Court invalidates company's reference to BIFR under SICA, allowing winding-up. Stay granted for appeal.

The Court found the reference filed by the Respondent Company before the BIFR to be non-est due to the 2nd proviso to Section 15(1) of SICA, 1985. Consequently, the winding-up petition was allowed to proceed as the protection under Section 22 of SICA, 1985, did not apply. The Respondent Company was deemed commercially insolvent, leading to its winding up and the appointment of the Official Liquidator. A stay on the winding-up order was granted for four weeks to enable the Respondent Company to appeal.

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Issues Involved:
1. Petition for winding up the Respondent Company due to inability to pay debts.
2. Validity of the reference filed by the Respondent Company before the Board for Industrial and Financial Reconstruction (BIFR).
3. Application of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA, 1985).
4. Interpretation of the 2nd and 3rd proviso to Section 15(1) of SICA, 1985.
5. The impact of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) on the reference to BIFR.

Detailed Analysis:

1. Petition for Winding Up the Respondent Company:
The Petitioners sought to wind up the Respondent Company on the ground that it was unable to pay its debts. The Respondent Company had defaulted on a Rupee Term Loan of Rs. 275 Crores, which was secured by various agreements and guarantees. Despite several notices and admissions of liability, the Respondent Company failed to make the required payments. Consequently, the Petitioners issued a statutory notice under Sections 433 and 434 of the Companies Act, 1956, demanding payment of Rs. 95.32 Crores. The Respondent Company admitted its liability but failed to pay, leading to the filing of the winding-up petition.

2. Validity of the Reference Filed by the Respondent Company Before BIFR:
The Respondent Company contended that the reference filed before the BIFR barred the winding-up petition under Section 22 of SICA, 1985. However, the Petitioners argued that the reference was non-est in the eyes of law due to the 2nd proviso to Section 15(1) of SICA, 1985, which bars filing a reference where financial assets have been acquired by a securitisation or reconstruction company under Section 5(1) of the SARFAESI Act. The Court found that the debts of the Respondent Company had been assigned to Asset Reconstruction Companies (ARCs) before the reference was filed, rendering the reference non-est.

3. Application of Section 22 of SICA, 1985:
Section 22 of SICA, 1985, provides protection to sick companies against legal proceedings during the pendency of an inquiry or the preparation or operation of a scheme. The Respondent Company argued that this protection barred the winding-up petition. However, the Court held that since the reference itself was non-est due to the 2nd proviso to Section 15(1) of SICA, 1985, the protection under Section 22 did not apply.

4. Interpretation of the 2nd and 3rd Proviso to Section 15(1) of SICA, 1985:
The 2nd proviso to Section 15(1) of SICA, 1985, bars filing a reference to BIFR where financial assets have been acquired by a securitisation or reconstruction company under Section 5(1) of the SARFAESI Act. The 3rd proviso stipulates that a pending reference shall abate if secured creditors representing not less than 3/4th in value of the amount outstanding have taken measures to recover their secured debt under Section 13(4) of the SARFAESI Act. The Court found that the 2nd proviso applied to the case, making the reference non-est and negating the need to consider the 3rd proviso.

5. Impact of SARFAESI Act on the Reference to BIFR:
The SARFAESI Act was enacted to empower banks and financial institutions to recover their dues without court intervention. The 2nd proviso to Section 15(1) of SICA, 1985, inserted by the SARFAESI Act, bars filing a reference to BIFR where financial assets have been acquired by a securitisation or reconstruction company. The Court held that this proviso applied, as the Respondent Company's debts had been assigned to ARCs, making the reference non-est.

Conclusion:
The Court concluded that the reference filed by the Respondent Company before the BIFR was non-est in the eyes of law due to the 2nd proviso to Section 15(1) of SICA, 1985. Consequently, the protection under Section 22 of SICA, 1985, did not apply, and the winding-up petition could proceed. The Respondent Company was found to be commercially insolvent and unable to pay its debts, leading to the order for winding up the Respondent Company and the appointment of the Official Liquidator. The Court also provided a stay on the operation of the order for four weeks to allow the Respondent Company to appeal.

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