In this blog post, Ayushi Sinha, a third-year student at Rajiv Gandhi National University of Law, Punjab, walks us through the recent judgment of Madras Petrochem Ltd. & Anr. v. BIFR & Ors, 2016 on the status of ‘abatement of reference’ of a sick company.      


In what may be stated as an uncertainty in the field of industrial sickness, the Supreme Court decided to revisit the interplay between The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter, ‘SARFAESI Act’), The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter, ‘SICA Act’) and Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter, ‘RDDBFI Act’) in the recent case of M/s Madras Petrochem Ltd. v. BIFR.[1]  abatement-of-reference

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The expression ‘abate’ means “to put an end to; to curtail; to come to naught.”[2] Board for Industrial and Financial Reconstruction (‘BIFR’ for brevity) enables a sick industrial company to make a reference to it for the determination of measures to be undertaken with respect to that company.[3] From this point, two situations emerge- the Board decides the practicability of reviving the potentially viable sick company; on the event of impossibility of the previous situation, the Board appoints an Operating Agency responsible for preparing a rehabilitation scheme, which it further sanctions.[4]



A cursory reading of the factual matrix of this case says that after the subsequent failure of two such rehabilitative schemes as provided in Section 18 of the SICA, 1985 by ICICI (Operating Agency for Madras Petrochem Ltd.), BIFR opined that the appellant company should be wound up. It was duly noted that the appellant company had been enjoying unrestricted protection by virtue of the SICA for 12 years, and having no potential of economic revival, BIFR recommended the wounding up of the said company to Bombay High Court. This was challenged by the appellant company, which stood dismissed by AAIFR. To initiate the discharge of debts, ICICI issued a notice under section 13(2) of the SARFAESI Act, 2002 to the said company. A sale notice issued by ICICI on behalf of all the secured creditors of the appellant company was challenged unsuccessfully by the appellant company before the Debt Recovery Tribunal (for brevity ‘DRT’). An appeal was followed before the Debt Recovery Appellant Tribunal, which set aside the sale notice. What followed next came as a relief for the creditors of the company, wherein a challenged to the above order resulted in the Madras High Court setting aside the DRAT order and permitting creditors of the company to carry on with the sale of its immovable property having minimum reserve price of Rs. 25 crores.  download-3

By virtue of Section 22 of the SICA, 1985, sick industrial units enjoy protection with respect to suspension of those legal proceedings that are directed towards the winding up of a sick company. At this junction of interplay between these legislations, it would be pertinent to notice the reliance placed on KSL & Industries Ltd. v. Arihant Threads Ltd.[5] which held that SICA overrides the RDDBFI Act, 1993 which also runs on the same lines and subject matter as SARFAESI i.e. recovery of debts. In Kailash Nath Agarwal and Ors. v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr.[6] Delhi High Court awarded no protection to the guarantors against recovery proceedings on the ground that protection should be granted to the sick units in the same quantity as when the proceedings under section 22 of SICA are prohibited.

The major issues involved in the Madras Petrochem Ltd. case were:

  • Does SARFAESI Act, 2002 have an overriding effect over SICA, 1985?
  • Does the expression ‘where reference is pending’ before BIFR in Section 15(1) proviso 3 of the SICA, 1985 include all proceedings or only proceedings at the initial reference stage?

On the question of ambiguity as to which legislation should have an overriding effect, LIC v. D.J. Bahadur[7] and Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of Maharashtra Ltd.[8] provide some clarity by focusing on the principal subject matter plus the perspective of the legislation and then checking whether the legislation is in consonance with the contentions of the case. This point of law was reiterated in Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. & Ors.[9] In the event where both the legislations contain a non-obstante clause, it is the later Act, which must prevail.[10] Even when both the legislations contain non-obstante clauses, the one, which has a wider application, has an overriding effect.[11] Contributing to this discussion was the case of Raheja Universal Limited v. NRC Limited and Ors.,[12] where SICA, 1985 being a special Act read with non-obstante clauses had an overriding effect over Transfer of Property Act, 1882 being a general Act.

In all cases where the pre-SICA legislations containing non-obstante clauses similar to SICA 1985, and SICA 1985 are compared, SICA prevails. Where legislations post-SICA and SICA, 1985 are compared, SICA prevails only when the ambit of non-obstante clause in the other Act is limited.


In M/s Salem Textiles Ltd. v. The Authorized Officer[13], Madras High Court rendered clarity with respect to two points:

  • Irrespective at what stage the reference is, an action for repayment of dues initiated under section 13(4) of the Securitization Act, 2002 by the secured creditors representing three-fourths of the total financial assistance rendered will result in abatement of the pending reference.
  • The secured creditors representing three-fourths in value of the outstanding financial assistance need not seek permission of BIFR for taking an action under the above section.

In dissent of the above case of M/s Salem Textiles Ltd. was the Orissa High Court ruling in Noble Aqua Pvt. Ltd. v. State Bank of India[14] holding that ‘reference’ is limited to the initial stages of filing before the BIFR and not the subsequent stages. Once the reference is registered, BIFR has to conduct, and inquiry into it and no proceedings should take place against the assets before the BIFR decides.[15]

Pegasus Assets Reconstruction Pvt. Ltd. v. M/s. Haryana Concast Limited & Anr[16] renders the SARFAESI Act a status of being a code in itself, in that the secured creditors do not interfere while proceeding with the sale of secured assets.



  • SICA, 1985 having an overriding effect on RDDBFI Act, unsecured assets furthering the recovery of their debts are thwarted by the provisions of Section 22 of SICA.
  • Secured creditors may take recourse to the measures under Section 13(4) of the SARFAESI Act, 2002 non-obstante Section 22 of SICA Act,
  • Where secured creditors amount to three-fourths of the total financial assistance rendered, a reference under SICA, 1985 shall abate. ‘Where reference is pending’ will cover all references, irrespective of the stage.

SICA (repealed) Act, 2003 was brought into existence to regulate the misuse by the borrowers and preventing undue shelter. By invoking the SAFAESI Act, the secured creditors may seize the assets of the borrowers, which also include the funds of the unsecured creditors, whereas unsecured creditors are left high and dry. While the reference exists, the sick companies still stand protected from unsecured creditors via SICA provisions. It is only after the reference stands abated and the company is to wind up do the unsecured creditors see some light.








[1] 2016 SCC SC 86

[2] Ramanatha Aiyar’s Law Lexicon

[3] Section 15(1), The Sick Industrial Companies (Special Provisions) Act, 1985

[4] Section 18, The Sick Industrial Companies (Special Provisions) Act, 1985

[5] (2015) 1 SCC 166

[6] (2003) 4 SCC 305

[7] (1981) 1 SCC 315

[8] (1993) 2 SCC 144

[9] (2001) 3 SCC 71

[10] Allahabad Bank Vs. Canara Bank, (2000) 4 SCC 406.

[11] Morgan Securities and Credit Pvt. Ltd. v. Modi Rubber Ltd., (2006) 12 SCC 642

[12] (2012) 4 SCC 148

[13] AIR 2013 Madras 229

[14] AIR 2008 Orissa 103

[15] Real Value Appliances Ltd. v. Canara Bank & Ors., (1998) 5 SCC 554

[16] (Civil Appeal No. 3646 of 2011)


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