MIS. BHARAT STEEL TUBES LTD. ETC.versusIFCI LTD. & ORS.

                   [2011] 4 S.C.R. 205


         MIS. BHARAT STEEL TUBES LTD. ETC.                    A
                             v.
                     IFCI LTD. & ORS.
          (SLP (Civil) No(s) 9728-9729 of 2011)
                      APRIL 4, 2011
                                                              B
     [ALTAMAS KABIR AND CYRIAC JOSEPH, JJ.]

    COMPANIES ACT, 1956:

                                                              c
     ss. 4A(1)(ii) and 4A(2) Proviso (i) - Industrial Financial
Corporation of India Limited (IFCIL) - HELD: Provisions of
sub-s.(1) of s.4A stand independent of sub-s.(2) of s.4A and
recognize the financial institutions mentioned therein to be
public financial institutions which are not covered by embargo
enforced by proviso to sub-s. (2) - Further, IFCIL was covered 0
by Proviso (i) to sub-s. (2) of s.4A since it was constituted
under the Companies Act which is a Central Act - High Court
rightly held IFCIL entitled to take recourse to provisions of
SARFAESI Act to enforce a "security interestn which had
accrued in its favour - Securitisation and Reconstruction of E
Financial Assets and Enforcement of Security Interest Act,
2002 - Industrial Finance Corporation (Transfer of
Undertaking and Repeal) Act, 1993 - s. 5.

     The instant special leave petitions were filed by the
petitioner-company challenging the judgment and order         F
dated 9-7-2010, passed by a Division Bench of the High
Court holding that the respondent, Industrial Finance
Corporation of India Limited, was a "financial institution"
uls 4A(2) of the Companies Act, 1956, read withs. 2(1)(m)
of the Securltisation and Reconstruction of Financial         G
Assets and Enforcement of Security Interest Act, 2002,
and that, as a consequence, the respondent IFCI Ltd.
would be entitled to take recourse to the provisions of the
SARFAESI Act, 2002 in order to enforce a "security
                            205                               H
    206       SUPREME COURT REPORTS             [2011] 4 S.C.R.


A interest" which had accrued in its favour. The petitioner
  also challenged an order passed by the Single Judge of
  the High Court vacating the injunction order earlier
  passed in the suit.

8      It was primarily contended for the petitioner that at
  the relevant time, the Central Government did not hold or
  control 51% or more of the paid up share capital of the
  respondent institute as envisaged by proviso (ii) to s. 4
  A (2) of the Companies Act, 1956 and, as such, it was no
C longer covered by the definition of "public financial
  institution" ins. 4A of the Companies Act, 1956 and was
  not, therefore, entitled to invoke the provisions of the
  SARFAESI Act, 2002, notwithstanding the provisions of
  s. 5 of the 1993 Act.

D         Dismissing the petitions, the Court

       HELD: 1.1. The provisions of sub-s. (1 \ of s. 4A of the
  Companies Act, 1956 stand independent of sub-s. (2) and
  the financial institutions named in sub-s. (1) of s.4A
E recognize the financial institutions mentioned therein to
  be public financial institutions which are not covered by
  the embargo enforced by the proviso to sub-s. (2) of the .
  said Section. The proviso controls the width of sub-s. (2)
  which refers to the powers of the Central Government to
F specify by notification in the Official Gazette and subject
  to the provisions of sub-s. (1), such other institutions as
  it may think fit to be a public financial institution. Sub-s.
  (2) of s. 4A is applicable only to institutions which are not
  mentioned in sub-s. (1). It is the latter category of financial
  institutions to which the proviso applies. In view of s. 4
G A(1)(ii) of the Companies Act, 1956, the Industrial Finance
  Corporation of India was admittedly regarded as a 'public
  financial institution' for the purpose of the said Act. [para
  14] [213-D-G]

H         1.2. The conversion of the Industrial Finance
 BHARAT STEEL TUBES LTD. ETC. v. IFCI LTD. &            207
   '·~
                  ORS.
Corporation of India into a Company did not alter its          A
position and status as a financial institution in view of s.
5 of the Industrial Finance Corporation (Transfer of
Undertaking and Repeal) Act, 1993, which was in the
nature of a saving clause, whereby all matters, including
all benefits, relating to the Corporation, stood wholly        B
transferred in favour of the new Company. [para 14] [213-
G-H; 214-A-B]

     1.3. Clau6es (i) and (ii) are not conjunctive but
disjunctive and even though Clause (ii) may not have any       C
application to r,espondent No.1 Company, it was covered
by clause (i), since it was constituted under the
Companies Act, 1956, which is a Central Act. [para 15]
[214-C-D]

    1.4. There is no reason to interfere with the judgment     D
and orders of the High Court impugned in these special
leave petitions. [para 16] [214-D-E]

    CIVIL APPELLATE JURISDICTION : SLP (Civil) No.
9728-9729 of 2011.
                                                               E
     From the Judgment & Order dated 9.7.2010 & 10.9.2010
of the High Court of Delhi at New Delhi in WPC No. 7097 of
2008 & CSOS No. 1886 of 2009 & IA No. 12908 of 2009.

    Rakesh Dwivedi, M. Dutta, Amit Duggal, Vivek Malik, Amit   F
Dhupav, Rishi Maheshwari, P.S. Sudheer for the Petitioners.

    K.K. Venugopal, Subramonium Prasad, Shweta
Mazumdar, Shyam D. Nandan, Rajat Khattry for the
Respondents.
                                                               G
    The Judgment of the Court was delivered by

     ALTAMAS KABIR, J. 1. Permission to file Special Leave
Petitions is granted.
                                                               H
    208       SUPREME COURT REPORTS                  [2011) 4 S.C.R.


A        2. In these Special Leave Petitions, M/s Bharat Steel
   Tubes Ltd. has challenged the judgment and order dated 9th
   July, 2010, passed by a Division Bench of the Delhi High Court
   in WP(C) No. 7097 of 2008, holding that the Respondent,
   Industrial Finance Corporation of India Limited is a "financial
B. institution" under Section 4A(2) of the Companies Act, 1956,
   read with Section 2(1 )(m) of the Securitisation and
   Reconstruction of Financial Assets and Enforcement of Security
   Interest Act, 2002, (hereinafter referred to as 'the SARFAESI
   Act') and that, as a consequence, the Respondent IFCI Ltd.
c would be entitled to take recourse to the provisions of the
   SARFAESI Act in order to enforce a "security interest" which
   had accrued in its favour. The Petitioner has also challenged
   an order passed by a Single Bench of the Delhi High Court on
   10th September, 2010, in l.A.No.12908/09 in CS(OS)No.1886
D of 2009 vacating the injunction order earlier passed in the suit.

         3. Appearing for the Petitioner, Mr. Rakesh Dwivedi,
  ·learned Senior Advocate, firstly drew our attention to Section
   4A of the Companies Act, 1956, which was introduced by way
   of an amendment with effect from 1st February, 1975, defining
E "Public Financial Institutions". It provides that the various
   financial institutions specified in Sub-Section (1), including the
   Industrial Finance Corporation of India, est.ablished under
   Section 3 of the Industrial Finance Corporation Act, 1948, is-
   to be regarded fer the purposes of the said Act, as a public
F financial institution. Learned counsel also pointed out that Sub-
   section (2) of Section 4A also provides that subject to the
   provisions of Sub-Section (1), the Central Government may, by
   notification in the Official Gazette, specify such other institutions
   as it may think fit to be a public financial institution. A limitation,
G however, has been imposed on the said powers of the Central
   Government by the proviso to Sub-Section (2) which provides
   that no institution is to be specified as a public financial
   institution unless:-

H
  BHARAT STEEL TUBES LTD. ETC. v. IFCI LTD. &                209
           ORS. [ALTAMAS KABIR, J.]
      (i)    It has been established or constituted by or under      A
             any Central Act; or

      (ii)   Not less than 51 % of the paid-up share capital of
             such institution is held or controlled by the Central
             Government.                                             s.
       4. Mr. Dwivedi submitted that while clause (i) of the proviso
 to Sub-Section (2) of Section 4A of the above Act is not
·attracted to the facts of this case, the second clause would
 have been attracted, but for the fact that at the relevant point .of
 time and even now the Central Governmer.t does not hold or C
 control 51 % or· more of the paid-up share capital of the
 institution concerned. Mr. Dwivedi submitted that on account of
 disinvestment at regular intervals, the Central Government does
 not hold any share in the Company and the day it ceased to
 hold 51 % or more of the paid-.up share capital, it ceased to D
 enjoy the benefits of Section 4A(ii) and became a private
 company which could no longer be covered by the definition of
 "public financial institution" in Section 4A of the Companies Act,
 1956. It was submitted that even if ~he Central Government
 continue to hold shares in the Company, its status would be that E
 of any other private shareholder and the Corporation could no
 longer enjoy the status of a Public Financial Institution given to
 it under Section 4A of the Companies Act, 1956.

      5. In order to bolster his submissions, Mr. Dwivedi referred
to the Industrial Finance Corporation (Transfer of Undertaking       F
and Repeal) Act, 1993, hereinafter referred to as "the 1993
Act", whereunder the nature and character of the Industrial
Finance Corporation of India underwent a change and the
Corporation was incorporated as a Company as defined in
Section 1(i)(b) of the aforesaid Act. Mr. Dwivedi pointed out        G
that under Section 3, the undertaking of the Corporation was
to vest in the Company on a date to be appointed by
notification in the Official Gazette and on the said date the
undertaking of the Corporation would stand transferred and           _
vested in the newly- incorporated Company. It appears that the       H
                                                            .~
                                                            ·'
    210      SUPREME COURT REPORTS               [2011] 4 S.C.R.

A   appointed date was subsequently notified as 1st July, 1993.

       6. It was also pointed out by Mr. Dwivedi that Section 4 of
  the 1993 Act mentions the general effect of vesting of an
  undertaking in the Company to be so incorporated. By virtue
  of Sub-Section (2) of Section 4, the undertaking of the
8
  Corporation, which was transferred to and vests in the
  Company under Section 3, shall be deemed to include all the
  various items set out in Sub-Section (2) of Section 4. In
  addition, under Sub-Section (3) of Section 4, all contracts,
  deeds, bonds, guarantees, powers of attorney, other
C instruments and working arrangements subsisting immediately
  before the appointed date and affecting the Corporation would
  cease to have effect or to be enforceable against the
  Corporation and would be of full force and effect against or in
  favour of the Company, in which the undertaking of the
D Corporation had vested.

       7. Reference was then made to Sub-Section (5) of Section
  4, whereunder with effect from the appointed date, fiscal and
  other concessions, licences, benefits, privileges and exemptions
E granted to the Corporation in connection with the affairs and
  business of the Corporation under any law for the time being
  in force would be deemed to have been granted to the
  Company. Mr. Dwivedi contended that under the said provision,
  it could not be said that the status given to the Respondent
F Company was saved or continued under Section 5 of the Act
  and, accordingly, once the Central Government ceased to hold
  51 % or more of the paid-up share capital of the Company, it
  ceased to enjoy the benefits under Section 5 of the 1993 Act.

       8. Mr. Dwivedi submitted that since the Respondent No.1
G Company no longer fulfilled the criteria contained in Clause (ii}
  of the proviso to Sub-Section (2) of Section 4A of the
  Companies Act, 1956, it had lost the status given to it under
  Clause (ii) of Sub-Section (1} of Section 4A thereof and was
  not, therefore, entitled to invoke the provisions of the
H
  BHARAT STEEL TUBES LTD. ETC. v. IFCI LTD. &                 211
           ORS. [ALTAMAS KABIR, J.]
 SARFAESI Act, 2002, notwithstanding the provisions of Section        A
 5 of the 1993 Act.

       9. Mr. Dwivedi also pointed out that the fact that the
  Respondent No.1 Company was no longer a public company
  under the control of the Central Government, had also been
· admitted on behalf of the Respondent No.1 before the Delhi          B
  High Court in Writ Petition (Civil)4596 of 2006, which would be
  reflected from the judgment delivered therein on 17th August,
  2010. Mr. Dwivedi pointed out that in paragraph 10 of the
  judgment it had been mentioned by the learned Single Judge
  that a submission had been advanced on behalf of the                C
  Respondent No.1 Company that it was neither substantially
  financed by the ·Central Government nor did the Central
  Government hold any share whatsoever in the Respondent No.1
  Company.
                                                                      D
       10. Mr. K.K. Venugopal, learned Senior Advocate,
 appearing for the Respondent No.1 Company, on the other
 hand, contended that Section 5 of the aforesaid Act was in the
 nature of a saving clause, whereby all matters relating to the
 Corporation stood wholly transferred in favour of the new            E
 Company after its incorporation, including, the status which had
 been afforded to the Corporation under Clause (ii) of Section
 4A(1) of the Companies Act, 1956. Mr. Venugopal submitted
 that in exercise of the powers conferred by Sub-Section (2) of
 Section 4A of the aforesaid Act, the Central G.overnment             F
 issued Notification No.S.0.98(E) dated 15th February, 1995,
 specifying the lndustrial'Finance Corporation of India Limited
 formed and registered under the Companies Act, 1956, to be
 a financial institution and, accordingly, amended the Notification
 issued by the Government of India, Ministry of Law, Justice and      G
 Company Affairs (Department· of Company Affairs)
 No.S.0.1329 dated 8th May, 1978, to include the Industrial
 Finance Corporation of India Limited in the said notification.

     11. Mr. Venugopal urged that the mere fact that the
 Respondent No.1 Company was no longer under the control of           H
    212         SUPREME COURT REPORTS                            [2011] 4 S.C.R.

A the Central Government did not affect or alter its status under
  Section 4A(1)(ii} of the Companies Act, 1956, as a public
  financial institution and that, in effect, more than 4,000 cases
  filed by the Respondent No.1 Company in its capacity as a
  public financial institution were pending and would be rendered
8 infructuous if the interpre'tation being sought to be given on
  behalf of the Petitioner in relation to the status of the
  Respondent No.1 Company was to be accepted.

       12. Having regard to the large number of cases filed by
  the· Respondent No.2 Company, in its capacity as a public
C financial institution, which are said to be pending, we have
  given our anxious consideration to the submissions advanced
  on behalf of the respective parties and the provisions of the
  Companies Act, 1956, and the Industrial Finance Corporation
  (Transfer of Undertaking and Repeal} Act, 1993.
D
       13. Section 4A of the Companies Act, 1956, as far as the
  Industrial Finance Corporation of India Limited is concerned,
  provides as follows :-
          4A. Public financial institutions. -
E
          (1) Each of the financial institutions specified in this sub-
          section shall be regarded, for the purposes of this Act, as
          a public financial institution, namely:-
F         (i} .................................................. .
          (ii} the Industrial Finance Corporation of India, established
          under Section 3 of the Industrial Finance Corporation Act,
          1948 (7 of 19'48).;
G         (111) .................................................. .

          (iv) ........................................ ~ ......... .
          (v) .................................................. .

H         (vi) .................................................. .
 BHARAT STEEL TUBES LTD. ETC. v. IFCI LTD. &                     213
          ORS. [ALTAMAS KABIR, J.]
    (vii) .................................................. .          A
    (2) Subject to the provisions of sub-section (1) the Central
    Government may, by notification in the Official Gazette,
    specify such other institution as it may think fit to be a public
    financial institution:                                              B
          Provided that no institution shall be so specified
    unless-

    (i) it has been established or constituted by or under any
    Central Act, or                                                     C

    (ii) not less than fifty-one per cent, of the paid-up share
    capital of such institution is held or controlled by the
    Central Government."

      14. In our view, the provisions of Sub-Section (1) of Section D
4A stand independent of Sub-Section (2) and the financial
institutions named in Sub-Section (1) of Section 4A recognize
the financial institutions mentioned therein to be public fin,ncial
institutions which are rn;it covered by the embargo enforced by
the proviso to Sub-Section (2) of the said Section. The proviso E
controls the width of Sub-Section (2) which refers to the powers
of the Central Government to specify by notification in the
Official Gazette and subject to the provisions of Sub-Section
(1 ), such other institutions as it may think fit to be a public
financial institution. It appears to us that Sub-Section (2) of F
Section 4A is applicable only to institutions which are not
mentioned in Sub-Section (1 ). It is the latter category of financial
institutions to which the proviso applies. In view of Section 4
A(1)(ii) of the Companies Act, 1956, the Industrial Finance
Corporation of India was admittedly regarded as a 'public G
financial institution' for the purpose of the said Act. The
conversion of the Industrial Finance Corporation of India into a
Company did not alter its position and status as a financial
institution in view of Section 5 of the Industrial Finance
Corporation (Transfer of Undertaking and Repeal) Act, 1993, H
                                                                •



    214         SUPREME COURT REPORTS              [2011] 4 S.C.R.

A which, as pointed out by Mr. K.K. Venugopal, was in the nature
  of a saving clause, whereby all matters, including all benefits,
  relating to the Corporation, stood wholly transferred in favour
  of the new Company.
         15. Mr. Dwivedi has submitted that the Notification dated
8
  15th February, 1995, had been issued under Section 4A(2) of
  the Companies Act which will have to conform to the proviso
  thereto. Mr. Dwivedi has contended that both the conditions in
  the proviso would have to be fulfilled in order to be eligible for
C being specified as a public financial institution. We are unable
  to accept such contention in view of the fact that clauses (i) and.
  (ii) are not conjunctive but disjunctive and even though Clause
  (ii) may not have any application to the Respondent No.1
  Company, it was covered by clause (i), since it was constituted
  under the Companies Act, 1956, which is a Central Act.
D
         16. We, therefore, find no reason to interfere with the
  judgment and orders of the High Court impugned in these
  Special Leave Petitions, which are, accordingly, dismissed.
           17. There shall, however, be no order as to costs.
E
    R.P.                       Special Leave Petitions dismissed.