2006 (11) TMI 331 - HC - Companies Law

Issues Involved:
1. Maintainability of the petition under Sections 391 and 394 of the Companies Act, 1956, in light of the pending reference before the Board for Industrial and Financial Reconstruction (BIFR).
2. Validity and fairness of the proposed scheme of arrangement.
3. Objections raised by creditors, including Dena Bank and Nu Tech Corporate Services Ltd.

Issue-wise Detailed Analysis:

1. Maintainability of the Petition:
The primary issue was whether the petition filed under Sections 391 and 394 of the Companies Act, 1956, is maintainable given the pending reference before the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The petitioners argued that the scheme of arrangement should be sanctioned by the court despite the ongoing BIFR proceedings. However, Dena Bank and Nu Tech Corporate Services Ltd. contended that the petition was not maintainable due to the overriding effect of SICA, which mandates that once a reference is made to BIFR, the jurisdiction of the company court is ousted.

2. Validity and Fairness of the Proposed Scheme:
The petitioners proposed a scheme of arrangement to settle the dues of secured and unsecured creditors by infusing necessary funds and working out a modality for settlement. The scheme received approval from the requisite majority of equity shareholders, secured creditors, and unsecured creditors. The regional director filed an affidavit stating that the scheme was not prejudicial to the interests of shareholders and creditors. However, Dena Bank opposed the scheme, arguing that it was unfair and one-sided, as it proposed scaling down a significant debt to a meager sum, which they claimed was detrimental to public interest.

3. Objections Raised by Creditors:
Dena Bank raised objections on the grounds of maintainability and fairness of the scheme. They argued that the scheme was detrimental to the interests of secured creditors and was not in public interest. Nu Tech Corporate Services Ltd. also objected, pointing out that the petitioner had not approached the court with clean hands and had suppressed material facts. They argued that the petitioner should have proposed the scheme before the BIFR, which has the authority to consider such schemes for rehabilitation and revival.

Judgment Analysis:
The court acknowledged the preliminary objection regarding the maintainability of the petition due to the pending BIFR reference. It referred to the Supreme Court's judgment in NGEF Ltd. v. Chandra Developers P. Ltd., which held that SICA is a special statute and a complete code in itself, prevailing over the Companies Act. The court noted that the jurisdiction of the company court would arise only when BIFR or AAIFR exercises its jurisdiction under Section 20 of SICA recommending winding up of the company.

Given the conflicting judgments of the co-ordinate Benches of the High Court and the Supreme Court's ruling, the court found it necessary to refer the matter to a Division Bench for an authoritative pronouncement on whether an industrial company with a pending BIFR reference can apply to the court for sanctioning a scheme of arrangement under Sections 391 and 394 of the Companies Act.

The court concluded that it would not be appropriate to deal with the merits of the scheme until the jurisdictional question is resolved. The issue was referred to the Chief Justice for placing it before a Division Bench to resolve the question of maintainability. The court appreciated the valuable assistance rendered by the counsels.

Summary:
The judgment primarily dealt with the maintainability of a petition under Sections 391 and 394 of the Companies Act, 1956, in light of a pending reference before the BIFR under SICA. The court found that the jurisdiction of the company court is ousted once a reference is made to BIFR, as per the Supreme Court's ruling in NGEF Ltd. v. Chandra Developers P. Ltd. The matter was referred to a Division Bench for an authoritative pronouncement on the issue. The court did not delve into the merits of the proposed scheme of arrangement, keeping the issue open for consideration at a later stage.

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