SICA aims to revive and rehabilitate not all sick companies but those in the schedule to the IDRA, presumably vital to the economy of the nation
Whether it is the Sick Industrial Companies (Special Provisions) Act, 1985 [SICA] or the Recovery of Debts due to Banks and Financial Institutions Act, 1993 [RDDB Act], which prevails on the other in view of the non obstante clause contained in both the legislation was the subject matter in the present reference petition.
In effect a “sick industrial company” is a company owning one or more industrial undertakings pertaining to a scheduled industry as contemplated by the Industries (Development and Regulation) Act, 1951 (IDRA). SICA aims to revive and rehabilitate not all sick companies but those in the schedule to the IDRA, presumably vital to the economy of the nation. The Act provides for an Inquiry into whether a company is a sick industrial company, an assessment whether it can be made viable and the preparation and sanction of a scheme for inter alia the financial reconstruction of the sick industrial company; proper management of the sick industrial company, amalgamation, sale or lease of a part or whole of an industrial undertaking of the sick company etc.; confers wide powers on the Board to provide in the scheme – amalgamation of the sick industrial company with a transferee company, the alteration of the memorandum or articles of association, reduction of the interest or rights of the shareholders and for continuation of legal proceedings, the sale or lease of the industrial undertaking etc. Section 22 providing for suspension of legal proceedings was enacted against the backdrop of the existing multitude of remedies which creditors may avail of against an indebted company and its properties bringing them to attachments, auction sale etc., making it difficult for the authorities entrusted with its reconstruction under the SICA to evolve a scheme for reconstruction. This provision is also given primacy by way of a non-obstante clause vide Section 32 of SICA.
SICA was enacted in the year 1985 when the remedies later on provided by the RDDB Act 1993, for recovery by a creditor through an application to the Debt Recovery Tribunal were not in existence nor contemplated. RDDB Act deals with the recovery of debts due to banks and financial institutions, makes the procedure for recovery of such debts exclusive and even unique. The non-obstante clause in Section 34(1) confers an overriding effect on the provisions of the RDDB Act notwithstanding anything inconsistent therewith contained in any other law for the time being in force and its sub-section (2) makes the RDDB Act additional to and not in derogation or annulment of the five Acts mentioned therein i.e. Industrial Finance Corporation Act, 1948; the State Financial Corporations Act, 1951; the Unit Trust of India Act, 1963; the Industrial Reconstruction Bank of India Act, 1984 and the Sick Industrial Companies (Special Provisions) Act, 1985.
Both are special laws. If the legislature confers a non-obstante clause on a later enactment, it means that the legislature intends that the later enactment should prevail. The purpose of the two enactments is entirely different. One provides ameliorative measures for reconstruction of sick companies, and the other provides for speedy recovery of debts of banks and financial institutions. Both the Acts are “special” in this sense. However, with reference to the specific purpose of reconstruction of sick companies, the SICA must be held to be a special law, though it may be considered to be a general law in relation to the recovery of debts. Whereas, the RDDB Act may be considered to be a special law in relation to the recovery of debts and the SICA may be considered to be a general law in this regard.
However the RDDB Act would prevail on the principle that the Legislature was aware that it had enacted SICA and yet chose to enact the RDDB Act with a non-obstante clause. Sub-section (2) of Section 34 thereof specifically provides that the provisions of the Act or the rules thereunder shall be in addition to, and not in derogation of, the other laws mentioned therein including SICA. The term “not in derogation” clearly expresses the intention of Parliament not to detract from or abrogate the provisions of SICA in any way. This, in effect must mean that Parliament intended the proceedings under SICA for reconstruction of a sick company to go on and for that purpose further intended that all other proceedings against the company and its properties should be stayed pending the process of reconstruction. Section 22 covers proceedings under the RDDB Act. Section 22 clearly covers and interdicts such an application for recovery made under the provisions of the RDDB Act. It was accordingly held that provisions of SICA, particularly Section 22 prevails over the provisions for recovery of debts in the RDDB Act.
[KSL Industries vs. M/s. Arihant Threads Ltd. & Ors.]