Case: Ashok Organic Industries Limited Vs. Asset Reconstruction Company (India) Limited (Arcil) &amp; Another

stage these possibilities would be the spectre of two parallel schemes, potentially in complete conflict with each other, one by the BIFR and the other the revived High Court scheme. No provision has been pointed out, much less under Section 22 (3), which can resolve this conflict -- Section 22(3), therefore, when it uses the term "other instruments in force" could not, in its correct context, be construed as including an order under Section 391-394 of the Companies Act within the meaning of that term. The ordinary meaning of the term instrument is "a formal legal document" [Shorter Oxford English Dictionary, 5th Edition, Vol. I. For the term "instrument" used in Section 17 of the Registration Act, 1908 a Full Bench Mt. Kalawati v. Sri Krishna in AIR 1944 Oudh 49 held that the term "instrument" as used in Section 17 -"cannot be held to include an order of the Court or any proceedings held in a Court" On the other hand in Mt. Savitribai v. A. Radhakrishan Sheocharan AIR 1948 Nagpur 49 the Division Bench held that the term "instrument" in Section 7 was wide enough to cover a decree. What is important, however, is the fact that the Division Bench in AIR 1948 Nagpur 49, came to this conclusion in the context of the broad structure and language of Section 17 i.e. because Section 17(2) (v) expressly excluded any decree or order of a Court from the provisions of Sub-section (1)(b)(c). The Court therefore, held that the word "instrument" as used in sub-section 1(b)(c) was otherwise wide enough to cover decrees. That conclusion at the highest can be reiterated in the context of the expression used in the Rehabilitation Act. The term "instrument" in a statute has necessarily to be understood and interpreted in the absence of any express definition having regard to the context in which the term is used and the object which the Legislature had in mind. See Purshottom H. Judye v. V B. Potdar AIR 1966 SC 856 , Bhagwandas Panchal v. Royal Western India Turf Club Ltd. (1969) 72 Bombay Law Reporter 764. Clearly the context in which the term "instrument" in Section 22(3) is used, given the object of the SICA 1985, cannot include orders made by High Court under Section 391-394 of the Companies Act. Section 32 of the SICA 1985 uses a different and distinct term viz. "other instruments having effect by virtue of any law other than this Act" The latter term could include a scheme under Section 391-394 which has effect by virtue of the provisions of Sections 391-394. In contrast the different expression used under Section 22(3) viz. "instruments in force" clearly cannot extend to such sanctioned orders and schemes; In State of Uttar Pradesh v. Ramkrishan Burman AIR 1971 SC 87 the Supreme Court held that a decree in invitum was not an instrument but that "A consent decree in certain case may be regarded as an instrument securing money or other property, where the decree proceeds upon a contract which had that effect, but that is only because a consent decree is a record of the contract between the parties to which is super added the seal of the Court." A scheme under Sections 391-394, though passed on the basis of the voluntary act of the application to the Court for sanction of the scheme, nevertheless remains a scheme having effect by virtue of the statutory operation of Sections 391-394 and it has statutory force by reason of those provisions. It does not remain a mere agreement. [M/s. J.K. (Bombay) Private Ltd. v. New Kaiser-i-Hind AIR 1970 SC 1041 General Radio and Appliances Co. Ltd. v. M.A. Khader (1 86) 60 Company Cases 1013 [Hindustan Lever (2000) 9 SCC 438. Consequently the term "instrument" in Section 22 (3) cannot be extended to cover a scheme sanctioned by the High Court under Sections 391-394. The aforesaid is also made clear by the fact that whereas Section 22(4) refers to "any decree or order of a Court "..... being overridden by a declaration made under Section 22(3), Section 22(3) itself does not. If the term instrument in Section 22(3) included such decrees or orders, then they would be suspended by virtue of the declaration under Section 22(3) itself and there would be no need for the overriding provision in Section 22(4) mentioning "any decree or order of a Court..." because that decree/order would have itself already been suspended under Section 22(3). This would also support the contention raised by the company that a Scheme framed before the Company went to B.I.F.R., unless there is a power to suspend would continue to operate. Mr. Khambata does not dispute this either. This interpretation is also in consonance with the principles of comity. It is not contemplated that the BIFR can under Section 22(3) sit in appeal over or review the merits or demerits of a scheme already sanctioned by the High Court. Section 22(3) is a provision for facilitation and implementation of schemes sanctioned by the BIFR or which are under preparation by the BIFR. It cannot be construed to permit the sanctioning of a scheme by the High Court which could potentially co-operate with and pre-empt the BIFR scheme. 18. Considering the above we have to hold that once the Industrial Company makes a reference under Section 15 of the SICA, the Company Court would have no jurisdiction for sanctioning the scheme of arrangement of compromise with its creditors and shareholders and neither will it have jurisdiction to take cognisance of such an application during the pendency of the reference.19. In the light of the above we over-rule the judgments in National Organic Chemical Industries Limited and Ors. vs. N.O.C.I.L. Employees Union 2005 (126) Companies Cases 922, Sharp Industries Limited, (2006) 131 Company Cases, 535 (Bom.) and in Pharmaceutical Products of India Ltd. in re (2006) 747 131 Company Cases 747. We approve the view taken by the referral Judge in the light of what we have discussed.

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

Explanation:
0[ds]In our opinion after the judgment of the Supreme Court in NGEF Limited it will be clear that to the extent where the net worth of the company has become negative the company by operation of law has to move under the SICA by virtue of Section 15 of the SICA. Once it so moves and the reference is registered it is BIFR which alone will have and continue to exercise jurisdiction to the exclusion of the Company Court in respect of the matters for preparation and sanction of a scheme as set out under Section 18 as also appointment of an agency under Section 16 of the Act.We are, therefore, clearly of the opinion that the ratio of the judgment in NGEF Limited (supra) lays down a proposition that in those matters which ordinarily would be covered by Sections 391 to 394 of the Companies Act once the Company becomes sick and is before B.I.F.R. it is the provisions of SICA which alone would be applicable and to that extent the provisions of the Companies Act being inconsistent would standour opinion what the learned Judge was considering and what has been referred for our consideration is the issue, as to when a company is before B.I.F.R. what scheme can be framed. The learned single Judge was considering the issue in the context ofBenches of this Court having taken a view that the provisions of SICA and the Sections 391 to 394 of the Companies Act are not inconsistent with each other. As we have noted earlier in National Organic Chemicals Limited (supra) which was the earliest judgment and which was subsequently followed by anotherBench the learned Judge has himself noted that the provisions of SICA operate only in those cases where the net worth of the company has become negative whereas the provisions of Sections 391 to 394 would be applicable to all other classes of cases. For the purpose of rehabilitation of "Sick" company all measures necessary can be taken. It is, therefore, not possible to countenance the argument advanced on behalf of the intervenor. Atleast we have no hesitation in understanding the issue and answering it as referred to us. As noted by the learned single Judge in so far as the Company Court is concerned, a scheme of arrangement requires the sanction of a percentage of creditors and shareholders. In so far as the scheme to be framed under BIFR even the objections by a sole financial institution is sufficient for BIFR to reject the scheme. There is, therefore, inconsistency between the provisions of SICA and the Companies Act to that extent. What we are called upon to answer is the question referred for our consideration and the question as referred can bethe matter of interpretation and construction of statute on behalf of Dena Bank their learned Counsel had also sought to apply the test of repugnancy under Article 254. It was submitted on behalf of the company that the test of repugnancy considering the language of Article 254 would only apply when there is a conflict between the Central and State legislation in respect of a law made pursuant to the field of legislation in Part III of the VIIth Schedule.Considering the above, SICA 1985 can be said to be a complete Code intended to be exhaustive in all matters concerning sick industrial companies (whether potentially viable orand the provisions thereof and the objects and reasons thereof clearly indicates the legislative intent that SICA 1985 covers the whole field as regards sick industrial companies. The correct test then to be applied is not whether it is open to or possible for a sick industrial company to present a Scheme under Section 391 even whilst its reference is registered with BIFR. The correct question is whether since the SICA 1985 is a complete and exhaustive Code, an inconsistency is deemed to arise and whether such inconsistency may be resolved by applying the well settled principle that the special and later Act prevails over the general and prior Act.Once SICA 1985 is held to be a complete code, the intent of Parliament is that the subject matter i.e. Sick Industrial company, is covered in all aspects by the provisions of SICA 1985 and by these provisions alone. If the provisions of SICA 1985 do not cover any particular detail or aspect pertaining to schemes of Sick Industrial Companies, it must be concluded that this is because Parliament did not intend such a provision to be available in respect of Sick Industrial Companies. Hence there is no question of adopting an approach of dissection or a microscopic examination of each provision of the SICA 1985 to determine whether any particular types of scheme were available under Sectionbut not under the SICA 1985. The test is do the two Acts substantially provide for the same subject matter. In our opinion the answer is in the affirmative. It is therefore not permissible to have recourse to any provisions other than SICA 1985 to supply any mechanism for sanctioning a scheme impermissible under the SICA 1985 (or indeed even to facilitate a scheme under the SICA 1985) for this would defeat Parliaments intention that the SICA Act alone would completely and exhaustively cover all aspects relating to Sick Industrial Companies including schemes in respect thereof. The Scheme as framed does in fact provide for several matters other than a mere compromise /arrangement by reduction in creditors claims. Hence the submission advanced on behalf of ARCIL that schemes which are simpliciter for reduction of the Companys debts were not covered by the provisions of the SICA 1985, is academic and cannot arise in the present case.Considering the above we have to hold that once the Industrial Company makes a reference under Section 15 of the SICA, the Company Court would have no jurisdiction for sanctioning the scheme of arrangement of compromise with its creditors and shareholders and neither will it have jurisdiction to take cognisance of such an application during the pendency of the reference.19. In the light of the above wethe judgments in National Organic Chemical Industries Limited and Ors. vs. N.O.C.I.L. Employees Union 2005 (126) Companies Cases 922, Sharp Industries Limited, (2006) 131 Company Cases, 535  (Bom.) and in Pharmaceutical Products of India Ltd. in re (2006) 747 131 Company Cases 747. We approve the view taken by the referral Judge in the light of what we have discussed.