2011 (5) TMI 1068 - HC - Companies Law

Summary

Issues Involved:
1. Whether a Public Sector Enterprise/Undertaking (PSU) with outstanding dues from a sick company under SICA falls within the definition of "other authority" u/s 19(1) of SICA and is entitled to the benefits of Sub-section (2) of Section 19 of SICA.
2. Whether the unpaid balance price for goods supplied falls within the definition of "Financial Assistance" by way of loans, advances, or guarantees or reliefs or concessions or sacrifices.

Summary:

Issue 1: Definition of "Other Authority" u/s 19(1) of SICA
- The court examined whether a PSU with outstanding dues from a sick company qualifies as "other authority" u/s 19(1) of SICA, thereby entitling it to prior notice u/s 19(2) of SICA.
- Respondent No. 1, a PSU, argued it should be treated as "State" under Article 12 of the Constitution of India and thus covered under "other authority" in Section 19(1) of SICA.
- The AAIFR had accepted this argument, stating that the term "other authority" in Section 19(1) of SICA takes its color from Article 12 of the Constitution.
- The court, however, clarified that the expression "other authority" in Section 19(1) of SICA should be read ejusdem generis with "a public financial institution or State level institution," and not extended to include all entities covered under Article 12.
- The court concluded that Respondent No. 1 does not fall within the definition of "other authority" u/s 19(1) of SICA.

Issue 2: Definition of "Financial Assistance"
- The court examined whether the unpaid balance price for goods supplied falls within the definition of "Financial Assistance" by way of loans, advances, or guarantees or reliefs or concessions or sacrifices.
- It was argued that the unpaid price for goods supplied does not constitute a loan, advance, or guarantee.
- The court held that "financial assistance" u/s 19(1) of SICA refers to loans, advances, guarantees, or reliefs, concessions, or sacrifices related to such financial transactions.
- The unpaid price for goods supplied does not fall within this definition, and thus Respondent No. 1 is not entitled to the benefits of Section 19(2) of SICA.

Conclusion:
- The court ruled that Respondent No. 1 is not covered within the definition of "other authority" u/s 19(1) of SICA and the unpaid price does not qualify as financial assistance.
- Consequently, Respondent No. 1 is to be treated as an "unsecured creditor" and entitled to only 10% of the principal amount as per the sanctioned scheme.
- The writ petition was allowed, and the impugned order of the AAIFR dated 12.10.2010 was set aside.