Scheme Of Compromise Sanctioned By Court Under Companies Act Cannot Be Frustrated By Invoking Provisions Of SARFAESI Act: Calcutta HC

The Calcutta High Court has ruled that a scheme of arrangement/compromise sanctioned under section 391 of the Companies Act, 1956, cannot be unilaterally frustrated by a secured creditor by invoking the provisions of the SARFAESI Act, 2002. The application was filed, praying for the execution of an order sanctioning a scheme of arrangement/ compromise under section 391(2) of the Companies Act, 1956, as a deemed decree within the meaning of CPC, 1908. The applicant also requested the Hon'ble High Court to direct the respondent to issue “No Objection Certificate” for release of all charges on assets and properties of the applicant Background of the Case The applicant and its creditor, including the respondent, who happens to be a secured financial institution, entered into a sanctioned scheme of compromise. As per the compromise, the applicant company was required to pay the settlement amount. However, the applicant allegedly defaulted in repayment between April 2010 and July 2011, which led the respondent to issue a section 13(2) SARFAESI Act notice in November 2011. Despite the notice, the creditor continued to receive payments under the scheme. Contention of the Parties The applicant argued that the arrangement/compromise scheme, being statutorily sanctioned, could not be unilaterally frustrated by the respondent, and it can only be done by approaching the Company Court u/s 392 of the Companies Act, 1956. It also highlighted that the creditor has accepted the payments even after issuing the SARFAESI notice. Per contra, they submitted that the above-mentioned scheme was frustrated due to continued default. It cited sections 34 and 35 of the SARFAESI Act, arguing that the provisions of the SARFAESI Act have an overriding effect over other laws, and hence the leave of the Company Court is not required. Judgment of the Calcutta High Court The Hon'ble High Court ruled that the agreement/compromise scheme u/s 391 of the Companies Act has statutory force and is binding on the respondent. Therefore, it cannot be unilaterally frustrating without approaching the Company Court. The Hon'ble Court also observed that the respondent continued accepting the payments without any objection, even after issuing the SARFAESI notice, which leads to the conclusion that it continued adherence to the scheme. Citing the rulings in the case of S.K. Gupta v. K.P. Jain & Anr., (1979) 3 SCC 54; and Hindustan Lever & Anr. v. State of Maharashtra & Anr., (2004) 9 SCC 438, the Hon'ble Judge observed that, “Having regard to the scheme of the said Act, especially as reflected in Section 391 and Section 392, I am of the view that ordinarily there is no scope for either of the parties to unilaterally resile from a scheme of arrangement duly sanctioned by a Court.” It was further observed that the respondent has accepted the entire amount along with interest and has not acted further after issuance of notice u/s 13(2) of the SARFAESI Act; thus, it cannot be concluded that it has resiled from the said scheme or could have unilaterally resiled from the compromise. The bench also observed that “the provisions of Sections 34 and 35 of the SARFAESI Act cannot be construed so as to give unilateral powers to the respondent to reopen issues that have been closed, especially having regard to the scheme of compromise being sanctioned by the Company Court under Section 391 of the said Act.” The Court lastly directed the respondent to issue “No Objection” for the release of all the charges on the assets and properties of the applicant. Case Name: ARCL Organics Ltd. Versus Stressed Asset Stabilization Fund. Case No.: CA 136 of 2017 Bench: Hon'ble Justice Raja Basu Chowdhury Judgment Date: 30.06.2025 For the applicant: Mr. Ratnanko Banerji, Sr. Adv. Mr. Kanishk Kejriwal, Adv. Mr. Patit Paban Bishwal, Adv. Ms. Sohini Dey, Adv. Mr. Oishij Mukhopadhyay, Adv. For the respondent: Mr. Sakya Sen, Sr. Adv. Mr. Sayan Banerjee, Adv. Ms. Pallavi Chatterjee, Adv. Mr. Ajay Gaggar, Adv. Mr. Uttiyo Mallick, Adv.Click Here To Download Order/Judgement

Scheme Of Compromise Sanctioned By Court Under Companies Act Cannot Be Frustrated By Invoking Provisions Of SARFAESI Act: Calcutta HC

Mohd.Rehan Ali

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