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Saturday, February 25, 2012

Overriding Effect of SICA : The Law

Justice Swatanter Kumar
Supreme Court of India
The Supreme Court in Raheja Universal Limited Vs. NRC Limited has examined the legislative scheme of the Sick Industrial Companies (Special Provisions) Act, 1985 and its overriding effect on the Transfer of Property Act. While examining various case laws on the overriding effect of the Sick Industrial Companies (Special Provisions) Act, 1985 on other statutes, the Court held as under;


Legislative Scheme of the Act of 1985 : 

10. The framers of law felt that the existing institutional arrangements and procedure for revival and rehabilitation of potentially viable sick industrial companies are both inadequate and time consuming. Multiplicity of law and the regulatory agencies makes the adoption of a coordinated approach for dealing with sick industrial companies difficult. Thus, a need was felt to enact, in public interest, a legislation to provide for timely determination, by a body of experts, of the preventive, ameliorative, remedial and other measures that would be needed to be adopted with respect to such companies and for enforcement of the appropriate measures with utmost practicable despatch. The ill-effects of sickness in industrial companies, such as cessation of production, loss of employment, loss of revenue to the Central and State Governments and blocking up of investible funds of the banks and financial institutions, were of serious concern to the Government as well as the society at large. It had repercussions on the industrial growth of the country. With the passage of time the number of sick industrial units increased rapidly. Therefore, it was imperative to salvage the productive assets and release, to the extent possible, the amounts due to the banks and financial institutions from non- viable sick industrial debtor companies by liquidation of those companies or through formulation of rehabilitation schemes. With these objects, the Bill was introduced with the salient features inter alia of identification of sickness in the industrial companies, on the basis of symptomatic indices of cash losses for the specified periods. Wherever the Government or the Reserve Bank were satisfied that an industrial company has become sick, they were required to make a reference to the BIFR. The BIFR consists of experts, in various relevant fields, with powers to inquire into and determine the incidences of sickness in the industrial companies and devise suitable measures through appropriate schemes to revive them. An appeal lies from the order of BIFR to an appellate authority (the AAIFR) consisting of members selected from amongst Supreme Court or High Court Judges or Secretaries to the Government of India. With this background, objects and reasons, this Bill was passed by the Indian Parliament and it received the assent of the President of India on 8th January, 1986. Thus, it became an Act of the Parliament intended to revolutionize the mechanism of revival or liquidation of sick industrial units and channelization of the complete administrative-cum-quasi judicial process within the framework of the Act of 1985. 

Nature and Scope of the Act of 1985 

11. Having dealt with the legislative history and object of the Act of 1985, we may now examine the very nature of this legislation. The Act of 1985 basically and predominantly is remedial and ameliorative in so far as it empowers the quasi- judicial body, the BIFR, to take appropriate measures for revival and rehabilitation of the potentially viable sick industrial companies and for liquidation of non-viable companies. It is regulatory only to a limited extent. The provisions of the Act of 1985 impose an obligation on the sick industrial companies and potentially sick industrial companies to make references to the BIFR within the time specified under the Act of 1985. Default thereof is punishable under the provisions of the Act of 1985. Largely, the proceedings before the BIFR are specific to rehabilitation or winding up of the sick company and the Act of 1985 hardly contemplates adversarial proceedings. The bodies constituted under the Act of 1985 would least exercise their jurisdiction to a lis between any party or upon the rival interests of the parties. With regard to the matters covered under the Act of 1985, the jurisdiction of the civil courts is ousted and the matters which are even allied to the formulation and sanction of the scheme would have to be decided by the BIFR itself. Even this aspect has been a matter of judicial divergence. In the case of Gram Panchayat & Anr. v. Shree Vallabh Glass Works Ltd. & Ors. [(1990) 2 SCC 440], this Court was concerned with a company which had been declared `sick' within the meaning and scope of clause (o) of Sub-section (1) of Section 3 of the Act of 1985. The Gram Panchayat had initiated coercive proceedings as per Section 129 of the Bombay Village Panchayat Act, 1959 to recover a sum of Rs.9,47,539/- stated to be the property tax and other amounts due from the company. This demand was challenged. The Bombay High Court quashed the demand and the recovery proceedings. This Court, while dealing with the scope of Section 22 read with Sections 16 and 17 of the Act of 1985, took the view that all proceedings for execution, distress or the like against the properties of the company would automatically be suspended and could not continue without the consent of the BIFR. This Court held as under: - 
"10. In the light of the steps taken by the Board under Sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company shall lie or be proceeded further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the company's properties. As soon as the inquiry under Section 16 is ordered by the Board, the various proceedings set out under sub-section (1) of Section 22 would be deemed to have been suspended. 
11. It may be against the principles of equity if the creditors are not allowed to recover their dues from the company, but such creditors may approach the Board for permission to proceed against the company for the recovery of their dues/outstandings/overdues or arrears by whatever name it is called. The Board at its discretion may accord its approval for proceeding against the company. If the approval is not granted, the remedy is not extinguished. It is only postponed. Sub- section (5) of Section 22 provides for exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering the dues." 
12. This Court in the case of Deputy Commercial Tax Officer & Ors. v. Corromandal Pharamaceuticals & Ors. [(1997) 10 SCC 649] had taken a somewhat divergent view to the view taken in Shree Vallabh Glass Works (supra). In this case, this Court, while examining the language of Section 22 of the Act of 1985, came to the conclusion that it was certainly a wide provision. In the totality of the circumstances, the safeguards stated under Section 22 of the Act of 1985 are only against any impediment that is likely to be caused in the implementation of the scheme. If the matter falls outside the purview of the scheme and the dues are not reckoned or included in the sanctioned scheme of rehabilitation, recovery of sales tax dues would not be covered under this provision and as such the bar of Section 22(1) of the Act of 1985 would not operate. This Court held as under: - 
".....The language of Section 22 of the Act is certainly wide. But, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme. If that be so, only the liability or amounts covered by the scheme will be taken in, by Section 22 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal under Section 25 of the Act, it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the" sanctioned scheme. Such amounts like sales tax, etc. which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within Section 22 of the Act. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statutes in a business sense, should be avoided." 
13. While taking the above view, this Court also noticed the judgment in Shree Vallabh Glass Works (supra) but distinguished the same by stating that the facts in that case were distinct. 

14. The above two judgments covered the field of law in this regard for a considerable time, till the judgment of this Court was rendered in the case of Jay Engineering Works Ltd. v. Industry Facilitation Council & Anr. [AIR 2006 SC 3252]. In the said judgment, this Court was dealing with a question as to whether the award made under Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 was covered under Section 22 of the Act of 1985 or despite the pendency of such proceedings before the BIFR the award could be executed. This Court also discussed the issue as to which of the above two Acts would prevail. Dealing with the language of Section 22 of the Act of 1985, this Court took the view that the said Act shall prevail and though the adjudicatory process of making an award under the 1993 Act would not come under the purview of the Act of 1985, once an award is made and sought to be executed, the provisions of Section 22 of the Act of 1985 shall take over and such award would not be executable against the sick company, particularly when the party in whose favour the award was made was, as in the present case, included in the category of dormant creditors of the sick company. This Court in the said judgment held as under: - 
"17. The said provision, thus, mandates that no proceeding inter alia for execution, distress or the like against any of the properties of the industrial company and no suit for recovery of money or for the enforcement of any security, shall lie or be proceeded with further, except with the consent of the Board or as the case may be, the Appellate Authority. The said statutory injunction will operate when an inquiry had been initiated under Section 16 or a scheme referred to under Section 17 is under preparation and/ or inter alia a sanctioned scheme is under implementation. It is not disputed before us that the amount awarded in favour of the Respondent by the Council finds specific mention in the sanctioned scheme which is under implementation. 
18. The award of the Council being an award, deemed to have been made under the provisions of the 1996 Act, indisputably is being executed before a Civil Court. Execution of an award, beyond any cavil of doubt, would attract the provisions of Section 22 of the 1985 Act. Whereas an adjudicatory process of making an award under the 1993 Act may not come within the purview of the 1985 Act but once an award made is sought to be executed, it shall come into play. Once the awarded amount has been included in the Scheme approved by the Board, in our opinion, Section 22 of the 1985 Act would apply. 
XXX XXX XXX 
21. The 1985 Act was enacted in public interest. It contains special provisions. The said special provisions had been made with a view to secure the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts for 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." 
15. Furthermore, in a recent judgment of this Court in the case of Shree Sajjan Mills Limited & Ors. v. Municipal Corporation, Ratlam [(2009) 17 SCC 665], this Court was dealing with a company which had approached the BIFR for being registered as a sick company and was so declared on 21st November, 1989. The BIFR had recommended the winding up of the sick company but the AAIFR had taken the view that the company could be rehabilitated and, therefore, framed the scheme for its revival. For the purpose of revival, an Assets Sales Committee was constituted for selling, via tender process, the surplus land belonging to the appellant- company. The issue under consideration was that when the 20 per cent of the purchase price deposited by the tenderer as earnest money as per the terms and conditions of the sale was forfeited, whether the same could be challenged only before the BIFR or the civil courts could determine the dispute and whether the bar contained under Section 26 of the Act of 1985 would operate. This Court took the view as under: - 
"12. We agree with the view expressed by the High Court that the forfeiture of the earnest money by the Assets Sale Committee could not have been the subject- matter of a dispute within the meaning of Section 26 which either BIFR or AAIFR has the jurisdiction to determine. Accordingly, we see no reason to interfere with the judgment and order of the High Court impugned in this appeal." 
16. We may notice that though the Bench had noticed the view taken in the case of Jay Engineering (supra), no detailed reasoning was recorded for rejecting the said view. 

17. In order to affirmatively answer whether the view of this Court expressed in Shree Vallabh Glass Works (supra) is the correct and acceptable exposition of law, it is but necessary for this Court to examine the scheme of the Act of 1985 and some of its relevant provisions. As already noticed, the Act of 1985 was enacted by the Legislature, primarily with the object of establishing a specialized body for revival, rehabilitation and even winding up of sick industrial companies and wherever necessary, providing them with financial assistance. The provisions contained in Chapter III of the Act of 1985, which deals with References, Inquiries and Schemes, are the relevant provisions which can throw some light on the matter and issues before us. Section 15 of the Act of 1985 places an obligation upon an industrial company, which has become sick in terms of that provision, to make a reference to the BIFR established under Section 4 of the Act of 1985 within the period of limitation prescribed. While under Section 15(2) where the Central Government or Reserve Bank of India or a State Government or a Public Financial Institution has sufficient reasons to believe that any industrial company has become, for the purpose of the Act of 1985, a sick industrial company, would also make a reference of such company to the Board for determination of the measures which may be adopted with regard to such company. Section 16 of the Act of 1985 deals with the conduct of an inquiry by the BIFR and the manner in which the BIFR is expected to deal with the matter upon receipt of a reference under Section 15 of the Act of 1985. Section 16 vests the BIFR with very wide powers of inquiry and passing appropriate orders. Section 16(2) empowers the BIFR to pass an order, in its discretion, directing any operating agency to inquire into and to make a report with regard to the matters as may be specified in the order. Such operating agency is expected to complete the inquiry expeditiously and preferably within 60 days from the date of commencement of inquiry. The BIFR is vested with powers such as appointing special directors for the sick company and issuing directions to the special directors in relation to discharge of their duties and to improve the performance of any or all of the functions postulated under Section 16(6) of the Act of 1985. After the inquiry by the BIFR or by the operating agency is completed, BIFR if satisfied that the company has become sick and upon considering all relevant facts and circumstances of the case in exercise of its powers under Section 17 of the Act of 1985, may pass orders requiring the company to make its net worth exceed the accumulated losses within a reasonable time and for that purpose it may impose such restrictions or conditions as may specified in the order in terms of Section 17(2) of the Act of 1985. Further, where the BIFR decides 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 otherwise necessary or expedient in public interest to adopt all or any of the measures specified in Section 18 of the Act of 1985 in relation to the said company, it may, having regard to the guidelines, as may be specified, pass an order formulating a scheme providing for such measures in relation to the sick industrial company. In the event of non- compliance of the restrictions or conditions specified in the order of the BIFR or where the company fails to revive itself in pursuance to the order, the BIFR can pass any of the directions/orders as required under Section 17(4) of the Act of 1985. Section 18 of the Act of 1985 again is a remedial provision which contains specified guidelines for the preparation and sanction of the schemes for the revival of the sick industrial company. Where an order is made under Section 17(3) in relation to a sick industrial company, the operating agency is required to prepare, as expeditiously as possible, ordinarily within 90 days from the date of such order, a scheme with respect to such company providing for any one or more of the measures stated under sub-clauses (a) to (f) of Section 18(1) of the Act of 1985. The scheme so framed may provide for any one or more of the measures stated under clauses (a) to (m) of Section 18(2) of the Act of 1985. The scheme which has been prepared in consonance with the provisions of Section 18(1) and 18(2) then has to be examined by the BIFR in terms of Section 18(3) of the Act of 1985 and if the BIFR makes any modifications to the scheme, the same draft scheme, in brief, shall be published or caused to be published in such daily newspapers as the BIFR may consider necessary, for receipt of suggestions and objections, if any. In light of the suggestions and objections received in response to such publication, the BIFR may still make further modifications. Also, where the scheme relates to amalgamation of the companies, the procedures specified therein shall be followed. In such cases, the shareholders of the company, other than the sick industrial company, are expected to pass a resolution of approval of the scheme. The scheme thereafter shall be sanctioned by the BIFR and shall come into force on such date as the BIFR may specify in this behalf and in exercise of the powers vested in it under Section 18(4) of the Act of 1985. This scheme does not attain finality which is unalterable. Once the scheme is sanctioned and comes into force even then, on the recommendation of the operating agency, the BIFR can consider further modifications or even prepare a fresh scheme providing for such measures as the operating agency may consider it necessary and recommended in terms of Section 18(5) of the Act of 1985. 

18. Section 18(7) of the Act of 1985 is an important provision which provides that the sanction accorded by the BIFR shall be conclusive evidence that all the requirements of the scheme relating to reconstruction or amalgamation or any measure specified therein have been complied with and a copy of the sanctioned scheme certified in writing by an officer of the BIFR to be a true copy thereof shall be admissible as evidence in all legal proceedings. To resolve the difficulties that may arise in giving effect to the provisions to the sanctioned scheme, the BIFR may, on the recommendation of the operating agency or otherwise, by order do anything, not inconsistent with such provisions, which appears to it to be necessary or expedient for the purpose of removing difficulty in terms of Section 18(9) of the Act of 1985. The role of the BIFR does not end here and it may even periodically monitor the implementation of the scheme. 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 from the Government or financial institutions. Before any financial institution is called upon to proceed to release the financial assistance to the sick industrial company in fulfilment of the requirements in that regard, the procedure contemplated under the provisions of Section 19 of the Act of 1985 has to be followed. Where the BIFR, after making inquiry under Section 16 of the Act of 1985, considering all relevant facts and circumstances and giving an opportunity of being heard to all concerned parties, is of the 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 as per the provisions of Section 20 of the Act of 1985 whereafter the company shall be wound up in accordance with the provisions of the Companies Act, 1956. The High Court may even appoint any officer of the operating agency as the liquidator of the sick industrial company. Section 21 of the Act of 1985 requires the operating agency to prepare an inventory, if so directed by the BIFR. 

19. Sections 22 and 22A have a significant bearing upon the controversy that arises for consideration of the Court in the present case and it will be useful to refer to those provisions at this stage itself: 

"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 sections 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 the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof [and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. 
(2) Where the management of the sick industrial company is taken over or changed, in pursuance of any scheme sanctioned under section 18, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law – 
(a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company; 
(b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board. 
(3) Where an inquiry under section 16 is pending or any scheme referred to in section 17 is under preparation or during the period of consideration of any scheme under section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adoptions and in such manner as may be specified by the Board: 
Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate. 
(4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly, - 
(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and 
(b) on the declaration ceasing to have effect – 
(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and 
(ii) any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed. 
(5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded. 22A. Direction not to dispose of assets - The Board may, if it is of opinion that any direction is necessary in the interest of the sick industrial company or creditors or shareholders or in the public interest, by order in writing direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets – 
(a) during the period of preparation or consideration of the scheme under section 18; and 
(b) during the period beginning with the recording of opinion by the Board for winding up of the company under sub- section (1) of section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court. 
20. A bare reading of the above provision shows that Section 22 of the Act of 1985 is concerned with the suspension of legal proceedings, execution and distress sale etc. against the assets of a sick company while Section 22A deals with power of the Board to issue directions restraining the disposal of assets of such companies. These two provisions primarily ensure that the scheme prepared by the BIFR does not get frustrated because of certain other legal proceedings and to prevent untimely and unwarranted disposal of the assets of the sick industrial company. These sections clearly state certain restrictions which will impact upon the implementation of the scheme as well as on the assets of the company. These sections operate at different stages and in different fields. Section 22(3) of the Act of 1985 contemplates that where an inquiry under Section 16 is pending or any scheme referred to in Section 17 is under preparation or during the period of consideration of any scheme under Section 18 or where any such scheme is sanctioned thereunder for due implementation of the scheme, the BIFR may, by order, declare that with respect to the sick industrial company concerned, the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations or liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adoptions and in such manner as may be specified by the BIFR. This power of the BIFR is subject to the proviso which states that the declaration made under this provision shall not be for a period exceeding two years and which may be extended by one year at a time, but the total period shall not exceed seven years in aggregate. Section 22A of the Act of 1985 empowers the BIFR to pass orders in the interest of the sick industrial company or even in public interest requiring the sick industrial company not to dispose of, except with the consent of the BIFR, any asset during the period of preparation or consideration of the scheme under Section 18 of the Act of 1985 and during the period beginning with the recording of opinion for winding up of the company under Section 20(1) of the Act of 1985 by the BIFR upto commencement of the proceedings relating to winding up before the High Court. 

21. All these provisions which fall under Chapter III of the Act of 1985 have to be read conjointly and that too, along with other relevant provisions and the scheme of the Act of 1985. It is a settled canon of interpretation of statutes that the statute should not be construed in its entirety and a sub- section or a section therein should not be read and construed in isolation. Chapter III, in fact, is the soul and essence of the Act of 1985 and it provides for the methodology that is to be adopted for the purposes of detecting, reviving or even winding up a sick industrial company. Provisions under the Act of 1985 also provide for an appeal against the orders of the BIFR before another specialised body, i.e., the AAIFR. To put it simply, this is a self-contained code and because of the non obstante provisions, contained therein, it has an overriding effect over the other laws. As per Section 32 of the Act of 1985, the Act is required to be enforced with all its vigour and in precedence to other laws. 

22. The BIFR has been vested with wide powers and, being an expert body, is required to perform duties and functions of wide-ranged nature. If one looks into the legislative intent in relation to a sick industrial company, it is obvious that the BIFR has to first make an effort to provide an opportunity to the sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, failing which the BIFR has to formulate a scheme for revival of the company, even by providing financial assistance in cases wherein the BIFR in its wisdom deems it necessary and finally only when both these options fail and the public interest so requires, the BIFR may recommend winding up of the sick industrial company. So long as the scheme is under consideration before the BIFR or it is being implemented after being sanctioned and is made operational from a given date, it is the legislative intent that such scheme should not be interjected by any other judicial process or frustrated by the impediments created by third parties and even by the management of the sick industrial company, in relation to the assets of the company. In other words, the object and purpose of the Act of the 1985 is to ensure smooth sanctioning of the scheme and its due implementation. Both these stages, i.e., pre and post sanctioning of the scheme by the BIFR, are equally material stages where the provisions of Sections 22 and 22A read with Section 32 of the Act of 1985 would come into play. Such an approach would also be acceptable as otherwise the entire scheme under Chapter III of the Act of 1985 would be frustrated. Doctrine of frustration envisages that an exercise of special jurisdiction in futility, is neither the requirement of legislature nor judicial dictum. 

23. In Shree Vallabh Glass Works (supra), this Court had taken a general view that in the light of Sections 16 and 19 of the Act of 1985, no proceedings for execution, distress or the like against any of the property of the company shall be allowed to be proceeded further except with the consent of the BIFR. Reference in this regard was made to the provisions of the Section 22(1) of the Act of 1985. Despite non-obstante language of Section 22(1) and the prohibition contained therein, there is no absolute bar for institution and continuation of legal proceedings against a sick industrial company or its assets. The same can continue only after obtaining the consent of the BIFR or the AAIFR, as the case may be. Once permission is granted, the proceedings can continue and decree can be executed. In the case of Corromandal Pharmaceuticals & Ors. (supra), the scope of Section 22 of the Act of 1985 was sought to be restricted only to the items which have been reckoned or included in the scheme for rehabilitation failing which the recovery or proceedings in relation to that particular liability would continue despite the provisions of the Act of 1985. In that case the Court was concerned with the recovery of sales tax dues, which the sick industrial company was unable to collect after the date of sanction of the scheme. The revenue was due to the department and the recovery of such amount was held to be beyond the purview of the Act of 1985. 

24. In Jay Engineering (supra), the dictum of this Court was that the Act of 1985 is a complete code in itself and the provisions of Section 22 of the Act of 1985 would apply to an award made under the Interest on Delayed Payments to Small Scale and Ancillary Industries Undertaking Act, 1993, which would be governed by the provisions of the Arbitration and Conciliation Act, 1996. This Court also stated the principle that the Act of 1985 would have an overriding effect over other statutes, i.e. the 1993 Act in that case. However, the question whether the BIFR, while implementing the scheme, could reduce the quantum of liability of the creditors was left open. 

25. Firstly, the facts of these cases are different and distinct and, therefore, conclusions of the Court have to be read with reference to the facts of the respective cases only and not de hors thereof. Once the dictum of this Court is read with reference to the facts of the respective cases, it would be evident that there is no conflict of views within the ambit of ratio decidendi of the respective judgments to make both of them legal and binding precedents. Despite these judgments and with an intention to clarify the law, we would state that the matters which are connected with the sanctioning and implementation of the scheme right from the date on which it is presented or the date from which the scheme is made effective, whichever is earlier, would be the matters which squarely fall within the ambit and scope of Section 22 of the Act of 1989 subject to their satisfying the ingredients stated under that provision. This would include the proceedings before the civil court, revenue authorities and/or any other competent forum in the form of execution or distress in relation to recovery of amount by sale or otherwise of the assets of the sick industrial company. It is difficult for us to hold that merely because a demand by a creditor had not been made a part of the scheme, pre or post-sanctioning of the same for that reason alone, it would fall outside the ambit of protection of Section 22 of the Act of 1985. The BIFR, being a specialised body which is required to act as per the legislative intent indicated above, has jurisdiction to examine the matter and grant or refuse its consent for institution, continuation and recovery of dues payable to a particular creditor, whatever the nature of such dues may be. If such an interpretation is not given, the very purpose of the Act of 1985 may stand defeated. For instance, a scheme is sanctioned by the BIFR and is at the stage of successful completion, where demand from the Revenue with regard to the sick industrial company is allowed, this can render the scheme ineffective and impossible to be executed, if permitted to be enforced against such company without approval/consent of the specialised body like the BIFR. 

26. Section 22A was introduced by the Amending Act 12 of 1994. The obvious intent of introducing the said provision was to empower the BIFR to issue any direction to the sick industrial company, its creditors and shareholders, in the interest of the company or even in public interest, directing the company not to dispose of any assets, except with the consent of the BIFR. The directions so issued are to remain in force during the preparation and consideration of the scheme. BIFR is also vested with similar powers where it recommends to the High Court for winding up of a company. The directive issued by BIFR would remain in force upto the commencement of the proceedings for winding up before the High Court. Section 22 is the reservoir of the statutory powers empowering the BIFR to determine a scheme, right from its presentation till its complete implementation in accordance with law, free of interjections and interference from other judicial processes. Section 22(1) deals with the execution, distress or the like proceedings against the company's properties, including appointment of a Receiver. It also specifically provides that even a winding up petition would not be instituted and no other proceedings shall lie or proceed further, except with the consent of the BIFR. In contradistinction to this power, Section 22(3) states that pending an enquiry or a scheme under the provisions of the Act of 1985 and even where the scheme is sanctioned, for the due implementation of such scheme, the BIFR may, by an order, declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights or privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended and shall be enforceable with such adoption and in such a manner as may be specified by the BIFR. In other words, all those instruments to which the sick industrial company is a party, will be subject to the orders of the BIFR. Further, such proceedings can even be modified by the BIFR, of course, for the limited purpose of implementing the scheme. The declarations made by the BIFR under Section 22(3) are subject to the restrictions of time as stated under the proviso to this section. The maximum period for which such a declaration in aggregate can continue is seven years. The legislative intent of giving an over-riding effect to the declarations of the BIFR, as contemplated under Section 22(3) of the Act of 1985, is further fortified by the language of Section 22(4), which states that any declaration made under Section 22(3) shall take effect notwithstanding anything contained in the Companies Act, 1956 or any other law, the memorandum and articles of association of the company or any instrument, decree, order of a court, settlement etc. Any remedy for enforcement of a right which may be available to a third party and any such proceedings before any court or tribunal shall remain stayed or be continued subject to such declaration. Section 22(4)(b) brings status quo ante and in fact, makes it clear that on cessation of such a declaration, the right, privilege, obligation or liability which was suspended shall become revived and enforceable as if the declaration had never been made. The proceedings will continue from the stage at which they were stayed. It can safely be perceived that the provisions of Section 22 of the Act of 1985 are self-explanatory. They would cease to operate within their own limitations and not by force of any other law, agreement, memorandum or even articles of association of the company. The purpose is so very clear that during the examination, finalization and implementation of the scheme, there should be no impediment caused to the smooth execution of the scheme of revival of the sick industrial company. It is only when the specified period of restrictions and declarations contemplated under the provisions of the Act of 1985 is over, that the status quo ante as it existed at the time of the consideration and finalization of the scheme, would become operative. This is done primarily with the object that the assets of the company are not diverted, wasted, taken away and/or disposed of in any manner, during the relevant period. 

27. The powers of the BIFR under Section 22(3) can be segregated under two different heads. Firstly, the power to suspend simplicitor the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or any other instrument in force, to which the sick industrial company is a party or which may be applicable to the sick industrial company before the date of such order. Secondly, any rights, privileges, obligations or liabilities accruing or arising before the said date, shall be enforceable with such adaptation and in such manner as may be specified by the BIFR. 

28. This dissection clearly demonstrates the intent of the framers of law, that the BIFR has the power to even make changes in such instruments, documents etc. which create rights and liabilities vis-`-vis the sick industrial company, and before permitting them to be enforced. Such an approach alone can be justified, as otherwise the expression `shall be enforceable with such adaptation and in such manner as may be specified by the BIFR would be meaningless. It is a settled principle of interpretation of statutes that every word and expression used by the legislature has to be given its proper and effective meaning as the legislature uses no expression without purpose or meaning. The maxim Lex Nil Frusta Jubet i.e. Law Commands nothing vainly further elucidates this principle. Of course, the power to make this declaration as already noticed is controlled by limitation of time as specified in the proviso to the Section. Lifting of such declaration by lapse of time or otherwise or in accordance with the provisions of Section 22(4) shall bring the status quo ante as if such declaration had never been made. Section 22A is obviously a power over and above the wide powers vested in BIFR under the provisions of Section 22 of the Act of 1985. Section 22 is the reservoir of the statutory powers empowering the BIFR to deal with the scheme, right from its presentation till its complete implementation in accordance with law, free of interjections and interference from other judicial processes. 

29. Section 22A of the Act of 1985 empowers the BIFR to pass injunctive or restraint orders in relation to the assets of the sick industrial company. These injunctive orders are to be in operation during the period of preparation or consideration of the scheme under Section 18 of the Act of 1985. Section 22A, thus, has a narrower scope than Section 22. Section 22 operates from the presentation of the scheme, its consideration, preparation, finalization and ultimately the implementation of the said scheme and consequent rehabilitation of the sick industrial company, while Section 22A operates only during the preparation or consideration of the scheme, or upto the commencement of the proceedings for winding up before the concerned High Court, in the event the BIFR recommends winding up proceedings. 

30. The relevant provisions of the Act of 1985 clearly demonstrate that BIFR is vested with the power to issue directions in the interest of the company or even in public interest, to prevent the disposal of assets of the company during the period of preparation, consideration or implementation of the scheme. Not only this, BIFR is expected to ensure proper implementation by appropriately monitoring the scheme during the entire relevant period. Sections 22 and 22A thus specify the complete jurisdiction and authority of the BIFR in relation to preparation, consideration, finalization and implementation of a revival scheme in relation to a sick industrial company. 

31. Where Section 22(1) deals with the restrictions and limitations vis-`-vis the court proceedings while Section 22(3) of the Act of 1985 deals with the agreement, intents or other obligations as stated in that provision and declarations which will be made by the BIFR for the purposes of finalization and effective implementation of the scheme. There, Section 22A deals with restrictions and prohibitory orders which the BIFR can pass, all for the purposes of preparation of the scheme and proper implementation and effective management of the revival of the sick industrial company. These provisions have to be read along with the provisions of Section 26 of the Act of 1985 which ousts the jurisdiction of the civil courts and vests exclusive jurisdiction for the specified purposes with the BIFR. Another relevant provision in this regard is Section 32 of the Act of 1985, which gives an overriding effect to the provisions of the Act of 1985 over the other laws in force except the law specifically stated therein. Sections 22, 22A, 26 and 32 have to be read and construed conjointly. A common thread of legislative intent to treat this law as a special law, in contradistinction to the other laws except the laws stated in the provisions and to ensure its effective implementation with utmost expeditiousness, runs through all these provisions. It also mandates that no injunction shall be granted by any court or authority in respect of an action taken or to be taken in pursuance of the powers conferred to or by under this Act. 

CASE LAW 

32. In the case of Shree Vallabh Glass Works Ltd. (supra), as already noticed, this Court had taken a very wide view and given liberal constructions to the provisions of Section 22 and held that no proceedings for execution or distress or like proceedings against any of the properties of the company shall lie or be proceeded, except with the consent of the BIFR. The Court also held that the BIFR, at its discretion, may accord its approval for proceeding against the company. This view of wide interpretation was accepted by another Bench of this Court in the case of Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra [(1993) 2 SCC 144], wherein this Court took the view that the word `proceedings' under Section 22(1) cannot be given a narrower or restricted meaning to limit the same to a legal proceeding and even the proceedings invoked by a financial institution under the State Financial Corporation Act were held to be covered within the ambit of Section 22(1) of the Act of 1985. A similar view was also taken in the case of Tata Davy Ltd. v. State of Orissa [AIR 1998 SC 2928]. Answering the question that steps to recover the sales tax under Section 13A of the said Act were in the nature of proceedings by way of execution, distress or the like contemplated by Section 22(1) of the Act, this Court followed its earlier view and held that even the proceedings for recovery of tax under the State Act were covered within the scope of Section 22(1) of the Act of 1985, and thus, could not be given effect to without approval/consent of the BIFR. 

33. As already noticed above, in the case of Corromandal Pharmaceuticals (supra), this Court had taken the view that the bar or embargo envisaged in Section 22(1) can apply only to such of those cases where it is reckoned or included in the sub-judice schemes. Amounts like the sales tax which the sick industry is unable to collect after the date of the sanction of the scheme, had to be recovered in the normal course, by the Revenue and protection of Section 22(1) was not available. 

34. This view, however, was not clearly adopted by this Court in subsequent judgments of Jay Engineering (supra), where this Court accepted the wider connotation of the words `proceedings' appearing in Section 22(1) where an award passed under the Interest on Delayed Payments to Small Scale and Ancillary Industries Undertaking Act, 1993 was being executed, the Court took the view that the award could not be executed against the sick industry without the leave of the BIFR as the Act of 1985 would override the provisions of the 1993 Act and approval of the BIFR was essential. Still in another case, Morgan Securities and Credit Pvt. Ltd. (supra), this Court had held that the Act of 1985 has an overriding effect and Section 22(3) of the Act even covers the execution of non-contractual liabilities like enforcement of an arbitral award. The Court further held that the imperative character of an enquiry at the hands of the BIFR is inherent in the scheme of the Act. The Court also expressed doubt as to whether the courts of limited jurisdiction, vested with the power of passing interim orders, could pass interim orders in exercise of its incidental power for sale of assets where the matter was pending before the BIFR. 

35. On the analytical analysis of the above-stated dictum of this Court and the legislative purpose and object of the Act, it has to be held that on its plain reading the provisions of Sections 22(1) and 22(3) of the Act are the provisions of wide connotation and would normally bring the specified proceedings, contractual and non-contractual liabilities, within the ambit and scope of the bar and restrictions contained in Sections 22(1) and 22(3) of the Act of 1985 respectively. The legislative intent is explicit that the BIFR has wide powers to impose restrictions in the form of declaration and even prohibitory/injunctive orders right from the stage of consideration of a scheme till its successful implementation within the ambit and scope of Sections 22(3) and 22A of the Act. Section 22 of the Act of 1985 is very significant and of wide ramifications and application. More often than not, the jurisdiction of the BIFR is being invoked, necessitated by varied actions of third parties against the sick industrial company. The proceedings, taken by way of execution, distress or the like, may have the effect of destabilizing the finalization and/or implementation of the scheme of revival under consideration of the BIFR. It appears that, the Legislature intended to ensure that no impediments are created to obstruct the finalization of the scheme by the specialized body. To protect the industrial growth and to ensure revival, this preventive provision has been enacted. The provision has an overriding effect as it contains non obstante clauses not only vis-`-vis the Companies Act but even qua any other law, even the memorandum and articles of association of the industrial company and/or any other instrument having effect under any other Act or law. These proceedings cannot be permitted to be taken out or continued without the consent of the BIFR or the AAIFR, as the case may be. The expression `no proceedings' that finds place in Section 22(1) is of wide spectrum but is certainly not free of exceptions. The framers of law have given a definite meaning to the expression `proceedings' appearing under Section 22(1) of the Act of 1985. These proceedings are for winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a Receiver in respect thereof. The expression `the like' has to be read ejusdem generis to the term `proceedings'. The words `execution, distress or the like' have a definite connotation. These proceedings can have the effect of nullifying or obstructing the sanctioning or implementation of the revival scheme, as contemplated under the provisions of the Act of 1985. This is what is required to be avoided for effective implementation of the scheme. The other facet of the same Section is that, no suit for recovery of money, or for enforcement of any security against the industrial company, or any guarantee in respect of any loan or advance granted to the industrial company shall lie, or be proceeded with further without the consent of the BIFR. In other words, a suit for recovery and/or for the stated kind of reliefs cannot lie or be proceeded further without the leave of the BIFR. Again, the intention is to protect the properties/assets of the sick industrial company, which is the subject matter of the scheme. It is difficult to state with precision the principle that would uniformly apply to all the proceedings/suits falling under Section 22(1) of the Act of 1985. Firstly, it will depend upon the facts and circumstances of a given case, it must satisfy the ingredients of Section 22(1) and fall under any of the various classes of proceedings stated thereunder. Secondly, these proceedings should have the impact of interfering with the formulation, consideration, finalization or implementation of the scheme. Once these ingredients are satisfied, normally the bar or limitation contained in Section 22(1) of the Act of 1985 would apply. For instance, execution of a decree against the assets of a company, if permitted, is bound to result in disturbing the scheme, which has or may be framed by the BIFR. The sale of an asset during such execution or even withdrawing the money from the bank account of the company would certainly defeat the very purpose of the protection sought to be created by the Legislature under Section 22(1) of the Act of 1985. On the other hand, a proceeding taken out for possession of the tenanted premises, under the provisions of Karnataka Rent Control Act, have been held to be proceedings not falling within the ambit and scope of Section 22(1) of the Act of 1985. This was for the reason that the contractual tenancy between the company and the owner had been terminated and the company only had an interest as a statutory tenant. Such interest was neither assignable nor transferable. This Court held that it could not be regarded as `property' of the sick company for the purposes of the provisions of Section 22(1) and as such, these provisions were not attracted. (M/s. Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association, Madras [AIR 1992 SC1439]). 

36. Referring to the facts of the present case, the land was one of the major assets of the Respondent Company and in the event the said asset was kept outside the scope of the scheme or its sale was permitted by the BIFR, probably the company could never be revived and any effort in that direction de hors such asset of the company would be in futility. Besides, the fact that the statutory protection contained in Section 22(3) was available to the company, it could be stated with more emphasis that the BIFR could even adopt and permit the transaction with such adoption as it may have deemed appropriate. The imperative nature of the functions of the BIFR under the provisions of the Act of 1985 and the overriding effect of its provisions fully support such a view. 

Overriding effect of the Act of 1985 :- 

37. This Court has taken the view in Tata Motors Ltd. [(2008) 7 SCC 619] that the Act of 1985 has been enacted to secure the principles specified in Article 359 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. As the Act of 1985 is a special law and on the principle that a special law will prevail over a general law, it is permissible to contend that even if the provisions contained in Section 22(1) read with Section 32 of the Act, giving overriding effect vis-`- vis the other laws, other than the Foreign Exchange Regulation Act, 1973 and the Urban Land Ceiling and Regulation Act, 1976 had not been there, the provisions of the general law like the Companies Act, for regulation, incorporation, winding-up etc. of the companies would have still been overridden to the extent of inconsistency. We have already seen that this Court had, in the case of Jay Engineering (supra), taken the view that the Interest on Delayed Payments to Small Scale and Ancillary Industries Undertaking Act, 1993 shall have to give way for enforcement of the provisions of the Act of 1985. In the case of Tata Davy (supra) also, the Court took the view that the State Sales Tax Act would have to be read and construed in comity to the provisions of the Act of 1985 which shall have the overriding effect. In the case of Tata Motors Ltd. v. Pharmaceuticals Product of India Ltd. (supra), this Court was concerned with the provisions of mismanagement and oppression contained in Sections 391 and 394 of the Companies Act and whether the Company Court will have the jurisdiction to pass orders in preference to the proceedings pending before the Court under the Act of 1985. The Court while holding the primacy of the Act of 1985 held as under: - 
"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. 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." 
38. Even in the case of NGEF Ltd. v. Chandra Developers (P) Ltd. and Anr. [(2005) 8 SCC 219], this Court specifically reiterated and with emphasis the principle that the provisions of the Act of 1985 contained non-obstante clauses, it is a special statute which is a complete code in itself and that the jurisdiction of the Company Court in such matters would arise only when AAIFR and BIFR have exercised their jurisdiction under Section 20 and 25 respectively of the Act of 1985. The provisions of SICA would prevail over the provisions of the Companies Act. 

39. From the above judgments of this Court, the unambiguous principle of law that emerges is that the provisions of the Act of 1985 shall normally override the other laws except the laws which have been specifically excluded by the Legislature under Section 32 of the Act of 1985. The Act of 1985 has been held to be a special statute vis-`-vis the other laws, most of which have been indicated above. In the present case, we are concerned with the provisions of the Act of 1882. It is the case of the respondent-company before us that they have got an interest in the immovable property by virtue of the Memorandum of Understanding, Agreements dated 1st March, 2007 and 17th August, 2010 and by part performance, as they had been given possession of the land in question. It was contended that as their interests were duly protected under the provisions of the Act of 1882, the BIFR/AAIFR, in exercise of its powers under Sections 22(1), 22(3) and 22A of the Act of 1985, cannot place any restriction upon their title or interest in the immovable property. In other words, the contention is that vis-`-vis the Act of 1985, the provisions of the Act of 1882 shall prevail. 

40. The Act of 1882 is a general law and controls and operates in a very wide field. It was an Act enacted for and related to transfer of immovable property in India and to decide the disputes as well as to resolve the confusion and conflict, which was in existence, as the courts were forced to decide the disputes according to their own notions of justice and fair play. The Act of 1882 does not have application to a particular situation or class of persons. On the contrary, the Act of 1985 is a special legislation providing for imperative functioning of specialized bodies like the BIFR and AAIFR and is intended to apply to a very specific situation, i.e., where a company is a sick industrial company. It has no application even to other different kinds of companies within the purview of the Companies Act, except sick industrial companies. The Legislature has undoubtedly given an overriding effect to the provisions of the Act of 1985 and even restricted the jurisdiction of the civil courts, as is demonstrated from the language of Sections 26 and 32 of the Act of 1985. Thus, we have no hesitation in holding that the provisions of the Act of 1985 shall prevail over the provisions of the Act of 1882.

8 comments:

  1. Overriding effect of SICA on TP Act.

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  2. What would be the impact of Section 22 on Criminal Proceedings initiated under different statutes on a company for non compliance of those statutes???

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  3. Criminal proceedings won't be stayed/affected by Section 22 SICA. They will continue

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  4. Ind. Co whose reference is dismissed by BIFR after 12 yrs of consideration of scheme etc. and while dismissing the ref. BIFR specifically ordered that the Creditors, Bankers etc. can take suitable action for recovery of their dues as per any other law and the protection given U/S 22 of SICA in 2002 is hereby withdrawn, can any one please guide as to whether a money decree holder whose decree for recovery of money against the co is passed after the dismissal of BIFR reference and the Ind. Co has just submitted an appeal under sec. 25 of SICA to AAIFR but there is no order or proceeding from AAIFR is available , CAN THE MONEY DECREE HOLDER PRESS FOR RECOVERY OF MONEY DECREE AGAINST THE IND. CO? Thanks & regards.

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    Replies
    1. Sure. If you are a decree holder you can file a Execution Petition of the said decree in the Civil Court. During Execution, Company can not claim that it have protection under section 22(1) of SICA.

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  5. Thank you for the information you are providing to us is awesome and really it seems worthy to me.

    ReplyDelete
  6. Dear Solankiji.Thanks for yr reply of 19/08/2016.I would like to convey that after passing of Judgement & Money Decree by Court I have filed Darkhast for Execution of the Money Decree.Co had taken stand that ts appeal was pending before AAIFR as its Application was dismissed by BIFR after the Company dragged the case for about 12 yrs.( in 2014). AAIFR after 2 yrs approved appeal & the case is again referred to BIFR .Almost 3 hearings r over.No scheme is approved. In the meanwhile the Co has sold out one property and mortgaged one property to a Bank as security for loan of an Associate concern- Co of MD's wife.I have read the case laws referred by u. We had referred these while pleading for execution of Degree. Now the matter is pending for last 1 yr for the co's stand is that it required BIFR approval for execution. Please gide me.

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