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TMI Blog2006 (9) TMI 282X X X X Extracts X X X X X X X X Extracts X X X X ..... (hereinafter referred to as "the SICA"). The Board for Industrial and Financial Reconstruction (for short "BIFR") registered the same as BIFR Case No. 194 of 2002. The BIFR vide its order dated July 14, 2005, declared the company as a sick industrial company under section 3(1)( o ) of the SICA and appointed Bank of Baroda as the operating agency under section 17(3) of the SICA to prepare a rehabilitation scheme for the revival of the company. The said reference is pending before the BIFR awaiting rehabilitation scheme. In the present petition filed under sections 391 to 394 of the Act, the prayer is for grant of permission to convene a meeting of the existing first charge holders of the petitioner for considering and approving the scheme of arrangement between the petitioner and its existing first charge holders. The principal amount due and payable in respect of the existing first charge holders is to the extent of Rs. 9,847.76 lakhs as on March 31, 2006. It is the case of the petitioner that 76 per cent, of the first charge holders of value amounting to Rs. 7,491.58 lakhs, have settled their claim with the petitioner and the remaining creditors of value Rs. 2,356.88 lakhs is re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uitable order on the completion of inquiry. (1) If after making an inquiry under section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing whether it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. (2) If the Board decides under sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, the Board, shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth exceed the accumulated losses. (3) If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company it may, as soon as may be, by order in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sick industrial company. (2) Every scheme referred to in sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given. (3) Where in respect of any scheme the consent referred to in sub-section (2) is given by every person required by the scheme to provide financial assistance, the Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned. (3A) On the sanction of the scheme under sub-section (3), the financial institutions and the banks required to provide financial assistance shall designate by mutual agreement a financial institution and a bank from amongst themselves which shall be responsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch is being wound up, on the liquidator and contributories of the company; . . ." In NOCIL Employees Union's case [2005] 126 Comp Cas 922, the learned single judge of the Bombay High Court has held that the provisions of both the statutes, i.e., sections 391 and 394 of the Act as well as that of sections 15 to 19 of the SICA, are supplemental to each other and not inconsistent therewith and therefore, the company court would have the power to sanction the scheme under sections 391 and 394 of the Act, irrespective of the provisions of section 31 of the SICA. It was, inter alia, held to the following effect (page 931) : "The provisions of sections 15 to 19 of the Act is a scheme where a company which has become sick can register itself with the BIFR which is vested with the power under the provisions of the said Act which shall thereafter after making enquiry may provide for package for rehabilitation of the company and/or make the company viable so that the business of the company can continue. The provisions of sections 391 to 394 of the Companies Act, 1956, also similarly provide for arrangement of the company's business by way of granting amalgamation, demerger and/or b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to. Viewed in this perspective the petitioner-company may be justified in contending that the remedy under section 391, as is invoked by the petitioner is the proper remedy and directions passed in the said proceedings by this court will be in no way inconsistent with the scheme or the provisions of the SICA." No doubt, the said observations of the Bombay High Court, support the contentions raised by learned counsel for the petitioner but I have my reservations to accept the said reasoning. A Division Bench of the Karnataka High Court in BPL Ltd. v. Inter Modal Transport Technology Systems (Karnataka) Ltd. (in liquidation) [2001] 107 Comp Cas 313 , has considered the scope of the company court in a matter of sale of assets by the BIFR under the provisions of the SICA. It has been held that the BIFR retains absolute control over the affairs of the company from the date of commencement of inquiry in regard to any reference received under section 15 of the SICA, till the passing of an order of winding up by the High Court under section 20(2) of the SICA. The relevant observations reads as under (headnote) : "The scheme of the SICS Act, as contained in sections 22, 22A, 20 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urisdiction as regards sale of its assets till an order of winding up is passed by a company court. . . 44. The 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." It was further held that section 32 of the SICA contains a non obstante clause which is to the effect that the provisions thereof or any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent in any other law for the time being in force. It was held that the company judge may have the jurisdiction to pass an interim order in exercise of its inherent jurisdiction or otherwise directing execution of a deed of sale in favour of the 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 the SICA, such a power in the company judge is not available in respect of a company which is before the BIFR. It was held to the following effect : "49. Section 32 of the SICA contains a non obstante clause stating that provisions thereof shall prevail notwithstanding anything inconsiste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sick industrial company, as it may deem fit, therefore, the provisions of the said Act are inconsistent with the provisions of section 391 of the Companies Act wherein it is contemplated that if three-fourths majority of the class of creditors approve the scheme, it is binding on all the creditors of that category. Since the provisions of the SICA are to prevail upon the provisions of the Act in case of inconsistency in terms of section 32 of the Act, therefore, I am of the opinion that the meeting of the first charge holders cannot be directed to be convened till such time, the matter is pending, before the BIFR and the operating agency is considering the preparation of a scheme under the SICA. In Pharmaceutical Products of India Ltd., In re [2006] 131 Comp. Cas. 747, the Bombay High Court has noticed the inconsistency but found that the scheme can be sanctioned under section 391 of the Act. In my view since section 32 of the SICA unambiguously contemplates that the provisions of the Act, rules or the scheme if inconsistent with any other law, shall prevail over any other law, therefore, it is premature for the petitioner to seek the meeting of the first charge holders as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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