TaxTMI 
TaxTMI 
2016 (3) TMI 507
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....ovisions) Act, 1985 ("SICA"). By an order dated 24 April 2014, the Board for Industrial and Financial Reconstruction ('BIFR') declined to register the Defendant's reference. This order has been challenged by the Defendant before the Appellate Authority for Industrial and Financial Reconstruction ('AAIFR'). The appeal is pending before AAIFR. It is the case of the Defendant that by virtue of pendency of this appeal, under the provisions of Section 22 of SICA, the present suits, which are for recovery of money, ought not to be proceeded with except with the consent of AAIFR. 3 In the premises, before the summonses for judgment are taken up for hearing, the question of suspension of legal proceedings, as alleged by the Defendant, needs to be considered. The relevant facts in this behalf are noted below : 3.1 On 26 August 2013, the Defendant filed a reference before BIFR based on provisional accounts of the company for the Financial Year 2012-13, seeking registration as a sick industrial company under Section 15(1) of SICA. 3.1.2 The Registrar, in accordance with the provisions of Regulation 19 of the Board for Industrial and Financial Reconstruction Regulations, 1987 ("BIFR R....
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....he context of its submissions that its appeal, namely, Appeal No.114/2014 pending before AAIFR, is an appeal under Section 25 relating to an industrial company, which entails stay of suits within the meaning of Section 22 of SICA, let us note the relevant provisions of SICA which have a bearing on the question. (a) SICA defines the terms, "Company", "Industrial company", "Industrial undertaking", "Scheduled industry" and 'Sick industrial company" as follows : S.3(1)(d) "Company" means a company as defined in section 3 of the Companies Act, 1956 (1 of 1956). S.3(1)(e) "Industrial company" means a company which owns one or more industrial undertakings. S.3(1)(f) "Industrial undertaking' means any undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include- (i) an ancillary industry undertaking as defined in clause (aa) of section 3 of the Industries (Development and Regulation) Act, 1951 (65 of 1951); and (ii) a small scale industrial undertaking as defined in clause (j) of the aforesaid section 3. S.3(1)(n) "Scheduled industry" means any of the industries specifi....
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....and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act." (2) Without prejudice to the provisions of sub-section (1), the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank may, if it has sufficient reasons to believe that any industrial company has become, for the purposes of this Act, a sick industrial company, make a reference in respect of such company to the Board for determination of the measures which may be adopted with respect to such company: Provided that a reference shall not be made under this sub- section in respect of any industrial company by,- (a) the Government of any State unless all or any of the industrial undertakings belonging to such company are situated in such State; (b) a public financial institution or a State level institution or a scheduled bank unless i....
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....it is practicable for the company to make its net worth exceed the accumulated losses within a reasonable time. (2) If the Board decides under sub-section (1) that it is practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, the Board, shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such company as it may deem fit to make its net worth exceed the accumulated losses. (3) If the Board decides under sub-section (1) that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in section 18 in relation to the said company it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company. (4) The Board may- (a) if any of the restrictions or conditions specified in an order m....
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....r in respect thereof and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority." (g) Section 25 of SICA makes a provision of appeal to the Appellate Authority and is in the following terms: "25 Appeal.- (1) Any person aggrieved by an order of the Board made under this Act may, within forty-five days from the date on which a copy of the order is issued to him, prefer an appeal to the Appellate Authority: Provided that the Appellate Authority may entertain any appeal after the said period of forty-five days but not after sixty days from the date aforesaid if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time. (2) On receipt of an appeal under sub-section (1), the Appellate Authority may, after giving an opportunity to the appellant to be heard, if he so desires, and after making such further inquiry as it deems fit, confirm, modify ....
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.... Board in exercise of the powers conferred on him under Regulation 16. On the other hand, if a reference is defective, it is declined registration by the Secretary of the Board, or, as the case may be, by the Registrar. (In actual practice, the decision to register or decline registration is taken by the Registrar.) An appeal against the order of the Registrar declining to register a reference lies before the Secretary, whilst an appeal against the Secretary's order declining to register a reference is made before the Chairman (Regulations 19(8)(1) and (2) of the Regulations.) A reference declined to be registered is deemed not to have been made (Regulation 19(7) of the Regulations). Registration of the reference is, thus, crucial, since the next stage, namely, the inquiry under Section 16, does not commence without such registration. As held by the Supreme Court in the case of Real Value Appliances Ltd. Vs. Canara Bank(1998) 5 Supreme Court Cases 554, once the reference is registered after scrutiny, it is mandatory for the BIFR to conduct an inquiry and accordingly, an inquiry is treated as having commenced as soon as the registration of the reference is completed after scruti....
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.... (b) Whether such 'Company' owns one or more undertakings pertaining to any industry specified for the time being in the First Schedule to IDR Act? (c) Whether such industry is carried on in any premises or precincts thereof, in any part of which a manufacturing process is being or is ordinarily carried on either with aid of power with fifty or more workers working on any day in the preceding twelve moths, or without aid of power with one hundred or more workers working on any day of the preceding twelve months? (d) Whether the Company is registered for not less than five years? (e) Whether the reference is made in a correct form? Whether all particulars required are submitted? If these matters are found by the registering authority in the affirmative, a reference is registered and the matter then rests with the Board for making an inquiry for determining whether any industrial company has become a 'sick industrial company', under Section16 of SICA. At this stage, as held by the Supreme Court in the case of Real Value Appliances (supra), Section 22 kicks in and there is a stay of proceedings against the industrial company in terms thereof.....
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....those cases where the reference was rejected in previous years on merits by the BIFR, guidelines can be issued to ensure that fresh references in subsequent years should not be mechanically entertained. 24. Learned counsel for the respondent may be right in contending that while registering the references, the Registrar cannot act as quasi judicial authority which is the function of the Board. However, in order to ensure that such situation does not recur, at least in those cases where the reference is rejected earlier, matter can be referred to directly to the BIFR and BIFR should look into the same and to decide whether it is a case for admitting the reference. Even if BIFR decides it to admit after finding that the conditions for the same are satisfied, it can still take a decision as to whether the provisions of Section 22 should be allowed to prevail or not. Section 22 stipulates that proceedings can go on with the consent of the Board/BIFR and the Board can in such cases pass a general order giving such a consent. At that stage, in such cases, where the references were rejected previously, the BIFR can pass appropriate directions refusing to extend the benefit of Sec....
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....rrowing of and limit the powers and jurisdiction of the Board on such important issues. The Board is a creation of the statute i.e. the Sick Industrial Companies (Special Provisions) Act, 1985 and has the all incidental and ancillary powers, which would include registration of reference or existence and satisfaction of jurisdictional preconditions i.e. whether or not the company which has applied for reference is a "sick industrial company" and, therefore, the reference should be accepted and enquiry should be held. In B.Y.Narasimha Prasad Vs. M. Veerappa and Anr., (2008) 9 SCC 372, the Supreme Court has held, the question of maintainability of proceedings could be a jurisdictional issue and the Court is legally bound to address and answer the same; whether or not any objection is raised by the other side." The Division Bench then noted the judgment of the earlier Division Bench in Alcatel Lucent India Ltd. (supra) prefacing the quotation in Alcatel with the following words: "21. We are conscious of the fact that upon scrutiny, the Registrar or Secretary as the case may be, may decline registration of a reference, because they are not satisfied that the company which ha....
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.... to be the trend of the judgments of Delhi High Court. When contentious issues are raised at the stage of scrutiny of the reference before its registration, the matter is sent to BIFR for a decision as to whether the reference should at all be registered. It is important, however, to note that once the Board takes its decision on these issues in favour of the company under reference, what follows is the registration of the reference, namely, completion of the first stage referred to above. It is only after the reference is so registered, based on the decision of BIFR, that the protection under Section 22 is available to the industrial company. If one has regard to the facts of our case, it is precisely this that appears to have happened in the present case. The issues in the present case before the officials of the Board at the stage of scrutiny were, (a)Whether the company was a scheduled industry as per the definition given in Section 3(1)(n) of SICA, which is a precondition for registration as a sick industrial company in BIFR? (b)Whether the company is in the business of publication of newspaper and not in the business of printing so as to be reckoned as a sch....
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....also hope that the Board shall endeavour to conclude the hearing and render a decision on the question as to whether the reference was correctly registered or not within a period of four weeks after hearing all the parties interested. The learned counsel for the petitioner has no objection to the creditors being heard. Since one of the orders which has been set aside by us is that of the Chairman of the BIFR, it would be appropriate if the Chairman is not a member of the Bench which hears the matter on 18.02.2014 on the issue. We may it clear that we have not expressed any opinion on the merits of the case. The writ petition stands disposed off in the above terms. All pending applications also stand disposed off." In other words, what Delhi High Court wanted BIFR to do was to consider the question of registration of reference. At this stage, the BIFR obviously was not conducting any inquiry under Section 16(1) of SICA, but merely considering whether the reference should, in the first place, be registered. There is no question of application of Section 22 of the Act at this stage. Just as Section 22 was not applicable to the reference when Delhi High Court was considering the Def....
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.... in this behalf amounts to declining of a reference at the stage of Section 15(1) of SICA. The challenge to the Board's order before AAIFR under Section 25 of the Act, in the premises, does not amount to an appeal under Section 25 relating to an industrial company and cannot result into suspension of legal proceedings, contracts, etc. in respect of the company by reason of Section 22 of SICA. The appeal under Section 25 must relate to an industrial company, that is to say, to a company which has stood the scrutiny of registration and in respect of which an inquiry under Section 16(1) of SICA has commenced. An appeal under Section 25 is a continuation of the inquiry under Section 16. It will be preposterous to suggest that whereas at the trial stage the suspension provision of Section 22 would require an inquiry under Section 16(1) to be pending, that is to day, a registration under Section 15(1) as having been accomplished, but that at the appellate stage, a registration under Section 15(1) need not be accomplished and no inquiry under Section 16 need to be pending, but that pendency of an appeal even if it be at the preregistration stage entails a consequence under Section 22,....
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....ed money instrument issued in the form of a promissory note; it was introduced in India in 1990 with a view to enable highly rated corporate borrowers to diversify their sources of short-term borrowings and provide an additional instrument to the investors. The Master Circular of RBI permits OTC trades in commercial papers. Such trades have to be reported within a stipulated period to the Fixed Income Money Market and Derivatives Association of India ("FIMMDA") reporting platform. There is no dispute between the parties that the trades were so reported. The RBI has assigned FIMMDA the task of prescribing operational guidelines for smooth functioning of the commercial paper market in line with international best practices. Operational guidelines issued by FIMMDA effective from June 31, 2001 make detailed provisions regarding trading in commercial papers and the process of redemption upon maturity of the commercial papers. These guidelines lay down a procedure for secondary market transactions in a commercial paper. Nothing could be pointed out by learned Counsel for the Defendant to show that there is any breach in the present case of either the Master Circular issued by RBI or the ....