w w w . L a w y e r S e r v i c e s . i n



Ashok Organics Industries Ltd V/S Dena Bank and Others.

    Company Petition No. 108 of 2006 and Company Application No. 690 of 2006

    Decided On, 08 November 2006

    At, High Court of Judicature at Bombay

    By, THE HONORABLE JUSTICE: S.C. DHARMADHIKARI

    For Petitioner: Shyam Mehta and R.A. Shah, N.C. Parekh, Manisha Poladia, Advocates. and Deeksha Dadwal, Advocate., i/b., Mansukhlal Hiralal and Co And For Respondents: Darius Kambhata, Adv., i/b., Jay Bhatia, Adv. and Dipen Merchant, Adv., i/b., S.K. Srivastav and Co. for Nu-Tech Corporate Service Ltd. and C.J. Joy, Adv., i/b., S.S. Sarkar, Advocate. for the Regional Director and Reeta Rahimtulla, Adv., i/b., Manilal Kher Ambalal and Co. for ARCIL



Judgment Text


1. By this petition filed under Sections 391 and 394 of the Companies Act, 1956, the petitioners prays that the arrangement embodied in the scheme (annexure J) be sanctioned by this Court with or without modification and declare the same as binding on the petitioner and its secured and unsecured creditors.

2. The petition is presented to this Court on January 9, 2006. The petitioner has pointed out that it was incorporated on February 13, 1973, in the name and style of Ashoka Organics Industries Ltd. The registered office of the petitioner-company is situate at 14, Sun Mill Compound, Sun Industrial Co-operative Society Ltd., Lower Parel, Mumbai-400013. The authorised share capital of the company is Rs. 15,00,00,000 divided into 1,50,000 equity shares of Rs. 10 each. The issued, subscribed and paid up capital of the company is Rs. 12,08,56,250 divided into 1,20,85,625 equity shares of Rs. 10 each fully paid up.

3. The main object of the company are set out in paras. 5 and 6 of the petition. The petitioner-company commenced its business in the year 1973, and has been carrying on the same since then. The petitioner-company has acquired several liabilities over the years resulting in the assets of the petitioner-company falling short of its liability requiring the petitioner-company to be referred to the BIFR.

4. The petitioner-company had also by its letter dated February 4, 2002, lodged a reference before the BIFR. The BIFR had also by its letter dated May 15, 2002, acknowledged that its reference has been registered under case No. 195 of 2002. According to the petitioner-company, Mr. Pankaj Manilal Kadakia, Ashok Manilal Kadakia and Dr. Anil Manilal Kadakia in their dual capacity as promoters and guarantors (of the financial assistance by term lenders/working capital lenders) of the petitioner-company propounded a scheme to help, revive and rehabilitate the petitioner-company by infusing necessary funds and similarly working out a modality whereby the dues of the said secured creditors and unsecured creditors of the petitioner-company could be settled in a more fructuous manner. A tie up between the petitioner-company and the said promoters in their capacity as guarantors (of the financial assistance by term lenders and all working capital lenders) will help streamline the operation of the petitioner-company and shall result in the petitioner-company overcoming its accumulated losses. Pursuant to the same and in the interest of rehabilitating the petitioner-company, it has been proposed that in the interest of the secured creditors, unsecured creditors and that of shareholders of the petitioner-company be protected by proposing to them a scheme of arrangement.

5. The petitioner-company is indebted to its secured creditors to the tune of Rs. 2,413,117,097. The unsecured creditors of the petitioner-company are to the tune of Rs. 1,36,390,278. More than 75 per cent, of the secured and unsecured creditors are supporting the present scheme. The petitioner-company has by its letter dated September 9, 2005, submitted the said scheme to Bombay Stock Exchange.

6. Accordingly, the board of directors of the petitioner-company resolved on September 9, 2005, that subject to sanction of the appropriate court, as may be required under the law and subject to such permission of such authorities as may be necessary, a scheme of arrangement between Ashok Organic Industries Ltd., and its shareholders and creditors and Mr. Pankaj Kadakia, Ashok Kadakia and Anil Kadakia in their dual capacity as promoters and guarantors be made on the broad basis as referred to in the scheme of arrangement.

7. It is contended that the petitioner has bona fide intention to make payment to secured and unsecured creditors. Hence, it has propounded the scheme of arrangement with the secured and unsecured creditors and shareholders.

8. It is also pointed out in the petition that the petitioner expects good growth in coming years. In the long-term interest of everybody concerned, the scheme has been proposed and it would ensure smooth operations, stability, improved profitability so also continuous employment.

9. Attention of this Court is invited to an order passed on October 28, 2005, in Company Application No. 690 of 2005, whereunder directions were issued to convene a meeting of the equity shareholders, secured and unsecured creditors of the petitioner-company. This was for the purpose of considering the scheme. It is pointed out that due compliance was made of its directions and on December 12, 2005, meetings were held. The chairman has submitted his report, a copy of which is at exhibit J.

10. On perusal of the said report it is found that 56 equity shareholders holding 1,06,45,825 shares exercised voting by ballot. Ballot of one shareholder holding 9,21,700 shares was found invalid. Remaining 55 ballots for 97,24,125 shares were considered valid and all the 55 shareholders holding 97,24,125 shares constituting 80.46 per cent, of the total share capital voted in favour of the scheme and none voted against. Accordingly, the scheme was approved by the requisite majority in number of equity shareholders of the petitioner-company representing more than three-fourths in value of equity shareholders present at the said meeting and voted in favour of the said scheme of arrangement.

11. So far as the meeting of the secured creditors is concerned, four secured creditors representing value of Rs. 2,41,51,82,427 exercised voting by ballot, three secured creditors representing value of Rs. 193,32,69,980 constituting 80.05 per cent, of the total secured debtors voted in favour of the scheme of arrangement and one secured creditor representing value of Rs. 48,19,12,447, i.e., 19.95 per cent, of the secured debtor voted against the scheme of arrangement. Accordingly, the scheme was approved by the requisite majority in number of secured creditors of the petitioner-company representing more than three-fourths in value of secured debt present at the said meeting and voted in favour of the said scheme of arrangement.

12. So far as the meeting of the unsecured creditors is concerned, 43 unsecured creditors representing value of Rs. 10,88,91,177.20 attended the meeting. Forty-two unsecured debtors representing value of Rs. 10,87,94,030 constituting 99.91 per cent, present voted in favour of the scheme of arrangement and one ballot of unsecured debtor representing value of Rs. 97,147.20, was declared invalid and none voted against the scheme of arrangement. Accordingly, the scheme was approved by the requisite majority in a number of unsecured creditors of the petitioner-company representing more than three-fourths in value of unsecured debts present at the said meeting and voted in favour of the said scheme of arrangement.

13. Accordingly, the chairman has declared that the scheme of arrangement as amended has been approved by the equity shareholders, secured creditors and unsecured creditors. It is in these circumstances that the sanction is sought to this scheme of arrangement.

14. The regional director has filed an affidavit and in the same he has pointed out that a copy of this petition was sent to the concerned Registrar of Companies with request to send his report on the affairs of the company. The report was examined from various points, viz., shareholders and creditor's interest. The regional director in his affidavit dated April 21, 2006, states that the scheme is not prejudicial to the interest of shareholders and unsecured/secured creditors.

15. Dena Bank has filed an affidavit affirmed on March 24, 2006, opposing the scheme and at the same time, raising a preliminary objection to the maintainability of the petition.

16. Its contention is that the present petition is not maintainable because the petitioner is a company which has invoked the jurisdiction of Board for Industrial and Financial Reconstruction (BIFR), the authority set up under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). It is contended that Ashok Organics Industries Ltd., has made a reference and upon this reference hearing took place on July 18, 2005. Based upon the submissions made by the Assets Reconstruction Company (India) Ltd., (ARCIL), a special investigative audit was directed to be conducted in the affairs of the company. Further proceedings are pending in Case No. 195 of 2002. In such circumstances and considering the overriding effect given to the enactment (SICA), vide Section 32 thereof, the present petition is not maintainable and this issue raised be treated as a preliminary issue and be decided accordingly, is the submission. On the merits it is pointed out that the company had not approached this Court with clean hands. It has suppressed several material facts. My attention is invited to paras. 8 and 9 of this affidavit. Further, the objection of Dena Bank is that the scheme is unfair and totally one sided inasmuch as, as against an admitted liability of Rs. 48,19,12,447, the scheme proposes scaling down of the debt to a meagre sum of Rs. 4 crores. This is an extinguishment of liability by over 90 per cent. It is in such circumstances and relying upon the figures mentioned in the affidavit, Dena Bank submits that the scheme is detrimental to the interest of secured and unsecured creditors and is, therefore, liable to be rejected. It is pointed out that the scheme is not in public interest. The debt due to Dena Bank which is a nationalised bank is public debt. It would be contrary to public interest, if any compromise is made by the said bank with the petitioner and any agreement is reached to scale down the debt.

17. One unsecured creditor, viz., Nu Tech Corporate Services Ltd. (Nu-Tech) has pointed out that the petitioner has lodged a reference to the BIFR vide its letter dated March 6, 2002, and the BIFR has acknowledged receipt thereof. The said reference is numbered as Case No. 195 of 2002. The company has thus become entitled to protection of Section 22(1) of the SICA. The company has not approached this Court with clean hands and has not pointed out the fact of the reference. It is also pointed out that the company could have proposed such a scheme or any other scheme before the BIFR. The BIFR would have considered such a scheme in the light of the powers conferred upon the same vide the SICA. In other words, it has ample powers for rehabilitation and revival of the company like the petitioner. However, fearing that if such a scheme is presented, the BIFR instead of accepting the same may recommend winding up of the petitioner, that the petitioner has chosen to approach this Court by filing present petition. It is in such circumstances that the present petition be dismissed as not maintainable.

18. On the merits the said unsecured creditor has pointed out that the debt due to unsecured creditor is on account of lease rentals under a lease agreement dated December 10, 1996. The plant and machinery which have been given on lease have been fully utilised. The amounts under the agreement have not been paid as pointed out in details. Winding up petition being Company Petition No. 253 of 2000, was filed in this Court and an order was made on February 22, 2001, whereunder an undertaking of the petitioner to pay to the creditors, the sums as mentioned therein has been recorded. The undertaking has been flouted. Against the petitioner a suit at the instance of unsecured creditor, viz., Nu-Tech has been filed. The same is pending. Court receiver has been appointed and the petitioner was appointed as an agent of the court receiver in respect of the machinery under the lease agreement. Monetary compensation was determined by the court receiver and there is default in payment of monthly compensation/royalty. It is in such circumstances and pointing out that no notice of the meeting convened pursuant to the orders passed by this Court was given to M/s. Nu-Tech and such notice having not been given either to the creditors or the court receiver, it is urged that this Court should proceed to reject the scheme. In para. 22 of the affidavit dated March 24, 2006, of M/s. Nu-Tech this is what is stated:

22. I say that as pointed out hereinabove the petitioner-company has advanced loans to its wholly owned subsidiary Kakadia Alkalies and Chemicals Ltd., as well as to its associate company Ashok Alcochem Ltd. I say that on making inquiry the creditor has learnt that both Kakadia Alkalies and Chemicals Ltd., and Ashok Alcochem Ltd., have filed reference under Section 15(1) of the SICA before the BIFR and the reference filed by them have been registered as Case No. 157 of 2002 and Case No. 291 of 2003 respectively. Inquiry under the provisions of the SICA in respect of both the said cases are pending before the BIFR. I say that even though the said companies are sick companies huge amounts of loans and other advances have been advanced by the petitioner-company with the mala fide intention to siphon off the assets of the petitioner-company.
19. Thus, the scheme which is proposed and sanctioned by this Court is sought to be challenged by these entities.

20. Since a preliminary objection to the maintainability of the petition has been raised, it would be proper to take note of the rival contentions pertaining to the same.

21. Mr. Khambatta, learned senior counsel for Dena Bank has submitted that the company court has no jurisdiction to entertain an application under Section 391 when the applicant-company before the court has made a reference to the BIFR and the same is taken cognisance of by that authority. He invited my attention to provisions of the SICA so also the aims and objects of the same. In his submission, the Act is enacting special provisions. It is a latter Act. It is made in public interest for securing timely detection of sick and potentially sick companies owning industrial undertakings and to make speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies. He has invited my attention to a judgment reported in Navnit R. Kamani v. R.R. Kamani : (1989)ILLJ47SC wherein it has been held that the SICA has been enacted in order to afford maximum protection of employment, optimize use of financial resources, salvaging of production, releasing the amounts due to the banks and to replace existing time consuming and inadequate machinery by efficient machinery for expeditious determination by a body of experts. He submits that the statement of objects and reasons of the SICA and the definition of the term "industrial company", "industrial undertaking", "net worth", "operating agency" and most importantly "sick industrial company" are mentioned in Section 3(1)(o). He submits that Chapter II deals with establishment of the BIFR and AAIFR. Chapter III contains Sections 15 or 22A. He submits that once a reference has been made to the Board, an inquiry can commence into the working of sick industrial company. Section 17 deals with the powers of Board to make suitable orders on the completion of enquiry. Section 18 deals with preparation and sanction of schemes. Section 19 speaks of rehabilitation by giving financial assistance. Even existing operations can continue during enquiry and the Board can direct to do so vide Section 19A. Section 20 deals with winding up of sick industrial company whereas what happens after operating agency completes inventory, etc., is provided in Section 21. Section 22 deals with suspension of legal proceedings, contracts, etc., whereas by Section 22A a direction can be issued not to dispose of assets of industrial company.

22. He has invited my attention to Chapter IV which contains provisions in case of potentially sick industrial companies, misfeasance proceedings, appeals and other miscellaneous provisions. He invites my attention to the powers conferred on the AAIFR to entertain the appeal (Section 25), bar of jurisdiction contained in Section 26 and Section 32 which deals with effect of the SICA on other laws.

23. He has contended that Section 390(a) of the Companies Act will have to be seen in the backdrop of Section 22(1) of the SICA. In other words, a company is not liable to be wound up under the Companies Act if it is before the authorities stipulated under the SICA. In such circumstances, according to Mr. Khambatta, the company court would have no jurisdiction to entertain the application of the present nature, once the proceedings are pending before the BIFR.

24. In support of his submissions, Mr. Khambatta places strong reliance upon the decision of the Supreme Court reported in NGEF Ltd. v. Chandra Developers P. Ltd: (2005)8SCC219 . He has emphasised that the observations in paras. 39 to 43 of the judgment and according to him it has been clearly held that there cannot be two courts exercising identical jurisdiction. By virtue of Section 32 of the SICA, it would prevail over the Companies Act. In such circumstances, the preliminary objections be upheld and the petition be dismissed on this ground alone.

25. Mr. Khambatta's submissions have been adopted by Mr. Merchant, learned senior counsel appearing for M/s. Nu-Tech.

26. On the other hand Mr. Mehta, appearing for the petitioner invites my attention to the judgments of two learned single judges of this court. First one is dated June 8, 2005, in Company Petitions Nos. 104 to 106 of 2005. This decision is reported in National Organic Chemical Industries Ltd. (in C.P. No. 104 of 2005), Relene Petrochemicals P. Ltd. (in C.P. No. 105 of 2005) and Nocil Petrochemicals Ltd. in C. P. No. 106 of 2005 v. Nocil Employees Union : 2005(4)BomCR505 . He has also relied upon a judgment of this Court reported in Sharp Industries Ltd., In re. This decision is dated November 17, 2005. He submits that both decisions conclude the issue of maintainability in favour of the petitioner. He submits that these decisions are binding upon me. They cannot be distinguished or brushed aside because identical objection was considered by single judges of this court. He, therefore, submits that the preliminary objection be overruled and the petition be heard on the merits.

27. For proper appreciation of the rival contentions, it is necessary to refer to some provisions of the Companies Act and the SICA. Before doing so, it would be advantageous to have a look at the nature of reliefs that are claimed in the present petition and are ordinarily prayed for in applications filed under Sections 391 to 394 of the Companies Act. Chapter V of the Companies Act is entitled as arbitration, compromise, arrangement and reconstructions. The term arrangement is defined in Section 390(b). However, the term "compromise" is not defined and will have to be given its plain and ordinary meaning. Section 391 of the Companies Act reads thus:

391. (1) Where a compromise or arrangement is proposed-

(a) between a company and its creditors or any class of them; or

(b) between a company and its members or any class of them;

the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs.

(2) If a majority in number representing three-fourths in value of the creditors, or class of creditors, or members, or class of members, as the case may be, present and voting either in person or, where proxies are allowed under the rules made under Section 643, by proxy, at the meeting, agree to any compromise or arrangement, the compromise or arrangement shall, if sanctioned by the Tribunal, be binding on all the creditors, all the creditors of the class, all the members, or all the members of the class, as the case may be, and also on the company, or in the case of a company which is being wound up, on the liquidator and contributories of the company.

(3) An order made by the Tribunal under Sub-section (2) shall have no effect until a certified copy of the order has been filed with the Registrar.

(4) A copy of every such order shall be annexed to every copy of the memorandum of the company issued after the certified copy of the order has been filed as aforesaid, or in the case of a company not having a memorandum, to every copy so issued of the instrument constituting or defining the constitution of the company.

(5) If default is made in complying with Sub-section (4), the company, and every officer of the company who is in default, shall be punishable with fine which may extend to one hundred rupees for each copy in respect of which default is made.

(6) The Tribunal may, at any time after an application has been made to it under this Section, stay the commencement or continuation of any suit or proceeding against the company on such terms as the Tribunal thinks fit, until the application is finally disposed of.

28. A bare reading of this Section would contemplate that a compromise or arrangement can be proposed between the company and its creditors or any class of them or between a company and its members or any class of them. The court, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up on the application of liquidator, may make an order convening a meeting of creditors or class of creditors or members or class of members. At such a meeting if the majority representing three-fourths in value of the creditors and more particularly set out in the manner in Sub-section (2) agrees to the compromise or arrangement, the compromise or arrangement can be sanctioned. However, no order sanctioning such compromise or arrangement shall be made unless the court is satisfied that the company or the applicant specified by Sub-section (1), has disclosed by affidavit or otherwise all material facts relating to the company, latest auditors report on the accounts of the company, the pendency of any investigation proceedings in relation to the company and the like. The provisions pertaining to reconstruction and amalgamation need not be referred to in details.

29. The Sick Industrial Companies (Special Provisions) Act is, as rightly contended by Mr. Khambatta, enacted in public interest and contains special provisions. Its statement of objects and reasons reads thus:

The ill effects of sickness in industrial companies such as loss of production, loss of employment, loss of revenue to the Central Government and locking up of investible funds of banks and financial institutions are of serious concern to the Government and the society at large. The concern of the Government is accentuated by the alarming increase in the incidence of sickness in industrial companies. It has been recognised that in order to fully utilise the productive industrial assets, afford maximum protection of employment and optimize the use of the funds of the banks and financial institutions, it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible. It would also be equally imperative to salvage the productive assets and realise the amounts due to the banks and financial institutions, to the extent possible, from the non-viable sick industrial companies through liquidation of those companies.

It has been the experience that the existing institutional arrangements and procedures for revival and rehabilitation of potentially viable sick industrial companies are both inadequate and time consuming. A multiplicity of laws and agencies makes the adoption of co-ordinated approach for dealing with sick industrial companies difficult. A need has, therefore, been felt to enact in public interest a legislation to provide for timely determination by a body of experts of the preventive, ameliorative, remedial and other measures that would need to be adopted with respect to such companies and for enforcement of the measures considered appropriate with utmost practicable despatch.

The salient features of the Bill are:

(i) application of the legislation to the industries specified in the First Schedule to the Industries (Development and Regulation) Act, 1951, with the initial exception of the scheduled industry relating to ships and other vessels drawn by power, which may however be brought within the ambit of the legislation in due course;

(ii) identification of sickness in an industrial company, registered for not less than seven years, on the basis of the symptomatic indices of cash losses for two consecutive financial years and accumulated losses equaling or exceeding the net worth of the company as at the end of the second financial year;

(iii) the onus of reporting sickness and impending sickness at the stage of erosion of fifty per cent, or more of the net worth of an industrial company is being laid on the board of directors of such company; where the Central Government or the Reserve Bank is satisfied that an industrial company has become sick, it may make a reference to the Board, likewise if any State Government, scheduled bank or public financial institution having an interest in an industrial company is satisfied that the industrial company has become sick, it may also make a reference to the Board;

(iv) establishment of Board consisting of experts in various relevant fields with powers to enquire into and determine the incidence of sickness in industrial companies and devise suitable remedial measures through appropriate schemes or other proposals and for proper implementation thereof;

(v) constitution of an appellate authority consisting of persons who are or have been Supreme Court judges, Senior High Court judges and Secretaries to the Government of India, etc., for hearing appeals against the order of the Board.

30. Chapter III contains Section 15 which reads thus:

15. Reference to Board. - (1) When an industrial company has become a sick industrial company, the board of directors of the company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect of the company;

Provided that if the board of directors had sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the board of directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company:

Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company under Sub-section (1) of Section 5 of that Act:

Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under Sub-section (4) of Section 13 of that Act.

(2) Without prejudice to the provisions of Sub-section (1), the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank may, if it has sufficient reason to believe that any industrial company has become, for a purpose of this Act, a sick industrial company, make a reference in respect of such company to the Board for determination of the measures which may be adopted with respect to such company:

Provided that a reference shall not be made under this sub-Section in respect of any industrial company by-

(a) the Government of any State unless all or any of the industrial undertakings belonging to such company are situated in such State;

(b) a public financial institution or a State level institution or a scheduled bank unless it has, by reason of any financial assistance or obligation rendered by it, or undertaken by it, with respect to, such company, an interest in such company.

31. It is not disputed before me that a reference has been made to the Board. Admittedly, the industrial company before me has become sick industrial company, inasmuch as, it has at the end of financial year, accumulated losses, equal to or existing its entire net worth. It has in terms of abovementioned provisions (Section 15) made a reference to the Board requesting Board to determine such measures which shall be adopted with respect to the petitioner. Upon the reference being made, Section 16 provides for an enquiry. Section 16 providing for such enquiry reads thus:

16. Inquiry into working of sick industrial companies. - (1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company-

(a) upon receipt of a reference with respect to such company under Section 15; or

(b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company.

(2) The Board may, if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under Sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matters as may be specified in the order.

(3) The Board or, as the case may be, the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry.

Explanation. - For the purposes of this Sub-section, an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board.

(4) Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under Sub-section (1) or, as the case may be, under Sub-section (2), it may appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company or in the public interest.

(4A) The Board may issue such directions to a special director appointed under Sub-section (4) as it may deem necessary or expedient for proper discharge of his duties.

(5) The appointment of a special director referred to in Sub-section (4) shall be valid and effective notwithstanding anything to the contrary, contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force or in the memorandum and articles of association or any other instrument relating to the industrial company, and any provision regarding share, qualification, age limit, number of directorships, removal from office of directors and such like conditions contained in any such law or instrument aforesaid, shall not apply to any director appointed by the Board.

(6) Any special director appointed under Sub-section (4) shall-

(a) hold office during the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board;

(b) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto;

(c) not be liable to retirement by rotation and shall not be taken into account for computing the number of director or anything in relation thereto;

(d) not be liable to be prosecuted under any law for anything done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company.

32. Thus, the Board is empowered to make enquiry as it may deem fit for determining whether any industrial company has become sick industrial company. It may for the purposes of expeditious disposal of an enquiry direct any operating agency to enquire into and make a report with respect to such matters as would be specified in its order. However, as would be clear from reading of Section 16(1), the enquiry can be directed upon receipt of reference or upon opinion received with respect to such company or by the BIFR, suo motu upon its own knowledge as to financial condition of the company. The Board has been given ample powers as is clear from Sub-sections (4), (4A) and (5) of Section 16. Upon conclusion of the enquiry, if the Board is satisfied that the company has become a sick industrial company, the Board shall after considering all relevant facts and circumstances of the case, decide as soon as may be, by order in writing, whether it is practicable for the company to make its net worth exceed the accumulated losses within reasonable time.

33. Section 17 provides for such powers, and it reads thus:

17. Powers of Board to make suitable order on the completion of inquiry. - (1) If after making an inquiry under Section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing, whether it is practicable for the company to (make its net worth exceed the accumulated losses) within a reasonable time.

(2) If the Board decides under Sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, the Board, shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses.

(3) If the Board decides under Sub-section (1) that it is not practicable for a sick industrial company to (make its net worth exceed the accumulated losses) within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in Section 18 in relation to the said company it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company.

(4) The Board may,-

(a) if any of the restriction or conditions specified in an order made under Sub-section (2) are not complied with by the company concerned, or if the company fails to revive in pursuance of the said order, review such order on a reference in that behalf from any agency referred to in Sub-section (2) of Section 15 or on its own motion and pass a fresh order in respect of such company under Sub-section (3);

(b) if the operating agency specified in an order made under Sub-section (3) makes submission in that behalf, review such order and modify the order in such manner as it may deem appropriate.

34. If the Board is of the opinion that it is not possible for the company which has become sick to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in public interest to adopt all or any of the measures specified in Section 18 in relation to the said company, it may make an order in terms of Sub-section (3) of Section 17 and thereupon Section 18 of the Act would come into play.

35. In this behalf it will be useful to make a reference to the decision of the Supreme Court reported in U.P. State Sugar Corporation Ltd. v. U.P. State Sugar Corporation Karamchari Association : [1995]3SCR1004 . After referring to the scheme of the Act and placement of various Sections and Sub-sections this is what is observed by the Supreme Court (page 1488):

6. From a perusal of the aforesaid provisions of the Act it would appear that the Act makes a distinction between the role assigned to the Board in relation to a sick industrial company, provisions for which are contained in Sections 15 or 22A in Chapter III, and in respect of a potentially sick industrial company for which provisions are contained in Sections 23, 23A and 23B in Chapter IV. In respect of a sick industrial company the Board has been assigned a more active role in the sense that on receipt of a reference under Section 15 or upon information received with respect to such a company or upon its own knowledge about the condition of the company, the Board is required to make such inquiry as it may deem fit for determining whether an industrial company has become a sick industrial company and under Sections 16 and 17 the Board makes a suitable order after completion of the inquiry and a scheme may be prepared and sanctioned in relation to a sick industrial company under Section 18. There is provision for rehabilitation by way of financial assistance in Section 19 and express provision has been made in Section 22A empowering the Board to direct a sick industrial company not to dispose of any of its assets except with the consent of the Board during the period mentioned therein. In respect of potentially sick industrial company the Board has been assigned a more limited role of requiring such a company to furnish periodic information as to the steps taken by the company to make its net worth exceed its accumulated losses. The Board can also require an operating agency to inquire into and make its net worth exceed its accumulated losses. The Board can also require an operating agency to inquire into and make a report with respect to the matters specified in the order and on the basis of such report the Board may form its opinion that the company is not likely to become viable in future and that it is just and equitable that it should be wound up. There is no provision similar to Section 22A whereby the Board may direct a potentially sick industrial company not to dispose of its assets. Such a power conferred under Section 22A is restricted to a sick industrial company only.
36. In a later decision reported in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals : [1997]2SCR1026 once again the Supreme Court was considering the ambit and scope of Section 22 of the SICA. In that context, it had occasion to analyse the scheme of the Act. The Supreme Court makes a reference to several earlier decisions on the point and in para. 10 it observes thus (page 10):

10. On a fair reading of the provisions contained in Chapter III of Act 1 of 1986, and in particular Sections 15 to 22, we are of the opinion that the plea put forward by the Revenue is reasonable and fair in all the circumstances of case. Under the statute, the BIFR is to consider in what way various preventive or remedial measures should be afforded to a sick industrial company. In that behalf, the BIFR is enabled to frame an appropriate scheme. To enable the BIFR to do so, certain preliminaries are required to be followed. It starts with the reference to be made by the board of directors of the sick company. The BIFR is directed to make appropriate inquiry as provided in Sections 16 and 17 of the Act. At the conclusion of the inquiry, after notice and opportunity afforded to various persons including the creditors, the BIFR is to prepare a scheme which shall come into force on such date as it may specify in that behalf. It is in implementation of the scheme wherein various preventive remedial or other measures, are designed for the sick industrial company, steps by way of giving financial assistance, etc., by Government, banks or other institutions, are contemplated. In other words, the scheme is implemented or given effect to, by affording financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices by Government, banks, public financial institutions and other authorities. In order to see that the scheme is successfully implemented and no impediment is caused for the successful carrying out of the scheme, the Board is enabled to have a say when the steps for recovery of the amounts or other coercive proceedings are taken against sick industrial company which, during the relevant time, acts under the guidance/control or supervision of the Board (BIFR). Any step for execution, distress or the like against the properties of the industrial company or other similar steps should not be pursued which will cause delay or impediment in the implementation of the sanctioned scheme. In order to safeguard such state of affairs, an embargo or bar is placed under Section 22 of the Act against any step for execution, distress or the like or other similar proceedings against the company without the consent of the Board or, as the case may be, the appellate authority. The language of Section 22 of the Act is certainly wide. But, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme. If that be so, only the liability or amounts covered by the scheme will be taken in, by Section 22 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal under Section 25 of the Act, it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the sanctioned scheme. Such amounts like sales tax, etc., which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within Section 22 of the Act. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statute in a business sense, should be avoided.
37. In a subsequent decision of the Supreme Court, reported in Real Value Appliances Ltd. v. Canara Bank: [1998]3SCR170 with Real Value Appliances Ltd. v. Vardhaman Spinning and General Mills Ltd: 1998(1)BomCR232 , the Supreme Court was considering a controversy as to whether it is incumbent upon the BIFR to commence inquiry after registration of the reference or that mere reference being registered does not mean that the embargo under Section 22(1) would come into play. In that context, the Supreme Court had the following observations to make (pages 34, 36 & 37 of 93 Comp Cas):

18. Chapter III of the Act contains Section 15 to Section 22A and bears the hearing 'references, inquiries and schemes'. Section 15 of the Act refers to the 'reference to board' either by the industrial company under Sub-section (1) of Section 15 or by the Central Government or the Reserve Bank or a State Government or by a public financial institution or by State local institutions or scheduled banks. Section 16 refers to 'inquiry into the working of sick industrial companies' and to the declaration of the unit as a sick industry, after inquiry. Section 17 deals with 'powers of Board' to make suitable orders on the completion of inquiry to the company so as to make its net worth exceed its accumulated losses within a reasonable time or to direct the operating agency to prepare a scheme in the manner provided in Section 18. Section 19 deals with 'rehabilitation by giving financial assistance'. Section 20 refers to the winding up of the industrial unit if it is not likely that the company will be able to make its net worth exceed its accumulated losses. Section 22 of the Act with which we are concerned here, deals with 'suspension of legal proceedings, contracts, etc., where, an inquiry under Section 16 is pending or any scheme under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 before the appellate authority, (AAIFR) is pending.

19. The point which has, in this context, been raised in several High Courts is that the mere registration of a reference by the BIFR under the Act, would not result in the automatic cessation of all proceedings which are pending either in civil courts or in the company court, etc., against its assets. It is argued that in order that Section 22 of the Act can come into operation, the BIFR must-subsequent to the registration of the reference under Section 15 apply its mind and consider it necessary under Section 16 to make an inquiry and issue notices on the reference to the affected parties who are required to be heard, and that only then it can be said that an 'inquiry' is pending. Unless an inquiry is pending there cannot be a statutory stay of proceedings, etc., as contemplated by Section 22 of the Act.

21. It is to be noticed that according to Section 22, in case an 'inquiry under Section 16' is pending, then, notwithstanding anything in the Companies Act or any other instrument, etc., no proceedings for the winding up of the company or for execution or distress or the like against the property of the company or for the appointment of a receiver and no suit for recovery of money or enforcement of any security or of any guarantee - shall lie or be proceeded with further except with the consent of the Board or, as the case may be, by the appellate authority, Section 22A permits the Board to pass certain conditional orders.

22. It is also to be noticed that Sub-clause (1) of Section 16 says that the Board 'may' make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial unit - (a) upon receipt of a reference under Section 15 or (b) upon information received by it or upon its own knowledge as to the financial condition of the company. Under Sub-clause (2) of Section 16, the Board 'may' if it deems it necessary or expedient, require any operating agency to inquire and report to it. Under Sub-clause (3), the Board or the operating agency is to endeavour to complete the inquiry within 60 days from the date of commencement of the inquiry. Explanation below Sub-clause (3) explains that for purposes of Sub-clause (3), that is to say, for computing the period of 60 days, an inquiry shall be deemed to have commenced upon the receipt by the Board or any reference or information or upon its own knowledge reduced to writing by the Board. Under Sub-clause (4), when the Board deems it fit to make an inquiry under Sub-clause (1) or (2) of Section 16, it may (the word 'shall' has been omitted by the Act 12 of 1994) appoint one or more directors, etc.

22. Relying on the use of the word 'may' in Section 16(1) of the Act it has been contended in some High Courts that the word 'may' in that section shows that the BIFR has power to reject a reference summarily without going into merits and that it is only when the BIFR takes up the reference for consideration on merits under Section 16(1) that it can be said that the 'inquiry' as contemplated by section has commenced. It is argued that if the reference before the BIFR is only at the stage of registration under Section 15, then Section 22 is not attracted. This contention, in our opinion, has no merit. In our view, when Section 16(1) says that the BIFR can conduct the inquiry 'in such manner as it may deem fit', the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the procedure it may follow for conducting an inquiry under Section 16(1) and nothing more. In fact, once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an enquiry. If one looks at the format of the reference as prescribed in the regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the company's assets, liabilities, etc. Indeed, it will be practically impossible for the BIFR to reject a reference outright without calling for information/documents or without hearing the company or other parties. Further, the Act is intended to revive and rehabilitate sick industries before they can be wound up under the Companies Act, 1956. Whether the company seeks a declaration that it is sick or some other body seeks to have it declared as a sick company, it is, in our opinion, necessary that the company be heard before any final decision is taken under the Act. It is also the legislative intention to see that no proceedings against the assets are taken before any such decision is given by the BIFR for in case the company's assets are sold, or the company wound up it may indeed become difficult later to restore the status quo ante. Therefore, in our view, the High Court of Allahabad in Industrial Finance Corporation of India v. Maharashtra Steels Ltd. [1990] 67 Comp Cas 412, the High Court of Andhra Pradesh in Sponge Iron India Ltd. v. Neelima Steels Ltd. [1990] 68 Comp Cas 201, the High Court of Himachal Pradesh in Orissa Sponge Iron Ltd. v. Rishabh Ispaat Ltd. [1993] 78 Comp Cas 264, are right in rejecting such a contention and in holding that the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that from time to time, action against the company's assets must remain stayed as stated in Section 22 till final decisions are taken by the BIFR.

38. The preliminary objection which has been raised before me will have to be considered in the backdrop of the above interpretation placed upon the SICA by the Hon'ble Supreme Court.

39. I have made a reference to the earlier decisions in the field. The Hon'ble Supreme Court has observed therein that to enable the BIFR to frame and implement a remedial and rehabilitation scheme certain preliminary steps are contemplated. The act is intended to revive and rehabilitate sick industrial companies before they can be wound up under the Companies Act. Thus, whether, the provisions contained in the Companies Act, 1956, pertaining to compromise, arrangement and reconstruction would apply to a industrial company who has already approached the authorities under the SICA is the real question. There is substance in the contention that atleast in so far as such companies are concerned, the general provisions in the Companies Act, 1956, would not apply. However, for completely answering this argument one has to consider whether the SICA is complete code or not and that it is so, is clearly held by the Hon'ble Supreme Court recently. It is pertinent to note that the decision of the Supreme Court relied upon by Mr. Khambatta is rendered on September 29, 2005. Atleast before the learned single judge (A.M. Khanwilkar, J) who decided Company Petition No. 460 of 2005, in Company Application No. 338 of 2004,this judgment of the Supreme Court could have been cited. However, it was admittedly not brought to the notice of the learned single judge. The learned single judge decided the above company petition on November 17, 2005.The learned single judge agreed with the other learned single judge (S.U. Kamdar J., as he then was) and held thus (page 550 of 131 Comp Cas):

Reverting to the first objection taken on behalf of the intervenors that pendency of the BIFR proceedings would constitute bar for entertaining the present proceedings. In my opinion, this objection will have to be only stated to be rejected. Counsel for the petitioner has rightly placed reliance on the unreported decision of the single judge of our High Court in the case of National Organic Chemical Industries Ltd. v. Nocil Employees Union [2005] 126 Comp Cas 922 (Bom) in Company Petition No. 104 of 2005, and connected cases' decided on June 8, 2005. It will be useful to refer to the relevant extract in para. 6 of the judgment, which observes thus (page 926):

6... I find that on a plain and simple reading of Section 22 of the Act it is clear that the suspension of legal proceedings is only in respect of winding up of the industrial company or for execution or attachment of any of the properties of the industrial company for appointment of the receiver. In so far as the guarantors are concerned, the limited protection is granted that is no suit for recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loan granted to the industrial company shall lie. In my view on a plain and simple reading of Section 22 the law did not contemplate the suspension of any proceedings under Sections 391 to 394 of the Companies Act, 1956. In view thereof, there is no question of the proceedings being suspended by virtue of Section 22 of the Act. Similarly, the provisions of Section 26 of the Act also have no application in the present case because the provisions of Section 22 apply only when order is passed or proposal is made under the said Act which becomes appellate then except as provided in the said Act no civil court shall have jurisdiction in respect of those matters which are to be decided by appellate authority or the Board which is empowered under the Act to determine the said issues and no injunction can be granted by any court in respect of any action taken under the provisions of the said statute. In view thereof, the provisions of Section 26 also have equally no application'.

(emphasis supplied)

In para. 7, while considering the effect of Section 32 of the SICA, this Court went on to observe thus (page 928) (page 550 of 131 Comp Cas):

7. If the provisions of Sections 391 to 394 of the Companies Act are inconsistent with the provisions of Sections 15 to 19 of the SICA then in that event by virtue of Section 32 of the SICA the said provisions will have an overriding effect and shall prevail notwithstanding anything inconsistent under the provisions of Sections 391 to 394 of the Companies Act. In my opinion the answer to this question lies in the fact whether there is any inconsistency between the said provisions of Section 32 and the provisions of Sections 391 to 394 of the Act which are the relevant provision of the Act....

Again in paragraph 8 of the said judgment, the court observed thus (page 931) (page 551 of 131 Comp Cas):

Mr. Chagla, learned Counsel for the petitioner has contended that there is no inconsistency between the aforesaid two provisions. He has drawn my attention to the Statement of Objects and Reasons of the SICA to indicate that the whole idea to introduce the provisions of the SICA is to make the company financially viable and independent. He has contended that the provisions providing for merger and demerger of the companies under Sections 391 to 394 of the Companies Act also similarly has the same object of making the company viable and more efficient. Thus, he has contended that the provisions of both the statues are supplemental to each other and not inconsistent therewith and, therefore, this Court would have power to sanction the scheme under Sections 391 to 394 of the Companies Act irrespective of the provisions of Section 32 of the SICA. I have considered the aforesaid contention and I find considerable substance and merit therein. The provisions of Sections 15 to 19 of the Act is a scheme where a company which has become sick can register itself with the BIFR which is vested with the power under the provisions of the said Act which shall thereafter after making enquiry may provide for package for rehabilitation of the company and/or make the company viable so that the business of the company can continue. The provisions of Sections 391 to 394 of the Companies Act, 1956 also similarly provide for rearrangement of the company's business by way of granting amalgamation, demerger and/or by sanctioning of the scheme of compromise which also has very same purpose and object to receive and/or make the company more viable and efficient. The provisions of the Act though provide for different methods of doing so, they are not inconsistent with each other. Apart therefrom, I find that the provisions of the SICA operate in a slightly different sphere, i.e., the case where the net worth of the company has become negative, whereas the provisions of Sections 391 to 394 have no such requirement as condition precedent and this provision can even operate in cases where the companies are doing quite well and are seeking to rearrange its business for the efficient management or better business prospects and thus seeks to amalgamate or demerger its business operation of the company. In my view, since there is no inconsistency between the provisions of Section 32 of the SICA and the provisions of Sections 391 to 394 of the Companies Act, there is no question of the provisions of Section 32 of the SICA being made applicable to the present case. In my view, therefore the court has power and jurisdiction to grant sanction of the scheme under Sections 391 to 394 of the Companies Act, 1956. In view thereof, I make the present petition absolute in terms of prayer Clauses (a) to (d).

(emphasis supplied)

40. I am in agreement with the view expressed by Justice S.U. Kamdar in the above decision. To get over this position, counsel for the intervenors had placed reliance on the decision in the case of K. Sitarama Raju v. Board for Industrial and Financial Reconstruction: [1996] 87 Comp Cas 22 (AP), wherein, it is observed that as soon as the reference under Section 15 is made to the BIFR, the BIFR is seized of the matter and in that case by virtue of Section 32 of the SICA, the provisions of that Act would prevail notwithstanding anything contained in the Companies Act, 1956. In my opinion, this decision is of no avail to the intervenors. In the first place, the limited question that was considered by the Andhra Pradesh High Court in exercise of writ jurisdiction was : whether the BIFR has the power to restrain the company from effecting any change in the composition of the board of directors, including top managerial personnel pending decision on the question of rehabilitation of the company. The statement of law occurring at page 31 placitum (H) of the said decision as referred to above will, therefore, have to be considered in that limited perspective. In any case, I would prefer to agree with the view expressed by Justice S.U. Kamdar which is the correct statement of law. Viewed in this perspective, the objection that this Court has no jurisdiction to entertain the present proceedings in view of the pendency of the BIFR reference will have to be rejected. Anticipating this situation, perhaps, counsel for the intervenors would then argue that even if the two proceedings were to be held as independent proceedings, even in that case, the present petition will have to be rejected unless the petitioner were to elect one of the available two remedies. There is no substance even in this objection. The question of election of remedy would arise when both the remedies provide for same relief. That is not the case on hand. Besides, as mentioned by Justice S.U. Kamdar, the scheme of two enactments operate in different spheres, though not inconsistent with each other. If it is so, the question of electing one of the two remedy does not arise.

41. The Supreme Court in NGEF Ltd.'s case : (2005)8SCC219 however, in the paras relied upon by Mr. Khambatta, observes thus (pages 836 to 838):

39. The provisions of SICA contain non obstante clauses. It is a special statute. It is a complete code in itself. The jurisdiction of the company court in such matters would arise only when BIFR or AAIFR, as the case may be, has exercised its jurisdiction under Section 20 of the SICA recommending winding up of the company upon arriving at a finding that there does not exist any chance of revival of the company.

40. Mr. Venugopal has placed reliance upon a decision of a learned single judge of the Karnataka High Court in Karnataka State Industrial Investment and Development Corporation Ltd. v. Inter Modal Transport Technology Systems (Karnataka) Ltd. (in liquidation) [1998] 94 Comp Cas 166 for the proposition that despite the fact that the BIFR retains jurisdiction to get the assets of a sick company sold in terms of Sub-section (4) of Section 20 of the SICA; still the leave of the company court, therefore would be required. The said decision, however, has been reversed by the Division Bench of the Karnataka High Court in BPL Ltd. v. Inter Modal Transport Technology Systems (Karnataka) Ltd. (in liquidation) [2001] 107 Comp Cas 313 holding that the company court has no such jurisdiction. We, generally agree with the views of the Division Bench.

41. It is difficult to accept the submission of learned Counsel appearing on behalf of the respondents that both the company court and BIFR exercise concurrent jurisdiction. If such a construction is upheld, there shall be chaos and confusion. A company declared to be sick in terms of the provisions of the SICA, continues to be sick unless it is directed to be wound up. Till the company remains a sick company having regard to the provisions of Sub-section (4) of Section 20, BIFR alone shall have jurisdiction as regards sale of its assets till an order of winding up is passed by a company court.

42. Apart from the fact that Sub-section (4) of Section 20 contains a non obstante clause and, thus, it shall prevail over the provisions contained in Sub-section (2), the said Act is also a latter statute.

43. The provisions of the SICA would prevail over the provisions of the Companies Act. Section 20 of the SICA relates to winding up of the sick industrial company. Before the BIFR or AAIFR, as the case may be, makes a recommendation for winding up of the company, an enquiry is made in terms of Section 16 thereof wherefore all relevant facts and circumstances are required to be taken into consideration. Before an opinion is arrived at in that behalf, the parties are given an opportunity of hearing. The satisfaction arrived at by the BIFR that the company is not likely to become viable in future and it is just and equitable that the company should be wound up must be based on objective criteria. The High Court indisputably on receipt of such recommendation of the BIFR would initiate a proceeding for winding up in terms of Section 433 of the Companies Act. Sub-section (2) of Section 536 ipso facto does not confer any jurisdiction upon the company court to direct sale of the assets of the sick company, it has to exercise its power thereunder subject to the provisions of the special statute governing the field. Despite the fact that the procedure laid down under the Companies Act would be applicable therefore but they must be read with sub-Section (4) of Section 20 of the SICA which contains a non obstante clause and in terms thereof, the BIFR is authorised to sell the assets of the sick industrial company in such a manner as it may deem fit. By reason of the said provision, the BIFR is also empowered to forward the sale proceedings to the High Court for orders for distribution in accordance with Section 529A and other provisions of the Companies Act which in no uncertain terms would mean that the distribution of the sale proceeds would be for the purpose of meeting the claims of the creditors in the manner laid down therein. The intention of Parliament in enacting the said provision becomes clear as in terms of Section 22A of the SICA, the BIFR is empowered to issue any direction in the interest of the sick industrial company or its creditors or shareholders and direct the sick industrial company not to dispose of its assets except with its assent. Section 32, as noticed hereinbefore, again contains a non obstante clause. The scheme suggests that the BIFR retains control over the assets of the company and in terms of the aforementioned provisions may either prevent any sale or permit any sale of the assets of the sick industrial company. Such a power in the BIFR remains till a winding up order is passed by the High Court and a stage arrives for the High Court for issuing orders for distribution of the sale proceeds.

44. The SICA was furthermore enacted subsequent to the provisions of the Companies Act. It is not, thus, possible to accept the submission that the High Court exercises a concurrent jurisdiction.

45. It may be true that the High Court's jurisdiction is that of the appellate authority but keeping in view the terminology contained in Sub-section (4) of Section 20 read with Section 32 of the Act, it leaves no manner of doubt that the provisions of the SICA shall prevail over the provisions of the Companies Act. For the aforementioned purpose, it was not necessary for Parliament to mention specifically the provisions of Sub-section (4) of Section 20 that the same shall prevail over Section 536 of the Companies Act, as was suggested by learned Counsel appearing for the first respondent. The construction of the provisions of both the Acts, as suggested by learned counsel, that both the provisions of Sub-section (4) of Section 20 and Section 536 should be read conjointly so as to enable an applicant to obtain a sanction of both the BIFR and the company court, thus, do not appeal to us.

42. Thus, the Hon'ble Supreme Court observes that the SICA is a special statute and a complete code by itself. It prevails over the Companies Act, 1956. Hence, atleast in so far as sick companies who have approached the BIFR, which is case before me, the provisions in Sections 391 to 394 of the Companies Act, 1956 would not apply in the light of the conclusions of the Supreme Court. With respect, therefore, it is difficult to agree with the learned single judges judgments holding that there is no inconsistency in the two enactments and that they supplement each other. When attention of Mr. Mehta appearing for the petitioner was invited to these observations, he contended that the Supreme Court in this judgment was not considering the controversy of maintainability of an application under Sections 391 and 394 of the Companies Act, 1956, in the light of pending reference before the BIFR. His submission is that the Supreme Court was considering a controversy where the company court after proceeding in accordance with opinion of the BIFR recommending winding up of the company before the Supreme Court, made an order allowing sale of assets of the company before it. The application was claiming the relief which is referred in details by the Supreme Court in its judgment at paras. 1 to 8. It is in this backdrop that the Supreme Court was called upon to decide as to whether the order of the Karnataka High Court allowing disposal of the assets after the opinion was rendered and recommendation made by the BIFR, is contrary to the provisions contained in the SICA. He submits that the question before the Supreme Court was whether a company, being a sick company but not capable of being revived and recommendation is made for its winding up, continues to be a sick company and, therefore, company court's jurisdiction under the Companies Act is saved by the provisions of Section 20 of the SICA or whether the said jurisdiction is in any way affected by virtue of the SICA, 1985. In other words, Mr. Mehta's submission is that the Supreme Court was considering a very limited controversy and its observations must be read in that context and restricted to the same.

43. Admittedly, before both the learned single judges of this court, the abovementioned Supreme Court judgment was not cited. The above quoted observations of the Supreme Court cannot be read in the manner suggested by Mr. Mehta. The judgment refers to the scheme of the Act in the context of the jurisdiction of the company court. The Supreme Court observes that the SICA is a special statute and a complete code in itself. In para. 39, the Supreme Court has observed that the jurisdiction of the company court would arise only when the BIFR or the AAIFR has exercised its jurisdiction under Section 20 of the SICA recommending winding up after arriving at a finding that the company cannot be revived. At

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the same time, the Supreme Court has rejected the contention that both the company court and the BIFR exercise concurrent jurisdiction. It may be true that such observations have been made while considering an issue regarding seeking leave of company court while disposing of assets of a sick company by the BIFR, yet, the observations of the Supreme Court cannot be read in the manner suggested by Mr. Mehta. This aspect is absolutely clear from para. 43 of the judgment. Therein a reference is also made to Section 22 of the SICA. The Supreme Court has observed that the SICA is enacted subsequent to the Companies Act. Therefore, it is not possible to accept the contention of Mr. Mehta that this judgment must be restricted to the ambit and scope of Section 20 and would not be of assistance while considering the preliminary objection raised before me. That apart, the observations in the earlier decisions of the Supreme Court have also not been referred to by this Court in the judgments rendered by the learned single judges. 44. I am of the view that the very foundation of the conclusion of the learned single judges of this Court is that the company court and the BIFR exercise concurrent jurisdiction. Such observations have been made considering Section 32 of the SICA. However, Section 32 so also other provisions of the SICA have been considered by the Hon'ble Supreme Court and, therefore, the provisions of the SICA would prevail over the Companies Act is the ultimate conclusion. 45. In the above circumstances, I find it difficult to brush aside the preliminary objection. However, I am further of the view that judicial discipline requires me not to ignore the judgments of this Court which are rendered by a co-ordinate Bench. The co-ordinate Benches judgments and observations therein are binding and cannot be ignored unless they are per incuriam. Mr. Khambatta contends that the same are per incuriam and not a good law. However, I am equally bound by the law laid down by the Hon'ble Supreme Court in Dr. Vijay Laxmi Sadho v. Jagdish AIR 2001 SC 600. The Hon'ble Supreme Court after quoting with approval its earlier view has observed thus (page 605): 28. As the learned single judge was not in agreement with the view expressed in Devilal's case, it would have been proper, to maintain judicial discipline, to refer the matter to a larger Bench rather than to take a different view. We note it with regret and distress that the said course was not followed. It is well-settled that if a Bench of co-ordinate jurisdiction disagrees with another Bench of co-ordinate jurisdiction whether on the basis of 'different arguments' or otherwise, on a question of law, it is appropriate that the matter be referred to a larger Bench for resolution of the issue rather than to leave two conflicting judgments to operate creating confusion. It is not proper to sacrifice certainty of law. Judicial decorum, no less than legal propriety forms the basis of judicial procedure and it must be respected at all costs. 46. In a later decision reported in State of Bihar v. Kalika Kuer alias Kalika Singh : [2003]3SCR919 , this judgment is followed. The Supreme Court after defining what is 'per incurium' has cautioned that judgments of coordinate Benches should not be brushed aside by applying this principle lightly. I am of the view that it cannot be contended that the judgment of the Supreme Court reported in NGEF Ltd. v. Chandra Developers P. Ltd: (2005)8SCC219 is not relevant or not binding while deciding the present controversy. In the light of the broad and wide conclusions of the Supreme Court, as reproduced above, the judgments of this Court require reconsideration. I do not wish to conclude that the judgments of single judges of this Court and the observations therein are no longer good law in the light of the judgment of the Supreme Court reported in NGEF Ltd. v. Chandra Developers P. Ltd : (2005)8SCC219 . The above judgment is followed in a later decision of the Supreme Court reported in Jay Engineering Works Ltd. v. Industry Facilitation Council [2006] 133 Comp Cas 670 : AIR 2006 SCW 4783 wherein the Supreme Court was considering the effect of Section 32 of the SICA along with Section 22(1) thereof. In para. 21 of this decision, the Supreme Court after quoting Section 32 of the SICA has observed thus (page 676): 21. The 1985 Act was enacted in public interest. It contains special provisions. The said special provisions had been made with a view to secure the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a board of experts for preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. 47. The Supreme Court has reiterated its earlier view that the SICA is a complete code by itself, (see para 16). 48. Hence, whether the Companies Act and the SICA operate in the same field, so also, the nature and the scope of the said enactments are matters which necessitate elaborate and deeper probe. Thus, there is need for an authoritative pronouncement. As observed above, the question arises in several proceedings and merely because there is a discretion to sanction a scheme of compromise or arrangement in the Companies Act. Whether that discretion survives in case of sick companies and particularly those, who have already approached the BIFR is the moot question. It needs a fresh look. 49. With profound respect to the co-ordinate Benches, I am unable to share their views. More so, in the light of the latest decision of the Supreme Court. In such circumstances and considering the importance of the question involved, it would be appropriate if the matter is placed before a Division Bench of this court. 50. As I am unable to agree with the observations of the two learned single judges of this Court and in the light of the judgment of the Supreme Court, it would be appropriate if papers and proceedings in this application are placed before the Hon'ble Chief Justice in terms of Rule 28 of the Bombay High Court original side rules for referring the issue framed below to a Division Bench or for taking such course of action as is permissible in law. 51. The reference is necessary to resolve the following issue: Whether an industrial company which has made a reference under Section 15 of the Sick Industrial Companies Act, can during the pendency of such reference, apply to this Court for sanctioning a scheme of arrangement or compromise with its creditors and shareholders and whether this Court can take cognisance of such an application during the pendency of the reference and pass necessary orders thereon as are permissible in law? 52. Prima facie, there being substance in the preliminary objection raised before me and having observed that the same cannot be brushed aside, it would not be appropriate on my part to deal with this company application further. Even otherwise, unless the jurisdictional question is answered, the merits of the scheme cannot be gone into by me. No useful purpose will be served by going into the rival contentions in that behalf. If it is ultimately held that the company court has jurisdiction, then, the company application can always be placed before appropriate court. Hence, I keep the issue on the merits of this scheme proposed by the petitioner, open for consideration at a later stage. 53. I record my appreciation for the valuable assistance rendered by Mr. Mehta and Mr. Khambatta.
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