Ksl & Industries Ltd vs M/S. Arihant Threads Ltd. & Ors

3. The Company set up an export oriented spinning unit for manufacturing cotton yarn in Amritsar District, in the State of Punjab. The Company took on lease, Plot No. 454 in 1992 for a period of 99 years from Goindwal Sahib Industrial & Investment Corporation, on a condition that it would not transfer the interest in the property for the first fifteen years without prior permission of the lessor. The Company had a right to mortgage lease- hold rights to a Bank, the Punjab Financial Corporation or the Life Insurance Corporation of India as security for a loan. It got its project financed by the Industrial Development Bank of India (`IDBI' for short) by way of foreign currency loan and a working capital of Rs. 93.1 million.

4. Since the Company failed to repay loan installments, IDBI filed Original Application No. 1368 of 2001 on December 20.12.01 in Debt Recovery Tribunal, Chandigarh (`DRT' for short) for recovery of Rs. 25,26,60,836/- under the RDDB Act. In the proceedings before the DRT the Company remained absent, although, duly served. On 15.07.03, an ex-parte final order in favour of IDBI for recovery of above mentioned sum i.e. Rs. 25,26,60,836/- along with interest @ 7.8% p.a. was passed by DRT. DRT expressly directed that in the event of failure on the part of the Company to pay the decretal amount, IDBI will be entitled to sell the mortgaged property of the company and recover the amount. If the amount remained unrecovered even then, it shall be recovered from the sale of personal properties of the defendants therein.

5. On 09.09.03, 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 directed the Company to appear for settling terms and conditions of the proclamation of sale and for disclosure of its movable and immovable assets.

6. On 16.09.04, the Recovery Officer fixed the reserve price of the movable and immovable properties at Rs. 12.50 crores. On 18.10.04, the Company filed an appeal under Section 30 of the RDDB Act against the order dated 16.09.04 fixing reserve price of the movable and immovable properties at Rs. 12.50 crores. On 30.10.04, the appellant was declared the highest bidder at Rs. 12.52 crores and was thus successful. On 15.12.04, the Company moved an application for setting aside the ex-parte final order, passed on 15.07.03 by DRT Chandigarh in favour of IDBI, directing recovery of Rs. 25,26,60,836/- along with interest @ 7.8% p.a. The appellant, who had become the auction-purchaser of the company’s properties objected to the prayer of the Company for setting aside the ex- parte order and applied for impleadment. Meanwhile, the Company got its property valued by Himachal Consultancy Organisation Ltd. The realizable value of the company’s property had been valued at Rs. 20.22 crores.

8. Objecting to these conditions, the Company filed an appeal to the DRAT, Delhi. The appellant also filed an appeal being aggrieved by the setting aside of the sale in its favour. The DRAT stayed the order dated 26.07.05 by which the ex-parte order against the Company was set aside and directed refund of sale amount to the appellant.

9. On 21.12.05, the Company invoked the provisions of SICA. It filed a Reference before the Board of Industrial Finance & Reconstruction (`BIFR' for short). On 10.02.06, the DRAT dismissed the appeal filed by the Company and allowed the appeal of the appellant. The DRAT confirmed auction-sale in favour of the appellant on depositing the sale price. The DRAT directed that steps to handover possession of the property to the auction-purchaser (appellant) be taken by the Recovery Officer and the appellant shall deposit the entire amount.

11. Subsequent to the order of the High Court, the BIFR rejected the Reference of the Company and the Company preferred an appeal, which is pending before the Appellate Authority for Industrial & Financial Reconstruction (AAIFR). The second Reference has also been filed by the Company which has been registered as BIFR Case No. 18 of 2006, in which the Company has been declared as a `sick Company' and respondent No. 5 [Stressed Assets Stablization Fund, Mumbai] has been appointed as Operating Agency to prepare Rehabilitation Scheme.

14. Kabir, J. referred to the following facts for drawing this conclusion. It was only on 21.12.05, that the Company filed a Reference before the BIFR which was dismissed on 10.02.06. Before this, the Recovery Officer had issued a demand notice under Rule 2 of the Second Schedule to the Income Tax Act, 1961 demanding payment of Rs.

15. The Company's first Reference was rejected by the BIFR and only the second reference made on 15.09.06, had been allowed i.e. after the High Court’s order dated 23.02.06. Since the recovery proceedings have been concluded in favour of the appellant and the appellant had also deposited the sale price, the respondent was not entitled to any relief by virtue of Section 22 of the SICA before the High Court.

54. Having answered the reference, we hold that the provisions of SICA, in particular Section 22, shall prevail over the provision for the recovery of debts in the RDDB Act. In these circumstances, as already directed by the two-Judge Bench of this Court, the Judgment and Order dated 23.02.06 of the High Court of Delhi is set aside. As far as the writ petitions are concerned, whether on the ground that Section 22 of the SICA acts as a bar to the recovery proceedings under the RDDB Act or whether the protection of SICA is not available to the appellant company since the recovery proceedings under the RDDB Act had been concluded, the writ petitions would have to be dismissed and are accordingly dismissed. The present appeal is allowed.

……………………….…..........…..CJI.