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

2. The Company, Ashok Organic Industries Limited made a reference to the Board of Industrial Finance and Reconstruction (BIFR) under the provisions of the Sick Industrial Companies (Special Provision) Act, 1985, hereinafter referred to as "SICA". They were informed by letter dated 15th May, 2002 that the case was registered under No.195/02.During the pendency of these proceedings before BIFR, the Company resolved on 9th December, 2005 that subject to the sanction of the appropriate Court as may be required under law and subject to such permission of such Authority as may be necessary, a scheme of arrangement between Ashok Organic Industries Ltd. and its shareholders and creditors and Mr. Pankaj Kadakia, Ashok Kadakia and Anil Kadakia in their dual capacity as promoters and guarantors be made on the broad basis as referred to in the scheme of arrangement. A petition under Section 391 and 394 of the Companies Act, 1956, hereinafter referred to as Companies Act was filed praying that the arrangement embodied in the Scheme be sanctioned with or without modification and to declare the same as binding on petitioner and its secured and unsecured creditors. The petition was presented on 9th January, 2006. On 20th October, 2005 in Company Application No.690 of 2005, directions were issued to convene a meeting of the equity shareholders, secured and unsecured creditors of the petitioner company for the purpose of considering the scheme. Pursuant to the meeting held on 12th December, 2005 the Chairman of the Committee submitted a report. The report indicated that the scheme was approved by the requisite majority in numbers of equity shareholders of the petitioner company representing more than 3/4th in value of equity shareholders present at the said meeting and voting. Similarly in so far as the secured creditors were concerned 80.05% of the total secured debtors voted in favour of the scheme of arrangement and one secured creditor voted against the scheme, who represented 19.95% of the secured debtors. The scheme, therefore, was approved by the requisite majority in number of secured creditors of the petitioner company having more than 3/4th of value of the secured debtors. Similarly, in so far as unsecured creditors are concerned 99.91% of the unsecured creditors voted in favour of the scheme of arrangement. The Regional Director filed an affidavit setting out that the Scheme is not prejudicial to the interest of the shareholders and unsecured and secured/ creditors.Dena bank a secured creditor filed an affidavit on 24th March, 2006 opposing the scheme and at the same time raised a preliminary objection to the maintainability of the petition contending that as the company had invoked the jurisdiction of B.I.F.R. and B.I.F.R. had ordered a special investigative audit and the proceedings were pending the petition filed under Sections 391 and 394 of the Companies Act, 1956 is not maintainable.

Reasoning:
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.