Case: Ghanshyam Sarda Vs. Shiv Shankar Trading Company

30. We now deal with the decisions of the High Courts of Calcutta, Madras and Delhi. All these decisions were rendered while considering writ petitions under Article 226 of the Constitution of India. In the first of these three cases the High Court took the view that there is no express provision in the Act which indicates when the BIFR loses its jurisdiction with regard to a company which was once sick and proceeded to declare the company in question not amenable to the jurisdiction of the BIFR from and with effect from the date the Balance Sheet showed the Net Worth to be positive. In the second case the High Court was of the view that sickness of an industrial company is to be decided ex-facie on the basis of the audited balance sheet and when the Net Worth becomes positive the BIFR ceases to have any jurisdiction. The last case arose from the same BIFR matter and Delhi High Court followed the view taken by Madras High Court. Said decisions must now be read in the light of the above discussion and view that we have taken. 31. In the circumstances, we allow the present appeals and set aside the order dated 06.01.2014 passed by the High Court of Gauhati in FAO No.10 of 2013 and Writ Petition Nos.4303 of 2013 and 6286 of 2013. It is held that the Title Suit No.166 of 2013 pending on the file of the learned Civil Court at Kamroop, Gauhati is not maintainable insofar as it seeks declaration that the company was no longer a sick company within the meaning of the Act and that the BIFR ceased to have jurisdiction over the company and that all the proceedings in the BIFR after filing of the positive balance-sheet were without jurisdiction. Consequently the order of injunction passed by the Civil Court is set aside. Insofar as the said Suit pertains to the claim for recovery of money from the Company, the Suit could lie and be proceeded with only after express consent of the BIFR is received by the plaintiff. We direct that the company i.e., J.K. Jute Mills Company Ltd. having its registered office at Kanpur U.P. continues to be under the jurisdiction of the BIFR. We leave it to the BIFR to satisfy itself and determine the issues whether the net worth of the company has turned positive or not. If the BIFR is so satisfied, it shall de-register the company and upon such declaration the company will be out of the supervisory jurisdiction of the BIFR under the Act. Needless to say that if the BIFR is not satisfied that the net worth of the company has turned positive, it shall go ahead and consider the scheme for revival of the company. We direct the BIFR to complete this exercise within two months from date of receipt of this order. We have refrained from dealing with the matter concerning the merits or de-merits of the claim that the net worth has turned positive nor have we dealt with the report made by the State Bank of India in its Special Investigative Audit. We leave these issues to be considered by the BIFR at an appropriate stage. We have also not dealt with the submissions alleging bias as the matters in that behalf are still pending consideration before the authorities and we leave these issues to be dealt with at an appropriate stage. 32. Since in our view the company continues to be a sick company and it was not competent for anyone except the BIFR to determine whether the net worth of the company had turned positive, we hold the sale of Katihar property effected by the company without express leave or permission of the BIFR to be questionable. However, since the transferee of that property is not before this Court we relegate this matter for appropriate assessment by the BIFR after issuing due notice to the transferee. We also leave it to the BIFR to consider and assess whether there was any necessity or expediency to sell the property in question. If in its opinion such expediency and necessity are established, the BIFR may also consider whether the value that the property has fetched is adequate or not. If the value is adequate it may confirm the sale in favour of the transferee. However, if the value in its opinion is inadequate, it shall give offer and adequate time to the transferee to make good the deficit. In any case if the sale is held to be bad or if the transferee is not willing to make good the deficit, the entire consideration for the transaction be returned to the transferee. In such eventuality whatever the transferee has paid in excess of the consideration money towards stamp duty and registration shall be recovered from the Directors and persons responsible for effecting such sale on behalf of the company. 33. Now we turn to the filing of the civil suit in the instant case and its conduct. The original plaintiff had sought consent of the BIFR under Section 22(1) of the Act and was before the BIFR on 04.04.2013. However, he did not disclose either the factum that he had so sought such consent or that the BIFR was in seisin of the matter and considering whether the net worth of the company had turned positive. Non-disclosure of these two essential facts, in our view, was not accidental. We therefore impose costs of Rs.5 lacs on the original plaintiff which shall be deposited within three months from the date of this order, failing which action in contempt shall be initiated against the original plaintiff. The costs shall be deposited to the account of the Supreme Court Legal Services Authority. Though the conduct of the company as defendant before the Civil Court was of the same order, since it is a sick company we refrain from imposing any costs on the company. No other order as to costs. 34.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]30. We now deal with the decisions of the High Courts of Calcutta, Madras and Delhi. All these decisions were rendered while considering writ petitions under Article 226 of the Constitution of India. In the first of these three cases the High Court took the view that there is no express provision in the Act which indicates when the BIFR loses its jurisdiction with regard to a company which was once sick and proceeded to declare the company in question not amenable to the jurisdiction of the BIFR from and with effect from the date the Balance Sheet showed the Net Worth to be positive. In the second case the High Court was of the view that sickness of an industrial company is to be decided ex-facie on the basis of the audited balance sheet and when the Net Worth becomes positive the BIFR ceases to have any jurisdiction. The last case arose from the same BIFR matter and Delhi High Court followed the view taken by Madras High Court. Said decisions must now be read in the light of the above discussion and view that we have taken31. In the circumstances, we allow the present appeals and set aside the order dated 06.01.2014 passed by the High Court of Gauhati in FAO No.10 of 2013 and Writ Petition Nos.4303 of 2013 and 6286 of 2013. It is held that the Title Suit No.166 of 2013 pending on the file of the learned Civil Court at Kamroop, Gauhati is not maintainable insofar as it seeks declaration that the company was no longer a sick company within the meaning of the Act and that the BIFR ceased to have jurisdiction over the company and that all the proceedings in the BIFR after filing of the positive balance-sheet were without jurisdiction. Consequently the order of injunction passed by the Civil Court is set aside. Insofar as the said Suit pertains to the claim for recovery of money from the Company, the Suit could lie and be proceeded with only after express consent of the BIFR is received by the plaintiff. We direct that the company i.e., J.K. Jute Mills Company Ltd. having its registered office at Kanpur U.P. continues to be under the jurisdiction of the BIFR. We leave it to the BIFR to satisfy itself and determine the issues whether the net worth of the company has turned positive or not. If the BIFR is so satisfied, it shall de-register the company and upon such declaration the company will be out of the supervisory jurisdiction of the BIFR under the Act. Needless to say that if the BIFR is not satisfied that the net worth of the company has turned positive, it shall go ahead and consider the scheme for revival of the company. We direct the BIFR to complete this exercise within two months from date of receipt of this order. We have refrained from dealing with the matter concerning the merits or de-merits of the claim that the net worth has turned positive nor have we dealt with the report made by the State Bank of India in its Special Investigative Audit. We leave these issues to be considered by the BIFR at an appropriate stage. We have also not dealt with the submissions alleging bias as the matters in that behalf are still pending consideration before the authorities and we leave these issues to be dealt with at an appropriate stage32. Since in our view the company continues to be a sick company and it was not competent for anyone except the BIFR to determine whether the net worth of the company had turned positive, we hold the sale of Katihar property effected by the company without express leave or permission of the BIFR to be questionable. However, since the transferee of that property is not before this Court we relegate this matter for appropriate assessment by the BIFR after issuing due notice to the transferee. We also leave it to the BIFR to consider and assess whether there was any necessity or expediency to sell the property in question. If in its opinion such expediency and necessity are established, the BIFR may also consider whether the value that the property has fetched is adequate or not. If the value is adequate it may confirm the sale in favour of the transferee. However, if the value in its opinion is inadequate, it shall give offer and adequate time to the transferee to make good the deficit. In any case if the sale is held to be bad or if the transferee is not willing to make good the deficit, the entire consideration for the transaction be returned to the transferee. In such eventuality whatever the transferee has paid in excess of the consideration money towards stamp duty and registration shall be recovered from the Directors and persons responsible for effecting such sale on behalf of the company33. Now we turn to the filing of the civil suit in the instant case and its conduct. The original plaintiff had sought consent of the BIFR under Section 22(1) of the Act and was before the BIFR on 04.04.2013. However, he did not disclose either the factum that he had so sought such consent or that the BIFR was in seisin of the matter and considering whether the net worth of the company had turned positive. Non-disclosure of these two essential facts, in our view, was not accidental. We therefore impose costs of Rs.5 lacs on the original plaintiff which shall be deposited within three months from the date of this order, failing which action in contempt shall be initiated against the original plaintiff. The costs shall be deposited to the account of the Supreme Court Legal Services Authority. Though the conduct of the company as defendant before the Civil Court was of the same order, since it is a sick company we refrain from imposing any costs on the company. No other order as to costs.