Analytical Speaking

Some recent SARFAESI and SICA cases

-Vrinda Bagaria vrinda@vinodkothari.com Vinod Kothari and Company

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The following are some assorted recent rulings pertaining to the SARFAESI Act, and the Sick Industrial Companies Act, with our comments.

Copyright: This write up is the property of Vinod Kothari and Company and no part of it can be copied, reproduced or distributed in any manner. Disclaimer: This write up is intended to initiate debate on a pertinent question. It is not intended to be a professional advice and should not be relied upon for real life facts.

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Analytical Speaking
Recent Case-laws on SARFAESI and SICA as updated on September 29, 2012 1. Whether the provisions of RDB Act have an over-riding affect over the Arbitration Act? The High Court of Delhi has given the answer in the negative for the issue in question in http://indiankanoon.org/doc/170240238/1 In the present case, an application was filed before the Debt Recovery Tribunal for the recovery of outstanding amount against the loan disbursed to the Respondent. However, the Respondent filed an application requesting for the stay of the proceedings on the ground that the matter should be adjudicated through arbitration proceedings as stipulated under the Loan Agreement between the two parties and as per the provisions of Section 8 of the Arbitration and Conciliation Act. The Petitioner Bank had come in appeal against the order of the Debt Recovery Appellate Tribunal which had confirmed the order of the Debt Recovery Tribunal wherein the Bank was asked to refer the matter for arbitration. Based on the principle of generaliaspecialibus non derogant, the learned counsel for the petitioner contended that on the comparison of the RDB Act with the Arbitration Act, the former is a special statute whereas the latter is a statute in general. He also relied on Sections 17 and 18 of the Act which makes it clear that all applications by banks and financial institutions for the recovery of dues has to be made before the DRT only and that the jurisdiction of any other court is barred except the High Court and the Supreme Court , respectively. The Counsel for the Respondent however placed reliance on the case of Booz Allen and Hamilton Inc. v. SBI Home Finance Ltd. &Ors.2where it was held that certain kind of disputes for which tribunals are created are non-arbitrable. He further stated that the cases where a particular enactment creates special rights and obligations and gives special powers to the tribunals which are not with the civil courts, those disputes would be non-arbitrable. Basing his contention on the abovementioned principle, it was argued by the Learned counsel that there are no special rights created in favour of the banks or financial institutions. There are no special powers given to the Debt Recovery Tribunal except that the procedure for deciding the disputes is little different from that of CPC applicable to civil courts. Otherwise, the Debt Recovery Tribunal is supposed to apply the same law as applied by the civil courts in deciding the dispute coming before it and is
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HDFC Bank Ltd v. Satpal Singh Bakshion 13 September, 2012 (2011)5 SCC 532

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Analytical Speaking
enforcing contractual rights of the Banks. Hence matters within the jurisdiction of DRT can be said to be arbitrable. It was also contended that the arbitration agreement was entered into voluntarily by the bank with the Respondents and therefore it cannot avoid the same. Thus, the Court dismissed the writ petition of the Bank based on the argument of the counsel for the Respondent. 2. Factors to be considered for abatement of reference before the BIFR In the present matter of http://www.indiankanoon.org/doc/153758448/3, the Delhi HC refused to interfere with the orders of the AAIFR which provided for the abatement of reference before the BIFR as per the third provision to section 15(1) of the SICA. However, the same came with a further clarification stating that once the proceedings under section 13(4) of the SARFAESI Act have been set aside, the petitioner company would be at liberty to seek revival of the application before the AAIFR. The issue for consideration before the DRT/DRAT was whether the proceedings before under the said provision of SARFAESI was initiated by secured creditors representing at least three-fourth of the value of the outstanding amount given as financial assistance to the borrower. 3. How far can a defaulter be excused for non-payment of the term-loans granted to it? The Supreme Court set aside the judgment of the Orissa HC in the matter of http://indiankanoon.org/doc/65683711/?type=print4 wherein the respondent was repeatedly committing default in the payment of the term loans granted to it by state agencies such as Orissa State Financial Corporation (OSFL) and Industrial Promotion and Investment Corporation of Odisha Ltd. (IPICOL). Despite repeated offers of one-time settlement schemes as well as order of the Honble HC for repayment of the amount, the respondent did not take any action in furtherance of the same and brought a review petition before the High Court on seizure of property by the concerned state agencies. However, the respondent was given another chance under the review petition to which an appeal has been filed by the state agencies before the Apex Court. The appeals have been allowed and the principle laid down in Mahesh Chandra v. Regional Manager, U.P.

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Chemstar Organics India Ltd. v. Bank of Baroda &Ors. on 17 September 2012 M/S Micro Hotel P.Ltd. vs M/S Hotel Torrento Limited &Ors. on 6 September, 2012

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Analytical Speaking
Financial Corporation and Others5stating that "Indulgence shown to chronic defaulter would amount to flogging a dead horse without any conceivable result being expected was reiterated herein. 4. Does the legislative scheme of SICA Act, 1985 have an over-riding effect on Transfer of Property Act? In http://stpl-india.in/SCJFiles/2012_STPL(Web)_107_SC.pdf6, it was observed that the SICA is a special legislation intended to deal only with matters relating to sick industrial companies through specially constituted bodies in this regard i.e. the BIFR and the AAIFR whereas the Transfer of Property Act, 1882 (TP Act) is a general law dealing with transfer of immovable property and has a wider scope. Thus on this basis, the Supreme Court has held that the intention of the Legislature was very clearly to give an over-riding effect to the provisions of the SICA over the TP Act as the former deals with a very specific area. In the present case, the matter more specifically pertained to section 22 of the SICA having an over-riding effect on section 53-A and 54 of the TP Act.

1992 SCR (1) 616; see also Haryana Financial Corporation v. Jagdamba Oil Mills, (2002) 3 SCC 496 and Chairman and Managing Director, SIPCOT v. Contromix (P) Ltd., (1995) 4 SCC 595 6 Raheja Universal Limited v. NRC Limited., 2012 (4) SCC 148