TMI Blog2008 (1) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 - HIGH COURT OF BOMBAY] and in Pharmaceutical Products of India Ltd., In re [2006 (2) TMI 290 - HIGH COURT OF BOMBAY] . We approve the view taken by the referral judge in the light of what we have discussed. In the light of that company petitions dismissed. - COMPANY PETITION NOS. 108 AND 468 OF 2006 - - - Dated:- 25-1-2008 - F.I. REBELLO AND S.J. VAZIFDAR, JJ. Shyam Mehta, N.C. Parekh, Janak Dwarkadas, N. Engineer, H. Toor, D.J. Khambatta, J.K. Bhatia, C.J. Joy, Mrs. Bharati, Mahant, Ms. Madhuri Gaikwad, Viraj V. Tulzapurkar, Ms. Rita Rahimtoola, Faizal Sayed, D. Khanapurkar, Ms. Pooja Sood, Ms. Manorama Mohanty, Anand Grover and Ms. Firdaus Moosa for the Appearing Parties. JUDGMENT F.I. Rebello, J. The reference for our consideration is : "Whether an industrial company which has made a reference under section 15 of the Sick Industrial Companies Act, 1985, can during the pendency of such reference, apply to this court for sanctioning a scheme of arrangement or compromise with its creditors and share holders and whether this court can take cognizance of such an application during the pendency of the reference and pass necessary orders thereon as ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9.91 per cent, of the unsecured creditors voted in favour of the scheme of arrangement. The regional director filed an affidavit setting out that the scheme is not prejudicial to the interest of the shareholders and unsecured and secured creditors. The Dena Bank, a secured creditor filed an affidavit on March 24, 2006, opposing the scheme and at the same time raised a preliminary objection to the maintainability of the petition contending that as the company had invoked the jurisdiction of the Board for Industrial and Financial Reconstruction and the Board for Industrial and Financial Reconstruction had ordered a special investigative audit and the proceedings were pending, the petition filed under sections 391 and 394 of the Companies Act, 1956, is not maintainable. A learned judge heard counsel for the parties who appeared. The attention of the Learned single judge was invited to the judgments of co-ordinate Benches of this court in National Organic Chemical Industries Ltd. v. NOCIL Employees Union [2005] 126 Comp Cas 922 , Sharp Industries Ltd., In re [2006] 131 Comp Cas 535 (Bom) and in Pharmaceutical Products of India Ltd., In re [2006] 131 Comp Cas 747 (Bom) , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed in Sharp Industries Ltd., In re [2006] 131 Comp Cas 535 (Bom) and Pharmaceutical Products of India Ltd., In re [2006] 131 Comp Cas 747 (Bom). The referral judge, in his unreported judgment in Company Petition No. 108 of 2006 with Company Application No. 690 of 2006 from which; order this reference arises was of the opinion that it was not possible to accept the submissions of counsel for the company that both the company court and the Board for Industrial and Financial Reconstruction exercise concurrent jurisdiction. The court observed that if such construction is upheld, there will be chaos and confusion. A company declared to be sick in terms of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, continues to be sick, unless it is directed to be wound up. Till the company remains a sick company having regard to the provisions of sub-section (4) of section 20, the Board for Industrial and Financial Reconstruction alone shall have jurisdiction as regards sale of its assets till an order of winding up is passed by a company court and as such the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, would prevail. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05] 8 SCC 219, noted that the Division Bench of the Karnataka High Court in BPL Ltd. v. Inter Modal Trans port Technology Systems (Karnataka) Ltd. [2001] 107 Comp Cas 313 , had considered the scope of the company court in the matter of sale of assets by the Board for industrial and Financial Reconstruction, under the pro visions of the Sick Industrial Companies (Special Provisions) Act, 1985 and held that it is the Board for Industrial and Financial Reconstruction which will have absolute control of the affairs of the company until the order of winding up is made. The learned judge noted that this judgment was approved in NGEF Ltd. v. Chandra Developers P. Ltd. [2005] 127 Comp Cas 822; [2005] 8 SCC 219. On the facts before it the court noted that the Board for Industrial and Financial Reconstruction had appointed an operating agency to prepare a scheme under section 17(3) of the Sick Industrial Companies (Special Provisions) Act, 1985 and held that the company court would have no jurisdiction when the scheme of rehabilitation is under preparation by the operating agency in terms of the order passed by the Board for Industrial and Financial Reconstruction. At this stage it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... despatch. The Act has been amended from time to time to deal with the issues which have arisen consequent to interpretation of different provisions of the Act and the manner in which these provisions had facilitated a rehabilitation or winding up of sick industrial companies. One of the existing legislation was the Companies Act, 1956. The object and reason clause was noted by the Supreme Court in Navnit R. Kamani v. R. R. Kamani [1988] 4 SCC 387; [1989] 66 Comp Cas 132 and Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp Cas 803 ; [1993] 2 SCC 144. The Supreme Court observed that the object of Sick Industrial Companies (Special Provisions) Act, 1985, was to prevent sickness and in cases of sick undertakings to prepare schemes for their rehabilitation by providing financial assistance by way of loans, advances or guarantees or by providing reliefs, concessions or sacrifices from Central or State Governments, scheduled banks, etc. The basic idea was to revive sick units, if necessary, by extending further financial assistance after a thorough examination of the units by experts and only when the unit is found to be n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to dispose of the shares. That was rejected. That order was challenged before the Delhi High Court. The petition was allowed. The shares were sold and the sale proceeds deposited with the Board. Analysing the statutory provisions and considering the scheme of the Sick Industrial Companies (Special Provisions) Act, 1985 and the non obstante clause, it was held that the pro visions of Sick Industrial Companies (Special Provisions) Act, 1985, would prevail as they contemplated a larger public interest to seek and achieve a higher goal. The observations in NGEF Ltd. v. Chandra Developers P. Ltd. [2005] 127 Comp Cas 822; [20051 8 SCC 219, were referred to. Counsel for the petitioner-company has drawn our attention also to the following observations in the judgment of Balasubramanyan, J. (page 137) : "Occasions are not infrequent when not so scrupulous debtors approach the Board for Industrial and Financial Reconstruction to stall the proceedings and to keep their creditors at bay. The delay before the Board for Industrial and Financial Reconstruction is sought to be taken advantage of. Parliament has apparently taken note of this and has repealed the Sick Industrial Companies ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the sale of its surplus land. It was further submitted that the provisions of both the statutes must be read together and so read it will be manifest that on winding up proceedings being initiated under the recommendations of the Board for Industrial and Financial Reconstruction in terms of section 20(1) the power of the company court to order approval of scheme prior to passing of winding1 up order would not in any manner be affected by the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. It is in the context of these contentions that the Supreme Court was considering the relevant provisions of the Companies Act, 1956 and Sick Industrial Companies (Special Provisions) Act, 1985. On a consideration of the pro visions of the two enactments the relevant paragraphs of the judgment of the Supreme Court which are relevant for our purpose are reproduced hereinafter (pages 837 to 839) : "41. It is difficult to accept the submission of learned counsel appearing on behalf of the respondents that both the company court and the Board for Industrial and Financial Reconstruction exercise concurrent jurisdiction. If such a construction is upheld, there shall be chaos a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale proceeds to the High Court for orders for distribution in accordance with section 529A and other provisions of the Companies Act which in no uncertain terms would mean that the distribution of the sale proceeds would be for the purpose of meeting the claims of the creditors in the manner laid down therein. The intention of Parliament in enacting the said provision becomes clear as in terms of section 22A of the Sick Industrial Companies (Special Provisions) Act, the Board for Industrial and Financial Reconstruction is empowered to issue any direction in the interest of the sick industrial company or its creditors or shareholders and direct the sick industrial company not to dispose of its assets except with its assent. Section 32, as noticed hereinbefore, again contains a non obstante clause. The scheme suggests that the Board for Industrial and Financial Reconstruction retains control over the assets of the company and in terms of the aforementioned provisions may either prevent any sale or permit any sale of the assets of the sick industrial company. Such a power in the Board for Industrial and Financial Reconstruction remains till a winding up order is passed by the Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1985. The judgment it is contended is an authority only for what it actually decides and not for anything else and that one additional or different fact may make a world of difference and the disposal of cases by blindly placing reliance on a decision is not proper. It is submitted that the broad resemblance on one case to another is not decisive and the court should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision. Reliance is placed on the judgment in Ashwani Kumar Singh v. U.P . Public Service Commission, AIR 2003 SC 2661. Lord Denning's speech has been quoted with approval by the Supreme Court in Ashwani Kumar Singh v. U.P. Public Service Commission, AIR 2003 SC 2661, in the matter of precedents (page 2664) : "Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only with the issue of sale of assets of a company which was before the Board for Industrial and Financial Reconstruction. The court was considering the scope and ambit of the two Acts, bearing in mind the rules of construction when there be two special statutes and also the effect of a non obstante clause. Thus, the issue for consideration was whether when the company was before the Board for Industrial and Financial Reconstruction the company court would have jurisdiction. Secondly, the issue had to be decided in the context of the sale of land and the proceeds. It has been answered by elaborate reasoning. The ratio that emerges would be that it is the provisions of Sick Industrial Companies (Special Provisions) Act which would be applicable to the exclusion of the Companies Act in the case of a sick company. In our opinion after the judgment of the Supreme Court in NGEF Ltd. v. Chandra Developers P. Ltd. [2005] 127 Comp. Cas. 822; [2005] 8 SCC 219, it will be dear that to the extent where the net worth of the company has become negative the company by operation of law has to move under the Sick Industrial Companies (Special Provisions) Act by virtue of section 15. Once it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors or class of its creditors merely by reducing the extent of the debts due by the company to such creditors, would not be concerned with the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. The aforesaid are only illustrative instances of schemes under section 391 of the Companies Act, 1956, in relation to which the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, will not be relevant at all. We have considered the said submissions. In our opinion what the learned judge was considering and what has been referred for our consideration is the issue, as to when a company is before the Board for Industrial and Financial Reconstruction what scheme can be framed. The learned single judge was considering the issue in the context of co-ordinate Benches of this court having taken a view that the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and the sections 391 to 394 of the Companies Act, 1956, are not inconsistent with each other. As we have noted earlier in National Organic Chemical Industries Ltd. v. NOCIL Employees Union [2005] 126 Comp. Cas. 922 (Bom.), which was the earliest judgment and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ased on the reasoning which we will presently indicate, is that 'inconsistency' between the two provisions is the produce of ingenuity and consistency between the two laws flows from imaginative understanding informed by administrative realism." In the matter of interpretation and construction of statute on behalf of Dena Bank their learned counsel had also sought to apply the test of repugnancy under article 254. It was submitted on behalf of the company that the test of repugnancy considering the language of article 254 would only apply when there is a conflict between the Central and State legislation in respect of a law made pursuant to the field of legislation in Part III of the Seventh Schedule. In our opinion it is not necessary for us to address ourselves to the said two issues as we can independently consider the arguments based on the following tests : ( i )A general law and a special law. ( ii )Two special laws, one being later, in which event the rule of implied repeal will have to be considered. ( iii )The effect of a non obstante clause. When there be two central statues, in a case of inconsistency between the two statutes, the following test would be ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ode with respect to the subject-matter, it is deemed to be a matter of legislative intent that any other provisions of law (albeit enacted by Parliament) on the said subject-matter were not intended to also be operative. The very existence of two sets of legal provisions, one a complete code and the other not, by itself and without more leads to an inference of mutual irreconcilability or fatal inconsistency. The complete code then impliedly repeals the other statute. This result follows even with out there being a non obstante clause. These principles have been laid down in several judgments including the following : ( i ) Ratan Lal Adukia v. Union of India, AIR 1990 SC 104. In this case section 80 of the Railways Act, 1890 (as amended in 1961) was held to be a complete code with regard to the place of serving the railways in suits for compensation for loss of life, personal injury or property. It was held to override the provisions of section 20 of the Code of Civil Procedure, 1908 and section 18 of the Presidency Small Causes Court Act 1882. The Supreme Court concluded that the latter two provisions were impliedly repealed by virtue of the enactment of the amended sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to prevail. Hence the Special Court Act which was also a special law and a later law was held to prevail over the Sick Industrial Companies (Special Provisions) Act, 1985. Inconsistency would, therefore, arise, when two provisions are such that they relate to the same subject-matter to the same situation and that substantially overlap and are co-extensive and at the same time contrary repugnant in these terms and impact that one must prevail wholly if the others were to prevail at all the only authority incumbent. Is there a direct conflict between the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, and sections 391 to 394 of the Companies Act, 1956, and if there be, is it possible to harmonize the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, with those of sections 391 to 394 of the Companies Act, 1956. On behalf of intervenor it was sought to be contended that under section 391, various schemes for different purposes could be framed, as for example : Scheme by way of compromise. Scheme by way of arrangement. Scheme for reconstruction of the company which would include a scheme for re-organisation of share capit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. After the section 16 inquiry has been completed a scheme of any nature concerning a sick industrial company and providing for any one or more of the measures enumerated under section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985, is to be prepared only by an expert body, viz. , the operating agency appointed by the Board for Industrial and Financial Reconstruction under section 17(3) of the Sick Industrial Companies (Special Provisions) Act, 1985. The Board for Industrial and Financial Reconstruction under section 18(3) examines the scheme prepared by the operating agency and, after completing the procedure of publication of the draft scheme and inviting objections and suggestions shall, sanction the scheme with or without modifications under section 18(4). If a scheme is permitted via the section 391 route it will directly conflict with Parliamentary intent reposed in section 19A of the Sick Industrial Companies (Special Provisions) Act, 1985. ( ii )Section 391(2) of the Companies Act : If the statutory majority (both in number as well as in value) of the creditors or the members as the case may be have agreed to the compromise/arrangement, and such com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l creditors are required to concur. This Parliamentary intent will be defeated if a sick industrial company whose scheme falls under section 19(3) is permitted to have recourse to section 391 and have the scheme passed overriding the minority dissenting creditors. ( iii )Section 392(1) of the Companies Act, 1956 : Under section 392(1) it is the High Court that shall supervise the carrying out of the scheme and which has the power at any time thereafter for making such modifications in the Scheme as may be necessary for its proper working. Section 18(5), (9), (11) and (12) of the Sick Industrial Companies (Special Provisions) Act, 1985 : Under these provisions it is the Board for Industrial and Financial Reconstruction that monitors the implementation of any sanctioned scheme and has the power to review a sanctioned scheme and make such modifications therein as it may deem fit; or even to prepare a fresh scheme providing for such measures as the operating agency may consider necessary. ( iv )Section 392(2) of the Companies Act, 1956 : The decision to wind up the company as a result of the failure of the scheme, is that of the High Court. Under section 20 of the Sick Industrial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt that Sick Industrial Companies (Special Provisions) Act, 1985, covers the whole field as regards sick industrial companies. The correct test then to be applied is not whether it is open to or possible for a sick industrial company to present a scheme under section 391 even whilst its reference is registered with the Board for Industrial and Financial Reconstruction. The correct question is whether since the Sick Industrial Companies (Special Provisions) Act, 1985, is a complete and exhaustive code, an inconsistency is deemed to arise and whether such inconsistency may be resolved by applying the well-settled principle that the special and later Act prevails over the general and prior Act. Once the Sick Industrial Companies (Special Provisions) Act, 1985, is held to be a complete code, the intent of Parliament is that the subject-matter, i.e. , sick industrial company, is covered in all aspects by the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, and by these provisions alone. If the provisions of Sick Industrial Companies (Special Provisions) Act, 1985, do not cover any particular detail or aspect pertaining to schemes of sick industrial companie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Companies Act, 1956, which applies in general to all companies is necessarily overridden by the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, in the case of such sick industrial companies to that extent. To the extent there is such overlap in the subject-matter and inconsistency, the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, must override the general Act. This would be consistent with the legislative intent as contained in the objects and reasons of the Sick Industrial Companies (Special Provisions) Act, 1985, but also in its provisions. As the Sick Industrial Companies (Special Provisions) Act, 1985, is a complete code it will override the other provisions of the law since that is deemed to be the Parliamentary intent. In any event section 32 (the non obstante provision) of the Sick Indus trial Companies (Special Provisions) Act, 1985, will have the effect of Sick Industrial Companies (Special Provisions) Act, 1985, overriding sections 391 to 394 of the Companies Act, 1956. The provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, expressly have overriding effect over all other laws. Thi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Sick Industrial Companies (Special Provisions) Act, 1985. The legislative intent is also subserved by the aforesaid interpretation. It must be kept in mind that revival/rehabilitation (albeit important) is not the only purpose of the Sick Industrial Companies (Special Provisions) Act, 1985. The recovery or realisation of the dues of banks and financial institutions is also an important object. The Supreme Court has held that once a reference under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, is registered, it is mandatory for the Board for Industrial and Financial Reconstruction to conduct an enquiry under section 16. The Supreme Court has also held that: "It is also the legislative intention to see that no proceedings against the assets are taken before any such decision is given by the Board for Industrial and Financial Reconstruction for in case the company's assets are sold, or the company wound up it may indeed become difficult later to restore the status quo ante", (see Real Value Appliances Ltd. v. Canara Bank [1998] 93 Comp. Cas. 26, 37; [1998] 5 SCC 554, 564). As held in NGEF Ltd. v. Chandra Developers P. Ltd. [2005] 127 Comp. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "( a ) The Arbitration and Conciliation Act contained only a limited non obstante clause; and ( b ) that the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 have been made to achieve a higher goal..." Thus, until the mandatory and complete process under the Sick Industrial Companies (Special Provisions) Act, 1985, is exhausted, no other authority or court would have jurisdiction to pass any order in respect of the sick industrial company, particularly such orders as to provide for its financial restructuring or for a compromise or arrangement with its members and creditors something expressly covered by section 18(1)(2) of the Sick Industrial Companies (Special Provisions) Act, 1985. This is not a matter of choice for the sick industrial company, once the provisions of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, are attracted, reference to the Board for Industrial and Financial Reconstruction is mandatory and cannot be avoided. Once that reference is made, the entire process up to section 20 must necessarily follow. It was next contended that the term "instrument" in section 22(3) includes -an order of the court. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt order would revive and be enforceable thereafter without any of the Board for Industrial and Financial Reconstruction adaptations. By that stage these possibilities would be the spectre of two parallel schemes, potentially in complete conflict with each other, one by the Board for Industrial and Financial Reconstruction and the other the revived High Court scheme. No provision has been pointed out, much less under section 22(3), which can resolve this conflict section 22(3), therefore, when it uses the term "other instruments in force" could not, in its correct context, be construed as including an order under sections 391 to 394 of the Companies Act, 1956, within the meaning of that term. The ordinary meaning of the term instrument is "a formal legal document" ( Shorter Oxford English Dictionary, 5th edition, vol. I. For the term "instrument" used in section 17 of the Registration Act, 1908, a Full Bench in Mt. Kaknvati v. Sri Krishna, AIR 1944 Oudh 49, 53 held that the term "instrument" as used in section 17 "cannot be held to include an order of a court or any proceeding held in a court". On the other hand in Mt. Savitribai v. A. Radhakishan Sheocharan, AIR 1948 N ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication to the court for sanction of the scheme, nevertheless remains a scheme having effect by virtue of the statutory operation of sections 391 to 394 and it has statutory force by reason of those provisions. It does not remain a mere agreement ( J. K. (Bombay) P. Ltd. v. New Kaiser-I-Hind Spg. and Wvg. Co. Ltd. [1970] 40 Comp. Cas. 689 ; AIR 1970 SC 1041, General Radio and Appliances Co. Ltd. v. M. A. Khader [1986] 60 Comp. Cas. 1013 (SC) and Hindustan Lever v. State of Maharashtra [2003] 117 Comp. Cas. 758 (SC) ; [2004] 9 SCC 438). Consequently, the term ''instrument" in section 22(3) cannot be extended to cover a scheme sanctioned by the High Court under sections 391 to 394. The aforesaid is also made clear by the fact that whereas section 22(4) refers to "any decree or order of a court" being overridden by a declaration made under section 22(3), section 22(3) itself does not. If the term instrument in section 22(3) included such decrees or orders, then they would be suspended by virtue of the declaration under section 22(3) itself and there would be no need for the overriding provision in section 22(4) mentioning "any decree or order of a court "because that decree ..... X X X X Extracts X X X X X X X X Extracts X X X X
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