2014 (2) TMI 1253 - HC - Companies Law

Rejection of the reference by BIFR - Held that - The Majority shareholder of the respondent is the majority shareholders of Anand Comforts Pvt. Ltd., which is also said to be carrying on a similar business as the respondent. The debts were cleared out of the sale proceeds of the personal assets of the wife of the Managing Director and also out of the personal borrowing of the Managing Director of the respondent-Company. The machinery is said to be in good condition and will be used in its business and that there are no debts except as aforesaid and even if there are any dues legitimately payable to any person, the respondent undertakes to clear the same. Hence, it is sought that the reference be rejected and the proceedings be closed. As claimed on behalf of the respondent-Company, there are no substantial dues to be cleared except those mentioned hereinabove and therefore, on an undertaking to be filed by the respondent, by way of an affidavit and an Indemnity Bond to the effect that the amounts mentioned hereinabove shall be cleared in due course in terms as aforesaid, the reference is rejected and the proceedings stand closed. The affidavit and the Indemnity Bond shall be filed within a period of one week from today.

Issues:
1. Interpretation of provisions under Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
2. Liability of secured creditors and settlement of debts.
3. Negotiation with creditors for settlement.
4. Clearance of dues and liabilities.
5. Decision on winding up of the company.

Analysis:
1. The judgment dealt with the interpretation of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The respondent company was declared a sick industrial company under Section 3(1)(o) of SICA. The State Bank of Mysore was appointed as the Operating Agency, and despite no acceptable offers received, the Board for Industrial and Financial Reconstruction (BIFR) permitted secured creditors to file recovery proceedings against the company. The BIFR, after considering liabilities, formed an opinion for the company to be wound up under Section 20(1) of SICA.

2. The State Bank of Mysore assigned its debt to Asset Reconstruction Company, and other creditors like Karnataka State Financial Corporation and various tax authorities had outstanding dues. However, through negotiations and settlements, the debts were cleared, and certificates of no dues were issued by the creditors. The respondent company settled its liabilities with various creditors, including the State Bank of Mysore, KSFC, Employees' Provident Fund, and others.

3. The respondent negotiated with creditors like ASREC (India) Limited, Central Excise, Rubber Board, and unsecured creditors for settlements and waivers of interest and penalties. Through negotiations and settlements, the respondent cleared dues of unsecured creditors and undertook to settle any future liabilities that may arise.

4. The company made efforts to clear its dues and liabilities, including sales tax, Central Excise, and penalties. The respondent approached authorities for waivers and negotiated settlements with various creditors. The company also utilized personal assets and borrowings to clear debts and liabilities, ensuring that all dues were settled to the best of their ability.

5. Based on the submissions and settlements made by the respondent, the Court rejected the reference for winding up the company. The Court required the respondent to file an affidavit and an Indemnity Bond, undertaking to clear the mentioned amounts within a specified period, leading to the closure of the proceedings. The judgment reflected the efforts made by the respondent to settle debts and liabilities, thereby avoiding the winding-up of the company.

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