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2008 (1) TMI 617 - HC - Companies LawCompromise and arrangement - Whether an industrial company which has made a reference under section 15 of the Sick Industrial Companies Act, 1985, can during the pendency of such reference, apply to this court for sanctioning a scheme of arrangement or compromise with its creditors and share holders and whether this court can take cognizance of such an application during the pendency of the reference and pass necessary orders thereon as are permissible in law ? Held that - Once the industrial company makes a reference under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, the company court would have no jurisdiction for sanctioning the scheme of arrangement or compromise with its creditors and shareholders and neither will it have jurisdiction to take cognisance of such an application during the pendency of the reference. , In the light of the above we overrule the judgments in National Organic Chemical Industries Ltd. v. NOCIL Employees Union 2005 (6) TMI 280 - HIGH COURT OF BOMBAY , Sharp Industries Ltd., In re 2005 (11) TMI 253 - HIGH COURT OF BOMBAY and in Pharmaceutical Products of India Ltd., In re 2006 (2) TMI 290 - HIGH COURT OF BOMBAY . We approve the view taken by the referral judge in the light of what we have discussed. In the light of that company petitions dismissed.
Issues Involved:
1. Jurisdiction of the High Court to sanction a scheme of arrangement or compromise during the pendency of a reference under the Sick Industrial Companies Act, 1985 (SICA). 2. Inconsistency between the provisions of the SICA and the Companies Act, 1956. 3. The effect of the non obstante clause in the SICA. 4. Applicability of the principle of implied repeal. Detailed Analysis: 1. Jurisdiction of the High Court: The primary issue was whether an industrial company that has made a reference under section 15 of the SICA can apply to the High Court for sanctioning a scheme of arrangement or compromise with its creditors and shareholders during the pendency of such reference. The High Court concluded that once a reference is made under section 15 of the SICA, the company court would have no jurisdiction to sanction such a scheme. The court emphasized that the jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR) would prevail until the completion of the proceedings under the SICA. 2. Inconsistency Between SICA and Companies Act: The court analyzed whether the provisions of the SICA and sections 391 to 394 of the Companies Act, 1956, are inconsistent. It was noted that the SICA operates in cases where the net worth of the company has become negative, whereas sections 391 to 394 do not have such a requirement and can apply even to companies that are not sick. The court found that the provisions of the SICA and the Companies Act, 1956, are inconsistent to the extent that they cover the same subject matter but provide different mechanisms for dealing with sick companies. 3. Effect of the Non Obstante Clause in SICA: The court highlighted the significance of the non obstante clause in section 32 of the SICA, which provides that the provisions of the SICA will have effect notwithstanding anything inconsistent therewith contained in any other law. This clause was interpreted to mean that the SICA would prevail over the Companies Act, 1956, in cases involving sick industrial companies. 4. Principle of Implied Repeal: The principle of implied repeal was discussed, which states that a later special law will override an earlier general law if both laws cover the same subject matter and are inconsistent. The court concluded that the SICA, being a later special law, would override the provisions of the Companies Act, 1956, to the extent of any inconsistency. Conclusion: The High Court held that once a reference is made under section 15 of the SICA, the company court would have no jurisdiction to sanction a scheme of arrangement or compromise with its creditors and shareholders. The provisions of the SICA would prevail over the Companies Act, 1956, due to the non obstante clause in section 32 of the SICA and the principle of implied repeal. The judgments in National Organic Chemical Industries Ltd. v. NOCIL Employees Union, Sharp Industries Ltd., In re, and Pharmaceutical Products of India Ltd., In re, were overruled, and the view taken by the referral judge was approved. Consequently, the company petitions were dismissed.
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