Case: M/S. Madura Coats Ltd Vs. M/S. Modi Rubber Ltd.

2. Company Petition No.1 of 2002 was filed by Madura Coats in the Allahabad High Court for winding up Modi Rubber on the allegation that Modi Rubber was unable to pay its huge undisputed debts. Notice was issued in the Company Petition to Modi Rubber who entered appearance but took several adjournments in the matter on one pretext or the other including furnishing the schedule for repayment of the admitted dues to the creditors, an arrangement being worked out with Apollo Tyres Ltd. and various other reasons.3. Eventually, after two years of adjournments, the Company Court declined to grant any further adjournment to Modi Rubber. Accordingly, on a consideration of the material on record and after hearing learned counsel for the parties, the Company Court passed an order on 12th March, 2004 holding that Modi Rubber was unable to pay its undisputed debts and that it was just and equitable that the company be wound up. An Official Liquidator was appointed to take charge of the assets of the company and to submit a report along with the inventory.4. Feeling aggrieved by the winding up order, Modi Rubber preferred an appeal before the Division Bench of the High Court which was allowed by the impugned judgment and order.5. Before the Division Bench it was brought out for the first time that on 6th December, 2003 the Board of Directors of Modi Rubber had passed a resolution to file a reference before the Board of Industrial and Financial Reconstruction (for short ‘thePursuant to the aforesaid resolution, an application was made by Modi Rubber to the BIFR on 3rd February, 2004 which was received by the BIFR on 4th February, 2004. Thereafter, the application was scrutinized and on 17th March, 2004 the reference made by Modi Rubber was registered as Case No. 153 of 2004. It will be seen that while the application for making a reference was sent to the BIFR before the winding up order was passed by the Company Court, the reference was actually registered after the winding up order was passed by the Company Court.7. On these broad facts, it was contended by Modi Rubber before the Division Bench that in view of the decision of this Court in Real Value Appliances Ltd. v. Canara Bank (1998) 5 SCC 554 )on filing an application before the BIFR, all proceedings in respect of the company ought to have been stayed in terms of Section 22 of the SICA. Consequently, even the Division Bench of the High Court could not have decided the appeal filed by Modi Rubber. This contention was rejected by the High Court and it was held that the crucial date for a stay of proceedings under Section 22 of the SICA is the date on which the reference is registered with the BIFR and not the date on which an application for reference is filed.8. However, the High Court took into consideration the subsequent events namely the fact of registration of the reference and relying upon Rishabh Agro Industries Ltd. v. P.N.B. Capital Service Ltd. (2000) 5 SCC 515 )it was held that Modi Rubber was now entitled to the benefit of the provisions of Section 22 of the SICA. It was also held that a winding up order passed under the Companies Act, 1956 (for short ‘the Companiesis not the culmination of the proceedings pending before the Company Court. The final order to be passed in the winding up proceedings is an order of dissolution of the company under Section 481 of the Act.9. Under the circumstances, the High Court set aside the winding up order passed by the Company Court and further directed that the proceedings before him shall remain in abeyance till the disposal of proceedings before the authorities under the SICA.10. Leave to appeal against the judgment and order of the High Court was granted on 24th February, 2006 and the following ordergranted.Whether the Board of Industrial and Financial Reconstruction should entertain a reference made by a sick company in terms of Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985,after the company had already been directed to be wound up by a Company Judge in a matter which was pending before the Court for 2 years,Section 22 of the Act is in question in this appeal, which arises out of the judgment and order dated 20.05.2004 passed by the Division Bench of the High Court of Judicature at Allahabad in Special Appeal No. 420/2004. Our attention has been drawn to a Division Bench decision of this Court in Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., (2000) 5 SCC 515 , wherein this Court opined that the reference in terms of Section 15 of SICA can be made even after passing of the winding up order. The correctness of the ratio of the said decision has been questioned before us. We are inclined to think that there is merit in the challenge to the correctness of the view taken therein. We are also of the opinion that the proposition of law stated in the said decision of this Court may require reconsideration having regard to Section 20 of the Act and the object and scope of SICAthe provisions of the Companies Act. We are, therefore, of the opinion that the matter be referred to a larger Bench. Let the records of the case be placed beforethe Chief Justice of India for constitution of a larger Bench.Hearing of the appeal is expedited. Liberty tois under these circumstances that this appeal has been placed before us for consideration.11. During the hearing of this appeal, further facts were placed before us. It was pointed out that the reference made by Modi Rubber to the BIFR was challenged by Madura Coats by filing Civil Misc. Writ Petition No. 17870 of 2004 in the Allahabad High Court. A view was taken by the High Court in its order dated 10th May, 2004 that the writ petition was premature and the maintainability of the reference could be raised by Madura Coats before the BIFR. Under the circumstances, the High Court did not consider it proper to entertain the writ petition which was accordingly dismissed.12. Following upon the order passed by the High Court, Madura Coats moved an application before the BIFR on or about 12th January, 2006 in which it was prayed that Madura Coats be impleaded as a party in the proceedings and that its dues with interest thereon be included as a pressing creditor in the rehabilitation scheme. It is not clear whether any formal order was passed impleading Madura Coats in the proceedings before the BIFR, but in any event, it does appear from the record that Madura Coats participated in the proceedings before the BIFR.

Reasoning: 26. In view of the above, this Court was of opinion that the interim order passed by the High Court after the reference was registered by the BIFR could not be sustained and deserved to be set aside.27. From the above it is quite clear that different situations can arise in the process of winding up a company under the Companies Act but whatever be the situation, whenever a reference is made to the BIFR under Sections 15 and 16 of the SICA, the provisions of the SICA would come into play and they would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under the SICA.28. In this state of the law, in so far as the present appeal is concerned, we do not find any error in the view taken by the High Court in concluding that the winding up proceedings before the Company Court cannot continue after a reference has been registered by the BIFR and an enquiry initiated under Section 16 of the SICA. The present appeal is squarely covered by the primacy given to the provisions of the SICA over the Companies Act as delineated in Real Value, Rishabh Agro and Tata Motors. Consequently, the High Court was right in concluding that the provisions of Section 22 of the SICA would come into play and that the Company Court could not proceed further in the matter pending a final decision in the reference under the SICA.29. Quite apart from the above, we are also of opinion that in view of the subsequent developments and the fact that Madura Coats had participated before the BIFR and has taken its dues in terms of the rehabilitation scheme approved and sanctioned by the BIFR, nothing really survives for consideration in this appeal. Strictly speaking, we have merely undertaken an academic exercise pursuant to a reference made to a larger Bench.30. As far as the reference is concerned we are of the view that Real Value and Rishabh Agro do not require any reconsideration. Tata Motors was decided by a Bench of three Judges and we see no reason to differ from the view taken therein that the provisions of SICA prevail over the provisions of the Companies Act.