Creditors of sick companies have lost another battle to recover their money when the Supreme Court last week ruled that the Sick Industrial Companies Act ( SICA) shall prevail over the Recovery of Debts due to Banks and Financial Institutions (RDDB) Act. There were differences among judges over this issue of precedence. Since two judges took different views, the question was referred to a larger bench. Last week, the new bench delivered a unanimous judgment in the case, KSL & Industries Ltd vs Arihant Threads Ltd, settling the law on this point. According to Section 22 of the Sick Industries Act, once a company is declared sick, all legal proceedings, including suits for recovery of money, are suspended till an attempt is made to revive the unit. The judgment pointed out that it was in 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 to evolve a scheme. Therefore, SICA specified that this provision will prevail over other laws. The RDDB Act, on the other hand, recites that its provisions shall be in addition to and not in derogation of the SICA provisions. The judgment said that the purpose of the two laws is entirely different. Parliament, suspecting that there might be conflict of views on this point, “ wisely preserved the proceedings under SICA” the judgment said.
Copy of judgement:
