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TMI Blog2016 (3) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 22 clearly indicates that at the trial stage, namely, at the level of BIFR, an inquiry ought to have commenced before Section 22 comes into play. That is the earliest stage in the reference at which Section 22 is triggered. As I have indicated above, that is not the stage at which we are in the present case. Be it at the level of BIFR or at the level of AAIFR, we are still effectively at the preregistration stage. There is no question, in the circumstances, of application of Section 22 to the facts of the present case. The suits are, thus, not required to be stayed. There is no dispute between the parties that the trades were so reported. The RBI has assigned FIMMDA the task of prescribing operational guidelines for smooth functioning of the commercial paper market in line with international best practices. Operational guidelines issued by FIMMDA effective from June 31, 2001 make detailed provisions regarding trading in commercial papers and the process of redemption upon maturity of the commercial papers. These guidelines lay down a procedure for secondary market transactions in a commercial paper. Nothing could be pointed out by learned Counsel for the Defendant to show th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (ii) Upon the payments being made, the suits be transferred to the list of commercial causes; (iii) Written statements to be filed within a period of six weeks from the date of deposit of the amounts in terms of clause (i) above; (iv) The Prothonotary & Senior Master to invest the amounts deposited by the Defendant, if any, in fixed deposit/s of Nationalised Bank initially for a period of one year, thereafter to be renewed from time to time, so as to abide by the final orders that may be passed in the suits; (v) The Summonses for Judgment are disposed of accordingly. - SUMMONS FOR JUDGMENT NO. 32, 71 OF 2013, SUMMARY SUIT NO. 280, 804 OF 2013 - - - Dated:- 5-2-2016 - S.C. GUPTE, J For The Plaintiffs : Mr.Rohan Rajadhyaksha with Shahen Pradhan, Ms.Khursheed Vazifdar i/b. J. Sagar Associates For The Defendant : Mr.Rohan Cama with Sapana Rachure, Ashish Pyasi and Ms.Ekta Tripathi i/b. Dhir Dhir Associates ORDER : These two summonses for judgment are taken out in two summary suits each praying for a decree in the sum of ₹ 25 crores along with interest at the rate of 18% per annum. The claims arise from written contracts contained in what ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. 3.1.6 On 29 November 2013, the Defendant preferred a second appeal before the Chairman - BIFR in accordance with Regulation 19(8)(2) of the BIFR Regulations. By his order dated 13 January 2014, the Chairman - BIFR I refused to interfere with the order passed by the Secretary, BIFR and dismissed the appeal by declining the reference. 3.1.7 On 21 January 2014, the Defendant filed a writ petition, namely, Writ Petition (Civil) No.750/2014, challenging the Chairman s order before the Delhi High Court and took out a civil misc. petition therein, namely, Civil Misc.Petition No.1505/2014. 3.1.8 By its order dated 3 February 2014, a Division Bench of Delhi High Court, by consent, set aside the orders of the Registrar as well as the secretary and chairman, referred to above, and directed BIFR to consider the issue of validity of registration in the first instance. 3.1.9 The matter of registration of reference was thereafter heard by BIFR. By its order dated 24 April 2014, BIFR held that the registration of the Defendant s reference dated 17 September 2014 before BIFR was not valid. 3.1.10 The Defendant thereupon filed an appeal before AAIFR, being Appeal No.114/14, challe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome a sick industrial company. The relevant provision is noted below : 15. Reference to Board (1) When 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 Board for determination of the measures which shall be adopted with respect to the company: Provided that if the Board of Directors has sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company. Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y to enquire into and make a report with respect to such matters as may be specified in the order. (3) The Board or, as the case may be, the operating agency shall complete its inquiry as expeditiously as possible and endeavor shall be made to complete the inquiry within sixty days from the commencement of the inquiry- Explanation: For the purposes of this sub-section, an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board. (4) Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under sub-section (1) or, as the case may be, under sub-section (2), it may appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company or in the public interest. (d) The powers of the board, after making an inquiry under Section 16, are provided for in Section 17 of SICA. The relevant provisions are noted below : 17. Powers of Board to make suitable order on the completion of inquiry (1) If after making an inquiry under sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exceed the accumulated losses within a reasonable time and as a result not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court (Section 20), whereupon the High Court, shall on the basis of the opinion of BIFR, orders winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956. (f) Section 22 of SICA provides for suspension of legal proceedings, contracts, etc., the relevant provisions of which are as follows : 22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme 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 any other instrument having effect under the said Act or other law, no proceedings for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y under reference is out of the purview of SICA. The first stage is the filing of the reference under Section 15. The filing is complete only when BIFR registers the reference. SICA and BIFR Regulations make elaborate provisions in this behalf. A reference, in the first place, is made by either the Board of Directors of the company within sixty days from the date of finalisation of duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company (Section 15(1) of SICA), or the Central Government or Reserve Bank or a State Government or a public financial institution or a state level institution or a scheduled bank (Section 15(2) of SICA). Regulation 19 of BIFR Regulations deals with the procedural aspects of registration of a reference. A reference under Section 15(1) is required to be made in Form A prescribed under the Regulations, whilst a reference under Section 15(2) is made in Form 'B'. (There are other similar forms for Government Companies.) After receipt of the forms with their enclosures, the same are scrutinized by the Board's office. If the reference is found to be in order, it is duly regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ify as a sick industrial company, namely, an industrial company, being a company registered for not less than five years, which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth, as defined in Section 3(o) of SICA. The meanings of words and expressions used but not defined in SICA are to be gathered from the Companies Act, 1956 and in default of that, from the Industries (Development and Regulation) Act, 1951 ( IDR Act ). A factory is defined in the IDR Act as 'any premises including the precincts thereof, in any part of which a manufacturing process is being carried on or is ordinarily so carried on (i) with the aid of power, provided that fifty or more workers are working or were working thereon on any day of the preceding twelve months; or (ii) without the aid of power, provided that one hundred or more workers are working or were working thereon on any day of the preceding twelve months and provided further that in no part of such premises any manufacturing process is being carried on with the aid of power.' These provisions make it clear that the pre-registration scrutiny would include the following matters : (a) Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was filed. A Division Bench of that Court was of the view that the fresh reference ought not be entertained mechanically. This is what the Division Bench held : 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 enactment was formulated as an alternative to the process of recovery through civil courts, which was a very time consuming process and the winding up through the companies Act where hardly any recoveries could be made by the financial sector, while at the same time, ensuring that social and economic fallout of the said two routes of recovery could be avoided. However, unfortunately the new system set up in place of SICA met with only limited success. On the contrary it lent itself to gross misuse of some of its provisions particularly Section 22 of the Act. 23. As mentioned above, present case appears to be one where prima facie the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes that the Board may make such inquiry, as it deems fit, for determining whether any industrial company has become a sick industrial company (a) upon receipt of reference in respect of such company under Section 15; or (b) upon information received in respect of such company or upon its own knowledge as to the financial condition of the company. It is not difficult to visualise that issues may arise whether a company making reference is an industrial company i.e. it owns one or more industrial undertakings; whether the activity undertaken is classifiable under the scheduled industries i.e. the industries specified for the time being under the first schedule of the Act of 1951; whether the industrial company is a sick industrial company within the meaning of Section 3(o) of the Act. These issues can be debateable and contentious. We perceive and believe that when such issues arise for consideration, the power of adjudication and decision on these vital and substantive issues must vest with the Board. The Act recognises the Board as the adjudicating authority for all disputes. The office of the Registrar, Secretary etc. are not treated and regarded as the adjudicating authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e should be registered, which requires adjudication on merits, the said objection should be taken on record and the matter should be referred to the Board for appropriate decision. Similarly, if the reference is erroneously registered, contrary to the provisions of the Act, an objection can certainly be raised, whether jurisdictional prerequisites are satisfied, which can be decided by the Board notwithstanding earlier registration by the Registrar, Secretary or the Chairman of BIFR. Therefore, as in this case, they went beyond the scope of scrutiny, we direct the matter be placed before the duly constituted Board, to decide, whether the petitioner is an industrial company, which has become Sick and therefore, reference need to be registered. The Board will not be bound by the reasons and findings recorded in the impugned orders and would independently apply their mind without being influenced by the earlier orders. We are not expressing any opinion whether, the caveator herein need to be heard at this stage. The order of the Registrar, BIFR dated August 12, 2013 and the consequential orders of the Secretary, BIFR dated September 13, 2013 and the order dated April 03, 2014 of Chair ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ara Bank. After hearing the Counsel for the parties it has been agreed that the order dated 19.09.2013 passed by the Registrar-BIFR as also the order dated 21.11.2013 passed by the Secretary-BIFR and the order dated 13.01.2014 issued by the Chairman-BIFR in exercise of his powers under Regulation 19(8) of the BIFR Regulations, 1987 be set aside. It is ordered accordingly. Serious issues have been raised with regard to the validity of the registration of the reference of the petitioner by virtue of the Registrar's order dated 17.09.2013. It has been agreed by learned Counsel for the parties that the issue of the validity of registration be considered by the Board. Consequently, we direct that the Board shall consider this question in the first instance. The learned counsel for the creditors submits that, they are entitled as a right to be present on the date on which the Board will hear this question. However, for better safety they shall be moving an appropriate application on or before the date on which the Board is to hear the matter and that application would be heard simultaneously with the hearing of the above mentioned question. The matter be placed before the Board on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expected to examine was the validity of the reference, that is to say, the various issues, which form part of the scrutiny at the pre-registration stage. At the end of the day, if the Board were to hold that the reference ought not to be registered and therefore, decline the reference, the result is that the reference is deemed as not having been made. In other words, at the stage of this particular inquiry by the Board, namely, whether or not the reference should be registered, the relevant stage of Section 15(1) registration is certainly not complete so as to enable the Board to commence an inquiry into the sickness of the industrial company within the meaning of Section 16(1) of SICA. 9 After considering the facts of the case, in the light of major objections on the validity of registration of the Defendant company's reference before BIFR, the Board came to the conclusion that the company was not an industrial company within the meaning of Section 3(1)(o) read with Section 3(1) (e), 3(1)(f) and 3(1)(n) of SICA and that the reference of the Defendant company should not be registered. The Board, accordingly, held that the registration of the reference was not valid. The or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined in Series 1 Commercial Papers for maturity amounts equal to ₹ 25 crores each. There is no dispute about execution of these commercial papers or their maturity on 25 June 2012 and 14 March 2013, respectively. Plaintiff No.2 is an assignee of these commercial papers in the secondary market. After default of the payment by the Defendant under the respective commercial papers, the commercial papers were duly transferred by Pramerica Mutual Fund (Plaintiff No.2 in Summary Suit No.280 of 2013), who was the original transferee in the secondary market to Plaintiff No.1 in Summary Suit No.280 of 2013 (and Plaintiff in the other Summary Suit) with a view to protect the interest of the former's investors. The Series 1 Commercial Papers are in de-materialised form and currently lying in the demat account of the holder. These facts are not subject matter of any serious dispute. Though the Defendant has raised defences pertaining to validity of the transfer as between the original holder of commercial paper, namely, IDFC, and Pramerica Mutual Fund and from it to the current holder, the relevant RBI Master Circular read with Operational Guidelines makes it clear that a commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... local limits of the jurisdiction of this court. It is submitted that issuance of cheques, which are stated to be dishonoured, has also taken place outside the jurisdiction of this court. It is important to note in this behalf that the suits are filed in this court on the basis of accrual of a substantial and material part of the cause of action within Mumbai and after obtaining leave of the court under clause 12 of the Letters Patent. The suits are filed inter alia on the basis of a written contract contained in the debt confirmation letter dated 10 July 2012. The agreement to pay contained in the letter addressed by the promissor to the promissee is made at the place where the letter is addressed. The rationale of this is that the letter contains a promise to pay; and every promise is a proposal by which the proposer signifies his willingness to do or abstain to do anything, in this case to pay. The proposal becomes a promise only when it is accepted, though to create such promise it is not necessary that there should be an acceptance in writing. The promissee may simply accept the promise before the action. The communication, thus, of the promise to the promissee is complete onl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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