TaxTMI 
TaxTMI 
2008 (1) TMI 617
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....rd for Industrial and Financial Reconstruction ("the BIFR") under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, (hereinafter referred to as "the SICA"). They were informed by letter dated May 15, 2002, that the case was registered under No. 195 of 2002. During the pendency of these proceedings before the Board for Indus trial and Financial Reconstruction, the company resolved on December 9, 2005 that subject to the sanction of the appropriate court as may be required under law and subject to such permission of such authority as may be necessary, a scheme of arrangement between Ashok Organic Industries Ltd., and its shareholders and creditors and Mr. Pankaj Kadakia, Ashok Kadakia and Anil Kadakia in their dual capacity as promoters and guarantors be made on the broad basis as referred to in the scheme of arrangement. A petition under sections 391 and 394 of the Companies Act, 1956, hereinafter referred to as the Companies Act, 1956 was filed praying that the arrangement embodied in the scheme be sanctioned with or with out modification and to declare the same as binding on petitioner and its secured and unsecured creditors. The petition was present....
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.... matter of sanction of a scheme for re-arrangement of the companies' business by way of amalgamation, demerger or com promise were not inconsistent and consequently the company court in spite of proceedings pending before the Board for Industrial and Financial Reconstruction under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 and in spite of section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985, would have jurisdiction to grant sanction of the scheme under sections 391 and 394 of the Companies Act, 1956. To hold that the provisions of the two Acts were not inconsistent, and the company court would have jurisdiction, the learned judge noted that the provisions of sections 15 to 19 of the Sick Industrial Companies (Special Provisions) Act, 1985, pursuant to which a company which has become sick can register itself with the Board for Industrial and Financial Reconstruction which is vested with the power under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, to make enquiry and provide for a scheme for rehabilitation of the company or make the company viable so that the business of the company can continue....
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....[2005] 127 Comp Cas 822 ; [2005] 8 SCC 219, which according to the learned judge has taken a view that the pro visions of the Sick Industrial Companies (Special Provisions) Act, 1985, would prevail over the provisions of the Companies Act, 1956, and consequently disagreed with the views taken in National Organic Chemical Industries Ltd. v. NOCIL Employees Union [2005] 126 Comp Cas 922 (Bom), Sharp Industries Ltd., In re [2006] 131 Comp Cas 535 (Bom) and Pharmaceutical Products of India Ltd., In re [2006] 131 Comp Cas 747 (Bom). Consequently, the learned Chief Justice was pleased to refer this matter for consideration by this Bench. It may be noted that counsel has drawn our attention to the judgment of the learned Division Bench of the High Court of Himachal Pradesh in Gountermann Peipers (India) Ltd. v. Union of India [2005] 126 Comp Cas 489 and of the Gujarat High Court in Phlox Pharmaceuticals Ltd., In re [2005] 63 SCL 237 ; [2005] 69 CLA 216 ; [2008] 144 Comp Cas 133 , both of which have taken a view that the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and sections 391 to 394 are not inconsistent and the company court would continue to have juris....
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....d rightly, that the provisions of Sick Industrial Companies (Special Provisions) Act, 1985, operate only in cases where the net worth of the company has become negative. In other words the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, will apply to a class of companies whose net worth has become negative. We are concerned with this class of cases and not to the other class of cases to whom the provisions of sections 391 to 394 would continue to apply. It is in this context that the question referred for our consideration will have to be answered. Before answering the issues we may consider the object of the Sick Indus trial Companies (Special Provisions) Act, 1985. As the preamble indicates, it is an Act to make, in the public interest, special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. The ....
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....Act, 1985 and the State Financial Corporations Act, 1951, the court was pleased to hold that both the Acts are special statutes dealing with different situations and the 1985 Act being a subsequent enactment, the non obstante clause therein would ordinarily prevail over the 1951 Act in the case of sick industrial companies. In Jay Engineering Works Ltd. v. Industry Facilitation Council [2006] 133 Comp Cas 670; [2006] 8 SCC 677, what was under consideration were the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and the impact of Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. Dealing with the Sick Indus trial Companies (Special Provisions) Act, 1985, the court observed as under (page 676) : "The 1985 Act was enacted in public interest. It contains special provisions. The said special provisions had been made with a view to secure the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts for preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement ....
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....ght into force. It appears to be time to consider whether these enactments should not be notified." Considering these judgments and the provisions of the two enactments we will have to consider the issue referred for our consideration. It will be appropriate at this stage to consider what has been held by the Supreme Court in NGEF Ltd. v. Chandra Developers P. Ltd. [2005] 127 Comp Cas 822 ; [2005] 8 SCC 219. In that case, in proceedings before it, the Board for Industrial and Financial Reconstruction decided to recommend the winding up of the company and send the same to the High Court. A request was made by the company for sale of its assets. An observation was made by the Board for Industrial and Financial Reconstruction that the company would have to seek appropriate direction from the High Court concerned. During the pendency of the proceedings before the board the company with the permission of the Board for Industrial and Financial Reconstruction and its secured creditors had been selling some of its surplus lands. One such bidder at a global tender was Chandra Developers P. Ltd. Chandra Developers P. Ltd., prayed for a direction that the company be directed to execute a sa....
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....remains a sick company having regard to the provisions of sub-section (4) of section 20, the Board for Industrial and Financial Reconstruction alone shall have jurisdiction as regards sale of its assets till an order of win ding up is passed by a company court . . . 43. The provisions of Sick Industrial Companies (Special Provisions) Act, 1985, would prevail over the provisions of the Companies Act, 1956. Section 20 of the Sick Industrial Companies (Special Pro visions) Act, 1985, relates to winding up of the sick industrial company. Before the Board for Industrial and Financial Reconstruction or the AAIFR, as the case may be, makes a recommendation for winding up of the company, an enquiry is made in terms 6f section 16 thereof where for all relevant facts and circumstances are required to be taken into consideration. Before an opinion is arrived at in that behalf, the parties are given an opportunity of hearing. The satisfaction arrived at by the Board for Industrial and Financial Reconstruction that the company is not likely to become viable in future and it is just and equitable that the company should be wound up must be based on objective criteria. The High Court indisputabl....
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.... the provisions of the Companies Act, 1956. It is not, thus, possible to accept the submission that the High Court exercises a concurrent jurisdiction, (emphasis supplied) 45. It may be true that the High Court's jurisdiction is that of the appellate authority but keeping in view the terminology contained in sub-section (4) of section 20 read with section 32 of the Act, it leaves no manner of doubt that the provisions of Sick Industrial Companies (Special Provisions) Act shall prevail over the provisions of the Companies Act. For the aforementioned purpose, it was not necessary for Parliament to mention specifically the provisions of sub-section (4) of section 20 that the same shall prevail over section 536 of the Companies Act. The construction of the provisions of both the Acts, as suggested by learned counsel, that both the provisions of sub-section (4) of section 20 and section 536 should be read conjointly so as to enable an applicant to obtain a sanction of both the Board for Indus trial and Financial Reconstruction and the company court, thus, do not appeal to us. 46. It is inconceivable that in law not only will the approval have to be taken from both the courts ; in case....
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....find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it." In Divisional Controller, KSRTC v. Mahadeva Shetty [2003] 7 SCC 197, as to what was binding, the Supreme Court observed as under (page 206): "... A decision often takes its colour from the question involved in the case in which it is rendered. The scope and authority of a precedent should never be expended unnecessarily beyond the needs of a given situation. The only thing binding as an authority upon a subsequent judge is the principle upon which the case was decided. Statements which are not part of the ratio decidendi are distinguished as obiter dicta and are not authoritative. The task of finding the principle is fraught with difficulty as without an investigation into the facts, it cannot be assumed whether a similar direction must or ought to be made as a measure of social justice. Precedents sub silentio and without argument are of no moment. Mere casual expression carry no weight at all. Nor every passing expression of a judge, however eminent, can be treated as an ex cathedra statement having the weight of authority." Applying these tests can....
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.... of a scheme as set out under section 18 as also appointment of an agency under section 16 of the Act. We are, therefore, clearly of the opinion that the ratio of the judgment in NGEF Ltd. v. Chandra Developers P. Ltd. [2005] 127 Comp. Cas. 822 ; [2005] 8 SCC 219, lays down a proposition that in those matters which ordinarily would be covered by sections 391 to 394 of the Companies Act, once the company becomes sick and is before the Board for Industrial and Financial Reconstruction it is the provisions of the Sick Industrial Companies (Special Provisions) Act which alone would be applicable and to that extent the provisions of the Companies Act, 1956, being inconsistent would stand excluded. On behalf of the intervenor ARCIL it is sought to be contended that the issue framed and referred by the learned judge is too wide and too general. It is submitted that under section 391 of the Companies Act, 1956, there may be various types of schemes for different purposes that may be presented to the company court under section 391, for example, (i) scheme by way of compromise ; (ii) scheme by way of arrangement ; and (iii) scheme for reconstruction of the company. A scheme of arrangement....
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....isions of sections 391 to 394 would be applicable to all other classes of cases. For the purpose of rehabilitation of "sick" company all the measures necessary can be taken. It is, therefore, not possible to countenance the argument advanced on behalf of the intervenor. Atleast we have no hesitation in understanding the issue and answering it as referred to us. As noted by the learned single judge in so far as the company court is concerned, a scheme of arrangement requires the sanction of a percentage of creditors and shareholders. In so far as the scheme to be framed under the Board for Industrial and Financial Reconstruction even the objections by a sole financial institution is sufficient for the Board for Industrial and Financial Reconstruction to reject the scheme. There is, therefore, inconsistency between the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 and the Companies Act, 1956, to that extent. What we are called upon to answer is the question referred for our consideration and the question as referred can be answered. We may also consider the issue independently as the matter was argued at length on the issue of whether the two acts are incons....
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....heless intended to pass a subsequent and inconsistent law and hence intended that the subsequent law, being the later will of Parliament should prevail. (Ashoka Marketing Ltd. v. Punjab National Bank AIR 1991 SC 855 ; [1992] 74 Comp. Cas. 482, at paragraphs 49-55 ; Allahabad Bank v. Canara Bank [2000] 101 Comp. Cas. 64 ; AIR 2000 SC 1535, at paragraphs 38-40 ; and Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp. Cas. 803 ; [1993] 2 SCC 144). It was held that where both enactments are special and both contained competing non obstante provisions, the subsequent or later statute should prevail. (b)The aforesaid principle is subject to the exception embodied in the maxim : generalia specialibus non derogant (a general provision does not derogate from a special one), i.e., that a special law will abrogate and prevail over a general law. Hence, even a previously existing special statute will prevail over a subsequent but general law. (Ashoka Marketing Ltd. v. Punjab National Bank AIR 1991 SC 855; [1992] 74 Comp. Cas. 482, at para graphs 49-55 ; and Allahabad Bank v. Canara Bank [2000] 101 Comp. Cas. 64 ; AIR 2000 SC 1535). (c)How....
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....did not intend to create any confusion by retaining conflicting provisions. The courts in applying this doctrine are supposed merely to give effect to the legislative intent by examining the object and scope of the two enactments. But in a conceivable case, the very existence of two provisions may by itself, and without more, lead to an inference of mutual irreconcilability if the later set of provisions is by itself a complete code with respect to the same matter. In such a case the actual detailed comparison of the two sets of provisions may not be necessary. It is a matter of legislative intent that the two sets of provisions were not expected to be applied simultaneously." (ii )Hukumdev Narain Yadav v. Lalit Narain Mishra, AIR 1974 SC 480. The Supreme Court held that the provisions of sections 4 to 24 of the Limitation Act did not apply (though not expressly excluded) to the proceedings under the Representation of the People Act, 1951. The Supreme Court held that what had to be seen was (page 490): "whether the scheme of the special law, i.e., in this case the Act, and the nature of the remedy provided therein are such that the Legislature intended it to be a complete code by ....
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....ns) Act, 1985, provides for revival/rehabilitation of companies in several ways which are different from that provided by sections 391 to 394. Sections 391 to 394, cover all schemes for compromise and arrangement with creditors and shareholders. Such schemes may or may not be schemes for revival and rehabilitation of the company. The respective sections contain provisions that provide for completely different legal processes for the sanction of schemes. To the extent that the scheme is in respect of a "sick industrial company" as defined under the Sick Industrial Companies (Special Provisions) Act, 1985, there apparently is a direct conflict between several of the respective provisions considering the following : (i)Section 391(1) of the Companies Act, 1956 : Under section 391 of the Companies Act, 1956, either the company or creditor or member of the company or the liquidator (where a company is being wound up) may apply to the company court for calling of meetings of creditors or members to consider a proposal for a scheme between the company and its creditors or members as the case may be, on the other hand under section 19A of the Sick Industrial Companies (Special Provisions)....
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.... required by the scheme to provide financial assistance" has to give his consent to the scheme (which might be a deemed consent under section 19(2)) section 19(1) clarifies that a scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, public financial institutions or State level institutions or an institution or other authority. Such government/institutions/authorities are referred to as "the persons required by the scheme to provide financial assistance". By this definition even creditors who are required to accept anything less than their dues would be persons required by the scheme to provide financial assistance and consequently their consent would be mandatory. This is made clear by the provisions of section 19(4) which is reproduced below : "(4) Where in respect of any scheme consent under sub-section (2) is not given by any person required by the scheme to provide financial assistance, the Board may adopt such other measures, including the winding up of the sick industrial company, as it may deem fit." On the other hand if ....
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....391(6) of the Companies Act : section 391(6) does not provide for any automatic stay but only permits an application to the court for stay of certain types of proceedings against the company (and against the company alone) pending consideration of a scheme under section 391. Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 : Certain specified legal proceedings against the sick industrial company or even in respect of any guarantee in respect of loans/advances thereto are automatically stayed by operation of law and cannot be allowed and/or proceeded with further except with the consent of the Board for Industrial and Financial Reconstruction or the appellate authority. (vi)Section 391 schemes : Most, if not all schemes under section 391 do not deal only with a reduction in claims of creditors by way of compromise or arrangement. They provide for a variety of matters in respect of the financial or other reconstruction or operations of the company as has been pointed out by counsel for intervenor. This may include setting up of committees of management, sale of assets, termination of legal proceedings, determination of quantum owed to creditors reductio....
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....der the Sick Industrial Companies (Special Provisions) Act, 1985. The test is do the two Acts substantially provide for the same subject-matter. In our opinion the answer is in the affirmative. It is therefore not permissible to have recourse to any provisions other than Sick Industrial Companies (Special Provisions) Act, 1985, to supply any mechanism for sanctioning a scheme impermissible under the Sick Industrial Companies (Special Provisions) Act, 1985, (or indeed even to facilitate a scheme under the SICA, 1985) for this would defeat Parliament's intention that the Sick Industrial Companies (Special Provisions) Act, 1985, alone would completely and exhaustively cover all aspects relating to sick industrial companies including schemes in respect thereof. The scheme as framed does in fact provide for several matters other than a mere compromise/arrangement by reduction in creditor's claims. Hence, the submission advanced on behalf of ARCIL that schemes which are simpliciter for reduction of the company's debts were not covered by the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, is academic and cannot arise in the present case. The special and late....
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....and (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the memorandum or articles of association of an industrial company or in any other instrument having effect by virtue of any law other than this Act. (2) Where there has been under any scheme under this Act an amalgamation of a sick industrial company with another company, the provisions of section 72A of the Income-tax Act, 1961 (43 of 1961), shall, subject to the modifications that the power of the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to any amalgamation of a company owning an industrial undertaking with another company." By virtue of its overriding non obstante clause the intention of Parliament can be gathered that the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, are paramount in the case of sick industrial companies and will override any provisions of the Companies Act, 1956, including those that allow schemes of any kind to be presented in respect of sick industrial companies. The R....
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....ails over the provisions of the Companies Act, 1956, and continues even whilst the company court is considering the matter of winding up of the company under section 20(2). It is the Board for Industrial and Financial Reconstruction which is "the authority proprio vigore which continues to remain as custodian of the assets of the company till winding up order is passed by the High Court". If the Board for Industrial and Financial Reconstruction remains as custodian of the assets of a company until this stage, it would be completely repugnant to the scheme and object of the Sick Industrial Companies (Special Provisions) Act, 1985, to permit the assets of such company to be dealt with even after a scheme has been sanctioned under section 391 of the Companies Act, 1956. In a given case the scheme under section 391 may also affect or make provisions as regards sales or encumbrance of assets of a sick industrial company and this would be in complete subversion of the scheme under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. The provisions of sections 15 to 20 of the Sick Industrial Companies (Special Provisions) Act, 1985, provide a complete and exhau....
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....22(3) of the Sick Industrial Companies (Special Provisions) Act, 1985. Will the order of a Superior Court, be stayed or varied by an authority exercising quasi judicial or administrative powers. The jurisdiction of the company court is being exercised by the High Court. The expression instrument will have to be considered in that context. The proviso to section 22(3) expressly limits the period of operation of any declaration by the Board for Industrial and Financial Reconstruction under section 22(3) to a maximum period of seven years in the aggregate. The declaration under section 22(3) could either be one of suspension or one that permits enforceability of the contracts, instruments, etc., "with such adaptations and in such manner as may be specified by the Board". The declaration thus covers even the adaptations or modifications. This suspension of the "adaptation" action of the Board for Industrial and Financial Reconstruction is therefore not permanent. It is by statute limited to a maximum of seven years. After the expiry of this period of suspension/adaptation, section 22(4)(b) provides for the revival and enforceability of the right, privilege, application or liability whi....
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....nt" as used in sub-section (l)(b )(c) was otherwise wide enough to cover decrees. That conclusion at the highest can be reiterated in the context of the expression used in the Rehabilitation Act. The term "instrument" in a statute has necessarily to be understood and interpreted in the absence of any express definition having regard to the context in which the term is used and the object which the Legislature had in mind, (see Purshottom H. Judye v. V. B. Potdar, AIR 1966 SC 856 and Bhagwandas Panchal v. Royal Western India Turf Club Ltd. [1969] 72 Bom LR 764). dearly, the context in which the term "instrument" in section 22(3) is used, given the object of the Sick Industrial Companies (Special Provisions) Act, 1985, cannot include orders made by High Court under sections 391 to 394 of the Companies Act, 1956. Section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985, uses a different and distinct term, viz., "other instruments having effect by virtue of any law other than this Act". The latter term could include a scheme under sections 391 to 394 which has effect by virtue of the provisions of sections 391 to 394. In contrast the different expression used under se....