WP(C) Nos.3669 3672/06 Page 1

Reportable

IN THE HIGH COURT OF DELHI AT NEW DELHI

+WP(C) Nos.3669/2006 and 3672/2006

Date of Decision: 28.03.2008

#Oman International Bank S.A.O.G. …..Petitioner

! Through: Mr.Adarsh B. Dial,

Senior Advocate with

Mr.Rajeev K. Pandey and

Mr.Sushil Kr. Tekriwal

Versus

$Appellate Authority for Industrial

And Financial Reconstruction and Ors. …..Respondents

^ Through Mr.Vibhu Bakru with

Mr.Sumesh Dhawan and

Mr.Vikas Chandel for respondent

No.2

Mr.Vijay Kumar for respondent

No.13/Canara Bank

Mr.Raj Kumar for the Insurance

Inspector, ESIC

Ms.Sushmita Banerjee for Federal

Bank

CORAM :-

*THE HON'BLE MR.JUSTICE A.K.SIKRI

THE HON'BLE MR. JUSTICE VIPIN SANGHI

1.Whether Reporters of Local papers may be allowed to see

the Judgment?

2.To be referred to the Reporter or not?

3.Whether the judgment should be reported in the Digest?

A.K. SIKRI, J.

:

WP(C) Nos.3669 3672/06 Page 2

WP(C) No.3669 & 3672/2006

1. The petitioner is a banking company constituted under the

laws prevailing in Sultanate of Oman. For carrying out banking

business in India, it has been granted licence by the Reserved

Bank of India. It had granted financial accommodation to the two

companies, namely, Premier Synthetics Ltd. (respondent No.2 in

WP(C) No.3669/2006) and Blue Blends (India) Ltd. (respondent

No.2 in WP(C) No.3672/2006) and both the companies are

declared as sick companies. Both these companies have

approached the Board for Industrial and Financial Reconstruction

(in short the „BIFR‟) for revival/rehabilitation on the ground that

they are sick companies. Though their reference under Section

15(1) of the Sick Industrial Companies (Special Provisions) Act (in

short the „SICA‟) for declaring them sick companies was rejected

by the BIFR, appeals filed by them before the Appellate Authority

for Industrial and Financial Reconstruction (in short the „AAIFR‟)

under Section 25 of the Act have been allowed and the cases are

remanded back to the BIFR for fresh consideration on the basis of

the principle set out by the AAIFR in the impugned judgment.

The petitioner bank was objector in both the appeals and is not

happy with the impugned orders passed by the AAIFR. In these

circumstances, these two writ petitions are filed assailing the

orders of the AAIFR. The legal effect of both the orders is same

WP(C) Nos.3669 3672/06 Page 3

as identical question is determined by the AAIFR in a common

judgment. It is, in these circumstances, both these writ petitions

were clubbed and heard together. For the sake of brevity, we

take note of facts of WP(C) No.3672/2006.

2. In the year 1986, credit facilities were sanctioned by the

petitioner in favour of Blue Blends (India) Ltd. (hereinafter

referred to as the „Company‟). The company had availed similar

facilities from some other banks as well. As it committed default

in making repayments of these loans, all those banks, forming a

consortium, filed an OA, being OA No.2518/2000, before the Debt

Recovery Tribunal, Mumbai. The same is still pending

adjudication. As per the petitioner bank, as on 30.9.2002 an

amount of Rs.25.30 crores with further interest was due from the

company.

3. After the filing of the said OA, on 6.2.2001, the company

filed a reference under Section 15(1) of the SICA before the BIFR,

which was registered as Reference Case No .235/2002. The

company had sought the prayer that it be declared a sick

industrial company and measures be determined for its

rehabilitation by the BIFR. The BIFR heard this reference and

vide its order dated 6.11.2002 rejected the same on the ground

that reference filed by the company was time-barred. In coming

to this conclusion the BIFR took into consideration certain dates.

WP(C) Nos.3669 3672/06 Page 4

4. The company had preferred first reference under Section

15(1) of the SICA on the basis of balance-sheet as on 31.3.2000.

The Board of Directors of the company in their meeting held on

29.11.2000 had formed an opinion on the basis of the aforesaid

balance-sheet, to the effect that net worth of the company was

completely eroded and therefore, a reference was required to be

made before the BIFR. Accordingly, reference was made on

6.2.2001. Admittedly, this was after the expiry of 60 days‟ period

from the date on which the Board of Directors formed the opinion

that the company had become a sick industrial company.

Limitation period for making such a reference is 60 days as per

Section 15(1) of the SICA. Thus, on 1.5.2002, the reference was

rejected by the BIFR as time-barred.

5. The company filed a fresh reference, which was treated as

Case No.235/2002. It was based on the balance-sheet as on

31.3.2002. However, no reference based on its balance-sheet as

on 31.3.2001 was filed by the company. The BIFR, in these

circumstances, noted that though the net worth of the company

was fully eroded as on 31.3.2001, and the statutory auditors had

confirmed in their audit reports that the company had become a

sick industrial company as per the provisions of the SICA and the

audited accounts as on 31.3.2001 were adopted at the AGM held

on 10.11.2001, no reference was filed by the company ba sed on

its balance-sheet as on 31.3.2001 when its net worth was fully

WP(C) Nos.3669 3672/06 Page 5

eroded. It, thus, rejected the reference as not maintainable. The

company preferred appeal before the AAIFR. The AAIFR has

reversed the judgment of the BIFR in its order dated 8.11.2005.

6. It is not in dispute that under Section 15(1) of the SICA,

reference is to be made by the Board of Directors of the company

“within 60 days from the date of finalization of the duly audited

accounts of the company for the financial year at the end o f

which the company has become a sick industrial company.”

Proviso to this Section, however, lays down that if the Board of

Directors has sufficient reasons even before such finalization, to

form the opinion that the company has become a sick industrial

company, then “within 60 days after it has formed such opinion”

the Board of Directors shall make a reference to the BIFR. The

Appellate Authority formulated the following questions for

determination while undertaking the exercise of interpreting

Section 15 with its proviso, with reference to the facts of this

case:-

i. Whether a reference under Section

15(1) of SICA filed within the period of

60 days after adoption of accounts

can be treated as time-barred?

ii. Whether BIFR/AAIFR have the power

to condone delay and entertain a

reference that has been filed after 60

days from the date of finalization of

accounts?

WP(C) Nos.3669 3672/06 Page 6

iii. When does the period of 60 days for

filing a reference as prescribed under

Section 15(1) of SICA start running?

iv. Whether the proviso to Section 15(1)

can override the main Section, i.e.

Section 15(1) of SICA.

v. Whether SICA provides any restriction

from filing reference based on

subsequent years‟ accounts if the

reference based on the accounts of an

earlier year has been rejected on the

ground that it was time barred?

vi. Whether SICA provides for filing of a

reference for subsequent financial

years when an earlier reference is

pending adjudication?

7. We may note at this stage itself that since the BIFR

had rejected the reference on the ground that earlier reference

was filed belatedly, and no reference on the basis of balance-

sheet as on 30.3.2001 was filed, this issue was covered by

question No.(v) formulated above. While answering this

question, the appellate authority noted that as per the

judgments of this Court in Madhumilan Syntex Ltd. V. AAIFR &

Ors., Denholm v. BIFR and Others, and Paam Pharmaceuticals

Ltd. V. BIFR & Ors., each year‟s reference had to be decided on

its own merits. There is no quarrel raised by the petitioner as

far as answer to this question formulated by the appellate

authority/AAIFR is concerned. However, the petitioner feels

WP(C) Nos.3669 3672/06 Page 7

aggrieved by the manner in which the proviso to Section 15(1)

is interpreted vis-à-vis main provision of Section 15 and in the

process following general principles for dealing with references

filed under SICA are laid down by the AAIFR:-

“On a careful consideration of the

averments made before us and records we

are of the opinion that:

a) That the earliest date on which the

reference can be filed is 60 days from

the date of the meeting of BOD, when

the opinion regarding sickness has been

formed under the Proviso to Section

15(1). The latest date on which the sick

company can file the reference is 60

days from the date of finalization of the

accounts under section 15(1).

b) If the reference is filed after the due

date, i.e., the period applicable under

(1), BIFR can determine whether there

were justifiable reasons for delay or

there was any mala fide in not filing the

reference within the stipulated period

and thereafter, deal with the reference

on merits even though it may be

belated. Delay in filing the reference

can, however, result in initiation of penal

action against the management of the

sick industrial company under Section

33(1) of SICA.

c) A belated reference should not be

rejected in limini but the reasons for

delay should be considered and delay

can be condoned if justifiable grounds

for the same are demonstrated.

WP(C) Nos.3669 3672/06 Page 8

d) Each year‟s reference on the basis of

which a declaration of sickness is

claimed should be examined after due

enquiry based on the criteria laid down

at section 3(1)(o) of SICA.

e) If one year‟s reference has been

dismissed as time barred, there is no bar

to examining the reference filed in the

subsequent year.”

8. The bone of contention is the principle laid down in (a)

above. As per this principle, AAIFR has given two dates

between which reference can be filed. Earliest date on which

reference can be filed is 60 days from the date of meeting of

the Board of Directors. Starting from that date it can be filed

on any date upto 60 days from the date on which the company

finalises its accounts. It is the contention of the learned

counsel for the petitioner that this principle is wholly erroneous

and it does violence to the language of Section 15(1) of SICA,

inasmuch as, there is no such warrant in the said provision for

fixing initial date and outer limit with full liberty to the

company to file its reference on any date during the said

period. In order to appreciate the contention, we first

reproduce Section 15(1) along with its proviso in its entirety:-

“15. Reference to Board

(1) When an industrial company has

become a sick industrial company, the

Board of Directors of the company,

WP(C) Nos.3669 3672/06 Page 9

shall, within sixty days from the date

of finalization of the duly audited

accounts of the company for the

financial year as at the end of which

the company has become a sick

industrial company, make a reference

to the Board for determination of the

measures which shall be adopted with

respect to the company.

PROVIDED that if the Board of

Directors has sufficient reasons even

before such finalization of form the

opinion that the company had

become sick industrial company, the

Board of Directors shall, within sixty

days after it has formed such opinion,

make a reference to the Board for the

determination of the measures which

shall be adopted with respect to the

company.”

9. As per sub-section (1) of Section 15, the Board of

Directors are under an obligation (as is clear from the

expression „shall‟ appearing therein) to make a reference to

BIFR within 60 days from the date of finalization of duly

audited accounts of the company for the financial year, at the

end of which the company has become a sick industrial

company. Since the financial year of a compa ny, for the

purposes is 31

st

March of a particular financial year, the date

on which accounts as on 31

st

March of that year are duly

audited and finalized shall be the starting point of counting the

limitation of 60 days for making reference. Thus, if the

accounts, say of the year as on 31.3.2002 after they are duly

WP(C) Nos.3669 3672/06 Page 10

audited, finalized on 30.9.2002, within 60 days to be counted

from 1.10.2002, the reference is to be made.

10. Proviso to sub-section (1), however, makes an

exception to the aforesaid principle. As per this proviso, if the

Board of Directors has sufficient reasons to form the opinion

that the company had become sick industrial company even

before the finalization of the duly audited accounts, the Board

is not required to wait till the date of finalization of the

accounts. In that event, when such an opinion is formed, the

period of 60 days shall start counting from the day the Board

of Directors has sufficient reason to form the opinion about the

sickness of the company and reference is to be made within 60

days after such an opinion is formed whether the accounts are

finalized or not. In the example given above, if we presume

that there were sufficient reasons to form the opinion about

the sickness of the company on 31.7.2002, the limitation of 60

days, within which reference is to be made, shall start running

from 1.8.2002, though the accounts were ultimately finalized

on 30.9.2002. When we interpret the provision in the

aforesaid manner it is difficult to agree with the opinion of the

AAIFR formulated at (a) above, namely, giving an option to the

company to make reference within 60 days from forming the

opinion and upto 60 days from the date of finalization of

accounts.

WP(C) Nos.3669 3672/06 Page 11

11. However, at the same time it is also important to

decide what treatment is to be given to a reference if it is filed

within 60 days computed in the aforesaid manner. Section

15(1) with its proviso rather exhibited a sense of urgency for

making such a reference. Whereas sub-section (1) of Section

15 deals with computation of 60 days from the date when the

duly audited accounts are finalized, proviso fixes an even

earlier date for making such a reference. The reason is

obvious, namely, if the company has become sick and

normally such a fact would be known when the accounts are

finalized, within 60 days the reference is to be made.

However, if this fact has come to the notice of the Board of

Directors even before finalization of the accounts, 60 days‟

period is to start from the formation of the opinion. The

purpose is to approach the BIFR as early as possible so that

immediate measures are taken for revival of such a sick

company by the BIFR. The law as laid down by various

judgments of the Bombay High Court as well as by this Court is

that Section 15(1) does not lay down any period of limitation

but creates an obligation upon the Board of Directors of a sick

industrial company to approach the BIFR at the earliest.

Therefore, in the event of delay in fulfilling the obligation, and

not preferring the reference within 60 days from the date the

same ought to be preferred, the consequence would be to take

WP(C) Nos.3669 3672/06 Page 12

penal action against the management of the sick industrial

company as provided under Section 33(1) of the SICA. At the

same time, in so far as reference is concerned, it is not to be

rejected on the sole ground of belated filing of the reference,

unless the Board finds that delayed filing of reference is on

account of the Board of Directors of the company being guilty

of „supine indifference‟ or that there was a lack of bona fides

on the part of the Directors. This principle was first laid down

by the Bombay High Court in the matter of Garware Chemicals

Ltd. v. BIFR & Ors., (2004) 1 CLJ 350 Bom. and followed by it in

its subsequent judgment in the case of Esquire Polymers Ltd.

v. AAIFR & Ors., (2004) 53 SCL 183. In this judgment, the

Bombay High Court also held that there was no provision in

the Act which debarred the BIFR to exercise its discretion of

condonation of delay, in a given case on the basis of material

placed on record before it. It was subsequently held that in

the event of delay in filing the reference, it is not to be

rejected on the sole ground that it was not filed within

stipulated period of 60 days. Rather, there was an obligation

on the part of the BIFR to take the reference to its logical

conclusion and not to scuttle it down by reading Section 15(1)

as a period of limitation. Following observations from this

judgment are worth a quote:-

WP(C) Nos.3669 3672/06 Page 13

“10. As noted above, under Section

16(1)(b) of the SICA, the BIFR itself is

empowered to take cognizance of the

problem and register reference on its own.

There is no period of limitation therein.

There is no period of limitation when it

comes to the reference at the instance of

Central Government, Reserve Bank, State

Bank or Public Financial Institutions under

Section 15(2) of the SICA. In this

background, when we look at Section 15(1)

of the SICA, the only inference, that can be

drawn, will be that this is a requirement

which puts the Companies on their toes and

it expects them to file their reference within

a period of sixty days. In the event, the

reference is not filed, there will be a penal

consequence under Section 33(1) of the

SICA. However, to say that the reference

would not be registered at the end of the

period of sixty days, would be negating the

objectives, for which the quasi judicial

Authority under the Act is created. The

Authority cannot close the eyes in the

problem brought to its notice merely

because the reference is made beyond

sixty days. It has power to hold an inquiry

as required under Section 16(1) of the SICA

and proceed to frame an appropriate

scheme by way of rehabilitation and/or to

pass appropriate order, if it is of the opinion

that no rehabilitation is possible; reference

must to go its logical conclusion and it

cannot be scuttled by reading Section 15(1)

as a period of limitation.”

12. This Court in its judgment dated 23.9.2004 rendered

in WP(C) No.713/2003 entitled Avik Pharmaceuticals Limited

agreed with the view of the Bombay High Court expressed in the

aforesaid judgments. In that case, the Board of Directors formed

an opinion that the company had become sick vide its resolution

recorded in its meeting dated 5.2.2001. The reference was

WP(C) Nos.3669 3672/06 Page 14

registered on 30.4.2001, which was beyon d 60 days. The BIFR

dismissed the reference vide judgment dated 26.6.2002 holding

that it lacked power to condone the delay. The AAIFR upheld the

order of the BIFR, which was reversed by this Court in its decision

rendered in the aforesaid writ petition extracting the aforesaid

quote of the Bombay High Court in its judgment. The AAIFR in its

impugned order has also referred to another judgment of this

Court in M/s.Empire Jute Co. v. AAIFR – WP(C) No.4035/2001 –

decided on 13.8.2001. In that case, reference was filed based on

the audited balance-sheet for the financial year dated 31.3.1998.

However, on noticing that the company had become sick in the

year 1989 itself, the BIFR rejected the reference as time-barred,

which decision was upheld by the AAIFR holding that cause of

action would arise as soon as the company became sick for the

first time and not every year when its annual accounts are

audited even though the sickness persisted in subsequent years.

Though Section 15(1) of SICA does not lay down l imitation but

casts an obligation on the part of the Board of Directors to file the

reference within time as stipulated in the said sub-section, the

position, thus, emerges would be the following:-

a) Section 15(1) does not lay down any period of

limitation but creates an obligation upon the Board

of Directors of the sick industrial company to

approach the BIFR within the period prescribed.

WP(C) Nos.3669 3672/06 Page 15

b) In case the Board of Directors fails to approach the

BIFR within the stipulated period, the management

of such sick industrial company would be liable for

penal action under Section 33(1) of SICA.

c) The reference can still be entertained on merits as

the purpose is to take expeditious steps for revival

of a sick industrial company, if such revival is

feasible.

d) Even in the absence of any specific provision, the

BIFR can exercise its discretion to condone the

delay.

e) The reference should be rejected only if the Board

of Directors of the company are guilty of „supine

indifference‟ or when there is lack of bona fides in

making such a reference.

14. When the position in law, is as stated hereinabove, it

cannot follow that the reference can be made during the

period as opined by the AAIFR in its conclusion (a). If that

interpretation is accepted, even when the reference is made

beyond 60 days, the Board of Directors can contend that there

is no fault on their part and they are not liable for action under

Section 33(1) of SICA. The carving out of „earliest date‟ and

„latest date‟ between which reference can be filed is clearly in

the teeth of provisions of Section 15, as if the proviso lays

WP(C) Nos.3669 3672/06 Page 16

down an additional date for filing the reference. The provisos

are not to be interpreted in this manner. It would be of

interest to note that the AAIFR took note of certain judgment

of the Apex Court as well as Privy Council providing guidelines

as to how provisos are to be interpreted, as is clear from the

following discussion contained in the judgment:-

“In the case of Angurbala Mullick Vs.

Bebabrata Mullick, AIR 1951 SC 293, the

Hon‟ble Supreme Court has held as under:-

“proviso is normally an

excepting or qualifying clause and

the effect of it is to execute out of

the preceding clause upon which

it is engrafted something which

but for the proviso would be

within it. Proviso which is found

contradictory to the whole

document, held to be ignored.”

13. In the words of Lord Macmillan

[Madras & Southern Maharatta Rly. Co. Vs.

Bezwada Municipality AIR 1944 PC 71 at

73]:

“As a general rule, a proviso is

added to an enactment to qualify

or create an exception to which is

in the enactment and ordinarily, a

proviso is not interpreted as

stating a general rule.”

(iv) In the case of S. Sundaram Pillai v.

V.R. Pattabiraman, [(1985) 1 SCC 591, at

page 611], the Hon‟ble Supreme Court has

held as under:

“43. We need not multiply

authorities after authorities on

this point because the legal

position seems to be clearly and

WP(C) Nos.3669 3672/06 Page 17

manifestly well established. To

sum up, a proviso may serve four

different purposes:

(1) qualifying or excepting

certain provisions from the

main enactment:

(2) it may entirely change the

very concept of the

intendment of the

enactment by insisting on

certain mandatory

conditions to be fulfilled in

order to make the

enactment workable.

(3) it may be so embedded in

the Act itself as to become

an integral part of the

enactment and thus acquire

the tenor and colour of the

substantive enactment

itself; and

(4) it may be used merely to act

as an optional addenda to

the enactment with the sole

object of explaining the real

intendment of the statutory

provision.”

15. In spite thereof, the Tribunal concluded that proviso to

Section 15(1) was an enabling provision and could not have

overriding effect over the main provision. On this basis

principle (a) was laid down with which we are unable to agree

and substitute the said principle in the following words:-

“(a) The reference is normally to be made

by the Board of Directors of a sick industrial

company, with BIFR, within 60 days from

WP(C) Nos.3669 3672/06 Page 18

the date of finalization of the duly audited

accounts of the company for the financial

year. However in case the Board of

Directors has sufficient reasons to form the

opinion, even before the finalization of

accounts, that the company has become

sick, then the Board of Directors are not to

wait till the accounts are finalized but are

under obligation to make a reference to the

BIFR within 60 days from the date of

forming such an opinion. In this

eventuality, provided under the proviso, the

date by which reference is to be made

would even be earlier than the time, which

is stipulated in sub-section (1)

In so far as principles (b) to (e) are concerned, we

approve the same.

16. Notwithstanding the view which we have taken, we do

not deem it proper to interfere with the direction given by the

AAIFR in remanding the case to the BIFR for fresh

consideration. Reason is simple. As noted above, BIFR had

rejected the reference as time-barred only on the ground that

the company did not approach on the basis of balance -sheet

as on 1.3.2001, though statutory auditors had confirmed that

it had become a sick industrial company as per the provisions

of the Act. Even in such a case, when the reference is sought

on the basis of balance-sheet as on 31.3.2002, it has to be

considered in the light of the principles laid down in paras (b)

to (e) above and the BIFR has to determine as to whether

there were justifiable reasons for delay or it was a case of

„supine indifference‟ or there was any mala fides in not filing

WP(C) Nos.3669 3672/06 Page 19

the reference within the stipulated period. Of course, because

of delay, action under Section 33(1) of SICA could be taken

against the management of the company as observed by the

AAIFR as well. We, therefore, dismiss these writ petitions and

direct the BIFR to consider the reference submitted by these

companies in the light of the discussion above. There shall,

however, be no order as to costs.

(A.K. SIKRI)

JUDGE

March28, 2008 (VIPIN SANGHI)

HP. JUDGE