Conflict between company law and the SARFAESI Act

By Babu Sivaprakasam, Deep Roy and Megha Agarwal, Economic Laws Practice

The Indian legal framework for recovery of debt and for dealing with companies in distress is spread across various statutes. Creditors can seek recourse under the provisions of statutes such as the Companies Act, 1956 (as may be replaced from time to time), the Sick Industrial Companies (Special Provisions) Act, 1985, the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

Babu Sivaprakasam, Deep Roy and Megha Agarwal, Economic Laws Practice
Babu Sivaprakasam is a partner, Deep Roy is an associate partner and Megha Agarwal is an associate at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.

The enactment of these statutes also led to the establishment of agencies such as the Board for Industrial and Financial Reconstruction, the debt recovery tribunals and the debt recovery appellate tribunals to exercise the powers vested in such agencies. Though each statute was enacted for a distinct purpose and carefully laid down the mechanism and the scenarios in which a creditor can seek redressal, in practice, an overlap between the powers entrusted to the authorities under the respective statutes does occur.

Pegasus case

The Supreme Court dealt with one such conflict in its judgment dated 29 December 2015 in the case of Pegasus Assets Reconstruction Private Limited v M/s Haryana Concast Limited and Another. The case involved a conflict between winding-up proceedings under the Companies Act, 1956 (Companies Act), and enforcement proceedings under the SARFAESI Act. On account of conflicting decisions of Delhi High Court and Punjab and Haryana High Court, the Supreme Court was faced with the question whether, under the provisions of the Companies Act, a court or an official liquidator can place any fetters on the enforcement of a secured asset by a secured creditor under the SARFAESI Act.

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