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NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No. 8597 of 2010  

PRESIDENT/SECRETARY,  J.K.  SYNTHETICS  MAZDOOR UNION (CITU), INDIRA GANDHI NAGAR, KOTA & ORS.   

.... Appellant(s) Versus

ARFAT PETROCHEMICALS PVT. LTD. & ORS.  

….Respondent(s) With

CIVIL APPEAL No. 8598 of 2010  

GENERAL  SECRETARY,  RAJASTHAN  TRADE  UNION KENDRA & ANR.   

.... Appellant(s) Versus

ARFAT PETROCHEMICALS PVT. LTD. & ORS.  

….Respondent(s) With

CIVIL APPEAL No. 8599 of 2010  

M/S J.K. SYNTHETICS LIMITED

.... Appellant(s) Versus

M/S ARFAT PETROCHEMICALS PVT. LTD. & ORS.  

….Respondent(s)

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J U D G M E N T

L. NAGESWARA RAO, J.

Civil Appeal Nos. 8597 and 8598 of 2010 are filed by

President, J.K. Synthetics Mazdoor Union, Kota & Ors. and

General Secretary,  Rajasthan Trade Union Kendra & Anr.

respectively against the judgment dated 28.07.2009 of the

Rajasthan High Court at Jaipur in Civil  Writ Petition No.

2006 of 2009. Civil Appeal No. 8599 of 2010 is filed by M/s

J.K. Synthetics Ltd. against the same judgment to a limited

extent that the findings in its favour given by the Appellate

Authority  for  Industrial  and  Financial (AAIFR)  vide  order

dated 11.12.2008 were reversed without any challenge to

the same.         

2. The parties will hereinafter be referred to as arrayed in

Civil  Appeal  No.  8597  of  2010.   The  facts  relevant  for

adjudication of the dispute in these Appeals are as follows:  J.K. Synthetics Limited (now Jay Kay Enterprises Ltd.), who

is  the  Second Respondent  was declared a  sick industrial

company on 02.04.1998. The Industrial Development Board

of  India  (IDBI),  who  is  the  Fourth  Respondent  was

appointed as the Operating Agency.  A Draft Rehabilitation 2

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Scheme was  submitted  on  06.06.2000.   As  per  the  said

Scheme, a revival of the cement units by de-merging them

into a separate unit was proposed.  This was not accepted

by the creditors and the Operating Agency.   The Board for

Industrial and Financial Reconstruction (BIFR) directed an

advertisement to be issued for a change of management of

the company for the purpose of rehabilitation. The Second

Respondent challenged the order dated 06.06.2000 by filing

an Appeal before the AAIFR.  The AAIFR circulated a Draft

Rehabilitation  Scheme  for  approval  on  31.01.2001.   The

AAIFR  allowed  the  said  Appeal  by  its  order  dated

23.01.2003 by  setting  aside  the  order  of  the  BIFR dated

06.06.2000.   By the said order, the AAIFR sanctioned the

Draft Rehabilitation Scheme dated 31.01.2001 by which the

proposal of the de-merger of cement units was accepted.   3. In the meanwhile, the Second Respondent entered into

a Memorandum of  Understanding (MoU)  with M/s Arafat

Petrochemicals  Pvt.  Ltd.  (APPL),  the  First  Respondent

herein.  According to the said MoU the assets of the Kota

Units of Respondent No. 2 were to be sold to Respondent

No.1 for a total consideration of Rs. 15 crores.  The liability

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towards payment to the workmen was to be borne by APPL.

It is also relevant to mention here that a Tri-Partite Labour

Settlement  Agreement  (TLSA)  was  executed  between  the

First  Respondent,  Second  Respondent  and  the  Labour

Unions on 09.10.2002. Another TLSA on the same terms

was  entered  into  between  the  First  Respondent,  Second

Respondent and Staff Association on 22.10.2002.  The total

liability  under  the  TLSAs  worked  out  to  approximately

Rs.43.69 crores.  There is no unanimity between the parties

on  the  scope  of  the  above  mentioned  TLSAs.   The  First

Respondent claims that there is no compulsion on its part

to provide future employment to all the existing workmen

whereas the workmen contend to the contrary.   There is

also a dispute about the obligation of First Respondent to

revive the Kota units.   4. On 07.01.2005,  the  AAIFR sanctioned a  Scheme for

transfer of the Kota units to the First Respondent in terms

of  the  MoU dated  19.10.2001.   The  liability  of  the  First

Respondent was fixed at Rs.52.46 crores (Rs.15 crores to be

paid  to  JK  Synthetics  Limited/Second  Respondent  and

Rs.37.46  crores  to  be  paid  to  the  workmen).   The  order

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dated 07.01.2005 was challenged by the Appellant in the

High  Court  of  Delhi  by  filing  a  Writ  Petition  which  was

dismissed on 26.07.2005.  The AAIFR refused to interfere

with  the  Sanctioned  Scheme  dated  07.01.2005  on  the

ground that it was substantially implemented.  By an order

dated 30.05.2007 the AAIFR directed the BIFR to monitor

the implementation of the Sanctioned Scheme.  5. The  Appellant  filed  Civil  Suit  No.63  of  2008  in  the

Court of Additional Civil Judge, Kota seeking an injunction

against  the  First  Respondent  from  selling,  removing  or

dismantling  any  assets  of  the  Kota  units  till  the  entire

amount due to the workmen was determined and settled.

The said suit was dismissed on 08.04.2008 on the ground

that  the  matter  has  to  be  decided  under  the  Industrial

Disputes Act, 1947.  6. On  24.03.2008  a  sale  deed  was  executed  by  the

Second Respondent in favour of  the First  Respondent for

sale of the assets of the Kota units.   In the review meeting

held on 05.05.2008, the BIFR took note of the complaints

that  were  made  regarding  the  sale  of  assets  of  the  Kota

units as waste/scrap by the First Respondent.   The BIFR

held  that  the  interest  of  the  workmen  have  to  be

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safeguarded in accordance with the Sanctioned Scheme of

2005.   The  BIFR  also  held  that  the  Second  Respondent

cannot  escape responsibility  towards the  rehabilitation  of

the  Kota  unit  on  the  ground  that  there  is  change  in

management.   After holding that sufficient steps have not

been taken by the First and Second Respondents towards

revival  of  the  Kota  Units,  the  BIFR  gave  the  following

directions: i) “IDBI  (MA)  would  expeditiously  carry  out  spot

inspection  of  the  Kota  Unit  and  submit  a  detailed

status report to this Board regarding implementation

of the SS-03 & SS-05 within a period of 30 days.  ii) M/s JKSL/M/s APPL would maintain status quo and

would not alienate any material/assets whatsoever

from the factory site of Kota Unit till  further orders

from this Board.  iii) Permission is granted to all Association (s)/Union (s)/

Employees of the company M/s JKSL present today

to  proceed  u/s  22(1)  against  the  company  M/s

JKSL/M/s APPL/their  promoter(s)/guarantor  (s)  for

recovery  of  their  dues  through  legal  action(s)  in

appropriate forum(s). iv) Chief  Secretary/  Resident  Commissioner,  Govt.  of

Rajasthan shall attend the next hearing as fixed by

this Board.  v) Allahabad  Bank,  Central  Bank  of  India  and

Syndicate  Bank  are  exempted  from  attending  any

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further  hearing  in  the  matter.  The  address  list  be

amended accordingly, as requested by the company.

The  employees  and  other  respondents  listed  by

Hon’ble AAIFR in order of 31.08.2006 be noticed for

the next hearing.”    7. The First Respondent participated in the next review

meeting held by the BIFR on 30.06.2008.  It complained of

no  notice  being  issued  for  the  earlier  meeting  dated

05.05.2008.  The First Respondent informed the BIFR that

it is not a sick company and no directions can therefore be

issued to it.   The BIFR held that the First Respondent was

not  right  in  contending  that  it  does  not  fall  within  the

purview  of  the  Sick  Industrial  Companies  (Special

Provisions) Act, 1985 (hereinafter referred to as “the Act’’)

and need not implement the orders issued by the Board.

The BIFR directed the IDBI to carry out an inspection of the

Kota units and to submit a report.  There was a direction to

maintain status quo in respect of the material/assets at the

factory site of the Kota Units till further orders. There was

also a stay on transfer/alienation of land or assets of the

company without the permission of the Board.   The orders

dated 05.05.2008 and 30.06.2008 of the BIFR were assailed

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by  the  First  and  Second  Respondents  before  the  AAIFR.

The  AAIFR  by  its  order  dated  11.12.2008  dismissed  the

Appeals filed by the First Respondent and directed the BIFR

to re-examine the exact position relating to the payment of

dues  to  the  workmen.   The  BIFR  was  also  directed  to

continue  the  monitoring  of  the  Scheme  and  review  the

efforts made by the First Respondent towards revival of the

Kota units.  The contention of the First Respondent that the

BIFR has no jurisdiction over a company which is not a sick

company was rejected.   It is relevant to refer to the findings

of  the  AAIFR  in  favour  of  the  Second  Respondent  in

paragraphs 38, 39 and 40 of the said order.   In the said

paragraphs  the  AAIFR  held  that  it  is  only  the  First

Respondent who would be responsible for the payment of

the dues to the workmen.  While holding that the Second

Respondent is not liable to make any payment, the AAIFR

allowed  the  Appeal  of  the  Second  Respondent  by  setting

aside  the  directions  issued  by  the  BIFR  to  the  Second

Respondent.  8. Aggrieved by the order dated 11.12.2008 of the AAIFR,

the First Respondent filed a Writ Petition in the Rajasthan

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High Court.  The High Court allowed the Writ Petition by

holding  that  the  BIFR  and  the  AAIFR  do  not  have

jurisdiction to issue directions to a company which is not a

sick  industrial  company  under  Section  22  A  of  the  Act.

Being aggrieved by the said judgment of the High Court, the

Labour  Unions  filed  Civil  Appeal  No.  8597  and  8598  of

2010.   Civil  Appeal  No.  8599  of  2010  is  filed  by  JK

Synthetics Limited aggrieved by the judgment in so far as it

set  aside  the  findings  in  its  favour  which  were  not

challenged in the Writ Petition.   9. The  only  point  that  falls  for  consideration  in  these

Appeals is regarding the scope of Section 22 A of the Act.

Section 22 A is as follows: “22  A.  Direction  not  to  dispose  of  assets:  -  The Board  may,  if  it  is  of  opinion  that  any  direction  is

necessary in the interest of the sick industrial company

or creditors or shareholders or in the public interest, by

order in writing direct the sick industrial company not to

dispose of, except with the consent of the Board, any of

its assets—  (a) during the period of preparation or consideration

of the scheme under section 18; and  (b) during the period beginning with the recording of

opinion  by  the  Board  for  winding  up  of  the

company under sub-section (1) of section 20 and

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up to commencement of the proceedings relating

to  the  winding  up  before  the  concerned  High

Court.”      10. “Sick industrial company” is defined in Section 3 (1) (o)

which is as under: “(o)  "sick  industrial  company"  means  an  industrial

company (being a company registered for not less than

five years) which has at the end of any financial year

accumulated losses equal to or exceeding its entire net

worth. Explanation:  -  For  the removal  of  doubts,  it  is  hereby

declared  that  an  industrial  company  existing

immediately  before  the  commencement  of  the  Sick

Industrial  Companies  (Special  Provisions)  Amendment

Act,  1993, registered for not  less than five years and

having  at  the  end  of  any  financial  year  accumulated

losses equal to or exceeding its entire net worth, shall be

deemed to be a sick industrial company;”        11. It is clear from a plain reading of Section 22 A of the

Act that the Board can issue a direction not to dispose of

assets  only  to  a  sick  industrial  company.    There  is  no

dispute that the First Respondent is not a sick industrial

company  and  that  it  purchased  the  assets  from  a  sick

industrial  company  in  accordance  with  the  Sanctioned

Scheme.  The BIFR was not correct in passing an order of

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status  quo and  directing  the  First  Respondent  not  to

alienate/transfer the assets by its orders dated 05.05.2008

and 30.06.2008.  We agree with the findings of  the High

Court in the impugned judgment that  the BIFR does not

have competence to issue directions to a company which is

not a sick industrial  company under Section 22 A of the

Act.   We are fortified in this  view by a judgment  of  this

Court in U.P.     State Sugar Corporation Ltd. v. U.P. State

Sugar  Corporation  Karamchari  Association  and  Anr.

reported  in  (1995)  4  SCC  276 wherein  it  was  held  as

follows: “It runs counter to the express terms of Section 22 A

of  the  Act  which  confers  a  limited  power  on  the

Board to pass an order prohibiting a sick industrial

company from disposing of its assets only during

the period specified in Clause (a) and (b).”

12. Several  contentions  have  been  raised  by  both  sides

during  the  course  of  hearing  of  these  Appeals  which  we

have  not  adverted  to  as  they  are  not  relevant  for

adjudication of the dispute in these appeals. We express no

opinion on the jurisdiction of BIFR under other provisions

of  the  Act.  It  is  open  to  the  BIFR  to  review  the

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implementation  of  the  Sanctioned  Scheme  and  pass

suitable directions.  13. As  stated  supra,  the  AAIFR  held  that  the  Second

Respondent has no liability in respect of Kota units which

have been sold to the First Respondent.   The said findings

were not  challenged by the  First  Respondent  in the Writ

Petition filed in the High Court.  The High Court set aside

the entire order dated 11.12.2008 without taking note of the

findings in favour of the Second Respondent.  The petition

filed for  clarification by the  Second Respondent  was also

dismissed by the High Court.  The High Court ought not to

have  disturbed  the  findings  in  favour  of  the  Second

Respondent  as  they  were  not  in  challenge  in  the  Writ

Petition filed by the First Respondent.    14. For the aforesaid reasons, Civil Appeal Nos. 8597 and

8598 of 2010 are dismissed.  Civil Appeal No. 8599 of 2010

is allowed.  No costs.                                              

.…............................J.                  [ANIL R. DAVE]

               ................................J. [L. NAGESWARA RAO]

New Delhi, November 18, 2016

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