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TMI Blog2012 (7) TMI 534X X X X Extracts X X X X X X X X Extracts X X X X ..... ner traced the following events in its petition. 2. On 30.7.2002 Usha filed its first Reference before BIFR which was registered as Reference no. 117/2002, claiming losses of Rs. 1015.24 crores. In just three months, the said Reference was rejected. The BIFR, vide a detailed order recorded that far from losses, the net worth of Usha is positive by Rs. 800.73 Crores. The following findings of the BIFR's order dated 28.10.2002 are relevant: "...The Company made investments of Rs. 504 crores in these companies during 1996-2000. The profit of the company during this period was Rs. 66.25 cores. The company disinvested in many of the sister concern companies. These were both quoted and unquoted investments. The company has not disclosed to whom these investments were sold and as to how the funds were realized. ...AS explained above, funds aggregating Rs. 504 crores were made in preference shares, 0% FCDs and these investments were not entirely made out of the profits of the company. The system adopted by the Company about valuation of unquoted investments was neither transparent nor consistent. The investments cannot be considered having completely eroded, especially when UIL was the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the year 2003 to Rs. 1198.28 crores. This reference was finally rejected by BIFR on 8.2.2006 with the following crucial findings: "BIFR records that Usha's auditors themselves stated in their report for the year 2004 that the accounts do not give a true and fair view in conformity with the accounting principles." "...the sickness of the company has been brought upon itself deliberately and the company has not become sick in the normal course.." 6. The BIFR records that the net worth of the company is Rs. 845.27 crores as on 31.3.2003.On 9.11.2006 Usha filed an appeal before AAIFR against BIFR's above order of 8.2.2006 (Appeal No. 322/2006). This appeal was dismissed on 2.9.2008 i.e. after about two years. AAIFR has found that the second reference was not based on any new fact that Usha had merely carried forward disallowed losses. Again this finding of the AAIFR has not been challenged. This clearly indicates that Usha is not concerned with supporting its position. It finds it simpler to file repeated references and keep them pending for years and thus illegally enjoys the protection granted under SICA. 7. It is further averred that as Usha was enjoying the protection of SICA, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d/or with incomplete information and/or with caveats and disclaimers by its auditors. Though these references are finally rejected, by the time the order rejecting the same is passed (and affirmed in appeal), Usha has enjoyed protection under the provisions of the SICA and its creditors have been denied their rights under the decree. 10. It is pout that the petitioner has a monetary decree dated 6.9.2004 in its favour but has not been able to execute the same because of the protection enjoyed by the Usha under SICA. 11. Mr. Neeraj Kaul, learned Senior Counsel appearing for the petitioner submitted that the law has to be enforced in such a manner that the dubious persons are not able to misuse and abuse the process and/or exploit the provisions to their advantage in a malafide manner. It was argued that this Court has been vested with very wide powers under Article 227 to ensure that the stream of justice remains pure and unadulterated. The said power includes the power to guide the supervise subordinate courts and tribunals in order to ensure the ends of justice. Various judgments in this regard have been cited during the course of hearing. According to the petitioner, in light o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with the execution proceedings. On the contrary, the execution proceedings were delayed as M/s Koshika Telecom Ltd. is in liquidation and all its assets are in possession of the Official Liquidator attached to this Court and the petitioner had not approached the Company Court despite the liberty granted by the Ld. Single Judge 5 years ago and has failed to file its claim before the official liquidator attached to this Court. Even the execution proceedings have since been concluded for want of available assets with the judgment debtor." 13. It was also submitted that when the law permits making of reference under Section 15(1) of the SICA in the event the final accounts of an Industrial Company for the relevant period indicate that the net worth of the company has been eroded and Usha had been making reference since satisfying the aforesaid condition. It was argued that though the first reference for the year ending 30.11.2001 had been rejected on the ground that Usha's networth was positive, if certain amount advanced by the Company which had been written off are not considered. In the subsequent year, the Usha had clearly disclosed that there was no possibility of recovering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before a competent Bench of the BIFR. Regulation 19 of the BIFR Regulations indicates the same, whilst sub-regulations (1), (2) and (3) of Regulation 19 of the BIFR Regulations provide for manner of making and communicating the reference to the BIFR. Sub-Regulations (4) and (5) of Regulation 19 provide for the receipt and scrutiny of the reference respectively. A harmonious reading of Section 16 of SICA and Regulation 19 of the BIFR Regulation indicate that scrutiny of the reference by the Registrar is limited to ensure that the same is in the form as provided under Regulation 19 (1) or 19(2) has been received alongwith the prescribed documents. In terms of Regulation 19 (3) it would not be open for either the Registrar or the Secretary, BIFR to adjudicate any contentious issues or to embark upon the enquiry whether the company making the reference is a sick company or not in exercise of its powers under Section 19(5). Similarly, Rule 4 of BIFR Rules cannot be interpreted to empower the Secretary BIFR to decide as to the sickness of the company. Any issue arising out of the reference would necessarily have to be limited in relation to the form, extent of information and receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ey want recovery of their investment also in the time of need. If a feeling is generated that money invested may be put in jeopardy, investors may stop making investments. 19. It is equally important that when an industrial company becomes insolvent first attempt has to be made to rehabilitate and restructure such a company. The reason is obvious. Insolvent industrial companies, when remain insolvent, result in blockage of sizeable national resources which may have cascading effect on all sectors of economic and social life of the nation. It may, in addition, put the creditors in a spot as it becomes difficult to recover their dues in such an eventuality. The ill-effects of insolvency in industrial companies would be loss of production, loss of employment, loss of revenue to Central and State Governments and locking up of investible funds of banks and financial institutions. This became cause of serious concern to the Government and the society at large and this concern was accentuated by the alarming increase in the incidence of insolvency in industrial companies. The Parliament of India enacted the insolvent Industrial Companies (Special Provisions) Act, 1985 (SICA). The enactme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equitable to wind up the company. These are essential jurisdictional parameters of the Board and beyond these it cannot and need not travel. Till the whole exercise is gone through, the jurisdiction and parallel proceedings under all other Acts (to the extent provided in Sections 22 and 23) cannot lie or be proceeded with." Thus one of the salient features is contained in Section 22 of SICA which mandates that no proceedings against the company for recovery of dues shall proceed with during the pendency of proceedings before BIFR. 20. Once reference is admitted, the provision of Section 22 of the SICA, gets triggered and it comes to the aid of such a company. Section 22 (1) provides that in case the inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration by BIFR or any appeal under Section 25 is pending then certain proceedings against the industrial company are to be suspended or presumed to be suspended. The nature of proceedings which automatically attract the provisions of the suspension are:- * Winding-up of the industrial company. * Proceedings for execution of distress against the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and Financial Reconstruction, all proceedings filed against a company must be stayed forthwith and shall not be proceeded with without the consent of the Board - Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [2000] 5 SCC 515. This was so held by the Supreme Court in the case of BSI Ltd. v. Gift Holdings (P.) Ltd. [2000] 100 Comp Cas 436/24 SCL 351 in the following words:- "The word "suit" envisaged in section 22(1) cannot be stretched to criminal prosecutions. The suit mentioned therein is restricted to "recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company". As the suit is clearly delineated in the provision itself, the context would not admit of any other stretching process." 21. Thus, when the effect of submission of reference under Section 15 is that Section 22 of SICA gets triggered, appropriate steps needs to be taken to ensure that this provision is not misused. It is a matter of concern that over a period there has been rampant abuse of this provision. 22. The experience of the working of the SICA has been far from satisfactory. This ena ..... X X X X Extracts X X X X X X X X Extracts X X X X
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