REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION (CIVIL) NOS.9728-9729  OF 2011

( CC 4966-4967/2011)

M/s Bharat Steel Tubes Ltd. etc. … Petitioner  

Vs.

IFCI Ltd. & Ors. … Respondents

J U D G M E N T

ALTAMAS KABIR, J.

1. Permission to file Special Leave Petitions is  

granted.

2. In these Special Leave Petitions, M/s Bharat  

Steel Tubes Ltd. has challenged the judgment and  

order dated 9th July, 2010, passed by a Division  

Bench of the Delhi High Court in WP(C) No.7097 of  

2008,  holding  that  the  Respondent,  Industrial  

Finance  Corporation  of  India  Limited  is  a  

“financial institution” under Section 4A(2) of the  

Companies Act, 1956, read with Section 2(1)(m) of  

the Securitisation and Reconstruction of Financial  

Assets and Enforcement of Security Interest Act,  

2002,  (hereinafter  referred  to  as  ‘the  SARFAESI  

Act’) and that, as a consequence, the Respondent  

IFCI Ltd. would be entitled to take recourse to the  

provisions of the SARFAESI Act in order to enforce  

a  “security  interest”  which  had  accrued  in  its  

favour.   The  Petitioner  has  also  challenged  an  

order passed by a Single Bench of the Delhi High  

Court on 10th September, 2010, in I.A.No.12908/09 in  

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CS(OS)No.1886 of 2009 vacating the injunction order  

earlier passed in the suit.   

3. Appearing  for  the  Petitioner,  Mr.  Rakesh  

Dwivedi, learned Senior Advocate, firstly drew our  

attention to Section 4A of the Companies Act, 1956,  

which was introduced by way of an amendment with  

effect  from  1st February,  1975,  defining  “Public  

Financial  Institutions”.   It  provides  that  the  

various  financial  institutions  specified  in  Sub-

Section  (1),  including  the  Industrial  Finance  

Corporation of India, established under Section 3  

of the Industrial Finance Corporation Act, 1948, is  

to be regarded for the purposes of the said Act, as  

a public financial institution.   Learned counsel  

also pointed out that Sub-Section (2) of Section 4A  

also  provides  that  subject  to  the  provisions  of  

Sub-Section  (1),  the  Central  Government  may,  by  

notification in the Official Gazette, specify such  

other institutions as it may think fit to be a  

public  financial  institution.  A  limitation,  

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however, has been imposed on the said powers of the  

Central Government by the proviso to Sub-Section  

(2) which provides that no institution is to be  

specified  as  a  public  financial  institution  

unless:-

(i) It has been established or constituted by  

or under any Central Act; or  

(ii) Not  less  than  51%  of  the  paid-up  share  

capital  of  such  institution  is  held  or  

controlled by the Central Government.

4.   Mr. Dwivedi submitted that while clause (i) of  

the proviso to Sub-Section (2) of Section 4A of the  

above Act is not attracted to the facts of this  

case, the second clause would have been attracted,  

but for the fact that at the relevant point of time  

and even now the Central Government does not hold  

or control 51% or more of the paid-up share capital  

of the institution concerned. Mr. Dwivedi submitted  

that  on  account  of  disinvestment  at  regular  

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intervals, the Central Government does not hold any  

share in the Company and the day it ceased to hold  

51% or more of the paid-up share capital, it ceased  

to enjoy the benefits of Section 4A(ii) and became  

a private company which could no longer be covered  

by the definition of “public financial institution”  

in Section 4A of the Companies Act, 1956.   It was  

submitted  that  even  if  the  Central  Government  

continue to hold shares in the Company, its status  

would be that of any other private shareholder and  

the Corporation could no longer enjoy the status of  

a Public Financial Institution given to it under  

Section 4A of the Companies Act, 1956.   

5. In  order  to  bolster  his  submissions,  Mr.  

Dwivedi  referred  to  the  Industrial  Finance  

Corporation  (Transfer  of  Undertaking  and  Repeal)  

Act,  1993,  hereinafter  referred  to  as  “the  1993  

Act”, whereunder the nature and character of the  

Industrial Finance Corporation of India underwent a  

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change and the Corporation was incorporated as a  

Company  as  defined  in  Section  1(i)(b)  of  the  

aforesaid Act.  Mr. Dwivedi pointed out that under  

Section 3, the undertaking of the Corporation was  

to vest in the Company on a date to be appointed by  

notification  in  the  Official  Gazette  and  on  the  

said date the undertaking of the Corporation would  

stand  transferred  and  vested  in  the  newly-  

incorporated Company. It appears that the appointed  

date was subsequently notified as 1st July, 1993.

6. It was also pointed out by Mr. Dwivedi that  

Section  4  of  the  1993  Act  mentions  the  general  

effect of vesting of an undertaking in the Company  

to be so incorporated.   By virtue of Sub-Section  

(2)  of  Section  4,  the  undertaking  of  the  

Corporation, which was transferred to and vests in  

the Company under Section 3, shall be deemed to  

include  all  the  various  items  set  out  in  Sub-

Section (2) of Section 4.  In addition, under Sub-

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Section  (3)  of  Section  4,  all  contracts,  deeds,  

bonds,  guarantees,  powers  of  attorney,  other  

instruments  and  working  arrangements  subsisting  

immediately before the appointed date and affecting  

the Corporation would cease to have effect or to be  

enforceable against the Corporation and would be of  

full force and effect against or in favour of the  

Company,  in  which  the  undertaking  of  the  

Corporation had vested.   

7. Reference was then made to Sub-Section (5) of  

Section  4,  whereunder  with  effect  from  the  

appointed  date,  fiscal  and  other  concessions,  

licences,  benefits,  privileges  and  exemptions  

granted to the Corporation in connection with the  

affairs and business of the Corporation under any  

law for the time being in force would be deemed to  

have  been  granted  to  the  Company.   Mr.  Dwivedi  

contended that under the said provision, it could  

not be said that the status given to the Respondent  

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Company was saved or continued under Section 5 of  

the  Act  and,  accordingly,  once  the  Central  

Government ceased to hold 51% or more of the paid-

up share capital of the Company, it ceased to enjoy  

the benefits under Section 5 of the 1993 Act.   

8. Mr. Dwivedi submitted that since the Respondent  

No.1  Company  no  longer  fulfilled  the  criteria  

contained in Clause (ii) of the proviso to Sub-

Section (2) of Section 4A of the Companies Act,  

1956, it had lost the status given to it under  

Clause  (ii)  of  Sub-Section  (1)  of  Section  4A  

thereof and was not, therefore, entitled to invoke  

the  provisions  of  the  SARFAESI  Act,  2002,  

notwithstanding the provisions of Section 5 of the  

1993 Act.   

9. Mr. Dwivedi also pointed out that the fact that  

the Respondent No.1 Company was no longer a public  

company  under  the  control  of  the  Central  

Government, had also been admitted on behalf of the  

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Respondent No.1 before the Delhi High Court in Writ  

Petition  (Civil)4596  of  2006,  which  would  be  

reflected from the judgment delivered therein on  

17th August, 2010. Mr. Dwivedi pointed out that in  

paragraph 10 of the judgment it had been mentioned  

by the learned Single Judge that a submission had  

been  advanced  on  behalf  of  the  Respondent  No.1  

Company that it was neither substantially financed  

by  the  Central  Government  nor  did  the  Central  

Government  hold  any  share  whatsoever  in  the  

Respondent No.1 Company.   

10. Mr.  K.K.  Venugopal,  learned  Senior  Advocate,  

appearing for the Respondent No.1 Company, on the  

other  hand,  contended  that  Section  5  of  the  

aforesaid Act was in the nature of a saving clause,  

whereby  all  matters  relating  to  the  Corporation  

stood  wholly  transferred  in  favour  of  the  new  

Company  after  its  incorporation,  including,  the  

status which had been afforded to the Corporation  

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under Clause (ii) of Section 4A(1) of the Companies  

Act, 1956. Mr. Venugopal submitted that in exercise  

of  the  powers  conferred  by  Sub-Section  (2)  of  

Section  4A  of  the  aforesaid  Act,  the  Central  

Government  issued  Notification  No.S.O.98(E)  dated  

15th February,  1995,  specifying  the  Industrial  

Finance  Corporation  of  India  Limited  formed  and  

registered under the Companies Act, 1956, to be a  

financial institution and, accordingly, amended the  

Notification  issued  by  the  Government  of  India,  

Ministry  of  Law,  Justice  and  Company  Affairs  

(Department of Company Affairs) No.S.O.1329 dated  

8th May,  1978,  to  include  the  Industrial  Finance  

Corporation  of  India  Limited  in  the  said  

notification.   

11. Mr. Venugopal urged that the mere fact that the  

Respondent  No.1  Company  was  no  longer  under  the  

control of the Central Government did not affect or  

alter  its  status  under  Section  4A(1)(ii)  of  the  

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Companies  Act,  1956,  as  a  public  financial  

institution and that, in effect, more than 4,000  

cases filed by the Respondent No.1 Company in its  

capacity  as  a  public  financial  institution  were  

pending and would be rendered infructuous if the  

interpretation being sought to be given on behalf  

of the Petitioner in relation to the status of the  

Respondent No.1 Company was to be accepted.   

12. Having  regard  to  the  large  number  of  cases  

filed  by  the  Respondent  No.2  Company,  in  its  

capacity as a public financial institution, which  

are said to be pending, we have given our anxious  

consideration to the submissions advanced on behalf  

of the respective parties and the provisions of the  

Companies  Act,  1956,  and  the  Industrial  Finance  

Corporation  (Transfer  of  Undertaking  and  Repeal)  

Act, 1993.

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13. Section 4A of the Companies Act, 1956, as far  

as  the  Industrial  Finance  Corporation  of  India  

Limited is concerned, provides as follows :-

4A. Public financial institutions.-   (1)  Each  of  the  financial  institutions  specified  in  this  sub-section  shall  be  regarded, for the purposes of this Act, as a  public financial institution, namely:-   (i) ………………………………………………………………………………

(ii)  the  Industrial  Finance  Corporation  of  India,  established  under  Section  3  of  the  Industrial Finance Corporation Act, 1948 (7 of  1948);   (iii) ………………………………………………………………………………

(iv)  ………………………………………………………………………………

(v)   ………………………………………………………………………………

(vi)  ………………………………………………………………………………

(vii) ………………………………………………………………………………

(2) Subject to the provisions of sub-section  (1) the Central Government may, by notification  in  the  Official  Gazette,  specify  such  other  institution as it may think fit to be a public  financial institution:   

Provided that no institution shall be so  specified unless-

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 (i) it has been established or constituted by  or under any Central Act, or   (ii) not less than fifty-one per cent, of the  paid-up share capital of such institution is  held or controlled by the Central Government.”

14. In our view, the provisions of Sub-Section (1)  

of Section 4A stand independent of Sub-Section (2)  

and the financial institutions named in Sub-Section  

(1)  of  Section  4A  recognize  the  financial  

institutions  mentioned  therein  to  be  public  

financial institutions which are not covered by the  

embargo enforced by the proviso to Sub-Section (2)  

of  the  said  Section.   The  proviso  controls  the  

width of Sub-Section (2) which refers to the powers  

of  the  Central  Government  to  specify  by  

notification in the Official Gazette and subject to  

the  provisions  of  Sub-Section  (1),  such  other  

institutions as it may think fit to be a public  

financial institution.  It appears to us that Sub-

Section (2) of Section 4A is applicable only to  

institutions which are not mentioned in Sub-Section  

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(1).   It  is  the  latter  category  of  financial  

institutions to which the proviso applies. In view  

of Section 4 A(1)(ii) of the Companies Act, 1956,  

the  Industrial  Finance  Corporation  of  India  was  

admittedly  regarded  as  a  ‘public  financial  

institution’ for the purpose of the said Act.  The  

conversion of the Industrial Finance Corporation of  

India into a Company did not alter its position and  

status  as  a  financial  institution  in  view  of  

Section  5  of  the  Industrial  Finance  Corporation  

(Transfer  of  Undertaking  and  Repeal)  Act,  1993,  

which, as pointed out by Mr. K.K. Venugopal, was in  

the nature of a saving clause, whereby all matters,  

including  all  benefits,  relating  to  the  

Corporation, stood wholly transferred in favour of  

the new Company.

15. Mr. Dwivedi has submitted that the Notification  

dated  15th February,  1995,  had  been  issued  under  

Section 4A(2) of the Companies Act which will have  

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to conform to the proviso thereto.  Mr. Dwivedi has  

contended that both the conditions in the proviso  

would have to be fulfilled in order to be eligible  

for  being  specified  as  a  public  financial  

institution.  We  are  unable  to  accept  such  

contention in view of the fact that clauses (i) and  

(ii) are not conjunctive but disjunctive and even  

though Clause (ii) may not have any application to  

the  Respondent  No.1  Company,  it  was  covered  by  

clause  (i),  since  it  was  constituted  under  the  

Companies Act, 1956, which is a Central Act.    

16. We, therefore, find no reason to interfere with  

the judgment and orders of the High Court impugned  

in  these  Special  Leave  Petitions,  which  are,  

accordingly, dismissed.

17. There shall, however, be no order as to costs.

…………………………………………J. (ALTAMAS KABIR)

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…………………………………………J. (CYRIAC JOSEPH)

New Delhi Dated:4.4.2011

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