2005 (4) TMI 300 - HC - Companies Law

Issues Involved:
1. Dismissal and/or suspension of Company Petition No. 259 of 1999 under section 22(1) of SICA.
2. Withdrawal and vacation of interim orders in Company Petition Nos. 263 of 2000, 43 of 2000, and 259 of 1999 due to the sanctioned rehabilitation scheme.
3. Compliance with the High Court's directions regarding the setting apart of funds for LKP Merchant Financing Ltd.
4. Implementation and binding nature of the sanctioned rehabilitation scheme on the company and creditors.
5. Objections by LKP Merchant Financing Ltd. to the sanctioned scheme and its provisions.

Issue-wise Detailed Analysis:

1. Dismissal and/or Suspension of Company Petition No. 259 of 1999:
The applicant, Mafatlal Industries Ltd., sought the dismissal and/or suspension of Company Petition No. 259 of 1999 under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). This petition was filed by LKP Merchant Financing Limited for the winding up of the company due to unpaid lease rentals. The court noted that the company had made a reference to the Board for Industrial and Financial Reconstruction (BIFR) and was declared a sick industrial company. The BIFR had sanctioned a rehabilitation scheme for the company. However, the court emphasized that despite the sanctioned scheme, the company must comply with the obligations and directions given by the High Court, particularly concerning the setting apart of funds for LKP Merchant Financing Ltd.

2. Withdrawal and Vacation of Interim Orders in Company Petition Nos. 263 of 2000, 43 of 2000, and 259 of 1999:
The applicant sought an order declaring that the respective company petitions filed by different creditors had stood withdrawn and all interim orders vacated from the date of the sanction of the rehabilitation scheme by BIFR. The court highlighted that the scheme, sanctioned on 30-10-2002, included a provision stating that all pending legal cases against the company for recovery of dues and winding up petitions would stand withdrawn. However, the court underscored that the company must first fulfill its obligations under the scheme, including the specific directions given by the High Court, before seeking dismissal of the winding up petitions.

3. Compliance with the High Court's Directions Regarding the Setting Apart of Funds for LKP Merchant Financing Ltd.:
The court reiterated its earlier direction to the company to set apart a sum of Rs. 1,38,47,333 for LKP Merchant Financing Ltd. The court noted that the company had not complied with this direction and emphasized that the company must honor this commitment as part of the sanctioned scheme. The court rejected the argument that the company and its promoters were separate entities concerning this obligation, stating that the company could not escape its liabilities.

4. Implementation and Binding Nature of the Sanctioned Rehabilitation Scheme:
The court examined the statutory provisions of SICA, particularly sections 17 and 18, which outline the process for preparing and sanctioning a rehabilitation scheme. Section 18(8) specifies that the sanctioned scheme is binding on the sick industrial company, its creditors, and other stakeholders. The court emphasized that the company must implement the scheme in its entirety, including the provisions for repayment to creditors. The court held that the company's failure to comply with the scheme's provisions precluded it from seeking the dismissal of the winding up petitions.

5. Objections by LKP Merchant Financing Ltd. to the Sanctioned Scheme:
LKP Merchant Financing Ltd. raised objections to the sanctioned scheme, particularly regarding the reduction of its dues and the waiver of interest and other charges. LKP filed an application before BIFR for review and clarification of the sanctioned scheme. The court noted that BIFR had directed LKP to make its submissions in writing and for the monitoring agency and the company to provide their comments. The court acknowledged that the review application was still pending and that the company's failure to address LKP's objections further complicated the matter.

Conclusion:
The court concluded that it was not just, proper, or equitable to dismiss the winding up petitions solely based on the sanctioned scheme. The company must first fulfill its obligations under the scheme, including complying with the High Court's directions. The court rejected the applications seeking dismissal of the winding up petitions and emphasized the need for the company to implement the scheme in its true letter and spirit. The court also directed that a copy of the order be forwarded to BIFR to ensure proper implementation of the scheme.

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