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Saturday, November 19, 2016

It is clear from a plain reading of Section 22 A of the Act that the Board can issue a direction not to dispose of assets only to a sick industrial company. There is no dispute that the First Respondent is not a sick industrial company and that it purchased the assets from a sick industrial company in accordance with the Sanctioned Scheme. The BIFR was not correct in passing an order of status quo and directing the First Respondent not to alienate/transfer the assets by its orders dated 05.05.2008 and 30.06.2008. We express no opinion on the jurisdiction of BIFR under other provisions of the Act. It is open to the BIFR to review the implementation of the Sanctioned Scheme and pass suitable directions. As stated supra, the AAIFR held that the Second Respondent has no liability in respect of Kota units which have been sold to the First Respondent. The said findings were not challenged by the First Respondent in the Writ Petition filed in the High Court. The High Court set aside the entire order dated 11.12.2008 without taking note of the findings in favour of the Second Respondent. The petition filed for clarification by the Second Respondent was also dismissed by the High Court. The High Court ought not to have disturbed the findings in favour of the Second Respondent as they were not in challenge in the Writ Petition filed by the First Respondent.= 2016 Nov. http://judis.nic.in/supremecourt/imgst.aspx?filename=44315 - PRESI. SECY, J.K.SYNTS.MAZ.UN.,KOTA&ANR Vs. ARFAT PETROCHEMICALS PVT.LTD & ORS.

                                                              NON-REPORTABLE


                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL No. 8597 of 2010


PRESIDENT/SECRETARY, J.K. SYNTHETICS MAZDOOR  UNION  (CITU),  INDIRA  GANDHI
NAGAR, KOTA & ORS.


                                                           .... Appellant(s)
                                   Versus

ARFAT PETROCHEMICALS PVT. LTD. & ORS.

                                                             ….Respondent(s)

                                    With

                        CIVIL APPEAL No. 8598 of 2010


GENERAL SECRETARY, RAJASTHAN TRADE UNION KENDRA & ANR.


                                                           .... Appellant(s)
                                   Versus

ARFAT PETROCHEMICALS PVT. LTD. & ORS.

                                                             ….Respondent(s)
                                    With

                        CIVIL APPEAL No. 8599 of 2010


M/S J.K. SYNTHETICS LIMITED

                                                           .... Appellant(s)
                                   Versus

M/S ARFAT PETROCHEMICALS PVT. LTD. & ORS.

                                                             ….Respondent(s)



                               J U D G M E N T


L. NAGESWARA RAO, J.

      Civil Appeal Nos. 8597 and 8598 of 2010 are filed by  President,  J.K.
Synthetics Mazdoor Union, Kota  &  Ors.  and  General  Secretary,  Rajasthan
Trade  Union  Kendra  &  Anr.  respectively  against  the   judgment   dated
28.07.2009 of the Rajasthan High Court at Jaipur in Civil Writ Petition  No.
2006 of 2009. Civil Appeal No. 8599 of 2010 is filed by M/s J.K.  Synthetics
Ltd. against the same judgment to a limited extent that the findings in  its
favour   given   by   the   Appellate   Authority   for    Industrial    and
Financial (AAIFR) vide order dated  11.12.2008  were  reversed  without  any
challenge to the same.
The parties will hereinafter be referred to as arrayed in Civil  Appeal  No.
8597 of 2010.  The facts relevant for adjudication of the dispute  in  these
Appeals are as follows:
J.K. Synthetics Limited (now Jay Kay Enterprises Ltd.), who  is  the  Second
Respondent was  declared  a  sick  industrial  company  on  02.04.1998.  The
Industrial Development Board of India (IDBI), who is the  Fourth  Respondent
was appointed as the Operating Agency.  A Draft  Rehabilitation  Scheme  was
submitted on 06.06.2000.  As per the said Scheme, a revival  of  the  cement
units by de-merging them into a separate unit was proposed.   This  was  not
accepted by  the  creditors  and  the  Operating  Agency.    The  Board  for
Industrial and Financial Reconstruction (BIFR) directed an advertisement  to
be issued for a change of management of  the  company  for  the  purpose  of
rehabilitation. The Second Respondent challenged the order dated  06.06.2000
by filing an  Appeal  before  the  AAIFR.   The  AAIFR  circulated  a  Draft
Rehabilitation Scheme for approval on 31.01.2001.   The  AAIFR  allowed  the
said Appeal by its order dated 23.01.2003 by setting aside the order of  the
BIFR dated 06.06.2000.   By the said order, the AAIFR sanctioned  the  Draft
Rehabilitation Scheme dated 31.01.2001 by which  the  proposal  of  the  de-
merger of cement units was accepted.
In the meanwhile,  the  Second  Respondent  entered  into  a  Memorandum  of
Understanding (MoU) with M/s Arafat Petrochemicals  Pvt.  Ltd.  (APPL),  the
First Respondent herein.  According to the said MoU the assets of  the  Kota
Units of Respondent No. 2 were to be sold to Respondent  No.1  for  a  total
consideration of Rs. 15  crores.   The  liability  towards  payment  to  the
workmen was to be borne by APPL.  It is also relevant to mention  here  that
a Tri-Partite Labour Settlement Agreement (TLSA) was  executed  between  the
First Respondent, Second Respondent and the  Labour  Unions  on  09.10.2002.
Another  TLSA  on  the  same  terms  was  entered  into  between  the  First
Respondent, Second Respondent and  Staff  Association  on  22.10.2002.   The
total liability  under  the  TLSAs  worked  out  to  approximately  Rs.43.69
crores.  There is no unanimity between the  parties  on  the  scope  of  the
above mentioned TLSAs.   The  First  Respondent  claims  that  there  is  no
compulsion on its part to provide future  employment  to  all  the  existing
workmen whereas the workmen contend  to  the  contrary.   There  is  also  a
dispute about the obligation of First Respondent to revive the  Kota  units.

On 07.01.2005, the AAIFR sanctioned a Scheme for transfer of the Kota  units
to the  First  Respondent  in  terms  of  the  MoU  dated  19.10.2001.   The
liability of the First  Respondent  was  fixed  at  Rs.52.46  crores  (Rs.15
crores to be paid to JK Synthetics Limited/Second  Respondent  and  Rs.37.46
crores to  be  paid  to  the  workmen).   The  order  dated  07.01.2005  was
challenged by the Appellant in the High Court of  Delhi  by  filing  a  Writ
Petition which was dismissed on 26.07.2005.  The AAIFR refused to  interfere
with the Sanctioned Scheme dated  07.01.2005  on  the  ground  that  it  was
substantially implemented.  By an order dated 30.05.2007 the AAIFR  directed
the BIFR to monitor the implementation of the Sanctioned Scheme.
The Appellant filed Civil Suit No.63 of 2008  in  the  Court  of  Additional
Civil Judge, Kota seeking an injunction against the  First  Respondent  from
selling, removing or dismantling any assets  of  the  Kota  units  till  the
entire amount due to the workmen was  determined  and  settled.    The  said
suit was dismissed on 08.04.2008 on the ground that the  matter  has  to  be
decided under the Industrial Disputes Act, 1947.
On 24.03.2008 a sale deed was executed by the Second  Respondent  in  favour
of the First Respondent for sale of the assets of the Kota units.    In  the
review meeting held on 05.05.2008, the BIFR  took  note  of  the  complaints
that  were  made  regarding  the  sale  of  assets  of  the  Kota  units  as
waste/scrap by the First Respondent.   The BIFR held that  the  interest  of
the workmen have to be safeguarded in accordance with the Sanctioned  Scheme
of 2005.  The BIFR also  held  that  the  Second  Respondent  cannot  escape
responsibility towards the rehabilitation of the Kota  unit  on  the  ground
that there is change in management.   After holding  that  sufficient  steps
have not been taken by the First and Second Respondents towards  revival  of
the Kota Units, the BIFR gave the following directions:
“IDBI (MA) would expeditiously carry out spot inspection of  the  Kota  Unit
and submit a detailed status report to this Board  regarding  implementation
of the SS-03 & SS-05 within a period of 30 days.
M/s JKSL/M/s APPL would maintain status  quo  and  would  not  alienate  any
material/assets whatsoever from the factory site of Kota Unit  till  further
orders from this Board.
Permission is granted to all Association (s)/Union  (s)/  Employees  of  the
company M/s JKSL present today to proceed u/s 22(1) against the company  M/s
JKSL/M/s APPL/their promoter(s)/guarantor (s) for  recovery  of  their  dues
through legal action(s) in appropriate forum(s).
Chief Secretary/ Resident Commissioner, Govt. of Rajasthan shall attend  the
next hearing as fixed by this Board.
Allahabad Bank, Central Bank of India and Syndicate Bank are  exempted  from
attending any further hearing in the matter. The  address  list  be  amended
accordingly,  as  requested  by  the  company.    The  employees  and  other
respondents listed by Hon’ble AAIFR in order of 31.08.2006  be  noticed  for
the next hearing.”

The First Respondent participated in the next review  meeting  held  by  the
BIFR on 30.06.2008.  It  complained  of  no  notice  being  issued  for  the
earlier meeting dated 05.05.2008.  The First Respondent  informed  the  BIFR
that it is not a sick company and no directions can therefore be  issued  to
it.   The BIFR held that the First Respondent was not  right  in  contending
that it does not fall within the purview of the  Sick  Industrial  Companies
(Special Provisions) Act, 1985 (hereinafter referred to as “the  Act’’)  and
need not implement the orders issued by the Board.   The BIFR  directed  the
IDBI to carry out an inspection of the Kota units and to  submit  a  report.
There  was  a  direction  to  maintain  status  quo  in   respect   of   the
material/assets at the factory site of the Kota Units till  further  orders.
There was also a stay on  transfer/alienation  of  land  or  assets  of  the
company without the permission of the Board.   The orders  dated  05.05.2008
and  30.06.2008  of  the  BIFR  were  assailed  by  the  First  and   Second
Respondents before the AAIFR.  The  AAIFR  by  its  order  dated  11.12.2008
dismissed the Appeals filed by the First Respondent and  directed  the  BIFR
to re-examine the exact position relating to the  payment  of  dues  to  the
workmen.  The BIFR was also directed  to  continue  the  monitoring  of  the
Scheme and review the efforts made by the First Respondent  towards  revival
of the Kota units.  The contention of the First  Respondent  that  the  BIFR
has no jurisdiction  over  a  company  which  is  not  a  sick  company  was
rejected.   It is relevant to refer to the findings of the AAIFR  in  favour
of the Second Respondent in paragraphs 38, 39 and  40  of  the  said  order.
In the said paragraphs the AAIFR held that it is only the  First  Respondent
who would be responsible for the payment of the dues to the workmen.   While
holding that the Second Respondent is not liable to make  any  payment,  the
AAIFR allowed the Appeal of the  Second  Respondent  by  setting  aside  the
directions issued by the BIFR to the Second Respondent.
Aggrieved by the order dated 11.12.2008 of the AAIFR, the  First  Respondent
filed a Writ Petition in the Rajasthan High Court.  The High  Court  allowed
the Writ Petition by holding that  the  BIFR  and  the  AAIFR  do  not  have
jurisdiction  to  issue  directions  to  a  company  which  is  not  a  sick
industrial company under Section 22 A of the Act.  Being  aggrieved  by  the
said judgment of the High Court, the Labour Unions filed  Civil  Appeal  No.
8597 and 8598 of 2010.  Civil Appeal  No.  8599  of  2010  is  filed  by  JK
Synthetics Limited aggrieved by the judgment in so far as it set  aside  the
findings in its favour which were not challenged in the Writ Petition.
The only point that falls for consideration in these  Appeals  is  regarding
the scope of Section 22 A of the Act.  Section 22 A is as follows:
“22 A. Direction not to dispose of assets: - The Board  may,  if  it  is  of
opinion that any  direction  is  necessary  in  the  interest  of  the  sick
industrial company or creditors or shareholders or in the  public  interest,
by order in writing direct the sick industrial company not  to  dispose  of,
except with the consent of the Board, any of its assets—
(a)   during the period of preparation or consideration of the scheme  under
section 18; and
(b)   during the period beginning with  the  recording  of  opinion  by  the
Board for winding up of the company under sub-section (1) of section 20  and
up to commencement of the proceedings relating to the winding up before  the
concerned High Court.”

“Sick industrial company” is defined in  Section  3  (1)  (o)  which  is  as
under:
“(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;”
It is clear from a plain reading of Section 22 A of the Act that  the  Board
can issue a direction not to dispose of assets only  to  a  sick  industrial
company.   There is no dispute that the  First  Respondent  is  not  a  sick
industrial company and that it purchased the assets from a  sick  industrial
company in accordance with the Sanctioned Scheme.  The BIFR was not  correct
in passing an order of status quo and directing the First Respondent not  to
alienate/transfer the assets by its orders dated 05.05.2008 and  30.06.2008.
 We agree with the findings of the High Court in the impugned judgment  that
the BIFR does not have competence to issue directions to a company which  is
not a sick industrial company under  Section  22  A  of  the  Act.   We  are
fortified in this view by a judgment of  this  Court  in  U.P.  State  Sugar
Corporation Ltd. v. U.P. State Sugar Corporation Karamchari Association  and
Anr. reported in (1995) 4 SCC 276 wherein it was held as follows:
“It runs counter to the express terms of Section  22  A  of  the  Act  which
confers a limited power on the Board to pass an  order  prohibiting  a  sick
industrial company from disposing of  its  assets  only  during  the  period
specified in Clause (a) and (b).”

Several contentions have been raised by both  sides  during  the  course  of
hearing of these Appeals which we have not  adverted  to  as  they  are  not
relevant for adjudication of the dispute in these  appeals.  We  express  no
opinion on the jurisdiction of BIFR under other provisions of  the  Act.  It
is open to the BIFR to review the implementation of  the  Sanctioned  Scheme
and pass suitable directions.
As stated supra, the AAIFR held that the Second Respondent has no  liability
in respect of Kota units which have  been  sold  to  the  First  Respondent.
The said findings were not challenged by the First Respondent  in  the  Writ
Petition filed in the High Court.  The  High  Court  set  aside  the  entire
order dated 11.12.2008 without taking note of the findings in favour of  the
Second Respondent.  The petition  filed  for  clarification  by  the  Second
Respondent was also dismissed by the High Court.  The High Court  ought  not
to have disturbed the findings in favour of the Second  Respondent  as  they
were not in challenge in the Writ Petition filed by  the  First  Respondent.

For the aforesaid reasons, Civil Appeal Nos.  8597  and  8598  of  2010  are
dismissed.   Civil  Appeal  No.  8599  of  2010  is  allowed.    No   costs.

                      .…............................J.
                 [ANIL R. DAVE]

                                          ................................J.
                             [L. NAGESWARA RAO]

New Delhi,
November 18, 2016

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