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Company Laws = Whether the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter for short “SICA”) are applicable to the “foreign companies” registered in India under the provisions of Section 591 of the Companies Act, 1956 (hereinafter for short “the Act”) and, therefore, the revival scheme framed by the Board for Industrial and Financial Reconstruction (hereinafter referred to as “BIFR”) in respect of the Baranagore Jute Factory Plc. (hereinafter for short ‘the Respondent Company’) is required to be implemented. Section 3(o) of the Act which defines a sick industrial company in the following terms: “(o) “sick industrial company” means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth. Explanation.—For the removal of doubts, it is hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special Provisions) Amendment Act, 1993 registered for not less than five years and having at the end of any financial year accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company;”= In the aforesaid situation keeping in view the object and scheme of the Act and the virtual consensus of the contesting parties with regard to the present financial health of the respondent company it is clear that the company can no longer fall within the ambit of the expression “sick industrial company” as defined in Section 3(o) of the Act. Further applicability of SICA to the respondent company, therefore, does not arise.

published in    http://judis.nic.in/supremecourt/imgst.aspx?filename=40821 

 

English: The supreme court of india. Taken abo...

English: The supreme court of india. Taken about 170 m from the main building outside the perimeter wall (Photo credit: Wikipedia)

 

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NOS.8440-8445 OF 2013
(Arising out of SLP (C) Nos.39005-39010 of 2012)

 

Yash Deep Trexim Private Limited … Appellant (s)

 

Versus

 

Namokar Vinimay Pvt. Ltd. & Ors. … Respondent (s)

 

With
Civil Appeal Nos.8446-8451 of 2013
(Arising Out of SLP (C) Nos.39011-39016 of 2012)

 

Civil Appeal Nos.8452-8457 of 2013
(Arising Out of SLP (C) Nos.39017-39022 of 2012)

 

Civil Appeal Nos.8458-8463 of 2013
(Arising Out of SLP (C) Nos.39023-39028 of 2012)

 
J U D G M E N T

 

RANJAN GOGOI, J.

 

Leave granted.
2. The common challenge in these appeals is against the judgment and
order dated 19.10.2012 passed by a Division Bench of the High Court of
Calcutta holding that the provisions of the Sick Industrial Companies
(Special Provisions) Act, 1985 (hereinafter for short “SICA”) are
applicable to the “foreign companies” registered in India under the
provisions of Section 591 of the Companies Act, 1956 (hereinafter for short
“the Act”) and, therefore, the revival scheme framed by the Board for
Industrial and Financial Reconstruction (hereinafter referred to as “BIFR”)
in respect of the Baranagore Jute Factory Plc. (hereinafter for short ‘the
Respondent Company’) is required to be implemented. Though the question
raised in these appeals is short and precise, as noticed above, learned
counsels for the parties have raised various issues and contentions which,
in no way, appear to be even remotely connected with the question of law
that arises from the order of the High Court. We would, therefore, like to
make it clear at the outset that in spite of the strenuous efforts on the
part of the learned counsels for the parties to persuade us to go into the
said questions we have considered it wholly unnecessary to do so for
reasons indicated hereinafter. Instead, we must deal with what strictly
arises for our answer in the present appeals leaving the parties to avail
of such remedies as may be open to them in law in respect of all other
grievances raised.

 

3. We may now take note of a few relevant facts. The Respondent Company
was wound up by an order dated 28.10.1987 of the learned Company Judge of
the Calcutta High Court. The appeal filed against the winding up order by
some of the workers of the Company came to be dismissed by the Appellate
Bench of the High Court on 18.11.1987. Thereafter, on an approach being
made, the winding up proceedings were stayed for a period of six months on
22.9.1988 and a scheme for revival of the Company suggested by some of the
shareholders was accepted by the learned Company Judge. Our perusal of the
relevant facts and the voluminous pleadings brought on record would seem to
suggest that the initial order of stay of the winding up dated 22.9.1988
has been extended from time to time and till the present date different
schemes for running the affairs of the Respondent Company has been framed
and implemented pursuant whereto the Company has been functioning as a
going concern. We also deem it necessary to put on record that it has been
contended before us that several applications registered and numbered as
C.A. No. 126/2005, C.A. No. 302/2005, C.A. No. 303/2005, C.A.No.370/2009,
C.A.No.957/2010 for a permanent stay of the winding up proceedings have
been filed before the Calcutta High Court and the same are presently
pending. The above plea has been urged notwithstanding the observations of
this Court in Radheshyam Ajitsaria & Anr. v. Bengal Chatkal Mazdoor Union &
Ors.[1] to the effect that in permanent stay of the winding up proceedings
in respect of the Respondent Company had been granted by the High Court.

 

4. From the pleadings of the parties placed before us it appears that
the Respondent Company is the owner of vast immovable properties in and
around Kolkata which, with the passage of time, have enormously appreciated
in value. It is this particular asset of the Respondent Company which has
been the bone of contention between different groups of shareholders who
have claimed the right to run the affairs of the Company under the schemes
framed by the learned Company Judge from time to time. The action of one
group of shareholders purportedly to the disadvantage of another and the
acquisition of majority share holding by one such group to the detriment of
the other by enlarging the equity base of the Respondent Company has been
the bone of contention giving rise to serious contentious issues, which
issues, as indicated earlier, we are not inclined to go into as the same
not only has to be agitated before the appropriate forum but also does not
arise from the order passed by the High Court which has been subjected to
challenge in the appeals before us. All that would be necessary for us to
note, in addition to the facts stated above, is that a Reference made in
the year 2004 to the BIFR by two of the Directors of the Respondent Company
claiming to be in office at that point of time was ordered by the Calcutta
High Court to be disposed of on merits. The said order is dated 20.02.2006
passed in W.P. No. 221 of 2006. On the basis of the said order proceedings
before the BIFR were taken up and a scheme under Sections 18(4) and 19(3)
of the SICA was framed and notified for immediate implementation by the
order of the BIFR dated 4.11.2009. The said order came to be challenged
before the High Court in W.P. No. 1166/2009 (re-numbered as W.P.
5535(W)/2010). There was an interim order in the said writ petition
restraining the respondents therein from taking any steps in the matter of
sale of any property of the Respondent Company or from creating any charge
in respect of the assets of the Company without the leave of the Court.
The writ petition was, however, withdrawn on 16.6.2010 whereafter three
separate writ petitions bearing Nos. 12377/2010, 12406/2010 and 12412/2010
were filed challenging the jurisdiction of the BIFR to entertain the
reference; frame the scheme in question and pass orders for implementation
of the same. The aforesaid writ petitions were disposed of by the learned
Single Judge of the High Court by order dated 25.1.2011 holding that the
SICA is not applicable to the Respondent Company, it being incorporated
outside India. Consequently, the scheme framed by the BIFR was set aside
and quashed. As against the aforesaid order dated 25.1.2011 passed by the
learned Single Judge of the High Court six appeals were filed by the
aggrieved parties bearing Nos.169/2012, 170/2012, 171/2012, 172/2012,
173/2012 and 1115/2011. The Appellate Bench of the High Court by order
dated 19.10.2012 took the view that on a purposive interpretation of the
provisions of SICA the said Act would be applicable to the Respondent
Company. In this regard the Division Bench of the High Court specifically
took note of the fact that the only factory of the Company is located in
India at Baranagore; 90% of its shareholders are Indians and 3700 workers
are working in the jute factory in West Bengal. Aggrieved, the present
appeals have been filed before us.

 

5. Having noticed the question(s) arising from the order of the High
Court which has been challenged in the appeals presently under
consideration, we may now briefly take note of the contentions raised in
the appeals filed by the respective appellants before this Court.

 

The appellant in the appeals arising out of SLP (C) Nos. 39005-
39010/2012, apart from questioning the jurisdiction of the BIFR, also
contends that the first respondent (Namokar Vinimay Pvt. Ltd.) in the said
appeals had fraudulently increased its equity holding from 9% to 90% on
payment of a paltry sum of Rs. 5 crores by committing acts of cheating,
forgery, fraud etc. The majority shareholding of the appellant has been
thereby reduced, it is claimed.

 

In the appeals arising out of SLP (C) Nos.39011-39016/2012 the
workers’ union has raised grievances with regard to the competence of the
existing Management Committee to function and contends that the Committee
consisting of the two Directors who have instituted the appeals arising out
of SLP(C) Nos. 39017-39022/2012 would be competent in law to run the
affairs of the Respondent Company. Certain alleged fraudulent acts in the
matter of disposition of the property/transfer of shares by the existing
Management Committee are also alleged by the workers’ union.
On the other hand in the appeals arising out of SLP(C) Nos. 39017-
39022/2012, two Directors, namely, Chaitan Choudhury and Ridh Karan
Rakhecha who have purportedly filed the appeal on behalf of the Respondent
Company, apart from raising the issue of jurisdiction of the BIFR and the
applicability of the SICA to the Company, had also struck issues with
regard to the changes in the composition of the Management Committee and
the frauds and the misdeeds allegedly committed by the first respondent,
i.e., Namokar Vinimay Pvt. Ltd. in bringing out the above changes.
Peculiarly, the reference of the case of the respondent Company to the BIFR
was made by the very same appellants. In the last set of appeals in
chronological order, i.e., appeals arising out of SLP(C) Nos. 39023-
39028/2012, the appellant Radheshyam Ajitsaria is one of the promoters of
the revival scheme under which a Committee of Management had been
constituted in the year 1988/1989 by the learned Company Judge of the High
Court to run the affairs of the Company. The appellants therein are
aggrieved by the BIFR’s scheme which, according to the appellant, would be
in serious derogation of the scheme approved by the High Court.

 

6. Having noted the broad features of the grievances raised in each of
these appeals we may now take note of certain connected facts on the basis
of which we will be required to decide the necessity and expediency to
adjudicate the core question arising in these appeals and the other issues
that have been sought to be agitated before us. It has already been stated
in the earlier part of this order that the Respondent Company is the owner
of vast tracts of immovable property in and around Kolkata which has, with
the passage of time, appreciated in value. Way back in the year 1988 an
area of about 24 acres of land owned by the Company was acquired for the
purpose of building, maintenance, management and operation of the second
Vivekananda Bridge across the river Hoogly. In the year 2003 provisional
compensation was assessed at Rs.21,28,21000/- and on deposit of the said
amount possession of the land was taken over. The acquisition of the land
came to be challenged before the High Court and the said challenge was also
carried to this Court. The net result of the aforesaid exercise(s) was an
enhancement of the compensation initially by the High Court to the extent
of 30% and thereafter by this Court by fictionally shifting the date of
entitlement of compensation from the date of acquisition to the date of
taking over of possession. An award dated 30.01.2006 was made in terms of
the order of this Court which had led to further disputes between the
parties. Eventually, all parties agreed to refer the matter to the sole
arbitration of a retired Chief Justice of this Court who by a final Award
dated 13.9.2012 awarded an additional compensation package of Rs.57 crores
along with interest, which on computation, would amount to about Rs.50
crores. A sum of Rs.95 crores has been deposited by the National
Highway Authority of India with the Registrar of the Calcutta High Court on
9.11.2012 in the account of the Respondent Company. In this manner the
Respondent Company has received/entitled to receive a sum of nearly Rs.170
crores on account of compensation for acquisition of the land. The
Respondent Company has clearly and categorically and on the basis of the
precise details of its liabilities has contended that even after meeting
all its statutory and contractual obligations and liabilities it would
still be left with a surplus of nearly Rs.50 crores and, therefore, would
not be a ‘sick company’ any more. The aforesaid claim/position has been
admitted by the appellant in the appeals arising out of SLP (C) Nos.39005-
39010/2012 in paragraph ‘I’ of the SLP by stating as follows :

 

“It is submitted that in all an amount of Rs.170 crores has been
paid by NHAI to the Respondent No.22 Company out of which Rs.95
crores has been deposited with the Registrar of the High Court
on 9.11.2012 to the credit of the Respondent No.22 Company
pursuant to the award dated 13.9.2012 and as such the Respondent
No.22 Company would be out of BIFR as it will have a surplus
fund available and profits of about Rs.50 crores even after
meeting out all losses and liabilities.”

 
7. To appreciate the effect of the aforesaid facts on the necessity of
any adjudication of the present appeals, the object behind enactment of the
SICA and the statutory scheme contemplated by the Act may be briefly
noticed. An elaborate exposition of the legislative history and object
behind enactment of the SICA as well as the scheme under provisions of the
Act is to be found in a recent pronouncement of this Court in Raheja
Univeral Limited v. NRC Limited & Ors.[2]. At the cost of repetition it may
be usefully recapitulated that the Act was enacted to overcome the grossly
inadequate and time consuming institutional arrangements that were then in
place for revival and rehabilitation of sick industrial companies. The Act
was brought into force to provide timely identification, by an expert body,
of sick industrial companies and to design suitable rehabilitation packages
in order to obviate the enormous loss that would be occasioned by such
units going permanently out of business. The provisions of Sections 15 to
19 contained in Chapter III of the Act dealing with references to the Board
by the Management of sick industrial companies; enquiries into the working
of such companies and the measures to be undertaken by the Board to make a
sick industry viable had received a full consideration of this Court in
Raheja Univeral Limited (supra). The details in this regard need not be
noticed once again save and except that the Act has cast upon the BIFR the
duty to cause a detailed inquiry to be made into the functioning of any
sick industrial company and to take steps to revive the functioning of such
company failing which to refer the cases of such companies to the
jurisdictional High Court for winding up in accordance with the provisions
of the Companies Act. In this regard, specific notice must be had of
Section 3(o) of the Act which defines a sick industrial company in the
following terms:

 

“(o) “sick industrial company” means an industrial company
(being a company registered for not less than five years) which
has at the end of any financial year accumulated losses equal to
or exceeding its entire net worth.

 
Explanation.—For the removal of doubts, it is hereby
declared that an industrial company existing immediately before
the commencement of the Sick Industrial Companies (Special
Provisions) Amendment Act, 1993 registered for not less than
five years and having at the end of any financial year
accumulated losses equal to or exceeding its entire net worth,
shall be deemed to be a sick industrial company;”

 

 

 

8. In the present case the entitlement of the respondent company to
receive a total amount of Rs.170 crores (approximately) by way of
acquisition compensation and the payment of Rs.95 crores by NHAI which is
presently lying in deposit with the Registrar of the Calcutta High Court is
not in dispute. That the respondent company would be left with a surplus
of about Rs.50 crores after meeting all its losses and liabilities is a
common ground amongst all the contesting parties. The rehabilitation
scheme framed by the Board by its order dated 04.10.1999 is yet to be
implemented. In the aforesaid situation keeping in view the object and
scheme of the Act and the virtual consensus of the contesting parties with
regard to the present financial health of the respondent company it is
clear that the company can no longer fall within the ambit of the
expression “sick industrial company” as defined in Section 3(o) of the Act.
Further applicability of SICA to the respondent company, therefore, does
not arise.

 

9. If the respondent company no longer falls within the ambit of a ‘sick
industrial company’ as defined by Section 3(o) of the Act and the Act has
ceased to apply to the company and the rehabilitation package worked out by
the Board has not yet been implemented, the question(s) arising in the
present appeals have surely become academic and redundant. If that be so,
we do not see why we should answer the said question(s) in the present
group of appeals. Instead, in fitness of things, we should leave the said
question (s) open for determination in an appropriate case and as and when
the occasion would arise.

 

10. In so far as the other issues, particularly, with regard to the
management of the company is concerned we have already found that none of
the said issues arise from the order of the High Court under appeal before
us. Even otherwise, we will not be justified to go into any of the said
issues and express any opinion thereon inasmuch as this Court exercising
jurisdiction under Article 136 of the Constitution is not the appropriate
forum to adjudicate grievances/claims with regard to the right of
management of the affairs of the company by one group of shareholders or
the other. It has been urged before us that several contentious issues
with regard to the rights of one group of shareholders or the other to be
in control of the management of the Company had been raised and some of
such claims are still pending before the High Court. Coupled with the
above is the pendency of several other proceedings with regard to permanent
stay of the winding up of the Company. Taking into account all that has
been stated above we are of the view that it would be just, proper and
equitable to leave the contesting parties to pursue their remedies before
the High Court or such other forum as may be competent in law. For the
present, the Management of the Company as on date will continue until
orders, if any, varying the current position are passed by any forum
competent in law. It is made clear that the above is a mere working
arrangement that we have considered appropriate for the present and the
same should not be understood as any expression of opinion by us on the
entitlement of any particular group of shareholders to run and manage the
affairs of the company which issue is left open.

 

11. Consequently, all these appeals shall stand disposed of in terms of
our above observations and directions.

 

…………………………CJI.
[P. SATHASIVAM]

 

 

 

……………………………J.
[RANJAN GOGOI]
New Delhi,
September 23, 2013.

 

 

 

 

 

———————–
[1] (2006) 11 SCC 771
[2] (2012) 4 SCC 148

 

 

 

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