2016 (9) TMI 1677 - HC - Indian Laws

Prayer for winding up proceedings pending before this Court be not proceeded with further in view of the proceedings pending for revival of the respondent before the Board for Industrial Financial Reconstruction (BIFR) - Rule 9 of Company Court Rules 1959 read with Section 22(1) of Sick Industrial Companies (Special Provisions) Act 2002 - HELD THAT - A perusal of the record shows that in fact the stage for this exercise never came about and all that has come on the record so far is merely the company s acceptance of the debt and its conditional offer to pay on the aforesaid terms. Even the specific acceptance of these terms by the petitioning creditor which would have been a precursor for the Court to examine the proposal keeping in mind other relevant aspects that have been referred to below is not there; and that offer is now no longer on the table. The so-called consent by the company to pay is merely a unilateral offer on the aforesaid terms. There is no mutuality. It is also not as if the petitioner had consented to any offer by the company to indicate that the consensus ad idem claimed by the petitioner s counsel had come about. There was thus no agreement at all. Even assuming contrary to the facts that the agreement claimed had come about it was also clearly conditional upon the actual release of funds by the lenders in terms of the CDR which never happened. Consequently it follows that even in this view of the matter the obligations of the company to pay the petitioner never fructified. The instant winding up proceedings pending before this Court against the respondent company shall be kept in abeyance in the light of the bar under Section 22(1) of SICA; and the petition and all pending applications shall stand adjourned sine die; with liberty to the parties to apply in case they are so advised and as per law - Application allowed.

Issues Involved:

1. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) to the winding up proceedings.
2. Admission of debt by the respondent company and its implications.
3. The effect of the Corporate Debt Restructuring (CDR) Scheme on the proceedings.
4. Jurisdiction of the Company Court in light of the alleged consent and agreement to pay.
5. The role of the Board for Industrial and Financial Reconstruction (BIFR) and its impact on the proceedings.
6. The possibility of contempt proceedings under the Contempt of Courts Act, 1971, and Article 215 of the Constitution of India.

Detailed Analysis:

1. Applicability of Section 22(1) of SICA:

The respondent company filed a reference with the BIFR under Section 15(1) of SICA, claiming its net worth had become negative. The court highlighted that under Section 22(1) of SICA, once a reference is registered with the BIFR, any legal proceedings for winding up or execution against the company must be stayed. The court emphasized that the mandate of Section 22(1) is clear and unqualified, requiring the court to halt further proceedings in the matter regardless of any admission of debt by the company.

2. Admission of Debt by the Respondent Company:

The petitioner argued that the respondent company had admitted its liability and consented to a payment schedule, thus negating the application of Section 22(1) of SICA. However, the court found that the admission of debt and the proposed payment schedule were conditional upon the successful completion of the CDR scheme, which did not materialize. Consequently, the court held that the admission did not preclude the applicability of Section 22(1) of SICA.

3. Effect of the Corporate Debt Restructuring (CDR) Scheme:

The respondent company had proposed a CDR scheme, which was subject to approval by a consortium of banks. The court noted that the CDR scheme was not implemented because the lead bank, State Bank of India, assigned its debt to another entity. The court concluded that the proposed payment schedule was contingent on the CDR scheme's success, which was not realized, and thus did not constitute a binding agreement to pay.

4. Jurisdiction of the Company Court:

The petitioner contended that the court could proceed with the winding up based on the company's admission of debt and alleged consent to pay. The court clarified that its jurisdiction under the Companies Act and Rules is distinct from any civil agreement between the parties. The court emphasized that any offer to pay an unsecured creditor must be scrutinized to ensure it does not prejudice other creditors, especially secured creditors and workers, who have a higher priority in law.

5. Role of BIFR and Impact on Proceedings:

The court reiterated that the registration of a reference with the BIFR initiates an inquiry under Section 16 of SICA, triggering the suspension of winding up proceedings under Section 22(1). The court rejected the petitioner's argument that the absence of active BIFR hearings negated the commencement of the inquiry, citing Supreme Court precedents that the inquiry begins with the registration of the reference.

6. Possibility of Contempt Proceedings:

The petitioner suggested that the respondent's actions could amount to contempt of court for resiling from the alleged consent to pay. The court distinguished between its jurisdiction under the Companies Act and its separate jurisdiction in contempt matters. The court noted that any contempt proceedings would be distinct and could not justify continuing the winding up proceedings contrary to the statutory bar under Section 22(1) of SICA.

Conclusion:

The court concluded that the winding up proceedings against the respondent company must be kept in abeyance due to the statutory bar under Section 22(1) of SICA. The petition and all pending applications were adjourned sine die, with liberty to the parties to apply as per law. The court emphasized the need to adhere to the statutory framework and the importance of not prejudicing the rights of other creditors and stakeholders.

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