TaxTMI 
TaxTMI 
2014 (1) TMI 1858
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....tle Suit (TS) No. 166 of 2013. By the aforesaid order of injunction, the Board for Industrial and Financial Reconstruction (BIFR) has been restrained from proceeding further with BIFR Case No. 149 of 1994. The suit has been filed by one M/s. Shiv Shankar Trading Co., an unsecured creditor of J.K. Jute Mills Co. Ltd. (company), which has been declared as a sick industrial company under the Sick Industrial Companies (Special Provisions) Act,. 1985, reference under which has been registered with the BIFR as BIFR Case No. 149 of 1994. 2. W.P. (C) No. 4303 of 2013 has been filed by the said M/s. Shiv Shankar Trading Co., the plaintiff in T.S. No. 166 of 2013, challenging the legality and validity of the proceedings before the BIFR dated May 16, 2013 and order of the BIFR dated July 1, 2013, passed in BIFR Case No. 149 of 1994 on the ground that the proceedings and order of the BIFR are in violation of the injunction order of the civil court. 3. W.P. (C) No. 6286 of 2013 has been filed by the company challenging the legality and validity of the order dated September 5, 2013, passed by the BIFR in BIFR Case No. 149 of 1994 on the ground that the said order is not only in violation of th....
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....injunction petition, which was registered as Misc. (J) Case No. 254 of 2013. 8. The learned Civil Judge No. 3, Kamrup, Guwahati passed injunction order dated May 13, 2013, restraining the BIFR from proceeding further with BIFR Case No. 149 of 19941 9. Against the aforesaid injunction order, Sri Ghanshyam Sarda has preferred an appeal before this court, which has been registered and numbered as F.A.O. No. 10 of 2013. This court by order dated June 14, 2013, admitted the appeal and without staying the injunction order, additionally issued certain further directions. 10. When the injunction order of the civil court as well as the above order of this court were brought to the notice of the BIFR, the latter ignored the same and proceeded with BIFR Case No. 149 of 1994. Proceedings were held on May 16, 2013 and thereafter order was passed on July 1, 2013, which would be adverted to in a little more detail in the subsequent stage of the judgment. The BIFR held the civil court's order to be without jurisdiction and, therefore, void; in fact, the civil court was declared to be corum-non-judice. 11. As noticed above, the unsecured creditor, who is the plaintiff in the suit, has filed W.P....
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....R. He contended that though the company was lying closed since the year 2003, following negotiations between the Singhania family, the erstwhile promoter of the company, and the Sarda group, there was change in the shareholding pattern of the company which was approved by the BIFR. Consequent thereupon, the company resumed its business activities. Though the management and control of the company was taken over by the Sarda brothers, dispute arose between them because of the activities of the elder brother, Sri Govind Sarda and his son, which led to a whole lot of litigations. Ultimately, the BIFR circulated a Draft Revival Scheme (DRS) submitted by his client Sri Ghanshyam Sarda for revival of the company. As per the DRS, the BIFR has recognized the appellant as the person responsible for execution of the DRS and he has been entrusted to constitute the board of directors. It is from that stage onwards and to prevent finalisation of the DRS, a number of cases have been instituted in different courts across the country. In the meanwhile, the company also suddenly submitted a balance-sheet as on December 31, 2012, to show that its net worth has turned positive and, therefore, it shoul....
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....on-judice. He also contends that as the registered office of the company is at Kanpur in the State of Uttar Pradesh and the BIFR is located at Delhi, Civil Court at Guwahati has no territorial jurisdiction either to entertain the suit. 19. Mr. Choudhury, further submits that the plaintiff had evidently sup-pressed about the Division Bench order of the Allahabad High Court, which was passed on May 1, 2013, before the civil court. He submits that it is evident that the suit filed is a result of collusion between the plaintiff and the company, as the company readily came forward and told the civil court that its net worth had turned positive, thereby supporting the case of the plaintiff to ensure that further proceedings before the BIFR are stalled. In so far as the writ petitions are concerned, Mr. Choudhury has questioned the maintainability on the ground of lack of territorial jurisdiction and also on the ground that interference with the BIFR proceeding is uncalled for and unwarranted. Mr. Choudhury has referred to a number of decisions in support of his contentions and those would be adverted to in the course of the judgment. 20. Mr. D.K. Misra, learned senior counsel appearing....
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....akes itself out of the ambit and scope of the provisions of section 25 of the SICA. For the said reason, the bar under sections 22 and 26 of the SICA would also not be attracted. In such circumstances, grant or refusal to grant permission by the BIFR to file civil suit would not be decisive while determining maintainability. Order and direction of the Allahabad High Court cannot take away the civil and legal rights of the plaintiff/petitioner to seek relief from the civil court. In any case, the petitioner was not a party to the proceedings before the Allahabad High Court. The petitioner did not know about such order of the Allahabad High Court. Question of suppression does not arise. DRS of Ghanshyam Sarda does not vest any legal right on him to contest the claim of the plaintiff/petitioner. He is a total stranger in so far as the claim of the petitioner is concerned. Moreover, circulation of the said DRS has been stayed by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). When the civil court had injuncted the BIFR, the latter, being a statutory tribunal, is bound to comply with the order of the civil court and cannot ignore or question it by terming th....
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.... the company refrained from participating in the proceedings before the BIFR but the BIFR by disregarding the injunction order of the civil court is proceeding with the matter. The two members comprising the Bench of the BIFR hearing the case of the company, Sri J.P. Dua and Sri S.C. Sinha were former bankers of Oriental Bank of Commerce. They were close associates of Sri Ghanshyam Sarda. When this was pointed out before the BIFR by lawyers of the company, Sri J.P. Dua in the order dated January 31, 2013, recused himself from hearing the matter on the ground that he is personally known to Sri Ghanshyam Sarda, but strangely enough on September 5, 2013, he was again a part of the Bench of BIFR hearing the case and passed order seeking submission of comments by the parties on the report submitted by the State Bank of India on the audited balance-sheet of the company. His participation in the proceedings of September 5, 2013, has vitiated the said order. On the other hand, Mr. S.C. Sinha continues to remain a part of the Bench and is hearing the case despite apprehension and objection raised by the parties. He vehemently argues that all the orders passed by the BIFR after the injunctio....
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.... W.P. (C) No. 4303 of 2013, has supported the stand taken by Mr. K.N. Choudhury, learned senior counsel appearing on behalf of the appellant, Sri Ghanshyam Sarda. He submits that the Union is primarily concerned with the payment of outstanding dues of the workers by the management of the company, which would be more than 65 crores and has remained unpaid for several years now. The Union has got itself impleaded in the proceedings before the BIER and has been pursuing the matter so that the sick industrial company can be revived, which, in turn, will lead to clearing the dues of the workers. The BIER has found that the DRS submitted by Sri Ghanshyam Sarda is satisfactory and the same was circulated. It was then that the audit balance-sheet of the company for the period only up to December 31, 2012 and not for the whole year was suddenly submitted before the BIER by the company with the projection that the net worth of the company has turned positive and, therefore, it is no longer a sick company. He submits that the question as to whether the net worth of the company has turned positive or not can be better appreciated by the BIER being a body of experts as was observed by the Allah....
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.... under section 16, the BIER is empowered to make suitable order or to take decision to enable the company to make its net worth exceed the accumulated losses within a reasonable period. If the BIFR finds that it is not practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, it may direct any operating agency (OA) to prepare a scheme to provide for the various measures as laid down in section 18, which includes financial reconstruction, change of management, amalgamation, sale or lease of the industrial undertaking of the sick industrial company, etc. When enquiry under section 16 is pending, or where scheme as referred to above, is under consideration or is under implementation, there shall be suspension of legal proceedings, contracts, etc., as provided under section 22(1). As per the second part of section 22(1), no suit for recovery of money or for the enforcement of any security against industrial company, etc., shall lie or be proceeded with, except with the consent of the BIFR or as the case may be of the AAIFR. As per sub-section (3) of section 22, during the period of enquiry under section 16 or during the prep....
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....ustrial company, but no decision was taken by the BIFR. It was held by the Madras High Court that with the net worth of the company turning positive, the company had ceased to be a sick company and, therefore, the BIFR could not have retained its jurisdiction over the company any further. The Madras High Court had examined in detail the balance-sheet of the company and declared that its net worth had become positive as it had wiped out the entire accumulated losses, which was certified by the statutory auditors. It was observed that sickness or otherwise of an industrial company is to be decided ex facie on the basis of the audited balance-sheet of the company and when the net worth becomes positive, the BIFR would cease to have any jurisdiction. It was further observed that there is no provision in the SICA providing for deregistration of a reference when the net worth of the company becomes positive after wiping out the accumulated losses. Importantly, the Madras High Court held that once a company ceased to be a sick industrial company as defined by the SICA, all proceedings taken by the BIFR in relation to it must thereafter absolutely cease. The question which the Madras High ....
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.... v. Kashmiri Rice Industries reported in [2009] 150 Comp Cas 518 (SC) : [2009] 7 SCC 521. That was a case where the High Court had upheld the judgment and decree of a civil court, whereby it was held that section 22 of the SICA would have no application to the claim of the plaintiff for recovery of dues from the company. It was held that a suit would be barred when an inquiry under section 16 is pending. It was further held that, if the civil court's jurisdiction is ousted in terms of the provisions of section 22, any judgment rendered by it would be corum-non-judice, as it is a settled law that a judgment and decree passed by a court or a Tribunal lacking jurisdiction would be a nullity. 35. The apex court in the case of Raheja Universal Ltd. v. NRC Ltd. reported in [2012] 170 Comp Cas 256 (SC) : [2012] 4 SCC 148, after tracing the legislative scheme of the SICA and its nature and scope, held that it is predominantly remedial and ameliorative in so far as it empowers a quasi-judicial body, the BIFR, to take appropriate measures for revival and rehabilitation of viable sick industrial companies and for liquidation of non-viable companies. The SICA hardly contemplates adversarial p....
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....t held that it could not subscribe to the view that the Registrar of Co-operative Societies could have ignored the order of the civil court as not binding on him in view of certain provisions contained in the Co-operative Societies Act. The hon'ble Supreme Court cautioned that it would be a dangerous proposition to be laid down as one of law that any individual or authority can ignore the order of the civil court by assuming authority upon itself to decide that the order of the civil court is one by corum-non-judice. It was held that the proper course in such a case would be for the person aggrieved first to approach the civil court inviting its attention to the relevant provisions of law and call it to adjudicate upon the question of its own jurisdiction and to vacate or recall its order, if it be one which it did not have jurisdiction in law to make. The hon'ble apex court categorically held that so long as it is not done or till it is declared void in a duly constituted juridical proceeding, the order of the civil court must be obeyed and respected by all concerned. 40. In Dwarka Prasad Agarwal v. Ramesh Chandra Agarwala reported in [2003] 117 Comp Cas 206 (SC) : [2003] 6 SCC 2....
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....intainable or not. Without raising that issue before the civil court of the first instance, the appellant would be precluded from raising the issue of jurisdiction before the Appellate Court. 45. It is a settled proposition of law that the right of appeal is a creature of the statute and would be governed by the conditions of the statute. Being a vested right, it enables a party to the suit to prefer an appeal subject to fulfillment of the required conditions. However, there may be cases where a person, who may not be a party to the suit, but may feel the necessity to prefer an appeal, against an order passed in the suit. Such a person can also file an appeal provided he seeks leave of the court and the court grants the leave for the purpose. 46. The apex court in the case of Smt. Jatan Kanwar Golcha v. Golcha Properties P. Ltd. (in liquidation) reported in [1970] 3 SCC 573 : [1971] 41 Comp Cas 230 (SC), spelt out the law that it is well-settled that a person who is not a party to the suit may prefer an appeal with the leave of the Appellate Court and such leave should be granted if he would be prejudicially affected by the judgment. 47. In the case of State of Punjab v. Amar Si....
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....pellant for discharge or variation or setting aside of the injunction order as indicated above. W.P. (C) No. 4303 of 2013 51. As already noticed, the petitioner in this case, is the plaintiff in the civil suit. He seeks quashing of the proceedings before the BIER dated May 16, 2013 and the order of the BIER dated July 1, 2013, passed in BIFR Case No. 149 of 1994 on the ground that those have been passed in violation of the injunction order dated May 13, 2013, passed by the Civil Court at Guwahati. In the civil suit, the company filed written objection stating that on and from the financial year 2012-13, it is no longer a sick company. Since other than the company and the BIER, which is a formal party, there were no other parties before the civil court to make a different projection about the financial health of the company, proceeding on the assumption that the company is no longer a sick company, the civil court took the prima facie view that the BIFR has ceased to have any jurisdiction over the company. Consequently, injunction order was passed. The civil court held as under: "In the case at hand, it is an admitted fact that opposite party No. 1 is not a sick industrial compa....
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....her observed that the civil court overreached the order of the Allahabad High Court and that the BIFR would follow the Allahabad High Court being the superior forum. As already explained by the apex court in Prakash Narain Sharma v. Burmah Shell Co-operative Housing Society Ltd., AIR 2002 SC 3062, the BIFR being a quasi judicial body, could not have ignored the order of the civil court. The BIFR not being a judicial forum superior to the Civil Court at Guwahati could not have ignored the order of the civil court by terming the same to be one by corum-non-judice. Until and unless the injunction order of the civil court is vacated or recalled by an appropriate judicial forum, the same must be respected and given effect to. Moreover, the Allahabad High Court did not give any direction to the BIER to examine net worth of the company. While dismissing the writ, it was observed by the Allahabad High Court that the issue can be raised before the BIFR. This cannot be construed to mean a positive direction to the BIER to proceed and decide the issue. There is thus no inconsistency or conflict between the order of the Allahabad High Court and the order of the civil court as observed by the B....