further orders. Consequently, the auction was held and concluded on 30.10.2004 and the appellant herein was declared to be the successful bidder. Consequently, as per rules laid down, the appellant deposited 25% of the reserve price immediately. On 11.11.2004, the appellant made an application to the DRT for accepting bank guarantee for the remaining balance of 75% of the sale price. On the said application being dismissed the appellant-auction purchaser on the same day deposited the balance amount of 75% of the sale price by a bank draft. It is only after the sale had been conducted and concluded on 30.10.2004 that an application was made by the respondent-Company on 15.12.2004 in the pending appeal for setting aside the ex-parte final order passed by the DRT, Chandigarh, on 15.7.2003 and the same was registered as M.A.No.103/2004. The appellant herein filed an application for being added as a party in Appeal No.52 of 2004 and also in M.A. No.103 of 2004 to enable it to oppose the prayer of the Company for setting aside the final order passed by the DRT, Chandigarh, on 15.7.2003. Such prayer for impleadment was allowed by the DRT by its order dated 17.12.2004.

7. At this juncture it may be indicated that on 10.6.2002 M/s Roland Exports, which had succeeded to the interests of Goindwal Sahib Industrial Corporation, cancelled the lease of the respondent No.1-Company on account of non-payment of lease dues amounting to Rs.3,19,94,149/-. On 8.4.2005 M/s Roland Exports filed a suit for permanent injunction against the respondent No.1-Company in the Civil Court at Tarantaran, District Amritsar, wherein an order of status-quo with regard to possession was passed.

8. On 26.7.2005, DRT-I, Delhi, allowed Appeal No.52 of 2004 and set aside the auction sale subject to the Company fulfilling certain terms and conditions laid down in the order. One of the conditions imposed by the Tribunal was that the Company would have to pay 5% of the amount deposited by the auction purchaser within 10 days as penalty in terms of Rule 60 of the Second Schedule of the Income Tax Act, 1961. Objecting to the said terms and conditions imposed by the DRT the Company filed an appeal with DRAT, Delhi, being Appeal No.167 of 2005. The appellant herein also filed an appeal against the setting aside of the auction sale. The DRAT stayed the operation of the order dated 26.7.2005 by which the DRT-I, Delhi, had allowed Appeal No.52 of 2004 and had set aside the auction sale. The DRAT also directed refund of the sale amount to the appellant. 76

9. While the matter was pending before the DRAT, the respondent-Company filed a Reference before the Board for Industrial and Financial Reconstruction (hereinafter referred to as `BIFR'), on 21.12.2005 under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, and the same was registered as BIFR Case No.4 of 2006.

10. On 10.2.2006 the DRAT dismissed the appeal filed by the Company and allowed the appeal of the appellant and confirmed the auction sale in favour of the appellant, subject to its depositing the sale price. By a separate order passed on the same day the DRAT ordered the Recovery Officer, Chandigarh, to implement the directions issued by it. However, despite the appellant depositing the full purchase price on the very same day, the sale could not be confirmed as the Presiding Officer was on leave. The appellant moved the DRAT for appointment of a Recovery Officer for confirmation of the sale. While the said matters were pending, the respondent-Company filed two writ petitions being C.W. Nos.2041 and 2042 of 2006, in the High Court of Delhi, against the order dated 10.2.2006 passed by DRAT dismissing the Company's appeal. The Delhi High Court allowed the writ petitions filed by the respondent-Company and by its order dated 23.2.2006 set aside the order passed by the DRAT on the ground that Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 operated as a complete bar for taking recovery proceedings and no order could therefore have been passed by the Tribunal confirming the sale.

11. It is against the said order of the Delhi High Court that the Special Leave Petitions were filed on 26.3.2006 wherein leave has since been granted.

12. It may be significant to note at this stage that on 3.4.2006 the BIFR rejected the Reference made by the Company and that on 15.9.2006 another Reference was filed by the respondent-Company which was registered as BIFR Case No.18 of 2006. It is in the said Reference that on 22.2.2007 the BIFR declared the Company to be a "sick company" and the respondent No.5 was appointed as the Operating Agency for preparation of a rehabilitation scheme.

13. Learned counsel for the appellant submitted that the High Court had erred in law in holding that the recovery proceedings initiated under the provisions of the RDDB Act were barred by Section 22 of the SICA. It was submitted that Section 22 of SICA was not attracted to the proceedings and the High Court should have decided the matter on merits. It was also submitted on behalf of the appellant that Section 34 of the RDDB Act had an overriding effect over the provisions of SICA and that the High Court should have decided the matter on merits on such grounds as well. It was further contended that the 77

appeal preferred by the respondent-Company under Section 30 of the RDDB Act, against the order of the Recovery Officer fixing the reserve price at Rs.12.5 crores, was not maintainable and ought not to have been entertained by the DRT-I,Delhi.

14. As has been indicated by my learned Brother in his judgment, it had been forcefully contended on behalf of the appellant that when the respondent- Company had invoked the discretionary and equitable jurisdiction of the High Court under Article 226 of the Constitution, the High Court should have taken into account the overall conduct of the party as the respondent-Company had not come to the writ court with clean hands. Not only had it not repaid the loan amount, but it did not appear before the DRT inspite of service of summons and the ex-parte final order was, therefore, rightly passed on the Original Application filed by the IDBI. The respondent- Company also filed an appeal against the order of the Recovery Officer before the DRT-I, Delhi, under Section 30 of the RDDB Act, and failed to comply with the directions contained in the interim order under which directions for payment were made, but no payment was made as directed. To make matters worse, the respondent- Company forcibly entered the property in question and dispossessed the Receiver appointed by the Tribunal and removed machinery and other movable properties from the said premises and created an unlawful tenancy in favour of a third party. In such background it was submitted that even if the case was covered under Section 22 of SICA, the High Court, in exercise of its extra-ordinary jurisdiction, ought not to have allowed the writ petition filed by the Company.

15. Learned counsel for the respondent No.1-company submitted that the appeal preferred by the Company under Section 30 of the RDDB Act against the order of the Recovery Officer fixing the reserve price, was maintainable since the same was an order passed by the Recovery Officer under the Act. It was contended that since such a course of action was available to the respondent- Company it was not incumbent upon the Company to deposit the amounts indicated in the order of the DRT-I, Delhi, while allowing appeal No.52 of 2004 as a pre-condition for setting aside the auction sale. It was contended that the High Court was fully justified in allowing the writ petitions filed by the respondent-Company in keeping with the bar imposed under Section 22 of SICA.

16. As has been pointed out by my learned Brother, the writ petitions filed by the respondent-Company were allowed by the High Court on the sole ground that the recovery proceedings under the RDDB Act were barred under Section 22 of the SICA. Having once come to the conclusion that the proceedings were barred under Section 22 of the SICA, the High Court did not go into any other question with regard to the merits of the matter and set aside the order of the DRAT confirming the auction sale on that one ground alone. 78

17. My learned brother has discussed in detail the relevant provisions of SICA and the RDDB Act and has observed that Section 34 of the RDDB Act is of extreme importance since it allows "overriding effect" to the provisions of the Act over other laws. Inasmuch as my learned Brother's judgment is based on an interpretation of Section 34 of the RDDB Act in relation to Section 22 of SICA, the same is reproduced hereinbelow to consider the effect thereof :

"34. Act to have over-riding effect-(1) Save as otherwise provided in sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument have effect by virtue of any law other than this Act

(2) The provisions of this act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), the Sick Industrial Companie (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989."

18. My learned Brother has relied on the non-obstante provision contained in Sub-

section (1) of Section 34 in arriving at a finding that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, would have an overriding effect over other enactments. Since the Sick Industrial Companies (Special Provisions) Act, 1985, also contains a similar non-obstante clause in Section 22, His Lordship has considered in detail the effect of the two non-obstante clauses in the two separate enactments governing the same field and has held that since the RDDB Act was a later Act it would prevail over the SICA which was an earlier Act.

19. It is at this point that I am unable to travel the same path which my learned Brother has chosen to traverse.

20. The opening words of Sub-section (1) of Section 34 of the RDDB Act clearly make the provisions thereof subject to the provisions of Sub-section (2) which in unambiguous term provides that the provisions of the Act or the Rules made thereunder would be in addition to and not in derogation of, certain statutes indicated therein, including the Sick Industrial Companies (Special 79

Provisions) Act, 1985. It is, therefore, clear that while the RDDB Act would have an over-riding effect over other enactments, its provisions would only be supplemental to those of the SICA and consequently the provisions of the SICA would prevail over the provisions of the RDDB Act. Accordingly, if it is held that the situation in this case is covered by the provisions of SICA, then the view taken by the High Court would have to be upheld. If, however, it is found that the provisions of SICA do not apply to the facts of this case, then there can be no doubt that the judgment of the High Court would have to be set aside.

21. During the course of arguments, counsel for the parties did make submissions with regard to the merits of the matter, which may have to be considered in the light of the view which I am inclined to take in the matter. Furthermore, if it is found that the provisions of SICA, and consequently Section 22 thereof, are not attracted to the facts of this case, the discussion with regard to the RDDB Act being a later Act having an overriding effect over the SICA becomes redundant for the purposes of deciding this appeal. For the aforesaid purpose it would be necessary to consider a few dates which have been mentioned hereinbefore.

22. The first date which is relevant for our purpose is 15.7.2003 when the ex-parte final order was passed by the DRT, Chandigarh, for recovery of the sum claimed by IDBI, along with interest @ 7.8% per annum, and a Recovery Officer was appointed.

23. The second relevant date is 9.9.2003 when the Recovery Officer issued a demand notice under Rule 2 of the Second Schedule of the Income Tax Act, 1961, to the respondent-Company for payment of a sum of Rs.25,26,60,836/- as directed by the DRT, Chandigarh, in its final order. It is only after the Recovery Officer fixed the reserve price for the auction sale of the Company's assets that the respondent-Company filed an appeal before the DRT on 18.10.2004 under Section 30 of the RDDB Act against the said order of the Recovery Officer. It has also to be noted that on 27.10.2004 the DRT allowed the auction sale to proceed but directed that the sale should not be confirmed until further orders.

24. The next relevant date is 30.10.2004 when the auction was concluded and the appellant was declared to be the highest bidder and the entire sale price was deposited by the appellant auction purchaser on 11.11.2004.

25. It is significant to note that in the appeal, being Appeal No.52 of 2004 under Section 30 of the RDDB Act, an application was moved by the respondent- 80

Company on 15.12.2004 for setting aside the ex-parte final order passed on 15.7.2003 and the appellant also filed an application for impleadment to enable it to oppose the prayer for setting aside the final order.

26. The next date of significance is 26.7.2005 when Appeal No.52 of 2004 filed by the respondent-Company under Section 30 of the RDDB Act against the order of the Recovery Officer fixing the reserve price of the Company's assets was allowed by DRT-I, Delhi, subject to the Company fulfilling certain terms and conditions as indicated in the order.

27. It is only thereafter on 21.12.2005 that the respondent-Company filed a Reference before the BIFR which was registered as BIFR case No.4 of 2006 and the same came to be dismissed on 3.4.2006.

28. In the meantime, the appeal preferred by the respondent-Company before the Debts Recovery Appellate Tribunal against the order of DRT-I, Delhi, allowing the Company's Appeal No.52 of 2004 was dismissed and the sale in favour of the appellant herein was confirmed, subject to deposit of the entire sale price.

29. It will be of interest to note that the proceedings taken by the respondent-

Company after the passing of the final order by DRT, Chandigarh, on 15.7.2003, were directed against fixation of the reserve price by the Recovery Officer though in Appeal No.52 an application was made by the Company for setting aside the final order passed by the DRT Chandigarh. The same was however, of no consequence as the appeal was preferred against the order of the Recovery Officer fixing the reserve price of the Company's assets and not the final order, which, in any event, could not have been challenged in the said proceedings. In effect, the final order passed by the DRT, Chandigarh, directing the respondent-Company to pay the dues of IDBI remained unchallenged and attained finality. The two courses available to the respondent No.1-Company for preferring an appeal under Section 20 of the RDDB Act or by way of an application for setting aside the sale under Rule 60 of the Second Schedule of the Income Tax Act, 1961, were not resorted to by the respondent-Company. Instead, it chose to adopt a path restricted to the setting aside of the auction sale on the ground that the reserve price of the Company's assets had not been correctly fixed by the Recovery Officer prior to the auction sale.

30. Consequently, the scope of the appeal preferred by the respondent-Company was confined only to the question as to whether the reserve price had been correctly fixed by the Recovery Officer. 81

31. This brings us to the next question regarding the applicability of Section 22 of SICA in the proceedings initiated by IDBI for recovery of its dues under the provisions of the RDDB Act, 1993.

32. As will be seen from what has been indicated hereinabove, the final order was passed on 15.7.2003 by DRT, Chandigarh, at a point of time when no Reference had at all been made by the respondent-Company to the BIFR for being declared a "sick company". The auction was held and concluded on 30.10.2004, again before a Reference had been made by the respondent- Company to the BIFR. It is only on 21.12.2005 that the Company filed a Reference before the BIFR which was rejected on 3.4.2006. In between, the appeal preferred by the respondent-Company (No.52 of 2004) before the DRT under Section 30 of the RDDB Act was allowed and the auction sale was set aside, but the final order passed by DRT, Chandigarh, remained untouched. The appeal preferred by the appellant herein against the order of the DRT allowing Appeal No.52 of 2004 was subsequently decided in favour of the appellant on 10.2.2006 and the auction sale was confirmed in favour of the appellant with a direction upon the Recovery Officer and the other concerned authorities to complete the sale in favour of the appellant herein. It is only on 15.9.2006, after all the aforesaid orders had been passed that a second Reference was filed by the respondent-Company before the BIFR on 15.9.2006 and on 22.2.2007 the Company was declared to be a "sick company" by the BIFR.

33. The above dates will amply show that the proceedings had been taken by the IDBI under Section 19 of the RDDB Act and the final order had been passed therein long before the BIFR came on to the scene. Even the auction sale was concluded in favour of the appellant before the first Reference was made by the Company to the BIFR. The sale was confirmed by the DRAT before the writ petitions were allowed by the High Court on the ground that the recovery proceedings were barred under Section 22 of SICA. Ultimately, the Company's first Reference was rejected by the BIFR and only upon a second reference filed by the respondent-Company on 15.9.2006 was the Company declared by the BIFR to be a "sick company" on 22.2.2007.

34. In other words, the final order in the recovery proceedings under Section 19 of the RDDB Act was passed and the auction sale was concluded before the first Reference was filed by the respondent-Company with the BIFR and long before the respondent-Company was declared to be a sick Company on 22.2.2007. It is, therefore, clear that the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, were sought to be invoked by the respondent No.1-Company after the recovery proceedings had been concluded 82

in favour of the appellant who had also deposited the sale price in respect of his offer which had been accepted by the Recovery Officer.

35. For reasons which are obvious, the respondent-Company chose not to take recourse either to Section 20 of the RDDB Act or Rule 60 of the Second Schedule of the Income Tax Act, 1961, and took a chance of filing an appeal under Section 30 of the RDDB Act with regard to the fixation of the reserve price of the Company's assets by the Recovery Officer for the purposes of the auction sale and the scope of the appeal was limited to such issue alone.

36. Since the respondent-Company did not challenge the final order of the DRT, Chandigarh, the same continued to be in force and was carried to its logical conclusion by the holding of auction sale and confirmation thereof in favour of the appellant herein.

37. The order passed by the DRAT on 10.2.2006 confirming the sale in favour of the appellant was made long before the respondent-Company was declared to be a "sick company" on 22.2.2007. The High Court was, therefore, in error in applying the provisions of Section 22 of the SICA when the sale had already been confirmed in favour of the appellant and the purchase price had already been deposited. Furthermore, the first Reference made by the respondent- Company was also rejected by the BIFR on 3.4.2006.

38. Apart from the above, even on merits, the conduct of the respondent No.1- company leaves much to be desired. Without challenging the final order passed by the DRT, Chandigarh, allowing the Bank's claim of Rs.25,26,60,836/- together with interest @ 7.8% per annum, the said respondent questioned the order of the Recovery Officer, fixing the reserve price of the Company's assets for the purposes of the auction sale, under Section 30 of the RDDB Act, having full knowledge of the fact that the final order of the DRT, Chandigarh, could not be challenged in such appeal. The steps taken by the respondent No.1, Company were far from bona fide and were only aimed at stalling the auction sale. Even at the time of auction of the company's assets, no attempt was made by the Respondent No.1-Company to secure a bid higher than that of the appellant.

39. Having regard to the above, in my view nothing further remains to be decided by the High Court.

83

40. The appeal is accordingly allowed and the order of the High Court impugned in the appeal is set aside with costs assessed at Rs.50,000/-.

..........................................J. (ALTAMAS KABIR) Dated : 25.08.2008 IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.5225 OF 2008 (Arising out of SLP (Civil) No.5041 of 2006

KSL & Industries Ltd. Appellant(s)

Versu s M/s Arihant Threads Ltd. & Respondent Ors. (s)

O R D E R

Although, both of us held that the

appeal deserves to be allowed and the

order of the High Court is to be set

aside, in view of the difference of

opinion on interpretation of Section 34 of

the Recovery of Debts Due to Banks and

Financial Institutions Act, 1993, the 84

Registry is directed to place the papers

before the Hon'ble the Chief Justice of

India for taking appropriate action in

accordance with law.

..............

...J. [ C.K. THAKKER ]

.................J. [ALTAMAS KABIR] NEW DELHI, AUGUST 25, 2008.