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TMI Blog2012 (6) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... are finally heard by the consent of the parties. 4. The petitioner in the first petition is a company initially incorporated in the year 1946 in the name and style of "National Rayon Corporation Ltd." and its name was subsequently changed to "NRC Ltd." on 4/8/1994. It is engaged in the manufacture of viscos filament yarn (rayon), nylon tyre, nylon tyre cord yarn (NTFC) and basic chemicals such as caustic soda, chlorine, sulphuric acid etc. and has a factory at Mohane, Kalyan, Distt. Thane. It was declared as a sick company in 1987 but its networth turned positive as on 31/3/1993 and, therefore, as per the order dated 10/1/1994 passed by the Board for Industrial and Financial Restructuring (BIFR) it was discharged from the purview of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short "SICA"). It claims to have undertaken expansion of its activities by pumping in about Rs. 86 crores but in the financial year 2005-06 onwards it started incurring losses as there was severe reduction in the customs duty on import of nylon, the margins of the company were affected adversely, and there was a gradual erosion of the working capital and consequent financial crunch faced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gned a settlement with the recognised union on 5/9/2008 and in September 2008 it declared an Early Retirement Scheme (ERS). It claimed that out of a total employment strength of 3725, about 577 employees opted for the said scheme. It started negotiations with Respondent No.13 in September 2008 for the payment of third instalment of Rs. 48 crores but the recognised union raised the issue of payment of bonus in October 2008 and the labour unrest resulted in giving up the revival plans. It restarted the chemical plant. 6. However, on 3rd December, 2008 the company submitted an application under Section 15(1) of SICA for being declared as a sick company and the said application was registered as BIFR Case No.55 of 2008. In January 2009 respondent no.13 declined to release the third instalment of Rs. 48 crores and, therefore, the company could not pay the legal dues of all the 577 employees who opted for ERS. 7. The BIFR passed an order under Section 17(3) of SICA on 16/7/2009, declared the applicant as a sick company and appointed the Punjab National Bank as the operating agency and fixed the cut off date as 30th July, 2007 as indicated in the CDR Scheme. The BIFR issued the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006 and 2007 respectively with K. Raheja Universal Pvt. Ltd. under copy to the PNB (OA). The company should also submit certified copies of the MOU respectively along with certified copies of the Board resolutions of the company authorizing these transactions to the OA with a copy to the Board. The company shall similarly submit full details of the investments to be sold under the CDR scheme. It is reiterated that sale of assets including investments will require the prior approval of BIFR as the company is now under the purview of SICA. (v)The company shall submit a copy of the clearance stated to have been received from Hon'ble High Court of Bombay for sale of 350 acres of land under coy to the OA (PNB). (vi)The secured creditors are directed u/s 22(1) of SICA not to take any coercive action against the company without prior permission of BIFR. 8. Being aggrieved by the said order passed by the BIFR, two appeals as noted earlier, one by the company and the other by the respondent No. 13, came to be filed before the AAIFR under Section 25 of SICA and consequently the impugned order came to be passed. The impugned order modified the order passed by the BIFR and partly allowed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pre-existing contract for sale entered into by the company before it filed reference under Section 15(1) of SICA and, therefore, the directions given under Section 22A will not apply to the agreement for sale dated 1/3/2007. The restraint order passed by the BIFR would apply to any subsequent proposals for disposal of assets of the company, if any. But these agreements will be subject to interim orders and final orders to be passed by the High Court in the pending writ petition challenging the settlement dated 5/9/2008. For all these reasons, the AAIFR held that the agreement for sale cannot be part of DRS under Section 18(d) of SICA as the same is under transfer and unencumbered and legally enforceable contract exists between the appellant company and respondent No.13. However, the AAIFR held that the balance sale consideration in respect of the land to the tune of Rs. 124.64 crores receivable by the company from respondent No.13 should form part of the means of finance in the DRS to be formulated by the BIFR for rehabilitation of the company. On payment of balance sale consideration by respondent No.13, the same shall be deposited with an interest bearing NLA with the operating a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editious enforcement of the measures so determined and for matters connected therewith or incidental thereto. In the statement of Objects and Reasons it was stated, "It has been recognised that in order to fully utilise the productive industrial assets, afford maximum protection of employment and optimize the use of the funds of the banks and financial institutions, it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible. It would also be equally imperative to salvage the productive assets and realise the amounts due to the banks and financial institutions, to the extent possible, from the non-viable sick industrial companies through liquidation of those companies". 11. The SICA was amended by Act 57 of 1991 and thereafter by Act 12 of 1994 on 1/2/1994. By the second amendment Section 22A has been incorporated in SICA. As per Section 15(1) of SICA where an industrial company has become a sick industrial company, the Board of Directors of the company shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12. As per Section 18(8) of SICA on and from the date of coming into operation of the sanctioned scheme or any provision thereof, the scheme or such provision shall be binding on the sick industrial company and the transferee company or, as the case may be, the other company and also on the shareholders, creditors and guarantors and employees of the said company. Under Section 18(12) the Board may monitor periodically the implementation of the sanctioned scheme. Under Section 21 of SICA the Board may for the proper discharge of its functions under the Act, through any operating agency, cause to be prepared with respect to a company, a complete inventory of all assets and liabilities of whatever nature as well as a valuation report in respect of the shares and assets in order to arrive at the reserve price for the sale of part or whole of the industrial undertaking of the company or for fixation of the lease rent or share exchange ratio. Under Section 22 of SICA the Board or as the case may be the Appellate Authority is empowered to suspend the legal proceedings, contracts etc. Under sub-section (3) of Section 22 where an inquiry under Section 16 is pending or any scheme referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent No.13 within the ambit of Section 22A of SICA. Said para 2.10.1 reads as under:- "2.10.1 Having considered the submissions made and the material on record, the Bench observed that there being no valid objections to the company's sickness from the parties present today and considering that the company fulfilled the various criteria for sickness under SICA, the Bench was satisfied that the company had become a sick industrial company in terms of section 3(1)(o) of SICA. The company vide their letter dated 15/7/2009 has requested the Board to appoint Punjab National Bank as Operating Agency (OA). In view of this, the Bench noted that the provisions of Section 18 of the Act would have to be explored in public interest in relation to the company. Accordingly, in terms of powers available u/s 17(3) of the Act, the Bench appointed Punjab National Bank as the Operating Agency (OA) with directions to prepare a revival scheme for the company, if feasible within an overall period of four months. The OA was directed to keep in view the provisions of Section 18 of the Act and the enclosed guidelines and Checklist while carrying out this exercise. Meanwhile, it is necessary in public ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the rehabilitation of the company, is self contradictory. As per him, the Appellate Authority in not allowing the entire amount of Rs. 124.64 crs. to be utilized for payment of the employees dues as well as for investment to make the factory operation viable, even during the pendency of the reference, fell in gross errors. So far as respondent No.13 is concerned, though it was an appellant before the Appellate Authority, it has not challenged the impugned order and it has been contended before us that on 17/8/2010 i.e., after the impugned order was passed, a supplementary agreement between the company and the said respondent was executed for delivering the possession of 272 acres of land on receipt of further amount of Rs. 32 crs. and the said agreement has been registered on 21/8/2010. Based on this agreement, respondent No.13 claims to have taken possession of total of 270 acres of land on 17/8/2010. Mr. Chagla, the learned Senior Counsel appearing for respondent No.13 urged before us that the transaction between the petitioner-company and the said respondent for sale of the land of 344/350 acres is a bona fide and transparent transaction. He pointed out that respondent No.13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany? (b)The scope of the powers of BIFR under Section 22(3) of SICA. 19. As per the Appellate Authority, the provisions of Section 22A of SICA are prospective in nature and would not impact the pre-existing contract for sale entered into by the company before it filed the reference under Section 15(1) and, therefore, the directions given by the BIFR under Section 22A will not apply to the agreement for sale dated 1/3/2007 and consequently the restraint order passed by BIFR would apply to any subsequent proposals for disposal of the assets of the appellant-company, if any. The restrictions under Section 22A will apply only on the remaining 103.15 acres of land and other assets of the company. As per the Appellate Authority the provisions of Section 22A will not apply to the agreement for sale already entered into, registered and acted upon in the process of transaction and had it been the intention of the Legislature to cover the past transactions within the ambit of Section 22A, the provision for suspension of existing contracts etc. would not have been provided under sub-section (3) of Section 22 of SICA. Readiness and willingness of the parties to the sale agreement to honour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ettled that payment of entire price is not a condition precedent for completion of the sale by passing of title, as Section 54 of the Transfer of Property Act, 1882 ("the Act", for short) defines "sale" as "a transfer of ownership in exchange for a price paid or promised or part- paid and part-promised". If the intention of parties was that title should pass on execution and registration, title would pass to the purchaser even if the sale price or part thereof is not paid..... Normally, ownership and title to the property will pass to the purchaser on registration of the sale deed with effect from the date of execution of the sale deed. But this is not an invariable rule, as the true test of passing of property is the intention of parties. Though registration is prima facie proof of an intention to transfer the property, it is not proof of operative transfer if payment of consideration (price) is a condition precedent for passing of the property". After considering the above stated judgments, the Supreme Court in the case of Janak Dulari Devi v. Kapildeo Rai [Civil Appeal No. 4422 of 2002, dated 15-4-2011] observed, "10. Where the sale deed recites that on receipt of the total c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany itself accepted in no uncertain words that the land under the agreements for sale continued to be its property/asset as on the day the reference application under Section 15(1) of SICA was submitted. Just because all the banks had given NOC for release of its charge on the subject land, it cannot be said that the Board was not empowered to bring the land within the ambit of Section 22A of SICA. So long as it continued to be the asset of the company the Board has unfettered powers under Section 22A and all that it has to examine is the public interest, interest of the company, its shareholders and employees etc. The Board is a body of experts as is clear from the preamble of the Act and the scheme of Section 22 and Section 22A empowers the Board to take all such measures which, in the opinion of the Board, are necessary to bring the company out of its sickness and make it viable on implementation of the scheme framed by the operating agency. The Appellate Authority fell in gross errors in holding that the agreements were concluded/finalised by the registered documents and, therefore the Board could not have exercised the powers under Section 22A of SICA. If the body of expert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven otherwise also we have gone through the terms of both the agreements for sale i.e., the first agreement dated 1/3/2007 and the supplementary agreement for sale dated 29/9/2007. There is no condition in any of these agreements to hand over the possession of the land or part of it on receiving the part payments or full payments of consideration. The agreements do envisage that the ownership of the land would stand transferred to respondent No.13 only on completion of all formalities and clearance by the competent authorities. In our considered opinion, therefore, the Board was fully justified in putting restrictions on the subject land as well and bringing it within the ambit of Section 22A of SICA. We, therefore, confirm the view taken by the Board and consequently the view taken by the Appellate Authority is unsustainable, and it is an overindulgence by the Appellate Authority. 24. Now coming to the second issue regarding the powers of the Board under Section 22(3) of SICA, there could be no dispute that the Board has no powers to annul an existing agreement between the parties i.e., the petitioner company and respondent No.13. However, that by itself would not lead to a concl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... us and if that be so, the amount of Rs. 124 crores which was expected to be received from respondent No.13 may not take the company anywhere in its efforts for rehabilitation or restructuring. The company requires more funds and to be generated from its existing assets. 25. Before the Board as well as the Appellate Authority, it was submitted by the unions of employees that the consideration of Rs. 166 crores for the land under sale transaction was an underestimate and it was not a realistic market price for a total land of 344/350 acres, even if the land proposed to be reserved and admeasuring 18 acres for housing colony of employees, is deducted. Our attention was invited to the estimates received and placed before the Board as well. One estimate gives the market price of the said land at Rs. 220 crores whereas the other estimate gave the market price beyond Rs. 500 crores. The MOU for the transaction was in the year 2006 and the first public notice was issued by respondent No.13 in April 2008 inviting the objections. By the time the Board was considering this application for restructuring filed under Section 15 of SICA a period of more than 3 years had already gone by. The Boa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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