IMPORTANT POINT
BIFR can issue a direction not to dispose of assets only to a sick industrial company.
High Court, under Article 226, cannot decide a matter which is not under challenge.

Headnote:(a) Sick Industrial Companies (Special Provisions) Act, 1985 – Section 22A – BIFR can issue a direction not to dispose of assets only to a sick industrial company – First respondent purchasing assets from a sick industrial company in accordance with the Sanctioned Scheme – First respondent itself not a sick industrial company – BIFR cold not direct first respondent to maintain status quo. (Para 11)
       (1995) 4 SCC 276 – Relied upon
       (b) Constitution of India – Article 226 – AAIFR absolving second respondent from liability in respect of the units sold to first respondent – First respondent not challenging the order – High Court setting aside the entire including the portions not challenged – Not proper. (Para 13)
       Facts of the case:
       J.K. Synthetics Limited (now Jay Kay Enterprises Ltd.), the Second Respondent, was declared a sick industrial company on 02.04.1998. The Industrial Development Board of India (IDBI), the Fourth Respondent, was appointed as the Operating Agency. A Draft Rehabilitation Scheme was submitted on 06.06.2000 proposing revival of the cement units by de-merging them into a separate unit. 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 in an Appeal before the AAIFR. The AAIFR allowed the said Appeal by its order dated 23.01.2003. 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.
       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 towards payment to the workmen was to be borne by APPL. 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.
       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 dated 07.01.2005 was challenged by the Appellant in the High Court which was dismissed. The AAIFR refused to interfere with the Sanctioned Scheme dated 07.01.2005. By an order dated 30.05.2007 the AAIFR directed the BIFR to monitor the implementation of the Sanctioned Scheme.
       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 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.
       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 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 by the First and Second Respondents before the AAIFR which were dismissed.
       Twhile 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.
       The First Respondent filed a Writ Petition. 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.
       Finding of the Court:
       Impugned order cannot be sustained.
       Result: Civil Appeal Nos. 8597 and 8598 of 2010 dismissed and Civil Appeal No. 8599 of 2010 allowed.

JUDGMENT

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 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 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 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 d

Click Here to Read the rest of this document

2016 Supreme(SC) 909

IMPORTANT POINTBIFR can issue a direction not to dispose of assets only to a sick industrial company.High Court, under Article 226, cannot decide a matter which is not under challenge.

Cases Referred (1)

IMPORTANT POINT
BIFR can issue a direction not to dispose of assets only to a sick industrial company.
High Court, under Article 226, cannot decide a matter which is not under challenge.