Case: Ghanshyam Sarda Vs. Shiv Shankar Trading Company

3. A company named J.K. Jute Mill Company Ltd. (hereinafter referred to as the company) having its registered office at Kanpur, Uttar Pradesh filed Reference No. 149 of 1994 before the Board for Industrial and Financial Reconstruction (BIFR for short) under the provisions of the Act. Though the scheme was initially sanctioned for reconstruction, the BIFR subsequently held the scheme to have failed and directed the company to be wound up. These orders were stayed by the Appellate Authority for Industrial and Financial Reconstruction (AAIFR for short) and further proceedings before the BIFR continued. While the matter was thus pending, Sarda Group took over the Company through Rainey Park Suppliers Private Ltd. (RPSPL) in 2007. BIFR by its order dated 17.12.2008 approved such take over of the management. The management of the company was handed over to Shri Govind Sarda. It appears that in 2009, Shri Govind Sarda assigned the debt held by RPSPL in favour of an entity named Libra Retailer Pvt. Ltd. (LRPL) and he is stated to have handed over Jute Mill of the company to a third party. As he failed to revive the company, show cause notice for winding up was issued by the BIFR. This action was challenged by the Company by filing Appeal No. 186 of 2009 before the AAIFR which appeal is still pending4. At this stage, Shri Ghanshyam Sarda, (hereinafter referred to as the present appellant) filed an application for impleading himself in the proceedings which application was accepted by AAIFR. Upon this order being challenged, the High Court of Delhi in W.P. No.2839 of 2010 held the present appellant to be entitled to present his point of view in the form of proposal/scheme, which order was confirmed by this Court by dismissing Special Leave Petition filed at the instance of the Company. In terms of the aforesaid orders the BIFR impleaded the present appellant who thereafter submitted a proposal for revival of the company and also filed MA No.162 of 2012 in the BIFR for restoration of shareholding pattern. On 18.02.2013 the BIFR issued directions to the operating agency to consider the scheme of the present management and the scheme submitted by the present Appellant and thereafter submit a fully tied up Draft Revival Scheme (DRS for short). The BIFR fixed the next date for hearing of MA 162 of 2012 on 04.04.2013. In the proceedings dated 27.02.2013, it was decided that the DRS be circulated seeking objections and suggestions from all the concerned5. On 03.04.2013, two applications were filed before the BIFR by M/S Shyam Jute Supplier, Chindwara M.P. and M/S Shiv Shankar Tranding Co. & Ors, Gauhati Assam (hereinafter referred to as SSTC) signed by the same person through same Counsel stating that they were unsecured creditors and sought permission from the BIFR to institute Civil Suit for recovery of money stated to be recoverable from the company. On 04.04.2013 the BIFR held a hearing to consider the change in the share holding pattern of the company without due permission from BIFR. At that stage Counsel appearing for the Company submitted that Application No. 162 of 2012 could not be considered as the BIFR no longer retained jurisdiction over the Company. It was submitted that in the Audited Balance-Sheet for the period of nine months i.e. 01.04.2012 to 31.12.2012 the net worth of the Company having turned positive, the Company ought to be discharged from the BIFR. Learned counsel appearing for Shyam Jute Supplier and SSTC supported such submissions6. Paragraphs (4.1, 4.3, 4.4, 4.8, 4.12 and 4.13) of the proceedings dated 04.04.2013 are quoted here under which are self eloquent4.1. Todays hearing (04.04.2013) was fixed for consideration of MA No.162/BC/2012 filed by Shri Ghanshyam Sarda praying as under:Declare that the change in shareholding pattern to the extent the same reduces the shareholding of RPSPL from 86.23% to 5.34% without approval of BIFR as null and void;Restore the management and the shareholding pattern of JKJMCL as approved by the learned BIFR vide its order dated 18.09.2008Initiate action under section 33 read with section 34 against the management for changing the shareholding pattern of the sick company without seeking permission from BIFR; andAppoint a special director (BIFR Nominee) in the Board of the Company to look into and monitor its affairs;Pass such other further order(s) as this Honble BIFR may deem fit and proper in the facts and circumstances of the case;4.3. Shri Sudhansu Batra, Sr. Advocate appearing on behalf of the Sick Company intervened and stated the MA NO. 162/BC/2012 cannot be considered today since BIFR no longer retains jurisdiction over the company. Shri Batra, Sr. Advocate stated that the Balance sheet as on 31.12.2012 has been audited which shows that the networth of the company has turned positive and the company has to be discharged from BIFR. Upon a query from the Bench, Shri Sudhansu Batra, Sr. Advocate stated that the company has already filed a letter dated 25.03.2013 with the BIFR informing that the networth of the company as on 31.12.2012 has turned positive. Upon a query from the Bench, Shri Sudhansu Batra, Sr. Advocate stated that the financial period of the company is normally for 12 months but this year the accounts have been closed by auditing the balance sheet for 9 months period from 01.04.2012 to 31.12.2012. The Ld. Senior Advocate prayed that in view of the networth turning positive the company should be discharged from the BIFR. The Ld. Senior advocate argued that there are no provision under SICA for deregistration of a reference when the net worth becomes positive and the Sick Company is not required to make a formal application to the BIFR for discharge when the companys net worth becomes positive. The Ld. Advocate further stated that the sickness of the company is to be decided ex facie on the basis of the audited Balance Sheet and as the Audited Balance Sheet as at 31.12.2012 is showing positive Networth, BIFR ceases to have any jurisdiction. The Ld. Senior Advocate to support of this submissions referred to and relied upon the judgment passed by Honble Delhi High Court in the case of: Cahtolic Syrian Bank V/s BIFR & Ors. On a query from the bench that assuming the networth has turned positive whether BIFR would automatically lose its jurisdiction or BIFR still has the powers to examine the audited balance sheet and formally pass an order of discharge, Shri Sudhansu Batra Sr. Advocate agreed and in fairness conceded that before discharging the company, the BIFR can examine the audited balance sheet as on 31.12.2012 by all means and methods and satisfy itself. Shri Sudhansu Batra, Sr. Advocate stated that his clients is not required to file an application seeking discharge and BIFR on its own may examine the audited Balance Sheet and discharge the company from BIFR4.4. Shri Ashish Mohan, Advocate appearing for an unsecured creditor stated that his clients have filed application seeking impleadment as well as permission under section 22(1) of SICA to file recovery proceedings against the management of the company; but in view of the networth of the company turning positive the company may be discharged from BIFR so that his clients may file recovery suit against the company. The learned Advocate stated that since the networth of the Sick Company has turned positive, he would not be pressing any of his application (s) and would take legal recourse against the company in court of law4.8 The representatives of IDBI (OA) stated that they are not in a position to comment upon the Audited Balance Sheet as on 31.12. 2012 without examining the same. The OA further stated that the ASC is going ahead as per its schedule and the next meeting of the ASC is on 16.04.2013. The Bench observed that the ASC may go ahead with its schedule and that ASC should do nothing more at present except opening and evaluating the bids and submit its report on such evaluation to the BIFR and that BIFR shall take a final view upon the bids and the sale of assets at the time of approval of DRS. The bench further observed that DRS has already been circulated on 26.02.2013 and the objections & suggestions shall be considered on 20.05.2013. Till such time either the Bench considers the DRS or discharge the company from SICA; the Bench shall safeguard the assets of the company and retain its jurisdiction over the company/its assets4.12. The Bench stated that they would consider the arguments of the parties including the arguments of Mr. Aggarwal on the next date of hearing. The Bench also observed that as per the Companys ABS as on 31.03.2012, (12 months) the networth of the company is Rs. 5.71 crores and the accumulated losses are Rs. 36.23 crores and it would like to satisfy itself about the Balance Sheet as at 31.12.2012 to which Mr. Batra agreed that the BIFR could undertake such an exercise. Since the issue of lack of jurisdiction has been raised; the Bench would decide the said issue alongwith MA No. 162/BC/20124.13. Having considered the submissions made in the hearing, materials on record, the Bench issued the following directions:(i) The company to submit certified copy of its ABS as on 31.12.2012 along with all relevant papers & documents in support of its networth within one week from today with copy to the IDBI (OA) and all concerned parties alongwith documentary evidence;(ii) The ASC would go-ahead as per its schedule and confirmation of sell, if any will take place upon approval of DRS on 20.05.2013, with the consent of Bench(iii) The Bench fixed the next date of hearing on 26.04.2013 at 11.30 AM for considering the submission of the Company that its networth has turned positive as on 31.12.2012 and also hear the MA No. 162/BC/2012 on the said date7. At this stage some of the other proceedings need a mention. J.K. Jute Mazdoor Sabha filed Writ Petition No. 22897 of 2013 before the Allahabad High Court on 25.04.2013 challenging the BIFRs order dated 04.04.2013. Said Writ Petition having been dismissed by a Single Judge, in an appeal therefrom the Division Bench in its order dated 01.05.2013 observed that the BIFR would be in a better position to assess the net worth position of the company. In the meantime, Shyam Jute Suppliers approached the High Court of Madhya Pradesh by filing Writ Petition No.7534 of 2013 questioning the order dated 04.04.2013 of the BIFR. The petition was dismissed by a Single Judge on the ground of lack of territorial jurisdiction which order was approved in appeal by the Division Bench of the High Court8. On 22.04.2013, SSTC filed Title Suit No. 166 of 2013 in Civil Court at Kamroop, Gauhati against the Company adding BIFR as proforma defendantIt was inter alia averred…. Now it appears from the balance sheet of the defendant company filed before the proforma defendant that its net worth had become positive. In view of the said admission on the part of the defendant No. 2 it is no longer a sick establishment under the Sick Industrial Companies (Special Provisions) Act, 1985 and consequently the proforma defendant No. 2 has ceased to have jurisdiction over the defendant No. 1 and as such the defendant No. 1 is no longer entitled to any benefit under the Sick Industrial Companies (Special Provisions) Act, 1985. Thus the defendant No. 1 under the aforesaid facts and circumstances has become liable to be sued in a Civil Court of competent jurisdiction with effect from the date the 2012 balance sheet as submitted by it before the proforma defendant No. 2 and the proforma defendant ceased to have any jurisdiction whatsoeverThe plaintiff prayed for declaration, inter alia, 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 all the proceedings in BIFR after filing of positive balance-sheet be declared without jurisdiction. The Civil Court by its order dated 23.04.2014 while issuing notices to the defendants directed that status-quo be maintained in respect of the BIFR case till the next date of hearing9. The company filed its written objections on 13.05.2013. Though the claim of the plaintiff and its entitlement to recover the sum stated to be due was denied, the company accepted that it was no longer a sick companyThe relevant averments were to the following effect……. That the answering opposite party humbly states that the statements made in paragraph number 1 of Misc. (J) Case No. 254/13 are to the extent that the opposite party is no longer a sick establishment is not denied;. That the answering opposite party admits the statement made in paragraph number 10 and admit that on and from the financial year 2012-2013 it is no longer a sick company. The balance sheet is also admitted. The rest of the statements regard jurisdiction is a matter of fact and law and the opposite party has no comment to offer10. The matter came up before the Civil Court on 13.05.2013. It noted the aforementioned stand and in view of such admitted position held that the BIFR ceased to have any jurisdiction over the defendant company. It was observed:-…. But a question that is still required to be answered at this juncture is as to whether this Court has the jurisdiction to grant the relief of temporary injunction as sought for in the instant case. Section 26 of the SICA, which provides inter alia that no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act, shall not be applicable to the opposite party no. 1 company any more as it is no more a sick industrial company admittedly and the provisions of the SICA are not applicable to it anymore, and, therefore, the civil court will definitely have jurisdiction over it. Hence, this Court has jurisdiction to grant the relief as sought for in the instant case…In the premises, the Civil Court restrained the defendants including the BIFR from proceeding with BIFR case no. 149 of 1994. Neither the Plaintiff nor the Company at any stage placed on record before the Civil Court the proceedings dated 04.04.2013 of the BIFR nor was the Civil Court appraised of the fact that the Plaintiff had sought leave under Section 22 (1) of the Act from the BIFR to file the Civil Suit11. In the meantime while dealing with appeals preferred against the orders of the BIFR including one dated 27.02.2013, the AAIFR was appraised that the issue of Net worth was under consideration of the BIFR, so vide its order dt.16.05.2013 it preferred to await such decision. In the subsequent proceedings of the same day i.e. 16.05.2013 the aforesaid order of the Civil Court was placed before the BIFR which observed that it had not given any permission under Section 22 (1) of the Act to SSTC to file any recovery suit against the company and the matter was adjourned in the presence of the counsel concerned for considering the submission of the parties on the issue of net worth as on 31.12.2012. It was further observed that in the absence of permission under Section 22 (1) the suit filed by SSTC was not competent and that, the company had not yet been de-registered from BIFR and a filing of Civil Suit without taking permission was violative of the Act. Taking note of the order of the AAIFR dated 16.05.2013 and the order passed by the High Court of Allahabad dated 01.05.2013, it was observed that it had to decide the issue whether the net worth of the company had turned positive or not. The BIFR thus directed the parties to file their written submission on the aspect of the net worth of the company as on 31.12.201212. On 30.05.2013, the present appellant filed an application for impleadment as defendant in the aforesaid Suit. Adverting to the orders passed by the BIFR and AAIFR impleading him in the proceedings before the BIFR and the subsequent orders passed by the Division Bench of the High Court of Delhi and this Court on his impleadment and the fact that he had submitted a proposal for revival, the present appellant prayed that he be impleaded in said suit as a defendant. The present appellant thereafter filed FAO No.10 of 2013 before Gauhati High Court challenging the Civil Courts order dated 13.05.2013. A learned Single Judge after preliminary hearing by his order dated 14.06.2013 admitted the appeal for hearing and also passed interim order to the effect that no third party rights in respect of the property of the respondents/defendants be created during the pendency of the appeal13. In the meantime, the matter appeared before the BIFR on 01.07.2013. It prima facie was of the view that the Audited Balance-Sheet as on 31.12.2012 of the company did not reflect true and fair view and that the matter required examination as to how the net worth of the company, all of a sudden, turned positive. It was observed that SSTC was not granted any permission by the BIFR under Section 22 (1) of the Act and the suit of SSTC was not competent, that SSTC had suppressed the fact from the Civil Court and that the order passed by the Civil Court being without jurisdiction was a nullity in the eyes of law and not binding upon the BIFR. It was further observed that the BIFR had to satisfy itself whether the net worth had turned positive due to some positive development and not merely by manipulation of the accounts. In the premises it directed the State Bank of India to appoint independent auditor for Special Investigative Audit and to file its report about net worth position of the company as on 31.12.201214. SSTC who was the original plaintiff in the aforesaid Suit filed Writ Petition No. 4303 of 2013 in Gauhati High Court challenging the orders dated 16.05.2013 and 01.07.2013 of the BIFR. Said Writ Petition came up before the Single Judge who by his order dated 01.08.2013 impleaded the present appellant as Respondent No. 3 in the Writ Petition and further directed that till the next date of hearing further proceedings in BIFR case No. 149 of 2014 shall remain stayed. Subsequently, the matter appeared before the Single Judge again who, on 14.08.2013 directed that the matter be placed before Honble the Chief Justice for directions whether the Writ Petition could be heard along with FAO No.10 of 201315. On 04.09.2013, State Bank of India as directed by the BIFR submitted the Report of the Special Investigative Audit pointing out the manipulation in the balance-sheet submitted by the company and that the net worth of the company as on 31.12.2012 was in fact on the negative side by Rs.36 crores in nine months. In the proceedings before the BIFR dated 05.09.2013, the aforesaid Report was taken on record and comments from the parties were invited16. Immediately the company filed Writ Petition No.4286 of 2013 before Gauhati High Court questioning the order dated 05.09.2013 of the BIFR. The matter came up before a Single Judge on 30.09.2013 who issued rule in the Writ Petition and by way of interim order directed that further proceedings in BIFR case No.194 of 1994 shall remain stayed. This order was vacated by Division Bench of the High Court in Writ Appeals vide its order dated 14.11.2013. These three matters namely FAO No.10 of 2013 and Writ Petition Nos.4303 and 6286 of 2013 were thereafter clubbed and posted before the Single Judge on 21.11.2013, who adjourned the matters to 04.12.2013 and observed that since the Court was in seisin of the matter it was expected that the BIFR may not proceed further with the case till conclusion of the hearing before the learned Single Judge. In deference to the aforesaid order dated 21.11.2013, the BIFR adjourned the case17. These three matters then came up before the High Court which observed that FAO No.10 of 2013 was filed by the present appellant who was not yet a party before the Civil Court and that said FAO which was filed without seeking appropriate leave of the Appellate Court was not maintainable and as such it was not necessary to enter upon deliberations on merits of the matter. The High Court was of the view that since the application for impleadment was still pending before the Civil Court, as and when the present appellant was impleaded as defendant in the suit, it would then be open to him to file such application for variation or setting aside of the order of injunction. It was held that in the absence of any challenge, the order of injunction was still in operation and that until and unless such order was vacated and recalled by appropriate judicial forum, the same had to be respected and given effect to. The High Court also disposed of Writ Petitions on the ground that since all the proceedings before BIFR stood stayed, further proceeding in BIFR would be of no legal consequence. It was further observed that one of the members of BIFR having recused himself from hearing the case on the earlier occasions as noted in the order dated 31.01.2013, of the BIFR, said member ought not to have participated in any further proceedings18. This common order passed by the High Court has given rise to six Special Leave Petitions, three by present appellant namely SLP No. 5249, 5897 and 6412 challenging the order of the High Court in respect of FAO No.10 of 2013, Writ Petition No.4303 of 2013 and Writ Petition No.6286 of 2013 respectively. The other three petitions are by J.K. Jute Mill Mazdur Ekta Unions being Special Leave Petition Nos. 8610, 8611 and 8612 of 2014 against the aforesaid order in respect of three proceedings as stated above respectively. This Court issued notice in the matter on 24.03.2014 on which date the company had appeared on caveat. By order dated 08.05.2014, it was directed that till further orders the capital assets of the Company shall not be disposed of without taking permission of this court. Soon thereafter Civil Contempt Petition Nos.338 and 375 of 2014 were filed by the present appellant and J.K. Jute Mills Mazdoor Union contending inter alia that in violation of order dated 08.05.2014, the contemnors in the petition had caused certain properties of the Company to be transferred. During the pendency of these matters SSTC assigned in favour of M/s Goodlife Merchants Pvt. Ltd. all the rights in respect of the debt of the Company19. All the aforesaid matters were taken up for hearing together by this Court.

Reasoning:
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.