Ghanshyam Sarda vs M/S Shiv Shankar Trading Co. & Ors

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 pending.

4. 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 concerned.

4.8 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 assets.

4.12. 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 Company’s 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/2012.

8. 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 defendant. It 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 whatsoever.” The 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 hearing.

9. 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 company. The relevant averments were to the following effect.

14. 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 Hon’ble the Chief Justice for directions whether the Writ Petition could be heard along with FAO No.10 of 2013.

18. 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 Company.

Said decisions must now be read in the light of the above discussion and view that we have taken.

31. 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 stage.

32. 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 company.

33. 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.

34. The appeals are allowed in the aforesaid terms. FAO No.10 of 2013 thus stands allowed and Writ Petition Nos.4303 of 2013 and 6286 of 2013 are dismissed. As regards Contempt Petition Nos.338 and 375 of 2014, since this Court had not issued any notice to the alleged contemnors, we have not dealt with said petitions. By a separate order we issue appropriate notice to the alleged contemnors.

[5] 5. Dated 21.10.2009 in Catholic Syrian Bank Vs. BIFR & Ors. in W.P. (C) No.8361 of 2008.