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TMI Blog2016 (6) TMI 241X X X X Extracts X X X X X X X X Extracts X X X X ..... d be necessary with respect to the financial assistance to be provided. We are therefore of the opinion that prima-facie case is made out to refer the matter to a Larger Bench on the following questions:- Whether the decision in Modi Rubber case has not properly appreciated the mandate and scope of Section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”). Which would subsume the questions; Whether the Section vests BIFR with broad and extensive powers to take such measures as are necessary for revival of a sick company; and Whether without consent of unsecured creditors, the scheme for rehabilitation envisaging reduction of their debt is binding on them. The matter be placed before the Hon'ble Chief Justice for necessary directions. - W.P.(C) 832/2016 - - - Dated:- 2-3-2016 - MR. PRADEEP NANDRAJOG MS. MUKTA GUPTA JJ. For the Appellant: Mr. Rajeeve Mehra, Sr.Advocate instructed by Mr.Amar Gupta, Ms.Ritika Gambhir, Mr.Divyam Agarwal and Ms.Shruti, Advocates For the Respondent: Mr. K.N. Bhat, Sr. Advocate instructed by Mr. D.P. Mohanty, Mr.Aditya Sharma and Ms.Nandita Bajpai, Advocates for R-1 Mr.Nitin Gupta, Advocate for R-2 Ms.Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdy. BIFR and AAIFR recognized that since unsecured creditors were not required to give any financial assistance, Section 19(1) of SICA, 1985 would have no application in view of the law declared by a Division Bench of this Court reported as 181 (2011) DLT 46 (DB) Lord Chloro Alkali Ltd. Vs. Bharat Heavy Electrical Ltd. Anr., but held that BIFR retains jurisdiction over a company declared sick till the end of rehabilitation period envisaged in the scheme in terms of provisions of Section 18(2) and 18 (9) of SICA, 1985 holding that the law declared by Division Benches of this Court and the Supreme Court in the decisions reported as (2010) 103 SCL 385 (Delhi) National Small Industries Corporation Ltd. Vs. Singer India Ltd. Anr., (1997) 89 Comp.Cas. 842 (Delhi) Sarin International (P) Ltd. Vs. AAIFR, 169 (2010) DLT 618 (DB) Oman International Bank SAOG Vs. AAIFR and (2008) 7 SCC 619 Tata Motors Ltd. Vs. Pharmaceutical Products of India Ltd. Anr . was on slightly different questions the Division Bench noted Section 22 of SICA and especially sub-Section (5) thereof which suspended the period of limitation while calculating limitation for enforcement of rights by creditors a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent by an unsecured creditor and compelling an unsecured creditor to write off a part of its dues. The Division Bench held that it was not necessary for an unsecured creditor to accept the scheme, but the right of such unsecured creditor to claim the debt would stand postponed by reason of the scheme being approved. It was only when the net worth of the company became positive and the scheme had worked itself out could the unsecured creditor claim the debt as per Section 22 of SICA, 1985. The Division Bench has terminated its reasoning by anchoring the same in para 37 in the following words : We are unequivocally of the view that the contract inter se the parties arrived at whereafter the company has become sick cannot be compulsorily overridden by the provisions of the SICA if the creditor is willing to wait till such time as the company is financially rehabilitated to claim its dues. There would be only suspension of legal proceedings as envisaged under Section 22 of the SICA. In fact, it is only such an interpretation which could give meaning to Section 22 of the SICA as otherwise this provision would really become otiose. The enforcement of the remedy remains suspended and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... loss of production, loss of employment, loss of revenue to the Central and State Governments and locking up of investible funds of banks and financial institutions are of serious concern to the Government and the society at large. The concern of the Government is accentuated by the alarming increase in the incidence of sickness in industrial companies. It has been recognized that in order to fully utilize the productive industrial assets, afford maximum protection of employment and optimize the use of the funds of the banks and financial institutions, it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible. It would also be equally imperative to salvage the productive assets and realize the amounts due to the banks and financial institutions, to the extent possible, from the non-viable sick industrial companies through liquidation of those companies. It has been the experience that the existing institutional arrangements and procedures for revival and rehabilitation of potentially viable sick industrial companies are both inadequate and time-consuming. A multiplicity of laws and agencies makes the adoption of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of serious concern not only to the government but also to the society at large. The objects and reasons further show that there is a need to fully utilize the productive industrial assets and afford maximum protection to employment and it is imperative to revive and rehabilitate the potentially viable sick industrial companies. When we read the aforesaid Statement of objects and reasons alongwith Section 20 of the Act, it becomes clear that winding up of a company is to be resorted to only as a last eventuality and only when it becomes just and equitable to wind up the sick industrial company. That the proposition as was very vehemently canvassed on behalf of the petitioner has no legs to stand upon becomes clear also from the expression one or more as found in Section 18 of the Act. The expression one or more includes all i.e. all measures including financial concessions. This expression one or more indicates that more than one eventuality can be adopted and acted upon by BIFR to rehabilitate and revive a sick industrial company and not only one eventuality of resorting to other Sub-sections of Section 18 except its Sub-section (1)(e). Section 19(4) will have to be harm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d proviso has been brought about in sub Section (1) of Section 15 that the secured creditors who represent not less than 3/4th in the value of the amount outstanding against financial assistance disbursed to the sick company can bring about an abatement of proceedings pending before BIFR. This proviso reads as under: Provided also that on or after the commencement of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debut under Sub-section(4) of Section 13 of that Act A plain reading of this proviso added by the Act 54 of 2002 shows that the consent of at least 3/4th of the secured creditors is necessary for the proceedings before BIFR to abate. This proviso further brings into focus the legislative intent that a minority creditor cannot frustrate the proceedings before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t aspect is that even when a company is not sick and proceedings are resorted to by the company under Section 391 - 394 of the Companies Act, 1956 to ring about a composition and settlement with its creditors, it is the majority of the secured creditors who do prevail, meaning thereby minority secured creditors cannot frustrate a scheme which is propounded by the majority of the secured creditors. If a minority secured creditor cannot frustrate a scheme of composition under Section 391 - 394 of the Companies Act, 1956, there is no reason why a minority shareholder should be able to frustrate the revival and rehabilitation of a sick industrial company by refusing to accept a reduced amount and a statutory settlement which is brought about by approval of a rehabilitation scheme by BIFR as per the proposal of the operating agency and arrived at after duly considering the suggestions and objections of all the concerned stake holders including the creditors under Section 18(3)(b) of the SICA. SICA after all is for imposition of a valid statutory settlement which forms part of a sanctioned scheme. The second aspect is that by virtue of Section 529-A of the Companies Act, the dues of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scheme reducing the amount payable to an unsecured creditor on the reasoning that the question of compensation for deprivation of property could only arise if there was any real property and thus no grievance could be made to the sanctioned scheme by them. 8. In Lords Chlro Alkali (supra), again distinguished by the Division Bench on the reason that a slightly different point was raised, BHEL a Government company was an unsecured creditor and contention by it on the reasoning that its consent was necessary because it was an other authority within the meaning of Section 19(1) of SICA was repelled on the reasoning that the other authority contemplated was a public financial institution. The other contention that being an unsecured creditor the scheme could not be sanctioned without its consent because its dues were scaled down was noted and rejected, but we find sans any reasoning. 9. After the decision in Modi Rubber case was pronounced, another Division Bench of this Court in the decision reported as (2015) 193 Comp. Cas 289 UOI Vs. Cimmco Ltd. Ors. has posed five questions, and the first was whether BIFR can sanction a scheme of rehabilitation to bind only those e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en distinguished by the Division Bench in Modi Rubber with a simple observation that the point therein was on a slightly different question. The decision in Modi Rubber comes into conflict with the other decisions with respect to Section 18(8) of SICA, 1985 for the reason the other decisions bring out that there is no distinction between secured and unsecured creditors except those creditors who have to give financial assistance under a scheme to a sick company. In other words, every creditor stands on a same footing with respect to the power of the Board to sanction a scheme. Those creditors which have to provide financial assistance would form a sub-category and their consent alone would be necessary with respect to the financial assistance to be provided. 11. We are therefore of the opinion that prima-facie case is made out to refer the matter to a Larger Bench on the following questions:- Whether the decision in Modi Rubber case has not properly appreciated the mandate and scope of Section 18 of the Sick Industrial Companies (Special Provisions) Act, 1985 ( SICA ). Which would subsume the questions; Whether the Section vests BIFR with broad and extensive powers to take suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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