Full Judgement
Raheja Universal Limited Vs. NRC Limited & Ors.
[Civil Appeal No. 1920 of 2012 arising out of SLP (C) No.26149 of 2011]
[Civil Appeal No. 1921 of 2012 arising out of SLP (C) Nos. 5360 / 2012 (Cc 15948/2011)]
[Civil Appeal No. 1922 of 2012 arising out of SLP (C) No.26624 of 2011]
[Civil Appeal No. 1923 of 2012 arising out of SLP (C) No.26964 of 2011]
J U D G M E N T
Swatanter Kumar, J.
1. An interesting question of law as to the ambit and scope of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, the `Act of 1985') and its overriding application over the provisions of Transfer of Property Act, 1882 (for short, the `Act of 1882'), with particular reference to Section 53A and Section 54 of the latter Act, arises for consideration in the present case. Reference to the basic facts which give rise to this proposition of law would be necessary and are as follows:
2. Facts: NRC Limited is a company which was originally incorporated under the name and style of `National Rayon Corporation Limited' in the year 1946. However, subsequently, by an appropriate resolution of the Board of Directors, its name was changed to `NRC Limited' on 4th August, 1994 (hereinafter referred to as the `Respondent-Company'). The Respondent-Company was engaged in the manufacture of viscos filament yarn, chemicals and allied products with its factory at Mohane, Kalyan, District Thane. As per the facts on record, the Respondent-Company was declared a `sick industrial company' in the year 1987, but as its net worth turned positive, vide order dated 10th January, 1994 passed by the Board for Industrial and Financial Restructuring (for short, the `BIFR'), it was discharged from the purview of the Act of 1985.
The Respondent-Company had 2arranged finances and invested nearly Rs.86 crore in the financial year 2005-06 whereafter it started incurring losses because reduction in the customs duty seriously affected its business. Because of the financial crunch faced by the Respondent-Company, a consortium of five nationalized banks comprising of Punjab National Bank, Dena Bank, Canara Bank, Indian Overseas Bank and the Bank of Baroda had sanctioned a term loan as well as a working capital loan, secured by the current assets as well as the fixed assets of the Respondent-Company including the land in question. The total outstanding amount of loan, as on 31st March, 2006, was approximately Rs.147 crore. The Respondent-Company intensified its efforts to dispose of the surplus land so as to bring in additional funds required for financial restructuring.
A Memorandum of Understanding was signed on 13th April, 2006 with `K. Raheja Universal Limited' renamed as `Raheja Universal Limited' (hereinafter referred to as the `Appellant-Company') for sale of about 344 acres of land for a total consideration of Rs.166.40 crore. After obtaining `No Objection Certificates' from the lending banks, an agreement dated 1st March, 2007 was signed between the parties and a sum of Rs.25 crore was paid by the Appellant-Company to the Respondent-Company.
The balance consideration of Rs.141.40 crore was to be paid as per the terms of the agreement. In terms of the said agreement, the Appellant-Company was to pay the second instalment of Rs.25 crore, as and when required, to be utilized only to remove the first charge on the saleable land, the third instalment of Rs.48.90 crore was to be paid on receipt of `No Objection Certificate' from the labour, Kalyan Dombivli Municipal Corporation and, on completion of fencing and the vacant possession of non-colony land and the fourth and final instalment of Rs.72.50 crore was to be paid subsequent thereto.
3. The Agreement dated 1st March, 2007 had postulated payment of the sale consideration in instalments. The parties continued further negotiations in regard to payment of the balance sale consideration. The Respondent-Company had requested the Appellant-Company to advance the payment of instalments. Thereafter, the parties came to an understanding and, in furtherance to such understanding, a supplementary deed to the agreement was signed on 29th September, 2007.
As already noticed, the Appellant-Company had declined to 4pay the third instalment of the consideration payable, causing impediment to payments towards labour costs and other expenses of the Respondent-Company. Then, the parties, by mutual agreement, signed a second supplementary agreement dated 17th August, 2010. This agreement referred to the principal agreement and besides advancing the payment of instalments, the possession of the property was also given to the Appellant-Company.
4. There is some dispute between the parties with regard to the manner and time in which these payments were or were not made. On failure to attain the object of restructuring, the Respondent-Company submitted a proposal to the consortium of banks for Corporate Debt Restructuring (CDR) and improving the performance and to achieve positive results during the year 2006-07. The CDR mechanism used the land sale proceeds. Upon making the proposal, the Respondent-Company discontinued its production activity in the nylon plant.
The CDR Empowered Group approved the package for restructuring of debts on 21st January, 2008 but still it could not improve the financial business position of the Respondent-Company till the period ending on 30th June, 2008. On or 5about 24th September, 2008, the consortium banks released their interest over the property. An agreement with the recognized employees' unions was also entered into on 5th September, 2008 but then it ran into problems, as it was contended by the Labour Unions that their dues should be cleared first and on transfer of land, Appellant-Company should provide 18 acres of land for a proposed employee's colony.
An early retirement scheme was also introduced and out of the total strength of 3725 employees, about 577 employees opted to take the benefit of this scheme. The Respondent-Company then negotiated with the Appellant-Company sometime in September 2008 for payment of the third instalment of Rs.48.90 crore. However, simultaneously, the Labour Unions raised the question of payment of bonus which adversely affected the revival plans.
The chemical plant of the company was re-started. On 3rd December, 2008, the Respondent-Company moved an application before the BIFR in Case No. 55 of 2008 under Section 15(1) of the Act of 1985. The Appellant-Company refused to release the third instalment and resultantly, even the dues of 577 employees, who had taken the benefit of the early retirement scheme, 6could not be cleared. The BIFR, vide its order dated 16th July, 2009, fixed the cut-off date as 30th July, 2007. It directed that the sale of assets, including investments, will require prior approval of the BIFR. It also appointed the Punjab National Bank as the Operating Agency under Section 17(3) of the Act of 1985.
5. As per Section 18(8) of the Act of 1985, the cut-off date is the date of coming into operation of the sanctioned scheme, or any provisions thereof. In other words, all matters relating to the company would, after this date, be within the ambit and scope of the provisions of the Act of 1985 and, as already noticed, the BIFR had declared the cut-off date to be 30th July, 2007. Vide its order dated 16th July, 2009, which was passed under Section 17(3) of the Act of 1985, the following directions were given:
"(i) The Company shall submit a fully tied up DRS to the OA (Punjab National Bank) (PNB) within a period of three months. The sale of 350 acres of land stated to be approved by the CDR Empowered Group (EG) and the secured creditors may form part of the DRS. The details of the land to be sold including survey numbers should be clearly specified. The company shall give similar details of the remaining land and conform that it is adequate for the functioning and viability of the company on long term basis. The OA (PNB) shall convene a joint meeting of all concerned and submit a fully tied up DRs, if it emerges, along with the minutes of the joint meeting within a further period of one month.
(ii) Bank of Baroda (BOB) shall submit an authenticated copy of the CDR scheme approved by consortium of banks within a period of 15 days.
(iii) PNB (OA) shall confirm to the Board within a period of 15 days under copy to the company that all the secured creditors who had charge over the land had approved sale of 350 acres of land belonging to the company at Kalyan, Thane Dist. To K. Raheja Universal Pvt. Ltd. For a sum of Rs. 166.40 crore. The secured creditors who had charge over the land shall clearly indicate whether the company had obtained their approval before entering into MOU and agreement for sale of 350 acres of land with K. Raheja Universal Ltd. under copy to the company the OA (PNB) and the Board. Secured creditors shall also similarly submit copy of their approval for sale of investments, giving details of the investments.
OA shall also submit copies of the approvals given by the secured creditors for the sale of the said land along with the copies of valuation report and the details of the valuer and the procedure followed based on which the sale consideration of Rs.166.40 crores was arrived at. OA shall also submit a copy of the approvals by secured creditors for sale of investment giving details of the investments.
The company shall fully co-operate with the OA in furnishing the documents/details required by them. 8 (iv) The company shall submit within 15 days under copy to the OA (PNB) copies of the No Objection Certificates for sale of land and release of charge issued by all the charge holder lenders and the State Government in respect of 350 acres of land for which MOU and agreement of sale are stated to be entered into in 2006 and 2007 respectively with K. Raheja Universal Pvt. Ltd. under copy to the PNB (OA). The company should also submit certified copies of the Board resolutions of the company authorizing these transactions to the OA with a copy to the Board. The company shall similarly submit full details of the investments to be sold under the CDR scheme.
It is reiterated that sale of assets including investments will require the prior approval of BIFR as the company is now under the purview of SICA. (v) The company shall submit a copy of the clearance stated to have been received from Hon'ble High Court of Bombay for sale of 350 acres of land under copy to the OA (PNB).
(vi) The secured creditors are directed u/s 22(1) of SICA not to take any coercive action against the company without prior permission of BIFR.
6. "As is evident from the above-noted directions, the BIFR treated the land as an investment and has put certain restrictions thereupon, including that of sale of assets, which required the prior approval of BIFR as the Respondent-Company was under the purview of the Act of 1985.
With 9reference to the land, it was directed that Capacity Valuation Report should be placed on record to show how the sale consideration of Rs.166.40 crore was arrived at. Aggrieved from this order, the Appellant-Company as well as the Respondent-Company, both have preferred an appeal before the Appellate Authority for Industrial and Financial Reconstruction (for short the `AAIFR') under Section 25 of the Act of 1985. The AAIFR made major variations in the order of the BIFR.
Firstly, it held that BIFR should not have fixed 30th July, 2007 as the cut-off date and secondly, that the provisions of Section 22A would not apply to an agreement for sale which had already been entered into, registered, acted upon and was in the process of completion. While dealing with the order of the BIFR, AAIFR vide its order dated 28th May, 2010, set aside certain findings of the BIFR as well as passed certain other directions. It is useful to refer to some of the findings recorded by the AAIFR in its order which are as under: "22. ......... The BIFR has also not considered the impact of Section 22A or the transactions, contracts/agreements entered into between the company and third parties prior to the filing of reference when the company was not a sick entity.
If the BIFR 10was of the view that the agreement for sale of land was not in the interest the company, it could have suspended the contract under Section 22(3) of SICA as it was a pre-existing contract. Despite arguments to the contrary, the BIFR has not given any reasons to justify how Section 22A of SICA applies to a pre-existing agreement for sale entered into between the company and a third party prior to filing of the reference. In fact, the agreement for sale is a clog on the absolute ownership of the property of the appellant company and the property cannot be said to be free from encumbrance unless the registered agreement for sale is cancelled. The property under agreement cannot be sold to others during the subsistence of agreement for sale. XXX XXX XXX
24. In view of the aforesaid discussion and considering the various provisions of the MOU dated 13.4.06, agreement for sale dated 01.3.07 and supplementary agreement dated 21.9.07, we are of the view that the provisions of Section 22A will not apply to the agreement for sale already entered into, registered, and acted upon and in the process of completion. Had it been the intention of the legislature to cover the past transactions within the ambit of Section 22A, the provisions for suspension of existing contracts etc. would not have been provided under Sub-Section (3) of Section 2 of SICA under which the BIFR has not passed any order. Readiness and willingness of the parties to the sale agreement to honour the contract is also a paramount consideration."
7. AAIFR summed up its conclusion in paragraphs 41 and 42 which read as under:
"41. To sum up : The sale-purchase agreement dated 30.6.2009 was signed after the reference was filed and 15 days before the BIFR passed the restraint order under section 22A; There is no evidence to show whether various provisions of SEBI Take Over Code have been complied with; The company has violated the amended terms and conditions of STL dated 29.6.2009 by not paying to PNB one instalment of Rs.2.78 crores before 30.6.2009; Consequently, PNB ha not released the shares of AOL for re-pledge by ISG Traders Ltd.: According to PNB, however, the company has shown the entire shares of AOL as sold:
There is no evidence to show that sale consideration has been paid; and The ISG Traders Ltd. is neither a party before the BTR nor before this Authority. In these circumstances, the BIFR was fully justified in seeking full details of the investments to be sold in the CDR scheme and to direct that the sale of investments will require the prior approval of the BIFR. We find no reasons to interfere with the aforesaid order of the BIFR regarding sale of investments.
42. We observed that the BIFR has fixed the cutoff date as 30.07.2007 on the basis of the CDR scheme while passing the order under Section 17(3). The fixation of cut off date implies that the liabilities and the dues of the creditors will be determined as on that date and the repayment obligations will commence during the year following the cut oil date. If there is a substantial gap between the cut off date fixed and the date of sanction of the scheme, the scheme will become a non starter because the sick industrial company will be unable to fulfill its repayment obligations for the period between the cut off date as stipulated in the impugned order and date of sanction of the scheme, The issue can be resolved by determining a prospective cut off date. Section 17(4)(b) of SICA vests in the BIFR the necessary power to review and modify its orders under Section 17(3) of SICA. Therefore, in our view the cut off date fixed by the BIFR in the impugned order is required to be suitably modified by the BIFR.
8. "With the above findings, the AAIFR recorded that the scheme could be approved but subject to pre-payment of the entire remaining consideration of Rs.124.64 crores, as per its directions, for setting off labour dues. In other words, it permitted the land, though an asset of the company, to be sold. The correctness and legality of this order of the AAIFR was questioned by the Appellant-Company, the Respondent-Company and the NRC Mazdoor Sangh before the High Court. 13These Writ Petitions, along with other connected Writ Petitions, were disposed of by the High Court by a common judgment dated 29th July, 2011.
The High Court, primarily, framed two questions for discussion: firstly, whether the land covered by the agreement of sale dated 1st March, 2007 and supplementary agreement signed on 29th September, 2007, was an existing asset of the Respondent-Company and secondly, what was the scope of the powers of the BIFR under Section 22(3) of the Act of 1985. The High Court quashed the order of the AAIFR and confirmed the order passed by the BIFR holding as under: "(8)..................The AIFR further held that prior to the filing of the reference under Section 15 of SICA, a debt restructuring scheme under the CDR mechanism on 12/12/2007 and 21/1/2008, the CDR package envisaged sale of surplus land as well as sale of investments of the appellant company.
Any restraint order on the sale of land, under the agreements for sale, would not only complicate the matter but would hamper the revival process and would also lead to a prolonged litigation between the parties and this will not be in the interest of revival of the sick company. The provisions of Section 22A which are prospective in nature would not impact pre existing contract for sale entered into by the company before it filed reference under Section 15(1) of SICA and, therefore, the directions given under Section 22A will not 14 apply to the agreement for sale deed 1/3/2007.
The restraint order passed by the BIFR would apply to any subsequent proposals for disposal of assets of the company, if any. But these agreements will be subject to interim orders and final orders to be passed by the High Court in the pending writ petition challenging the settlement dated 5/9/2008. For all these reasons, the AIFR held that the agreement for sale cannot be part of DRS under Section 18(d) of SICA as the same is under transfer and unencumbered and legally enforceable contract exists between the appellant company and respondent no.13.
However, the AIFR held that the balance sale consideration in respect of the land to the tune of Rs.124.64 crores receivable by the company from respondent no.13 should form part of the means of finance in the DRS to be formulated by the BIFR for rehabilitation of the company. One payment of balance sale consideration by respondent no.13, the same shall be deposited with an interest bearing NLA with the operating agency for utilisation as per the rehabilitation scheme to be sanctioned by the BIFR.
The said scheme was for workers dues including Rs.45 crores for ERS and appropriately crystallized amount for ex- employees dues as per the settlement dated 5/9/2008 with NRC Mazdoor Sangh. The AIFR further observed that if the BIFR considers it necessary to make payment to the workers as provided for in the agreement with the workers, before the sanction of the revival scheme, it could do so to alleviate the hardships of the workers."
9. After dealing with these two questions at length, the High Court was of the opinion that BIFR order dated 16th July, 2009 15was within the scope of Section 22(3) of the Act of 1985. It held that the order of the AAIFR permitting the sale of the land in furtherance to the agreement between the parties was not sustainable as it was part of the scheme and sale had been permitted subject to the final orders of the BIFR. This judgment of the High Court is impugned by the Appellant-Company before us. Legislative Scheme of the Act of 1985 :
10. The framers of law felt that the existing institutional arrangements and procedure for revival and rehabilitation of potentially viable sick industrial companies are both inadequate and time consuming. Multiplicity of law and the regulatory agencies makes the adoption of a coordinated approach for dealing with sick industrial companies difficult. Thus, a need was 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 be needed to be adopted with respect to such companies and for enforcement of the appropriate measures with utmost practicable despatch.
The ill-effects of sickness in 16industrial companies, such as cessation of production, loss of employment, loss of revenue to the Central and State Governments and blocking up of investible funds of the banks and financial institutions, were of serious concern to the Government as well as the society at large. It had repercussions on the industrial growth of the country. With the passage of time the number of sick industrial units increased rapidly. Therefore, it was imperative to salvage the productive assets and release, to the extent possible, the amounts due to the banks and financial institutions from non-viable sick industrial debtor companies by liquidation of those companies or through formulation of rehabilitation schemes.
With these objects, the Bill was introduced with the salient features inter alia of identification of sickness in the industrial companies, on the basis of symptomatic indices of cash losses for the specified periods. Wherever the Government or the Reserve Bank were satisfied that an industrial company has become sick, they were required to make a reference to the BIFR. The BIFR consists of experts, in various relevant fields, with powers to inquire into and determine the incidences of sickness in the industrial companies and devise suitable measures through appropriate schemes to revive them.
An appeal lies from the order of BIFR to an appellate authority (the AAIFR) consisting of members selected from amongst Supreme Court or High Court Judges or Secretaries to the Government of India. With this background, objects and reasons, this Bill was passed by the Indian Parliament and it received the assent of the President of India on 8th January, 1986. Thus, it became an Act of the Parliament intended to revolutionize the mechanism of revival or liquidation of sick industrial units and channelization of the complete administrative-cum-quasi judicial process within the framework of the Act of 1985.Nature and Scope of the Act of 1985
11. Having dealt with the legislative history and object of the Act of 1985, we may now examine the very nature of this legislation. The Act of 1985 basically and predominantly is remedial and ameliorative in so far as it empowers the quasi-judicial body, the BIFR, to take appropriate measures for revival and rehabilitation of the potentially viable sick industrial companies and for liquidation of non-viable 18companies. It is regulatory only to a limited extent.
The provisions of the Act of 1985 impose an obligation on the sick industrial companies and potentially sick industrial companies to make references to the BIFR within the time specified under the Act of 1985. Default thereof is punishable under the provisions of the Act of 1985. Largely, the proceedings before the BIFR are specific to rehabilitation or winding up of the sick company and the Act of 1985 hardly contemplates adversarial proceedings.
The bodies constituted under the Act of 1985 would least exercise their jurisdiction to a lis between any party or upon the rival interests of the parties. With regard to the matters covered under the Act of 1985, the jurisdiction of the civil courts is ousted and the matters which are even allied to the formulation and sanction of the scheme would have to be decided by the BIFR itself. Even this aspect has been a matter of judicial divergence. In the case of Gram Panchayat & Anr. v. Shree Vallabh Glass Works Ltd. & Ors. [(1990) 2 SCC 440], this Court was concerned with a company which had been declared `sick' within the meaning and scope of clause (o) of Sub-section (1) of Section 3 of the Act of 1985.
The Gram Panchayat had initiated coercive proceedings as per Section 129 of the Bombay Village Panchayat Act, 1959 to recover a sum of Rs.9,47,539/- stated to be the property tax and other amounts due from the company. This demand was challenged. The Bombay High Court quashed the demand and the recovery proceedings. This Court, while dealing with the scope of Section 22 read with Sections 16 and 17 of the Act of 1985, took the view that all proceedings for execution, distress or the like against the properties of the company would automatically be suspended and could not continue without the consent of the BIFR. This Court held as under: -
"10. In the light of the steps taken by the Board under Sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company shall lie or be proceeded further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the company's properties. As soon as the inquiry under Section 16 is ordered by the Board, the various proceedings set out under sub-section (1) of Section 22 would be deemed to have been suspended.
11. It may be against the principles of equity if the creditors are not allowed to recover their dues from the company, but such creditors may approach the Board for permission to proceed against the company for the recovery of their 20 dues/outstandings/overdues or arrears by whatever name it is called. The Board at its discretion may accord its approval for proceeding against the company. If the approval is not granted, the remedy is not extinguished. It is only postponed. Sub- section (5) of Section 22 provides for exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering the dues.
12. "This Court in the case of Deputy Commercial Tax Officer & Ors. v. Corromandal Pharamaceuticals & Ors. [(1997) 10 SCC 649] had taken a somewhat divergent view to the view taken in Shree Vallabh Glass Works (supra). In this case, this Court, while examining the language of Section 22 of the Act of 1985, came to the conclusion that it was certainly a wide provision. In the totality of the circumstances, the safeguards stated under Section 22 of the Act of 1985 are only against any impediment that is likely to be caused in the implementation of the scheme.
If the matter falls outside the purview of the scheme and the dues are not reckoned or included in the sanctioned scheme of rehabilitation, recovery of sales tax dues would not be covered under this provision and as such the bar of Section 22(1) of the Act of 1985 would not operate. This Court held as under: - 21 ".....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 statutes in a business sense, should be avoided.
13. "While taking the above view, this Court also noticed the judgment in Shree Vallabh Glass Works (supra) but distinguished the same by stating that the facts in that case were distinct.
14. The above two judgments covered the field of law in this regard for a considerable time, till the judgment of this Court was rendered in the case of Jay Engineering Works Ltd. v. Industry Facilitation Council & Anr. [AIR 2006 SC 3252]. In the said judgment, this Court was dealing with a question as to whether the award made under Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 was covered under Section 22 of the Act of 1985 or despite the pendency of such proceedings before the BIFR the award could be executed.
This Court also discussed the issue as to which of the above two Acts would prevail. Dealing with the language of Section 22 of the Act of 1985, this Court took the view that the said Act shall prevail and though the adjudicatory process of making an award under the 1993 Act would not come under the purview of the Act of 1985, once an award is made and sought to be executed, the provisions of Section 22 of the Act of 1985 shall take over and such award would not be executable against the sick company, particularly when the party in whose favour the award was made was, as in the present case, included in the category of 23dormant creditors of the sick company. This Court in the said judgment held as under: -
"17. The said provision, thus, mandates that no proceeding inter alia for execution, distress or the like against any of the properties of the industrial company and no suit for recovery of money or for the enforcement of any security, shall lie or be proceeded with further, except with the consent of the Board or as the case may be, the Appellate Authority. The said statutory injunction will operate when an inquiry had been initiated under Section 16 or a scheme referred to under Section 17 is under preparation and/ or inter alia a sanctioned scheme is under implementation. It is not disputed before us that the amount awarded in favour of the Respondent by the Council finds specific mention in the sanctioned scheme which is under implementation.
18. The award of the Council being an award, deemed to have been made under the provisions of the 1996 Act, indisputably is being executed before a Civil Court. Execution of an award, beyond any cavil of doubt, would attract the provisions of Section 22 of the 1985 Act. Whereas an adjudicatory process of making an award under the 1993 Act may not come within the purview of the 1985 Act but once an award made is sought to be executed, it shall come into play. Once the awarded amount has been included in the Scheme approved by the Board, in our opinion, Section 22 of the 1985 Act would apply. XXX XXX XXX
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.
15. "Furthermore, in a recent judgment of this Court in the case of Shree Sajjan Mills Limited & Ors. v. Municipal Corporation, Ratlam [(2009) 17 SCC 665], this Court was dealing with a company which had approached the BIFR for being registered as a sick company and was so declared on 21st November, 1989. The BIFR had recommended the winding up of the sick company but the AAIFR had taken the view that the company could be rehabilitated and, therefore, framed the scheme for its revival.
For the purpose of revival, an Assets Sales Committee was constituted for selling, via tender process, the surplus land belonging to the appellant-company. The issue under consideration was that when the 20 per cent of the purchase price deposited by the tenderer as earnest money as per the terms and conditions of the sale was 25forfeited, whether the same could be challenged only before the BIFR or the civil courts could determine the dispute and whether the bar contained under Section 26 of the Act of 1985 would operate. This Court took the view as under: -
"12. We agree with the view expressed by the High Court that the forfeiture of the earnest money by the Assets Sale Committee could not have been the subject- matter of a dispute within the meaning of Section 26 which either BIFR or AAIFR has the jurisdiction to determine. Accordingly, we see no reason to interfere with the judgment and order of the High Court impugned in this appeal.
16. "We may notice that though the Bench had noticed the view taken in the case of Jay Engineering (supra), no detailed reasoning was recorded for rejecting the said view.
17. In order to affirmatively answer whether the view of this Court expressed in Shree Vallabh Glass Works (supra) is the correct and acceptable exposition of law, it is but necessary for this Court to examine the scheme of the Act of 1985 and some of its relevant provisions. As already noticed, the Act of 1985 was enacted by the Legislature, primarily with the object of establishing a specialized body for revival, rehabilitation and even winding up of sick industrial companies and wherever 26necessary, providing them with financial assistance. The provisions contained in Chapter III of the Act of 1985, which deals with References, Inquiries and Schemes, are the relevant provisions which can throw some light on the matter and issues before us.
Section 15 of the Act of 1985 places an obligation upon an industrial company, which has become sick in terms of that provision, to make a reference to the BIFR established under Section 4 of the Act of 1985 within the period of limitation prescribed. While under Section 15(2) where the Central Government or Reserve Bank of India or a State Government or a Public Financial Institution has sufficient reasons to believe that any industrial company has become, for the purpose of the Act of 1985, a sick industrial company, would also make a reference of such company to the Board for determination of the measures which may be adopted with regard to such company.
Section 16 of the Act of 1985 deals with the conduct of an inquiry by the BIFR and the manner in which the BIFR is expected to deal with the matter upon receipt of a reference under Section 15 of the Act of 1985. Section 16 vests the BIFR with very wide powers of inquiry and passing appropriate orders. Section 16(2) empowers the BIFR to pass an order, in its discretion, directing any operating agency to inquire into and to make a report with regard to the matters as may be specified in the order. Such operating agency is expected to complete the inquiry expeditiously and preferably within 60 days from the date of commencement of inquiry.
The BIFR is vested with powers such as appointing special directors for the sick company and issuing directions to the special directors in relation to discharge of their duties and to improve the performance of any or all of the functions postulated under Section 16(6) of the Act of 1985. After the inquiry by the BIFR or by the operating agency is completed, BIFR if satisfied that the company has become sick and upon considering all relevant facts and circumstances of the case in exercise of its powers under Section 17 of the Act of 1985, may pass orders requiring the company to make its net worth exceed the accumulated losses within a reasonable time and for that purpose it may impose such restrictions or conditions as may specified in the order in terms of Section 17(2) of the Act of 1985.
Further, where the BIFR decides that it is not practicable for a sick industrial company to make its net worth 28exceed the accumulated losses within a reasonable time and that it is otherwise necessary or expedient in public interest to adopt all or any of the measures specified in Section 18 of the Act of 1985 in relation to the said company, it may, having regard to the guidelines, as may be specified, pass an order formulating a scheme providing for such measures in relation to the sick industrial company. In the event of non-compliance of the restrictions or conditions specified in the order of the BIFR or where the company fails to revive itself in pursuance to the order, the BIFR can pass any of the directions/orders as required under Section 17(4) of the Act of 1985. Section 18 of the Act of 1985 again is a remedial provision which contains specified guidelines for the preparation and sanction of the schemes for the revival of the sick industrial company.
Where an order is made under Section 17(3) in relation to a sick industrial company, the operating agency is required to prepare, as expeditiously as possible, ordinarily within 90 days from the date of such order, a scheme with respect to such company providing for any one or more of the measures stated under sub-clauses (a) to (f) of Section 18(1) of the Act of 1985. The scheme so 29framed may provide for any one or more of the measures stated under clauses (a) to (m) of Section 18(2) of the Act of 1985.
The scheme which has been prepared in consonance with the provisions of Section 18(1) and 18(2) then has to be examined by the BIFR in terms of Section 18(3) of the Act of 1985 and if the BIFR makes any modifications to the scheme, the same draft scheme, in brief, shall be published or caused to be published in such daily newspapers as the BIFR may consider necessary, for receipt of suggestions and objections, if any. In light of the suggestions and objections received in response to such publication, the BIFR may still make further modifications.
Also, where the scheme relates to amalgamation of the companies, the procedures specified therein shall be followed. In such cases, the shareholders of the company, other than the sick industrial company, are expected to pass a resolution of approval of the scheme. The scheme thereafter shall be sanctioned by the BIFR and shall come into force on such date as the BIFR may specify in this behalf and in exercise of the powers vested in it under Section 18(4) of the Act of 1985. This scheme does not attain finality which is unalterable. Once the scheme is sanctioned and 30comes into force even then, on the recommendation of the operating agency, the BIFR can consider further modifications or even prepare a fresh scheme providing for such measures as the operating agency may consider it necessary and recommended in terms of Section 18(5) of the Act of 1985.
18. Section 18(7) of the Act of 1985 is an important provision which provides that the sanction accorded by the BIFR shall be conclusive evidence that all the requirements of the scheme relating to reconstruction or amalgamation or any measure specified therein have been complied with and a copy of the sanctioned scheme certified in writing by an officer of the BIFR to be a true copy thereof shall be admissible as evidence in all legal proceedings. To resolve the difficulties that may arise in giving effect to the provisions to the sanctioned scheme, the BIFR may, on the recommendation of the operating agency or otherwise, by order do anything, not inconsistent with such provisions, which appears to it to be necessary or expedient for the purpose of removing difficulty in terms of Section 18(9) of the Act of 1985.
The role of the BIFR does not end here and it may even periodically monitor the implementation of the scheme. Where the scheme relates to preventive, ameliorative, 31remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees from the Government or financial institutions. Before any financial institution is called upon to proceed to release the financial assistance to the sick industrial company in fulfillment of the requirements in that regard, the procedure contemplated under the provisions of Section 19 of the Act of 1985 has to be followed.
Where the BIFR, after making inquiry under Section 16 of the Act of 1985, considering all relevant facts and circumstances and giving an opportunity of being heard to all concerned parties, is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court as per the provisions of Section 20 of the Act of 1985 whereafter the company shall be wound up in accordance with the provisions of the Companies Act, 1956.
The High Court 32may even appoint any officer of the operating agency as the liquidator of the sick industrial company. Section 21 of the Act of 1985 requires the operating agency to prepare an inventory, if so directed by the BIFR.
19. Sections 22 and 22A have a significant bearing upon the controversy that arises for consideration of the Court in the present case and it will be useful to refer to those provisions at this stage itself:
"22. Suspension of legal proceedings, contracts, etc.- (1) 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 sections 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 any 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 33Board or, as the case may be, the Appellate Authority.
(2) Where the management of the sick industrial company is taken over or changed, in pursuance of any scheme sanctioned under section 18, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law - (a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company; (b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board.
(3) Where an inquiry under section 16 is pending or any scheme referred to in section 17 is under preparation or during the period of consideration of any scheme under section 18 or where any such scheme is sanctioned there under, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising there under before the said date, shall remain suspended or shall be enforceable with such adoptions and in such manner as may be specified by the Board: 34 Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.
(4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly, -
(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and
(b) on the declaration ceasing to have effect –
(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and (ii) any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed.
(5) In computing the period of limitation for the enforcement of any right, privilege, obligation or 35 liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded. 22A. Direction not to dispose of assets –
The Board may, if it is of opinion that any direction is necessary in the interest of the sick industrial company or creditors or shareholders or in the public interest, by order in writing direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets - (a) during the period of preparation or consideration of the scheme under section 18; and (b) during the period beginning with the recording of opinion by the Board for winding up of the company under sub- section (1) of section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court.
20. A bare reading of the above provision shows that Section 22 of the Act of 1985 is concerned with the suspension of legal proceedings, execution and distress sale etc. against the assets of a sick company while Section 22A deals with power of the Board to issue directions restraining the disposal of assets of such companies. These two provisions primarily ensure that the scheme prepared by the BIFR does not get frustrated because of certain other legal proceedings and to prevent untimely and unwarranted disposal of the assets of 36the sick industrial company. These sections clearly state certain restrictions which will impact upon the implementation of the scheme as well as on the assets of the company.
These sections operate at different stages and in different fields. Section 22(3) of the Act of 1985 contemplates that where an inquiry under Section 16 is pending or any scheme referred to in Section 17 is under preparation or during the period of consideration of any scheme under Section 18 or where any such scheme is sanctioned thereunder for due implementation of the scheme, the BIFR may, by order, declare that with respect to the sick industrial company concerned, the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations or liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adoptions and in such manner as may be specified by the BIFR.
This power of the BIFR is subject to the proviso which states that the declaration made under this provision shall not be for a period exceeding two years and which may be extended by one year at a time, but the total period shall not exceed seven years in aggregate. Section 22A of the Act of 1985 empowers the BIFR to pass orders in the interest of the sick industrial company or even in public interest requiring the sick industrial company not to dispose of, except with the consent of the BIFR, any asset during the period of preparation or consideration of the scheme under Section 18 of the Act of 1985 and during the period beginning with the recording of opinion for winding up of the company under Section 20(1) of the Act of 1985 by the BIFR upto commencement of the proceedings relating to winding up before the High Court.
21. All these provisions which fall under Chapter III of the Act of 1985 have to be read conjointly and that too, along with other relevant provisions and the scheme of the Act of 1985. It is a settled canon of interpretation of statutes that the statute should not be construed in its entirety and a sub-section or a section therein should not be read and construed in isolation.
Chapter III, in fact, is the soul and essence of the 38Act of 1985 and it provides for the methodology that is to be adopted for the purposes of detecting, reviving or even winding up a sick industrial company. Provisions under the Act of 1985 also provide for an appeal against the orders of the BIFR before another specialised body, i.e., the AAIFR. To put it simply, this is a self-contained code and because of the non obstante provisions, contained therein, it has an overriding effect over the other laws. As per Section 32 of the Act of 1985, the Act is required to be enforced with all its vigour and in precedence to other laws.
