The Hon'ble Supreme Court of India while putting at rest a controversial issue has held that the revival of a sick company will take precedence over recovery proceedings. A three-judge bench, headed by Justice HL Dattu and comprising of Justice SA Bobde and Justice Abhay Manohar pronounced that the provisions of SICA in particular Section 22, shall prevail over the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB).

The appeal was placed before the three judges bench by a reference made by a two judge bench , whereby Justice Thakker and Justice Altamas Kabir had a difference of opinion regarding the interpretation of Section 34 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

Justice Thakker opined that by virtue of Section 34 of RDDB Act, the provisions of the RDDB Act should be given primacy and priority over SICA as Section 34 had been inserted through a subsequent enactment in order to ensure expeditious adjudication and recovery of debts. On the other hand, Justice Altamas Kabir was of the opinion that, "the non-obstante clause in Section 34(1) contains and exception, to be found in sub-section (2). Sub-section (2) provides that the Act shall be in addition to and not in derogation of inter alia the SICA." As per Justice Kabir, in view of the specific exception to Section 34(1) carved out in Section 34(2), the intention of the legislature was that the RDDB Act would prevail over SICA.

The brief facts of the matter are that M/s Arihant Threads had set up an export oriented unit for manufacturing of cotton yarn, for which it had taken a loan to the tune of Rs. 93.1 million from Industrial Development Bank of India ("IDBI"). Once the Company failed to repay the said loan, an Original Application was filed by IDBI against the Company, wherein the Debts Recovery Tribunal ordered an ex-parte order in favour of the Bank, directing a recovery of Rs. 252.6 million along with interest at the rate of 7.8%. and in the event of the failure of the Company to pay the said amount, IDBI was entitled to sell the mortgaged property of the Company.

Upon the failure of the Company to pay the decreed amount, the Recovery Officer of the DRT fixed the reserve price of the immoveable and moveable assets of the Company and KSL was the highest bidder in the auction of the mortgaged property of the Company. The Company approached the DRT for setting aside of the auction sale of its mortgaged property. DRT allowed the said prayer of the Company subject to the payment of a particular amount.

Thereafter, the Company filed an appeal before the Debts Recovery Appellate Tribunal ("DRAT") and during the pendency of the said appeal, the Company invoked the provisions of The Sick Companies (Special Provisions) Act, 1985 ("SICA"). The DRAT confirmed the auction sale in favor of KSL industries. Aggrieved by the same, the Company, Arihant Threads moved to the Delhi High Court on the ground that the Recovery Proceedings could not be pursued against the Company in view of Section 22 of SICA. The High Court set aside the order passed by the DRAT in view of the express bar contained in Section 22 of the SICA.

The matter then reached the Hon'ble Supreme Court of India where the Division Bench had a difference in opinion following which the matter was referred to the three judges bench which held that:

"The purpose of the two Acts is entirely different and where actions under the two laws may seem to be in conflict, Parliament has wisely preserved the proceedings under the SICA, by specifically providing for sub-section (2), which lays down that the later Act RDDB shall be in addition to and not in derogation of the SICA."

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