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TMI Blog2014 (12) TMI 982X X X X Extracts X X X X X X X X Extracts X X X X ..... ased to be sick company or not. Cessation of the status as a sick company can be under Section 17(1) or as a result of scheme for revival being implemented and determination of such issue, in our view, is in the exclusive domain of the BIFR. The Civil Court was not right and justified in issuing injunction as it did. The counsel who represented the company before the BIFR on 04.04.2013, correctly submitted that before discharging the company the BIFR can examine the audited balance sheet and satisfy itself whether the net worth had turned positive. Insofar as the recovery of money is concerned, the matter is completely covered by Section 22(1) - The language employed in Section 22(1) of the Act refers to the entirety of the period beginning from the inquiry under Section 16 till the implementation of sanctioned scheme for revival - the BIFR was considering Draft Rehabilitation Scheme which is a stage u/s 18(3) and is completely covered by the period u/s 22 of the Act - The suit as framed for recovery of money filed without the consent of the BIFR was not competent and maintainable – relying upon Managing Director, Bhoruka Textiles Limited Vs. Kashmiri Rice Industries [2009 (5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. 3. A company named J.K. Jute Mill Company Ltd. (hereinafter referred to as the company ) having its registered office at Kanpur, Uttar Pradesh filed Reference No. 149 of 1994 before the Board for Industrial and Financial Reconstruction ( BIFR for short) under the provisions of the Act. Though the scheme was initially sanctioned for reconstruction, the BIFR subsequently held the scheme to have failed and directed the company to be wound up. These orders were stayed by the Appellate Authority for Industrial and Financial Reconstruction ( AAIFR for short) and further proceedings before the BIFR continued. While the matter was thus pending, Sarda Group took over the Company through Rainey Park Suppliers Private Ltd. (RPSPL) in 2007. BIFR by its order dated 17.12.2008 approved such take over of the management. The management of the company was handed over to Shri Govind Sarda. It appears that in 2009, Shri Govind Sarda assigned the debt held by RPSPL in favour of an entity named Libra Retailer Pvt. Ltd. (LRPL) and he is stated to have handed over Jute Mill of the company to a third party. As he failed to revive the company, show cause notice for winding up was issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings dated 04.04.2013 are quoted here under which are self eloquent. 4.1. Today s hearing (04.04.2013) was fixed for consideration of MA No. 162/BC/2012 filed by Shri Ghanshyam Sarda praying as under: a) Declare that the change in shareholding pattern to the extent the same reduces the shareholding of RPSPL from 86.23% to 5.34% without approval of BIFR as null and void; b) Restore the management and the shareholding pattern of JKJMCL as approved by the learned BIFR vide its order dated 18.09.2008. c) Initiate action under section 33 read with section 34 against the management for changing the shareholding pattern of the sick company without seeking permission from BIFR; and d) Appoint a special director (BIFR Nominee) in the Board of the Company to look into and monitor its affairs; e) Pass such other further order(s) as this Hon ble BIFR may deem fit and proper in the facts and circumstances of the case; 4.3. Shri Sudhansu Batra, Sr. Advocate appearing on behalf of the Sick Company intervened and stated the MA NO. 162/BC/2012 cannot be considered today since BIFR no longer retains jurisdiction over the company. Shri Batra, Sr. Advocate stated that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... but in view of the networth of the company turning positive the company may be discharged from BIFR so that his clients may file recovery suit against the company. The learned Advocate stated that since the networth of the Sick Company has turned positive, he would not be pressing any of his application (s) and would take legal recourse against the company in court of law. 4.8 The representatives of IDBI (OA) stated that they are not in a position to comment upon the Audited Balance Sheet as on 31.12. 2012 without examining the same. The OA further stated that the ASC is going ahead as per its schedule and the next meeting of the ASC is on 16.04.2013. The Bench observed that the ASC may go ahead with its schedule and that ASC should do nothing more at present except opening and evaluating the bids and submit its report on such evaluation to the BIFR and that BIFR shall take a final view upon the bids and the sale of assets at the time of approval of DRS. The bench further observed that DRS has already been circulated on 26.02.2013 and the objections suggestions shall be considered on 20.05.2013. Till such time either the Bench considers the DRS or discharge the company from S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the Company adding BIFR as proforma defendant. It was inter alia averred . Now it appears from the balance sheet of the defendant company filed before the proforma defendant that its net worth had become positive. In view of the said admission on the part of the defendant No. 2 it is no longer a sick establishment under the Sick Industrial Companies (Special Provisions) Act, 1985 and consequently the proforma defendant No. 2 has ceased to have jurisdiction over the defendant No. 1 and as such the defendant No. 1 is no longer entitled to any benefit under the Sick Industrial Companies (Special Provisions) Act, 1985. Thus the defendant No. 1 under the aforesaid facts and circumstances has become liable to be sued in a Civil Court of competent jurisdiction with effect from the date the 2012 balance sheet as submitted by it before the proforma defendant No. 2 and the proforma defendant ceased to have any jurisdiction whatsoever. The plaintiff prayed for declaration, inter alia, that the company was no longer a sick company within the meaning of the Act and that the BIFR ceased to have jurisdiction over the company and all the proceedings in BIFR after filing of positive ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Plaintiff had sought leave under Section 22 (1) of the Act from the BIFR to file the Civil Suit. 11. In the meantime while dealing with appeals preferred against the orders of the BIFR including one dated 27.02.2013, the AAIFR was appraised that the issue of Net worth was under consideration of the BIFR, so vide its order dt.16.05.2013 it preferred to await such decision. In the subsequent proceedings of the same day i.e. 16.05.2013 the aforesaid order of the Civil Court was placed before the BIFR which observed that it had not given any permission under Section 22 (1) of the Act to SSTC to file any recovery suit against the company and the matter was adjourned in the presence of the counsel concerned for considering the submission of the parties on the issue of net worth as on 31.12.2012. It was further observed that in the absence of permission under Section 22 (1) the suit filed by SSTC was not competent and that, the company had not yet been de-registered from BIFR and a filing of Civil Suit without taking permission was violative of the Act. Taking note of the order of the AAIFR dated 16.05.2013 and the order passed by the High Court of Allahabad dated 01.05.2013, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngle Judge who by his order dated 01.08.2013 impleaded the present appellant as Respondent No. 3 in the Writ Petition and further directed that till the next date of hearing further proceedings in BIFR case No. 149 of 2014 shall remain stayed. Subsequently, the matter appeared before the Single Judge again who, on 14.08.2013 directed that the matter be placed before Hon ble the Chief Justice for directions whether the Writ Petition could be heard along with FAO No.10 of 2013. 15. On 04.09.2013, State Bank of India as directed by the BIFR submitted the Report of the Special Investigative Audit pointing out the manipulation in the balance-sheet submitted by the company and that the net worth of the company as on 31.12.2012 was in fact on the negative side by ₹ 36 crores in nine months. In the proceedings before the BIFR dated 05.09.2013, the aforesaid Report was taken on record and comments from the parties were invited. 16. Immediately the company filed Writ Petition No.4286 of 2013 before Gauhati High Court questioning the order dated 05.09.2013 of the BIFR. The matter came up before a Single Judge on 30.09.2013 who issued rule in the Writ Petition and by way of interim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unions being Special Leave Petition Nos. 8610, 8611 and 8612 of 2014 against the aforesaid order in respect of three proceedings as stated above respectively. This Court issued notice in the matter on 24.03.2014 on which date the company had appeared on caveat. By order dated 08.05.2014, it was directed that till further orders the capital assets of the Company shall not be disposed of without taking permission of this court. Soon thereafter Civil Contempt Petition Nos.338 and 375 of 2014 were filed by the present appellant and J.K. Jute Mills Mazdoor Union contending inter alia that in violation of order dated 08.05.2014, the contemnors in the petition had caused certain properties of the Company to be transferred. During the pendency of these matters SSTC assigned in favour of M/s Goodlife Merchants Pvt. Ltd. all the rights in respect of the debt of the Company. 19. All the aforesaid matters were taken up for hearing together by this Court. Appearing for the present appellant, Mr. Kapil Sibal, learned Senior Counsel submitted that the Act is a complete code in itself and given the true scope and purport of Sections 22, 26 and 32 of the Act, the jurisdiction of the BIFR over an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of India Ors. in Matter No.362 of 1995 (OS)., Madras - Dated 19.12.2007 in Dunlop India Ltd. Vs. Container Corporation of India Ltd. Anr. in Writ Petition No.24422 of 2006. and Delhi - Dated 21.10.2009 in Catholic Syrian Bank Vs. BIFR Ors. in W.P. (C) No.8361 of 2008.. Dr. A.M. Singhvi and Shri Harin Rawal, learned Senior Counsel appearing for the company submitted inter alia that while the matters were pending before this Court, the Trial Court by its order dated 29.08.2014 had allowed the application for impleadment filed by present appellant in Title Suit No.166 of 2013 and that it was now open to the present appellant to go before the Trial Court and ask for variation and modification of the order of injunction passed by it. It was submitted that BIFR which is a Tribunal with limited jurisdiction could not have disobeyed the order of the Civil Court. Relying on the views taken by the High Courts of Calcutta, Madras and Delhi in the aforestated cases it was submitted that there was no provision in the Act under which BIFR could pass an order discharging a company under the Act and as such the matter could lie in the domain of the Civil Court. Shri C.U. Singh, learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al registration was done on 16.4.2014. Under the Bihar local stamp laws, since over a year had lapsed, a fresh sale deed was presented. The difference of registration fee was paid by the purchaser on 16.6.2014. On 2.7.2014, the sale deed was presented which act of presentation was only ministerial. This would mean that even before the hearing of the matter before the BIFR on 04.04.2013 the property was sold. The record does not indicate anywhere that the factum of such sale was ever brought to the notice of the BIFR on 04.04.2013 or thereafter nor was it disclosed that the ₹ 3.55 crores were received by way of consideration. Furthermore, when this Court issued notice on 24.03.2014 when the company had appeared on caveat and subsequently passed interim order on 08.05.2014, nothing was disclosed to this Court that the property had been sold. 22. We may also at this stage deal with submission regarding effect of order dated 29.08.2014 of the Civil Court impleading the present appellant as defendant. Confining itself to the question of competence of the present appellant to file the appeal without leave of the court, the High Court had not dealt with legal issues, namely w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or nay other instrument having effect under the said Act or 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 the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. 26. Bar of Jurisdiction-No order passed or proposal made under this Act shall be appealable except as provided therein and no civil court shall have jurisdiction in respect of any matter which the Appellate Authority or the Board is empowered by, or under, this Act to determine and no injunction shall be granted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany and to check whether by such measures the revival is being achieved or not. This must cover the power to decide at any stage subsequent to the registration of reference under Section 16 whether such company has ceased to be sick company or not. Cessation of the status as a sick company can be under Section 17(1) or as a result of scheme for revival being implemented and determination of such issue, in our view, is in the exclusive domain of the BIFR. 26. In Raheja Universal Limited Vs. NRC Limited 2012 (2) SCC 148, it was observed in para 48 thus: Chapter III, in fact, is the soul and essence of SICA 1985 and it provides for the methodology that is to be adopted for the purpose of detecting, reviving or even winding up a sick industrial company. Provisions under SICA 1985 also provide for an appeal against the orders of BIFR before another specialized body i.e. AAIFR. To put it simply, this is a self-contained code and because of the non obstnace provisions, contained therein,it has an overriding effect over the other laws. As per Section 32 of SICA 1985, the Act is required to be enforced with all its vigour and in precedence to other laws. The Act is a self-contai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen all the financial affairs of such company were directly under the supervisory control of the BIFR, the power to decide whether it has since then lost the jurisdiction or not, is also in the exclusive domain of the BIFR. The BIFR alone is empowered to determine whether net worth has become positive as a result of which it would cease to have such jurisdiction. Any inquiry into such issue regarding net worth by anyone outside the Act including civil court, would be against the express intent of the Act and would lead to incongruous and undesired results. The suit as framed seeking declaration that the company was no longer a sick company within the meaning of the Act, was therefore not competent and maintainable. The Civil Court was not right and justified in issuing injunction as it did. The counsel who represented the company before the BIFR on 04.04.2013, correctly submitted that before discharging the company the BIFR can examine the audited balance sheet and satisfy itself whether the net worth had turned positive. 29. Insofar as the recovery of money is concerned, the matter is completely covered by Section 22(1) of the Act. The language employed in Section 22(1) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of Section 22 of the Act, any judgment rendered by it would be coram non judice. It is a well settled principle of law that a judgment and decree passed by a court or tribunal lacking inherent jurisdiction would be a nullity. Similarly, in Raheja Universal Limited Vs. NRC Limited 2012 (2) SCC 148 it was observed as under: 49. BIFR has been vested with wide powers and, being an expert body, is required to perform duties and functions of wide-ranged nature. If one looks into the legislative intent in relation to a sick industrial company, it is obvious that BIFR has to first make an effort to provide an opportunity to the sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, failing which BIFR has to formulate a scheme for revival of the company, even by providing financial assistance in cases wherein BIFR in its wisdom deems it necessary and finally only when both these options fail and the public interest so requires, BIFR may recommend winding up of the sick industrial company. So long as the scheme is under consideration before BIFR or it is being implemented after being sanctioned and is made operational from a giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y i.e., J.K. Jute Mills Company Ltd. having its registered office at Kanpur U.P. continues to be under the jurisdiction of the BIFR. We leave it to the BIFR to satisfy itself and determine the issues whether the net worth of the company has turned positive or not. If the BIFR is so satisfied, it shall de-register the company and upon such declaration the company will be out of the supervisory jurisdiction of the BIFR under the Act. Needless to say that if the BIFR is not satisfied that the net worth of the company has turned positive, it shall go ahead and consider the scheme for revival of the company. We direct the BIFR to complete this exercise within two months from date of receipt of this order. We have refrained from dealing with the matter concerning the merits or de-merits of the claim that the net worth has turned positive nor have we dealt with the report made by the State Bank of India in its Special Investigative Audit. We leave these issues to be considered by the BIFR at an appropriate stage. We have also not dealt with the submissions alleging bias as the matters in that behalf are still pending consideration before the authorities and we leave these issues to be dea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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