Case BriefsHigh Courts

Delhi High Court: A Division Bench comprising of Sanjiv Khanna and Pratibha M. Singh, JJ dismissed a writ petition before it which challenged the constitutional validity of Section 4(b) of the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (hereinafter the ‘Repeal Act’).

The petitioner claimed to be engaged in manufacturing a full range of industrial equipment for sugar and other industries. It claimed to have run a highly profitable business till 1994-95. after which it started facing severe losses. The petitioner was consequently declared a sick company in 1999 by the Board for Industrial & Financial Reconstruction (hereinafter ‘BIFR’) and IDBI was appointed as the operating agency for the purposes of formulating the scheme. During the pendency of the draft rehabilitation scheme, the Repeal Act was enforced and the proceedings before BIFR were abated.

The petitioner’s grievance is that it’s scheme, which was pending before BIFR, was at a very advanced stage and was almost on the verge of acceptance a day prior to the notification. The petitioner had taken several steps throughout the lengthy process and had undergone, several rounds of the proceedings before the BIFR and the Appellate Authority for Industrial & Financial Reconstruction (hereinafter ‘AAIFR’) and that it was mere misfortune that the scheme was not approved by the BIFR on 30th November, 2016 and the notification came on 1st December, 2016. The petitioner, in effect, challenged the vires of Section 4(b). The petitioner also argued that classification between cases where schemes were pending and schemes that were sanctioned was not based on any intelligible differentia and does not satisfy the object sought to be achieved.

The Court rejected the arguments stating that the provision which differentiates between sick companies with approved draft schemes and those without one does not violate Article 14 of the Constitution of India. It also rejected the argument that the petitioner had a legitimate expectation pertaining to their claims. The Court observed that there was no legal basis to this argument, considering the right of the petitioner to approach the appropriate forum had not been taken away. Petition dismissed. [M/s ATV Projects (India) Ltd v. Union of India, 2017 SCC OnLine Del 12136, decided on 05.12.2017]

Case BriefsSupreme Court

Supreme Court : While dealing with the issue relating to jurisdiction of BIFR in winding up proceedings, the Court held that winding up proceedings before the Company Court cannot continue after a reference has been registered by the BIFR and an enquiry has been initiated under Section 16 of the SICA

In the present case, the appellants Madura Coats had filed a petition in the Company Court for winding up of Modi Rubbers on the allegation that Modi Rubbers was unable to pay its huge undisputed debts. The Company Court passed an order for winding up of the Company. Modi Rubbers appealed before the Divisional bench of the High Court which had set-aside the order of the Company Court on the pretext that Modi Rubbers had made an application to BIFR- Board of Industrial & Financial Reconstruction under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and hence should be entitled to the benefits of the provisions of Section 22 of the SICA. The  Court discovered that Modi Rubbers was willing to pay the dues to Madhura Coats in terms of the rehabilitation scheme passed by BIFR. The Court also based it’s reliance on Real Value Appliances Ltd. v. Canara Bank, (1998) 5 SCC 554, where the question was raised that whether on the registration of a reference, the Division Bench of the High Court could pass orders in an appeal against an interim order passed by the Company Court , to which the Court had replied that the SICA is intended to revive and rehabilitate a sick industry before it can be wound up under the Companies Act. The legislative intention is to ensure that no proceedings against the assets of the company are taken before any decision is taken by the BIFR because if the assets are sold or the company is wound up, it may become difficult to later restore the status quo ante.

The bench comprising of Madan B. Lokur J., finally concluded that the Company Court and the BIFR do not exercise concurrent jurisdiction. Till the company remains a sick company having regard to the provisions of sub-section (4) of Section 20 [of the SICA], BIFR alone shall have jurisdiction as regards sale of its assets till an order of winding up is passed by a Company Court and hence set aside the order passed by the Company Court and upheld the order passed by the Divisional bench of High Court. [Madura Coats Limited v. Modi Rubber Ltd., 2016 SCC OnLine SC 626, decided on 29.06.2016]