2005 (6) TMI 280 - HC - Companies Law

Summary

Issues Involved:

1. Whether the High Court has the jurisdiction to sanction a scheme under sections 391 to 394 of the Companies Act, 1956, despite a pending reference under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
2. The applicability of section 22 and section 26 of SICA to the proceedings under sections 391 to 394 of the Companies Act.
3. The effect of section 32 of SICA on the provisions of sections 391 to 394 of the Companies Act.

Issue-wise Detailed Analysis:

1. Jurisdiction of the High Court under Sections 391 to 394 of the Companies Act:
The petitions were filed by National Organic Chemical Industries Ltd. (NOCIL) for restructuring its business by demerging its petrochemical, polymer, and plastic products divisions into separate entities. The scheme had the consent of the necessary majority of creditors and shareholders. The Regional Director filed objections citing a pending reference under section 15 of SICA. The primary issue was whether the High Court could exercise jurisdiction under sections 391 to 394 of the Companies Act given the pending reference under SICA.

2. Applicability of Section 22 and Section 26 of SICA:
The court examined whether section 22 of SICA, which suspends legal proceedings in certain cases, applies to the proceedings under sections 391 to 394 of the Companies Act. It was argued that section 22 does not apply because the present case is not a suit for recovery or enforcement of security but a scheme for restructuring. The court agreed, noting that section 22's suspension provisions are limited to winding up, execution, or attachment proceedings and do not extend to the current restructuring scheme. Similarly, section 26 of SICA, which restricts the jurisdiction of civil courts in matters appealable under SICA, was found inapplicable as it pertains only to orders passed under SICA.

3. Effect of Section 32 of SICA:
Section 32 of SICA provides that its provisions will have an overriding effect in case of inconsistency with other laws. The court analyzed whether there was any inconsistency between sections 391 to 394 of the Companies Act and sections 15 to 19 of SICA. It was argued that both sets of provisions aim to make companies financially viable and are not inconsistent. The court agreed, stating that the objectives of both statutes are complementary, not contradictory. The provisions of SICA apply to companies with negative net worth, while sections 391 to 394 can apply to companies in various financial conditions seeking restructuring for better efficiency. Therefore, there is no inconsistency, and section 32 of SICA does not override the provisions of sections 391 to 394 of the Companies Act.

Conclusion:
The court concluded that it has the jurisdiction to sanction the scheme under sections 391 to 394 of the Companies Act, despite the pending reference under SICA. The provisions of section 22 and section 26 of SICA do not apply to the current proceedings, and there is no inconsistency between the provisions of SICA and the Companies Act that would invoke the overriding effect of section 32 of SICA. The petitions were granted, and the scheme was sanctioned, with the petitioners ordered to pay costs to the Regional Director.