2012 (6) TMI 19 - HC - Companies Law

Whether scheme of section 22 and section 22A empowers BIFR to take all such measures which, in opinion of Board, are necessary to bring company out of its sickness and make it viable on implementation of scheme framed by operating agency - powers of the Board under Section 22(3) of SICA Held that - It is thus clear that the company itself accepted in no uncertain words that the land under the agreements for sale continued to be its property/asset as on the day the reference application under Section 15(1) of SICA was submitted. Just because all the banks had given NOC for release of its charge on the subject land, it cannot be said that the Board was not empowered to bring the land within the ambit of Section 22A of SICA. So long as it continued to be the asset of the company the Board has unfettered powers under Section 22A and all that it has to examine is the public interest, interest of the company, its shareholders and employees etc. The Board is a body of experts as is clear from the preamble of the Act and the scheme of Section 22 and Section 22A empowers the Board to take all such measures which, in the opinion of the Board, are necessary to bring the company out of its sickness and make it viable on implementation of the scheme framed by the operating agency. The Appellate Authority fell in gross errors in holding that the agreements were concluded/finalised by the registered documents and, therefore the Board could not have exercised the powers under Section 22A of SICA. Regarding the powers of the Board under Section 22(3) of SICA, there could be no dispute that the Board has no powers to annul an existing agreement between the parties i.e., the petitioner company and respondent No.13. However, that by itself would not lead to a conclusion that the Board has no further powers in respect of a property which has been agreed to be sold by registration of an agreement for sale.

Summary

Issues Involved:
1. Whether the land covered by the agreement for sale is an existing asset of the petitioner company.
2. The scope of the powers of BIFR under Section 22(3) of SICA.

Issue-wise Detailed Analysis:

1. Whether the land covered by the agreement for sale is an existing asset of the petitioner company:

The petitioner company, initially incorporated as "National Rayon Corporation Ltd." and later renamed "NRC Ltd.," faced financial difficulties and was declared a sick company in 1987. Despite efforts to restructure, including a significant land sale agreement with Respondent No.13, the company continued to struggle. The Board for Industrial and Financial Reconstruction (BIFR) declared the company sick again in 2008. The BIFR's order under Section 17(3) of SICA included directions to submit a revival scheme involving the sale of 350 acres of land. The Appellate Authority for Industrial and Financial Reconstruction (AAIFR) modified this order, stating that Section 22A of SICA does not apply to pre-existing contracts for sale. However, the High Court found that the agreements for sale did not constitute a concluded sale transaction, as the land remained an asset of the company until all formalities were completed. The court emphasized that the BIFR has the authority to bring such assets within the purview of Section 22A to protect public interest and the interests of the company, its creditors, employees, and shareholders.

2. The scope of the powers of BIFR under Section 22(3) of SICA:

Section 22(3) of SICA empowers the BIFR to suspend the operation of contracts and agreements involving a sick industrial company. The High Court noted that the BIFR's role is to ensure the viability of the company by considering all financial resources, including existing assets. The court held that the BIFR has the authority to modify the terms of existing agreements to secure better financial terms for the company. The BIFR's directive to include the balance sale consideration from Respondent No.13 in the means of finance for the company's rehabilitation was deemed appropriate. The court also noted that the BIFR's discretion should not be interfered with unless it is shown to be against public interest or the interests of the company and its stakeholders.

Conclusion:

The High Court quashed the AAIFR's order and upheld the BIFR's decision to include the land sale agreement within the ambit of Section 22A of SICA. The court directed the BIFR to expedite the implementation of the restructuring scheme to revive the company. The court emphasized the BIFR's broad powers under Section 22(3) of SICA to ensure the company's viability and protect the interests of all stakeholders.