Calcutta High Court
Sm V.C. Prabhavathi & Anr vs Industrial Development Bank on 3 March, 2010
Author: Indira Banerjee
Bench: Indira Banerjee
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ORDER SHEET Sheet No...
C.A. No. 564 of 2009
With
C.P. No.407 of 2005
IN THE HIGH COURT AT CALCUTTA
ORIGINAL JURISDICTION
ORIGINAL SIDE
In the matter of:
SM V.C. PRABHAVATHI & ANR.
VS.
INDUSTRIAL DEVELOPMENT BANK
OF INDIA & ORS.
BEFORE:
The Hon'ble Justice
INDIRA BANERJEE.
DATE: 03.03.2010
The applicants being the heirs of late V. Chinnapandi, have taken out this
application by Judges' Summons inter alia praying for recalling of an order dated 14 th
September, 2005 of this Bench in Company Application No.248 of 2005, connected with
Company Petition No.407 of 2005, whereby a scheme of compromise between the
company and its secured creditors, was sanctioned.
The question of law involved in this application is, whether this Court had
jurisdiction under Section 391 of the Companies Act, 1956, to sanction a scheme of
compromise between the company and its secured creditors, after the Board for Industrial
and Financial Reconstruction, hereinafter referred to as BIFR and the Appellate Authority
for Industrial and Financial Reconstruction, hereinafter referred to as AAIFR, had
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recommended that the company be wound up under the provisions of the Sick Industrial
Companies (Special Provisions) Act, 1986, hereinafter referred to as SICA.
The company Standard Shoe Sole and Moulds (India) Ltd. was previously known as
Chem Crowl (India) Ltd. After the name of the company was changed to Standard Shoe
Sole and Moulds (India) Ltd., a fresh certificate of incorporation, consequential to change
of name, was issued by the Registrar of Companies, West Bengal on 14 th December, 2001.
On or about 2 nd August, 1996, the company was referred to the BIFR under Section
15(1) of SICA. This Court does not deem it necessary to advert to the various orders
passed by the BIFR from time to time, except those which are relevant to the issues
involved in this application.
By an order dated 15 th October, 1996, the BIFR declared the company to be a sick
company in terms of Section 3(1)(o) of SICA and appointed Industrial Development Bank
of India (IDBI) as operating agency under Section 17(3) of SICA. No viable scheme for
rehabilitation of the company could be worked out. Ultimately, by an order dated 21 st
June, 1999, the BIFR recommended that the company be wound up.
The company preferred an appeal being Appeal No.108 of 1999 before the AAIFR.
By an order dated 12 th November, 1999, the AAIFR constituted an Asset Sale Committee
to sell the assets of the company.
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Pursuant to advertisements issued by the Asset Sale Committee, on 1 st December,
2000, one V. Chinnapandi, since deceased, being the husband of the applicant No.1 and
father of the applicant No.2, offered to purchase the Ambattur unit of the company for
Rs.215 lakhs, along with earnest deposit of Rs.5 lakhs.
The Asset Sale Committee accepted the offer of the said V. Chinnapandi,
predecessor in interest of the applicants, and directed him to pay 25% of the bid amount
within three weeks from 16 th February, 2001 and the balance 75% in three equal
instalments payable on 9 th April, 2001, 9 th May, 2001 and 9 th June, 2001.
The predecessor in interest of the applicants paid Rs. 50,00,000/- on 4 th June, 2001
and a further amount of Rs.35,00,000/- in the month of June, 2001, in addition to the
earnest money deposit of Rs.5 lakhs, but defaulted in payment of the balance
Rs.1,25,00,000/-. By a letter dated 21 st September, 2001, the predecessor in interest of
the applicants was informed that the deal had been closed and the earnest money deposit
forfeited.
By an order dated 5 th December, 2001 AAIFR directed that the sale of the Ambattur
unit be cancelled. This is evident from a letter dated 19 th December, 2001 from IDBI to
the said V. Chinnapandi, a copy of which has been annexed to the affidavit in support of
the Judges' Summons.
4
The appeal preferred by the company, before the AAIFR, was ultimately dismissed
by an order dated 5 th February, 2002. The company filed a writ petition being W.P.
No.2221 (W) of 2002 in this Court, challenging the order dated 21 st June, 1999 of BIFR
and the order dated 5 th February, 2002 of AAIFR. On 1 st April, 2002, this Court passed an
interim order of stay of operation of the order dated 5 th February, 2002 of AAIFR, which
was from time to time extended.
The company thereafter filed the company petition under Section 391 (1) of the
Companies Act, 1956 being C.A. No.248 of 2005 whereupon this Court passed the order
dated 5 th April, 2005, directing the company to convene meetings of its secured creditors
to consider and approve a scheme of compromise. Meetings were convened on 17 th June,
2005 and 22 nd July, 2005 and a scheme of compromise was approved. The said scheme of
compromise was approved by this Court by an order dated 14 th September, 2005.
It appears that the sanctioned scheme provided for onetime settlement of Rs.502.02
lakhs to the secured creditors of the company on or before 31 st December, 2005, for which
the company was given liberty to sell some of its assets and properties and in particular,
the Ambattur unit.
By an order dated 22 nd February, 2006 this Court modified the scheme in the
manner indicated in the said order and directed that on payment of full consideration and
upon liquidation of the dues of the secured creditors, the sale of Ambattur unit of the
company would stand confirmed in favour of the purchaser.
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In the meanwhile, after lapse of almost four years, the predecessor in interest of the
applicants, V. Chinnapandi filed a writ petition being W.P. 12111 of 2005 in the Madras
High Court, challenging the order dated 5 th December, 2001 of the AAIFR whereby the
sale of the Ambattur unit in his favour, was directed to be cancelled and seeking
appropriate orders for payment of the balance consideration towards purchase of the
Ambattur unit. An interim order was passed in the said writ application on 17 th April,
2005 which was made absolute on 8 th August, 2005.
On 8 th August, 2005, the learned Single Bench of Madras High Court passed an
order of injunction restraining the company from transferring the Ambattur unit on
condition that the said V. Chinnapandi would pay the balance 1 crore 25 lakhs within 8
weeks from the aforesaid date, without prejudice to the rights and contentions of the
respective parties to the writ petition.
The company filed an appeal being Writ Appeal No.1855 of 2005 along with an
application for stay of operation of the order dated 8 th August, 2005 of the learned Single
Judge, being W.A.M.P. No.3476 of 2005. By an order dated 5 th December, 2005, the
Division Bench granted interim stay of the order dated 8 th August, 2005 of the Single
Bench.
The said appeal was ultimately disposed of by an order dated 11 th April, 2008, the
operative part whereof is set out hereinbelow:
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"The writ appeal is filed against the order in W.P.M.P. No.13237 of 2005 in
W.P. No.12111 of 2005 dated 8.8.2005 making the interim injunction absolute on
condition that the 1 st respondent herein/petitioner therein pays Rs.1,25,00,000/-
within eight weeks from that date without prejudice to the rights of either parties in
the writ petition. At the time of admission of the writ appeal on 5.12.2005, this
order was stayed by a Division Bench of this Court. In the meanwhile, as per the
orders of the Calcutta High Court, the property was sold. Therefore, the question
whether the sale is legal or not has to be decided only in the writ petition. The 1 st
respondent/petitioner is yet to take steps to implead the subsequent purchaser as a
party respondent in the writ petition and nothing survives to be decided in the writ
appeal. The writ appeal is therefore dismissed. No costs. Connected W.A.M.P. is
also dismissed."
Mr. Pradip Kr. Ghosh appearing on behalf of the applicant submitted that this Court
lacked jurisdiction to pass any order under Section 391(1) of the Companies Act directing
the convening of any meeting of the shareholders or to pass any order under Section 391
(2) approving any scheme of compromise.
Mr. Ghosh referred to the provisions of SICA and emphatically argued that this
Court had no power to direct the convening of any meeting for sanctioning any scheme of
compromise in view of Sections 17, 18 and 20 read with Sections 26 and 32 of SICA.
Section 20 of SICA is set out hereinbelow:
"20. Winding up of sick industrial company.--(1) Where the Board, after making inquiry under
Section 16 and after consideration of all the relevant facts and circumstances and after giving an
opportunity of being heard to all concerned parties, is of opinion that the sick industrial company is not
likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its
financial obligations and that the company as a result thereof is not likely to become viable in future and
that it is just and equitable that the company should be wound up, it may record and forward its opinion
to the concerned High Court.
(2) The High Court shall, on the basis of the opinion of the Board, order winding up of the sick
industrial company and may proceed and cause to proceed with the winding up of the sick industrial
company in accordance with the provisions of the Companies Act, 1956 (1 of 1956).
(3) For the purpose of winding up of the sick industrial company, the High Court may appoint any
officer of the operating agency, if the operating agency gives its consent, as the liquidator of the sick
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industrial company and the officer so appointed shall for the purposes of the winding up of the sick
industrial company be deemed to be, and have all the powers of, the official liquidator under the
Companies Act, 1956 (1 of 1956).
(4) Notwithstanding anything contained in sub-section (2) or sub-section (3), the Board may cause to
be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale
proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529-A,
and other provisions of the Companies Act, 1956 (1 of 1956)."
Mr. Ghosh submitted that in view of Section 20(4) of SICA, BIFR continued to
remain in custody of the assets of the company till an order of winding up was passed by
this Court. Mr. Ghosh submitted that until and unless an order of winding up was passed
by the High Court, BIFR alone had the power to sell the assets of the company.
Mr. Ghosh submitted that the order of AAIFR, dismissing the appeal having been
stayed by this Court, any scheme would necessarily have to be considered by the AAIFR.
In the context of his submissions, Mr. Ghosh referred to Sections 17 to 19 of SICA.
In support of his argument that this Court lacked jurisdiction to pass any order
under Section 391 of the Companies Act, Mr. Ghosh cited the judgments of the Supreme
Court in Tata Motors Ltd. vs. Pharmaceutical Products of India Ltd. reported in AIR 2008
SC 2805 = (2008) 7 SCC 619 and in NGEF Ltd. vs. Chandra Developers (P) Ltd. reported
in (2005) 8 SCC 219.
This application has vehemently been opposed by the company and also by the
respondent No.4 who has purchased the assets of the company at its Ambattur unit for
consideration of Rs.5.95 crores pursuant to the scheme sanctioned by this Court. The
respondent No.4 claims to have paid the entire consideration of Rs.5.95 crores. As the
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submissions made on behalf of the company and the purchaser are more or less similar,
the arguments of the purchaser have not separately been recorded, to avoid repetition and
prolixity.
Mr. Banerjee appearing on behalf of the company submitted that an application for
recalling of the order dated 14 th September, 2005 had to be filed within three years from
the aforesaid date. Mr. Banerjee argued that this application filed on or about 17 th August,
2009, was hopelessly barred by limitation. The application had to be made within three
years.
Mr. Banerjee argued that the applicants and/or there predecessor in interest, became
aware of the scheme in 2005 itself in course of the proceedings before the Madras High
Court. There was, therefore, no justification for the delay of four years in filing this
application.
Mr. Banerjee next argued that the BIFR ceased to have jurisdiction over the
company after it recommended winding up of the company under Section 20 of the SICA
and similarly the AAIFR ceased to have any jurisdiction over the company after the
dismissal of the appeal of the company. Pending order of winding up, this Court had
jurisdiction to entertain an application under Section 391 of the Companies Act, 1956 for
consideration and approval of a scheme of arrangement.
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Mr. Banerjee submitted that stay of operation of the order of winding up passed by
AAIFR did not mean automatic revival of the proceedings before the AAIFR. It could
not, therefore, be argued that any proceedings were pending before the AAIFR or the
BIFR. In support of his submission, Mr. Banerjee cited the judgment of the Supreme
Court in Sri Chamundi Mopeds Ltd. Vs. Church of South India Trust Association reported
in (1992) 3 SCC 1.
Mr. Banerjee emphatically argued that upon dismissal of the appeal of the company
before the AAIFR, there was no bar to this Court exercising jurisdiction over the company
under Section 391 of the Companies Act. There was, therefore, no infirmity in the order
of this Court sanctioning the scheme of compromise.
Mr. Banerjee finally submitted that the argument of the applicants that this Court
would not have jurisdiction to approve a scheme, when BIFR/AAIFR had recommended
winding up of a company, and the recommendation of the BIFR/AAIFR was before this
Court for necessary winding up orders, was not supported by the statutory provisions of
the Companies Act or SICA.
Mr. Banerjee submitted that the scheme of compromise sanctioned by this Court
covered 12 secured creditors whose names and addresses were set out in the First
Schedule to the sanctioned scheme. If the scheme was set aside, then the rights of all
those secured creditors would be prejudicially affected.
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Mr. Banerjee argued that the applicants ought to have impleaded all the secured
creditors as parties, as their rights would be affected if orders as prayed for by the
applicants were passed. Mr. Banerjee submitted that the secured creditors not having been
impleaded, the application was liable to be rejected on that ground.
The locus standi of the applicants to file this application was questioned on behalf
of the company as also the purchaser. It was argued that there was no subsisting contract
for sale of the Ambattur unit in favour of V. Chinnapandi, since deceased or his legal
heirs. V. Chinnapandi had not paid the full consideration and accordingly the sale in his
favour had been cancelled by AAIFR by its order dated 5 th December, 2001. Admittedly,
V. Chinnapandi had removed plant and machinery from the Ambattur unit.
As argued on behalf of the respondents, this application for recalling of the orders passed on
5th April, 2005, 14th September, 2005 and 22nd February, 2006, was filed on 17th August, 2009, well
beyond the period of limitation of three years.
However, if the orders of which recall have been sought, are without jurisdiction as argued
by Mr. Ghosh, the orders would have to be recalled as null and void, irrespective of whether any
application was filed or not and notwithstanding limitation.
The main question involved in this application is whether this Court had jurisdiction to
direct convening of meetings under Section 391(1) to consider a scheme of arrangement or had
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jurisdiction under Section 391(2) of the Companies Act, 1956 to sanction any scheme of
arrangement.
It is a matter of record that the application under Section 391(1) directing that meetings be
convened for consideration and approval of a scheme of arrangement was taken out after. BIFR had
passed an order recommending that the company be wound up and the appeal of the company
against the order of BIFR had been dismissed by AAIFR. The recommendation of BIFR
recommending that the company be wound up was before the High Court. There was nothing
pending before the BIFR or AAIFR. A meeting was held pursuant to orders of this Court. The
scheme of arrangement was approved. An application was made to this Court for sanction of the
scheme. The scheme was sanctioned and later modified.
No contributory or creditor of the company has questioned the scheme. This
application has been taken out by the heirs of a prospective purchaser whose offer had
been cancelled in pursuance of an order of AAIFR. Once an appeal from the order of
BIFR, recommending that the company be wound up, was dismissed, there was nothing
pending before the BIFR. There could be no question of BIFR/AAIFR considering or
approving any scheme of arrangement.
It is true, as argued by Mr. Ghosh that the orders of BIFR/AAIFR were challenged
by filing a writ petition being W.P. No.2221 (W) of 2002 and this Court had passed an
interim order of stay of operation of the order dated 5 th February, 2002 of AAIFR, which
was from time to time extended. However, as held by the Supreme Court in Chamundi
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Mopeds (supra), cited by Mr. Banerjee, the effect of an interim order of the High Court
staying operation of the order of AAIFR was not to revive the appeal which had been
dismissed and as such no proceedings were pending either before BIFR or before AAIFR.
In Tata Motors Ltd. vs. Pharmaceutical Products of India Ltd. (supra), cited by Mr. Ghosh,
the company had obtained a loan from Tata Finance Ltd., predecessor in interest of Tata Motors
Ltd. Disputes that had arisen had been referred to arbitration and there was an award of
Rs.1,51,36,795/- in favour of Tata Motors Ltd.
The company was referred to BIFR under Section 15 of SICA. BIFR passed an order dated
27th October, 2004 recommending that the company be wound up. Against the order of BIFR, an
appeal was filed before the AAIFR.
While the appeal was pending before AAIFR, the company filed an application in the High
Court under Section 391 of the Companies Act, 1956 for approval of a scheme involving about
80% of the creditors, most of them being banks and financial institutions.
Before the Company Court, Tata Motors Ltd. intervened and pointed out that scheme for
revival/rehabilitation of the company was under consideration of AAIFR and that the non obstante
clause contained in SICA would have overriding effect, excluding the provisions of the Companies
Act, where there was overlapping between the two Acts. The scheme involved financial
reconstruction, sale of assets of the company and merger and/or take over by Wanbury which fell
13
within the domain of BIFR under Section 18 of SICA. The High Court, however, rejected the
contentions of Tata Motors Ltd. and approved the scheme. An intra-court appeal was dismissed by
the Division Bench.
The Supreme Court held as follows:
"15. SICA was enacted to make, in the public interest, to make special
provisions with a view to securing the timely detection of sick and potentially sick
companies owning industrial undertakings, the speedy determination by a Board of
experts of the preventive, ameliorative, remedial and other measures which need to
be taken with respect to such companies and the expeditious enforcement of the
measures so determined and for matters connected therewith or incidental thereto.
16. Section 15 of SICA provides for making reference by the Board of
Directors of the company on becoming an industrial company, a sick industrial
company, to the Board for determination of the measures to be adopted with respect
to the company. Section 16 provides for making inquiry into the working of sick
industrial company by the Board after receiving reference. Section 17 provides for
powers of the Board to make suitable order on the completion of inquiry. Sub-
section (3) thereof reads as under:
"17. Powers of Board to make suitable order on the completion of inquiry.--
(1)-(2) * * *
(3) If the Board decides under sub-section (1) that it is not practicable for a
sick industrial company to make its net worth exceed the accumulated losses
within a reasonable time and that it is necessary or expedient in the public interest
to adopt all or any of the measures specified in Section 18 in relation to the said
company it may, as soon as may be, by order in writing, direct any operating
agency specified in the order to prepare, having regard to such guidelines as may
be specified in the order, a scheme providing for such measures in relation to such
company."
17. Section 18 provides for preparation and sanction of scheme. Sections
18(1)(c), 18(3) and 18(6-A) read as under:
"18. Preparation and sanction of schemes.--(1) Where an order is made
under sub-section (3) of Section 17 in relation to any sick industrial company, the
operating agency specified in the order shall prepare, as expeditiously as possible
and ordinarily within a period of ninety days from the date of such order, a scheme
with respect to such company providing for any one or more of the following
measures, namely:
(a)-(b) * * *
(c) the amalgamation of--
(i) the sick industrial company with any other company, or
(ii) any other company with the sick industrial company;
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[hereafter in this section, in the case of sub-clause (i), the other
company, and in the case of sub-clause (ii), the sick industrial company, referred
to as 'transferee company'];
* * *
(3)(a) The scheme prepared by the operating agency shall be examined
by the Board and a copy of the scheme with modification, if any, made by the
Board shall be sent, in draft, to the sick industrial company and the operating
agency and in the case of amalgamation, also to any other company concerned,
and the Board shall publish or cause to be published the draft scheme in brief in
such daily newspapers as the Board may consider necessary, for suggestions
and objections, if any, within such period as the Board may specify.
(b) The Board may make such modifications, if any, in the draft scheme
as it may consider necessary in the light of the suggestions and objections
received from the sick industrial company and the operating agency and also
from the transferee industrial company and any other company concerned in the
amalgamation and from any shareholder or any creditors or employees of such
companies:
Provided that where the scheme relates to amalgamation the said scheme
shall be laid before the company other than the sick industrial company in the
general meeting for the approval of the scheme by its shareholders and no such
scheme shall be proceeded with unless it has been approved, with or without
modification, by a special resolution passed by the shareholders of the company
other than the sick industrial company.
* * *
(6-A) Where a sanctioned scheme provides for the transfer of any
property or liability of the sick industrial company in favour of any other
company or person or where such scheme provides for the transfer of any
property or liability of any other company or person in favour of the sick
industrial company, then, by virtue of, and to the extent provided in, the scheme,
on and from the date of coming into operation of the sanctioned scheme or any
provision thereof, the property shall be transferred to, and vest in, and the
liability shall become the liability of, such other company or person or, as the
case may be, the sick industrial company."
18. Section 19 provides for rehabilitation by giving financial assistance; sub-
sections (1), (2) and (4) whereof read as under:
"19. Rehabilitation by giving financial assistance.--(1) Where the
scheme relates to preventive, ameliorative, remedial and other measures with
respect to any sick industrial company, the scheme may provide for financial
assistance by way of loans, advances or guarantees or reliefs or concessions or
sacrifices from the Central Government, a State Government, any scheduled
bank or other bank, a public financial institution or State level institution or any
institution or other authority (any Government, bank, institution or other
authority required by a scheme to provide for such financial assistance being
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hereafter in this section referred to as the person required by the scheme to
provide financial assistance) to the sick industrial company.
(2) Every scheme referred to in sub-section (1) shall be circulated to
every person required by the scheme to provide financial assistance for his
consent within a period of sixty days from the date of such circulation or within
such further period, not exceeding sixty days, as may be allowed by the Board,
and if no consent is received within such period or further period, it shall be
deemed that consent has been given.
* * *
(4) Where in respect of any scheme consent under sub-section (2) is not
given by any person required by the scheme to provide financial assistance, the
Board may adopt such other measures, including the winding up of the sick
industrial company, as it may deem fit."
19. Sections 20, 26 and 32 of SICA read as under:
"20. Winding up of sick industrial company.--(1) Where the Board,
after making inquiry under Section 16 and after consideration of all the
relevant facts and circumstances and after giving an opportunity of being
heard to all concerned parties, is of opinion that the sick industrial company
is not likely to make its net worth exceed the accumulated losses within a
reasonable time while meeting all its financial obligations and that the
company as a result thereof is not likely to become viable in future and that
it is just and equitable that the company should be wound up, it may record
and forward its opinion to the concerned High Court.
(2) The High Court shall, on the basis of the opinion of the Board,
order winding up of the sick industrial company and may proceed and cause
to proceed with the winding up of the sick industrial company in accordance
with the provisions of the Companies Act, 1956 (1 of 1956).
(3) For the purpose of winding up of the sick industrial company, the
High Court may appoint any officer of the operating agency, if the operating
agency gives its consent, as the liquidator of the sick industrial company and
the officer so appointed shall for the purposes of the winding up of the sick
industrial company be deemed to be, and have all the powers of, the official
liquidator under the Companies Act, 1956 (1 of 1956).
(4) Notwithstanding anything contained in sub-section (2) or sub-
section (3), the Board may cause to be sold the assets of the sick industrial
company in such manner as it may deem fit and forward the sale proceeds to
the High Court for orders for distribution in accordance with the provisions
of Section 529-A, and other provisions of the Companies Act, 1956 (1 of
1956).
* * *
26. Bar of jurisdiction.--No order passed or proposal made under this Act
shall be appealable except as provided therein and no civil court shall have
jurisdiction in respect of any matter which the appellate authority or the Board is
empowered by, or under, this Act to determine and no injunction shall be granted by
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any court or other authority in respect of any action taken or to be taken in
pursuance of any power conferred by or under this Act.
* * *
32. Effect of the Act on other laws.--(1) The provisions of this Act and of any
rules or schemes made thereunder shall have effect notwithstanding anything
inconsistent therewith contained in any other law except the provisions of the
Foreign Exchange Regulation Act, 1973 (46 of 1973), and the Urban Land (Ceiling
and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the
Memorandum or Articles of Association of an industrial company or in any other
instrument having effect by virtue of any law other than this Act.
(2) Where there has been under any scheme under this Act an amalgamation
of a sick industrial company with another company, the provisions of Section 72-A
of the Income Tax Act, 1961 (43 of 1961), shall, subject to the modifications that the
power of the Central Government under that section may be exercised by the Board
without any recommendation, by the specified authority referred to in that section,
apply in relation to such amalgamation as they apply in relation to the
amalgamation of a company owning an industrial undertaking with another
company."
The Companies Act, 1956
20. Section 391 of the Companies Act, 1956 reads as under:
"391. Power to compromise or make arrangements with creditors and
members.--(1) Where a compromise or arrangement is proposed--
(a) between a company and its creditors or any class of them; or
(b) between a company and its members or any class of them;
the Tribunal may, on the application of the company or of any creditor
or member of the company or, in the case of a company which is being
wound up, of the liquidator, order a meeting of the creditors or class of
creditors, or of the members or class of members, as the case may be to be
called, held and conducted in such manner as the Tribunal directs.
(2) If a majority in number representing three-fourths in value of the
creditors, or class of creditors, or members, or class of members as the
case may be present and voting either in person or, where proxies are
allowed under the rules made under Section 643, by proxy, at the meeting,
agree to any compromise or arrangement, the compromise or arrangement
shall, if sanctioned by the Tribunal, be binding on all the creditors, all the
creditors of the class, all the members, or all the members of the class, as
the case may be, and also on the company, or, in the case of a company
which is being wound up, on the liquidator and contributories of the
company:
Provided that no order sanctioning any compromise or arrangement
shall be made by the Tribunal unless the Tribunal is satisfied that the
company or any other person by whom an application has been made
under sub-section (1) has disclosed to the court, by affidavit or otherwise,
all material facts relating to the company, such as the latest financial
position of the company, the latest auditor's report on the accounts of the
company, the pendency of any investigation proceedings in relation to the
company under Sections 235 to 351, and the like.
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(3) An order made by the Tribunal under sub-section (2) shall have no
effect until a certified copy of the order has been filed with the Registrar.
(4) A copy of every such order shall be annexed to every copy of the
memorandum of the company issued after the certified copy of the order
has been filed as aforesaid, or in the case of a company not having a
memorandum, to every copy so issued of the instrument constituting or
defining the constitution of the company.
(5) If default is made in complying with sub-section (4), the company,
and every officer of the company who is in default, shall be punishable
with fine which may extend to one hundred rupees for each copy in respect
of which default is made.
(6) The Tribunal may, at any time after an application has been made
to it under this section stay the commencement or continuation of any suit
or proceeding against the company on such terms as the Tribunal thinks
fit, until the application is finally disposed of."
Interpretation of the statutory provisions
21. It was conceded by Mr Sundaram SICA being a special law vis-à-vis the
1956 Act, it shall prevail over the latter. The learned counsel, however, qualifies his
submission by contending that SICA only excludes the provisions of the Companies
Act when they are inconsistent with each other.
22. The provisions of a special Act will override the provisions of a general
Act. The latter of it (sic Act) will override an earlier Act. The 1956 Act is a general
Act. It consolidates and restates the law relating to companies and certain other
associations. It is prior in point of time to SICA.
23. Wherever any inconstancy (sic inconsistency) is seen in the provisions
of the two Acts, SICA would prevail. SICA furthermore is a complete code. It
contains a non obstante clause in Section 32.
24. SICA is a special statute. It is a self-contained code. The jurisdiction of
the Company Judge in a case where reference had been made to BIFR would be
subject to the provisions of SICA.
25. We may, at this stage, notice the effect of SICA vis-à-vis the other Acts,
as has been noticed by this Court in some of its judgements.
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31. SICA furthermore was enacted to secure the principles specified in Article 39 of the Constitution of India. It seeks to give effect to the larger public interest. It should be given primacy because of its higher public purpose. Section 26 of SICA bars the jurisdiction of the civil courts.
32. What scheme should be prepared by the operating agency for revival and rehabilitation of the sick industrial company is within the domain of BIFR. Section 26 not only covers orders passed under SICA but also any matter which BIFR is empowered to determine.
1833. The jurisdiction of the civil court is, thus, barred in respect of any matter for which the Appellate Authority or the Board is empowered. The High Court may not be a civil court but its jurisdiction in a case of this nature is limited.
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36. What in this case, however, has been contended is that BIFR had no jurisdiction to make a scheme as envisaged under Section 391 of the Act. Even otherwise, "civil court" has a definite connotation. The jurisdiction of the Company Court is now vested in the Tribunal. Therefore, it will be difficult to hold, in view of a changed situation, that Section 26 ousts the jurisdiction of the Company Court in totality. The decision, however, also says that the special statute shall prevail over the general rule.
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39. It is also not possible to harmonise the provisions of Sections 391 to 394 of the 1956 Act with the provisions of SICA."
The Supreme Court in effect held that Sections 391 to 394 of the Companies Act which empower the Company Court to sanction a scheme of arrangement is in direct conflict with the power of the operating agency appointed by the BIFR to prepare a scheme under Section 18 of SICA. It is not possible to harmonise Sections 391 to 394 of the Companies Act with Section 18 of SICA. Therefore, as long as any reference under the provisions of SICA is pending either before BIFR or before AAIFR, any rehabilitation scheme would necessarily have to be prepared by the operating agency appointed by BIFR/AAIFR. In this case, there was no reference pending either before BIFR or before AAIFR when the applications under Section 391 of the Companies Act were considered by this Court.
In NGEF Ltd. (supra), cited by Mr. Ghosh, the Government of Karnataka held over 90% shares in the joint venture company, which became sick and was referred to BIFR. While the reference was pending before BIFR, the company, with the permission of BIFR and its secured 19 creditors sold some of its surplus lands to public sector undertakings, inter alia for the purpose of paying wages to workers and for repayment of loans to financial institutions.
The State of Karnataka took a decision for dis-investment of its shares in the company, in furtherance of which, global tenders were submitted. Chandra Developers Ltd. submitted its bid for purchase of 40.45 acres of land at Rs.125/- per Sq.ft. which was later enhanced to Rs.278/- per Sq.ft.
However, by an order dated 24 th August, 2002, BIFR recommended that the company be wound up and sent its recommendation to the High Court. After recommendation of the BIFR was forwarded to the High Court, the same was registered as Company Petition No.154.
At this stage, Chandra Developers Pvt. Ltd. filed an application before the learned Company Court under Rule 6 and 9 of the Companies (Court) Rules, 1959 praying for a direction upon the company to execute a deed of sale in its favour in respect of 40.45 acres of land alleging that there was a concluded contract between the said Chandra Developers Pvt. Ltd. and the company for sale of the aforesaid land.
The said application, which was opposed by the company, as well as the secured creditors, was allowed on the premises that the agreement between Chandra Developers Pvt. Ltd. and the company constituted a concluded contract in relation to sale of the said 40.45 acres of land. A review application filed by the company was dismissed. Appeals preferred upon the Division Bench were also dismissed.
20Rule 6 of the Companies (Court) Rules is procedural and Rule 9 provides that nothing in the rules is to be deemed to limit or otherwise affect the inherent powers of the Company Court to give such directions or to pass such orders as might be necessary for the ends of justice or to prevent abuse of the process of the Court.
The Supreme Court found on facts that the sale of the assets was neither in the interest of the company nor of its creditors. In paragraph 8, the Supreme Court took note of the fact that the Company Judge had dismissed an identical application filed by M/s.
Salapuria Housing (Pvt.) Ltd. being C.A. No.1589 of 2003.
What weighed with the Supreme Court in NGEF Ltd. (supra) that the sale of the assets of the sick company was neither in the interest of the company nor in the interest of its creditors. The Supreme Court thus proceeded to observe that even assuming that the Company Court alone had jurisdiction to sanction the sale of assets of a sick company, it was required to apply its mind to the question of whether the disposition of the assets of the company was in the interest of its creditors. In the case before the Supreme Court, the company was not the applicant and the company had all along resisted the claim of the prospective purchaser.
The Supreme Court inter alia held as follows:
"39. The provisions of SICA contain non obstante clauses. It is a special statute. It is a complete code in itself. The jurisdiction of the Company Court in such matters would arise only when BIFR or AAIFR, as the case may be, has exercised its jurisdiction under Section 20 of SICA recommending winding up of the Company 21 upon arriving at a finding that there does not exist any chance of revival of the Company.
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41. It is difficult to accept the submission of the learned counsel appearing on behalf of the respondents that both the Company Court and BIFR exercise concurrent jurisdiction. If such a construction is upheld, there shall be chaos and confusion. A company declared to be sick in terms of the provisions of SICA, 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, BIFR alone shall have jurisdiction as regards sale of its assets till an order of winding up is passed by a Company Court.
42. Apart from the fact that sub-section (4) of Section 20 contains a non obstante clause and, thus, it shall prevail over the provisions contained in sub- section (2). The said Act is also a latter statute.
43. The provisions of SICA would prevail over the provisions of the Companies Act. Section 20 of SICA relates to winding up of the sick industrial company. Before BIFR or AAIFR, as the case may be, makes a recommendation for winding up of the Company, an enquiry is made in terms of Section 16 thereof wherefor all relevant facts and circumstances are required to be taken into consideration. Before an opinion is arrived at in that behalf, the parties are given an opportunity of hearing. The satisfaction arrived at by BIFR that the Company is not likely to become viable in future and it is just and equitable that the Company should be wound up must be based on objective criteria. The High Court indisputably on receipt of such recommendation of BIFR would initiate a proceeding for winding up in terms of Section 433 of the Companies Act. Sub- section (2) of Section 536 ipso facto does not confer any jurisdiction upon the Company Court to direct sale of the assets of the sick company. It has to exercise its power thereunder subject to the provisions of the special statute governing the field. Despite the fact that the procedures laid down under the Companies Act would be applicable therefor but they must be read with sub-section (4) of Section 20 of SICA which contains a non obstante clause and in terms thereof, BIFR is authorised to sell the assets of the sick industrial company in such a manner as it may deem fit. By reason of the said provision, BIFR is also empowered to forward the sale proceeds to the High Court for orders for distribution in accordance with Section 529-A 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 22-A of SICA, BIFR 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 BIFR 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 BIFR remains till a winding-up order is passed 22 by the High Court and a stage arrives for the High Court for issuing orders for distribution of the sale proceeds.
44. SICA was furthermore enacted subsequent to the provisions of the Companies Act. It is not, thus, possible to accept the submission that the High Court exercises a concurrent jurisdiction.
45. It may be true that the High Court's jurisdiction is that of the Appellate Authority but keeping in view the terminology contained in sub-section (4) of Section 20 read with Section 32 of the Act, it leaves no manner of doubt that the provisions of SICA shall prevail over the provisions of the Companies Act.......
46. It is inconceivable that in law not only will the approval have to be taken from both the courts; in case of any private sale, the Company will have to obtain the consent of both the Company Court and BIFR. While interpreting the provisions of the two statutes, the court cannot remain oblivious of the fact that in a given case, possibility of a conflict in the orders passed by the two courts may arise, which must be avoided.
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48. The Company Court has inherent power. Such inherent power of the Company Court is saved in terms of Rules 7 and 9 of the Companies (Court) Rules. The Company Court, therefore, may have the requisite jurisdiction to approve sale of the assets of a company, but the question which arises for consideration is as to whether such inherent power can be exercised despite existence of a provision contained in another statute.
49. Section 32 of SICA contains a non obstante clause stating that provisions thereof shall prevail notwithstanding anything inconsistent with the provisions of the said Act and of any rules or schemes made thereunder contained in any other law for the time being in force. It would bear repetition to state that in the ordinary course although the Company Judge may have the jurisdiction to pass an interim order in exercise of its inherent jurisdiction or otherwise directing execution of a deed of sale in favour of an applicant by the Company sought to be wound up, but keeping in view the express provisions contained in sub-section (4) of Section 20 of SICA such a power, in our opinion, in the Company Judge is not available.
50. We may, however, observe that the opinion of the Division Bench in BPL Ltd. to the effect that the winding-up proceeding in relation to a matter arising out of the recommendations of BIFR shall commence only on passing of an order of winding up of the Company may not be correct. It may be true that no formal application is required to be filed for initiating a proceeding under Section 433 of the Companies Act as the recommendations therefor are made by BIFR or AAIFR, as the case may be, and, thus, the date on which such recommendations are made, the Company Judge applies its mind to initiate a proceeding relying on or on the basis thereof, the proceeding for winding up would be deemed to have been started; but there cannot be any doubt whatsoever that having regard to the phraseology used in Section 20 of SICA that BIFR is the authority proprio vigore which 23 continues to remain as custodian of the assets of the Company till a winding-up order is passed by the High Court.
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60. There lies a distinction between accord of sanction for private negotiation of sale of assets of the company vis-à-vis the auction held by the Official Liquidator. It is not in dispute that no Provisional Liquidator was appointed. The court may have an inherent power to approve a transaction of sale entered into by and between the company and the third party; but it is beyond any cavil of doubt that while doing so the Company Court must bear in mind its duties towards the creditors. While exercising jurisdiction under Section 433 of the Companies Act, the Company Court remains the custodian of the interest of the company and its creditors. It has, thus, a duty to satisfy itself that having regard to the market value of the property, the price offered is reasonable. It is furthermore required to be borne in mind that upon liquidation, the assets and properties of the company vest in the Official Liquidator for the benefit of its creditors.
61 The satisfaction as regards adequacy of the price is one of the relevant factors for proper and reasonable exercise of the judicial discretion vested in it. There cannot be any doubt or dispute that when an auction is held upon compliance with the statutory provisions, withholding of auction on the ground that a still higher price may be obtained may prove to be a self-defeating exercise as has been held in Kayjay Industries (P) Ltd. and State of Punjab v. Yoginder Sharma Onkar Rai & Co. but having regard to the accepted position that the Company Judge in a case of this nature exercises a discretionary jurisdiction; it is bound to act with great circumspection and caution. Such a jurisdiction should ordinarily be exercised in exceptional cases and when necessary for seeing the company as an ongoing concern.
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69. BIFR admittedly had the power to sell the assets of the Company but the High Court until a winding-up order is issued does not have the same. BIFR in its order dated 24-8-2002 might have made an observation to the effect that the Company may approach the High Court in case it intended to dispose of its property by private negotiation but the same would not mean that BIFR could delegate its power in favour of the High Court. BIFR being a statutory authority, in the absence of any provision empowering it to delegate its power in favour of any other authority had no jurisdiction to do so. "Delegatus non potest delegare" is a well-known maxim which means unless expressly authorised a delegatee cannot sub-delegate its power. Moreover, the said observations of BIFR would only mean that the Company Court could exercise its power in accordance with law and not dehors it. If the Company Court had no jurisdiction to pass the impugned order, it could not derive any jurisdiction only because BIFR said so."
24The proposition of law which emerges from the judgement of the Supreme Court in Tata Motors Ltd. (supra) and in NGEF Ltd. (supra) is that whenever there is any inconsistency between the provisions of SICA and the provisions of Company Act, 1956, the provisions of SICA would prevail.
While a reference is pending either before BIFR or AAIFR, the Company Court cannot exercise power under Section 391 to sanction a scheme. Once BIFR recommends that a company be wound up, and there is no appeal from the decision of the BIFR, pending before the AAIFR, the opinion of the BIFR would have to be forwarded to the High Court and the High Court would have to initiate proceedings for winding up of the sick company, in accordance with the provisions of the Companies Act, 1956.
Notwithstanding the fact that the BIFR might have recommended that the sick company be would up, and the opinion of BIFR might have been forwarded to the High Court, and notwithstanding initiation by the High Court of winding up proceedings, BIFR or AAIFR retains power under Section 20(4) of SICA to cause the assets of the sick company to be sold in such a manner as it might deem fit, and forward the sale proceeds to the High Court for distribution in accordance with the provisions of Section 529A and other provisions of the Companies Act, 1956.
The inherent power of the Company Court under Rule 9 to approve the sale of the assets of a company is subject to Section 20(4) of SICA. The power to sell the assets of a sick company cannot concurrently be exercised by BIFR and the High Court.
25The power of BIFR and/or AAIFR to cause the assets of a sick company to be sold can be exercised till the company is actually wound up by the High Court and a Liquidator is appointed over its assets. Once the sick company is wound up and the Liquidator is appointed over its assets, the Liquidator may sell the assets of the sick company, under the directions of the Company Court, and distribute the proceeds thereof in accordance with the provisions of the Companies Act.
As rightly argued by Mr. Banerjee, appearing on behalf of the company, there is no statutory provision which prohibits the Company Court from entertaining an application under Section 391, once BIFR/AAIFR recommends that the sick company be wound up. For as long as BIFR and/or AAIFR are in seisin of a reference and/or appeal, power under Section 391 cannot be exercised by the Company Court since such power of the Company Court is in direct conflict with the power of the operating agency appointed by BIFR under Section 18 of SICA. However, once the proceedings before BIFR/AAIFR end, power under Section 391 of the Companies Act, 1956 would necessarily have to be exercised by the Company Court, and the Company Court alone.
The object of SICA is the detection and revival of sick industries. It could never have been the intention of SICA that a scheme of arrangement, which could revive the company, should never be considered once the BIFR recommends that the sick company be wound up and an appeal therefrom is dismissed.
26A judgement is a precedent for the proposition of law that is actually decided and not anything that might legitimately be inferred and/or deduced from the judgement. A judgement is also, not to be read like a statute, and has to be construed in the context of the facts in which the judgement had been rendered. The question of whether the Company Court could exercise jurisdiction under Section 391 of the Companies Act, to approve a scheme, after the recommendation of the BIFR for winding up of the company had been forwarded to the High Court, was not in issue either in NGEF Ltd. (supra) or in Tata Motors Ltd. (supra).
In Tata Motors Ltd. (supra) orders under Section 391 were passed while the appeal before the AAIFR was pending. In NGEF Ltd. (supra) the Company Court had passed an order in the nature of an order for specific performance of a contract directing execution of deed of conveyance for sale after the recommendation of BIFR for winding up of the sick company was forwarded to the High Court, but before any order of winding up was actually passed.
The judgement in Chamundi Mopeds (supra) was rendered by a Bench of three Judges. The judgement in NGEF Ltd. (supra) was apparently delivered without considering the larger Bench judgment in Chamundi Mopeds Ltd. (supra). In Chamundi Mopeds Ltd. (supra) the Supreme Court held that the bar of Section 22(1) of SICA to proceedings for winding up, distress, execution and the like against a sick company would not apply once the proceedings before BIFR/AAIFR had terminated.
27On an analogy of reasoning, there is no reason why an application under Section 391 for sanction of a scheme cannot be entertained by the Company Court after termination of the proceedings before the BIFR/AAIFR.
This Court, in my view, had jurisdiction under Section 391 of the Companies Act to pass the orders, of which recall has been sought. This application is patently barred by limitation, the same having been filed long after expiry of three years.
However, notwithstanding the question of limitation, this Court considered the application of the petitioner at length. This Court finds no grounds for recalling the orders in question since the sale, in favour of the successor-in-interest of the applicants, was cancelled by an order of the AAIFR passed way back in 2001, on the ground of default in payment of full consideration.
The application is thus dismissed.
Urgent certified photostat copy of the judgment be supplied to the parties subject to compliance of requisite formalities.
(Indira Banerjee, J.)