TMI Blog2011 (3) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... . writ petitions are dismissed - WP (C) Nos. 1940, 1942, 1943, 1945, 1946, 1948-1958 of 2011 - - - Dated:- 23-3-2011 - SANJAY KISHAN KAUL AND RAJIV SHAKDHER, JJ. Sanjeev Sabharwal and D.R. Jain for the Petitioner. Ms. Maneesha Dhir, Ms. Purti Marwaha and Abhirup Dasgupta for the Respondent. JUDGMENT Sanjay Kishan Kaul, J. CM No. 4130/2011 in WP (C) No. 1940/2011 (Exemption) CM No. 4132/2011 in WP (C) No. 1942/2011 (Exemption) CM No. 4133/2011 in WP (C) No. 1943/2011 (Exemption) CM No. 4135/2011 in WP (C) No. 1945/2011 (Exemption) CM No. 4136/2011 in WP (C) No. 1946/2011 (Exemption) CM No. 4138/2011 in WP (C) No. 1948/2011 (Exemption) CM No. 4139/2011 in WP (C) No. 1949/2011 (Exemption) CM No. 4140/2011 in WP (C) No. 1950/2011 (Exemption) CM No. 4141/2011 in WP (C) No. 1951/2011 (Exemption) CM No. 4142/2011 in WP (C) No. 1952/2011 (Exemption) CM No. 4143/2011 in WP (C) No. 1953/2011 (Exemption) CM No. 4144/2011 in WP (C) No. 1954/2011 (Exemption) CM No. 4145/2011 in WP (C) No. 1955/2011 (Exemption) CM No. 4146/2011 in WP (C) No. 1956/2011 (Exemption) CM No. 4147/2011 in WP (C) No. 1957/2011 (Exemption) CM No. 4148/2011 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atically stand withdrawn. 5. It is pertinent to note that in the captioned cases, references were discharged by the BIFR at the request of the referrer on the ground that their net worth had become positive. 6. In nutshell, the contention of the Department is as follows : With the net worth turning positive and the reference pending before the BIFR being discharged; the Department ought to be in a position to recover its dues de hors the concessions incorporated in the sanctioned scheme. 7. We are unable to accept this plea. However, we articulate reasons for coming to this conclusion, it would be appropriate to briefly touch upon the legislative scheme of SICA. 7.1 A perusal of the statement of objects and reasons encapsulated in SICA clearly provides that the intendment of the Legislature is that in order to overcome the ill effect of sickness such as loss of production, loss of employment, loss of revenue to central and state government and the blockage of illiquid funds of the bank and financial institutions given in the form of financial assistance; led to the enactment of SICA. The avowed object of enactment of SICA is not only to fully utilize the product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntial sickness is reached when at the end of a given financial year of a company 50 per cent or more of its peak net worth during the immediately preceding four financial years gets eroded. Under section 23 of SICA the onus is on the company, while under section 23A of SICA the Central Government, Reserve Bank of India or the State Government or even a public financial institution or a State financial institution or a scheduled bank is empowered to report such potential sickness, if it has sufficient reasons to believe that the 50 per cent or more of the peak net worth during immediately preceding four financial years at the end of any financial year stands eroded. 7.6 Therefore, the act provides for a mandatory reporting of not only sickness but also potential sickness of companies governed by the provisions of SICA. Once such an eventuality is reached, the referrer is required to approach the BIFR by filing a reference, in the prescribed format. 7.7 The point in time at which a company is required to mandatorily report its reference is provided under section 15 of SICA. As observed by us above, the onus is on the company and, therefore, the board of directors of such a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a ) to ( f ) of sub-section (1) of section 18. In addition the scheme prepared by the operating agency can also provide for various aspects as delineated in clauses ( a ) to ( m ) of sub-section (2) of section 18. 8. Once such a scheme is prepared by an operating agency it is required to be examined by the BIFR. The BIFR, thereafter is required to send the scheme (which at that point of time is only a draft scheme) with modifications, if it so chooses to the sick industrial company and the operating agency. In the event, in the scheme, amalgamation is proposed as a measure of revival, then such a draft scheme is also sent to any other company which is concerned with the amalgamation. In order to invite suggestions and objections the BIFR is required to get such a draft scheme in brief, published in daily newspapers, as considered necessary by it [ see section 18(3)( a )]. 8.1 Further on receipt of suggestions and objections from entities detailed out under section 18(3)( b ), which includes the sick industrial company, the operating agency, the transferee companies (in case of amalgamation), shareholders, creditors and employees of such companies, the BIFR may make m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 19(1) and (2)]. The entities described in section 19(1) are required to convey their consent or response to draft scheme within 60 days. In case no response is reached within the period of 60 days or within such further period not exceeding 60 days then sub-section (2) of section 19 provides for a deemed consent. Once the process under sub-section (2) of section 19 is over the scheme becomes binding on all concerned from the date of such sanction [see clause (3A) of sub-section (3) of section 19]. 8.8 If for any reason BIFR, after making an inquiry under section 16 and after considering all relevant facts and circumstances, forms an opinion that it is not possible for the sick industrial company to make its net worth exceed accumulated losses within a reasonable time while meeting all its financial obligations, it can recommend its winding up to the concerned High Court. Though this recommendation can be made only after hearing all concerned. 8.9 In order to provide a protective umbrella to a sick industrial company, section 22 of SICA provides for bar against institution and if already instituted suspension of legal proceedings of the kind referred to in the said sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er than this Act." 11. In view of the aforesaid provision there can hardly be any doubt that once a scheme is formulated after a reference is gone through the process of sections 17 18 of the SICA, the said scheme would have the force of law notwithstanding anything inconsistent therewith contained in any other law. Thus, neither the party making any concessions at the time of the formulation of the scheme nor the company at whose behest the scheme is formulated and sanctioned can get out of the scheme. As noticed above, a draft scheme is sanctioned under the provisions of sub-section (4) of section 18 of the SICA. Once a draft scheme is sanctioned it is binding on those concerned as is reflected in sub-section (8) of section 18 and section 19(3) of SICA. Thus, once a sanctioned scheme or any of its provisions is made operable it binds the sick industrial company, and the entities referred to in sections 18(8) and 19(3) of SICA. In these circumstances, the Department cannot surely be heard to argue that the provisions of the scheme are not binding on it. 12. We have to keep in mind that any scheme is a package to rehabilitate the company. It is possible that such rehabili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he cost of repetition that gaining entry within the domain of BIFR, the erosion of net worth (amongst other jurisdictional attributes) is an essential criteria; the inverse does not necessarily follow. In other words a referrer cannot seek an exit as a matter of right merely on the ground that net worth has turned positive, especially where a sanctioned scheme is under implementation. This is a call that the BIFR has to take. Where the BIFR takes such a call by discharging the reference, it does impact the sanctity of a sanctioned scheme which continues to bind all concerned. 14. A Division Bench of this Court in Synergy Steels Ltd. s case ( supra ) has discussed this aspect in the facts of that case. The BIFR found that since the referrer had ceased to be a sick industrial company, it was liable to be discharged from the purview of SICA. The referrer was apprehensive of the consequences thereof. The relevant paragraphs of the said judgment are reproduced as under : "7. We agree with all the contentions as raised by the counsel for the petitioner. Surely, a sanctioned scheme is a scheme in its entirety. Implementation is also therefore to be in entirety. To show that a part ..... X X X X Extracts X X X X X X X X Extracts X X X X
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