Case: Tata Motors Ltd Vs. Pharmaceutical Products Of India Ltd

Background Facts:3. First respondent is a company registered and incorporated under the 1956 Act. It took loan from Tata Finance Ltd, predecessor-in-interest of the appellant on interest @ 18% per annum. Disputes and differences arose between the parties, which were referred to arbitral tribunal. An award was passed on 30th July, 2002 in the Arbitration proceedings for a sum of Rs.1,51,36,795/- together with interest @ 18% per annum till payment and/or realization. It is stated that the total amount due to the appellant from the respondent would be near about 5.7 crores of rupees. There were other secured and unsecured creditors also.Proceedings under SICA4. Respondent being unable to pay the dues made a reference in terms of Section 15 of SICA before the Board for Industrial and Financial Reconstruction (BIFR). The BIFR appointed Industrial Development Bank of India (IDBI) as an operating agency. It purported to have considered various schemes. However, as Unit Trust of India (UTI) raised an objection for giving up any of its dues and there were six secured creditors and large number of unsecured creditors, BIFR on or about 27th October, 2004 passed an order recommending winding up of the respondent. An appeal was preferred thereagainst before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR).5. The AAIFR granted stay of operation of the order of BIFR dated 27th October, 2004 by an order dated 13th September, 2005. Before the AAIFR two separate Schemes were framed, one of them related to an arrangement between the respondent and M/s. Wanbury Ltd. It agreed to settle the outstanding dues of the creditors of PPIL. But before doing so, it thought it fit to settle all the large creditors being Financial Institutions and Banks. The scheme envisaged payment to a class of creditors. It was alsoaddition, two immovable properties of the company (which were its primary and main assets) were to be sold and the unsecured creditors were to be paid a proportion of the sale proceeds. The balance of the sale proceeds were to be paid over to the secured creditors. Upon payment of the cash consideration, Wanbury was to get complete control over the Respondent including all its assets subject to the approval of the merger before the appropriate forum. The scheme was to become effective upon approval of overall settlement including an order for merger or any other mode of acquisition of assets of PPIL by Wanbury or such scheme of PPIL bywas kept outside the said Scheme. The scheme involved some selective secured creditors and some selective unsecured creditors.Company Court Proceedings6. Respondent, however, filed an application before the High Court of Judicature at Bombay purported to be in terms of Section 391 of the 1956 Act during the pendency of the said appeal on or about 29th April, 2005. A Scheme was presented before the Company Judge purported to be involving about 80 percent of the creditors, most of them being banks, financial institutions. Allegedly, even at that stage, it was not disclosed before the Company Court that unsecured creditors listed in the Scheme were only a selected few creditors, as a result whereof a large number of creditors had been excluded.7. Before the Company Judge, the appellant filed an application for intervention. It filed an objection to the said Scheme primarily on thethe revival/rehabilitation of the company was under consideration of a specialized body formed under the Sick Industries Act which is a special legislation and would prevail over the provisions of the Companies Act. That the non-obstante clause contained in the Sick Industries Act will have the effect of overriding and excluding the provisions of the Companies more so where there is an overlapping between the two Act. That considering the scheme of the Sick Industries Act, the revival/restructing of the company cannot be considered by two separate forums separately. That the scheme involved financial reconstruction, sale of assets of the company and merger/take over by Wanbury. These issues expressly fall within the domain of the BIFR under Section 18 of the Sick Industries Act.That a scheme could not be presented only in respect of selected unsecured creditors to the exclusion of the other similarly placed unsecured creditors such as the Petitioners. That the entire scheme was nothing but a fraud which was being played whereby the company and its assets were being transferred to Wanbury which was associated with the companyalso filed an objection.8. The said contentions of the appellant, however, were rejected by a learned Single Judge of the High Court by his order dated 13th April, 2006 and the Scheme was approved.Order of the AAIFR9. In view of the aforementioned order of the High Court, AAIFR also on or about 1st June, 2006 approved the said SchemeLearned counsel for the Appellant Company states that the scheme of Compromise and Arrangement approve by the Bombay High Court have been incorporated in the scheme of revival cum merger submitted to IDBI (Operating Agency) in pursuance of direction given by us on 9.11.2005.6. In view of IDBIs recommendation of the revival cum merger proposal submitted by PPIL, which is in accordance with Bombay High Courts order dated 13.2.2006, we set aside the impugned order dated 27.10.2004 and direct BIFR to consider the scheme vetted by the OA within a period of three months from the date of this order and take necessary further steps for the revival of the appellant company in accordance with law.An intra court appeal was preferred thereagainst by the appellant on or about 3rd August, 2006. By reason of the impugned judgment the said Letters Patent Appeal has been dismissed,The Appellant claims to be an unsecured creditor to the extent of Rs.1.51 crores as set out in the award dated 30.7.2002 with further interest at the rate of 18% per annum. It is not in dispute that the Scheme of Arrangement approved by the learned Company Judge between Pharmaceutical Products of India Ltd. and its unsecured creditors and Wanbury does not affect the rights of the appellant as the appellant, though an unsecured creditor, is not specified in Schedule-I, appended to the Scheme. In this backdrop, the impugned order cannot be faulted. However, it is clarified that whatever objections the appellant may have against the revival scheme pending before the BIFR, pursuant to the order dated 1.6.2006 passed by the AAIFR, they may place their objections before the BIFR and obviously upon such objections being placed the BIFR shall consider the revival scheme of the respondent-Company on is own merits, keeping in view all relevant fact and circumstances, including the objections of theEvents11. We may also take note of some subsequent events. In view of the order of AAIFR dated 1st June, 2006, BIFR issued notice on 1st February, 2007 to consider the Scheme-cum-merger with M/s. Wanbury Ltd. propounded by the respondent company returnable on 29th March, 2007. On the said date, all the interested parties including the appellant were heard. By an order dated 1st May, 2007, BIFR is said to have sanctioned the Scheme-cum-merger of M/s. Wanbury Ltd. with the respondent.12. We may also place on record that inter alia on the premise that the said Scheme of merger was approved in gross violation of this Courts order dated 15th December, 2006, a contempt petition was filed. We are not concerned with the said Contempt Petition herein.

Reasoning: 20. SICA is a special statute. It is a self contained Code. The jurisdiction of the Company Judge in a case where reference had been made to BIFR would be subject to the provisions of SICA. We may, at this stage, notice the effect of SICAthe other Acts, as has been noticed by this Court in some of itsa case, however, whereproceedings are initiated in terms of recommendations made by BIFR or AAIFR, as the case may be, no such petition is required to be presented. Section 443 lays down the power of a court on hearing petition; clause (d) of(1) whereof provides for a power to make an order for winding up of the company with or without costs or any other order that it thinks fit. Section 444 lays down the consequences of theorder. In terms of Section 446 of the Act, in the event of passing of aorder or appointment of liquidator as Provisional Liquidator, no suit or legal proceeding would commence or if pending at the date of theorder, shall not be proceeded with against the company except by leave of the court and subject to such terms as the court may impose.(2) of Section 446 provides for a non obstante clause, in terms whereof the Company Court shall have jurisdiction to entertain or dispose of any suit or proceedings specified therein. Section 451 lays down general provisions as to liquidators.The jurisdiction of civil court is, thus, barred in respect of any matter for which the appellate authority or the Board is empowered. The High Court may not be a civil court but its jurisdiction in a case of this nature is limited.What in this case, however, has been contended is that BIFR had no jurisdiction to make a scheme as envisaged under Section 391 of the Act. Even otherwise, `civil court has a definite connotation. The jurisdiction of the Company Court is now vested in the Tribunal. Therefore, it will be difficult to hold, in view of a changed situation, that Section 26 ousts the jurisdiction of the Company Court in totality. The decision, however, also says that the special statute shall prevail over the general rule. Although it may not be very relevant, we may notice that this Court in Dwarka Prasad Agarwal v. Ramesh Chander Agarwal, [(2003) 6 SCC 220] opined asThe dispute between the parties was eminently a civil dispute and not a dispute under the provisions of the Companies Act. Section 9 of the Code of Civil Procedure confers jurisdiction upon the civil courts to determine all disputes of civil nature unless the same is barred under a statute either expressly or by necessary implication. Bar of jurisdiction of a civil court is not to be readily inferred. A provision seeking to bar jurisdiction of a civil court requires strict interpretation. The court, it is well settled, would normally lean in favour of construction, which would uphold retention of jurisdiction of the civil court. The burden of proof in this behalf shall be on the party who asserts that the civil courts jurisdiction is ousted. (See Sahebgouda v. Ogeppa) Even otherwise, the civil courts jurisdiction is not completely ousted under the Companies Act,are, therefore, of the opinion that the judgment of the High Court cannot be sustained. We may furthermore notice that the decision of the learned single judge has been overruled by a Division Bench of the Bombay High Court in Ashok Organics Industries Ltd. v. Dena Bank (Company Petition No. 108 of 2006, disposed of on 25.1.2008). It is also not possible to harmonize the provisions of Sections 391 to 394 of the 1956 Act with the provisions of SICA. For the views we have taken, it is not necessary to consider the other contentions raised at the bar.27. The question, however, is whatrelief should be granted in view of the subsequent events.Various intervention applications have been filed. We do not intend to make any observation in regard thereto. We are, however, of the opinion that it is a fit case where we should exercise our jurisdiction under Section 142 of the Constitution of India to meet the object for which the Act has been enacted.28. We have been taken through the Scheme. The Scheme provides for not only entering into an arrangement as regards repayment of debts to secured creditors and unsecured creditors but also provides for a merger, subject of course, to an appropriate order being passed by BIFR. The question is as to whether such a Scheme could be placed for approval before BIFR. We are of the view that it could not be. Before BIFR could approve a scheme, the same must be drawn in terms of the provisions of the Act and not de hors the scheme. It is required to apply its own mind. The operating agency is supposed to make a scheme. The operating agency before the AAIFR took one stand; before us it has taken another. According to it, it was not involved in the preparation of the Scheme. It had no occasion to apply its own mind. Furthermore, after the learned Single Judge passed its order, AAIFR disposed of the appeal only in terms of the order of the High Courtview of IDBIs recommendation of the revival cum merger proposal submitted by PPIL, which is in accordance with Bombay High Courts order dated 13.2.2006, we set aside the impugned order dated 27.10.2004 and direct BIFR to consider the scheme vetted by the OA within a period of three months from the date of this order and take necessary further steps for the revival of the appellant company in accordance with law.The order of BIFR dated 1st May, 2007 also clearly show that it has granted its approval in view of the observations made by the appellate authority. It might have done so keeping in view the doctrine of judicial discipline in mind.30. The order of BIFR is not an outcome of anyof mind. There is no finding that it has taken into consideration all the relevant facts. There is nothing to show that such an order is fair or reasonable or meets the requirements of law.31. We are, therefore, of the opinion that not only the judgment of the High Court but also the orders of BIFR as also the AAIFR should be set aside and the matter should be remitted to the BIFR so as to enable it to proceed in accordance with the provisions of SICA afresh.