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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 ..... r dated 24 April 2014, the Board for Industrial and Financial Reconstruction ('BIFR') declined to register the Defendant's reference. This order has been challenged by the Defendant before the Appellate Authority for Industrial and Financial Reconstruction ('AAIFR'). The appeal is pending before AAIFR. It is the case of the Defendant that by virtue of pendency of this appeal, under the provisions of Section 22 of SICA, the present suits, which are for recovery of money, ought not to be proceeded with except with the consent of AAIFR. 3 In the premises, before the summonses for judgment are taken up for hearing, the question of suspension of legal proceedings, as alleged by the Defendant, needs to be considered. The relevant facts in this behalf are noted below : 3.1 On 26 August 2013, the Defendant filed a reference before BIFR based on provisional accounts of the company for the Financial Year 2012-13, seeking registration as a sick industrial company under Section 15(1) of SICA. 3.1.2 The Registrar, in accordance with the provisions of Regulation 19 of the Board for Industrial and Financial Reconstruction Regulations, 1987 ("BIFR Regulations"), scrutinised the reference and vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .114/2014 pending before AAIFR, is an appeal under Section 25 relating to an industrial company, which entails stay of suits within the meaning of Section 22 of SICA, let us note the relevant provisions of SICA which have a bearing on the question. (a) SICA defines the terms, "Company", "Industrial company", "Industrial undertaking", "Scheduled industry" and 'Sick industrial company" as follows : S.3(1)(d) "Company" means a company as defined in section 3 of the Companies Act, 1956 (1 of 1956). S.3(1)(e) "Industrial company" means a company which owns one or more industrial undertakings. S.3(1)(f) "Industrial undertaking' means any undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include- (i) an ancillary industry undertaking as defined in clause (aa) of section 3 of the Industries (Development and Regulation) Act, 1951 (65 of 1951); and (ii) a small scale industrial undertaking as defined in clause (j) of the aforesaid section 3. S.3(1)(n) "Scheduled industry" means any of the industries specified for the time being in the Fist Schedule to the Industries (Development and Regulation Act, 1951 (65 of 1951); ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inst financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act." (2) Without prejudice to the provisions of sub-section (1), the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank may, if it has sufficient reasons to believe that any industrial company has become, for the purposes of this Act, a sick industrial company, make a reference in respect of such company to the Board for determination of the measures which may be adopted with respect to such company: Provided that a reference shall not be made under this sub- section in respect of any industrial company by,- (a) the Government of any State unless all or any of the industrial undertakings belonging to such company are situated in such State; (b) a public financial institution or a State level institution or a scheduled bank unless it has, by reason of any financial assistance or obligation rendered by it, or undertaken by it, with respect to, such company, an interest in such company." (c) Section 16 of SICA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d losses within a reasonable time, the Board, shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such company as it may deem fit to make its net worth exceed the accumulated losses. (3) If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company. (4) The Board may- (a) if any of the restrictions or conditions specified in an order made under sub-section (2) are not complied with by the company concerned, or if the company fails to revive in pursuance of the said order, review such order on a reference in that behalf from any agency referred to in sub-section (2) of section 15 or on its own motion and pass a fres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellate Authority." (g) Section 25 of SICA makes a provision of appeal to the Appellate Authority and is in the following terms: "25 Appeal.- (1) Any person aggrieved by an order of the Board made under this Act may, within forty-five days from the date on which a copy of the order is issued to him, prefer an appeal to the Appellate Authority: Provided that the Appellate Authority may entertain any appeal after the said period of forty-five days but not after sixty days from the date aforesaid if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time. (2) On receipt of an appeal under sub-section (1), the Appellate Authority may, after giving an opportunity to the appellant to be heard, if he so desires, and after making such further inquiry as it deems fit, confirm, modify or set aside the order appealed against or remand the matter to the Board for fresh consideration." 5 It is clear from even a bare reading that for suspension of legal proceedings under Section 22 of SICA, either of the following four contingencies must exist, namely, (i) an inquiry under Section 16 is pending; or (ii) a scheme referred to under Section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a reference lies before the Secretary, whilst an appeal against the Secretary's order declining to register a reference is made before the Chairman (Regulations 19(8)(1) and (2) of the Regulations.) A reference declined to be registered is deemed not to have been made (Regulation 19(7) of the Regulations). Registration of the reference is, thus, crucial, since the next stage, namely, the inquiry under Section 16, does not commence without such registration. As held by the Supreme Court in the case of Real Value Appliances Ltd. Vs. Canara Bank(1998) 5 Supreme Court Cases 554, once the reference is registered after scrutiny, it is mandatory for the BIFR to conduct an inquiry and accordingly, an inquiry is treated as having commenced as soon as the registration of the reference is completed after scrutiny. It is from that time that actions against the Company's assets and suits for recovery of money against the company are stayed under Section 22. In other words, between the date of physical filing of a reference under Sections 15(1) or 15(2) and its registration, there is no question of pendency of an inquiry under Section 16(1). The proceedings before the Registrar, Secretar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... preceding twelve moths, or without aid of power with one hundred or more workers working on any day of the preceding twelve months? (d) Whether the Company is registered for not less than five years? (e) Whether the reference is made in a correct form? Whether all particulars required are submitted? If these matters are found by the registering authority in the affirmative, a reference is registered and the matter then rests with the Board for making an inquiry for determining whether any industrial company has become a 'sick industrial company', under Section16 of SICA. At this stage, as held by the Supreme Court in the case of Real Value Appliances (supra), Section 22 kicks in and there is a stay of proceedings against the industrial company in terms thereof. 7 These issues are ordinarily expected to be ministerial matters to be decided by the Registrar, Secretary or Chairman of the Board, as the case may be. But it is possible that these issues may sometimes be debatable or contentious, and it may not be desirable to leave them to the officials of the Board at the stage of scrutiny. At the same time, it must be reckoned that registration of a reference is an important step ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not recur, at least in those cases where the reference is rejected earlier, matter can be referred to directly to the BIFR and BIFR should look into the same and to decide whether it is a case for admitting the reference. Even if BIFR decides it to admit after finding that the conditions for the same are satisfied, it can still take a decision as to whether the provisions of Section 22 should be allowed to prevail or not. Section 22 stipulates that proceedings can go on with the consent of the Board/BIFR and the Board can in such cases pass a general order giving such a consent. At that stage, in such cases, where the references were rejected previously, the BIFR can pass appropriate directions refusing to extend the benefit of Section 22 of the SICA. 25. We, thus, dispose of this writ petition with the direction that BIFR should formulate necessary Practice Directions in the light of our aforesaid discussion within three months and issue the same for compliance". Later, another Division Bench of Delhi High Court in Zenith Infotech Ltd. Vs. Union of India W.P.(C) 3437/2014 was confronted with the question, whether the Registrar of the Board could have declined the reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence should be accepted and enquiry should be held. In B.Y.Narasimha Prasad Vs. M. Veerappa and Anr., (2008) 9 SCC 372, the Supreme Court has held, the question of maintainability of proceedings could be a jurisdictional issue and the Court is legally bound to address and answer the same; whether or not any objection is raised by the other side." The Division Bench then noted the judgment of the earlier Division Bench in Alcatel Lucent India Ltd. (supra) prefacing the quotation in Alcatel with the following words: "21. We are conscious of the fact that upon scrutiny, the Registrar or Secretary as the case may be, may decline registration of a reference, because they are not satisfied that the company which has made reference is a sick industrial company. Registration of reference is an important step as protection under Section 22 of the Act is available upon registration of a reference." After considering the quotation of the Division Bench in Alcatel (which forms part of the quotation set out above), the court held as follows : "22. Keeping in view the aforesaid legal position, we are of the view that when the Registrar or the Secretary is of the opinion or view that the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove. It is only after the reference is so registered, based on the decision of BIFR, that the protection under Section 22 is available to the industrial company. If one has regard to the facts of our case, it is precisely this that appears to have happened in the present case. The issues in the present case before the officials of the Board at the stage of scrutiny were, (a)Whether the company was a scheduled industry as per the definition given in Section 3(1)(n) of SICA, which is a precondition for registration as a sick industrial company in BIFR? (b)Whether the company is in the business of publication of newspaper and not in the business of printing so as to be reckoned as a scheduled industry?, and (c) Whether the reference filed on the basis of provisional accounts for the Financial Year 2012-13 and not on audited accounts as per Section 15 of SICA ought to be registered? After initially granting conditional registration subject to final accounts for the year 2012-13, the Registrar - BIFR withdrew the conditional registration and declined to grant registration to the Defendant company under Section 15(1). Aggrieved by the Registrar's order, the Defendant filed an appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue. We may it clear that we have not expressed any opinion on the merits of the case. The writ petition stands disposed off in the above terms. All pending applications also stand disposed off." In other words, what Delhi High Court wanted BIFR to do was to consider the question of registration of reference. At this stage, the BIFR obviously was not conducting any inquiry under Section 16(1) of SICA, but merely considering whether the reference should, in the first place, be registered. There is no question of application of Section 22 of the Act at this stage. Just as Section 22 was not applicable to the reference when Delhi High Court was considering the Defendant's writ petition, when the BIFR was being asked by Delhi High Court simply to consider the matter of registration of reference, namely, whether the originally granted conditional registration was valid or not, the matter could not be said to have progressed beyond the stage of Section 15(1) of SICA so as to attract the provisions of Section 22. 8 Learned Counsel for the Defendant submits that the Board, as per the orders of Delhi High Court, was not considering whether to register a reference, but whether the registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and in respect of which an inquiry under Section 16(1) of SICA has commenced. An appeal under Section 25 is a continuation of the inquiry under Section 16. It will be preposterous to suggest that whereas at the trial stage the suspension provision of Section 22 would require an inquiry under Section 16(1) to be pending, that is to day, a registration under Section 15(1) as having been accomplished, but that at the appellate stage, a registration under Section 15(1) need not be accomplished and no inquiry under Section 16 need to be pending, but that pendency of an appeal even if it be at the preregistration stage entails a consequence under Section 22, namely, suspension of legal proceedings, contracts, etc. in respect of the company under reference. Section 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ades 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 that there is any breach in the present case of either the Master Circular issued by RBI or the operational guidelines issued by FIMMDA so as to question either the transfer of the commercial paper from the original holder, namely, IDFC to Plaintiff No.2 or from Plaintiff No.2 to Plaintiff No.1. In fact, the correspondence between the parties, which is uncontested, clearly indicates that the Defendant had not only acknowledged the transfer of the commercial papers in favour of Plaintiff No.1, but had addressed an unequivocal and irrevocable confirmation and acknowledgement of its liability and indebtedness to Plaintiff No.1 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 13 In the premises, there is no statable defence to the present suits. The defence, such as the one which is raised by the Defendant in its reply to the summonses for judgment, can only be described as nominal or illusory or practically moonshine. Though this court would be perfectly justified in decreeing the suits in favour of the Plaintiffs, in the facts of the case, and with a view to give an opportunity to the Defendant to try to prove defence at the trial, only as a measure of mercy, I am of the view that the Defendant be allowed to defend the suits on condition of deposit of the entire amount of the suit claims in accordance with the respective particulars of claim due upto the date of the suits in court. In the premises, the following order is passed : (i) The Defendant is granted leave to defend the suits subject to and on payment, respectively, of a sum of Rs. 27,37,94,521/- in Suit No.280 of 2013 and a sum of Rs. 25,69,04,110/- in Suit No.804 of 2013 within a period of twelve weeks from today; (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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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