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Bhaven (Professional)     17 May 2012

Fresh reference bifr - sica

Dear Sirs,

There is a serious question of law and logic with regards to the undermentioned case;

Due to invocation of Sec 13(4) of SARFAESI Act, pending reference before BIFR of the "Sick" Company has abated. However, 25 years had passed by the time the said pending reference had concluded. My client is an unsecured creditor. On understanding of such abatement, my client proceeded for execution of decree which was stalled due to proceedings being under BIFR. However, the "Sick" Company has once again filed a fresh reference before BIFR claiming sickness and wants undue and unwarranted protection of Sec 22 of SICA. My client is a decree holder since 25 years but execution seems to be impossible considering this scenario. Winding up is also an option but cannot be proceeded with unless company is outside the purview of BIFR. Pls suggest and guide.




 5 Replies

Anjuru Chandra Sekhar (Advocate )     17 May 2012

Yours is a peculiar case because unsecured creditors are at the most disadvantageous position with regard to enjoyment of Company's assets.  Let me first answer the question : Whether any remedy lies in the Bombay High Court? Whether the protection under SICA abates due to proceedings undertaken by the bank u/s 13(4) of the SARFAESI Act? What must be done to enforce this abatement?


Yes. The Schedule to SARFAESI Act made amendments to Sub-section (1) of Section 15 of SICA, 1985 wherein Secured creditors representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act", a reference is pending before the Board for Industrial and Financial Reconstruction shall abate.   Whether that will benefit my client?   


No.  That will not benefit your client because Secured Creditor is only obliged to keep aside amounts relating to workmen under Section 529A of Companies Act from the sale proceeds of secured assets.  SARFAESI Act, does not provide for relief to unsecured creditors.


But there could be one relief.  BIFR is still existing because government has not notified the repealment of SICA, 1985. SICA has been repealed by NDA government and in place of BIFR, NCLT was to come into place.  But due to negligence of Central government, NCLT has not yet come into existence and as government has not yet notified the repealment of SICA, BIFR is still continuing as official body. 


Here there is a question of law which you will find very interesting.  How long the government can take to notify the repealment of a certain legislation?  SICA was repealed in 2003 itself.  It is now 2011.  If the government does not notify certain Act (SICA repeal Act, 2003) made by parliament, then will the Act remain without having any legal validity?  These questions can be asked in the form of Public Interest Litigation to Supreme Court. In that litigation we can also question whether BIFR carry the force of law in view of the fact that SICA is repealed.  If it does not have force of law, then the government have right to take reference made to that body?  And the courts have right to stall the winding up proceedings of a certain company under the pretext that a reference is made to BIFR?  It is high time Apex court answers these questions.


Next whether BIFR is allowed or not is a different issue, but the SARFAESI has the force of law.  So when the Secured creditors take action under Section 13(4) the reference to BIFR shall abate.  And that means line is cleared for winding up proceedings too under Companies Act for unsecured creditors.  It is very logical, justifiable too because one side the in the Assets purchased by Company, the funds of unsecured creditors may exist.  And such assets are given as mortgage to Secured creditors.  And when Secured Creditors invoke the SARFAESI Act, if the reference under BIFR still does not abate, it means that the Secured creditors have enjoyed the assets in which the funds of unsecured creditors are involved.  The other side, the existence of reference still protects the Company from unsecured creditors which is unwarranted.  Technically, when the Secured creditors are able to enforce their rights the Company's assets are sold and there is no chance of revival of the company even if BIFR proposes some new package.  So there is no point in BIFR still holding the responsibility of the Company.  Hence, the reference shall abate giving scope to unsecured creditors to initiate Winding up proceedings under Companies Act, because there is no possibility of survival after Company's assets are sold off by Secured creditors and made company's position worse. 


A new petition to Supreme Court on these lines may help.



Anjuru Chandra Sekhar (Advocate )     17 May 2012

So you have not filed any petition?

Anjuru Chandra Sekhar (Advocate )     17 May 2012

If the government does not notify certain Act (SICA repeal Act, 2003) made by parliament, then will the Act remain without having any legal validity? 


Take it like this.


If the government does not notify certain Act (SICA repeal Act, 2003) made by parliament, then will the Act will remain having legal validity as long as it notifies, even if that means that notification comes after a decade or a century? 


Let the Apex court answer this question, your problem will be solved.

Bhaven (Professional)     18 May 2012

The circumstances have changed to a significant effect. The Apex Court has taken a stand that it will not interfere with any matter that is pending before BIFR. However, at this instance, pending reference has abated but the Company has filed a fresh reference before BIFR which most likely will be admitted. The aim would be to restrain it from doing so and proceeding against the company for recovery of dues which are suspended considering proceedings before BIFR.

To challenge validity of SICA Repeal Act, 2003 will not be feasible for the client. Is there any legal remedy with the corners of BIFR, existing SICA or by a writ?

S Jadhav 98336 98330 (Jadhav & Associates)     21 May 2012

Chandrashekhar has given a very interesting analysis. Thank you sir.

However, a law will come into force only on the date on which the parliament wants it to. If the parliament has mentioned that it will come into force at a later date or on happening of a certain event which has not happened, the will of the Parliament has prevailed so there is doubt for which you can approach the Supreme Court. However, as Chandrashekhar has pointed out, if the Parliament passes a certain legislation which is to come into force on a certain date or event, the Supreme Court may direct or advise or suggest that there should be a limitation of time within which the Act becomes a law or then it has to go through the Parliament again.

For Bhaven - You may file a writ or apply to SICA-BIFR but it may not help you.

S Jadhav

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