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TMI Blog2011 (3) TMI 1467X X X X Extracts X X X X X X X X Extracts X X X X ..... n) 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 WP (C) No. 1958/2011 (Exemption) Allowed subject to just exceptions. WP (C) Nos. l940, 1942, 1945, 1946, 1948-1958 of 2011 In the captioned writ petitions the Income-tax Department (for short 'the Department') has laid an omnibus challenge under Article 226 of the Constitution of India to the following orders dated 12-6-2007, 4-7-2008, 17-11-2008, 10-7-2008, 19-5-2009, 6-10-2009, 26-11-2009, 2-12-2009, 1-8-2005, 20-2-2007, 2-1-2008, 16-12-2009, 2-2-2009, 30-12-2009, 7-8-2006, 13-8-2007 (challenged in WP (C) Nos. 1940, 1942, 1945, 1946, 1948-1958 of 2011 respectively) passed by the Board for Industrial & Financial Reconstruction (for short 'BIFR'), without taking recourse to an appellate remedy, available under section 25 of the Sick Industrial Companies (Special Provisions) Act, 1985 (the 'SICA'). The reason supplied for not doing so were told is two-fold: - First, the decisions of the Appellate Authority for Industrial and Financial Reconstru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 productive industrial assets (which included both tangible and intangible assets) and human resources but also to salvage the locked investible funds of banks and financial institutions in such sick industrial companies which were non-viable. Therefore, the legislature in its wisdom decided to enact a special law to deal with the industrial sickness. 7.2 This necessarily meant that the provisions of SICA would engage the attention of expert bodies constituted under it (i.e., BIFR and AAIFR) in respect of only those companies which fall within the four corners of the act. In this regard the definition of a sick industrial company is paramount. Therefore, in order to enter the domain of SICA the referrer would have to be a sick industrial company. What is a sick industrial company is ascertainable on reading the provisions of section 3(1)(o) along with provisions of sections 3(1)(e), 3(1)(f) and 3(1)( n) of the SICA. Briefly, what is discernable on reading of these provisions, is that, a sick industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce 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 company. 7.8 Once a reference is filed under section 16; as per the regulations enacted under SICA i.e., the Board for Industrial and Financial Regulations, 1987 (to as 'Regulations'), the initial scrutiny of the particulars provided in the reference and the material appended to it is carried out by the prescribed authority. The Regulations provided for a scrutiny by the Secretary or the Registrar as the case may be and if for some reason the Registrar declines to register the reference, an appeal is provided to the Secretary. In the event of the Secretary also declining to register the reference, an appeal is provided to the Chairman of the BIFR (see Regulations 19). The importance of the registration of reference cannot be undermined as once a reference is registered, the provisions of SICA get triggered. 7.9 In the ordinary course of things the reference comes up before the BIFR, that is, the board which sits in Benches. The BIFR or the Board is empowered to make an inquiry upon receipt of reference under section 16 of SICA. For the pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nies (in case of amalgamation), shareholders, creditors and employees of such companies, the BIFR may make modifications, and thereafter, proceed to sanction the scheme under sub-section (4) of section 18 of SICA. In case the scheme involves amalgamation which needs approval of the shareholders of such other company other than the sick industrial company under clause (b) of sub-section (3) of section 18, the BIFR is empowered under section 18(4) to provide in such a sanctioned scheme the date from which the scheme will come into force or even dates from which different provisions of the scheme would come into force. 8.2 The BIFR has been conferred the power of reviewing a sanctioned scheme under sub-section (5) of section 18. However, once a scheme gets sanctioned then it is presumed that all requirements of the scheme relating to reconstruction or agreement or any other measure have been complied with. A certified copy of the sanctioned scheme issued by the officer of the BIFR can be admitted as evidence in all legal proceedings. 8.3 Once the scheme becomes operable or any of its provisions become operative, it binds the sick industrial company, the transferee company or as the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted suspension of legal proceedings of the kind referred to in the said section except with the consent of BIFR or the AAIFR as the case may be. In so far as the suspension of contracts etc. is concerned, protection provided for is under sub-section (2) of section 22. The prohibitions on the management of the sick industrial company are contained under sub-section (2) of section 22. The act specifically provides under sub-section (4) of section 22 that any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 or any other law, memorandum or articles of association of company or any instrument having effect under the said act or other law or any agreement, decree or order of the Court, Tribunal, officer or authority or any submission, settlement or standing order etc. 9. Section 22A empowers the BIFR to issue necessary direction to the sick industrial company to desist from disposing of its assets during preparation or consideration of the scheme under section 18 and during the period falling between its order recommending winding up and the commencement of the proceeding rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehabilitate the company. It is possible that such rehabilitation may result in early success or at times may take a greater period of time to achieve financial stability. If the argument of the Department were to be accepted it would imply that if a sick industrial company achieves success in making its net worth positive, all benefits of a sanctioned scheme would stand withdrawn whether exhausted or not, even though the emergence from sickness, and its continued health is dependent on the sanctioned scheme being fully implemented. This would, according to us, defeat the very purpose of formulating a sanctioned scheme. A sanctioned scheme in myriad ways would ordinarily devise ways and means by which the assets of the referrer are to be dealt with. The provisions of the sanctioned scheme would bind both the referrer and those who are party to it, including those in respect of which SICA makes a specific provision. It has to be appreciated that to forge a consensus on rehabilitation of a sick industrial company is no mean task. But once consensus is arrived at, and a scheme is sanctioned, it cannot equally be jettisoned without due deliberation and adherence to the provisions of law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore to be in entirety. To show that a part implementation can result in absurdity, let us take the example where under a sanctioned scheme a company takes all the benefits of reliefs and concessions but does not perform the obligations as envisaged in a sanctioned scheme. Surely, this is impermissible. If this is impermissible, then, it is equally impermissible that if the sick company perform its obligations, then, it should be deprived of its rights under the sanctioned scheme. Merely, because a writ petition has been filed in the Rajasthan High Court would not mean that the proceedings cannot continue under SICA. May be the petitioner was not properly advised in filing of the writ petition or it took that action out of abundant precaution though it need not have, yet it does not mean that the authorities acting under SICA can simply discharge a sick company from the provisions of SICA although the sanctioned scheme is not fully implemented. 8. The Supreme Court in the aforesaid case of Bombay Dyeing & Manufacturing Co. Ltd. (supra) has categorically held that all actions with respect to breach or implementation of the sanctioned scheme have necessarily to be either by BIFR ..... X X X X Extracts X X X X X X X X Extracts X X X X
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