corporate laws – SARFAESI Act= Indiabulls Housing Finance Limited, -vs- M/s. Deccan Chronicle Holdings Limited =Merely because steps are taken under this general law would not mean that remedy under the special statute is foreclosed. = 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.

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 18 OF 2018

INDIABULLS HOUSING FINANCE

LIMITED …..APPELLANT(S)

VERSUS

M/S. DECCAN CHRONICLE HOLDINGS

LIMITED AND OTHERS …..RESPONDENT(S)

W I T H

CONTEMPT PETITION (CIVIL) NO. 756 OF 2017

A N D

CONTEMPT PETITION (CIVIL) NO. 1693 OF 2017

J U D G M E N T

A.K. SIKRI, J.

This appeal preferred by Indiabulls Housing Finance

Limited, in which the main contesting parties are M/s. Deccan

Chronicle Holdings Limited and its Directors (other respondents

are the proforma parties), questions the correctness and legality

of the judgment and order dated February 04, 2014 passed by

the High Court of Judicature of Andhra Pradesh at Hyderabad.

Civil Appeal No. 18 of 2018 Page 1 of 42

The impugned judgment is passed by the High Court in the writ

petition which was filed by the contesting respondents

questioning the validity of actions taken by the appellant against

the contesting respondents under the provisions of the

Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (hereinafter referred to

as the ‘SARFAESI Act’) for recovery of the loan amounts, along

with interest, which are payable by the contesting respondents to

the appellant.

2) The High Court has accepted the challenge laid by the contesting

respondents holding that:

(a) loan agreements contained arbitration clauses which were

invoked by the appellant with the filing of cases under

Section 9 of the Arbitration and Conciliation Act, 1996. In

view thereof, initiation of any other proceedings under the

SARFAESI Act are impermissible in law; and

(b) the loan was initially given by M/s. Indiabulls Financial

Services Limited (for short, ‘IBFSL’) on December 08, 2011

and January 05, 2012 in the sum of Rs.50 crores each.

IBFSL was not a banking company or financial institution

within the meaning of Section 2(d) and (m) of the

Civil Appeal No. 18 of 2018 Page 2 of 42

SARFAESI Act and, therefore, it had no jurisdiction to take

any steps by invoking the provisions of this Act. However,

IBFSL got merged with the appellant company. No doubt,

the appellant is a financial institution under the SARFAESI

Act. However, since IBFSL had no right to initiate any action

under the said Act, as a successor-in-interest, the appellant

steps into the shoes of IBFSL and, therefore, it also cannot

initiate any action under the SARFAESI Act. If that is

allowed, held the High Court, substantive rights of the

contesting respondents which accrued to them under

Sections 69 and 69A of the Transfer of Property Act, 1882

would be adversely affected, which cannot be

countenanced.

3) Having given the glimpse of the transaction which was entered

into between the parties and also that of the basis of the

impugned judgment of the High Court, we proceed to discuss the

details on which the lis is founded.

4) We may start with the narration of brief facts of the case, which

are as follows:

On April 18, 2005, IBFSL was granted a certificate under

Section 45-I(a) of the Reserve Bank of India Act, 1934 to operate

Civil Appeal No. 18 of 2018 Page 3 of 42

as a Non-Banking Financial Company and, thus, act as a

financial institution under the said Act. The appellant was

incorporated on May 10, 2005. The appellant and IBFSL were

sister concerns. The appellant was granted a registration

certificate dated December 28, 2005 to commence the business

of housing finance institution. The Central Government, vide

Notification dated September 19, 2007, issued under Section 2(1)

(m) of SARFAESI Act, specified the petitioner as a ‘financial

institution’ for the purposes of the said Act. IBFSL disbursed a

loan amount of Rs.50 crores to the respondent borrowers vide

Loan Agreement dated December 08, 2011. The loan facility was

secured by the respondent borrowers by creating equitable

mortgage over various properties. IBFSL also disbursed a further

amount of Rs.50 crores to the respondent borrowers vide Loan

Agreement dated January 05, 2012. The loan facility was

security by the respondent borrowers again by creating equitable

mortgage over various properties.

5) Sometime in the year 2012, it was proposed that IBFSL gets

merged with the appellant. After completing the formalities of

informing the National Housing Bank as well as the Reserve Bank

of India about the aforesaid proposal and furnishing them copies

Civil Appeal No. 18 of 2018 Page 4 of 42

of the scheme of merger, the appellant filed a petition under

sections 391-394 of the Indian Companies Act, 1956 in the High

Court of Delhi for merger of IBFSL with the appellant. The High

Court, after taking various steps under the provisions of the

Companies Act, ultimately sanctioned the scheme of arrangement

between IBFSL and the appellant vide orders dated December

12, 2012. With the sanction of the aforesaid merger, the assets

and liabilities of IBFSL stood vested in the appellant, with IBFSL

being dissolved without winding up on its amalgamation with the

appellant. Pursuant to the said merger, the borrowers of IBFSL,

including the respondent borrowers, became the borrowers of the

appellant.

6) Insofar as respondent borrowers are concerned, they had

committed default in repaying the loans advanced to them by

IBFSL and, therefore, even before the merger, IBFSL had issued

loan recall notice dated September 18, 2012 to the respondent

borrowers. On March 04, 2013, the loan accounts of the

contesting respondents and other co-borrowers were classified as

Non Performing Assets (NPA) by IBFSL. On March 06, 2013,

IBFSL filed a petition under Section 9 of the Arbitration Act, being

O.P. No. 377 and 378 of 2013, before III Addl. Chief Judge, City

Civil Appeal No. 18 of 2018 Page 5 of 42

Civil Court, Hyderabad for securing the amount payable by the

respondent borrowers. An ad-interim injunction restraining the

respondent borrowers and other co-borrowers therein from

alienating the scheduled properties to third parties in any manner

was passed. The scheme of arrangement as approved by the

order dated April 12, 2013 was filed with the Registrar of

Companies on March 08, 2013 making the same effective. The

appellant, having stepped into the shoes of IBFSL in respect of

the debts owed to IBFSL, issued notice dated March 08, 2013

under Section 13(2) of SARFAESI Act to the respondent

borrowers and other co-borrowers. This was followed by notice

dated May 29, 2013 issued under Section 13(4) of SARFAESI Act

in respect of taking over symbolic possession of the mortgaged

properties.

7) The respondents herein, on July 17, 2013, filed SA No. 182 of

2013 before the Debts Recovery Tribunal, Chandigarh under

Section 17 of SARFAESI Act challenging the action of the

appellant invoking the measures under Section 13(4) of

SARFAESI Act. Within few days thereafter, i.e. on July 30, 2013,

respondent No.1 also field Writ Petition No. 22688 of 2013

challenging, inter alia, the declaration of the account as NPA and

Civil Appeal No. 18 of 2018 Page 6 of 42

passing of orders by the Chief Metropolitan Magistrate under

Section 14 of the SARFAESI Act. Similar writ petitions, being Writ

Petition Nos. 22689 and 22934 of 2013 were filed by respondent

No.1’s employee union and respondent No.4 respectively. On

September 04, 2013, the respondents herein unconditionally

withdrew SA No. 182 of 2013 filed before the Debts Recovery

Tribunal, Chandigarh. The appellant issued an auction notice

dated November 21, 2013 informing the respondent borrowers

that auction of the Banjara Hill properties of the respondent

borrowers would be conducted on December 24, 2013. At this

juncture, on December 19, 2013, respondent Nos.1 to 5 filed Writ

Petition No. 37381 of 2012 before the High Court.

8) In the aforesaid writ petition, the High Court passed interim orders

dated December 20, 2013, directing the parties to maintain status

quo. Another interim order dated December 23, 2013 was

passed directing the appellant not to finalise the auction though it

was permitted to receive bids. However, the said auction could

not fructify as, according to the appellant, some miscreants

belonging to the contesting respondents came on the spot and

threatened the intending purchasers and even tried to beat the

representatives of the respondents and, therefore, the auction

Civil Appeal No. 18 of 2018 Page 7 of 42

had to be cancelled. The appellant thereafter issued another

auction notice dated December 28, 2013 fixing the auction dates

as 3rd and 4th February 2014 in respect of Banjara Hills and Raj

Bhavan Road properties respectively. Auction in respect of

Banjara Hills properties took place on February 03, 2014 as per

the date fixed. However, the sale was not finalised on account f

the interim orders passed by the High Court. On February 04,

2014, when the next property was to be auctioned, the High Court

gave the judgment in Writ Petition No. 37381 of 2013 filed by the

contesting respondents allowing the said writ petition and setting

aside the entire invocation of the SARFAESI Act by the appellant.

9) As already pointed out above, the High Court is swayed by the

fact that after IBFSL had invoked the provisions of Section 9 of

the Arbitration Act and filed petitions in this behalf, having regard

to the arbitration agreement between the parties, it was not open

to the appellant to take recourse to the provisions of SARFAESI

Act. This aspect is concluded in the following manner:

“The two O.Ps. i.e. 377 and 378 of 2013 have already

been filed in the name of IBFSL, under Section 9 of

the Arbitration Act. The arbitration clause that existed

in the agreements has been extracted in the preceding

paragraphs. Section 8 of the Arbitration Act makes it

amply clear that if the agreement between the parties

contains an arbitration clause, institution of other

proceedings is prohibited. When a suit cannot be

instituted by a party to an agreement, which contains

Civil Appeal No. 18 of 2018 Page 8 of 42

an arbitration clause, the initiation of proceedings

before other fora becomes equally untenable. The

proceedings under the SARFAESI Act cannot be

placed on a higher pedestal. The borrower of a

secured financial institution, as defined under Section

2(f) of the SARFAESI Act cannot be treated as a super

Court, to be kept on a higher pedestal in the context of

Section 8 of the Arbitration Act. When arbitration

proceedings have already been initiated, the 4th

respondent cannot be permitted, ignore them and

proceed against the security.”

10) The High Court noted that the contesting respondents had not

borrowed any amount from the appellant. The loan was taken

from IBFSL, which was not under the purview of SARFAESI Act.

Therefore, at the time of taking the loan, the respondent

borrowers knew that IBFSL would not be in a position to take

recourse to the SARFAESI Act. With the merger of IBFSL with

the appellant, ruled the High Court, the loan transaction which

was outside the purview of the SARFAESI Act, could not be

brought under its purview without the consent of the borrower.

According to the High Court, SARFAESI Act prescribes a new

legal regime and 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. In the process, the High

Court has noted that the views of the Uttarakhand High Court and

Civil Appeal No. 18 of 2018 Page 9 of 42

the Allahabad High Court are contrary to the aforesaid view.

However, it chose to agree with the view taken by the Division

Bench of the Orissa High Court in deciding that provisions of

SARFAESI Act will not be applicable. Pertinently, Full Bench of

the Orissa High Court itself has overruled its Division Bench

judgment.

11) We may record at this stage that the main ground on which notice

issued under SARFAESI Act had been quashed is the

impermissibility of invoking the provisions of the Act by the

appellant herein who took over the assets and liabilities of IBFSL

on merger. Insofar as the other issue, namely, provisions of

SARFAESI Act could not be invoked as IBFSL had already

invoked the machinery under the Arbitration Act by filing petitions

under Section 9 thereof is concerned, this is decided as the

subsidiary issue. Insofar as this subsidiary question is

concerned, learned counsel for the respondent did not press this

ground seriously and it was virtually conceded that merely

because IBFSL had filed applications under Section 9 of the

Arbitration Act, would not create a bar for proceeding under the

SARFAESI Act. Even otherwise, we find that the High Court was

in error in deciding this issue. It is not correct to say that

Civil Appeal No. 18 of 2018 Page 10 of 42

proceedings under the SARFAESI Act cannot be placed on high

pedestal. We find that 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. If at all, legal

position is just the reverse. Matter is no more res integra and is

covered by a judgment of this Court in Transcore v. Union of

India & Anr.1

In that case, after analysing the provisions of the

Recovery of Debts Due to Banks and Financial Institutions Act,

1993, the Court summed up the position as under:

“18. On analysing the above provisions of the DRT

Act, we find that the said Act is a complete code by

itself as far as recovery of debt is concerned. It

provides for various modes of recovery. It incorporates

even the provisions of the Second and Third

Schedules to the Income Tax Act, 1961. Therefore, the

debt due under the recovery certificate can be

recovered in various ways. The remedies mentioned

therein are complementary to each other. The DRT Act

provides for adjudication. It provides for adjudication of

disputes as far as the debt due is concerned. It covers

secured as well as unsecured debts. However, it does

not rule out applicability of the provisions of the TP

Act, in particular Sections 69 and 69-A of that Act.

Further, in cases where the debt is secured by pledge

of shares or immovable properties, with the passage

of time and delay in the DRT proceedings, the value of

the pledged assets or mortgaged properties invariably

1 (2008) 1 SCC 125

Civil Appeal No. 18 of 2018 Page 11 of 42

falls. On account of inflation, value of the assets in the

hands of the bank/FI invariably depletes which, in turn,

leads to asset-liability mismatch. These contingencies

are not taken care of by the DRT Act and, therefore,

Parliament had to enact the NPA Act, 2002.”

12) Thereafter, the Court analysed the provisions of SARFAESI Act

and then noted, in paragraph 37 of the judgment, three points of

determination which arose for consideration. We are concerned

with point No.1 formulated therein, which reads as under:

“(i) Whether the banks or financial institutions having

elected to seek their remedy in terms of the DRT Act,

1993 can still invoke the NPA Act, 2002 for realising

the secured assets without withdrawing or abandoning

the OA filed before DRT under the DRT Act.”

13) After detailed discussion on this question, the Court rejected the

applicability of the doctrine of election by holding that simply

because remedy under the provisions of the DRT Act was availed

would not mean that the financial institution was precluded from

taking steps under SARFAESI Act. Thus, answering the question

in the affirmative, essence of the discussion can be captured in

the following paragraphs:

“64. In the light of the above discussion, we now

examine the doctrine of election. There are three

elements of election, namely, existence of two or more

remedies; inconsistencies between such remedies

and a choice of one of them. If any one of the three

elements is not there, the doctrine will not apply.

According to American Jurisprudence, 2d, Vol. 25, p.

652, if in truth there is only one remedy, then the

doctrine of election does not apply. In the present

case, as stated above, the NPA Act is an additional

Civil Appeal No. 18 of 2018 Page 12 of 42

remedy to the DRT Act. Together they constitute one

remedy and, therefore, the doctrine of election does

not apply. Even according to Snell’s Principles of

Equity (31st Edn., p. 119), the doctrine of election of

remedies is applicable only when there are two or

more co-existent remedies available to the litigants at

the time of election which are repugnant and

inconsistent. In any event, there is no repugnancy nor

inconsistency between the two remedies, therefore,

the doctrine of election has no application.

65. In our view, the judgments of the High Courts

which have taken the view that the doctrine of election

is applicable are erroneous and liable to be set aside.

66. We have already analysed the scheme of both the

Acts. Basically, the NPA Act is enacted to enforce the

interest in the financial assets which belongs to the

bank/FI by virtue of the contract between the parties or

by operation of common law principles or by law. The

very object of Section 13 of the NPA Act is recovery by

non-adjudicatory process. A secured asset under the

NPA Act is an asset in which interest is created by the

borrower in favour of the bank/FI and on that basis

alone the NPA Act seeks to enforce the security

interest by non-adjudicatory process. Essentially, the

NPA Act deals with the rights of the secured creditor.

The NPA Act proceeds on the basis that the debtor

has failed not only to repay the debt, but he has also

failed to maintain the level of margin and to maintain

value of the security at a level is the other obligation of

the debtor. It is this other obligation which invites

applicability of the NPA Act. It is for this reason, that

Sections 13(1) and 13(2) of the NPA Act proceed on

the basis that security interest in the bank/FI needs to

be enforced expeditiously without the intervention of

the court/tribunal; that liability of the borrower has

accrued and on account of default in repayment, the

account of the borrower in the books of the bank has

become non-performing. For the above reasons, the

NPA Act states that the enforcement could take place

by non-adjudicatory process and that the said Act

removes all fetters under the above circumstances on

the rights of the secured creditor.”

14) With this, we now address the central issue on which detailed

Civil Appeal No. 18 of 2018 Page 13 of 42

arguments were advanced by both the parties. We may note that

our discussion is not on a virgin field as the terrain has already

been covered by this Court in M.D. Frozen Foods Exports Pvt.

Ltd. & Ors. v. Hero Fincorp Ltd.2

The learned senior counsel

appearing for the appellant had submitted that this case, which is

directly on point, not only lays down the proposition that even

successor-in-interest (like the appellant herein) would be

authorised to invoke the provisions of SARFAESI Act even if the

original lender was not a financial institution covered by the Act, it

has specifically overruled the judgment of the Andhra Pradesh

High Court, which is the subject matter of appeal at hand. On

that basis, it was submitted that it was not even necessary to

have further probe in the matter.

15) Learned counsel for the appellant is factually correct in pointing

out that the impugned judgment of the Andhra Pradesh High

Court is specifically noted and overruled by this Court in M.D.

Frozen Foods. Therefore, it would be apt to discuss the said

judgment in the first instance.

16) In M.D. Frozen Foods the appellants had borrowed monies for

their business from the respondents against security of

2 (2017) SCC Online SC 1211

Civil Appeal No. 18 of 2018 Page 14 of 42

immovable properties by creating an equitable mortgage. Loan

agreement contained an arbitration clause. Since the appellant

defaulted in making the payment and the account became NPA,

the respondent invoked the arbitration clause on November 16,

2016. However, three months before this invocation, a

notification was issued on August 05, 2016 specifying certain

Non-Financial Banking Companies (NFBCs) covered under

clause (f) of Section 45-I of the RBI Act, with assets of more than

Rs. 500 crores and above, as financial institutions and directing

that the provisions of SARFAESI Act shall apply to such financial

institutions with the exceptions of provisions of Sections 13 to 19

of that Act. Sections 13 to 19 were made applicable, as per the

notification, only to such security interest which is obtained for

securing repayment of secured debt with principal amount of Rs.1

crore and above. The respondent was specifically covered by the

said notification which was issued in exercise of powers conferred

under sub-clause (iv) of clause (m) of sub-section (1) of Section 2

read with Section 31A of the SARFAESI Act. In view of the

aforesaid notification, the respondent issued a notice under

Section 13(2) of SARFAESI Act on November 24, 2016 for one of

the seven properties mortgaged to it against the aforesaid loan

which was advanced to the appellants.

Civil Appeal No. 18 of 2018 Page 15 of 42

17) Having regard to the aforesaid facts in M.D. Frozen Foods, the

Court formulated following three questions which had arisen for

consideration:

“A. Whether the arbitration proceedings initiated by the

respondent can be carried on along with the

SARFAESI proceedings simultaneously?

B. Whether resort can be had to Section 13 of the

SARFAESI Act in respect of debts which have arisen

out of a loan agreement/mortgage created prior to the

application of the SARFAESI Act to the respondent?

C. A linked question to question (ii), whether the lender

can invoke the SARFAESI Act provision where its

notification as financial institution under Section 2(1)

(m) has been issued after the account became an NPA

under Section 2(1)(o) of the said Act?”

These questions amply demonstrate that the instant case is

virtually on the same footing.

18) Insofar as question ‘A’ is concerned, the Court categorically held

that merely because remedy under the Arbitration Act was

invoked was no ground to debar the respondent from taking

recourse to the SARFAESI Act. The discussion from that

judgment is reproduced below:

“26. A claim by a bank or a financial institution, before

the specified laws came into force, would ordinarily

have been filed in the Civil Court having the pecuniary

jurisdiction. The setting up of the Debt Recovery

Tribunal under the RDDB Act resulted in this

specialised Tribunal entertaining such claims by the

banks and financial institutions. In fact, suits from the

civil jurisdiction were transferred to the Debt Recovery

Civil Appeal No. 18 of 2018 Page 16 of 42

Tribunal. The Tribunal was, thus, an alternative to a

Civil Court recovery proceedings.

27. On the SARFAESI Act being brought into force

seeking to recover debts against security interest, a

question was raised whether parallel proceedings

could go on under the RDDB Act and the SARFAESI

Act. This issue was clearly answered in favour of such

simultaneous proceedings in Transcore v. Union of

India. A later judgment in Mathew Varghese v. M.

Amritha Kumar also discussed this issue in the

following terms:

“45. A close reading of Section 37 shows that the

provisions of the SARFAESI Act or the Rules

framed thereunder will be in addition to the

provisions of the RDDB Act. Section 35 of the

SARFAESI Act states that the provisions of the

SARFAESI Act will have overriding effect

notwithstanding anything inconsistent contained in

any other law for the time being in force.

Therefore, reading Sections 35 and 37 together, it

will have to be held that in the event of any of the

provisions of the RDDB Act not being inconsistent

with the provisions of the SARFAESI Act, the

application of both the Acts, namely, the

SARFAESI Act and the RDDB Act, would be

complementary to each other. In this context,

reliance can be placed upon the decision

in Transcore v. Union of India [(2008) 1 SCC 125 :

(2008) 1 SCC (Civ) 116]. In para 64 it is stated as

under after referring to Section 37 of the

SARFAESI Act: (SCC p. 162)

“64. … According to American Jurisprudence,

2d, Vol. 25, p. 652, if in truth there is only one

remedy, then the doctrine of election does not

apply. In the present case, as stated above,

the NPA Act is an additional remedy to the

DRT Act. Together they constitute one remedy

and, therefore, the doctrine of election does

not apply. Even according to Snell’s Principles

of Equity (31st Edn., p. 119), the doctrine of

election of remedies is applicable only when

there are two or more co-existent remedies

available to the litigants at the time of election

which are repugnant and inconsistent. In any

Civil Appeal No. 18 of 2018 Page 17 of 42

event, there is no repugnancy nor

inconsistency between the two remedies,

therefore, the doctrine of election has no

application.”

(emphasis added)

46. A reading of Section 37 discloses that the

application of the SARFAESI Act will be in addition

to and not in derogation of the provisions of the

RDDB Act. In other words, it will not in any way

nullify or annul or impair the effect of the

provisions of the RDDB Act. We are also fortified

by our above statement of law as the heading of

the said section also makes the position clear that

application of other laws are not barred. The effect

of Section 37 would, therefore, be that in addition

to the provisions contained under the SARFAESI

Act, in respect of proceedings initiated under the

said Act, it will be in order for a party to fall back

upon the provisions of the other Acts mentioned in

Section 37, namely, the Companies Act, 1956, the

Securities Contracts (Regulation) Act, 1956, the

Securities and Exchange Board of India Act, 1992,

the Recovery of Debts Due to Banks and Financial

Institutions Act, 1993, or any other law for the time

being in force.”

28. These observations, thus, leave no manner of

doubt and the issue is no more res integra, especially

keeping in mind the provisions of Sections 35 and 37

of the SARFAESI Act, which read as under:

“35. The provisions of this Act to override

other laws. – The provisions of this Act shall

have effect, notwithstanding anything

inconsistent therewith contained in any other

law for the time being in force or any instrument

having effect by virtue of any such law.”

… .… .… .….

“37. Application of other laws not barred.

– The provisions of this Act or the rules made

thereunder shall be in addition to, and not in

derogation of, the Companies Act, 1956 (1 of

1956), the Securities Contracts (Regulation) Act,

1956 (42 of 1956), the Securities and Exchange

Board of India Act, 1992 (15 of 1992), the

Civil Appeal No. 18 of 2018 Page 18 of 42

Recovery of Debts Due to Banks and Financial

Institutions Act, 1993 (51 of 1993) or any other

law for the time being in force.”

29. The aforesaid two Acts are, thus, complimentary to

each other and it is not a case of election of remedy.

xx xx xx

33. SARFAESI proceedings are in the nature of

enforcement proceedings, while arbitration is an

adjudicatory process. In the event that the secured

assets are insufficient to satisfy the debts, the secured

creditor can proceed against other assets in execution

against the debtor, after determination of the pending

outstanding amount by a competent forum.

34. We are, thus, unequivocally of the view that the

judgments of the Full Bench of the Orissa High Court

in Sarthak Builders Pvt. Ltd. v. Orissa Rural

Development Corporation Limited, the Full Bench of

the Delhi High Court in HDFC Bank Limited v. Satpal

Singh Bakshi (supra) and the Division Bench of the

Allahabad High Court in Pradeep Kumar

Gupta v. State of U.P. lay down the correct proposition

of law and the view expressed by the Andhra Pradesh

High Court in Deccan Chronicles Holdings

Limited v. Union of India following the overruled

decision of the Orissa High Court in Subash Chandra

Panda v. State of Orissa does not set forth the correct

position in law. SARFAESI proceedings and arbitration

proceedings, thus, can go hand in hand.”

19) Insofar as questions ‘B’ and ‘C’ are concerned, the Court again

referred to the conflicting opinion of different High Courts and

after discussion held that the SARFAESI Act was retroactive in

nature and, therefore, once this Act came into force, the

respondent in the said case had right to invoke the provisions of

the Act even if loan agreement was entered into and mortgage

Civil Appeal No. 18 of 2018 Page 19 of 42

created prior to the coming into force the SARFAESI Act.

Paragraphs 36 to 38 of the judgment need to be reproduced in

this behalf, which are to the following effect:

“36. The SARFAESI Act was brought into force to

solve the problem of recovery of large debts in NPAs.

Thus, the very rationale for the said Act to be brought

into force was to provide an expeditious procedure

where there was a security interest. It certainly did not

apply retrospectively from the date when it came into

force. The question is whether, the Act being

applicable to the respondent at a subsequent date and

thereby allowing the respondent to utilize its provisions

with regards to a past debt, would make any difference

to this principle. We are of the view that the answer to

the same is in the negative.

37. The Act applies to all the claims which would be

alive at the time when it was brought into force.

Thus, qua the respondent or other NBFCs, it would be

applicable similarly from the date when it was so made

applicable to them.

38. The Full Bench of the Orissa High Court

in Sarthak Builders Pvt. Ltd. v. Orissa Rural

Development Corporation Limited (supra) has, in fact,

succinctly sets out this aspect. No doubt, till the

respondent was not a ‘financial institution’ within the

meaning of Section 2(1)(m)(iv) of the SARFAESI Act, it

was not a ‘secured creditor’ as defined under Section

2(1)(zd) of the SARFAESI Act and, thus, could not

invoke the provisions of the SARFAESI Act. However,

the right to proceed under the SARFAESI Act accrued

once the Notification was issued. The Full Bench

referred to a Division Bench judgment of the

Uttarakhand High Court in Unique Engineering

Works v. Union of India which dealt with the issue of

retrospectivity and retroactivity. In case of retroactivity,

the Parliament takes note of the existing conditions

and promulgates the remedial measures to rectify

those conditions. In fact the SARFAESI Act, in our

view, was to remedy such a position and provide a

measure against secured interests. The scheme of the

SARFAESI Act, is really to provide a procedural

Civil Appeal No. 18 of 2018 Page 20 of 42

remedy against security interest already created.

Therefore, an existing borrower, who had been

granted financial assistance was covered under

Section 2(f) of the said Act as a ‘borrower’. Not only

this expression, the definition clauses dealing with

‘debt securities’, ‘financial assistance’, ‘financial

assets’, etc., clearly convey the legislative intent that

the SARFAESI Act applies to all existing agreements

irrespective of the fact whether the lender was a

notified ‘financial institution’ on the date of the

execution of the agreement with the borrower or not.

The scheme of the SARFAESI Act sets out an

expeditious, procedural methodology, enabling the

bank to take possession of the property for nonpayment

of dues, without intervention of the court. The

mere fact that a more expeditious remedy is provided

under the SARFAESI Act does not mean that it is

substantive in character or has created an altogether

new right. To accept the argument of the appellants

would imply that they have an inherent right to delay

the enforcement against the security interest!”

20) The Court also referred to certain judgments laying down

distinction between retroactive and retrospective operation of a

particular statute3

.

21) The fact situation was, thus, almost the same in the instant case.

The only difference is that here the loan was initially sanctioned

by IBFSL which stands merged with the appellant and the

appellant is the successor-in-interest which is covered by the

SARFAESI Act. In the aforesaid case, though the entity which

disbursed the loan remained the same, however, at the time

3 West v. Gwynne, 1911 2 Ch 1 at pp. 11, 12

Trimbak Damodhar Raipurkar v. Assaram Hiraman Patil, 1962 Supp (1) SCR 700

In re Athlumney. Ex parte Wilson, (1898) 2 Q.B. 547

Civil Appeal No. 18 of 2018 Page 21 of 42

when the loan was given by the respondent to the appellant it

was not a financial institution covered under the SARFAESI Act,

which status was attained by the respondent in view of

notification dated August 05, 2016 issued much after the loan was

disbursed to the appellant therein. This does not make any

difference in the outcome, as discussed in detailed hereinafter.

22) Learned counsel for respondents could not dispute that the

aforesaid judgment covers the present case in its entirety. This

position had to be accepted by them having regard to the fact that

the judgment of the High Court which is impugned in these

proceedings has been specifically overruled by this Court in M.D.

Frozen Foods case. Faced with this stark reality staring at the

face of the respondents, a valiant effort was made to convince

this Bench to take a contrary view and in the process it was

submitted that in M.D. Frozen Foods some important legal

aspects have not been considered.

23) To put it pithily, the submissions of the learned counsel for

respondents revolved around the following aspects:

(i) The appellant had neither advanced nor granted any loan or

financial assistance to respondent no. 1 and, therefore, it

could not have invoked the provisions of the SARFAESI Act.

Civil Appeal No. 18 of 2018 Page 22 of 42

(ii) Respondent no. 1 could not be treated as ‘borrower’ as

defined under Section 2(1)(f) of the SARFAESI Act read

with Sections 2(1)(c) and 2(1)(m) of that Act. Submission

was that the respondent no. 1 is not a person who has been

granted financial assistance by any Bank or Financial

Institution nor can respondent no. 1 be brought under the

ambit of the definition of being a person who has given a

guarantee or create any mortgage or pledge as security for

the financial assistance granted by any Bank or Financial

Institution, i.e., the appellant. It was argued that the

definition of the term borrower is clear and un-ambiguous

itself and the rule of literal interpretation deserves to be

deployed. The respondents relied upon the dictum in P.K.

Unni vs. Nirmala Industries & Others4

wherein it is held

that the Court must proceed on an assumption that the

legislature did not make a mistake and that it intended to

say what it said it was further held that even assuming that

there was a defect or omission in the words used by the

legislature, the Court would not go to its said to correct or

make up the deficiency. The Court cannot add words to a

statute or read words into it which are not there, especially

4 (1990) 2 SCC 378

Civil Appeal No. 18 of 2018 Page 23 of 42

when the literal reading produces an intelligible result. The

courts are not authorised to alter a word so as to produce a

“casus omissus”. Support from the judgment in the matter of

Union of India v. Elphin Stone Spinning and Weaving

Company Limited & Others5

was also taken in this behalf.

The learned counsel also referred to yet another case, viz.,

Delhi Financial Corporation and another v. Rajiv Anand

and others6

wherein this aforesaid principle is reiterated.

(iii) The loan agreements dated December 08, 2011 and

January 05, 2012 which were entered into between

respondent No. 1 and IBFSL cannot be classified as

‘security arrangement’ within the meaning of Section 2(1)

(zb) of the SARFAESI Act.

(iv) These agreements did not create ‘security interest’ within

the meaning of Section 2(1)(zb) of the SARFAESI Act. It

was argued that the term security assets as defined under

Section 2(1)(zc) of the Act means the property on which the

security interest is created. The terms ‘security interest’ is

defined under Section 2(1)(zf) to mean right, title, interest of

any kind whatsoever upon property created in favour of a

secured creditor (as defined under Section 2(1)(zb) and

5 (2001) 4 SCC 139

6 (2004) 11 SCC 625

Civil Appeal No. 18 of 2018 Page 24 of 42

includes a mortgage, charge, hypothecation or assignment

other than specified in Section 31). Similarly security

agreement is defined under Section 2(1)(zb).

The submission was that the agreements dated

December 08, 2011 and January 05, 2012 do not fall within

the purview of Section 2(a)(zb) since at the time when the

said agreements were entered into, the entity in favour of

which they were executed, i.e., Indiabulls Financial Services

Limited, was not a secured creditor within the meaning of

Section 2(1)(zd) of the SARFAESI Act. Under the

circumstances are the necessary ingredients of Section

13(1) and 13(2) being absent, no action could have been

taken under Section 13(2) or Section 13(4) of the Act. It is

this say of the respondents that the clauses contained in the

scheme of amalgamation, firstly do not manifest any

intention to create any new right in favour of the

amalgamated company. Secondly, clauses in scheme of

amalgamation, albeit sanctioned by Court, cannot be raised

to the pedestal of statutory provisions creating a right in

favour of subsequent acquirer of rights not statutorily

provided, nor can such clauses be held to create a deeming

fiction not statutorily provided.

Civil Appeal No. 18 of 2018 Page 25 of 42

(v) Amalgamation of an entity not lying within the ambit of

SARFAESI Act then entity which falls within realm of the

said Act would not entitle amalgamated entity to invoke the

provisions of SARFAESI Act, in respect of a

transaction/agreement entered into much prior to the

amalgamation. The submission was that the imprimatur

created by virtue of sanctioning of a scheme by High Court

under Sections 391 to 394 of the Companies Act cannot be

held to create rights, liabilities and obligations which were

not statutorily envisaged. It was argued that the provisions

of SARFAESI Act, cannot be held to be purely procedural,

they create substantial right in favour of the secured creditor

for recovery of its dues by way of enforcement of security

interest without invocation of the court. Section 13(1)

creates substantive rights and by no stretch of imagination,

and cannot be said to a provision, procedural in nature.

The procedure for enforcement of that substantial right is

provided under Sub-Section (2) on the happening of the

eventuality as mentioned therein. That a further procedure

of prescribing the details in a notice is to be given by virtue

of Section 13(3) and provide for making a representation

under Section 13(3)(A) and further provides for a procedure

Civil Appeal No. 18 of 2018 Page 26 of 42

for release and recovery of secured debt under Section

13(4). In absence of a substantial right being created by

Section 13(1), procedural provisions contained in subSections

(2) to (4) are meaningless as it would not provide

a remedy for the enforcement of substantial right created

under Section 13(4). It would not, therefore, be correct to

treat SARFAESI Act as a merely procedural statute.

24) It was submitted that this was a reverse merger inasmuch as

IBFSL was a holding company and the appellant company was

only a subsidiary company and holding company was sought to

be amalgamated and merged with the subsidiary company.

25) It was also submitted that the entire exercise of merger was

undertaken to transfer loan from financial company to a financial

company in order to take advantage of provisions of SARFAESI

Act, which according to the respondents is not permissible in law.

On the aforesaid basis, the first submission of the learned

counsel for respondents was that there was no transfer and

vesting of loan in the appellant company provisions as per the

scheme. It was argued that the scheme envisaged, under

paragraph 4, that with effect from the appointed date, i.e., April

01, 2012, the amalgamating company comprising the

Civil Appeal No. 18 of 2018 Page 27 of 42

amalgamating undertaking shall, pursuant to the sanction of the

scheme by the High Court and compliance of statutory provisions,

be and stand transferred to and vested in the amalgamated

company as a going concern without any further act, instrument,

deed, matter or thing so as to become, as and from the appointed

date April 01, 2012, the undertakings of the amalgamated

company by virtue of and in the manner provided in the scheme.

26) Various other clauses of the scheme were referred to, to buttress

the aforesaid submission. In this hue, it was argued that since as

per Clause 8 of the Scheme, all suits, actions and other

proceedings including legal and taxation proceedings etc. are to

be continued or enforced by or against the amalgamating

company. The proceedings instituted by IBFSL under Section 9

of the Arbitration Act against the respondents would be deemed

to be an act of the appellant. In other words, the amalgamating

company can have no better and further right that one possesses

by IBFSL.

27) The learned counsel for the respondents attempted to strengthen

the aforesaid architecture with the help of some legal precedents.

In the first instance, reference was made to the judgment in the

case of Rishabh Agro Industries Limited v. P.N.B. Service

Civil Appeal No. 18 of 2018 Page 28 of 42

Limited7 wherein this Court held as under:

“6. Learned counsel appearing for the respondent has

submitted that such an interpretation would defeat the

ends of justice and make the petitions under the

Companies Act, infructuous inasmuch as any

unscrupulous litigant, after suffering an order of

winding up, may approach the Board merely be filing a

petition and consequently get the proceedings in the

Company case stayed. Such a grievance may be

justified and the submission having substance but in

view of the language of Sections 15 and 16 of the Act

particularly explanation to Section 16 inserted by Act

No. 12 of 1994, this Court has no option but to adhere

to its earlier decision taken in Real Value Appliances

(Supra). While interpreting, this Court only interprets

the law and cannot legislate it. If a provision of law is

misused and subjected to the abuse of process of law,

it is for the Legislature to amend modify or repeal it by

having recourse to appropriate procedure, if deemed

necessary.”

It was argued that the above observations of this Court

clearly negate the submission of the appellant that because the

SARFAESI Act has been enacted to overcome the accumulated

NPA in public interest, the term ‘borrower’ has to be widely

construed.

28) Reliance was also placed on the Constitution Bench judgment in

the case of Padma Sundara Rao v. State of Tamil Nadu8 where

this Court has held as under:

“12. The rival pleas regarding rewriting of statute and

casus omissus need careful consideration. It is wellsettled

principle in law that the court cannot read

anything into a statutory provision which is plain and

7 (2000) 5 SCC 515

8 (2002) 3 SCC 533

Civil Appeal No. 18 of 2018 Page 29 of 42

unambiguous. A statute is an edict of the legislature.

The language employed in a statute is the

determinative factor of legislative intent. The first and

primary rule of construction is that the intention of the

legislation must be found in the words used by the

legislature itself. The question is not what may be

supposed and has been intended but what has been

said. “Statutes should be construed, not as theorems

of Euclid”, Judge Learned Hand said, “but words must

be construed with some imagination of the purposes

which lie behind them”. (See Lenigh Valley Coal

Co. v. Yensavage [218 FR 547].) The view was

reiterated in Union of India v. Filip Tiago De Gama of

Vedem Vasco De Gama [(1990) 1 SCC 277 : AIR

1990 SC 981].

13. In D.R. Venkatchalam v. Dy. Transport Commr.

[(1977) 2 SCC 273 : AIR 1977 SC 842] it was

observed that courts must avoid the danger of a priori

determination of the meaning of a provision based on

their own preconceived notions of ideological structure

or scheme into which the provision to be interpreted is

somewhat fitted. They are not entitled to usurp

legislative function under the disguise of interpretation.

14. While interpreting a provision the court only

interprets the law and cannot legislate it. If a provision

of law is misused and subjected to the abuse of

process of law, it is for the legislature to amend,

modify or repeal it, if deemed necessary.

(See Rishabh Agro Industries Ltd. v. P.N.B. Capital

Services Ltd. [(2000) 5 SCC 515]) The legislative

casus omissus cannot be supplied by judicial

interpretative process. Language of Section 6(1) is

plain and unambiguous. There is no scope for reading

something into it, as was done in Narasimhaiah

case [(1996) 3 SCC 88] . In Nanjudaiah case [(1996)

10 SCC 619] the period was further stretched to have

the time period run from date of service of the High

Court’s order. Such a view cannot be reconciled with

the language of Section 6(1). If the view is accepted it

would mean that a case can be covered by not only

clause (i) and/or clause (ii) of the proviso to Section

6(1), but also by a non-prescribed period. Same can

never be the legislative intent.

15. Two principles of construction — one relating to

Civil Appeal No. 18 of 2018 Page 30 of 42

casus omissus and the other in regard to reading the

statute as a whole — appear to be well settled. Under

the first principle a casus omissus cannot be supplied

by the court except in the case of clear necessity and

when reason for it is found in the four corners of the

statute itself but at the same time a casus omissus

should not be readily inferred and for that purpose all

the parts of a statute or section must be construed

together and every clause of a section should be

construed with reference to the context and other

clauses thereof so that the construction to be put on a

particular provision makes a consistent enactment of

the whole statute. This would be more so if literal

construction of a particular clause leads to manifestly

absurd or anomalous results which could not have

been intended by the legislature. “An intention to

produce an unreasonable result”, said Danckwerts,

L.J., in Artemiou v. Procopiou [(1966) 1 QB 878 :

(1965) 3 All ER 539 : (1965) 3 WLR 1011 (CA)] (at All

ER p. 544-I), “is not to be imputed to a statute if there

is some other construction available”. Where to apply

words literally would “defeat the obvious intention of

the legislation and produce a wholly unreasonable

result”, we must “do some violence to the words” and

so achieve that obvious intention and produce a

rational construction. [Per Lord Reid

in Luke v. IRC [1963 AC 557 : (1963) 1 All ER 655 :

(1963) 2 WLR 559 (HL)] where at AC p. 577 he also

observed: (All ER p. 664-I) “This is not a new problem,

though our standard of drafting is such that it rarely

emerges.”]”

29) It was contended that in light of the above-stated principles

enunciated in the Constitution Bench decision, since the

language of Section 2(1)(f) and 2(a)(zf) is unambiguous, the

casus omissus cannot be applied by a judicial interpretation

process. It was submitted that there is no scope of reading

something into, which it does not exist.

Civil Appeal No. 18 of 2018 Page 31 of 42

30) Counsel for the respondents also placed strong reliance upon the

judgment in the ICICI Bank Limited v. Official Liquidator of

APS Star Industries and others9 which centres around the

Banking Regulation Act, 1949 and guidelines of RBI issued on the

subject of inter se transfer of non-performing assets by Bank. It

was held that the Banking Regulation Act, 1949 does not come in

the way of such transfers. Banks/Banking Companies are

covered under SARFAESI Act in any event. As such, transfers

inter se bank would not give rise to the question of change in the

nature of the lender leading to change in the status of applicability

of SARFAESI Act. On that basis, it was submitted that such a

transfer would not change the status of a borrower who, if earlier

created a security interest, continues to be a borrower of another

secured creditor. However, in the present case, there is sought to

be a complete change in the status of the borrower and that too

without his consent.

31) The learned counsel, at the end, made a passionate plea about

the far reaching consequences which may ensue if the appellant

is permitted to take recourse to the provisions of SARFAESI Act

as debts would be transferred to SARFAESI companies to take

advantage of that enactment.

9 (2010) 100 SCC

Civil Appeal No. 18 of 2018 Page 32 of 42

32) After considering the aforesaid submission, we are of the opinion

that entire edifice is built on the pleas which are squarely

answered in M.D. Frozen Foods and there is no reason to take a

different view therefrom for the reasons that follow hereinafter.

33) In the instant case, loan was given by IBFSL which was not a

financial institution covered by the SARFAESI Act when the loan

was given. However, this entity has got merged with the

appellant and appellant is a SARFAESI company. In this

backdrop, the entire thrust of the argument of the respondent is

that as a successor company, the appellant cannot take

advantage. In order to deal with this aspect, we will have to first

taken into consideration, the effect of such a merger scheme as

approved by the High Court. It is to be kept in mind that 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, IBFSL got amalgamated with the

appellant, the effect of such a merger is explained by this Court in

Saraswati Industrial Syndicate Ltd. v. Commissioner of

Income Tax10 in the following manner:

10 1990(Supp) SCC 675

Civil Appeal No. 18 of 2018 Page 33 of 42

“5. Generally, where only one company is involved in

change and the rights of the shareholders and

creditors are varied, it amounts to reconstruction or

reorganisation of scheme of arrangement. In

amalgamation two or more companies are fused into

one by merger or by taking over by another.

Reconstruction or ‘amalgamation’ has no precise legal

meaning. The amalgamation is a blending of two or

more existing undertakings into one undertaking, the

shareholders of each blending company become

substantially the shareholders in the company which is

to carry on the blended undertakings. There may be

amalgamation either by the transfer of two or more

undertakings to a new company, or by the transfer of

one or more undertakings to an existing company.

Strictly ‘amalgamation’ does not cover the mere

acquisition by a company of the share capital of other

company which remains in existence and continues its

undertaking but the context in which the term is used

may show that it is intended to include such an

acquisition. See: Halsbury’s Laws of England (4th

edition volume 7 para 1539). Two companies may join

to form a new company, but there may be absorption

or blending of one by the other, both amount to

amalgamation. When two companies are merged and

are so joined, as to form a third company or one is

absorbed into one or blended with another, the

amalgamating company loses its entity.”

34) Thus, on sanction of the scheme of amalgamation, all loans,

recoveries, security, interest, financial documents, etc. in favour

of IBFSL got transferred to and stood vested in the appellant

including the loans given by IBFSL to respondent borrowers,

debts recoverable by IBFSL from respondent borrowers in favour

of IBFSL, security documents executed by respondent borrowers

in favour of IBFSL, etc. On the sanctioning of the scheme, the

respondent borrowers became the borrower of the appellant as if

Civil Appeal No. 18 of 2018 Page 34 of 42

the financial assistance was granted by the appellant to the

respondent borrowers.

35) There is a force in the contention by the appellant that the debt

with underlying securities is the asset of IBFSL and that IBFSL

had right to transfer/assign its assets to any person without

seeking consent of the borrower. Such transfer/assignment is

recognized and that this Court in the case of Official Liquidator

of APS Star Industries has recognised and upheld such an

assignment.

36) In the aforesaid backdrop, the factor which assumes importance

and has to be kept in mind is that the appellant is an assignee of

a debt through the amalgamation of original lender with the

appellant which was effected invoking the statutory provisions of

the Companies Act. Once this is kept in mind, there would not be

any difference as far as consequences in law are concerned from

the case of M.D. Frozen Foods and this case. Therefore, M.D.

Frozen Foods case would apply to the facts of this case in all

force.

37) Further, it is too farfetched to argue that just to realise the dues

from the respondents, IBFSL and the appellant devised the plan

Civil Appeal No. 18 of 2018 Page 35 of 42

of merger so as to attract the provisions of SARFAESI Act and we

are not inclined to accept such a submission. Various judgments

which are relied upon by the respondents also would not apply as

we neither find it to be a case of the Court creating any legislation

or supplying any casus omissus.

38) Apart from the factual parity, even legally the arguments of the

respondents do not carry any weight. The view taken in M.D.

Frozen Foods is that the SARFAESI Act is retroactive in nature.

In the process, the Court approved the Full Bench decision of the

Orissa High Court in Sarthak Builders Pvt. Ltd., Chinta,

Arunodaya Market, Cuttack & Another v. Orissa Rural

Development Corporation Limited, Station Square,

Bhubaneswar & 5 Ors.11 and made the following observations:

“38…In case of retroactivity, the Parliament takes note

of the existing conditions and promulgates the

remedial measures to rectify those conditions. In fact

the SARFAESI Act, in our view, was to remedy such a

position and provide a measure against secured

interests. The scheme of the SARFAESI Act, is really

to provide a procedural remedy against security

interest already created. Therefore, an existing

borrower, who had been granted financial assistance

was covered under Section 2(f) of the said Act as a

‘borrower’. Not only this expression, the definition

clauses dealing with ‘debt securities’, ‘financial

assistance’, ‘financial assets’, etc., clearly convey the

legislative intent that the SARFAESI Act applies to all

existing agreements irrespective of the fact whether

the lender was a notified ‘financial institution’ on the

date of the execution of the agreement with the

11 (2014) SCC Online Ori 75

Civil Appeal No. 18 of 2018 Page 36 of 42

borrower or not. The scheme of the SARFAESI Act

sets out an expeditious, procedural methodology,

enabling the bank to take possession of the property

for non-payment of dues, without intervention of the

court. The mere fact that a more expeditious remedy is

provided under the SARFAESI Act does not mean that

it is substantive in character or has created an

altogether new right. To accept the argument of the

appellants would imply that they have an inherent right

to delay the enforcement against the security interest!

39. The catena of judgments referred to by learned

senior counsel for the appellants on substantive law

not being retrospective in operation, unless expressly

stated so in the Act would, thus, have no application to

the matter in issue, in view of what we have observed

aforesaid. On the other hand, as observed by Buckley,

L.J. in West v. Gwynne, retrospective operation is one

matter and interference with existing rights is another.

In that context, it was ruled that the provisions of the

Conveyancing of Law and Property Act, 1892 were

held applicable to leases containing a covenant,

condition or agreement against assigning, underletting

or parting with possession or disposing of land

or property leased without license or consent to all

leases whether executed before or after the

commencement of the Act. Such a construction was

held not to make the Act retrospective in operation but

merely effected the future existing rights under all

leases whether executed before or after the date of

that Act. (Discussed in Trimbak Damodhar

Raipurkar v. Assaram Hiraman Patil).

40. In a similar vein, are the observations made in the

case of In re Athlumney. Ex parte Wilson, where the

question posed before the Queen’s Division Bench

was whether Section 23 of the Bankruptcy Act, 1890

was retrospective in its operation. In the

aforementioned context, Wright, J., speaking for the

Bench, illuminatingly opined:

“Perhaps no rule of construction is more firmly

established than this — that a retrospective

operation is not to be given to a statute so as to

impair an existing right or obligation, otherwise

than as regards matter of procedure, unless that

effect cannot be avoided without doing violence to

Civil Appeal No. 18 of 2018 Page 37 of 42

the language of the enactment. If the enactment

is expressed in language which is fairly capable

of either interpretation, it ought to be construed as

prospective only… it is a general rule that when

the Legislature alters the rights of parties by

taking away or conferring any right of action, its

enactments, unless in express terms they apply

to pending actions, do not affect them…It is said

that there is one exception to that rule, namely,

that, where enactments merely affect procedure

and do not extend to rights of action, they have

been held to apply to existing rights, and it is

suggested here that the alteration made by this

section is within that exception…”

(Emphasis supplied)

41. Similarly, the date on which a debt is declared as

an NPA would again have no impact. We are, thus, of

the view that the provisions of the SARFAESI Act

would become applicable quaall debts owing and live

when the Act became applicable to the respondent in

terms of the parameters contended by learned senior

counsel for the respondent and enlisted at serial Nos. i

to iv in para 18.”

It, thus, follows that there is only a procedural change in

respect of forum for recovery of debt and no substantive rights

are affected.

39) In view of the aforesaid judgment, argument of the respondents

herein predicated on Sections 69 and 69A of the Transfer of

Property Act, which weighed with the High Court, is without any

substance.

40) The aforesaid view also gets support from the judgment of this

Court in Mardia Chemicals Ltd. & Ors. v. Union of India &

Civil Appeal No. 18 of 2018 Page 38 of 42

Ors.12 wherein the background and salient feature of the

SARFAESI Act have been extensively discussed and analysed

and the Court has also highlighted the objective behind enacting

such a legislation.

41) These sentiments are echoed in the subsequent judgment in the

case of United Bank of India v. Satyawati Tondon and

Others13 wherein it was held that the Act is intended to give

impetus to industrial development in the country by providing

speedy procedure of recovery. On account of lack of

infrastructure and manpower, regular courts were not able to

cope with the speed in adjudication of recovery cases. In the light

of recommendations of the Tiwari Committee, special tribunals

came to be set up under the provisions of the Recovery of Debts

Due to Banks and Financial Institutions Act, 1993 for recovery of

huge accumulated NPAs of the bank loans. On the

recommendations of the Narasimham Committee and

Andhyarujina Committee, SARFAESI Act was enacted to

empower banks and financial institutions to take possession of

the securities and to sell them without the intervention of the

Court. In this regard, reference may be made to the following

observations of this Court in the case of Satyawati Tondon:

12 (2004) 4 SCC 311

13 (2010) 8 SCC 110

Civil Appeal No. 18 of 2018 Page 39 of 42

“1…With a view to give impetus to the industrial

development of the country, the Central and State

Governments encouraged the banks and other

financial institutions to formulate liberal policies for

grant of loans and other financial facilities to those

who wanted to set up new industrial units or expand

the existing units. Many hundred thousand took

advantage of easy financing by the banks and other

financial institutions but a large number of them did

not repay the amount of loan, etc. Not only this, they

instituted frivolous cases and succeeded in

persuading the civil courts to pass orders of injunction

against the steps taken by banks and financial

institutions to recover their dues. Due to lack of

adequate infrastructure and non-availability of

manpower, the regular courts could not accomplish

the task of expeditiously adjudicating the cases

instituted by banks and other financial institutions for

recovery of their dues. As a result, several hundred

crores of public money got blocked in unproductive

ventures.

2. In order to redeem the situation, the Government of

India constituted a committee under the Chairmanship

of Shri T. Tiwari to examine the legal and other

difficulties faced by banks and financial institutions in

the recovery of their dues and suggest remedial

measures. The Tiwari Committee noted that the

existing procedure for recovery was very cumbersome

and suggested that special tribunals be set up for

recovery of the dues of banks and financial institutions

by following a summary procedure. The Tiwari

Committee also prepared a draft of the proposed

legislation which contained a provision for disposal of

cases in three months and conferment of power upon

the Recovery Officer for expeditious execution of

orders made by adjudicating bodies.

xx xx xx

16. Thus, the Act intends to provide remedy in respect

of pre – existing loans. The interpretation that the Act

will apply only to future debt transactions defeats the

very purpose of law of reducing the non-performing

assets. This object is clearly mentioned in the

Statement of Objects and Reasons. As noted in the

case of Satyaivati Tondon amount of rupees one lakh

Civil Appeal No. 18 of 2018 Page 40 of 42

twenty thousand crores was due to the banks in the

year 2001 which had adversely affected the economy

of the country. Obviously, the Act is intended to

recover the said pre-existing loans by the machinery

provided under the SARFAESI Act. The pre-existing

loans are not excluded from the purview of the Act.

Similarly, the object of notifying the financial institution

in question is to enable such institution to avail the

provisions of SARFAESI Act in respect of existing

loans. This salient object of the Act does not appear to

have been noticed in Subash Chandra Panda.”

42) We may also reproduce the following discussion from that

judgment which completely answers most of the arguments

raised by the learned counsel for the respondents:

“17. Further, the settled principle of interpretation that

while the statute affecting the substantive rights is

presumed to be prospective, a statute changing the

forum of remedy and the procedure is retrospective

has also not been kept in mind. These principles are

the basis of the view taken in the Unique Engineering

Works and Pradeep Kumar Gupta. The said

considerations are valid and legitimate, supported by

ample authority of binding precedents of the Apex

Court, to which reference may be made and relevant

observations extracted:

1. Rafiquennessa v. Lal Bahadur Chetri, AIR 1964 SC

1511

“9….. Mr. Chatterjee has relied upon the wellknown

observations made by Wright, J. in

(Re Athlumney ex parte or Wilson (1898) 2 QBD

547) when the learned Judge said that it is a

general rule that when the legislature alters the

rights of parties by taking away or conferring any

right of action, its enactments, unless in express

terms they apply to pending actions, do not affect

them. He added that there was one exception to

that rule, namely that where enactments merely

affect procedure and do not extend to rights of

action, they have been held to apply to existing

rights. In order to make the statement of the law

relating to the relevant rule of construction

Civil Appeal No. 18 of 2018 Page 41 of 42

which has to be adopted in dealing with the

effect of statutory provisions in this

connection, we ought to add that retrospective

operation of a statutory provision can be

inferred even in cases where such retroactive

operation appears to be clearly implicit in the

provision construed in the context where it

occurs. In other words, a statutory provision is

held to be retroactive either when it is so

declared by express terms, or the intention to

make it retroactive clearly follows from the

relevant words and the context in which they

occur.”

(emphasis added)”

43) The aforesaid discussion, thus, leads us to conclude that

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.

44) As a result, we hold that judgment of the High Court is erroneous

and set aside the same. This appeal is allowed. No orders need

to be passed in the contempt petitions, which stand disposed of.

………………………………………J.

(A.K. SIKRI)

………………………………………J.

(ASHOK BHUSHAN)

NEW DELHI;

FEBRUARY 23, 2018.

Civil Appeal No. 18 of 2018 Page 42 of 42