Page 1 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 20

th

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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C.A. No. 1475 of 2006

Page 2 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 12

th

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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C.A. No. 1475 of 2006

Page 3 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 6

th

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 3

rd

February,

2004 which was received by the BIFR on 4

th

February, 2004.

Thereafter, the application was scrutinized and on 17

th

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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C.A. No. 1475 of 2006

Page 4 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 Bank

1

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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C.A. No. 1475 of 2006

Page 5 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 24

th

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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C.A. No. 1475 of 2006

Page 6 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 10

th

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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C.A. No. 1475 of 2006

Page 7 12. Following upon the order passed by the High

Court, Madura Coats moved an application before the BIFR

on or about 12

th

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 18

th

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

record of proceedings of the BIFR of 8

th

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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C.A. No. 1475 of 2006

Page 8 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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C.A. No. 1475 of 2006

Page 9 “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 3

rd

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 3

rd

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 12

th

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

C.A. No. 1475 of 2006

Page 10 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 16

th

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 15

th

December,

2011. We were told by learned counsel for Modi Rubber

that the cheque was encashed by Madura Coats on 19

th

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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C.A. No. 1475 of 2006

Page 11 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

C.A. No. 1475 of 2006

Page 12 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

Page 12 of 19

C.A. No. 1475 of 2006

Page 13 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 24

th

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

Page 13 of 19

C.A. No. 1475 of 2006

Page 14 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 Ltd

3

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

Page 14 of 19

C.A. No. 1475 of 2006

Page 15 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

Page 15 of 19

C.A. No. 1475 of 2006

Page 16 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

Page 16 of 19

C.A. No. 1475 of 2006

Page 17 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

C.A. No. 1475 of 2006

Page 18 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

Page 18 of 19

C.A. No. 1475 of 2006

Page 19 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

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