2005 (12) TMI 581 - HC - Companies Law

Summary

Issues Involved:
1. Determination of jurisdiction between BIFR and CLB.
2. Identification of 'promoters' entitled to buy back shares from IDBI.
3. Validity of the allotment of shares to IDBI without following statutory procedures.

Issue-wise Detailed Analysis:

1. Determination of Jurisdiction between BIFR and CLB:
The primary contention was whether the Company Law Board (CLB) had jurisdiction to entertain the petition under Sections 397/398 of the Companies Act, 1956, considering the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and the sanctioned scheme (SS) by the Board for Industrial and Financial Reconstruction (BIFR). The judgment emphasized that once a company is declared sick and a scheme is sanctioned by the BIFR, the BIFR assumes exclusive jurisdiction over matters related to the implementation of the scheme. The provisions of Section 32 of SICA, which provide an overriding effect to the Act, were pivotal in determining that matters arising from the SS fall within the exclusive domain of the BIFR. The court held that the CLB had no jurisdiction to entertain the petition as the issues raised were intrinsically linked to the SS and its implementation, which is under the purview of the BIFR.

2. Identification of 'Promoters' Entitled to Buy Back Shares from IDBI:
The core dispute revolved around identifying the 'promoters' entitled to buy back shares from IDBI as per the SS. Mr. Vijay Kumar Jain claimed exclusive rights as the promoter, while Mr. Raj Kumar Jain contended that he and his associates were also promoters entitled to buy back shares in proportion to their shareholding. The court noted that the term 'promoter' was not explicitly defined in the SS, leading to ambiguity. It was observed that the BIFR documents and the SS primarily mentioned Mr. Vijay Kumar Jain as the promoter. The court concluded that any clarification regarding the term 'promoter' and the implementation of the SS should be sought from the BIFR, as it is the appropriate authority to interpret and clarify its own scheme.

3. Validity of the Allotment of Shares to IDBI Without Following Statutory Procedures:
The CLB had declared the allotment of shares to IDBI as ultra vires the Memorandum and Articles of Association, arguing that the procedure for increasing authorized share capital and reducing existing share capital was not followed. However, the BIFR had granted exemptions from complying with certain provisions of the Companies Act, including Sections 81(1), 100-103, to facilitate the implementation of the SS. The court held that once such exemptions are granted by the BIFR, the procedural requirements under the Companies Act are waived, and the allotment of shares cannot be deemed ultra vires. The judgment emphasized that the BIFR has the authority to grant such exemptions to ensure the effective implementation of the SS, and any challenge to these exemptions should be addressed through the appellate mechanism provided under SICA.

Conclusion:
The court allowed the appeals filed by Mr. Vijay Kumar Jain and IDBI, quashing the impugned order of the CLB, and dismissed the appeal filed by Mr. Raj Kumar Jain and his associates. The judgment reaffirmed the exclusive jurisdiction of the BIFR over matters related to the implementation of the SS and clarified that any disputes or clarifications regarding the SS should be addressed by the BIFR. The CLB's findings on the allotment of shares to IDBI were set aside, and the matter was directed to be resolved by the BIFR, considering the appellate authority's remand for a fresh decision after hearing all necessary parties.