Case: Paper Prints (India) Private Limited Vs. Phoenix Arc Private Limited

Dr. D. Y. Chandrachud, J. 1. This Appeal arises from an order of the learned Single Judge dated 21 October 2010 by which a Company Petition for winding up has been admitted and is directed to be advertised. The Respondent, who instituted a proceeding for winding up before the Company Court, is a company registered as a Securitisation and Reconstruction company under Section 3 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. DBS Bank Limited had granted a factoring facility/overdraft facility in the amount of Rs. 2.50 Crores to the Applicant Company under a letter of offer dated 18 July 2007. Upon acceptance by the Company, financial facilities were extended by the bank. The bank had issued a notice of demand on 15 September 2008 inspite of which the Company failed to pay its dues. The Bank has moved the Debt Recovery Tribunal for recovery of an amount of Rs. 2.46 Crores due as on 31 January 2009 together with interest.2. DBS Bank Limited assigned its debt to the Respondent by a deed of assignment dated 9 December 2009. The Respondent issued a notice dated 15 April, 2010 under Sections 433 and 434 of the Companies Act. The Company Petition for winding up came up for hearing on diverse dates before the learned Company Judge. No reply was filed. The Company only submitted that only an amount of Rs. 20 Lakhs is due and payable. In these circumstances, the learned Company Judge directed that the Petition should be admitted and advertised.3. At the hearing of these proceedings Counsel appearing on behalf of the Appellant submits that the Company moved a reference before the BIFR under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA,1985). On this basis, it is urged that the provisions of Section 22 would apply and the hearing of the Appeal which arises from the order of learned Company Judge cannot proceed.4. Now, it is common ground that the reference before the BIFR was rejected on 4 June 2012. An Appeal has been filed before the AAIFR.5. The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) has made amendments inter alia to the SICA, 1985 by Section 41 read with the Schedule. As a result of the amendment, two provisos have been added to subsection 1 of Section 15 of the SICA, 1985 which read as follows :"Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company under sub-section (1) of section 5 of that Act :Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act."6. The submission of the Appellant is that the Respondent is an unsecured creditor and that consequently the reference under the SICA, 1985 will not abate unless secured creditors representing three-fourths in value of the amount outstanding have taken measures to recover their secured debt under Section 13(4).7 There is no merit in the submission. The first proviso to Section 15 (1) of the SICA, 1985 as introduced by the provisions of the Securitisation Act applies specifically to a situation where financial assets have been acquired by any securitisation company or by a reconstruction company under subsection 1 of section 5 of the Securitisation Act. The second proviso applies to a situation where a reference is pending before the BIFR after the commencement of the Securitisation Act. The second proviso provides the eventuality in which the reference would abate. That eventuality is where the secured creditors representing not less than threefourth in value of the amount outstanding against the financial assistance disbursed to the borrowers have taken measures under Section 13(4).8 The first and second proviso to sub-section 1 of Section 15 of the SICA, 1985 operate in different fields. The first proviso is a specific provision made in relation to a securitisation company or reconstruction company, which has acquired financial assets after the commencement of the Securitisation Act, 2002 under Section 5(1). The expression financial asset is defined in Section 2 (l) as follows :(l) financial asset means debt or receivables and includes-(i) a claim to any debt or receivables or part thereof, whether secured or unsecured; or(ii) any debt or receivables secured by, mortgage of, or charge on, immovable property; or(iii) a mortgage, charge, hypothecation or pledge of movable property; or(iv) any right or interest in the security, whether full or part underlying such debt or receivables; or(v) any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent; or(vi) any financial assistance;Sub-clause (i) of clause (l) includes a claim to any debt or receivables whether secured or unsecured. Therefore, the intent of Parliament when it introduced the two amendments to Section 15(1) is clear. A special provision has been made in case of securitisation and reconstruction companies, where a financial asset within the meaning of Section 2(l) has been acquired after the enactment of the Securitisation Act of 2002. In such a case, no reference can lie before the BIFR. The second proviso in contradistinction applies to a situation where a reference has been made validly. Such a reference can abate where measures under Section 13(4) have been taken by the secured creditors representing not less than threefourths in value of the amount outstanding against financial assistance disbursed to the borrower. The first proviso does not contain any reference to a secured creditor at all. It refers to the acquisition of a financial asset by a securitisation or reconstruction company which as noted earlier includes among other things a debt or receivables whether secured or unsecured. As a matter of fact, it may be noted that an express provision has been made in subsection 4 of Section 5 of the Securitisation Act in respect of suits, appeals or other proceedings which are pending on the date of the acquisition of the financial asset. Section 5(4) reads as follows :(4) If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the third proviso to sub-section (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the securitisation company or reconstruction company, as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the securitisation company or reconstruction company, as the case may be.9. In the present case, the order of the learned Single Judge admitting the Company Petition for winding up was passed on 21 October 2010. Prior thereto on 9 December 2009 the Respondent had acquired the financial assets in question being the debts and receivables of DBS Bank Ltd. Under Section 5 (1) of the Securitisation Act. The reference to the BIFR was made on 26 November 2010. Clearly in view of the specific language of the first proviso to Section 15(1) of the SICA, 1985, the reference was not maintainable.10. For these reasons we do not find any merit in the contention of the Appellant based on the provisions of Section 22 of the SICA, 1985.11. The material on record clearly establishes that a debt is due and payable by the Company. The Company was granted financial assistance and has utilised it. A statutory notice of winding up was issued. No reply was filed to the Petition for winding up. Even before this Court no submission other than what is recorded hereinabove has been urged. The debt is not in dispute.12. By an order dated 2 November 2010 an ad-interim order of stay was passed by the Division Bench, during the course of the vacation, subject to the deposit of an amount of Rs. 20 Lakhs, which even according to the Appellant was due and payable. Time to deposit the amount was extended on the request of the Appellant on 15 November 2010. Only an amount of Rs. 5 Lakhs has been deposited.13. For all these reasons, we find no reason to interfere with the order of the learned Single Judge. The

Decision reasoning: 0[ds]7 There is no merit in the submission. The first proviso to Section 15 (1) of the SICA, 1985 as introduced by the provisions of the Securitisation Act applies specifically to a situation where financial assets have been acquired by any securitisation company or by a reconstruction company under subsection 1 of section 5 of the Securitisation Act. The second proviso applies to a situation where a reference is pending before the BIFR after the commencement of the Securitisation Act. The second proviso provides the eventuality in which the reference would abate. That eventuality is where the secured creditors representing not less than threefourth in value of the amount outstanding against the financial assistance disbursed to the borrowers have taken measures under Section 13(4).In the present case, the order of the learned Single Judge admitting the Company Petition for winding up was passed on 21 October 2010. Prior thereto on 9 December 2009 the Respondent had acquired the financial assets in question being the debts and receivables of DBS Bank Ltd. Under Section 5 (1) of the Securitisation Act. The reference to the BIFR was made on 26 November 2010. Clearly in view of the specific language of the first proviso to Section 15(1) of the SICA, 1985, the reference was not maintainable.10. For these reasons we do not find any merit in the contention of the Appellant based on the provisions of Section 22 of the SICA, 1985.11. The material on record clearly establishes that a debt is due and payable by the Company. The Company was granted financial assistance and has utilised it. A statutory notice of winding up was issued. No reply was filed to the Petition for winding up. Even before this Court no submission other than what is recorded hereinabove has been urged. The debt is not in dispute.12. By an order dated 2 November 2010 anorder of stay was passed by the Division Bench, during the course of the vacation, subject to the deposit of an amount of Rs. 20 Lakhs, which even according to the Appellant was due and payable. Time to deposit the amount was extended on the request of the Appellant on 15 November 2010. Only an amount of Rs. 5 Lakhs has been deposited.13. For all these reasons, we find no reason to interfere with the order of the learned Single Judge.