Proceedings under SRFAESIA cannot take place when BIFR is seized of the issue.-Mardia case

The Debt Recovery Tribunal Ahmedabad has held that Banks and
 Financial Institutions cannot proceed against a borrower whose
reference is pending before the Board of Industrial and Financial
Reconstruction ( BIFR ).

This was held by the Debt Recovery Tribunal

on an appeal filed by Mardia Chemicals against the move
by the ICICI Bank to take over the assets of the company under
the provisions of the Securitisation and Reconstruction of Assets
and Enforcement of Security Interests Act ( SRFAESIA ).

The appeal filed by Mardia Chemicals has been allowed.


Earlier the Hon'ble Tribunal had granted ex-parte ad-interim
stay against the ICICI Bank from proceeding against Mardia
Chemicals in pursuance of their notices under the provisions
of SRFAESIA, also popularly referred to as the Securitisation Act.


Mardia Chemicals started proceedings before the Debt Recovery
Tribunal as a result of the Supreme Court decision.

The Supreme Court had upheld the Constitutional validity
of the SRFAESIA (Securitisation Act ), but had allowed the
 borrowers certain legal rights before the properties could
be seized, and, before the seized properties could be sold.

One of the rights granted was to approach the Debt Recovery
Tribunal with out the need to having deposit the mandatory 75% of
 the amount of debt claimed in the notices issued by the lenders.


The stand taken by Mardia Chemicals before the Debt Recovery
Tribunals was that the lenders cannot proceed to attach and take
 over the properties of the borrowers when the Board of Industrial
and Financial Reconstruction ( BIFR ) is seized of the matter.

Mardia Chemicals had filed a reference before the BIFR some
time in mid 2002. The BIFR is yet to give its decision.


As per Section 15 of the Sick Industrial Companies
(Special Provisions ) Act. 1985, (also called as SICA )
the Board of Directors of a Industrial company are
responsible to make a reference to the BIFR within 60 days
of finalisation of duly audited accounts of the company,
and such accounts shows that the company has become sick.

 The definition of "sick" industrial company as per SICA
is when a company's net worth is entirely eroded.