REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.10221 OF 2014 @
(SPECIAL LEAVE PETITION (C) NO.5249 OF 2014)
GHANSHYAM SARDA … APPELLANT
Versus
M/S SHIV SHANKAR
TRADING CO. & ORS. ….RESPONDENTS
WITH
CIVIL APPEAL NO.10222 OF 2014 @
(SPECIAL LEAVE PETITION (C) NO.5897 OF 2014)
GHANSHYAM SARDA … APPELLANT
Versus
M/S SHIV SHANKAR
TRADING CO. & ORS. … RESPONDENTS
CIVIL APPEAL NO.10223 OF 2014 @
(SPECIAL LEAVE PETITION (CIVIL) NO.8610 OF 2014)
JK JUTE MILL MAZDOOR
EKTA UNION … APPELLANT
Versus
M/S SHIV SHANKAR
TRADING CO. & ORS. … RESPONDENTS
CIVIL APPEAL NOS.10224-10225 OF 2014 @
(SPECIAL LEAVE PETITION (C) NOS.8611-8612 OF 2014)
JK JUTE MILL MAZDOOR
EKTA UNION … APPELLANT
Versus
M/S SHIV SHANKAR
TRADING CO. & ORS … RESPONDENTS
CIVIL APPEAL NO.10226 OF 2014 @
(SPECIAL LEAVE PETITION (CIVIL) NO.6412 OF 2014)
GHANSHYAM SARDA … APPELLANT
Versus
M/S JK JUTE MILLS
CO. LTD. & ANR. … RESPONDENTS
CONTEMPT PET. (C) NO.338 OF 2014 IN
(SPECIAL LEAVE PETITION (CIVIL) NO.5249 OF 2014)
GHANSHYAM SARDA …PETITIONER/
APPLICANT
Versus
SASHIKANT JHA, DIRECTOR M/S JK
JUTE MILLS CO. LTD. & ORS. … RESPONDENTS
AND
CONTEMPT PET. (C) NO.375 OF 2014 IN @
(SPECIAL LEAVE PETITION (CIVIL) NO.8610 OF 2014)
JK JUTE MILLS MAZDOOR …. PETITIONER/
EKTA UNION APPLICANT
Versus
SASHIKANT JHA, DIRECTOR M/S JK
JUTE MILLS CO. LTD. & ORS. … RESPONDENTS
J U D G M E N T
UDAY UMESH LALIT, J.
1. Permission to file SLP granted in SLP(C) Nos.8611-12/2014. Leave to
appeal granted in all Special Leave Petitions.
2. All these Special Leave Petitions arise out of a common judgment and
order dt. 06.01.2014 passed by the High Court of Gauhati in FAO No. 10 of
2013 and Writ Petition Nos. 4303 of 2013 and 6286 of 2013 and are being
disposed by this common judgment and order. These petitions raise questions
regarding scope and ambit of Sections 22(1), 26 and 32(1) of the Sick
Industrial Companies (Special Provisions) Act 1985, hereinafter referred to
as the Act.
3. A company named J.K. Jute Mill Company Ltd. (hereinafter referred to
as ‘the company’) having its registered office at Kanpur, Uttar Pradesh
filed Reference No. 149 of 1994 before the Board for Industrial and
Financial Reconstruction (“BIFR” for short) under the provisions of the
Act. Though the scheme was initially sanctioned for reconstruction, the
BIFR subsequently held the scheme to have failed and directed the company
to be wound up. These orders were stayed by the Appellate Authority for
Industrial and Financial Reconstruction (“AAIFR” for short) and further
proceedings before the BIFR continued. While the matter was thus pending,
“Sarda Group” took over the Company through Rainey Park Suppliers Private
Ltd. (RPSPL) in 2007. BIFR by its order dated 17.12.2008 approved such
take over of the management. The management of the company was handed
over to Shri Govind Sarda. It appears that in 2009, Shri Govind Sarda
assigned the debt held by RPSPL in favour of an entity named Libra Retailer
Pvt. Ltd. (LRPL) and he is stated to have handed over Jute Mill of the
company to a third party. As he failed to revive the company, show cause
notice for winding up was issued by the BIFR. This action was challenged
by the Company by filing Appeal No. 186 of 2009 before the AAIFR which
appeal is still pending.
4. At this stage, Shri Ghanshyam Sarda, (hereinafter referred to as the
present appellant) filed an application for impleading himself in the
proceedings which application was accepted by AAIFR. Upon this order being
challenged, the High Court of Delhi in W.P. No.2839 of 2010 held the
present appellant to be entitled to present his point of view in the form
of proposal/scheme, which order was confirmed by this Court by dismissing
Special Leave Petition filed at the instance of the Company. In terms of
the aforesaid orders the BIFR impleaded the present appellant who
thereafter submitted a proposal for revival of the company and also filed
MA No.162 of 2012 in the BIFR for restoration of shareholding pattern. On
18.02.2013 the BIFR issued directions to the operating agency to consider
the scheme of the present management and the scheme submitted by the
present Appellant and thereafter submit a fully tied up Draft Revival
Scheme (“DRS” for short). The BIFR fixed the next date for hearing of MA
162 of 2012 on 04.04.2013. In the proceedings dated 27.02.2013, it was
decided that the DRS be circulated seeking objections and suggestions from
all the concerned.
5. On 03.04.2013, two applications were filed before the BIFR by M/S
Shyam Jute Supplier, Chindwara M.P. and M/S Shiv Shankar Tranding Co. &
Ors, Gauhati Assam (hereinafter referred to as ‘SSTC’) signed by the same
person through same Counsel stating that they were unsecured creditors and
sought permission from the BIFR to institute Civil Suit for recovery of
money stated to be recoverable from the company. On 04.04.2013 the BIFR
held a hearing to consider the change in the share holding pattern of the
company without due permission from BIFR. At that stage Counsel appearing
for the Company submitted that Application No. 162 of 2012 could not be
considered as the BIFR no longer retained jurisdiction over the Company.
It was submitted that in the Audited Balance-Sheet for the period of nine
months i.e. 01.04.2012 to 31.12.2012 the net worth of the Company having
turned positive, the Company ought to be discharged from the BIFR. Learned
counsel appearing for Shyam Jute Supplier and SSTC supported such
submissions.
6. Paragraphs (4.1, 4.3, 4.4, 4.8, 4.12 and 4.13) of the proceedings
dated 04.04.2013 are quoted here under which are self eloquent.
“4.1. Today’s hearing (04.04.2013) was fixed for consideration of MA No.
162/BC/2012 filed by Shri Ghanshyam Sarda praying as under:
Declare that the change in shareholding pattern to the extent the same
reduces the shareholding of RPSPL from 86.23% to 5.34% without approval of
BIFR as null and void;
Restore the management and the shareholding pattern of JKJMCL as approved
by the learned BIFR vide its order dated 18.09.2008.
Initiate action under section 33 read with section 34 against the
management for changing the shareholding pattern of the sick company
without seeking permission from BIFR; and
Appoint a special director (BIFR Nominee) in the Board of the Company to
look into and monitor its affairs;
Pass such other further order(s) as this Hon’ble BIFR may deem fit and
proper in the facts and circumstances of the case;
4.3. Shri Sudhansu Batra, Sr. Advocate appearing on behalf of the Sick
Company intervened and stated the MA NO. 162/BC/2012 cannot be considered
today since BIFR no longer retains jurisdiction over the company. Shri
Batra, Sr. Advocate stated that the Balance sheet as on 31.12.2012 has been
audited which shows that the networth of the company has turned positive
and the company has to be discharged from BIFR. Upon a query from the
Bench, Shri Sudhansu Batra, Sr. Advocate stated that the company has
already filed a letter dated 25.03.2013 with the BIFR informing that the
networth of the company as on 31.12.2012 has turned positive. Upon a query
from the Bench, Shri Sudhansu Batra, Sr. Advocate stated that the financial
period of the company is normally for 12 months but this year the accounts
have been closed by auditing the balance sheet for 9 months period from
01.04.2012 to 31.12.2012. The Ld. Senior Advocate prayed that in view of
the networth turning positive the company should be discharged from the
BIFR. The Ld. Senior advocate argued that there are no provision under SICA
for deregistration of a reference when the net worth becomes positive and
the Sick Company is not required to make a formal application to the BIFR
for discharge when the company’s net worth becomes positive. The Ld.
Advocate further stated that the sickness of the company is to be decided
ex facie on the basis of the audited Balance Sheet and as the Audited
Balance Sheet as at 31.12.2012 is showing positive Networth, BIFR ceases to
have any jurisdiction. The Ld. Senior Advocate to support of this
submissions referred to and relied upon the judgment passed by Hon’ble
Delhi High Court in the case of: Cahtolic Syrian Bank V/s BIFR & Ors. On a
query from the bench that assuming the networth has turned positive whether
BIFR would automatically lose its jurisdiction or BIFR still has the powers
to examine the audited balance sheet and formally pass an order of
discharge, Shri Sudhansu Batra Sr. Advocate agreed and in fairness conceded
that before discharging the company, the BIFR can examine the audited
balance sheet as on 31.12.2012 by all means and methods and satisfy itself.
Shri Sudhansu Batra, Sr. Advocate stated that his clients is not required
to file an application seeking discharge and BIFR on its own may examine
the audited Balance Sheet and discharge the company from BIFR.
4.4. Shri Ashish Mohan, Advocate appearing for an unsecured creditor
stated that his clients have filed application seeking impleadment as well
as permission under section 22(1) of SICA to file recovery proceedings
against the management of the company; but in view of the networth of the
company turning positive the company may be discharged from BIFR so that
his clients may file recovery suit against the company. The learned
Advocate stated that since the networth of the Sick Company has turned
positive, he would not be pressing any of his application (s) and would
take legal recourse against the company in court of law.
4.8 The representatives of IDBI (OA) stated that they are not in a
position to comment upon the Audited Balance Sheet as on 31.12. 2012
without examining the same. The OA further stated that the ASC is going
ahead as per its schedule and the next meeting of the ASC is on 16.04.2013.
The Bench observed that the ASC may go ahead with its schedule and that ASC
should do nothing more at present except opening and evaluating the bids
and submit its report on such evaluation to the BIFR and that BIFR shall
take a final view upon the bids and the sale of assets at the time of
approval of DRS. The bench further observed that DRS has already been
circulated on 26.02.2013 and the objections & suggestions shall be
considered on 20.05.2013. Till such time either the Bench considers the DRS
or discharge the company from SICA; the Bench shall safeguard the assets of
the company and retain its jurisdiction over the company/its assets.
4.12. The Bench stated that they would consider the arguments of the
parties including the arguments of Mr. Aggarwal on the next date of
hearing. The Bench also observed that as per the Company’s ABS as on
31.03.2012, (12 months) the networth of the company is Rs. 5.71 crores and
the accumulated losses are Rs. 36.23 crores and it would like to satisfy
itself about the Balance Sheet as at 31.12.2012 to which Mr. Batra agreed
that the BIFR could undertake such an exercise. Since the issue of lack of
jurisdiction has been raised; the Bench would decide the said issue
alongwith MA No. 162/BC/2012.
4.13. Having considered the submissions made in the hearing, materials on
record, the Bench issued the following directions:
(i)The company to submit certified copy of its ABS as on 31.12.2012 along
with all relevant papers & documents in support of its networth within one
week from today with copy to the IDBI (OA) and all concerned parties
alongwith documentary evidence;
(ii) The ASC would go-ahead as per its schedule and confirmation of sell,
if any will take place upon approval of DRS on 20.05.2013, with the consent
of Bench.
(iii) The Bench fixed the next date of hearing on 26.04.2013 at 11.30 AM
for considering the submission of the Company that its networth has turned
positive as on 31.12.2012 and also hear the MA No. 162/BC/2012 on the said
date.”
7. At this stage some of the other proceedings need a mention. J.K.
Jute Mazdoor Sabha filed Writ Petition No. 22897 of 2013 before the
Allahabad High Court on 25.04.2013 challenging the BIFR’s order dated
04.04.2013. Said Writ Petition having been dismissed by a Single Judge, in
an appeal therefrom the Division Bench in its order dated 01.05.2013
observed that the BIFR would be in a better position to assess the net
worth position of the company. In the meantime, Shyam Jute Suppliers
approached the High Court of Madhya Pradesh by filing Writ Petition No.7534
of 2013 questioning the order dated 04.04.2013 of the BIFR. The petition
was dismissed by a Single Judge on the ground of lack of territorial
jurisdiction which order was approved in appeal by the Division Bench of
the High Court.
8. On 22.04.2013, SSTC filed Title Suit No. 166 of 2013 in Civil Court
at Kamroop, Gauhati against the Company adding BIFR as proforma defendant.
It was inter alia averred
“…. Now it appears from the balance sheet of the defendant company filed
before the proforma defendant that its net worth had become positive. In
view of the said admission on the part of the defendant No. 2 it is no
longer a sick establishment under the Sick Industrial Companies (Special
Provisions) Act, 1985 and consequently the proforma defendant No. 2 has
ceased to have jurisdiction over the defendant No. 1 and as such the
defendant No. 1 is no longer entitled to any benefit under the Sick
Industrial Companies (Special Provisions) Act, 1985. Thus the defendant No.
1 under the aforesaid facts and circumstances has become liable to be sued
in a Civil Court of competent jurisdiction with effect from the date the
2012 balance sheet as submitted by it before the proforma defendant No. 2
and the proforma defendant ceased to have any jurisdiction whatsoever.”
The plaintiff prayed for declaration, inter alia, that the company
was no longer a sick company within the meaning of the Act and that the
BIFR ceased to have jurisdiction over the company and all the proceedings
in BIFR after filing of positive balance-sheet be declared without
jurisdiction. The Civil Court by its order dated 23.04.2014 while issuing
notices to the defendants directed that status-quo be maintained in respect
of the BIFR case till the next date of hearing.
9. The company filed its written objections on 13.05.2013. Though the
claim of the plaintiff and its entitlement to recover the sum stated to be
due was denied, the company accepted that it was no longer a sick company.
The relevant averments were to the following effect.
“……. That the answering opposite party humbly states that the statements
made in paragraph number 1 of Misc. (J) Case No. 254/13 are to the extent
that the opposite party is no longer a sick establishment is not denied.”
“ …. That the answering opposite party admits the statement made in
paragraph number 10 and admit that on and from the financial year 2012-2013
it is no longer a sick company. The balance sheet is also admitted. The
rest of the statements regard jurisdiction is a matter of fact and law and
the opposite party has no comment to offer.”
10. The matter came up before the Civil Court on 13.05.2013. It noted
the aforementioned stand and in view of such admitted position held that
the BIFR ceased to have any jurisdiction over the defendant company. It was
observed:-
“…. But a question that is still required to be answered at this juncture
is as to whether this Court has the jurisdiction to grant the relief of
temporary injunction as sought for in the instant case. Section 26 of the
SICA, which provides inter alia that 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, shall not be
applicable to the opposite party no. 1 company any more as it is no more a
sick industrial company admittedly and the provisions of the SICA are not
applicable to it anymore, and, therefore, the civil court will definitely
have jurisdiction over it. Hence, this Court has jurisdiction to grant the
relief as sought for in the instant case….”
In the premises, the Civil Court restrained the defendants including
the BIFR from proceeding with BIFR case no. 149 of 1994. Neither the
Plaintiff nor the Company at any stage placed on record before the Civil
Court the proceedings dated 04.04.2013 of the BIFR nor was the Civil Court
appraised of the fact that the Plaintiff had sought leave under Section 22
(1) of the Act from the BIFR to file the Civil Suit.
11. In the meantime while dealing with appeals preferred against the
orders of the BIFR including one dated 27.02.2013, the AAIFR was appraised
that the issue of Net worth was under consideration of the BIFR, so vide
its order dt.16.05.2013 it preferred to await such decision. In the
subsequent proceedings of the same day i.e. 16.05.2013 the aforesaid order
of the Civil Court was placed before the BIFR which observed that it had
not given any permission under Section 22 (1) of the Act to SSTC to file
any recovery suit against the company and the matter was adjourned in the
presence of the counsel concerned for considering the submission of the
parties on the issue of net worth as on 31.12.2012. It was further
observed that in the absence of permission under Section 22 (1) the suit
filed by SSTC was not competent and that, the company had not yet been de-
registered from BIFR and a filing of Civil Suit without taking permission
was violative of the Act. Taking note of the order of the AAIFR dated
16.05.2013 and the order passed by the High Court of Allahabad dated
01.05.2013, it was observed that it had to decide the issue whether the net
worth of the company had turned positive or not. The BIFR thus directed
the parties to file their written submission on the aspect of the net worth
of the company as on 31.12.2012.
12. On 30.05.2013, the present appellant filed an application for
impleadment as defendant in the aforesaid Suit. Adverting to the orders
passed by the BIFR and AAIFR impleading him in the proceedings before the
BIFR and the subsequent orders passed by the Division Bench of the High
Court of Delhi and this Court on his impleadment and the fact that he had
submitted a proposal for revival, the present appellant prayed that he be
impleaded in said suit as a defendant. The present appellant thereafter
filed FAO No.10 of 2013 before Gauhati High Court challenging the Civil
Court’s order dated 13.05.2013. A learned Single Judge after preliminary
hearing by his order dated 14.06.2013 admitted the appeal for hearing and
also passed interim order to the effect that no third party rights in
respect of the property of the respondents/defendants be created during the
pendency of the appeal.
13. In the meantime, the matter appeared before the BIFR on
01.07.2013. It prima facie was of the view that the Audited Balance-Sheet
as on 31.12.2012 of the company did not reflect true and fair view and that
the matter required examination as to how the net worth of the company, all
of a sudden, turned positive. It was observed that SSTC was not granted
any permission by the BIFR under Section 22 (1) of the Act and the suit of
SSTC was not competent, that SSTC had suppressed the fact from the Civil
Court and that the order passed by the Civil Court being without
jurisdiction was a nullity in the eyes of law and not binding upon the
BIFR. It was further observed that the BIFR had to satisfy itself whether
the net worth had turned positive due to some positive development and not
merely by manipulation of the accounts. In the premises it directed the
State Bank of India to appoint independent auditor for Special
Investigative Audit and to file its report about net worth position of the
company as on 31.12.2012.
14. SSTC who was the original plaintiff in the aforesaid Suit filed Writ
Petition No. 4303 of 2013 in Gauhati High Court challenging the orders
dated 16.05.2013 and 01.07.2013 of the BIFR. Said Writ Petition came up
before the Single Judge who by his order dated 01.08.2013 impleaded the
present appellant as Respondent No. 3 in the Writ Petition and further
directed that till the next date of hearing further proceedings in BIFR
case No. 149 of 2014 shall remain stayed. Subsequently, the matter
appeared before the Single Judge again who, on 14.08.2013 directed that the
matter be placed before Hon’ble the Chief Justice for directions whether
the Writ Petition could be heard along with FAO No.10 of 2013.
15. On 04.09.2013, State Bank of India as directed by the BIFR submitted
the Report of the Special Investigative Audit pointing out the manipulation
in the balance-sheet submitted by the company and that the net worth of the
company as on 31.12.2012 was in fact on the negative side by Rs.36 crores
in nine months. In the proceedings before the BIFR dated 05.09.2013, the
aforesaid Report was taken on record and comments from the parties were
invited.
16. Immediately the company filed Writ Petition No.4286 of 2013 before
Gauhati High Court questioning the order dated 05.09.2013 of the BIFR. The
matter came up before a Single Judge on 30.09.2013 who issued rule in the
Writ Petition and by way of interim order directed that further proceedings
in BIFR case No.194 of 1994 shall remain stayed. This order was vacated by
Division Bench of the High Court in Writ Appeals vide its order dated
14.11.2013. These three matters namely FAO No.10 of 2013 and Writ Petition
Nos.4303 and 6286 of 2013 were thereafter clubbed and posted before the
Single Judge on 21.11.2013, who adjourned the matters to 04.12.2013 and
observed that since the Court was in seisin of the matter it was expected
that the BIFR may not proceed further with the case till conclusion of the
hearing before the learned Single Judge. In deference to the aforesaid
order dated 21.11.2013, the BIFR adjourned the case.
17. These three matters then came up before the High Court which
observed that FAO No.10 of 2013 was filed by the present appellant who was
not yet a party before the Civil Court and that said FAO which was filed
without seeking appropriate leave of the Appellate Court was not
maintainable and as such it was not necessary to enter upon deliberations
on merits of the matter. The High Court was of the view that since the
application for impleadment was still pending before the Civil Court, as
and when the present appellant was impleaded as defendant in the suit, it
would then be open to him to file such application for variation or setting
aside of the order of injunction. It was held that in the absence of any
challenge, the order of injunction was still in operation and that until
and unless such order was vacated and recalled by appropriate judicial
forum, the same had to be respected and given effect to. The High Court
also disposed of Writ Petitions on the ground that since all the
proceedings before BIFR stood stayed, further proceeding in BIFR would be
of no legal consequence. It was further observed that one of the members
of BIFR having recused himself from hearing the case on the earlier
occasions as noted in the order dated 31.01.2013, of the BIFR, said member
ought not to have participated in any further proceedings.
18. This common order passed by the High Court has given rise to six
Special Leave Petitions, three by present appellant namely SLP No. 5249,
5897 and 6412 challenging the order of the High Court in respect of FAO
No.10 of 2013, Writ Petition No.4303 of 2013 and Writ Petition No.6286 of
2013 respectively. The other three petitions are by J.K. Jute Mill Mazdur
Ekta Unions being Special Leave Petition Nos. 8610, 8611 and 8612 of 2014
against the aforesaid order in respect of three proceedings as stated above
respectively. This Court issued notice in the matter on 24.03.2014 on which
date the company had appeared on caveat. By order dated 08.05.2014, it was
directed that till further orders the capital assets of the Company shall
not be disposed of without taking permission of this court. Soon thereafter
Civil Contempt Petition Nos.338 and 375 of 2014 were filed by the present
appellant and J.K. Jute Mills Mazdoor Union contending inter alia that in
violation of order dated 08.05.2014, the contemnors in the petition had
caused certain properties of the Company to be transferred. During the
pendency of these matters SSTC assigned in favour of M/s Goodlife Merchants
Pvt. Ltd. all the rights in respect of the debt of the Company.
19. All the aforesaid matters were taken up for hearing together by this
Court. Appearing for the present appellant, Mr. Kapil Sibal, learned
Senior Counsel submitted that the Act is a complete code in itself and
given the true scope and purport of Sections 22 , 26 and 32 of the Act, the
jurisdiction of the BIFR over any company in question would continue till
its formal discharge by BIFR either after the net worth of the company
turned positive by successful implementation of the scheme or by the order
of winding up passed in respect of such company. It was further submitted
that the BIFR alone will have competence and jurisdiction to declare a
company which was once a sick company, to be no longer sick and discharge
it from the purview of the Act and that the Civil Court will not have
jurisdiction or competence to decide these questions. It was further
submitted that the Civil Court is not the appropriate forum and lacks
jurisdiction to examine the correctness of the annual accounts and conclude
whether the company in question was no longer amenable to be dealt with
under the Act. In support of his submissions, reliance was placed on the
decisions of this Court in Managing Director Bhoruka Textiles Limited Vs.
Kashmiri Rice Industries[1] and Raheja Universal Limited Vs. NRC Limited &
Ors.[2] Appearing for J.K. Jute Mill Mazdur Ekta Union, Shri Krishnan
Venugopal and Shri R.P. Bhatt, learned Senior Counsel adopted the
submissions of Shri Sibal. Shri Venugopal, learned Senior Counsel also
invited the attention of this Court to the report of the State Bank of
India to show how the net worth of the company was still on the negative
side. Shri Kapil Sibal and Shri Sanjeev Sen, learned Senior counsel also
invited the attention of the Court and submitted that the alleged
contemnors in aforementioned Contempt Petitions had flagrantly violated
orders of this Court.
20. Shri Guru Krishna Kumar, learned Senior Counsel appearing for
SSTC original plaintiff and the transfree M/s Goodlife Merchants Pvt. Ltd.
in all the matters submitted that since the audited balance-sheet as on
31.12.2012 showed the net worth of the company on positive side, the
company was out of the purview of the provisions of the Act and it was
competent for the company to claim itself to be no longer amenable to the
jurisdiction of the BIFR. It was submitted that it was open to assert,
upon the net worth being positive, that the company ipso facto was no
longer amenable to the jurisdiction of the BIFR. In support, reliance was
placed on the view taken by the High Courts of Calcutta[3], Madras[4] and
Delhi[5]. Dr. A.M. Singhvi and Shri Harin Rawal, learned Senior Counsel
appearing for the company submitted inter alia that while the matters were
pending before this Court, the Trial Court by its order dated 29.08.2014
had allowed the application for impleadment filed by present appellant in
Title Suit No.166 of 2013 and that it was now open to the present appellant
to go before the Trial Court and ask for variation and modification of the
order of injunction passed by it. It was submitted that BIFR which is a
Tribunal with limited jurisdiction could not have disobeyed the order of
the Civil Court. Relying on the views taken by the High Courts of
Calcutta, Madras and Delhi in the aforestated cases it was submitted that
there was no provision in the Act under which BIFR could pass an order
discharging a company under the Act and as such the matter could lie in the
domain of the Civil Court. Shri C.U. Singh, learned Senior Counsel
appearing for LRPL, one of the secured creditors, adopted the submissions
and further submitted that various proceedings before the BIFR actually
showed that the members of the BIFR were biased against the Company.
21. Before we deal with the legal issues involved in the matter certain
factual facets of the matter need clarification and assessment. During the
course of submissions, it was submitted that the Counsel appearing for the
company had never agreed before the BIFR on 04.04.2013 that the BIFR could
examine the audited balance sheet itself to satisfy whether the net worth
of the company had turned positive or not. In support, reliance was placed
on letter dated 18.04.2013 stated to have been written on behalf of the
company to the Secretary Bench 3, BIFR, copy of which letter was also
placed on record. Said letter purportedly stated that the recording of
such submission was wrong and that the learned counsel had never submitted
that before discharging the company the BIFR could examine the audited
balance sheet and satisfy itself. Be it noted that the letter was not
written by the learned counsel nor any affidavit was sworn by the learned
counsel denying such factum. Furthermore, in none of the subsequent
proceedings after 04.04.2013, as per the record of the BIFR, any argument
disputing or denying such submission appears to have been made, nor is
there any reference in the subsequent proceedings to the letter dated
18.04.2013. In the circumstances we deem it appropriate to proceed on the
basis that the submission was in fact made by the learned counsel and it
was so rightly recorded by the BIFR in its proceedings dated 04.04.2013.
Secondly, it has been accepted by the company that property at Saif
Ganj, Katihar belonging to the company has in fact been sold. At this
stage, it may be useful to quote from the written submissions filed on
behalf of the company and the relevant portion reads as under:
“A sale deed of the Kathihar property was executed on 2.4.2013 for Rs.3.55
crores in favour of Thapar Herbs & spices Ltd. and the sale consideration
was received on 4.4.2013. On 16.4.2013, the constructive possession was
handed over and registration fee of Rs.35.00 lacs was paid by the
Purchaser. As per the Revenue Department, the stamp duty was higher than
affixed and the matter was pending adjudication and thereafter, final
registration was done on 16.4.2014. Under the Bihar local stamp laws,
since over a year had lapsed, a fresh sale deed was presented. The
difference of registration fee was paid by the purchaser on 16.6.2014. On
2.7.2014, the sale deed was presented which act of presentation was only
ministerial.”
This would mean that even before the hearing of the matter before the
BIFR on 04.04.2013 the property was sold. The record does not indicate
anywhere that the factum of such sale was ever brought to the notice of the
BIFR on 04.04.2013 or thereafter nor was it disclosed that the Rs.3.55
crores were received by way of consideration. Furthermore, when this Court
issued notice on 24.03.2014 when the company had appeared on caveat and
subsequently passed interim order on 08.05.2014, nothing was disclosed to
this Court that the property had been sold.
22. We may also at this stage deal with submission regarding effect of
order dated 29.08.2014 of the Civil Court impleading the present appellant
as defendant. Confining itself to the question of competence of the
present appellant to file the appeal without leave of the court, the High
Court had not dealt with legal issues, namely what shall be the effect of
sections 22, 26 and 32 of the Act insofar as the present controversy is
concerned. It was therefore submitted on behalf of the company that since
the appellant now stands impleaded, he be left to pursue appropriate
remedies before the Trial Court. We are not persuaded to agree with this
submission to relegate the matter to the Trial Court and we proceed to deal
with the legal issues involved in the matter inasmuch as the matter raises
basic issues concerning jurisdiction of the Civil Court itself. The
learned Counsel appearing for the Original Plaintiff as well as the company
have also advanced submissions on the legal issues in question and we
therefore deem it appropriate to deal with such issues.
23. At this juncture the question regarding maintainability of the appeal
before the High Court needs to be dealt with. As the facts indicate, FAO
was admitted after hearing the respondents. Neither at that stage nor at
any subsequent stage anything was filed by way of formal opposition to the
filing of such appeal without the leave of the Court. Further the status
of the present appellant to present his point of view in the form of
proposal or scheme before the BIFR was accepted right up to this Court and
he had thereafter been represented before the BIFR. The proceedings dated
04.04.2013 also indicate that the BIFR was in seisin of MA NO.162 of 2012
preferred by him. He was also impleaded as respondent in the writ
petitions which were dealt with along with the said FAO. The present
appellant was thus not a stranger to the controversy. There is nothing in
Order XLIII Rule 1 of the Code of Civil Procedure that leave to appeal has
to be applied for in any particular format. In the circumstances, the High
Court was not justified in dismissing the appeal on a technical ground and
it ought to have considered the merits of the matter. We hold the appeal
preferred by the present appellant to be maintainable and proceed to
consider the basic issues involved in the matter.
24. Sections 22(1), 26 and 32(1) of the Act, the ambit and scope of which
fall for our consideration are quoted hereunder:
22. Suspension of legal proceedings, contracts, etc.—
Where in respect of an industrial company, an inquiry under Section 16
is pending or any scheme referred to under section 17 is under preparation
or consideration or a sanctioned scheme is under implementation or where an
appeal under section 25 relating to an industrial company is pending, then,
notwithstanding anything contained in the Companies Act, 1956 (1 of 1956),
or any other law or the memorandum and articles of association of the
industrial company or nay other instrument having effect under the said Act
or other law, no proceedings for the winding up of the industrial company
or for execution, distress or the like against any of the properties of the
industrial company or for the appointment of a receiver in respect thereof
and no suit for the recovery of money or for the enforcement of any
security against the industrial company or of any guarantee in respect of
any loans or advance granted to the industrial company shall lie or be
proceeded with further, except with the consent of the Board or, as the
case may be, the Appellate Authority.
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.
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
provisons of the Foregin Exchange Regulation Act, 1973 (46 of 1973) and the
Urban Land (Ceiling and Regulation ) Act, 1976 (33of 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.
25. Chapter III of the Act details out various stages at which inquiry
into the working and status of sick industrial companies and the scheme for
revival is undertaken. Upon a reference to the Board or upon information
received with respect to financial conditions of any industrial company,
the Board is empowered under Section 16 to conduct such inquiry as it may
deem fit for determining whether such company has become a sick industrial
company. After being so satisfied, the measures which could be taken up to
enable the company to make its net worth exceed the accumulated losses that
is to say to make it positive are postulated in Section 17. Under Section
17(1) the Board may by order in writing allow an industrial company to
revive itself, if it is practicable so to do within a reasonable time. If
it is not so practicable, it may direct any operating agency to prepare a
scheme for the revival of such company. In other words, once the reference
is registered, it is the BIFR which supervises the aspects leading to the
revival of such company. Subsequent sections deal with the preparation and
sanction of scheme for revival of such company and empower the Board to
have dominion over such company to enable the revival of that Company and
in cases where such revival is not possible, to recommend the winding up of
such company. It is clear that after a reference is registered by the
Board, all throughout the subsequent stages, the BIFR has complete
supervisory control over the affairs of such company till it is revived or
the decision to wind up such company is taken. In our view, the ambit and
extent of such control means and includes determination of such measures to
achieve revival of the sick company and to check whether by such measures
the revival is being achieved or not. This must cover the power to decide
at any stage subsequent to the registration of reference under Section 16
whether such company has ceased to be sick company or not. Cessation of
the status as a sick company can be under Section 17(1) or as a result of
scheme for revival being implemented and determination of such issue, in
our view, is in the exclusive domain of the BIFR.
26. In Raheja Universal Limited Vs. NRC Limited2, it was observed
in para 48 thus:
“Chapter III, in fact, is the soul and essence of SICA 1985 and it provides
for the methodology that is to be adopted for the purpose of detecting,
reviving or even winding up a sick industrial company. Provisions under
SICA 1985 also provide for an appeal against the orders of BIFR before
another specialized body i.e. AAIFR. To put it simply, this is a self-
contained code and because of the non obstnace provisions, contained
therein,it has an overriding effect over the other laws. As per Section 32
of SICA 1985, the Act is required to be enforced with all its vigour and in
precedence to other laws.”
The Act is a self-contained Code and has conferred upon the BIFR
complete supervisory control over a sick industrial company to adopt such
methodology as provided in Chapter III for detecting, reviving or winding
up such sick company. The authority to determine the existence and extent
of sickness of such company and to adopt methodology for its revival are,
in the exclusive domain of the BIFR and by virtue of Section 26 there is an
express exclusion of the jurisdiction of the Civil Court in that behalf.
27. As laid down by this Court the Act is a complete Code in itself. The
Act gives complete supervisory control to the BIFR over the affairs of a
sick Industrial Company from the stage of registration of reference and
questions concerning status of sickness of such company are in the
exclusive domain of the BIFR. Any submission or assertion by anyone
including the Company that by certain developments the Company has revived
itself and/or that its net worth since the stage of registration having
become positive no such scheme for revival needs to be undertaken, must be
and can only be dealt with by the BIFR. Any such assertion or claim has to
be made before the BIFR and only upon the satisfaction of the BIFR that a
sick company is no longer sick, that such company could be said to have
ceased to be amenable to its supervisory control under the Act. The
aspects of revival of such company being completely within its exclusive
domain, it is the BIFR alone, which can determine the issue whether such
company now stands revived or not. The jurisdiction of the civil court in
respect of these matters stands completely excluded.
28. Unlike cases where the existence of jurisdictional fact or facts, on
the basis of which alone a Tribunal can invoke and exercise jurisdiction,
is or are doubted, stand on a different footing from the one where
invocation and exercise of jurisdiction at the initial stage is not
disputed but what is projected is that by subsequent or supervening
circumstances the concerned Tribunal has lost jurisdiction. In the present
case the fact that the company was registered as a sick company is not
doubted nor has it been contended that the BIFR had wrongly assumed initial
jurisdiction. But what is projected is that the net worth having become
positive the BIFR has now lost jurisdiction over the company. In our view,
the BIFR having correctly assumed jurisdiction and when all the financial
affairs of such company were directly under the supervisory control of the
BIFR, the power to decide whether it has since then lost the jurisdiction
or not, is also in the exclusive domain of the BIFR. The BIFR alone is
empowered to determine whether net worth has become positive as a result of
which it would cease to have such jurisdiction. Any inquiry into such
issue regarding net worth by anyone outside the Act including civil court,
would be against the express intent of the Act and would lead to
incongruous and undesired results. The suit as framed seeking declaration
that the company was no longer a sick company within the meaning of the
Act, was therefore not competent and maintainable. The Civil Court was not
right and justified in issuing injunction as it did. The counsel who
represented the company before the BIFR on 04.04.2013, correctly submitted
that before discharging the company the BIFR can examine the audited
balance sheet and satisfy itself whether the net worth had turned positive.
29. Insofar as the recovery of money is concerned, the matter is
completely covered by Section 22(1) of the Act. The language employed in
Section 22(1) of the Act refers to the entirety of the period beginning
from the inquiry under Section 16 till the implementation of sanctioned
scheme for revival. Section 22(1) bars any suit for recovery of money or
for the enforcement of any security against the industrial company without
the express consent of the Board. Reference in Section 22(1) is to “an
Industrial Company” and not to “the sick Industrial Company” as found in
later sub-sections of the same Section. This also throws light that the
bar is during the period contemplated in said Section 22(1). Such bar is
period specific and sub-section (5) of Section 22 entitles exclusion of
such period while computing limitation. During the entirety of that period
the Act grants protection to the company and leaves it to the discretion of
the BIFR whether to permit filing and maintaining of suit or other
proceedings. In the present case the BIFR was considering Draft
Rehabilitation Scheme which is a stage under Section 18(3) and is
completely covered by the period under Section 22 of the Act. The suit in
the instant case as framed for recovery of money filed without the consent
of the BIFR was not competent and maintainable. We may at this stage refer
to the decisions rendered by this Court with regard to Section 22(1) of the
Act. In Managing Director, Bhoruka Textiles Limited Vs. Kashmiri Rice
Industries1, after quoting sub-section (1) of Section 22 of the Act, it was
observed:-
“A plain reading of the aforementioned provision would clearly go to show
that a suit is barred when an enquiry under Section 16 is pending. It is
also not in dispute that prior to institution of the suit, the respondent
did not obtain consent of the Board.
9. the provision of the Act and, in particular, Chapter III thereof,
provides for a complete code. The Board has a wide power in terms of the
provisions of the Act, although it is not a court. Sub-section (4) of
Section 20 as also Section 32 of the Act provides for non obstante caluses.
It envisages speedy disposal of the enquiry and preferably within the time
framed provided for thereafter. Section 17 empowers the court to make
suitable orders on the completion of enquiry. Preparation and sanction of
the scheme is also contemplated under the Act.”
In para 12 of the said decision, it was further stated:
“If the civil court’s jurisdiction was ousted in terms of the provisions of
Section 22 of the Act, any judgment rendered by it would be coram non
judice. It is a well settled principle of law that a judgment and decree
passed by a court or tribunal lacking inherent jurisdiction would be a
nullity.”
Similarly, in Raheja Universal Limited Vs. NRC Limited2 it was observed as
under:
“49. BIFR has been vested with wide powers and, being an expert body, is
required to perform duties and functions of wide-ranged nature. If one
looks into the legislative intent in relation to a sick industrial company,
it is obvious that BIFR has to first make an effort to provide an
opportunity to the sick industrial company to make its net worth exceed the
accumulated losses within a reasonable time, failing which BIFR has to
formulate a scheme for revival of the company, even by providing financial
assistance in cases wherein BIFR in its wisdom deems it necessary and
finally only when both these options fail and the public interest so
requires, BIFR may recommend winding up of the sick industrial company. So
long as the scheme is under consideration before BIFR or it is being
implemented after being sanctioned and is made operational from a given
date, it is the legislative intent that such scheme should not be
interjected by any other judicial process or frustrated by the impediments
created by third parties and even by the management of the sick industrial
company, in relation to the assets of the company.”
The suit in the instant case, insofar as it relates to the claim for
recovery of money, could lie or be proceeded with only after express
consent of the BIFR.
30. We now deal with the decisions of the High Courts of Calcutta, Madras
and Delhi. All these decisions were rendered while considering writ
petitions under Article 226 of the Constitution of India. In the first of
these three cases the High Court took the view that there is no express
provision in the Act which indicates when the BIFR loses its jurisdiction
with regard to a company which was once sick and proceeded to declare the
company in question not amenable to the jurisdiction of the BIFR from and
with effect from the date the Balance Sheet showed the Net Worth to be
positive. In the second case the High Court was of the view that sickness
of an industrial company is to be decided ex-facie on the basis of the
audited balance sheet and when the Net Worth becomes positive the BIFR
ceases to have any jurisdiction. The last case arose from the same BIFR
matter and Delhi High Court followed the view taken by Madras High Court.
Said decisions must now be read in the light of the above discussion and
view that we have taken.
31. In the circumstances, we allow the present appeals and set aside the
order dated 06.01.2014 passed by the High Court of Gauhati in FAO No.10 of
2013 and Writ Petition Nos.4303 of 2013 and 6286 of 2013. It is held that
the Title Suit No.166 of 2013 pending on the file of the learned Civil
Court at Kamroop, Gauhati is not maintainable insofar as it seeks
declaration that the company was no longer a sick company within the
meaning of the Act and that the BIFR ceased to have jurisdiction over the
company and that all the proceedings in the BIFR after filing of the
positive balance-sheet were without jurisdiction. Consequently the order
of injunction passed by the Civil Court is set aside. Insofar as the said
Suit pertains to the claim for recovery of money from the Company, the Suit
could lie and be proceeded with only after express consent of the BIFR is
received by the plaintiff. We direct that the company i.e., J.K. Jute
Mills Company Ltd. having its registered office at Kanpur U.P. continues to
be under the jurisdiction of the BIFR. We leave it to the BIFR to satisfy
itself and determine the issues whether the net worth of the company has
turned positive or not. If the BIFR is so satisfied, it shall de-register
the company and upon such declaration the company will be out of the
supervisory jurisdiction of the BIFR under the Act. Needless to say that
if the BIFR is not satisfied that the net worth of the company has turned
positive, it shall go ahead and consider the scheme for revival of the
company. We direct the BIFR to complete this exercise within two months
from date of receipt of this order. We have refrained from dealing with
the matter concerning the merits or de-merits of the claim that the net
worth has turned positive nor have we dealt with the report made by the
State Bank of India in its Special Investigative Audit. We leave these
issues to be considered by the BIFR at an appropriate stage. We have also
not dealt with the submissions alleging bias as the matters in that behalf
are still pending consideration before the authorities and we leave these
issues to be dealt with at an appropriate stage.
32. Since in our view the company continues to be a sick company and it
was not competent for anyone except the BIFR to determine whether the net
worth of the company had turned positive, we hold the sale of Katihar
property effected by the company without express leave or permission of the
BIFR to be questionable. However, since the transferee of that property is
not before this Court we relegate this matter for appropriate assessment by
the BIFR after issuing due notice to the transferee. We also leave it to
the BIFR to consider and assess whether there was any necessity or
expediency to sell the property in question. If in its opinion such
expediency and necessity are established, the BIFR may also consider
whether the value that the property has fetched is adequate or not. If the
value is adequate it may confirm the sale in favour of the transferee.
However, if the value in its opinion is inadequate, it shall give offer and
adequate time to the transferee to make good the deficit. In any case if
the sale is held to be bad or if the transferee is not willing to make good
the deficit, the entire consideration for the transaction be returned to
the transferee. In such eventuality whatever the transferee has paid in
excess of the consideration money towards stamp duty and registration shall
be recovered from the Directors and persons responsible for effecting such
sale on behalf of the company.
33. Now we turn to the filing of the civil suit in the instant case and
its conduct. The original plaintiff had sought consent of the BIFR under
Section 22(1) of the Act and was before the BIFR on 04.04.2013. However,
he did not disclose either the factum that he had so sought such consent or
that the BIFR was in seisin of the matter and considering whether the net
worth of the company had turned positive. Non-disclosure of these two
essential facts, in our view, was not accidental. We therefore impose costs
of Rs.5 lacs on the original plaintiff which shall be deposited within
three months from the date of this order, failing which action in contempt
shall be initiated against the original plaintiff. The costs shall be
deposited to the account of the Supreme Court Legal Services Authority.
Though the conduct of the company as defendant before the Civil Court was
of the same order, since it is a sick company we refrain from imposing any
costs on the company. No other order as to costs.
34. The appeals are allowed in the aforesaid terms. FAO No.10 of 2013
thus stands allowed and Writ Petition Nos.4303 of 2013 and 6286 of 2013 are
dismissed. As regards Contempt Petition Nos.338 and 375 of 2014, since
this Court had not issued any notice to the alleged contemnors, we have not
dealt with said petitions. By a separate order we issue appropriate notice
to the alleged contemnors.
……………………….J.
(Anil R. Dave)
………………………J.
(Uday Umesh Lalit)
New Delhi,
November 13, 2014
-----------------------
[1] 2009(7) SCC 521
[2] 2012 (2) SCC 148
[3] 3. Dated 08.08.1995 in Zuari Agro Chemicals Ltd. & Anr Vs. The
Industrial Credit and Investment Corporation of India & Ors. in Matter
No.362 of 1995 (OS).
[4] 4. Dated 19.12.2007 in Dunlop India Ltd. Vs. Container Corporation of
India Ltd. & Anr. in Writ Petition No.24422 of 2006.
[5] 5. Dated 21.10.2009 in Catholic Syrian Bank Vs. BIFR & Ors. in W.P.
(C) No.8361 of 2008.
-----------------------
3
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.10221 OF 2014 @
(SPECIAL LEAVE PETITION (C) NO.5249 OF 2014)
GHANSHYAM SARDA … APPELLANT
Versus
M/S SHIV SHANKAR
TRADING CO. & ORS. ….RESPONDENTS
WITH
CIVIL APPEAL NO.10222 OF 2014 @
(SPECIAL LEAVE PETITION (C) NO.5897 OF 2014)
GHANSHYAM SARDA … APPELLANT
Versus
M/S SHIV SHANKAR
TRADING CO. & ORS. … RESPONDENTS
CIVIL APPEAL NO.10223 OF 2014 @
(SPECIAL LEAVE PETITION (CIVIL) NO.8610 OF 2014)
JK JUTE MILL MAZDOOR
EKTA UNION … APPELLANT
Versus
M/S SHIV SHANKAR
TRADING CO. & ORS. … RESPONDENTS
CIVIL APPEAL NOS.10224-10225 OF 2014 @
(SPECIAL LEAVE PETITION (C) NOS.8611-8612 OF 2014)
JK JUTE MILL MAZDOOR
EKTA UNION … APPELLANT
Versus
M/S SHIV SHANKAR
TRADING CO. & ORS … RESPONDENTS
CIVIL APPEAL NO.10226 OF 2014 @
(SPECIAL LEAVE PETITION (CIVIL) NO.6412 OF 2014)
GHANSHYAM SARDA … APPELLANT
Versus
M/S JK JUTE MILLS
CO. LTD. & ANR. … RESPONDENTS
CONTEMPT PET. (C) NO.338 OF 2014 IN
(SPECIAL LEAVE PETITION (CIVIL) NO.5249 OF 2014)
GHANSHYAM SARDA …PETITIONER/
APPLICANT
Versus
SASHIKANT JHA, DIRECTOR M/S JK
JUTE MILLS CO. LTD. & ORS. … RESPONDENTS
AND
CONTEMPT PET. (C) NO.375 OF 2014 IN @
(SPECIAL LEAVE PETITION (CIVIL) NO.8610 OF 2014)
JK JUTE MILLS MAZDOOR …. PETITIONER/
EKTA UNION APPLICANT
Versus
SASHIKANT JHA, DIRECTOR M/S JK
JUTE MILLS CO. LTD. & ORS. … RESPONDENTS
J U D G M E N T
UDAY UMESH LALIT, J.
1. Permission to file SLP granted in SLP(C) Nos.8611-12/2014. Leave to
appeal granted in all Special Leave Petitions.
2. All these Special Leave Petitions arise out of a common judgment and
order dt. 06.01.2014 passed by the High Court of Gauhati in FAO No. 10 of
2013 and Writ Petition Nos. 4303 of 2013 and 6286 of 2013 and are being
disposed by this common judgment and order. These petitions raise questions
regarding scope and ambit of Sections 22(1), 26 and 32(1) of the Sick
Industrial Companies (Special Provisions) Act 1985, hereinafter referred to
as the Act.
3. A company named J.K. Jute Mill Company Ltd. (hereinafter referred to
as ‘the company’) having its registered office at Kanpur, Uttar Pradesh
filed Reference No. 149 of 1994 before the Board for Industrial and
Financial Reconstruction (“BIFR” for short) under the provisions of the
Act. Though the scheme was initially sanctioned for reconstruction, the
BIFR subsequently held the scheme to have failed and directed the company
to be wound up. These orders were stayed by the Appellate Authority for
Industrial and Financial Reconstruction (“AAIFR” for short) and further
proceedings before the BIFR continued. While the matter was thus pending,
“Sarda Group” took over the Company through Rainey Park Suppliers Private
Ltd. (RPSPL) in 2007. BIFR by its order dated 17.12.2008 approved such
take over of the management. The management of the company was handed
over to Shri Govind Sarda. It appears that in 2009, Shri Govind Sarda
assigned the debt held by RPSPL in favour of an entity named Libra Retailer
Pvt. Ltd. (LRPL) and he is stated to have handed over Jute Mill of the
company to a third party. As he failed to revive the company, show cause
notice for winding up was issued by the BIFR. This action was challenged
by the Company by filing Appeal No. 186 of 2009 before the AAIFR which
appeal is still pending.
4. At this stage, Shri Ghanshyam Sarda, (hereinafter referred to as the
present appellant) filed an application for impleading himself in the
proceedings which application was accepted by AAIFR. Upon this order being
challenged, the High Court of Delhi in W.P. No.2839 of 2010 held the
present appellant to be entitled to present his point of view in the form
of proposal/scheme, which order was confirmed by this Court by dismissing
Special Leave Petition filed at the instance of the Company. In terms of
the aforesaid orders the BIFR impleaded the present appellant who
thereafter submitted a proposal for revival of the company and also filed
MA No.162 of 2012 in the BIFR for restoration of shareholding pattern. On
18.02.2013 the BIFR issued directions to the operating agency to consider
the scheme of the present management and the scheme submitted by the
present Appellant and thereafter submit a fully tied up Draft Revival
Scheme (“DRS” for short). The BIFR fixed the next date for hearing of MA
162 of 2012 on 04.04.2013. In the proceedings dated 27.02.2013, it was
decided that the DRS be circulated seeking objections and suggestions from
all the concerned.
5. On 03.04.2013, two applications were filed before the BIFR by M/S
Shyam Jute Supplier, Chindwara M.P. and M/S Shiv Shankar Tranding Co. &
Ors, Gauhati Assam (hereinafter referred to as ‘SSTC’) signed by the same
person through same Counsel stating that they were unsecured creditors and
sought permission from the BIFR to institute Civil Suit for recovery of
money stated to be recoverable from the company. On 04.04.2013 the BIFR
held a hearing to consider the change in the share holding pattern of the
company without due permission from BIFR. At that stage Counsel appearing
for the Company submitted that Application No. 162 of 2012 could not be
considered as the BIFR no longer retained jurisdiction over the Company.
It was submitted that in the Audited Balance-Sheet for the period of nine
months i.e. 01.04.2012 to 31.12.2012 the net worth of the Company having
turned positive, the Company ought to be discharged from the BIFR. Learned
counsel appearing for Shyam Jute Supplier and SSTC supported such
submissions.
6. Paragraphs (4.1, 4.3, 4.4, 4.8, 4.12 and 4.13) of the proceedings
dated 04.04.2013 are quoted here under which are self eloquent.
“4.1. Today’s hearing (04.04.2013) was fixed for consideration of MA No.
162/BC/2012 filed by Shri Ghanshyam Sarda praying as under:
Declare that the change in shareholding pattern to the extent the same
reduces the shareholding of RPSPL from 86.23% to 5.34% without approval of
BIFR as null and void;
Restore the management and the shareholding pattern of JKJMCL as approved
by the learned BIFR vide its order dated 18.09.2008.
Initiate action under section 33 read with section 34 against the
management for changing the shareholding pattern of the sick company
without seeking permission from BIFR; and
Appoint a special director (BIFR Nominee) in the Board of the Company to
look into and monitor its affairs;
Pass such other further order(s) as this Hon’ble BIFR may deem fit and
proper in the facts and circumstances of the case;
4.3. Shri Sudhansu Batra, Sr. Advocate appearing on behalf of the Sick
Company intervened and stated the MA NO. 162/BC/2012 cannot be considered
today since BIFR no longer retains jurisdiction over the company. Shri
Batra, Sr. Advocate stated that the Balance sheet as on 31.12.2012 has been
audited which shows that the networth of the company has turned positive
and the company has to be discharged from BIFR. Upon a query from the
Bench, Shri Sudhansu Batra, Sr. Advocate stated that the company has
already filed a letter dated 25.03.2013 with the BIFR informing that the
networth of the company as on 31.12.2012 has turned positive. Upon a query
from the Bench, Shri Sudhansu Batra, Sr. Advocate stated that the financial
period of the company is normally for 12 months but this year the accounts
have been closed by auditing the balance sheet for 9 months period from
01.04.2012 to 31.12.2012. The Ld. Senior Advocate prayed that in view of
the networth turning positive the company should be discharged from the
BIFR. The Ld. Senior advocate argued that there are no provision under SICA
for deregistration of a reference when the net worth becomes positive and
the Sick Company is not required to make a formal application to the BIFR
for discharge when the company’s net worth becomes positive. The Ld.
Advocate further stated that the sickness of the company is to be decided
ex facie on the basis of the audited Balance Sheet and as the Audited
Balance Sheet as at 31.12.2012 is showing positive Networth, BIFR ceases to
have any jurisdiction. The Ld. Senior Advocate to support of this
submissions referred to and relied upon the judgment passed by Hon’ble
Delhi High Court in the case of: Cahtolic Syrian Bank V/s BIFR & Ors. On a
query from the bench that assuming the networth has turned positive whether
BIFR would automatically lose its jurisdiction or BIFR still has the powers
to examine the audited balance sheet and formally pass an order of
discharge, Shri Sudhansu Batra Sr. Advocate agreed and in fairness conceded
that before discharging the company, the BIFR can examine the audited
balance sheet as on 31.12.2012 by all means and methods and satisfy itself.
Shri Sudhansu Batra, Sr. Advocate stated that his clients is not required
to file an application seeking discharge and BIFR on its own may examine
the audited Balance Sheet and discharge the company from BIFR.
4.4. Shri Ashish Mohan, Advocate appearing for an unsecured creditor
stated that his clients have filed application seeking impleadment as well
as permission under section 22(1) of SICA to file recovery proceedings
against the management of the company; but in view of the networth of the
company turning positive the company may be discharged from BIFR so that
his clients may file recovery suit against the company. The learned
Advocate stated that since the networth of the Sick Company has turned
positive, he would not be pressing any of his application (s) and would
take legal recourse against the company in court of law.
4.8 The representatives of IDBI (OA) stated that they are not in a
position to comment upon the Audited Balance Sheet as on 31.12. 2012
without examining the same. The OA further stated that the ASC is going
ahead as per its schedule and the next meeting of the ASC is on 16.04.2013.
The Bench observed that the ASC may go ahead with its schedule and that ASC
should do nothing more at present except opening and evaluating the bids
and submit its report on such evaluation to the BIFR and that BIFR shall
take a final view upon the bids and the sale of assets at the time of
approval of DRS. The bench further observed that DRS has already been
circulated on 26.02.2013 and the objections & suggestions shall be
considered on 20.05.2013. Till such time either the Bench considers the DRS
or discharge the company from SICA; the Bench shall safeguard the assets of
the company and retain its jurisdiction over the company/its assets.
4.12. The Bench stated that they would consider the arguments of the
parties including the arguments of Mr. Aggarwal on the next date of
hearing. The Bench also observed that as per the Company’s ABS as on
31.03.2012, (12 months) the networth of the company is Rs. 5.71 crores and
the accumulated losses are Rs. 36.23 crores and it would like to satisfy
itself about the Balance Sheet as at 31.12.2012 to which Mr. Batra agreed
that the BIFR could undertake such an exercise. Since the issue of lack of
jurisdiction has been raised; the Bench would decide the said issue
alongwith MA No. 162/BC/2012.
4.13. Having considered the submissions made in the hearing, materials on
record, the Bench issued the following directions:
(i)The company to submit certified copy of its ABS as on 31.12.2012 along
with all relevant papers & documents in support of its networth within one
week from today with copy to the IDBI (OA) and all concerned parties
alongwith documentary evidence;
(ii) The ASC would go-ahead as per its schedule and confirmation of sell,
if any will take place upon approval of DRS on 20.05.2013, with the consent
of Bench.
(iii) The Bench fixed the next date of hearing on 26.04.2013 at 11.30 AM
for considering the submission of the Company that its networth has turned
positive as on 31.12.2012 and also hear the MA No. 162/BC/2012 on the said
date.”
7. At this stage some of the other proceedings need a mention. J.K.
Jute Mazdoor Sabha filed Writ Petition No. 22897 of 2013 before the
Allahabad High Court on 25.04.2013 challenging the BIFR’s order dated
04.04.2013. Said Writ Petition having been dismissed by a Single Judge, in
an appeal therefrom the Division Bench in its order dated 01.05.2013
observed that the BIFR would be in a better position to assess the net
worth position of the company. In the meantime, Shyam Jute Suppliers
approached the High Court of Madhya Pradesh by filing Writ Petition No.7534
of 2013 questioning the order dated 04.04.2013 of the BIFR. The petition
was dismissed by a Single Judge on the ground of lack of territorial
jurisdiction which order was approved in appeal by the Division Bench of
the High Court.
8. On 22.04.2013, SSTC filed Title Suit No. 166 of 2013 in Civil Court
at Kamroop, Gauhati against the Company adding BIFR as proforma defendant.
It was inter alia averred
“…. Now it appears from the balance sheet of the defendant company filed
before the proforma defendant that its net worth had become positive. In
view of the said admission on the part of the defendant No. 2 it is no
longer a sick establishment under the Sick Industrial Companies (Special
Provisions) Act, 1985 and consequently the proforma defendant No. 2 has
ceased to have jurisdiction over the defendant No. 1 and as such the
defendant No. 1 is no longer entitled to any benefit under the Sick
Industrial Companies (Special Provisions) Act, 1985. Thus the defendant No.
1 under the aforesaid facts and circumstances has become liable to be sued
in a Civil Court of competent jurisdiction with effect from the date the
2012 balance sheet as submitted by it before the proforma defendant No. 2
and the proforma defendant ceased to have any jurisdiction whatsoever.”
The plaintiff prayed for declaration, inter alia, that the company
was no longer a sick company within the meaning of the Act and that the
BIFR ceased to have jurisdiction over the company and all the proceedings
in BIFR after filing of positive balance-sheet be declared without
jurisdiction. The Civil Court by its order dated 23.04.2014 while issuing
notices to the defendants directed that status-quo be maintained in respect
of the BIFR case till the next date of hearing.
9. The company filed its written objections on 13.05.2013. Though the
claim of the plaintiff and its entitlement to recover the sum stated to be
due was denied, the company accepted that it was no longer a sick company.
The relevant averments were to the following effect.
“……. That the answering opposite party humbly states that the statements
made in paragraph number 1 of Misc. (J) Case No. 254/13 are to the extent
that the opposite party is no longer a sick establishment is not denied.”
“ …. That the answering opposite party admits the statement made in
paragraph number 10 and admit that on and from the financial year 2012-2013
it is no longer a sick company. The balance sheet is also admitted. The
rest of the statements regard jurisdiction is a matter of fact and law and
the opposite party has no comment to offer.”
10. The matter came up before the Civil Court on 13.05.2013. It noted
the aforementioned stand and in view of such admitted position held that
the BIFR ceased to have any jurisdiction over the defendant company. It was
observed:-
“…. But a question that is still required to be answered at this juncture
is as to whether this Court has the jurisdiction to grant the relief of
temporary injunction as sought for in the instant case. Section 26 of the
SICA, which provides inter alia that 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, shall not be
applicable to the opposite party no. 1 company any more as it is no more a
sick industrial company admittedly and the provisions of the SICA are not
applicable to it anymore, and, therefore, the civil court will definitely
have jurisdiction over it. Hence, this Court has jurisdiction to grant the
relief as sought for in the instant case….”
In the premises, the Civil Court restrained the defendants including
the BIFR from proceeding with BIFR case no. 149 of 1994. Neither the
Plaintiff nor the Company at any stage placed on record before the Civil
Court the proceedings dated 04.04.2013 of the BIFR nor was the Civil Court
appraised of the fact that the Plaintiff had sought leave under Section 22
(1) of the Act from the BIFR to file the Civil Suit.
11. In the meantime while dealing with appeals preferred against the
orders of the BIFR including one dated 27.02.2013, the AAIFR was appraised
that the issue of Net worth was under consideration of the BIFR, so vide
its order dt.16.05.2013 it preferred to await such decision. In the
subsequent proceedings of the same day i.e. 16.05.2013 the aforesaid order
of the Civil Court was placed before the BIFR which observed that it had
not given any permission under Section 22 (1) of the Act to SSTC to file
any recovery suit against the company and the matter was adjourned in the
presence of the counsel concerned for considering the submission of the
parties on the issue of net worth as on 31.12.2012. It was further
observed that in the absence of permission under Section 22 (1) the suit
filed by SSTC was not competent and that, the company had not yet been de-
registered from BIFR and a filing of Civil Suit without taking permission
was violative of the Act. Taking note of the order of the AAIFR dated
16.05.2013 and the order passed by the High Court of Allahabad dated
01.05.2013, it was observed that it had to decide the issue whether the net
worth of the company had turned positive or not. The BIFR thus directed
the parties to file their written submission on the aspect of the net worth
of the company as on 31.12.2012.
12. On 30.05.2013, the present appellant filed an application for
impleadment as defendant in the aforesaid Suit. Adverting to the orders
passed by the BIFR and AAIFR impleading him in the proceedings before the
BIFR and the subsequent orders passed by the Division Bench of the High
Court of Delhi and this Court on his impleadment and the fact that he had
submitted a proposal for revival, the present appellant prayed that he be
impleaded in said suit as a defendant. The present appellant thereafter
filed FAO No.10 of 2013 before Gauhati High Court challenging the Civil
Court’s order dated 13.05.2013. A learned Single Judge after preliminary
hearing by his order dated 14.06.2013 admitted the appeal for hearing and
also passed interim order to the effect that no third party rights in
respect of the property of the respondents/defendants be created during the
pendency of the appeal.
13. In the meantime, the matter appeared before the BIFR on
01.07.2013. It prima facie was of the view that the Audited Balance-Sheet
as on 31.12.2012 of the company did not reflect true and fair view and that
the matter required examination as to how the net worth of the company, all
of a sudden, turned positive. It was observed that SSTC was not granted
any permission by the BIFR under Section 22 (1) of the Act and the suit of
SSTC was not competent, that SSTC had suppressed the fact from the Civil
Court and that the order passed by the Civil Court being without
jurisdiction was a nullity in the eyes of law and not binding upon the
BIFR. It was further observed that the BIFR had to satisfy itself whether
the net worth had turned positive due to some positive development and not
merely by manipulation of the accounts. In the premises it directed the
State Bank of India to appoint independent auditor for Special
Investigative Audit and to file its report about net worth position of the
company as on 31.12.2012.
14. SSTC who was the original plaintiff in the aforesaid Suit filed Writ
Petition No. 4303 of 2013 in Gauhati High Court challenging the orders
dated 16.05.2013 and 01.07.2013 of the BIFR. Said Writ Petition came up
before the Single Judge who by his order dated 01.08.2013 impleaded the
present appellant as Respondent No. 3 in the Writ Petition and further
directed that till the next date of hearing further proceedings in BIFR
case No. 149 of 2014 shall remain stayed. Subsequently, the matter
appeared before the Single Judge again who, on 14.08.2013 directed that the
matter be placed before Hon’ble the Chief Justice for directions whether
the Writ Petition could be heard along with FAO No.10 of 2013.
15. On 04.09.2013, State Bank of India as directed by the BIFR submitted
the Report of the Special Investigative Audit pointing out the manipulation
in the balance-sheet submitted by the company and that the net worth of the
company as on 31.12.2012 was in fact on the negative side by Rs.36 crores
in nine months. In the proceedings before the BIFR dated 05.09.2013, the
aforesaid Report was taken on record and comments from the parties were
invited.
16. Immediately the company filed Writ Petition No.4286 of 2013 before
Gauhati High Court questioning the order dated 05.09.2013 of the BIFR. The
matter came up before a Single Judge on 30.09.2013 who issued rule in the
Writ Petition and by way of interim order directed that further proceedings
in BIFR case No.194 of 1994 shall remain stayed. This order was vacated by
Division Bench of the High Court in Writ Appeals vide its order dated
14.11.2013. These three matters namely FAO No.10 of 2013 and Writ Petition
Nos.4303 and 6286 of 2013 were thereafter clubbed and posted before the
Single Judge on 21.11.2013, who adjourned the matters to 04.12.2013 and
observed that since the Court was in seisin of the matter it was expected
that the BIFR may not proceed further with the case till conclusion of the
hearing before the learned Single Judge. In deference to the aforesaid
order dated 21.11.2013, the BIFR adjourned the case.
17. These three matters then came up before the High Court which
observed that FAO No.10 of 2013 was filed by the present appellant who was
not yet a party before the Civil Court and that said FAO which was filed
without seeking appropriate leave of the Appellate Court was not
maintainable and as such it was not necessary to enter upon deliberations
on merits of the matter. The High Court was of the view that since the
application for impleadment was still pending before the Civil Court, as
and when the present appellant was impleaded as defendant in the suit, it
would then be open to him to file such application for variation or setting
aside of the order of injunction. It was held that in the absence of any
challenge, the order of injunction was still in operation and that until
and unless such order was vacated and recalled by appropriate judicial
forum, the same had to be respected and given effect to. The High Court
also disposed of Writ Petitions on the ground that since all the
proceedings before BIFR stood stayed, further proceeding in BIFR would be
of no legal consequence. It was further observed that one of the members
of BIFR having recused himself from hearing the case on the earlier
occasions as noted in the order dated 31.01.2013, of the BIFR, said member
ought not to have participated in any further proceedings.
18. This common order passed by the High Court has given rise to six
Special Leave Petitions, three by present appellant namely SLP No. 5249,
5897 and 6412 challenging the order of the High Court in respect of FAO
No.10 of 2013, Writ Petition No.4303 of 2013 and Writ Petition No.6286 of
2013 respectively. The other three petitions are by J.K. Jute Mill Mazdur
Ekta Unions being Special Leave Petition Nos. 8610, 8611 and 8612 of 2014
against the aforesaid order in respect of three proceedings as stated above
respectively. This Court issued notice in the matter on 24.03.2014 on which
date the company had appeared on caveat. By order dated 08.05.2014, it was
directed that till further orders the capital assets of the Company shall
not be disposed of without taking permission of this court. Soon thereafter
Civil Contempt Petition Nos.338 and 375 of 2014 were filed by the present
appellant and J.K. Jute Mills Mazdoor Union contending inter alia that in
violation of order dated 08.05.2014, the contemnors in the petition had
caused certain properties of the Company to be transferred. During the
pendency of these matters SSTC assigned in favour of M/s Goodlife Merchants
Pvt. Ltd. all the rights in respect of the debt of the Company.
19. All the aforesaid matters were taken up for hearing together by this
Court. Appearing for the present appellant, Mr. Kapil Sibal, learned
Senior Counsel submitted that the Act is a complete code in itself and
given the true scope and purport of Sections 22 , 26 and 32 of the Act, the
jurisdiction of the BIFR over any company in question would continue till
its formal discharge by BIFR either after the net worth of the company
turned positive by successful implementation of the scheme or by the order
of winding up passed in respect of such company. It was further submitted
that the BIFR alone will have competence and jurisdiction to declare a
company which was once a sick company, to be no longer sick and discharge
it from the purview of the Act and that the Civil Court will not have
jurisdiction or competence to decide these questions. It was further
submitted that the Civil Court is not the appropriate forum and lacks
jurisdiction to examine the correctness of the annual accounts and conclude
whether the company in question was no longer amenable to be dealt with
under the Act. In support of his submissions, reliance was placed on the
decisions of this Court in Managing Director Bhoruka Textiles Limited Vs.
Kashmiri Rice Industries[1] and Raheja Universal Limited Vs. NRC Limited &
Ors.[2] Appearing for J.K. Jute Mill Mazdur Ekta Union, Shri Krishnan
Venugopal and Shri R.P. Bhatt, learned Senior Counsel adopted the
submissions of Shri Sibal. Shri Venugopal, learned Senior Counsel also
invited the attention of this Court to the report of the State Bank of
India to show how the net worth of the company was still on the negative
side. Shri Kapil Sibal and Shri Sanjeev Sen, learned Senior counsel also
invited the attention of the Court and submitted that the alleged
contemnors in aforementioned Contempt Petitions had flagrantly violated
orders of this Court.
20. Shri Guru Krishna Kumar, learned Senior Counsel appearing for
SSTC original plaintiff and the transfree M/s Goodlife Merchants Pvt. Ltd.
in all the matters submitted that since the audited balance-sheet as on
31.12.2012 showed the net worth of the company on positive side, the
company was out of the purview of the provisions of the Act and it was
competent for the company to claim itself to be no longer amenable to the
jurisdiction of the BIFR. It was submitted that it was open to assert,
upon the net worth being positive, that the company ipso facto was no
longer amenable to the jurisdiction of the BIFR. In support, reliance was
placed on the view taken by the High Courts of Calcutta[3], Madras[4] and
Delhi[5]. Dr. A.M. Singhvi and Shri Harin Rawal, learned Senior Counsel
appearing for the company submitted inter alia that while the matters were
pending before this Court, the Trial Court by its order dated 29.08.2014
had allowed the application for impleadment filed by present appellant in
Title Suit No.166 of 2013 and that it was now open to the present appellant
to go before the Trial Court and ask for variation and modification of the
order of injunction passed by it. It was submitted that BIFR which is a
Tribunal with limited jurisdiction could not have disobeyed the order of
the Civil Court. Relying on the views taken by the High Courts of
Calcutta, Madras and Delhi in the aforestated cases it was submitted that
there was no provision in the Act under which BIFR could pass an order
discharging a company under the Act and as such the matter could lie in the
domain of the Civil Court. Shri C.U. Singh, learned Senior Counsel
appearing for LRPL, one of the secured creditors, adopted the submissions
and further submitted that various proceedings before the BIFR actually
showed that the members of the BIFR were biased against the Company.
21. Before we deal with the legal issues involved in the matter certain
factual facets of the matter need clarification and assessment. During the
course of submissions, it was submitted that the Counsel appearing for the
company had never agreed before the BIFR on 04.04.2013 that the BIFR could
examine the audited balance sheet itself to satisfy whether the net worth
of the company had turned positive or not. In support, reliance was placed
on letter dated 18.04.2013 stated to have been written on behalf of the
company to the Secretary Bench 3, BIFR, copy of which letter was also
placed on record. Said letter purportedly stated that the recording of
such submission was wrong and that the learned counsel had never submitted
that before discharging the company the BIFR could examine the audited
balance sheet and satisfy itself. Be it noted that the letter was not
written by the learned counsel nor any affidavit was sworn by the learned
counsel denying such factum. Furthermore, in none of the subsequent
proceedings after 04.04.2013, as per the record of the BIFR, any argument
disputing or denying such submission appears to have been made, nor is
there any reference in the subsequent proceedings to the letter dated
18.04.2013. In the circumstances we deem it appropriate to proceed on the
basis that the submission was in fact made by the learned counsel and it
was so rightly recorded by the BIFR in its proceedings dated 04.04.2013.
Secondly, it has been accepted by the company that property at Saif
Ganj, Katihar belonging to the company has in fact been sold. At this
stage, it may be useful to quote from the written submissions filed on
behalf of the company and the relevant portion reads as under:
“A sale deed of the Kathihar property was executed on 2.4.2013 for Rs.3.55
crores in favour of Thapar Herbs & spices Ltd. and the sale consideration
was received on 4.4.2013. On 16.4.2013, the constructive possession was
handed over and registration fee of Rs.35.00 lacs was paid by the
Purchaser. As per the Revenue Department, the stamp duty was higher than
affixed and the matter was pending adjudication and thereafter, final
registration was done on 16.4.2014. Under the Bihar local stamp laws,
since over a year had lapsed, a fresh sale deed was presented. The
difference of registration fee was paid by the purchaser on 16.6.2014. On
2.7.2014, the sale deed was presented which act of presentation was only
ministerial.”
This would mean that even before the hearing of the matter before the
BIFR on 04.04.2013 the property was sold. The record does not indicate
anywhere that the factum of such sale was ever brought to the notice of the
BIFR on 04.04.2013 or thereafter nor was it disclosed that the Rs.3.55
crores were received by way of consideration. Furthermore, when this Court
issued notice on 24.03.2014 when the company had appeared on caveat and
subsequently passed interim order on 08.05.2014, nothing was disclosed to
this Court that the property had been sold.
22. We may also at this stage deal with submission regarding effect of
order dated 29.08.2014 of the Civil Court impleading the present appellant
as defendant. Confining itself to the question of competence of the
present appellant to file the appeal without leave of the court, the High
Court had not dealt with legal issues, namely what shall be the effect of
sections 22, 26 and 32 of the Act insofar as the present controversy is
concerned. It was therefore submitted on behalf of the company that since
the appellant now stands impleaded, he be left to pursue appropriate
remedies before the Trial Court. We are not persuaded to agree with this
submission to relegate the matter to the Trial Court and we proceed to deal
with the legal issues involved in the matter inasmuch as the matter raises
basic issues concerning jurisdiction of the Civil Court itself. The
learned Counsel appearing for the Original Plaintiff as well as the company
have also advanced submissions on the legal issues in question and we
therefore deem it appropriate to deal with such issues.
23. At this juncture the question regarding maintainability of the appeal
before the High Court needs to be dealt with. As the facts indicate, FAO
was admitted after hearing the respondents. Neither at that stage nor at
any subsequent stage anything was filed by way of formal opposition to the
filing of such appeal without the leave of the Court. Further the status
of the present appellant to present his point of view in the form of
proposal or scheme before the BIFR was accepted right up to this Court and
he had thereafter been represented before the BIFR. The proceedings dated
04.04.2013 also indicate that the BIFR was in seisin of MA NO.162 of 2012
preferred by him. He was also impleaded as respondent in the writ
petitions which were dealt with along with the said FAO. The present
appellant was thus not a stranger to the controversy. There is nothing in
Order XLIII Rule 1 of the Code of Civil Procedure that leave to appeal has
to be applied for in any particular format. In the circumstances, the High
Court was not justified in dismissing the appeal on a technical ground and
it ought to have considered the merits of the matter. We hold the appeal
preferred by the present appellant to be maintainable and proceed to
consider the basic issues involved in the matter.
24. Sections 22(1), 26 and 32(1) of the Act, the ambit and scope of which
fall for our consideration are quoted hereunder:
22. Suspension of legal proceedings, contracts, etc.—
Where in respect of an industrial company, an inquiry under Section 16
is pending or any scheme referred to under section 17 is under preparation
or consideration or a sanctioned scheme is under implementation or where an
appeal under section 25 relating to an industrial company is pending, then,
notwithstanding anything contained in the Companies Act, 1956 (1 of 1956),
or any other law or the memorandum and articles of association of the
industrial company or nay other instrument having effect under the said Act
or other law, no proceedings for the winding up of the industrial company
or for execution, distress or the like against any of the properties of the
industrial company or for the appointment of a receiver in respect thereof
and no suit for the recovery of money or for the enforcement of any
security against the industrial company or of any guarantee in respect of
any loans or advance granted to the industrial company shall lie or be
proceeded with further, except with the consent of the Board or, as the
case may be, the Appellate Authority.
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.
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
provisons of the Foregin Exchange Regulation Act, 1973 (46 of 1973) and the
Urban Land (Ceiling and Regulation ) Act, 1976 (33of 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.
25. Chapter III of the Act details out various stages at which inquiry
into the working and status of sick industrial companies and the scheme for
revival is undertaken. Upon a reference to the Board or upon information
received with respect to financial conditions of any industrial company,
the Board is empowered under Section 16 to conduct such inquiry as it may
deem fit for determining whether such company has become a sick industrial
company. After being so satisfied, the measures which could be taken up to
enable the company to make its net worth exceed the accumulated losses that
is to say to make it positive are postulated in Section 17. Under Section
17(1) the Board may by order in writing allow an industrial company to
revive itself, if it is practicable so to do within a reasonable time. If
it is not so practicable, it may direct any operating agency to prepare a
scheme for the revival of such company. In other words, once the reference
is registered, it is the BIFR which supervises the aspects leading to the
revival of such company. Subsequent sections deal with the preparation and
sanction of scheme for revival of such company and empower the Board to
have dominion over such company to enable the revival of that Company and
in cases where such revival is not possible, to recommend the winding up of
such company. It is clear that after a reference is registered by the
Board, all throughout the subsequent stages, the BIFR has complete
supervisory control over the affairs of such company till it is revived or
the decision to wind up such company is taken. In our view, the ambit and
extent of such control means and includes determination of such measures to
achieve revival of the sick company and to check whether by such measures
the revival is being achieved or not. This must cover the power to decide
at any stage subsequent to the registration of reference under Section 16
whether such company has ceased to be sick company or not. Cessation of
the status as a sick company can be under Section 17(1) or as a result of
scheme for revival being implemented and determination of such issue, in
our view, is in the exclusive domain of the BIFR.
26. In Raheja Universal Limited Vs. NRC Limited2, it was observed
in para 48 thus:
“Chapter III, in fact, is the soul and essence of SICA 1985 and it provides
for the methodology that is to be adopted for the purpose of detecting,
reviving or even winding up a sick industrial company. Provisions under
SICA 1985 also provide for an appeal against the orders of BIFR before
another specialized body i.e. AAIFR. To put it simply, this is a self-
contained code and because of the non obstnace provisions, contained
therein,it has an overriding effect over the other laws. As per Section 32
of SICA 1985, the Act is required to be enforced with all its vigour and in
precedence to other laws.”
The Act is a self-contained Code and has conferred upon the BIFR
complete supervisory control over a sick industrial company to adopt such
methodology as provided in Chapter III for detecting, reviving or winding
up such sick company. The authority to determine the existence and extent
of sickness of such company and to adopt methodology for its revival are,
in the exclusive domain of the BIFR and by virtue of Section 26 there is an
express exclusion of the jurisdiction of the Civil Court in that behalf.
27. As laid down by this Court the Act is a complete Code in itself. The
Act gives complete supervisory control to the BIFR over the affairs of a
sick Industrial Company from the stage of registration of reference and
questions concerning status of sickness of such company are in the
exclusive domain of the BIFR. Any submission or assertion by anyone
including the Company that by certain developments the Company has revived
itself and/or that its net worth since the stage of registration having
become positive no such scheme for revival needs to be undertaken, must be
and can only be dealt with by the BIFR. Any such assertion or claim has to
be made before the BIFR and only upon the satisfaction of the BIFR that a
sick company is no longer sick, that such company could be said to have
ceased to be amenable to its supervisory control under the Act. The
aspects of revival of such company being completely within its exclusive
domain, it is the BIFR alone, which can determine the issue whether such
company now stands revived or not. The jurisdiction of the civil court in
respect of these matters stands completely excluded.
28. Unlike cases where the existence of jurisdictional fact or facts, on
the basis of which alone a Tribunal can invoke and exercise jurisdiction,
is or are doubted, stand on a different footing from the one where
invocation and exercise of jurisdiction at the initial stage is not
disputed but what is projected is that by subsequent or supervening
circumstances the concerned Tribunal has lost jurisdiction. In the present
case the fact that the company was registered as a sick company is not
doubted nor has it been contended that the BIFR had wrongly assumed initial
jurisdiction. But what is projected is that the net worth having become
positive the BIFR has now lost jurisdiction over the company. In our view,
the BIFR having correctly assumed jurisdiction and when all the financial
affairs of such company were directly under the supervisory control of the
BIFR, the power to decide whether it has since then lost the jurisdiction
or not, is also in the exclusive domain of the BIFR. The BIFR alone is
empowered to determine whether net worth has become positive as a result of
which it would cease to have such jurisdiction. Any inquiry into such
issue regarding net worth by anyone outside the Act including civil court,
would be against the express intent of the Act and would lead to
incongruous and undesired results. The suit as framed seeking declaration
that the company was no longer a sick company within the meaning of the
Act, was therefore not competent and maintainable. The Civil Court was not
right and justified in issuing injunction as it did. The counsel who
represented the company before the BIFR on 04.04.2013, correctly submitted
that before discharging the company the BIFR can examine the audited
balance sheet and satisfy itself whether the net worth had turned positive.
29. Insofar as the recovery of money is concerned, the matter is
completely covered by Section 22(1) of the Act. The language employed in
Section 22(1) of the Act refers to the entirety of the period beginning
from the inquiry under Section 16 till the implementation of sanctioned
scheme for revival. Section 22(1) bars any suit for recovery of money or
for the enforcement of any security against the industrial company without
the express consent of the Board. Reference in Section 22(1) is to “an
Industrial Company” and not to “the sick Industrial Company” as found in
later sub-sections of the same Section. This also throws light that the
bar is during the period contemplated in said Section 22(1). Such bar is
period specific and sub-section (5) of Section 22 entitles exclusion of
such period while computing limitation. During the entirety of that period
the Act grants protection to the company and leaves it to the discretion of
the BIFR whether to permit filing and maintaining of suit or other
proceedings. In the present case the BIFR was considering Draft
Rehabilitation Scheme which is a stage under Section 18(3) and is
completely covered by the period under Section 22 of the Act. The suit in
the instant case as framed for recovery of money filed without the consent
of the BIFR was not competent and maintainable. We may at this stage refer
to the decisions rendered by this Court with regard to Section 22(1) of the
Act. In Managing Director, Bhoruka Textiles Limited Vs. Kashmiri Rice
Industries1, after quoting sub-section (1) of Section 22 of the Act, it was
observed:-
“A plain reading of the aforementioned provision would clearly go to show
that a suit is barred when an enquiry under Section 16 is pending. It is
also not in dispute that prior to institution of the suit, the respondent
did not obtain consent of the Board.
9. the provision of the Act and, in particular, Chapter III thereof,
provides for a complete code. The Board has a wide power in terms of the
provisions of the Act, although it is not a court. Sub-section (4) of
Section 20 as also Section 32 of the Act provides for non obstante caluses.
It envisages speedy disposal of the enquiry and preferably within the time
framed provided for thereafter. Section 17 empowers the court to make
suitable orders on the completion of enquiry. Preparation and sanction of
the scheme is also contemplated under the Act.”
In para 12 of the said decision, it was further stated:
“If the civil court’s jurisdiction was ousted in terms of the provisions of
Section 22 of the Act, any judgment rendered by it would be coram non
judice. It is a well settled principle of law that a judgment and decree
passed by a court or tribunal lacking inherent jurisdiction would be a
nullity.”
Similarly, in Raheja Universal Limited Vs. NRC Limited2 it was observed as
under:
“49. BIFR has been vested with wide powers and, being an expert body, is
required to perform duties and functions of wide-ranged nature. If one
looks into the legislative intent in relation to a sick industrial company,
it is obvious that BIFR has to first make an effort to provide an
opportunity to the sick industrial company to make its net worth exceed the
accumulated losses within a reasonable time, failing which BIFR has to
formulate a scheme for revival of the company, even by providing financial
assistance in cases wherein BIFR in its wisdom deems it necessary and
finally only when both these options fail and the public interest so
requires, BIFR may recommend winding up of the sick industrial company. So
long as the scheme is under consideration before BIFR or it is being
implemented after being sanctioned and is made operational from a given
date, it is the legislative intent that such scheme should not be
interjected by any other judicial process or frustrated by the impediments
created by third parties and even by the management of the sick industrial
company, in relation to the assets of the company.”
The suit in the instant case, insofar as it relates to the claim for
recovery of money, could lie or be proceeded with only after express
consent of the BIFR.
30. We now deal with the decisions of the High Courts of Calcutta, Madras
and Delhi. All these decisions were rendered while considering writ
petitions under Article 226 of the Constitution of India. In the first of
these three cases the High Court took the view that there is no express
provision in the Act which indicates when the BIFR loses its jurisdiction
with regard to a company which was once sick and proceeded to declare the
company in question not amenable to the jurisdiction of the BIFR from and
with effect from the date the Balance Sheet showed the Net Worth to be
positive. In the second case the High Court was of the view that sickness
of an industrial company is to be decided ex-facie on the basis of the
audited balance sheet and when the Net Worth becomes positive the BIFR
ceases to have any jurisdiction. The last case arose from the same BIFR
matter and Delhi High Court followed the view taken by Madras High Court.
Said decisions must now be read in the light of the above discussion and
view that we have taken.
31. In the circumstances, we allow the present appeals and set aside the
order dated 06.01.2014 passed by the High Court of Gauhati in FAO No.10 of
2013 and Writ Petition Nos.4303 of 2013 and 6286 of 2013. It is held that
the Title Suit No.166 of 2013 pending on the file of the learned Civil
Court at Kamroop, Gauhati is not maintainable insofar as it seeks
declaration that the company was no longer a sick company within the
meaning of the Act and that the BIFR ceased to have jurisdiction over the
company and that all the proceedings in the BIFR after filing of the
positive balance-sheet were without jurisdiction. Consequently the order
of injunction passed by the Civil Court is set aside. Insofar as the said
Suit pertains to the claim for recovery of money from the Company, the Suit
could lie and be proceeded with only after express consent of the BIFR is
received by the plaintiff. We direct that the company i.e., J.K. Jute
Mills Company Ltd. having its registered office at Kanpur U.P. continues to
be under the jurisdiction of the BIFR. We leave it to the BIFR to satisfy
itself and determine the issues whether the net worth of the company has
turned positive or not. If the BIFR is so satisfied, it shall de-register
the company and upon such declaration the company will be out of the
supervisory jurisdiction of the BIFR under the Act. Needless to say that
if the BIFR is not satisfied that the net worth of the company has turned
positive, it shall go ahead and consider the scheme for revival of the
company. We direct the BIFR to complete this exercise within two months
from date of receipt of this order. We have refrained from dealing with
the matter concerning the merits or de-merits of the claim that the net
worth has turned positive nor have we dealt with the report made by the
State Bank of India in its Special Investigative Audit. We leave these
issues to be considered by the BIFR at an appropriate stage. We have also
not dealt with the submissions alleging bias as the matters in that behalf
are still pending consideration before the authorities and we leave these
issues to be dealt with at an appropriate stage.
32. Since in our view the company continues to be a sick company and it
was not competent for anyone except the BIFR to determine whether the net
worth of the company had turned positive, we hold the sale of Katihar
property effected by the company without express leave or permission of the
BIFR to be questionable. However, since the transferee of that property is
not before this Court we relegate this matter for appropriate assessment by
the BIFR after issuing due notice to the transferee. We also leave it to
the BIFR to consider and assess whether there was any necessity or
expediency to sell the property in question. If in its opinion such
expediency and necessity are established, the BIFR may also consider
whether the value that the property has fetched is adequate or not. If the
value is adequate it may confirm the sale in favour of the transferee.
However, if the value in its opinion is inadequate, it shall give offer and
adequate time to the transferee to make good the deficit. In any case if
the sale is held to be bad or if the transferee is not willing to make good
the deficit, the entire consideration for the transaction be returned to
the transferee. In such eventuality whatever the transferee has paid in
excess of the consideration money towards stamp duty and registration shall
be recovered from the Directors and persons responsible for effecting such
sale on behalf of the company.
33. Now we turn to the filing of the civil suit in the instant case and
its conduct. The original plaintiff had sought consent of the BIFR under
Section 22(1) of the Act and was before the BIFR on 04.04.2013. However,
he did not disclose either the factum that he had so sought such consent or
that the BIFR was in seisin of the matter and considering whether the net
worth of the company had turned positive. Non-disclosure of these two
essential facts, in our view, was not accidental. We therefore impose costs
of Rs.5 lacs on the original plaintiff which shall be deposited within
three months from the date of this order, failing which action in contempt
shall be initiated against the original plaintiff. The costs shall be
deposited to the account of the Supreme Court Legal Services Authority.
Though the conduct of the company as defendant before the Civil Court was
of the same order, since it is a sick company we refrain from imposing any
costs on the company. No other order as to costs.
34. The appeals are allowed in the aforesaid terms. FAO No.10 of 2013
thus stands allowed and Writ Petition Nos.4303 of 2013 and 6286 of 2013 are
dismissed. As regards Contempt Petition Nos.338 and 375 of 2014, since
this Court had not issued any notice to the alleged contemnors, we have not
dealt with said petitions. By a separate order we issue appropriate notice
to the alleged contemnors.
……………………….J.
(Anil R. Dave)
………………………J.
(Uday Umesh Lalit)
New Delhi,
November 13, 2014
-----------------------
[1] 2009(7) SCC 521
[2] 2012 (2) SCC 148
[3] 3. Dated 08.08.1995 in Zuari Agro Chemicals Ltd. & Anr Vs. The
Industrial Credit and Investment Corporation of India & Ors. in Matter
No.362 of 1995 (OS).
[4] 4. Dated 19.12.2007 in Dunlop India Ltd. Vs. Container Corporation of
India Ltd. & Anr. in Writ Petition No.24422 of 2006.
[5] 5. Dated 21.10.2009 in Catholic Syrian Bank Vs. BIFR & Ors. in W.P.
(C) No.8361 of 2008.
-----------------------
3
