Tata Motors Ltd. Vs. Pharmaceutical Products Of
India Ltd. 
INSC 985 (16 May 2008)
IN THE SUPREME COURT OF IDNIA
CIVIL APPELALTE JURISDICTION CIVIL APPEAL NO. __3640________OF 2008 (Arising
out of SLP (C) No. 20289 of 2006) Tata Motors Ltd. .... Appellant Versus
Pharmaceutical Products of India Ltd. & Anr. .... Respondents
S.B. SINHA, J.
1. Leave granted Introduction
2. Interpretation/application of
the provisions of the Sick Industrial Companies (Special provisions) Act, 1984
(SICA) vis-`-vis the Companies Act, 1956 (1956 Act) is in question in this
appeal which arises out of a 1 judgment and order dated 16th October, 2006
passed by a Division Bench of the High Court of Judicature at Bombay in Appeal
No.725 of 2006 arising out of a judgment and order dated 13th February, 2006
passed by a learned Single Judge of the Bombay High Court approving a Scheme
filed by the respondent herein in Company Petition No.470 of 2005 which was
under Section 391 of the 1956 Act.
3. First respondent is a company
registered and incorporated under the 1956 Act. It took loan from Tata Finance
Ltd, predecessor-in-interest of the appellant on interest @ 18% per annum.
Disputes and differences arose between the parties, which were referred to
arbitral tribunal. An award was passed on 30th July, 2002 in the Arbitration
proceedings for a sum of Rs.1,51,36,795/- together with interest @ 18% per
annum till payment and/or realization. It is stated that the total amount due
to the appellant from the respondent would be near about 5.7 crores of rupees.
There were other secured and unsecured creditors also.
Proceedings under SICA 2
4. Respondent being unable to pay
the dues made a reference in terms of Section 15 of SICA before the Board for
Industrial and Financial Reconstruction (BIFR). The BIFR appointed Industrial
Development Bank of India (IDBI) as an operating agency. It purported to have
considered various schemes. However, as Unit Trust of India (UTI) raised an
objection for giving up any of its dues and there were six secured creditors
and large number of unsecured creditors, BIFR on or about 27th October, 2004
passed an order recommending winding up of the respondent. An appeal was
preferred thereagainst before the Appellate Authority for Industrial and Financial
5. The AAIFR granted stay of
operation of the order of BIFR dated 27th October, 2004 by an order dated 13th
September, 2005. Before the AAIFR two separate Schemes were framed, one of them
related to an arrangement between the respondent and M/s. Wanbury Ltd. It
agreed to settle the outstanding dues of the creditors of PPIL. But before
doing so, it thought it fit to settle all the large creditors being Financial
Institutions and Banks.
The scheme envisaged payment to a
class of creditors.
3 It was also envisaged:
" In addition, two immovable
properties of the company (which were its primary and main assets) were to be
sold and the unsecured creditors were to be paid a proportion of the sale
proceeds. The balance of the sale proceeds were to be paid over to the secured
Upon payment of the cash
consideration, Wanbury was to get complete control over the Respondent
including all its assets subject to the approval of the merger before the
The scheme was to become effective
upon approval of overall settlement including an order for merger or any other
mode of acquisition of assets of PPIL by Wanbury or such scheme of PPIL by
Appellant was kept outside the
said Scheme. The scheme involved some selective secured creditors and some
selective unsecured creditors.
Company Court Proceedings
6. Respondent, however, filed an
application before the High Court of Judicature at Bombay purported to be in
terms of Section 391 of the 1956 Act during the pendency of the said appeal on
or about 29th April, 2005. A Scheme was presented before the Company Judge
purported to be involving 4 about 80 percent of the creditors, most of them
being banks, financial institutions. Allegedly, even at that stage, it was not
disclosed before the Company Court that unsecured creditors listed in the
Scheme were only a selected few creditors, as a result whereof a large number
of creditors had been excluded.
7. Before the Company Judge, the
appellant filed an application for intervention. It filed an objection to the
said Scheme primarily on the grounds:- "That the revival/rehabilitation of
the company was under consideration of a specialized body formed under the Sick
Industries Act which is a special legislation and would prevail over the
provisions of the Companies Act.
That the non-obstante clause
contained in the Sick Industries Act will have the effect of overriding and
excluding the provisions of the Companies more so where there is an overlapping
between the two Act.
That considering the scheme of the
Sick Industries Act, the revival/restructing of the company cannot be
considered by two separate forums separately.
That the scheme involved financial
reconstruction, sale of assets of the company and merger/take over by Wanbury.
These issues expressly fall within the domain of the BIFR under Section 18 of
the Sick Industries Act.
5 That a scheme could not be
presented only in respect of selected unsecured creditors to the exclusion of
the other similarly placed unsecured creditors such as the Petitioners.
That the entire scheme was nothing
but a fraud which was being played whereby the company and its assets were
being transferred to Wanbury which was associated with the company
UTI also filed an objection.
8. The said contentions of the
appellant, however, were rejected by a learned Single Judge of the High Court
by his order dated 13th April, 2006 and the Scheme was approved.
Order of the AAIFR
9. In view of the aforementioned
order of the High Court, AAIFR also on or about 1st June, 2006 approved the
said Scheme opining :- "5. Learned counsel for the Appellant Company
states that the scheme of Compromise and Arrangement approve by the Bombay High
Court have been incorporated in the scheme of revival cum merger submitted to
IDBI (Operating Agency) in pursuance of direction given by us on 9.11.2005.
6. In view of IDBI's
recommendation of the revival cum merger proposal submitted by PPIL, which is
in accordance with Bombay High Court's order dated 13.2.2006, we set aside the
impugned order dated 27.10.2004 and direct BIFR to consider the scheme vetted
by the OA within a period of three months from the date of this order and take
necessary further steps for the revival of the appellant company in accordance
10. An intra court appeal was
preferred thereagainst by the appellant on or about 3rd August, 2006. By reason
of the impugned judgment the said Letters Patent Appeal has been dismissed,
stating:- "2. The Appellant claims to be an unsecured creditor to the
extent of Rs.1.51 crores as set out in the award dated 30.7.2002 with further
interest at the rate of 18% per annum. It is not in dispute that the Scheme of
Arrangement approved by the learned Company Judge between Pharmaceutical Products
of India Ltd. and its unsecured creditors and Wanbury does not affect the
rights of the appellant as the appellant, though an unsecured creditor, is not
specified in Schedule-I, appended to the Scheme. In this backdrop, the impugned
order cannot be faulted. However, it is clarified that whatever objections the
appellant may have against the revival scheme pending before the BIFR, pursuant
to the order dated 1.6.2006 passed by the AAIFR, they may place their
objections before the BIFR and obviously upon such objections being placed the
BIFR shall consider the revival scheme of the respondent-Company on is own
merits, keeping in view all relevant fact and circumstances, including the
objections of the appellant."
7 Subsequent Events
11. We may also take note of some
subsequent events. In view of the order of AAIFR dated 1st June, 2006, BIFR
issued notice on 1st February, 2007 to consider the Scheme-cum-merger with M/s.
propounded by the respondent
company returnable on 29th March, 2007. On the said date, all the interested
parties including the appellant were heard.
By an order dated 1st May, 2007,
BIFR is said to have sanctioned the Scheme-cum-merger of M/s. Wanbury Ltd. with
12. We may also place on record
that inter alia on the premise that the said Scheme of merger was approved in
gross violation of this Court's order dated 15th December, 2006, a contempt
petition was filed. We are not concerned with the said Contempt Petition
13. Mr. R.F. Nariman, learned
Senior Counsel appearing on behalf of the appellant, in support of this appeal
would submit :- 8
1. SICA being a special statute,
the provision thereof shall prevail over the provisions of the 1956 Act.
2. The High Court committed a
manifest error in entertaining the respondent's application for merger under
Sections 391 to 394 of the Act, although the matter was pending before the
3. The High Court failed to notice
the binding precedent of this Court in NGEF Ltd. vs. Chandra Developers (P) Ltd.
: (2005) 8 SCC 219 wherein it has clearly been held that SICA will prevail over
the 1956 Act.
4. The Division Bench of the High
Court has failed to consider that the Company Judge had no jurisdiction to
entertain any proceeding.
5. Section 26 of the SICA bars the
jurisdiction of the Company Judge.
14. Mr. C.A. Sundaram, learned
senior counsel appearing on behalf of the respondent, on the other hand would
The operation of the order of BIFR having been stayed, the Company Petition was maintainable at the instance
of the respondent.
Section 19 of SICA will have no
application as it speaks of financial assistance by the persons specified
9 Section 22 of SICA must be
read in the context of Section 19 thereof.
Section 26 or any other
provision of SICA do not oust the jurisdiction of the Company Court.
SICA as interpreted by this
Court in NGEF Ltd. (supra) would prevail over 1956 Act only if the provisions
of the latter are inconsistent with the provisions of SICA and not otherwise.
The Scheme in question being
subject to approval by BIFR and that BIFR by a reason of its order dated 1st
May, 2007 had granted approval thereof, the legal requirements must be held to
have been complied with.
STATUTORY PROVISIONS SICA
15. SICA was enacted to make, in
the public interest, special provisions with a view to securing the timely
detection of sick and potentially sick companies owning industrial
undertakings, the 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 and the expeditious enforcement of the measures so determined
and for matters connected therewith or incidental thereto.
16. Section 15 of SICA provides
for making reference by the Board of Directors of the Company on becoming an
industrial company, a sick industrial company, to the Board for determination
of the measures to be adopted with respect to the company. Section 16 provides
for making inquiry into the working of sick industrial company by the Board
after receiving reference. Section 17 provides for powers of Board to make
suitable order on the completion of inquiry. Sub-section (3) thereof reads as
under:- " 17. Powers of Board to make suitable order on the completion of
(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
17. Section 18 provides for
preparation and sanction of Scheme. Sections 18(1)(c), 18(3) and 18(6A) read as
under :- "Section 18 - Preparation and sanction of Schemes (1) Where an
order is made under sub-section (3) of section 17 in relation to any sick
industrial company, the operating agency specified in the order shall prepare,
as expeditiously as possible and ordinarily within a period of ninety days from
the date of such order, a scheme with respect to such company providing for any
one or more of the following measures, namely:-- (c) the amalgamation of-- (i)
the sick industrial company with any other company, or (ii) any other company
with the sick industrial company;
(hereafter in this section, in the
case of sub-clause (i), the other company, and in the case of sub- clause (ii),
the sick industrial company, referred to as "transferee company");
(3) (a) The Scheme prepared by the
operating agency shall be examined by the Board and a copy of the scheme with
modification, if any, made by the Board shall be sent, in draft, to the sick
industrial company and the operating agency and in the case of amalgamation,
also to any other company concerned, and the Board shall publish or cause to be
published the draft scheme in brief 12 in such daily newspapers as the Board
may consider necessary, for suggestions and objections, if any, within such
period as the Board may specify.
(b) The Board may make such modifications,
if any, in the draft scheme as it may consider necessary in the light of the
suggestions and objections received from the sick industrial company and the
operating agency and also from the transferee industrial company and any other
company concerned in the amalgamation and from any shareholder or any creditors
or employees of such companies:
Provided that where the scheme
relates to amalgamation the said scheme shall be laid before the company other
than the sick industrial company in the general meeting for the approval of the
scheme by its shareholders and no such scheme shall be proceeded with unless it
has been approved, with or without modification, by a special resolution passed
by the shareholders of the company other than the sick industrial company.
(6A) Where a sanctioned scheme
provides for the transfer of any property or liability of the sick industrial
company in favour of any other company or person or where such scheme provides
for the transfer of any property or liability of any other company or person in
favour of the sick industrial company, then, by virtue of, and to the extent
provided in, the scheme, on and from the date of coming into operation of the
sanctioned scheme or any provision thereof, the property shall be transferred
to, and vest in, and the liability shall become the liability of, such other
company or 13 person or, as the case may be, the sick industrial company."
18. Section 19 provides for
rehabilitation by giving financial assistance;
sub-sections (1), (2) and (4)
whereof reads as under :- "Section 19 - Rehabilitation by giving financial
assistance. -(1) Where the scheme relates to preventive, ameliorative, remedial
and other measures with respect to any sick industrial company, the scheme may
provide for financial assistance by way of loans, advances or guarantees or
reliefs or concessions or sacrifices from the Central Government, a State
Government, any scheduled bank or other bank, a public financial institution or
State level institution or any institution or other authority (any Government,
bank, institution or other authority required by a scheme to provide for such
financial assistance being hereafter in this section referred to as the person
required by the scheme to provide financial assistance) to the sick industrial
(2) Every scheme referred to in
sub-section (1) shall be circulated to every person required by the scheme to
provide financial assistance for his consent within a period of sixty days from
the date of such circulation or within such further period, not exceeding sixty
days, as may be allowed by the Board, and if no consent is received within such
period or further period, it shall be deemed that consent has been given.
14 (4) Where in respect of any
scheme consent under sub-section (2) is not given by any person required by the
scheme to provide financial assistance, the Board may adopt such other
measures, including the winding up of the sick industrial company, as it may
Sections 20, 26 and 32 of SICA
read as under :- "Section 20 - Winding up of sick industrial company. -
(1) Where the Board, after making inquiry under section 16 and after
consideration of all the relevant facts and circumstances and after giving an
opportunity of being heard to all concerned parties, is of 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.
(2) The High Court shall, on the
basis of the opinion of the Board, order winding up of the sick industrial
company and may proceed and cause to proceed with the winding up of the sick
industrial company in accordance with the provisions of the Companies Act, 1956
(1 of 1956).
(3) For the purpose of winding up
of the sick industrial company, the High Court may appoint any officer of the
operating agency, if the operating agency gives its consent, as the liquidator
of the sick industrial company and the officer so appointed shall for the
purposes of the 15 winding up of the sick industrial company be deemed to be,
and have all the powers of, the official liquidator under the Companies Act, 1956
(1 of 1956).
(4) Notwithstanding anything
contained in sub- section (2) or sub-section (3), the Board may cause to be
sold the assets of the sick industrial company in such manner as it may deem
fit and forward the sale proceeds to the High Court for orders for distribution
in accordance with the provisions of section 529A, and other provisions of the Companies
Act, 1956 (1 of 1956).
Section 26 - Bar of jurisdiction.
- No order passed or proposal made under this Act shall be appealable except as
provided therein and no civil court shall have jurisdiction in respect of any
matter which the Appellate Authority or the Board is empowered by, or under,
this Act to determine and no injunction shall be granted by any court or other
authority in respect of any action taken or to be taken in pursuance of any
power conferred by or under this Act.
Section 32 - Effect of the Act on
other laws. - (1) The provisions of this Act and of any rules or schemes made
thereunder shall have effect notwithstanding anything inconsistent therewith
contained in any other law except the provisions of the Foreign Exchange
Regulation Act, 1973 (46 of 1973)and the Urban Land (Ceiling and Regulation)
Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or
Articles of Association of an industrial company or in any other instrument
having effect by virtue of any law other than this Act.
16 (2) Where there has been under
any scheme under this Act an amalgamation of a sick industrial company with
another company, the provisions of section 72A of the Income-tax Act, 1961 (43
of 1961), shall, subject to the modifications that the power of the Central
Government under that section may be exercised by the Board without the Central
Government under that section may be exercised by the Board without any
recommendation by the specified authority referred to in that section, apply in
relation to such amalgamation as they apply in relation to the amalgamation of
a company owning an industrial undertaking with another company."
The Companies Act, 1956
Section 391 of the Companies Act, 1956
reads as under :- Section 391 - Power to compromise or make arrangements with
creditors and members .- (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.
17 (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:
Provided that no order sanctioning
any compromise or arrangement shall be made by the Tribunal unless the Tribunal
is satisfied that the company or any other person by whom an application has
been made under sub-section (1) has disclosed to the court, by affidavit or
otherwise, all material facts relating to the company, such as the latest
financial position of the company, the latest auditor's report on the accounts
of the company, the pendency of any investigation proceedings in relation to
the company under sections 235 to 351, and the like.
(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 18 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
Interpretation of the Statutory
19. It was conceded by Mr.
Sundaram SICA being a special law vis.-a-vis the 1956 Act, it shall prevail
over the latter. The learned counsel, however, qualifies his submission by
contending that SICA only excludes the provisions of the Companies Act
when they are inconsistent with each other.
19 The provisions of a special Act
will override the provisions of a general Act. A later of it will override an
earlier Act. 1956 Act is a general Act. It consolidates and restates the law
relating to companies and certain other associations. It is prior in point of
time to SICA.
Wherever any inconstancy is seen
in the provisions of the two Acts, SICA would prevail. SICA furthermore is a
complete code. It contains a non-obstante clause in Section 32.
20. SICA is a special statute. It
is a self contained Code. The jurisdiction of the Company Judge in a case where
reference had been made to BIFR would be subject to the provisions of SICA.
We may, at this stage, notice the
effect of SICA vis-`-vis the other Acts, as has been noticed by this Court in
some of its judgments
21. In NGEF Ltd. vs. Chandra
Developers (P) Ltd. : (2005) 8 SCC 219, in regard to the jurisdiction of the
Company Court it was held :- 20 "20. Mr K.K. Venugopal, the learned Senior
Counsel, would submit that having regard to sub- section (2) of Section 536 of
Act, the High Court has the jurisdiction to permit sale of assets of the
Company even before passing of the winding-up order, in relation whereto
Section 20(4) of SICA will have no application.
23. The provisions relating to
winding up by the courts occur in Chapter II of the Companies Act,
1956. Section 433 of the Act enumerates the circumstances in which the company
may be wound up by the court including the inability on the part of the company
to pay its debts. Section 441 of the Act specifies as to when the proceeding
for winding up of a company by the court shall commence at the time of the
presentation of the petition for the winding up.
In a case, however, where
winding-up proceedings are initiated in terms of recommendations made by BIFR
or AAIFR, as the case may be, no such petition is required to be presented.
Section 443 lays down the power of a court on hearing petition; clause (d) of
sub-section (1) whereof provides for a power to make an order for winding up of
the company with or without costs or any other order that it thinks fit.
Section 444 lays down the consequences of the winding- up order. In terms of
Section 446 of the Act, in the event of passing of a winding-up order or
appointment of liquidator as Provisional Liquidator, no suit or legal
proceeding would commence or if pending at the date of the winding-up order,
shall not be proceeded with against the company except by leave of the court
and subject to such terms as the court may impose.
Sub-section (2) of Section 446
provides for a non obstante clause, in terms whereof the Company Court shall have
jurisdiction to entertain or dispose of any suit or proceedings specified
therein. Section 451 lays down general provisions as to liquidators. Section
457 specifies the power of the liquidator which is required to be exercised 21
with the sanction of the court. Sub-section (2) of Section 536 reads as under:
"536. Avoidance of transfers,
etc., after commencement of winding up.--(1) * * * (2) In the case of a winding
up by the Tribunal, any disposition of the property (including actionable
claims) of the company, and any transfer of shares in the company or alteration
in the status of its members, made after the commencement of the winding up,
shall, unless the Tribunal otherwise orders, be void."
In regard to jurisdiction of the
Company Court it was held :- "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
AAAIFR, as the case may be, has exercised its jurisdiction under Section 20 of
SICA recommending winding up of the Company upon arriving at a finding that
there does not exist any chance of revival of the Company."
It was furthermore held:
"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 Corpn. Ltd. v.
Intermodel Transport Technology Systems for the proposition that despite the
fact BIFR retains jurisdiction to get the assets of a sick company sold in
terms of sub-section (4) of Section 20 of SICA; still the leave of the Company
Court, therefor would be required. The said decision, however, has been
reversed by the Division Bench of the Karnataka High Court in BPL Ltd. v.
Intermodal Transport Technology Systems (Karnataka) Ltd. holding that the
Company 22 Court has no such jurisdiction. We generally accept the views of the
41. It is difficult to accept the
submission of the 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 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
43. The provisions of SICA would
prevail over the provisions of the Companies Act.
Section 20 of SICA relates to winding up of the sick industrial company.
Before 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 wherefor 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 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 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 procedures laid down under the Companies Act
would be applicable therefor but they must be read with sub-section (4) of
Section 20 of SICA which contains a non obstante clause and in terms thereof,
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, BIFR is also
empowered to forward the sale proceeds to the High 23 Court for orders for
distribution in accordance with Section 529-A 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 22-A of SICA,
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
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 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. 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."
It was ruled that the Company
Court and the BIFR do not exercise concurrent jurisdiction, holding:- "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 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 the learned counsel appearing for the first respondent. The
construction of the 24 provisions of both the Acts, as suggested by the 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 BIFR and the Company Court, thus, do not appeal to us."
The Court noticed the non obstante
clause contained in clause (4) of Section 20 as also Section 32 of SICA to hold
that the High Court does not exercise concurrent jurisdiction with BIFR. The
fact that SICA was enacted in 1984 had also been taken into consideration.
The Court considered in details
the exercise of the jurisdiction of the Company Court vis-`-vis the BIFR to
opine :- "69. BIFR admittedly had the power to sell the assets of the
Company but the High Court until a winding-up order is issued does not have the
BIFR in its order dated 24-8-2002
might have made an observation to the effect that the Company may approach the
High Court in case it intended to dispose of its property by private
negotiation but the same would not mean that BIFR could delegate its power in
favour of the High Court. BIFR being a statutory authority, in the absence of
any provision empowering it to delegate its power in favour of any other authority
had no jurisdiction to do so. "Delegatus non potest delegare" is a
well-known maxim which means unless expressly authorised a delegatee cannot
sub-delegate its power. Moreover, the said observations of BIFR would only mean
that the Company Court could exercise its power in 25 accordance with law and
not dehors it. If the Company Court had no jurisdiction to pass the impugned
order, it could not derive any jurisdiction only because BIFR said so."
(See also Morgan Securities and
Credit Pvt. Ltd. v. Modi Rubber Ltd. [AIR 2007 SC 683]
22. The principle laid down
therein has been reiterated in Bombay Dyeing & Manufacturing Co. Ltd. vs.
Bombay Environmental Action Group : (2006) 3 SCC 434 stating :
"13. The 1993 Act was enacted
to provide for and regulate the payment of interest on delayed payments to
small-scale and ancillary industrial undertakings and for matters connected
14. The provisions of the 1993
Act, therefore, do not envisage a situation where an industrial company becomes
sick and requires framing of a scheme for its revival.
15. It is no doubt true that an
award in relation to a claim of a small-scale industry if made by the Council
would be governed by the provisions of the Arbitration and Conciliation Act,
1996 (for short "the 1996 Act")."
SICA furthermore was enacted to
secure the principles specified in Article 39 of the Constitution of India. It
seeks to give effect to the larger public interest. It should be given primacy
because of its higher public purpose. Section 26 of SICA bars the jurisdiction
of the Civil Courts.
26 What scheme should be prepared
by the operating agency for revival and rehabilitation of the sick industrial
company is within the domain of BIFR. Section 26 not only covers orders passed
under SICA but also any matter which BIFR is empowered to determine.
23. The jurisdiction of civil
court is, thus, barred in respect of any matter for which the appellate
authority or the Board is empowered. The High Court may not be a civil court
but its jurisdiction in a case of this nature is limited.
24. Our attention has been drawn
to the decision of this Court in Jyoti Bhushan Gupta v. Banaras Bank Ltd, [
(1962) Supp 1 SCR 73 ] where the question which arose for consideration was as
to whether Article 183 of the Limitation Act shall have any application in
regard to the applicability of the provisions of the Limitation Act, it was
stated :- "By the Companies Act
of 1913, the High Court was invested with jurisdiction to order payment of the
amounts due by debtors of companies ordered to be wound up. This jurisdiction
may be invoked as of right against all persons whose names are placed on the
list of contributories. The jurisdiction is ordinary : it does not depend on
any extraordinary action on the part of the High Court.
27 The jurisdiction is also
original in character because the petition for exercise of the jurisdiction is
entertainable by the High Court as a court of first instance and not in exercise
of its appellate jurisdiction. Again by s. 187 no special jurisdiction is
conferred. The High Court adjudicates upon the liability of the debtor to pay
debts due by him to the Company : the jurisdiction is therefore civil.
Normally, a creditor has to file a suit to enforce liability for payment of a
debt due to him from his debtor. The Legislature has by s.
187 of the Companies Act
empowered the High Court in a summary proceeding to determine the liability and
to pass an order for payment but on that account the real character of the
jurisdiction exercised by the High Court is not altered. Nor is there any
substance in the contention that the authority to order payment of a debt under
s. 187 is merely a power of the High Court and not its jurisdiction. By s. 3
read with s. 187 of the Companies Act
the High Court has jurisdiction to direct payment of the amount due by a
contributory : and an order passed for payment manifestly is an order passed in
exercise of the jurisdiction vested in the High Court by s. 3 read with s. 187
of the Companies
It was furthermore observed:-
"The jurisdiction to deal with the claims of companies ordered to be wound
up is conferred by the Indian Companies Act
and to that extent the Letters Patent are modified. There is, however, no
difference in the character of the original civil jurisdiction which is
conferred upon the High Court by Letters Patent and the jurisdiction conferred
by special Acts. When in exercise of its authority conferred by a special
statute the High 28 Court in an application presented to it as a court of first
instance declares liability to pay a debt, the jurisdiction exercised is
original and civil and if the exercise of that jurisdiction does not depend
upon any preliminary step invoking exercise of discretion of the High Court,
the jurisdiction is ordinary."
25. In Damji Valli Shah v. Life
Insurance Corporation of India, [(1965) 2 SCR 665 ], the question which arose
for consideration was as to whether a similar provision made in the Life Insurance
Corporation Act, 1956 shall bar the jurisdiction of the Company Court in
terms of Section 446 (1) of the Companies Act.
Referring to Section 41 of the Life Insurance Corporation Act, 1956 it was
stated that the Tribunal constituted under the LIC Act will have exclusive
jurisdiction. It was opined :- "20. It is in view of the exclusive
jurisdiction which sub-s. (2) of s. 446 of the Companies Act
confers on the company Court to entertain or dispose of any suit or proceeding
by or against a company or any claim made by or against it that the restriction
referred to in sub-s. (1) has been imposed on the commencement of the
proceedings or proceeding with such proceedings against a company after a
winding-up order has been made.
In view of s. 41 of the LIC Act
the company Court has no jurisdiction to entertain and adjudicate upon any
matter which the Tribunal is empowered to decide or determine under that Act.
It is not disputed that the Tribunal has jurisdiction under the Act to
entertain and decide matters raised in 29 the petition filed by the Corporation
under s. 15 of the LIC Act. It must follow that the consequential provisions of
sub-s. (1) of s. 446 of the Companies Act will not operate on the proceedings
which be pending before the Tribunal or which may be sought to be commenced before
26. What in this case, however,
has been contended is that BIFR had no jurisdiction to make a scheme as
envisaged under Section 391 of the Act.
Even otherwise, `civil court' has
a definite connotation. The jurisdiction of the Company Court is now vested in
the Tribunal. Therefore, it will be difficult to hold, in view of a changed
situation, that Section 26 ousts the jurisdiction of the Company Court in
totality. The decision, however, also says that the special statute shall
prevail over the general rule.
Although it may not be very
relevant, we may notice that this Court in Dwarka Prasad Agarwal v. Ramesh
Chander Agarwal, [(2003) 6 SCC 220] opined as under :- "22. The dispute
between the parties was eminently a civil dispute and not a dispute under the
provisions of the Companies
Act. Section 9 of the Code of Civil Procedure confers jurisdiction upon the
civil courts to determine all disputes of civil nature unless the same is
barred under a statute either expressly or by necessary implication. Bar of
jurisdiction of a civil court is 30 not to be readily inferred. A provision
seeking to bar jurisdiction of a civil court requires strict interpretation.
The court, it is well settled, would normally lean in favour of construction,
which would uphold retention of jurisdiction of the civil court. The burden of
proof in this behalf shall be on the party who asserts that the civil court's
jurisdiction is ousted. (See Sahebgouda v.
Ogeppa) Even otherwise, the civil
court's jurisdiction is not completely ousted under the Companies Act, 1956."
We are, therefore, of the opinion
that the judgment of the High Court cannot be sustained. We may furthermore
notice that the decision of the learned single judge has been overruled by a
Division Bench of the Bombay High Court in Ashok Organics Industries Ltd. v.
Dena Bank (Company Petition No. 108 of 2006, disposed of on 25.1.2008).
It is also not possible to
harmonize the provisions of Sections 391 to 394 of the 1956 Act with the
provisions of SICA.
For the views we have taken, it is
not necessary to consider the other contentions raised at the bar.
27. The question, however, is what
relief should be granted in view of the subsequent events. Various intervention
applications have been filed. We 31 do not intend to make any observation in
regard thereto. We are, however, of the opinion that it is a fit case where we
should exercise our jurisdiction under Section 142 of the Constitution of India
to meet the object for which the Act has been enacted.
28. We have been taken through the
Scheme. The Scheme provides for not only entering into an arrangement as
regards repayment of debts to secured creditors and unsecured creditors but
also provides for a merger, subject of course, to an appropriate order being
passed by BIFR. The question is as to whether such a Scheme could be placed for
approval before BIFR. We are of the view that it could not be. Before BIFR
could approve a scheme, the same must be drawn in terms of the provisions of
the Act and not de hors the scheme. It is required to apply its own mind. The
operating agency is supposed to make a scheme. The operating agency before the
AAIFR took one stand; before us it has taken another. According to it, it was
not involved in the preparation of the Scheme. It had no occasion to apply its
own mind. Furthermore, after the learned Single Judge passed its order, AAIFR
disposed of the appeal only in terms of the order of the High Court stating :-
32 "In view of IDBI's recommendation of the revival cum merger proposal
submitted by PPIL, which is in accordance with Bombay High Court's order dated
13.2.2006, we set aside the impugned order dated 27.10.2004 and direct BIFR to
consider the scheme vetted by the OA within a period of three months from the
date of this order and take necessary further steps for the revival of the
appellant company in accordance with law."
29. The order of BIFR dated 1st
May, 2007 also clearly show that it has granted its approval in view of the
observations made by the appellate authority. It might have done so keeping in
view the doctrine of judicial discipline in mind.
30. The order of BIFR is not an
outcome of any pre-application of mind.
There is no finding that it has
taken into consideration all the relevant facts.
There is nothing to show that such
an order is fair or reasonable or meets the requirements of law.
31. We are, therefore, of the
opinion that not only the judgment of the High Court but also the orders of
BIFR as also the AAIFR should be set 33 aside and the matter should be remitted
to the BIFR so as to enable it to proceed in accordance with the provisions of
32. The appeal is allowed with the
aforementioned observations and directions. In the facts and circumstances of
the case, there shall be no order as to costs.
[ Lokeshwar Singh Panta] ................................J.
[ Markandey Katju ] New Delhi;
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