9911796707
TMI Blog1993 (1) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 to 19 of the 1985 Act the entire exercise under the said provisions would be rendered nugatory by the time the BIFR is able to evolve a scheme of revival or rehabilitation of the sick industrial concern by the simple device of the Financial Corporation resorting to section 29 of the 1951 Act. We are, therefore, of the opinion that where an inquiry is pending under section 16/17 or an appeal is pending under section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in section 22(1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. The expression 'proceedings' in section 22(1) therefore, cannot be confined to legal proceedings understood in the narrow sense of proceedings in a court of law or a legal tribunal for attachment and sale of the debtors's property. Appeal allowed. - C.A. 289 OF 1993 - - - Dated:- 29-1-1993 - A.M. AHMADI AND L.M. SHARMA, JJ. For the Appellant : G.L. Rawal, Ms. Alpana Poddar and Kailash Vasdev. For the Respondents : P.P. Rao, S.K. Dholkia, Dr. Sumant Bhardwaj, A.M. Khanwilkar and A.S. Bhasme. JUDGMENT Special leave granted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation." Where the Financial Corporation, in exercise of the aforesaid rights, transfers any property, sub-section (2) provides that the same shall vest in the transferee all rights in or to the transferred property as if the transfer had been made by the owner of the property. Section 31 next provides as under: "Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advances or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of the agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under section 30 and the industrial concern fails to make such repayment, then, without prejudice to the provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eunder shall have effect notwithstanding anything inconsistent therewith in any other law for the time being in force. It further says that the provisions of the Act shall be in addition to, and not in derogation of, any such law applicable to an industrial concern. It will thus be seen that the consequences of a take over of the industrial concern are quite drastic and virtually denudes the management of such industrial concern of its power to ad- minister the properties and assets of such concern. While on the one hand the 1951 Act provide for grant of financial assistance to industrial concerns, on the other hand the ever increasing problem of industrial sickness and its consequential fall-out on the nation's economy and the problems faced by the Financial Corporations in the matter of recovery of their dues and/or rehabilitation of a sick industrial undertaking led to the appointment of a Committee known as the Tiwari Committee in 1981 which submitted its report in 1983 leading to the enactment of the 1985 Act with a view to securing the timely detection of sick and potentially sick companies owing industrial undertakings, the speedy determination by a body of experts of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs the Central Government to establish a Board to be known as the 'Board for Industrial Financial Reconstruction' (BIFR) to exercise the jurisdiction and powers and discharge the functions and duties conferred or imposed thereon by or under the provisions of the said Act. Section 5 envisages constitution of an Appellate Authority to be called the 'Appellate Authority for Industrial Financial Reconstruction' for hearing appeals against the orders of the BIFR. Section 12 posits that the jurisdiction, powers and authority of the BIFR or the Appellate Authority may be exercised by benches to be constituted by their respective Chairmen. Section 14 says that the proceedings before the BIFR or the Appellate Authority shall be deemed to be judicial proceedings. Then comes Chapter III entitled 'References, Inquiries and Schemes'. Section 15(1) provides that 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 a sick industrial company, make a reference to the BIFR for d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial company; (d) the sale or lease of a part or whole of any industrial undertaking of the sick industrial company; (e) such other preventive, ameliorative and remedial measures as may be appropriate; A copy of the draft scheme prepared by the BIFR is required to be sent to the sick industrial company as well as the operating agency. After the draft scheme is finalised, it has to be sanctioned by the BIFR and then be brought into force with effect from such date as the BIFR may specify in this behalf. Provision is also made for reviewing a sanctioned scheme and making modifications therein if the exigencies of administration so require. Where the scheme relates to preventive, ameliorative, remedial or other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances, guarantees, reliefs, concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority to the sick industrial company, vide Section 19(1) of the Act. Section 20, however, provides that where the BIFR af ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... BIFR is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. Section 32 says that the 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 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. This, in brief, is the scheme of 1985 Act. From the relevant provisions of the 1951 Act it is clear that the purpose of constituting State level Financial Corporations was to augment industrialisation by extending financial assistance to certain industrial concerns. The Corporation is authorised to grant loans to industrial concerns and/or to guarantee loans raised by such concerns, even to underwrite the issue of stocks, shares, debentures, etc., floated by such concerns. Such loans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defaulting industrial concerns. The power conferred by section 29 and the remedy provided in section 31(1) is not the underlying object and purpose of the statute, the real objective of the law is to create an instrumentality through which financial assistance can be extended to deserving entrepreneurs. This is the main purpose, scope and object of this special law. On the other hand the 1985 Act was enacted, as its preamble manifests, with a view to timely detection of sick or potentially sick companies owning industrial undertakings, the identification of the nature of sickness through experts in relevant fields with a view to devising suitable remedial measures through appropriate schemes and their expeditious implementation. Here the emphasis is to prevent sickness and in cases of sick undertakings to prepare schemes for their rehabilitation by providing financial assistance by way of loans, advances or guarantees or by providing reliefs, concessions or sacrifices from Central or State Governments, scheduled banks, etc. The basic idea is to revive sick units. if necessary, by extending further financial assistance after a thorough examination of the units by experts and only wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of years and were settled by about August 1988. Since the company had run into serious financial problems on account of accumulated losses and paucity of cash flow, it wrote a letter to the BIFR on 28th August, 1988 enclosing therewith a provisional balance-sheet for the year ended 30th June, 1988 showing the accumulated losses and sought financial assistance for revival of the unit. The Director (Finance) of the BIFR replied by pointing out certain deficiencies in the statements of accounts forwarded to it and desired the company to report the sickness in Form A and to take appropriate action under section 15(1) of the 1985 Act. The company submitted the proposal in Form A showing accumulated losses as on 31st March, 1990 at Rs. 369 lakhs with a paid up capital as on that date of Rs. 1.11 crores and free reserves at Rs. 29.20 lakhs. It was also pointed out that the company suffered a cash loss of Rs. 50.40 lakhs in the financial year ended 31st March, 1989 and a further cash loss of Rs. 149.79 lakhs in the financial year ended 31st March, 1990. The gross value of the plant and machinery of the company as on 31st March, 1990 was estimated at Rs. 160 lakhs. On that date the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, expenditure on security staff, removal of certain movables, etc., the Bench concluded as under : "Considering the facts on record and submissions made at today's hearing, the Bench observed that despite sufficient opportunity given to the company, it had not submitted the authenticated documents regarding the number of workers employed during the year preceding the date of reference and Shri Dalmia also could not substantiate during the hearing today his statement that company had more than 50 workers at any one time during the year preceding the date of reference to BIFR. The company as such could not be held a sick industrial company under section 3(1)(o) of the SIC (SP) Act, 1985. The reference is, therefore, non-maintainable and is dismissed. " After the above order was made the first respondent initiated proceedings under section 29 of the 1951 Act for taking over possession of the factory premises of the company. In the meantime on 20th August, 1992, the company filed an appeal under section 25 of the 1985 Act against the impugned order of the BIFR Bench dated 20th July, 1992, extracted hereinabove. On the same day the company also sent a letter to the first respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations the former providing for the grant of financial assistance to industrial concerns with a view to boost up industrialization and the latter providing for revival and rehabilitation of sick industrial undertakings, if necessary, by grant of financial assistance, we cannot uphold the contention urged on behalf of the respondent that the 1985 Act is a general statute covering a larger number of industrial concerns than the 1951 Act and, therefore, the latter would prevail over the former in the event of conflict. Both the statutes have competing non-obstante provisions. Section 46B of the 1951 Act provides that the provision of that statute and of any rule or order made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force whereas section 32(1) of the 1985 Act also provides that the provisions of the said Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law. Section 22(1) also carries a non-obstante clause and says that the said provision shall apply notwithstanding anything contained in Companies Act, 1956 or any o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t pointed out that unlike the marginal notes in the statutes of the British Parliament, the various Articles of the Constitution were passed by the Constituent Assembly with the marginal notes and, therefore, the Court considered it permissible to use the marginal note to understand the meaning and purport of the Article. But so far as statutes are concerned this Court in the case of Board of Muslim Wakfs, Rajasthan v. Radha Kishan Ors., [1979] 2 SCC 468 held in no uncertain terms that the weight of the authority was in favour of the view that the marginal note appended to a section cannot be used for construing the section (See paragraph 24 at p. 479). Section 22(1) shorn of the irrelevant part provides that where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in any other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for appointment of a Receiver in respect thereof shall lie or be proceeded with further, except with the consent of the BIFR or, as the case may be, the Appellate Authority. The purpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther creditor to obtain the consent of the BIFR or, as the case may be, the Appellate Authority to proceed against the industrial concern. The law has not left them without a remedy. We are, therefore, of the opinion that the word 'proceedings' in section 22(1) cannot be given a narrow or restricted meaning to limit the same to legal proceedings. Such a narrow meaning would run counter to the scheme of the law and frustrate the very object and purpose of section 22(1) of the 1985 Act. Mr. Rao, however, invited our attention to the definition of the expression 'legal proceedings' as found in Black's Law Dictionary (Fourth Edition) which reads as under " Any proceedings in court of justice .... by which property of debtor is seized and diverted from his general creditors...... This term includes all proceedings authorised or sanctioned by law, and brought or instituted in a court of justice or legal tribunal, for the acquiring of a right or the enforcement of a remedy." Even this definition does not militate against the view we are inclined to take. In the first place action under section 29 of the 1951 Act is to seize the property of the defaulting industrial concern and to ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court did not permit such an action during the pendency of proceedings under the 1985 Act. These two cases reinforce the view that the provision of section 22(1) of the 1985 Act should receive a broad construction. These cases, therefore, support the view that the expression 'proceedings' in section 22(1) need not be limited to 'legal proceedings' understood in the narrow sense notwithstanding the use of that expression in the marginal note. Mr. Rao, however, invited our attention to the decision of the Andhra Pradesh High Court in The Andhra Cement Co. Ltd., Secunderabad v. A.P. State Electricity Board Ors., AIR 1991 A.P. 269. That was case in which the company sought a permanent injunction against the Electricity Board to restrain it from refusing to supply electrical energy to the sick undertaking. The High Court held 'non-supply of further goods under a contract cannot, in our view, be equated with the kind of proceedings contemplated by section 22(1)'. Since non-supply of goods in future cannot amount to action proposed against the property of the Company, the High Court held that section 22(1) was not attracted. It is, therefore, obvious that the decision turned on the p ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
