In the case of Pegasus Assets Reconstruction P. Ltd. Versus M/s. Haryana Concast Limited & Anr. (civil appeal no. 3646 of 2011) the Supreme Court has ruled that Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘the SARFAESI Act’) is a complete code in itself, independent of the Companies Act in relation to monetization of secured assets. The bench were inter alia considering the question whether a Company Court under the provisions of Companies Act, can control the sale of a secured asset by a secured creditor in exercise of powers his under the SARFAESI Act.
Answering the aforesaid question in the negative, the Court ruled that there is no lacuna or ambiguity in the SARFAESI Act so as to borrow anything from the Companies Act as such exercise is already done by the legislature. If the view that Company judge is also competent to pass orders, that would lead to a situation of uncertainty and conflict between the two Acts. The Court observed that in case the borrower happens to be a company under winding up, the ecosystem of acts and rules under SARFAESI regime ensure that the Official Liquidator is in knowledge of the proceedings under the SARFAESI Act. The SARFAESI Act is so woven as to protect the interests of employees by keeping the official liquidator within the loop of proceedings as exemplified in the provisos to Section 13(9) of the SARFAESI Act, such a system extinguishes the requirement of any orders by the Company Judge for association of the Official Liquidator in order to protect the interest of workers and to realize their dues. The SARFAESI Act provides sufficient opportunity to the Official Liquidator by conferring on him, like all other aggrieved parties,a right of appeal under Section 17 before the Debts Recovery Tribunal and a right of further appeal under Section 18 before the Appellate Tribunal. The clear intention of the Parliament expressed in Section 13 of the SARFAESI Act on the nonintervention of the court or tribunal in enforcement of security interest and the redressal mechanism under Sections 17 and 18 of the SARFAESI Act signifies that the Act is a code in itself.
The second question before the Court was on the validity of an auction sale whose sale price is bettered by a later offer. Commenting on volatile and fluctuating nature of price of immovable property, the Court held that subsequent higher offers cannot be the basis for re-opening the confirmed sale if there was no illegality or irregularity in the conduct of auction.
The apex Court has reaffirmed the nature of the SARFAESI Act as complete code in itself. The avenue of the Company Court as a forum to intervene in the sale proceedings under the SARFAESI Act has come to an end in view of the ratio in the above case. The true nature of SARFAESI Act as a hassle free legislation for monetization of secured assets is reaffirmed herein. By allowing the sale to proceed as per SARFAESI Act and reiterating the pari passu charge on sale proceeds, the Court has found a way of serving the interest of the workers and bankers.