Full Judgment Text
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CO.PET. 42/2014 & CA Nos.127-128/2014, 3239/2015, 3240/2015
3298/2015
M/S FORECH INDIA LTD ..... Petitioner
Through Ms. Purti Marwaha, Mr. Arvind Kumar and
Mr. C. S. Chauhan, Advocates.
versus
M/S TECPRO SYSTEMS LTD ..... Respondent
Through Mr. Sanjeev Sindhwani, Sr. Advocate with
Mr. Ankit Sibbal, Mr. Rohit Kumar Yadav,
Advs.
Mr. Rohit Madan, Advocate for Rajasthan State
Industrial Development Corpn. (RIICO).
Ms. Sheetal Tiwari and Mr. Rajiv Kapur,
Advocates for State Bank of India.
CORAM:
HON’BLE MR. JUSTICE SUDERSHAN KUMAR MISRA
SUDERSHAN KUMAR MISRA, J.
Co.Appln. No.3298/2015
1. This application moved by the respondent, Tecpro System Limited,
under Rule 9 of Company Court Rules, 1959 read with Section 22 (1) of
Sick Industrial Companies (Special Provisions) Act, 2002 (SICA); praying
that the winding up proceedings pending before this Court, be not
proceeded with further in view of the proceedings pending for revival of
the respondent before the Board for Industrial & Financial Reconstruction
(BIFR); is opposed by the petitioner, who is an unsecured creditor of the
respondent company.
2. The petitioner is seeking winding up of the company, inter alia, on
Co.Pet. No.42/2014 Page 1 of 23
the ground of non-payment of a debt of Rs.1,35,89,016/- (Rupees One
Crore Thirty Five Lakhs Eighty Nine Thousand Sixteen Only) payable by
the respondent company. The petition also mentions the fact that the
company has suffered massive losses between 01.04.2013 and 30.09.2013;
and that, while the share capital and reserves of the company for the half
year ending 30.09.2013 is Rs.563 crores, its liabilities are Rs.4,641 crores,
which, according to the petitioner, indicates that the company is,
“overleveraged”. At the same time, it is also mentioned that in the relevant
financial statements, the company has also indicated an amount of
Rs.1,273 crores as, “other current assets”. The petitioner has also asserted
the fact that the company, “is unable to pay its admitted debts….”;
meaning thereby, that the company is insolvent or in any case, is not in a
position to pay its admitted debts and therefore should be wound up for
that reason also.
3. The applicant is stated to have moved a reference before the Board
for Industrial and Financial Reconstruction (BIFR) under Section 15 (1) of
Sick Industrial Companies (Special Provisions Act 1985) (SICA) alleging
that its net worth has become negative. In his letter dated 14.07.2015, the
Registrar, BIFR, has informed the applicant that the said reference has
been duly registered. It also gives further directions to the applicant,
including, inter alia, of stay.
4. In short, the applicant’s case is that since the inquiry has
commenced pursuant to the registration of the aforesaid reference, the
provisions of Section 22(1) Sick Industrial Companies (Special Provisions)
Act, 1985 would be applicable; and till that inquiry is pending; and the
matter of revival of the respondent company remains before the BIFR,
these winding up proceedings; including for the appointment of receiver
Co.Pet. No.42/2014 Page 2 of 23
etc., cannot be proceeded with further; except of course with the consent of
the BIFR, as envisaged in Section 22(1) SICA, 1985. The provisions of
Section 22(1) are as under;
“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
32
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.”
5. On the other hand, the petitioner’s counsel contended that the
statutory bar envisaged under Section 22(1) of SICA does not arise in this
particular matter because the respondent company has admitted that there
is a debt payable by it; and thereafter it has even placed on record its
written consent, to clear the debt due to the petitioner. Some other grounds
are also urged.
6. In order to better appreciate the nature and style of counsel’s
submissions, it has become necessary to reproduce some of her
Co.Pet. No.42/2014 Page 3 of 23
submissions in extenso here. In this context, I might also add that although
some time has elapsed since the orders were reserved on 15.12.2015, a
reasonably accurate record of the proceedings was kept by the Court
Stenographer who was noting the arguments verbatim, as is often done in
my Court. This has proved most helpful. They are as follows;
(i) That there is an agreement in writing and the respondent company
has agreed on 27.08.2014, that “there is an admitted amount”. She further
submits that, “once they have admitted to the position that there is a debt
payable by them, thereafter they have placed on record in January 2015,
the consent. In that case, provisions of Section 22(1) of SICA cannot
apply.”
(ii) After lunch, when the matter was taken up again, counsel for the
petitioner submitted that her client had filed the petition in 2014, while the
reference was filed by the company before the BIFR only thereafter. And
further that, “there was a consent…”, by the respondent, that a particular
amount was payable to the petitioner. After that, there was also a direction
to the respondent to file an affidavit regarding payment; and the
respondent submitted that affidavit on 23.01.2015, in which, “the
respondent company principally stated the schedule of payment and the
manner in which payment has to be made. The entire schedule is given.”
According to her, that affidavit categorically states that the respondent will
make payment. This, according to counsel, constituted the agreement to
pay.
(iii) According to counsel, it was only thereafter on 23.03.2015, that the
respondent filed a reference before the BIFR under Section 15 (1) SICA.
According to her, in this reference, the company has wrongly stated that its
Co.Pet. No.42/2014 Page 4 of 23
net worth has become negative and that it has become a sick company on
the basis of the balance sheet as on 31.03.2015. She further states that the
letter of 14.03.2015 of the Registrar, BIFR, informing the respondent
company of the registration of the reference shows, that the respondent has
not disclosed the fact that it has given its consent before this Court for
making payment. It is on these grounds that counsel has ventured to
submit, “of course, these are winding up proceedings, but when a party
states that I will make payment in the following terms, he has to pay
them.”
(iv) As regards allegation that the statement of the company before the
BIFR to the effect that its net worth has become negative is false, she
submits that this is because, before filing of the reference before the BIFR,
the company’s affidavit that was filed, “categorically states that we will
make payment…..”; “While their application says net worth became
negative; this is clearly incorrect and is aimed at giving a wrong
impression, and to resile from statement / undertaking…. .” According to
her, the reference and its registration with the BIFR by the respondent
company is merely a ploy to waive off its admitted debt. And that in these
circumstances, even the, “provisions of the Contempt of Courts Act and
Article 215 of the Constitution of India will apply because they have
wrongly stated…..”.
(v) She states that under the circumstances, “once they have submitted
an affidavit and the consent is there, can they be permitted to resile, that is
my submission.” She further submits that, “what has to be seen in this
case is that once there is consensus ad idem, there is consent between two
parties. In this particular case, there was a consent, they said we will make
Co.Pet. No.42/2014 Page 5 of 23
payment on these modalities. Once they have accepted to that, they cannot
resile from that.”
7. The relevant facts available on the record are as follows;
(a) The petitioner has filed the main petition seeking winding up of the
respondent also containing a prayer, “seeking appointment of the Official
Liquidator to take possession of all assets of the respondent company”.
Along with this, interim applications seeking directions and for
appointment of the Provisional Liquidator were also filed.
(b) Notice to show cause was issued by the Court to the respondent on
20.01.2014. Interim orders were passed on that date restraining the
respondent from selling, alienating or parting with possession of any of its
immoveable properties. The respondent was also restrained from dealing
with its moveable properties, except in the normal course of business.
Although on 16.04.2014, this Court directed that a reply shall be filed
within one week in the event the same has not been filed; and the matter
was adjourned to 13.05.2014; however, no formal reply to either the notice
to show cause, or even the applications seeking interim directions has been
filed by the respondent. On 26.09.2014, it was directed that interim orders
are to continue till further orders.
(c) On 13.05.2014, counsel for the respondent pointed out that a
Corporate Debt Restructuring (CDR) Scheme is being worked out with the
banks and prayed for time to file a proposal under which payment can be
made. Again on 16.07.2014, counsel for the respondent pointed out that
the proposal is under consideration by a consortium of banks led by the
Co.Pet. No.42/2014 Page 6 of 23
State Bank of India. On some doubts expressed by counsel for the
petitioner, this Court also directed notice to be issued to the State Bank of
India returnable on 27.08.2014, and the matter was directed to be listed
along with other connected matters. On 27.08.2014, counsel for the
respondent also stated that the respondent, “is not contesting the liability of
the amunts claimed by the petitioner”.
(d) Ultimately, on 28.11.2014, this Court recorded that;
“Respondent has admitted the claim and does not propose to
file a reply.
……learned counsel appearing for the State Bank of India
submits that as per the CDR Scheme after signing of the
Master Reconstructing Agreement (MRA) within the
stipulated time, the borrower (respondent) is obliged to make
the payment to its creditors.
The respondent is directed to file an affidavit enclosing a copy
of the letter of approval alongwith the amount, if any,
admitted by the respondent, and the proposed schedule of
payment to the petitioner in terms of CDR scheme. The
affidavit shall be filed within a period of eight weeks from
today.
th
Renotify on 24 March, 2015.”
(e) It is seen from the above that;
(i) the respondent stated that it admitted the claim of the
petitioner and that it does not propose to file any reply to the
petition;
Co.Pet. No.42/2014 Page 7 of 23
(ii) Further, that according to the Corporate Debt Restructuring
(CDR) Scheme approved by the secured creditors and lenders,
the Master Reconstructing Agreement (MRA) was to be
signed, and then the borrower, i.e., the company herein, was
obliged to pay its, “pressing”, creditors; and it was in these
circumstances, that on 28.11.2014, this Court directed the
company to file an affidavit setting down therein, inter alia,
the “proposed schedule of payment to the petitioner in terms
of CDR scheme.”, and the matter was adjourned to
24.03.2015.
(f) Consequently, pursuant to the aforesaid orders of 28.11.2014, the
respondent filed an affidavit of compliance dated 23.01.2015 where a copy
of a letter of approval of the Corporate Debt Restructuring Scheme (CDR
Scheme) dated 30.09.2014 along with the annexures to that letter (29
pages) was enclosed as Annexure A/1. In addition, and as directed by the
Court on 28.11.2014, the respondent company also annexed the proposed
schedule of payment in terms of the said CDR scheme, bearing the title,
“PROPOSED PAYMENT PLAN”, as Annexure A/2. Below the said
payment schedule, and as part of that proposal, the company has also
stated that, “ the above payment schedule is subject to successful
completion of CDR and release of payments accordingly. ”
(g) Thereafter, when the matter was taken up on 24.03.2015, it was
brought to the notice of the Court that despite efforts having been made in
that direction, the aforesaid CDR scheme had not come into effect. And, in
fact, the State Bank of India had assigned the company’s debt; including
mortgages on assets of the company held by it; to a third party, namely,
Edelweiss Assets Reconstruction Company, on 23.03.2015. This prompted
Co.Pet. No.42/2014 Page 8 of 23
this Court to adjourn the matter, while directing the respondent to file
another consolidated affidavit, “with regard any financial arrangement it
may arrive at to address its current situation…”. Disclosure of other
information was also directed. The relevant portion of that order is
extracted below;
“Counsel for the respondent states that his clients
were making efforts to arrive at some sort of
settlement with some of these petitioners, on
terms, keeping in view the likelihood of CDR
scheme being approved by a consortium of banks,
of which, the State Bank of India was the lead
bank. He states that after repeated negotiations
these steps have not been fruitful since the State
Bank of India has assigned its debt to Edelweiss
Assets Reconstruction Company Limited vide
rd
assessment agreement dated 23 March, 2015. He
submits that by this, Edelweiss Assets
Reconstruction Company Limited has obtained
substantive interest in the assets of the company,
including substantial shareholding of the company
which was originally mortgaged to State Bank of
India. He, therefore, prays for a short adjournment
to enable his clients to try and negotiate with the
petitioners for any repayment-cum-debt
reconstruction scheme that may be feasible while
also keeping in mind its overall financial
obligations.
Under the circumstances, the matter is adjourned
th
to 29 October, 2015 to enable the respondent to
file a consolidated affidavit with regard to any
financial arrangement it may arrive at to address its
current situation within four weeks from today.”
Pursuant thereto, the company filed an affidavit dated 07.05.2015
once again stating that the amount claimed by the petitioner is not disputed
Co.Pet. No.42/2014 Page 9 of 23
by the respondent. However, nothing further was stated by the company in
that affidavit regarding any fresh financial arrangements that it might have
concluded to address its current situation; nor was any fresh offer of
payment of its debt to the petitioner; either on the lines of the aforesaid
earlier conditional offer which was annexed to its affidavit of 23.01.2015
or otherwise, made by the company.
(h) In October 2015, and before the matter could be taken further, the
respondent company moved the instant application, being CA
No.3298/2015, informing this Court that looking to its financial condition
as on 31.03.2015, it had moved the BIFR under Section 15(1) of the SICA;
and that on 14.07.2015, the Registrar, BIFR, had informed the company
that the said reference had been duly registered by the Board and further
directions were also given to the company.
(i) It may also be noted that there were as many as 29 more petitions
instituted by separate petitioners seeking winding up of the respondent on
the ground of non-payment of their dues; and for convenience, matters
were being listed before this Court on the same date to enable this Court to
have a better overall picture of the company’s affairs. In para 3 of its
aforesaid affidavit of 07.05.2015, the company has also said that out of all
these, “….there are certain petitions…..where the amounts claimed by the
respective petitioners have not been disputed by the respondent….. ”. In
all those matters, orders similar to those sought here have already been
passed in the light of Section 22(1) SICA.
(j) On 15.12.2015, arguments were heard and the orders were reserved
in the instant matter.
8. Counsel’s vehement opposition to any deferment of these
proceedings is mainly predicated on the ground that since the respondent
Co.Pet. No.42/2014 Page 10 of 23
company had admitted its liability towards the petitioner on 27.08.2014 by
a written agreement, even before it approached the BIFR; therefore, the
provisions of Section 22 (1) of SICA are not applicable to this case. She
also submits that not only has the respondent admitted its liability, it has
even placed on record its, “written consent”, to clear the debts of the
petitioner in terms of a schedule of payment, as well as the manner in
which the said payment would be made in an affidavit filed by the
respondent in this Court on 23.01.2015, and therefore also, there can be no
question of further proceedings in the matter being stayed by this Court in
terms of Section 22 (1) of SICA. According to her, what has to be seen in
the case at hand is that once there is consensus ad idem , there is consent
between two parties; and in this particular case there was consent to make
payment on modalities. Once the company accepted this, it cannot resile
from it.
9. What has to be kept in mind is that under Section 22 (1) of the
SICA, it is the action brought by the petitioning creditor seeking winding
up of the company that cannot be proceeded with further; and,
consequently, this Court is divested of the power to proceed further in the
matter. Of course, there can be myriad grounds available to the petitioning
creditor to establish respondent’s liability for unpaid dues, including an
admission of debt. That is another matter entirely. These are only grounds
that may persuade the Company Court to admit the petition, and to proceed
to wind up the company in the exercise of its jurisdiction under the
Companies Act and Rules. The mandate of Section 22 (1) of the SICA is
not qualified in any way, enabling the Court to proceed with the petition,
and with the process of winding up; or in another words, to continue to
exercise its jurisdiction towards that end, merely because there is an
Co.Pet. No.42/2014 Page 11 of 23
admission by the respondent company of the debt in question. The
mandate is clear, so long as a petition is pending seeking winding up of the
company, then whatever may be the stage or the state of pleadings; as well
as the proceedings before it, the High Court is obliged to stop proceeding
further in the matter.
10. Since counsel for the petitioner kept insisting to the contrary, she
was invited to cite any precedent to support her case. She relies on a
judgment of the Bombay High Court in TATA Capital Financial Services
Limited v. Ramasarup Industries Limited , 2013 (6) Bom CR 230,
paragraph 34 at page 18, which states as follows;
“34. ….In my view consent terms filed in court
by parties was an agreement and steps taken under
such agreement cannot be stayed. It is clear that
that there is apparent distinguishment between the
expression ‘proceedings’ and ‘suit’ used in section
22(1) of SICA. In my view, steps taken to enforce
the consent order passed under section 9 of the
Arbitration and Conciliation Act, 1996 would not
be barred by section 22(1) of the SICA.”
11. To my mind, that decision of the Single Judge of the Bombay High
Court in TATA Capital Financial Services Limited (supra) being relied
upon by counsel for the petitioner has no application here. There, the issue
related to the stay of execution of an order of the Bombay High Court with
regard to the sale of properties of Sureties and Guarantors of a company, in
proceedings under Section 9 of the Arbitration and Conciliation Act. And
the matter revolved around the scope and ambit of the 1994 amendment in
Section 22(1) SICA whereby, a limited protection was provided to
Guarantors by the insertion of the words, “…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
Co.Pet. No.42/2014 Page 12 of 23
the industrial company shall lie or be proceeded with further”. Also, in
that matter, a specific order directing sale of the properties had been passed
by the court, albeit on consent of the parties concerned. Here, apart from
other, important distinctions, no order or direction has been passed by the
Company Court directing payment by the company to the petitioner either
on terms or otherwise; nor has any undertaking been given to the Court by,
or on behalf of the company undertaking to pay any amounts to the
petitioner. I am therefore not going into the question of the consequences
that might have ensued in case there had been any such order or
undertaking. All that is before the Company Court exercising jurisdiction
under Sections 433 and 434 of the Companies Act is an affidavit admitting
the debt claimed by the petitioning creditor while informing the Court that
the company has concluded a proposed Corporate Debt Restructuring
(CDR) Scheme with the lead bank in a consortium of banks, i.e., the State
Bank of India, all of whom are the secured creditors of the respondent
company; and also offering to pay that debt on the terms indicated,
including the instalments proposed as well as the significant pre-condition
that, “the above mentioned payment schedule is subject to the
successful completion of CDR and release of payments accordingly.”
These terms have been set down by the company in Annexure A/2 to the
affidavit dated 23.01.2015 filed by the company along with the letter of
approval of the restructuring proposal under the CDR System, in
compliance with the aforesaid orders passed by this Court on 28.11.2014
(Extracted in paragraph 7(d) above).
12. Furthermore, even though a Debt Restructuring Scheme (To which
the petitioner was admittedly not a party) may have been approved by a
consortium of creditor banks envisaging certain payments towards
Co.Pet. No.42/2014 Page 13 of 23
liquidation of the company’s debt to the petitioner on terms set down in
that scheme; there is nothing to suggest that because the company has
agreed, inter alia, to these terms with the consortium of banks, that must be
presumed to be some sort of consensus ad idem , i.e., a bilateral consent
between the petitioner and the respondent also. In any case, to my mind,
any such agreement by the company to pay its creditors on terms
concluded between that company and some of its creditors generally, does
not automatically become executable as a decree or order of the court. Not
only that, even if it were executable in some fashion, the fact remains that
the proceedings before this Court are not execution proceedings.
Furthermore, a perusal of the CDR scheme shows that the commitment of
the company to pay its creditors is in terms of the letter of approval dated
30.09.2014 issued by the State Bank of India, titled, “Letter of Approval –
Techpro Systems Ltd. (TSL) Restructuring Proposal Approved Under
CDR System.” This communication runs into 23 pages. Copies of this
approval have only been sent to the Bank of India; ICICI Bank; IDBI
Bank; Axis Bank; Vijaya Bank and IndusInd Bank. The restructuring
package, which was approved by what was known as the, “CDR
empowered group”, has been annexed to this communication, and it
envisaged the financial restructuring of term loans given by banks; under
various heads, including, inter alia,
(v) Priority Debt-2, which is stated to be;
“Priority Debt (PD-2) of Rs.166.25 crore is
proposed in the package for the payment towards
pressing creditors ; PD-2 shall be shared among
all lenders (except RIICO). The shares of lenders
in PD-2 shall be based on exposure % as on COD
as under:………”
(Emphasis added)
Co.Pet. No.42/2014 Page 14 of 23
13. Significantly, there is no specific mention of any obligation of the
company to pay any amount to the petitioning creditor; and at best, the
restructuring scheme sanctioned by the lending banks has made a provision
of a certain amount in the package, “for payment towards pressing
creditors….”, under what is termed as Priority Debt-2. And that the
burden of any such payments, subject to the overall limit of Rs.166.25
crores envisaged in the scheme, shall be shared amongst the lending banks
in the agreed proportion.
14. Therefore, before this Court, at best, there was a proposal by the
respondent company to repay the petitioner’s debt in terms of a schedule
annexed to an affidavit dated 23.01.2015 filed by the respondent. This
proposal, as well as the circumstances under which it came about have
been set down in paragraph 7(c) to 7(g) above. Significantly, that
proposed schedule was also, “subject to successful completion of the
aforesaid CDR scheme and release of payments…”, by the consortium of
lending banks.
15. It appears that ultimately, the proposed CDR scheme did not go
through since the State Bank of India, which was the lead bank, has
assigned its debt to another company. It was in the light of these
developments that on 24.03.2015, this Court directed the respondent to file
a consolidated affidavit with regard to any financial arrangement it may
arrive at to address its current situation; and the matter was adjourned to
29.10.2015. Although an affidavit was thereafter filed on 07.05.2015 by
the respondent, however, nothing is mentioned in that affidavit about any
binding financial arrangements concluded by the company with anyone.
And, before the matter could be taken any further, the instant application
came to be filed by the respondent company.
Co.Pet. No.42/2014 Page 15 of 23
16. In the light of these facts, counsel’s submission that there was, in
fact, a consensus ad idem between the petitioner and the respondent; or
that there was a binding agreement to pay is factually incorrect, and cannot
be countenanced. In any case, the circumstances make it obvious that even
if the aforesaid proposed payment schedule annexed with its affidavit of
23.01.2015 by the respondent had been accepted by the petitioner; and the
payment permitted by this Court, on the terms proposed; although there is
nothing on the record to bear this out; it would have made no difference
because the condition precedent, i.e., the, “successful completion of CDR
and release of payment accordingly.”, does not appear to have come about.
17. It bears repetition that although the respondent company has
admitted the debt; and at one stage had also offered to repay the same on
terms, subject to receiving necessary funding after the acceptance of a
Corporate Debt Restructuring Scheme by the consortium of secured
creditors and banks; this offer has not been specifically accepted either by
the petitioner, or more importantly by this Court, at any time.
A perusal of the record shows that in fact, the stage for this exercise
never came about, and all that has come on the record so far is merely the
company’s acceptance of the debt and its conditional offer to pay on the
aforesaid terms. Even the specific acceptance of these terms by the
petitioning creditor, which would have been a precursor for the Court to
examine the proposal keeping in mind other relevant aspects that have
been referred to below, is not there; and that offer is now no longer on the
table.
The so-called, “consent”, by the company to pay is merely a
unilateral offer on the aforesaid terms. There is no mutuality. It is also not
as if the petitioner had consented to any offer by the company, to indicate
Co.Pet. No.42/2014 Page 16 of 23
that the consensus ad idem claimed by the petitioner’s counsel had come
about. There was thus no agreement at all. Even assuming, contrary to the
facts, that the agreement claimed had come about, it was also clearly
conditional upon the actual release of funds by the lenders in terms of the
CDR, which never happened. Consequently, it follows that even in this
view of the matter, the obligations of the company to pay the petitioner
never fructified.
18. It is also urged by counsel for the petitioner that it is within the
jurisdiction of the Company Court to pass an order in view of its inherent
powers under Rules 6 and 9 of the Companies (Court) Rules, 1959, and the
Court may exercise its inherent powers in case either of the parties does
not approach the court with clean hands. I do not find any case, either in
fact, or in law that could enable this Court to decline the prayer and
continue with the winding up proceedings in the exercise of its powers
under Rules 6 and 9 of the Companies (Court) Rules. There is also nothing
to conclude that there is any malafide on the part of the company.
19. I might also note that repeated suggestions that it is always open to
the petitioner to apply to BIFR under Section 22 (1) of the SICA to permit
the petitioner to proceed further in this matter, after satisfying the BIFR
that the circumstances in this case are indeed unique; have been rebuffed
out of hand by counsel for the petitioner, with the response that, “BIFR is
not sitting right now”, and that no enquiry under Section 16 has begun
because, “BIFR has not conducted hearing as far as I have gathered the
information.” This is neither here nor there. Any hiatus in an enquiry once
commenced cannot, to my mind, be a ground for continuing with the
winding up proceedings in the face of the bar under Section 22 (1) of
SICA.
Co.Pet. No.42/2014 Page 17 of 23
20. In response, counsel for the respondent has referred to a decision of
the Supreme Court in Managing Director, Bhoruka Textiles Limited v.
Kashmiri Rice Industries , (2009) 7 SCC 521, to the effect that, “the
receipt of a reference must be held to be the starting period for proceeding
with the enquiry.”
In the same context, it is also noteworthy that even by the
communication dated 14.07.2015, informing the company that the
reference has been duly registered, further directions have also been
communicated to the respondent to the effect that the company is
restrained from disposing off or alienating any fixed assets of the
company; whilst also directing the company to furnish additional
information sought by the Board in connection with the said reference.
Merely because the Board is not sitting for any reason is, therefore, no
ground for concluding that the enquiry has not commenced. In that view
of the matter, it is also obvious that if this Court were to proceed further
with the winding up proceedings whilst exercising company jurisdiction,
any orders or judgment passed thereafter would be coram non judice .
21. A Full Bench of the Supreme Court in Madura Coats Limited v.
Modi Rubber Limited and Another , (2016) 7 SCC 603 , has, inter alia,
held that, “20. …..the enquiry under Section 16 of SICA must be treated
to have commenced as soon as the registration of the reference is
completed……”, and again in paragraph 21 thereof, that once a reference
is registered, the enquiry under Section 16(1) of SICA must be deemed to
have commenced for the purposes of Section 22 of that Act.
Paragraph 21 of that decision in Madura Coats Limited is as
follows;
Co.Pet. No.42/2014 Page 18 of 23
“ 21 . This Court in RealValue case also referred
to the Regulations framed under SICA and in
connection therewith it was held that after the
amendment of Regulation 19 with effect from 24-
3-1994 once a reference is registered and it
becomes mandatory to simultaneously call for
information or documents from the informant and
such a direction is given, then an enquiry under
Section 16(1) of SICA must, for the purposes of
Section 22 thereof, be deemed to have
commenced. This is what this Court held in para
30 of the Report: (SCC p.566)
“30. 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 under Section
16(10 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.
(emphasis in
original)”
22. Another novel argument pressed by counsel aimed at persuading this
Court not to grant the relief of keeping these winding up proceedings in
abeyance sought by the company, is regarding the import of Section 22(1)
of SICA which, inter alia, specifically postulates, “no proceedings for
winding up…… shall lie or be proceeded with further…..”. According to
her, this bar under Section 22 (1) means that the sick industrial company
will not be put to winding up, which, in effect, means that it will not be
Co.Pet. No.42/2014 Page 19 of 23
liquidated. She seeks to link this statutory mandate, as she sees it, to
submit that had the debt amount been paid by the respondent, the issue
would have been settled and winding up proceedings would have been
closed or withdrawn. Therefore, the effect would have been the same, i.e.,
there would have been no further proceeding for winding up the company.
By this argument, counsel for the petitioner presumably means that if there
was no proceeding pending for winding up of the company on the date
when the reference was registered by the BIFR under SICA, there would
have been no need for this Court to entertain the instant application moved
by the company praying that the matter be not proceeded with further in
the light of Section 22(1) SICA. While the latter may be true in itself, it
requires a prodigious leap of faith from there to conclude that since
proceedings for winding are, in fact, pending, therefore the mandate of
Section 22 (1) SICA should be ignored by this Court and it should
continue with the winding up proceedings. As far as I have been able to
make out, this conclusion is also invited by counsel for the petitioner on
the ground that these proceedings have not been concluded earlier and
remain pending because the company is at fault in not having paid the
outstanding amount even though, according to her, it had given its,
“consent”, before this Court. This line of reasoning is deeply flawed and
illogical. It is being noted only to be rejected as completely unsustainable
for a number of reasons, including the fact that the effect of Section 21(1)
SICA is only to put winding up proceedings in abeyance; and not that the
company will not be put to winding up at all or that the petition pending
before this Court stands dismissed or disposed off; which is quite different
from not proceeding further in the matter for the time being. I do not
consider it necessary to set down every other reason available both in fact
Co.Pet. No.42/2014 Page 20 of 23
and in law to reject this argument.
23. Counsel for the petitioner then argued that these proceedings in
winding up can still continue in the Company Court, if not for the purpose
of winding up, then on the grounds of contempt under the Contempt of
Courts Act, 1971 and Article 215 of the Constitution of India, for resiling
from the written consent. So far as the first part of this submission is
concerned, I think they emanate from a lack of understanding on the part of
counsel of the difference between the jurisdiction by the Company Court in
terms of the Companies Act and its jurisdiction in contempt. And even if
the contempt jurisdiction of this Court, which is a separate jurisdiction
altogether, were to be exercised, it would be a separate matter and there
could be no question of continuing with the winding up proceedings. Also,
such jurisdiction could always be invoked by the party concerned through
a substantive application; and merely insisting during the course of
arguments that because it is open to the court to also proceed suo moto in
contempt against the respondent in the light of certain facts being alleged
by counsel for the petitioner, therefore, the proceedings in the principal
winding up petition should not be halted, or stopped for the time being, in
accordance with the mandate of Section 22 (1) of the SICA, has no force.
24. Before counsel argued the contempt aspect of the matter, she had
also attempted to state that, as a matter of fact, the agreement/undertaking
by the respondent to pay the petitioner constituted a separate, civil
agreement, and therefore, to that extent, proceedings for winding up of the
company should be permitted to continue. To my mind, counsel appears to
have lost sight of the distinction between any settlement or agreement that
may have been concluded between the parties and the jurisdiction being
exercised by this Court. It is not as if by a settlement between the parties;
Co.Pet. No.42/2014 Page 21 of 23
or even on an undertaking having been given by the company whose
winding up is being sought, and is under consideration by the court; the
matter has suddenly been converted into a civil suit for recovery. Even if
were, that too would come under the bar of Section 22 (1) of the SICA, so I
do not really know what learned counsel intended by taking this approach
in the matter.
25. In this context, I might add that any offer made before the Company
Court in winding up proceedings by the company to pay an unsecured
creditor; such as the petitioner; in preference to the debts owed to workers
and secured creditors, requires serious application of mind by the Court to
all the relevant circumstances, and the affairs of the company. This is
necessary for the Court to satisfy itself about the genuine viability of the
company as a going concern, so that the Court may not commit the error of
allowing preferential payment to be made out to an unsecured creditor in
preference to other priority creditors including, inter alia, secured creditors
of a company that deserved to be wound up in the first place. To my mind,
this obligation assumes greater significance in the light of Sections 531;
531(A); 441; 536 and 537 of the Companies Act, 1956. And the
withdrawal of the petition or the closure of the matter by permanently
staying the winding up on any such offer, on its acceptance by the
petitioning creditor, is not axiomatic.
This aspect is particularly important in the instant case since there
are as many as 29 other petitions pending before this Court; and it would
be grossly imprudent, and indeed inequitable for this Court to permit an
unsecured creditor to walk away with his dues; with the ever present
likelihood of a winding up order being passed in another pending matter;
since this would, in effect, amount to indirectly permitting payment to an
Co.Pet. No.42/2014 Page 22 of 23
unsecured creditor in preference to secured, and other creditors and
workers, all of whom are accorded a higher priority in law; inter alia,
because an act of court should prejudice no one, specially those whose
debts have been accorded a higher priority by the statute.
26. Under the circumstances, I am satisfied that the application deserves
to be allowed.
27. Consequently, the instant winding up proceedings pending before
this Court against the respondent company shall be kept in abeyance in the
light of the bar under Section 22(1) of SICA; and the petition and all
pending applications shall stand adjourned sine die ; with liberty to the
parties to apply in case they are so advised, and as per law.
(SUDERSHAN KUMAR MISRA)
Judge
September 05, 2016
Co.Pet. No.42/2014 Page 23 of 23
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ CO.PET. 42/2014 & CA Nos.127-128/2014, 3239/2015, 3240/2015
3298/2015
M/S FORECH INDIA LTD ..... Petitioner
Through Ms. Purti Marwaha, Mr. Arvind Kumar and
Mr. C. S. Chauhan, Advocates.
versus
M/S TECPRO SYSTEMS LTD ..... Respondent
Through Mr. Sanjeev Sindhwani, Sr. Advocate with
Mr. Ankit Sibbal, Mr. Rohit Kumar Yadav,
Advs.
Mr. Rohit Madan, Advocate for Rajasthan State
Industrial Development Corpn. (RIICO).
Ms. Sheetal Tiwari and Mr. Rajiv Kapur,
Advocates for State Bank of India.
CORAM:
HON’BLE MR. JUSTICE SUDERSHAN KUMAR MISRA
SUDERSHAN KUMAR MISRA, J.
Co.Appln. No.3298/2015
1. This application moved by the respondent, Tecpro System Limited,
under Rule 9 of Company Court Rules, 1959 read with Section 22 (1) of
Sick Industrial Companies (Special Provisions) Act, 2002 (SICA); praying
that the winding up proceedings pending before this Court, be not
proceeded with further in view of the proceedings pending for revival of
the respondent before the Board for Industrial & Financial Reconstruction
(BIFR); is opposed by the petitioner, who is an unsecured creditor of the
respondent company.
2. The petitioner is seeking winding up of the company, inter alia, on
Co.Pet. No.42/2014 Page 1 of 23
the ground of non-payment of a debt of Rs.1,35,89,016/- (Rupees One
Crore Thirty Five Lakhs Eighty Nine Thousand Sixteen Only) payable by
the respondent company. The petition also mentions the fact that the
company has suffered massive losses between 01.04.2013 and 30.09.2013;
and that, while the share capital and reserves of the company for the half
year ending 30.09.2013 is Rs.563 crores, its liabilities are Rs.4,641 crores,
which, according to the petitioner, indicates that the company is,
“overleveraged”. At the same time, it is also mentioned that in the relevant
financial statements, the company has also indicated an amount of
Rs.1,273 crores as, “other current assets”. The petitioner has also asserted
the fact that the company, “is unable to pay its admitted debts….”;
meaning thereby, that the company is insolvent or in any case, is not in a
position to pay its admitted debts and therefore should be wound up for
that reason also.
3. The applicant is stated to have moved a reference before the Board
for Industrial and Financial Reconstruction (BIFR) under Section 15 (1) of
Sick Industrial Companies (Special Provisions Act 1985) (SICA) alleging
that its net worth has become negative. In his letter dated 14.07.2015, the
Registrar, BIFR, has informed the applicant that the said reference has
been duly registered. It also gives further directions to the applicant,
including, inter alia, of stay.
4. In short, the applicant’s case is that since the inquiry has
commenced pursuant to the registration of the aforesaid reference, the
provisions of Section 22(1) Sick Industrial Companies (Special Provisions)
Act, 1985 would be applicable; and till that inquiry is pending; and the
matter of revival of the respondent company remains before the BIFR,
these winding up proceedings; including for the appointment of receiver
Co.Pet. No.42/2014 Page 2 of 23
etc., cannot be proceeded with further; except of course with the consent of
the BIFR, as envisaged in Section 22(1) SICA, 1985. The provisions of
Section 22(1) are as under;
“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
32
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.”
5. On the other hand, the petitioner’s counsel contended that the
statutory bar envisaged under Section 22(1) of SICA does not arise in this
particular matter because the respondent company has admitted that there
is a debt payable by it; and thereafter it has even placed on record its
written consent, to clear the debt due to the petitioner. Some other grounds
are also urged.
6. In order to better appreciate the nature and style of counsel’s
submissions, it has become necessary to reproduce some of her
Co.Pet. No.42/2014 Page 3 of 23
submissions in extenso here. In this context, I might also add that although
some time has elapsed since the orders were reserved on 15.12.2015, a
reasonably accurate record of the proceedings was kept by the Court
Stenographer who was noting the arguments verbatim, as is often done in
my Court. This has proved most helpful. They are as follows;
(i) That there is an agreement in writing and the respondent company
has agreed on 27.08.2014, that “there is an admitted amount”. She further
submits that, “once they have admitted to the position that there is a debt
payable by them, thereafter they have placed on record in January 2015,
the consent. In that case, provisions of Section 22(1) of SICA cannot
apply.”
(ii) After lunch, when the matter was taken up again, counsel for the
petitioner submitted that her client had filed the petition in 2014, while the
reference was filed by the company before the BIFR only thereafter. And
further that, “there was a consent…”, by the respondent, that a particular
amount was payable to the petitioner. After that, there was also a direction
to the respondent to file an affidavit regarding payment; and the
respondent submitted that affidavit on 23.01.2015, in which, “the
respondent company principally stated the schedule of payment and the
manner in which payment has to be made. The entire schedule is given.”
According to her, that affidavit categorically states that the respondent will
make payment. This, according to counsel, constituted the agreement to
pay.
(iii) According to counsel, it was only thereafter on 23.03.2015, that the
respondent filed a reference before the BIFR under Section 15 (1) SICA.
According to her, in this reference, the company has wrongly stated that its
Co.Pet. No.42/2014 Page 4 of 23
net worth has become negative and that it has become a sick company on
the basis of the balance sheet as on 31.03.2015. She further states that the
letter of 14.03.2015 of the Registrar, BIFR, informing the respondent
company of the registration of the reference shows, that the respondent has
not disclosed the fact that it has given its consent before this Court for
making payment. It is on these grounds that counsel has ventured to
submit, “of course, these are winding up proceedings, but when a party
states that I will make payment in the following terms, he has to pay
them.”
(iv) As regards allegation that the statement of the company before the
BIFR to the effect that its net worth has become negative is false, she
submits that this is because, before filing of the reference before the BIFR,
the company’s affidavit that was filed, “categorically states that we will
make payment…..”; “While their application says net worth became
negative; this is clearly incorrect and is aimed at giving a wrong
impression, and to resile from statement / undertaking…. .” According to
her, the reference and its registration with the BIFR by the respondent
company is merely a ploy to waive off its admitted debt. And that in these
circumstances, even the, “provisions of the Contempt of Courts Act and
Article 215 of the Constitution of India will apply because they have
wrongly stated…..”.
(v) She states that under the circumstances, “once they have submitted
an affidavit and the consent is there, can they be permitted to resile, that is
my submission.” She further submits that, “what has to be seen in this
case is that once there is consensus ad idem, there is consent between two
parties. In this particular case, there was a consent, they said we will make
Co.Pet. No.42/2014 Page 5 of 23
payment on these modalities. Once they have accepted to that, they cannot
resile from that.”
7. The relevant facts available on the record are as follows;
(a) The petitioner has filed the main petition seeking winding up of the
respondent also containing a prayer, “seeking appointment of the Official
Liquidator to take possession of all assets of the respondent company”.
Along with this, interim applications seeking directions and for
appointment of the Provisional Liquidator were also filed.
(b) Notice to show cause was issued by the Court to the respondent on
20.01.2014. Interim orders were passed on that date restraining the
respondent from selling, alienating or parting with possession of any of its
immoveable properties. The respondent was also restrained from dealing
with its moveable properties, except in the normal course of business.
Although on 16.04.2014, this Court directed that a reply shall be filed
within one week in the event the same has not been filed; and the matter
was adjourned to 13.05.2014; however, no formal reply to either the notice
to show cause, or even the applications seeking interim directions has been
filed by the respondent. On 26.09.2014, it was directed that interim orders
are to continue till further orders.
(c) On 13.05.2014, counsel for the respondent pointed out that a
Corporate Debt Restructuring (CDR) Scheme is being worked out with the
banks and prayed for time to file a proposal under which payment can be
made. Again on 16.07.2014, counsel for the respondent pointed out that
the proposal is under consideration by a consortium of banks led by the
Co.Pet. No.42/2014 Page 6 of 23
State Bank of India. On some doubts expressed by counsel for the
petitioner, this Court also directed notice to be issued to the State Bank of
India returnable on 27.08.2014, and the matter was directed to be listed
along with other connected matters. On 27.08.2014, counsel for the
respondent also stated that the respondent, “is not contesting the liability of
the amunts claimed by the petitioner”.
(d) Ultimately, on 28.11.2014, this Court recorded that;
“Respondent has admitted the claim and does not propose to
file a reply.
……learned counsel appearing for the State Bank of India
submits that as per the CDR Scheme after signing of the
Master Reconstructing Agreement (MRA) within the
stipulated time, the borrower (respondent) is obliged to make
the payment to its creditors.
The respondent is directed to file an affidavit enclosing a copy
of the letter of approval alongwith the amount, if any,
admitted by the respondent, and the proposed schedule of
payment to the petitioner in terms of CDR scheme. The
affidavit shall be filed within a period of eight weeks from
today.
th
Renotify on 24 March, 2015.”
(e) It is seen from the above that;
(i) the respondent stated that it admitted the claim of the
petitioner and that it does not propose to file any reply to the
petition;
Co.Pet. No.42/2014 Page 7 of 23
(ii) Further, that according to the Corporate Debt Restructuring
(CDR) Scheme approved by the secured creditors and lenders,
the Master Reconstructing Agreement (MRA) was to be
signed, and then the borrower, i.e., the company herein, was
obliged to pay its, “pressing”, creditors; and it was in these
circumstances, that on 28.11.2014, this Court directed the
company to file an affidavit setting down therein, inter alia,
the “proposed schedule of payment to the petitioner in terms
of CDR scheme.”, and the matter was adjourned to
24.03.2015.
(f) Consequently, pursuant to the aforesaid orders of 28.11.2014, the
respondent filed an affidavit of compliance dated 23.01.2015 where a copy
of a letter of approval of the Corporate Debt Restructuring Scheme (CDR
Scheme) dated 30.09.2014 along with the annexures to that letter (29
pages) was enclosed as Annexure A/1. In addition, and as directed by the
Court on 28.11.2014, the respondent company also annexed the proposed
schedule of payment in terms of the said CDR scheme, bearing the title,
“PROPOSED PAYMENT PLAN”, as Annexure A/2. Below the said
payment schedule, and as part of that proposal, the company has also
stated that, “ the above payment schedule is subject to successful
completion of CDR and release of payments accordingly. ”
(g) Thereafter, when the matter was taken up on 24.03.2015, it was
brought to the notice of the Court that despite efforts having been made in
that direction, the aforesaid CDR scheme had not come into effect. And, in
fact, the State Bank of India had assigned the company’s debt; including
mortgages on assets of the company held by it; to a third party, namely,
Edelweiss Assets Reconstruction Company, on 23.03.2015. This prompted
Co.Pet. No.42/2014 Page 8 of 23
this Court to adjourn the matter, while directing the respondent to file
another consolidated affidavit, “with regard any financial arrangement it
may arrive at to address its current situation…”. Disclosure of other
information was also directed. The relevant portion of that order is
extracted below;
“Counsel for the respondent states that his clients
were making efforts to arrive at some sort of
settlement with some of these petitioners, on
terms, keeping in view the likelihood of CDR
scheme being approved by a consortium of banks,
of which, the State Bank of India was the lead
bank. He states that after repeated negotiations
these steps have not been fruitful since the State
Bank of India has assigned its debt to Edelweiss
Assets Reconstruction Company Limited vide
rd
assessment agreement dated 23 March, 2015. He
submits that by this, Edelweiss Assets
Reconstruction Company Limited has obtained
substantive interest in the assets of the company,
including substantial shareholding of the company
which was originally mortgaged to State Bank of
India. He, therefore, prays for a short adjournment
to enable his clients to try and negotiate with the
petitioners for any repayment-cum-debt
reconstruction scheme that may be feasible while
also keeping in mind its overall financial
obligations.
Under the circumstances, the matter is adjourned
th
to 29 October, 2015 to enable the respondent to
file a consolidated affidavit with regard to any
financial arrangement it may arrive at to address its
current situation within four weeks from today.”
Pursuant thereto, the company filed an affidavit dated 07.05.2015
once again stating that the amount claimed by the petitioner is not disputed
Co.Pet. No.42/2014 Page 9 of 23
by the respondent. However, nothing further was stated by the company in
that affidavit regarding any fresh financial arrangements that it might have
concluded to address its current situation; nor was any fresh offer of
payment of its debt to the petitioner; either on the lines of the aforesaid
earlier conditional offer which was annexed to its affidavit of 23.01.2015
or otherwise, made by the company.
(h) In October 2015, and before the matter could be taken further, the
respondent company moved the instant application, being CA
No.3298/2015, informing this Court that looking to its financial condition
as on 31.03.2015, it had moved the BIFR under Section 15(1) of the SICA;
and that on 14.07.2015, the Registrar, BIFR, had informed the company
that the said reference had been duly registered by the Board and further
directions were also given to the company.
(i) It may also be noted that there were as many as 29 more petitions
instituted by separate petitioners seeking winding up of the respondent on
the ground of non-payment of their dues; and for convenience, matters
were being listed before this Court on the same date to enable this Court to
have a better overall picture of the company’s affairs. In para 3 of its
aforesaid affidavit of 07.05.2015, the company has also said that out of all
these, “….there are certain petitions…..where the amounts claimed by the
respective petitioners have not been disputed by the respondent….. ”. In
all those matters, orders similar to those sought here have already been
passed in the light of Section 22(1) SICA.
(j) On 15.12.2015, arguments were heard and the orders were reserved
in the instant matter.
8. Counsel’s vehement opposition to any deferment of these
proceedings is mainly predicated on the ground that since the respondent
Co.Pet. No.42/2014 Page 10 of 23
company had admitted its liability towards the petitioner on 27.08.2014 by
a written agreement, even before it approached the BIFR; therefore, the
provisions of Section 22 (1) of SICA are not applicable to this case. She
also submits that not only has the respondent admitted its liability, it has
even placed on record its, “written consent”, to clear the debts of the
petitioner in terms of a schedule of payment, as well as the manner in
which the said payment would be made in an affidavit filed by the
respondent in this Court on 23.01.2015, and therefore also, there can be no
question of further proceedings in the matter being stayed by this Court in
terms of Section 22 (1) of SICA. According to her, what has to be seen in
the case at hand is that once there is consensus ad idem , there is consent
between two parties; and in this particular case there was consent to make
payment on modalities. Once the company accepted this, it cannot resile
from it.
9. What has to be kept in mind is that under Section 22 (1) of the
SICA, it is the action brought by the petitioning creditor seeking winding
up of the company that cannot be proceeded with further; and,
consequently, this Court is divested of the power to proceed further in the
matter. Of course, there can be myriad grounds available to the petitioning
creditor to establish respondent’s liability for unpaid dues, including an
admission of debt. That is another matter entirely. These are only grounds
that may persuade the Company Court to admit the petition, and to proceed
to wind up the company in the exercise of its jurisdiction under the
Companies Act and Rules. The mandate of Section 22 (1) of the SICA is
not qualified in any way, enabling the Court to proceed with the petition,
and with the process of winding up; or in another words, to continue to
exercise its jurisdiction towards that end, merely because there is an
Co.Pet. No.42/2014 Page 11 of 23
admission by the respondent company of the debt in question. The
mandate is clear, so long as a petition is pending seeking winding up of the
company, then whatever may be the stage or the state of pleadings; as well
as the proceedings before it, the High Court is obliged to stop proceeding
further in the matter.
10. Since counsel for the petitioner kept insisting to the contrary, she
was invited to cite any precedent to support her case. She relies on a
judgment of the Bombay High Court in TATA Capital Financial Services
Limited v. Ramasarup Industries Limited , 2013 (6) Bom CR 230,
paragraph 34 at page 18, which states as follows;
“34. ….In my view consent terms filed in court
by parties was an agreement and steps taken under
such agreement cannot be stayed. It is clear that
that there is apparent distinguishment between the
expression ‘proceedings’ and ‘suit’ used in section
22(1) of SICA. In my view, steps taken to enforce
the consent order passed under section 9 of the
Arbitration and Conciliation Act, 1996 would not
be barred by section 22(1) of the SICA.”
11. To my mind, that decision of the Single Judge of the Bombay High
Court in TATA Capital Financial Services Limited (supra) being relied
upon by counsel for the petitioner has no application here. There, the issue
related to the stay of execution of an order of the Bombay High Court with
regard to the sale of properties of Sureties and Guarantors of a company, in
proceedings under Section 9 of the Arbitration and Conciliation Act. And
the matter revolved around the scope and ambit of the 1994 amendment in
Section 22(1) SICA whereby, a limited protection was provided to
Guarantors by the insertion of the words, “…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
Co.Pet. No.42/2014 Page 12 of 23
the industrial company shall lie or be proceeded with further”. Also, in
that matter, a specific order directing sale of the properties had been passed
by the court, albeit on consent of the parties concerned. Here, apart from
other, important distinctions, no order or direction has been passed by the
Company Court directing payment by the company to the petitioner either
on terms or otherwise; nor has any undertaking been given to the Court by,
or on behalf of the company undertaking to pay any amounts to the
petitioner. I am therefore not going into the question of the consequences
that might have ensued in case there had been any such order or
undertaking. All that is before the Company Court exercising jurisdiction
under Sections 433 and 434 of the Companies Act is an affidavit admitting
the debt claimed by the petitioning creditor while informing the Court that
the company has concluded a proposed Corporate Debt Restructuring
(CDR) Scheme with the lead bank in a consortium of banks, i.e., the State
Bank of India, all of whom are the secured creditors of the respondent
company; and also offering to pay that debt on the terms indicated,
including the instalments proposed as well as the significant pre-condition
that, “the above mentioned payment schedule is subject to the
successful completion of CDR and release of payments accordingly.”
These terms have been set down by the company in Annexure A/2 to the
affidavit dated 23.01.2015 filed by the company along with the letter of
approval of the restructuring proposal under the CDR System, in
compliance with the aforesaid orders passed by this Court on 28.11.2014
(Extracted in paragraph 7(d) above).
12. Furthermore, even though a Debt Restructuring Scheme (To which
the petitioner was admittedly not a party) may have been approved by a
consortium of creditor banks envisaging certain payments towards
Co.Pet. No.42/2014 Page 13 of 23
liquidation of the company’s debt to the petitioner on terms set down in
that scheme; there is nothing to suggest that because the company has
agreed, inter alia, to these terms with the consortium of banks, that must be
presumed to be some sort of consensus ad idem , i.e., a bilateral consent
between the petitioner and the respondent also. In any case, to my mind,
any such agreement by the company to pay its creditors on terms
concluded between that company and some of its creditors generally, does
not automatically become executable as a decree or order of the court. Not
only that, even if it were executable in some fashion, the fact remains that
the proceedings before this Court are not execution proceedings.
Furthermore, a perusal of the CDR scheme shows that the commitment of
the company to pay its creditors is in terms of the letter of approval dated
30.09.2014 issued by the State Bank of India, titled, “Letter of Approval –
Techpro Systems Ltd. (TSL) Restructuring Proposal Approved Under
CDR System.” This communication runs into 23 pages. Copies of this
approval have only been sent to the Bank of India; ICICI Bank; IDBI
Bank; Axis Bank; Vijaya Bank and IndusInd Bank. The restructuring
package, which was approved by what was known as the, “CDR
empowered group”, has been annexed to this communication, and it
envisaged the financial restructuring of term loans given by banks; under
various heads, including, inter alia,
(v) Priority Debt-2, which is stated to be;
“Priority Debt (PD-2) of Rs.166.25 crore is
proposed in the package for the payment towards
pressing creditors ; PD-2 shall be shared among
all lenders (except RIICO). The shares of lenders
in PD-2 shall be based on exposure % as on COD
as under:………”
(Emphasis added)
Co.Pet. No.42/2014 Page 14 of 23
13. Significantly, there is no specific mention of any obligation of the
company to pay any amount to the petitioning creditor; and at best, the
restructuring scheme sanctioned by the lending banks has made a provision
of a certain amount in the package, “for payment towards pressing
creditors….”, under what is termed as Priority Debt-2. And that the
burden of any such payments, subject to the overall limit of Rs.166.25
crores envisaged in the scheme, shall be shared amongst the lending banks
in the agreed proportion.
14. Therefore, before this Court, at best, there was a proposal by the
respondent company to repay the petitioner’s debt in terms of a schedule
annexed to an affidavit dated 23.01.2015 filed by the respondent. This
proposal, as well as the circumstances under which it came about have
been set down in paragraph 7(c) to 7(g) above. Significantly, that
proposed schedule was also, “subject to successful completion of the
aforesaid CDR scheme and release of payments…”, by the consortium of
lending banks.
15. It appears that ultimately, the proposed CDR scheme did not go
through since the State Bank of India, which was the lead bank, has
assigned its debt to another company. It was in the light of these
developments that on 24.03.2015, this Court directed the respondent to file
a consolidated affidavit with regard to any financial arrangement it may
arrive at to address its current situation; and the matter was adjourned to
29.10.2015. Although an affidavit was thereafter filed on 07.05.2015 by
the respondent, however, nothing is mentioned in that affidavit about any
binding financial arrangements concluded by the company with anyone.
And, before the matter could be taken any further, the instant application
came to be filed by the respondent company.
Co.Pet. No.42/2014 Page 15 of 23
16. In the light of these facts, counsel’s submission that there was, in
fact, a consensus ad idem between the petitioner and the respondent; or
that there was a binding agreement to pay is factually incorrect, and cannot
be countenanced. In any case, the circumstances make it obvious that even
if the aforesaid proposed payment schedule annexed with its affidavit of
23.01.2015 by the respondent had been accepted by the petitioner; and the
payment permitted by this Court, on the terms proposed; although there is
nothing on the record to bear this out; it would have made no difference
because the condition precedent, i.e., the, “successful completion of CDR
and release of payment accordingly.”, does not appear to have come about.
17. It bears repetition that although the respondent company has
admitted the debt; and at one stage had also offered to repay the same on
terms, subject to receiving necessary funding after the acceptance of a
Corporate Debt Restructuring Scheme by the consortium of secured
creditors and banks; this offer has not been specifically accepted either by
the petitioner, or more importantly by this Court, at any time.
A perusal of the record shows that in fact, the stage for this exercise
never came about, and all that has come on the record so far is merely the
company’s acceptance of the debt and its conditional offer to pay on the
aforesaid terms. Even the specific acceptance of these terms by the
petitioning creditor, which would have been a precursor for the Court to
examine the proposal keeping in mind other relevant aspects that have
been referred to below, is not there; and that offer is now no longer on the
table.
The so-called, “consent”, by the company to pay is merely a
unilateral offer on the aforesaid terms. There is no mutuality. It is also not
as if the petitioner had consented to any offer by the company, to indicate
Co.Pet. No.42/2014 Page 16 of 23
that the consensus ad idem claimed by the petitioner’s counsel had come
about. There was thus no agreement at all. Even assuming, contrary to the
facts, that the agreement claimed had come about, it was also clearly
conditional upon the actual release of funds by the lenders in terms of the
CDR, which never happened. Consequently, it follows that even in this
view of the matter, the obligations of the company to pay the petitioner
never fructified.
18. It is also urged by counsel for the petitioner that it is within the
jurisdiction of the Company Court to pass an order in view of its inherent
powers under Rules 6 and 9 of the Companies (Court) Rules, 1959, and the
Court may exercise its inherent powers in case either of the parties does
not approach the court with clean hands. I do not find any case, either in
fact, or in law that could enable this Court to decline the prayer and
continue with the winding up proceedings in the exercise of its powers
under Rules 6 and 9 of the Companies (Court) Rules. There is also nothing
to conclude that there is any malafide on the part of the company.
19. I might also note that repeated suggestions that it is always open to
the petitioner to apply to BIFR under Section 22 (1) of the SICA to permit
the petitioner to proceed further in this matter, after satisfying the BIFR
that the circumstances in this case are indeed unique; have been rebuffed
out of hand by counsel for the petitioner, with the response that, “BIFR is
not sitting right now”, and that no enquiry under Section 16 has begun
because, “BIFR has not conducted hearing as far as I have gathered the
information.” This is neither here nor there. Any hiatus in an enquiry once
commenced cannot, to my mind, be a ground for continuing with the
winding up proceedings in the face of the bar under Section 22 (1) of
SICA.
Co.Pet. No.42/2014 Page 17 of 23
20. In response, counsel for the respondent has referred to a decision of
the Supreme Court in Managing Director, Bhoruka Textiles Limited v.
Kashmiri Rice Industries , (2009) 7 SCC 521, to the effect that, “the
receipt of a reference must be held to be the starting period for proceeding
with the enquiry.”
In the same context, it is also noteworthy that even by the
communication dated 14.07.2015, informing the company that the
reference has been duly registered, further directions have also been
communicated to the respondent to the effect that the company is
restrained from disposing off or alienating any fixed assets of the
company; whilst also directing the company to furnish additional
information sought by the Board in connection with the said reference.
Merely because the Board is not sitting for any reason is, therefore, no
ground for concluding that the enquiry has not commenced. In that view
of the matter, it is also obvious that if this Court were to proceed further
with the winding up proceedings whilst exercising company jurisdiction,
any orders or judgment passed thereafter would be coram non judice .
21. A Full Bench of the Supreme Court in Madura Coats Limited v.
Modi Rubber Limited and Another , (2016) 7 SCC 603 , has, inter alia,
held that, “20. …..the enquiry under Section 16 of SICA must be treated
to have commenced as soon as the registration of the reference is
completed……”, and again in paragraph 21 thereof, that once a reference
is registered, the enquiry under Section 16(1) of SICA must be deemed to
have commenced for the purposes of Section 22 of that Act.
Paragraph 21 of that decision in Madura Coats Limited is as
follows;
Co.Pet. No.42/2014 Page 18 of 23
“ 21 . This Court in RealValue case also referred
to the Regulations framed under SICA and in
connection therewith it was held that after the
amendment of Regulation 19 with effect from 24-
3-1994 once a reference is registered and it
becomes mandatory to simultaneously call for
information or documents from the informant and
such a direction is given, then an enquiry under
Section 16(1) of SICA must, for the purposes of
Section 22 thereof, be deemed to have
commenced. This is what this Court held in para
30 of the Report: (SCC p.566)
“30. 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 under Section
16(10 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.
(emphasis in
original)”
22. Another novel argument pressed by counsel aimed at persuading this
Court not to grant the relief of keeping these winding up proceedings in
abeyance sought by the company, is regarding the import of Section 22(1)
of SICA which, inter alia, specifically postulates, “no proceedings for
winding up…… shall lie or be proceeded with further…..”. According to
her, this bar under Section 22 (1) means that the sick industrial company
will not be put to winding up, which, in effect, means that it will not be
Co.Pet. No.42/2014 Page 19 of 23
liquidated. She seeks to link this statutory mandate, as she sees it, to
submit that had the debt amount been paid by the respondent, the issue
would have been settled and winding up proceedings would have been
closed or withdrawn. Therefore, the effect would have been the same, i.e.,
there would have been no further proceeding for winding up the company.
By this argument, counsel for the petitioner presumably means that if there
was no proceeding pending for winding up of the company on the date
when the reference was registered by the BIFR under SICA, there would
have been no need for this Court to entertain the instant application moved
by the company praying that the matter be not proceeded with further in
the light of Section 22(1) SICA. While the latter may be true in itself, it
requires a prodigious leap of faith from there to conclude that since
proceedings for winding are, in fact, pending, therefore the mandate of
Section 22 (1) SICA should be ignored by this Court and it should
continue with the winding up proceedings. As far as I have been able to
make out, this conclusion is also invited by counsel for the petitioner on
the ground that these proceedings have not been concluded earlier and
remain pending because the company is at fault in not having paid the
outstanding amount even though, according to her, it had given its,
“consent”, before this Court. This line of reasoning is deeply flawed and
illogical. It is being noted only to be rejected as completely unsustainable
for a number of reasons, including the fact that the effect of Section 21(1)
SICA is only to put winding up proceedings in abeyance; and not that the
company will not be put to winding up at all or that the petition pending
before this Court stands dismissed or disposed off; which is quite different
from not proceeding further in the matter for the time being. I do not
consider it necessary to set down every other reason available both in fact
Co.Pet. No.42/2014 Page 20 of 23
and in law to reject this argument.
23. Counsel for the petitioner then argued that these proceedings in
winding up can still continue in the Company Court, if not for the purpose
of winding up, then on the grounds of contempt under the Contempt of
Courts Act, 1971 and Article 215 of the Constitution of India, for resiling
from the written consent. So far as the first part of this submission is
concerned, I think they emanate from a lack of understanding on the part of
counsel of the difference between the jurisdiction by the Company Court in
terms of the Companies Act and its jurisdiction in contempt. And even if
the contempt jurisdiction of this Court, which is a separate jurisdiction
altogether, were to be exercised, it would be a separate matter and there
could be no question of continuing with the winding up proceedings. Also,
such jurisdiction could always be invoked by the party concerned through
a substantive application; and merely insisting during the course of
arguments that because it is open to the court to also proceed suo moto in
contempt against the respondent in the light of certain facts being alleged
by counsel for the petitioner, therefore, the proceedings in the principal
winding up petition should not be halted, or stopped for the time being, in
accordance with the mandate of Section 22 (1) of the SICA, has no force.
24. Before counsel argued the contempt aspect of the matter, she had
also attempted to state that, as a matter of fact, the agreement/undertaking
by the respondent to pay the petitioner constituted a separate, civil
agreement, and therefore, to that extent, proceedings for winding up of the
company should be permitted to continue. To my mind, counsel appears to
have lost sight of the distinction between any settlement or agreement that
may have been concluded between the parties and the jurisdiction being
exercised by this Court. It is not as if by a settlement between the parties;
Co.Pet. No.42/2014 Page 21 of 23
or even on an undertaking having been given by the company whose
winding up is being sought, and is under consideration by the court; the
matter has suddenly been converted into a civil suit for recovery. Even if
were, that too would come under the bar of Section 22 (1) of the SICA, so I
do not really know what learned counsel intended by taking this approach
in the matter.
25. In this context, I might add that any offer made before the Company
Court in winding up proceedings by the company to pay an unsecured
creditor; such as the petitioner; in preference to the debts owed to workers
and secured creditors, requires serious application of mind by the Court to
all the relevant circumstances, and the affairs of the company. This is
necessary for the Court to satisfy itself about the genuine viability of the
company as a going concern, so that the Court may not commit the error of
allowing preferential payment to be made out to an unsecured creditor in
preference to other priority creditors including, inter alia, secured creditors
of a company that deserved to be wound up in the first place. To my mind,
this obligation assumes greater significance in the light of Sections 531;
531(A); 441; 536 and 537 of the Companies Act, 1956. And the
withdrawal of the petition or the closure of the matter by permanently
staying the winding up on any such offer, on its acceptance by the
petitioning creditor, is not axiomatic.
This aspect is particularly important in the instant case since there
are as many as 29 other petitions pending before this Court; and it would
be grossly imprudent, and indeed inequitable for this Court to permit an
unsecured creditor to walk away with his dues; with the ever present
likelihood of a winding up order being passed in another pending matter;
since this would, in effect, amount to indirectly permitting payment to an
Co.Pet. No.42/2014 Page 22 of 23
unsecured creditor in preference to secured, and other creditors and
workers, all of whom are accorded a higher priority in law; inter alia,
because an act of court should prejudice no one, specially those whose
debts have been accorded a higher priority by the statute.
26. Under the circumstances, I am satisfied that the application deserves
to be allowed.
27. Consequently, the instant winding up proceedings pending before
this Court against the respondent company shall be kept in abeyance in the
light of the bar under Section 22(1) of SICA; and the petition and all
pending applications shall stand adjourned sine die ; with liberty to the
parties to apply in case they are so advised, and as per law.
(SUDERSHAN KUMAR MISRA)
Judge
September 05, 2016
Co.Pet. No.42/2014 Page 23 of 23