BIFR's Exclusive Jurisdiction Over Sick Companies Affirmed by Supreme Court

The Supreme Court emphasized the jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR) over a sick company until formally discharged, stating that only BIFR can declare a company no longer sick. It held that Civil Courts lack competence to make such declarations and reiterated that suits against sick companies without BIFR consent are not valid. The Court questioned the sale of company assets without BIFR permission and imposed costs for non-disclosure of material facts. The Court allowed the appeals, directing the company to remain under BIFR's jurisdiction until its net worth turns positive, and instructed BIFR to assess this within two months.

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Issues Involved:
1. Jurisdiction of BIFR over a company once declared sick.
2. Competence of Civil Court to declare a company no longer sick.
3. Validity of civil suits for recovery of money against a company under BIFR without its consent.
4. Sale of company assets without BIFR's permission.
5. Costs and penalties for non-disclosure of material facts.

Detailed Analysis:

1. Jurisdiction of BIFR over a company once declared sick:
The Supreme Court emphasized that the jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR) over a company continues until it is formally discharged by BIFR, either after the net worth of the company turns positive due to successful implementation of a revival scheme or by an order of winding up. The BIFR alone has the competence to declare a company no longer sick and discharge it from the purview of the Act. The Court highlighted that the BIFR has complete supervisory control over the affairs of a sick company from the stage of registration of reference until its revival or winding up, and this includes determining whether the company has ceased to be sick.

2. Competence of Civil Court to declare a company no longer sick:
The Supreme Court held that the Civil Court lacks jurisdiction to declare a company no longer sick and to decide whether the BIFR has lost jurisdiction over the company. The Court stated that any assertion or claim that a company has revived itself must be dealt with by the BIFR. The suit seeking such a declaration was deemed not competent and maintainable. The Court emphasized that the BIFR alone can determine whether the net worth of a company has turned positive and whether it should be discharged from its jurisdiction.

3. Validity of civil suits for recovery of money against a company under BIFR without its consent:
The Supreme Court reiterated that under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, no suit for recovery of money or enforcement of any security against an industrial company can lie or be proceeded with without the express consent of the BIFR. The suit filed without such consent was deemed not competent and maintainable. The Court referred to previous judgments, including Managing Director, Bhoruka Textiles Limited v. Kashmiri Rice Industries and Raheja Universal Limited v. NRC Limited, to support this view.

4. Sale of company assets without BIFR's permission:
The Supreme Court held that the sale of the Katihar property by the company without the express leave or permission of the BIFR was questionable. The Court directed the BIFR to assess the necessity and adequacy of the sale and to take appropriate action, including possibly confirming the sale or requiring the transferee to make good any deficit if the sale value was found inadequate.

5. Costs and penalties for non-disclosure of material facts:
The Supreme Court imposed costs of Rs. 5 lakhs on the original plaintiff for non-disclosure of essential facts, such as seeking consent from the BIFR and the BIFR's ongoing consideration of the company's net worth. The costs were to be deposited within three months to the Supreme Court Legal Services Authority, failing which contempt action would be initiated. The Court refrained from imposing costs on the company due to its status as a sick company.

Conclusion:
The Supreme Court allowed the appeals, set aside the High Court's order, and held that the Title Suit No. 166 of 2013 was not maintainable insofar as it sought to declare the company no longer sick. The company was directed to remain under BIFR's jurisdiction until BIFR was satisfied that the net worth had turned positive. The BIFR was directed to complete this assessment within two months. The Court also addressed the sale of the Katihar property and imposed costs on the original plaintiff for non-disclosure of material facts.

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