2014 (1) TMI 1858 - HC - Companies Law

Court upholds injunction against BIFR, affirms civil court jurisdiction. Appeal dismissed due to lack of leave. BIFR proceedings from 2013 stayed.

Ghanshyam Sarda and Ors. Versus Shiv Shankar Trading Co. and Ors.

Ghanshyam Sarda and Ors. Versus Shiv Shankar Trading Co. and Ors. - TMI Issues Involved:1. Legality and validity of the injunction order restraining the BIFR from proceeding further.2. Jurisdiction of the civil court to entertain the suit and grant the injunction.3. Legality and validity of the proceedings before the BIFR and its orders.4. Participation of a BIFR member who had earlier recused himself.Detailed Analysis:1. Legality and Validity of the Injunction Order:The plaintiff, an unsecured creditor of the company declared as a sick industrial company, filed T.S. No. 166 of 2013 seeking a declaration that the company is not a sick company and an injunction to restrain the BIFR from proceeding further. The learned Civil Judge No. 3, Kamrup, Guwahati passed an injunction order on May 13, 2013, restraining the BIFR from proceeding with BIFR Case No. 149 of 1994. The injunction was granted based on the plaintiff's contention that the company's net worth had turned positive, thus removing it from the purview of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The civil court held that it had jurisdiction to grant the injunction as the company was no longer a sick industrial company.2. Jurisdiction of the Civil Court:The appellant challenged the injunction order on the grounds that the civil court lacked jurisdiction under sections 22(1) and 26 of the SICA, which bar the jurisdiction of civil courts in matters over which the BIFR or AAIFR have authority. The appellant also argued that the Civil Court at Guwahati lacked territorial jurisdiction as the registered office of the company is in Kanpur, Uttar Pradesh, and the BIFR is located in New Delhi. However, the court held that the civil court has inherent power to determine its own jurisdiction and that the bar of jurisdiction is not to be readily inferred. The court also noted that the appellant had not sought leave to file the appeal and had not raised the jurisdictional issue before the civil court.3. Legality and Validity of BIFR Proceedings and Orders:Despite the injunction order, the BIFR proceeded with the case, holding that the civil court's order was void and that it was corum-non-judice. The BIFR directed the State Bank of India to appoint an independent auditor to examine the company's net worth as of December 31, 2012. The court held that the BIFR, being a quasi-judicial body, could not ignore the civil court's order and must respect it until it is vacated or recalled by an appropriate judicial forum. The court emphasized that the BIFR's proceedings from May 13, 2013, onwards would stand stayed and be of no legal consequence.4. Participation of a Recused BIFR Member:The company challenged the participation of a BIFR member, Sri J.P. Dua, who had earlier recused himself from the proceedings due to his association with the Sarda brothers. Despite this, Sri J.P. Dua participated in the proceedings on September 5, 2013. The court held that justice must be seen to be done, and a member who has recused himself should not participate again in the proceedings to avoid any apprehension of bias.Conclusion:The court dismissed the appeal filed by the appellant, holding it not maintainable due to the lack of leave to file the appeal and the failure to raise the jurisdictional issue before the civil court. The court upheld the injunction order of the civil court, restraining the BIFR from proceeding with BIFR Case No. 149 of 1994. The court also directed that the proceedings before the BIFR from May 13, 2013, onwards would stand stayed and be of no legal consequence. Additionally, the court directed that the BIFR member who had recused himself should refrain from participating in the proceedings.