2008 (11) TMI 624 - HC - VAT and Sales Tax

Jurisdiction of BIFR - Whether Haryana Financial Corporation correct to direct to settle the OTS in terms of guidelines issued by BIFR under section 19 of the Act? - Held that - From the wording and language of the SICA, it is clear that where the object is to prevent sickness in an industrial company or to ameliorate its lot and other measures are required to be taken in relation to a sick industrial company, the reliefs and concession or sacrifices can be directed by the BIFR to the Central Government, State Government, Banks, institutions and financial institutions so as to remove the sickness of such industrial company. The whole object of SICA is to arrest industrial sickness in the country. Therefore, to say, that BIFR has no jurisdiction to issue such directions is totally misplaced. The directions of BIFR while in exercise of its powers under section 19 of the Act are mandatory, more so, when against a loan of ₹ 20 lakhs, the petitioner has paid ₹ 40 lakhs and is still prepared to settle in terms of RBI guidelines as per directions of BIFR. The dragging of matter by the respondent is totally inconsistent and contrary to the object and the scheme envisaged in SICA. We find no infirmity in the order of the BIFR directing Haryana Financial Corporation to settle the OTS in terms of guidelines issued by BIFR under section 19 of the Act. If the petitioner has paid some amount over and above the RBI guidelines, the same shall be refunded within four weeks to the petitioner. Accordingly, the Rule is made absolute. The writ petition is allowed.

Summary

Issues:
1. Quashing of BIFR order for winding up the company.
2. Dispute over payment to operating agency under SICA.
3. Applicability of RBI guidelines vs. HFC guidelines.
4. Jurisdiction of BIFR to issue directions under SICA.
5. Interpretation of section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985.

Issue 1: Quashing of BIFR order for winding up the company
The writ petition sought to quash the BIFR order for winding up the company, alleging that the company had settled with all creditors except the operating agency, Haryana Financial Corporation (HFC). The petitioner had deposited a sum of Rs. 5 lakhs as directed by the court. The BIFR had ordered winding up, citing dilatory tactics by the company and lack of seriousness in revival.

Issue 2: Dispute over payment to operating agency under SICA
A dispute arose regarding the payment to HFC, with the petitioner contending that they had paid Rs. 40 lakhs against a loan of Rs. 20 lakhs. The petitioner claimed to have deposited Rs. 7 lakhs more than required as per RBI guidelines, which the HFC disputed, citing their own guidelines. The BIFR had directed HFC to settle the dues as per RBI guidelines, which HFC resisted.

Issue 3: Applicability of RBI guidelines vs. HFC guidelines
The petitioner argued for the application of RBI guidelines in settling the dues, while HFC maintained that their own guidelines prevailed over RBI guidelines. The court noted that BIFR's directions under section 19 of SICA were mandatory and that HFC's resistance was unwarranted. The court emphasized the objective of SICA to rehabilitate sick companies and criticized HFC's stance for hindering the process.

Issue 4: Jurisdiction of BIFR to issue directions under SICA
The court affirmed the jurisdiction of BIFR to issue directions under SICA, particularly under section 19, to facilitate the rehabilitation of sick companies. The court highlighted the mandatory nature of BIFR's directions and the obligation of operating agencies to comply with RBI guidelines for settlement. The court dismissed HFC's argument that BIFR lacked jurisdiction in issuing such directives.

Issue 5: Interpretation of section 19 of the Sick Industrial Companies (Special Provisions) Act, 1985
The court analyzed the provisions of section 19 of SICA, emphasizing the role of BIFR in directing financial institutions and banks to provide assistance for the rehabilitation of sick industrial companies. The court underscored the importance of following RBI guidelines and criticized HFC for delaying the settlement process. The court ruled in favor of the petitioner, directing HFC to settle the one-time settlement in line with BIFR's guidelines and refund any excess payment made by the petitioner.

In conclusion, the court allowed the writ petition, quashing the BIFR order and directing HFC to settle the dues as per BIFR's guidelines under section 19 of SICA.