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                        REPORTABLE  

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1475 OF 2006

M/s. Madura Coats Limited         ...... Appellant

VS

M/s. Modi Rubber Ltd. & Anr.             …..Respondents

J U D G M E N T

Madan B. Lokur,     J.

1. The  appellant  (Madura  Coats)  is  aggrieved  by  the

judgment  and order  dated 20th May,  2004 passed by the

Division  Bench  of  the  Allahabad  High  Court  in  Special

Appeal  No.  420 of  2004. By the impugned judgment and

order  the  Division  Bench  of  the  High  Court  allowed  the

Special  Appeal  of  the  respondent  and  stayed  further

proceedings before the Company Court consequent upon a

winding  up  order  passed  against  the  respondent  (Modi

Rubber) till a final decision is taken on a reference made by

Modi  Rubber  to  the  Board  for  Industrial  and  Financial

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Reconstruction.  

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.    

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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  ‘the  BIFR’)  under  the  provisions  of  the  Sick

Industrial  Companies  (Special  Provisions)  Act,  1985  (for

short ‘the SICA’).

6. Pursuant 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.

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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 Bank1 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.2 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

1 (1998) 5 SCC 554 2 (2000) 5 SCC 515

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Companies Act’) is 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 order passed:

“Leave granted. 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, (‘SICA’) 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, vis-à-vis 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.

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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  SICA  vis-à-vis  the  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 before Hon’ble the Chief Justice of India for constitution of a larger Bench.

Hearing of  the  appeal  is  expedited.   Liberty  to mention.”

It is 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.

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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.  

13. We were told by learned counsel for Modi Rubber

that before the BIFR a Draft Rehabilitation Scheme (DRS)

for revival of the company was filed and advertised on 18th

January, 2008.  In connection with the DRS, the summary

record of proceedings of the BIFR of 8th April, 2008 notes the

presence  of  the  advocate  for  Madura  Coats  in  paragraph

7.20 and records the submission that Madura Coats does

not agree for a settlement at 30% of the admitted amount as

proposed.  The BIFR also noted in paragraph 7.38.1 that

objections  to  the  DRS  were  raised  by  some  employees,

unsecured  creditors  and  a  few  governments/government

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agencies.  It was also noted that unsecured creditors have to

fall in line with the provisions of the rehabilitation scheme

in the interest of revival of Modi Rubber.   

14. Paragraph  7.38.1  of  the  summary  record  of

proceedings read as follows:-

“7.38.1  Objections  were  raised  by  some  employees, unsecured creditors and a few Governments/Government agencies.   It  is  very  important  that  the  interest  of  the employees  is  safeguarded and employment  is  protected while reviving the company.  The terms for settlement of the  dues  of  the  workers  should  not  be  inferior  to  the terms offered for  settlement of  the dues of  the secured creditors.  Unsecured creditors have to fall  in line with the provisions of the rehabilitation scheme in the interest of  revival  of  the  company  in  respect  of Government/Government  agencies  who  objected  to  the DRS, the words “to consider” have to be stipulated in the DRS.  DB and Arsec (I)  Ltd.,  the two secured creditors who raised objections  have  agreed  to  settle  the  matter with the company.”

15. The BIFR finally issued certain directions, one of

which  was  sanctioning  the  rehabilitation  scheme  under

Section 19(3) and 19(4) of SICA for implementation by all

concerned.  As far as the unsecured creditors are concerned

(and this includes Madura Coats), the rehabilitation scheme

provided for acceptance of the outstanding dues as per one

of the following three options:

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“a) To accept 30% of the principal outstanding as full and final  payment.   The  payment  shall  be  made  within  3 months of the sanction of the scheme by the BIFR; or

b) To accept 40% of the principal outstanding as full the final payment.  The payment shall be made in 3 equal annual  installments  from  the  cut  off  date  (i.e. 31.03.2008).  The first installment shall be payable within 3 months of the sanction of the scheme by the BIFR; or

c) To accept 50 % of the principal outstanding as full and final payment.  The payment shall be made in one go at the end of 3rd year from the sanction of the Scheme by the BIFR.”

We  were  told  that  Madura  Coats  did  not  challenge  the

rehabilitation scheme.

16. Under the circumstances, Modi Rubber addressed

a letter to Madura Coats on 3rd September, 2008 informing

the approval and sanction of the rehabilitation scheme by

the  BIFR  and  indicating  the  three  options  available  to

Madura Coats for clearing the outstanding dues.  It seems

that  no  reply  was  received  by  Modi  Rubber  to  this

communication.   Accordingly,  Modi  Rubber  sent  another

communication  to  Madura  Coats  on  12th August,  2011

reminding  it  to  accept  the  settlement.  In  this

communication,  it  was  also  mentioned  that  one  raw

material  supplier  had challenged the settlement terms by

filing an appeal before the Appellate Authority for Industrial Page 9 of 19

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and  Financial  Reconstruction but  that  it  had  lost  in  the

appeal.

17. Learned counsel for Modi Rubber brought to our

notice a few orders passed by the Company Court after the

approval and sanction of the rehabilitation scheme.  These

orders which have been placed on record suggest that Modi

Rubber  was  willing  to  pay  the  dues  to  Madura  Coats  in

terms  of  the  rehabilitation  scheme and  that  the  liability,

according  to  Modi  Rubber  was  Rs.  2.73  crores  while

according to Madura Coats the liability was more than Rs.

4.00 crores.  By an order dated 16th November, 2011 Modi

Rubber  was  directed  by  the  Company  Court  to  pay  an

amount  of  Rs.  1.50  crores  to  Madura  Coats  within  one

month.  This payment of more than 50% of the dues was

made  to  Madura  Coats  by  a  cheque  on  15th December,

2011.  We were told by learned counsel for Modi Rubber

that  the  cheque  was  encashed  by  Madura  Coats  on 19th

December, 2011.

18. The  correctness  of  the  impugned  judgment  and

order  will  need  to  be  tested  on  these  facts  and  the  law

placed before us in connection with the reference made to

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the larger Bench. On hearing learned counsel for the parties

on these facts, we are of the opinion that different situations

can arise in the interplay between the Companies Act and

the SICA in the matter  of  winding up of  a company and

these situations have already been dealt with by this Court

at one time or another.

19. One  such  situation  is  where  winding  up

proceedings  are  pending  and  a  reference  is  made  to  the

BIFR. This situation occurred in Real Value where winding

up  proceedings  were  pending  and  the  appointment  of  a

provisional liquidator was under challenge.  At that stage,

steps  were  taken  by  Real  Value for  making  a  reference

under  Section 15 of  the SICA to the BIFR.  Under  these

circumstances,  one  of  the  questions  agitated  for

consideration by this Court was whether on the registration

of a reference, the Division Bench of the High Court could

pass orders in an appeal against an interim order passed by

the Company Court.

20. While referring to the provisions of the SICA, this

Court  concluded that  once  a  reference  is  registered  after

scrutiny,  it  is  mandatory  for  the  BIFR  to  conduct  an Page 11 of 19

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enquiry.  It was also held that the SICA is intended to revive

and rehabilitate a sick industry before it can be wound up

under the Companies Act.   The legislative  intention is  to

ensure  that  no  proceedings  against  the  assets  of  the

company are taken before any decision is taken by the BIFR

because if the assets are sold or the company is wound up,

it may become difficult to later restore the status quo ante.

It was held that it is for this reason that the enquiry under

Section 16 of the SICA must be treated to have commenced

as  soon as  the  registration of  the  reference  is  completed

after scrutiny and that action against the company’s assets

must remain stayed in view of Section 22 of the SICA till a

final decision is taken by the BIFR. This is what this Court

said in paragraph 23 of the Report:

“It is argued that if the reference before the BIFR is only at the stage  of  registration  under  Section  15,  then  Section  22  is  not attracted. This contention, in our opinion, has no merit.  In our view, when Section 16(1)  says  that  the  BIFR can conduct  the inquiry “in such manner as it may deem fit”, the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the procedure it may follow for conducting an inquiry under Section 16(1) and nothing more. In fact,  once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an inquiry. If one looks at the format of the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Company’s assets, liabilities, etc. Indeed, it will be practically impossible for the BIFR to reject a reference outright

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without calling for information/documents or without hearing the Company or other parties. Further, the Act is intended to revive and  rehabilitate  sick  industries  before  they  can  be  wound  up under  the  Companies  Act,  1956……. It  is  also  the  legislative intention to see that no proceedings against the assets are taken before any such decision is given by the BIFR for in case the Company’s assets  are  sold,  or the  Company wound up it  may indeed  become  difficult  later  to  restore  the  status  quo  ante. Therefore, in our view, [the High Court of Allahabad, the High Court  of  Andhra  Pradesh  and  the  High  Court  of  Himachal Pradesh] are right in rejecting such a contention and in holding that the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that  from that  time,  action against  the  Company’s assets  must remain stayed as stated in Section 22 till final decisions are taken by the BIFR.”

21. This Court also referred to the Regulations framed

under the SICA and in connection therewith it was held that

after the amendment of Regulation 19 with effect from 24th

March, 1994 once a reference is registered and it becomes

mandatory  to  simultaneously  call  for  information  or

documents  from  the  informant  and  such  a  direction  is

given,  then  an  enquiry  under  Section  16(1)  of  the  SICA

must, for the purposes of Section 22 thereof, be deemed to

have commenced. This is what this Court held in paragraph

30 of the Report:

“There can, therefore, be no difficulty in holding that after the amendment to Regulation 19 w.e.f. 24-3-1994, once the reference is registered and when once it is mandatory simultaneously to call for  information/documents  from  the  informant  and  such  a direction is given, then inquiry under Section 16(1) must - for the

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purposes of Section 22 - be deemed to have commenced. Section 22 and the prohibitions contained in it shall immediately come into play.”

22. Another facet of this situation is when proceedings

are pending both before the BIFR and the Company Court

but no order  of  winding up has been passed against  the

company. In such a situation (though we are not directly

concerned with it) this Court took the view in Tata Motors

Ltd v. Pharmaceutical Products of India Ltd3 that the

provisions of SICA would prevail over the provisions of the

Companies Act. In that case a scheme of rehabilitation of

the company was prepared and presented before the High

Court  under  Section  391  of  the  Companies  Act  while

proceedings were pending before the Appellate Authority for

Industrial and Financial Reconstruction (AAIFR) under the

SICA. The High Court approved the scheme of compromise

and arrangement and in view of the order of the High Court

the AAIFR also approved the scheme. This Court relied upon

NGEF Ltd.  v.  Chandra Developers (P)  Ltd.4 to  conclude

that  the  Company  Court  and  the  BIFR  do  not  exercise

concurrent  jurisdiction.  “Till  the  company remains a sick

3 (2008) 7 SCC 619  4 (2005) 8 SCC 219

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company having regard to the provisions of sub-section (4)

of  Section  20  [of  the  SICA],  BIFR  alone  shall  have

jurisdiction  as  regards  sale  of  its  assets  till  an  order  of

winding  up  is  passed  by  a  Company  Court.”  Since  the

provisions of  the  SICA would prevail  over  the  Companies

Act,  this  Court  held  that  the  High Court  could  not  have

exercised  jurisdiction  and  approved  the  scheme  of

compromise and arrangement prepared under Section 391

of the Companies Act.

23. Another situation is where a winding up order is

passed by the Company Court but it is stayed in appeal.  In

Rishabh Agro the company was ordered to be wound up

but  this  order  was  stayed  by  the  Division  Bench  of  the

concerned  High  Court.  Thereafter  the  company  made  a

reference to the BIFR under Section 15 of the SICA.

24. Under these circumstances, one of the contentions

urged by learned counsel for the respondents in that case

was that an unscrupulous litigant, after suffering an order

of winding up, could approach the BIFR and get the winding

up proceedings stayed.   This Court observed that such a

grievance  might  be  justified  but  if  a  provision  of  law  is

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misused and subjected to abuse of the process of law, it is

for the Legislature to take appropriate steps.

25. With regard to the merits of the controversy before

it, this Court took the view that it could not be said that the

provisions of Section 22 of the SICA would not be attracted

after an order of winding up is passed.  While referring to

this Section it was held that there was no doubt that the

provision  would  be  applicable  even  after  the  winding  up

order is passed and no proceedings even thereafter could be

taken under the Act. It was noted that a winding up order

passed  under  the  Act  is  not  the  culmination  of  the

proceedings before the Company Court but is in effect the

commencement  of  the  process  which  ultimately  would

result in the dissolution of the company in terms of Section

481  of  the  Act.  This  is  what  this  Court  had  to  say  in

paragraphs 9 and 11 of the Report:

“9. It is true that for invoking the applicability of Section 22 it has to be established that an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or sanctioned scheme is under implementation or an appeal under Section 25 to an industrial company is pending. But it cannot be said that despite the existence of any of the aforesaid exigencies the provision of Section 22 would not be attracted after the order of winding up of the company is passed. The words

“no  proceeding  for  winding  up  of  the  industrial company or for execution, distress or the like against

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any of the properties of the industrial company or for the appointment of receiver in respect thereof shall lie or be proceeded with further”,

leave no doubt in our mind that the effect of the section would be applicable  even  after  the  winding-up  order  is  passed  as  no proceeding even thereafter can  be proceeded with further under the Companies Act. The High Court appears to have not taken note of the aforesaid words i.e.  to be proceeded with further. As the impugned judgment is based upon wrong assumption of the provision of law and completely ignoring the vital words noticed hereinabove, the same cannot be sustained. 10. xxxxx 11. 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.”  

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. Page 17 of 19

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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

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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.

31. The appeal is without merit and is dismissed.

……..……………………………..J

   ( Jagdish Singh Khehar)

 ……………………………………J

  ( Madan B. Lokur )      

                         …..………………………………J

                      ( C. Nagappan )

New Delhi;

June 29, 2016     

Page 19 of 19

C.A. No. 1475 of 2006