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2016 (7) TMI 345 - SC - Companies LawWinding up order - HC stayed further proceedings before the Company Court consequent upon a winding up order passed against the respondent (Modi Rubber) till a final decision is taken on a reference made by Modi Rubber to the Board for Industrial and Financial Reconstruction - Held that - Dfferent situations can arise in the process of winding up a company under the Companies Act but whatever be the situation, whenever a reference is made to the BIFR under Sections 15 and 16 of the SICA, the provisions of the SICA would come into play and they would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under the SICA. In this state of the law, in so far as the present appeal is concerned, we do not find any error in the view taken by the High Court in concluding that the winding up proceedings before the Company Court cannot continue after a reference has been registered by the BIFR and an enquiry initiated under Section 16 of the SICA. Consequently, the High Court was right in concluding that the provisions of Section 22 of the SICA would come into play and that the Company Court could not proceed further in the matter pending a final decision in the reference under the SICA. Quite apart from the above, we are also of opinion that in view of the subsequent developments and the fact that Madura Coats had participated before the BIFR and has taken its dues in terms of the rehabilitation scheme approved and sanctioned by the BIFR, nothing really survives for consideration in this appeal. Strictly speaking, we have merely undertaken an academic exercise pursuant to a reference made to a larger Bench.
Issues Involved:
1. Whether the Board of Industrial and Financial Reconstruction (BIFR) should entertain a reference made by a sick company under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) after a winding-up order has been passed by a Company Judge. 2. The applicability of Section 22 of SICA in staying proceedings under the Companies Act. 3. The interplay between the provisions of the SICA and the Companies Act in the context of winding-up proceedings. Issue-wise Detailed Analysis: 1. Entertaining a Reference by BIFR Post Winding-Up Order: The appellant, Madura Coats, challenged the judgment of the Division Bench of the Allahabad High Court which stayed the winding-up proceedings against Modi Rubber pending a decision by the BIFR. The High Court had set aside the winding-up order passed by the Company Court, holding that the proceedings should remain in abeyance until the BIFR's decision. The Supreme Court noted that under Section 22 of SICA, the registration of a reference with the BIFR mandates a stay on all proceedings against the company's assets. This is to ensure that no actions are taken that could jeopardize the company's rehabilitation efforts. The Supreme Court upheld the High Court's decision, emphasizing that the provisions of SICA take precedence over the Companies Act. 2. Applicability of Section 22 of SICA: The Supreme Court examined the applicability of Section 22 of SICA, which mandates a stay on proceedings once a reference is registered with the BIFR. The Court referred to its previous rulings, including Real Value Appliances Ltd. v. Canara Bank and Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., which established that the stay under Section 22 comes into effect upon the registration of a reference, not merely upon the filing of an application. The Court reiterated that the legislative intent of SICA is to prioritize the revival and rehabilitation of sick industries over winding-up proceedings under the Companies Act. 3. Interplay Between SICA and the Companies Act: The Supreme Court addressed the broader issue of the interplay between SICA and the Companies Act. It noted that different situations could arise, such as pending winding-up proceedings or a stay in appeal, but consistently held that SICA's provisions prevail. The Court cited Tata Motors Ltd. v. Pharmaceutical Products of India Ltd., which concluded that the BIFR has exclusive jurisdiction over sick companies until an order of winding-up is passed. The Court emphasized that the purpose of SICA is to prevent the dissipation of a company's assets and to facilitate its revival, which would be undermined if winding-up proceedings were allowed to continue. Conclusion: The Supreme Court found no error in the High Court's decision to stay the winding-up proceedings against Modi Rubber, pending the BIFR's decision. The Court held that the provisions of SICA take precedence over the Companies Act, and that the stay under Section 22 of SICA is effective upon the registration of a reference. The appeal was dismissed, affirming the primacy of SICA in cases involving sick industrial companies.
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