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.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
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.
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5.
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14.
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.
22. The BIFR has been vested
with wide powers and, being an expert body, is required to perform duties and
functions of wide-ranged nature. If one looks into the legislative intent in
relation to a sick industrial company, it is obvious that the BIFR has to first
make an effort to provide an opportunity to the sick industrial company to make
its net worth exceed the accumulated losses within a reasonable time, failing
which the BIFR has to formulate a scheme for revival of the company, even by providing
financial assistance in cases wherein the BIFR in its wisdom deems it necessary
and finally only when both these options fail and the public interest so
requires, the 39BIFR may recommend winding up of the sick industrial company.
So long as the scheme
is under consideration before the BIFR or it is being implemented after being
sanctioned and is made operational from a given date, it is the legislative intent
that such scheme should not be interjected by any other judicial process or
frustrated by the impediments created by third parties and even by the management
of the sick industrial company, in relation to the assets of the company. In
other words, the object and purpose of the Act of the 1985 is to ensure smooth sanctioning
of the scheme and its due implementation.
Both these stages,
i.e., pre and post sanctioning of the scheme by the BIFR, are equally material
stages where the provisions of Sections 22 and 22A read with Section 32 of the
Act of 1985 would come into play. Such an approach would also be acceptable as otherwise
the entire scheme under Chapter III of the Act of 1985 would be frustrated. Doctrine
of frustration envisages that an exercise of special jurisdiction in futility,
is neither the requirement of legislature nor judicial dictum.
23. In Shree Vallabh Glass
Works (supra), this Court had taken a general view that in the light of
Sections 16 and 19 of 40the Act of 1985, no proceedings for execution, distress
or the like against any of the property of the company shall be allowed to be
proceeded further except with the consent of the BIFR. Reference in this regard
was made to the provisions of the Section 22(1) of the Act of 1985. Despite non-obstante
language of Section 22(1) and the prohibition contained therein, there is no absolute
bar for institution and continuation of legal proceedings against a sick industrial
company or its assets.
The same can continue
only after obtaining the consent of the BIFR or the AAIFR, as the case may be. Once
permission is granted, the proceedings can continue and decree can be executed.
In the case of Corromandal Pharmaceuticals & Ors. (supra), the scope of
Section 22 of the Act of 1985 was sought to be restricted only to the items which
have been reckoned or included in the scheme for rehabilitation failing which the
recovery or proceedings in relation to that particular liability would continue
despite the provisions of the Act of 1985. In that case the Court was concerned
with the recovery of sales tax dues, which the sick industrial company was
unable to collect after the date of sanction of the scheme. The revenue was due
41to the department and the recovery of such amount was held to be beyond the
purview of the Act of 1985.
24. In Jay Engineering (supra),
the dictum of this Court was that the Act of 1985 is a complete code in itself and
the provisions of Section 22 of the Act of 1985 would apply to an award made
under the Interest on Delayed Payments to Small Scale and Ancillary Industries Undertaking
Act, 1993, which would be governed by the provisions of the Arbitration and
Conciliation Act, 1996. This Court also stated the principle that the Act of
1985 would have an overriding effect over other statutes, i.e. the 1993 Act in
that case. However, the question whether the BIFR, while implementing the scheme,
could reduce the quantum of liability of the creditors was left open.
25. Firstly, the facts of
these cases are different and distinct and, therefore, conclusions of the Court
have to be read with reference to the facts of the respective cases only and
not de hors thereof. Once the dictum of this Court is read with reference to the
facts of the respective cases, it would be evident that there is no conflict of
views within the ambit of ratio decadence of the respective judgments to make both
of them legal and binding precedents. Despite these judgments and with an intention
to clarify the law, we would state that the matters which are connected with the
sanctioning and implementation of the scheme right from the date on which it is
presented or the date from which the scheme is made effective, whichever is earlier,
would be the matters which squarely fall within the ambit and scope of Section 22
of the Act of 1989 subject to their satisfying the ingredients stated under that
provision.
This would include the
proceedings before the civil court, revenue authorities and/or any other
competent forum in the form of execution or distress in relation to recovery of
amount by sale or otherwise of the assets of the sick industrial company. It is
difficult for us to hold that merely because a demand by a creditor had not
been made a part of the scheme, pre or post-sanctioning of the same for that
reason alone, it would fall outside the ambit of protection of Section 22 of
the Act of 1985.
The BIFR, being a
specialised body which is required to act as per the legislative intent indicated
above, has jurisdiction to examine the matter and grant or refuse its consent for
institution, continuation and recovery of dues payable to a particular
creditor, whatever the nature of such dues may be. If such an interpretation is
43not given, the very purpose of the Act of 1985 may stand defeated. For instance,
a scheme is sanctioned by the BIFR and is at the stage of successful completion,
where demand from the Revenue with regard to the sick industrial company is allowed,
this can render the scheme ineffective and impossible to be executed, if
permitted to be enforced against such company without approval/consent of the specialised
body like the BIFR.
26. Section 22A was introduced
by the Amending Act 12 of 1994. The obvious intent of introducing the said provision
was to empower the BIFR to issue any direction to the sick industrial company, its
creditors and shareholders, in the interest of the company or even in public interest,
directing the company not to dispose of any assets, except with the consent of
the BIFR. The directions so issued are to remain in force during the
preparation and consideration of the scheme. BIFR is also vested with similar
powers where it recommends to the High Court for winding up of a company.
The directive issued
by BIFR would remain in force upto the commencement of the proceedings for winding
up before the High Court. Section 22 is the reservoir of the statutory powers
empowering 44the BIFR to determine a scheme, right from its presentation till
its complete implementation in accordance with law, free of interjections and interference
from other judicial processes. Section 22(1) deals with the execution, distress
or the like proceedings against the company's properties, including appointment
of a Receiver. It also specifically provides that even a winding up petition would
not be instituted and no other proceedings shall lie or proceed further, except
with the consent of the BIFR.
In contradistinction to
this power, Section 22(3) states that pending an enquiry or a scheme under the provisions
of the Act of 1985 and even where the scheme is sanctioned, for the due implementation
of such scheme, the BIFR may, by an 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 or privileges,
obligations and liabilities accruing or arising thereunder before the said date,
shall remain suspended and shall be enforceable with such adoption and in such
a manner as may be specified by the BIFR. In other words, all those instruments
to which the sick industrial company is a party, will be subject to the orders of
the BIFR.
Further, such
proceedings can even be modified by the BIFR, of course, for the limited purpose
of implementing the scheme. The declarations made by the BIFR under Section
22(3) are subject to the restrictions of time as stated under the proviso to
this section. The maximum period for which such a declaration in aggregate can
continue is seven years.
The legislative
intent of giving an over-riding effect to the declarations of the BIFR, as
contemplated under Section 22(3) of the Act of 1985, is further fortified by the
language of Section 22(4), which states that any declaration made under Section
22(3) shall take effect notwithstanding anything contained in the Companies Act,
1956 or any other law, the memorandum and articles of association of the
company or any instrument, decree, order of a court, settlement etc. Any remedy
for enforcement of a right which may be available to a third party and any such
proceedings before any court or tribunal shall remain stayed 46or be continued
subject to such declaration. Section 22(4)(b) brings status quo ante and in fact,
makes it clear that on cessation of such a declaration, the right, privilege,
obligation or liability which was suspended shall become revived and
enforceable as if the declaration had never been made.
The proceedings will continue
from the stage at which they were stayed. It can safely be perceived that the provisions
of Section 22 of the Act of 1985 are self-explanatory. They would cease to
operate within their own limitations and not by force of any other law,
agreement, memorandum or even articles of association of the company. The
purpose is so very clear that during the examination, finalization and
implementation of the scheme, there should be no impediment caused to the
smooth execution of the scheme of revival of the sick industrial company. It is
only when the specified period of restrictions and declarations contemplated
under the provisions of the Act of 1985 is over, that the status quo ante as it
existed at the time of the consideration and finalization of the scheme, would
become operative. This is done primarily with the object that the assets of the
company are not diverted, wasted, taken away and/or disposed of in any manner, during
the relevant 47period.
27. The powers of the BIFR
under Section 22(3) can be segregated under two different heads. Firstly, the power
to suspend simplicitor the operation of all or any of the contracts, assurances
of property, agreements, settlements, awards, standing orders or any other instrument
in force, to which the sick industrial company is a party or which may be
applicable to the sick industrial company before the date of such order. Secondly,
any rights, privileges, obligations or liabilities accruing or arising before the
said date, shall be enforceable with such adaptation and in such manner as may
be specified by the BIFR.
28. This dissection clearly
demonstrates the intent of the framers of law, that the BIFR has the power to even
make changes in such instruments, documents etc. which create rights and
liabilities vis-`-vis the sick industrial company, and before permitting them to
be enforced. Such an approach alone can be justified, as otherwise the expression
`shall be enforceable with such adaptation and in such manner as may be
specified by the BIFR would be meaningless. It is a settled principle of interpretation
of statutes that every word and expression used by the legislature has to be given
its proper and effective meaning as the legislature uses no expression without
purpose or meaning.
The maxim Lex Nil
Frusta Jubet i.e. Law Commands nothing vainly further elucidates this principle.
Of course, the power to make this declaration as already noticed is controlled
by limitation of time as specified in the proviso to the Section. Lifting of such
declaration by lapse of time or otherwise or in accordance with the provisions
of Section 22(4) shall bring the status quo ante as if such declaration had
never been made. Section 22A is obviously a power over and above the wide powers
vested in BIFR under the provisions of Section 22 of the Act of 1985. Section
22 is the reservoir of the statutory powers empowering the BIFR to deal with the
scheme, right from its presentation till its complete implementation in accordance
with law, free of interjections and interference from other judicial processes.
29. Section 22A of the Act
of 1985 empowers the BIFR to pass injunctive or restraint orders in relation to
the assets of the sick industrial company. These injunctive orders are to be in
operation during the period of preparation or consideration of the scheme under
Section 18 of the Act of 1985. Section 4922A, thus, has a narrower scope than
Section 22. Section 22 operates from the presentation of the scheme, its
consideration, preparation, finalization and ultimately the implementation of the
said scheme and consequent rehabilitation of the sick industrial company, while
Section 22A operates only during the preparation or consideration of the
scheme, or upto the commencement of the proceedings for winding up before the
concerned High Court, in the event the BIFR recommends winding up proceedings.
30. The relevant provisions
of the Act of 1985 clearly demonstrate that BIFR is vested with the power to issue
directions in the interest of the company or even in public interest, to prevent
the disposal of assets of the company during the period of preparation, consideration
or implementation of the scheme. Not only this, BIFR is expected to ensure proper
implementation by appropriately monitoring the scheme during the entire
relevant period. Sections 22 and 22A thus specify the complete jurisdiction and
authority of the BIFR in relation to preparation, consideration, finalization
and implementation of a revival scheme in relation to a sick industrial
company.
31. Where Section 22(1) deals
with the restrictions and limitations vis-`-vis the court proceedings while
Section 22(3) of the Act of 1985 deals with the agreement, intents or other
obligations as stated in that provision and declarations which will be made by
the BIFR for the purposes of finalization and effective implementation of the scheme.
There, Section 22A deals with restrictions and prohibitory orders which the
BIFR can pass, all for the purposes of preparation of the scheme and proper implementation
and effective management of the revival of the sick industrial company. These
provisions have to be read along with the provisions of Section 26 of the Act
of 1985 which ousts the jurisdiction of the civil courts and vests exclusive
jurisdiction for the specified purposes with the BIFR. Another relevant provision
in this regard is Section 32 of the Act of 1985, which gives an overriding
effect to the provisions of the Act of 1985 over the other laws in force except
the law specifically stated therein. Sections 22, 22A, 26 and 32 have to be read
and construed conjointly.
A common thread of
legislative intent to treat this law as a special law, in contradistinction to the
other laws except the laws stated in the provisions and to ensure its effective
implementation with 51utmost expeditiousness, runs through all these
provisions. It also mandates that no injunction shall be granted by any court
or authority in respect of an action taken or to be taken in pursuance of the
powers conferred to or by under this Act. CASE LAW
32. In the case of Shree
Vallabh Glass Works Ltd. (supra), as already noticed, this Court had taken a very
wide view and given liberal constructions to the provisions of Section 22 and
held that no proceedings for execution or distress or like proceedings against
any of the properties of the company shall lie or be proceeded, except with the
consent of the BIFR. The Court also held that the BIFR, at its discretion, may
accord its approval for proceeding against the company.
This view of wide interpretation
was accepted by another Bench of this Court in the case of Maharashtra Tubes Ltd.
v. State Industrial and Investment Corporation of Maharashtra [(1993) 2 SCC 144],
wherein this Court took the view that the word `proceedings' under Section 22(1)
cannot be given a narrower or restricted meaning to limit the same to a legal proceeding
and even the proceedings invoked by a financial institution under the State Financial
Corporation Act were held to be covered within the ambit of Section 22(1) of
the Act of 1985.
A similar view was
also taken in the case of Tata Davy Ltd. v. State of Orissa [AIR 1998 SC 2928].
Answering the question that steps to recover the sales tax under Section 13A of
the said Act were in the nature of proceedings by way of execution, distress or
the like contemplated by Section 22(1) of the Act, this Court followed its earlier
view and held that even the proceedings for recovery of tax under the State Act
were covered within the scope of Section 22(1) of the Act of 1985, and thus, could
not be given effect to without approval/consent of the BIFR.
33. As already noticed above,
in the case of Corromandal Pharmaceuticals (supra), this Court had taken the view
that the bar or embargo envisaged in Section 22(1) can apply only to such of
those cases where it is reckoned or included in the sub-judice schemes. Amounts
like the sales tax which the sick industry is unable to collect after the date
of the sanction of the scheme, had to be recovered in the normal course, by the
Revenue and protection of Section 22(1) was not available.
34. This view, however,
was not clearly adopted by this Court in subsequent judgments of Jay Engineering
(supra), where 53this Court accepted the wider connotation of the words
`proceedings' appearing in Section 22(1) where an award passed under the
Interest on Delayed Payments to Small Scale and Ancillary Industries Undertaking
Act, 1993 was being executed, the Court took the view that the award could not
be executed against the sick industry without the leave of the BIFR as the Act of
1985 would override the provisions of the 1993 Act and approval of the BIFR was
essential. Still in another case,
Morgan Securities and
Credit Pvt. Ltd. (supra), this Court had held that the Act of 1985 has an overriding
effect and Section 22(3) of the Act even covers the execution of
non-contractual liabilities like enforcement of an arbitral award. The Court further
held that the imperative character of an enquiry at the hands of the BIFR is inherent
in the scheme of the Act. The Court also expressed doubt as to whether the courts
of limited jurisdiction, vested with the power of passing interim orders, could
pass interim orders in exercise of its incidental power for sale of assets where
the matter was pending before the BIFR.
35. On the analytical
analysis of the above-stated dictum of this Court and the legislative purpose and
object of the Act, it 54has to be held that on its plain reading the provisions
of Sections 22(1) and 22(3) of the Act are the provisions of wide connotation and
would normally bring the specified proceedings, contractual and non-contractual
liabilities, within the ambit and scope of the bar and restrictions contained in
Sections 22(1) and 22(3) of the Act of 1985 respectively. The legislative
intent is explicit that the BIFR has wide powers to impose restrictions in the form
of declaration and even prohibitory/injunctive orders right from the stage of
consideration of a scheme till its successful implementation within the ambit and
scope of Sections 22(3) and 22A of the Act. Section 22 of the Act of 1985 is very
significant and of wide ramifications and application.
More often than not,
the jurisdiction of the BIFR is being invoked, necessitated by varied actions of
third parties against the sick industrial company. The proceedings, taken by way
of execution, distress or the like, may have the effect of destabilizing the
finalization and/or implementation of the scheme of revival under consideration
of the BIFR. It appears that, the Legislature intended to ensure that no impediments
are created to obstruct the finalization of the scheme by the 55specialized body.
To protect the industrial growth and to ensure revival, this preventive provision
has been enacted.
The provision has an overriding
effect as it contains non obstante clauses not only vis-`-vis the Companies Act
but even qua any other law, even the memorandum and articles of association of the
industrial company and/or any other instrument having effect under any other Act
or law. These proceedings cannot be permitted to be taken out or continued
without the consent of the BIFR or the AAIFR, as the case may be. The
expression `no proceedings' that finds place in Section 22(1) is of wide spectrum
but is certainly not free of exceptions.
The framers of law
have given a definite meaning to the expression `proceedings' appearing under
Section 22(1) of the Act of 1985. These proceedings are for 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.
The expression `the like' has to be read ejusdem generis to the term
`proceedings'. The words `execution, distress or the like' have a definite
connotation.
These proceedings can
have the effect of nullifying or obstructing the sanctioning or implementation 56of
the revival scheme, as contemplated under the provisions of the Act of 1985. This
is what is required to be avoided for effective implementation of the scheme.
The other facet of
the same Section is that, no suit for recovery of money, or for enforcement of
any security against the industrial company, or any guarantee in respect of any
loan or advance granted to the industrial company shall lie, or be proceeded with
further without the consent of the BIFR. In other words, a suit for recovery
and/or for the stated kind of reliefs cannot lie or be proceeded further without
the leave of the BIFR. Again, the intention is to protect the properties/assets
of the sick industrial company, which is the subject matter of the scheme.
It is difficult to
state with precision the principle that would uniformly apply to all the proceedings/suits
falling under Section 22(1) of the Act of 1985. Firstly, it will depend upon the
facts and circumstances of a given case, it must satisfy the ingredients of Section
22(1) and fall under any of the various classes of proceedings stated thereunder.
Secondly, these proceedings should have the impact of interfering with the formulation,
consideration, finalization or implementation of the scheme. Once these ingredients
are 57satisfied, normally the bar or limitation contained in Section 22(1) of
the Act of 1985 would apply.
For instance,
execution of a decree against the assets of a company, if permitted, is bound to
result in disturbing the scheme, which has or may be framed by the BIFR. The sale
of an asset during such execution or even withdrawing the money from the bank
account of the company would certainly defeat the very purpose of the protection
sought to be created by the Legislature under Section 22(1) of the Act of 1985.
On the other hand, a proceeding
taken out for possession of the tenanted premises, under the provisions of Karnataka
Rent Control Act, have been held to be proceedings not falling within the ambit
and scope of Section 22(1) of the Act of 1985. This was for the reason that the
contractual tenancy between the company and the owner had been terminated and the
company only had an interest as a statutory tenant. Such interest was neither assignable
nor transferable. This Court held that it could not be regarded as `property' of
the sick company for the purposes of the provisions of Section 22(1) and as
such, these provisions were not attracted. (M/s. Shree Chamundi Mopeds Ltd. v. Church
of South India Trust 58Association, Madras [AIR 1992 SC1439]).
36. Referring to the facts
of the present case, the land was one of the major assets of the Respondent
Company and in the event the said asset was kept outside the scope of the
scheme or its sale was permitted by the BIFR, probably the company could never
be revived and any effort in that direction de hors such asset of the company would
be in futility.
Besides, the fact that
the statutory protection contained in Section 22(3) was available to the company,
it could be stated with more emphasis that the BIFR could even adopt and permit
the transaction with such adoption as it may have deemed appropriate. The imperative
nature of the functions of the BIFR under the provisions of the Act of 1985 and
the overriding effect of its provisions fully support such a view. Overriding
effect of the Act of 1985 :-
37. This Court has taken
the view in Tata Motors Ltd. [(2008) 7 SCC 619] that the Act of 1985 has been
enacted to secure the principles specified in Article 359 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. As the Act of 1985 is a
special law and on the principle that a 59special law will prevail over a
general law, it is permissible to contend that even if the provisions contained
in Section 22(1) read with Section 32 of the Act, giving overriding effect vis-`-vis
the other laws, other than the Foreign Exchange Regulation Act, 1973 and the Urban
Land Ceiling and Regulation Act, 1976 had not been there, the provisions of the
general law like the Companies Act, for regulation, incorporation, winding-up etc.
of the companies would have still been overridden to the extent of
inconsistency.
We have already seen that
this Court had, in the case of Jay Engineering (supra), taken the view that the
Interest on Delayed Payments to Small Scale and Ancillary Industries
Undertaking Act, 1993 shall have to give way for enforcement of the provisions
of the Act of 1985. In the case of Tata Davy (supra) also, the Court took the
view that the State Sales Tax Act would have to be read and construed in comity
to the provisions of the Act of 1985 which shall have the overriding effect. In
the case of Tata Motors Ltd. v. Pharmaceuticals Product of India Ltd. (supra), this
Court was concerned with the provisions of mismanagement and oppression
contained in Sections 391 and 394 of the Companies Act and whether the 60Company
Court will have the jurisdiction to pass orders in preference to the
proceedings pending before the Court under the Act of 1985.
The Court while holding
the primacy of the Act of 1985 held as under: - "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. 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.
38. "Even in the
case of NGEF Ltd. v. Chandra Developers (P) Ltd. and Anr. [(2005) 8 SCC 219], this
Court specifically reiterated and with emphasis the principle that the
provisions of the Act of 1985 contained non-obstante clauses, it is a special
statute which is a complete code in itself and that the jurisdiction of the
Company Court in such matters would arise 61only when AAIFR and BIFR have exercised
their jurisdiction under Section 20 and 25 respectively of the Act of 1985. The
provisions of SICA would prevail over the provisions of the Companies Act.
39. From the above judgments
of this Court, the unambiguous principle of law that emerges is that the
provisions of the Act of 1985 shall normally override the other laws except the
laws which have been specifically excluded by the Legislature under Section 32
of the Act of 1985. The Act of 1985 has been held to be a special statute
vis-`-vis the other laws, most of which have been indicated above. In the
present case, we are concerned with the provisions of the Act of 1882. It is the
case of the respondent-company before us that they have got an interest in the
immovable property by virtue of the Memorandum of Understanding, Agreements
dated 1st March, 2007 and 17th August, 2010 and by part performance, as they
had been given possession of the land in question. It was contended that as their
interests were duly protected under the provisions of the Act of 1882, the
BIFR/AAIFR, in exercise of its powers under Sections 22(1), 22(3) and 22A of
the Act of 1985, cannot place any restriction upon their title or interest 62in
the immovable property. In other words, the contention is that vis-`-vis the
Act of 1985, the provisions of the Act of 1882 shall prevail.
40. The Act of 1882 is a general
law and controls and operates in a very wide field. It was an Act enacted for and
related to transfer of immovable property in India and to decide the disputes as
well as to resolve the confusion and conflict, which was in existence, as the courts
were forced to decide the disputes according to their own notions of justice
and fair play. The Act of 1882 does not have application to a particular
situation or class of persons.
On the contrary, the
Act of 1985 is a special legislation providing for imperative functioning of
specialized bodies like the BIFR and AAIFR and is intended to apply to a very specific
situation, i.e., where a company is a sick industrial company. It has no
application even to other different kinds of companies within the purview of
the Companies Act, except sick industrial companies. The Legislature has undoubtedly
given an overriding effect to the provisions of the Act of 1985 and even restricted
the jurisdiction of the civil courts, as is demonstrated from the language of
Sections 26 and 32 of the Act of 1985. Thus, we 63have no hesitation in holding
that the provisions of the Act of 1985 shall prevail over the provisions of the
Act of 1882.Discussion on Merits with reference to Factual Matrix of the Case
41. Having dealt with the
basic legal questions arising for consideration of this Court in the facts of the
present case, now we will now proceed to examine the issues of facts and law with
reference to the present case. The Respondent-Company, upon some negotiations had
executed a Memorandum of Understanding with the appellant-company on 13th April,
2006. A land admeasuring about 344 acres, situated in the revenue estate of villages
Ambivali, Mohone, Wadavli, Atalee and Galegaon in taluk Kalyan, District Thane
was agreed to be sold on the conditions which were stated therein and it had also
postulated the execution of a proper Agreement to Sell. Principal Agreement of
Sale was executed on 1st March, 2007 between the parties.
As certain amounts were
found to have been incorrectly stated in the Principal Agreement and parties intended
to pre-pone the payment of instalments as per the terms of that agreement, they
executed 64First Supplementary Agreement dated 29th September, 2007. It may be
noticed here that the Respondent Company, in the meanwhile, had financial
crisis and was not able to pay off its debt of nearly Rs.147 crore as on 31st March,
2006. The company itself had approached the BIFR for declaring the company as a
`sick industrial company' and to examine the possibility of its revival through
a scheme, in accordance with the provisions of the Act of 1985.
42. The scheme of rehabilitation
in relation to the sick industrial company was presented before the Corporate Debt
Restructuring (CDR) Empowered Group which was appointed by the consortium of
the banks to whom large sums were due from the said company on 13th June, 2007.
The scheme was approved by the CDR on 12th December, 2007 which resulted in issuance
of a letter of approval dated 21st January, 2008. Prior to the complete implementation
of the revival scheme, the Respondent Company applied to the BIFR under Section
15 of the Act of 1985 for being declared as a `sick company' on 3rd December, 2008.
During the consideration
of this application, the rehabilitation scheme approved by the CDR was placed before
the BIFR for its acceptance and adoption. Vide its order dated 16th July, 2009,
passed under Section 17(3) of the Act of 1985, the Scheme was adopted and for
the purposes of implementation of the Scheme, the cut-off date was declared as 30th
July, 2007 by the BIFR. As already noticed, the parties had entered into a Memorandum
of Understanding dated 13th April, 2006 and the Agreement to Sell dated 1st
March, 2007 for sale of the land belonging to the company. The BIFR, while
approving the scheme, had taken into consideration these events in relation to the
sale of the land.
Thereafter, the parties
executed Supplementary Agreements dated 29th September, 2007 and 17th August,
2010. The Agreements provided for pre-ponement of the instalments payable in terms
of the Agreements as well as giving of possession of the land to the Appellant Company.
The Agreement dated 29th September, 2007 was executed when the rehabilitation scheme
was pending consideration before the BIFR, while the Agreement dated 17th
August, 2010 was executed subsequent to the adoption of the Scheme by the BIFR.
It appears from the record
that the Second Supplementary Agreement dated 17th August, 2010 was not
executed between the parties with prior approval of the BIFR. 66The BIFR, vide its
order dated 16th July, 2009, had placed certain restrictions and had not
permitted the transfer of the land without its prior approval. It had also raised
certain other queries including valuation, etc. This order was set aside by the
AAIFR, which had permitted the sale of the land in favour of the Appellant Company,
even during the consideration and implementation of the revival scheme. This
order of the AAIFR dated 28th May, 2010 was disturbed by the High Court vide its
order dated 29th July, 2011. The High Court practically restored the order of
BIFR, giving rise to the present appeal.
43. The contention raised
before us is that in view of the provisions of Sections 53A and 54 of the Act
of 1882, the title in the property in question is vested in the Respondent-Company
and they are entitled to transfer of the property, free from any restrictions
or limitations. As such, the order of the High Court is liable to be set aside and
that of the AAIFR be restored. In view of our afore-stated discussion and the
reasons to follow, we are unable to accept this contention entirely or even in part
for that matter.
Firstly, we may
examine whether an agreement to sell in relation to an immovable property transfers
or creates any right or title in the immovable property itself in favour of the
purchaser. Section 54 defines `Sale' as a transfer of ownership in exchange for
price paid or promised or part-paid and part-promised. Such a transfer of
tangible immovable property of the value of Rs.100/- and upwards can be made only
by a registered instrument. The `contract for sale' has been explained under
this very provision as follows: - "Contract for sale:- A contract for the
sale of immoveable property is a contract that a sale of such property shall take
place on terms settled between the parties. It does not, of itself, create any
interest in or charge on such property.
44. "Thus, on a
plain reading of the statutory provisions, it is clear that an agreement for
sale or an agreement to sell itself does not create any interest or charge in
such property. Mulla on `Transfer of Property Act', 9th Edition, page 181, clearly
states that Section 54 enacts that an agreement for the sale of land does not itself
create an interest in land. There was a considerable conflict of decisions as to
the application of the rule against perpetuity to such agreements. This conflict
has 68been resolved by judgment of this Court in the case of Rambaran Prosad vs.
Ram Mohit Hazra [AIR 1967 SC 744] where this Court held that a mere contract for
sale of immovable property does not create any interest in the immovable
property. In this case, this Court held as under:-
"10. In the case
of an agreement for sale entered into prior to the passing of the Transfer of
Property Act, it was the accepted doctrine in India that the agreement created an
interest in the land itself in favour of the purchaser. For instance, in Fati Chand
Sahu v. Lilambar Sing Das (1871) 9 B.L.R. 433 a suit for specific performance of
a contract for sale was dismissed on the ground that the agreement, which was
held to create an interest in the land, was not registered under s. 17, clause(2)
of the Indian Registration Act of 1866. Following this principle, Markby J. in Tripoota
Soonduree v. Juggur Nath Dutt (1875) 24 W.R. 321 expressed the opinion that a covenant
for pre-emption contained in a deed of partition, which was unlimited in point of
time, was not enforceable in law.
The same view was taken
by Baker J. in Allibhai Mahomed Akuji v. Dada Alli Isap A.L.R. 1931 Bom. 578 where
the option of purchase was contained in a contract entered into before the passing
of the Transfer of Property Act. The decision of the Judicial Committee in Maharaj
Bahadur Singh v. Bal Chanad 48 I.A. 376 was also a decision relating to a contract
of the year 1872. In that case, the proprietor of a hill entered into an
agreement with a society of Jains that, if the latter would require a site thereon
for the erection of a temple, he and 69his heirs would grant the site free of cost.
The proprietor
afterwards alienated the hill. The society, through their representatives, sued
the alienees for possession of a site defined by boundaries, alleging notice to
the proprietor requiring that site and that they had taken possession, but been
dispossessed. It was held by the Judicial Committee that the suit must fail. The
Judicial Committee was of the opinion that the agreement conferred on the society
no present estate or interest in the site, and was unenforceable as a covenant,
since it did not run with the land, and infringed the rule against perpetuity.
Lord Buckmaster who
pronounced the opinion of the Judicial Committee observes as follows: "Further,
if the case be regarded in another light - namely, an agreement to grant in the
future whatever land might be selected as a site for a temple - as the only
interest created would be one to take effect by entry at a later date, and as
this date is uncertain, the provision is obviously bad as offending the rule against
perpetuities, for the interest would not then vest in present, but would vest at
the expiration of an indefinite time which might extend beyond the expiration
of the proper period." (11) But there has been a change in the legal position
in India since the passing of the Transfer of Property Act. Section 54 of the Act
states that a contract for sale of immovable property "does not, of itself,
create any interest in or charge on such 70property". Section 40 of the Act
is also important and reads as follows:
"40. Where, for the
more beneficial enjoyment of his own immovable property, a third person has, independently
of any interest in the immovable property of another or of any easement thereon,
a right to restrain the enjoyment in a particular manner of the latter
property, or Where a third person is entitled to the benefit of an obligation arising
out of contract, and annexed to the ownership of immovable property, but not amounting
to an interest therein or easement thereon, such right or obligation may be enforced
against a transferee with notice thereof or a gratuitous transferee of the property
affected thereby, but not against a transferee for consideration and without
notice of the right or obligation nor against such property in his hands."
The second paragraph of
s. 40 taken with the illustration establishes two propositions: (1) that a contract
for sale does not create any interest in the land, but is annexed to the
ownership of the land and (2) that the obligation can be enforced against a subsequent
gratuitous transferee from the vendor or a transferee for value but with 71 notice.
Section 14 of the Act states as follows:
"14. No transfer
of property can operate to create an interest which is to take effect after the
lifetime of one or more persons living at the date of such transfer, and the minority
of some person who shall be in existence at the expiration of that period, and
to whom, if he attains full age, the interest created is to belong."
Reading S. 14 along with S. 54 of the Transfer of Property Act its manifest
that a mere contract for sale of immovable property does not create any
interest in the immovable property and it therefore follows that the rule of
perpetuity cannot be applied to a covenant of pre-emption even though there is no
time limit within which the option has to be exercised.
It is true that the second
paragraph of s. 40 of the Transfer of Property Act make a substantial departure
from the English law, for an obligation under a contract which creates no
interest in land but which concerns land is made enforceable against an assignee
of the land who takes from the promisor either gratuitously or takes for value but
with notice. A contract of this nature does not stand on the same footing as a mere
personal contract, for it can be enforced against an assignee with notice.
There is a
superficial kind of resemblance between the personal obligation created by the contract
of sale described under s. 40 of the Act which arises out of the contract, and 72
annexed to the ownership of immovable property, but not amounting to an interest
therein or easement thereon and the equitable interest of the person purchasing
under the English Law, in that both these rights are liable to be defeated by a
purchaser for value without notice. But the analogy cannot be carried further and
the rule against perpetuity which applies to equitable estates in English law cannot
be applied to a covenant of pre-emption because s. 40 of the statute does not
make the covenant enforceable against the assignee on the footing that it creates
an interest in the land.
45. This very view was
reiterated by this Court in the cases of State of U.P. v. District Judge and Ors.
[AIR 1997 SC 53[; Dharma Naika v. Rama Naika [AIR 2008 SC 1276] and Mrs. Saradamani
Kandappan vs. Rajalakshmi & Ors. [JT 2011 (8) SC 129].
46. Heavy reliance was placed
by the learned counsel appearing for the Respondent-Company, upon the provisions
of Section 53A of the Act of 1882 to substantiate his argument that in part performance
of the contract, possession of the property having been given, the execution of
the title documents and transfer of the property in its favour could not 73be hampered
or controlled by the BIFR in exercise of its powers under Section 22(3) of the Act
of 1985. We are not called upon in this case to adjudicate upon the merits or
otherwise the rights and liabilities of the parties arising out of the agreement
dated 1st March, 2007 or the agreements entered into subsequent thereto.
We would also not like
to venture upon and decide whether the second supplementary agreement dated
17th August, 2010 vide which the payment of intallments was pre-poned and the possession
of the land in question is alleged to have been given to the Appellant-Company
is a valid, enforceable and its consequences in law. Suffices it to note that memorandum
of understanding and agreement to sell the land belonging to the company
between the appellant and the respondent-company was signed prior to the presentation
of the scheme before the BIFR. However, second supplementary agreement was executed
not only subsequent to the presentation of the scheme before the BIFR but even after
the BIFR had passed an order under Section 17(3) of the Act of 1985.
It cannot be disputed
that even the sale proceeds received under the agreements have been utilized for
the revival of the company to a large extent. The agreement with the workers
dated 5th September, 2008 stands testimony to this fact. Once the asset of the
company and/or its sale proceeds have been integral part of the formation and
finalization of the revival scheme, such transaction by any stretch of
imagination cannot be stated to be beyond the ambit and scope of Section 22(3)
of the Act of 1985.
Thus BIFR has the power
to issue declarations in relation to contracts, agreements, settlements, awards,
standing orders or even other instruments in force to which the sick industrial
company is a party. The power to suspend or power to enforce the same subject to
such adaptations as the BIFR may consider appropriate is a power of great
magnitude and scope, the only restriction thereupon is as contemplated in the
proviso to Section 22(3) of the Act of 1985.
47. The provisions of Section
53A of 1882 Act recognize a right of a transferee, where a transferor has given
and the transferee has taken possession of the property or any part thereof. Even
this provision does not create title of the transferee in the property in question
but gives him a very limited right, that too, subject to the satisfaction of the
conditions as stated in Section 53A of the Act of 1882 itself. 75In the case of
State of U.P. v. District Judge (supra), this Court, while deliberating upon
the rights emerging from Section 53A of the Act of 1882, held as under: "...
That protection is available
as a shield only against the transferor, the proposed vendor, and would disentitle
him from disturbing the possession of the proposed transferees who are put in possession
pursuant to such an agreement. But that has nothing to do with the ownership of
the proposed transferor who remains full owner of the said land till they are legally
conveyed by Sale Deed to the proposed transferees.
48. "Thus, even if the
part performance of the agreement is accepted, still no title is created in
favour of the Respondent-Company. Provisions of Section 53A would also not, in any
way, alter the position of the Act of 1985 having an overriding effect vis-`-vis
the provisions of the Act of 1882. We have already held that the provisions of Act
of 1985 shall have precedence and overriding effect over the provisions of the
Act of 1882.
49. This brings us to the
last and final question arising for consideration of this Court in the present case,
that is, whether in the facts and circumstances of the case, the BIFR 76had the
jurisdiction to issue a direction or make a declaration in relation to the agreement
in question in exercise of the powers vested in it under Section 22(3) of the
Act of 1985 and, if answer to the above is in the affirmative, whether the
order dated 16th July, 2009 of the BIFR and that of the High Court dated 29th July,
2011 are unsustainable on facts?
The BIFR vide its order
dated 16th July, 2009, after declaring the Respondent-Company as a sick company
and appointing the Punjab National Bank as the Operating Agency, had fixed the
cut off date as 30th July, 2007, as indicated in the CDR Scheme. The CDR scheme
had been approved, after taking into consideration the agreement to sell and
the sale proceeds likely to be received therefrom. The BIFR had passed certain directions/declarations
in the order passed under Section 17(3) of the Act of 1985 requiring the
company to state clearly the details of the land to be sold including survey
numbers as well as the remaining land with the company and confirming if the
remaining land was adequate for functioning and viability of the company on
long term basis.
The BIFR raised the
query whether all the secured creditors who had charge over the land, had
approved the sale of 350 acres of land belonging to the respondent-company at Kalyan,
Thane for a sum of Rs.166.40 crore and for entering into memorandum of
understanding with the appellant company in that behalf. Besides issuing a directive
that assets including investments will require prior approval of the BIFR as the
company was under the purview of SICA, it also issued a clear prohibitory order
requiring the secured creditors not to take any coercive steps against the company
without prior permission of the BIFR.
This order of the
BIFR was therefore passed clearly at the stage of the consideration of the
revival scheme which had been approved by the CDR Group as well as the secured
creditors. The scheme for revival of the company on long term basis, thus, was primarily
dependent upon the sale proceeds of the land in question on the one hand and
the utility of the remaining land for revival of the company on the other. To
put it simply, the land was the paramount asset of the company for its revival
and successful implementation of the scheme in accordance with law.
The asset was duly taken
into consideration in formulation of the scheme as contemplated under Sections
17 and 18 of the Act of 1985 and appropriate directions, prohibitory orders were
issued within the ambit 78and scope of Sections 22(1), 22(3) and 22A of the Act
of 1985. In view of the clear statement of law, as afore-recorded, and facts of
the present case, we are unable to find any merit in the submission of the Respondent-Company
that the BIFR had no jurisdiction to pass such directives.
50. AAIFR had disturbed the
above order and held that the contract between the parties could not be suspended
under Section 22(3) and it was not in the interest of the Respondent-Company. In
other words, it had permitted the sale to be completed without any restriction.
This order was set aside and the order of the BIFR was restored by the High
Court. We find no jurisdictional or other error in the order of the High Court
in restoring the order of the BIFR. The land being the primary asset of the Respondent-Company,
could not be permitted to be dissolved by sale or otherwise without the consent
and approval of the BIFR.
The BIFR is the authority
proprio vigore and required to oversee the entire affairs of a sick industrial company
and to ensure that the same are within the framework of the scheme formulated
and approved by the Board for revival of the company in accordance with the
provisions of the Act of 1985. On facts as well, neither the BIFR nor the High Court
had exceeded its jurisdiction in passing the impugned orders. It is not that
the Respondent-Company has been divested of its right by the BIFR.
All that has been
done is to suspend the final transfer of the property in its favour in
accordance with the provisions of the Act and the limitations imposed therein. Once
the scheme is implemented or the period specified under the provisions of
Sections 22(3) and 22(4) expires, the declaration would cease to exist and the appellant
would be entitled to enforce its rights in accordance with law as if no such declaration
or restriction ever existed.
51. The principle of law
that emerges from the afore-referred discussion, which consistently has
judicial benediction, is that a scheme for rehabilitation or restructuring of a
sick industrial company undertaken by a specialized body like the BIFR/AAIFR should,
as far as legally permissible, remain obstruction free and the events should take
place as pre-ordained, during consideration and successful implementation of the
formulated scheme. Wide jurisdiction is vested in BIFR/AAIFR to issue directives,
declarations and prohibitory orders within the rationalized scope and
limitations prescribed under Section 22(1), 22(3) and 22A of the Act of 1985.
52. An objection to the maintainability
of a composite petition, taken before the High Court, has been reiterated
before this Court, of course, half-heartedly. Argument is that Article 227
vests the High Court with supervisory powers while Article 226 is the reservoir
of extra-ordinary jurisdiction of the High Courts to issue prerogative writs and
orders and, as such, a joint petition under both these Articles could not be
maintainable.
53. Reliance has been placed
in this regard to the case of Shalini Shyam Shetty & Anr. v. Rajendra
Shankar Patil [(2010) 8 SCC 329]. This objection was neither pressed before us
during the course of arguments nor do we consider it necessary to decide this issue
in view of the facts and circumstances of the present case and the fact that we
have decided the entire matter on merits.
54. For the reasons afore-recorded,
the present appeals are dismissed. The order of the BIFR dated 16th July, 2009
which has merged into the order of the High Court dated 29th July, 812011 is maintained
while that of the AAIFR dated 28th May, 2010 is set aside. The parties are directed
to appear before the BIFR which shall proceed with the matter in accordance
with law. However, we express a poised hope that the BIFR would deal with and
dispose of the matter expeditiously.
.................................CJI. (S.H. Kapadia)
....................................J. (K.S.
Radhakrishnan)
....................................J. (Swatanter Kumar)
New Delhi
February 7, 2012
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