M/S Bharat Steel Tubes Ltd vs Ifci Limited

2. Mr. Andhyarujina submitted that in relation to an order passed by the Debts Recovery Tribunal, Delhi, on an application filed by the Petitioner under Section 17 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, hereinafter referred to as "the Debts Recovery Act, 1993", a direction was given by the Tribunal on 15th September, 2010, to the Petitioner to deposit a sum of Rs.35 crores with the Industrial Finance Corporation of India Ltd. (IFCI Ltd.) without 3 prejudice to its rights and contentions. The Respondent was also directed not to implement the possession notice as well as the public notice published on 13th September, 2010, till the next date of hearing. Against the said order, IFCI Ltd. filed Misc. Appeal No.352 of 2010 before the Debts Recovery Appellate Tribunal, which stayed the proceedings before the Debts Recovery Tribunal by its order dated 22nd September, 2010. Aggrieved by such direction, the Respondent had moved Writ Petition (Civil) No.6652 of 2010, in which an interim order was passed by the Division Bench of the Delhi High Court on 29th September, 2010, directing that during the pendency of the writ petition, the writ petitioner would be free to proceed in pursuance of the Public Notice dated 13th September, 2010, but the bid was not to be finalized. Since a winding-up order had been passed in respect of the petitioner company on the recommendation of the Board for Industrial and 4 Financial Reconstruction (BIFR) and the Official Liquidator had been appointed, it was also directed that the Official Liquidator would be associated with the process of auction and the amount received by the Petitioner from prospective purchasers, as earnest money under the bids, would be kept in a No Lien Account.

9. Mr. Andhyarujina submitted that the Petitioner, M/s Bharat Steel Tubes Ltd., had obtained a loan of Rs.55 crores from the Punjab National Bank in 1973. 9 On 11th November, 2008, a lock-out was declared in the factory of the petitioner and ultimately on 1st May, 1990, the Petitioner made a reference to the BIFR. On 23rd February, 2010, the BIFR recommended winding up of the Company and forwarded its recommendation to the High Court. Three years thereafter, the Punjab National Bank filed O.A. No.12 of 2003 before the Debts Recovery Tribunal, Delhi, for recovery of a loan of Rs.3,27,62,27,044.00. On 14th August, 2003, the High Court passed an order winding up the Company and appointing the Official Liquidator to implement the order of winding up. At this stage, on 2nd September, 2004, the Punjab National Bank entered into a One-Time Settlement with the Petitioner Company for a sum of Rs.26.16 crores out of which the Petitioner was able to pay a sum of Rs.13.80 crores and was unable to pay the rest. However, on 9th February, 2005, the High Court stayed the winding up order passed on 14th August, 2003, and 10 directed the Official Liquidator to continue as the Liquidator and to also observe the functioning of the unit.

11. Thereafter, certain further developments took place, which ultimately brought the present Respondent Company into the picture. On 5th May, 2008, the Petitioner Company entered into an agreement with Assets Care Enterprises Ltd., hereinafter referred to as "ACE", a third-party financier, whereby on payment of the balance amount of the One-Time Settlement by ACE to the Punjab National Bank, the dues of the Bank stood completely settled and there was no existing liability of the Petitioner Company as far as the 11 Bank was concerned. A default clause was, however, included in the Memorandum of Understanding that in case of default of the Petitioner to repay ACE, the latter would be at liberty to proceed against the Petitioner in terms of the financing documents assigned to it by the Petitioner. In fact, a Deed of Assignment was executed between the Punjab National Bank and ACE on 15th July, 2008, for a sum of Rs.15,01,28,752.00. This was followed by a further Deed of Assignment between ACE and the Respondent Company for a sum of Rs.18.63 crores.

12. Thereafter, on 10th August, 2009, IFCI Ltd. issued a notice of demand to the Petitioner Company under Section 13(2) of the SARFAESI Act, 2002, for a sum of Rs.1139.75 crores. The said claim was refuted by the Petitioner Company on 17th September, 2009, denying the right of IFCI Ltd. to the sum as demanded. It was stated that the Memorandum of Understanding between the Petitioner Company and ACE would indicate that ACE was only entitled to a 12 sum of Rs.15,01,28,752.00 and nothing more. Subsequent thereto, on 10th October, 2009, IFCI Ltd. took symbolic possession of the property of the Petitioner Company situated at Gannore in the State of Haryana. The Petitioner Company also filed a suit, being CS (OS) No.1886 of 2009, to injunct IFCI Ltd. from proceeding in accordance with the notice dated 10th August, 2009, which was, however, dismissed by the High Court on the ground of lack of jurisdiction on 10th September, 2010.

13. On the same date, an application was filed by the Petitioner before the Debts Recovery Tribunal- III, Delhi, under Section 17 of the Debts Recovery Act, 1993, which passed an ex-parte stay order in favour of the Petitioner in the said appeal. Thereafter, on 13th September, 2010, IFCI Ltd. issued possession notice with regard to the residential property, being Plot No.17, Friends Colony Cooperative Housing Building Society Ltd., New Delhi, and on the same date a public notice was 13 also issued inviting bids for the factory at Gannore in Haryana. In terms of the public notice issued, it was intimated for the information of the public that the sealed bids would be opened on 15th October, 2010. On 15th September, 2010, the Debts Recovery Tribunal-III, Delhi, passed an order of stay in favour of the Petitioner Company restraining IFCI Ltd. from taking steps in accordance with the possession notice as well as the public notice for sale. The Petitioner Company was also directed to deposit a sum of Rs.35 crores within 30 days of the order.

14. The IFCI Ltd. filed two appeals against the said order dated 15th September, 2010, being Misc. Appeal Nos.352 and 353 of 2010, and on 22nd September, 2010, the Debts Recovery Appellate Tribunal issued notice and stayed the proceedings before the Debts Recovery Tribunal-III, Delhi, in the Original Application as also in the Securitization Appeal. Directions were given for 14 filing affidavits and the case was adjourned by the Appellate Tribunal to 27th October, 2010. Since the time granted by the Appellate Tribunal was beyond the date for opening of the bids, IFCI Ltd. filed Writ Petition No.6652 of 2010 before the Delhi High Court against the orders dated 10th September, 2010 and 15th September, 2010 passed by the Debts Recovery Tribunal-III, Delhi, and order dated 27th September, 2010, passed by the Debts Recovery Appellate Tribunal. On 29th September, 2010, the High Court allowed the IFCI Ltd. to proceed with the public notice dated 13th September, 2010, with the directions mentioned hereinbefore in paragraph

18. Learned Additional Solicitor General, Mr. Parag P. Tripathi, appearing for the respondent IFCI Limited, submitted that there was no substance in the Special Leave Petition since the Petitioner- Company had not only failed to repay its debts, but had also failed to abide by the One-Time Settlement which had been arrived at with the Punjab National Bank. Having entered into a One-Time Settlement with the Punjab National Bank for a sum of Rs.26.16 crores on 2nd September, 2004, the Petitioner- Company paid a sum of Rs.13.80 crores only and was unable to pay the balance of the Settlement amount. Ultimately, the One-Time Settlement was revoked by the Bank on account of such default. Thereafter, the Petitioner-Company entered into a Memorandum of 17 Understanding with ACE on 5th March, 2008, whereby ACE agreed to pay the Punjab National Bank the balance amount of the settlement amount. The said agreement made it clear that in the event the Petitioner-Company failed to repay ACE, the latter would be at liberty to proceed against the Petitioner-Company. Thereafter, on 15th July, 2008, a Deed of Assignment was executed between the Punjab National Bank and ACE for an amount of Rs.15,01,28,752.00. ACE, in its turn, assigned its rights under the above-mentioned Memorandum of Understanding to the Respondent-Company on 17th April, 2009, amounting to Rs.18.63 crores, whereunder notice was ultimately issued by IFCI Limited to the Petitioner-Company under Section 13(2) of the SARFAESI Act, 2002.

21. Mr. Ranjit Kumar, learned Senior Advocate, who appeared for the alleged contemnors, while reiterating the submissions made by the learned Solicitor General and the Additional Solicitor General, submitted that Public Notice was issued by 20 IFCI Limited on 13th September, 2010, inviting bids for sale of the factory of the Petitioner-Company at Gannore in Haryana in which it was indicated that the sale bids would be opened on 15th October, 2010. The Respondent-Company was served with notice of the securitisation appeal filed by the Petitioner-Company under Section 12 of the SARFAESI Act, 2002, before the Debts Recovery Tribunal-III, Delhi, on 13th September, 2010, in the evening, and, thereafter, stay was granted by the said Tribunal on 15th September, 2010, restraining IFCI Limited from implementing the possession notice, as well as the Public Notice for sale, with a further direction to the Petitioner-Company to deposit a sum of Rs.35 crores within 30 days of the order. Mr. Ranjit Kumar submitted that the Petitioner- Company has not deposited the said sum, as directed, till today. On the other hand, IFCI Limited preferred the above-mentioned appeals before the Debts Recovery Appellate Tribunal 21 against the said order of 15th September, 2010, and the Appellate Tribunal stayed the proceedings before the Debts Recovery Tribunal in the Original Application, as also the Securitisation Appeal by its order dated 22nd September, 2010. It is against the order subsequently granting time to the Petitioner-Company to file a reply and adjourning the case to 27th September, 2010, which would be beyond the date of opening the bids, that IFCI Limited moved Writ Petition No.6652 of 2010 before the Delhi High Court, which passed the impugned order on 29th September, 2010, allowing IFCI Limited to proceed with the Public Notice dated 13th September, 2010, but with the direction that the bids were not to be finalised and that the Official Liquidator was to be associated with the bidding process. Furthermore, any amount received from the prospective purchaser as earnest money, was to be kept in a no-lien account.

8. We are unable to accept the submissions made on behalf of the Petitioner Company, since it is for the Petitioner in a contempt petition who alleges contempt, to establish that the alleged contemnor had defied and/or violated the order deliberately and wilfully, despite having knowledge thereof. We 8 cannot lose sight of the fact that in a contempt proceeding, which is entirely of a summary nature, a person can be sentenced to imprisonment and also punished with fine, without a regular trial, even in the nature of a summons trial. Accordingly, the Courts have to strictly construe the provisions of Section 3(b) of the Contempt of Courts Act, 1971, in order to find a person guilty of having committed contempt of Court. We are not satisfied with the materials placed before us that the alleged contemnors had any knowledge of the stay order passed by this Court on 8th October, 2010, and, accordingly, we are not inclined to entertain the contempt petition which is, therefore, dismissed. The Special Leave Petition filed by M/s Bharat Steel Tubes Ltd. is taken up for consideration on its merits.

24. Although, the Special Leave Petition is directed against an interim order passed by the High Court on 29th September, 2010, granting liberty to the Petitioner to proceed in pursuance of the Public Notice dated 13th September, 2010, during the pendency of the writ petition, extensive submissions were advanced on behalf of the parties.

26. We are not, therefore, impressed with Mr. Andhyarujina's submission that once the dues of the Bank were liquidated and a separate arrangement was entered into by the Petitioner-Company with ACE, the demand under section 13(2) of the said Act ceased to exist and IFCI Ltd, which acquired the interest of ACE in the Memorandum of Understanding 26 with the Petitioner-Company, could not take action against the Petitioner-Company under the SARFAESI Act. There is no dispute that IFCI Ltd. is a financial institution which is an assignee of the interest of ACE in dues recoverable from the Petitioner-Company.

28. Having heard the matter on 9th November, 2010, we had reserved judgment in the matter. However, it has subsequently been brought to our notice that certain developments had taken place in the pending Writ Petition before the High Court on 11th November, 2010. The High Court took note of the fact that the matter was still pending before the Debts Recovery Appellate Tribunal and that judgment in the Special Leave Petition before this Court was yet to be passed. It, therefore, held that nothing survived in the Writ Petition as the parties had to abide by the directions passed by this Court and, accordingly, the Writ Petition and the applications were disposed of.

29. The matter before the High Court may have come to an end, but the issues involved regarding steps 28 taken under the SARFAESI Act are yet to be determined by the Debts Recovery Appellate Tribunal. However, since the order impugned in these proceedings has ceased to exist, we are not inclined to decide the questions that have been raised and instead we can only direct the Debts Recovery Appellate Tribunal to consider all the questions raised in the two appeals pending before it, being Miscellaneous Appeal Nos.352 and 353 of 2010.

30. We, therefore, dispose of the Special Leave Petition with a direction upon the Debts Recovery Appellate Tribunal to dispose of the pending appeal as early as possible since it would not be proper on our part to express any definite view with regard to the pending proceedings before the said Tribunal. Till a decision is arrived at by the Debts Recovery Appellate Tribunal in the matter, the auction proceedings being conducted under the SARFAESI Act shall remain stayed.