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Tuesday, September 24, 2013

Company Laws = Whether the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter for short “SICA”) are applicable to the “foreign companies” registered in India under the provisions of Section 591 of the Companies Act, 1956 (hereinafter for short “the Act”) and, therefore, the revival scheme framed by the Board for Industrial and Financial Reconstruction (hereinafter referred to as “BIFR”) in respect of the Baranagore Jute Factory Plc. (hereinafter for short ‘the Respondent Company’) is required to be implemented. Section 3(o) of the Act which defines a sick industrial company in the following terms: “(o) “sick industrial company” means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. Explanation.—For the removal of doubts, it is hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special Provisions) Amendment Act, 1993 registered for not less than five years and having at the end of any financial year accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company;”= In the aforesaid situation keeping in view the object and scheme of the Act and the virtual consensus of the contesting parties with regard to the present financial health of the respondent company it is clear that the company can no longer fall within the ambit of the expression “sick industrial company” as defined in Section 3(o) of the Act. Further applicability of SICA to the respondent company, therefore, does not arise.

   published in    http://judis.nic.in/supremecourt/imgst.aspx?filename=40821           
  REPORTABLE
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                     CIVIL APPEAL NOS.8440-8445  OF 2013
              (Arising out of SLP (C) Nos.39005-39010 of 2012)

Yash Deep Trexim Private Limited        ...  Appellant (s)

                                   Versus

Namokar Vinimay Pvt. Ltd. & Ors.        ...  Respondent (s)

                                    With
                     Civil Appeal Nos.8446-8451  of 2013
              (Arising Out of SLP (C) Nos.39011-39016 of 2012)

                     Civil Appeal Nos.8452-8457  of 2013
              (Arising Out of SLP (C) Nos.39017-39022 of 2012)

                     Civil Appeal Nos.8458-8463  of 2013
              (Arising Out of SLP (C) Nos.39023-39028 of 2012)


                               J U D G M E N T

RANJAN GOGOI, J.

      Leave granted.
2.    The common challenge in these appeals  is  against  the  judgment  and
order dated 19.10.2012 passed by a Division  Bench  of  the  High  Court  of
Calcutta holding that
the  provisions   of  the  Sick  Industrial  Companies
(Special  Provisions)  Act,  1985  (hereinafter  for   short   “SICA”)   are applicable  to  the  “foreign  companies”  registered  in  India  under  the provisions of Section 591 of the Companies Act, 1956 (hereinafter for  short “the Act”) and, therefore, the  revival  scheme  framed  by  the  Board  for
Industrial and Financial Reconstruction (hereinafter referred to as  “BIFR”) in respect of the Baranagore Jute Factory Plc. (hereinafter for  short  ‘the Respondent Company’) is required to be  implemented.  
Though  the  question
raised in these appeals is short and  precise,  as  noticed  above,  learned
counsels for the parties have raised various issues and  contentions  which,
in no way, appear to be even remotely connected with  the  question  of  law
that arises from the order of the High Court.
We would, therefore,  like  to
make it clear at the outset that in spite of the strenuous  efforts  on  the
part of the learned counsels for the parties to persuade us to go  into  the
said questions we have  considered  it  wholly  unnecessary  to  do  so  for
reasons indicated hereinafter.
Instead, we must  deal  with  what  strictly
arises for our answer in the present appeals leaving the  parties  to  avail
of such remedies as may be open to them in  law  in  respect  of  all  other
grievances raised.

3.    We may now take note of a few relevant facts.  The Respondent  Company
was wound up by an order dated 28.10.1987 of the learned  Company  Judge  of
the Calcutta High Court.
The appeal filed against the winding up  order  by
some of the workers of the Company came to be  dismissed  by  the  Appellate
Bench of the High Court on 18.11.1987.
Thereafter,  on  an  approach  being
made, the winding up proceedings were stayed for a period of six  months  on
22.9.1988 and a scheme for revival of the Company suggested by some  of  the
shareholders was accepted by the learned Company Judge.
Our perusal of  the
relevant facts and the voluminous pleadings brought on record would seem  to
suggest that the initial order of stay of the  winding  up  dated  22.9.1988
has been extended from time to time and  till  the  present  date  different
schemes for running the affairs of the Respondent Company  has  been  framed
and implemented pursuant whereto the  Company  has  been  functioning  as  a
going concern.
We also deem it necessary to put on record that it has  been
contended before us that several applications  registered  and  numbered  as
C.A. No. 126/2005, C.A. No. 302/2005, C.A.  No.  303/2005,  C.A.No.370/2009,
C.A.No.957/2010 for a permanent stay of  the  winding  up  proceedings  have
been filed before the  Calcutta  High  Court  and  the  same  are  presently
pending.  The above plea has been urged notwithstanding the observations  of
this Court in Radheshyam Ajitsaria & Anr. v. Bengal Chatkal Mazdoor Union  &
Ors.[1] to the effect that in permanent stay of the winding  up  proceedings
in respect of the Respondent Company had been granted by the High Court.

4.    From the pleadings of the parties placed before  us  it  appears  that
the Respondent Company is the owner of  vast  immovable  properties  in  and
around Kolkata which, with the passage of time, have enormously  appreciated
in value.  It is this particular asset of the Respondent Company  which  has
been the bone of contention between different  groups  of  shareholders  who
have claimed the right to run the affairs of the Company under  the  schemes
framed by the learned Company Judge from time to time.  The  action  of  one
group of shareholders purportedly to the disadvantage  of  another  and  the
acquisition of majority share holding by one such group to the detriment  of
the other by enlarging the equity base of the Respondent  Company  has  been
the bone of contention giving rise  to  serious  contentious  issues,  which
issues, as indicated earlier, we are not inclined to go  into  as  the  same
not only has to be agitated before the appropriate forum but also  does  not
arise from the order passed by the High Court which has  been  subjected  to
challenge in the appeals before us.  All that would be necessary for  us  to
note, in addition to the facts stated above, is that  a  Reference  made  in
the year 2004 to the BIFR by two of the Directors of the Respondent  Company
claiming to be in office at that point of time was ordered by  the  Calcutta
High Court to be disposed of on merits.  The said order is dated  20.02.2006
passed in W.P. No. 221 of 2006.  On the basis of the said order  proceedings
before the BIFR were taken up and a scheme under Sections  18(4)  and  19(3)
of the SICA was framed and notified  for  immediate  implementation  by  the
order of the BIFR dated 4.11.2009.  The said order  came  to  be  challenged
before  the  High  Court  in  W.P.  No.  1166/2009  (re-numbered   as   W.P.
5535(W)/2010).  There was  an  interim  order  in  the  said  writ  petition
restraining the respondents therein from taking any steps in the  matter  of
sale of any property of the Respondent Company or from creating  any  charge
in respect of the assets of the Company without  the  leave  of  the  Court.
The writ petition was, however,  withdrawn  on  16.6.2010  whereafter  three
separate writ petitions bearing Nos. 12377/2010, 12406/2010  and  12412/2010
were filed challenging  the  jurisdiction  of  the  BIFR  to  entertain  the
reference; frame the scheme in question and pass orders  for  implementation
of the same.  The aforesaid writ petitions were disposed of by  the  learned
Single Judge of the High Court by order dated  25.1.2011  holding  that  the
SICA is not applicable to the  Respondent  Company,  it  being  incorporated
outside India.  Consequently, the scheme framed by the BIFR  was  set  aside
and quashed.  As against the aforesaid order dated 25.1.2011 passed  by  the
learned Single Judge of the  High  Court  six  appeals  were  filed  by  the
aggrieved  parties  bearing  Nos.169/2012,  170/2012,  171/2012,   172/2012,
173/2012 and 1115/2011.  The Appellate Bench of  the  High  Court  by  order
dated 19.10.2012 took the view that on a  purposive  interpretation  of  the
provisions of SICA the said  Act  would  be  applicable  to  the  Respondent
Company.  In this regard the Division Bench of the High  Court  specifically
took note of the fact that the only factory of the  Company  is  located  in
India at Baranagore; 90% of its shareholders are Indians  and  3700  workers
are working in the jute factory in  West  Bengal.   Aggrieved,  the  present
appeals have been filed before us.

5.    Having noticed the question(s) arising from  the  order  of  the  High
Court  which  has  been  challenged   in   the   appeals   presently   under
consideration, we may now briefly take note of  the  contentions  raised  in
the appeals filed by the respective appellants before this Court.

      The appellant in the appeals  arising  out  of  SLP  (C)  Nos.  39005-
39010/2012, apart from  questioning  the  jurisdiction  of  the  BIFR,  also
contends that the first respondent (Namokar Vinimay Pvt. Ltd.) in  the  said
appeals had fraudulently increased its equity holding  from  9%  to  90%  on
payment of a paltry sum of Rs. 5 crores  by  committing  acts  of  cheating,
forgery, fraud etc. The majority shareholding  of  the  appellant  has  been
thereby reduced, it is claimed.

      In the  appeals  arising  out  of  SLP  (C)  Nos.39011-39016/2012  the
workers’ union has raised grievances with regard to the  competence  of  the
existing Management Committee to function and contends  that  the  Committee
consisting of the two Directors who have instituted the appeals arising  out
of SLP(C) Nos. 39017-39022/2012  would  be  competent  in  law  to  run  the
affairs of the Respondent Company.
Certain alleged fraudulent acts  in  the
matter of disposition of the property/transfer of  shares  by  the  existing
Management Committee are also alleged by the workers’ union.
      On the other hand in the appeals arising out  of  SLP(C)  Nos.  39017-
39022/2012,  two  Directors,  namely,  Chaitan  Choudhury  and  Ridh   Karan
Rakhecha who have purportedly filed the appeal on behalf of  the  Respondent
Company, apart from raising the issue of jurisdiction of the  BIFR  and  the
applicability of the SICA to  the  Company,  had  also  struck  issues  with
regard to the changes in the composition of  the  Management  Committee  and
the frauds and the misdeeds allegedly committed  by  the  first  respondent,
i.e.,  Namokar  Vinimay  Pvt.  Ltd.  in  bringing  out  the  above  changes.
Peculiarly, the reference of the case of the respondent Company to the  BIFR
was made by the very same  appellants.  
In  the  last  set  of  appeals  in
chronological order,  i.e.,  appeals  arising  out  of  SLP(C)  Nos.  39023-
39028/2012, the appellant Radheshyam Ajitsaria is one of  the  promoters  of
the  revival  scheme  under  which  a  Committee  of  Management  had   been
constituted in the year 1988/1989 by the learned Company Judge of  the  High
Court to run the  affairs  of  the  Company.   The  appellants  therein  are
aggrieved by the BIFR’s scheme which, according to the appellant,  would  be
in serious derogation of the scheme approved by the High Court.

6.    Having noted the broad features of the grievances raised  in  each  of
these appeals we may now take note of certain connected facts on  the  basis
of which we will be required to  decide  the  necessity  and  expediency  to
adjudicate the core question arising in these appeals and the  other  issues
that have been sought to be agitated before us.  It has already been  stated
in the earlier part of this order that the Respondent Company is  the  owner
of vast tracts of immovable property in and around Kolkata which  has,  with
the passage of time, appreciated in value.  Way back in  the  year  1988  an
area of about 24 acres of land owned by the Company  was  acquired  for  the
purpose of building, maintenance, management and  operation  of  the  second
Vivekananda Bridge across the river Hoogly.  In the  year  2003  provisional
compensation was assessed at Rs.21,28,21000/- and on  deposit  of  the  said
amount possession of the land was taken over.  The acquisition of  the  land
came to be challenged before the High Court and the said challenge was  also
carried to this Court.  The net result of the aforesaid exercise(s)  was  an
enhancement of the compensation initially by the High Court  to  the  extent
of 30% and thereafter by this Court by  fictionally  shifting  the  date  of
entitlement of compensation from the date of  acquisition  to  the  date  of
taking over of possession.  An award dated 30.01.2006 was made in  terms  of
the order of this Court which  had  led  to  further  disputes  between  the
parties.  Eventually, all parties agreed to refer the  matter  to  the  sole
arbitration of a retired Chief Justice of this Court who by  a  final  Award
dated 13.9.2012 awarded an additional compensation package of  Rs.57  crores
along with interest, which on  computation,  would  amount  to  about  Rs.50
crores.  A sum of     Rs.95  crores  has  been  deposited  by  the  National
Highway Authority of India with the Registrar of the Calcutta High Court  on
9.11.2012 in the account of the Respondent  Company.   In  this  manner  the
Respondent Company has received/entitled to receive a sum of  nearly  Rs.170
crores  on  account  of  compensation  for  acquisition  of  the  land.  The
Respondent Company has clearly and categorically and on  the  basis  of  the
precise details of its liabilities has contended  that  even  after  meeting
all its statutory and  contractual  obligations  and  liabilities  it  would
still be left with a surplus of nearly Rs.50 crores  and,  therefore,  would
not be a ‘sick company’ any more.  The  aforesaid  claim/position  has  been
admitted by the appellant in the appeals arising out of SLP  (C)  Nos.39005-
39010/2012 in paragraph ‘I’ of the SLP by stating as follows :

           “It is submitted that in all an amount of Rs.170 crores has been
           paid by NHAI to the Respondent No.22 Company out of which  Rs.95
           crores has been deposited with the Registrar of the  High  Court
           on 9.11.2012 to the  credit  of  the  Respondent  No.22  Company
           pursuant to the award dated 13.9.2012 and as such the Respondent
           No.22 Company would be out of BIFR as it  will  have  a  surplus
           fund available and profits of  about  Rs.50  crores  even  after
           meeting out all losses and liabilities.”


7.    To appreciate the effect of the aforesaid facts on  the  necessity  of
any adjudication of the present appeals, the object behind enactment of  the
SICA and the statutory  scheme  contemplated  by  the  Act  may  be  briefly
noticed. An elaborate exposition  of  the  legislative  history  and  object
behind enactment of the SICA as well as the scheme under provisions  of  the
Act is to be found in  a  recent  pronouncement  of  this  Court  in  Raheja
Univeral Limited v. NRC Limited & Ors.[2]. At the cost of repetition it  may
be usefully recapitulated that the Act was enacted to overcome  the  grossly
inadequate and time consuming institutional arrangements that were  then  in
place for revival and rehabilitation of sick industrial companies.  The  Act
was brought into force to provide timely identification, by an expert  body,
of sick industrial companies and to design suitable rehabilitation  packages
in order to obviate the enormous loss  that  would  be  occasioned  by  such
units going permanently out of business.  The provisions of Sections  15  to
19 contained in Chapter III of the Act dealing with references to the  Board
by the Management of sick industrial companies; enquiries into  the  working
of such companies and the measures to be undertaken by the Board to  make  a
sick industry viable had received a full  consideration  of  this  Court  in
Raheja Univeral Limited (supra). The details in  this  regard  need  not  be
noticed once again save and except that the Act has cast upon the  BIFR  the
duty to cause a detailed inquiry to be made  into  the  functioning  of  any
sick industrial company and to take steps to revive the functioning of  such
company  failing  which  to  refer  the  cases  of  such  companies  to  the
jurisdictional High Court for winding up in accordance with  the  provisions
of the Companies Act.  In this  regard,  specific  notice  must  be  had  of
Section 3(o) of the Act which defines  a  sick  industrial  company  in  the
following terms:

           “(o)  “sick industrial  company”  means  an  industrial  company
           (being a company registered for not less than five years)  which
           has at the end of any financial year accumulated losses equal to
           or exceeding its entire net worth.


                 Explanation.—For the  removal  of  doubts,  it  is  hereby
           declared that an industrial company existing immediately  before
           the commencement  of  the  Sick  Industrial  Companies  (Special
           Provisions) Amendment Act, 1993 registered  for  not  less  than
           five  years  and  having  at  the  end  of  any  financial  year
           accumulated losses equal to or exceeding its entire  net  worth,
           shall be deemed to be a sick industrial company;”



8.    In the present case the  entitlement  of  the  respondent  company  to
receive  a  total  amount  of  Rs.170  crores  (approximately)  by  way   of
acquisition compensation and the payment of Rs.95 crores by  NHAI  which  is
presently lying in deposit with the Registrar of the Calcutta High Court  is
not in dispute.
That the respondent company would be left  with  a  surplus
of about Rs.50 crores after meeting all its  losses  and  liabilities  is  a
common ground  amongst  all  the  contesting  parties.  
The  rehabilitation
scheme framed by the Board by its  order  dated  04.10.1999  is  yet  to  be
implemented.
 In the aforesaid situation keeping  in  view  the  object  and
scheme of the Act and the virtual consensus of the contesting  parties  with regard to the present financial health  of  the  respondent  company  it  is clear that  the  company  can  no  longer  fall  within  the  ambit  of  the expression “sick industrial company” as defined in Section 3(o) of the  Act. Further applicability of SICA to the respondent  company,  therefore,  does not arise.

9.    If the respondent company no longer falls within the ambit of a  ‘sick
industrial company’ as defined by Section 3(o) of the Act and  the  Act  has
ceased to apply to the company and the rehabilitation package worked out  by
the Board has not yet been  implemented,  the  question(s)  arising  in  the
present appeals have surely become academic and redundant.  If that  be  so,
we do not see why we should answer  the  said  question(s)  in  the  present
group of appeals.  Instead, in fitness of things, we should leave  the  said
question (s) open for determination in an appropriate case and as  and  when
the occasion would arise.

10.   In so far as the  other  issues,  particularly,  with  regard  to  the
management of the company is concerned we have already found  that  none  of
the said issues arise from the order of the High Court under  appeal  before
us.
Even otherwise, we will not be justified to go into  any  of  the  said
issues and express any opinion thereon inasmuch  as  this  Court  exercising
jurisdiction under Article 136 of the Constitution is  not  the  appropriate
forum  to  adjudicate  grievances/claims  with  regard  to  the   right   of
management of the affairs of the company by one  group  of  shareholders  or
the other.  
It has been urged before  us  that  several  contentious  issues
with regard to the rights of one group of shareholders or the  other  to  be
in control of the management of the Company had  been  raised  and  some  of
such claims are still pending before  the  High  Court.   
Coupled  with  the
above is the pendency of several other proceedings with regard to  permanent
stay of the winding up of the Company. 
Taking  into  account  all  that  has
been stated above we are of the view that  it  would  be  just,  proper  and
equitable to leave the contesting parties to pursue  their  remedies  before
the High Court or such other forum as may be competent  in  law.    
For  the
present, the Management of the  Company  as  on  date  will  continue  until
orders, if any, varying  the  current  position  are  passed  by  any  forum
competent in law.  
It is made  clear  that  the  above  is  a  mere  working
arrangement that we have considered appropriate  for  the  present  and  the
same should not be understood as any expression of  opinion  by  us  on  the
entitlement of any particular group of shareholders to run  and  manage  the
affairs of the company which issue is left open.

11.   Consequently, all these appeals shall stand disposed of  in  terms  of
our above observations and directions.

                                       ...………………………CJI.
                                        [P. SATHASIVAM]



                                        .........……………………J.
                                        [RANJAN GOGOI]
New Delhi,
September 23, 2013.





                                       -----------------------
[1]    (2006) 11 SCC 771
[2]    (2012) 4 SCC 148

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