In Re: Kamlapur Sugar and Industries Ltd. and Others

Patherya, J.�By this application stay is sought of C.P. No. 241 of 2009 along with C.A. No. 667 of 2012. This order is sought in view of a reference filed before the BIFR and registered as BIFR Case No. 65 of 2013 by order dated September 12, 2013. The said application is opposed by the Dena Bank, PICUP, IFCI and SASF (IDBI) and Corporation Bank. While Dena Bank issued notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, on April 1, 2006, it got a decree on February 14, 2008. The proceedings were initiated prior to the 2002 Act by the Dena Bank and without taking recourse to recovery of sums through the Recovery Officer, C.P. No. 241 of 2009 was filed in which an order of winding up has been passed pursuant whereof the official liquidator has taken possession of the assets and properties of the company (in liquidation) and has put up the said assets for sale. It has been contended on behalf of the applicant that section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1985 Act) permits filing of a reference and the third proviso operates as a bar to filing a reference only in the event the secured creditors have taken any measures to recover the secured debt under section 13(4) of the 2002 Act. Such secured creditors must represent not less than three-fourths in value of the amount outstanding. In the instant case, the secured creditors representing three-fourths in value of the amount outstanding have taken no steps to recover their secured debt under section 13(4) of the 2002 Act nor have they agreed amongst themselves to exercise of such rights amongst them. Such action if taken is to be binding on all the secured creditors. Therefore, the reference made under section 15 of the 1985 Act is valid, in view of the decision reported in Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [2000] 101 Comp Cas 284 (SC) : [2000] 5 SCC 515. Therefore orders be passed as sought. The said application is opposed by the Dena Bank, on whose behalf it has been contended that before the BIFR there has been suppression of material facts. The first material fact that has been suppressed relates to the order of the winding up, which has not been mentioned in the application filed before the Board under the 1985 Act. The second suppression is that the appeal court was not taken into confidence regarding the filing of the reference before the BIFR on August 16, 2013, although the reference was filed in July 2013. Section 13(2) notice has been given in May, 2006 and decree passed in 2008. The Dena Bank as secured creditor was entitled to make recovery of its dues and the winding up petition was justified and the proceedings thereunder, therefore, be continued. In view of the aforesaid, the application filed be dismissed. The decision relied on by the applicant is distinguishable on facts as the reference therein was filed when the winding up order was stayed by the appeal court. During the subsistence of the stay order the board of directors were entitled to file the reference. Such is not the case here. Therefore, this application merits no order.

On behalf of IFCI and SASF (TDBI), it has been submitted that section 15 of the 1985 Act postulates filing of a reference by the board of directors of the company, which the board of directors on the passing of a winding up order in view of sections 447 and 445(3) of the 1956 Act loses its existence. Therefore, no reference could have been filed before the BIFR. There is also suppression of material facts and in fact, the person who has affirmed the application is not authorised and can have no authority to represent the last board of director, in view of the judgment reported in K. SP. V. Shanmugam v. Maharashtra State Co-operative Cotton Growers Marketing Federation Ltd. [1991] 70 Comp Cas 440 (Kam). Therefore, this application merits no order and the same be dismissed.

On behalf of PICUP it has been submitted that no steps have been taken by it to recover its dues.

Counsel for the Corporation Bank submits that while no notice has been issued a claim has been lodged with the official liquidator.

In reply it has been submitted that in M/s. Rishabh Agro Industries Ltd. Vs. P.N.B. Capital Services Ltd., it has been specifically stated that in spite of the appointment of the official liquidator the board of directors continue to hold residuary power for the benefit of the company and therefore they are entitled to take steps for rehabilitation. This judgment has been affirmed in KSL and Industries Ltd. Vs. Arihant Threads Ltd. and Others, . The authority of SASF (IDBI) is disputed. Therefore, no order be passed.

Having considered the submission of the parties, there is no doubt that a reference was filed under section 15 of the 1985 Act before the BIFR and the same has been registered by the order dated September 12, 2013 and on registration section 22 of the 1985 Act operates as a bar. Section 22 reads as follows:

"22. Suspension of legal proceedings, contracts, etc.--(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver 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.

(2) Where the management of the sick industrial company is taken over or changed (in pursuance of any scheme sanctioned under section 18), notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law--

(a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company;

(b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board.

(3) Where an inquiry under section 16 is pending or any scheme referred to in section 17 is under preparation or during the period of consideration of any scheme under section 18 or where any such scheme is sanctioned thereunder for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board:

Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.

(4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, Tribunal, officer or other authority or of any submission, settlement or standing order and accordingly,--

(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and

(b) on the declaration ceasing to have effect--

(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and

(ii) any proceeding so remaining stayed shall be proceeded with subject to the provisions of any law which may then be in force, from the stage which had been reached, when the proceedings became stayed.

(5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded."

Therefore, on a plain reading of section 22 of the 1985 Act, when an enquiry is pending, the bar of section 22 will operate. Therefore, no proceedings in winding up or otherwise against the company shall lie or be proceeded with any further except with the consent of the Board. Section 22 is a natural corollary to registration of a case before the BIFR. But the only question that arises for determination is whether the application filed by an authorised representative is maintainable. It is one Monoj Saha who has filed this application. In fact, this application was not also necessary in view of the order dated September 20, 2013, on which date sale had been fixed and the ex-director of the company intervened to submit that a reference had been filed before the BIFR by the company and an order had been passed by the board restraining the company from disposing of and/or alienating the fixed assets without the consent of the Board. It was at this juncture that the intervener was directed to file an affidavit and such affidavit has also been filed. By the said affidavit what has been brought to the notice of the court is the order dated September 12, 2013, whereby the company has been registered under section 15(1) of the 1985 Act and the letter dated September 13, 2013, whereby the company has been informed of its reference being registered as Case No. 65 of 2013 by order dated September 12, 2013. These two documents were all that was required to be placed before the court to obtain necessary orders. The application, which is C.A. No. 500 of 2013, was not at all required. Accordingly, the affidavit filed pursuant to the order dated September 20, 2013, is considered and in view of the order dated September 12, 2013 and in the light of the letter dated September 13, 2013 and in particular, section 22 of the 1985 Act, the proceeding including those relating to winding up is stayed.

C.A. No. 500 of 2013 does not necessitate an order in view of the documents annexed to the affidavit pursuant to order dated September 20, 2013, being considered wherein the relevant documents have been annexed and to keep C.A. No. 500 of 2013 on record would be to unnecessarily burden the records of this court. Accordingly, the same is dismissed as infructuous.

It is true that affidavits have been filed in C.A. No. 500 of 2013 but these affidavits are dealing with the case on merits and does not require to be considered by the company court in its present jurisdiction. The company court does not sit in appeal over orders passed by the BIFR. The BIFR is regulated by the complete code of 1985. Similarly, companies (in liquidation) are guided by the Companies Act, 1956. The proceedings initiated by the secured creditors is guided by the 2002 Act, if it so desires, to take proceedings thereunder. Therefore, the merits on which reliance has been placed by the secured creditor has not been considered in these proceedings and it will be open to the secured creditor to agitate their respective issues before the BIFR or any other appropriate forum that they may take recourse to. In fact, in case the secured creditors were aggrieved by the order of registration dated September 12, 2013, each of them could have filed an appeal under section 25 of the 1985 Act. In fact, section 26 of the 1985 Act bars civil courts from exercising jurisdiction in respect of orders where from an appeal may lie before the Appellate Authority. Another reason for passing this order is that in the letter dated September 13, 2013, an intimation has been given that the company is restrained from disposing of and/or alienating any of its fixed assets without the consent of the board. Any orders passed would amount to nullify the said order passed by the BIFR and sitting in appeal over the decision of the BIFR which is not within the domain of the company court but is only in the domain of the Appellate Authority or the Board itself. The order of stay granted is subject to orders passed by the BIFR or the Appellate Authority. All parties concerned are to act on a photostat signed copy of this order on the usual undertakings.