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TMI Blog2011 (5) TMI 1068X X X X Extracts X X X X X X X X Extracts X X X X ..... tioner Company against a purchase order dated 10.4.1996 for a plant at Alwar. Only some part payments were made when the net worth of the Petitioner Company was wiped out and, thus, proceedings were initiated by the Petitioner Company under the SICA for being declared as a sick company. These proceedings resulted in examination of a scheme for revival of the Petitioner Company and the final approved scheme in terms of the order dated 30.11.2006 of the BIFR envisaged settlement of dues of secured and unsecured creditors at 26.50 per cent and 10 per cent of the principal amount respectively. 3. It is the case of Respondent No. 1 Company that it did not come to know of these proceedings, and it is only after about two (2) years when an appeal was filed before the AAIFR (aggrieved by the fact that Respondent No. 1 Company was being treated under the head of "unsecured creditors", which would entitle it only to 10 per cent of the principal amount) did it become aware of the said proceedings. It is the case of Respondent No. 1 Company that the said Company is a Central PSU and has to be treated as "State" within the meaning of Article 12 of the Constitution of India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Petitioner. The final directions, as pointed out by learned senior counsel for Respondent No. 1, are, however, limited in their scope as the scheme is not sought to be reopened, the provisions of which are to remain unchanged. The only change in the sanctioned scheme that may need to be effected would be on the basis of the decision of the BIFR taken after notice to Respondent No. 1 and considering the response of Respondent No. 1 in respect of its claims. 7. We have had the benefit of submissions of both the learned Counsels for the parties. The counsels have submitted before us that the exact proposition of law as framed above is an unexplored terrain as there is no direct pronouncement of the High Court or the Supreme Court in this behalf though some Judgments were referred to which may have indirectly commented on the aspect in issue. It is also the common cause of the parties that the AAIFR actually did not appreciate the purport of the submissions and the correct question raised before it as the issue was not one of applying the principles of Article 12 of the Constitution of India to Section 19 of the SICA but the question to be examined is as framed by us aforesaid. 8. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted that while the expression "State level institution" used in Section 19(1) of the SICA had been clearly defined, and the expression "or any institution" must, thus, take colour from it, the expression "other authority" has no similarity with the expression used in Section 3(1)(p) of the SICA. 12. All these entities aforesaid are collectively described as "the person required by the scheme to provide financial assistance?. (In order to indicate that the use of the phraseology "person" in other parts of Section 19 of the SICA would include all these entities). Section 19(1) of the SICA makes no distinction between a secured and an unsecured creditor. It gives certain special rights to a category of institutions as set out therein irrespective of the fact that they have advanced any secured or unsecured loans or carried out any other transaction. 13. Learned Counsel submits that this Section is required to be broken into four parts mentioned aforesaid. The expression "other authorities" would have to have a reference to an entity other than an entity mentioned in (a), (b) & (c) above and cannot stand alone. The expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not serve to make the body a State. 15. We may note at this stage itself that the emphasis is on an accountability of such a State authority to rights conferred in Part III of the Constitution of India. 16. Learned Counsel for the Petitioner, on the other hand, canvassed before us that Respondent No. 1 Company despite being a Government Company was not covered within "other authority" in Section 19(1) of the SICA as it had entered into a mere commercial transaction in pursuance to a purchase order. There were other companies sailing in the same boat. A transaction which is purely commercial in nature without any public function or duty attached to it does not entitle Respondent No. 1 Company to interfere into the revival scheme of a sick industrial company merely on the ground that it is a Government Company and thus while entering into such a commercial transaction a Government Company cannot seek a better dispensation by virtue of being a PSU. Learned Counsel sought to draw strength from the observations made in WP (C) No. 7341/2009 titled National Small Industries Corporation Limited v. Singer India Limited and Anr. decided on 30.8.2010 (reported in 2010 (103) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... state its reasons when it seeks to change the management, by a resolution of the Company like any other shareholder. (emphasis supplied) 18. Learned Counsel submitted that undisputedly Respondent No. 1 is a creditor of the Petitioner Company having a claim of ₹ 73.49 lakh. As to how such a creditor is to be treated has to take its colour from Section 18(3)(b) of the SICA which mandates circulation of the draft rehabilitation scheme for knowledge of the creditors. There is no mention of creditors in Section 19(1) of the SICA. Respondent No. 1 Company being an unsecured creditor would, thus, have to stand at the end even in the event of winding up of the Petitioner Company under the provisions of the Companies Act, 1956. Out of the total dues which were outstanding from the Petitioner Company, the extent of dues payable to Respondent No. 1 were 11.47 per cent and thus the sanctioned scheme could not be interfered with on the pretext of a minority stake qua the dues. 19. We may, once again, at this stage point out that the aforesaid plea is really not of much relevance as the expressions used in Section 19(1) of the SICA are not in respect of unsecured or secured creditor but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e when used in other parts of the Section so that repeatedly it is not necessary to use "any Government bank, institution or other authority required by a scheme to provide such financial assistance". It is, thus, a defining clause for the expression "the person". 23. Section 19(1) of the SICA envisages the issue of financial assistance by way of concession or sacrifices from certain entities and those entities are, thus, required to have the benefit of the scheme being circulated and the consent obtained under Section 19(2) of the SICA. Thus, Central Government and State Government are specifically mentioned in it. Similarly, there is a mention of scheduled bank or other bank. After "Central Government" there is a comma (,) where after the expression "a State Government" is used, again breaking the sentence by a comma (,) and thereafter "any scheduled bank or any other bank?, which again is followed by a comma (,). Thereafter the expression used in continuity is "a public financial institution or State level institution or any institution or other authority?. We are, thus, unable to accept the plea of learned Counsel for Responden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount is given or guarantee is given for rehabilitation of the company. On the other hand, reliefs, concessions, sacrifices are acts where something is given up, i.e., in respect of loans, advances, or guarantees by way of relief, concession or sacrifice. The entity, thus, takes a lesser amount than due towards the loan, advance or a guarantee. A pure commercial transaction of supply of goods and the corresponding entitlement to recover the balance unpaid price would, thus, not fall within this category and thus even otherwise the benefit of the provisions of Section 19(2) of the SICA are not available to Respondent No. 1. 26. There is no doubt that Respondent No. 1 is a PSU. There is also no doubt that there is no character of a public function attached to the transaction in question which is a pure commercial transaction of sale of goods for a price where part payment has been made and the remaining payment undisputedly remains due. It is in that context that for the remaining unpaid price Respondent No. 1 has been treated as an unsecured creditor as it was not an entity which had lent any money against security. This categorization of Respondent No. 1 under the heading of " ..... X X X X Extracts X X X X X X X X Extracts X X X X
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