Not many would have read a recent judgement by a three judge bench of the Supreme Court of India, which will have far reaching implications on the recovery proceedings against sick companies. The disputed issue was the provisions of the Sick Industrial Companies Act (SICA),1985 and in particular Section 22 of the Act. In the landmark judgement, the apex court said that SICA will prevail over the Recovery of Debts Due to Banks and Financial Institutions (RDBB) Act 1993. The bench ruled that recovery proceedings cannot be initiated while the revival process was on. However, the apex court held that protection under SICA would not be available to a company if recovery proceedings had concluded under the RDDB Act.
The facts of the case in brief are the following:-
M/S Arihant Threads Ltd, leased a plot in Amritsar, Punjab for 99 years for setting up an export oriented spinning unit. There was an overriding condition that it would not transfer the interest in it for the first 15 years without the lessor's permission, but allowed to mortgage the leasehold rights to a bank for a loan. IDBI financed the project. The company failed to repay the loan and IDBI filed a case before the Debt Recovery Tribunal (DRT) under the RDDB Act.
DRT passed an order in IDBI's favor on July 2003 for the recovery of Rs 25.3 crore with 7.8% interest per year. On failure to comply, IDBI was allowed to sell the mortgaged property and recover the amount. The recovery officer appointed by IDBI fixed the reserve price of the property at Rs 12.5 crore. In October 2004, Arhant filed aan appeal against the DRT order.
KSL & Industries was the highest bidder at the auction sale at Rs 12.5 crore. The DRT set aside the auction on the condition that Arihant has to pay a certain amount, expenses and interest. But Arihant filed an appeal against the DRT order in the Debt recovery Appellate Tribunal. KSL also approached the DRAT aggrieved by the setting aside of the auction. In the meantime, invoking the provisions of the SICA, Arihant also filed a reference before the Board of Industrial Finance & Reconstruction (BIFR). Later DRAT dismissed the Arihant's appeal and confirmed the auction to KSL& Industries. Arihant filed two writ petitions before the Delhi Court, which held that no recovery could be made as revival proceedings are underway. BIFR rejected Arihant's reference and subsequently Arihant went to the Supreme Court, which gave the decision that revival of a sick company will take precedence over recovery proceedings.
( The facts of the case is picked up from the secondary sources and the readers are advised to refer the original judgement)
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