Full Judgment Text
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CASE NO.:
Appeal (civil) 3760 of 1995
PETITIONER:
SOLIDAIRE INDIA LTD.
RESPONDENT:
FAIRGROWTH FINANCIAL SERVICES LTD. AND ORS.
DATE OF JUDGMENT: 07/02/2001
BENCH:
B.N. KIRPAL & RUMA PAL & BRIJESH KUMAR
JUDGMENT:
JUDGMENT
2001 (1) SCR 932
The Judgment of the Court was delivered by
KIRPAL, J. The appellant herein on 3rd March, 1992, 20th March, 1992 and
25th March, 1992 took a loan of Rs. 50 lakhs, Rs. 25 lakhs and Rs. 25 lakhs
respectively from respondent No. 1. According to the appellant, the
agreement was to repay the loan amount within three years together with
interest at 18 per cent per annum.
Repayment not having been made and respondent No. 1 having been notified
under Section 3 of the Special Court (Trial of Offences Relating to
Transactions and Securities) Act, 1992 (hereinafter referred to as "Special
Court Act"), proceedings were initiated by the Custodian before the Special
Court for the recovery of the said money.
There was no dispute before the Special Court with regard to the fact that
Rs. 1 crore had been taken on loan by the appellant. The claim against the
appellant before the Special Court was for a sum of Rs. 1,57,20, 216.24
consisting of principal plus interest. The main contention raised before
the Special Court related to the rate of interest. The respondent had
claimed interest at the rate of 21.5 per cent on the amount of Rs. 50 lakhs
and 23 per cent on the two loans of Rs. 25 lakhs each. The Special Court
came to the conclusion that the appellant herein had been put to notice by
the Custodian as far back as 3rd June, 1993 that if it did not deposit the
amount it will become liable to pay interest at a higher rate and the
payment had not been made. The Special Court came to the conclusion that
the claim of interest made by the respondent was justified. The suit of the
respondent was, accordingly, decreed as prayed for alongwith costs.
During the pendency of this appeal, a further development had taken place
and that is that the appellant has become sick and proceedings are going on
under the provisions of The Sick Industrial Companies (Special Provisions)
Act, 1985.
It is contended on behalf of the appellant that firstly, the Special Court
was not justified in awarding interest in excess of 18 per cent and the
second contention was that in view of the special provisions contained in
the Sick Industrial Companies (Special Provisions) Act, 1985 no proceedings
should have been initiated or continued under the Special Court Act.
As far as the question of interest is concerned, it appears that there was
no formal agreement which had entered into between the parties at the time
when the loan was advanced in March, 1992. The correspondence which has
been placed on record, however, clearly indicates that the respondent had
claimed interest at the rate of 21.5 per cent on the Joan of Rs. 50 lakhs
first advanced and on the balance amount the claim was of 23 per cent,
there is no document on the record to show that the amount of interest
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claimed was immediately refuted, though it was belatedly refuted by the
appellant. We do not find any infirmity in the decision of the Special
Court in coming to the conclusion that the appellant was liable to pay the
rate of interest as claimed by the respondent.
Corning to the second question, there is no doubt that the 1985 Act is a
special Act. Section 32(1) of the said Act reads as follows:
"32. Effect of the Act on other taws-(l) The provisions of this Act and of
any rules or schemes made thereunder shall have effect notwithstanding
anything inconsistent therewith contained in any other law except the
provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and
the Urban Land (Ceilling and Regulation) Act, 1976 (33 of 1976) for the
time being in force or in the Memorandum or Articles of Association of an
industrial company or in any other instrument having effect by virtue of
any law other than this Act."
The effect of this provision is that the said Act will have effect
notwithstanding anything inconsistent therewith contained in any other law
except to the provisions of the Foreign Exchange Regulation Act, 1973 and
the Urban Land (Ceiling and Regulation) Act, 1976. A similar non-obstante
provision is contained in Section 13 of the Special Court Act which reads
as follows:
"13. Act to have overriding effect-The provisions of this Act shall have
effect notwithstanding anything inconsistent therewith contained in any
other law for the time being in force or in any: instrument having effect
by virtue of any law, other than this Act, or in any decree or order of any
court, tribunal or other authority."
It is clear that both these Acts are special Acts. This Court has laid down
in no uncertain terms that in such an event it is the later Act which must
prevail. The decisions cited in the above context are as follows:
Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of
Maharashtra Ltd. & Anr., [1993 ] 2 SCC 144; Sarwan Singh & Anr. v. Kasturi
Lal, [1977] 2 SCR 421; Allahabad Bank v. Canara Bank & Anr., [2000] 4 SCC
406 and Shri Ram Narain v. The Simla Banking Industrial Co. Limited, [1956]
SCR 603.
We may notice that the Special Court had in another case dealt with a
similar contention. In Bhoruka Steel Ltd. v. Fairgrowth Financial Services
Ltd. [1997] v. 89 Company Cases 547, it had been contended that recovery
proceedings under the Special Court Act should be stayed in view of the
provisions of the 1985 Act. Rejecting this contention, the Special Court
had come to the conclusion that the Special Court Act being a later
enactment would prevail. The head-note which brings out succinctly the
ratio of the said decision is as follows :
"Where there are two special statutes which contain non-obstante clauses
the later statute must prevail. This is because at the time of enactment of
the later statute, the Legislature was aware of the earlier legislation and
its non-obstante clause. If the Legislature still confers the later
enactment with a non-obstante clause it means that the Legislature wanted
that enactment to prevail. If the Legislature does not want the later
enactment to prevail then it could and would provide in the later enactment
that the provisions of the earlier enactment continue to apply.
The Special Court (Trial of Offences Relating to Transactions and
Securities) Act, 1992, provides in Section 13, that its provisions are to
prevail over any other Act. Being a later enactment, it would prevail over
the Sick Industrial Companies (Special Provisions) Act, 1985. Had the
Legislature wanted to exclude the provisions of the Sick Companies Act from
the ambit of the said Act, the Legislature would have specifically so
provided. The fact that the Legislature did not specifically so provide
necessarily means that the Legislature intended that the provisions of the
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said Act were to prevail even over the provisions of the Sick Companies
Act.
Under Section 3 of the 1992 Act, all property of notified persons is to
stand attached. Under Section 3(4), it is only the Special Court which can
give directions to the custodian in respect of property of the notified
party. Similarly, under Section 11(1), the Special Court can give
directions regarding property of a notified party. Under Section 11(2), the
Special Court is to distribute the assets of the notified party in the
manner set out thereunder. Monies payable to the notified parties are
assets of the notified party and are, therefore, assets which stand
attached. These are assets which have to be collected by the Special Court
for the purposes of distribution under Section 11(2). The distribution can
only take place provided the assets are first collected. The whole aim of
these provisions is to ensure that monies which are siphoned off from banks
and financial institutions into private pockets are returned to the banks
and financial institutions. The time and manner of distribution is to be
decided by the Special Court only. Under Section 22 of the 1985 Act.
recovery proceedings can only be with the consent of the Board for
Industrial and Financial Reconstruction or the Appellate Authority under
that Act. The Legislature being aware of the provisions of Section 22 under
the 1985 Act still empowered only the Special Court under the 1992 Act to
give directions to recover and to distribute the assets of the notified
persons in the manner set down under section 11(2) of the 1992 Act. This
can only mean that the Legislature wanted the provisions of Section 11(2)
of the 1992 Act to prevail over the provisions of any other law including
those of the Sick Industrial Companies (Special Provisions) Act, 1985.
It is a settled rule of interpretation that if one construction leads to a
conflict, whereas on another construction, two Acts can be harmoniously
constructed then the latter must be adopted. If an interpretation is given
that the Sick Industrial Companies (Special Provisions) Act, 1985, is to
prevail then there would be a clear conflict. However, there would be no
conflict if it is held that the 1992 Act is to prevail. On such an
interpretation the objects of both would be fulfilled and there would be no
conflict. It is clear that the Legislature intended that public monies
should be recovered first even from sick companies. Provided the sick
company was in a position to first pay back the public money, there would
be no difficulty in reconstruction. The Board for Industrial and Financial
Reconstruction against considering a scheme for reconstruction has to keep
in mind the fact that it is to be paid off or directed by the Special
Court. The Special Court can, if it is convinced grant time or instalments.
There can, therefore, be no stay of any proceedings for recovery against a
sick company so far as the Special Court under the 1992 Act is concerned."
We are in agreement with the aforesaid decision or the case, more so when
we find that whenever the Legislature wishes to do so it makes appropriate
provisions in the Act in that behalf. Mrs. Shiraz Rustomjee has drawn our
attention to Section 34 of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993 wherein after giving an overriding effect to the
1993 Act it is specifically provided that the said Act will be in addition
to and not in derogation of a number of other Acts including the 1985 Act.
Similarly under Section 32 of the 1985 Act the applicability of the Foreign
Exchange Regulation Act and the Urban Land Ceiling Act is not excluded. It
is clear that in the instant case there was no intention of the Legislature
to permit the 1985 Act to apply notwithstanding the fact that proceedings
in respect of a company may be going on before the B.I.F.R. The 1992 Act is
to have an overriding effect notwithstanding any provision to the contrary
in another Act.
For the aforesaid reasons, we do not find any merit in this appeal. The
appeal is dismissed with costs.
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