M/S Bharat Steel Tubes Ltd vs Ifci Limited

been specially fixed for hearing on 9th November, 2

2010, could be taken up for consideration, Mr. T.R.

Andhyarujina, learned Senior Advocate, appearing

for the Petitioner, M/s Bharat Steel Tubes Ltd.,

submitted that Contempt Petition (Civil) No.271 of

2010 had been filed in regard to wilful and

deliberate violation of the order passed by this

Court on 8th October, 2010, by the alleged

contemnors in entertaining bids for the auction

proposed to be held in respect of the Petitioner's

property despite the said order.

2. Mr. Andhyarujina submitted that in relation to

an order passed by the Debts Recovery Tribunal,

Delhi, on an application filed by the Petitioner

under Section 17 of the Recovery of Debts Due to

Banks and Financial Institutions Act, 1993,

hereinafter referred to as "the Debts Recovery Act,

1993", a direction was given by the Tribunal on

15th September, 2010, to the Petitioner to deposit a

sum of Rs.35 crores with the Industrial Finance

Corporation of India Ltd. (IFCI Ltd.) without 3

prejudice to its rights and contentions. The

Respondent was also directed not to implement the

possession notice as well as the public notice

published on 13th September, 2010, till the next

date of hearing. Against the said order, IFCI Ltd.

filed Misc. Appeal No.352 of 2010 before the Debts

Recovery Appellate Tribunal, which stayed the

proceedings before the Debts Recovery Tribunal by

its order dated 22nd September, 2010. Aggrieved by

such direction, the Respondent had moved Writ

Petition (Civil) No.6652 of 2010, in which an

interim order was passed by the Division Bench of

the Delhi High Court on 29th September, 2010,

directing that during the pendency of the writ

petition, the writ petitioner would be free to

proceed in pursuance of the Public Notice dated 13th

September, 2010, but the bid was not to be

finalized. Since a winding-up order had been passed

in respect of the petitioner company on the

recommendation of the Board for Industrial and 4

Financial Reconstruction (BIFR) and the Official

Liquidator had been appointed, it was also directed

that the Official Liquidator would be associated

with the process of auction and the amount received

by the Petitioner from prospective purchasers, as

earnest money under the bids, would be kept in a No

Lien Account.

3. Mr. Andhyarujina pointed out that such an ex-

parte order was passed on the supposition that

there were dues to the extent of Rs.1,100.00 crores

payable by the Respondent and that proceedings had

also been taken under Section 17 of the

Securitization and Reconstruction of Financial

Assets and Enforcement of Security Interest Act,

2002 (SARFAESI Act, 2002) even though the BIFR had

recommended the winding up of the Petitioner

Company and finalization of those proceedings was

still pending before the Company Court where the

Official Liquidator had been put in charge of the

functioning of the Petitioner Company. The 5

Petitioner Company, being aggrieved by the said

interim order of the Division Bench of the High

Court, moved the instant Special Leave Petition and

on 8th October, 2010, while issuing notice and

giving directions for filing of affidavits, this

Court stayed the operation of the order of the High

Court which has been impugned in the Special Leave

Petition. The result was that the order of the

Debts Recovery Appellate Tribunal revived and

according to the Petitioner, despite such order of

stay passed by this Court, the alleged contemnors

continued with the auction process in violation of

the order of stay passed by this Court.

4. Mr. Andhyarujina submitted that while the order

of stay was passed on 8th October, 2010, and the

date of auction was fixed on 15th October, 2010, the

Respondent Company continued to sell bid documents

at least till 13th October, 2010, and the Bid Box

was kept available in the office premises of the 6

Respondent Company till 15th October, 2010, when the

auction was to be conducted.

5. Mr. Andhyarujina submitted that since the said

steps were taken by the Respondent Company despite

the order of stay passed by this Court on 8th

October, 2010, the alleged contemnors had committed

contempt of Court and were liable to be dealt with

accordingly before the Special Leave Petition was

taken up for consideration.

6. Both Mr. Parag P. Tripathi, learned Additional

Solicitor General and Mr. Ranjit Kumar, learned

Senior Advocate, who appeared for the alleged

contemnors denied the allegations made on behalf of

the Petitioner Company and submitted that except

for sweeping allegations having been made, there

was no material proof before the Court to hold that

the alleged contemnors had wilfully and

deliberately violated the order of stay passed by

this Court on 8th October, 2010.

7

7. On being asked as to whether the order passed

on 8th October, 2010 had been communicated to the

alleged contemnors or not, Mr. Andhyarujina

submitted that since the order had been passed in

the presence of learned counsel for the Respondent

Company, it had to be presumed that the same had

been conveyed to the Respondent Company by their

learned counsel. Learned counsel submitted that a

presumption would have to be drawn regarding

knowledge of the order passed by this Court on 8th

October, 2010, by the alleged contemnors since it

was duly represented on the said date through

counsel.

8. We are unable to accept the submissions made on

behalf of the Petitioner Company, since it is for

the Petitioner in a contempt petition who alleges

contempt, to establish that the alleged contemnor

had defied and/or violated the order deliberately

and wilfully, despite having knowledge thereof. We 8

cannot lose sight of the fact that in a contempt

proceeding, which is entirely of a summary nature,

a person can be sentenced to imprisonment and also

punished with fine, without a regular trial, even

in the nature of a summons trial. Accordingly, the

Courts have to strictly construe the provisions of

Section 3(b) of the Contempt of Courts Act, 1971,

in order to find a person guilty of having

committed contempt of Court. We are not satisfied

with the materials placed before us that the

alleged contemnors had any knowledge of the stay

order passed by this Court on 8th October, 2010,

and, accordingly, we are not inclined to entertain

the contempt petition which is, therefore,

dismissed. The Special Leave Petition filed by M/s

Bharat Steel Tubes Ltd. is taken up for

consideration on its merits.

9. Mr. Andhyarujina submitted that the Petitioner,

M/s Bharat Steel Tubes Ltd., had obtained a loan of

Rs.55 crores from the Punjab National Bank in 1973. 9

On 11th November, 2008, a lock-out was declared in

the factory of the petitioner and ultimately on 1st

May, 1990, the Petitioner made a reference to the

BIFR. On 23rd February, 2010, the BIFR recommended

winding up of the Company and forwarded its

recommendation to the High Court. Three years

thereafter, the Punjab National Bank filed O.A.

No.12 of 2003 before the Debts Recovery Tribunal,

Delhi, for recovery of a loan of

Rs.3,27,62,27,044.00. On 14th August, 2003, the

High Court passed an order winding up the Company

and appointing the Official Liquidator to implement

the order of winding up. At this stage, on 2nd

September, 2004, the Punjab National Bank entered

into a One-Time Settlement with the Petitioner

Company for a sum of Rs.26.16 crores out of which

the Petitioner was able to pay a sum of Rs.13.80

crores and was unable to pay the rest. However, on

9th February, 2005, the High Court stayed the

winding up order passed on 14th August, 2003, and 10

directed the Official Liquidator to continue as the

Liquidator and to also observe the functioning of

the unit.

10. On account of the default committed by the

Petitioner Company in respect of the One-Time

Settlement entered into on 2nd September, 2004, the

Punjab National Bank revoked the said settlement on

14th June, 2007.

11. Thereafter, certain further developments took

place, which ultimately brought the present

Respondent Company into the picture. On 5th May,

2008, the Petitioner Company entered into an

agreement with Assets Care Enterprises Ltd.,

hereinafter referred to as "ACE", a third-party

financier, whereby on payment of the balance amount

of the One-Time Settlement by ACE to the Punjab

National Bank, the dues of the Bank stood

completely settled and there was no existing

liability of the Petitioner Company as far as the 11

Bank was concerned. A default clause was, however,

included in the Memorandum of Understanding that in

case of default of the Petitioner to repay ACE, the

latter would be at liberty to proceed against the

Petitioner in terms of the financing documents

assigned to it by the Petitioner. In fact, a Deed

of Assignment was executed between the Punjab

National Bank and ACE on 15th July, 2008, for a sum

of Rs.15,01,28,752.00. This was followed by a

further Deed of Assignment between ACE and the

Respondent Company for a sum of Rs.18.63 crores.

12. Thereafter, on 10th August, 2009, IFCI Ltd.

issued a notice of demand to the Petitioner Company

under Section 13(2) of the SARFAESI Act, 2002, for

a sum of Rs.1139.75 crores. The said claim was

refuted by the Petitioner Company on 17th September,

2009, denying the right of IFCI Ltd. to the sum as

demanded. It was stated that the Memorandum of

Understanding between the Petitioner Company and

ACE would indicate that ACE was only entitled to a 12

sum of Rs.15,01,28,752.00 and nothing more.

Subsequent thereto, on 10th October, 2009, IFCI Ltd.

took symbolic possession of the property of the

Petitioner Company situated at Gannore in the State

of Haryana. The Petitioner Company also filed a

suit, being CS (OS) No.1886 of 2009, to injunct

IFCI Ltd. from proceeding in accordance with the

notice dated 10th August, 2009, which was, however,

dismissed by the High Court on the ground of lack

of jurisdiction on 10th September, 2010.

13. On the same date, an application was filed by

the Petitioner before the Debts Recovery Tribunal-

III, Delhi, under Section 17 of the Debts Recovery

Act, 1993, which passed an ex-parte stay order in

favour of the Petitioner in the said appeal.

Thereafter, on 13th September, 2010, IFCI Ltd.

issued possession notice with regard to the

residential property, being Plot No.17, Friends

Colony Cooperative Housing Building Society Ltd.,

New Delhi, and on the same date a public notice was 13

also issued inviting bids for the factory at

Gannore in Haryana. In terms of the public notice

issued, it was intimated for the information of the

public that the sealed bids would be opened on 15th

October, 2010. On 15th September, 2010, the Debts

Recovery Tribunal-III, Delhi, passed an order of

stay in favour of the Petitioner Company

restraining IFCI Ltd. from taking steps in

accordance with the possession notice as well as

the public notice for sale. The Petitioner Company

was also directed to deposit a sum of Rs.35 crores

within 30 days of the order.

14. The IFCI Ltd. filed two appeals against the

said order dated 15th September, 2010, being Misc.

Appeal Nos.352 and 353 of 2010, and on 22nd

September, 2010, the Debts Recovery Appellate

Tribunal issued notice and stayed the proceedings

before the Debts Recovery Tribunal-III, Delhi, in

the Original Application as also in the

Securitization Appeal. Directions were given for 14

filing affidavits and the case was adjourned by the

Appellate Tribunal to 27th October, 2010. Since the

time granted by the Appellate Tribunal was beyond

the date for opening of the bids, IFCI Ltd. filed

Writ Petition No.6652 of 2010 before the Delhi High

Court against the orders dated 10th September, 2010

and 15th September, 2010 passed by the Debts

Recovery Tribunal-III, Delhi, and order dated 27th

September, 2010, passed by the Debts Recovery

Appellate Tribunal. On 29th September, 2010, the

High Court allowed the IFCI Ltd. to proceed with

the public notice dated 13th September, 2010, with

the directions mentioned hereinbefore in paragraph

2.

15. Mr. Andhyarujina submitted that till such time

as the actual dues payable by the Petitioner

Company was determined by the Debts Recovery

Tribunal-III, Delhi, no proceedings could be

continued under the SARFAESI Act, 2002, in respect

of a nebulous figure. Mr. Andhyarujina submitted 15

that in view of the One-Time Settlement, which had

been arrived at between the Petitioner Company and

the Punjab National Bank, the demand raised on

behalf of IFCI Ltd. was entirely absurd since at

best the said Company could claim what had been

assigned to it by ACE. How a sum of

Rs.15,01,28,752.00 could become Rs.1139.75 crores,

remains unexplained and till such determination of

the actual amount payable, proceedings under

Section 13(2) of the SARFAESI Act, 2002, should

not be allowed to be taken, since it would not be

possible for IFCI Ltd. to determine as to what part

of the Petitioner's property was liable to be taken

possession of.

16. Mr. Andhyarujina submitted that it had also to

be considered as to whether when the dues of the

Punjab National Bank had been duly liquidated by

ACE, its assignee could maintain the demand against

the Petitioner Company.

16

17. Mr. Andhyarujina submitted that the steps taken

by IFCI Ltd. pursuant to its demand notice dated

10th August, 2009 under Section 13(2) of the

SARFAESI Act, 2002, were wholly illegal and were

liable to be quashed.

18. Learned Additional Solicitor General, Mr. Parag

P. Tripathi, appearing for the respondent IFCI

Limited, submitted that there was no substance in

the Special Leave Petition since the Petitioner-

Company had not only failed to repay its debts, but

had also failed to abide by the One-Time Settlement

which had been arrived at with the Punjab National

Bank. Having entered into a One-Time Settlement

with the Punjab National Bank for a sum of Rs.26.16

crores on 2nd September, 2004, the Petitioner-

Company paid a sum of Rs.13.80 crores only and was

unable to pay the balance of the Settlement amount.

Ultimately, the One-Time Settlement was revoked by

the Bank on account of such default. Thereafter,

the Petitioner-Company entered into a Memorandum of 17

Understanding with ACE on 5th March, 2008, whereby

ACE agreed to pay the Punjab National Bank the

balance amount of the settlement amount. The said

agreement made it clear that in the event the

Petitioner-Company failed to repay ACE, the latter

would be at liberty to proceed against the

Petitioner-Company. Thereafter, on 15th July, 2008,

a Deed of Assignment was executed between the

Punjab National Bank and ACE for an amount of

Rs.15,01,28,752.00. ACE, in its turn, assigned its

rights under the above-mentioned Memorandum of

Understanding to the Respondent-Company on 17th

April, 2009, amounting to Rs.18.63 crores,

whereunder notice was ultimately issued by IFCI

Limited to the Petitioner-Company under Section

13(2) of the SARFAESI Act, 2002.

19. The learned Solicitor General, who also

appeared for IFCI Ltd., urged that ACE as a

"reconstruction company" within the meaning of

Section 3 of the SARFAESI Act, 2002, was entitled 18

under Section 5 thereof to acquire interest in the

financial assets of the Petitioner-Company and was

entitled to maintain a proceeding before the Debts

Recovery Tribunal under Section 17 of the Debts

Recovery Act, 1993. The learned Solicitor General

contended that the Petitioner-Company had not made

any effort to clear any amount even from the unpaid

balance of the One-Time Settlement and it was

virtually under the control of the Official

Liquidator inspite of the interim order passed by

the Division Bench of the High Court under

challenge. The learned Solicitor General submitted

that not only had a recommendation been made for

winding up of the Petitioner-Company by the BIFR,

but an order of winding up was actually passed by

the High Court, whereby the Official Liquidator was

appointed to take over the Company and its assets.

It was submitted that the High Court had merely

allowed IFCI Limited to proceed in terms of the

Public Notice issued, but had prevented it from 19

taking any final decision in the matter and the

same did not warrant any interference by this Court

on account of the financial condition of the

Petitioner-Company.

20. As to the submissions made by Mr. Andhyarujina

on behalf of the Petitioner-Company, regarding

quantification of the dues in the pending

proceedings before the Debts Recovery Tribunal-III,

Delhi, the learned Solicitor General submitted that

the same could not be a reason to stay the auction

in terms of Section 13(4) of SARFAESI Act, 2002,

since the sale proceeds could be kept in a separate

account for distribution, once the amount was

determined.

21. Mr. Ranjit Kumar, learned Senior Advocate, who

appeared for the alleged contemnors, while

reiterating the submissions made by the learned

Solicitor General and the Additional Solicitor

General, submitted that Public Notice was issued by 20

IFCI Limited on 13th September, 2010, inviting bids

for sale of the factory of the Petitioner-Company

at Gannore in Haryana in which it was indicated

that the sale bids would be opened on 15th October,

2010. The Respondent-Company was served with notice

of the securitisation appeal filed by the

Petitioner-Company under Section 12 of the SARFAESI

Act, 2002, before the Debts Recovery Tribunal-III,

Delhi, on 13th September, 2010, in the evening, and,

thereafter, stay was granted by the said Tribunal

on 15th September, 2010, restraining IFCI Limited

from implementing the possession notice, as well as

the Public Notice for sale, with a further

direction to the Petitioner-Company to deposit a

sum of Rs.35 crores within 30 days of the order.

Mr. Ranjit Kumar submitted that the Petitioner-

Company has not deposited the said sum, as

directed, till today. On the other hand, IFCI

Limited preferred the above-mentioned appeals

before the Debts Recovery Appellate Tribunal 21

against the said order of 15th September, 2010, and

the Appellate Tribunal stayed the proceedings

before the Debts Recovery Tribunal in the Original

Application, as also the Securitisation Appeal by

its order dated 22nd September, 2010. It is against

the order subsequently granting time to the

Petitioner-Company to file a reply and adjourning

the case to 27th September, 2010, which would be

beyond the date of opening the bids, that IFCI

Limited moved Writ Petition No.6652 of 2010 before

the Delhi High Court, which passed the impugned

order on 29th September, 2010, allowing IFCI Limited

to proceed with the Public Notice dated 13th

September, 2010, but with the direction that the

bids were not to be finalised and that the Official

Liquidator was to be associated with the bidding

process. Furthermore, any amount received from the

prospective purchaser as earnest money, was to be

kept in a no-lien account.

22

22. With regard to the allegation made on behalf of

the Petitioner-Company that the Bid Box had been

kept available in the company premises for filing

bids till 15th October, 2010, Mr. Ranjit Kumar

submitted that there was nothing on record to show

that the Bid Box had been used after 13th September,

2010, or that the contents thereof had been used

for the purposes of the auction which was scheduled

to be held on 15th October, 2010. Mr. Ranjit Kumar

urged that it would be clear from the above that

the alleged contemnors had neither violated the

order of stay made by this Court on 8th October,

2010, nor did it have any intention to do so.

23. On the question of maintainability of the

proceedings before the Debts Recovery Tribunal by

the Respondent No.1-Company, Mr. Ranjit Kumar urged

that there was no prohibition either under the

Banking Regulation Act, 1949 or under the SARFAESI

Act, 2002, debarring an assignee financial

institution or a reconstruction company from 23

continuing a proceeding initiated before the Debts

Recovery Tribunal by a banking/financial

institution and, in any event, the said question

could be raised and answered before the Appellate

Tribunal itself. In this regard, learned Senior

counsel referred to and relied upon the decision of

this Court in ICICI Bank Limited vs. Official

Liquidator etc. etc. [2010 (10) SCALE 378], in

which this Court was called upon to decide whether

inter se transfers of Non-Performing Assets (NPA)

by banks is illegal under the Banking Regulation

Act, 1949, as was held by the Gujarat High Court.

After considering the submissions made and the

materials on record, this Court set aside the

judgment of the Division Bench of the High Court,

which had upheld the order of the learned Company

Court on the ground that the assignment of debts by

the banks inter se is an activity which is

impermissible under the Banking Regulation Act,

1949. The matter was remitted to the Division 24

Bench on other issues after setting aside the view

taken by the Division Bench of the Gujarat High

Court regarding the locus standi of the assignee of

a debt as being an activity permissible under the

aforesaid Act. It was urged that the Special Leave

Petition and the Contempt Petition were both liable

to be dismissed.

24. Although, the Special Leave Petition is

directed against an interim order passed by the

High Court on 29th September, 2010, granting liberty

to the Petitioner to proceed in pursuance of the

Public Notice dated 13th September, 2010, during the

pendency of the writ petition, extensive

submissions were advanced on behalf of the parties.

25. In this case, we have a situation in which

moneys were admittedly borrowed by the Petitioner-

Company from the Punjab National Bank which it was

unable to repay in full. Ultimately, a One-Time

Settlement was arrived at between the Petitioner-

Company and the Punjab National Bank for a sum of 25

Rs.26.16 crores. Out of the said amount, the

Petitioner-Company paid a sum of Rs.13.80 crores

and defaulted in payment of the rest. It entered

into an agreement with ACE to pay off the entire

dues of Punjab National Bank, which it did. The

entire dues of the Bank, therefore, stood

satisfied, but a new liability was created by the

Petitioner-Company in favour of ACE which assigned

its rights to IFCI Ltd. As explained hereinbefore,

by virtue of Section 3 of the SARFAESI Act, 2002, a

reconstruction company, such as ACE, would be

entitled to carry on the business of

securitisation.

26. We are not, therefore, impressed with Mr.

Andhyarujina's submission that once the dues of the

Bank were liquidated and a separate arrangement was

entered into by the Petitioner-Company with ACE,

the demand under section 13(2) of the said Act

ceased to exist and IFCI Ltd, which acquired the

interest of ACE in the Memorandum of Understanding 26

with the Petitioner-Company, could not take action

against the Petitioner-Company under the SARFAESI

Act. There is no dispute that IFCI Ltd. is a

financial institution which is an assignee of the

interest of ACE in dues recoverable from the

Petitioner-Company.

27. However, as indicated hereinabove, this

Special Leave Petition has been filed against the

interim order passed by the High Court on 29th

September, 2010, in the Writ Petition filed by IFCI

Ltd. seeking to set aside the order dated 27th

September, 2010, passed by the Debts Recovery

Appellate Tribunal limited to the question as to

whether the auction sale should be proceeded with

further. In effect, the question regarding the

auction of the assets of the Petitioner Company is

still the subject matter of the proceedings pending

before the Debts Recovery Appellate Tribunal. All

the questions raised in this Special Leave Petition

are at large in the pending proceedings before the 27

Appellate Tribunal which had stayed the proceedings

before the Debts Recovery Tribunal-III, Delhi,

directing stay of the auction sale proceedings.

28. Having heard the matter on 9th November, 2010,

we had reserved judgment in the matter. However,

it has subsequently been brought to our notice that

certain developments had taken place in the pending

Writ Petition before the High Court on 11th

November, 2010. The High Court took note of the

fact that the matter was still pending before the

Debts Recovery Appellate Tribunal and that judgment

in the Special Leave Petition before this Court was

yet to be passed. It, therefore, held that nothing

survived in the Writ Petition as the parties had to

abide by the directions passed by this Court and,

accordingly, the Writ Petition and the applications

were disposed of.

29. The matter before the High Court may have come

to an end, but the issues involved regarding steps 28

taken under the SARFAESI Act are yet to be

determined by the Debts Recovery Appellate

Tribunal. However, since the order impugned in

these proceedings has ceased to exist, we are not

inclined to decide the questions that have been

raised and instead we can only direct the Debts

Recovery Appellate Tribunal to consider all the

questions raised in the two appeals pending before

it, being Miscellaneous Appeal Nos.352 and 353 of

2010.

30. We, therefore, dispose of the Special Leave

Petition with a direction upon the Debts Recovery

Appellate Tribunal to dispose of the pending appeal

as early as possible since it would not be proper

on our part to express any definite view with

regard to the pending proceedings before the said

Tribunal. Till a decision is arrived at by the

Debts Recovery Appellate Tribunal in the matter,

the auction proceedings being conducted under the

SARFAESI Act shall remain stayed.

29

................................................J. (ALTAMAS KABIR)

................................................J. (CYRIAC JOSEPH) New Delhi Dated:30.11.2010