Sick Industrial Companies Some Aspects


Overriding Effect of SICA : The Law

The Supreme Court in Raheja Universal Limited Vs. NRC Limited has examined the legislative scheme of the Sick Industrial Companies (Special Provisions) Act, 1985 and its overriding effect on the Transfer of Property Act.  

Legislative Scheme of the Act of 1985 : 

10. The framers of law felt that the existing institutional arrangements and procedure for revival and rehabilitation of potentially viable sick industrial companies are both inadequate and time consuming. Multiplicity of law and the regulatory agencies makes the adoption of a coordinated approach for dealing with sick industrial companies difficult. Thus, a need was felt to enact, in public interest, a legislation to provide for timely determination, by a body of experts, of the preventive, ameliorative, remedial and other measures that would be needed to be adopted with respect to such companies and for enforcement of the appropriate measures with utmost practicable despatch. The ill-effects of sickness in industrial companies, such as cessation of production, loss of employment, loss of revenue to the Central and State Governments and blocking up of investible funds of the banks and financial institutions, were of serious concern to the Government as well as the society at large. It had repercussions on the industrial growth of the country. With the passage of time the number of sick industrial units increased rapidly. Therefore, it was imperative to salvage the productive assets and release, to the extent possible, the amounts due to the banks and financial institutions from non- viable sick industrial debtor companies by liquidation of those companies or through formulation of rehabilitation schemes. With these objects, the Bill was introduced with the salient features inter alia of identification of sickness in the industrial companies, on the basis of symptomatic indices of cash losses for the specified periods. Wherever the Government or the Reserve Bank were satisfied that an industrial company has become sick, they were required to make a reference to the BIFR. The BIFR consists of experts, in various relevant fields, with powers to inquire into and determine the incidences of sickness in the industrial companies and devise suitable measures through appropriate schemes to revive them. An appeal lies from the order of BIFR to an appellate authority (the AAIFR) consisting of members selected from amongst Supreme Court or High Court Judges or Secretaries to the Government of India. With this background, objects and reasons, this Bill was passed by the Indian Parliament and it received the assent of the President of India on 8th January, 1986. Thus, it became an Act of the Parliament intended to revolutionize the mechanism of revival or liquidation of sick industrial units and channelization of the complete administrative-cum-quasi judicial process within the framework of the Act of 1985. 

Nature and Scope of the Act of 1985 

11. Having dealt with the legislative history and object of the Act of 1985, we may now examine the very nature of this legislation. The Act of 1985 basically and predominantly is remedial and ameliorative in so far as it empowers the quasi- judicial body, the BIFR, to take appropriate measures for revival and rehabilitation of the potentially viable sick industrial companies and for liquidation of non-viable companies. It is regulatory only to a limited extent. The provisions of the Act of 1985 impose an obligation on the sick industrial companies and potentially sick industrial companies to make references to the BIFR within the time specified under the Act of 1985. Default thereof is punishable under the provisions of the Act of 1985. Largely, the proceedings before the BIFR are specific to rehabilitation or winding up of the sick company and the Act of 1985 hardly contemplates adversarial proceedings. The bodies constituted under the Act of 1985 would least exercise their jurisdiction to a lis between any party or upon the rival interests of the parties. With regard to the matters covered under the Act of 1985, the jurisdiction of the civil courts is ousted and the matters which are even allied to the formulation and sanction of the scheme would have to be decided by the BIFR itself. Even this aspect has been a matter of judicial divergence. In the case of Gram Panchayat & Anr. v. Shree Vallabh Glass Works Ltd. & Ors. [(1990) 2 SCC 440], this Court was concerned with a company which had been declared `sick' within the meaning and scope of clause (o) of Sub-section (1) of Section 3 of the Act of 1985. The Gram Panchayat had initiated coercive proceedings as per Section 129 of the Bombay Village Panchayat Act, 1959 to recover a sum of Rs.9,47,539/- stated to be the property tax and other amounts due from the company. This demand was challenged. The Bombay High Court quashed the demand and the recovery proceedings. This Court, while dealing with the scope of Section 22 read with Sections 16 and 17 of the Act of 1985, took the view that all proceedings for execution, distress or the like against the properties of the company would automatically be suspended and could not continue without the consent of the BIFR. This Court held as under: - 
"10. In the light of the steps taken by the Board under Sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company shall lie or be proceeded further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the company's properties. As soon as the inquiry under Section 16 is ordered by the Board, the various proceedings set out under sub-section (1) of Section 22 would be deemed to have been suspended. 
11. It may be against the principles of equity if the creditors are not allowed to recover their dues from the company, but such creditors may approach the Board for permission to proceed against the company for the recovery of their dues/outstandings/overdues or arrears by whatever name it is called. The Board at its discretion may accord its approval for proceeding against the company. If the approval is not granted, the remedy is not extinguished. It is only postponed. Sub- section (5) of Section 22 provides for exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering the dues." 
12. This Court in the case of Deputy Commercial Tax Officer & Ors. v. Corromandal Pharamaceuticals & Ors.[(1997) 10 SCC 649] had taken a somewhat divergent view to the view taken in Shree Vallabh Glass Works(supra). In this case, this Court, while examining the language of Section 22 of the Act of 1985, came to the conclusion that it was certainly a wide provision. In the totality of the circumstances, the safeguards stated under Section 22 of the Act of 1985 are only against any impediment that is likely to be caused in the implementation of the scheme. If the matter falls outside the purview of the scheme and the dues are not reckoned or included in the sanctioned scheme of rehabilitation, recovery of sales tax dues would not be covered under this provision and as such the bar of Section 22(1) of the Act of 1985 would not operate. This Court held as under: - 
".....The language of Section 22 of the Act is certainly wide. But, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme. If that be so, only the liability or amounts covered by the scheme will be taken in, by Section 22 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal under Section 25 of the Act, it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the" sanctioned scheme. Such amounts like sales tax, etc. which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within Section 22 of the Act. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statutes in a business sense, should be avoided."