2012 (10) TMI 1262 - HC - Companies Law

Summary

Issues Involved:
1. Jurisdiction of BIFR to entertain an application for reference by a foreign company under SICA.
2. Interpretation of the term "Company" under SICA and Companies Act, 1956.
3. Applicability of SICA to foreign companies operating in India.
4. Validity of proceedings before BIFR given the company's winding-up status.

Summary:

Jurisdiction of BIFR:
The central issue was whether the Board of Industrial and Financial Reconstruction (BIFR) had jurisdiction to entertain an application for reference made by Baranagar Jute Factory Plc., a company incorporated in England, under the provisions of the Sick Industrial Companies (Special Provisions) Act (SICA). The learned Single Judge held that the appellant, being a company incorporated and registered in England, could not maintain any application for reference before BIFR under SICA.

Interpretation of "Company":
The Court examined whether the definition of "Company" under section 3 of the Companies Act, 1956, and section 3(d) of SICA could include a foreign company registered in India. The Court emphasized the phrase "unless the context otherwise requires" in both statutes, suggesting that the definition should be inclusive rather than exclusive. The Court concluded that SICA, being a social welfare legislation, should be interpreted to protect the interests of workers and creditors, thus including foreign companies registered in India under its purview.

Applicability of SICA to Foreign Companies:
The Court noted that Baranagar Jute Factory Plc., although incorporated in England, had its only business unit in India, employed around 3700 workers, and conducted all its business activities in India. The Court held that SICA applies to foreign companies operating in India, given the legislative intent to protect workers and creditors. The Court relied on various Supreme Court decisions to support a purposive interpretation of SICA, ensuring the protection of Indian shareholders, creditors, and workers.

Validity of Proceedings Before BIFR:
The Court observed that the winding-up order against Baranagar Jute Factory Plc. had been stayed, and the company was functioning as a going concern. The Court held that BIFR had jurisdiction to entertain proceedings even if a winding-up order was pending, as per section 22 of SICA. The Court dismissed the appeals challenging BIFR's jurisdiction, emphasizing that the company continued to operate under the scheme approved by the Supreme Court and the Company Court.

Conclusion:
The Court set aside the judgment of the learned Single Judge, holding that SICA applies to foreign companies operating in India. The appeals challenging BIFR's jurisdiction were dismissed, and the Court emphasized the need for a purposive interpretation of SICA to protect the interests of workers and creditors. The Court granted a stay of operation for three weeks after the Puja Vacation, with the interim order continuing until then.