INDIABULLS HOUSING FINANCE LIMITED versus M/S. DECCAN CHRONICLE HOLDINGS LIMITED AND OTHERS
[2018] 1 S.C.R. 1096, Supreme Court of India, 2018
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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1096
SUPREME COURT REPORTS
[2018] 1 S.C.R.
INDIABULLS HOUSING FINANCE LIMITED
v.
M/S. DECCAN CHRONICLE HOLDINGS LIMITED
AND OTHERS
(Civil Appeal No. 18 of 2018)
FEBRUARY 23, 2018
[A. K. SIKRI AND ASHOK BHUSHAN, JJ.]
Securitisation and Reconstruction of Financial Assests and
Enforcement of Security Interest Act, 2002:
ss.2(1)(f), 2(1)(zb), 2(1)(zf) and 2(1)(zd), and 13(1) and (4)
– Loan granted to respondent (borrower) – By a non-financial
company (not covered under 2002 Act) – The company  subsequently
merged with appellant-company (a financial company covered by
2002 Act) – For recovery of loan initiation of proceedings under
2002 Act – Held by High Court that the provisions of 2002 could
not be invoked because the company which had granted the loan
was not covered by 2002 Act at the time of granting loan – On
appeal, held: On sanction of the scheme of merger/amalgamation,
all loans, recoveries, security, interest, financial documents etc. in
favour of the predecessor company got transferred to and stood
vested in the appellant-company – Thus, the borrowers became the
borrowers of the appellant-company – The debt with underlying
securities was the asset of the predecessor company got it had right
to transfer/assign its assets to any person without seeking consent
of the borrower – Therefore, respondent would be treated as
‘borrower’; arrangement would be classified as ‘security
arrangement’; the  agreements created ‘security interest’ and
appellant became
‘secured creditor’ under 2002 Act.
s.13(1) and (4) – Proceedings under – Whether barred if case
filed u/s. 9 of  Arbitration Act, invoking arbitration clause – Held:
2002 Act being a special enactment and Arbitration Act being a
statute of general nature, 2002 Act will be placed on higher pedestal
– Merely because steps are taken under general law, remedy under
special stature cannot be foreclosed – Arbitration and Conciliation
Act, 1996 – s.9.
                                      [2018] 1 S.C.R. 1096
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Allowing the appeal, the Court
HELD: 1. Proceedings under the Securities and
Reconstruction of Financial Assests and Enforcement of Security
Interest Act, 2002 (SARFAESI Act) are to be placed on high
pedestal. SARFAESI Act is a special enactment which was enacted
by the Parliament to provide speedy remedy to the banks and
financial institutions without recourse to the court of law.  On the
other hand, the Arbitration and Conciliation Act, in contrast, is a
statute of general nature.  Merely because steps are taken under
this general law would not mean that remedy under the special
statute is foreclosed. [Para 11] [1105-A-C]
Transcore v. Union of India & Anr.  [2006] 9 Suppl.
SCR 785 : (2008) 1 SCC 125 – relied on.
2.1 The loan/debts/financial assets stood vested in the
appellant pursuant to the amalgamation scheme filed by the two
companies under Sections 391 and 394 of the Companies Act,
1956 whereunder the predecessor company got amalgamated with
the appellant. On sanction of the scheme of amalgamation, all
loans, recoveries, security, interest, financial documents, etc. in
favour of the predecessor company got transferred to and stood
vested in the appellant including the loans given by the
predecessor company to respondent borrowers, debts
recoverable by the predecessor company from respondent
borrowers, security documents executed by respondent
borrowers in favour of the predecessor company, etc.  On the
sanctioning of the scheme, the respondent
borrowers became
the borrowers of the appellant as if the financial assistance was
granted by the appellant to the respondent borrowers. [Paras 33
and 34] [1121-E-F; 1120-G-H]
Saraswati Industrial Syndicate Ltd. v. Commissioner of
Income Tax [1990] Suppl. SCR 332 : (1990) Suppl.
SCC 675 – relied on.
2.2 The debt with underlying securities is the asset of the
predecessor company and that the predecessor company had right
to transfer/assign its assets to any person without seeking consent
of the borrower.  Such transfer/assignment is recognized. [Para
35] [1121-G]
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED
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SUPREME COURT REPORTS
[2018] 1 S.C.R.
ICICI Bank Limited v. Official Liquidator of APS Star
Industries and others [2010] 12 SCR 644 : (2010) 10
SCC 1 – relied on.
2.3  It is too farfetched to say that just to realise the dues
from the respondents, the predecessor company and the appellant
devised the plan of merger so as to attract the provisions of
SARFAESI Act. [Para 37] [1122-C]
2.4  It will also not be correct to say that if the loan is allowed
to be brought within the SARFAESI Act only because of merger
and the appellant is allowed to take recourse under the SARFAESI
Act, it would affect substantive rights of the contesting borrowers
under Sections 69 and 69A of the Transfer of Property Act. [Paras
10 and 39] [1104-E-F]
Mardia Chemicals Ltd. & Ors. v. Union of India & Ors.
[2004] 3 SCR 982 : (2004) 4 SCC 311 ; United Bank
of India v. Satyawati Tondon and Others [2010] 9 SCR
1 : (2010) 8 SCC 110 – relied on.
2.5 Therefore, respondent No.1 would be treated as
‘borrower’ within the meaning of Section 2(1)(f) of the SARFAESI
Act; the arrangement would be classified as ‘security arrangement’
under Section 2(1)(zb); the agreements created ‘security interest’
under Section 2(1)(zf); and the appellant became ‘secured
creditor’ within the meaning of Section 2(1)(zd) of SARFAESI
Act. [Para 43] [1127-C-D]
M.D. Frozen Foods Exports Pvt. Ltd. & Ors. v. Hero
Fincorp Ltd. (2017) SCC Online SC 1211 – relied on.
P.K. Unni v. Nirmala Industries & Others [1990] 1 SCR
483 : (1990) 2 SCC 378 ; Union of India v. Elphin
Stone Spinning and Weaving Company Limited & Others
[2001] 1 SCR 221 : (2001) 4 SCC 139 ; Delhi Financial
Corporation and another v. Rajiv Anand and others
(2004) 11 SCC 625 ; Rishabh Agro Industries Limited
v. P.N.B. Service Limited [2000] 1 Suppl. SCR 38 :
(2000) 5 SCC 515 ; Padma Sundara Rao v. State of
Tamil Nadu (2002) 3 SCC 533 – held inapplicable.
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1099
Sarthak Builders Pvt. Ltd., Chinta, Arunodaya Market,
Cuttack & Another v. Orissa Rural Development
Corporation Limited, Station Square, Bhubaneswar &
5 Ors. (2014) SCC Online Ori 75 ; Trimbak Damodhar
Raipurkar v. Assaram Hiraman Patil, [1962] 1 Suppl.
SCR 700 – referred to.
West v. Gwynne, 1911 2 Ch 1 at pp. 11, 12 ; In re
Athlumney. Ex parte Wilson, (1898) 2 Q.B. 547 –
referred to.
Case Law Reference
[2006] 9 Suppl. SCR 785
relied on
Para 11
(2017) SCC Online SC 1211 relied on
Para 14
[1962] 1 Suppl  SCR 700
referred to
Para 20
[1990] 1 SCR 483
held inapplicable
Para 23
[2001] 1 SCR 221
held inapplicable
Para 23
(2004) 11 SCC 625
held inapplicable
Para 23
[2000] 1 Suppl. SCR 38
held inapplicable
Para 27
(2002) 3 SCC 533
held inapplicable
Para 28
[2010] 12 SCR 644
relied on
Para 35
[1990] Suppl. SCR 332
relied on
Para 33
(2014) SCC Online Ori 75
referred to
Para 38
[2004] 3 SCR 982
relied on
Para 40
[2010] 9 SCR 1
relied on
Para 41
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 18 of
2018.
From the Judgment and Order dated 04.02.2014 of the High Court
of Judicature of Andhra Pradesh at Hyderabad in Writ Petition No. 37381
of 2013
WITH
Contempt Petition (Civil) Nos. 756 and 1693 of 2017.
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED
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Dr. A.M. Singhvi, Shyam Divan, Sr. Advs, Rishi Agrawala, Ankur
Saigal, Rishabh Parikh, Nishant Rao, E. C. Agrawala, Advs for the
Appellant.
M/S. Ap & J Chambers, Kuldeep S. Parihar, H. S. Parihar,
C. Mukund, M. B. Elakkumanan, Bijoy Kumar Jain, Ms. Pooja Dhar,
Rahul Pratap, Jay Kumar Bhardwaj, Damyanti Juneja, Sudhansu P.,  Advs
for the Respondents.
The Judgment of the Court was delivered by
A. K. SIKRI, J. 1. This appeal preferred by Indiabulls Housing
Finance Limited, in which the main contesting parties are M/s. Deccan
Chronicle Holdings Limited and its Directors (other respondents are the
proforma parties), questions the correctness and legality of the judgment
and order dated February 04, 2014 passed by the High Court of Judicature
of Andhra Pradesh at Hyderabad.  The impugned judgment is passed by
the High Court in the writ petition which was filed by the contesting
respondents questioning the validity of actions taken by the appellant
against the contesting respondents under the provisions of the
Securitisation and Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (hereinafter referred to as the ‘SARFAESI
Act’) for recovery of the loan amounts, along with interest, which are
payable by the contesting respondents to the appellant.
2. The High Court has accepted the challenge laid by the
contesting respondents holding that:
(a)  loan agreements contained arbitration clauses which
were
invoked by the appellant with the filing of cases under Section
9 of the Arbitration and Conciliation Act, 1996.  In view
thereof, initiation of any other proceedings under the
SARFAESI Act are impermissible in law; and
(b)    the loan was initially given by M/s. Indiabulls Financial Services
Limited (for short, ‘IBFSL’) on December 08, 2011 and
January 05, 2012 in the sum of Rs.50 crores each.  IBFSL
was not a banking company or financial institution within the
meaning of Section 2(d) and (m) of the SARFAESI Act and,
therefore, it had no jurisdiction to take any steps by invoking
the provisions of this Act.  However, IBFSL got merged with
the appellant company.  No doubt, the appellant is a financial
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institution under the SARFAESI Act. However, since IBFSL
had no right to initiate any action under the said Act, as a
successor-in-interest, the appellant steps into the shoes of
IBFSL and, therefore, it also cannot initiate any action under
the SARFAESI Act.  If that is allowed, held the High Court,
substantive rights of the contesting respondents which accrued
to them under Sections 69 and 69A of the Transfer of Property
Act, 1882 would be adversely affected, which cannot be
countenanced.
3. Having given the glimpse of the transaction which was entered
into between the parties and also that of the basis of the impugned
judgment of the High Court, we proceed to discuss the details on which
the lis is founded.
4. We may start with the narration of brief facts of the case,
which are as follows:
On April 18, 2005, IBFSL was granted a certificate under Section
45-I(a) of the Reserve Bank of India Act, 1934 to operate as a Non-
Banking Financial Company and, thus, act as a financial institution under
the said Act.  The appellant was incorporated on May 10, 2005.  The
appellant and IBFSL were sister concerns.  The appellant was granted
a registration certificate dated December 28, 2005 to commence the
business of housing finance institution.  The Central Government, vide
Notification dated September 19, 2007, issued under Section 2(1)(m) of
SARFAESI Act, specified the petitioner as a ‘financial institution’ for
the purposes of the said Act.  IBFSL disbursed a
loan amount of Rs.50
crores to the respondent borrowers vide Loan Agreement dated
December 08, 2011.  The loan facility was secured by the respondent
borrowers by creating equitable mortgage over various properties.  IBFSL
also disbursed a further amount of Rs.50 crores to the respondent
borrowers vide Loan Agreement dated January 05, 2012.  The loan
facility was security by the respondent borrowers again by creating
equitable mortgage over various properties.
5. Sometime in the year 2012, it was proposed that IBFSL gets
merged with the appellant.  After completing the formalities of informing
the National Housing Bank as well as the Reserve Bank of India about
the aforesaid proposal and furnishing them copies of the scheme of
merger, the appellant filed a petition under sections 391-394 of the Indian
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A. K. SIKRI, J.]
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Companies Act, 1956 in the High Court of Delhi for merger of IBFSL
with the appellant.  The High Court, after taking various steps under the
provisions of the Companies Act, ultimately sanctioned the scheme of
arrangement between IBFSL and the appellant vide orders dated
December 12, 2012. With the sanction of the aforesaid merger, the assets
and liabilities of IBFSL stood vested in the appellant, with IBFSL being
dissolved without winding up on its amalgamation with the appellant.
Pursuant to the said merger, the borrowers of IBFSL, including the
respondent borrowers, became the borrowers of the appellant.
6. Insofar as respondent borrowers are concerned, they had
committed default in repaying the loans advanced to them by IBFSL
and, therefore, even before the merger, IBFSL had issued loan recall
notice dated September 18, 2012 to the respondent borrowers.  On March
04, 2013, the loan accounts of the contesting respondents and other co-
borrowers were classified as Non Performing Assets (NPA) by IBFSL.
On March 06, 2013, IBFSL filed a petition under Section 9 of the
Arbitration Act, being O.P. No. 377 and 378 of 2013, before III Addl.
Chief Judge, City Civil Court, Hyderabad for securing the amount payable
by the respondent borrowers.  An ad-interim injunction restraining the
respondent borrowers and other co-borrowers therein from alienating
the scheduled properties to third parties in any manner was passed.  The
scheme of arrangement as approved by the order dated April 12, 2013
was filed with the Registrar of Companies on March 08, 2013 making
the same effective.  The appellant, having stepped into the shoes of
IBFSL in respect of the debts owed to IBFSL, issued notice dated March
08, 2013 under Section 13(2) of SARFAESI Act to the respondent
borrowers and other co-borrowers.  This was followed by notice dated
May 29, 2013 issued under Section 13(4) of SARFAESI Act in respect
of taking over symbolic possession of the mortgaged properties.
7. The respondents herein, on July 17, 2013, filed SA No. 182 of
2013 before the Debts Recovery Tribunal, Chandigarh under Section 17
of SARFAESI Act challenging the action of the appellant invoking the
measures under Section 13(4) of SARFAESI Act.  Within few days
thereafter, i.e. on July 30, 2013, respondent No.1 also field Writ Petition
No. 22688 of 2013 challenging, inter alia, the declaration of the account
as NPA and passing of orders by the Chief Metropolitan Magistrate
under Section 14 of the SARFAESI Act.  Similar writ petitions, being
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Writ Petition Nos. 22689 and 22934 of 2013 were filed by respondent
No.1’s employee union and respondent No.4 respectively.  On September
04, 2013, the respondents herein unconditionally withdrew SA No. 182
of 2013 filed before the Debts Recovery Tribunal, Chandigarh.  The
appellant issued an auction notice dated November 21, 2013 informing
the respondent borrowers that auction of the Banjara Hill properties of
the respondent borrowers would be conducted on December 24, 2013.
At this juncture, on December 19, 2013, respondent Nos.1 to 5 filed Writ
Petition No. 37381 of 2012 before the High Court.
8. In the aforesaid writ petition, the High Court passed interim
orders dated December 20, 2013, directing the parties to maintain status
quo.  Another interim order dated December 23, 2013 was passed
directing the appellant not to finalise the auction though it was permitted
to receive bids.  However, the said auction could not fructify as, according
to the appellant, some miscreants belonging to the contesting respondents
came on the spot and threatened the intending purchasers and even
tried to beat the representatives of the respondents and, therefore, the
auction had to be cancelled.  The appellant thereafter issued another
auction notice dated December 28, 2013 fixing the auction dates as 3rd
and 4th February 2014 in respect of Banjara Hills and Raj Bhavan Road
properties respectively.  Auction in respect of Banjara Hills properties
took place on February
03, 2014 as per the date fixed.  However, the
sale was not finalised on account f the interim orders passed by the High
Court.  On February 04, 2014, when the next property was to be auctioned,
the High Court gave the judgment in Writ Petition No. 37381 of 2013
filed by the contesting respondents allowing the said writ petition and
setting aside the entire invocation of the SARFAESI Act by the appellant.
9.  As already pointed out above, the High Court is swayed by the
fact that after IBFSL had invoked the provisions of Section 9 of the
Arbitration Act and filed petitions in this behalf, having regard to the
arbitration agreement between the parties, it was not open to the appellant
to take recourse to the provisions of SARFAESI Act.  This aspect is
concluded in the following manner:
“The two O.Ps. i.e. 377 and 378 of 2013 have already been filed
in the name of IBFSL, under Section 9 of the Arbitration Act.
The arbitration clause that existed in the agreements has been
extracted in the preceding paragraphs.  Section 8 of the Arbitration
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A.K. SIKRI, J.]
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Act makes it amply clear that if the agreement between the parties
contains an arbitration clause, institution of other proceedings is
prohibited.  When a suit cannot be instituted by a party to an
agreement, which contains an arbitration clause, the initiation of
proceedings before other fora becomes equally untenable.  The
proceedings under the SARFAESI Act cannot be placed on a
higher pedestal.  The borrower of a secured financial institution,
as defined under Section 2(f) of the SARFAESI Act cannot be
treated as a super Court, to be kept on a higher pedestal in the
context of Section 8 of the Arbitration Act.  When arbitration
proceedings have already been initiated, the 4th respondent cannot
be permitted, ignore them and proceed against the security.”
10. The High Court noted that the contesting respondents had not
borrowed any amount from the appellant.   The loan was taken from
IBFSL, which was not under the purview of SARFAESI Act.  Therefore,
at the time of taking the loan, the respondent borrowers knew that IBFSL
would not be in a position to take recourse to the SARFAESI Act.  With
the merger of IBFSL with the appellant, ruled the High Court, the loan
transaction which was outside the purview of the SARFAESI Act, could
not be brought under its purview without the consent of the borrower.
According to the High Court, SARFAESI Act prescribes a new legal
regime and if the loan is allowed to be brought within
the SARFAESI
Act only because of merger and the appellant is allowed to take recourse
under the SARFAESI Act, it would affect substantive rights of the
contesting borrowers under Sections 69 and 69A of the Transfer of
Property Act.  In the process, the High Court has noted that the views
of the Uttarakhand High Court and the Allahabad High Court are contrary
to the aforesaid view.  However, it chose to agree with the view taken
by the Division Bench of the Orissa High Court in deciding that provisions
of SARFAESI Act will not be applicable.  Pertinently, Full Bench of the
Orissa High Court itself has overruled its Division Bench judgment.
11. We may record at this stage that the main ground on which
notice issued under SARFAESI Act had been quashed is the
impermissibility of invoking the provisions of the Act by the appellant
herein who took over the assets and liabilities of IBFSL on merger.
Insofar as the other issue, namely, provisions of SARFAESI Act could
not be invoked as IBFSL had already invoked the machinery under the
Arbitration Act by filing petitions under Section 9 thereof is concerned,
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this is decided as the subsidiary issue.  Insofar as this subsidiary question
is concerned, learned counsel for the respondent did not press this ground
seriously and it was virtually conceded that merely because IBFSL had
filed applications under Section 9 of the Arbitration Act, would not create
a bar for proceeding under the SARFAESI Act.  Even otherwise, we
find that the High Court was in error in deciding this issue.  It is not
correct to say that proceedings under the SARFAESI Act cannot be
placed on high pedestal.  We find that SARFAESI Act is a special
enactment which was enacted by the Parliament to provide speedy
remedy to the banks and financial institutions without recourse to the
court of law.  On the other hand, the Arbitration and Conciliation Act, in
contrast, is a statute of general nature.  Merely because steps are taken
under this general law would not mean that remedy under the special
statute is foreclosed.  If at all, legal position is just the reverse.  Matter is
no more res integra and is covered by a judgment of this Court in
Transcore v. Union of India & Anr.1 In that case, after analysing the
provisions of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993, the Court summed up the position as under:
“18. On analysing the above provisions of the DRT Act, we find
that the said Act is a complete code by itself as far as recovery of
debt is concerned. It provides for various modes of recovery. It
incorporates
even the provisions of the Second and Third
Schedules to the Income Tax Act, 1961. Therefore, the debt due
under the recovery certificate can be recovered in various ways.
The remedies mentioned therein are complementary to each other.
The DRT Act provides for adjudication. It provides for adjudication
of disputes as far as the debt due is concerned. It covers secured
as well as unsecured debts. However, it does not rule out
applicability of the provisions of the TP Act, in particular Sections
69 and 69-A of that Act. Further, in cases where the debt is secured
by pledge of shares or immovable properties, with the passage of
time and delay in the DRT proceedings, the value of the pledged
assets or mortgaged properties invariably falls. On account of
inflation, value of the assets in the hands of the bank/FI invariably
depletes which, in turn, leads to asset-liability mismatch. These
contingencies are not taken care of by the DRT Act and, therefore,
Parliament had to enact the NPA Act, 2002.”
1(2008) 1 SCC 125
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A.K. SIKRI, J.]
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12. Thereafter, the Court analysed the provisions of SARFAESI
Act and then noted, in paragraph 37 of the judgment, three points of
determination which arose for consideration.  We are concerned with
point No.1 formulated therein, which reads as under:
“(i) Whether the banks or financial institutions having elected to
seek their remedy in terms of the DRT Act, 1993 can still invoke
the NPA Act, 2002 for realising the secured assets without
withdrawing or abandoning the OA filed before DRT under the
DRT Act.”
13. After detailed discussion on this question, the Court rejected
the applicability of the doctrine of election by holding that simply because
remedy under the provisions of the DRT Act was availed would not
mean that the financial institution was precluded from taking steps under
SARFAESI Act.  Thus, answering the question in the affirmative, essence
of the discussion can be captured in the following paragraphs:
“64. In the light of the above discussion, we now examine the
doctrine of election. There are three elements of election, namely,
existence of two or more remedies; inconsistencies between such
remedies and a choice of one of them. If any one of the three
elements is not there, the doctrine will not apply. According to
American Jurisprudence, 2d, Vol. 25, p. 652, if in truth there is
only one remedy, then the doctrine of election does not apply. In
the present case, as stated above, the NPA Act is an
additional
remedy to the DRT Act. Together they constitute one remedy
and, therefore, the doctrine of election does not apply. Even
according to Snell’s Principles of Equity (31st Edn., p. 119), the
doctrine of election of remedies is applicable only when there are
two or more co-existent remedies available to the litigants at the
time of election which are repugnant and inconsistent. In any event,
there is no repugnancy nor inconsistency between the two
remedies, therefore, the doctrine of election has no application.
65. In our view, the judgments of the High Courts which have
taken the view that the doctrine of election is applicable are
erroneous and liable to be set aside.
66. We have already analysed the scheme of both the Acts.
Basically, the NPA Act is enacted to enforce the interest in the
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financial assets which belongs to the bank/FI by virtue of the
contract between the parties or by operation of common law
principles or by law. The very object of Section 13 of the NPA
Act is recovery by non-adjudicatory process. A secured asset
under the NPA Act is an asset in which interest is created by the
borrower in favour of the bank/FI and on that basis alone the
NPA Act seeks to enforce the security interest by non-adjudicatory
process. Essentially, the NPA Act deals with the rights of the
secured creditor. The NPA Act proceeds on the basis that the
debtor has failed not only to repay the debt, but he has also failed
to maintain the level of margin and to maintain value of the security
at a level is the other obligation of the debtor. It is this other
obligation which invites applicability of the NPA Act. It is for this
reason, that Sections 13(1) and 13(2) of the NPA Act proceed on
the basis that security interest in the bank/FI needs to be enforced
expeditiously without the intervention of the court/tribunal; that
liability of the borrower has accrued and on account of default in
repayment, the account of the borrower in the books of the bank
has become non-performing. For the above reasons, the NPA
Act states that the enforcement could take place by non-
adjudicatory process and that the said Act removes all fetters
under the above circumstances on the rights of the secured
creditor.”
14. With this, we now address the central issue on which
detailed
arguments were advanced by both the parties.  We may note that our
discussion is not on a virgin field as the terrain has already been covered
by this Court in M.D. Frozen Foods Exports Pvt. Ltd. & Ors. v. Hero
Fincorp Ltd.2  The learned senior counsel appearing for the appellant
had submitted that this case, which is directly on point, not only lays
down the proposition that even successor-in-interest (like the appellant
herein) would be authorised to invoke the provisions of SARFAESI Act
even if the original lender was not a financial institution covered by the
Act, it has specifically overruled the judgment of the Andhra Pradesh
High Court, which is the subject matter of appeal at hand.  On that basis,
it was submitted that it was not even necessary to have further probe in
the matter.
2(2017) SCC Online SC 1211
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A.K. SIKRI, J.]
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15.  Learned counsel for the appellant is factually correct in pointing
out that the impugned judgment of the Andhra Pradesh High Court is
specifically noted and overruled by this Court in M.D. Frozen Foods.
Therefore, it would be apt to discuss the said judgment in the first instance.
16.  In M.D. Frozen Foods the appellants had borrowed monies
for their business from the respondents against security of immovable
properties by creating an equitable mortgage.  Loan agreement contained
an arbitration clause.  Since the appellant defaulted in making the payment
and the account became NPA, the respondent invoked the arbitration
clause on November 16, 2016.  However, three months before this
invocation, a notification was issued on August 05, 2016 specifying certain
Non-Financial Banking Companies (NFBCs) covered under clause (f)
of Section 45-I of the RBI Act, with assets of more than Rs. 500 crores
and above, as financial institutions and directing that the provisions of
SARFAESI Act shall apply to such financial institutions with the
exceptions of provisions of Sections 13 to 19 of that Act.  Sections 13 to
19 were made applicable, as per the notification, only to such security
interest which is obtained for securing repayment of secured debt with
principal amount of Rs.1 crore and above.  The respondent was
specifically covered by the said notification which was issued in exercise
of powers conferred under sub-clause
(iv) of clause (m) of sub-section
(1) of Section 2 read with Section 31A of the SARFAESI Act.  In view
of the aforesaid notification, the respondent issued a notice under Section
13(2) of SARFAESI Act on November 24, 2016 for one of the seven
properties mortgaged to it against the aforesaid loan which was advanced
to the appellants.
17. Having regard to the aforesaid facts in M.D. Frozen Foods,
the Court formulated following three questions which had arisen for
consideration:
“A. Whether the arbitration proceedings initiated by the respondent
can be carried on along with the SARFAESI proceedings
simultaneously?
B. Whether resort can be had to Section 13 of the SARFAESI
Act in respect of debts which have arisen out of a loan agreement/
mortgage created prior to the application of the SARFAESI Act
to the respondent?
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C. A linked question to question (ii), whether the lender can invoke
the SARFAESI Act provision where its notification as financial
institution under Section 2(1)(m) has been issued after the account
became an NPA under Section 2(1)(o) of the said Act?”
These questions amply demonstrate that the instant case is virtually
on the same footing.
18. Insofar as question ‘A’ is concerned, the Court categorically
held that merely because remedy under the Arbitration Act was invoked
was no ground to debar the respondent from taking recourse to the
SARFAESI Act.  The discussion from that judgment is reproduced below:
“26. A claim by a bank or a financial institution, before the specified
laws came into force, would ordinarily have been filed in the Civil
Court having the pecuniary jurisdiction. The setting up of the Debt
Recovery Tribunal under the RDDB Act resulted in this specialised
Tribunal entertaining such claims by the banks and financial
institutions. In fact, suits from the civil jurisdiction were transferred
to the Debt Recovery Tribunal. The Tribunal was, thus, an
alternative to a Civil Court recovery proceedings.
27. On the SARFAESI Act being brought into force seeking to
recover debts against security interest, a question was raised
whether parallel proceedings could go on under the RDDB Act
and the SARFAESI Act. This issue was clearly answered in favour
of such simultaneous proceedings in Transcore v. Union of India.
A later judgment in Mathew
Varghese v. M. Amritha Kumar
also discussed this issue in the following terms:
“45. A close reading of Section 37 shows that the provisions of
the SARFAESI Act or the Rules framed thereunder will be in
addition to the provisions of the RDDB Act. Section 35 of the
SARFAESI Act states that the provisions of the SARFAESI Act
will have overriding effect notwithstanding anything inconsistent
contained in any other law for the time being in force. Therefore,
reading Sections 35 and 37 together, it will have to be held that in
the event of any of the provisions of the RDDB Act not being
inconsistent with the provisions of the SARFAESI Act, the
application of both the Acts, namely, the SARFAESI Act and the
RDDB Act, would be complementary to each other. In this context,
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A.K. SIKRI, J.]
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reliance can be placed upon the decision in Transcore v. Union
of India [(2008) 1 SCC 125 : (2008) 1 SCC (Civ) 116]. In para 64
it is stated as under after referring to Section 37 of the SARFAESI
Act: (SCC p. 162)
“64. … According to American Jurisprudence, 2d, Vol. 25, p. 652,
if in truth there is only one remedy, then the doctrine of election
does not apply. In the present case, as stated above, the NPA Act
is an additional remedy to the DRT Act. Together they constitute
one remedy and, therefore, the doctrine of election does not apply.
Even according to Snell’s Principles of Equity (31st Edn., p. 119),
the doctrine of election of remedies is applicable only when there
are two or more co-existent remedies available to the litigants at
the time of election which are repugnant and inconsistent. In any
event, there is no repugnancy nor inconsistency between the two
remedies, therefore, the doctrine of election has no application.”
     (emphasis added)
46. A reading of Section 37 discloses that the application of the
SARFAESI Act will be in addition to and not in derogation of the
provisions of the RDDB Act. In other words, it will not in any
way nullify or annul or impair the effect of the provisions of the
RDDB Act. We are also fortified by our above statement of law
as the heading of the said section also makes the position clear
that application of other laws are not barred. The effect of Section
37 would,
therefore, be that in addition to the provisions contained
under the SARFAESI Act, in respect of proceedings initiated under
the said Act, it will be in order for a party to fall back upon the
provisions of the other Acts mentioned in Section 37, namely, the
Companies Act, 1956, the Securities Contracts (Regulation) Act,
1956, the Securities and Exchange Board of India Act, 1992, the
Recovery of Debts Due to Banks and Financial Institutions Act,
1993, or any other law for the time being in force.”
28. These observations, thus, leave no manner of doubt and the
issue is no more res integra, especially keeping in mind the
provisions of Sections 35 and 37 of the SARFAESI Act, which
read as under:
“35. The provisions of this Act to override other laws. -
The provisions of this Act shall have effect, notwithstanding
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anything inconsistent therewith contained in any other law for
the time being in force or any instrument having effect by virtue
of any such law.”
  …
 .…
.…
.….
“37. Application of other laws not barred. - The provisions
of this Act or the rules made thereunder shall be in addition to,
and not in derogation of, the Companies Act, 1956 (1 of 1956),
the Securities Contracts (Regulation) Act, 1956 (42 of 1956),
the Securities and Exchange Board of India Act, 1992 (15 of
1992), the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 (51 of 1993) or any other law for the
time being in force.”
29. The aforesaid two Acts are, thus, complimentary to each other
and it is not a case of election of remedy.
xx                xx
               xx
33. SARFAESI proceedings are in the nature of enforcement
proceedings, while arbitration is an adjudicatory process. In the
event that the secured assets are insufficient to satisfy the debts,
the secured creditor can proceed against other assets in execution
against the debtor, after determination of the pending outstanding
amount by a competent forum.
34. We are, thus, unequivocally of the view that the judgments of
the Full Bench of the Orissa High Court in Sarthak Builders
Pvt. Ltd. v. Orissa Rural  Development Corporation Limited,
the Full Bench of the Delhi High Court in HDFC Bank Limited v.
Satpal Singh Bakshi (supra) and the Division Bench of the
Allahabad High Court in Pradeep Kumar Gupta v. State
of U.P.
lay down the correct proposition of law and the view expressed
by the Andhra Pradesh High Court in Deccan Chronicles
Holdings Limited v. Union of India following the overruled
decision of the Orissa High Court in Subash Chandra Panda v.
State of Orissa does not set forth the correct position in law.
SARFAESI proceedings and arbitration proceedings, thus, can
go hand in hand.”
19. Insofar as questions ‘B’ and ‘C’ are concerned, the Court
again referred to the conflicting opinion of different High Courts and
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
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after discussion held that the SARFAESI Act was retroactive in nature
and, therefore, once this Act came into force, the respondent in the said
case had right to invoke the provisions of the Act even if loan agreement
was entered into and mortgage created prior to the coming into force
the SARFAESI Act.  Paragraphs 36 to 38 of the judgment need to be
reproduced in this behalf, which are to the following effect:
“36. The SARFAESI Act was brought into force to solve the
problem of recovery of large debts in NPAs. Thus, the very
rationale for the said Act to be brought into force was to provide
an expeditious procedure where there was a security interest. It
certainly did not apply retrospectively from the date when it came
into force. The question is whether, the Act being applicable to
the respondent at a subsequent date and thereby allowing the
respondent to utilize its provisions with regards to a past debt,
would make any difference to this principle. We are of the view
that the answer to the same is in the negative.
37. The Act applies to all the claims which would be alive at the
time when it was brought into force. Thus, qua the respondent or
other NBFCs, it would be applicable similarly from the date when
it was so made applicable to them.
38. The Full Bench of the Orissa High Court in Sarthak Builders
Pvt. Ltd. v. Orissa Rural Development Corporation Limited
(supra) has, in fact, succinctly sets out this
aspect. No doubt, till
the respondent was not a ‘financial institution’ within the meaning
of Section 2(1)(m)(iv) of the SARFAESI Act, it was not a ‘secured
creditor’ as defined under Section 2(1)(zd) of the SARFAESI
Act and, thus, could not invoke the provisions of the SARFAESI
Act. However, the right to proceed under the SARFAESI Act
accrued once the Notification was issued. The Full Bench referred
to a Division Bench judgment of the Uttarakhand High Court in
Unique Engineering Works v. Union of India which dealt with
the issue of retrospectivity and retroactivity. In case of retroactivity,
the Parliament takes note of the existing conditions and promulgates
the remedial measures to rectify those conditions. In fact the
SARFAESI Act, in our view, was to remedy such a position and
provide a measure against secured interests. The scheme of the
SARFAESI Act, is really to provide a procedural remedy against
security interest already created. Therefore, an existing borrower,
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who had been granted financial assistance was covered under
Section 2(f) of the said Act as a ‘borrower’. Not only this
expression, the definition clauses dealing with ‘debt securities’,
‘financial assistance’, ‘financial assets’, etc., clearly convey the
legislative intent that the SARFAESI Act applies to all existing
agreements irrespective of the fact whether the lender was a
notified ‘financial institution’ on the date of the execution of the
agreement with the borrower or not. The scheme of the
SARFAESI Act sets out an expeditious, procedural methodology,
enabling the bank to take possession of the property for non-
payment of dues, without intervention of the court. The mere fact
that a more expeditious remedy is provided under the SARFAESI
Act does not mean that it is substantive in character or has created
an altogether new right. To accept the argument of the appellants
would imply that they have an inherent right to delay the
enforcement against the security interest!”
20. The Court also referred to certain judgments laying down
distinction between retroactive and retrospective operation of a particular
statute3..
21. The fact situation was, thus, almost the same in the instant
case.  The only difference is that here the loan was initially sanctioned
by IBFSL which stands merged with the appellant and the appellant is
the successor-in-interest which is covered by the SARFAESI Act. In
the aforesaid case, though the entity which disbursed the
loan remained
the same, however, at the time when the loan was given by the respondent
to the appellant it was not a financial institution covered under the
SARFAESI Act, which status was attained by the respondent in view of
notification dated August 05, 2016 issued much after the loan was
disbursed to the appellant therein.  This does not make any difference in
the outcome, as discussed in detailed hereinafter.
22. Learned counsel for respondents could not dispute that the
aforesaid judgment covers the present case in its entirety.  This position
had to be accepted by them having regard to the fact that the judgment
of the High Court which is impugned in these proceedings has been
specifically overruled by this Court in M.D. Frozen Foodscase.  Faced
3West v. Gwynne, 1911 2 Ch 1 at pp. 11, 12
Trimbak Damodhar Raipurkar v. Assaram Hiraman Patil, 1962 Supp (1) SCR 700
In re Athlumney. Ex parte Wilson, (1898) 2 Q.B. 547
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A.K. SIKRI, J.]
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with this stark reality staring at the face of the respondents, a valiant
effort was made to convince this Bench to take a contrary view and in
the process it was submitted that in M.D. Frozen Foods some important
legal aspects have not been considered.
23. To put it pithily, the submissions of the learned counsel for
respondents revolved around the following aspects:
(i) The appellant had neither advanced nor granted any loan or
financial assistance to respondent no. 1 and, therefore, it could
not have invoked the provisions of the SARFAESI Act.
(ii) Respondent no. 1 could not be treated as ‘borrower’ as defined
under Section 2(1)(f) of the SARFAESI Act read with Sections
2(1)(c) and 2(1)(m) of that Act. Submission was that the
respondent no. 1 is not a person who has been granted financial
assistance by any Bank or Financial Institution nor can respondent
no. 1 be brought under the ambit of the definition of being a
person who has given a guarantee or create any mortgage or
pledge as security for the financial assistance granted by any
Bank or Financial Institution, i.e., the appellant.  It was argued
that the definition of the term borrower is clear and un-ambiguous
itself and the rule of literal interpretation deserves to be deployed.
The respondents relied upon the dictum in P.K. Unni vs. Nirmala
Industries & Others4  wherein it is held that the Court must
proceed on an assumption that the legislature did not
make a
mistake and that it intended to say what it said it was further
held that even assuming that there was a defect or omission in
the words used by the legislature, the Court would not go to its
said to correct or make up the deficiency.  The Court cannot add
words to a statute or read words into it which are not there,
especially when the literal reading produces an intelligible result.
The courts are not authorised to alter a word so as to produce a
“casus omissus”. Support from the judgment in the matter of
Union of India v. Elphin Stone Spinning and Weaving
Company Limited & Others5  was also taken in this behalf.
The learned counsel also referred to yet another case, viz., Delhi
Financial Corporation and another v. Rajiv Anand and
others6 wherein this aforesaid principle is reiterated.
 4 (1990) 2 SCC 378
5 (2001) 4 SCC 139
6 (2004) 11 SCC 625
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(iii) The loan agreements dated December 08, 2011 and January
05, 2012 which were entered into between respondent No. 1
and IBFSL cannot be classified as ‘security arrangement’
within the meaning of Section 2(1)(zb) of the SARFAESI
Act.
(iv) These agreements did not create ‘security interest’ within the
eaning of Section 2(1)(zb) of the SARFAESI Act.   It was
argued that the term security assets as defined under Section
2(1)(zc) of the Act means the property on which the security
interest is created. The terms ‘security interest’  is defined
under Section 2(1)(zf) to mean right, title, interest of any kind
whatsoever upon property created in favour of a secured
creditor (as defined under Section 2(1)(zb) and includes a
mortgage, charge, hypothecation or assignment other than
specified in Section 31).  Similarly security agreement is
defined under Section 2(1)(zb).
          The submission was that the agreements dated December
08, 2011 and January 05, 2012 do not fall within the purview
of Section 2(a)(zb) since at the time when the said agreements
were entered into, the entity in favour of which they were
executed, i.e., Indiabulls Financial Services Limited, was not
a secured creditor within the meaning of Section 2(1)(zd) of
the SARFAESI Act.  Under the circumstances are the
necessary ingredients of Section 13(1) and 13(2) being absent,
no action could have been taken under Section 13(2) or
Section 13(4) of the Act.  It is this say of the respondents
that
the clauses contained in the scheme of amalgamation, firstly
do not manifest any intention to create any new right in favour
of the amalgamated company.  Secondly, clauses in scheme
of amalgamation, albeit sanctioned by Court, cannot be raised
to the pedestal of statutory provisions creating a right in favour
of subsequent acquirer of rights not statutorily provided, nor
can such clauses be held to create a deeming fiction not
statutorily provided.
(v) Amalgamation of an entity not lying within the ambit of
SARFAESI Act then entity which falls within realm of the
said Act would not entitle amalgamated entity to invoke the
provisions of SARFAESI Act, in respect of a transaction/
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A.K. SIKRI, J.]
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agreement entered into much prior to the amalgamation.  The
submission was that the imprimatur created by virtue of
sanctioning of a scheme by High Court under Sections 391 to
394 of the Companies Act cannot be held to create rights,
liabilities and obligations which were not statutorily envisaged.
It was argued that the provisions of SARFAESI Act, cannot
be held to be purely procedural, they create substantial right
in favour of the secured creditor for recovery of its dues by
way of enforcement of security interest without invocation
of the court.  Section 13(1) creates substantive rights and by
no stretch of imagination, and cannot be said to a provision,
procedural in nature.  The procedure for enforcement of that
substantial right is provided under Sub-Section (2) on the
happening of the eventuality as mentioned therein.  That a
further procedure of prescribing the details in a notice is to
be given by virtue of Section 13(3) and provide for making a
representation under Section 13(3)(A) and further provides
for a procedure for release and recovery of secured debt
under Section 13(4).  In absence of a substantial right being
created by Section 13(1), procedural provisions contained in
sub-Sections (2) to (4) are meaningless as it would not provide
a remedy for the enforcement of substantial right created
under Section 13(4). It would not, therefore, be correct to
treat SARFAESI Act as a merely procedural
statute.
24. It was submitted that this was a reverse merger inasmuch as
IBFSL was a holding company and the appellant company was only a
subsidiary company and holding company was sought to be amalgamated
and merged with the subsidiary company.
25. It was also submitted that the entire exercise of merger was
undertaken to transfer loan from financial company to a financial
company in order to take advantage of provisions of SARFAESI Act,
which according to the respondents is not permissible in law.  On the
aforesaid basis, the first submission of the learned counsel for respondents
was that there was no transfer and vesting of loan in the appellant
company provisions as per the scheme.  It was argued that the scheme
envisaged, under paragraph 4, that with effect from the appointed date,
i.e., April 01, 2012, the amalgamating company comprising the
amalgamating undertaking shall, pursuant to the sanction of the scheme
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by the High Court and compliance of statutory provisions, be and stand
transferred to and vested in the amalgamated company as a going concern
without any further act, instrument, deed, matter or thing so as to become,
as and from the appointed date April 01, 2012, the undertakings of the
amalgamated company by virtue of and in the manner provided in the
scheme.
26. Various other clauses of the scheme were referred to, to
buttress the aforesaid submission.  In this hue, it was argued that since
as per Clause 8 of the Scheme, all suits, actions and other proceedings
including legal and taxation proceedings etc. are to be continued or
enforced by or against the amalgamating company.  The proceedings
instituted by IBFSL under Section 9 of the Arbitration Act against the
respondents would be deemed to be an act of the appellant.  In other
words, the amalgamating company can have no better and further right
that one possesses by IBFSL.
27. The learned counsel for the respondents attempted to
strengthen the aforesaid architecture with the help of some legal
precedents. In the first instance, reference was made to the judgment in
the case of Rishabh Agro Industries Limited v. P.N.B. Service
Limited7 wherein this Court held as under:
“6. Learned counsel appearing for the respondent has submitted
that such an interpretation would defeat the ends of justice and
make the petitions under the Companies Act, infructuous inasmuch
as any unscrupulous litigant, after
suffering an order of winding
up, may approach the Board merely be filing a petition and
consequently get the proceedings in the Company case stayed.
Such a grievance may be justified and the submission having
substance but in view of the language of Sections 15 and 16 of
the Act particularly explanation to Section 16 inserted by Act No.
12 of 1994, this Court has no option but to adhere to its earlier
decision taken in Real Value Appliances (Supra).  While
interpreting, this Court only interprets the law and cannot legislate
it.  If a provision of law is misused and subjected to the abuse of
process of law, it is for the Legislature to amend modify or repeal
it by having recourse to appropriate procedure, if deemed
necessary.”
6 (2000) 5 SCC 515
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A.K. SIKRI, J.]
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It was argued that the above observations of this Court clearly
negate the submission of the appellant that because the SARFAESI Act
has been enacted to overcome the accumulated NPA in public interest,
the term ‘borrower’ has to be widely construed.
28. Reliance was also placed on the Constitution Bench judgment
in the case of Padma Sundara Rao v. State of Tamil Nadu8 where
this Court has held as under:
“12. The rival pleas regarding rewriting of statute and casus omissus
need careful consideration. It is well-settled principle in law that
the court cannot read anything into a statutory provision which is
plain and unambiguous. A statute is an edict of the legislature.
The language employed in a statute is the determinative factor of
legislative intent. The first and primary rule of construction is that
the intention of the legislation must be found in the words used by
the legislature itself. The question is not what may be supposed
and has been intended but what has been said. “Statutes should
be construed, not as theorems of Euclid”, Judge Learned Hand
said, “but words must be construed with some imagination of the
purposes which lie behind them”. (See Lenigh Valley Coal Co.
v. Yensavage [218 FR 547].) The view was reiterated in Union
of India v. Filip Tiago De Gama of Vedem Vasco De Gama
[(1990) 1 SCC 277 : AIR 1990 SC 981].
13. In D.R. Venkatchalam v. Dy. Transport Commr.  [(1977) 2
SCC 273 : AIR 1977 SC 842] it
was observed that courts must
avoid the danger of a priori determination of the meaning of a
provision based on their own preconceived notions of ideological
structure or scheme into which the provision to be interpreted is
somewhat fitted. They are not entitled to usurp legislative function
under the disguise of interpretation.
14. While interpreting a provision the court only interprets the law
and cannot legislate it. If a provision of law is misused and
subjected to the abuse of process of law, it is for the legislature to
amend, modify or repeal it, if deemed necessary. (See Rishabh
Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [(2000) 5
SCC 515]) The legislative casus omissus cannot be supplied by
judicial interpretative process. Language of Section 6(1) is plain
8 (2002) 3 SCC 533
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and unambiguous. There is no scope for reading something into it,
as was done in Narasimhaiah case [(1996) 3 SCC 88] . In
Nanjudaiah case [(1996) 10 SCC 619] the period was further
stretched to have the time period run from date of service of the
High Court’s order. Such a view cannot be reconciled with the
language of Section 6(1). If the view is accepted it would mean
that a case can be covered by not only clause (i) and/or clause
(ii) of the proviso to Section 6(1), but also by a non-prescribed
period. Same can never be the legislative intent.
15. Two principles of construction — one relating to casus omissus
and the other in regard to reading the statute as a whole — appear
to be well settled. Under the first principle a casus omissus cannot
be supplied by the court except in the case of clear necessity and
when reason for it is found in the four corners of the statute itself
but at the same time a casus omissus should not be readily inferred
and for that purpose all the parts of a statute or section must be
construed together and every clause of a section should be
construed with reference to the context and other clauses thereof
so that the construction to be put on a particular provision makes
a consistent enactment of the whole statute. This would be more
so if literal construction of a particular clause leads to manifestly
absurd or anomalous results which could not have been intended
by the legislature. “An intention to produce an unreasonable
result”,
said Danckwerts, L.J., in  Artemiou v.  Procopiou  [(1966) 1 QB
878 : (1965) 3 All ER 539 : (1965) 3 WLR 1011 (CA)] (at All ER
p. 544-I), “is not to be imputed to a statute if there is some other
construction available”. Where to apply words literally would
“defeat the obvious intention of the legislation and produce a wholly
unreasonable result”, we must “do some violence to the words”
and so achieve that obvious intention and produce a rational
construction. [Per Lord Reid in Luke v. IRC [1963 AC 557 : (1963)
1 All ER 655 : (1963) 2 WLR 559 (HL)] where at AC p. 577 he
also observed: (All ER p. 664-I) “This is not a new problem, though
our standard of drafting is such that it rarely emerges.”]”
29. It was contended that in light of the above-stated principles
enunciated in the Constitution Bench decision, since the language of
Section 2(1)(f) and 2(a)(zf) is unambiguous, the casus omissus cannot
be applied by a judicial interpretation process.  It was submitted that
there is no scope of reading something into, which it does not exist.
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A.K. SIKRI, J.]
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30.  Counsel for the respondents also placed strong reliance upon
the judgment in the ICICI Bank Limited v. Official Liquidator of
APS Star Industries and others9 which centres around the Banking
Regulation Act, 1949 and guidelines of RBI issued on the subject of inter
se transfer of non-performing assets by Bank. It was held that the
Banking Regulation Act, 1949 does not come in the way of such transfers.
Banks/Banking Companies are covered under SARFAESI Act in any
event.  As such, transfers inter se bank would not give rise to the question
of change in the nature of the lender leading to change in the status of
applicability of SARFAESI Act.  On that basis, it was submitted that
such a transfer would not change the status of a borrower who, if earlier
created a security interest, continues to be a borrower of another secured
creditor.  However, in the present case, there is sought to be a complete
change in the status of the borrower and that too without his consent.
31. The learned counsel, at the end, made a passionate plea about
the far reaching consequences which may ensue if the appellant is
permitted to take recourse to the provisions of SARFAESI Act as debts
would be transferred to SARFAESI companies to take advantage of
that enactment.
32. After considering the aforesaid submission, we are of the
opinion that entire edifice is built on the pleas which are squarely answered
in M.D. Frozen Foods and there is
no reason to take a different view
therefrom for the reasons that follow hereinafter.
33. In the instant case, loan was given by IBFSL which was not a
financial institution covered by the SARFAESI Act when the loan was
given. However, this entity has got merged with the appellant and
appellant is a SARFAESI company.  In this backdrop, the entire thrust
of the argument of the respondent is that as a successor company, the
appellant cannot take advantage.  In order to deal with this aspect, we
will have to first taken into consideration, the effect of such a merger
scheme as approved by the High Court.  It is to be kept in mind that the
loan/debts/financial assets stood vested in the appellant pursuant to the
amalgamation scheme filed by the two companies under Sections 391
and 394 of the Companies Act, 1956 whereunder the predecessor
company, IBFSL got amalgamated with the appellant, the effect of such
a merger is explained by this Court in Saraswati Industrial Syndicate
Ltd. v. Commissioner of Income Tax10  in the following manner:
9(2010) 10 SCC 1
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“5. Generally, where only one company is involved in change and
the rights of the shareholders and creditors are varied, it amounts
to reconstruction or reorganisation of scheme of arrangement. In
amalgamation two or more companies are fused into one by merger
or by taking over by another. Reconstruction or ‘amalgamation’
has no precise legal meaning. The amalgamation is a blending of
two or more existing undertakings into one undertaking, the
shareholders of each blending company become substantially the
shareholders in the company which is to carry on the blended
undertakings. There may be amalgamation either by the transfer
of two or more undertakings to a new company, or by the transfer
of one or more undertakings to an existing company. Strictly
‘amalgamation’ does not cover the mere acquisition by a company
of the share capital of other company which remains in existence
and continues its undertaking but the context in which the term is
used may show that it is intended to include such an acquisition.
See: Halsbury’s Laws of England (4th edition volume 7 para
1539). Two companies may join to form a new company, but there
may be absorption or blending of one by the other, both amount to
amalgamation. When two companies are merged and are so joined,
as to form a third company or one is absorbed into one or blended
with another, the amalgamating company loses its entity.”
34. Thus, on sanction of the scheme of amalgamation, all loans,
recoveries,
security, interest, financial documents, etc. in favour of IBFSL
got transferred to and stood vested in the appellant including the loans
given by IBFSL to respondent borrowers, debts recoverable by IBFSL
from respondent borrowers in favour of IBFSL, security documents
executed by respondent borrowers in favour of IBFSL, etc. On the
sanctioning of the scheme, the respondent borrowers became the
borrower of the appellant as if the financial assistance was granted by
the appellant to the respondent borrowers.
35. There is a force in the contention by the appellant that the
debt with underlying securities is the asset of IBFSL and that IBFSL had
right to transfer/assign its assets to any person without seeking consent
of the borrower.  Such transfer/assignment is recognized and that this
Court in the case of Official Liquidator of APS Star Industries has
recognised and upheld such an assignment.
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
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36. In the aforesaid backdrop, the factor which assumes
importance and has to be kept in mind is that the appellant is an assignee
of a debt through the amalgamation of original lender with the appellant
which was effected invoking the statutory provisions of the Companies
Act.  Once this is kept in mind, there would not be any difference as far
as consequences in law are concerned from the case of M.D. Frozen
Foods and this case. Therefore, M.D. Frozen Foods case would apply
to the facts of this case in all force.
37. Further, it is too farfetched to argue that just to realise the
dues from the respondents, IBFSL and the appellant devised the plan of
merger so as to attract the provisions of SARFAESI Act and we are not
inclined to accept such a submission.  Various judgments which are relied
upon by the respondents also would not apply as we neither find it to be
a case of the Court creating any legislation or supplying any casus
omissus.
38. Apart from the factual parity, even legally the arguments of
the respondents do not carry any weight.  The view taken in M.D. Frozen
Foods is that the SARFAESI Act is retroactive in nature.  In the process,
the Court approved the Full Bench decision of the Orissa High Court in
Sarthak Builders Pvt. Ltd., Chinta, Arunodaya Market, Cuttack &
Another v. Orissa Rural Development Corporation Limited, Station
Square, Bhubaneswar & 5 Ors.11 and made the following observations:
“38…In
case of retroactivity, the Parliament takes note of the
existing conditions and promulgates the remedial measures to
rectify those conditions. In fact the SARFAESI Act, in our view,
was to remedy such a position and provide a measure against
secured interests. The scheme of the SARFAESI Act, is really to
provide a procedural remedy against security interest already
created. Therefore, an existing borrower, who had been granted
financial assistance was covered under Section 2(f) of the said
Act as a ‘borrower’. Not only this expression, the definition clauses
dealing with ‘debt securities’, ‘financial assistance’, ‘financial
assets’, etc., clearly convey the legislative intent that the
SARFAESI Act applies to all existing agreements irrespective of
the fact whether the lender was a notified ‘financial institution’ on
the date of the execution of the agreement with the borrower or
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not. The scheme of the SARFAESI Act sets out an expeditious,
procedural methodology, enabling the bank to take possession of
the property for non-payment of dues, without intervention of the
court. The mere fact that a more expeditious remedy is provided
under the SARFAESI Act does not mean that it is substantive in
character or has created an altogether new right. To accept the
argument of the appellants would imply that they have an inherent
right to delay the enforcement against the security interest!
39. The catena of judgments referred to by learned senior counsel
for the appellants on substantive law not being retrospective in
operation, unless expressly stated so in the Act would, thus, have
no application to the matter in issue, in view of what we have
observed aforesaid. On the other hand, as observed by Buckley,
L.J. in West v. Gwynne, retrospective operation is one matter and
interference with existing rights is another. In that context, it was
ruled that the provisions of the Conveyancing of Law and Property
Act, 1892 were held applicable to leases containing a covenant,
condition or agreement against assigning, under-letting or parting
with possession or disposing of land or property leased without
license or consent to all leases whether executed before or after
the commencement of the Act. Such a construction was held not
to make the Act retrospective in operation but merely effected
the future existing rights under all leases whether
executed before
or after the date of that Act. (Discussed in Trimbak Damodhar
Raipurkar v. Assaram Hiraman Patil).
40. In a similar vein, are the observations made in the case of In
re Athlumney. Ex parte Wilson, where the question posed before
the Queen’s Division Bench was whether Section 23 of the
Bankruptcy Act, 1890 was retrospective in its operation. In the
aforementioned context, Wright, J., speaking for the Bench,
illuminatingly opined:
“Perhaps no rule of construction is more firmly established
than this — that a retrospective operation is not to be given to
a statute so as to impair an existing right or obligation, otherwise
than as regards matter of procedure, unless that effect cannot
be avoided without doing violence to the language of the
enactment. If the enactment is expressed in language which is
fairly capable of either interpretation, it ought to be construed
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as prospective only… it is a general rule that when the
Legislature alters the rights of parties by taking away or
conferring any right of action, its enactments, unless in express
terms they apply to pending actions, do not affect them…It is
said that there is one exception to that rule, namely, that,
where enactments merely affect procedure and do not
extend to rights of action, they have been held to apply to
existing rights, and it is suggested here that the alteration
made by this section is within that exception…”
(Emphasis supplied)
41. Similarly, the date on which a debt is declared as an NPA
would again have no impact. We are, thus, of the view that the
provisions of the SARFAESI Act would become applicable quaall
debts owing and live when the Act became applicable to the
respondent in terms of the parameters contended by learned senior
counsel for the respondent and enlisted at serial Nos. i to iv in
para 18.”
It, thus, follows that there is only a procedural change in respect
of forum for recovery of debt and no substantive rights are affected.
39. In view of the aforesaid judgment, argument of the respondents
herein predicated on Sections 69 and 69A of the Transfer of Property
Act, which weighed with the High Court, is without any substance.
40. The aforesaid view also gets support from the judgment of
this Court in Mardia Chemicals Ltd. & Ors. v. Union of India &
Ors.12 wherein the background and salient
feature of the SARFAESI
Act have been extensively discussed and analysed and the Court has
also highlighted the objective behind enacting such a legislation.
41. These sentiments are echoed in the subsequent judgment in
the case of United Bank of India v. Satyawati Tondon and Others13
wherein it was held that the Act is intended to give impetus to industrial
development in the country by providing speedy procedure of recovery.
On account of lack of infrastructure and manpower, regular courts were
not able to cope with the speed in adjudication of recovery cases.  In the
light of recommendations of the Tiwari Committee, special tribunals came
to be set up under the provisions of the Recovery of Debts Due to
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Banks and Financial Institutions Act, 1993 for recovery of huge
accumulated NPAs of the bank loans.  On the recommendations of the
Narasimham Committee and Andhyarujina Committee, SARFAESI Act
was enacted to empower banks and financial institutions to take
possession of the securities and to sell them without the intervention of
the Court.  In this regard, reference may be made to the following
observations of this Court in the case of Satyawati Tondon:
“1…With a view to give impetus to the industrial development of
the country, the Central and State Governments encouraged the
banks and other financial institutions to formulate liberal policies
for grant of loans and other financial facilities to those who wanted
to set up new industrial units or expand the existing units. Many
hundred thousand took advantage of easy financing by the banks
and other financial institutions but a large number of them did not
repay the amount of loan, etc. Not only this, they instituted frivolous
cases and succeeded in persuading the civil courts to pass orders
of injunction against the steps taken by banks and financial
institutions to recover their dues. Due to lack of adequate
infrastructure and non-availability of manpower, the regular courts
could not accomplish the task of expeditiously adjudicating the
cases instituted by banks and other financial institutions for
recovery of their dues. As a result, several hundred crores of
public money got blocked in unproductive
ventures.
2. In order to redeem the situation, the Government of India
constituted a committee under the Chairmanship of Shri T. Tiwari
to examine the legal and other difficulties faced by banks and
financial institutions in the recovery of their dues and suggest
remedial measures. The Tiwari Committee noted that the existing
procedure for recovery was very cumbersome and suggested that
special tribunals be set up for recovery of the dues of banks and
financial institutions by following a summary procedure. The Tiwari
Committee also prepared a draft of the proposed legislation which
contained a provision for disposal of cases in three months and
conferment of power upon the Recovery Officer for expeditious
execution of orders made by adjudicating bodies.
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16. Thus, the Act intends to provide remedy in respect of pre -
existing loans. The interpretation that the Act will apply only to
future debt transactions defeats the very purpose of law of
reducing the non-performing assets. This object is clearly
mentioned in the Statement of Objects and Reasons. As noted in
the case of Satyaivati Tondon amount of rupees one lakh twenty
thousand crores was due to the banks in the year 2001 which had
adversely affected the economy of the country. Obviously, the
Act is intended to recover the said pre-existing loans by the
machinery provided under the SARFAESI Act. The pre-existing
loans are not excluded from the purview of the Act. Similarly, the
object of notifying the financial institution in question is to enable
such institution to avail the provisions of SARFAESI Act in respect
of existing loans. This salient object of the Act does not appear to
have been noticed in Subash Chandra Panda.”
42. We may also reproduce the following discussion from that
judgment which completely answers most of the arguments raised by
the learned counsel for the respondents:
“17. Further, the settled principle of interpretation that while the
statute affecting the substantive rights is presumed to be
prospective, a statute changing the forum of remedy and the
procedure is retrospective has also not been kept in mind. These
principles are the basis of the view taken in the Unique
Engineering Works
and Pradeep Kumar Gupta. The said
considerations are valid and legitimate, supported by ample authority
of binding precedents of the Apex Court, to which reference may
be made and relevant observations extracted:
1. Rafiquennessa v. Lal Bahadur Chetri, AIR 1964 SC 1511
“9….. Mr. Chatterjee has relied upon the well-known observations
made by Wright, J. in (Re Athlumney ex parte or Wilson (1898)
2 QBD 547) when the learned Judge said that it is a general rule
that when the legislature alters the rights of parties by taking away
or conferring any right of action, its enactments, unless in express
terms they apply to pending actions, do not affect them. He added
that there was one exception to that rule, namely that where
enactments merely affect procedure and do not extend to
rights of action, they have been held to apply to existing
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rights. In order to make the statement of the law relating
to the relevant rule of construction which has to be adopted
in dealing with the effect of statutory provisions in this
connection, we ought to add that retrospective operation
of a statutory provision can be inferred even in cases where
such retroactive operation appears to be clearly implicit in
the provision construed in the context where it occurs. In
other words, a statutory provision is held to be retroactive
either when it is so declared by express terms, or the
intention to make it retroactive clearly follows from the
relevant words and the context in which they occur.”
    (emphasis added)”
43. The aforesaid discussion, thus, leads us to conclude that
respondent No.1 would be treated as ‘borrower’ within the meaning of
Section 2(1)(f) of the SARFAESI Act; the arrangement would be
classified as ‘security arrangement’ under Section 2(1)(zb); the
agreements created ‘security interest’ under Section 2(1)(zf); and the
appellant became ‘secured creditor’ within the meaning of Section
2(1)(zd) of SARFAESI Act.
44.  As a result, we hold that judgment of the High Court is
erroneous and set aside the same. This appeal is allowed. No orders
need to be passed in the contempt petitions, which stand disposed of.
 Kalpana K. Tripathy
                                Appeal allowed.
INDIABULLS HOUSING FINANCE LIMITED v. M/S. DECCAN
CHRONICLE HOLDINGS LIMITED  [A.K. SIKRI, J.]