Altamas Kabir, J.— Before the special leave petition which had been specially fixed for hearing on 9-11-2010, 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 Court on 8-10-2010, 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 15-9-2010, to the petitioner to deposit a sum of Rs 35 crores with the Industrial Finance Corporation of India Ltd. (IFCI Ltd.) without prejudice to its rights and contentions. The respondent was also directed not to implement the possession notice as well as the Public Notice published on 13-9-2010, till the next date of hearing. Against the said order, IFCI Ltd. filed Miscellaneous Appeal No. 352 of 2010 before the Debts Recovery Appellate Tribunal, which stayed the proceedings before the Debts Recovery Tribunal by its order dated 22-9-2010. 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 the Delhi High Court on 29-9-2010, directing that during the pendency of the writ petition, the writ petitioner would be free to proceed in pursuance of the Public Notice dated 13-9-2010, but the bid was not to be finalised. Since a winding-up order had been passed in respect of the petitioner Company on the recommendation of the Board for Industrial and 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 1100 crores payable by the respondent and that proceedings had also been taken under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Sarfaesi Act, 2002) even though BIFR had recommended the winding up of the petitioner Company and finalisation 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 petitioner Company, being aggrieved by the said interim order of the Division Bench of the High Court, moved the instant special leave petition and on 8-10-2010, 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 of stay was passed on 8-10-2010, and the date of auction was fixed on 15-10-2010, the respondent Company continued to sell bid documents at least till 13-10-2010, and the bid box was kept available in the office premises of the respondent Company till 15-10-2010, when the auction was to be conducted. Mr Andhyarujina submitted that since the said steps were taken by the respondent Company despite the order of stay passed by this Court on 8-10-2010, 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.
5. 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 this Court on 8-10-2010.
6. On being asked as to whether the order passed on 8-10-2010 had been communicated to the alleged contemnors or not, Mr Andhyarujina submitted that since the order had been passed in the presence of the 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. The learned counsel submitted that a presumption would have to be drawn regarding knowledge of the order passed by this Court on 8-10-2010, by the alleged contemnors since it was duly represented on the said date through counsel.
7. 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 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) [sic Section 2(b)] of the Contempt of Courts Act, 1971, in order to find a person guilty of having committed contempt of court.
8. We are not satisfied with the materials placed before us that the alleged contemnors had any knowledge of the stay order passed by this Court on 8-10-2010, 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 Punjab National Bank in 1973. On 11-11-2008, a lock-out was declared in the factory of the petitioner and ultimately on 1-5-1990, the petitioner made a reference to BIFR. On 23-2-2010, BIFR recommended winding up of the Company and forwarded its recommendation to the High Court. Three years thereafter, Punjab National Bank filed OA No. 12 of 2003 before the Debts Recovery Tribunal, Delhi, for recovery of a loan of Rs 3,27,62,27,044.00.
10. On 14-8-2003, the High Court passed an order winding up the Company and appointing the Official Liquidator to implement the order of winding up. At this stage, on 2-9-2004, 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 9-2-2005, the High Court stayed the winding-up order passed on 14-8-2003, and directed the Official Liquidator to continue as the Liquidator and to also observe the functioning of the unit.
11. On account of the default committed by the petitioner Company in respect of the one-time settlement entered into on 2-9-2004, Punjab National Bank revoked the said settlement on 14-6-2007. Thereafter, certain further developments took place, which ultimately brought the present respondent Company into the picture.
12. On 5-5-2008, 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 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 Bank was concerned.
13. 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 Punjab National Bank and ACE on 15-7-2008, 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.
14. Thereafter, on 10-8-2009, 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 refuted by the petitioner Company on 17-9-2009, 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 sum of Rs 15,01,28,752.00 and nothing more.
15. Subsequent thereto, on 10-10-2009, 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 notice dated 10-8-2009, which was, however, dismissed by the High Court on the ground of lack of jurisdiction on 10-9-2010. 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.
16. Thereafter, on 13-9-2010, 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 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 public that the sealed bids would be opened on 15-10-2010.
17. On 15-9-2010, 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.
18. IFCI Ltd. filed two appeals against the said order dated 15-9-2010, being Miscellaneous Appeals Nos. 352 and 353 of 2010, and on 22-9-2010, 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 securitisation appeal. Directions were given for filing affidavits and the case was adjourned by the Appellate Tribunal to 27-10-2010.
19. 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 Court against the orders dated 10-9-2010 and 15-9-2010 passed by the Debts Recovery Tribunal-III, Delhi, and order dated 27-9-2010, passed by the Debts Recovery Appellate Tribunal. On 29-9-2010, the High Court allowed IFCI Ltd. to proceed with the public notice dated 13-9-2010, with the directions mentioned hereinbefore in para 2.
20. Mr Andhyarujina submitted that till such time as the actual dues payable by the petitioner Company were 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 that in view of the one-time settlement, which had been arrived at between the petitioner Company and 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.
21. Mr Andhyarujina submitted that it had also to be considered as to whether when the dues of Punjab National Bank had been duly liquidated by ACE, its assignee could maintain the demand against the petitioner Company. Mr Andhyarujina submitted that the steps taken by IFCI Ltd. pursuant to its demand notice dated 10-8-2009 under Section 13(2) of the Sarfaesi Act, 2002, were wholly illegal and were liable to be quashed.
22. The learned Additional Solicitor General, Mr Parag P. Tripathi, appearing for the respondent IFCI Ltd., 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 Punjab National Bank. Having entered into a one-time settlement with Punjab National Bank for a sum of Rs 26.16 crores on 2-9-2004, 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 understanding with ACE on 5-3-2008, whereby ACE agreed to pay 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 petitioner Company. Thereafter, on 15-7-2008, a deed of assignment was executed between Punjab National Bank and ACE for an amount of Rs 15,01,28,752.00. ACE, in its turn, assigned its rights under the abovementioned memorandum of understanding to the respondent Company on 17-4-2009, amounting to Rs 18.63 crores, whereunder notice was ultimately issued by IFCI Ltd. to the petitioner Company under Section 13(2) of the Sarfaesi Act, 2002.
23. 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 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 in spite of the interim order passed by the Division Bench of the High Court under challenge.
24. The learned Solicitor General submitted that not only had a recommendation been made for winding up of the petitioner Company by 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 Ltd. to proceed in terms of the public notice issued, but had prevented it from 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.
25. 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 the Sarfaesi Act, 2002, since the sale proceeds could be kept in a separate account for distribution, once the amount was determined.
26. 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 IFCI Ltd. on 13-9-2010, inviting bids for sale of the factory of the petitioner Company at Gannore in Haryana in which it was indicated that the sale bids would be opened on 15-10-2010. 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, Delhi, on 13-9-2010, in the evening, and, thereafter, stay was granted by the said Tribunal on 15-9-2010, restraining IFCI Ltd. 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.
27. Mr Ranjit Kumar submitted that the petitioner Company has not deposited the said sum, as directed, till today. On the other hand, IFCI Ltd. preferred the abovementioned appeals before the Debts Recovery Appellate Tribunal against the said order of 15-9-2010, and the Appellate Tribunal stayed the proceedings before the Debts Recovery Tribunal in the original application, as also the securitisation appeal by its order dated 22-9-2010. It is against the order subsequently granting time to the petitioner Company to file a reply and adjourning the case to 27-9-2010, which would be beyond the date of opening the bids, that IFCI Ltd. moved Writ Petition No. 6652 of 2010 before the Delhi High Court, which passed the impugned order on 29-9-2010, allowing IFCI Ltd. to proceed with the Public Notice dated 13-9-2010, 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.
28. 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 bids till 15-10-2010, Mr Ranjit Kumar submitted that there was nothing on record to show that the bid box had been used after 13-9-2010, or that the contents thereof had been used for the purposes of the auction which was scheduled to be held on 15-10-2010. Mr Ranjit Kumar urged that it would be clear from the above that the alleged contemnors had neither violated the order of stay made by this Court on 8-10-2010, nor did it have any intention to do so.
29. On the question of maintainability of the proceedings before the Debts Recovery Tribunal by Respondent 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 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, the learned Senior Counsel referred to and relied upon the decision of this Court in ICICI Bank Ltd. v. APS Star Industries Ltd. (2010) 10 SCC 1, (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.
30. 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 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.
31. Although, the special leave petition is directed against an interim order passed by the High Court on 29-9-2010, granting liberty to the petitioner to proceed in pursuance of the Public Notice dated 13-9-2010, during the pendency of the writ petition, extensive submissions were advanced on behalf of the parties.
32. In this case, we have a situation in which moneys were admittedly borrowed by the petitioner Company from Punjab National Bank which it was unable to repay in full. Ultimately, a one-time settlement was arrived at between the petitioner Company and Punjab National Bank for a sum of 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.
33. 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 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.
34. However, as indicated hereinabove, this special leave petition has been filed against the interim order passed by the High Court on 29-9-2010, in the writ petition filed by IFCI Ltd. seeking to set aside the order dated 27-9-2010, 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 Appellate Tribunal which had stayed the proceedings before the Debts Recovery Tribunal-III, Delhi, directing stay of the auction-sale proceedings.
35. Having heard the matter on 9-11-2010, 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 writ petition before the High Court on 11-11-2010. The High Court took note of the fact that the matter was still pending before the Debts Recovery Appellate Tribunal and that the 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.
36. The matter before the High Court may have come to an end, but the issues involved regarding steps 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 Appeals Nos. 352 and 353 of 2010.
37. We, therefore, dispose of the special leave petition with a direction upon the Debts Recovery Appellate Tribunal to dispose of the pending appeals 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.