Form No.J.(2) IN THE HIGH COURT AT CALCUTTA Civil Appellate Jurisdiction Original Side Present : The Hon’ble Mr. Justice Ashim Kumar Banerjee And The Hon’ble Justice Samapti Chatterjee A.P.O. No.450 of 2014 C.P. No.241 of 2009 In Re: Kamlapur Sugar and Industries Ltd Dena Bank Vs. The Official Liquidator, H.C. For the Appellant For the Respondent For PICUP : Mr. Deepnath Roy Chowdhury, Advocate Ms. Shayantee Dutta, Advocate : Mr. Abhrajit Mitra, Senior Advocate Mr. Sarbapriya Mukherjee, Advocate Mr. Soumabha Ghosh, Advocate : Mr. Indranil Nandi, Advocate For GPSK Comm.(P) Ltd: Mr. R.L. Mitra, Advocate Ms. Priyanka Dhar, Advocate For Stressed Assets Stabilisation Fund IDB and IFCI Ltd. : Mr. Amiya Kumar Sur, Advocate For Official Liquidator : Ms. Ruma Sikder, Advocate Heard on : January 9 and 14, 2015 Judgment on : January 29, 2015 ASHIM KUMAR BANERJEE, J.
FACTS: Kamlapur Sugar and Industries Limited (hereinafter referred to as “Kamlapur”.) obtained financial assistance from various finance institutions including Dena Bank, the appellant above named. The company became sick and was unable to discharge its obligation towards secured and unsecured creditors. Dena Bank issued a statutory notice of demand under Section 434 of the Companies Act on September 18, 2003 asking them to pay off the outstanding. The Kamalapur did not adhere to the request. Dena Bank initiated a proceeding before the debt recovery Tribunal Lucknow and obtained certificate dated February 14, 2008 permitting Dena Bank to recover Rs.17 crores approximately. Kamalapur preferred an appeal before the appellate authority. The appellate authority affirmed the decisions vide judgment and order dated December 15, 2008. In this backdrop, Dena Bank filed an application for winding up in 2009 before this Court inter-alia claiming, the Company was in involved circumstances and was unable to pay its debts hence, it should be wound up. The company opposed the application. They contended, being a secured creditor, Bank was not entitled to pray for winding up. Their remedy would lie in execution of the decree. His Lordship negated the contention and ultimately passed the order of winding up vide order dated July 30, 2010 appearing at pages-34-45 of the paper book. Kamlapur filed an appeal. The Division Bench upheld the judgment and order of the learned Single Judge vide judgment and order dated July 23, 2012 appearing at pages 50-71. Pertinent to note, the Division Bench heard the matter for five days on and from June 25, 2012. The Division Bench dismissed the appeal on July 23, 2012. Kamlapur never informed the Court, they were trying to initiate proceedings before Board for Industrial and Financial Reconstruction (herein after referred to as “BIFR”.) established under the Sick Industrial Companies Act, 1985 (hereinafter referred to as SICA). The Official Liquidator took charge of the assets and proceeded to sell the same by public auction. The learned Company Judge conducted the sale on September 20, 2013 and October 8, 2013. When the sale was being concluded, the erstwhile management of the company suddenly informed the learned Company Judge, they had already approached the BIFR. Pertinent to note, even after the order of winding up, Kamlapur tried to stall the winding up process, firstly on January 27, 2012 when an application for sanction of a scheme was dismissed by the learned Company Judge making serious comments about their conduct. The second attempt also failed on February 10, 2012 when the learned Single Judge again rejected the proposal for revival vide order dated February 10, 2012 appearing at pages 80-82. The third attempt failed on October 19, 2012 when the learned Judge while passing an order appearing at pages 75-76, rejected the prayer for adjournment on the plea of settling with the creditors. Similarly, attempt was made on September 21, 2012. Since all the avenues were closed and desperate attempt to forestall the sale was not successful the company approached the BIFR in June 2013. The BIFR initially declined to entertain the reference. Subsequently, by an order dated October 7, 2013 appearing at pages-10-11 BIFR registered the reference under Section 15(1) of SICA. On October 7, 2013 one Manoj Saha claiming to be the authorized representative of the erstwhile management filed an application for stay of the winding up and all connected matters as also for consequential order of restraint on the Official Liquidator from selling the assets. The learned Single Judge, vide judgment and order dated January 28, 2014, allowed the said application. His Lordship vide judgment and order of the said date appearing at pages 106-115, granted stay of the winding up proceeding subject to the order of the BIFR or the appellate authority. Being aggrieved, Dena Bank filed the instant appeal that we heard on the above mentioned dates. CONTENTIONS: Mr. Deepnath Roy Chowdhury learned Counsel appearing for the appellant placed the orders passed from time to time referred to above, and contended, the erstwhile management committed fraud on Court by making deliberate suppression, about the proceedings of the BIFR, before this Court. He would contend, once the High Court passed the order of winding up there was no scope for the BIFR to entertain the reference. Drawing our attention to the various provisions of SICA Mr. Roy Chowdhury would contend, the said Act was a Code by itself and on a combined reading of the various provisions it would never suggest, this could be applied at the post winding up stage. He would rely upon an age old decision of this Court in the case of Smith Stanistreet Pharmaceuticals Limited Vs. Nester Pharmaceuticals Limited reported in 1993 Volume-I Calcutta High Court Notes Page-368. He would pray for setting aside of the judgment and order of the learned Company Judge impugned herein. Appearing for the Official Liquidator, Ms. Ruma Sikder learned Counsel would inform the Court, Official Liquidator for the first time came to know of BIFR proceeding on September 20, 2013 when the management informed the Court about such proceeding. Ms. Sikder would also inform, till December 2014 Official Liquidator could spend Rs.40 lacs to protect the assets of the company and taking various other steps for beneficial winding up. She would also complain, the applicant never handed over any document to the Official Liquidator pertaining to the BIFR proceeding. Mr. Ranjan Lal Mitra learned Counsel appearing for the supporting creditor adopted the contention of Mr. Roy Chowdhury. Mr. Indranil Nandi learned Counsel also appearing for another creditor also adopted the submission of Mr. Roy Chowdhury. So was Mr. Amiya Kumar Sur for other financial institutions. He would rely upon the decision in the case of Inderjeet Arya and another Vs. ICICI Bank Limited reported in 2014 Volume-II Supreme Court Cases Page-229. Mr. Sarbapriya Mukherjee learned counsel appearing for Manoj Saha would contend, there was no suppression made at any point of time. He would file a copy of the complete set of the application made before the BIFR that would include information regarding the Court proceeding relating to winding up. to negate the contention raised by Mr. Roy Chowdhury on the applicability of the said Act at the post winding up stage, he would rely upon two Apex Court decisions:
1. Rishabh Agro Industries Limited Vs. P.N.B. Capital Services Limited reported in 2000 Volume-V Supreme Court Cases Page515.
2. Ksl and Industries Limited Vs. Arihant Threads Limited and others reported in 2008 Volume-IX Supreme Court Cases Page763. He would lastly contend, in case bank was aggrieved by the proceeding before the BIFR they would be at liberty to approach the appellate authority under the said Act. He would draw our attention to the order of the learned Company Judge that gave liberty to the creditors to approach the appropriate authority in this regard. On suppression, he would contend, it was not within his personal knowledge as a counsel as such he could not bring it to the notice of the Court. If the law would permit them to approach the appropriate authority that could not be construed as bypassing the Court proceeding or stalling the winding up process. Although the applicant prayed for stay of winding up, Mr. Mukherjee did not press for such relief. He would contend, the management was interested in stalling the sale for the time being so that BIFR could find out ways and means for revival. Till then, there should not be any further step at the instance of the Official Liquidator in proceeding towards the liquidation. Mr. Abhrajit Mira learned senior Counsel also appearing for Manoj Saha would rely upon the following decisions:
1. M/s. Foremost Industries (India) Limited Vs. The A.A.I.F.R. & Others reported in 2000 Volume-IV Company Law Journal Page362.
2. Khurshid Alam Vs. P. Pagnon Company Private Limited and others reported in 2002 Company Law Board Page-523.
3. Tan India Limited Vs. Sundaram Finance Limited and another reported in 2002 Volume-108 Company Cases Page-591.
4. Modi Rubber Limited Vs. Madura Coats Limited and Another reported in 2006 Volume-130 Company Cases Page-32.
5. Tata Motors Limited Vs. Pharmaceutical Products of India Limited and another reported in 2008 Volume-VII Supreme Court Cases Page-619. He would also rely upon an unreported decision of the Delhi High Court in the case of Zenith Infotech Limited Vs. Union of India. He would contend, the decisions cited at the bar would clearly show, the subject Act would apply also at the post winding up stage and such application was considered to be in accordance with the law as held by the Apex Court in the case of Rishabh Agro (supra). While giving reply, Mr. Roychowdhury reiterated what he had argued while opening the appeal. In addition, Mr. Roychowdhury would contend, the decisions cited at the bar on behalf of the Company would not in any way be applicable in the facts and circumstances of the case. JUDGMENT
AND ORDER
IMPUGNED: The arguments made before us, were also advanced before the learned Single Judge as we find, on perusal of the judgment and order impugned. The learned Judge held, when the reference under Section 15 was pending Section 22 would operate as a bar in proceeding for winding up. His Lordship interpreted Section 22 and came to conclusion, when a reference was pending as a “natural corollary to registration”. the winding up process was not maintainable. His Lordship also considered Section 26 that would bar Civil Court from exercising jurisdiction in respect of orders passed by the BIFR where an appeal would lie before the appellate authority. His Lordship ultimately held, since the BIFR registered the reference by speaking order it would be binding on all and the Company Court would have to take a back seat in the process of winding up. CASES CITED AT THE BAR:
1. Smith Stanistreet Pharmaceuticals Limited Vs. Nester Pharmaceuticals Limited reported in 1993 Volume-I Calcutta High Court Notes Page-368: This decision was rendered by a Division Bench of this Court in a similar situation. In the said case, the winding up petition was admitted on contest. The said winding up petition was subsequently advertised and thus took a representative character. On the returnable date the company contended, they had already approached BIFR. The learned Judge held, mere reference under Section 15 would not operate as a bar. The Division Bench observed, expression “proceeding”. in Section 22 would mean a proceeding up to the order of winding up and not beyond. Paragraph 19 being relevant herein is quoted below: “In our opinion, the expression “proceeding”. in Section 22 sub Section 1 of the Act means the proceeding up to the order of winding up of a company by a Court. under Section 22(1), if there is an enquiry under Section 16 of the said Act or any scheme is formulated under Section 17 of the said Act, the proceedings for winding up of the company should not be proceeded with and all proceedings in the winding up of the proceedings should remain stayed till the conclusion of the proceedings before the BIFR. We are of the opinion that once the winding up order has been made by the Court in the proceeding for winding up of the company, the proceeding for winding up of the company comes to an end, and the other provisions in the Companies Act, 1956 relating to the company in liquidation will come into play and Official Liquidator after taking possession of the assets of the company in liquidation will discharge his functions as specified in various provisions on the Companies Act relating to the company in liquidation.”
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2. Rishabh Agro Industries Limited Vs. P.N.B. Capital Services Limited reported in 2000 Volume-V Supreme Court Cases Page-515: In the said case, the Company Court passed an order of winding up however, the Division Bench stayed the order of winding up. During the period when the company was enjoying stay Company approached the BIFR. The creditor contended, it was a misconceived attempt. Moreover, on the date of the passing of the order by the Division Bench, no proceeding was pending before BIFR. In this backdrop, the Apex Court held, the proceeding was maintainable. The Apex Court, in paragraph 10, held, in a winding up petition when the Official Liquidator was appointed to protect the assets it was not the function of the Official Liquidator to start the process of rehabilitation that would come within the domain of the BIFR. Paragraph 10 and 11 being relied upon are quoted below: “It has been further suggested on behalf of the respondent Bank that the action of the appellant was mala fide in as much as it sought time from the Court to make the payment of the amount due and after seeking indulgence mala fidely made the reference to BIFR on 30.9.1997. it is contended that after the order of the winding up and appointment of the Liquidator, the Board of Directors had no jurisdiction to move BIFR by passing a resolution. Such a submission cannot be accepted. In a winding up petition the Liquidator is appointed to protect the assets of a company for the benefit of its creditors, secured and unsecured and others. It is not the function of the Official Liquidator to start the process of rehabilitation of the company as is aimed at under the Act. Despite appointment of the Official Liquidator, the Board of Directors, continued to hold all residuary powers for the benefit of the company which includes the power to take steps for its rehabilitation. The Board of Directors in the instant case were not in any way by any judicial order debarred from taking recourse the provisions of the Act for the purposes of rehabilitation of the company. If there existed a power, its exercise cannot be termed to be mala fide only because it was initiated after availing the opportunity to make the payment of the amounts due and passing of the order of winding of the company. It may also be noticed that winding up order passed under the Companies Act is not the culmination of the proceedings pending before the Company Judge but is in effect the commencement of the process. The ultimate order to be passed in such a petition is the dissolution of the Company in terms of Section 481 of the Companies Act. The words “shall be deemed to commence”. in Section 441 of the Companies Act clearly show the intention of the legislature that although the winding up of a petition does not in fact commence at the time of presentation of the petition itself but it shall be presumed to commence from that stage. the word “deemed”. used in the Section would thus mean, “supposed”., “considered”., “construed”., “thought”., “taken to be”. or “presumed”..”
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3. M/s. Foremost Industries (India) Limited Vs. The A.A.I.F.R. & Others reported in 2000 Volume-IV Company Law Journal Page-362: The Division Bench of the Delhi High Court, relying on Rishabh Agro, held post winding up BIFR proceeding maintainable.
4. Khurshid Alam Vs. P. Pagnon Company Private Limited and others reported in 2002 Volume-108 Company Cases Page523: Mr. Mitra relied on paragraph 1 and 2 of this Company Law Board decision. We do not find any relevance in the present context.
5. Tan India Limited Vs. Sundaram Finance Limited and another reported in 2002 Volume-108 Company Cases Page591: The Single Bench decision of the Madrass High Court held, when the company Court passed an order of winding up, the said order could not be set aside however, could be stayed during pendency of the reference before BIFR. Learned Single Judge relied upon the observation of the Apex Court made in Rishabh Agro (supra).
6. Modi Rubber Limited Vs. Madura Coats Limited and Another reported in 2006 Volume-130 Company Cases Page-32: Division Bench of the Allahabad High Court also relied upon Rishabh Agro (supra). In this case BIFR registered the reference on February 4, 2004 and the order of winding up was passed on March 12, 2004 that would violate Section 22. The Division Bench allowed the appeal and quashed the order of winding up.
7. Tata Motors Limited Vs. Pharmaceutical Products of India Limited and another reported in 2008 Volume-VII Supreme Court Cases Page-619: The Apex Court interpreted various provisions of SICA and observed, the provisions of this Act, being a special Act, would prevail over the Companies Act 1956.
8. Ksl and Industries Limited Vs. Arihant Threads Limited and others reported in 2008 Volume-IX Supreme Court Cases Page-763: In paragraph 66 the Apex Court discussed Rishabh Agro (supra).
9. Inderjeet Arya and another Vs. ICICI Bank Limited reported in 2014 Volume-II Supreme Court Cases Page-229: In this case, the financial institution instituted recovery proceeding before the Debt Recovery Tribunal. The company wanted protection under Section 22 on the plea that reference under Section 15 had been pending. The AAIFR held, the execution of the decree should be kept in abeyance in view of provisions of Section 22. The Apex Court held, the suit contemplated under Section 22 would apply only to proceeding in Civil Court and not any proceeding before any Tribunal including Debt Recovery Tribunal.
10. Zenith Infotech Limited Vs. Union of India: The Division Bench of the Delhi High Court relied on Rishabh Agro (supra) and Foremost Industries (supra) and observed, even after winding up the reference would still be possible. We, however, notice, the Division Bench affirmed the order of winding up passed on December 13, 2013 whereas the reference was made on August 1, 2013 being a date prior to the order of winding up being upheld by the Division Bench. OUR VIEW: On a combined reading of the aforesaid decisions we would find, later decisions applied Rishabh Agro (supra) in different situations. However, they agreed with Rishabh Agro when Rishabh Agro would apply the SICA also at the post winding up stage. If we closely examine Rishabh Agro we would find, the said observation could not be read in isolation and must be read in the context of the factual scenario involved therein. In Rishabh Agro, on the date of reference the order of winding up was not in force that would clearly be apparent from paragraph 1 and 2 where facts were briefly stated. The decisions in the case of Smith Stanistreet (supra) being a former precedent would speak otherwise; however, the factual scenario in the said case could also be clearly distinguished from the present one. Hence, we have to rely on the provisions of SICA to get a clear vision. We fully agree with Tata Motors (supra) where Apex Court observed, SICA would have an overriding effect on Companies Act. However, the concept of overriding effect would only come when there would be a conflict in law. We should read these two statutes harmoniously to find out whether the present scenario would have application of such observation. Under the law of winding up the Company Court was the supreme authority to exercise its discretion as to whether the company would be wound up or not. Such exercise might be at the instance of the creditors or at the instance of shareholders or contributory. In a given situation it could also be at the instance of the Central Government. SICA would prevail upon a totally different field i.e. rehabilitation/revival. If we read the provisions, we would find, a complete procedure was laid down, commencing from Section 15 to Section 22 as well as Section 26 as to the consideration to be made by the BIFR or the AAIFR in a given situation examining the chance of revival of a company. Section 15 would require an industrial company to refer to the BIFR when it’s worth becomes negative and would become sick Industrial Company being an Industrial Company registered for not less than five years whose net worth became negative at the end of the financial year. Once the reference is made under Section 15 the BIFR would start operation examining the scope of revival. Section 16 permits them to make an enquiry into the affairs of the company, preparation of the scheme by appointment of a director. Section 16 would empower the Board to make suitable order on the completion of inquiry. Section 18 would suggest preparation and sanction of the scheme and in case the Board would find no chance of revival it would recommend for winding up under Section 20. Section 19 would suggest financial assistance whereas Section 19A would provide for arrangement for continuing operation during inquiry. Once the reference is registered and an inquiry under Section 16 is pending or any scheme is under preparation under Section 17 enforcement of any contract before a civil Court would not lie. No proceeding against the Sick Company would lie before any civil Court. All agreements privileges, rights, obligations, liabilities would remain suspended and could only be enforced with such adoptions and in such manner as the Board may prescribe. In case BIFR would decline to register a reference or pass an order of inquiry or suggest or recommend for winding up or pass any order in connection with such reference, the aggrieved party would be entitled to prefer appeal before the appellate authority under Section 25. Section 26 would suggest, no order passed by the BIFR or AAIFR could be questioned before any civil Court by any other party, no injunction could be passed by any Court or authority against any proceedings before the BIFR or AAIFR. The moment the reference is made the rights under any contract would automatically remain suspended, even a proceeding enforcing such right pending at that time, would also be liable to be stayed so that BIFR could effectively deal with chance of revival and at the same time approve a scheme for revival that would include redressal of such grievance for which any civil Court has already been approached or is likely to be approached by the aggrieved party. A creditor whose debt is unpaid is ordinarily entitled to seek winding up upon compliance of the provisions of Section 434 of the Companies Act 1956 that would ultimately culminate into an order of winding up blocking the chance of revival. Hence, such winding up process would come within the mischief of Section 22 and following Tata Motors. SICA would have overriding effect and winding up petition would be liable to be stayed till BIFR or AAIFR is in seisin or a scheme framed by the said authorities is in operation. The aggrieved party is not remediless. They are free to appear before BIFR and/or AAIFR for protection of their interest ventilating their grievance which they could otherwise do before a civil Court or a company Court as the case may be. This is well-settled principle of law that would deserve no relook. The decisions cited at the bar consistently upheld such principle of law. The present case would however, stand on a complete different footing. In the instant case, admittedly the order of winding up was passed on a date when there was no reference pending. Pertinent to note, the order of winding up was passed on July 30, 2010 whereas the reference was registered on September 12, 2013. Once the order of winding up was passed the lis brought by the creditor stood disposed of and the company Court would become functus officio on such issue. However the process would start for beneficial winding up through the Official Liquidator and the Company Court would have a supervisory and/or administrative role in the process as the Official Liquidator would act as custodian of the company in liquidation subject to the supervision of the Court. In the process of execution of such order of winding up, there might arise be various problems that Official Liquidator may face. Interested parties might have various conflict in the process of winding up, all such complaints would however, be dealt with by the Company Court in judicial side that would be an extension of the role of the Company Court in supervising the process of winding up. When order of winding up is passed the Company Court would expedite the process for beneficial winding up. It would have no role to play for revival however, the Company Court could consider any scheme propounded by anyone suggesting revival and in such process the Court may stay the order of winding up. The Court suomoto would have no role to play for revival after the order of winding up. If we now come to SICA we would find, it contemplated a situation when company exists. The reference could be made by the persons having in management and control. Official Liquidator being the only custodian of the company during winding up would have no obligation to do so. The erstwhile management could not have any control over the company. If they want to pray for revival they could only approach the learned Company Judge with appropriate scheme. In the instant case, they availed such process however, became unsuccessful as observed herein before. The matter may be viewed from another angle. Even on completion of the inquiry and upon consideration of the chance of revival the BIFR or AAIFR as the case may be, comes to conclusion, there was no such scope and the company was liable to be wound up, it would recommend for winding up. In the instant case order of winding up has already been passed hence in case BIFR or AAIFR ultimately comes to such a conclusion they would have to recommend winding up that would be superfluous. Such eventuality would cause an absurd situation that was never contemplated in SICA. We cannot be a mere on looker as to the deliberate disregard that the respondent had shown to this Court by making deliberate suppression. They left no stone unturned in stalling the process of winding up. However, they could not bring any plausible scheme that could take care of an effective process of discharge of debt and at the same time revival of the unit. All such attempt failed before this Court. Each and every order was passed upon giving due consideration to their contentions. Before the Court of Appeal, when they pressed their appeal against the order of winding up, they deliberately suppressed the pendency of the BIFR proceeding. When they failed they tried to stall the sale, ultimately used the last resort taking recourse to SICA. Our conscience would prick, if we uphold the judgment and order of the learned Company Judge. We have no hesitation to hold, the entire conduct of the respondent and their approach made as discussed above, was nothing but a deliberate attempt to forestall the process of winding up. If we allow the same that would be a premium to dishonesty. The appeal succeeds and is allowed. The judgment and order is set aside. There would be no order as to costs There would be however, an order of stay of this judgment and order for a period of four weeks from date giving opportunity the parties to test our order in the higher forum. Samapti Chatterjee, J: I agree. [ASHIM KUMAR BANERJEE, J.]. [SAMAPTI CHATTERJEE, J.].