Securitisation and Reconstruction of Financial Assests and Enforcement of Security Interest Act, 2002: ss.2(1)(f), 2(1)(zb), 2(1)(zf) and 2(1)(zd), and 13(1) and (4) – Loan granted to respondent (borrower) – By a non-financial company (not covered under 2002 Act) – The company subsequently merged with appellant-company (a financial company covered by 2002 Act) – For recovery of loan initiation of proceedings under 2002 Act – Held by High Court that the provisions of 2002 could not be invoked because the company which had granted the loan was not covered by 2002 Act at the time of granting loan – On appeal, held: On sanction of the scheme of merger/amalgamation, all loans, recoveries, security, interest, financial documents etc. in favour of the predecessor company got transferred to and stood vested in the appellant-company – Thus, the borrowers became the borrowers of the appellant-company – The debt with underlying securities was the asset of the predecessor company got it had right to transfer/assign its assets to any person without seeking consent of the borrower – Therefore, respondent would be treated as ‘borrower ’; arrangement would be classified as ‘security arrangement’; the agreements created ‘security interest’ and appellant became ‘secured creditor’ under 2002 Act. s.13(1) and (4) – Proceedings under – Whether barred if case filed u/s. 9 of Arbitration Act, invoking arbitration clause – Held: 2002 Act being a special enactment and Arbitration Act being a statute of general nature, 2002 Act will be placed on higher pedestal – Merely because steps are taken under general law, remedy under special stature cannot be foreclosed – Arbitration and Conciliation Act, 1996 – s.9.
Allowing the appeal, the Court
HELD: 1. Proceedings under the Securities and Reconstruction of Financial Assests and Enforcement of Security Interest Act, 2002 (SARFAESI Act) are to be placed on high pedestal. SARFAESI Act is a special enactment which was enacted by the Parliament to provide speedy remedy to the banks and financial institutions without recourse to the court of law. On the other hand, the Arbitration and Conciliation Act, in contrast, is a statute of general nature. Merely because steps are taken under this general law would not mean that remedy under the special statute is foreclosed. [Para 11] [1105-A-C]
Transcore v. Union of India & Anr. [2006] 9 Suppl. SCR 785 : (2008) 1 SCC 125 – relied on.
2.1 The loan/debts/financial assets stood vested in the appellant pursuant to the amalgamation scheme filed by the two companies under Sections 391 and 394 of the Companies Act, 1956 whereunder the predecessor company got amalgamated with the appellant. On sanction of the scheme of amalgamation, all loans, recoveries, security, interest, financial documents, etc. in favour of the predecessor company got transferred to and stood vested in the appellant including the loans given by the predecessor company to respondent borrowers, debts recoverable by the predecessor company from respondent borrowers, security documents executed by respondent borrowers in favour of the predecessor company, etc. On the sanctioning of the scheme, the respondent borrowers became the borrowers of the appellant as if the financial assistance was granted by the appellant to the respondent borrowers. [Paras 33 and 34] [1121-E-F; 1120-G-H]
Saraswati Industrial Syndicate Ltd. v. Commissioner of Income Tax [1990] Suppl. SCR 332 : (1990) Suppl. SCC 675 – relied on.
2.2 The debt with underlying securities is the asset of the predecessor company and that the predecessor company had right to transfer/assign its assets to any person without seeking consent of the borrower. Such transfer/assignment is recognized. [Para 35] [1121-G]
ICICI Bank Limited v. Official Liquidator of APS Star Industries and others [2010] 12 SCR 644 : (2010) 10 SCC 1 – relied on.
2.3 It is too farfetched to say that just to realise the dues from the respondents, the predecessor company and the appellant devised the plan of merger so as to attract the provisions of SARFAESI Act. [Para 37] [1122-C]
2.4 It will also not be correct to say that if the loan is allowed to be brought within the SARFAESI Act only because of merger and the appellant is allowed to take recourse under the SARFAESI Act, it would affect substantive rights of the contesting borrowers under Sections 69 and 69A of the Transfer of Property Act. [Paras
10 and 39] [1104-E-F]
Mardia Chemicals Ltd. & Ors. v. Union of India & Ors. [2004] 3 SCR 982 : (2004) 4 SCC 311 ; United Bank of India v. Satyawati Tondon and Others [2010] 9 SCR
1 : (2010) 8 SCC 110 – relied on.
2.5 Therefore, respondent No.1 would be treated as ‘borrower’ within the meaning of Section 2(1)(f) of the SARFAESI Act; the arrangement would be classified as ‘security arrangement’ under Section 2(1)(zb); the agreements created ‘security interest’ under Section 2(1)(zf); and the appellant became ‘secured creditor’ within the meaning of Section 2(1)(zd) of SARFAESI Act. [Para 43] [1127-C-D]
M.D. Frozen Foods Exports Pvt. Ltd. & Ors. v. Hero Fincorp Ltd. (2017) SCC Online SC 1211 – relied on. P.K. Unni v. Nirmala Industries & Others [1990] 1 SCR
483 : (1990) 2 SCC 378 ; Union of India v. Elphin Stone Spinning and Weaving Company Limited & Others [2001] 1 SCR 221 : (2001) 4 SCC 139 ; Delhi Financial Corporation and another v. Rajiv Anand and others (2004) 11 SCC 625 ; Rishabh Agro Industries Limited v. P.N.B. Service Limited [2000] 1 Suppl. SCR 38 : (2000) 5 SCC 515 ; Padma Sundara Rao v. State of Tamil Nadu (2002) 3 SCC 533 – held inapplicable. Sarthak Builders Pvt. Ltd., Chinta, Arunodaya Market, Cuttack & Another v. Orissa Rural Development Corporation Limited, Station Square, Bhubaneswar &
5 Ors. (2014) SCC Online Ori 75 ; Trimbak Damodhar Raipurkar v. Assaram Hiraman Patil, [1962] 1 Suppl. SCR 700 – referred to.
West v. Gwynne, 1911 2 Ch 1 at pp. 11, 12 ; In re Athlumney. Ex parte Wilson, (1898) 2 Q.B. 547 – referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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