How to interprete statutes when both statutes are having non obstante clauses?

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.
Parliament must be deemed to have had knowledge
of the earlier law i.e. SICA, enacted in 1985, while
enacting the RDDB Act, 1993. It is with a view to
prevent a clash of procedure, and the possibility of
contradictory orders in regard to the same entity
and its properties, and in particular, to preserve the
steps already taken for reconstruction of a sick
company in relation to the properties of such sick
company, which may be charged as security with
the banks or financial institutions, that Parliament
has specifically enacted sub-section (2). SICA had
been enacted in respect of specified and limited
companies i.e. those which owned industrial
undertakings specified in the Schedule to the IDR
Act, as mentioned earlier, whereas the RDDB Act
deals with all persons, who may have taken a loan
from a bank or a financial institution in cash or
otherwise, whether secured or unsecured, etc.
In view of the observations of this Court in the
decisions referred to and relied on by the learned
counsel for the parties we find that, the purpose of
the two enactments is entirely different. As observed
earlier, the purpose of one is to provide ameliorative
measures for reconstruction of sick companies, and
the purpose of the other is to provide for speedy
recovery of debts of banks and financial institutions.
Both the Acts are “special” in this sense. However,
with reference to the specific purpose of
reconstruction of sick companies, SICA must be
held to be a special law, though it may be
considered to be a general law in relation to the
recovery of debts. Whereas, the RDDB Act may be

considered to be a special law in relation to the
recovery of debts and SICA may be considered to
be a general law in this regard. For this purpose we
rely on the decision in LIC v. Vijay Bahadur [(1981)
1 SCC 315 : 1981 SCC (L&S) 111] . Normally the
latter of the two would prevail on the principle that
the legislature was aware that it had enacted the
earlier Act and yet chose to enact the subsequent
Act with a non obstante clause. In this case,
however, the express intendment of Parliament in
 the non obstante clause of the RDDB Act does not
permit us to take that view. Though the RDDB Act is
the later enactment, sub-section (2) of Section 34
thereof specifically provides that the provisions of
the Act or the Rules made thereunder shall be in
addition to, and not in derogation of, the other laws
mentioned therein including SICA.” [at paras 36, 39,
40, and 48]
33. A conspectus of the aforesaid decisions shows that the
Sick Industrial Companies (Special Provisions) Act, 1985
prevails in all situations where there are earlier enactments with
non obstante clauses similar to the Sick Industrial Companies
(Special Provisions) Act, 1985. Where there are later
enactments with similar non obstante clauses, the Sick
Industrial Companies (Special Provisions) Act, 1985 has been
held to prevail only in a situation where the reach of the non
obstante clause in the later Act is limited – such as in the case
of the Arbitration and Conciliation Act, 1996 – or in the case of

the later Act expressly yielding to the Sick Industrial Companies
(Special Provisions) Act, 1985, as in the case of the Recovery
Of Debts Due To Banks And Financial Institutions Act, 1993.
Where such is not the case, as in the case of Special Courts
Act, 1992, it is the Special Courts Act, 1992 which was held to
prevail over the Sick Industrial Companies (Special Provisions)
Act, 1985.
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS._614-615 OF 2016
(ARISING OUT OF SLP(CIVIL) NOS. 26170-26171 OF 2008)
M/S MADRAS PETROCHEM LTD.
& ANR. … APPELLANTS
VERSUS
BIFR & ORS. … RESPONDENTS
Citation;(2016)4 SCC1
R.F. Nariman, J.
Dated;January 29, 2016.



2. The present appeals raise interesting questions on the
interplay between the Sick Industrial Companies (Special
Provisions) Act, 1985 and the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
2002. The facts in appeals arising out of Special Leave Petition
(Civil) Nos.26170-26171 of 2008 are as follows.
1Page 2
3. The net worth of the Appellant No.1 Company, having
eroded completely, the appellant No.1 company filed a
reference under Section 15(1) of the Sick Industrial Companies
(Special Provisions) Act, 1985 before the BIFR, which was
registered as BIFR Case No.115 of 1989. On 13.12.1989, after
making an inquiry under Section 16(1) of the Sick Industrial
Companies (Special Provisions) Act, 1985, the Appellant
company was declared sick and ICICI was appointed as the
Operating Agency to formulate a rehabilitation scheme. On
3.7.1991, the first rehabilitation scheme prepared by the
Operating Agency was sanctioned, which envisaged the
takeover of the appellant company by one Mahavir Plantation
Limited - i.e. appellant No.2. The first scheme was finally
declared a failure, and the Appellant No.1 company, on
17.1.1995, was directed to submit a fresh, comprehensive,
revised rehabilitation scheme which was duly circulated.
Objections to the said scheme were heard by the BIFR and the
scheme finally sanctioned was in the form of a change of
management of the appellant no.1 company subject to various
modifications to be carried out. After the Appellant No.1
2Page 3
company’s management changed hands, the second scheme,
after being reviewed from time to time, was declared as failed
on 16.5.2000. Despite efforts by the Operating Agency to
attempt to revive the company, all such efforts failed, and
ultimately, on 30.4.2001, BIFR, on the basis of the
recommendation of the Operating Agency, formed a prima facie
opinion that the appellant No.1 company should be wound up
under Section 20(1) of the Sick Industrial Companies (Special
Provisions) Act, 1985. On 27.7.2001, the BIFR confirmed its
prima facie opinion after noting that the appellant No.1
company had been enjoying protection under the Sick Industrial
Companies (Special Provisions) Act, 1985 for the last 12 years.
There being no acceptable viable rehabilitation proposal after
the failure of two schemes, the appellant no.1 company was not
likely to make its net worth exceed its accumulated losses, and
therefore BIFR recommended to the High Court of Bombay that
the said company be wound up. On 4.2.2002, appellant
No.1’s challenge to the BIFR order was dismissed by the
AAIFR.
3Page 4
4. While matters stood thus, ICICI issued a notice dated
20.11.2002 under Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 to the appellant No.1 company and followed
it up with a possession notice dated 9.5.2003. On 8.8.2003,
ICICI issued a sale notice for and on behalf of all the secured
creditors of the appellant No.1 company. Meanwhile, appellant
Nos. 1 & 2 filed a writ petition before the Delhi High Court being
Writ Petition Nos.48-49 of 2004 challenging the AAIFR order
dated 4.2.2002 and the BIFR order dated 25.7.2001. On
7.1.2004, the Delhi High Court stayed both the orders, which
stay continued until 24.7.2008, when, by the impugned
judgment, the Writ Petition was dismissed.
5. Meanwhile, the sale notice of 8.8.2003 was challenged
before the DRT by the appellants. The said challenge was
unsuccessful, as a result of which an appeal was filed before
the DRAT, which, by its order dated 30.6.2005, upset the DRT
order and set aside the sale notice. However, by a judgment of
the Madras High Court, in a challenge to the aforesaid order
dated 30.6.2005, the Madras High Court set aside the DRAT
4Page 5
order. The sale of movable assets for a sum of Rs.4.65 crores
was also confirmed by the Madras High Court in favour of one
M/s Rahamath Steel. Vide the said order the Madras High
Court also permitted the creditors of the Company to proceed
with the sale of its immovable property subject to a minimum
reserve price of Rs.25 crores. This order was never challenged
and has attained finality.
6. Meanwhile, based on a winding up proceeding by M/s
BHEL, an unsecured creditor, and another winding up
proceeding based on the opinion of the BIFR under Section 20
of the Sick Industrial Companies (Special Provisions) Act, 1985,
the Bombay High Court wound up the appellant No.1 company.
7. While matters stood thus, the Delhi High Court passed the
impugned order on 24.7.2008, as has been stated hereinabove,
in which it was of the view that Section 15(1) proviso 3 of the
Sick Industrial Companies (Special Provisions) Act, 1985, when
construed to include all proceedings under the Sick Industrial
Companies (Special Provisions) Act, 1985, would make the
present proceedings under the Sick Industrial Companies
5Page 6
(Special Provisions) Act, 1985, abate on the facts of this case.
Ultimately, in this view of the matter, and differing with a
judgment of the Orissa High Court, the Delhi High Court
disposed of the appellants’ writ petition as having become
infructuous.
8. Appeals have been filed against the said order by the
present appellants which appeals, as has been stated
hereinabove, raise interesting questions of law on the interplay
of the Sick Industrial Companies (Special Provisions) Act, 1985
with the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002.
9. A few subsequent events also need to be stated for the
sake of completion. On 20.11.2008, the Bombay High Court
modified its order dated 30.8.2007 and restrained the Official
Liquidator from taking possession of the secured assets of the
company, and permitted the creditors to pursue their remedies
under the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002. M/s. Alchemist
ARC Ltd. issued a sale notice on behalf of all the creditors of
6Page 7
the appellant No.1 company for a sum of Rs.222.59 crores on
6.4.2013. Appellant No.2, being the corporate guarantor of the
appellant no.1 company, filed an appeal challenging the sale
notice of 6.4.2013. On 13.5.2013, DRT Chennai dismissed this
petition. Vide an order dated 19.3.2014, the DRAT, Chennai, in
an appeal made to it, directed, by way of an interim order, that
appellant No.2 pay a sum of Rs.53.77 crores within the time
stated therein. This DRAT order was challenged before the
Madras High Court which, by its order dated 21.4.2014, refused
to interfere with the said order dated 19.3.2014, and granted
some additional time to appellant No.2 to pay the said amount
of Rs.53.77 crores. We have been informed that the said
amount has not been paid till date. The appellant No.2 has
challenged this order of 21.4.2014 before this Court. However,
the said SLP is lying in defect as on date despite the expiry of
more than one and a half years.
10. Mr. C.N. Sreekumar, learned counsel appearing on behalf
of the appellant No.1 company, submitted before us that the
effect of the interim order of 7.1.2004 of the Delhi High Court is
that the reference made by the appellant No.1 company gets
7Page 8
revived. He further submitted that no winding up order could be
made in view of such revival, and that such orders are therefore
non est, and the present appeals cannot be regarded as
infructuous. He added that Section 22(1) of the Sick Industrial
Companies (Special Provisions) Act, 1985 would automatically
come into play to protect the assets of the appellant No.1
company. He also submitted before us, that in any case, regard
being had to the object of the Sick Industrial Companies
(Special Provisions) Act, 1985, it would override the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. For this purpose,
he relied on a judgment by this Court in KSL & Industries Ltd.
v. Arihant Threads Ltd., (2015) 1 SCC 166, which held that
the Sick Industrial Companies (Special Provisions) Act, 1985
has overridden the Recovery Of Debts Due To Banks And
Financial Institutions Act, 1993. The said Act, being a
predecessor to the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002, and dealing with the same subject matter as the
Securitisation and Reconstruction of Financial Assets and
8Page 9
Enforcement of Security Interest Act, 2002 – namely, recovery
of debts due to banks and financial institutions, would lead to
the conclusion that the 2002 Act is also overridden. He further
contended that Section 37 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 expressly refers to the Recovery Of Debts
Due To Banks And Financial Institutions Act, 1993, and since
Section 34(2) of the Recovery Of Debts Due To Banks And
Financial Institutions Act, 1993, refers to the Sick Industrial
Companies (Special Provisions) Act, 1985, Section 37 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 should also be
construed so as to include a reference to the Sick Industrial
Companies (Special Provisions) Act, 1985. His further
contention is that on a true construction of Section 15(1)
proviso 3 of the Sick Industrial Companies (Special Provisions)
Act, 1985, the Orissa High Court is correct and that since the
expression “reference” would only include the initial stage of
filing and registration of a reference before the BIFR, such
9Page 10
stage having gone long ago, the proceedings before BIFR are
very much alive and have not abated.
11. Shri C.A. Sundaram, learned senior counsel, appearing
on behalf of M/s Alchemist Asset Reconstruction Company
Limited, which is substituted in place of respondent Nos.2,3,4,6
and 9, has submitted that the effect of the interim order dated
7.1.2004 does not revive the reference of the appellant No.1
company before BIFR. For this purpose he relied upon Shree
Chamundi Mopeds Ltd. v. Church of South India Trust
Assn., (1992) 3 SCC 1. He also submitted that in any event the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 would override the
provisions of the Sick Industrial Companies (Special Provisions)
Act, 1985, so that even if the stay order dated 7.1.2004 had the
effect of reviving the reference, that in itself would not restrain
the secured creditors from proceeding under the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002, nor would it render the winding up
order passed by Bombay High Court non est. He also
submitted that a large number of judgments of various High
10Page 11
Courts have taken the view which is taken in the impugned
judgment, and that the expression “reference” would include all
stages of a proceeding under the Sick Industrial Companies
(Special Provisions) Act, 1985 including the stage of operation
of a scheme. For this purpose, in particular, he relied heavily
on a full bench decision of the Madras High Court in M/s.
Salem Textiles Limited v. The Authorized Officer and Ors.,
reported in AIR 2013 Madras 229. He also argued that since
the Recovery Of Debts Due To Banks And Financial Institutions
Act, 1993 expressly named the Sick Industrial Companies
(Special Provisions) Act, 1985 in Section 34(2), the Sick
Industrial Companies (Special Provisions) Act, 1985 obviously
overrode that Act. What is significant is that the corresponding
section, namely, Section 37 of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, expressly omits any reference to the Sick
Industrial Companies (Special Provisions) Act, 1985, making it
clear that the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 would
prevail over the Sick Industrial Companies (Special Provisions)
11Page 12
Act, 1985. That being the case, he argued that this Court’s
judgment in KSL & Industries Ltd. Vs. Arihant Threads Ltd.,
(2015) 1 SCC 166, is, therefore, clearly distinguishable. He
also argued that at the end of the day, since the movable
property of the appellant No.1 company had been sold off, and
since various High Courts – including Bombay and Madras –
have passed a number of orders, both winding up the company
and dismissing petitions challenging the action of his client in
proceedings under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002, all that remains is sale of the immovable property of the
appellant No.1 Company and that, therefore, nothing really
remains in these appeals, which have become infructuous.
Discussion:-
12. The arguments of counsel have been wide ranging, but at
the end of the day various Sections of three statutes have to be
interpreted by this Court. Before embarking on a consideration
of the arguments and the interpretation of these provisions, it
will be important to first set them out.
12Page 13
THE SICK INDUSTRIAL COMPANIES (SPECIAL
PROVISIONS) ACT, 1985
“Section 15. Reference to Board
(1) When an industrial company has become a
sick industrial company, the Board of Directors of
the company, shall, within sixty days from the date
of finalisation of the duly audited accounts of the
company for the financial year as at the end of
which the company has become a sick industrial
company, make a reference to the Board for
determination of the measures which shall be
adopted with respect to the company:
Provided that if the Board of Directors had sufficient
reasons even before such finalisation to form the
opinion that the company had become a sick
industrial company, the Board of directors shall,
within sixty days after it has formed such opinion,
make a reference to the Board for the determination
of the measures which shall be adopted with
respect to the company:
Provided further that no reference shall be made to
the Board for Industrial and Financial
Reconstruction after the commencement of the
Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002, where financial assets have been acquired by
any securitisation company or reconstruction
company under sub-section (1) of section 5 of that
Act:
Provided also that on or after the commencement of
the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002, where a reference is pending before the
Board for Industrial and Financial Reconstruction,
such reference shall abate if the secured creditors,
representing not less than three-fourth in value of
the amount outstanding against financial assistance
disbursed to the borrower of such secured creditors,
13Page 14
have taken any measures to recover their secured
debt under sub-section (4) of section 13 of that Act.
Section 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.
(2) Where the management of the sick industrial
company is taken over or changed in pursuance of
any scheme sanctioned under section 18
notwithstanding anything contained in the
Companies Act, 1956 (1 of 1956), or any other law
or in the memorandum and articles of association of
such company or any instrument having effect
under the said Act or other law
a) it shall not be lawful for the shareholders of such
company or any other person to nominate or
appoint any person to be a director of the company;
14Page 15
b) no resolution passed at any meeting of the
shareholders of such company shall be given effect
to unless approved by the Board.
(3) where an inquiry under section 16 is pending or
any scheme referred to in section 17 is under
preparation or during the period] of consideration of
any scheme under section 18 or where any such
scheme is sanctioned thereunder, for due
implementation of the scheme, the Board may by
order declare with respect to the sick industrial
company concerned that the operation of all or any
of the contracts, assurance of property, agreements,
settlements, awards, standing orders or other
instruments in force, to which such sick industrial
company is a party or which may be applicable to
such sick industrial company immediately before the
date of such order, shall remain suspended or that
all or any of the rights, privileges, obligations and
liabilities accruing or arising thereunder before the
said date, shall remain suspended or shall be
enforceable with such adoptions and in such
manner as may be specified by the Board.
Provided that such declaration shall not be made for
a period exceeding two years which may be
extended by one year, at a time so, however, that
the total period shall not exceed seven years in the
aggregate.
(4) Any declaration made under sub-section (3) with
respect to a sick industrial company shall have
effect notwithstanding anything contained in the
Companies Act, 1956 (1 of 1956), or any other law,
the memorandum and articles of association of the
company or any instrument having effect under the
said Act, or other law or any agreement or any
decree or order of a court, tribunal, officer or other
authority or of any submission, settlement or
standing order and accordingly,-
15Page 16
(a) any remedy for the enforcement of any right,
privilege, obligation and liability suspended or
modified by such declaration, and all proceedings
relating thereto pending before any court, tribunal,
officer or other authority shall remain stayed or be
continued subject to such declaration; and
(b) on the declaration ceasing to have effect-
(i) any right, privilege, obligation or liability so
remaining suspended or modified shall become
revived and enforceable as if the declaration had
never been made; and
(ii) any proceeding so remaining stayed shall be
proceeded with, subject to the provisions of any law
which may then be in force, from the stage which
had been reached when the proceedings became
stayed.
(5) In computing the period of limitation for the
enforcement of any right, privilege, obligation or
liability, the period during which it or the remedy for
the enforcement thereof remains suspended under
this section shall be excluded.
Section 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
16Page 17
section 72A of the Income-tax Act, 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 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.
The Recovery Of Debts Due To Banks And
Financial Institutions Act, 1993
Section 17. Jurisdiction, powers and authority of
Tribunals.
(1) A Tribunal shall exercise, on and from the
appointed day, the jurisdiction, powers and authority
to entertain and decide applications from the banks
and financial institutions for recovery of debts due to
such banks and financial institutions.
(2) An Appellate Tribunal shall exercise, on and
from the appointed day, the jurisdiction, powers and
authority to entertain appeals against any order
made, or deemed to have been made, by a Tribunal
under this Act.
Section 18. Bar of Jurisdiction.
On and from the appointed day, no court or other
authority shall have, or be entitled to exercise, any
jurisdiction, powers or authority (except the
Supreme Court, and a High Court exercising
jurisdiction under articles 226 and 227 of the
Constitution) in relation to the matters specified in
section 17.
34. Act to have over-riding effect.—
(1) Save as provided under sub- section (2), the
provisions of this Act shall have effect
17Page 18
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 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 Companies (Special
Provisions) Act, 1985 (1 of 1986) and the Small
Industries Development Bank of India Act, 1989 (39
of 1989).
The Securitisation And Reconstruction Of
Financial Assets And Enforcement Of Security
Interest Act, 2002
Section 13. Enforcement of security interest
(1) Notwithstanding anything contained in section
69 or section 69A of the Transfer of Property Act,
1882 (4 of 1882), any security interest created in
favour of any secured creditor may be enforced,
without the intervention of court or tribunal, by such
creditor in accordance with the provisions of this
Act.
(2) Where any borrower, who is under a liability to a
secured creditor under a security agreement, makes
any default in repayment of secured debt or any
instalment thereof, and his account in respect of
such debt is classified by the secured creditor as
non-performing asset, then, the secured creditor
may require the borrower by notice in writing to
discharge in full his liabilities to the secured creditor
within sixty days from the date of notice failing
which the secured creditor shall be entitled to
18Page 19
exercise all or any of the rights under sub- section
(4).
(3) The notice referred to in sub-section (2) shall
give details of the amount payable by the borrower
and the secured assets intended to be enforced by
the secured creditor in the event of non-payment of
secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section
(2), the borrower makes any representation or
raises any objection, the secured creditor shall
consider such representation or objection and if the
secured creditor comes to the conclusion that such
representation or objection is not acceptable or
tenable, he shall communicate within one week of
receipt of such representation or objection the
reasons for non-acceptance of the representation or
objection to the borrower: PROVIDED that the
reasons so communicated or the likely action of the
secured creditor at the stage of communication of
reasons shall not confer any right upon the borrower
to prefer an application to the Debts Recovery
Tribunal under section 17 or the Court of District
Judge under section 17A.
(4) In case the borrower fails to discharge his
liability in full within the period specified in
sub-section (2), the secured creditor may take
recourse to one or more of the following measures
to recover his secured debt, namely:--
(a) take possession of the secured assets of the
borrower including the right to transfer by way of
lease, assignment or sale for realising the secured
asset;
(b) take over the management of the business of
the borrower including the right to transfer by way of
lease, assignment or sale for realising the secured
asset: PROVIDED that the right to transfer by way
of lease, assignment or sale shall be exercised only
19Page 20
where the substantial part of the business of the
borrower is held as security for the debt:
PROVIDED FURTHER that where the management
of whole of the business or part of the business is
severable, the secured creditor shall take over the
management of such business of the borrower
which is relatable to the security for the debt.
(c) appoint any person (hereafter referred to as the
manager), to manage the secured assets the
possession of which has been taken over by the
secured creditor;
(d) require at any time by notice in writing, any
person who has acquired any of the secured assets
from the borrower and from whom any money is
due or may become due to the borrower, to pay the
secured creditor, so much of the money as is
sufficient to pay the secured debt.
(5) Any payment made by any person referred to in
clause (d) of sub-section (4) to the secured creditor
shall give such person a valid discharge as if he has
made payment to the borrower.
(5A) Where the sale of an immovable property, for
which a reserve price has been specified, has been
postponed for want of a bid of an amount not less
than such reserve price, it shall be lawful for any
officer of the secured creditor, if so authorised by
the secured creditor in this behalf, to bid for the
immovable property on behalf of the secured
creditor at any subsequent sale.
(5B) Where the secured creditor, referred to in
sub-section (5A), is declared to be the purchaser of
the immovable property at any subsequent sale, the
amount of the purchase price shall be adjusted
towards the amount of the claim of the secured
creditor for which the auction of enforcement of
20Page 21
security interest is taken by the secured creditor,
under sub-section (4) of section 13.
(5C) The provisions of section 9 of the Banking
Regulation Act, 1949(10 of 1949) shall, as far as
may be, apply to the immovable property acquired
by secured creditor under sub-section (5A).]
(6) Any transfer of secured asset after taking
possession thereof or take over of management
under sub-section (4), by the secured creditor or by
the manager on behalf of the secured creditor shall
vest in the transferee all rights in, or in relation to,
the secured asset transferred as if the transfer had
been made by the owner of such secured asset.
(7) Where any action has been taken against a
borrower under the provisions of sub-section (4), all
costs, charges and expenses which, in the opinion
of the secured creditor, have been properly incurred
by him or any expenses incidental thereto, shall be
recoverable from the borrower and the money which
is received by the secured creditor shall, in the
absence of any contract to the contrary, be held by
him in trust, to be applied, firstly, in payment of such
costs, charges and expenses and secondly, in
discharge of the dues of the secured creditor and
the residue of the money so received shall be paid
to the person entitled thereto in accordance with his
rights and interests.
(8) If the dues of the secured creditor together with
all costs, charges and expenses incurred by him are
tendered to the secured creditor at any time before
the date fixed for sale or transfer, the secured asset
shall not be sold or transferred by the secured
creditor, and no further step shall be taken by him
for transfer or sale of that secured asset.
(9) In the case of financing of a financial asset by
more than one secured creditors or joint financing of
a financial asset by secured creditors, no secured
21Page 22
creditor shall be entitled to exercise any or all of the
rights conferred on him under or pursuant to
sub-section (4) unless exercise of such right is
agreed upon by the secured creditors representing
not less than sixty per cent in value of the amount
outstanding as on a record date and such action
shall be binding on all the secured creditors:
PROVIDED that in the case of a company in
liquidation, the amount realised from the sale of
secured assets shall be distributed in accordance
with the provisions of section 529A of the
Companies Act, 1956 (1 of 1956):
PROVIDED FURTHER that in the case of a
company being wound up on or after the
commencement of this Act, the secured creditor of
such company, who opts to realise his security
instead of relinquishing his security and proving his
debt under proviso to sub-section (1) of section 529
of the Companies Act, 1956 (1 of 1956), may retain
the sale proceeds of his secured assets after
depositing the workmen's dues with the liquidator in
accordance with the provisions of section 529A of
that Act:
PROVIDED ALSO that the liquidator referred to in
the second proviso shall intimate the secured
creditors the workmen's dues in accordance with
the provisions of section 529A of the Companies
Act, 1956 (1 of 1956) and in case such workmen's
dues cannot be ascertained, the liquidator shall
intimate the estimated amount of workmen's dues
under that section to the secured creditor and in
such case the secured creditor may retain the sale
proceeds of the secured assets after depositing the
amount of such estimated dues with the liquidator:
PROVIDED ALSO that in case the secured creditor
deposits the estimated amount of workmen's dues,
such creditor shall be liable to pay the balance of
22Page 23
the workmen's dues or entitled to receive the
excess amount, if any, deposited by the secured
creditor with the liquidator:
PROVIDED ALSO that the secured creditor shall
furnish an undertaking to the liquidator to pay the
balance of the workmen's dues, if any.
Explanation: For the purposes of this sub-section,--
(a) "record date" means the date agreed upon by
the secured creditors representing not less than
three-fourth in value of the amount outstanding on
such date; (b) "amount outstanding" shall include
principal, interest and any other dues payable by
the borrower to the secured creditor in respect of
secured asset as per the books of account of the
secured creditor.
(10) Where dues of the secured creditor are not fully
satisfied with the sale proceeds of the secured
assets, the secured creditor may file an application
in the form and manner as may be prescribed to the
Debts Recovery Tribunal having jurisdiction or a
competent court, as the case may be, for recovery
of the balance amount from the borrower.
(11) Without prejudice to the rights conferred on the
secured creditor under or by this section, the
secured creditor shall be entitled to proceed against
the guarantors or sell the pledged assets without
first taking any of the measures specified in clauses
(a) to (d) of sub-section (4) in relation to the secured
assets under this Act.
(12) The rights of a secured creditor under this Act
may be exercised by one or more of his officers
authorised in this behalf in such manner as may be
prescribed.
(13) No borrower shall, after receipt of notice
referred to in sub-section (2), transfer by way of
sale, lease or otherwise (other than in the ordinary
23Page 24
course of his business) any of his secured assets
referred to in the notice, without prior written
consent of the secured creditor.
Section 35. The provisions of this Act to
override other laws
 The provisions of this Act shall have effect,
notwithstanding anything inconsistent therewith
contained in any other law for the time being in
force or any instrument having effect by virtue of
any such law.
Section 37. Application of other laws not barred
The provisions of this Act or the rules made
thereunder shall be in addition to, and not in
derogation of, the Companies Act, 1956 (1 of 1956),
the Securities Contracts (Regulation) Act, 1956 (42
of 1956), the Securities and Exchange Board of
India Act, 1992 (15 of 1992), the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993
(51 of 1993) or any other law for the time being in
force.
Section 41. Amendments of certain enactments
The enactments specified in the Schedule shall be
amended in the manner specified therein.”
THE SCHEDULE
 (Section 41)
Year Act
No.
Short title Amendment
1956 1 The Companies
Act 1956
In section 4A in
sub-section (1) after
clause (vi) insert the
following:-- "(vii) the
securitisation company or
the reconstruction
company which has
obtained a certificate of
24Page 25
registration under
sub-section (4) of section
3 of the Securitisation and
Reconstruction of
Financial Assets and
Enforcement of Security
Interest Act 2002".
1956 42 The Securities
Contracts
(Regulation) Act
1956
In section 2 in clause (h)
after sub-clause (ib) insert
the following:-- " (ic)
security receipt as
defined in clause (zg) of
section 2 of the
Securitisation and
Reconstruction of
Financial Assets and
Enforcement of Security
Interest Act 2002".
1986 1 The Sick
Industrial
Companies
(Special
Provisions) Act
1985
In section 15 in
sub-section (1) after the
proviso insert the
following:-- "PROVIDED
FURTHER that no
reference shall be made
to the Board for Industrial
and Financial
Reconstruction after the
commencement of the
Securitisation and
Reconstruction of
Financial Assets and
Enforcement of Security
Interest Act 2002 where
financial assets have
been acquired by any
securitisation company or
reconstruction company
under sub-section (1) of
section 5 of that Act:
PROVIDED ALSO that on
25Page 26
or after the
commencement of the
Securitisation and
Reconstruction of
Financial Assets and
Enforcement of Security
Interest Act 2002 where a
reference is pending
before the Board for
Industrial and Financial
Reconstruction such
reference shall abate if
the secured creditors
representing not less than
three-fourth in value of
the amount outstanding
against financial
assistance disbursed to
the borrower of such
secured creditors have
taken any measures to
recover their secured
debt under sub-section
(4) of section 13 of that
Act."
13. It is important at this stage to refer to the genesis of these
three legislations. Each of them deals with different aspects of
recovery of debts due to banks and financial institutions. Two
of them refer to creditors’ interests and how best to deal with
recovery of outstanding loans and advances made by them on
the one hand, whereas the Sick Industrial Companies (Special
Provisions) Act, 1985, on the other hand, deals with certain
26Page 27
debtors which are sick industrial companies (i.e. companies
running industries named in the schedule to the Industries
(Development and Regulation) Act, 1951) and whether such
“debtors” having become “sick”, are to be rehabilitated. The
question, therefore, is whether the public interest in recovering
debts due to banks and financial institutions is to give way to
the public interest in rehabilitation of sick industrial companies,
regard being had to the present economic scenario in the
country, as reflected in Parliamentary Legislation.
14. We begin, first, with the Sick Industrial Companies
(Special Provisions) Act, 1985. The Statement of Objects and
Reasons for this Act reads as under:
“THE SICK INDUSTRIAL COMPANIES (SPECIAL
PROVISIONS) ACT, 1985
STATEMENT OF OBJECTS AND REASONS
The ill effects of sickness in industrial
companies such as loss of production, loss of
employment, loss of revenue to the Central and
State Governments and locking up of investible
funds and financial institutions are of serious
concern to the Government and the society at large.
The concern of the Government is accentuated by
the alarming increase in the incidence of sickness in
industrial companies. It has been recognized that in
order to fully utilize the productive industrial assets,
27Page 28
afford maximum protection of employment and
optimize the use of the funds of the banks and
financial institutions, it would be imperative to revive
and rehabilitate the potentially viable sick industrial
companies as quickly as possible. It would also be
equally imperative to salvage the productive assets
and realize the amounts due to the banks and
financial institutions, to the extent possible, from the
non-viable sick industrial companies through
liquidation of those companies.
It has been the experience that the existing
institutional arrangements and procedures for
revival and rehabilitation of potentially viable sick
industrial companies are both inadequate and
time-consuming. A multiplicity of laws and agencies
makes the adoption of coordinated approach for
dealing with sick industrial companies difficult. A
need has, therefore, been felt to enact in public
interest a legislation to provide for timely
determination by a body of experts of the
preventive, ameliorative, remedial and other
measures that would need to be adopted with
respect to such companies and for enforcement of
the measures considered appropriate with utmost
practicable despatch.
The salient features of the Bill are-
(i) application of the legislation to the industries
specified in the First Schedule to the Industries
(Development and Regulation) Act, 1951, with the
initial exception of the scheduled industry relating to
ships and other vessels drawn by power, which may
however be brought within the ambit of the
legislation in due course;
(ii) Identification of sickness in an industrial
company, registered for not less than seven years,
on the basis of the symptomatic indices of cash
losses for two consecutive financial years and
accumulated losses equalling or exceeding the net
28Page 29
worth of the company as at the end of the second
financial year;
(iii) the onus of reporting sickness and impending
sickness at the stage of erosion of fifty per cent. or
more of the net worth of an industrial company is
being laid on the Board of Directors of such
company; where the Central Government or the
Reserve Bank is satisfied that an industrial
company has become sick, it may make a reference
to the Board, likewise if any State Government,
scheduled bank or public financial institution having
an interest in an industrial company is satisfied that
the industrial company has become sick, it may also
make a reference to the Board;
(iv) establishment of Board consisting of experts
in various relevant fields with powers to enquire into
and determine the incidence of sickness in industrial
companies and devise suitable remedial measures
through appropriate schemes or other proposals
and for proper implementation thereof;
(v) constitution of an Appellate Authority
consisting of persons who are or have been
Supreme Court Judges, senior High Court Judges
and Secretaries to the Government of India, etc., for
hearing appeals against the order of the Board.”
15. A cursory reading of the Act shows that a Board for
Industrial and Financial Reconstruction is set up by the Act,
before which references are made. Such references can be
made under Section 15 of the Act, not only by an industrial
company as defined, which, as has been stated above, is a
29Page 30
company which runs any of the industries specified in the first
schedule to the Industries (Development and Regulation) Act,
1951, but also by the Central or State Government, or public
financial institution, or State level institution, or a scheduled
bank, as the case may be. Such reference can only be made if
the company concerned has turned sick i.e. it has to be a
company running an industry mentioned in the first
schedule to the Industries (Development and Regulation) Act,
1951, and must be a company registered for not less
than 5 years, which has at the end of any financial year
accumulated losses equal to or exceeding its entire net worth.
An inquiry into the working of such “sick industrial company” is
to be made by the said Board on receipt of a reference or upon
application or suo motu. If the Board is satisfied that the
Company has indeed become a sick industrial company, the
Board shall decide as to whether it is practicable for the
Company to make its net worth positive within a reasonable
time. This it may do under Section 17 of the Act, by order
under sub-section (2) of Section 17. If this is not possible, then
the Board may appoint an Operating Agency who will prepare a
30Page 31
scheme for rehabilitation mentioned in Section 18 which the
Board may then sanction. The scheme may provide for all or
any of the things mentioned in the said Section, and finally, the
scheme may work successfully, resulting in the Company’s net
worth turning positive, or may be unsuccessful. In the event of
it being unsuccessful, the Board may modify such scheme or
ask for the preparation of a new scheme. If, at the end of the
day, the first scheme or any successive schemes ultimately fail,
the Board has then to be of the opinion that such Company is
not likely to make its net worth positive, and that therefore it is
to forward its opinion under Section 20 of the Act to the
concerned High Court to proceed with the winding up of the
said company. Section 22, which is of crucial importance in the
working of the Act, suspends various legal proceedings,
contracts etc., while a reference before the Board is pending,
for the duration of the inquiry to be made and/or scheme
prepared and finally sanctioned, and for the entire period of the
working of the said scheme. Both Section 22(1) and (4) contain
non obstante clauses overriding inter alia the Companies Act
and any other law. In order to better implement the provisions
31Page 32
of this Act, Section 32 also contains a non obstante clause
overriding all other laws including Memoranda and Articles of
Association of the industrial company or any other instrument
having effect by virtue of any other law, except the Foreign
Exchange Regulation Act of 1973 and The Urban Land (Ceiling
and Regulation) Act, 1976.
16. While this Act had worked for a period of about 7 years,
the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 was brought into force, pursuant to various
Committee reports. The Statement of Objects and Reasons for
this Act reads as follows:-
“STATEMENT OF OBJECTS AND REASONS OF
THE RECOVERY OF DEBTS DUE TO BANKS
AND FINANCIAL INSTITUTIONS ACT, 1993
Banks and financial institutions at present
experience considerable difficulties in recovering
loans and enforcement of securities charged with
them. The existing procedure for recovery of debts
due to the banks and financial institutions has
blocked a significant portion of their funds in
unproductive assets, the value of which deteriorates
with the passage of time. The Committee on the
Financial System headed by Shri M. Narasimham
has considered the setting up of the Special
Tribunals with special powers for adjudication of
such matters and speedy recovery as critical to the
successful implementation of the financial sector
32Page 33
reforms. An urgent need was, therefore, felt to work
out a suitable mechanism through which the dues to
the banks and financial institutions could be realized
without delay. In 1981, a Committee under the
Chairmanship of Shri T. Tiwari had examined the
legal and other difficulties faced by banks and
financial institutions and suggested remedial
measures including changes in law. The Tiwari
Committee had also suggested setting up of Special
Tribunals for recovery of dues of the banks and
financial institutions by following a summary
procedure. The setting up of Special Tribunals will
not only fulfill a long-felt need, but also will be an
important step in the implementation of the Report
of Narasimham Committee. Whereas on 30th
September, 1990 more than fifteen lakhs of cases
filed by the public sector banks and about 304
cases filed by the financial institutions were pending
in various courts, recovery of debts involved more
than Rs.5622 crores in dues of Public Sector Banks
and about Rs.391 crores of dues of the financial
institutions. The locking up of such huge amount of
public money in litigation prevents proper utilisation
and recycling of the funds for the development of
the country.
The Bill seeks to provide for the establishment of
Tribunal and Appellate Tribunals for expeditious
adjudication and recovery of debts due to banks
and financial institutions. Notes on clauses explain
in detail the provisions of the Bill.”
17. The Recovery Of Debts Due To Banks And Financial
Institutions Act, 1993 took away the jurisdiction of the courts
and vested this jurisdiction in tribunals established by the Act so
as to ensure speedy recovery of debts due to the banks and
33Page 34
financial institutions mentioned therein. This Act also included
one appeal to the Appellate Tribunal, and transfer of all suits or
other proceedings pending before any court to tribunals set up
under the Act. The Act contained a non obstante clause in
Section 34 stating that its provisions will have effect
notwithstanding anything inconsistent contained in any other
law for the time being in force or in any instrument having effect
by virtue of any other law. In the year 2000, this Act was
amended so as to incorporate a new sub-section (2) in Section
34 together with a saving provision in sub-section (1). It is of
some interest to note that this Act was to be in addition to and
not in derogation of various Financial Corporation Acts and the
Sick Industrial Companies (Special Provisions) Act, 1985.
Clearly, therefore, the object of the 2000 amendment to the
Recovery of Debts due to Banks and Financial Institutions Act,
1993 was to make The Sick Industrial Companies (Special
Provisions) Act, 1985 prevail over it.
18. Regard being had to the poor working of the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993, the
Securitisation and Reconstruction of Financial Assets and
34Page 35
Enforcement of Security Interest Act, 2002 was brought into
force in the year 2002. The statement of objects and reasons
for this Act reads as under:-
“STATEMENT OF OBJECTS AND REASONS OF
THE SECURITISATION AND RECONSTRUCTION
OF FINANCIAL ASSETS AND ENFORCEMENT
OF SECURITY INTEREST ACT, 2002
The financial sector has been one of the key drivers
in India's efforts to achieve success in rapidly
developing its economy. While the banking industry
in India is progressively complying with the
international prudential norms and accounting
practices, there are certain areas in which the
banking and financial sector do not have a level
playing field as compared to other participants in the
financial markets in the world. There is no legal
provision for facilitating securitisation of financial
assets of banks and financial institutions. Further,
unlike international banks, the banks and financial
institutions in India do not have power to take
possession of securities and sell them. Our existing
legal framework relating to commercial transactions
has not kept pace with the changing commercial
practices and financial sector reforms. This has
resulted in slow pace of recovery of defaulting loans
and mounting levels of nonperforming assets of
banks and financial institutions. Narasimham
Committee I and II and Andhyarujina Committee
constituted by the Central Government for the
purpose of examining banking sector reforms have
considered the need for changes in the legal system
in respect of these areas. These Committees, inter
alia, have suggested enactment of a new legislation
for securitisation and empowering banks and
financial institutions to take possession of the
35Page 36
securities and to sell them without the intervention
of the court. Acting on these suggestions, the
Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest
Ordinance, 2002 was promulgated on the 21st
June, 2002 to regulate securitisition and
reconstruction of financial assets and enforcement
of security interest and for matters connected
therewith or incidental thereto. The provisions of the
Ordinance would enable banks and financial
institutions to realise long-term assets, manage
problem of liquidity, asset liability mismatches and
improve recovery by exercising powers to take
possession of securities, sell them and reduce
nonperforming assets by adopting measures for
recovery or reconstruction.
2. It is now proposed to replace the Ordinance by a
Bill, which, inter alia, contains provisions of the
Ordinance to provide for—
(a) registration and regulation of securitisation
companies or reconstruction companies by the
Reserve Bank of India;
(b) facilitating securitisation of financial assets of
banks and financial institutions with or without the
benefit of underlying securities;
(c) facilitating easy transferability of financial assets
by the securitisation company or reconstruction
company to acquire financial assets of banks and
financial institutions by issue of debentures or
bonds or any other security in the nature of a
debenture;
(d) empowering securitisation companies' or
reconstruction companies to raise funds by issue of
security receipts to qualified institutional buyers;
(e) facilitating reconstruction of financial assets
acquired by exercising powers of enforcement of
36Page 37
securities or change of management or other
powers which are proposed to be conferred on the
banks and financial institutions;
(f) declaration of any securitisation company or
reconstruction company registered with the Reserve
Bank of India as a public financial institution for the
purpose of section 4A of the Companies Act, 1956;
(g) defining 'security interest' as any type of security
including mortgage and change on immovable
properties given for due repayment of any financial
assistance given by any bank or financial institution;
(h) empowering banks and financial institutions to
take possession of securities given for financial
assistance and sell or lease the same or take over
management in the event of default, i.e.
classification of the borrower's account as
non-performing asset in accordance with the
directions given or under guidelines issued by the
Reserve Bank of India from time to time;
(i) the rights of a secured creditor to be exercised by
one or more of its officers authorised in this behalf
in accordance with the rules made by the Central
Government;
(j) an appeal against the action of any bank or
financial institution to the concerned Debts
Recovery Tribunal and a second appeal to the
Appellate Debts Recovery Tribunal;
(k) setting up or causing to be set up a Central
Registry by the Central Government for the purpose
of registration of transactions relating to
securitisation, asset reconstruction and creation of
security interest;
(l) application of the proposed legislation initially to
banks and financial institutions and empowerment
of the Central Government to extend the application
37Page 38
of the proposed legislation to non-banking financial
companies and other entities;
(m) non-application of the proposed legislation to
security interests in agricultural lands, loans not
exceeding rupees one lakh and cases where eighty
per cent, of the loans are repaid by the borrower.
3. The Bill seeks to achieve the above objects.”
19. This Act was brought into force as a result of two
committee reports which opined that recovery of debts due to
banks and financial institutions was not moving as speedily as
expected, and that, therefore, certain other measures would
have to be put in place in order that these banks and financial
institutions would better be able to recover debts owing to them.
20. In a challenge made to the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 in Mardia Chemicals Ltd. Etc. v. Union of
India (UOI) and Ors. Etc. Etc., (2004) 4 SCC 311, this Court
went into the circumstances under which the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 was enacted, as follows:-
“Some facts which need to be taken note of are
that the banks and the financial institutions have
38Page 39
heavily financed the petitioners and other industries.
It is also a fact that a large sum of amount remains
unrecovered. Normal process of recovery of debts
through courts is lengthy and time taken is not
suited for recovery of such dues. For financial
assistance rendered to the industries by the
financial institutions, financial liquidity is essential
failing which there is a blockade of large sums of
amounts creating circumstances which retard the
economic progress followed by a large number of
other consequential ill effects. Considering all these
circumstances, the Recovery of Debts Due to Banks
and Financial Institutions Act was enacted in 1993
but as the figures show it also did not bring the
desired results. Though it is submitted on behalf of
the petitioners that it so happened due to inaction
on the part of the Governments in creating Debts
Recovery Tribunals and appointing presiding
officers, for a long time. Even after leaving that
margin, it is to be noted that things in the spheres
concerned are desired to move faster. In the
present-day global economy it may be difficult to
stick to old and conventional methods of financing
and recovery of dues. Hence, in our view, it cannot
be said that a step taken towards securitisation of
the debts and to evolve means for faster recovery of
NPAs was not called for or that it was
superimposition of undesired law since one
legislation was already operating in the field,
namely, the Recovery of Debts Due to Banks and
Financial Institutions Act. It is also to be noted that
the idea has not erupted abruptly to resort to such a
legislation. It appears that a thought was given to
the problems and the Narasimham Committee was
constituted which recommended for such a
legislation keeping in view the changing times and
economic situation whereafter yet another Expert
Committee was constituted, then alone the
impugned law was enacted. Liquidity of finances
and flow of money is essential for any healthy and
39Page 40
growth-oriented economy. But certainly, what must
be kept in mind is that the law should not be in
derogation of the rights which are guaranteed to the
people under the Constitution. The procedure
should also be fair, reasonable and valid, though it
may vary looking to the different situations needed
to be tackled and object sought to be achieved.
In its Second Report, the Narasimham Committee
observed that NPAs in 1992 were uncomfortably
high for most of the public sector banks. In Chapter
VIII of the Second Report the Narasimham
Committee deals about legal and legislative
framework and observed:
“8.1. A legal framework that clearly defines the
rights and liabilities of parties to contracts and
provides for speedy resolution of disputes is a sine
qua non for efficient trade and commerce,
especially for financial intermediation. In our
system, the evolution of the legal framework has not
kept pace with changing commercial practice and
with the financial sector reforms. As a result, the
economy has not been able to reap the full benefits
of the reforms process. As an illustration, we could
look at the scheme of mortgage in the Transfer of
Property Act, which is critical to the work of financial
intermediaries….”
One of the measures recommended in the
circumstances was to vest the financial institutions
through special statutes, the power of sale of the
assets without intervention of the court and for
reconstruction of assets. It is thus to be seen that
the question of non-recoverable or delayed recovery
of debts advanced by the banks or financial
institutions has been attracting attention and the
matter was considered in depth by the Committees
specially constituted consisting of the experts in the
field. In the prevalent situation where the amounts
of dues are huge and hope of early recovery is less,
40Page 41
it cannot be said that a more effective legislation for
the purpose was uncalled for or that it could not be
resorted to. It is again to be noted that after the
Report of the Narasimham Committee, yet another
Committee was constituted headed by Mr.
Andhyarujina for bringing about the needed steps
within the legal framework. We are therefore,
unable to find much substance in the submission
made on behalf of the petitioners that while the
Recovery of Debts Due to Banks and Financial
Institutions Act was in operation it was uncalled for
to have yet another legislation for the recovery of
the mounting dues. Considering the totality of
circumstances and the financial climate world over,
if it was thought as a matter of policy to have yet
speedier legal method to recover the dues, such a
policy decision cannot be faulted with nor is it a
matter to be gone into by the courts to test the
legitimacy of such a measure relating to financial
policy.
We may now consider the main enforcing provision
which is pivotal to the whole controversy, namely,
Section 13 in Chapter III of the Act. It provides that a
secured creditor may enforce any security interest
without intervention of the court or tribunal
irrespective of Section 69 or Section 69-A of the
Transfer of Property Act where according to
sub-section (2) of Section 13, the borrower is a
defaulter in repayment of the secured debt or any
instalment of repayment and further the debt
standing against him has been classified as a
non-performing asset by the secured creditor.
Sub-section (2) of Section 13 further provides that
before taking any steps in the direction of realizing
the dues, the secured creditor must serve a notice
in writing to the borrower requiring him to discharge
the liabilities within a period of 60 days failing which
the secured creditor would be entitled to take any of
the measures as provided in sub-section (4) of
41Page 42
Section 13. It may also be noted that as per
sub-section (3) of Section 13 a notice given to the
borrower must contain the details of the amounts
payable and the secured assets against which the
secured creditor proposes to proceed in the event of
non-compliance with the notice given under
sub-section (2) of Section 13.” [at para 34,36 and
38]
21. The “pivotal” provision namely Section 13 of the said Act
makes it clear that banks and financial institutions would now
no longer have to wait for a Tribunal judgment under the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993 to be able to recover debts owing to them. They could, by
following the procedure laid down in Section 13, take direct
action against the debtors by taking possession of secured
assets and selling them; they could also take over the
management of the business of the borrower. They could also
appoint any person to manage the secured assets possession
of which has been taken over by them, and could require, at
any time by notice in writing to any person who has acquired
any of the secured assets from the borrower and from whom
any money is due or may become due from the borrower, to
42Page 43
pay the secured creditor so much of the money as is sufficient
to pay the secured debt.
22. In order to further the objects of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, the Act contains a non obstante clause in
Section 35 and also contains various Acts in Section 37 which
are to be in addition to and not in derogation of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. Three of these
Acts, namely, the Companies Act, 1956, the Securities
Contracts (Regulation) Act, 1956 and the Securities and
Exchange Board of India Act, 1992, relate to securities
generally, whereas the Recovery Of Debts Due To Banks And
Financial Institutions Act, 1993 relates to recovery of debts due
to banks and financial institutions. Significantly, under Section
41 of this Act, three Acts are, by the schedule to this Act,
amended. We are concerned with the third of such Acts,
namely, the Sick Industrial Companies (Special Provisions) Act,
1985, in Section 15(1) of which two provisos have been added.
43Page 44
It is the correct interpretation of the second of these provisos on
which the fate of these appeals ultimately hangs.
23. It is in this background that we need to embark on the
next step, namely, to consider the following two questions which
arise on the facts of this case:
(1) Whether the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
prevails over the Sick Industrial Companies (Special Provisions)
Act, 1985; and
(2) Whether the expression “where a reference is pending” in
Section 15 (1) proviso 3 of the Sick Industrial Companies
(Special Provisions) Act, 1985 would include all proceedings
before the BIFR or only proceedings at the initial reference
stage.
24. The occasion for answering question no. 1 is Shri
Sreekumar’s argument that the effect of the Delhi High Court’s
stay order dated 7.1.2004 is that the reference before the BIFR
springs back into life, and with it Section 22(1) of the Sick
Industrial Companies (Special Provisions) Act, 1985. It is also
44Page 45
occasioned by a further argument that the winding up order
passed by the Bombay High Court dated 30.8.2007 being in the
teeth of the stay order and Section 22 of the Sick Industrial
Companies (Special Provisions) Act, 1985, is non est and
therefore the appeals before this Court have not become
infructuous. If Shri C.N. Sreekumar is right, then after
enactment of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002,
because of the presence of Section 22(1) of the Sick Industrial
Companies (Special Provisions) Act, 1985, none of the
measures taken by the secured creditors under Section 13 of
Securitisation Act can be proceeded with because of the bar
contained in Section 22(1) of the Sick Industrial Companies
(Special Provisions) Act, 1985. Hence, we have first to
determine whether the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
overrides Section 22 of the Sick Industrial Companies (Special
Provisions) Act, 1985 as such overriding is only to the extent of
the inconsistency between the two enactments. Such
inconsistency is found in Section 22(1) of the Sick Industrial
45Page 46
Companies (Special Provisions) Act, 1985, by which any action
taken to realize debts owing to the secured creditors of sick
industrial companies cannot be proceeded with under the 2002
Act unless the BIFR accords permission under Section 22(1) of
the Sick Industrial Companies (Special Provisions) Act, 1985.
25. It is now necessary to undertake a survey of the case law
laid down by this court in relation to the Sick Industrial
Companies (Special Provisions) Act, 1985 and its relation with
other enactments. In an early judgment, namely, Maharashtra
Tubes Ltd. v. State Industrial And Investment, (1993) 2 SCC
144, this Court had to deal with the Sick Industrial Companies
(Special Provisions) Act, 1985, vis-à-vis the State Financial
Corporations Act, 1951. In paragraph 9 of the judgment it was
held that both Acts were special Acts, the 1951 Act dealing with
the recovery of debts of a company pre-sickness and the 1985
Act dealing with such recovery post-sickness. Since both the
Acts contained non obstante clauses, it was held that the 1985
Act, being later in point of time, would prevail over the 1951 Act.
46Page 47
26. On the other hand, in Solidaire India Ltd. v. Fairgrowth
Financial Services Ltd. and Ors., (2001) 3 SCC 71, it was the
Special Courts (Trial of Offences Relating to Transactions in
Securities), Act, 1992 which came up for consideration vis-à-vis
the Sick Industrial Companies (Special Provisions) Act, 1985.
In paragraphs 9 and 10 of this Court’s judgment, this Court
noted that both Acts were special Acts. In a significant extract
from a Special Court judgment, which was approved by this
Court, it was stated that The Special Courts Act, 1992, being a
later enactment and also containing a non obstante clause,
would prevail over the Sick Industrial Companies (Special
Provisions) Act, 1985. Had the legislature wanted to exclude
the provisions of the Sick Industrial Companies (Special
Provisions) Act, 1985, from the ambit of the said Act, the
legislature would specifically have so provided (Emphasis ours).
The fact that the legislature did not specifically so provide
necessarily means that the legislature intended that the
provisions of the said Act were to prevail over the provisions of
the Sick Industrial Companies (Special Provisions) Act, 1985.
In short, when property of notified persons under the Special
47Page 48
Courts Act, 1992 stands attached, it is only the Special Court
which can give directions to the custodian under the said Act as
to disposal of such property of a notified party. The legislature
expressly overrode Section 22 of the Sick Industrial Companies
(Special Provisions) Act, 1985 and permitted the custodian to
give directions under Section 11 of the Special Courts Act,
1979, notwithstanding Section 22 of the Sick Industrial
Companies (Special Provisions) Act, 1985.
27. In Jay Engineering Works Ltd. v. Industry Facilitation
Council and Anr., (2006) 8 SCC 677, this time this Court had
to deal with the Interest on Delayed Payment to Small Scale
and Ancillary Industrial Undertakings Act, 1993 vis-à-vis the
Sick Industrial Companies (Special Provisions) Act, 1985. Both
Acts contained non obstante clauses. This Court referred to the
1994 amendment to the Sick Industrial Companies (Special
Provisions) Act, 1985 and stated that the amending Act being
later than the 1993 Act, the Sick Industrial Companies (Special
Provisions) Act, 1985 would, therefore, prevail. (See paragraph
27).
48Page 49
28. Similarly, in Morgan Securities and Credit Pvt. Ltd. v.
Modi Rubber Ltd., (2006) 12 SCC 642, the Arbitration and
Conciliation Act, 1996 contained a non obstante clause in
Section 5 thereof. Despite this being a later Act, vis-à-vis the
Sick Industrial Companies (Special Provisions) Act, 1985, this
Court held that the Sick Industrial Companies (Special
Provisions) Act, 1985 would prevail, inasmuch as the non
obstante clause contained in the Arbitration and Conciliation
Act, 1996 had only a limited application - it applied only insofar
as the extent of judicial intervention in arbitration proceedings is
concerned. (See paragraph nos. 66 and 68).
29. In an interesting concurring judgment,
Balasubramanyan,J., in paragraph 76 held:
“Occasions are not infrequent when not so
scrupulous debtors approach B.I.F.R. to stall the
proceedings and to keep their creditors at bay. The
delay before the B.I.F.R. is sought to be taken
advantage of. The Parliament has apparently taken
note of this and has repealed SICA by the Sick
Industrial Companies (Special Provisions) Repeal
Act, 2003. The vacuum, thus created has been filled
by an amendment to the Companies Act. But, so far,
the provisions of the Amending Act and the
Companies Act introduced, have not been brought
49Page 50
into force. It appears to be time to consider whether
these enactments should not be notified.”
30. Similarly, in Tata Motors Ltd. v. Pharmaceutical
Products of India Ltd. and Anr., (2008) 7 SCC 619, it was
held, following the judgment in NFEF Ltd. v. Chandra
Developers (P) Ltd., (2005) 8 SCC 219, that the Companies
Act being a general enactment would have to give way to the
Sick Industrial Companies (Special Provisions) Act, 1985 which
is a later and special enactment. (see paragraphs 22 to 24).
31. And in Raheja Universal Limited v. NRC Limited and
Ors., (2012) 4 SCC 148, the Transfer of Property Act,1882 had
to yield to the Sick Industrial Companies (Special Provisions)
Act, 1985 being a general Act, as against the Sick Industrial
Companies (Special Provisions) Act, 1985 which was a special
Act, together with a reading of the non obstante clause
contained in the Sick Industrial Companies (Special Provisions)
Act, 1985 (see paragraphs 91 to 93).
32. In KSL & Industries Ltd. v. Arihant Threads Ltd.,
(2015) 1 SCC 166, it was the turn of the Recovery Of Debts
50Page 51
Due To Banks And Financial Institutions Act, 1993 vis-à-vis the
Sick Industrial Companies (Special Provisions) Act, 1985. This
Court in resolving the controversy in favour of the Sick
Industrial Companies (Special Provisions) Act, 1985 held:-
“Sub-section (2) was added to Section 34 of the
RDDB Act w.e.f. 17-1-2000 by Act 1 of 2000. There
is no doubt that when an Act provides, as here, that
its provisions shall be in addition to and not in
derogation of another law or laws, it means that the
legislature intends that such an enactment shall
coexist along with the other Acts. It is clearly not the
intention of the legislature, in such a case, to annul
or detract from the provisions of other laws. The
term “in derogation of” means “in abrogation or
repeal of”. The Black's Law Dictionary sets forth the
following meaning for “derogation”:
“derogation.—The partial repeal or abrogation of
a law by a later Act that limits its scope or impairs its
utility and force.”
It is clear that sub-section (1) contains a non
obstante clause, which gives the overriding effect to
the RDDB Act. Sub-section (2) acts in the nature of
an exception to such an overriding effect. It states
that this overriding effect is in relation to certain
laws and that the RDDB Act shall be in addition to
and not in abrogation of, such laws. SICA is
undoubtedly one such law.
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.
Parliament must be deemed to have had knowledge
of the earlier law i.e. SICA, enacted in 1985, while
enacting the RDDB Act, 1993. It is with a view to
prevent a clash of procedure, and the possibility of
contradictory orders in regard to the same entity
and its properties, and in particular, to preserve the
steps already taken for reconstruction of a sick
company in relation to the properties of such sick
company, which may be charged as security with
the banks or financial institutions, that Parliament
has specifically enacted sub-section (2). SICA had
been enacted in respect of specified and limited
companies i.e. those which owned industrial
undertakings specified in the Schedule to the IDR
Act, as mentioned earlier, whereas the RDDB Act
deals with all persons, who may have taken a loan
from a bank or a financial institution in cash or
otherwise, whether secured or unsecured, etc.
In view of the observations of this Court in the
decisions referred to and relied on by the learned
counsel for the parties we find that, the purpose of
the two enactments is entirely different. As observed
earlier, the purpose of one is to provide ameliorative
measures for reconstruction of sick companies, and
the purpose of the other is to provide for speedy
recovery of debts of banks and financial institutions.
Both the Acts are “special” in this sense. However,
with reference to the specific purpose of
reconstruction of sick companies, SICA must be
held to be a special law, though it may be
considered to be a general law in relation to the
recovery of debts. Whereas, the RDDB Act may be

considered to be a special law in relation to the
recovery of debts and SICA may be considered to
be a general law in this regard. For this purpose we
rely on the decision in LIC v. Vijay Bahadur [(1981)
1 SCC 315 : 1981 SCC (L&S) 111] . Normally the
latter of the two would prevail on the principle that
the legislature was aware that it had enacted the
earlier Act and yet chose to enact the subsequent
Act with a non obstante clause. In this case,
however, the express intendment of Parliament in
 the non obstante clause of the RDDB Act does not
permit us to take that view. Though the RDDB Act is
the later enactment, sub-section (2) of Section 34
thereof specifically provides that the provisions of
the Act or the Rules made thereunder shall be in
addition to, and not in derogation of, the other laws
mentioned therein including SICA.” [at paras 36, 39,
40, and 48]
33. A conspectus of the aforesaid decisions shows that the
Sick Industrial Companies (Special Provisions) Act, 1985
prevails in all situations where there are earlier enactments with
non obstante clauses similar to the Sick Industrial Companies
(Special Provisions) Act, 1985. Where there are later
enactments with similar non obstante clauses, the Sick
Industrial Companies (Special Provisions) Act, 1985 has been
held to prevail only in a situation where the reach of the non
obstante clause in the later Act is limited – such as in the case
of the Arbitration and Conciliation Act, 1996 – or in the case of
53Page 54
the later Act expressly yielding to the Sick Industrial Companies
(Special Provisions) Act, 1985, as in the case of the Recovery
Of Debts Due To Banks And Financial Institutions Act, 1993.
Where such is not the case, as in the case of Special Courts
Act, 1992, it is the Special Courts Act, 1992 which was held to
prevail over the Sick Industrial Companies (Special Provisions)
Act, 1985.
34. We have now to undertake an analysis of the Acts in
question. The first thing to be noticed is the difference between
Section 37 of the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002 and
Section 34 of the Recovery Of Debts Due To Banks And
Financial Institutions Act, 1993. Section 37 of the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 does not include the Sick Industrial
Companies (Special Provisions) Act, 1985 unlike Section 34(2)
of the Recovery of Debts Due To Banks and Financial
Institutions Act, 1993. Section 37 of the Securities and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 states that the said Act shall be in addition to
54Page 55
and not in derogation of four Acts, namely, the Companies Act,
the Securities Contracts (Regulation) Act, 1956, the Securities
and Exchange Board of India Act, 1992 and the Recovery Of
Debts Due To Banks And Financial Institutions Act, 1993. It is
clear that the first three Acts deal with securities generally and
the Recovery Of Debts Due To Banks And Financial Institutions
Act, 1993 deals with recovery of debts due to banks and
financial institutions. Interestingly, Section 41 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 makes amendments
in three Acts – the Companies Act, the Securities Contracts
(Regulation) Act, 1956, and the Sick Industrial Companies
(Special Provisions) Act, 1985. It is of great significance that
only the first two Acts are included in Section 37 and not the
third i.e. the Sick Industrial Companies (Special Provisions) Act,
1985. This is for the obvious reason that the framers of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 intended that the
Sick Industrial Companies (Special Provisions) Act, 1985 be
covered by the non obstante clause contained in Section 35,
55Page 56
and not by the exception thereto carved out by Section 37.
Further, whereas the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 is expressly mentioned in
Section 37, the Sick Industrial Companies (Special Provisions)
Act, 1985 is not, making the above position further clear. And
this is in stark contrast, as has been stated above, to Section
34(2) of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993, which expressly included the Sick
Industrial Companies (Special Provisions) Act, 1985. The new
legislative scheme qua recovery of debts contained in the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 has therefore to be
given precedence over the Sick Industrial Companies (Special
Provisions) Act, 1985, unlike the old scheme for recovery of
debts contained in the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993.
35. Another interesting pointer to the same conclusion is the
fact that Section 35 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
is not made subject to Section 37 of the said Act. This statutory
56Page 57
scheme is at complete variance with the statutory scheme
contained in Section 34 of the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 in which sub-section (1) of
Section 34 containing the non obstante clause is expressly
made subject to sub-section (2) (containing the Sick Industrial
Companies (Special Provisions) Act, 1985) by the expression
“save as provided under sub-section (2)”.
36. This is what then brings us to the doctrine of harmonious
construction, which is one of the paramount doctrines that is
applied in interpreting all statutes. Since neither Section 35
nor Section 37 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
is subject to the other, we think it is necessary to interpret the
expression “or any other law for the time being in force” in
Section 37. If a literal meaning is given to the said expression,
Section 35 will become completely otiose as all other laws will
then be in addition to and not in derogation of the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002. Obviously this could not have been
the Parliamentary intendment, after providing in Section 35 that
57Page 58
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 will prevail over all
other laws that are inconsistent therewith. A middle ground has
therefore necessarily to be taken. According to us, the two
apparently conflicting Sections can best be harmonized by
giving meaning to both. This can only be done by limiting the
scope of the expression “or any other law for the time being in
force” contained in Section 37. This expression will therefore
have to be held to mean other laws having relation to the
securities market only, as the Recovery of Debts Due to Banks
and Financial Institutions Act, 1993 is the only other special law,
apart from the Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act, 2002, dealing
with recovery of debts due to banks and financial institutions.
On this interpretation also, the Sick Industrial Companies
(Special Provisions) Act, 1985 will not be included for the
obvious reason that its primary objective is to rehabilitate sick
industrial companies and not to deal with the securities market.
37. An interesting pointer to the direction Parliament has
taken after enactment of the Securitisation and Reconstruction
58Page 59
of Financial Assets and Enforcement of Security Interest Act,
2002 is also of some relevance in this context. The Eradi
Committee Report relating to insolvency and winding up of
companies dated 31.7.2000, observed that out of 3068 cases
referred to the BIFR from 1987 to 2000 all but 1062 cases have
been disposed of. Out of the cases disposed of, 264 cases
were revived, 375 cases were under negotiation for revival
process, 741 cases were recommended for winding up, and
626 cases were dismissed as not maintainable. These
facts and figures speak for themselves and place a big question
mark on the utility of the Sick Industrial Companies (Special
Provisions) Act, 1985. The Committee further pointed out that
effectiveness of the Sick Industrial Companies (Special
Provisions) Act, 1985 as has been pointed out earlier, has been
severely undermined by reason of the enormous delays
involved in the disposal of cases by the BIFR. (See paragraphs
5.8, 5.9 and 5.15 of the Report). Consequently, the Committee
recommended that the Sick Industrial Companies (Special
Provisions) Act, 1985 be repealed and the provisions
59Page 60
thereunder for revival and rehabilitation should be telescoped
into the structure of the Companies Act, 1956 itself.
38. Pursuant to the Eradi Committee report, the Companies
Act was amended in 2002 by providing for the constitution of a
National Company Law Tribunal as a substitute for the
Company Law Board, the High Court, the BIFR and the AAIFR.
The Eradi Committee Report was further given effect to by
inserting Sections 424A to 424H into the Companies Act, 1956
which, with a few changes, mirrored the provisions of Sections
15 to 21 of the Sick Industrial Companies (Special Provisions)
Act, 1985. Interestingly, the Companies Amendment Act of
2002 omitted a provision similar to Section 22(1) of the Sick
Industrial Companies (Special Provisions) Act, 1985.
Consequently, creditors were given liberty to file suits or
initiate other proceedings for recovery of dues despite
pendency of proceedings for the revival or rehabilitation of sick
companies before the National Company Law Tribunal.
39. This Amendment Act came under challenge, which
challenge culminated in the Constitution Bench decision in
60Page 61
Union of India v. R, Gandhi, President, Madras Bar
Association, (2010) 11 SCC 10 by which the amendments
were upheld, with certain changes recommended by the
Constitution Bench of this Court.
40. Close on the heels of the amendment made to the
Companies Act came The Sick Industrial Companies (Special
Provisions) Repeal Act, 2003. This particular Act was meant to
repeal the Sick Industrial Companies (Special Provisions) Act,
1985 consequent to some of its provisions being telescoped
into the Companies Act. Thus, the Companies Amendment Act
of 2002 and the SICA Repeal Act formed part of one legislative
scheme, and neither has yet been brought into force. In fact,
even the Companies Act, 2013, which repeals the Companies
Act, 1956, contains Chapter 19 consisting of Sections 253 to
269 dealing with revival and rehabilitation of sick companies
along the lines of Sections 424A to 424H of the amended
Companies Act, 1956. Conspicuous by its absence is a
provision akin to Section 22(1) of the Sick Industrial Companies
(Special Provisions) Act, 1985 in the 2013 Act. However, this
Chapter is also yet to be brought into force. These statutory
61Page 62
provisions, though not yet brought into force, are also an
important pointer to the fact that Section 22(1) of the Sick
Industrial Companies (Special Provisions) Act, 1985 has been
statutorily sought to be excluded, Parliament veering around
from wanting to protect sick industrial companies and
rehabilitate them to giving credence to the public interest
contained in the recovery of public monies owing to banks and
financial institutions. These provisions also show that the
aforesaid construction of the provisions of the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 vis-à-vis the Sick Industrial
Companies (Special Provisions) Act, 1985, leans in favour of
creditors being able to realize their debts outside the court
process over sick industrial companies being revived or
rehabilitated. In fact, another interesting document is the Report
on Trend and Progress of Banking in India 2011-2012 for the
year ended 30.6.2012 submitted by the Reserve Bank of India
to the Central Government in terms of Section 36(2) of the
Banking Regulation Act, 1949. In table IV.14 the report
provides statistics regarding trends in Non-performing Assets
62Page 63
bank-wise, group-wise. As per the said table, the opening
balance of Non-performing Assets in public sector banks for the
year 2011-2012 was Rs.746 billion but the closing balance for
2011-2012 was Rs.1,172 billion only. The total amount
recovered through the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
during 2011-2012 registered a decline compared to the
previous year, but, even then, the amounts recovered under the
said Act constituted 70 percent of the total amount recovered.
The amounts recovered under the Recovery Of Debts Due To
Banks And Financial Institutions Act, 1993 constituted only 28
per cent. All this would go to show that the amounts that public
sector banks and financial institutions have to recover are in
staggering figures and at long last at least one statutory
measure has proved to be of some efficacy. This Court would
be loathe to give such an interpretation as would thwart the
recovery process under the Securitisation and Reconstruction
of Financial Assets and Enforcement of Security Interest Act,
2002 which Act alone seems to have worked to some extent at
least.
63Page 64
41. It will thus be seen that notwithstanding the non obstante
clauses in Section 22(1) and (4), read with Section 32, Section
22 of the Sick Industrial Companies (Special Provisions) Act,
1985 will have to give way to the measures taken under the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 more particularly
referred to in Section 13 of the said Act, and that this being the
case, the sale notices issued both in 2003 and 2013 could
continue without in any manner being thwarted by Section 22 of
the Sick Industrial Companies (Special Provisions) Act, 1985.
42. It remains to consider one argument of Shri C.N.
Sreekumar. Learned counsel argued that Section 37 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 refers to the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993 which in turn contains Section 34(2) which makes the Sick
Industrial Companies (Special Provisions) Act, 1985 prevail
over the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993. It was therefore argued that since
Section 37 refers to the Recovery of Debts Due to Banks and
64Page 65
Financial Institutions Act, 1993 and since Section 34(2) of the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993 refers to the Sick Industrial Companies (Special
Provisions) Act, 1985, Section 37 should also be construed so
as to include a reference to the Sick Industrial Companies
(Special Provisions) Act, 1985. Quite apart from driving a
coach-and-four through the object sought to be achieved by the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002, this argument does
not commend itself to us for the obvious reason that Section
34(2) refers to the Sick Industrial Companies (Special
Provisions) Act, 1985 only for the purpose of the Recovery Of
Debts Due To Banks And Financial Institutions Act, 1993 and for
no other purpose. This is quite apart from the fact that, as has
been noted hereinabove, the non-reference to the Sick
Industrial Companies (Special Provisions) Act, 1985 in Section
37 of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002 was deliberate,
as has been held by us hereinabove.
65Page 66
43. Shri Sundaram is also correct when he refers to the
judgment of this Court in Shree Chamundi Mopeds v. Church
of South India Trust Association, (1992) 3 SCC 1. In the said
judgment, this Court has held:
“In the instant case, the proceedings before the
Board under Sections 15 and 16 of the Act had
been terminated by order of the Board dated April
26, 1990 whereby the Board, upon consideration of
the facts and material before it, found that the
appellant-company had become economically and
commercially non-viable due to its huge
accumulated losses and liabilities and should be
wound up. The appeal filed by the
appellant-company under Section 25 of the Act
against said order of the Board was dismissed by
the Appellate Authority by order dated January 7,
1991. As a result of these orders, no proceedings
under the Act was pending either before the Board
or before the Appellate Authority on February 21,
1991 when the Delhi High Court passed the interim
order staying the operation of the Appellate
Authority dated January 7, 1991. The said stay
order of the High Court cannot have the effect of
reviving the proceedings which had been disposed
of by the Appellate Authority by its order dated
January 7, 1991. While considering the effect of an
interim order staying the operation of the order
under-challenge, a distinction has to be made
between quashing of an order and stay of operation
of an order. Quashing of an order results in the
restoration of the position as it stood on the date of
the passing of the order which has been quashed.
The stay of operation of an order does not,
however, lead to such a result. It only means that
the order which has been stayed would not be
66Page 67
operative from the date of the passing of the stay
order and it does not mean that the said order has
been wiped out from existence. This means that if
an order passed by the Appellate Authority is
quashed and the matter is remanded, the result
would be that the appeal which had been disposed
of by the said order of the Appellate Authority would
be restored and it can be said to be pending before
the Appellate Authority after the quashing of the
order of the Appellate Authority. The same cannot
be said with regard to an order staying the operation
of the order of the Appellate Authority because in
spite of the said order, the order of the Appellate
Authority continues to exist in law and so long as it
exists, it cannot be said that the appeal which has
been disposed of by the said order has not been
disposed of and is still pending. We are, therefore,
of the opinion that the passing of the interim order
dated February 21,1991 by the Delhi High Court
staying the operation of the order of the Appellate
Authority dated January 7,1991 does not have the
effect of reviving the appeal which had been
dismissed by the Appellate authority by its order
dated January 7, 1991 and it cannot be said that
after February 21, 1991, the said appeal stood
revived and was pending before the Appellate
Authority. In that view of the matter, it cannot be
said that any proceedings under the Act were
pending before the Board or the Appellate Authority
on the date of the passing of the order dated August
14, 1991 by the learned Single Judge of the
Karnataka High Court for winding up of the
company or on November 6, 1991 when the
Division Bench passed the order dismissing
O.S.A.No. 16 of 1991 filed by the appellant
company against the order of the learned Single
Judge dated August 14, 1991. Section 22(1) of the
Act could not, therefore, be invoked and there was
no impediment in the High Court dealing with the
67Page 68
winding up petition filed by the respondents…..” [at
para 10]
44. A reading of the said judgment also shows that the order
of stay of the BIFR’s opinion to wind up the company and the
dismissal of the appeal therefrom by the AAIFR would not in
any manner revive the reference under Section 15 of the
Appellant No. 1 Company. For this reason also, it is clear that
after the orders of the BIFR and AAIFR have been upheld by
dismissal of the writ petition filed before the Delhi High Court by
the impugned judgment, there can be said to be no revival of
reference proceedings before the BIFR.
45. However, Shri Sreekumar referred to three judgments in
support of the proposition that interim orders preserve the
status quo and that, therefore, the interim order of stay has to
be obeyed during the pendency of the Writ Petition. For this
purpose, he cited Kihoto Hollohan v. Zachillhu & Ors., (1992)
Supp. (2) SCC 651, Ravi S. Naik v. Union of India & Ors.,
(1994) Supp. (2) SCC 641 and BPL Ltd. & Ors. v. R.
Sudhakar & Ors., (2004) 7 SCC 219. Each of these
judgments was delivered in different contexts. The first
68Page 69
judgment of Kihoto Hollohan was delivered in the context of
landslide changes that would have taken place had a stay order
not been passed in the context of the 10th Schedule to the
Constitution of India, which was enacted to remedy the evil of
defection. The second judgment, namely, Ravi S. Naik was
also delivered in the same context and the third judgment was
delivered in the context of Section 33(2)(b) of the Industrial
Disputes Act, 1947. None of these judgments has any direct
bearing on the facts before us, which can be said to be covered
directly by the judgment in Shree Chamundi Mopeds Ltd.
(supra).
46. Question No.2 arises on the facts of this case because of
a conflict between the High Courts on the interpretation of
Section 15(1) proviso 3. A large number of High Courts have,
in judgments differing in detail only, taken the broad view that
the expression “where a reference is pending” under Section
15(1) proviso 3 would include all proceedings before the BIFR
right till the stage of the successful culmination of a scheme for
reconstruction or the recommendation for winding up of the
sick industrial company. These High Courts are Madras,
69Page 70
Delhi, Bombay, Kerala, Punjab, Gujarat and Calcutta. All
these judgments are referred to in an exhaustive full bench
decision of the Madras High Court in M/s. Salem Textiles
Limited v. The Authorized Officer and Ors., reported in AIR
2013 Madras 229. The only dissenting voice is that of the
Orissa High Court in a judgment reported in Noble Aqua Pvt.
Ltd. v. State Bank of India, AIR 2008 Orissa 103, which has
held that the expression “reference” would only refer to the
initial stage of filing a reference before the BIFR and not to
subsequent stages thereof, namely inquiry, preparation and
sanction of schemes. It has to be determined as to which of
these two sets of judgments is a correct exposition of the law.
47. It is clear that a purely literal interpretation of the
expression “where a reference is pending” can yield the result
that the Orissa High Court reached. In fact, Chapter III of the
Sick Industrial Companies (Special Provisions) Act, 1985
specifically refers, in the Chapter heading, to references,
inquiries and schemes. While Section 15 of the Sick Industrial
Companies (Special Provisions) Act, 1985 deals with
references, Section 16 deals with inquiries into the working of
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Sick Industrial Companies. Section 18 then deals with
preparation and sanction of schemes.
48. What has to be examined is whether this purely literal
rendering of the expression “where a reference is pending” is
correct or not. First and foremost, it is important to note that the
third proviso to Section 15(1) uses the words “is pending”. A
reference has been held to be pending the moment it is
received by the Board. In Real Value Appliances Ltd. v.
Canara Bank & Ors., (1998) 5 SCC 554, this Court had to
decide whether the mere registration of a reference by the BIFR
would result in the automatic cessation of all proceedings which
are pending in civil courts and the company court against its
assets. It was argued that in order that Section 22 of the Act
can come into operation, the BIFR must, subsequent to the
registration of the reference under Section 15, apply its mind
and consider whether it is necessary under Section 16 to make
an inquiry. Unless an inquiry is pending, the provisions of
Section 22 of the Act do not get attracted. It was held that once
the reference is registered after a preliminary scrutiny, it is
mandatory for the BIFR to conduct an inquiry. This being so, it
71Page 72
is in furtherance of the legislative intention to see that no
proceedings against the assets are taken before the BIFR
decides, after the inquiry, to continue with the reference. It was
thus held, having particular regard to Section 16(3) explanation,
that an inquiry shall be deemed to have commenced upon the
receipt by the Board of any reference or information or upon its
knowledge reduced to writing by the Board. This being the
case, this Court held that once the reference is registered and
once it is mandatory to simultaneously call for
information/documents from the informant, then an inquiry
under Section 16 must be deemed to have commenced. In that
view of the matter, Section 22 would immediately come into
play. It is clear, therefore, that if a literal meaning were to be
applied to the expression “where a reference is pending”, the
third proviso to Section 15(1) of the Sick Industrial Companies
(Special Provisions) Act, 1985 would be rendered otiose and
the purpose for which it was inserted would completely fail. On
a literal reading of the provision, such reference shall abate on
steps being taken by the secured creditors to recover their
secured debts under Section 13(4) of the Securitisation and
72Page 73
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002, the moment a reference is registered. And
this Court has held that the moment the reference is registered,
an inquiry as contemplated by Section 16 shall be deemed to
commence. If that is so, then a reference can never be said to
be pending after an inquiry commences, if learned counsel for
the Appellants is correct. This can never be the case. It is clear,
therefore, that the expression “where a reference is pending”
would necessarily include the inquiry stage before the Board
under Section 16 of the Act. If this be the case, then the
reference can be said to be pending not only when an inquiry is
instituted, but also after preparation and sanction of a scheme
right till the stage the scheme has worked out successfully or till
the BIFR gives its opinion to wind up the company.
49. The expression “reference” used in Section 15(1) proviso
3 is used in contra distinction to the expression “proceedings” in
Section 22. “Proceedings” under Section 22 are actions taken
against the sick company, whereas “references” are actions
initiated by a sick company – it is perhaps for this reason that
73Page 74
the third proviso to Section 15(1) uses the expression
“reference” instead of the expression “proceedings”.
50. Another important aspect as to the construction of the
third proviso to Section 15(1) is the meaning of the expression
“such reference shall abate”. One of the meanings of the
expression “abate” is “to put an end to; to curtail; to come to
naught”. (See Ramanatha Aiyar’s Law Lexicon). A reference
can be said to abate in one or several ways. One obvious way
that a reference abates is where the Board, after inquiry, rejects
the reference for the reason that the Board is satisfied that the
Company is not a sick industrial company as defined under the
Act. Another way in which a reference can abate is where a
scheme is implemented successfully, and the sick industrial
company is taken out of the woods successfully. A third manner
in which a reference can abate is when a scheme or schemes
have failed in respect of the sick industrial company, and in the
opinion of the BIFR, the said Company ought to be wound up.
A fourth instance of abatement is provided by the third proviso
to Section 15(1) of the Sick Industrial Companies (Special
Provisions) Act, 1985. And that is that a reference which is
74Page 75
pending in the sense understood hereinabove shall abate if the
secured creditors of not less than 3/4th in value of the amount
outstanding against the financial assistance disbursed to the
borrower, have taken measures to recover secured debts under
Section 13(4) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002. It is clear that the third proviso to Section 15(1) seeks to
strike a balance between getting a sick industrial company out
of the woods and secured creditors being able to recover the
debt owed to them by such company. The legislature has
thought it fit to annul all proceedings before the BIFR only when
at least 3/4th of the amount outstanding against financial
assistance disbursed to the borrower of such secured creditors
have taken the measures listed in Section 13(4) of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. The balance is
therefore struck by the figure of “not less than 3/4th”. The
legislature has inserted this provision so that, if 3/4th or more of
the secured creditors get together to take measures under
Section 13(4) of the Securitisation and Reconstruction of
75Page 76
Financial Assets and Enforcement of Security Interest Act,
2002, they will not be thwarted by the provisions of Section 22
of Sick Industrial Companies (Special Provisions) Act, 1985,
and it will not be necessary for them to obtain BIFR permission
before taking any such measures. This construction of the third
proviso to Section 15(1) is in keeping with the march of events
post 2002, when the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
came to be enacted pursuant to various committee reports, and
for the reasons outlined hereinabove.
51. A recent judgment of this Court in Pegasus Assets
Reconstruction P. Ltd. v. M/s. Haryana Concast Limited &
Anr., (Civil Appeal No. 3646 of 2011), has held, agreeing with a
judgment of the Delhi High Court, and disapproving a judgment
of the Punjab and Haryana High Court, that a Company Court
exercising jurisdiction under the Companies Act, has no control
in respect of sale of a secured asset by a secured creditor in
exercise of powers available to such creditor under the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. Some of the
76Page 77
observations made by this Court are interesting in that this
Court has held that the Securitisation Act is a complete code in
itself, and that earlier judgments rendered in the context of the
State Financial Corporation Act, 1951 or the Recovery Of Debts
Due To Banks And Financial Institutions Act, 1993 cannot be
held applicable to the Securitisation Act. Further, the very
incorporation of certain provisions of the Companies Act in the
Securitisation Act themselves harmonise the latter Act with the
Companies Act in respect of workers debts under Section 529A
of the Companies Act. In a significant paragraph, this Court
has held:
“The aforesaid view commends itself to us also
because of clear intention of the Parliament
expressed in Section 13 of the SARFAESI Act that a
secured creditor has the right to enforce its security
interest without the intervention of the court or
tribunal. At the same time, this Act takes care that
in case of grievance, the borrower, which in the
case of a company under liquidation would mean
the liquidator, will have the right of seeking
redressal under Sections 17 and 18 of the
SARFAESI Act.” (At para 25)
52. The matter can be viewed from a slightly different angle
also. There are many situations in which Section 22 of the Sick
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Industrial Companies (Special Provisions) Act, 1985 will not
apply. One such situation is a situation where an eviction
petition is filed under a State Rent Act for eviction on the ground
of non-payment of rent. Such eviction petitions have been held
not to be suits for recovery of money. Consequently, Section 22
of the Sick Industrial Companies (Special Provisions) Act, 1985
has been held not to apply - See Gujarat Steel Tube Co. Ltd.
v. Virchandbhai B. Shah, (1999) 8 SCC P.11 (paragraphs 9
and 10).
53. Similarly, in Kailash Nath Agarwal v. Pradeshiya
Industrial & Investment Corpn. of U.P. Ltd., (2003) 4 SCC
305, the U.P. Act under which recovery proceedings initiated
against guarantors at a post-decree stage were held to be
outside the purview of Section 22 of the Sick Industrial
Companies (Special Provisions) Act, 1985. (see paragraph 35).
54. The resultant position may be stated thus:
1. Section 22 of the Sick Industrial Companies (Special
Provisions) Act, 1985 will continue to apply in the case of
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unsecured creditors seeking to recover their debts from a
sick industrial company. This is for the reason that the
Sick Industrial Companies (Special Provisions) Act, 1985
overrides the provisions of the Recovery Of Debts Due To
Banks And Financial Institutions Act, 1993.
2. Where a secured creditor of a sick industrial company
seeks to recover its debt in the manner provided by
Section 13(2) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002, such secured creditor may realise such secured
debt under Section 13(4) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002, notwithstanding the provisions
of Section 22 of the Sick Industrial Companies (Special
Provisions) Act, 1985.
3. In a situation where there are more than one secured
creditor of a sick industrial company or it has been jointly
financed by secured creditors, and at least 60 per cent of
such secured creditors in value of the amount outstanding
79Page 80
as on a record date do not agree upon exercise of the
right to realise their security under the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002, Section 22 of the Sick
Industrial Companies (Special Provisions) Act, 1985 will
continue to have full play.
4. Where, under Section 13(9) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002, in the case of a sick industrial
company having more than one secured creditor or being
jointly financed by secured creditors representing 60 per
cent or more in value of the amount outstanding as on a
record date wish to exercise their rights to enforce their
security under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002, Section 22 of the Sick Industrial Companies
(Special Provisions) Act, 1985, being inconsistent with the
exercise of such rights, will have no play.
80Page 81
5. Where secured creditors representing not less than 75
per cent in value of the amount outstanding against
financial assistance decide to enforce their security under
the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002, any
reference pending under the Sick Industrial Companies
(Special Provisions) Act, 1985 cannot be proceeded with
further – the proceedings under the Sick Industrial
Companies (Special Provisions) Act, 1985 will abate.
55. In conclusion, it is held that the interim order dated
17.1.2004 by the Delhi High Court would not have the effect of
reviving the reference so as to thwart taking of any steps by the
respondent creditors in this case under Section 13 of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002. This is because the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 prevails over the
Sick Industrial Companies (Special Provisions) Act, 1985 to the
extent of inconsistency therewith. Section 15(1) proviso 3
covers all references pending before the BIFR, no matter
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whether such reference is at the inquiry stage, scheme stage,
or winding up stage. The Orissa High Court is not correct in its
conclusion on the interpretation of Section 15(1) proviso 3 of
the Sick Industrial Companies (Special Provisions) Act, 1985.
This being so, it is clear that in any case the present reference
under Section 15(1) of the Appellant No. 1 company has abated
inasmuch as more than 3/4th of the secured creditors involved
have taken steps under Section 13(4) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002. The appeals are accordingly dismissed.
……………………J.
(Kurian Joseph)
……………………J.
(R.F. Nariman)
New Delhi;
January 29, 2016.

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