Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
SPECIAL LEAVE PETITION (CIVIL) NO.29421 OF 2010
BHARAT STEEL TUBES LIMITED … PETITIONER
VERSUS
IFCI LIMITED … RESPONDENT
WITH
CONTEMPT PETITION (CIVIL) NO.271 OF 2010
IN
SPECIAL LEAVE PETITION (CIVIL) NO.29421 OF 2010
BHARAT STEEL TUBES LIMITED … APPLICANT/
PETITIONER
VERSUS
MR. MANORANJAN SHARMA & ANR. … ALLEGED
CONTEMNORS
J U D G M E N T
ALTAMAS KABIR, J.
1. Before the Special Leave Petition which had
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been specially fixed for hearing on 9 November,
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2010, could be taken up for consideration, Mr. T.R.
Andhyarujina, learned Senior Advocate, appearing
for the Petitioner, M/s Bharat Steel Tubes Ltd.,
submitted that Contempt Petition (Civil) No.271 of
2010 had been filed in regard to wilful and
deliberate violation of the order passed by this
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Court on 8 October, 2010, by the alleged
contemnors in entertaining bids for the auction
proposed to be held in respect of the Petitioner’s
property despite the said order.
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
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15 September, 2010, to the Petitioner to deposit a
sum of Rs.35 crores with the Industrial Finance
Corporation of India Ltd. (IFCI Ltd.) without
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prejudice to its rights and contentions. The
Respondent was also directed not to implement the
possession notice as well as the public notice
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published on 13 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
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its order dated 22 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
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the Delhi High Court on 29 September, 2010,
directing that during the pendency of the writ
petition, the writ petitioner would be free to
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proceed in pursuance of the Public Notice dated 13
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
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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.
3. Mr. Andhyarujina pointed out that such an ex-
parte order was passed on the supposition that
there were dues to the extent of Rs.1,100.00 crores
payable by the Respondent and that proceedings had
also been taken under Section 17 of the
Securitization and Reconstruction of Financial
Assets and Enforcement of Security Interest Act,
2002 (SARFAESI Act, 2002) even though the BIFR had
recommended the winding up of the Petitioner
Company and finalization of those proceedings was
still pending before the Company Court where the
Official Liquidator had been put in charge of the
functioning of the Petitioner Company. The
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Petitioner Company, being aggrieved by the said
interim order of the Division Bench of the High
Court, moved the instant Special Leave Petition and
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on 8 October, 2010, while issuing notice and
giving directions for filing of affidavits, this
Court stayed the operation of the order of the High
Court which has been impugned in the Special Leave
Petition. The result was that the order of the
Debts Recovery Appellate Tribunal revived and
according to the Petitioner, despite such order of
stay passed by this Court, the alleged contemnors
continued with the auction process in violation of
the order of stay passed by this Court.
4. Mr. Andhyarujina submitted that while the order
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of stay was passed on 8 October, 2010, and the
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date of auction was fixed on 15 October, 2010, the
Respondent Company continued to sell bid documents
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at least till 13 October, 2010, and the Bid Box
was kept available in the office premises of the
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Respondent Company till 15 October, 2010, when the
auction was to be conducted.
5. Mr. Andhyarujina submitted that since the said
steps were taken by the Respondent Company despite
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the order of stay passed by this Court on 8
October, 2010, the alleged contemnors had committed
contempt of Court and were liable to be dealt with
accordingly before the Special Leave Petition was
taken up for consideration.
6. Both Mr. Parag P. Tripathi, learned Additional
Solicitor General and Mr. Ranjit Kumar, learned
Senior Advocate, who appeared for the alleged
contemnors denied the allegations made on behalf of
the Petitioner Company and submitted that except
for sweeping allegations having been made, there
was no material proof before the Court to hold that
the alleged contemnors had wilfully and
deliberately violated the order of stay passed by
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this Court on 8 October, 2010.
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7. On being asked as to whether the order passed
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on 8 October, 2010 had been communicated to the
alleged contemnors or not, Mr. Andhyarujina
submitted that since the order had been passed in
the presence of learned counsel for the Respondent
Company, it had to be presumed that the same had
been conveyed to the Respondent Company by their
learned counsel. Learned counsel submitted that a
presumption would have to be drawn regarding
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knowledge of the order passed by this Court on 8
October, 2010, by the alleged contemnors since it
was duly represented on the said date through
counsel.
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
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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
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order passed by this Court on 8 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.
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.
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On 11 November, 2008, a lock-out was declared in
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the factory of the petitioner and ultimately on 1
May, 1990, the Petitioner made a reference to the
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BIFR. On 23 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
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Rs.3,27,62,27,044.00. On 14 August, 2003, the
High Court passed an order winding up the Company
and appointing the Official Liquidator to implement
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the order of winding up. At this stage, on 2
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
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9 February, 2005, the High Court stayed the
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winding up order passed on 14 August, 2003, and
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directed the Official Liquidator to continue as the
Liquidator and to also observe the functioning of
the unit.
10. On account of the default committed by the
Petitioner Company in respect of the One-Time
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Settlement entered into on 2 September, 2004, the
Punjab National Bank revoked the said settlement on
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14 June, 2007.
11. Thereafter, certain further developments took
place, which ultimately brought the present
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Respondent Company into the picture. On 5 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
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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
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National Bank and ACE on 15 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.
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12. Thereafter, on 10 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
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refuted by the Petitioner Company on 17 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
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sum of Rs.15,01,28,752.00 and nothing more.
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Subsequent thereto, on 10 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
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notice dated 10 August, 2009, which was, however,
dismissed by the High Court on the ground of lack
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of jurisdiction on 10 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.
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Thereafter, on 13 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
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public that the sealed bids would be opened on 15
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October, 2010. On 15 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
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said order dated 15 September, 2010, being Misc.
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Appeal Nos.352 and 353 of 2010, and on 22
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
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filing affidavits and the case was adjourned by the
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Appellate Tribunal to 27 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
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Court against the orders dated 10 September, 2010
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and 15 September, 2010 passed by the Debts
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Recovery Tribunal-III, Delhi, and order dated 27
September, 2010, passed by the Debts Recovery
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Appellate Tribunal. On 29 September, 2010, the
High Court allowed the IFCI Ltd. to proceed with
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the public notice dated 13 September, 2010, with
the directions mentioned hereinbefore in paragraph
2.
15. Mr. Andhyarujina submitted that till such time
as the actual dues payable by the Petitioner
Company was determined by the Debts Recovery
Tribunal-III, Delhi, no proceedings could be
continued under the SARFAESI Act, 2002, in respect
of a nebulous figure. Mr. Andhyarujina submitted
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that in view of the One-Time Settlement, which had
been arrived at between the Petitioner Company and
the Punjab National Bank, the demand raised on
behalf of IFCI Ltd. was entirely absurd since at
best the said Company could claim what had been
assigned to it by ACE. How a sum of
Rs.15,01,28,752.00 could become Rs.1139.75 crores,
remains unexplained and till such determination of
the actual amount payable, proceedings under
Section 13(2) of the SARFAESI Act, 2002, should
not be allowed to be taken, since it would not be
possible for IFCI Ltd. to determine as to what part
of the Petitioner’s property was liable to be taken
possession of.
16. Mr. Andhyarujina submitted that it had also to
be considered as to whether when the dues of the
Punjab National Bank had been duly liquidated by
ACE, its assignee could maintain the demand against
the Petitioner Company.
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17. Mr. Andhyarujina submitted that the steps taken
by IFCI Ltd. pursuant to its demand notice dated
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10 August, 2009 under Section 13(2) of the
SARFAESI Act, 2002, were wholly illegal and were
liable to be quashed.
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
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crores on 2 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
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Understanding with ACE on 5 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
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Petitioner-Company. Thereafter, on 15 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
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Understanding to the Respondent-Company on 17
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.
19. The learned Solicitor General, who also
appeared for IFCI Ltd., urged that ACE as a
“reconstruction company” within the meaning of
Section 3 of the SARFAESI Act, 2002, was entitled
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under Section 5 thereof to acquire interest in the
financial assets of the Petitioner-Company and was
entitled to maintain a proceeding before the Debts
Recovery Tribunal under Section 17 of the Debts
Recovery Act, 1993. The learned Solicitor General
contended that the Petitioner-Company had not made
any effort to clear any amount even from the unpaid
balance of the One-Time Settlement and it was
virtually under the control of the Official
Liquidator inspite of the interim order passed by
the Division Bench of the High Court under
challenge. The learned Solicitor General submitted
that not only had a recommendation been made for
winding up of the Petitioner-Company by the BIFR,
but an order of winding up was actually passed by
the High Court, whereby the Official Liquidator was
appointed to take over the Company and its assets.
It was submitted that the High Court had merely
allowed IFCI Limited to proceed in terms of the
Public Notice issued, but had prevented it from
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taking any final decision in the matter and the
same did not warrant any interference by this Court
on account of the financial condition of the
Petitioner-Company.
20. As to the submissions made by Mr. Andhyarujina
on behalf of the Petitioner-Company, regarding
quantification of the dues in the pending
proceedings before the Debts Recovery Tribunal-III,
Delhi, the learned Solicitor General submitted that
the same could not be a reason to stay the auction
in terms of Section 13(4) of SARFAESI Act, 2002,
since the sale proceeds could be kept in a separate
account for distribution, once the amount was
determined.
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
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IFCI Limited on 13 September, 2010, inviting bids
for sale of the factory of the Petitioner-Company
at Gannore in Haryana in which it was indicated
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that the sale bids would be opened on 15 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,
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Delhi, on 13 September, 2010, in the evening, and,
thereafter, stay was granted by the said Tribunal
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on 15 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
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against the said order of 15 September, 2010, and
the Appellate Tribunal stayed the proceedings
before the Debts Recovery Tribunal in the Original
Application, as also the Securitisation Appeal by
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its order dated 22 September, 2010. It is against
the order subsequently granting time to the
Petitioner-Company to file a reply and adjourning
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the case to 27 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
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order on 29 September, 2010, allowing IFCI Limited
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to proceed with the Public Notice dated 13
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.
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22. With regard to the allegation made on behalf of
the Petitioner-Company that the Bid Box had been
kept available in the company premises for filing
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bids till 15 October, 2010, Mr. Ranjit Kumar
submitted that there was nothing on record to show
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that the Bid Box had been used after 13 September,
2010, or that the contents thereof had been used
for the purposes of the auction which was scheduled
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to be held on 15 October, 2010. Mr. Ranjit Kumar
urged that it would be clear from the above that
the alleged contemnors had neither violated the
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order of stay made by this Court on 8 October,
2010, nor did it have any intention to do so.
23. On the question of maintainability of the
proceedings before the Debts Recovery Tribunal by
the Respondent No.1-Company, Mr. Ranjit Kumar urged
that there was no prohibition either under the
Banking Regulation Act, 1949 or under the SARFAESI
Act, 2002, debarring an assignee financial
institution or a reconstruction company from
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continuing a proceeding initiated before the Debts
Recovery Tribunal by a banking/financial
institution and, in any event, the said question
could be raised and answered before the Appellate
Tribunal itself. In this regard, learned Senior
counsel referred to and relied upon the decision of
this Court in ICICI Bank Limited vs. Official
Liquidator etc. etc. [2010 (10) SCALE 378], in
which this Court was called upon to decide whether
inter se transfers of Non-Performing Assets (NPA)
by banks is illegal under the Banking Regulation
Act, 1949, as was held by the Gujarat High Court.
After considering the submissions made and the
materials on record, this Court set aside the
judgment of the Division Bench of the High Court,
which had upheld the order of the learned Company
Court on the ground that the assignment of debts by
the banks inter se is an activity which is
impermissible under the Banking Regulation Act,
1949. The matter was remitted to the Division
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Bench on other issues after setting aside the view
taken by the Division Bench of the Gujarat High
Court regarding the locus standi of the assignee of
a debt as being an activity permissible under the
aforesaid Act. It was urged that the Special Leave
Petition and the Contempt Petition were both liable
to be dismissed.
24. Although, the Special Leave Petition is
directed against an interim order passed by the
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High Court on 29 September, 2010, granting liberty
to the Petitioner to proceed in pursuance of the
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Public Notice dated 13 September, 2010, during the
pendency of the writ petition, extensive
submissions were advanced on behalf of the parties.
25. In this case, we have a situation in which
moneys were admittedly borrowed by the Petitioner-
Company from the Punjab National Bank which it was
unable to repay in full. Ultimately, a One-Time
Settlement was arrived at between the Petitioner-
Company and the Punjab National Bank for a sum of
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Rs.26.16 crores. Out of the said amount, the
Petitioner-Company paid a sum of Rs.13.80 crores
and defaulted in payment of the rest. It entered
into an agreement with ACE to pay off the entire
dues of Punjab National Bank, which it did. The
entire dues of the Bank, therefore, stood
satisfied, but a new liability was created by the
Petitioner-Company in favour of ACE which assigned
its rights to IFCI Ltd. As explained hereinbefore,
by virtue of Section 3 of the SARFAESI Act, 2002, a
reconstruction company, such as ACE, would be
entitled to carry on the business of
securitisation.
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
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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.
27. However, as indicated hereinabove, this
Special Leave Petition has been filed against the
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interim order passed by the High Court on 29
September, 2010, in the Writ Petition filed by IFCI
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Ltd. seeking to set aside the order dated 27
September, 2010, passed by the Debts Recovery
Appellate Tribunal limited to the question as to
whether the auction sale should be proceeded with
further. In effect, the question regarding the
auction of the assets of the Petitioner Company is
still the subject matter of the proceedings pending
before the Debts Recovery Appellate Tribunal. All
the questions raised in this Special Leave Petition
are at large in the pending proceedings before the
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Appellate Tribunal which had stayed the proceedings
before the Debts Recovery Tribunal-III, Delhi,
directing stay of the auction sale proceedings.
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28. Having heard the matter on 9 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
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Writ Petition before the High Court on 11
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
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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.
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…………………………………………J.
(ALTAMAS KABIR)
…………………………………………J.
(CYRIAC JOSEPH)
New Delhi
Dated:30.11.2010