TMI Blog2008 (5) TMI 423X X X X Extracts X X X X X X X X Extracts X X X X ..... e remitted to the BIFR so as to enable it to proceed in accordance with the provisions of S1CA afresh. - CIVIL APPEAL NO. 3640 OF 2008 - - - Dated:- 16-5-2008 - S.B. SINHA, LOKESHWAR SINGH PANTA AND MARKANDEY KATJU, JJ. R.F. Nariman for the Appellant. C.A. Sundaram for the Respondent. JUDGMENT S.B. Sinha, J. - Leave granted. Introduction 2. Interpretation/application of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1984 (SICA) vis-a-vis the Companies Act, 1956 (1956 Act) is in question in this appeal which arises out of a judgment and order dated 16th October, 2006 passed by a Division Bench of the High Court of Judicature at Bombay in Appeal No. 725 of 2006 arising out of a judgment and order dated 13th February, 2006 passed by a learned Single Judge of the Bombay High Court approving a Scheme filed by the respondent herein in Company Petition No. 470 of 2005 which was under section 391 of the 1956 Act. Background Facts 3. First respondent is a company registered and incorporated under the 1956 Act. It took loan from Tata Finance Ltd., predecessor-in-interest of the appellant on interest @ 18 per cent per annu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed creditors and some selective unsecured creditors. Company Court Proceedings 6. Respondent, however, filed an application before the High Court of Judicature at Bombay purported to be in terms of section 391 of the 1956 Act during the pendency of the said appeal on or about 29-4-2005. A Scheme was presented before the Company Judge purported to be involving about 80 per cent of the creditors, most of them being banks, financial institutions. Allegedly, even at that stage, it was not disclosed before the Company Court that unsecured creditors listed in the Scheme were only a selected few creditors, as a result whereof a large number of creditors had been excluded. 7. Before the Company Judge, the appellant filed an application for intervention. It filed an objection to the said Scheme primarily on the grounds : "That the revival/rehabilitation of the company was under consideration of a specialized body formed under the Sick Industries Act which is a special legislation and would prevail over the provisions of the Companies Act. That the non obstante clause contained in the Sick Industries Act will have the effect of overriding and excluding the provisions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd its unsecured creditors and Wanbury does not affect the rights of the appellant as the appellant, though an unsecured creditor, is not specified in Schedule-I, appended to the Scheme. In this backdrop, the impugned order cannot be faulted. However, it is clarified that whatever objections the appellant may have against the revival scheme pending before the BIFR, pursuant to the order dated 1-6-2006 passed by the AAIFR, they may place their objections before the BIFR and obviously upon such objections being placed the BIFR shall consider the revival scheme of the respondent-company on its own merits, keeping in view all relevant fact and circumstances, including the objections of the appellant." Subsequent Events 11. We may also take note of some subsequent events. In view of the order of AAIFR dated 1-6-2006, BIFR issued notice on 1-2-2007 to consider the Scheme- cum -merger with M/s. Wanbury Ltd. propounded by the respondent company returnable on 29-3-2007. On the said date, all the interested parties including the appellant were heard. By an order dated 1-5-2007, BIFR is said to have sanctioned the Scheme- cum -merger of M/s. Wanbury Ltd. with the respondent. 12. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. 16. Section 15 of SICA provides for making reference by the Board of Directors of the Company on becoming an industrial company, a sick industrial company, to the Board for determination of the measures to be adopted with respect to the company. Section 16 provides for making inquiry into the working of sick industrial company by the Board after receiving reference. Section 17 provides for powers of Board to make suitable order on the completion of inquiry. Sub-section (3) thereof reads as under: "17. Powers of Board to make suitable order on the completion of inquiry. (3) If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company, it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Where a sanctioned scheme provides for the transfer of any property or liability of the sick industrial company in favour of any other company or person or where such scheme provides for the transfer of any property or liability of any other company or person in favour of the sick industrial company, then, by virtue of, and to the extent provided in, the scheme, on and from the date of coming into operation of the sanctioned scheme or any provision thereof, the property shall be transferred to, and vest in, and the liability shall become the liability of, such other company or person or, as the case may be, the sick industrial company." 18. Section 19 provides for rehabilitation by giving financial assistance; sub-sections (1), (2) and (4) whereof reads as under : " Rehabilitation by giving financial assistance. (1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quidator under the Companies Act, 1956 (1 of 1956). (4) Notwithstanding anything contained in sub-section (2) or sub-section (3), the Board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of section 529A and other provisions of the Companies Act, 1956 (1 of 1956). Section 26 Bar of jurisdiction. No order passed or proposal made under this Act shall be appealable except as provided therein and no civil court shall have jurisdiction in respect of any matter which the Appellate Authority or the Board is empowered by, or under, this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. Section 32 Effect of the Act on other laws. (1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) has disclosed to the court, by affidavit or otherwise, all material facts relating to the company, such as the latest financial position of the company, the latest auditor s report on the accounts of the company, the pendency of any investigation proceedings in relation to the company under sections 235 to 251, and the like. (3) An order made by the Tribunal under sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar. (4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company. (5) If default is made in complying with sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for each copy in respect of which default is made. (6) The Tribunal may, at any time after an application has been made to it under this section stay the commencement or continuation of any suit or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... petition; clause ( d ) of sub-section (1) whereof provides for a power to make an order for winding up of the company with or without costs or any other order that it thinks fit. Section 444 lays down the consequences of the winding-up order. In terms of section 446 of the Act, in the event of passing of a winding-up order or appointment of liquidator as Provisional Liquidator, no suit or legal proceeding would commence or if pending at the date of the winding-up order, shall not be proceeded with against the company except by leave of the Court and subject to such terms as the Court may impose. Sub-section (2) of section 446 provides for a non obstante clause, in terms whereof the Company Court shall have jurisdiction to entertain or dispose of any suit or proceedings specified therein. Section 451 lays down general provisions as to liquidators. Section 457 specifies the power of the liquidator which is required to be exercised with the sanction of the Court. Sub-section (2) of section 536 reads as under : 536. Avoidance of transfers, etc., after commencement of winding up. (1)****** (2) In the case of a winding up by the Tribunal, any disposition of the property (in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vail over the provisions of the Companies Act. Section 20 of SICA relates to winding up of the sick industrial company. Before BIFR or AAIFR, as the case may be, makes a recommendation for winding up of the company, an enquiry is made in terms of section 16 thereof wherefor all relevant facts and circumstances are required to be taken into consideration. Before an opinion is arrived at in that behalf, the parties are given an opportunity of hearing. The satisfaction arrived at by BIFR that the company is not likely to become viable in future and it is just and equitable that the company should be wound up must be based on objective criteria. The High Court indisputably on receipt of such recommendation of BIFR would initiate a proceeding for winding up in terms of section 433 of the Companies Act. Sub-section (2) of section 536 ipso facto does not confer any jurisdiction upon the Company Court to direct sale of the assets of the sick company. It has to exercise its power thereunder subject to the provisions of the special statute governing the field. Despite the fact that the procedures laid down under the Companies Act would be applicable therefor but they must be read with sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b-section (4) of section 20 and section 536 should be read conjointly so as to enable an applicant to obtain a sanction of both BIFR and the Company Court, thus, do not appeal to us." (p. 235) The Court noticed the non obstante clause contained in clause (4) of section 20 as also section 32 of SICA to hold that the High Court does not exercise concurrent jurisdiction with BIFR. The fact that SICA was enacted in 1984 had also been taken into consideration. The Court considered in details the exercise of the jurisdiction of the Company Court vis-a-vis the BIFR to opine : "69. BIFR admittedly had the power to sell the assets of the Company but the High Court until a winding-up order is issued does not have the same. BIFR in its order dated 24-8-2002 might have made an observation to the effect that the company may approach the High Court in case it intended to dispose of its property by private negotiation but the same would not mean that BIFR could delegate its power in favour of the High Court. BIFR being a statutory authority, in the absence of any provision empowering it to delegate its power in favour of any other authority had no jurisdiction to do so. Delegatus non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted : "By the Companies Act of 1913, the High Court was invested with jurisdiction to order payment of the amounts due by debtors of companies ordered to be wound up. This jurisdiction may be invoked as of right against all persons whose names are placed on the list of contributories. The jurisdiction is ordinary : it does not depend on any extraordinary action on the part of the High Court. The jurisdiction is also original in character because the petition for exercise of the jurisdiction is entertainable by the High Court as a court of first instance and not in exercise of its appellate jurisdiction. Again by section 187 no special jurisdiction is conferred. The High Court adjudicates upon the liability of the debtor to pay debts due by him to the Company : the jurisdiction is therefore civil. Normally, a creditor has to file a suit to enforce liability for payment of a debt due to him from his debtor. The Legislature has by section 187 of the Companies Act empowered the High Court in a summary proceeding to determine the liability and to pass an order for payment but on that account the real character of the jurisdiction exercised by the High Court is not altered. Nor is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted that the Tribunal has jurisdiction under the Act to entertain and decide matters raised in the petition filed by the Corporation under section 15 of the LIC Act. It must follow that the consequential provisions of sub-section (1) of section 446 of the Companies Act will not operate on the proceedings which be pending before the Tribunal or which may be sought to be commenced before it." 26. What in this case, however, has been contended is that BIFR had no jurisdiction to make a scheme as envisaged under section 391 of the Act. Even otherwise, civil court has a definite connotation. The jurisdiction of the Company Court is now vested in the Tribunal. Therefore, it will be difficult to hold, in view of a changed situation, that section 26 ousts the jurisdiction of the Company Court in totality. The decision, however, also says that the special statute shall prevail over the general rule. Although it may not be very relevant, we may notice that this Court in Dwarka Prasad Agarwal v. Ramesh Chander Agarwal [2004] 49 SCL 25 opined as under : "21. The dispute between the parties was eminently a civil dispute and not a dispute under the provisions of the Companies Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating agency before the AAIFR took one stand; before us it has taken another. According to it, it was not involved in the preparation of the Scheme. It had no occasion to apply its own mind. Furthermore, after the learned Single Judge passed its order, AAIFR disposed of the appeal only in terms of the order of the High Court stating : "In view of IDBI s recommendation of the revival cum merger proposal submitted by PPIL, which is in accordance with Bombay High Court s order dated 13-2-2006, we set aside the impugned order dated 27-10-2004 and direct BIFR to consider the scheme vetted by the OA within a period of three months from the date of this order and take necessary further steps for the revival of the appellant company in accordance with law." 29. The order of BIFR dated 1-5-2007 also clearly show that it has granted its approval in view of the observations made by the appellate authority. It might have done so keeping in view the doctrine of judicial discipline in mind. 30. The order of BIFR is not an outcome of any pre-application of mind. There is no finding that it has taken into consideration all the relevant facts. There is nothing to show that such an order ..... X X X X Extracts X X X X X X X X Extracts X X X X
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