TMI Blog2012 (7) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... court cannot proceed further the matter. In present case it appears to be one where prima facie the provisions of Section 22 of the SICA are taken undue advantage of. Therefore, at least in those cases where the reference was rejected in previous years on merits by the BIFR, guidelines can be issued to ensure that fresh references in subsequent years should not be mechanically entertained - direction that BIFR should formulate necessary Practice Directions as where the references were rejected previously, the BIFR can pass appropriate directions refusing to extend the benefit of Section 22 of the SICA. - W.P. (C) NO. 12723 OF 2012 - - - Dated:- 1-6-2012 - A.K. SIKRI, RAJIV SAHAI ENDLAW, JJ. N.K. Kaul and Samrat Singh Kachwaha for the Petitioner. Vibhu Bhakru, Anand Mishra and Sachin Datta for the Respondent. ORDER A.K. Sikri, Actg. CJ . The petitioner feels aggrieved by the action of the respondent Usha India Limited in making repeated references before the BIFR and appeals therefrom before the AAIFR, even when previous references made by the petitioner were rejected. The grievances of the petitioner is that it amounts to continuous and systematic abuse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... off by the AAIFR, which affirmed that there has been manipulation of accounts by Usha in order to establish sickness. Some portions of the AAIFR order which may be noted are:- " .No doubt a company is not barred from making investments outside. However, such huge investments outside, all of which has turned bad, at the cost of running the appellant company itself cannot be considered as an example of bona fide wrong intention. This company had net worth nearly 833 crores but as early as 30.6.1996 it had invested Rs. 1554 crores outside itself; such huge investments outside the company cannot be considered as bonafide mistakes. No company can be absolved of the action of investing outside consciously, at the detriment of the parent company, and therefore claim sickness." 4. The findings of the BIFR as affirmed by the AAIFR on 4.8.2006 were not challenged by Usha. Therefore, the same became final and binding. Yet, Usha continues to illegally carry forward these disallowed losses in subsequent references which act according to the petitioner is a complete abuse of legal process and claiming protection for years on a reference based on such losses is patently illegal, and designe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and there were reservations in the Auditors report. Then the BIFR records that in fact the advocate for Usha admitted that the company was not in operation since 2002. Nonetheless, instead of rejecting this reference on the ground that admittedly Usha lacked 'industrial character' and there could be no claim to sickness, the BIFR continued with the matter though it was a regular case and fixed 24.9.2008 as the next date of hearing. 8. The third reference was finally disposed off on 11.11.2009 i.e. after two years, with the BIFR noting that Usha has admittedly remained closed since 2002, and it did not possess an industrial license on the date of filling the reference. Thus, the BIFR held that Usha did not qualify to apply for SICA protection as it was not an "industry" within the meaning of Section 3(1)(o) of the SICA. On 12.1.2010 Usha filed an appeal against the above order. Appeal No. 9/20100. The appeal was admitted and notices were issued on 15.3.2010. 9. Based on the aforesaid averments in the petition, the submission of the petitioner is that there is not an iota of genuineness in these references and the BIFR and AAIFR have repeatedly held so. This has now been goin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin 60 days but that has not happened even once (though the first reference was disposed of within 3 months). Mr. Kaul concluded his submissions by making a passionate plea for issuance of necessary and appropriate directions/orders in the interest of justice or otherwise Usha shall continue the abuse of process and rights of its creditors permanently defeated. 12. The petition is contested by Usha. The learned counsel for the Usha raised preliminary objection by submitting that writ petition had become infructuous as the reference of Usha before the BIFR had been rejected vide order dated 11.11.2009 and at present there are no proceedings pending before the BIFR with respect to Usha. It was also argued that the petitioner has an alternative and equally efficacious remedy. Replying to the allegation of making repeated references by Usha resulting in availing protection under Section 22 of the SICA, it was submitted that the protection available to the sick company under Section 22 of SICA is not absolute and any person seeking to proceed against the Company has a right to apply and take leave of the BIFR or AAIFR in this regard and proceed against the company. In this context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Board or the Appellate Authority may be exercised by the Benches. (2) The Benches shall be constituted by the Chairman and each Bench shall consist of not less than two Members. (3) If the Members of a Bench differ in opinion on any point, the point shall be decided according to the opinion of the majority, if there is a majority but if the Member are equally divided, they shall state the point or points on which they differ and make a reference to the Chairman of the Board, or as the case may be, the Appellate Authority who shall either hear the point or points himself or refer the case for hearing on such point or points by one or more of the other Members and such point or points shall be decided according to the opinion of the majority of the Members who have heard the case including those who first heard it." 15. He also referred to Section 36 of the SICA which provides that the Central Government may make Rules to carry out the provisions of SICA, but such subordinate legislation cannot supplant, repugnant and contrary to the statute itself. Relying upon the provision of Section 16 of the SICA, he submitted that the power and duty to enquire into the working of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned counsel for the respondent. Present case itself eloquently demonstrates that there can be misuse of the machinery provided under the SICA by making repeated references year after year; taking advantage of the manner in which such references are admitted, consequence of which is that all proceedings against such a company shall stand stayed under Section 22 of the SICA; to gain time endlessly with repeated references even when previous references are rejected on merits. 18. We would like to start our discussion by stating that in any insolvency regime, there is an apparent conflict between the issues involved, namely, recovery of the dues of the creditors from a company, restructuring/rehabilitation of an insolvent company and effective liquidation process/system to ensure timely liquidation of the companies which cannot be revived. Interests of all groups concerned with these aspects are paramount: whether it be of creditors in the recovery of their debts or that of an insolvent company seeking revival. Above all, public interest including the economic interest of the nation which is paramount is subserved only when interest of all the aforesaid groups is protected. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany were both inadequate and time consuming and a comprehensive law was needed. The Act as originally enacted, made provisions for identification of insolventness in industrial companies fixing on the Board of Directors of such a company the responsibility to report such insolventness to the Board of Industrial and Financial Reconstruction (BIFR) which has been set up under this Act for evolving suitable measures to rehabilitate/revive the company. This Act operates and is sought to be implemented through a three-tier system, namely, (i) Operating Agency, (ii) the Board, and (iii) the Appellate Authority. The Operating Agency is essentially the hand-tool of the Board to carry out some investigations and legislation provisions. The scheme of the Act visualises:- "( a ) the initiation of a reference and determination by the Board of the insolventness of a company; ( b ) the enquiry, consideration and determination by the Board whether the insolvent industrial company can on its own within a reasonable time make its 'net worth positive', and if not, then the formulation of a scheme of revival in respect thereof; ( c ) the further determination by the Board are due consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny court cannot proceed further the matter. - Maruti Udhyog Ltd. v. Instrumentation Ltd . [1995] 82 Comp Cas 455 (Guj.). Thus the suspension of the proceedings would commence as soon as the inquiry under Section 16 is ordered by the Board. Section 16(3) provides that the inquiry should be completed as expeditiously as possible and preferably within sixty days. The Board may appoint Operating Agency for the purpose of completion of the inquiry. Depending upon the outcome of the inquiry, the BIFR can order actions to be taken by the sick industrial company under the provisions of Section 17. It is clear from the provisions of Section 22 (1) that proceedings in a civil suit are liable to be suspended or stayed only when an enquiry under Section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending. - Shri Hari Mills ( P. ) Ltd . v. Hanumantha Reddy Co . [2009] 148 Comp. Cas. 81 (Kar.) The starting point of suspension of proceedings is the commencement of the inquiry under Section 16 and the terminal point is t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rejected in previous years on merits by the BIFR, guidelines can be issued to ensure that fresh references in subsequent years should not be mechanically entertained. 24. Learned counsel for the respondent may be right in contending that while registering the references, the Registrar cannot act as quasi judicial authority which is the function of the Board. However, in order to ensure that such situation does not recur, at least in those cases where the reference is rejected earlier, matter can be referred to directly to the BIFR and BIFR should look into the same and to decide whether it is a case for admitting the reference. Even if BIFR decides it to admit after finding that the conditions for the same are satisfied, it can still take a decision as to whether the provisions of Section 22 should be allowed to prevail or not. Section 22 stipulates that proceedings can go on with the consent of the Board/BIFR and the Board can in such cases pass a general order giving such a consent. At that stage, in such cases, where the references were rejected previously, the BIFR can pass appropriate directions refusing to extend the benefit of Section 22 of the SICA. 25. We, thus, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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