2013 (10) TMI 799 - SC - Companies Law

Applicability of SICA to the 'foreign companies' registered in India under the provisions of Section 591 of the Companies Act, 1956 Held that - Keeping in view the object and scheme of the Act and the virtual consensus of the contesting parties with regard to the present financial health of the respondent company it was clear that the company can no longer fall within the ambit of the expression sick industrial company as defined in Section 3(o) of the Act - Further applicability of SICA to the respondent company does not arise. If the respondent company no longer falls within the ambit of a sick industrial company as defined by Section 3(o) of the Act and the Act had ceased to apply to the company and the rehabilitation package worked out by the Board had not yet been implemented, the question(s) arising in the present appeals have surely become academic and redundant - If that be so - Instead in fitness of things, we should leave the question open for determination in an appropriate case and as and when the occasion would arise. With regard to the management of the company was concerned we have already found that none of the said issues arise from the order of the High Court under appeal before us - Even otherwise, we will not be justified to go into any of the said issues and express any opinion thereon inasmuch as this Court exercising jurisdiction under Article 136 of the Constitution was not the appropriate forum to adjudicate grievances/claims with regard to the right of management of the affairs of the company by one group of shareholders or the other - It had been urged before us that several contentious issues with regard to the rights of one group of shareholders or the other to be in control of the management of the Company had been raised and some of such claims are still pending before the High Court - Coupled with the above was the pendency of several other proceedings with regard to permanent stay of the winding up of the Company - Taking into account all that had been stated above we are of the view that it would be just, proper and equitable to leave the contesting parties to pursue their remedies before the High Court or such other forum as may be competent in law - For the present, the Management of the Company as on date will continue until orders, if any, varying the current position were passed by any forum competent in law - It was made clear that the above was a mere working arrangement that we have considered appropriate for the present and the same should not be understood as any expression of opinion by us on the entitlement of any particular group of shareholders to run and manage the affairs of the company which issue is left open.

Summary

Issues Involved:
1. Applicability of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) to foreign companies registered in India.
2. Jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR).
3. Allegations of fraudulent increase in equity holding.
4. Competence of the existing Management Committee.
5. Disposition of the property/transfer of shares by the existing Management Committee.
6. Financial health and classification of the respondent company as a "sick industrial company."

Detailed Analysis:

1. Applicability of SICA to Foreign Companies Registered in India:
The core issue in these appeals is whether the provisions of SICA apply to foreign companies registered in India under Section 591 of the Companies Act, 1956. The Division Bench of the High Court of Calcutta held that SICA is applicable to such companies, necessitating the implementation of the revival scheme framed by BIFR for the respondent company. The Supreme Court, however, found it unnecessary to delve into this question, as the financial status of the respondent company had changed significantly, rendering the issue academic.

2. Jurisdiction of BIFR:
The appellants questioned the jurisdiction of BIFR to entertain the reference and frame a scheme for the respondent company. The Supreme Court noted that the rehabilitation scheme framed by BIFR had not been implemented and that the respondent company no longer fell within the definition of a "sick industrial company" under Section 3(o) of SICA due to its improved financial health. Consequently, the applicability of SICA and the jurisdiction of BIFR became moot points.

3. Allegations of Fraudulent Increase in Equity Holding:
One appellant alleged that the first respondent had fraudulently increased its equity holding from 9% to 90% by committing acts of cheating, forgery, and fraud, thereby reducing the majority shareholding of the appellant. The Supreme Court did not address these allegations directly, as they did not arise from the High Court's order under appeal. Instead, the Court suggested that such issues should be pursued before the appropriate forum.

4. Competence of the Existing Management Committee:
The workers' union raised concerns about the competence of the existing Management Committee and alleged fraudulent acts in the disposition of property and transfer of shares. The Supreme Court did not adjudicate these issues, indicating that they were not relevant to the High Court's order under appeal and should be addressed by the appropriate forum.

5. Disposition of Property/Transfer of Shares by the Existing Management Committee:
Similar to the issues of fraud and management competence, the allegations concerning the disposition of property and transfer of shares by the existing Management Committee were not addressed by the Supreme Court. These issues were deemed to be outside the scope of the High Court's order and were left for determination by the appropriate forum.

6. Financial Health and Classification as a "Sick Industrial Company":
The Supreme Court noted that the respondent company had received approximately Rs. 170 crores as compensation for land acquisition, leaving it with a surplus of about Rs. 50 crores after meeting all liabilities. Given this financial status, the company no longer qualified as a "sick industrial company" under Section 3(o) of SICA. Consequently, the applicability of SICA and the necessity of implementing the BIFR scheme were rendered redundant.

Conclusion:
The Supreme Court concluded that the respondent company no longer fell within the ambit of a "sick industrial company" and that the issues raised in the appeals had become academic. The Court left the parties to pursue their remedies before the appropriate forum regarding management disputes and other grievances. The management of the company would continue as is until further orders from a competent forum. All appeals were disposed of in accordance with these observations and directions.