Civil court scrutiny of BIFR reference resolutions depends on a prima facie case of fraud or illegality before interim restraint is justified.
A civil court may examine the legality of a board resolution authorising a reference to BIFR where the challenge alleges fraud, device, stratagem, or other mala fide conduct, despite the statutory bar on injunctions. On the facts discussed, the short notice for the board meeting was not shown to be unreasonable, and the materials did not establish prima facie illegality, interested-director disqualification, or fraud. Questions concerning industrial sickness, accounting treatment, and rehabilitation were treated as matters for the statutory forum, so interim restraint against making the reference was not justified.
Issues: (i) Whether the civil court had jurisdiction to restrain the defendants from making a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 despite the statutory bar and the nature of the relief sought. (ii) Whether the board meeting held on 20-9-1997 and the resolution approving the accounts and authorising reference to BIFR were invalid for want of reasonable notice, lack of application of mind, interested directors, or fraud. (iii) Whether the plaintiff had made out a case for interim injunction.
Issue (i): Whether the civil court had jurisdiction to restrain the defendants from making a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 despite the statutory bar and the nature of the relief sought.
Analysis: The statutory bar in section 26 was read as not excluding jurisdiction where the challenge was to the legality of the board resolution itself and not to any matter which the BIFR was empowered to determine. The Court also held that a civil court can intervene where the pleaded facts disclose a prima facie case of fraud, device, stratagem, or other mala fide conduct, and that the bar against injunctions could not be used to shield an alleged misuse of statutory process. The suit was therefore treated as maintainable at least for the purpose of examining the validity of the impugned resolution.
Conclusion: The civil court's jurisdiction was held to be available, subject to the merits of the challenge.
Issue (ii): Whether the board meeting held on 20-9-1997 and the resolution approving the accounts and authorising reference to BIFR were invalid for want of reasonable notice, lack of application of mind, interested directors, or fraud.
Analysis: The Court found that the notice period, though short, was not shown to be unreasonable in the facts, particularly because the financial institutions had prior knowledge of the company's deteriorating position and there had been continuing correspondence regarding restructuring. The Court further held that the agenda did not disclose any transaction attracting disqualification under sections 299 and 300 of the Companies Act, and that the alleged credit notes and accounting changes did not establish disqualification or illegality on the materials then available. The plea of fraud or stratagem was also not accepted prima facie, since the materials showed a continuing restructuring exercise and prior disclosure of the company's financial distress.
Conclusion: The meeting and resolution were not held invalid on the grounds urged by the plaintiff.
Issue (iii): Whether the plaintiff had made out a case for interim injunction.
Analysis: The Court held that the issues raised regarding sickness, accounting treatment, and the propriety of the reference to BIFR were matters that could properly be examined by the BIFR. It also found no sufficient prima facie basis for restraint, and held that the balance of convenience did not justify interference with the defendants' statutory right to make a reference under section 15. The plaintiff's objections based on the earlier Bombay proceedings were not accepted as creating a bar in the present proceedings.
Conclusion: No interim injunction was granted.
Final Conclusion: The application for interim relief failed, and the dispute was left to proceed before the BIFR on the question of industrial sickness and consequential action.
Ratio Decidendi: A civil court may not be restrained from examining the legality of a board resolution merely because the proposed consequence is a reference under the sick industrial companies legislation, but interim restraint will not be granted unless a prima facie case of fraud or other invalidating illegality is shown; matters relating to sickness and rehabilitation are to be examined by the statutory forum.
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