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Judgment
Anant S. Dave, J.—This petition under Article 226 of the Constitution of India is filed with following prayers:
14(a) Be pleased to quash and set aside Notice dated 23-6-2009 issued by respondent u/s 13(4) of the Securitisation Act, 2002.
(b) Pending admission, hearing and final disposal of this petition, respondent be restrained to take any further steps under Securitisation Act, 2002.
(c) Costs of this petition be awarded.
(d) Such further and other relief, order or direction which may be just, fit, proper and equitable in the facts and circumstances of the petition.
Short facts for which present petition is filed for determination of question of law involved are as under:
2.1. In the year 2001, the petitioner-Paschim Petrochem Ltd. (in short "P.P.L.") filed reference before B.I.F.R. u/s 15(1) of the S.I.C.A., 1985, which was registered as No. 291 of 2001 and ICICI Bank being secured creditor and party to the said reference, various hearing took place. Meanwhile, by way of deed of assignment in the month of May, 2005 creditor Bank ICICI assigned their secured rights, debts to the Kotak Mahindra Bank Ltd (in short "K.M.B.L.") and B.I.F.R. issued certain directions by declaring the company as sick and appointed I.D.B.I, as the operating agency u/s 17(3) of the Act to prepare a rehabilitation scheme as per the guidelines annexed therewith.
2.2. Therefore, according to the petitioner the above decision of B.I.F.R. declaring the petitioner as sick industry all assessment of the sick company is under complete control, command and custody of the B.I.F.R., and therefore, respondent-Bank is a party to the above adjudication such decision is binding to them and they are estopped to act contrary to B.I.F.R. and widiout any consent of B.I.F.R. no proceedings can be taken under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
2.3. That, during the pendency of the proceedings before the B.I.F.R., Kotak Mahindra Bank Ltd., issued notice u/s 13(2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (in short "Securitisation Act, 2002") which was replied by the petitioner u/s 13(3A) of the Act and later on symbolic/ constructive possession of secured assets was taken over on 23-6-2009 by pasting the notice of possession and authorised officer had drawn panchnama and even as required under Rule 8(2) of Security Interest (Enforcement Rules), 2002 Kotak Mahindra Bank Ltd., (in short "K.M.B.L.") published said notice of possession in two leading newspapers on 1-7-2009, and accordingly, on 17th July, 2009 authorised officer of K.M.B.L. informed the Chairman, B.I.F.R., New Delhi that in view of third proviso to Sub-section (1) of Section 15 of Sick Industrial Companies (Special Provisions) Act, 1985 (in short "S.I.C. Act, 1985") reference pending before the Hon''ble Bench stood abated.
That challenging the above notice, learned Advocate for the petitioner contends that in view of culmination of proceedings before B.I.F.R. and order of declaration of petitioner being sick was passed by B.I.F.R. on 19-9-2005 u/s 17(3) of S.I.C. Act, it cannot be said that protection u/s 22(1) of S.I.C. Act, 1985 is not available to the petitioner by virtue of third proviso to Section 15(1) of S.I.C. Act, 1985 and Section 41 of the S.A.R.F.A.E.S.I. Act, 2002 reference has abated. Therefore, respondents were duty-bound to seek permission u/s 22 of S.I.C. Act, 1985.
3.1. Therefore, a question is posed by learned Advocate for the petitioner that whether sickness of company/industrial unit is curable or incurable and so far as inquiry is concerned, once sickness of a industrial unit is declared and order is passed to that extent by B.I.F.R. such inquiry is over and complete. It is therefore, submitted that whatever procedure is provided under different Sections where ''reference'' is not referred at all, it is, only about just and suitable preparation of scheme and after preparation of scheme, if required, then only any order for modification and/or direction of implementation of the scheme can be passed and in event of sickness is not curable and there is no possibility to revive the unit, then recommendations of winding-up of sick company can be made u/s 20 of the Act.
Therefore, the decision or action of the respondents taking measure under S.A.R.F.A.E.S.I. Act, 2002 is illegal.
3.2. In respect of his arguments, a reference is made to the case of Noble Aqua Pvt. Ltd. and Others Vs. State Bank of India and Others, interpreting third proviso of Section 15 of S.I.C.A. Act, 1985 in the identical facts and circumstances of the case and it is further submitted that deed of assignment of ICICI Bank Ltd. to K.M.B.L. is also contrary to decision of this Court. It is also submitted that ICICI Bank has already filed recovery application before D.R.T. which is pending for adjudication and in which K.M.B.L. filed an application for substitution which was of course opposed by the petitioner herein.
3.3. It is inter alia submitted that when the application for substitution is pending before D.R.T., Ahmedabad, it is premature for respondent to take any measure under S.A.R.F.A.E.S.I., Act, 2002 and respondent not being Securitisation Company as required under Securitisation Act, 2002, any action taken by such company is illegal.
Mr. Mihir Joshi, learned Senior Advocate appearing for the respondent countered above submissions of learned Advocate for the petitioner on the ground that, any objection with regard to applicability of S.A.R.F.A.E.S.I., Act, 2002 or even prohibition to transfer debts by way of deed of assignment can be raised before the D.R.T.-1, Ahmedabad where recovery application is pending for adjudication.
4.1. However, on merit it is submitted that the contention that the proceedings before the B.I.F.R. cannot be said to be at reference stage after order u/s 16 or 17(3) of S.I.C. Act, 1985 is passed, and therefore, proceedings before B.I.F.R. do not abate even if the secured creditors representing not less than 3A in value of the amount outstanding from the borrowers have taken measures to recover the secured debt as contemplated under the third proviso to Section 15(1) of S.I.C. Act, 1985 and further that the protection u/s 22 of S.I.C. Act, 1985 continues, is misconceived and incorrect on the basis and reasons that Chapter-III of S.I.C. Act, 1985 pertains to reference, inquires and schemes and reference is filed before B.I.F.R. by a sick industrial company for determination of the measures to be adopted with respect to such company, and therefore the Act contemplates inquiry into the working of sick industrial companies u/s 16 and powers of B.I.F.R. to make suitable orders on completion of inquiry and also to direct any operating agency to prepare a scheme providing for necessary measures in relation to the company u/s 17(3) and also u/s 18 for preparation and sanction of the schemes to be monitored periodically to implement the sanction scheme as required u/s 18(2) of the Act. Section 19 is to Rehabilitation of Sick Industrial Company by giving financial assistance and wounding-up a sick industrial company cases u/s 20 of the Act. Thus, according to learned Advocate for the respondent, the scheme of S.I.C. Act provides that reference commences with the application being filed before B.I.F.R. u/s 15(1) of the Act and culminates after successful implementation of the scheme sanctioned u/s 18 or on the opinion being forwarded by the B.I.F.R. to the concerned High Court for the winding-up sick industrial company u/s 20, and till then, the reference continues and can abate only as contemplated under third proviso of Section 15(1) of the Act.
4.2. According to learned Advocate for the respondent u/s 16 of S.I.C. Act, 1985 a declaration made by B.I.F.R. that the industrial company has become sick industrial company does not conclude the reference, but is a finding of a jurisdictional fact necessary for the B.I.F.R. to enter upon the reference and pass various orders contemplated under subsequent Sections and such a declaration or subsequent orders cannot be constituted as a culmination of reference at all. Even, order passed for appointing and operating agency to prepare a scheme is also an order in a pending reference and not the order concluding or commending the reference. That, Act does not envisage two sets of proceedings in relation to the sick industrial company.
It is further contended that in case of this petition, an order u/s 17(3) passed by the B.I.F.R. directing an operating agency to prepare a scheme is under preparation and to be submitted to the B.I.F.R. for its examination and it would be then circulated and published u/s 18(3) and if required can be modified and then sanctioned by the B.I.F.R. If such scheme contemplates in financial assistance by any financial institution/Bank or other such body, procedure u/s 19 is to be followed and this is evident also u/s 18(5) of the Act which provided for review of the sanction scheme and making of such modification as deemed fit by B.I.F.R. which also signifies that the reference is pending on such stage. Therefore, also contention about conclusion of reference is not envisaged at the above stages.
5.1. It is further contended that reliance placed on Section 22 of S.I.C. Act, 1985 by the petitioner is not justified and in fact the above provision supports the contentions that a reference under S.I.C. Act takes within its sweep inquiry u/s 16, preparation of scheme u/s 17 and operation of a sanction scheme and also even appeal u/s 25. That, above stages entitled the sick industrial company to protection as contemplated undes said provision. According to learned Advocate the contention that since the stage of preparation of scheme is covered u/s 22 and entitles the company to protection against measures being taken by secured creditors, and therefore, the proviso to Section 15(1) regarding abatement would not be applicable at such stage do not take into consideration the fact that with the above analogy can be applied even at the stage of inquiry being pending u/s 16 which would be the receipt of the reference itself by B.I.F.R. and explanation to Section 16 is very clear about this effectively rendering the insertion of proviso providing for abatement, redundant.
5.2. Therefore, it is submitted that Madras High Court in the case of Triveni Alloys Limited Vs. Board for Industrial and Financial Reconstruction and Others, has held that even an appeal u/s 25 would abate if measures are taken by the secured creditors as contemplated under the proviso to Section 15(1) of the Act, and therefore, the judgment of the Hon''ble Orrisa High Court in the case of Noble Aqua Pvt. Ltd. and Others Vs. State Bank of India and Others, is not applicable, against which S.L.R. No. 13284 of 2008 is filed and proceedings before B.I.F.R. have been stayed by the Supreme Court vide interim order dated 30-7-2008.
5.3. Reliance is also placed on the decision of Delhi High Court in the case of Punjab National Bank and Others Vs. AAIFR and Others, , Madras Petrochem Ltd. and Another Vs. B.I.F.R. and Others, and Intergrated Rubian Exports Ltd. Vs. Industrial Finance Corporation of India Ltd. Ors.,
Thus, in view of above submissions, this Court is to decide:
Whether a reference made u/s 15(1) of S.I.C. Act can be said to be pending in terms of inserted unnumbered third provisio to Section 15(1) by Act 54 of 2002, when inquiry made u/s 16 is over and order u/s 17(1), (2) or (3) is passed as the case may be and in the above context whether consent of the Board u/s 22 of the Act is to be obtained before taking any action u/s 13 of S.A.R.F.A.E.S.I. Act, 2002?
OR
Whether order passed by the Board u/s 17(1), (2) or (3) of S.I.C.A. rendered newly inserted third unnumbered provisio to Section 15(1) of S.I.C.A. by Act 54 of 2002 in operative on the ground that no reference survives or remain pending at the stage of Section 17, when the Board is satisfied about sickness of sick industrial company after completion of inquiry u/s 16 of the Act?
It is relevant to reproduce certain provisions of S.I.C. Act, 1985 and S.A.R.F.A.E.S.I. Act, 2002 before analysing submissions of learned Advocate appearing for the parties on facts as well as on law.
Section 3(1)(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 need of any financial year accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company;
CHAPTER III
REFERENCES, INQUIRIES AND SCHEMES
Reference to Board
(1) When an industrial company has become a sick industrial company, the Board of Directors of the company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the Board for determination of the measures which shall be adopted with respect to the company:
Provided that if the Board of Directors has sufficient reasons even before such finalisation to form the opinion that the company had become a sick industrial company, the Board of Directors shall, within sixty days after it has formed such opinion, make a reference to the Board for the determination of the measures which shall be adopted with respect to the company.
[Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement* of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company under Sub-section (1) of Section 5 of that Act:
Provided also that on or after the commencement* of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial 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 it has by reason of any financial assistance, or obligation rendered by it, or undertaken by it, with respect to, such company, an interest in such company.
Inquiry into working of sick industrial companies
(1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company-
(a) upon receipt of a reference with respect to such company u/s 15; or
(b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company.
(2) The Board may if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under Sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matters as may be specified in the order.
(3) The Board or as the case may be, the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry-
1 [Explanation: For the purposes of this sub-section, an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board.]
(4) Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under Sub-section (1) or, as the case may be, under Sub-section (2), it 2[may] appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company l[or in the public interest.]
1[(4A) The Board may issue such directions to a special director appointed under Sub-section (4) as it may deem necessary or expedient for proper discharge of his duties.]
(5) The appointment of a special director referred to in Sub-section (4) shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956, or in any other law for the time-being in force or in the Memorandum and Articles of Association or any other instrument relating to the industrial company, and any provisions regarding share, qualification, age-limit, number of directorships, removal from office of directors and such like conditions contained in any such law or instrument aforesaid, shall not apply to any director appointed by the Board.
(6) Any special director appointed under Sub-section (4) shall-
(a) hold office during the pleasure of the Board and may be removed or substituted by any person by order in writing by the Board;
(b) not incur any obligation or liability by reason only of his being a director or for anything done or omitted to be done in good faith in the discharge of his duties as a director or anything in relation thereto;
(c) not be liable to retirement by rotation and shall not be taken into account for computing the number of directors liable to such retirement;
1[(d) not be liable to be prosecuted under any law for anything done or omitted to be done in good faith in the discharge of his duties in relation to the sick industrial company.]
Powers of Board to make suitable order on the completion of inquiry: (1) If after making an inquiry u/s 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be, any order in writing, whether it is practicable for the company to 2[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 time to the company as it may deem fit to 2[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 6[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 made under Sub-section (2) are not complied with by the company concerned, 3[or if the company fails to revive in pursuance of the said order,] review such order or a reference in that behalf from any agency referred to in Sub-section (2) of Section 15 or on its own motion and pass a fresh order in respect of such company under Sub-section (3).
(b) if the operating agency specified in an order made under Sub-section (3) makes a submission in that behalf, review such order and modify the order in such manner as it may deem appropriate.
Preparation and sanction of Schemes.-
(1) Where an order is made under Sub-section (3) of Section 17 in relation to any sick industrial company, the operating agency specified in the order shall prepare, as expeditiously as possible and ordinarily within a period of ninety days from the date of such order, a scheme with respect to such company providing for any one or more of the following measures, namely,-
1[(a) the financial reconstruction of the sick industrial company;]
(b) the proper management of the sick industrial company by change in, or take over of, management of the sick industrial company;
2[(c) the amalgamation of-
(i) the sick industrial company with any other company; or
(ii) any other company with the sick industrial company;]
(hereafter in this Section, in the case of Sub-clause (i), the other company, and the case of Sub-clause (ii), the sick industrial company, referred to as "transferee company");]
(d) the sale or lease of a part or whole of any industrial undertaking of the sick industrial company;
3[(da) the rationalisation of managerial personnel, supervisory staff and workmen in accordance with law;]
(e) such other preventive, ameliorative and remedial measures as may be appropriate;
(f) such incidental, consequential or supplemental measures as may be necessary or expedient in connection with or for the purpose of the measures specified in Clauses (a) to (e).
(2) The scheme referred to in Sub-section (1) may provide for any one or more of the following, namely,-
(a) the constitution, name and registered office, the capital, assets, powers, rights, interests, authorities and privileges, duties and obligations for the sick industrial company or, as the case may be, of the 4[transferee company;]
(b) the transfer to the 4[transferee company] of the business, properties, assets and liabilities of the sick industrial company on such terms and conditions as may be specified in the scheme;
(c) any change in the Board of Directors, or the appointment of a new Board of Directors, of the sick industrial company and the authority by whom, the manner in which and other terms and conditions on which, such change or appointment shall be made and in the case of appointment of a new Board of Directors or of any director, the period for which such appointment shall be made;
(d) the alteration of the Memorandum or Articles of Association of the sick industrial company or, as the case may be, of the 1 [transferee company] for the purpose of altering the capital structure thereof or for such other purposes as may be necessary to give effect to the reconstruction or amalgamation;
(e) the continuation by, or against, the sick industrial company or, as the case may be, the 1 [transferee company] of any action or other legal proceeding pending against the sick industrial company immediately before the date of the order made under Sub-section (3) of Section 17;
(f) the reduction of the interest or rights which the share-holders have in the sick industrial company to such extent as the Board considers necessary in the interests of the reconstruction, revival or rehabilitation of the sick industrial company or for the maintenance of the business of the sick industrial company;
(g) the allotment to the share-holders of the sick industrial company of shares .in the sick industrial company or, as the case may be, in the 1 [transferee company] and where any shareholder claims payment in cash and not allotment of shares, or where it is not possible to allot shares to any shareholder, the payment of cash to those share-holders in full satisfaction of their claims-
(i) in respect of their interest in shares in the sick industrial company before its reconstruction or amalgamation; or
(ii) where such interest has been reduced under Clause (f) in respect of their interest in shares as so reduced;
(h) any other terms and conditions for the reconstruction or amalgamation of the sick industrial company;
(i) sale of the industrial undertaking of the sick industrial company free from all encumbrances and all liabilities of the company or other such encumbrances and liabilities as may be specified, to any person, including a co-operative society formed by the employees of such undertaking and fixing of reserve price for such sale;
(j) lease of the industrial undertaking of the sick industrial company ro any person, including a co-operative society formed by the employees of such undertaking;
(k) method of sale of the assets of the industrial undertaking of the sick industrial company such as by public auction or by inviting tenders or in any other manner as may be specified and for the manner of publicity therefor;
(l) transfer or issue of the shares in the sick industrial company at the face value or at the intrinsic value which may be at discount value or such other value as may be specified to any industrial company or any person including the executives and employees of the sick industrial company;
(m) such incidental, consequential and supplemental matters as may be necessary to secure that the reconstruction or amalgamation or other measures mentioned in the scheme are fully and effectively carried out.
(3) 1[(a) The scheme prepared by the operating agency shall be examined by the Board and a copy of the scheme with modification, if any, made by the Board shall be sent, in draft, to the sick industrial company and the operating agency and in the case of amalgamation, also to any other company concerned, and the Board shall publish or cause to be published the draft scheme in brief in such daily newspapers as the Board may consider necessary, for suggestions and objections, if any, within such period as the Board may specify.]
(b) The Board may make such modifications, if any, in the draft schemes as it may consider necessary in the light of the suggestions and objections received from the sick industrial company and the operating agency and also from the transferee industrial company and 2[any other company] concerned in the amalgamation and from any share-holder or any creditors or employees of 3[such companies]:
Provided that where the scheme relates to amalgamation 4[* * *], the said scheme shall be laid before 5[the company other than the sick industrial company] in the general meeting for the approval of the scheme by its share-holders and no such scheme shall be proceeded with unless it has been approved, with or without modification, by a special resolution passed by the share-holders of 5 [the company other than die sick industrial company.]
(4) The scheme shall thereafter be sanctioned, as soon as may be, by the Board (hereinafter referred to as the ''sanctioned scheme'') and shall come into force on such date as the Board may specify in this behalf:
Provided that different dates may be specified for different provisions of the scheme.
(5) The Board may on the recommendations of the operating agency or otherwise, review any sanctioned scheme and make such modifications as it may deem fit or may by order in writing direct any operating agency specified in the order, having regard to such guidelines as may be specified in the order, to prepare a fresh scheme providing for such measures as the operating agency may consider necessary.
(6) When a fresh scheme is prepared under Sub-section (5), the provisions of Sub-sections (3) and (4) shall apply in relation thereto as they apply to in relation to a scheme prepared under Sub-section (1).
1[(6A) Where a sanctioned scheme provides for the transfer of any property or liability of the sick industrial company in favour of any other company or person or where such scheme provides for the transfer of any property or liability of any other company or person in favour of the sick industrial company, then, by virtue of, and to the extent provided in, the scheme, on and from the date of coming into operation of the sanctioned scheme or any provision thereof, the property shall be transferred to, and vest in, and the liability shall become the liability of, such other company or person or, as the case may be, the sick industrial company.]
(7) The sanction accorded by the Board under Sub-section (5) shall be conclusive evidence that all the requirements of this scheme relating to the reconstruction or amalgamation, or any other measure specified therein have been complied with and a copy of the sanctioned scheme certified in writing by an officer of the Board to be a true copy thereof, shall, in all legal proceedings (whether in appeal or otherwise) be admitted as evidence.
2[(8) On and from the date of the coming into operation of the sanctioned scheme or any provision thereof, the scheme or such provision shall be binding on the sick industrial company and the transferee company or, as the case may be, the other company and also on the share-holders, creditors and guarantors and employees of the said companies.]
(9) If any difficulty arises in giving effect to the provisions of the sanctioned scheme, the Board may, on the recommendation of the operating agency l[or otherwise], by order do anything, not inconsistent with such provisions, which appears to it to be necessary or expedient for the purpose of removing difficulty.
(10) The Board may, if it deems necessary or expedient so to do, by order in writing direct any operating agency specified in the order to implement a sanctioned scheme with such terms and conditions and in relation to such sick industrial company as may be specified in the order.
(11) Where the whole of the undertaking of the sick industrial company is sold under a sanctioned scheme, the Board may distribute the sale proceeds to the parties entitled thereto in accordance with the provisions of Section 529A and other provisions of the Companies Act, 1956 (1 of 1956).
1[(12) The Board may monitor periodically the implementation of the sanctioned scheme.]
Rehabilitation by giving financial assistance
(1) Where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the 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, a public financial institution or State level institution or any institution or other authority (any Government, Bank, institution or other authority required by a scheme to provide for such financial assistance being hereafter in this Section referred to as the person required by the scheme to provide financial assistance) to the sick industrial company.
(2) Every scheme referred to in Sub-section (1) shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation 2[or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given.]
(3) Where in respect of any scheme the consent referred to in Sub-section (2) is given by every person required by the scheme to provide financial assistance, the Board may, as soon as may be, sanction the scheme and on and from the date of such sanction the scheme shall be binding on all concerned.
1[(3A) On the sanction of the scheme under Sub-section (3), the financial institutions and the Banks required to provide financial assistance shall designate by mutual agreement a financial institution and a Bank from amongst themselves which shall be responsible to disburse financial assistance by way of loans or advances or guarantees or reliefs or concessions or sacrifices agreed to be provided or granted under the scheme on behalf of all financial institutions and Banks concerned.
(3B) The financial institution and the Bank designated under Sub-section (3A) shall forth with proceed to release the financial assistance to the sick industrial company in fulfilment of the requirement in this regard.]
(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.
2[19A. Arrangement for continuing operations, etc. during inquiry.
(1) At any time before completion of the inquiry u/s 16, the sick industrial company or 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 or any other institution, Bank or authority providing or intending to provide any financial assistance by way of loans or advances or guarantees or reliefs or concessions to the sick industrial company may make an application to the Board-
(a) agreeing to an arrangement for continuing the operations of the sick industrial company; or
(b) suggesting a scheme for the financial reconstruction of the sick industrial company.
(2) The Board may, within sixty days of the receipt of the application under Sub-section (1), pass such orders therein as it may deem fit.]
Winding-up of sick industrial company.-
1[(1) Where the Board, after making inquiry u/s 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound-up, it may record and forward its opinion to the concerned High Court.]
(2) The High Court shall, on the basis of the opinion of the Board, order winding-up of the sick industrial company and may proceed and cause to proceed with the winding-up of the sick industrial company in accordance with the provisions of the Companies Act, 1956 (1 of 1956).
(3) For the purpose of winding-up of the sick industrial company, the High Court may appoint any officer of the operating agency, if the operating agency gives its consent, as the liquidator of the sick industrial company and the officer so appointed shall for the purpose of the winding-up of the sick industrial company be deemed to be, and have all the powers of, the official liquidator, under the Companies Act, 1956 (1 of 1956).
(4) Notwithstanding anything contained in Sub-section (2) or Sub-section (3), the Board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529A, and other provisions of the Companies Act, 1956 (1 of 1956).
Operating agency to prepare complete inventory, etc.
Where 2[for the proper discharge of the functions of the Board under this Act] the circumstances so require, the Board may, through any operating agency, cause to be prepared-
(a) with respect to 12[a company], a complete inventory of-
(i) all assets and liabilities of whatever nature;
(ii) all books of account, registers, maps, plans, records, documents of title or ownership of property and all other documents of whatever nature relating thereto;
(b) a list of share-holders and list of creditors showing separately in the list of creditors, the secured creditors and the unsecured creditors;
(c) a valuation report in respect of the shares and assets in order to arrive at the reserve price for the sale of a part or whole of the industrial undertaking of the company or for fixation of the lease rent or share exchange ratio;
(d) an estimate of reserve price, lease rent or share exchange ratio; and
(e) pro forma accounts, where no up-to-date audited accounts are available.
Suspension of legal proceedings, contracts, etc.
(1) Where in respect of an industrial company, an inquiry u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal u/s 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 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 2[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 3[in pursuance of any scheme sanctioned u/s 18], notwithstanding anything contained in the Companies Act, 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 share-holders 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 share-holders of such company shall be given effect to unless approved by the Board.
(3) 4[Where an inquiry u/s 16 is pending or any scheme referred to in Section 17 is under preparation or during the period] of consideration of any scheme u/s 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, 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.
1[22A. Direction not to dispose of assets.-
The Board may, if it is of opinion that any direction is necessary in the interest of the sick industrial company or creditors or share-holders or in the public interest, by order in writing direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets-
(a) during the period of preparation or consideration of the scheme u/s 18; and
(b) during the period beginning with the recording of opinion by the Board for winding-up of the company under Sub-section (1) of Section 20 and up to commencement of the proceeding relating to the winding-up before the concerned High Court.]
That in exercise of the powers conferred by Section 13 of S.I.C. Act, 1985 the B.I.F.R. has framed certain regulations namely Board for Industrial and Financial Reconstruction Regulations, 1987 and these regulations provide modus of functioning of the Board and procedure to be adopted for the purpose of Chapter III of the Act. That, Regulation 19 of Chapter II of this regulation provides procedure for references u/s 15 of the Act and Chapter III is for general provisions regarding inquiries and Chapter IV prescribed conduct of inquiry u/s 16 of the Act, while Chapter V governs proceedings u/s 17 and Chapter VI provide that procedure for preparation and sanction of scheme u/s 18 of the Act and Chapter VII is for procedure for sanctioning schemes u/s 19 of the Act.
Thus, provisions of the Act and Regulation combined together govern functioning of the Board and regulate procedural aspects under different heads.
Sections 35, 37 and 41 of S.A.R.F.A.E.S.I. Act, 2002 reads as under:
The provisions of this Act to override other laws: The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time-being in force or any instrument having effect by virtue of any such law.
Application of other laws not barred: The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation, of the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time-being in force.
Amendments of certain enactments: The enactments specified in the Schedule shall be amended in the manner specified therein.
1986 1 The Sick Industrial In Section 15. in Sub-section (1), after the proviso, (Special Provisions) insert the following:
Act, 1985. Provided further that no reference shall be made to the Board for Industrial and Financial Reconstruction after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where financial assets have been acquired by any securitisation company or reconstruction company under Sub-section (1) of Section 5 of that Act.
Provided also that on or after the commence- ment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial 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.
It is to be noted that Repeal Act, 2003 namely the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 was enacted by Parliament to repeal the Sick Industrial Companies (Special Provisions) Act, 1985 but as provided in Section 1(2) of the Repeal Act, still no date is notified by the Central Government by Notification in the Official Gazette bringing the enactment into force.
That, object and reasoning of the Act are pertaining to enactment of special provisions with a view to secure timely detection of sick and potentially sick companies handling industrial undertakings, the speedy determination of 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 there with or incidental thereto and the Apex Court has considered various provisions of the above Act and particular provisions contained in Chapter III of the above Act.
That, Chapter III of the Act is pertaining to references, inquires and schemes and it contains a composite structure to deal with requirement of registration of sick industrial company with Board and ordering inquiry into working of sick industrial companies and powers of Board to make suitable order on the completion of inquiry. It further empowers the Board to direct operating agency to prepare the scheme and sanction the same and various measures to be undertaken for revival for sick industrial unit, including rehabilitation by giving financial assistance and as a last recourse to recommend sick industrial company for winding-up to the High Court in case if it is not possible to revive or rehabilitate such sick industrial company. That, Section 22 is the provisions for suspension of legal proceedings, contract etc. and 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 can be initiated when a reference is registered u/s 15 of the Act. That apparent power is provided u/s 25 of the Act.
The Apex Court in a reported decision in the case of the The Gram Panchayat and another Vs. Shree Vallabh Glass Works Ltd. and others, considered scheme of the Act in the context of sick industrial company as defined under Clause (o) of Sub-section (1) of Section 3 of the Act and Section 22 and held that steps taken by the Board under Sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the Company shall lie or be proceeded further except that the consent of the Board. It is further held that indeed, there would be automatic suspension of such proceedings against the companies properties. Again in the case of S.R.F. Limited Vs. Garware Plastics and Polyesters Ltd. and Others, after considering provisions contained in Chapter-III of the Act, the Apex Court held that the legislative intent is clear that sick or potentially sick industry should be detected timely and proceedings for revival and rehabilitation of the sick or potentially sick company should expeditiously be completed within the time frame.
That, another decision of the Apex Court in the case of Real Value Appliances Ltd. Vs. Canara Bank and Others, broadly considered Chapter-III containing Sections 15 - 22A pertaining to references, inquires and schemes and in Paras 18, 19, 20, 21 and 22 noticed as under:
Chapter II of the Act contains Sections 15 - 22A and bears the heading "References, Inquiries and Schemes". Section 15 of the Act refers to the ''Reference to Board'' either by the industrial company under Sub-clause (1) of Section 15 or by the Central Government or the Reserve Bank or a State Government or by a public financial institution or by State local institutions or Scheduled Banks. Section 16 refers to ''Inquiry into the working of sick industrial companies'' and to the declaration of the unit as a sick industry, after inquiry. Section 17 deals with ''Powers of Board ''to make suitable orders on the completion of inquiry'' to the company so as to make its net worth exceed its accumulated losses within a reasonable time or to direct the operating agency to prepare a scheme in the manner provided in Section 18. Section 19 deals with ''Rehabilitation by giving financial assistance''. Section 20 refers to the winding-up of the industrial unit if this not likely that the Company will be able to make its net worth exceed its accumulated losses. Section 22 of the Act with which we are concerned here, deals with ''Suspension of legal proceedings, contracts etc'' where ''an inquiry u/s 16 is pending or any scheme u/s 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal u/s 25 before the appellate authority (A.A.I.F.R.) is pending.
The point which has, in this context, been raised in several High Courts is that the mere registration of a reference by the B.I.F.R. under the Act, would not result in the automatic cessation of all proceedings which are pending either in Civil Court or in the Company Court etc. as against its assets. It is argued that in order that Section 22 of the Act can come into operation, the B.I.F.R. must-subsequent to the registration of the reference u/s 15 apply its mind and consider it necessary u/s 16 to make an inquiry and is suenotices on the reference to the affected parties who are required to be heard, and that only then it can be said that an ''inquiry'' is pending. Unless an inquiry is pending there cannot be a statutory stay of proceedings etc. as contemplated by Section 22 of the Act.
For the purpose of understanding the above point, it is necessary to refer to Sub-clauses (1) to (4) of Section 16 and Section 22(1) of the Act. They read as follows:
Inquiry into working of sick industrial companies
(1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company-
(a) upon receipt of a reference with respect to such company u/s 15; or
(b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company.
(2) The Board may if it deems necessary or expedient so to do for the expeditious disposal of an inquiry under Sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matters as may be specified in the order.
(2) The Board or, as the case may be, the operating agency shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry-
2[Explanation: For the purposes of this sub-sec, an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board.]
(4) Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under Sub-section (1) or, as the case may be, under Sub-section (2), it 5[may] appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company 2[or in the public interest.]
Suspension of legal proceedings, contracts, etc.
(1) Where in respect of an industrial company, an inquiry u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal u/s 25 relating to an industrial company is pending, then, notwithstanding any thing contained in the Companies Act, 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 2[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.
It is to be noticed that according to Section 22, in case an "inquiry u/s 16" is pending, then, notwithstanding anything in the Companies Act or any other instrument etc., no proceedings for the winding-up of the company or for execution or distress or the like against the property of the company or for the appointment of a receiver and no suit for recovery of money or enforcement of any security or of any guarantee-shall lie or be proceeded with further, except with the consent of the Board or as the case may be, by the appellate authority. Section 22A permits the Board to pass certain conditional orders.
It is also to be noticed that Sub-clause (1) of Section 16 says that the Board ''may'' make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial unit - (a) upon receipt of a reference u/s 16 or (b) upon information received by it or upon its own knowledge as to the financial condition -of the company. Under Sub-clause (2) of Section 16, the Board ''may'' if it deems it necessary or expedient, require any operating agency to inquire and report to it. Under Sub-clause (3), the Board or the operating agency is to endeavour to complete the inquiry within 60 days from the date of commencement of the inquiry. Explanation below Sub-clause (3) explains that for purposes of Sub-clause (3), that is to say, for computing the period of 60 days, an inquiry shall be deemed to have commenced upon the receipt by the Board or any reference or information or upon its own knowledge reduced to writing by the Board. Under Sub-clause (4), when the Board deems it fit to make an inquiry under Sub-clause (1) or (2) of Section 16, it may (the word ''shall'' has been omitted by Act 12 of 1994) appoint one or more directors etc.
13.1. Again in Para 26, the Apex Court considered Regulation 19(4) and (5) and held that inquiry includes investigation, and therefore, once again in Para 29 held as under:
There can, therefore, be no difficulty in holding that after the amendment to Regulation 19 w.e.f. 24-3-1994, once the reference is registered and when once it is mandatory simultaneously to call for information/documents from the informant and such a direction is given, then inquiry u/s 16(1) must for the purpose of Section 22 - be deemed to have commenced. Section 22 and the prohibitions contained in it shall immediately come into play. In that view of the matter, we need not go into the correctness of the view expressed by the Calcutta, Rajasthan and Bombay High Courts which relied upon the unamended Regulation 19. Point 2 is decided accordingly.
13.2. Therefore, once the reference is made u/s 15 of the Act and as per the requirement of Regulation 19(5) that on scrutiny the reference is found to be in order, it shall be registered, should be assigned a serial number and to be submitted to the Chairman or to Bench and simultaneously remaining information/documents if required then shall be called for from the informant. Thus, when the reference is made u/s 15 of the Act and once the reference is registered, then inquiry u/s 16(1) is to be held for the purpose of Section 22 and prohibition contained in Section 22 immediately comes into play.
13.3. Thus, Chapter-III of the Act is composite and provisions contained in Sections 15 - 22A are interconnected and interdependent on each other. However, various stages have been prescribed for the Board to deal with sick industrial company as found from the Sections produced hereinabove.
13.4. So far as Section 22 is concerned which contains suspension of legal proceedings, contracts and bar for initiating 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, the Apex Court had an occasion to deal with it in the case of Maharashtra Tubes Ltd. Vs. State Industrial and Investment Corporation of Maharashtra Ltd. and Another, where it had been held that expression "proceedings in Section 22(1) of S.I.C. Act, must be widely construed and could not be confined to legal proceedings understood in the narrow sense of proceedings in a Court of law or a legal Tribunal etc. Again the case of Kailash Nath Agarwal and Others Vs. Pradeshiya Industrial and Investment Corporation of U.P. Ltd. and Another, where the decision of Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of Maharashtra Ltd. (supra) and earlier decision of M/S Patheja Bros. Forgings and Stamping and Another Vs. I.C.I.C.I. Ltd. and Others, was considered and distinguished and held that in both the cases while considering the facts of the Amendment to Section 22(1) of S.I.C. Act, the Courts were concerned with "suits" and not with proceedings. But ultimately in view of conflicting views in Kailash Nath Agarwal v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. (supra) and Paramjeet Singh Patheja Vs. ICDS Ltd., the Apex Court has referred the issue to the Larger Bench as reported in Zenith Steel Tubes and Industries Ltd. v. Sicom Ltd. AIR 2007 SCW 7240.
13.5. So far as ''reference'' as defined by Black''s Law Dictionary it reads as under: "The act of sending or directing to another for information, service, consideration, or decision; specif., the act of sending a case to a master or referee for information or decision specifically the Act of sending a case to a master or referee for information of decision."
''Reference'' as defined in Oxford English Dictionary reads as under: "The referring or submitting of a matter, especially a dispute or controversy, to a person or authority for consideration, decision, or settlement."
13.6. Therefore, when a reference is made u/s 15 of the Act, it is the act of sending a case about sickness of sick industrial company as defined u/s 3(1)(o) of the Act to the Board for finding out sickness of such sick company and to adopt any of the measures for revival or rehabilitation of such company, if at the end of the inquiry u/s 16 of the Act, the Board is satisfied about sickness of such company and thereafter passes order in writing that whether it is practicable for the company to adopt measures for making its net worth exceed accumulated losses.
That, Chapter III of S.I.C. Act, 1985 contains references, inquiries and schemes and as stated earlier Chapter III of the Act contains a composite structure to deal with requirement of registration of sick industrial company as defined u/s 3(1)(o) subject to the explanation there in of the Act and Board ordering inquiry into working of such sick industrial company and to pass suitable order on completion of inquiry, which may include measures to be undertaken in case if Board finds it necessary or expedient in public interest to cure sickness of such Company.
Thus, valid and legal registration of a reference u/s 15(1) of the Act is a pre-requisite condition for the Board undertaking an exercise as envisaged under Sections 16, 17, 18 and 19 of the Act. Once a reference is registered, the Board embarks on making inquiry into working of sick industrial company on its own or by appointing operating agency to inquire into such sickness and to make a report within specified time-limit. If provisions of Sections 15, 16 and 17 are given a close look and analysed Section 15 is about a reference to be made to the Board by the Board of Directors of a sick industrial company within 60 days from the date of final ization of the duly audited accounts of the companies for the financial year so that Board can determine all the measures to be adopted with respect to the Company and for that purpose inquiry is held into working of such sick industrial company as required u/s 16 of the Act. After making an inquiry u/s 16 if the Board is satisfied that Company has become a sick industrial company, the Board after considering all the relevant facts and circumstances of the case decides in writing and pass an order, whether it is practicable for the Company to make its net worth exceed the accumulated losses within a reasonable time. The above order is to be made u/s 17(1) which empowers Board to make suitable order on completion of the inquiry. Therefore, Section 17(1) envisages two things to happen namely after making an inquiry u/s 16 of the Act the Board has to arrive at a satisfaction about sickness of industrial company, and secondly, after considering all the relevant facts and circumstances of the case decided by passing an order that whether it is practicable for the Company to make its net worth exceed the accumulated losses within a reasonable time. Having done so, the Board may undertaking further exercise as required u/s 17(2) and (3) of the Act. Once 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 are a sonable time, the Board shall pass an order u/s 17(2) of the Act, by providing an opportunity to such company to make its net worth exceed the accumulated losses subject to restrictions or conditions that may be imposed. However, in case if according to the Board if it is not practicable for a sick industrial company to make its net worth exceed accumulated losses within a reasonable time and if it is necessary or expedient in the public interest to adopt all or any of the measures specified in Section 18 with regard to such Company, the Board may pass an order directing any operating agency to prepare a scheme providing for such measures, and therefore, what is envisaged u/s 15 for the Board to determine measures to be adopted with regard to industrial company is taken care of by passing an order u/s 17(2) or (3) of the Act as the case may be. At the same time what measures to be adopted and preparation and sanction of schemes are provided in Section 18 of the Act which include the financial reconstruction and proper management of sick industrial company and also the amalgamation of such company with any other company or vice-a-versa. The scheme may also include other preventive, ameliorating and remedial measures and other incidental, consequential or supplemental measures which may be appropriate, necessary or expedient in connection with removal of sickness of industrial company so it can be revived. That Section 18(2) provide for certain aspects to be taken care of with regard to construction and structural format of the Company including Board of Directors, alteration of Memorandum or Articles of Association of such company and reduction of the interest or rights of the share-holders and other terms and conditions for there construction and amalgamation of sick industrial company namely sale, lease or transfer of undertaking of such sick company and other undertaking therewith. Such a scheme prepared by operating agency shall be examined by the Board under 18(3) and if any modification is necessary procedure is to be followed as laid therein and the scheme is to be sanctioned as provided u/s 18(4) and it can also to be reviewed and again modified as provided u/s 18(5) and the Board has vast powers to direct operating agency to implement a sanctioned scheme and continue to monitor periodically as provided u/s 18(10) and 18(12) of the Act. In case if the scheme relates to preventive, ameliorating, remedial and other measures with respect to such sick industrial company, financial assistance can be provided in the scheme for rehabilitation of such company as provided in Section 19 of the Act, and ultimately, after making inquiry u/s 16 and after consideration of all the relevant facts and circumstances if the Board is of the opinion that sick industrial company is not likely to make its net worth exceeding the accumulated losses within a reasonable time and unable to meet all its financial obligations, the Board can forward its opinion to concerned High Court for winding up sick industrial company as required u/s 20 of the Act. However, exercise undertaken by the Board to find out sickness of sick industrial company pursuant to registration of reference, after making and completion of an inquiry u/s 16 and passing an order u/s 17(1), (2) or (3) as the case may be decision is taken for measures to be adopted as required u/s 18 and/or 19 of the Act, reference continues to hold field throughout.
That, reference takes into its sweep, Sections 16, 17, 18 and 19 of the Act and continues and remain pending when the scheme is sanctioned, modified, reviewed, monitored and operates successfully or in case of failure, result into forwarding opinion by the Board u/s 20 to concerned High Court subject to order if any appeal u/s 25 of the Act before appellate board. The above findings are in consonance with object and reason of the Act inasmuch as function of the Board is to inquire into sickness and suggest measures to be adopted for removal of such sickness so that sick industrial company can be revived or rehabilitated by making its net worth more than accumulated losses.
Therefore, contention of learned Advocate for the petitioner that reference ceases to continue or gets terminated on passing an order u/s 17(3) of the Act is devoid of any merit.
Now, in view of the above discussion, it is necessary to refer to the decision of Orissa High Court in the case of Noble Aqua Pvt. Ltd. v. State Bank of India, (supra), where the Division Bench of Orissa High Court was concerned with somewhat identical facts where a company became sick industrial unit as defined u/s 3(1)(o) of S.I.C. Act and in terms of the power available to B.I.F.R. u/s 17(3), operating agency was appointed with directions to prepare a revival scheme for it, if feasible. At the same time by an order dated 14-11-2006 request made by the opposite Bank for permission u/s 22(1) of S.I.C. Act was opposed by the consultant of company which was ultimately not granted.
However, a Division Bench of Orissa High Court also considered various decisions of the Apex Court on Section 22 of S.I.C. Act and in Para 17 of the above judgment it was held that the petitioner company namely Noble Aqua Pvt. Ltd. v. State Bank of India, (supra) was entitled to protection u/s 22 of S.I.C. Act. While dealing with abatement of reference under S.I.C. Act in view of issuance of notice by the Bank u/s 13(4) of the S.A.R.F.A.E.S.I. Act, 2002 the Division Bench found that third proviso to Section 15 of S.I.C. Act will come into operation, where a reference is pending before B.I.F.R., but in the facts of the case, before issuance of notice on 7-4-2007 u/s 13(4) of S.A.R.F.A.E.S.I. Act, 2002, B.I.F.R. had already passed an order u/s 17(3) of S.I.C. Act, 1985 on 14-11-2006 declaring the petitioner company as a sick unit, and therefore, the proceedings under S.I.C. Act was not at the stage of reference and on declaration of industrial unit/as ''sick'' stage of reference is over and third proviso will not come into play.
Division Bench of Orissa High Court also referred Section 37 of S.A.R.F.A.E.S.I. Act, 2002 about application of other laws not barred and according to Division Bench, perusal of the above Sections made it clear that it was not in derogation of any other law for the time-being in force, and therefore, protection which has been given to sick industrial company under special statute, namely S.I.C. Act, 1985 has not been taken away by Section 37 of S.A.R.F.A.E.S.I. Act, 2002 and the amendment which has been made u/s 41 of S.A.R.F.A.E.S.I. Act, 2002 proceedings under S.I.C. Act cannot abate. Since the proceedings under S.I.C. Act cannot abate and the petitioner has been declared Sick Industrial Company the Bank cannot proceed against the petitioner in respect of its notice u/s 13(4) of the S.A.R.F.A.E.S.I. Act, 2002 in view of the statutory protection available u/s 22 of S.I.C. Act, 1985.
It is brought to the notice of this Court that in SLP (Civil) No. 13284 of 2008 filed by State Bank of India challenging the above decision of the Division Bench of Orrisa High Court by an order dated 30-7-2008, the Apex Court has stayed further proceedings before B.I.F.R.
The above decision of the Noble Aqua Pvt. Ltd. v. State Bank of India (supra) was considered in Madras Petrochem Ltd. and Anr. v. B.I.F.R. (supra) and by Delhi High Court in Integrated Rubian Exports Ltd. v. Industrial Finance Corporation of India Ltd. (supra) of Kerala High Court, referred newly introduced proviso by Act 54 of 2002, all the Courts have considered effect of the above proviso in light of a measure taken u/s 13(4) of the S.A.R.F.A.E.S.I. Act, 2002 and it was held in Madras Petrochem Ltd. v. B.I.F.R. (supra) that view taken by Delhi High Court in Punjab and also another decision of Bombay High Court in Ravi Spinning Ltd. v. Union of India 2006 (2) Mah.LJ 145, and ultimately concluded that even if a scheme is framed then also it would make no difference to the merit of the third proviso to Section 15 of S.I.C. Act and once the jurisdiction of B.I.F.R. was divested by the mandatory impact of third proviso to Section 15(1), the B.I.F.R. could not pass any orders under S.I.C. Act notwithstanding the subsequent developments. Orders sought by the petitioner from the B.I.F.R. could have been passed either under the S.A.R.F.A.E.S.I. Act, 2002 or by a writ Court exercising jurisdiction under Article 226 of the Constitution of India.
Learned Single Judge of Kerala High Court in the case of Integrated Rubian Exports Ltd. v. Industrial Finance Corporation of India Ltd. (supra) also considered provisions of Sections 35 and 37 of S.A.R.F.A.E.S.I. Act, 2002 and relied on the decision of the Division Bench of Kerala High Court in Aluminium Industries Ltd. Vs. State of Kerala, and held that Section 35 of S.A.R.F.A.E.S.I. Act, 2002 a later enactment categorically lays down that the provisions of that Act shall have effect notwithstanding anything inconsistent there with contained in any other law for the time-being in force or any instrument having effect by virtue of that law and thus, the provision override Section 22 of S.I.C. Act a previous enactment having come into being in 1985, and therefore, notwithstanding the abatement provided by the third proviso to Section 15(1) of S.I.C. Act, introduced by virtue of Section 41 read with the schedule to the S.A.R.F.A.E.S.I. Act, the effect of Section 22 of the S.I.C. Act no more survives Section 35 of the S.A.R.F.A.E.S.I. Act.
Learned Single Judge of Kerala High Court also considered the contention of learned Counsel for the petitioner with regard to S.I.C. Act whether could be treated as a special enactment occupying a very peculiar field and in that sense, could be considered as one which would not fall within the purview of Section 35 of the S.A.R.F.A.E.S.I. Act. And answer given by learned Single Judge was that on reading of Sections 35 and 37 of S.A.R.F.A.E.S.I. Act, in conjunction, it has to be held that all enactments and laws in force, including those enumerated in Section 37, would also be available to secured creditor, notwithstanding the other provisions of S.A.R.F.A.E.S.I. Act and the overriding effect of the S.A.R.F.A.E.S.I. Act, by virtue of Section 35 thereof, is in no manner abridged by any other provisions in that Act or in S.I.C. Act.
Therefore, all the above decisions reveal that reference as found in Section 15 under Chapter III of S.I.C. Act, 1985 exists beyond Section 15 and continues at various stages of Sections 16 - 19, and ultimately, its life comes to an end in Section 20, in case if the scheme prepared as provided u/s 18 for revival of the sick industrial unit fails.
Therefore, this Court is in agreement with the view and reasonings and grounds canvassed by the High Court of Delhi, High Court of Punjab, High Court of Mumbai, High Court of Madras and High Court of Kerala with regard to applicability of third provisio to Section 15(1) of S.I.C. Act as amended by Act 54 of 2002 vis-a-vis action taken u/s 13(4) of S.A.R.F.A.E.S.I. Act, 2002.
This Court is also in agreement with the decision given by the above High Courts (supra) with regard to interpretation to third proviso to Section 15(1) of S.I.C. Act, 1985 as introduced by Act 54 of 2002 and Section 41 and Schedule to S.A.R.F.A.E.S.I. Act, 2002 and other provisions of Sections 35, 37 etc. also of S.A.R.F.A.E.S.I. Act, 2002, and therefore, contention of learned Advocate for the petitioner that it is incumbent upon respondent Bank to obtain permission u/s 22 of S.I.C. Act, 1985 fails. It is held that ''reference'' under Chapter III of S.I.C. Act is a genus and inquiry u/s 16, orders u/s 17 and measures for revival and rehabilitation of sick industrial company under Sections 18 and 19 of the Act are species, and therefore, though order u/s 17(1), (2) or (3) of the Act, as the case may be is passed, reference under Chapter III of the Act continues to hold field and remain pending, but once a measure u/s 13(4) of S.A.R.F.A.E.S.I. Act, 2002 is taken, by virtue of insertion of unnumbered third proviso to Section 15(1) by Act 54 of 2002, reference stands abated, and therefore, no permission u/s 22 of S.I.C. Act, 1985 is necessary. All other objections about validity of deed of assignment by the creditor Bank in favour of K.M.B.L. and further relevant pleas can be taken before the D.R.T., where recovery proceedings filed by the Bank are pending.
In view of the above, it is held that impugned notice dated 23-6-2009 issued by respondent is not bad or illegal.
The petition is dismissed. Rule is discharged. Interim relief stands vacated. No order as to costs.
At this stage, learned Advocate for the petitioner requests to continue interim relief granted earlier, so as to approach higher forum. The above request is opposed by learned Advocate for the respondent and considering the above and overall facts and circumstances of this case, request of learned Advocate for the petitioner is not accepted.