2011 (3) TMI 1486 - HC - Companies Law

Whether a Public Sector Enterprise/Undertaking having dues outstanding in respect of a commercial transaction from a sick company within the meaning of the Sick Industrial Companies (Special Provisions) Act, 1985 ( the SICA ) falls within the definition of other authority for purposes of section 19(1) of the SICA and is entitled to the benefit of sub-section (2) of section 19 of the SICA of circulation of the scheme and entitlement to obtain its consent? Held that - Respondent No. 1 is not entitled to be covered within the definition of other authority within the meaning of section 19(1) of the SICA nor can the unpaid price be categorized as financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices and thus is not entitled to the notice under section 19(2) of the SICA. Respondent No. 1 is, thus, liable to be treated as an unsecured creditor , as has been done by the BIFR, and in view of the scheme which has been duly approved in accordance with law the entitlement is restricted to 10 per cent of the principal amount being in the category of an unsecured creditor. We may notice that it was pointed out to us that the petitioner has not paid even that amount but then learned counsel for the petitioner pointed out that the said amount had to be paid at certain stages and the instalment of the same has been brought to the Court by learned counsel for the petitioner. Appeal allowed.

Summary

Issues Involved:
1. Definition of "other authority" under section 19(1) of the SICA.
2. Entitlement of a PSU to the benefit of sub-section (2) of section 19 of the SICA.
3. Classification of unpaid price for goods supplied as "financial assistance."

Issue-wise Detailed Analysis:

1. Definition of "other authority" under section 19(1) of the SICA:
The core issue is whether a Public Sector Enterprise (PSU) falls within the definition of "other authority" for the purposes of section 19(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The respondent argued that being a Central PSU, it should be treated as "State" within the meaning of Article 12 of the Constitution of India and thus covered under "other authority" in section 19(1) of the SICA. The AAIFR accepted this view, stating that the term "other authority" in section 19(1) of the SICA should take its color from Article 12 of the Constitution.

The court, however, held that the provisions of section 19 of the SICA are clear and that the expression "other authority" should be interpreted ejusdem generis with "a public financial institution or State level institution." The court emphasized that the plain, literal, and grammatical meaning of the statute should be given effect to without extending it unnecessarily by resorting to constitutional provisions. The court concluded that "other authority" must be read in conjunction with the entities listed in section 19(1) and does not include a PSU merely because it is a government entity.

2. Entitlement of a PSU to the benefit of sub-section (2) of section 19 of the SICA:
The respondent claimed that as an "other authority," it was entitled to the benefit of section 19(2) of the SICA, which mandates circulation of the rehabilitation scheme to every person required to provide financial assistance for their consent. The court clarified that section 19(1) of the SICA envisages financial assistance by way of loans, advances, guarantees, reliefs, concessions, or sacrifices from specified entities. The court held that the unpaid balance price for goods supplied does not fall within the definition of financial assistance as envisaged in section 19(1). Consequently, the respondent, being an unsecured creditor, is not entitled to the notice under section 19(2) of the SICA.

3. Classification of unpaid price for goods supplied as "financial assistance":
The court examined whether the unpaid price for goods supplied could be classified as "financial assistance" under section 19(1) of the SICA. The court concluded that the unpaid price for goods supplied does not qualify as financial assistance by way of loans, advances, guarantees, reliefs, concessions, or sacrifices. The court reasoned that financial assistance involves a positive act of providing support, whereas unpaid price for goods is a result of a commercial transaction and does not fit into the categories specified in section 19(1).

Conclusion:
The court allowed the writ petition, setting aside the AAIFR's order dated 12-10-2010. It held that the respondent does not fall within the definition of "other authority" under section 19(1) of the SICA and is not entitled to the notice under section 19(2) of the SICA. The respondent is to be treated as an unsecured creditor, entitled to only 10% of the principal amount as per the approved rehabilitation scheme. The court emphasized that the interpretation of statutory provisions should be based on their plain and literal meaning, without extending them by resorting to constitutional provisions unless explicitly required.