2009 (5) TMI 546 - SC - Companies Law

Whether any Industrial Company has become a sick industrial company, inter alia, upon receipt of a reference with respect to such company under section 15? Held that - Appeal allowed. A suit is barred when an enquiry under section 16 is pending. It is also not in dispute that prior to institution of the suit, respondent did not obtain consent of the Board. A distinction has been made between a jurisdiction with regard to the subject-matter of the suit and that of the territorial and pecuniary jurisdiction. It was laid down that a case falling within the former category would make a judgment a nullity. As the appellant has deposited 50 per cent of the decretal amount Civil Court shall transfer the said amount to BIFR.

Summary

Issues:
- Interpretation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 regarding suspension of legal proceedings.
- Jurisdiction of Civil Court in cases where reference to the Board of Industrial and Financial Reconstruction (BIFR) has been made.
- Application of the provisions of the Act in determining the maintainability of a suit post-reference to BIFR.

Analysis:
The case involved a partnership firm entering into a contract for supply of paddy husk with the appellant. The respondent filed a suit for recovery of payment, which the appellant contested on the grounds of being a sick industry under section 22 of the Act. The Trial Judge found that as no final order had been passed by the BIFR declaring the appellant as a sick industry, the suit was maintainable. However, the High Court upheld the Trial Court's decision without specifically addressing the issue raised by the appellant regarding the timing of the transaction in relation to the reference made to BIFR.

The appellant argued that the Trial Judge and the High Court erred in finding the transaction post-reference, contrary to the facts. The Court noted that the Act provides a comprehensive framework for dealing with sick industrial companies, emphasizing the importance of timely detection and remedial measures. Section 22 of the Act suspends legal proceedings when an inquiry under section 16 is pending, and in this case, the suit was filed before obtaining consent from the BIFR, as required by the Act.

The Court emphasized that the Act constitutes a complete code, granting wide powers to the Board for expeditious resolution of issues concerning sick companies. Referring to a previous judgment, the Court highlighted that the Act takes precedence over other laws, including the Companies Act, 1956, and bars the jurisdiction of Civil Courts in matters within the purview of the Board or Appellate Authority.

Ultimately, the Court held that the suit was not maintainable post-reference to BIFR, and any judgment rendered by the Civil Court in such a scenario would be null and void. The Court directed the transfer of the deposited amount to BIFR for consideration in finalizing a scheme for the appellant, with no costs awarded in the case.

In conclusion, the judgment highlighted the significance of adhering to the provisions of the Act in cases involving sick industrial companies, underscoring the need for strict compliance with the statutory framework for timely resolution and rehabilitation of such entities.