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M/s. Madura Coats Limited Versus M/s. Modi Rubber Ltd. and Anr.

2016 (7) TMI 345 - SUPREME COURT OF INDIA

Winding up order - HC stayed further proceedings before the Company Court consequent upon a winding up order passed against the respondent (Modi Rubber) till a final decision is taken on a reference made by Modi Rubber to the Board for Industrial and Financial Reconstruction - Held that:- Dfferent situations can arise in the process of winding up a company under the Companies Act but whatever be the situation, whenever a reference is made to the BIFR under Sections 15 and 16 of the SICA, the pro .....

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tion 16 of the SICA. - Consequently, the High Court was right in concluding that the provisions of Section 22 of the SICA would come into play and that the Company Court could not proceed further in the matter pending a final decision in the reference under the SICA. - Quite apart from the above, we are also of opinion that in view of the subsequent developments and the fact that Madura Coats had participated before the BIFR and has taken its dues in terms of the rehabilitation scheme a .....

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ggrieved by the judgment and order dated 20th May, 2004 passed by the Division Bench of the Allahabad High Court in Special Appeal No. 420 of 2004. By the impugned judgment and order the Division Bench of the High Court allowed the Special Appeal of the respondent and stayed further proceedings before the Company Court consequent upon a winding up order passed against the respondent (Modi Rubber) till a final decision is taken on a reference made by Modi Rubber to the Board for Industrial and Fi .....

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Tyres Ltd. and various other reasons. 3. Eventually, after two years of adjournments, the Company Court declined to grant any further adjournment to Modi Rubber. Accordingly, on a consideration of the material on record and after hearing learned counsel for the parties, the Company Court passed an order on 12th March, 2004 holding that Modi Rubber was unable to pay its undisputed debts and that it was just and equitable that the company be wound up. An Official Liquidator was appointed to take .....

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r short the BIFR ) under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short the SICA ). 6. Pursuant to the aforesaid resolution, an application was made by Modi Rubber to the BIFR on 3rd February, 2004 which was received by the BIFR on 4th February, 2004. Thereafter, the application was scrutinized and on 17th March, 2004 the reference made by Modi Rubber was registered as Case No. 153 of 2004. It will be seen that while the application for making a referen .....

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22 of the SICA. Consequently, even the Division Bench of the High Court could not have decided the appeal filed by Modi Rubber. This contention was rejected by the High Court and it was held that the crucial date for a stay of proceedings under Section 22 of the SICA is the date on which the reference is registered with the BIFR and not the date on which an application for reference is filed. 8. However, the High Court took into consideration the subsequent events namely the fact of registratio .....

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pany under Section 481 of the Act. 9. Under the circumstances, the High Court set aside the winding up order passed by the Company Court and further directed that the proceedings before him shall remain in abeyance till the disposal of proceedings before the authorities under the SICA. 10. Leave to appeal against the judgment and order of the High Court was granted on 24th February, 2006 and the following order passed: Leave granted. Whether the Board of Industrial and Financial Reconstruction s .....

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Appeal No. 420/2004. Our attention has been drawn to a Division Bench decision of this Court in Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., (2000) 5 SCC 515, wherein this Court opined that the reference in terms of Section 15 of SICA can be made even after passing of the winding up order. The correctness of the ratio of the said decision has been questioned before us. We are inclined to think that there is merit in the challenge to the correctness of the view taken therein. We .....

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. It is under these circumstances that this appeal has been placed before us for consideration. 11. During the hearing of this appeal, further facts were placed before us. It was pointed out that the reference made by Modi Rubber to the BIFR was challenged by Madura Coats by filing Civil Misc. Writ Petition No. 17870 of 2004 in the Allahabad High Court. A view was taken by the High Court in its order dated 10th May, 2004 that the writ petition was premature and the maintainability of the referen .....

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scheme. It is not clear whether any formal order was passed impleading Madura Coats in the proceedings before the BIFR, but in any event, it does appear from the record that Madura Coats participated in the proceedings before the BIFR. 13. We were told by learned counsel for Modi Rubber that before the BIFR a Draft Rehabilitation Scheme (DRS) for revival of the company was filed and advertised on 18th January, 2008. In connection with the DRS, the summary record of proceedings of the BIFR of 8th .....

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val of Modi Rubber. 14. Paragraph 7.38.1 of the summary record of proceedings read as follows:- 7.38.1 Objections were raised by some employees, unsecured creditors and a few Governments/Government agencies. It is very important that the interest of the employees is safeguarded and employment is protected while reviving the company. The terms for settlement of the dues of the workers should not be inferior to the terms offered for settlement of the dues of the secured creditors. Unsecured credit .....

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SICA for implementation by all concerned. As far as the unsecured creditors are concerned (and this includes Madura Coats), the rehabilitation scheme provided for acceptance of the outstanding dues as per one of the following three options: a) To accept 30% of the principal outstanding as full and final payment. The payment shall be made within 3 months of the sanction of the scheme by the BIFR; or b) To accept 40% of the principal outstanding as full the final payment. The payment shall be made .....

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ats on 3rd September, 2008 informing the approval and sanction of the rehabilitation scheme by the BIFR and indicating the three options available to Madura Coats for clearing the outstanding dues. It seems that no reply was received by Modi Rubber to this communication. Accordingly, Modi Rubber sent another communication to Madura Coats on 12th August, 2011 reminding it to accept the settlement. In this communication, it was also mentioned that one raw material supplier had challenged the settl .....

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ubber was ₹ 2.73 crores while according to Madura Coats the liability was more than ₹ 4.00 crores. By an order dated 16th November, 2011 Modi Rubber was directed by the Company Court to pay an amount of ₹ 1.50 crores to Madura Coats within one month. This payment of more than 50% of the dues was made to Madura Coats by a cheque on 15th December, 2011. We were told by learned counsel for Modi Rubber that the cheque was encashed by Madura Coats on 19th December, 2011. 18. The cor .....

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ere winding up proceedings are pending and a reference is made to the BIFR. This situation occurred in Real Value where winding up proceedings were pending and the appointment of a provisional liquidator was under challenge. At that stage, steps were taken by Real Value for making a reference under Section 15 of the SICA to the BIFR. Under these circumstances, one of the questions agitated for consideration by this Court was whether on the registration of a reference, the Division Bench of the H .....

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are taken before any decision is taken by the BIFR because if the assets are sold or the company is wound up, it may become difficult to later restore the status quo ante. It was held that it is for this reason that the enquiry under Section 16 of the SICA must be treated to have commenced as soon as the registration of the reference is completed after scrutiny and that action against the company s assets must remain stayed in view of Section 22 of the SICA till a final decision is taken by the .....

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nducting an inquiry under Section 16(1) and nothing more. In fact, once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an inquiry. If one looks at the format of the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Company s assets, liabilities, etc. Indeed, it will be practically impossible for the BIFR to reject a reference outright without calling .....

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erefore, in our view, [the High Court of Allahabad, the High Court of Andhra Pradesh and the High Court of Himachal Pradesh] are right in rejecting such a contention and in holding that the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that from that time, action against the Company s assets must remain stayed as stated in Section 22 till final decisions are taken by the BIFR. 21. This Court also referred to the Regulatio .....

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re, be no difficulty in holding that after the amendment to Regulation 19 w.e.f. 24-3-1994, once the reference is registered and when once it is mandatory simultaneously to call for information/documents from the informant and such a direction is given, then inquiry under Section 16(1) must - for the purposes of Section 22 - be deemed to have commenced. Section 22 and the prohibitions contained in it shall immediately come into play. 22. Another facet of this situation is when proceedings are pe .....

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ies Act while proceedings were pending before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) under the SICA. The High Court approved the scheme of compromise and arrangement and in view of the order of the High Court the AAIFR also approved the scheme. This Court relied upon NGEF Ltd. v. Chandra Developers (P) Ltd. (2005) 8 SCC 219 to conclude that the Company Court and the BIFR do not exercise concurrent jurisdiction. Till the company remains a sick company having r .....

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ed by the Company Court but it is stayed in appeal. In Rishabh Agro the company was ordered to be wound up but this order was stayed by the Division Bench of the concerned High Court. Thereafter the company made a reference to the BIFR under Section 15 of the SICA. 24. Under these circumstances, one of the contentions urged by learned counsel for the respondents in that case was that an unscrupulous litigant, after suffering an order of winding up, could approach the BIFR and get the winding up .....

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oubt that the provision would be applicable even after the winding up order is passed and no proceedings even thereafter could be taken under the Act. It was noted that a winding up order passed under the Act is not the culmination of the proceedings before the Company Court but is in effect the commencement of the process which ultimately would result in the dissolution of the company in terms of Section 481 of the Act. This is what this Court had to say in paragraphs 9 and 11 of the Report: 9. .....

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e words no proceeding for winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of receiver in respect thereof shall lie or be proceeded with further , leave no doubt in our mind that the effect of the section would be applicable even after the winding-up order is passed as no proceeding even thereafter can be proceeded with further under the Companies Act. The High Court appears to have not take .....

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n is the dissolution of the Company in terms of Section 481 of the Companies Act. 26. In view of the above, this Court was of opinion that the interim order passed by the High Court after the reference was registered by the BIFR could not be sustained and deserved to be set aside. 27. From the above it is quite clear that different situations can arise in the process of winding up a company under the Companies Act but whatever be the situation, whenever a reference is made to the BIFR under Sect .....

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