SUPREME COURT HELD THAT A NON-BANKING OR NON-FINANCIAL COMPANY CANNOT SEEK RELIEF UNDER SARFAESI AND TRANSFER OF PROPERTY ACT

The Supreme Court in a recent Judgement Suzuki Parasrampuria Suitings Pvt. Ltd. Vs. The Official Liquidator of Mahendra Petrochemicals Ltd. (In Liquidation) and Others decided on 08.10.2018 held that Suzuki Parasrampuria Suitings Pvt. Ltd. (hereinafter as the “said Company”) cannot file an application to seek any benefit under the SARFAESI Act, 2002 (“SARFAESI Act”) and Section 130 of the Transfer of Property Act, 1882, unless it is a bank or banking company or a financial institution or a securitisation company or reconstruction company. It further held that, the Company cannot take contradictory stands at its own convenience.

Here, the said Company was an assignee of debt by the Industrial Finance Corporation of India Ltd. (IFCI) for the outstanding of M/s. Mahendra Petrochemicals Ltd (MPL). A Company Petition was filed for winding up of M/s. MPL. The Company then was referred to rehabilitation to the Board for Industrial and Financial Reconstruction (BIFR). While this was pending, without informing the BIFR, an unregistered memorandum of understanding (MOU) was entered between M/s. MPL with M/s. Suzuki Parasrampuria Suitings Pvt. Ltd. to lease out the properties to the said Company for 20 years to repay its debts. The Company Court was unaware about this arrangement, until on 19.04.2010, when a winding up order was passed by the court.

The IFCI, Bank of Baroda and Punjab National Bank who were the secured creditors, filed an original application for recovery of debt against MPL before the Debt Recovery Tribunal under the SARFAESI Act. IFCI held first charge to M/s. MPL for outstanding of Rs.160 crores over the assets and the Bank of Baroda had second charge for Rs.4,68,00,000 approximately. On 28.07.2010 after the winding up Order, IFCI assigned its dues to the Company for a sum of Rs.85 Lakhs only and informed the official liquidator thereafter.

Thereafter Suzuki Parasrampuria Suitings Pvt. Ltd. filed, Company application for substitution of its name in the place of IFCI as secured creditor. The same was however rejected on the grounds that the Company was neither a bank or banking company or a financial institution or securitization company or reconstruction company and therefore could not be substituted in place of IFCI as a secured creditor for the purpose of the SARFAESI Act. In order to seek relief for substitution as a secured creditor under the SARFAESI Act, the Company Judge held that the Suzuki Parasrampuria Suitings Pvt. Ltd could not draw any benefit under Section 130 of the Transfer of Property Act,1882, which states that-

“Section 130, The Transfer of Property Act, 1882, –

Transfer of actionable claim. —

(1) The transfer of an actionable claim 1[whether with or without consideration] shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent, shall be complete and effectual upon the execution of such instruments, and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is hereinafter provided be given or not: Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transfer.

(2) The transferee of an actionable claim may, upon the execution of such instrument of transfer as aforesaid, sue or institute proceedings for the same in his own name without obtaining the transferor’s consent to such suit or proceeding and without making him a party thereto.

(Exception) —Nothing in this section applies to the transfer of a marine or fire policy of insurance 3[or affects the provisions of section 38 of the Insurance Act, 1938. Illustrations

(i) A owes money to B, who transfers the debt to C. B then demands the debt from A, who, not having received notice of the transfer, as prescribed in section 131, pays B. The payment is valid, and C cannot sue A for the debt.

(ii) A effects a policy on his own life with an Insurance Company and assigns it to a Bank for securing the payment of an existing or future debt. If A dies, the Bank is entitled to receive the amount of the policy and to sue on it without the concurrence of A’s executor, subject to the proviso in sub-section (1) of section 130 and to provisions of section 132.”

On the other hand, the respondents contended that the Company cannot take different stands in order get benefit according to their convenience.

When the matter went up to the Supreme Court, the Apex Court held-

“though the litigant can take different stands at different times but cannot take contradictory stands in the same case. A party cannot be permitted to approbate and reprobate on the same facts and take inconsistent shifting stands. The untenability of an inconsistent stand in the same case was considered in Amar Singh vs. Union of India, (2011) 7 SCC 69, observing as follows:

“This Court wants to make it clear that an action at law is not a game of chess. A litigant who comes to Court and invokes its writ jurisdiction must come with clean hands. He cannot prevaricate and take inconsistent positions.”

The same issue was adjudged in Joint Action Committee of Air Line Pilots’ Assn. of India vs. DG of Civil Aviation, (2011) 5 SCC 435, observing:

“The doctrine of election is based on the rule of estoppel-the principle that one cannot approbate and reprobate inheres in it. The doctrine of estoppel by election is one of the species of estoppels in pais (or equitable estoppel), which is a rule in equity….. Taking inconsistent pleas by a party makes its conduct far from satisfactory. Further, the parties should not blow hot and cold by taking inconsistent stands and prolong proceedings unnecessarily.”

Satyam Singh Pal

Associate