Dated: 09.06.2010

Coram:

The Honourable Mr.Justice R.SUBBIAH

Writ Petition No.459 of 2008

and M.P.No.1 of 2008

Canara Bank,

R.S.Puram Branch,

represented by Chief Manager/

Authorised Officer Th.N.Viswanathan,

100, D.B.Road,

Coimbatore-641 002. ..Petitioner

..vs..

1. Appellate Authority for Industrial

& Finance Reconstruction,

Jeevan Prakash Building,

K.G.Marg,

New Delhi-110 001.

2. Board for Industrial and Financial

Reconstruction,

Jawahar Vyapar Bhavan,

1, Tolstoy Marg, New Delhi-110 001.

3. BAPL Industries Ltd., Having

registered Office at

Bhuradia Chambers,

Old No.123/1, New No.14

Bharathi Park Road, No.2,

Coimbatore 641 043

rep.by its Chairman R.G.Bhuradia

4. Provident Fund Commissioner,

E.P.F.O.,

Chennai. ..Respondents

Writ petition filed under Article 226 of the Constitution of India, for issuance of a Writ of Certiorari, calling for the concerned records relating to the orders of the 1st respondent AAIFR dated 25.09.2007 in Appeal No.53/2007 setting aside the orders of the 2nd respondent BIFR dt.19.12.2006 in Case No.77/2004 and quash the same as illegal, arbitrary, contrary to the provisions of the 3rd Proviso to S.15(1) of Sick Industrial Companies (Special Provisions) Act R/w S.41 of the SARFAESI Act.

For Petitioner : Mr.A.L.Somayaji, Senior Counsel

for Mr.L.S.Lakshmanan

For Respondents : Mr.Vijay Narayan, Senior Counsel

for Mr.K.Sivakumar Kennedy for R3

Mr.K.Ramu for R4

No appearance for R1 and R2

ORDER

The petitioner has come forward with the present writ petition to quash the order passed by the 1st respondent dated 25.09.2007 in Appeal No.53/2007, whereby the order passed by the 2nd respondent dated 19.12.2006 in Case No.77 of 2004 was set aside.

2. The facts, which are necessary to decide the issue involved in the writ petition, are as follows:

The petitioner bank, on behalf of the 3rd respondent company, issued a Deferred Payment Guarantee (DPG) in favour of a foreign bank, Raiffeisen Zentral Bank, Oesterrich, Vienna, Austria, to finance them to install the entire spinning mill with all the infrastructure, such as factory building, plant and machinery to produce quality yarn and to export cotton yarn manufactured by them to the other countries. The DPG was for 19,000,000 Austrian Shillings, which is equivalent to the Indian currency of Rs.6,04,13,421/- on 28.01.1998. Having availed the DPG facility, the 3rd respondent has mortgaged the immovable properties at Nallatipalayam Village, Pollachi Taluk, by depositing the title deeds relating to the property on 24.01.1998. As per the terms of DPG, the petitioner was bound to honour its commitments and therefore, made the payment to foreign bank, But, neither the 3rd respondent nor the Directors/guarantors have come forward to pay the debt outstanding for over four years. As payment was not forthcoming and the 3rd respondent also failed to pay the accrued interest, the petitioner was constrained to classify the account as a Non-Performing Asset (NPA) as per the guidelines of the Reserve Bank of India and the account was marked for recovery. Hence, a notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was issued by the petitioner bank on 22.11.2003 to the 3rd respondent and also the guarantors, calling upon them to clear the debt and redeem the mortgaged assets within 60 days. On receipt of the said notice, a reply was sent through their counsel of the 3rd respondent by raising certain untenable queries. The said queries were also replied by the petitioner. Since there was no positive response from the 3rd respondent and the guarantors, the petitioner issued possession notice on 09.03.2004 under Section 13(4) of the SARFAESI Act, stating that the bank has taken symbolic possession of the property. Being aggrieved by the action of the petitioner, the 3rd respondent approached the Debt Recovery Tribunal (DRT), Coimbatore and filed SARFAESI Appeal No.1 of 2004 on 07.05.2004 under section 17 of SARFAESI Act, seeking stay of the proceedings initiated by the petitioner. But, the Tribunal did not grant the stay.

3. In the meantime, the 3rd respondent company submitted a Reference under the proviso 3 to Section 15(1) of the Sick Industrial Companies (Special Provisions) Act (SICA) to the 2nd respondent-BIFR, which was registered as Case No.77 of 2004 on 19.01.2004. The petitioner bank also filed O.A.92 of 2005 on 12.04.2005 before the DRT, Coimabtore, for recovery of Rs.8,13,96,955.18 with interest under section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. In the said O.A., an application for appointment of an Advocate Commissioner to take inventory of the plant and machinery stored in the factory premises of the 3rd respondent and also an application in I.A.No.318 of 2005 for appointment of a Receiver to take possession of the unit by the petitioner were filed. The Tribunal has also appointed an Advocate Commissioner for taking inventory and directed the 3rd respondent to provide security worth about Rs.9 crores within 30 days of its Order, but the 3rd respondent did not comply with the same. While so, the 3rd respondent company again filed I.A.No.538 of 2005 for stay of further proceedings pursuant to the issuance of the notice under section 13(4) of SARFAESI Act by the petitioner. But the Tribunal declined to grant stay in favour of the 3rd respondent.

4. In the meantime, the petitioner bank decided to take actual possession of the secured assets and recover their dues by sale and after completing the formalities as required under the provisions of SARFAESI Act, the petitioner took possession of the unit on 05.12.2005 in the presence of a Notary Public and locked the factory buildings and all the doors including the main door and posted the security staff to guard the premises. Subsequently, the Authorised Officer of the petitioner bank got the message that the management of the 3rd respondent, by using force, drove the security staff posted by them out of the premises and broke open the locks. Immediately, the petitioner bank lodged a police complaint and approached the District Collector to render assistance to the petitioner to take possession of the unit by exercising the powers conferred on them under section 14 of the SARFAESI Act. But the District Collector, instead of providing assistance, after hearing the 3rd respondent, sent his reply dated 27.03.2006 stating that they should not interfere with the matter in view of the pendency of the proceedings before the DRT, Coimbatore. Hence, the petitioner was constrained to file W.P.No.12903 of 2006 to quash the order dated 27.03.2006 of the District Magistrate and direct the District Collector to extend all assistance to the petitioner to take possession of the unit. Pending disposal of the writ petition, this Court, in WPMP.No.14492 of 2006 restrained the 3rd respondent from entering the factory premises and removing materials available as on date in the industrial land, by its order dated 28.04.2006. Against the said order, the 3rd respondent company filed WVMP.Nos.1077 and 1078 of 2006 for vacating the injunction order and to allow them to run the mill, stating that since the industrial unit became sick and they filed the application under Section 15 of SICA before the BIFR, the petitioner cannot initiate any steps pending disposal of the said application and in the said circumstances, this Court, by its order dated 24.05.2006, vacated the interim injunction already granted. Changeling the same, the petitioner bank filed W.A.810 of 20006 and the First Bench of this Court, by its order dated 11.10.2006, allowed the writ appeal holding that Section 14 of the SARFAESI Act is independent of the proceedings pending before the BIFR and the reasons given by the District Collector cannot be countenanced in law. It was further held that the District Collector has no discretion vested with him and he has to necessarily provide assistance to the bank authorities in securing possession of the properties in question. Accordingly, the petitioner filed an application under Section 14 of the SARFAESI Act before the District Collector for taking possession of the movable assets of the 3rd respondent company. In the meantime, before the DRT, the 3rd respondent made an unconditional offer of consent to deposit any amount as may be ordered by the Tribunal as a pre-condition for the grant of stay of further proceedings under the SARFAESI Act and accordingly, the Tribunal granted stay on condition that the 3rd respondent should deposit Rs.2.60 crores on or before 06.09.2006; but the 3rd respondent, having not complied with the said order, filed another application for extension of time in I.A.No.599 of 2006, which was dismissed by the Tribunal since the order dated 30.08.2006 was a consent order and hence, no time could be extended. Aggrieved over the same, the 3rd respondent filed an appeal before the Debt Recovery Appellate Tribunal (DRAT), Chennai vide M.A.No.56 of 2006, wherein the DRAT granted an ex parte interim stay of the order of the DRT and diluted the order by reducing the deposit amount to Rs.2.00 crores within 3 months.

5. In the meantime, on 19.12.2006, an order was passed by the BIFR in the Reference submitted by the 3rd respondent company stating that the reference filed under section 15(1) of SICA had abated since the petitioner bank had already initiated action under section 13(4) of the SARFAESI Act. Aggrieved over the same, the 3rd respondent company had filed an appeal before the 1st respondent-Appellate Authority for Industrial & Financial Reconstruction (AAIFR) to set aside the order passed by the BIFR, but the 1st respondent, by its order dated 25.09.2007, set aside the said order of BIFR on a finding that the action of the bank had been stayed by the DRAT in the appeal filed by the 3rd respondent and hence, there cannot be any effective action under section 13(4) of the SARFAESI Act; therefore, the order of abatement would not be justified and thus, the 1st respondent appellate authority directed the BIFR to take further necessary action in the reference filed by the 3rd respondent company, according to law. Aggrieved over the same, the present writ petition is filed.

6. When the matter was taken up for consideration, by inviting the attention of this Court to the third proviso to section 15(1) of SICA, the learned Senior Counsel appearing on behalf of the petitioner bank submitted that a reference pending before the BIFR 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 the SARFAESI Act. In the instant case, the petitioner bank is representing three-fourth value of the amount outstanding against the financial assets disbursed to the borrower and they also issued notice under section 13(4) of the SARFAESI Act as early as 22.11.2003. Consequently, possession was also taken by the bank on 05.12.2005 and security guards were posted in the 3rd respondent premises. Since the 3rd respondent has entered the factory forcefully by breaking open the locks of the premises, once again, the petitioner bank obtained an order from this Court and consequently filed a petition under section 14(1) of the SARFAESI Act before the District Collector to provide assistance for taking possession. Therefore, from these facts, it is clear that the petitioner had already invoked section 13(4) of the SARFAESI Act. The third proviso to section 15 of SICA says that if any measures under section 13(4) had been taken to recover the secured debt by the secured creditor representing not less than three fourth in value of the amount outstanding against financial assistance disbursed to the borrower, that is sufficient to abate the reference made by the borrower before the BIFR. But, in the instant case, having considered these facts, the BIFR has come to the correct conclusion that the reference filed by the 3rd respondent had abated, whereas, the AAIFR has erred in holding that there could be a stay on the statutory abatement pursuant to any interim stay or other order by any court or Tribunal. Learned senior counsel further submitted that the stay granted by the DRAT was only in reference to further future proceedings and not with regard to bringing up the property for sale and that stay would not invalidate the action already taken by the bank under section 13(4) of the SARFAESI Act. Under such circumstances, the impugned order passed by the AAIFR is not legally sustainable and hence, it is liable to be set aside.

7. Per contra, the learned Senior Counsel for respondents 3 and 4 made elaborate arguments and submitted that the stay granted in M.A.No.56/2006 would amount to stay of all proceedings under section 13(4) of the SARFAESI Act and under such circumstances, no error could be found in the order passed by the DRAT and if the appeal is dismissed by the DRAT, the 3rd respondent would be put to irreparable loss and hardship.

8. Heard the learned senior counsel for both sides and perused the materials available on record.

9. In view of the submissions made by the learned senior counsel on either side, I am of the view that the scope of the writ petition has become narrow and that the question that arises for consideration is, whether the stay granted by the DRAT in M.A.No.56/2006 as against the order passed in I.A.No.538/2005 by the DRT, Coimbatore, would amount to nullify or invalidate the action that had already been taken by the petitioner bank under section 13(4) of the SARFAESI Act.

10. As could be seen from the materials that on being aggrieved over the action initiated by the bank under section 13(4) of SARFAESI Act, the 3rd respondent company have approached the DRT, Coimbatore by filing Appeal No.1/2004 for stay of all further proceedings under section 13(2) and 13(4) of the SARFAESI Act. Though an order of stay was not granted Initially, subsequently, in I.A.No.538/2005, the DRT, Coimbatore, by its order dated 30.08.2006, have passed a conditional order of stay directing the 3rd respondent to deposit a sum of Rs.2.60 crores. Aggrieved over the same, the petitioner has filed an appeal before the DRAT, Chennai, and in M.A.No.56/06, the DRAT granted interim stay and reduced the amount of Rs.2.60 crores ordered by the DRT, Coimbatore to Rs.2 crores. It is to be noted that the notice under section 13(4) was issued by the bank as early as on 09.03.2004 and consequently, possession was also taken on 05.12.2005 and thereafter, since the security guards posted by the bank were driven away by the 3rd respondent management, the petitioner has filed an application before the District Collector. Therefore, it is no doubt, that the petitioner has invoked action under section 13(4) of the SARFAESI Act. But, the 1st respondent has set aside the order mainly on the ground that there had been an order of stay by the DRAT in M.A.56/06 filed by the 3rd respondent company. The said stay was in respect of all further proceedings only and not for bringing the property for sale by the bank till the disposal of the appeal and that stay will not nullify or invalidate the action already taken by the bank under section 13(4) of the SARFAESI Act. Therefore, in my considered opinion, the reasoning assigned by the AAIFR for setting aside the order is not correct.

11. A perusal of the order of AAIFR, I find that the order of BIFR was set aside on the following reasonings.

"11. In our view the time when certain actions are taken is of importance for that will determine what information is available to any authority. If a hearing takes place just after action under Section 13(4) of SARFAESI Act is taken then an abatement order would be justified. If that very action has been stayed when the hearing takes place should the same order be passed on the ground that action under Section 13(4) was taken before a stay was obtained. In our opinion not so. This is because of two reasons: (i) a stay can be obtained obviously only after an order is passed.

(ii) stay means that the stayed order is not operative. This implied that till such time as the stay is lifted there is no effective action under Section 13(4) of the SARFAESI Act. In this event abatement will not be justified".

12. Proviso (i) to (iii) to Section 15(1) reads thus:

"15. Reference to Board: (i) Where 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, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act.

13. A reading of the third proviso shows that, if any measures had already been taken under sub-section (4) of section 13 of the SARFAESI Act, then the reference under section 15(1) cannot be maintained. In the instant case, already the petitioner had initiated action under section 13(4). The stay granted by the DRAT in M.A.No.56/2006 in the appeal filed by the 3rd respondent will not nullify or invalidate the action already taken by the petitioner bank. The said stay of the DRAT is only to prevent the petitioner bank from taking any further action, till the disposal of the appeal. Under such circumstances, I am of the opinion that the order passed by the AAIFR, setting aside the order of the BIFR, is not sustainable and hence, the same is liable to be set aside.

For the reasons stated above, the writ petition is allowed and the impugned order passed by the 1st respondent AAIFR is set aside. No costs. Consequently, connected M.P.is closed.

gl

To

1. Appellate Authority for Industrial

& Finance Reconstruction,

Jeevan Prakash Building,

K.G.Marg,

New Delhi-110 001.

2. Board for Industrial and

Financial Reconstruction,

Jawahar Vyapar Bhavan,

1, Tolstoy Marg, New Delhi-110 001.

3. Provident Fund Commissioner,

E.P.F.O.,

Chennai