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.”