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M/s Madras Petrochem Ltd. & Anr. v. BIFR & Ors.

Civil Appeal · Neutral citation not assigned (Civil Appeal Nos. 614-615 of 2016)Decided 29 Jan 2016
Civil Appeal Nos. 614-615 of 2016
Justice Kurian Joseph · Justice Rohinton Fali Nariman

Background

Madras Petrochem's net worth had eroded completely, and it was declared a "sick" industrial company by the BIFR in 1989. Two successive rehabilitation schemes failed over the following decade, and in 2001 the BIFR formed a prima facie opinion recommending that the company be wound up. Separately, secured creditors sought to enforce their security interests directly under the newly-enacted SARFAESI Act, 2002, raising the question of whether the pending SICA reference and an interim stay order could block that recourse.

Decision Breakdown

The Supreme Court undertook a detailed analysis of how SICA and SARFAESI interact. It held that SARFAESI prevails over SICA to the extent of any inconsistency; where secured creditors representing the requisite statutory majority (60% or more, and conclusively at 75% or more) of the outstanding debt choose to enforce their security under SARFAESI, any pending SICA reference, at whatever stage, inquiry, scheme, or winding-up, must abate and cannot be revived by an interim court order. Applying this, the Court found Madras Petrochem's SICA reference had already abated because the overwhelming majority of its secured creditors had taken SARFAESI enforcement steps, and dismissed the appeals.

Lesson Learnt

Once secured creditors holding the statutorily-required majority of outstanding debt decide to enforce their security under the SARFAESI Act, a company cannot shelter behind a pending "sick company" reference or a court-granted stay to block that enforcement: SARFAESI's recovery mechanism takes precedence.

Official source (sci.gov.in)View Judgment (PDF)

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