REPORTABLE

IN THE SUPREME COURT OF IDNIA

CIVIL APPELALTE JURISDICTION

CIVIL APPEAL NO. __3640________OF 2008 (Arising out of SLP (C) No. 20289 of 2006)

Tata Motors Ltd. …. Appellant

Versus

Pharmaceutical Products of India Ltd. & Anr. …. Respondents

J U D G M E N T

S.B. SINHA, J.

1. Leave granted

Introduction  

2. Interpretation/application  of  the  provisions  of  the  Sick  Industrial

Companies (Special provisions) Act, 1984 (SICA) vis-à-vis the Companies

Act,  1956 (1956 Act)  is  in question in this appeal  which arises  out  of  a

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judgment and order dated 16th October, 2006 passed by a Division Bench of

the High Court of Judicature at Bombay in Appeal No.725 of 2006 arising

out of a judgment and order dated 13th February, 2006 passed by a learned

Single Judge of the Bombay High Court approving a Scheme filed by the

respondent herein in Company Petition No.470 of 2005 which was under

Section 391 of the 1956 Act.

Background Facts:   

3. First respondent is a company registered and incorporated under the

1956 Act.  It took loan from Tata Finance Ltd, predecessor-in-interest of the

appellant  on interest  @ 18% per annum.  Disputes  and differences arose

between the parties, which were referred to arbitral tribunal.  An award was

passed  on  30th July,  2002  in  the  Arbitration  proceedings  for  a  sum  of

Rs.1,51,36,795/-  together  with  interest  @  18%  per  annum  till  payment

and/or realization.   It  is  stated that  the total  amount due to the appellant

from the respondent would be near about 5.7 crores of rupees. There were

other secured and unsecured creditors also.   

Proceedings under SICA

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4. Respondent being unable to pay the dues made a reference in terms of

Section  15  of  SICA  before  the  Board  for  Industrial  and  Financial

Reconstruction (BIFR).  The BIFR appointed Industrial Development Bank

of India (IDBI) as an operating agency.  It  purported to have considered

various schemes.  However, as Unit Trust of India (UTI) raised an objection

for giving up any of its dues and there were six secured creditors and large

number of unsecured creditors, BIFR on or about 27th October, 2004 passed

an  order  recommending  winding  up  of  the  respondent.   An  appeal  was

preferred  thereagainst  before  the  Appellate  Authority  for  Industrial  and

Financial Reconstruction (AAIFR).   

5. The AAIFR granted stay of operation of the order of BIFR dated 27th

October, 2004 by an order dated 13th September, 2005.   Before the AAIFR

two separate Schemes were framed, one of them related to an arrangement

between  the  respondent  and  M/s.  Wanbury  Ltd.   It  agreed  to  settle  the

outstanding dues of the creditors of PPIL.  But before doing so, it thought it

fit  to settle  all  the large creditors being Financial Institutions and Banks.

The scheme envisaged payment to a class of creditors.  

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It was also envisaged:  

“ In addition, two immovable properties of the company (which were its primary and main assets)  were  to  be  sold  and  the  unsecured creditors  were  to  be  paid a  proportion  of  the sale proceeds.  The balance of the sale proceeds were to be paid over to the secured creditors.

Upon  payment  of  the  cash  consideration, Wanbury was to get complete control over the Respondent  including  all  its  assets  subject  to the  approval  of  the  merger  before  the appropriate forum.

The scheme was to become effective upon approval  of  overall  settlement  including  an order  for  merger  or  any  other  mode  of acquisition  of  assets  of  PPIL by Wanbury  or such scheme of PPIL by BIFR/AAIFR.”    

Appellant was kept outside the said Scheme.  The scheme involved

some selective secured creditors and some selective unsecured creditors.

Company Court Proceedings  

6. Respondent, however, filed an application before the High Court of

Judicature at Bombay purported to be in terms of Section 391 of the 1956

Act during the pendency of the said appeal on or about 29th April, 2005.  A

Scheme was presented before the Company Judge purported to be involving

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about  80  percent  of  the  creditors,  most  of  them  being  banks,  financial

institutions.  Allegedly, even at that stage, it was not disclosed before the

Company Court that unsecured creditors listed in the Scheme were only a

selected few creditors, as a result whereof a large number of creditors had

been excluded.   

7. Before  the  Company  Judge,  the  appellant  filed  an  application  for

intervention.   It  filed  an  objection  to  the  said  Scheme primarily  on  the

grounds:-

“That  the  revival/rehabilitation  of  the  company was  under  consideration  of  a  specialized  body formed under the Sick Industries  Act which is  a special  legislation  and  would  prevail  over  the provisions of the Companies Act.

That the non-obstante clause contained in the Sick Industries  Act  will  have  the effect  of  overriding and  excluding  the  provisions  of  the  Companies more so where there is an overlapping between the two Act.

That considering the scheme of the Sick Industries Act, the revival/restructing of the company cannot be considered by two separate forums separately.

That the scheme involved financial reconstruction, sale of assets of the company and merger/take over by Wanbury.   These issues  expressly fall  within the domain of the BIFR under Section 18 of the Sick Industries Act.  

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That  a  scheme  could  not  be  presented  only  in respect  of  selected  unsecured  creditors  to  the exclusion of the other similarly placed unsecured creditors such as the Petitioners.  

That  the  entire  scheme was nothing  but  a  fraud which was being played whereby the company and its  assets  were  being  transferred  to  Wanbury which was associated with the company itself.”

 UTI also filed an objection.

8. The said contentions of the appellant,  however,  were rejected by a

learned Single Judge of the High Court by his order dated 13th April, 2006

and the Scheme was approved.   

Order of the AAIFR

9. In view of the aforementioned order of the High Court, AAIFR also

on or about 1st June, 2006 approved the said Scheme opining :-

“5. Learned counsel for the Appellant Company states  that  the  scheme  of  Compromise  and Arrangement approve by the Bombay High Court have been incorporated  in  the  scheme of revival cum  merger  submitted  to  IDBI  (Operating Agency) in pursuance of direction given by us on 9.11.2005.

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6. In view of  IDBI’s  recommendation  of  the revival  cum merger proposal  submitted by PPIL, which is in accordance with Bombay High Court’s order dated 13.2.2006, we set aside the impugned order  dated  27.10.2004  and  direct  BIFR  to consider  the  scheme vetted  by the  OA within  a period of three months from the date of this order and take necessary further steps for the revival of the appellant company in accordance with law.”

10. An intra court appeal was preferred thereagainst by the appellant on

or about 3rd August, 2006.   By reason of the impugned judgment the said

Letters Patent Appeal has been dismissed, stating:-

“2. The  Appellant  claims  to  be  an  unsecured creditor to the extent of Rs.1.51 crores as set out in the award dated 30.7.2002 with further interest at the rate of 18% per annum. It is not in dispute that the  Scheme  of  Arrangement  approved  by  the learned Company Judge  between  Pharmaceutical Products of India Ltd. and its unsecured creditors and  Wanbury  does  not  affect  the  rights  of  the appellant  as  the  appellant,  though  an  unsecured creditor, is not specified in Schedule-I, appended to  the  Scheme.  In  this  backdrop,  the  impugned order cannot be faulted.  However, it  is clarified that  whatever  objections  the  appellant  may have against  the  revival  scheme  pending  before  the BIFR, pursuant to the order dated 1.6.2006 passed by  the  AAIFR,  they  may  place  their  objections before  the  BIFR  and  obviously  upon  such objections  being  placed  the  BIFR shall  consider the revival scheme of the respondent-Company on is own merits, keeping in view all relevant fact and circumstances,  including  the  objections  of  the appellant.”      

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Subsequent Events

11. We may also take note of some subsequent events.  In view of the

order of AAIFR dated 1st June, 2006, BIFR issued notice on 1st February,

2007  to  consider  the  Scheme-cum-merger  with  M/s.  Wanbury  Ltd.

propounded by the respondent company returnable on 29th March, 2007.  On

the said date, all the interested parties including the appellant were heard.

By  an  order  dated  1st May,  2007,  BIFR  is  said  to  have  sanctioned  the

Scheme-cum-merger of M/s. Wanbury Ltd. with the respondent.  

12. We may also place on record that inter alia on the premise that the

said Scheme of merger was approved in gross violation of this Court’s order

dated  15th December,  2006,  a  contempt  petition  was  filed.   We are  not

concerned with the said Contempt Petition herein.   

Contentions  

13. Mr. R.F. Nariman, learned Senior Counsel appearing on behalf of the

appellant, in support of this appeal would submit :-

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1. SICA being a special statute, the provision thereof shall prevail over

the provisions of the 1956 Act.  

2. The  High  Court  committed  a  manifest  error  in  entertaining  the

respondent’s application for merger under Sections 391 to 394 of the

Act, although the matter was pending before the AAIFR.    

3. The High Court failed to notice the binding precedent of this Court in

NGEF Ltd. vs.  Chandra  Developers  (P)  Ltd. :  (2005)  8  SCC 219

wherein it has clearly been held that SICA will prevail over the 1956

Act.   

4. The Division Bench of the High Court has failed to consider that the

Company Judge had no jurisdiction to entertain any proceeding.  

5. Section 26 of the SICA bars the jurisdiction of the Company Judge.

14. Mr. C.A. Sundaram, learned senior counsel appearing on behalf of the

respondent, on the other hand would urge :-

1. The operation of the order of BIFR having been stayed, the Company

Petition was maintainable at the instance of the respondent.

2. Section 19 of SICA will have no application as it speaks of financial

assistance by the persons specified therein.

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3. Section 22 of SICA must be read in the context of Section 19 thereof.  

4. Section 26 or any other provision of SICA do not oust the jurisdiction

of the Company Court.   

5. SICA as interpreted by this Court in NGEF Ltd. (supra) would prevail

over 1956 Act only if the provisions of the latter are inconsistent with

the provisions of SICA and not otherwise.

6. The Scheme in question being subject to approval by BIFR and that

BIFR  by  a  reason  of  its  order  dated  1st May,  2007  had  granted

approval thereof, the legal requirements must be held to have been

complied with.

STATUTORY PROVISIONS

SICA  

15. SICA was enacted to make, in the public interest, special provisions

with a view to  securing the timely detection of  sick and potentially sick

companies owning industrial  undertakings,  the speedy determination by a

Board  of  experts  of  the  preventive,  ameliorative,  remedial  and  other

measures which need to be taken with respect to such companies and the

expeditious  enforcement  of  the  measures  so  determined  and  for  matters

connected therewith or incidental thereto.

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16. Section 15 of SICA provides for making reference by the Board of

Directors  of  the  Company  on  becoming  an  industrial  company,  a  sick

industrial  company, to the Board for determination of the measures to be

adopted  with  respect  to  the  company.    Section  16  provides  for  making

inquiry  into  the  working  of  sick  industrial  company  by the  Board  after

receiving  reference.   Section  17  provides  for  powers  of  Board  to  make

suitable order on the completion of inquiry.  Sub-section (3) thereof reads as

under:-

“ 17. Powers of Board to make suitable order on the completion of inquiry.

(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.”

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17. Section 18 provides for preparation and sanction of Scheme.  Sections

18(1)(c), 18(3) and 18(6A)  read as under :-

”Section 18 - Preparation and sanction of Schemes

(1) Where an order is made under sub-section (3) of  section  17  in  relation  to  any  sick  industrial company,  the  operating  agency  specified  in  the order  shall  prepare,  as  expeditiously  as  possible and ordinarily within a period of ninety days from the date of  such order,  a scheme with respect  to such company providing for any one or  more of the following measures, namely:--

(c) the amalgamation of--

(i)  the  sick  industrial  company  with  any  other company, or

(ii)  any  other  company  with  the  sick  industrial company;

(hereafter in this section, in the case of sub-clause (i),  the  other  company,  and  in  the  case  of  sub- clause (ii), the sick industrial company, referred to as "transferee company");

(3)  (a)  The  Scheme  prepared  by  the  operating agency shall be examined by the Board and a copy of the scheme with modification, if any, made by the  Board  shall  be  sent,  in  draft,  to  the  sick industrial company and the operating agency and in  the  case  of  amalgamation,  also  to  any  other company concerned,  and the Board shall  publish or cause to be published the draft scheme in brief

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in  such  daily  newspapers  as  the  Board  may consider necessary, for suggestions and objections, if  any,  within  such  period  as  the  Board  may specify.

(b)  The  Board  may make  such  modifications,  if any,  in  the  draft  scheme  as  it  may  consider necessary  in  the  light  of  the  suggestions  and objections  received  from  the  sick  industrial company and the operating agency and also from the  transferee  industrial  company  and  any  other company concerned in the amalgamation and from any shareholder or any creditors or employees of such companies:

Provided  that  where  the  scheme  relates  to amalgamation the said scheme shall be laid before the  company  other  than  the  sick  industrial company in the general meeting for the approval of  the  scheme  by  its  shareholders  and  no  such scheme shall be proceeded with unless it has been approved,  with  or  without  modification,  by  a special  resolution  passed  by  the  shareholders  of the  company  other  than  the  sick  industrial company.

(6A) Where a sanctioned scheme provides for the transfer  of  any  property  or  liability  of  the  sick industrial  company  in  favour  of  any  other company or person or where such scheme provides for the transfer of any property or liability of any other  company  or  person  in  favour  of  the  sick industrial company, then, by virtue of, and to the extent  provided in,  the scheme, on and from the date  of  coming  into  operation  of  the  sanctioned scheme or any provision thereof, the property shall be transferred to, and vest in, and the liability shall become  the  liability  of,  such  other  company  or

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person or, as the case may be, the sick industrial company.”

18. Section 19 provides for rehabilitation by giving financial assistance;

sub-sections (1), (2) and (4) whereof reads as under :-

”Section  19  -  Rehabilitation  by  giving  financial assistance.  -(1)  Where  the  scheme  relates  to preventive,  ameliorative,  remedial  and  other measures  with  respect  to  any  sick  industrial company,  the  scheme may provide  for  financial assistance by way of loans, advances or guarantees or  reliefs  or  concessions  or  sacrifices  from  the Central  Government,  a  State  Government,  any scheduled bank or  other  bank,  a public  financial institution  or  State  level  institution  or  any institution  or  other  authority  (any  Government, bank,  institution  or other  authority required by a scheme  to  provide  for  such  financial  assistance being  hereafter  in  this  section  referred  to  as  the person required by the scheme to provide financial assistance) to the sick industrial company.

(2)  Every  scheme referred  to  in  sub-section  (1) shall be circulated to every person required by the scheme  to  provide  financial  assistance  for  his consent within a period of sixty days from the date of such circulation or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period  or  further  period,  it  shall  be deemed that consent has been given.

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(4) Where in respect of any scheme consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit.”

Sections 20, 26 and 32 of SICA read as under :-  

“Section  20  -  Winding  up  of  sick  industrial company.  -  (1)  Where  the  Board,  after  making inquiry under section 16 and after consideration of all the relevant facts and circumstances and after giving  an  opportunity  of  being  heard  to  all concerned  parties,  is  of  opinion  that  the  sick industrial  company is  not  likely  to  make its  net worth  exceed  the  accumulated  losses  within  a reasonable  time  while  meeting  all  its  financial obligations  and  that  the  company  as  a  result thereof is 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.

(2)  The  High  Court  shall,  on  the  basis  of  the opinion of the Board, order winding up of the sick industrial company and may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956 (1 of 1956).

(3)  For  the  purpose  of  winding  up  of  the  sick industrial  company, the High Court  may appoint any  officer  of  the  operating  agency,  if  the operating  agency  gives  its  consent,  as  the liquidator of the sick industrial company and the officer so appointed shall for the purposes of the

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winding  up  of  the  sick  industrial  company  be deemed  to  be,  and  have  all  the  powers  of,  the official liquidator under the Companies Act, 1956 (1 of 1956).

(4)  Notwithstanding  anything  contained  in  sub- section (2) or sub-section (3), the Board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale  proceeds  to  the  High  Court  for  orders  for distribution in accordance with the provisions  of section  529A,  and  other  provisions  of  the Companies Act, 1956 (1 of 1956).

Section 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 any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.

Section 32 - Effect of the Act on other laws. - (1) The  provisions  of  this  Act  and  of  any  rules  or schemes  made  thereunder  shall  have  effect notwithstanding  anything  inconsistent  therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of  1973)and  the  Urban  Land  (Ceiling  and Regulation) Act,  1976 (33 of  1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act.

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(2) Where there has been under any scheme under this  Act  an  amalgamation  of  a  sick  industrial company with another company, the provisions of section 72A of the Income-tax Act,  1961 (43 of 1961), shall, subject to the modifications that the power  of  the  Central  Government  under  that section may be exercised by the Board without the Central  Government  under  that  section  may  be exercised  by  the  Board  without  any recommendation  by  the  specified  authority referred to in that section, apply in relation to such amalgamation  as  they  apply  in  relation  to  the amalgamation of a company owning an industrial undertaking with another company.”

The Companies Act, 1956

Section 391 of the Companies Act, 1956 reads as under :-

Section  391  -  Power  to  compromise  or  make arrangements  with  creditors  and  members  .-  (1) Where a compromise or arrangement is proposed-

(a)  between  a  company and  its  creditors  or  any class of them; or

(b)  between  a  company and its  members  or  any class of them,

the  Tribunal  may,  on  the  application  of  the company  or  of  any  creditor  or  member  of  the company or,  in  the  case  of  a company which  is being wound up, of the liquidator, order a meeting of  the  creditors  or  class  of  creditors,  or  of  the members or class of members, as the case may be to be called, held and conducted in such manner as the Tribunal directs.

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(2)  If  a  majority  in  number  representing  three- fourths  in  value  of  the  creditors,  or  class  of creditors, or members, or class of members as the case may be, present  and voting either in person or,  where  proxies  are  allowed  under  the  rules made under section 643, by proxy, at the meeting, agree  to  any  compromise  or  arrangement,  the compromise or arrangement shall, if sanctioned by the Tribunal, be binding on all the creditors, all the creditors of the class, all the members, or all  the members of the class, as the case may be, and also on  the  company,  or,  in  the  case  of  a  company which  is  being wound  up,  on  the  liquidator  and contributories of the company:

Provided  that  no  order  sanctioning  any compromise or arrangement shall be made by the Tribunal  unless  the Tribunal  is  satisfied that  the company  or  any  other  person  by  whom  an application has  been made under sub-section  (1) has  disclosed  to  the  court,  by  affidavit  or otherwise,  all  material  facts  relating  to  the company, such as the latest  financial  position  of the  company,  the  latest  auditor's  report  on  the accounts  of  the  company,  the  pendency  of  any investigation  proceedings  in  relation  to  the company under sections 235 to 351, and the like.  

(3)  An  order  made  by  the  Tribunal  under  sub- section  (2)  shall  have  no  effect  until  a  certified copy of the order has been filed with the Registrar.

(4) A copy of every such order shall be annexed to every copy of  the memorandum of  the company issued  after  the  certified  copy  of  the  order  has been filed as aforesaid, or in the case of a company not  having  a  memorandum,  to  every  copy  so

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issued  of  the  instrument  constituting  or  defining the constitution of the company.

(5)  If  default  is  made  in  complying  with  sub- section (4), the company, and every officer of the company  who  is  in  default,  shall  be  punishable with fine which may extend to one hundred rupees for each copy in respect of which default is made.

(6)  The  Tribunal  may,  at  any  time  after  an application has been made to it under this section stay the commencement or continuation of any suit or proceeding against the company on such terms as the Tribunal thinks fit, until  the application is finally disposed of.”

Interpretation of the Statutory Provisions

19. It was conceded by Mr. Sundaram SICA being a special law vis.-a-vis

the 1956 Act, it shall prevail over the latter.   The learned counsel, however,

qualifies  his  submission  by  contending  that  SICA  only  excludes  the

provisions  of  the  Companies  Act  when  they  are  inconsistent  with  each

other.

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The  provisions  of  a  special  Act  will  override  the  provisions  of  a

general Act.  A later of it will override an earlier Act.  1956 Act is a general

Act. It consolidates and restates the law relating to companies and certain

other associations.  It is prior in point of time to SICA.   

Wherever any inconstancy is seen in the provisions of the two Acts,

SICA would prevail.  SICA furthermore is a complete code.  It contains a

non-obstante clause in Section 32.   

20. SICA is a special statute.  It is a self contained Code.  The jurisdiction

of the Company Judge in a case where reference had been made to BIFR

would be subject to the provisions of SICA.   

We may, at this stage, notice the effect of SICA vis-à-vis the other

Acts, as has been noticed by this Court in some of its judgments    

21. In NGEF Ltd. vs. Chandra Developers (P) Ltd. : (2005) 8 SCC 219, in

regard to the jurisdiction of the Company Court it was held :-

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“20. Mr  K.K.  Venugopal,  the  learned  Senior Counsel, would submit that having regard to sub- section (2) of Section 536 of the Companies Act, the High Court has the jurisdiction to permit sale of assets of the Company even before passing of the winding-up order, in relation whereto Section 20(4) of SICA will have no application.

23. The provisions relating to winding up by the courts occur in Chapter II of the Companies Act, 1956.  Section  433  of  the  Act  enumerates  the circumstances  in  which  the  company  may  be wound up by the court including the inability on the part of the company to pay its debts. Section 441 of the Act specifies as to when the proceeding for winding up of  a company by the  court  shall commence at  the time of  the presentation  of  the petition for the winding up.  

In  a  case,  however,  where  winding-up proceedings  are  initiated  in  terms  of recommendations made by BIFR or AAIFR, as the case  may be,  no  such  petition  is  required  to  be presented. Section 443 lays down the power of a court on hearing petition; clause (d) of sub-section (1) whereof provides for a power to make an order for  winding  up  of  the  company with  or  without costs or any other order that it  thinks fit. Section 444 lays down the consequences of the winding- up order. In terms of Section 446 of the Act, in the event  of  passing  of  a  winding-up  order  or appointment  of  liquidator  as  Provisional Liquidator,  no  suit  or  legal  proceeding  would commence  or  if  pending  at  the  date  of  the winding-up  order,  shall  not  be  proceeded  with against the company except by leave of the court and subject to such terms as the court may impose. Sub-section (2) of Section 446 provides for a non obstante  clause,  in  terms  whereof  the  Company Court  shall  have  jurisdiction  to  entertain  or dispose  of  any  suit  or  proceedings  specified therein. Section 451 lays down general provisions as to liquidators. Section 457 specifies the power of the liquidator which is required to be exercised

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with the sanction of the court. Sub-section (2) of Section 536 reads as under:

“536.  Avoidance  of  transfers,  etc.,  after commencement of winding up.—(1) *

* * (2)  In  the  case  of  a  winding  up  by  the Tribunal,  any  disposition  of  the  property (including  actionable  claims)  of  the company, and any transfer of shares in the company  or  alteration  in  the  status  of  its members, made after the commencement of the  winding  up,  shall,  unless  the  Tribunal otherwise orders, be void.”

In regard to jurisdiction of the Company Court it was held :-

“39. The provisions of SICA contain non obstante clauses. It is a special statute. It is a complete code in itself. The jurisdiction of the Company Court in such  matters  would  arise  only  when  BIFR  or AAAIFR,  as  the  case  may be,  has  exercised  its jurisdiction  under  Section  20  of  SICA recommending winding up of the Company upon arriving at a finding that there does not exist any chance of revival of the Company.”

It was furthermore held:

“40. Mr  Venugopal  has  placed  reliance  upon  a decision of a learned Single Judge of the Karnataka High Court  in  Karnataka  State  Industrial  Investment  and Development  Corpn.  Ltd. v.  Intermodel  Transport Technology Systems for the proposition that despite the fact BIFR retains jurisdiction to get the assets of a sick company sold in terms of sub-section (4) of Section 20 of SICA; still the leave of the Company Court, therefor would be required. The said decision, however, has been reversed by the Division Bench of the Karnataka High Court in  BPL Ltd. v.  Intermodal Transport Technology Systems  (Karnataka)  Ltd. holding  that  the  Company

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Court has no such jurisdiction. We generally accept the views of the Division Bench.

41. It  is  difficult  to  accept  the  submission  of  the learned counsel appearing on behalf of the respondents that  both  the  Company  Court  and  BIFR  exercise concurrent jurisdiction. If such a construction is upheld, there shall be chaos and confusion. A company declared to be sick in terms of the provisions of SICA, continues to be sick unless it is directed to be wound up. Till the company remains a sick company having regard to the provisions of sub-section (4) of Section 20, BIFR alone shall have jurisdiction as regards sale of its assets till an order of winding up is passed by a Company Court.

42. Apart from the fact that sub-section (4) of Section 20  contains  a  non  obstante  clause  and,  thus,  it  shall prevail over the provisions contained in sub-section (2). The said Act is also a latter statute.

43. The provisions of SICA would prevail  over the provisions  of  the  Companies  Act.  Section  20  of  SICA relates  to  winding  up  of  the  sick  industrial  company. Before BIFR or  AAIFR,  as  the  case may be,  makes  a recommendation  for  winding  up  of  the  Company,  an enquiry is made in terms of Section 16 thereof wherefor all  relevant  facts  and circumstances  are required  to  be taken into consideration. Before an opinion is arrived at in  that  behalf,  the  parties  are  given  an  opportunity  of hearing.  The  satisfaction  arrived  at  by  BIFR  that  the Company is not likely to become viable in future and it is just and equitable that the Company should be wound up must be based on objective criteria. The High Court indisputably on receipt of such recommendation of BIFR would initiate a proceeding for winding up in terms of Section  433 of  the Companies  Act.  Sub-section  (2)  of Section 536 ipso facto does not confer any jurisdiction upon the Company Court to direct sale of the assets of the sick company. It has to exercise its power thereunder subject to the provisions of the special statute governing the field. Despite the fact that the procedures laid down under the Companies Act would be applicable therefor but they must be read with sub-section (4) of Section 20 of  SICA which  contains  a  non  obstante  clause  and  in terms thereof, BIFR is authorised to sell the assets of the sick industrial company in such a manner as it may deem fit.  By  reason  of  the  said  provision,  BIFR  is  also empowered  to  forward  the  sale  proceeds  to  the  High

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Court  for  orders  for  distribution  in  accordance  with Section  529-A and  other  provisions  of  the  Companies Act  which  in  no uncertain  terms would  mean that  the distribution  of  the  sale  proceeds  would  be  for  the purpose  of  meeting  the  claims  of  the  creditors  in  the manner laid down therein. The intention of Parliament in enacting the said provision becomes clear as in terms of Section 22-A of SICA, BIFR is empowered to issue any direction in the interest of the sick industrial company or its creditors or shareholders and direct the sick industrial company  not  to  dispose  of  its  assets  except  with  its assent.  Section  32,  as  noticed  hereinbefore,  again contains a non obstante clause. The scheme suggests that BIFR retains control over the assets of the Company and in  terms  of  the  aforementioned  provisions  may  either prevent any sale or permit any sale of the assets of the sick industrial company. Such a power in BIFR remains till a winding-up order is passed by the High Court and a stage arrives  for  the High Court  for  issuing orders  for distribution of the sale proceeds.

44. SICA was furthermore enacted subsequent to the provisions of the Companies Act. It is not, thus, possible to accept the submission that the High Court exercises a concurrent jurisdiction.”

It was ruled that the Company Court and the BIFR do not exercise

concurrent jurisdiction, holding:-  

“45. It  may  be  true  that  the  High  Court’s jurisdiction is that of the Appellate Authority but keeping in view the terminology contained in sub- section (4) of Section 20 read with Section 32 of the  Act,  it  leaves  no  manner  of  doubt  that  the provisions  of  SICA  shall  prevail  over  the provisions  of  the  Companies  Act.  For  the aforementioned purpose, it  was not necessary for Parliament to mention specifically the provisions of sub-section (4) of Section 20 that the same shall prevail over Section 536 of the Companies Act, as was  suggested  by the  learned  counsel  appearing for  the  first  respondent.  The  construction  of  the

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provisions  of  both the Acts,  as suggested by the learned counsel,  that  both the provisions of sub- section (4) of Section 20 and Section 536 should be read conjointly so as to enable an applicant to obtain a sanction of both BIFR and the Company Court, thus, do not appeal to us.”

The Court noticed the non obstante clause contained in clause (4) of

Section 20 as also Section 32 of SICA to hold that the High Court does not

exercise concurrent jurisdiction with BIFR.  The fact that SICA was enacted

in 1984 had also been taken into consideration.

The Court considered in details the exercise of the jurisdiction of the

Company Court vis-à-vis the BIFR to opine :-

“69. BIFR admittedly had  the  power  to  sell  the assets of the Company but the High Court until a winding-up order is issued does not have the same. BIFR  in  its  order  dated  24-8-2002  might  have made  an  observation  to  the  effect  that  the Company may approach the High Court in case it intended  to  dispose  of  its  property  by  private negotiation  but  the  same  would  not  mean  that BIFR could  delegate  its  power  in  favour  of  the High Court.  BIFR being a statutory authority, in the  absence  of  any  provision  empowering  it  to delegate its power in favour of any other authority had no jurisdiction to do so. “Delegatus non potest delegare”  is  a  well-known  maxim which  means unless  expressly  authorised  a  delegatee  cannot sub-delegate  its  power.  Moreover,  the  said observations  of  BIFR would  only mean that  the Company  Court  could  exercise  its  power  in

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accordance  with  law  and  not  dehors  it.  If  the Company  Court  had  no  jurisdiction  to  pass  the impugned  order,  it  could  not  derive  any jurisdiction only because BIFR said so.”

(See  also  Morgan  Securities  and  Credit  Pvt.  Ltd.  v.  Modi Rubber Ltd. [AIR 2007 SC 683]

22. The  principle  laid  down  therein  has  been  reiterated  in  Bombay

Dyeing  & Manufacturing  Co.  Ltd.  vs.   Bombay  Environmental  Action

Group : (2006) 3 SCC 434 stating :

“13. The 1993 Act was enacted to provide for and regulate  the  payment  of  interest  on  delayed payments  to  small-scale  and  ancillary  industrial undertakings and for matters connected therewith.

14. The provisions of the 1993 Act, therefore, do not  envisage  a  situation  where  an  industrial company becomes sick and requires framing of a scheme for its revival.

15. It is no doubt true that an award in relation to a claim  of  a  small-scale  industry  if  made  by  the Council  would be governed by the provisions  of the  Arbitration  and  Conciliation  Act,  1996  (for short “the 1996 Act”).”

SICA furthermore was enacted to secure the principles specified in

Article 39 of the Constitution of India.  It seeks to give effect to the larger

public  interest.   It  should  be given primacy because of  its  higher  public

purpose.  Section 26 of SICA bars the jurisdiction of the Civil Courts.   

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What scheme should be prepared by the operating agency for revival

and rehabilitation of the sick industrial  company is  within the domain of

BIFR.  Section 26 not only covers orders passed under SICA but also any

matter which BIFR is empowered to determine.   

23. The jurisdiction of civil court is, thus, barred in respect of any matter

for which the appellate  authority or the Board is  empowered.   The High

Court may not be a civil court but its jurisdiction in a case of this nature is

limited.   

24. Our attention has been drawn to the decision of this Court in  Jyoti

Bhushan Gupta  v.  Banaras Bank Ltd, [ (1962) Supp 1 SCR 73 ] where the

question which arose for consideration was as to whether Article 183 of the

Limitation Act shall have any application in regard to the applicability of

the provisions of the Limitation Act, it was stated :-

“By the Companies Act of 1913, the High Court was invested with jurisdiction to order payment of the amounts due by debtors of companies ordered to be wound up. This jurisdiction may be invoked as  of  right  against  all  persons  whose  names are placed  on  the  list  of  contributories.  The jurisdiction is ordinary : it does not depend on any extraordinary action on the part of the High Court.

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The  jurisdiction  is  also  original  in  character because the petition for exercise of the jurisdiction is  entertainable  by the  High Court  as  a  court  of first  instance and not  in exercise of its  appellate jurisdiction.  Again  by  s.  187  no  special jurisdiction  is  conferred.  The  High  Court adjudicates upon the liability of the debtor to pay debts due by him to the Company : the jurisdiction is therefore civil. Normally, a creditor has to file a suit to enforce liability for payment of a debt due to him from his debtor. The Legislature has by s. 187 of  the  Companies  Act  empowered  the  High Court in a summary proceeding to determine the liability and to pass an order for payment but on that account the real  character of the jurisdiction exercised by the High Court is not altered. Nor is there  any  substance  in  the  contention  that  the authority to order payment of a debt under s. 187 is  merely a power of the High Court and not its jurisdiction.  By  s.  3  read  with  s.  187  of  the Companies Act the High Court has jurisdiction to direct  payment  of  the  amount  due  by  a contributory  :  and  an  order  passed  for  payment manifestly  is  an  order  passed  in  exercise  of  the jurisdiction vested in the High Court by s. 3 read with s. 187 of the Companies Act. “

It was furthermore observed:-

“The  jurisdiction  to  deal  with  the  claims  of companies ordered to be wound up is conferred by the Indian Companies Act and to that  extent the Letters Patent are modified. There is, however, no difference  in  the  character  of  the  original  civil jurisdiction  which  is  conferred  upon  the  High Court  by  Letters  Patent  and  the  jurisdiction conferred by special Acts. When in exercise of its authority conferred by a special  statute the  High

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Court in an application presented to it as a court of first  instance declares liability to  pay a debt,  the jurisdiction  exercised  is  original  and civil  and if the exercise of  that  jurisdiction  does  not  depend upon  any  preliminary  step  invoking  exercise  of discretion  of  the  High  Court,  the  jurisdiction  is ordinary.”

25. In Damji Valli Shah  v.  Life Insurance Corporation of India,   [(1965)

2 SCR 665 ], the question which arose for consideration was as to whether a

similar provision made in the Life Insurance Corporation Act, 1956 shall

bar the jurisdiction of the Company Court in terms of Section 446 (1) of the

Companies Act.  Referring to Section 41 of the Life Insurance Corporation

Act, 1956 it was stated that the Tribunal constituted under the LIC Act will

have exclusive jurisdiction.  It was opined :-

“20.  It  is  in  view  of  the  exclusive  jurisdiction which sub-s. (2) of s. 446 of the Companies Act confers  on  the  company  Court  to  entertain  or dispose of any suit or proceeding by or against a company or any claim made by or against it that the  restriction  referred  to  in  sub-s.  (1)  has  been imposed on the commencement of the proceedings or  proceeding  with  such  proceedings  against  a company after a winding-up order has been made. In view of s. 41 of the LIC Act the company Court has  no  jurisdiction  to  entertain  and  adjudicate upon any matter which the Tribunal is empowered to  decide  or  determine  under  that  Act.  It  is  not disputed  that  the  Tribunal  has  jurisdiction  under the Act to entertain  and decide matters  raised in

29

the petition filed by the Corporation under s. 15 of the LIC Act. It must follow that the consequential provisions of sub-s. (1) of s. 446 of the Companies Act will not operate on the proceedings which be pending  before  the  Tribunal  or  which  may  be sought to be commenced before it.”  

26. What in this case, however, has been contended is that BIFR had no

jurisdiction to make a scheme as envisaged under Section 391 of the Act.

Even otherwise, ‘civil court’ has a definite connotation.  The jurisdiction of

the  Company Court  is  now vested  in  the  Tribunal.  Therefore,  it  will  be

difficult to hold, in view of a changed situation, that Section 26 ousts the

jurisdiction of the Company Court in totality.  The decision, however, also

says that the special statute shall prevail over the general rule.   

Although it may not be very relevant, we may notice that this Court in

Dwarka Prasad Agarwal  v. Ramesh Chander Agarwal, [(2003) 6 SCC 220]

opined as under :-  

“22. The  dispute  between  the  parties  was eminently a civil dispute and not a dispute under the provisions of the Companies Act. Section 9 of the  Code of  Civil  Procedure  confers  jurisdiction upon the civil courts to determine all disputes of civil  nature  unless  the  same  is  barred  under  a statute  either  expressly  or  by  necessary implication. Bar of jurisdiction of a civil court is

30

not to be readily inferred. A provision seeking to bar  jurisdiction  of  a  civil  court  requires  strict interpretation. The court, it is well settled, would normally  lean  in  favour  of  construction,  which would uphold retention of jurisdiction of the civil court. The burden of proof in this behalf shall be on  the  party  who  asserts  that  the  civil  court’s jurisdiction  is  ousted.  (See  Sahebgouda v. Ogeppa)  Even  otherwise,  the  civil  court’s jurisdiction  is  not  completely  ousted  under  the Companies Act, 1956.”

We are, therefore, of the opinion that the judgment of the High Court

cannot be sustained.  We may furthermore notice that the decision of the

learned single judge has been overruled by a Division Bench of the Bombay

High Court  in  Ashok Organics Industries  Ltd.   v.  Dena Bank  (Company

Petition No. 108 of 2006, disposed of on 25.1.2008).   

It is also not possible to harmonize the provisions of Sections 391 to

394 of the 1956 Act with the provisions of SICA.  

For the views we have taken, it is not necessary to consider the other

contentions raised at the bar.  

27. The question, however, is what relief should be granted in view of the

subsequent events.  Various intervention applications have been filed.  We

31

do not intend to make any observation in regard thereto.  We are, however,

of the opinion that it is a fit case where we should exercise our jurisdiction

under Section 142 of the Constitution of India to meet the object for which

the Act has been enacted.

28. We have been taken through the Scheme.  The Scheme provides for

not  only  entering  into  an  arrangement  as  regards  repayment  of  debts  to

secured creditors and unsecured creditors but also provides for a merger,

subject  of  course,  to  an  appropriate  order  being  passed  by  BIFR.   The

question is as to whether such a Scheme could be placed for approval before

BIFR.  We are of the view that it could not be.  Before BIFR could approve

a scheme, the same must be drawn in terms of the provisions of the Act and

not de hors the scheme.  It is required to apply its own mind.  The operating

agency is supposed to make a scheme.  The operating agency before the

AAIFR took one stand; before us it has taken another.  According to it, it

was not involved in the preparation of the Scheme.  It had no occasion to

apply its own mind.  Furthermore, after the learned Single Judge passed its

order, AAIFR disposed of the appeal only in terms of the order of the High

Court stating :-  

32

“In view of IDBI’s recommendation of the revival cum merger proposal submitted by PPIL, which is in  accordance  with  Bombay  High  Court’s  order dated 13.2.2006, we set aside the impugned order dated 27.10.2004 and direct BIFR to consider the scheme vetted by the OA within a period of three months  from  the  date  of  this  order  and  take necessary  further  steps  for  the  revival  of  the appellant company in accordance with law.”

29. The order of BIFR dated 1st May, 2007 also clearly show that it has

granted  its  approval  in  view  of  the  observations  made  by  the  appellate

authority.  It might have done so keeping in view the doctrine of judicial

discipline in mind.   

30. The order of BIFR is not an outcome of any pre-application of mind.

There is no finding that it has taken into consideration all the relevant facts.

There is nothing to show that such an order is fair or reasonable or meets the

requirements of law.   

31. We are, therefore, of the opinion that not only the judgment of the

High Court but also the orders of BIFR as also the AAIFR should be set

33

aside and the matter should be remitted to the BIFR so as to enable it to

proceed in accordance with the provisions of SICA afresh.

32. The  appeal  is  allowed  with  the  aforementioned  observations  and

directions.   In the facts  and circumstances  of  the case,  there  shall  be no

order as to costs.

………………………….J. [S.B. Sinha]

..…………………………J.                [ Lokeshwar Singh Panta]

…………………………..J.     [ Markandey Katju ]

New Delhi; May 16, 2008

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