IMPORTANT POINTS
1. In respect of a sick industrial company, even if it be a subsidiary of a government company, there is no legal obligation cast upon the State Government to pay the wages due to the workmen. There is nothing in SICA which authorises the BIFR to pass an interim order directing the State Government in such circumstances to pay the wages due to the employees of the sick industrial company.
2. In respect of a sick industrial company, it is desirable that the formulation of the scheme and its execution must be done within a reasonable time.

Headnote:Sick Industrial Companies (Special Provisions) Act, 1985 — Section 15 — Sick Industrial Company, subsidiary of a government company — No legal obligation cast upon the State Government to pay the wages due to the workmen — Rights of workmen are governed by the relevant provisions of the Companies Act where their claim has been accorded priority — M/s UPTRON, a company incorporated under the Companies Act is a subsidiary of U.P. Electronics Corporation, a company wholly owned and controlled by the State — UPTRON was declared a sick industry — Industrial Finance Corporation of India was appointed the Operating Agency — Direction made by BIFR to the Govt. of Uttar Pradesh to make arrangements for payment of salaries/wages of the workers till the proposed package of revival/rehabilitation of M/s UPTRON was finalised by the BIFR — Whether such a direction made was legally justified — (No) — Proceedings under SICA in the instant case are pending before the BIFR since August, 1994 — Directions made that formulation of the scheme and its execution must be done within a reasonable time — Companies Act, 1956.
Held : In respect of a sick industrial company, even if it be a subsidiary of a government company, there is no legal obligation cast upon the State Government to pay the wages due to the workmen. The rights of workmen are governed by the relevant provisions of the Companies Act where their claim has been accorded priority. Moreover, in any view of the matter we find nothing in SICA which authorizes the BIFR to pass an interim order directing the State Government in such circumstances to pay the wages due to the employees of the sick industrial company. We, therefore, allow all these appeals and set aside the impugned orders. (Para 17)
Before parting with this case, we must notice that the proceedings under SICA in the instant case are pending before the BIFR since August, 1994. We are told that in view of the pendency of the appeals before this Court the BIFR as well as the High Court did not proceed further in the matters. This is rather unfortunate, because in the absence of any order of stay passed by this Court in these proceedings, the High Court as well as the BIFR should have proceeded with the matters before them and concluded the proceedings. It is most unfortunate that a sick industrial company which needs immediate attention and treatment has to wait for 12 years with no result in sight. The BIFR must be conscious of the fact that in the sick industrial companies the liabilities accumulate as time passes and, therefore, the condition of the sick unit becomes worse day after day. If a proceeding before the BIFR is not concluded within a reasonable time, it becomes counter productive because rather than reviving the sick industrial unit it makes it more sick and, therefore, it becomes even more difficult to revive such an undertaking. One can well imagine what may be the dues now payable to the workmen and employees of the sick industrial company in this case. If no one was willing to submit a viable proposal in the year 1994, it will be even more difficult today to secure a proposal for the revival of the company. The pendency of the proceedings before the BIFR for almost 12 years has made the situation worse. The networth of the sick unit was negative to begin with and as of date the dues to the workmen and the interest etc. payable to other creditors may have to be added to the liabilities of the company. We only wish to impress upon the BIFR that proceedings under SICA must not be kept pending for so long and having regard to the fact that every days delay adversely affects the financial condition of the undertaking a final decision one way or the other must be taken within a reasonable time. We also cannot lose sight of the fact that the protective provisions of SICA places the creditors of the sick industrial company in a rather precarious position, since they are not able to realize their dues from the sick industrial company in view of the provisions of Section 22 of SICA. It is only desirable that the formulation of the scheme and its execution must be done within a reasonable time.(Para 19)

JUDGMENT

B.P. Sinha, J. — The State of Uttar Pradesh is the appellant in these appeals. Civil Appeal No. 6176/1999 has been preferred against the order of the Board of Industrial and Financial Reconstruction (hereinafter referred to as the "BIFR") dated 28.8.1998 whereby it directed the State of Uttar Pradesh to make on account payment to the workers towards their wages for the period June, 1998 on wards on humanitarian grounds. Civil Appeal Nos. 6171-6172/1999 has been preferred against the order of the High Court of Delhi whereby the writ petition preferred by the State of Uttar Pradesh against the order of BIFR dated 27.8.1997, as affirmed by the Appellate Authority vide its order dated 6.5.1998, was rejected. Civil Appeal No. 6217/1999 has been preferred against the interim order of the High Court of Judicature at Allahabad, Bench at Lucknow dated 23.12.1998 directing the State of Uttar Pradesh to pay salary to the workers of M/s. UPTRON, as directed by the BIFR till the State Government takes final decision in the matter relating to revival/rehabilitation proposal made by it.

2. A few facts which are relevant may be noticed at the threshold. M/.s UPTRON is a company incorporated under the Companies Act, 1956 and is a subsidiary of U.P Electronics Corporation, a company wholly owned and controlled by the State of Uttar Pradesh. UPTRON became a sick industry since its net worth became negative and, therefore, a Reference was made under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1995 (hereinafter referred to as "SICA"). The Reference was made on 22.1.1994 and M/s. UPTRON was declared a sick industry on 19.8.1994. The Industrial Finance Corporation of India (IFCI) was appointed the Operating Agency. It appears from the record that advertisements were issued in normal course inviting proposals for take over and/or revival of the sick unit. From the order of the BIFR dated 27.8.1997 it appears that advertisement was issued pursuant to its order dated 29.1.1997 but no viable acceptable offer was received. The Company had proposed a one time settlement whereby it offered to pay off 100 of the principal amount and only 25 of the interest due. However, for whatever reasons this proposal made no progress in the absence of a confirmation by the State Government. M/s. UPTRON India Ltd. stated that it had made a fresh proposal which had been submitted to the Government and that the Government was likely to consider it on 1.9.1997. In these circumstances, the BIFR considered the matter and passed certain directions by its order of 27.8.1997. It directed the Operating Agency to make an indepth study of the proposal submitted by M/s. UPTRON to the State Govt. of Uttar Pradesh and to make its suggestions. It was directed to submit its report within 10 weeks after holding a joint meeting with the concerned parties. It also directed the Managing Director of M/s. UPTRON to discuss the matter further with the concerned banks with a view to obtain their consent as to the minimum acceptable quantum of one time settlement and quantum of sacrifices in terms of waiver of interest. M/s. UPTRON was also directed to have discussions with the Chief Secretary of the Govt. of Uttar Pradesh in regard to the quantum of funds proposed to be inducted by the Govt. of Uttar Pradesh for revival/rehabilitation of M/s UPTRON. The last direction made by the BIFR was in the nature of a direction to the Govt. of Uttar Pradesh to make arrangements for payment of salaries/wages of the workers till the proposed package of revival/rehabilitation of M/s UPTRON was finalised by the BIFR. This last direction for payment of salaries/wages to the workers of M/s. UPTRON was challenged by the U.P. Electronics Corporation before the Appellate authority under SICA which was dismissed. Thereafter, the State of Uttar Pradesh filed a writ petition before the High Court of Delhi which was dismissed by order dated 9.9.1999. As noticed earlier, C.A. Nos. 617

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2006 Supreme(SC) 403

Cases Referred (4)