Provisions of SICA prevail over the provision for recovery of debts under RDDB Act : Supreme Court [Read the Judgment]

Provisions of SICA prevail over the provision for recovery of debts under RDDB Act : Supreme Court [Read the Judgment]

A three judge benchof the Supreme Court, consisting of Chief Justice of India HL Dattu, Justice Bobde and Justice Sapre pronounced that  “the provisions  of  SICA,  in  particular  Section  22,  shall  prevail over the provision for the recovery of debts in the RDDB Act.”

The appeal had first come up before the Bench of Justice Thakker and Justice Altamas Kabir, who had a difference of opinion regarding interpretation of Section 34 of the Recovery  of  Debts  Due  to  Banks  and  Financial Institutions  Act,  1993 and as a result, the Chief Justice referred the matter to a three judge Bench.

J. Thakker was of the opinion that the provisions of RDDB Act should be given priority and primacy over SICA by virtue of Section 34  of  the  RDDB  Act  as  it  is  a  subsequent  enactment. The present judgment notes Justice Thakker’s opinion as, “Therefore it may be presumed even in the absence of anyspecific  provision,  that  Parliament  was  aware  of  all  thestatutes  enacted  prior  thereto;  that  the  non-obstanteclause  had  been  inserted  to  ensure  expeditiousadjudication  and  recovery  of  debts  due  to  banks  andfinancial institutions.  Thakker, J. also held that in view ofsub-section  (2)  of  Section  34  of  the  RDDB  Act,  which provides that the provisions of the Act are “in addition toand  not  in  derogation  of”  inter  alia SICA,  which  is  an additional factor why the RDDB Act shall prevail.” While Justice Kabir opined that, “the non-obstante clause in Section 34(1) contains an exception, to be found in sub-section (2).  Sub-section (2) provides that the Act shall be in addition to and not in derogation of  inter alia the SICA.  Further, that the overriding effect of RDDB Act would have an overriding effect over other enactments but supplemental to the provisions of SICA, and therefore, the provisions of SICA would prevail over the provisions of the RDDB Act.”

The appeal in the Apex Court was filed by KSL & Industries against the judgment of the Delhi High Court. The Delhi High Court had held that “in view of the  bar  contained  in  Section  22  of  the  Sick  Industrial Companies  (Special  Provisions)  Act,  1985  (hereafter referred  to  as  `SICA')  no  recovery  proceedings  could  be effected.” It was on this appeal, that there was difference of opinion in the two judge Bench of the Supreme Court.

The case arose as M/s Arihant threads had set up an export oriented spinning unit for  manufacturing  cotton  yarn  in  Amritsar in 1992. They had taken a loan for the same, which was backed by security. The company failed to replay loan instalments, after which the Bank approached DRT, which passed an order in favour of the Bank.

Further, an appeal was filed by the company in the DRAT, which then stayed the ex-parte order passed by DRT. The Recovery Officer issued a composite demand notice under Rule 2 of Second Schedule of  the  Income  Tax  Act,  1961  against  the  Company and directed them to appear for settling terms and conditions of the proclamation of sale and for disclosure of its movable and immovable assets. Thereafter, the Recovery Officer fixed the reserve price  of  the  movable  and  immovable  properties  at Rs.  12.50  crores. Later on, the  Company  filed  an appeal under Section 30 of the RDDB Act against the order fixing  reserve  price  of  the  movable  and immovable properties.

Thereafter, the appellant (KSL) was the highest bidder in the auction and became the auction-purchaser. The Company also moved to get the ex-parte order vacated, and the same was opposed by KSL and Industries. Allowing, Company’s appeal, DRT-I, Delhi, set aside the auction sale subject to payment of a certain amount, interest, expenses, etc.

Both the parties then filed the appeal in DRAT, which stayed the order by which the  ex-parte  order  against  the  Company  was  set aside and directed refund of sale amount to KSL and Industries.

Thereafter, the Company invoked the provisions of SICA.

The matter then reached the Delhi High Court which set  aside  the  order  passed  by the DRAT, Delhi on the ground that in view of the bar of Section 22 of the SICA, the recovery proceedings could not be  pursued  against  the  Company  and  no  order  ought  to have been passed by the DRAT, Delhi.

When the mater reached the Supreme Court, the Division Bench had a difference in opinion and the matter as a result the three judge Bench which has delivered the present judgment. In the present judgment authored by Justice Bobde, the Court discussed the scheme and purpose of the Sick  Industrial Companies  (Special  Provisions)  Act,  1985 and Scheme And Purpose Of The Recovery Of Debts Due To Banks And Financial Institutions Act, 1993.

The judgment says, “We,  thus,  find  a  harmonious  scheme  in  relation  to the  proceedings  for  reconstruction  of  the  company  under the  SICA, which includes  the reconstruction of  debts and even the sale or lease of the sick company’s properties for the  purpose,  which  may  or  may  not  be  a  part  of  the security executed by the sick company in favour of a bank or  a  financial  institution  on  the  one  hand,  and  the provisions  of  the  RDDB  Act,  which  deal  with  recovery  of debts due to banks or financial institutions, if necessary by enforcing  the  security  charged  with  the  bank  or  financial institution, on the other.”

It also notes, “There is no doubt that both are special laws. SICA is a  special law, which deals with the reconstruction of  sick companies  and  matters  incidental  thereto,  though  it  is general  as  regards  other  matters  such  as  recovery  of debts.   The  RDDB  Act  is  also  a  special  law,  which  deals with  the  recovery  of  money  due  to  banks  or  financial institutions, through a special procedure, though it may be general  as  regards  other  matters  such  as  the reconstruction  of  sick  companies  which  it  does  not  even specifically deal with. Thus the purpose of the two laws is different.”

The Court then relied upon a number of case laws and finally came to a conclusion that “The purpose of the two Acts is entirely different and where  actions  under  the  two  laws  may  seem  to  be  in conflict,  Parliament  has  wisely  preserved  the  proceedings under  the  SICA,  by  specifically  providing  for  sub-section (2), which lays down  that the later Act RDDB shall be in addition to and not in derogation of the SICA.”