9911796707
TMI Blog2005 (9) TMI 306X X X X Extracts X X X X X X X X Extracts X X X X ..... nataka, holding 90.18% shares and EHG Electroholding GMBH holding 9.72% shares therein. The Company became sick, whereupon a reference was made to the Board for Industrial and Financial Reconstruction (for short, 'BIFR') in terms of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, 'SICA'). It is not in dispute that virtually all its assets had been placed either under mortgage and/or offered as collateral security to various financial institutions amongst which the State Bank of Mysore was the lead bank. 3. It is furthermore not in dispute that from time to time the Company with the permission of BIFR and its secured creditors has been selling some of its surplus lands, inter alia, for the purpose of paying wages to the workers and refund of loans to the financial institutions etc. It had sold 29.225 acres of land to the Nuclear Power Corporation for a sum of Rs. 63.65 crores; 1.65 acres of land to CDAC for about Rs. 4.29 crores and 0.625 acres of land to Indian Oil Corporation for Rs. 1.63 crores. All the vendees were public sector undertakings. 4. It is also not in dispute that the State of Karnataka took a decision to make disinvestmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt herein which came to be dismissed. Three appeals were preferred from the said order viz., by the EHG, State Bank of Mysore and the Company before the Division Bench of the High Court which came to be dismissed by reason the impugned Judgment. 8. However, the learned Company Judge appears to have dismissed an identical application filed by M/s. Salapuria Housing (P.) Ltd. being C.A. No. 1589 of 2003, which had been relied upon by the First respondent herein in its application, holding that the Company Court had no such jurisdiction. Submissions : 9. Mr. T.R. Andhiyarujina, the learned Senior Counsel appearing on behalf of the appellants, in Civil Appeal Nos. 5199-5201 of 2004, would, inter alia, contend that the learned Company Judge and the Division Bench of the High Court misdirected themselves in passing the impugned judgment and order insofar as they failed to take into consideration that BIFR retains the control over the assets of the company in terms of sub-section (4) of section 20 of SICA and, thus, it was BIFR alone which could issue a direction as regards sanction of sale of assets of the company in respect whereof the learned Company Judge had no jurisdiction. In an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ute a deed of sale; and more so whence a Provisional Liquidator had not been appointed. Such a direction could only be issued to the Official Liquidator. 12. The First respondent herein was represented by Mr. Dushyant A. Dave, Mr. Udaya Holla and Mr. K.K. Venugopal. Mr. Dave would submit that the power of the Company Judge as also BIFR being concurrent, the latter could ask the company to approach the High Court for a direction as regards sale of its surplus lands. The learned counsel would contend that in view of the fact that global tenders had been invited and the same having been accepted by the learned Company Judge, this Court may not exercise its jurisdiction under article 136 of the Constitution of India. 13. Mr. Dave would argue that the statutory scheme envisages various stages of winding up as would appear from section 456(1), sub-sections (1) and (3) of section 150, sections 457, 446(2) and section 536(2) of the Companies Act, in terms whereof the learned Company Judge had the requisite jurisdiction to direct sale of lands in a case of this nature. Relying on or on the basis of a decision of this Court in Kayjay Industries (P.) Ltd. v. Asnew Drums (P.) Ltd. [1974] 2 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inding up order, in relation whereto section 20(4) of SICA will have no application. 21. It was urged that the provisions of both the statutes must be read together and so read, it would be manifest that when a winding up proceeding is initiated under the recommendations of BIFR in terms of section 20(1), the power of the Company Court to order approval of a disposition, prior to passing of winding up order, would not in any manner be affected by the provisions of SICA, in view of the provisions contained in sub-section (2) thereof whereby and whereunder the Company Court has been empowered to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956. As regards application of sub-section (4) of section 20 of SICA, it was urged that thereby the right of BIFR is also preserved for issuing any necessary direction as regards sale of the assets of the company and by reason thereof the jurisdiction of the Company Court has not been taken away. The learned counsel would contend that the provisions of SICA did not intend to denude the Company Court of its power under section 536(2) read with rule 9 of the Rules; once the recom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ifies the power of the liquidator which is required to be exercised with the sanction of the Court. Sub-section (2) of section 536 reads as under : "536. Avoidance of transfers, etc., after commencement of winding up.-(1)****** (2) In the case of a winding up by the Tribunal any deposition of the property (including actionable claims) of the company, and any transfer of shares in the company or alteration in the status of its members, made after the commencement of the winding up, shall unless the Tribunal otherwise orders, be void." 24. Rules 6, 9 & 99 of Companies (Court) Rules, 1959 read as under : "6. Practice and procedure of the Court and provisions of the Code to apply.-Save as provided by the Act or by these Rules, the practice and procedure of the Court and the provisions of the code so far as applicable, shall apply to all proceedings under the Act and these Rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these Rules or the practice and procedure of the court." "9. Inherent powers of Court.-Nothing in these Rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such dire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976 for the time being in force or in the Memorandum or articles of association of an industrial company or in any other instrument having effect by virtue of any law other than this Act." Approval of State : 26. The First respondent herein admittedly filed an application for direction to the Company to execute a deed of sale, inter alia, on the premise that a concluded contract had been entered into by and between it and the Company purporting to be relying upon or on the basis of the resolution dated 25-2-2002 of the Board of Directors of the Company. It is not in dispute that along with the said application while annexing the copy of the resolution, the following sentence had been omitted : "MD stated that the Board decision for the above sale will be forwarded to the Government of Karnataka and seek their formal approval." 27. The First respondent, as noticed hereinbefore, has relied upon a Government ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er directions in the matter from the concerned High Court." 29. BIFR evidently, thus, asked the Company to approach the High Court if an occasion arises for obtaining sanction for disposing of its surplus lands. The First respondent herein was not a party before BIFR. Before the Company Judge, however, it is the First respondent herein, who filed the said application and, as indicated hereinbefore, obtained an order from the Company Judge by suppression of material fact that the Managing Director of the Company, having regard to the aforementioned resolution dated 25-2-2002 stated that the approval of the Government of Karnataka would be sought for. 30. The Order issued by the Government of Karnataka on 30-7-2002 does not suggest either expressly or by necessary implication that it had granted its approval for the said sale. Whether such sanction was necessary is, however, another question which we shall advert to a little later. 31. We may at this juncture notice that arguments had been raised before the Division Bench of the High Court that the Government of Karnataka had not approved the said transaction which is itself a pointer to the fact that the Appellants herein never a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such matters would arise only when BIFR or AAIFR, as the case may be, has exercised its jurisdiction under section 20 of SICA recommending winding up of the company upon arriving at a finding that there does not exist any chance of revival of the company. 39. Mr. Venugopal has placed reliance upon a decision of a learned Single Judge of the Karnataka High Court in Karnataka State Industrial Investment & Development Corpn. Ltd. v. Intermodal Transport Technology Systems AIR 1998 Kar. 195 for the proposition that despite the fact BIFR retains jurisdiction to get the assets of a sick company sold in terms of sub-section (4) of section 20 of SICA; still the leave of the Company Court, therefore would be required. The said decision, however, has been reversed by the Division Bench of the Karnataka High Court in BPL Ltd. v. Intermodal Transport Technology Systems (Karnataka) Ltd. [2001] (3) Kar. L.J. 6221., holding that the Company Court has no such jurisdiction. We generally accept the views of the Division Bench. 40. It is difficult to accept the submission of the learned counsel appearing on behalf of the respondents that both the Company Court and BIFR exercise concurrent jurisdict ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laims of the creditors in the manner laid down therein. The intention of the Parliament in enacting the said provision becomes clear as in terms of section 22A of SICA, BIFR is empowered to issue any direction in the interest of the sick industrial company or its creditors or shareholders and direct the sick industrial company not to dispose of its assets except with its assent. Section 32, as noticed hereinbefore, again contains a non obstante clause. The scheme suggests that BIFR retains control over the assets of the company and in terms of the aforementioned provisions may either prevent any sale or permit any sale of the assets of the sick industrial company. Such a power in BIFR remains till a winding up order is passed by the High Court and a stage arrives at for the High Court for issuing orders for distribution of the sale proceeds. 43. SICA was furthermore enacted subsequent to the provisions of the Companies Act. It is not, thus, possible to accept the submission that the High Court exercises a concurrent jurisdiction. 44. It may be true that the High Court's jurisdiction is that of the Appellate Authority but keeping in view the terminology contained in sub-section (4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an applicant by the Company sought to be wound up; but keeping in view the express provisions contained in sub-section (4) of section 20 of SICA such a power, in our opinion, in the Company Judge is not available. - See BPL Ltd. (supra). 49. We may, however, observe that the opinion of the Division Bench in BPL Ltd. (supra ) to the effect that the winding up proceeding in relation to a matter arising out of the recommendations of BIFR shall commence only on passing of an order of winding up of the company may not be correct. It may be true that no formal application is required to be filed for initiating a proceeding under section 433 of the Companies Act as the recommendations therefor are made by BIFR or AAIFR, as the case may be, and, thus, the date on which such recommendations are made the Company Judge applies its mind to initiate a proceeding relying on or on the basis thereof, the proceeding for winding up would be deemed to have been started; but there cannot be any doubt whatsoever that having regard to the phraseology used in section 20 of SICA that BIFR is the authority proprio vigore which continues to remain as custodian of the assets of the Company till a winding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng regard to the phraseology used therein, the transaction shall be void unless the court otherwise orders. It is interesting to note that in para 19 thereof, this Court noticed the principles laid down in Gray's Inn Construction Co. Ltd. Re [1980] 1 All E.R. 814 (CA) emphasizing the point that the courts would be very circumspect in the matter of validating the payments and the interests of the creditors as well as the company would be kept uppermost in consideration. Thus, a disposition of assets during the interregnum may not be irretrievably void but the courts are required to exercise power with circumspection and caution. Jurisdiction of the Company Court, if any, how should be exercised : 52A. Assuming that the Company Court alone has the jurisdiction to sanction sale of the assets of a sick company, it having regard to its duties towards the debtors was required to apply its mind as regards the question as to whether the disposition of the asset of the company is in the interest of its creditors. In this case, the company was not the applicant. It did not join the First respondent in its application. It had all along resisted its claim. 53. In the winding up proceeding n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to appoint Official Liquidator to be Provisional Liquidator at any time after the presentation of the winding-up petition and before making of the winding-up order. The court before which a winding-up petition is presented has power to appoint Official Liquidator as Provisional Liquidator of the company even before making the winding-up order. If ultimate winding-up order is made, the Official Liquidator acts as such. And let it be remembered that where a winding-up order is made, it relates back to the date when petition for winding-up is presented. Referring to section 446(1) it becomes clear that the court will have jurisdiction to make the order therein contemplated, where a winding-up order has been made or prior to the making up of the winding-up order, Official Liquidator has been appointed as provisional liquidator as contemplated by section 450(1)." (p. 662) 57. Once the Company Judge proceeds to direct disposition of assets of the Company whether during pendency of the proceedings or upon culmination thereof, ordinarily a provisional liquidator is appointed. 58. There lies a distinction between accord of sanction for private negotiation of sale of assets of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he questions involved and in particular the question as to whether the impugned order is contrary to the statutory provisions contained in sub-section (4) of section 20, we have thought it proper to consider the same. 62. The Company Judge moreover will have to bear in mind the provisions contained in section 529A of the Companies Act in terms whereof the dues of the workman and the debts due to the secured creditors to the extent such debts rank in clause (c) of the proviso appended to sub-section (1) of section 529 pari passu therewith and shall have a priority over all other debts. 63. In Andhra Bank v. Official Liquidator [2005] 5 SCC 751, a three- Judge Bench of this Court, observed : "Section 446 of the Companies Act indisputably confers a wide power upon the Company Judge, but such a power can be exercised only upon consideration of the respective contentions of the parties raised in a suit or a proceeding or any claim made by or against the company. A question of determining the priorities would also fall for consideration if the parties claiming the same are before the court. Section 446 of the Companies Act ipso facto confers no power upon the court to pass interlocuto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it before the Court representing the interests of all the creditors, does not affect my mind, for I do not think the liquidator could make the position clearer to me than it is at the present time on the facts." Conclusion : 67. BIFR has admittedly power to sell assets of the Company but the High Court until a winding up order is issued does not have the same. BIFR in its order dated 2-8-2002 might have made an observation to the effect that the Company may approach the High Court in case it intended to dispose of its property by private negotiation but the same would not mean that BIFR could delegate its power in favour of the High Court. BIFR being a statutory authority in absence of any provision empowering it to delegate its power in favour of any other authority had no jurisdiction to do so. Delegatus non potest delegare is a well-known maxim which means unless expressly authorized a delegatee cannot sub-delegate its power. More- over, the said observations of BIFR would only mean that the Company Court could exercise its power in accordance with law and not de hors it. If the Company Court had no jurisdiction to pass the impugned order, it could not derive any jurisdiction ..... 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