REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.     5225           OF 2008 ARISING OUT OF

SPECIAL LEAVE PETITION (CIVIL) NO. 5041 OF 2006

KSL & INDUSTRIES LTD. … APPELLANT

VERSUS

M/S ARIHANT THREADS LTD. & ORS.   … RESPONDENTS

J U D G M E N T C.K. THAKKER, J. 1. Leave granted.

2. The  present  appeal  raises  a

question of great public importance having far-

reaching consequences.  The appeal is filed by

KSL & Industries Ltd. (‘appellant’ for short)

against final judgment and order passed by the

Division  Bench  of  High  Court  of  Delhi  on

February 23, 2006 in Writ Petition (Civil) Nos.

2041-42 of 2006. By the said judgment, the High

Court, set aside the order passed by the Debt

Recovery Appellate Tribunal, Delhi (‘DRAT’ for

short) and held that in view of the provisions

of Section 22 of the Sick Industrial Companies

(Special  Provisions)  Act,  1985  (hereafter

referred to as ‘SICA’), no recovery proceedings

could be effected against the first respondent-

Company  in  the  light  of  the  bar  contained

therein.

Factual Background 3. To understand the controversy in

its proper perspective, it is necessary to keep

in  mind  the  factual  matrix  of  the  case.

Respondent No. 1 (M/s. Arihant Threads Ltd.)

(‘Company’  for  short)  was  incorporated  as  a

joint  venture  with  Punjab  State  Industrial

Development Corporation.  It set up an export

oriented spinning unit for manufacturing cotton

yarn  in  the  industrial  area  of  Amritsar

District  of  the  State  of  Punjab.  In  1992,

Goindwal  Sahib  Industrial  &  Investment

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Corporation allotted Plot No. 454, Flocal Point

of Goindwal Sahib Industrial Area by way of

lease to the Company for a period of 99 years

with a specific condition that the lessee will

not transfer the interest in the property for

first fifteen years without prior permission of

the lessor. The lessee was to enjoy the right

of possession so long as it continued paying

instalments  of  the  premium  by  due-date  and

abide  by  other  terms  and  conditions  of  the

lease. It was, however, stated that the lessee

would be entitled to mortgage lease-hold rights

to a Bank, Punjab Financial Corporation or Life

Insurance Corporation of India as security for

a loan to be raised for construction of factory

building, purchase of raw materials, etc. The

Industrial  Development Bank  of India  (‘IDBI’

for short) which was the predecessor of the

Stressed Assets Stabilisation Fund (‘SASF’ for

short), financed the project undertaken by the

Company by way of foreign currency loan and

also working capital of Rs. 93.1 million.

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4. It was the case of the Company

that  due  to  overall  recession  in  Textile

Industry, the Company suffered huge loss and

could not repay the amount of loan. Since the

Company failed to pay instalments, IDBI filed

Original  Application  No.  1368  of  2001  on

December 20, 2001 in Debt Recovery Tribunal,

Chandigarh (‘DRT’ for short) for recovery of

Rs.25,26,60,836/- under the Recovery of Debts

Due to Banks and Financial Institutions Act,

1993  (hereinafter  referred  to  as  the  ‘RDDB’

Act).  On  June  10,  2002,  M/s  Roland  Exports

(successor of Goindwal Industrial & Investment

Corporation) cancelled the lease agreement on

account of non-payment of lease money amounting

to Rs.3,19,94,149/-. The Company did not remain

present before the DRT though duly served.  On

July  15,  2003,  therefore,  an  ex-parte final

order in favour of IDBI (SAFS) for recovery of

Rs.25,26,60,836/-  along with  interest @  7.8%

p.a. was passed by DRT.

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5. The Tribunal in operative part

of the order stated;

“The application for recovery of a sum  Rs.25,26,60,836.00  is  decreed against  defendant  company  and  the defendant company is ordered to pay:-

i. A  sum  of  Rs. 25,26,60,836.00  alongwith pendent elite and future interest @ 7.8% per annum with  half  yearly  rests jointly  and  severally from  the  date  of  filing of  the  suit  till realization;

ii. Pay the cost of litigation; iii. Pay  the  said  amount

within  30  days  from  the date  of  receipt  of  this order.

2. In the event of failure on the part of defendants  to  pay  the  above  amount within  the  stipulated  period,  the applicant  bank  shall  be  entitled  to recover the said amount from the sale of  mortgaged  properties  of  the defendants.  Even if the said amount is  not  so  realized,  it  shall  be recovered  from  the  sale  of  personal properties of the defendants.

3. Copy of the judgment be sent to the defendants  and  the  recovery certificate be issued accordingly.

4. Parties to appear before the Recovery Officer,  DRT,  Chandigarh  on 22.8.2003.”

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6. A  recovery  certificate  was

issued  against  the  Company.  On  September  9,

2003, the Recovery Officer issued a composite

demand notice under Rule 2 of Second Schedule

of the Income Tax Act, 1961 against the Company

demanding payment of Rs.28,60,87,384/-. He also

directed the Company to appear on October 23,

2003 for settling terms and conditions of the

proclamation of sale and for disclosure of its

movable  and  immovable  assets.  Harnek  Singh,

Security Guard who was present at the Company

premises was served and he signed the summons

in token of acceptance of notice on behalf of

the Company. Service Report was filed by one

Rajesh Mahajan, Advocate for certificate holder

affirming Dasti service on the Company. Another

service  report  was  also  filed  along  with

affidavit by the same advocate on October 6,

2003.  On  January  3,  2004,  Mr.  Vivek  Verma,

Local  Commissioner appointed  by the  Recovery

Officer, visited the site and filed his report

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wherein  he  stated  that  two  machines  were

missing. He also recorded that the unit was in

running  condition.  At  the  instance  of  SASF,

North India Technical Consultancy Association

Ltd.  (‘NITCO’  for  short)  filed  a  valuation

report  in  January,  2004  assessing  the  fixed

assets at Rs.17.51 crores. It is alleged that

on July 1, 2004, the Company created illegal

tenancy in favour of M/s Roland Exports. On

September 16, 2004, the Recovery Officer fixed

the reserve price of the property at Rs.12.50

crores (Rs.4.50 crores for movables and Rs.8.00

crores for immovables). He also fixed the date

for sale of immovable property as October 27,

2004 and for movable property as October 30,

2004. The auction was, however, adjourned. The

Company on October 18, 2004, filed an appeal

against  the  order  dated  September  16,  2004

fixing reserve price of Rs. 12.50 crores in the

DRT being Appeal No. 52 of 2004 under Section

30 of the RDDB Act. On October 27, 2004, DRT

allowed  auction  sale  to  proceed  but  ordered

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that  the  sale  should  not  be  confirmed  till

further orders. On October 30, 2004, auction

was  concluded  and  the  appellant  herein  was

declared the highest and successful bidder at

Rs.12.52  crores.  It  deposited  25%  of  the

reserve  price.   On  November  2,  2004,  on  an

application  by  the  appellant,  DRT  appointed

representative of the appellant as a receiver

to prepare inventory of auctioned property.  7. On  November,  11,  2004,  the

appellant made an application to DRT praying

for acceptance of the bank guarantee in lieu of

payment of the remaining amount of 75% and also

by refunding the amount deposited (25%).  DRT

dismissed  the  said  application  and  the

appellant-auction purchaser, on the same day,

i.e. November 11, 2004 deposited the balance

amount  of  75%  of  the  purchase  money  i.e.

Rs.9,39,00,000/- by a Bank draft. On December

13,  2004,  the  receiver  lodged  a  First

Information Report (FIR) and filed an affidavit

before DRT complaining that the agent of the

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Company had forcibly dispossessed him by using

criminal  force.  On  December  15,  2004,  the

Company moved an application for setting aside

ex-parte final order passed on July 15, 2003 by

DRT, Chandigarh which was registered as M.A.

No.  103  of  2004.  The  appellant  filed  an

application objecting the prayer of the Company

with an added prayer to implead it in Appeal

No. 52 of 2004 as also in M.A. No. 103 of 2004.

The DRT allowed the impleadment application of

the  appellant  vide  order  dated  December  17,

2004. On March 28, 2005, the appellant filed an

application for hearing preliminary issue as to

maintainability of appeal filed by the Company

(Appeal No. 52 of 2004).  On April 8, 2005, a

suit  for  permanent  injunction  was  filed  by

Roland Exports against the Company in the Civil

Court  at  Tarantaran,  District  Amritsar.

Status  quo with  regard  to  possession  was

ordered  to  be  maintained  by  the  Court.  An

appeal against the said order is said to have

been pending in the High Court. Meanwhile, the

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Company  got  the  property  valued  by  Himachal

Consultancy  Organisation  Ltd.  (‘HIMCO’  for

short), according to which the realizable value

of the property had been increased to Rs.20.22

crores. On July 26, 2005, DRT-I, Delhi allowed

Appeal No. 52 of 2004, set aside the auction

sale subject to the Company fulfilling terms

and  conditions  with  regard  to  payment  of

certain amount, interest, expenses etc.  

8. The  Tribunal,  while  granting

relief to the Company, ordered;

“In  my  humble  opinion,  natural justice  requires  that  the  appeal  be allowed  but  with  some  conditions  so that further progress of recovery be not  stalled  by  the  appellant.   In these  circumstances,  this  appeal  is allowed,  subject  to  the  following conditions:-

(i) That  the  appellant  will pay  5%  of  the  amount deposited  by  the  auction purchaser  within  10  days as a penalty as per rule 60 of the Second Schedule of Income Tax Act.

(ii) The appellant will pay an interest  on  the  amount deposited  by  the  auction purchaser  @  9%  p.a. calculated  from  the  date

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of  deposit  of  the  same till today.  The interest accumulated on the FDRs of auctioned amount till date will be paid to the CH Fl who  will  adjust  this amount  against  the outstanding  dues  of  the appellant.

(iii) The  appellant  will  also bear  all  the  expenditure incurred by the CH FI in conducting the sale.  The details  of  the  same  will be  given  by  the  CH  FI within  a  week  and thereafter within 10 days, this  amount  will  be deposited by the appellant with the CH FI.

Failing to comply all the above three conditions, this appeal will be treated as dismissed and the restraint order  passed  by  this  Tribunal  will stand  vacated  and  the  Ld.  Recovery Officer will be at liberty to pass the necessary  orders as per law and if, the above conditions are fulfilled by the  appellant,  the  Ld.  Recovery Officer is directed to re-auction this property as early as possible, within 75  days  as  per  law  and  release  the amount  deposited  by  the  auction purchaser  immediately.   The  present appeal  bearing  Transfer  Appeal  No. 1/2005  (Appeal  NO.  52/04)  stands disposed off accordingly.  A copy of this order be given dasti to all the parties.  A copy of this order be also sent  to  the  Recovery  Officer,  DRT Chandigarh  for  necessary  action  and information.   RC  file  be  also  sent

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immediately back to the DRT Chandigarh by special messenger along with copy of this order.  File be consigned to records”.

9. The  Company,  objecting  the

conditions  imposed  by  DRT,  filed  an  appeal

against the said order to the DRAT, Delhi being

Appeal  No.  167  of  2005.  The  appellant  also

filed an appeal being aggrieved by the setting

aside the sale. DRAT stayed operation of the

order dated July 26, 2005 which had set aside

ex-parte order passed by DRT.  It also directed

refund of sale amount to the appellant. Appeals

were then heard and the judgment was reserved.  

10. Meanwhile, on December 21, 2005,

the Company filed a Reference before the Board

of Industrial Finance & Reconstruction (‘BIFR’

for short) under SICA which was registered as

BIFR Case No. 4 of 2006. On February 10, 2006,

DRAT dismissed the appeal filed by the Company

and allowed the appeal of the appellant and

confirmed  auction-sale  in  favour  of  the

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appellant on depositing the sale price. DRAT,

in the operative part of the order stated;  

“In view of the detailed discussion made on the issues which are relevant for the purpose deciding these appeals, the Miscellaneous Appeal 167/2005 filed by  the  judgment-debtor  shall  stand dismissed.   The  Miscellaneous  Appeal 173/2005 filed by the auction purchaser shall stand allowed.  Consequently, the appeal filed by the judgment-debtor in Appeal  52/2004  before  the  Presiding Officer,  DRT,  Chandigarh  which  is renumbered on transfer to DRT-I, Delhi as  Transfer  Appeal  No.  1/2005  shall stand dismissed.  Points formulated for consideration are answered accordingly. No costs.

Since,  the  appeal  filed  by  the auction-purchaser  is  allowed,  the Recovery Officer, DRT, Chandigarh shall confirm  the  sale  and  shall  take  all steps immediately for handling over the possession  of  properties  in  question, to the auction purchaser, if necessary, by  taking  assistance  from  all authorities  concerned.   The  auction purchaser,  who  was  permitted  to withdraw  the  auction  amount  deposited towards sale price without prejudice to its  rights  during  pending  of  these appeals,  shall  forthwith  deposit  the entire  amount  and  thereafter  the Recovery  Officer  shall  proceed  to complete  the  other  requirements according to law forthwith.”

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11. By  a  separate  order  of  even

date,  DRAT  ordered  the  Recovery  Officer,

Chandigarh  to  act  upon  and  execute  the

directions  issued  by  it.  The  appellant

deposited Rs.12.50 crores on the same day.  But

the  sale  could  not  be  confirmed  since  the

Presiding Officer was on leave. The appellant

moved  an  application  before  DRAT  for

appointment of Recovery Officer, DRT, Delhi for

confirmation  of  sale.   Within  three  days,

however, the Company filed two Writ Petitions

being C.W. Nos. 2041 and 2042 of 2006 in the

High  Court  of  Delhi  on  February  13,  2006

against an order of DRAT dated February 10,

2006.  The  High  Court  of  Delhi,  as  already

mentioned earlier, allowed the writ petitions

on  February  23,  2006,  set  aside  the  order

passed by DRAT on the ground that Section 22 of

SICA operated as a complete bar to recovery

proceedings and no order could have been passed

by the Tribunal.

Subsequent development

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12. Being  aggrieved  by  the  order

passed by the High Court, the appellant filed

Special Leave Petition in this Court on March

6, 2006. Notice was issued on March 27, 2006 by

this Court and the appellant was allowed to

withdraw sale price without prejudice to its

rights  and  contentions.  The  matter  was,

thereafter, adjourned from time to time. It was

ordered to be heard finally. For completion of

record, it may be stated that on April 3, 2006,

the BIFR rejected the Reference of the Company.

The  Company  preferred  an  appeal  against  the

said  order  which  is  pending  before  the

Appellate Authority for Industrial & Financial

Reconstruction (AAIFR).  On September 15, 2006,

second Reference was filed by the Company which

has  been  registered  as  BIFR  Case  No.  18  of

2006. On February 22, 2007, the BIFR declared

the Company as a ‘sick Company’ and appointed

LSAS, respondent No. 5 as the Operating Agency

to prepare Rehabilitation Scheme.

Submissions of the appellant

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13. The Court has heard the learned

counsel for the parties. Learned counsel for

the  appellant raised  several contentions.  He

urged  that  the  High  Court  has  committed  an

error of law in holding that the proceedings

were barred by Section 22 of the SICA and DRAT

was  wrong  in  issuing  directions.   The

proceedings were neither covered by the first

part nor by the second part of Section 22 and

the High Court ought to have decided the case

on merits. It was also submitted that Section

34 of RDDB Act has an ‘overriding effect’ and

even on that ground, the matter ought to have

been decided.  It was contended that the appeal

preferred by the Company against fixation of

reserve  price  was  not  maintainable  under

Section 30 of the RDDB Act and could not have

been entertained by DRT. So far as  ex-parte

decree passed by DRT is concerned, the counsel

submitted that the Company was duly served and

in spite of that, it failed to appear before

the Tribunal. A grievance was also made that in

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an appeal against fixing reserve price (which

was  not  maintainable),  DRT  granted  interim

relief on certain terms and conditions.  But

even  those  conditions  had  not  been  complied

with by the Company. Reserve price fixed was

proper, sufficient and reasonable and DRT ought

not to have set aside the order passed by the

Recovery Officer. 14. The counsel vehemently contended

that the High Court ought to have taken into

account  over  all  conduct  of  the  party,

particularly  when  the  Company  had  invoked

discretionary and equitable jurisdiction under

Article 226 of the Constitution.  In exercising

writ jurisdiction, submitted the counsel, the

conduct of the petitioner is indeed a relevant

and extremely important consideration. In the

instant case, the Company had not come with

clean  hands.   It  had  not  repaid  the  loan

amount; did not appear before DRT in spite of

service of summons; an  ex parte  final order

was, therefore, rightly passed against it; the

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Company filed an appeal before DRT against an

‘order’  which  was  not  appealable;  failed  to

comply with even the interim order under which

protection  was  obtained  and  no  payment  was

made;  by  committing  criminal  trespass  and

unlawfully  entering  the  property,  it

dispossessed  the  receiver  appointed  by  the

Tribunal; the action of taking over possession

of the property by act of highhandedness could

not  be  approved;  the  Company  also  removed

machinery and other movable property from the

disputed  premises;  created  unlawful  tenancy

rights in favour of third party by accepting

substantial amount from him, etc. The counsel,

therefore,  urged  that  even  if  the  case  was

covered by SICA and Section 22 got attracted,

the High Court, in exercise of extraordinary

and  special  jurisdiction,  ought  not  to  have

granted relief in favour of the Company. On all

these grounds, it was submitted that the appeal

deserves to be allowed.

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15. The  learned  counsel  for  the

supporting  respondents  adopted  the  arguments

advanced  by  the  learned  counsel  for  the

appellant.

Submissions of respondent 16. The  learned  counsel  for  the

Company, on the other hand, supported the order

passed by the High Court. According to him, no

doubt  the  High  Court  was  exercising  powers

under Article 226 of the Constitution.  But in

exercising  constitutional  powers,  the  Court

would  undoubtedly  keep  in  mind  statutory

provisions of SICA and precisely that has been

done by the Court. If the proceedings could not

have been initiated or continued in view of bar

of Section 22 of SICA, it cannot be said that

the  High  Court  was  wrong  in  passing  the

impugned order.  No grievance, hence, can be

made against such order. As to ex-parte final

order said to have been passed by DRT, it was

submitted that no opportunity of hearing was

afforded  to  the  Company  and  the  order  was

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violative of principles of natural justice and

fair  play.  The  appeal  filed  by  the  Company

against fixation of reserve price before DRT

was maintainable under Section 30 of the RDDB

Act as the appeal lies against “an order of the

Recovery Officer made under the Act” and an

order of fixation of reserve price is also an

‘order’  within  the  meaning  of  the  Act.

Regarding  non-depositing  of  amount  as  per

interim  order,  it  was  submitted  that  the

Company was not in a position to comply with

the  conditions  of  stay  and  the  directions

issued and hence, in accordance with law, it

challenged the said order by filing an appeal

before DRAT. It was the right of the Company to

take  such  action  and  the  appellant  cannot

object against such course being adopted by the

Company. It was, therefore, submitted that the

High Court was wholly justified in allowing the

petitions filed by the Company and no case has

been made out by the appellant for interference

against the said order by this Court.

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High Court’s order 17. At the outset, it may be noted

that  the  High  Court  had  disposed  of  the

petitions  only  on  one  ground  as  to

applicability  of  SICA  and  held  that  the

proceedings were barred under Section 22 of the

said Act. This is amply clear from paragraph 13

of the order which reads as under:

Several  arguments  have  been advanced before us by learned counsel for  the  parties,  but  we  are  of  the opinion that this petition deserves to be  allowed  on  the  very  first submission of Dr. Abhishek M. Singhvi, learned  senior  counsel  for  the petitioner,  namely  that  the proceedings are barred by Section 22 read with Section 32 of the SICA.   

(emphasis supplied)

18. Referring  to  the  relevant

provisions  of  SICA  and  keeping  in  view  the

ratio laid down in the decisions cited before

it, the Court ruled that the petition filed by

the  Company  was  required  to  be  allowed.

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Accordingly, in the operative part (para 36),

the High Court concluded:

For the reasons given above, the petition is allowed and the impugned order  dated  10.2.2006  passed  by  the DRAT is set aside and it is held that no recovery can take place against the petitioner  in  view  of  the  bar  of Section 22 of the SICA.

(emphasis supplied)

19. As already adverted to, before

the Court the arguments had been advanced by

all the parties on continuation or otherwise of

proceedings  and  also  on  the  merits  of  the

matter. In view of the fact, however, that the

High Court has not entered into merits of the

case and disposed of petitions holding that the

proceedings could not be continued because of

the bar of Section 22 of SICA, I do not wish to

enter into allegations and counter allegations

levelled by the parties. At the same time, I am

of the view that the conclusion arrived at by

the High Court that the proceedings were barred

under Section 22 of SICA is not well-founded

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and  the  decision  of  the  High  Court  on  that

point deserves to be set aside.

SICA – Ambit and scope 20. So far as SICA is concerned, it

has been stated in the Preamble that the Act

has been enacted in public interest “with a

view to securing the timely detection of sick

and  potentially  sick  companies  owning

industrial  undertakings,  the  speedy

determination  by  a  Board  of  experts  of  the

preventive,  ameliorative,  remedial  and  other

measures which need to be taken with respect to

such companies and the expeditious enforcement

of the measures so determined and for matters

connected  therewith  or  incidental  thereto”.

While  interpreting various  provisions of  the

Act, the said object has to be kept in mind by

Courts.  Section  2  is  in  the  form  of

‘declaration’  and  declares  that  the  Act  has

been enacted for giving effect to the policy of

the  State  towards  securing  the  principles

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specified in clauses (b) and (c) of Article 39

of the Constitution. Section 3 defines various

terms used in the Act. Chapter II relates to

establishment of Board and Appellate Authority,

term  of  office,  conditions  of  service  of

officials  and  working  of  the  Board  and

Appellate Authority. References, Inquiries and

Schemes have been dealt with in Chapter III.

Whereas Section 15 provides for Reference to

Board,  Section  16  speaks  of  Inquiry  into

working of sick industrial companies. Section

17 empowers the Board to make suitable order on

the completion of inquiry. Sections 18, 19 and

19A  deal  with  Preparation  of  Schemes,

Rehabilitation and Arrangement for continuing

operations during inquiry. Winding up of sick

industrial  company  is  found  in  Section  20.

Section 21 allows Operating Agency to prepare

inventory. Under Section 22A, directions can be

issued preventing disposal of assets in certain

cases.

24

21. Section  22  is  a  material

provision which relates to suspension of legal

proceedings, contracts, etc.  Sub-section (1)

is important and may be reproduced;  

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.

25

…..             …..            ….. ……  

22. Chapter  IV  covers  potentially

sick  industrial  Companies,  misfeasance

proceedings,  appeals  and  other  miscellaneous

matters with which the Court is not concerned

in the present case except Section 32 which

gives ‘overriding effect’ to the provisions of

the Act. It reads as under:

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 section  72A  of  the  Income-tax  Act,

26

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  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.

RDDB Act – Ambit and scope

23. The RDDB Act (Recovery of Debts

Due to Banks and Financial Institutions Act,

1993) has been enacted with a view “to provide

for  the  establishment  of  Tribunals  for

expeditious adjudication and recovery of debts

due to banks and financial institutions and for

matters  connected  therewith  or  incidental

thereto”. Chapter I is Preliminary in nature

and Section 2 defines various terms. Chapter II

provides  for  establishment  of  Tribunals  and

Appellate  Tribunals,  their  composition,

qualifications and term of office of the staff,

salaries, allowances, etc. Jurisdiction, powers

27

and authority of Tribunals are found in Chapter

III.  The  Tribunals  are  required  to  follow

procedure laid down in Chapter IV. Chapter V

relates to ‘Recovery of debt determined by the

Tribunal’.  Section  29  declares  that  the

provisions of the Second and Third Schedules of

the  Income  Tax  Act,  1961  will  apply  to  the

recovery  of  amount  due  under  the  RDDB  Act.

Chapter  VI  is  Miscellaneous.   One  section,

however,  is  of  extreme  importance.   It  is

Section 34 which allows ‘overriding effect’ to

the provisions of the Act over other laws.  It

is a crucial provision and may be quoted  in

extenso;  

34. Act to have overriding effect.—(1) Save  as  provided  under  sub-section (2), the provisions of this Act shall have  effect  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

28

addition to, and not in derogation of, the  Industrial  Finance  Corporation Act,  1948,  the  State  Financial Corporations Act, 1951, the Unit Trust of  India  Act,  1963,  the  Industrial Reconstruction Bank of India Act, 1984 and  the  Sick  Industrial  Companies (Special Provisions) Act, 1985 and the Small  Industries  Development  Bank  of India Act, 1989.   (emphasis supplied)

24. According to the Company, there

is a bar against initiation or continuation of

proceedings under Section 22 of SICA against

sick companies. The High Court was, therefore,

right in allowing the petitions filed by the

Company.  The  case  of  the  appellant  and

supporting respondents, on the other hand, is

that Section 22 of SICA has no application to

the case on hand and the High Court was in

error in invoking the said section and denying

relief  to  the  auction  purchaser  as  well  as

other creditors by wrongly extending benefit of

the  said  provision  to  the  Company.  The

appellant alternatively contended that even if

the proceedings pending against the Company are

29

covered  by  Section  22  of  SICA,  non-obstante

clause in Section 34 of RDDB Act, which is a

subsequent  legislation  will  operate  and

recovery could not have been suspended, stalled

or arrested.

Interpretation of statutes

25. The  question,  therefore,  is

whether the High Court was right in holding

that the proceedings were barred under Section

22 of SICA.  I have extracted the relevant part

of the said section. It has two limbs.  The

first part enacts that “no  proceeding 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  …  shall  lie  or  be  proceeded  with

further, except with the consent of the Board

or,  as  the  case  may  be,  the  Appellate

Authority.”   The  second  part  which  is

30

independent of the first part declares that “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.”  The two parts use two different

expressions; (i) ‘proceeding’ and (ii) ‘suit’.

Case law

26. In  Kailash Nath Agarwal & Ors.

v.  Pradeshiya  Industrial  &  Investment

Corporation of U.P. Ltd. & Anr., (2003) 4 SCC

305, this Court had an occasion to consider the

meaning of these two expressions.  The Court

noted that sometimes two different words are

used in one and the same statute to convey the

same  meaning,  but  “that  is  exception  rather

than the rule”.  The general rule is that when

31

two  different  words  are  used  by  a  statute,

prima facie one has to construe different words

as carrying different meanings.   

27. The Court stated;

“The word “suit” and “proceeding” have not  been  used  interchangeably  in SICA.”

28. Referring  to  Pandurang  R.

Mandlik v. Shantibai R. Ghatge,  1989 Supp (2)

SCC  627,  the  Court  observed  that  in  its

comprehensive  sense,  the  word  ‘suit’  is

understood  to  apply  to  any  proceeding  in  a

Court of Justice by which an individual pursues

a remedy which the law affords.  The modes of

proceedings may be various, but if a right is

litigated  between  parties  in  a  Court  of

Justice, the proceedings by which the decision

of the Court is sought may be a suit. The word

‘suit’ ordinarily means and, apart from some

context,  must  be  taken  to  mean  a  civil

32

proceeding instituted by the presentation of a

plaint”.  (vide Hansraj Gupta v. Dehra Dun –

Mussoorie  Electric  Trameray  Co.  Ltd.;  60  IA

13 : AIR 1933 PC 63).

29. In the instant case, proceedings

had been initiated by the Bank not before a

Civil Court by invoking Section 9 of the Code

of Civil Procedure, 1908, but before DRT by

taking recourse to jurisdiction under RDDB Act.

It  is,  therefore,  contended  that  the

proceedings could not be said to be a “suit”

falling within the mischief of Section 22 of

SICA.  In any case, according to the learned

counsel for the appellant, ex parte final order

was passed by DRT as back as on July 15, 2003

and  hence  even  if  it  is  assumed  that  the

connotation  “suit”  should  be  construed

liberally so as to take within its sweep all

proceedings  including  an  application  before

DRT, in view of final order passed by DRT in

33

2003,  bar  envisaged  by  Section  22  of  SICA

cannot operate.

30. So  far  as  “proceedings”  are

concerned, it was submitted by the appellant

that the final order had been passed by DRT

under RDDB Act.  A Certificate had been issued

under Section 19 and in accordance with Section

29 of the Act, procedure laid down in Second

and Third Schedules to the Income Tax Act, 1961

had been followed.  Reserve price was fixed.

Sale-proclamation was published.  Auction was

held.   The  appellant  was  found  to  be  the

highest  bidder  and  its  bid  was  accepted.

Necessary amount was deposited.  All actions

were  thus  in  conformity  with  law.   If  the

Company  felt  aggrieved  by  auction  sale,  it

ought  to  have  proceeded  in  accordance  with

Rules  60  to  62  of  the  Rules  in  the  Second

Schedule.  Rule 60 permits a person adversely

affected  by  the  sale  to  apply  to  the  Tax

Recovery Officer within thirty days from the

34

date of sale to set aside such sale on his

depositing  the  entire  amount  with  interest

thereon and penalty.  Admittedly, the Company

did not avail the said remedy. Rule 61 allows

an application to set aside sale of immovable

property on the ground of non-service of notice

or  material  irregularity  in  publishing  or

conducting  the  sale.   The  said  rule  also

provides  for  deposit  of  amount  recoverable

under the Certificate.  The Company failed to

do so.  Under Rule 62, sale can be set aside

when defaulter has no saleable interest.  No

such case had been put forward by the Company

by  applying  under  Rule  62.  The  Company,

therefore, could not make grievance against the

auction sale.

31. Strong  reliance  was  placed  on

behalf of the appellant on Rule 63 which states

that where no application is made for setting

aside the sale or where such application is

made and is dismissed, the Tax Recovery Officer

35

shall  make an order confirming the sale and

thereupon the sale  shall  become absolute. It

was submitted that none of the Rules had been

invoked by the Company by applying to the Tax

Recovery Officer and by depositing the amount.

The Tax Recovery Officer, hence, was enjoined

to confirm sale as per the mandate of Rule 63.

An appeal filed by the Company under Section 30

of RDDB Act before DRT against the order of Tax

Recovery Officer fixing reserve price was ill-

conceived and not maintainable as there was no

‘order’ within the meaning of RDDB Act which

was appealable.  Attention of the Court in this

connection was invited by the learned counsel

to  Rule  53  [Contents  of  proclamation].  It

provides  that  a  proclamation  of  sale  shall

specify,  inter  alia,  “the  reserve  price,  if

any, below which the property may not be sold”

[Clause (cc)].  It was submitted that fixation

of ‘reserve price’ is not mandatory, condition

precedent or sine qua non and if reserve price

is not fixed, the order cannot be said to be

36

non est, contrary to law or unlawful.  In any

case, when reserve price was fixed and property

was sold not below such price, the only remedy

available to the Company or any person whose

interest was affected was to apply under Rule

60 or 61 or 62.  The appeal before DRT was thus

totally misconceived and ought not to have been

entertained by the Tribunal.

32. According  to  the  Company,

reserve  price  was  grossly  inadequate.   The

Company was aggrieved and preferred an appeal

under  Section  30  of  RDDB  Act  as  the  order

fixing reserve price was also an ‘order’ within

the  meaning  of  the  Act.   To  buttress  the

submission, the counsel relied upon a decision

of  this  Court  in  Union  of  India  &  Anr.  v.

Delhi High Court Bar Association & Ors., (2002)

4  SCC  275.   In  Delhi  High  Court  Bar

Association,  while  upholding  the  validity  of

RDDB  Act,  this  Court  considered  various

safeguards  and  remedies  available  to  the

37

aggrieved  party.   In  paragraph  30  of  the

decision, it was inter alia observed;

Furthermore, Section 30, after amendment by the Amendment Act, 2000, gives a right to any person aggrieved by an order of the Recovery Officer, to prefer an appeal to the Tribunal. Thus now an appellate forum has been provided  against  any  orders  of  the Recovery Officer which may not be in accordance  with  law.  There  is, therefore, sufficient safeguard which has been provided in the event of the Recovery  Officer  acting  in  an arbitrary  or  an  unreasonable  manner. The provisions of Sections 25 and 28 are, therefore, not bad in law

33. I express no opinion one way or

the other on the controversy. As noted earlier,

the High Court allowed the petitions filed by

the  Company  only  on  the  ground  of  bar  of

Section 22 of SICA.  Since I am of the view

that the High Court was not right in coming to

that conclusion, the matter must go back to the

High Court for deciding all points not dealt

and decided.

38

34.  The  learned  counsel  for  the

Company emphatically argued that Section 32 of

SICA is explicitly clear and uses non-obstante

clause (“Notwithstanding anything inconsistent

therewith contained in any other law”).  It was

urged that SICA is a ‘self-contained Code’ and

makes  detailed  and  exhaustive  provisions  in

respect  of  sick  companies.   It  is  also  a

‘special law’ and effect must be given to the

provisions  of  the  Act.  The  argument  of  the

appellant on the other hand is that Section 34

of RDDB Act is a subsequent legislation which

also contains a similar non-obstante clause and

that Act should prevail over SICA.   

35.  The  learned  counsel  for  the

parties,  in  support  of  their  respective

submissions,  referred  to  several  decisions.

Let us consider few of them.

36. In  Maharashtra  Tubes  Ltd.  v.

State  Industrial & Investment Corporation of

39

Maharashtra Ltd. & Anr., (1993) 2 SCC 144, this

Court  was  called  upon  to  consider  the

provisions  of  SICA  and  State  Financial

Corporation Act, 1951.  Observing that the word

‘proceedings’ in sub-section (1) of Section 22

of SICA could not be given narrow or restricted

meaning  to  limit  the  legal  proceedings,  the

Court held that if Section 22(1) is attracted,

the proceedings must be held to be barred.

36. Keeping in view the underlying

object of enacting SICA, the Court stated;

Now  we  come  to  the  impugned decision.  The  High  Court  was considerably  influenced by  the fact that  the  appellant-company  owed crores of rupees to banks and felt that  so  far  as  such  creditors  are concerned,  different  considerations may come into play but the High Court with  respect  failed  to  appreciate that  the  1985  Act  was  enacted primarily  to assist  sick industrial undertakings which inter alia failed to meet their financial obligations. It is, therefore, difficult to accept the view of the High Court that where the  creditors  of  a  sick  industrial concern happen to be Banks or State

40

Financial  Corporations  different considerations would come into play. It  must  be  realised  that  in  the modern  industrial  environment  large industries are generally financed by banks  and  statutory  corporations created  specially  for  that  purpose and if they are permitted to resort to  independent  action  in  total disregard  of  the  pending  inquiry under Sections 15 to 19 of the 1985 Act  the  entire  exercise  under  the said  provisions  would  be  rendered nugatory by the time the BIFR is able to  evolve  a  scheme  of  revival  or rehabilitation of the sick industrial concern by : device of the Financial Corporation  resorting to  Section 29 of the 1951 Act. We are, therefore, of the opinion that where an inquiry is pending under Section 16/17 or an appeal is pending under Section 25 of the  1985  Act  there  should  be cessation of the coercive activities of the type mentioned in Section 22 (1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. The expression 'proceedings' in  Section 22(1),  therefore, cannot be  confined  to  legal  proceedings understood  in  the  narrow  sense  of proceedings in a Court of law or a legal  tribunal  for  attachment  and sale of the debtor's property.

38. In Deputy Commercial Tax Officer

& Ors. v. Corromandal Pharmaceuticals & Ors.,

(1997) 10 SCC 649, this Court held that the

41

embargo under Section 22(1) would not apply to

payment of tax collected by the sick industrial

company after the date of the sanctioned scheme

and legitimately belonged to the Revenue.  “Any

other  construction  will  be  unreasonable  and

unfair  and  will  lead  to  a  state  of  affairs

enabling the sick industrial unit to collect

amounts  due  to  the  Revenue  and  withhold  it

indefinitely  and  unreasonably.   Such  a

construction which is unfair, unreasonable and

against  the  spirit  of  the  statute  in  a

business sense, should be avoided.”  (emphasis

supplied)

39. Justice  Jeevan  Reddy  was  much

more emphatic.  In a concurrent judgment, His

Lordship stated;

Looking  at  the  provisions  of  the Sick  Industrial  Companies  (Special Provisions) Act, 1985 [the Act], I was wondering how out of tune the Act has become with the economic policies being pursued  now  in  this  country.  Since

42

1991-92, we are launched upon, what is being  called,  liberalisation  of  our economy. We have given up the policy of protecting  our  industries  against foreign competition on the ground that it has given rise to an inefficient and outdated  industrial  system  in  our country.  Our  industries  are  suddenly being  asked  to  compete  with  foreign companies,  many  of  whom  being  giant multi-nationals have vast resources at their  disposal.  [They  are  merrily gobbling up our poor native companies. Many local industries, unable to stand the  said  competition  are  joining  the foreign giants in one form of venture or  other.  Several  hundreds  of  small- scale and medium scale units in telecom sector,  for  example  have  suffered enormously  because  of  our  love  for foreign  companies  and  their  capital. The  state  of  several  public  sector companies is no better. I am not saying that we have totally embraced, what may be called "Reaganism" or "Thatcherism". The fact, however, remains that it is no  longer  thought  advisable  to  keep alive  inefficient  and  uneconomic industries by injecting public funds or in  the  name  of  safeguarding  the employment of the workers. And here is this  Act,  a  product  of  the  era  of protectionism,  seeking  to  keep  alive "sick" companies by pumping in funds - mostly public funds - and by providing various  concessions.  In  the  process, nobody  inquires  why  a  particular industrial  company  has  become  sick, viz., whether it is an induced one or whether  it  is  on  account  of  factors beyond their control. The object of the Act  is  undoubtedly  laudatory  but  it must  also  provide  for  appropriate

43

measures  against  persons  responsible where  it  is  found  that  sickness  is caused  by  factors  other  than circumstances beyond the control of the management.  It  is  also  a  well-known fact  that  the  proceedings  before  the Board  of  Industrial  and  Financial Reconstruction  take  a  long  time  to conclude  and  all  the  while  the protective  umbrella  of  Section  22  is held  over  the  company  which  has reported  sick.  We  have  come  across cases where unfair advantage is sought to  be  taken  of  the  provisions  of Section  22  by  certain  industrial companies  -  and  the  wide  language employed  in  the  section  is  providing them a cover. We are sure Section 22 was not meant to breed dishonesty nor can it be so operated as to encourage unfair  practices.  The  ultimate prejudice to public monies should not be  overlooked  in  the  process  of promoting  industrial  progress.  We  are quite sure that the Government is fully alive to the situation and are equally certain that they must be thinking of necessary  modifications  in  the  Act. These few observations are meant merely to record the need for changes in the Act.            (emphasis supplied)

40. In Real Value Appliances Ltd. v.

Canara  Bank  &  Ors.,  (1998)  5  SCC  554,  a

contention  was  advanced  on  behalf  of  the

creditors that the conduct of the Company was

far from satisfactory and highly objectionable.

44

It  suppressed  several  facts  from  the  Court.

Contradictory and inconsistent pleas were taken

and fraud was practised on the Court.   

41. This Court agreed with what was

submitted and observed;

This conduct of the appellant, in our view, was certainly very unfair to the  High  Court  and,  therefore,  the High Court had rightly depreciated the same. In our view, there was a clear attempt to keep the Court in the dark”

42.  The Court, however, proceeded to

state that on that count reference-application

to the BIFR would not become bad and if the

Company was entitled to the benefit of SICA, it

could not be denied the said benefit.

43. In Rishabh Agro Industries Ltd.

v. P.N.B. Capital Services Ltd.,  (2000) 5 SCC

515,  this  Court  held  that  where  conditions

precedent  for  applicability  of  SICA  were

45

satisfied, then notwithstanding that the order

for winding up of the Company had been passed,

the bar would get attracted.

44. In  Patheja  Bros.  Forgings  &

Stamping & Anr. v. ICICI Ltd. & Ors., (2000) 6

SCC 545, this Court held that without requisite

sanction under Section 22 of SICA, no suit can

be proceeded with.

45. In Jai Engineering Works Ltd. v.

Industry Facilitation Council & Anr., (2006) 8

SCC  677,  after  referring  to  all  leading

decisions on the point and describing 1985 Act

as a ‘complete Code’, this Court stated;  

The  1985  Act  was  enacted  in public  interest.  It  contains  special provisions.  The  said  special provisions had been made with a view to secure the timely detection of sick and potentially sick companies owning industrial  undertakings,  the  speedy determination  by  a  Board  of  experts for preventive, ameliorative, remedial and  other measures which need to be taken with respect to such companies

46

and the expeditious enforcement of the measures so determined and for matters connected  therewith  or  incidental thereto.

46. In my view, however, the learned

counsel  for  the  appellant  is  right  in

submitting that RDDB Act is a ‘special law’ and

also a subsequent legislation, i.e. later law.

It is well-settled that when any law has been

enacted, the Legislature must be presumed to be

aware of all existing laws. When RDDB Act was

enacted in 1993, SICA was very much in force

since it was enacted in 1985.  In spite of

that,  Parliament  was  pleased  to  give

‘overriding effect’ to RDDB Act by using non-

obstante clause in Section 34. Sub-section (1)

expressly stated that the provisions of the Act

“shall  have  effect  notwithstanding  anything

inconsistent therewith contained in any other

law for the time being in force”.

47

47. I am thus at a point where two

statutes  employ  non-obstante  clause  having

‘overriding effect’.  Such a conflict, as laid

down  in  several  cases,  may  be  resolved  by

judiciary  on various  considerations; such  as

the  policy  underlying  the  enactments,  the

language  used,  the  object  intended  to  be

achieved; or mischief sought to be remedied,

etc. One of the tests applied by Courts is that

normally a later enactment should prevail over

the  former.   The  Courts  would  also  try  to

reconcile  both  Acts  by  adopting  harmonious

interpretation  and  applying  them  in  their

respective  fields  so  that  both  may  operate

without coming into conflict with each-other.

In resolving the clash, the Court may further

examine whether one of the two enactments is

‘special’ and  the  other  one  is  ‘general’.

There can also be a situation in law where one

and  the  same  statute  may  be  held  to  be  a

‘special’ statute vis-à-vis one legislation and

‘general’  statute  vis-à-vis  another

48

legislation. On the basis of one or more tests,

the Court will try to salvage the situation by

giving effect to  non obstante  clause in both

the legislations.

48. Let  me  consider  some  of  the

decisions of this Court on this vexed issue.

49.  In  Shri  Ram  Narain  v.  Simla

Banking & Industrial Co. Ltd.,  1956 SCR 603,

two  competing  statutes  came  up  for

consideration  before  this  Court  being  the

Banking Companies Act, 1949 (as amended by Act

52 of 1953) and the Displaced Persons (Debt

Adjustment)  Act,  1951.  Section  45-A  of  the

Banking  Companies  Act  (introduced  by  the

amending Act of 1953) and Section 13 of the

Displaced Persons Act, 1951 both contained a

non-obstante clause  stating  that  certain

provisions  of  the  Act  shall  have  effect

“notwithstanding  anything  inconsistent

therewith in any other law for the time being

49

in force”. This Court resolved the conflict by

considering the object and purpose of the two

laws  and  giving  primacy  to  the  Banking

Companies Act. The Court indicated that when

two Acts contain provisions giving overriding

effect, it would be a difficult question as to

which Act should prevail.

50. The Court stated—

“It  is,  therefore,  desirable  to determine the overriding effect of one or  the  other  of  the  relevant provisions  in  these  two  Acts,  in  a given  case,  on  much  broader considerations  of  the  purpose  and policy underlying the two Acts and the clear  intendment  conveyed  by  the language  of  the  relevant  provisions therein”.

51. In  Shri Sarwan Singh & Anr. v.

Shri  Kasturi  Lal,  (1977)  1  SCC  750,  two

provisions were before this Court. Section 19

of the Slum Areas (Improvement and Clearance)

Act,  1956  (as  amended  by  Act  43  of  1964)

provided  that  proceedings  for  eviction  of

50

tenants could not be taken without permission

of  the  competent  authority  “notwithstanding

anything contained in any other law for the

time being in force”. Section 39 of the Act

further declared that the provisions of the Act

shall  take  effect  “notwithstanding  anything

inconsistent therewith contained in any other

law”.  The  other  statute  was  the  Delhi  Rent

Control  Act,  1958  (as  amended  by  Act  18  of

1976).  Section  14-A  as  inserted  by  the

amendment Act conferred a right on a landlord

to recover immediate possession of any premises

let  out  by  him  in  case  he  was  required  to

vacate any residential premises allotted to him

by  the  Central  Government  or  by  a  local

Authority.  The  conferment  of  the  right  was

“notwithstanding  anything  contained  elsewhere

in this Act or in any other law for the time

being in force”. Section 25-B laid down special

procedure for enforcement of right conferred by

Section  14-A.  Section  25-A  stated  that  the

provisions in Section 25-B shall have effect

51

“notwithstanding  anything  inconsistent

therewith contained elsewhere in this Act or in

any other law for the time being in force”.

The  Court  held  that  the  right  to  immediate

possession  conferred  by  Section  14-A  of  the

Delhi Rent Act was not controlled by the Slum

Clearance Act and the right could be enforced

in the manner provided in Section 25-B  without

obtaining  prior  permission  of  the  competent

Authority under the Slum Clearance Act.

52. Speaking  for  the  Court

Chandrachud,  J.  (as  His  Lordship  then  was)

observed:

“For  resolving  such  inter  se conflicts, one other test may also be applied though the persuasive force of such a test is but one of the factors which combine to give a fair meaning to the language of the law. That test is  that  the  later  enactment  must prevail over the earlier one. Section 14A  and  Chapter  IIIA  having  been enacted with effect from December 1, 1975 are later enactments in reference to  Section 19 of the Slum Clearance Act  which, in its present form, was

52

placed on the statute book with effect from  February  28,  1965  and  in reference  to Section 39 of the same Act,  which  came  into  force  in  1956 when  the Act itself was passed. The legislature gave overriding effect to Section 14A and Chapter IIIA with the knowledge that Sections 19 and 39 of the Slum Clearance Act contained non obstante  clauses  of  equal  efficacy. Therefore  the  later  enactment  must prevail over the former”.  

(emphasis supplied)

53. In Sanwarmal Kejriwal v. Vishwa

Co-operative Housing Society Ltd & Ors., (1990)

2 SCC 288, this Court applied the test as to

‘general’  and  ‘special’  Act  and  held  that

special law would have primacy over the general

law.

54. In Life Insurance Corporation of

India v. D.J. Bahadur & Ors., (1981) 1 SCC 315,

before  this  Court  two  Acts  came  up  for

consideration;  (1)  Industrial  Disputes  Act,

1947  (ID  Act),  and  (2)  Life  Insurance

Corporation Act, 1956 (LIC Act). One of the

53

questions before the Court was which of the two

should be considered as ‘special law’. It was

urged that the Industrial Disputes Act should

be  regarded  as  ‘general  law’  relating  to

workmen  and  Life  Insurance  Corporation  Act

should  be  considered  as  ‘special  law’  in

relation to employees engaged by LIC. It was,

therefore, submitted that when a complaint is

made by an employee of LIC, he cannot invoke

the provisions of ID Act and the matter must be

decided in accordance with LIC Act.  

55. Krishna Iyer, J. described the

question as ‘crucial’ which demanded an answer

about the statute being ‘general’ or ‘special’.

The  well  known  doctrine  of  generalia

specialibus  non  derogant (general  provisions

will not abrogate special provisions) was also

noted and it was observed that if LIC Act was

considered ‘special’, it must operate over ID

Act  treating  ID  Act  to  be  ‘general’  law.

Noticing, however, the long title of LIC Act

54

and its object for providing nationalization of

life insurance business in the country and the

matters connected therewith, the Court observed

that  the  primary  purpose  of  the  Act  was  to

nationalize  private  insurance  business  by

establishing  Life  Insurance  Corporation  of

India. Incidentally, the said Act provided for

transfer of service of existing employees of

the  insurers  to  the  Corporation,  their

conditions of service, etc. But it was ‘plain

and beyond doubt’ that it was not concerned

with  disputes between  employer and  employee.

The  principal  object  of  the  Act  was

nationalization  of insurance  business and  it

was a ‘special’ legislation so far as business

purpose  was  concerned.  Disputes  between

employer and employee had been dealt with by ID

Act which was a ‘special’ law covering that

field and if there is dispute between employer

and employee in Life Insurance Corporation, LIC

Act must be treated as ‘general law’ vis-à-vis

55

ID  Act  which  should  be  treated  as  ‘special

law’.

56. His  Lordship,  therefore,  made

the following pertinent observations:

“In determining whether a statute is  a  special  or  a  general  one,  the focus must be on the principal subject matter  plus  the  particular perspective.  For certain purposes, an Act  may  be  general  and  for  certain other purposes it may be special and we  cannot  blur  distinctions  when dealing with finer points of law. In law, we have a cosmos of relativity not absolutes-so too in life”.

(emphasis supplied)

57. It  was,  therefore,  concluded

that ID Act was a special statute devoted only

to investigation and settlement of industrial

disputes  and  since  LIC  Act  was  a  general

statute,  in  cases  of  disputes  between  an

employer  and  employee,  ID  Act  would  have

primacy over LIC Act.

56

58. In  Maharashtra  Tubes  Ltd.,  a

conflict  between  provisions  of  two  special

statutes,  viz.  (1)  the  State  Financial

Corporation  Act,  1951  and  (2)  the  Sick

Industrial Companies (Special Provisions) Act,

1985  (SICA)  was  highlighted.  Both  contained

non-obstante clause. The conflict was resolved

by this Court by giving overriding effect to

SICA on the ground that SICA was a subsequent

enactment  (1985)  and  non-obstante clause

therein  would  prevail  over  the  non-obstante

clause in the State Financial Corporation Act

(1951).  

59. The  Court,  speaking  through

Ahmadi,  J.  (as  His  Lordship  then  was),

observed:

“Having  reached  the  conclusion that both the 1951 Act and the 1985 Act are special statutes dealing with different  situations--the  former providing for the grant of financial assistance to industrial concerns with a view to boost up industrialisation

57

and the latter providing for revival and rehabilitation of sick industrial undertakings,  if  necessary,  by  grant of  financial  assistance,  we  cannot uphold the contention urged on behalf of the respondent that the 1985 Act is a  general  statute  covering  a  larger number of industrial concerns than the 1951  Act  and,  therefore,  the  latter would prevail over the former in the event of conflict. Both the statutes have  competing  non-obstante provisions.  Section  46B  of  the  1951 Act provides that the provision of the statute and of any rule or order made thereunder  shall  have  effect notwithstanding  anything  inconsistent therewith contained in any other law for  the time being in force whereas Section  32(1)  of  the  1985  Act  also provides  that  the  provisions  of  the said Act and of any rules or schemes made  thereunder  shall  have  effect notwithstanding  anything  inconsistent therewith contained in any other law. Section  22(1)  also  carries  a  non- obstante clause and says that the said provision shall apply notwithstanding anything  contained  in  Companies  Act, 1956 or any other law. The 1985 Act being a subsequent enactment, the non- obstante  clause  therein  would ordinarily  prevail  over  the  non- obstante clause found in Section 46B of  the  1951  Act  unless  it  is  found that the 1985 Act is a general statute and the 1951 Act is a special one. In that  event  the  maxim  generalia specialibus non derogant would apply. But  in  the  present  case  on  a consideration  of  the  relevant provisions of the two statues we have come to the conclusion that the 1951

58

Act  deals  with  post-sickness situation.  It  is,  therefore,  not possible to agree that the 1951 Act is a special statute vis-a-vis the 1985 Act which is a general statute.  Both are  special  statutes  dealing  with different situations notwithstanding a slight  overlap  here  and  there,  for example,  both  of  them  provide  for grant  of financial assistance though in  different  situations.  We  must, therefore, hold that in case of sick industrial undertakings the provisions contained  in  the  1985  Act  would ordinarily prevail and govern”.

              (emphasis supplied)

60. A similar conflict came to light

between  two  statutes,  namely,  (i)  the  State

Financial Corporations Act, 1951 and (ii) the

Companies  Act,  1956  in  A.P.  State  Financial

Corporation  v. Official  Liquidator,  (2000)  7

SCC  291.  The  Court  treated  1951  Act  as  a

‘special Act’ for grant of financial assistance

to the industrial concerns with a view to boost

up  industrialization  and  also  recovery  of

financial  assistance  if  it  becomes  bad.

Likewise,  the  Companies  Act  dealt  with

59

Companies  including  winding  up  of  such

Companies. The Court, however, held that the

proviso to sub-section (1) of Section 529 and

Section 529-A being a subsequent enactment, the

non-obstante clause  in  Section  529-A  would

prevail  over  Section  29  of  the  1951  Act.

Highlighting  the  underlying  object  of  non-

obstante clause  in  Section  529-A  of  the

Companies Act and a social purpose underlying

therein  to  ensure  payment  of  dues  to  the

workmen in priority over all other debts, the

Court  concluded  that  “if  conditions  are  not

imposed to protect the right of the workmen,

there  is  every  possibility  that  the  secured

creditor  may  frustrate  the  above  pari  passu

right of the workmen”.

61. In Allahabad Bank v. Canara Bank

& Anr.,  (2000) 4 SCC 406, a similar question

was raised before this Court. There the Court

considered two Acts, (i) RDDB Act, 1993 and

Companies  Act,  1956.  It  was  held  that  even

60

where a winding up petition was pending or a

winding  up  order  had  been  passed  against  a

Company for debt payable to banks and financial

institutions, governing law was RDDB Act. No

leave of Company Court as envisaged under the

Company  Act,  therefore,  was  necessary.  The

Court held that though both the laws could be

treated  as  ‘special  laws’  in  respect  of

recovery  of  dues  by  banks  and  financial

institutions, it was 1993 Act which should be

considered as ‘special’ vis-à-vis Company Law.

62. I may refer to a recent decision

of this Court in  M/s. Transcore v. Union of

India & Anr.,  (2008) 1 SCC 125, wherein this

Court considered the provisions of RDDB Act,

1993 and Securitization and Reconstruction of

Financial  Assets and  Enforcement of  Security

Interest Act, 2002. Considering the scheme of

both the laws, the Court held that 1993 Act was

a ‘complete Code’ by itself as far as recovery

of debt is concerned. It was a ‘special law’ in

61

the  matters  of  recovery  of  dues  and  the

provisions of the said Act would prevail over

other laws.

63. It  may  also  be  profitable  to

refer to a three Judge Bench decision of this

Court  in  Solidaire  India  Ltd.  v.  Fairgrowth

Financial Services Ltd. & Ors.,  (2001) 3 SCC

71. In that case, S took loan of Rs. one crore

from  F.  The  amount  was  not  repaid.  F,

therefore,  instituted  proceedings  under  the

Special Court (Trial of Offences Relating to

Transactions in Securities) Act, 1992 for the

recovery of the amount. The Special Court came

to the conclusion that  S had not repaid the

loan  and  accordingly  ordered  S to  pay  the

amount with interest. During the pendency of

the appeal before this Court, S became sick and

proceedings were initiated under SICA. One of

the contentions raised before this Court by S

was  that  in  view  of  special  provisions

contained in SICA, no proceedings could have

62

been initiated or continued under the Special

Court Act. This Court admitted that SICA was a

‘special’ Act. The Court was also aware of the

non-obstante clause in Section 32 of SICA. It

noted that the effect of the said provision was

that  SICA  will  have  effect  “notwithstanding

anything  inconsistent  therewith  contained  in

any other law for the time being in force”.

But  it noted  that there  was a  similar  non-

obstante clause in Section 13 of the Special

Court Act which was as under:

"13.  Act  to  have  overriding effect.—The  provisions  of  this  Act shall  have  effect  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, or in any  decree  or  order  of  any  court, tribunal or other authority."

64. The  Court  then  stated;  “This

Court has laid down in no uncertain terms that

in such an event it is the later Act which must

prevail”.  The  Court  referred  to  a  decision

63

rendered by a Special Court in  Bhoruka Steel

Ltd.  vs. Fairgrowth  Financial Services  Ltd.,

[(1997) 89 Comp Cas 547] wherein the Special

Court stated:

"Where  there  are  two  special statues  which  contain  non-obstante clauses  the  later  statute  must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation  and  its  non-obstante clause.  If  the  Legislature  still confers  the  later  enactment  with  a non-obstante clause it means that the Legislature  wanted  that  enactment  to prevail. If the Legislature does not want  the  later  enactment  to  prevail then it could and would provide in the later enactment that the provisions of the  earlier  enactment  continue  to apply.

The  Special  Court  (Trial  of Offences  Relating  to  Transactions  in Securities)  Act,  1992,  provides  in Section 13, that its provisions are to prevail  over any other Act. Being a later enactment, it would prevail over the Sick Industrial Companies (Special Provisions)  Act,  1985.  Had  the Legislature  wanted  to  exclude  the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided.  The  fact  that  the Legislature  did  not  specifically  so

64

provide  necessarily  means  that  the Legislature  intended  that  the provisions  of  the  said  Act  were  to prevail  even  over  the  provisions  of the Sick Companies Act.

….. …. …... …..

It  is  a  settled  rule  of interpretation  that  if  one constructions  leads  to  a  conflict, whereas  on  another  construction,  two Acts  can  be  harmoniously  constructed then the latter must be adopted. If an interpretation is given that the Sick Industrial  Companies  (Special Provisions) Act, 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there  would  be  no  conflict.  It  is clear  that  the  Legislature  intended that public monies should be recovered first  even  from  sick  companies. Provided  the  sick  company  was  in  a position to first pay back the public money, there would be no difficulty in reconstruction.  The  Board  for Industrial  and  Financial Reconstruction  considering  a  scheme for reconstruction has to keep in mind the fact that it is to be paid off or directed  by  the  Special  Court.  The Special Court can, if it is convinced, grant time or instalments.”

65

65. Approving  the  above

observations, this Court stated:

“We are in agreement with the aforesaid decision of the case, more so  when  we  find  that  whenever  the legislature wishes to do so it makes appropriate provisions in the Act in that behalf. Mr. Shiraz Rustomjee has drawn our attention to Section 34 of the Recovery of Debts Due to Banks and Financial  Institutions  Act,  1993 wherein  after  giving  an  overriding effect  to  the  1993  Act  it  is specifically  provided  that  the  said Act will be in addition to and not in derogation of a number of other Acts including  the  1985  Act.  Similarly under Section 32 of the 1985 Act the applicability of the Foreign Exchange Regulation  Act  and  the  Urban  Land Ceiling Act is not excluded.”

Legal position

66. From the above discussion, in my

judgment, the law is fairly well settled. A

provision  beginning  with  non-obstante clause

(“notwithstanding  anything  inconsistent

contained therein in any other law for the time

being  in  force’”)  must  be  enforced  and

66

implemented by giving effect to the provisions

of the Act and by limiting the provisions of

other laws. But, it cannot be gainsaid that

sometimes  one  may  come  across  two  or  more

enactments  containing  similar  non-obstante

clause  operating  in  the  same  or  similar

direction.  Obviously, in such cases, the Court

must attempt to find out the intention of the

Legislature  by  examining  the  nature  of

controversy,  object  of  the  Act,  proceedings

initiated,  relief  sought  and  several  other

relevant  considerations.  From  the  case-law

referred to above, it is clear that Courts have

applied  several  workable  tests.  They,  inter

alia, include to keep in view whether the Act

is ‘general’ or ‘special’, whether the Act is a

subsequent  legislation,  whether  there  is

reference  to  the  former  law  and  the  non-

obstante  clause therein.  The above tests are

merely illustrative and by no means they should

be  considered  as  exhaustive.  It  is  for  the

Court when it is called upon to resolve such

67

conflict  by  harmoniously  interpreting  the

provision of both the competing statutes and by

giving effect to one over the other.  

Primacy of RDDB Act

67. Applying the above tests in the

instance case, to me, it is crystal clear that

the  provisions  of  RDDB  Act  should  be  given

priority and primacy over SICA. I may concede

that both the Acts are ‘special Acts’ in the

sense  that  they  have  been  enacted  for  a

specific purpose and object in view. Whereas

SICA has been enacted in the public interest

with a view to securing the timely detection of

sick  or  potentially  sick  companies  owning

industrial  undertakings,  the  speedy

determination  by  a  Board  of  Experts  of  the

preventive,  ameliorative,  remedial  and  other

measures which need to be taken with respect to

such companies and the expeditious enforcement

of the measures so determined and for matters

68

connected therewith or incidental thereto, RDDB

Act  has  been  enacted  to  secure  and  protect

public revenue and for expeditious adjudication

and  recovery  of  debts  due  to  banks  and

financial institutions.  RDDB Act is subsequent

Act in the point of time being 1993 Act. It

must, therefore, be presumed even in absence of

any specific provision in the 1993 Act that

Parliament was aware of all statutes which had

been enacted prior to 1993 including SICA of

1985. In spite of that, in sub-section (1) of

Section 34 of RDDB Act, non-obstante clause has

been  inserted  so  as  to  ensure  expeditious

adjudication and recovery of debts due to banks

and financial institutions.

68. But it is not only on the ground

that the RDDB Act is a later Act and SICA is a

former Act that I am holding that the RDDB Act

will prevail over SICA.  There is an additional

factor also which is of extreme importance and

supports the view which I am inclined to take.

69

It is sub-section (2) of Section 34. To recall,

sub-section  (2)  of  Section  34  of  RDDB  Act

declares that the provisions of this Act (RDDB

Act of 1993) are “in addition to and not in

derogation of”, certain enactments referred to

in  the  said  sub-section.  SICA  has  been

expressly mentioned in the said sub-section. As

already adverted to earlier, RDDB Act, 1993 has

been enacted with a view “to provide for the

establishment of the Tribunals for expeditious

adjudication and recovery of debts due to banks

and  financial institutions”  (Preamble of  the

Act).   All  other  laws,  therefore,  whether

general or special, prior or subsequent, must,

in  my  considered  view,  be  interpreted  and

applied keeping in view the above object of

enacting  1993  Act.  I  have,  therefore,  no

hesitation in holding that even though both the

conflicting statutes, (SICA of 1985 and RDDB

Act of 1993) contain  non-obstante clause, in

case of conflict, RDDB Act, 1993 will prevail

70

over SICA, 1985 so far as recovery of public

revenue is concerned.

Final Order

69. For  the  aforesaid  reasons,  I

hold that the High Court has committed an error

of law in invoking and applying provisions of

Section 22 of SICA and in dropping proceedings

against  the  Company.  The  order  of  the  High

Court, therefore, deserves to be set aside and

I do accordingly. The matter is remitted to the

High Court to decide it afresh on all points

including  the  conduct  of  the  Company  after

hearing the parties.  All contentions of all

parties are kept open.

70. Before parting with the matter,

I may clarify that any observation on merits

which might have been made in this judgment is

only  for  the  purpose  of  deciding  the

preliminary question as to maintainability of

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proceedings against the Company since the High

Court has allowed the petitions filed by the

Company only on that ground. I make it clear

that I may not be understood to have expressed

any opinion on other issues and as and when the

matter will come up before the High Court, the

same will be decided on its own merits without

being inhibited by such observations.

71. The  appeal  is  accordingly

allowed with costs.

…………………………………………………J. New Delhi; (C.K. THAKKER) August 25, 2008.

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IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 5225     of 2008 (Arising out of SLP(C) No.5041 of 2006)

KSL & Industries Limited ...

Appellant

Vs.

M/s Arihant Threads Limited & Ors ...Respondents

J U D G M E N T

ALTAMAS KABIR,J.

1. I have had the benefit of going through the draft judgment prepared by my learned Brother and while I agree with the conclusion arrived at by His Lordship, that the High Court erred in applying the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, and dropping the proceedings against the Company, with utmost respect I find myself unable to accept the legal reasoning on which His Lordship’s conclusion is based. I would like to traverse a different route in arriving at the same conclusion as arrived at by my learned brother.

2. Since my learned Brother has set out the facts involved in detail, I shall only highlight some of the facts which compel me to pen my views in a separate judgment.

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3. The respondent No.1-Company, M/s Arihant Threads Limited, was incorporated as a Joint Venture Company with Punjab State Industrial Development Corporation. In 1992 the said Company was granted lease of Plot No.454 for 99 years by Goindwal Sahib Industrial and Investment Corporation in the Goindwal Sahib Industrial Area.  The lease contained a specific provision disentitling the lessee from transferring its interest in the demised property for the first 15 years of the lease without the prior permission of the lessor.  However, it was also provided  that the lessee would be entitled to mortgage its leasehold rights to a Bank, the Punjab Financial Corporation or the Life Insurance Corporation of India as security for development of the demised premises by constructing factory buildings and for purchase of raw-material etc.  In view of the said provision, the Industrial Development Bank of India (hereinafter referred to as ‘IDBI’), which was the predecessor of the Stressed Assets Stabilisation Fund (hereinafter referred to as ‘SASF’), financed the project undertaken by the Company.

4. As it appears from the records, the respondent no.1- Company was unable to repay the loan and IDBI filed Original Application No.1368 of 2001 in the Debts Recovery Tribunal, Chandigarh, (hereinafter referred to as ‘DRT, Chandigarh’) on 20.12.2001, for recovery of Rs.25,26,60,836/-, under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the ‘RDDB Act’). Despite service of notice of the said proceedings, the respondent No.1 Company remained unrepresented before the DRT and on 15.7.2003 an ex-parte final order was passed in favour of IDBI for recovery of Rs.25,26,60,836/- together with interest at the rate of 7.8% per annum and a Recovery Certificate was also issued against the respondent No.1-Company.

5. In keeping with Section 29 of the RDDB Act, the Recovery Officer issued a composite demand notice to the respondent No.1-Company  on 9.9.2003 under Rule 2 of the Second Schedule to the Income Tax Act, 1961, demanding payment of Rs. 28,60,87,384/-.  A separate direction was given to the Company to appear before the Recovery Officer on 23.10.2003 for settling terms and conditions relating to the proclamation of sale and for disclosure of its movable and immovable assets.

6. A Valuation Report was also obtained from the Local Commissioner, appointed  by the Recovery Officer, who in his report indicated that two machines were missing from the Company’s factory. A further Valuation Report was obtained from the North-India  Technical Consultancy Association Limited in January 2004, wherein the assets of the Respondent No.1-Company was valued at Rs.17.5 crores on 16.9.2004. The reserve price of the property was fixed at Rs.12.50 crores by the Recovery Officer and two separate dates

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were fixed for sale of the immovable and movable properties of the Company. The respondent No.1 – Company filed an appeal, being Appeal No.52 of 2004, before the DRT on 18.10.2004 under Section 30 of the RDDB Act questioning the fixation of the reserve price by the Recovery Officer at Rs.12.50 crores.  The proposed auction sale was, therefore, cancelled till the DRT by its order dated 27.10.2004 allowed the auction sale to proceed but restrained the Recovery Officer from confirming the same till further orders. Consequently, the auction was held and concluded on 30.10.2004 and the appellant herein was declared to be the successful bidder.  Consequently, as per rules laid down, the appellant deposited 25% of the reserve price immediately. On 11.11.2004, the appellant made an application to the DRT for accepting bank guarantee for the remaining balance of 75% of the sale price.  On the said application being dismissed the appellant-auction purchaser on the same day deposited the balance amount of 75% of the sale price by a bank draft. It is only after the sale had been conducted and concluded on 30.10.2004 that an application was made by the respondent-Company on 15.12.2004 in the pending appeal for setting aside the ex-parte final order passed by the DRT, Chandigarh, on 15.7.2003 and the same was registered as M.A.No.103/2004. The appellant herein filed an application for being added as a party in Appeal No.52 of 2004 and also in M.A. No.103 of 2004 to enable it to oppose the prayer of the Company for setting aside the final order passed by the DRT, Chandigarh, on 15.7.2003.  Such prayer for impleadment was allowed by the DRT by its order dated 17.12.2004.

7. At this juncture it may be indicated that on 10.6.2002 M/s Roland Exports, which had succeeded to the interests of Goindwal Sahib Industrial Corporation, cancelled the lease of the respondent No.1-Company on account of non-payment of lease dues amounting to Rs.3,19,94,149/-.  On 8.4.2005 M/s Roland Exports filed a suit for permanent injunction against the respondent No.1-Company in the Civil Court at Tarantaran, District Amritsar, wherein an order of status-quo with regard to possession was passed.

8. On 26.7.2005, DRT-I, Delhi, allowed Appeal No.52 of  2004 and set aside the auction sale subject to the Company fulfilling certain terms and conditions laid down in the order.   One of the conditions imposed by the Tribunal was that the Company would have to pay 5% of the amount deposited by the auction purchaser within 10 days as penalty in terms of Rule 60 of the Second Schedule of the Income Tax Act, 1961.  Objecting to the said terms and conditions imposed by the DRT the Company filed an appeal with DRAT, Delhi, being Appeal No.167 of 2005. The appellant herein also filed an appeal against the setting aside of the auction sale. The DRAT stayed the operation of the order dated 26.7.2005 by which the DRT-I, Delhi, had allowed Appeal No.52 of 2004 and had set aside the auction sale. The DRAT also directed refund of the sale amount to the appellant.

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9. While the matter was pending before the DRAT, the respondent-Company filed a Reference before the Board for Industrial and Financial Reconstruction (hereinafter referred to as ‘BIFR’), on 21.12.2005 under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, and the same was registered as BIFR Case No.4 of 2006.

10. On 10.2.2006 the DRAT dismissed the appeal filed by the Company and allowed the appeal of the appellant and confirmed the auction sale in favour of the appellant, subject to its depositing the sale price. By a separate order passed on the same day the DRAT ordered the Recovery Officer, Chandigarh, to implement the directions issued by it.  However, despite the appellant depositing the full purchase price on the very same day, the sale could not be confirmed as the Presiding Officer was on leave.  The appellant moved the DRAT for appointment of a Recovery Officer for confirmation of the sale. While the said matters were pending, the respondent-Company filed two writ petitions being C.W. Nos.2041 and 2042 of 2006, in the High Court of Delhi, against the order dated 10.2.2006 passed by DRAT dismissing the Company’s appeal. The Delhi High Court allowed the writ petitions filed by the respondent-Company and by its order dated 23.2.2006 set aside the order passed by the DRAT on the ground that Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 operated as a complete bar for taking recovery proceedings and no order could therefore have been passed by the Tribunal confirming the sale.

11. It is against the said order of the Delhi High Court that the Special Leave Petitions were filed on 26.3.2006 wherein leave has since been granted.

12. It may be significant to note at this stage that on 3.4.2006 the BIFR rejected the Reference made by the Company and that on 15.9.2006 another Reference was filed by the respondent-Company  which was registered as BIFR Case No.18 of 2006. It is in the said Reference that on 22.2.2007 the BIFR declared the Company to be a “sick company” and the respondent No.5 was appointed as the Operating Agency for preparation of a rehabilitation scheme.

13. Learned counsel for the appellant submitted that the High Court had erred in law in holding that the recovery proceedings initiated under the provisions of the RDDB Act were barred by Section 22 of the SICA. It was submitted that Section 22 of SICA was not attracted to the proceedings and the High Court should have decided the matter on merits.  It was also submitted on behalf of the appellant that Section 34 of the RDDB Act had an  overriding effect over the provisions of SICA and that the High Court should have decided the matter on merits on such grounds as well.  It was further contended that the

76

appeal preferred by the respondent-Company under Section 30 of the RDDB Act, against the order of the Recovery Officer  fixing the reserve price at Rs.12.5 crores, was not maintainable and ought not to have been entertained by the DRT-I,Delhi.

14. As has been indicated by my learned  Brother in his judgment, it had been forcefully contended on behalf of the appellant that when the respondent- Company had invoked the discretionary and equitable jurisdiction of the High Court under Article 226 of the Constitution, the High Court should have taken into account the overall conduct of the party as the respondent-Company had not come to the writ court with clean hands.  Not only had it not repaid the loan amount, but it did not appear before the DRT inspite of service of summons and the ex-parte final order was, therefore, rightly passed on the Original Application filed by the IDBI. The respondent- Company also filed an appeal against the order of the Recovery Officer before the DRT-I, Delhi, under Section 30 of the RDDB Act, and failed to comply with the directions contained in the interim order under which directions for payment were made, but no payment was made as directed. To make matters worse, the respondent- Company forcibly entered the property in question and dispossessed the Receiver appointed by the Tribunal and removed machinery and other movable properties from the said premises and created an unlawful tenancy in favour of a third party. In such background it was submitted that even if the case was covered under Section 22 of SICA, the High Court, in exercise of its extra-ordinary jurisdiction, ought not to have allowed the writ petition filed by the Company.

15. Learned counsel for the respondent No.1-company submitted that the appeal preferred by the Company under Section 30 of the RDDB Act against the order of the Recovery Officer fixing the reserve price, was maintainable since the same was an order passed by the Recovery Officer under the Act.  It was contended that since such a course of action was available to the respondent- Company it was not incumbent upon the Company to deposit the amounts indicated in the order of the DRT-I, Delhi, while allowing appeal No.52 of 2004 as a pre-condition for setting aside the auction sale. It was contended that the High Court was fully justified in allowing the writ petitions filed by the respondent-Company in keeping with the bar imposed under Section 22 of SICA.

16. As has been pointed out by my learned Brother, the writ petitions filed by the respondent-Company were allowed by the High Court on the sole ground that the recovery proceedings under the RDDB Act were barred under Section 22 of the SICA. Having once come to the conclusion that the proceedings were barred under Section 22 of the SICA, the High Court did not go into any other question with regard to the merits of the matter and set aside the order of the DRAT confirming the auction sale on that one ground alone.

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17. My learned brother has discussed in detail the relevant provisions of SICA and the RDDB Act and has observed that Section 34 of the RDDB Act is of extreme importance since it allows “overriding effect” to the provisions of the Act over other laws. Inasmuch as my learned Brother’s judgment is based on an interpretation of Section 34 of the RDDB Act in relation to Section 22 of SICA, the same is reproduced hereinbelow to consider the effect thereof :

“34. Act to have over-riding effect-(1) Save as otherwise provided in sub-section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument have 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 Companie (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989.”

18. My learned Brother has relied on the non-obstante provision contained in Sub- section (1) of Section 34 in arriving at a finding that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993,  would have an overriding effect over other enactments. Since the Sick Industrial Companies (Special Provisions) Act, 1985, also contains a similar non-obstante clause in Section 22, His Lordship has considered in detail the effect of the two non-obstante clauses in the two separate enactments governing the same field and has held that since the RDDB Act was a later Act it would prevail over the SICA which was an earlier Act.

19. It is at this point that I am unable to travel the same path which my learned Brother has chosen to traverse.

20. The opening words of Sub-section (1) of Section 34 of the RDDB Act clearly make the provisions thereof subject to the provisions of Sub-section (2) which in unambiguous term provides that the provisions of the Act or the Rules made thereunder would be in addition to and not in derogation of, certain statutes indicated therein, including the Sick Industrial Companies (Special

78

Provisions) Act, 1985.  It is, therefore, clear that while the RDDB Act would have an over-riding effect over other enactments, its provisions would only be supplemental to those of the SICA and consequently the provisions of the SICA would prevail over the provisions of the RDDB Act. Accordingly, if it is held that the situation in this case is covered by the provisions of SICA, then the view taken by the High Court would have to be upheld. If, however, it is found that the provisions of SICA do not apply to the facts of this case, then there can be no doubt that the judgment of the High Court would have to be set aside.

21. During the course of arguments, counsel for the parties did make submissions with regard to the merits of the matter, which may have to be considered in the light of the view which I am  inclined to take in the matter. Furthermore, if it is found that the provisions of SICA, and consequently Section 22 thereof, are not attracted to the facts of this case, the discussion with regard to the RDDB Act being a later Act having an overriding effect over the SICA becomes redundant for the purposes of deciding  this appeal.  For the aforesaid purpose it would be necessary to consider a few dates which have been mentioned hereinbefore.

22. The first date which is relevant for our purpose is 15.7.2003 when the ex-parte final order was passed by the DRT, Chandigarh, for recovery of the sum claimed by IDBI, along with interest @ 7.8% per annum, and a Recovery Officer was appointed.

23. The second relevant date is 9.9.2003 when the Recovery Officer issued a demand notice under Rule 2 of the Second Schedule of the Income Tax Act, 1961, to the respondent-Company for payment of a sum of Rs.25,26,60,836/- as directed by the DRT, Chandigarh, in its final order.  It is only after the Recovery Officer fixed the reserve price for the auction sale of the Company’s assets that the respondent-Company filed an appeal before the DRT on 18.10.2004 under Section 30 of the RDDB Act against the said order of the Recovery Officer. It has also to be noted that on 27.10.2004 the DRT allowed the auction sale to proceed but directed that the sale should not be confirmed until further orders.

24. The next relevant date is 30.10.2004 when the auction was concluded and the appellant was declared to be the highest bidder and the entire sale price was deposited by the appellant auction purchaser on 11.11.2004.

25. It is significant to note that in the appeal, being Appeal No.52 of 2004 under Section 30 of the RDDB Act, an application was moved by the respondent-

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Company on 15.12.2004 for setting aside the ex-parte final order passed on 15.7.2003 and the appellant also filed an application for impleadment to enable it to oppose the prayer for setting aside the final order.

26. The next date of significance is 26.7.2005 when Appeal No.52 of 2004 filed by the respondent-Company under Section 30 of the RDDB Act against the order of the Recovery Officer fixing the reserve price of the Company’s assets was allowed by DRT-I, Delhi, subject to the Company fulfilling certain terms and conditions as indicated in the order.

27. It is only thereafter on 21.12.2005  that the respondent-Company filed a Reference before the BIFR which was registered as BIFR case No.4 of 2006 and the same came to be dismissed on 3.4.2006.

28. In the meantime, the appeal preferred by the respondent-Company before the Debts Recovery Appellate Tribunal against the order of DRT-I, Delhi, allowing the Company’s Appeal No.52 of 2004 was dismissed and the sale in favour of the appellant herein was confirmed, subject to deposit of the entire sale price.

29. It will be of interest to note that the proceedings taken by the respondent- Company after the passing of the final order by DRT, Chandigarh, on 15.7.2003, were directed against fixation of the reserve price by the Recovery Officer though in Appeal No.52 an application was made by the Company for setting aside the final order passed by the DRT Chandigarh.  The same was however, of no consequence as the appeal was preferred against the order of the Recovery Officer fixing the reserve price of the Company’s assets and not the final order, which, in any event, could not have been challenged in the said proceedings. In effect, the final order passed by the DRT, Chandigarh, directing the respondent-Company to pay the dues of IDBI remained unchallenged and attained finality. The two courses available to the respondent No.1-Company for preferring an appeal under Section 20 of the RDDB Act or by way of an application for setting aside the sale under Rule 60 of the Second Schedule of the Income Tax Act, 1961, were not resorted to by the respondent-Company.  Instead, it chose to adopt a path restricted to the setting aside of the auction sale on the ground that the reserve price of the Company’s assets had not been correctly fixed by the Recovery Officer prior to the auction sale.

30. Consequently, the scope of the appeal preferred by the respondent-Company was confined only to the question as to whether the reserve price had been correctly fixed by the Recovery Officer.

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31. This brings us to the next question regarding the applicability of Section 22 of SICA in the proceedings initiated  by IDBI for recovery of its dues under the provisions of the RDDB Act, 1993.

32. As will be seen from what has been indicated hereinabove, the final order was passed on 15.7.2003 by DRT, Chandigarh, at a point of time when no Reference had at all been made by the respondent-Company to the BIFR for being declared a “sick company”. The auction was held and concluded on 30.10.2004, again before a Reference had been made by the respondent- Company to the BIFR. It is only on 21.12.2005 that the Company filed a Reference before the BIFR which was rejected on 3.4.2006. In between, the appeal preferred by the respondent-Company (No.52 of 2004) before the DRT under Section 30 of the RDDB Act was allowed and the auction sale was set aside, but the final order passed by DRT, Chandigarh, remained untouched. The appeal preferred by the appellant herein  against the order of the DRT allowing Appeal No.52 of 2004 was subsequently decided in favour of the appellant on 10.2.2006 and the auction sale was confirmed in favour of the appellant with a direction upon the Recovery Officer and the other concerned authorities to complete the sale in favour of the appellant herein.  It is only on 15.9.2006, after all the aforesaid orders had been passed that a second Reference was filed by the respondent-Company before the BIFR on 15.9.2006 and on 22.2.2007 the Company was declared to be a “sick company” by the BIFR.

33. The above dates will amply show that the proceedings had been taken by the IDBI under Section 19 of the RDDB Act and the final order had been passed therein long before the BIFR came on to the scene. Even the auction sale was concluded in favour of the appellant before the first Reference was made by the Company to the BIFR. The sale was confirmed by the DRAT before the writ petitions were allowed by the High Court on the ground that the recovery proceedings were barred under Section 22 of SICA. Ultimately, the Company’s first Reference was rejected by the BIFR and only upon a second reference filed by the respondent-Company on 15.9.2006 was the Company declared by the BIFR to be a “sick company” on 22.2.2007.

34. In other words, the final order in the recovery proceedings under Section 19 of the RDDB Act was passed and the auction sale was concluded before the first Reference was filed by the respondent-Company with the BIFR and long before the respondent-Company was declared to be a sick Company on 22.2.2007.  It is, therefore, clear that the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, were sought to be invoked by the respondent No.1-Company after the recovery proceedings had been concluded

81

in favour of the appellant who had also deposited the sale price in respect of his offer which had been accepted by the Recovery Officer.

35. For reasons which are obvious, the respondent-Company chose  not to take recourse either to Section 20 of the RDDB Act or Rule 60 of the Second Schedule of the Income Tax Act, 1961, and took a chance of filing an appeal under Section 30 of the RDDB Act with regard to the fixation of the reserve price of the Company’s assets by the Recovery Officer for the purposes of the auction sale and the scope of the appeal was limited to such issue alone.

36. Since the respondent-Company did not challenge the final order of the DRT, Chandigarh, the same continued to be in force and was carried to its logical conclusion by the holding of auction sale and confirmation thereof in favour of the appellant herein.

37. The order passed by the DRAT on 10.2.2006 confirming the sale in favour of the appellant was made long before the respondent-Company was declared to be a “sick company” on 22.2.2007.  The High Court was, therefore, in error in applying the provisions of Section 22 of the SICA when the sale had already been confirmed in favour of the appellant and the purchase price had already been deposited.  Furthermore, the first Reference made by the respondent- Company was also rejected by the BIFR on 3.4.2006.

38. Apart from the above, even on merits, the conduct of the respondent No.1- company leaves much to be desired. Without challenging the final order passed by the DRT, Chandigarh, allowing the Bank’s claim of Rs.25,26,60,836/- together  with interest @ 7.8% per annum,  the said respondent questioned the order of the Recovery Officer, fixing the reserve price of the Company’s assets for the purposes of the auction sale, under Section 30 of the RDDB Act, having full knowledge of the fact that the final order of the DRT, Chandigarh, could not be challenged in such appeal. The steps taken by the respondent No.1, Company were far from bona fide and were only aimed at stalling the auction sale.  Even at the time of auction of the company’s assets, no attempt was made by the Respondent No.1-Company to secure a bid higher than that of the appellant.

39. Having regard to the above, in my view nothing further remains to be decided by the High Court.

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40. The appeal is accordingly allowed and the order of the High Court impugned in the appeal is set aside with costs assessed at Rs.50,000/-.

……………………………………J. (ALTAMAS KABIR)

Dated : 25.08.2008

                IN THE SUPREME COURT OF INDIA                  CIVIL APPELLATE JURISDICTION

        CIVIL APPEAL NO.5225 OF 2008 (Arising out of SLP (Civil) No.5041 of 2006

KSL & Industries Ltd.     Appellant(s)

     Versu s

M/s Arihant Threads Ltd. & Ors.

   Respondent (s)

                          O R D E R

Although, both of us held that the

appeal  deserves  to  be  allowed  and  the

order  of  the  High  Court  is  to  be  set

aside,   in  view  of  the  difference  of

opinion on interpretation of Section 34 of

the  Recovery of Debts Due to Banks  and

Financial  Institutions  Act,  1993,  the

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Registry is directed to place the papers

before the Hon'ble the Chief Justice of

India  for  taking  appropriate  action  in

accordance with law.

.............. ...J.

       [  C.K. THAKKER ]   

.................J.                       [ALTAMAS

KABIR]         NEW DELHI,       AUGUST 25, 2008.

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