Companies Act Case Law Tata Motors Ltd Vs Pharmaceutical Products of India Ltd.

Companies Act Case Law

Tata Motors Ltd Vs Pharmaceutical Products of India Ltd.

 

REPORTABLE

IN THE SUPREME COURT OF IDNIA

CIVIL APPELALTE JURISDICTION

CIVIL APPEAL NO. __3640________OF 2008
(Arising out of SLP (C) No. 20289 of 2006)
Tata Motors Ltd. …. Appellant
Versus
Pharmaceutical Products of India Ltd. & Anr. …. Respondents

 

JUDGMENT
S.B. SINHA, J.
1. Leave granted
Introduction

 

2. Interpretation/application of the provisions of the Sick Industrial

Companies (Special provisions) Act, 1984 (SICA) vis-`-vis the Companies

Act, 1956 (1956 Act) is in question in this appeal which arises out of a

 

1
judgment and order dated 16th October, 2006 passed by a Division Bench of

the High Court of Judicature at Bombay in Appeal No.725 of 2006 arising

out of a judgment and order dated 13th February, 2006 passed by a learned

Single Judge of the Bombay High Court approving a Scheme filed by the

respondent herein in Company Petition No.470 of 2005 which was under

Section 391 of the 1956 Act.

 

Background Facts:

 

3. First respondent is a company registered and incorporated under the

1956 Act. It took loan from Tata Finance Ltd, predecessor-in-interest of the

appellant on interest @ 18% per annum. Disputes and differences arose

between the parties, which were referred to arbitral tribunal. An award was

passed on 30th July, 2002 in the Arbitration proceedings for a sum of

Rs.1,51,36,795/- together with interest @ 18% per annum till payment

and/or realization. It is stated that the total amount due to the appellant

from the respondent would be near about 5.7 crores of rupees. There were

other secured and unsecured creditors also.

 

Proceedings under SICA

 

2
4. Respondent being unable to pay the dues made a reference in terms of

Section 15 of SICA before the Board for Industrial and Financial

Reconstruction (BIFR). The BIFR appointed Industrial Development Bank

of India (IDBI) as an operating agency. It purported to have considered

various schemes. However, as Unit Trust of India (UTI) raised an objection

for giving up any of its dues and there were six secured creditors and large

number of unsecured creditors, BIFR on or about 27th October, 2004 passed

an order recommending winding up of the respondent. An appeal was

preferred thereagainst before the Appellate Authority for Industrial and

Financial Reconstruction (AAIFR).

 

5. The AAIFR granted stay of operation of the order of BIFR dated 27th

October, 2004 by an order dated 13th September, 2005. Before the AAIFR

two separate Schemes were framed, one of them related to an arrangement

between the respondent and M/s. Wanbury Ltd. It agreed to settle the

outstanding dues of the creditors of PPIL. But before doing so, it thought it

fit to settle all the large creditors being Financial Institutions and Banks.

The scheme envisaged payment to a class of creditors.
3
It was also envisaged:

” In addition, two immovable properties of
the company (which were its primary and main
assets) were to be sold and the unsecured
creditors were to be paid a proportion of the
sale proceeds. The balance of the sale proceeds
were to be paid over to the secured creditors.

Upon payment of the cash consideration,
Wanbury was to get complete control over the
Respondent including all its assets subject to
the approval of the merger before the
appropriate forum.

The scheme was to become effective upon
approval of overall settlement including an
order for merger or any other mode of
acquisition of assets of PPIL by Wanbury or
such scheme of PPIL by BIFR/AAIFR.”

 

Appellant was kept outside the said Scheme. The scheme involved

some selective secured creditors and some selective unsecured creditors.
Company Court Proceedings

 

6. Respondent, however, filed an application before the High Court of

Judicature at Bombay purported to be in terms of Section 391 of the 1956

Act during the pendency of the said appeal on or about 29th April, 2005. A

Scheme was presented before the Company Judge purported to be involving
4
about 80 percent of the creditors, most of them being banks, financial

institutions. Allegedly, even at that stage, it was not disclosed before the

Company Court that unsecured creditors listed in the Scheme were only a

selected few creditors, as a result whereof a large number of creditors had

been excluded.

 

7. Before the Company Judge, the appellant filed an application for

intervention. It filed an objection to the said Scheme primarily on the

grounds:-

“That the revival/rehabilitation of the company
was under consideration of a specialized body
formed under the Sick Industries Act which is a
special legislation and would prevail over the
provisions of the Companies Act.

That the non-obstante clause contained in the Sick
Industries Act will have the effect of overriding
and excluding the provisions of the Companies
more so where there is an overlapping between the
two Act.

That considering the scheme of the Sick Industries
Act, the revival/restructing of the company cannot
be considered by two separate forums separately.

That the scheme involved financial reconstruction,
sale of assets of the company and merger/take over
by Wanbury. These issues expressly fall within
the domain of the BIFR under Section 18 of the
Sick Industries Act.
5
That a scheme could not be presented only in
respect of selected unsecured creditors to the
exclusion of the other similarly placed unsecured
creditors such as the Petitioners.

That the entire scheme was nothing but a fraud
which was being played whereby the company and
its assets were being transferred to Wanbury
which was associated with the company itself.”
UTI also filed an objection.

 

8. The said contentions of the appellant, however, were rejected by a

learned Single Judge of the High Court by his order dated 13th April, 2006

and the Scheme was approved.

 

Order of the AAIFR

 

9. In view of the aforementioned order of the High Court, AAIFR also

on or about 1st June, 2006 approved the said Scheme opining :-

“5. Learned counsel for the Appellant Company
states that the scheme of Compromise and
Arrangement approve by the Bombay High Court
have been incorporated in the scheme of revival
cum merger submitted to IDBI (Operating
Agency) in pursuance of direction given by us on
9.11.2005.
6
6. In view of IDBI’s recommendation of the
revival cum merger proposal submitted by PPIL,
which is in accordance with Bombay High Court’s
order dated 13.2.2006, we set aside the impugned
order dated 27.10.2004 and direct BIFR to
consider the scheme vetted by the OA within a
period of three months from the date of this order
and take necessary further steps for the revival of
the appellant company in accordance with law.”

 

10. An intra court appeal was preferred thereagainst by the appellant on

or about 3rd August, 2006. By reason of the impugned judgment the said

Letters Patent Appeal has been dismissed, stating:-

“2. The Appellant claims to be an unsecured
creditor to the extent of Rs.1.51 crores as set out in
the award dated 30.7.2002 with further interest at
the rate of 18% per annum. It is not in dispute that
the Scheme of Arrangement approved by the
learned Company Judge between Pharmaceutical
Products of India Ltd. and its unsecured creditors
and Wanbury does not affect the rights of the
appellant as the appellant, though an unsecured
creditor, is not specified in Schedule-I, appended
to the Scheme. In this backdrop, the impugned
order cannot be faulted. However, it is clarified
that whatever objections the appellant may have
against the revival scheme pending before the
BIFR, pursuant to the order dated 1.6.2006 passed
by the AAIFR, they may place their objections
before the BIFR and obviously upon such
objections being placed the BIFR shall consider
the revival scheme of the respondent-Company on
is own merits, keeping in view all relevant fact and
circumstances, including the objections of the
appellant.”

7
Subsequent Events

11. We may also take note of some subsequent events. In view of the

order of AAIFR dated 1st June, 2006, BIFR issued notice on 1st February,

2007 to consider the Scheme-cum-merger with M/s. Wanbury Ltd.

propounded by the respondent company returnable on 29th March, 2007. On

the said date, all the interested parties including the appellant were heard.

By an order dated 1st May, 2007, BIFR is said to have sanctioned the

Scheme-cum-merger of M/s. Wanbury Ltd. with the respondent.

 

12. We may also place on record that inter alia on the premise that the

said Scheme of merger was approved in gross violation of this Court’s order

dated 15th December, 2006, a contempt petition was filed. We are not

concerned with the said Contempt Petition herein.

 

Contentions

 

13. Mr. R.F. Nariman, learned Senior Counsel appearing on behalf of the

appellant, in support of this appeal would submit :-
8
1. SICA being a special statute, the provision thereof shall prevail over

the provisions of the 1956 Act.

2. The High Court committed a manifest error in entertaining the

respondent’s application for merger under Sections 391 to 394 of the

Act, although the matter was pending before the AAIFR.

3. The High Court failed to notice the binding precedent of this Court in

NGEF Ltd. vs. Chandra Developers (P) Ltd. : (2005) 8 SCC 219

wherein it has clearly been held that SICA will prevail over the 1956

Act.

4. The Division Bench of the High Court has failed to consider that the

Company Judge had no jurisdiction to entertain any proceeding.

5. Section 26 of the SICA bars the jurisdiction of the Company Judge.

 

14. Mr. C.A. Sundaram, learned senior counsel appearing on behalf of the

respondent, on the other hand would urge :-

 

1. The operation of the order of BIFR having been stayed, the Company

Petition was maintainable at the instance of the respondent.

2. Section 19 of SICA will have no application as it speaks of financial

assistance by the persons specified therein.
9
3. Section 22 of SICA must be read in the context of Section 19 thereof.

4. Section 26 or any other provision of SICA do not oust the jurisdiction

of the Company Court.

5. SICA as interpreted by this Court in NGEF Ltd. (supra) would prevail

over 1956 Act only if the provisions of the latter are inconsistent with

the provisions of SICA and not otherwise.

6. The Scheme in question being subject to approval by BIFR and that

BIFR by a reason of its order dated 1st May, 2007 had granted

approval thereof, the legal requirements must be held to have been

complied with.

 

STATUTORY PROVISIONS

SICA
15. SICA was enacted to make, in the public interest, 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.

10
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 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.

(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.”
11
17. Section 18 provides for preparation and sanction of Scheme. Sections

18(1)(c), 18(3) and 18(6A) read as under :-
“Section 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:–

(c) the amalgamation of–

(i) the sick industrial company with any other
company, or

(ii) any other company with the sick industrial
company;

(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
12
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.

(6A) 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

13
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 reads as under :-
“Section 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 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.
14
(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.”
Sections 20, 26 and 32 of SICA read as under :-
“Section 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
15
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 529A, and other provisions of the
Companies Act, 1956 (1 of 1956).

Section 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 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.

Section 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.

 

16
(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 72A 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 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
Section 391 of the Companies Act, 1956 reads as under :-

Section 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.

17
(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.

(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
18
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
19. It was conceded by Mr. Sundaram SICA being a special law vis.-a-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.
19
The provisions of a special Act will override the provisions of a

general Act. A later of it will override an earlier Act. 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.
Wherever any inconstancy 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.
20. 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.
We may, at this stage, notice the effect of SICA vis-`-vis the other

Acts, as has been noticed by this Court in some of its judgments
21. In NGEF Ltd. vs. Chandra Developers (P) Ltd. : (2005) 8 SCC 219, in

regard to the jurisdiction of the Company Court it was held :-

 

20
“20. Mr K.K. Venugopal, the learned Senior
Counsel, would submit that having regard to sub-
section (2) of Section 536 of the Companies Act,
the High Court has the jurisdiction to permit sale
of assets of the Company even before passing of
the winding-up order, in relation whereto Section
20(4) of SICA will have no application.

23. The provisions relating to winding up by the
courts occur in Chapter II of the Companies Act,
1956. Section 433 of the Act enumerates the
circumstances in which the company may be
wound up by the court including the inability on
the part of the company to pay its debts. Section
441 of the Act specifies as to when the proceeding
for winding up of a company by the court shall
commence at the time of the presentation of the
petition for the winding up.

In a case, however, where winding-up
proceedings are initiated in terms of
recommendations made by BIFR or AAIFR, as the
case may be, no such petition is required to be
presented. Section 443 lays down the power of a
court on hearing petition; clause (d) of sub-section
(1) whereof provides for a power to make an order
for winding up of the company with or without
costs or any other order that it thinks fit. Section
444 lays down the consequences of the winding-
up order. In terms of Section 446 of the Act, in the
event of passing of a winding-up order or
appointment of liquidator as Provisional
Liquidator, no suit or legal proceeding would
commence or if pending at the date of the
winding-up order, shall not be proceeded with
against the company except by leave of the court
and subject to such terms as the court may impose.
Sub-section (2) of Section 446 provides for a non
obstante clause, in terms whereof the Company
Court shall have jurisdiction to entertain or
dispose of any suit or proceedings specified
therein. Section 451 lays down general provisions
as to liquidators. Section 457 specifies the power
of the liquidator which is required to be exercised
21
with the sanction of the court. Sub-section (2) of
Section 536 reads as under:
“536. Avoidance of transfers, etc., after
commencement of winding up.–(1) *
* *
(2) In the case of a winding up by the
Tribunal, any disposition of the property
(including actionable claims) of the
company, and any transfer of shares in the
company or alteration in the status of its
members, made after the commencement of
the winding up, shall, unless the Tribunal
otherwise orders, be void.”

In regard to jurisdiction of the Company Court it was held :-

“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
AAAIFR, as the case may be, has exercised its
jurisdiction under Section 20 of SICA
recommending winding up of the Company upon
arriving at a finding that there does not exist any
chance of revival of the Company.”
It was furthermore held:

“40. Mr Venugopal has placed reliance upon a
decision of a learned Single Judge of the Karnataka High
Court in Karnataka State Industrial Investment and
Development Corpn. Ltd. v. Intermodel Transport
Technology Systems for the proposition that despite the
fact BIFR retains jurisdiction to get the assets of a sick
company sold in terms of sub-section (4) of Section 20
of SICA; still the leave of the Company Court, therefor
would be required. The said decision, however, has been
reversed by the Division Bench of the Karnataka High
Court in BPL Ltd. v. Intermodal Transport Technology
Systems (Karnataka) Ltd. holding that the Company

22
Court has no such jurisdiction. We generally accept the
views of the Division Bench.
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

23
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 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.”

 

It was ruled that the Company Court and the BIFR do not exercise

concurrent jurisdiction, holding:-

“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. For the
aforementioned purpose, it was not necessary for
Parliament to mention specifically the provisions
of sub-section (4) of Section 20 that the same shall
prevail over Section 536 of the Companies Act, as
was suggested by the learned counsel appearing
for the first respondent. The construction of the

24
provisions of both the Acts, as suggested by the
learned counsel, that both the provisions of sub-
section (4) of Section 20 and Section 536 should
be read conjointly so as to enable an applicant to
obtain a sanction of both BIFR and the Company
Court, thus, do not appeal to us.”
The Court noticed the non obstante clause contained in clause (4) of

Section 20 as also Section 32 of SICA to hold that the High Court does not

exercise concurrent jurisdiction with BIFR. The fact that SICA was enacted

in 1984 had also been taken into consideration.
The Court considered in details the exercise of the jurisdiction of the

Company Court vis-`-vis the BIFR to opine :-

“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

25
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.”

(See also Morgan Securities and Credit Pvt. Ltd. v. Modi
Rubber Ltd. [AIR 2007 SC 683]

 

22. The principle laid down therein has been reiterated in Bombay

Dyeing & Manufacturing Co. Ltd. vs. Bombay Environmental Action

Group : (2006) 3 SCC 434 stating :

“13. The 1993 Act was enacted to provide for and
regulate the payment of interest on delayed
payments to small-scale and ancillary industrial
undertakings and for matters connected therewith.

14. The provisions of the 1993 Act, therefore, do
not envisage a situation where an industrial
company becomes sick and requires framing of a
scheme for its revival.

15. It is no doubt true that an award in relation to a
claim of a small-scale industry if made by the
Council would be governed by the provisions of
the Arbitration and Conciliation Act, 1996 (for
short “the 1996 Act”).”
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.
26
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.
23. The jurisdiction of 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.

 

24. Our attention has been drawn to the decision of this Court in Jyoti

Bhushan Gupta v. Banaras Bank Ltd, [ (1962) Supp 1 SCR 73 ] where the

question which arose for consideration was as to whether Article 183 of the

Limitation Act shall have any application in regard to the applicability of

the provisions of the Limitation Act, it was stated :-
“By the Companies Act of 1913, the High Court
was invested with jurisdiction to order payment of
the amounts due by debtors of companies ordered
to be wound up. This jurisdiction may be invoked
as of right against all persons whose names are
placed on the list of contributories. The
jurisdiction is ordinary : it does not depend on any
extraordinary action on the part of the High Court.
27
The jurisdiction is also original in character
because the petition for exercise of the jurisdiction
is entertainable by the High Court as a court of
first instance and not in exercise of its appellate
jurisdiction. Again by s. 187 no special
jurisdiction is conferred. The High Court
adjudicates upon the liability of the debtor to pay
debts due by him to the Company : the jurisdiction
is therefore civil. Normally, a creditor has to file a
suit to enforce liability for payment of a debt due
to him from his debtor. The Legislature has by s.
187 of the Companies Act empowered the High
Court in a summary proceeding to determine the
liability and to pass an order for payment but on
that account the real character of the jurisdiction
exercised by the High Court is not altered. Nor is
there any substance in the contention that the
authority to order payment of a debt under s. 187
is merely a power of the High Court and not its
jurisdiction. By s. 3 read with s. 187 of the
Companies Act the High Court has jurisdiction to
direct payment of the amount due by a
contributory : and an order passed for payment
manifestly is an order passed in exercise of the
jurisdiction vested in the High Court by s. 3 read
with s. 187 of the Companies Act. ”
It was furthermore observed:-

“The jurisdiction to deal with the claims of
companies ordered to be wound up is conferred by
the Indian Companies Act and to that extent the
Letters Patent are modified. There is, however, no
difference in the character of the original civil
jurisdiction which is conferred upon the High
Court by Letters Patent and the jurisdiction
conferred by special Acts. When in exercise of its
authority conferred by a special statute the High
28
Court in an application presented to it as a court of
first instance declares liability to pay a debt, the
jurisdiction exercised is original and civil and if
the exercise of that jurisdiction does not depend
upon any preliminary step invoking exercise of
discretion of the High Court, the jurisdiction is
ordinary.”

 

25. In Damji Valli Shah v. Life Insurance Corporation of India, [(1965)

2 SCR 665 ], the question which arose for consideration was as to whether a

similar provision made in the Life Insurance Corporation Act, 1956 shall

bar the jurisdiction of the Company Court in terms of Section 446 (1) of the

Companies Act. Referring to Section 41 of the Life Insurance Corporation

Act, 1956 it was stated that the Tribunal constituted under the LIC Act will

have exclusive jurisdiction. It was opined :-
“20. It is in view of the exclusive jurisdiction
which sub-s. (2) of s. 446 of the Companies Act
confers on the company Court to entertain or
dispose of any suit or proceeding by or against a
company or any claim made by or against it that
the restriction referred to in sub-s. (1) has been
imposed on the commencement of the proceedings
or proceeding with such proceedings against a
company after a winding-up order has been made.
In view of s. 41 of the LIC Act the company Court
has no jurisdiction to entertain and adjudicate
upon any matter which the Tribunal is empowered
to decide or determine under that Act. It is not
disputed that the Tribunal has jurisdiction under
the Act to entertain and decide matters raised in

29
the petition filed by the Corporation under s. 15 of
the LIC Act. It must follow that the consequential
provisions of sub-s. (1) of s. 446 of the Companies
Act will not operate on the proceedings which be
pending before the Tribunal or which may be
sought to be commenced before it.”
26. 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.

 

Although it may not be very relevant, we may notice that this Court in

Dwarka Prasad Agarwal v. Ramesh Chander Agarwal, [(2003) 6 SCC 220]

opined as under :-
“22. The dispute between the parties was
eminently a civil dispute and not a dispute under
the provisions of the Companies Act. Section 9 of
the Code of Civil Procedure confers jurisdiction
upon the civil courts to determine all disputes of
civil nature unless the same is barred under a
statute either expressly or by necessary
implication. Bar of jurisdiction of a civil court is
30
not to be readily inferred. A provision seeking to
bar jurisdiction of a civil court requires strict
interpretation. The court, it is well settled, would
normally lean in favour of construction, which
would uphold retention of jurisdiction of the civil
court. The burden of proof in this behalf shall be
on the party who asserts that the civil court’s
jurisdiction is ousted. (See Sahebgouda v.
Ogeppa) Even otherwise, the civil court’s
jurisdiction is not completely ousted under the
Companies Act, 1956.”
We are, therefore, of the opinion that the judgment of the High Court

cannot be sustained. We may furthermore notice that the decision of the

learned single judge has been overruled by a Division Bench of the Bombay

High Court in Ashok Organics Industries Ltd. v. Dena Bank (Company

Petition No. 108 of 2006, disposed of on 25.1.2008).

It is also not possible to harmonize the provisions of Sections 391 to

394 of the 1956 Act with the provisions of SICA.

For the views we have taken, it is not necessary to consider the other

contentions raised at the bar.

 

27. The question, however, is what relief should be granted in view of the

subsequent events. Various intervention applications have been filed. We
31
do not intend to make any observation in regard thereto. We are, however,

of the opinion that it is a fit case where we should exercise our jurisdiction

under Section 142 of the Constitution of India to meet the object for which

the Act has been enacted.

 

28. We have been taken through the Scheme. The Scheme provides for

not only entering into an arrangement as regards repayment of debts to

secured creditors and unsecured creditors but also provides for a merger,

subject of course, to an appropriate order being passed by BIFR. The

question is as to whether such a Scheme could be placed for approval before

BIFR. We are of the view that it could not be. Before BIFR could approve

a scheme, the same must be drawn in terms of the provisions of the Act and

not de hors the scheme. It is required to apply its own mind. The operating

agency is supposed to make a scheme. The operating agency before the

AAIFR took one stand; before us it has taken another. According to it, it

was not involved in the preparation of the Scheme. It had no occasion to

apply its own mind. Furthermore, after the learned Single Judge passed its

order, AAIFR disposed of the appeal only in terms of the order of the High

Court stating :-
32
“In view of IDBI’s recommendation of the revival
cum merger proposal submitted by PPIL, which is
in accordance with Bombay High Court’s order
dated 13.2.2006, we set aside the impugned order
dated 27.10.2004 and direct BIFR to consider the
scheme vetted by the OA within a period of three
months from the date of this order and take
necessary further steps for the revival of the
appellant company in accordance with law.”
29. The order of BIFR dated 1st May, 2007 also clearly show that it has

granted its approval in view of the observations made by the appellate

authority. It might have done so keeping in view the doctrine of judicial

discipline in mind.
30. The order of BIFR is not an outcome of any pre-application of mind.

There is no finding that it has taken into consideration all the relevant facts.

There is nothing to show that such an order is fair or reasonable or meets the

requirements of law.

 

31. We are, therefore, of the opinion that not only the judgment of the

High Court but also the orders of BIFR as also the AAIFR should be set
33
aside and the matter should be remitted to the BIFR so as to enable it to

proceed in accordance with the provisions of SICA afresh.
32. The appeal is allowed with the aforementioned observations and

directions. In the facts and circumstances of the case, there shall be no

order as to costs.

 

………………………….J.
[S.B. Sinha]
…………………………..J.
[ Lokeshwar Singh Panta]

 

…………………………..J.
[ Markandey Katju ]
New Delhi;
May 16, 2008
34

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