2010 (8) TMI 1187 - HC - Companies Law

Summary

Issues:
Whether a petition for sanction of a scheme of arrangement under Sections 391/394 of the Companies Act, 1956 is maintainable before the Company Judge in view of the alleged pendency of a reference under Section 15 of the Sick Industrial Companies (Special Provisions) Act (SICA) before the Board for Industrial and Financial Reconstruction (BIFR)/Appellate Authority for Industrial and Financial Reconstruction (AAIFR).

Analysis:
The judgment pertains to a company petition seeking approval of a scheme of arrangement under Sections 391/394 of the Companies Act, 1956. The petitioner-company had previously applied for the scheme's sanction, which was approved by the Board of Directors, leading to a meeting of secured creditors. However, objections were raised regarding the maintainability of the petition due to a pending reference under SICA before the BIFR/AAIFR.

The key issue addressed by the Court was whether the petition under Sections 391/394 of the Companies Act could proceed despite the pending reference under SICA. The Court examined the history of the petitioner-company's references under SICA, noting that while a previous reference had been rejected, a subsequent reference was pending before the BIFR, albeit stayed due to a challenge before the Delhi High Court.

The Court analyzed the provisions of SICA, emphasizing that once a reference is registered, the enquiry commences, signifying the initiation of proceedings before the BIFR. It was established that the petitioner-company's reference was pending before the BIFR, even though no scheme had been formulated as of the judgment.

Referring to the Supreme Court's decision in Tata Motors Ltd. Vs. Pharmaceutical Products Of India Ltd, the Court highlighted that SICA prevails over the Companies Act, with the jurisdiction of the civil court being limited in cases where a reference has been made to the BIFR. The Court clarified that the Company Court's authority is subject to SICA or any scheme formulated by the BIFR.

The Court concluded that the petition under Sections 391/394 of the Companies Act was maintainable despite the pending reference under SICA, as long as the Company Court's exercise of power was in accordance with SICA or any scheme framed by the BIFR. The objections raised by the respondents regarding maintainability were overruled, and their applications were rejected.

In summary, the judgment establishes that a company petition under Sections 391/394 of the Companies Act can proceed alongside a pending reference under SICA, provided the Company Court's actions align with SICA's provisions or any scheme devised by the BIFR.