Article 359 & Article 39 of the Constitution of India 1950.
No Acts & Articles mentioned in this case
Page 1 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1920 OF 2012
(Arising out of SLP (C) No.26149 of 2011)
Raheja Universal Limited … Appellant
Versus
NRC Limited & Ors. … Respondents
WITH
CIVIL APPEAL NO. 1921 OF 2012
[Arising out of SLP (C) Nos. 5360 / 2012 (CC
15948/2011)],
CIVIL APPEAL NO. 1922 OF 2012
(Arising out of SLP (C) No.26624 of 2011)
CIVIL APPEAL NO. 1923 OF 2012
(Arising out of SLP (C) No.26964 of 2011
J U D G M E N T
Swatanter Kumar, J .
Leave granted in all cases.
1.An interesting question of law as to the ambit and scope
of Section 22 of the Sick Industrial Companies (Special
Provisions) Act, 1985 (for short, the ‘Act of 1985’) and its
overriding application over the provisions of Transfer of
1
Page 2 Property Act, 1882 (for short, the ‘Act of 1882’), with
particular reference to Section 53A and Section 54 of the
latter Act, arises for consideration in the present case.
Reference to the basic facts which give rise to this
proposition of law would be necessary and are as follows:
Facts:
2.NRC Limited is a company which was originally
incorporated under the name and style of ‘National Rayon
Corporation Limited’ in the year 1946. However,
subsequently, by an appropriate resolution of the Board of
Directors, its name was changed to ‘NRC Limited’ on 4
th
August, 1994 (hereinafter referred to as the ‘Respondent-
Company’). The Respondent-Company was engaged in the
manufacture of viscos filament yarn, chemicals and allied
products with its factory at Mohane, Kalyan, District Thane.
As per the facts on record, the Respondent-Company was
declared a ‘sick industrial company’ in the year 1987, but as
its net worth turned positive, vide order dated 10
th
January,
1994 passed by the Board for Industrial and Financial
Restructuring (for short, the ‘BIFR’), it was discharged from
2
Page 3 the purview of the Act of 1985. The Respondent-Company had
arranged finances and invested nearly Rs.86 crore in the
financial year 2005-06 whereafter it started incurring losses
because reduction in the customs duty seriously affected its
business. Because of the financial crunch faced by the
Respondent-Company, a consortium of five nationalized banks
comprising of Punjab National Bank, Dena Bank, Canara
Bank, Indian Overseas Bank and the Bank of Baroda had
sanctioned a term loan as well as a working capital loan,
secured by the current assets as well as the fixed assets of the
Respondent-Company including the land in question. The
total outstanding amount of loan, as on 31
st
March, 2006, was
approximately Rs.147 crore. The Respondent-Company
intensified its efforts to dispose of the surplus land so as to
bring in additional funds required for financial restructuring.
A Memorandum of Understanding was signed on 13
th
April,
2006 with ‘K. Raheja Universal Limited’ renamed as ‘Raheja
Universal Limited’ (hereinafter referred to as the ‘Appellant-
Company’) for sale of about 344 acres of land for a total
consideration of Rs.166.40 crore. After obtaining ‘No
Objection Certificates’ from the lending banks, an agreement
3
Page 4 dated 1
st
March, 2007 was signed between the parties and a
sum of Rs.25 crore was paid by the Appellant-Company to the
Respondent-Company. The balance consideration of Rs.141.40
crore was to be paid as per the terms of the agreement. In
terms of the said agreement, the Appellant-Company was to
pay the second instalment of Rs.25 crore, as and when
required, to be utilized only to remove the first charge on the
saleable land, the third instalment of Rs.48.90 crore was to be
paid on receipt of ‘No Objection Certificate’ from the labour,
Kalyan Dombivli Municipal Corporation and, on completion of
fencing and the vacant possession of non-colony land and the
fourth and final instalment of Rs.72.50 crore was to be paid
subsequent thereto.
3.The Agreement dated 1
st
March, 2007 had postulated
payment of the sale consideration in instalments. The parties
continued further negotiations in regard to payment of the
balance sale consideration. The Respondent-Company had
requested the Appellant-Company to advance the payment of
instalments. Thereafter, the parties came to an understanding
and, in furtherance to such understanding, a supplementary
deed to the agreement was signed on 29
th
September, 2007.
4
Page 5 As already noticed, the Appellant-Company had declined to
pay the third instalment of the consideration payable, causing
impediment to payments towards labour costs and other
expenses of the Respondent-Company. Then, the parties, by
mutual agreement, signed a second supplementary agreement
dated 17
th
August, 2010. This agreement referred to the
principal agreement and besides advancing the payment of
instalments, the possession of the property was also given to
the Appellant-Company.
4.There is some dispute between the parties with regard to
the manner and time in which these payments were or were
not made. On failure to attain the object of restructuring, the
Respondent-Company submitted a proposal to the consortium
of banks for Corporate Debt Restructuring (CDR) and
improving the performance and to achieve positive results
during the year 2006-07. The CDR mechanism used the land
sale proceeds. Upon making the proposal, the Respondent-
Company discontinued its production activity in the nylon
plant. The CDR Empowered Group approved the package for
restructuring of debts on 21
st
January, 2008 but still it could
not improve the financial business position of the Respondent-
5
Page 6 Company till the period ending on 30
th
June, 2008. On or
about 24
th
September, 2008, the consortium banks released
their interest over the property. An agreement with the
recognized employees’ unions was also entered into on 5
th
September, 2008 but then it ran into problems, as it was
contended by the Labour Unions that their dues should be
cleared first and on transfer of land, Appellant-Company
should provide 18 acres of land for a proposed employee’s
colony. An early retirement scheme was also introduced and
out of the total strength of 3725 employees, about 577
employees opted to take the benefit of this scheme. The
Respondent-Company then negotiated with the Appellant-
Company sometime in September 2008 for payment of the
third instalment of Rs.48.90 crore. However, simultaneously,
the Labour Unions raised the question of payment of bonus
which adversely affected the revival plans. The chemical plant
of the company was re-started. On 3
rd
December, 2008, the
Respondent-Company moved an application before the BIFR
in Case No. 55 of 2008 under Section 15(1) of the Act of 1985.
The Appellant-Company refused to release the third
instalment and resultantly, even the dues of 577 employees,
6
Page 7 who had taken the benefit of the early retirement scheme,
could not be cleared. The BIFR, vide its order dated 16
th
July,
2009, fixed the cut-off date as 30
th
July, 2007. It directed that
the sale of assets, including investments, will require prior
approval of the BIFR. It also appointed the Punjab National
Bank as the Operating Agency under Section 17(3) of the Act
of 1985.
5.As per Section 18(8) of the Act of 1985, the cut-off date is
the date of coming into operation of the sanctioned scheme, or
any provisions thereof. In other words, all matters relating to
the company would, after this date, be within the ambit and
scope of the provisions of the Act of 1985 and, as already
noticed, the BIFR had declared the cut-off date to be 30
th
July,
2007. Vide its order dated 16
th
July, 2009, which was passed
under Section 17(3) of the Act of 1985, the following directions
were given:
“(i)The Company shall submit a fully tied
up DRS to the OA (Punjab National Bank)
(PNB) within a period of three months. The
sale of 350 acres of land stated to be
approved by the CDR Empowered Group
(EG) and the secured creditors may form
part of the DRS. The details of the land to
be sold including survey numbers should
be clearly specified. The company shall give
7
Page 8 similar details of the remaining land and
conform that it is adequate for the
functioning and viability of the company on
long term basis. The OA (PNB) shall
convene a joint meeting of all concerned
and submit a fully tied up DRs, if it
emerges, along with the minutes of the joint
meeting within a further period of one
month.
(ii)Bank of Baroda (BOB) shall submit an
authenticated copy of the CDR scheme
approved by consortium of banks within a
period of 15 days.
(iii)PNB (OA) shall confirm to the Board
within a period of 15 days under copy to the
company that all the secured creditors who
had charge over the land had approved sale
of 350 acres of land belonging to the
company at Kalyan, Thane Dist. To K.
Raheja Universal Pvt. Ltd. For a sum of Rs.
166.40 crore. The secured creditors who
had charge over the land shall clearly
indicate whether the company had obtained
their approval before entering into MOU and
agreement for sale of 350 acres of land with
K. Raheja Universal Ltd. under copy to the
company the OA (PNB) and the Board.
Secured creditors shall also similarly
submit copy of their approval for sale of
investments, giving details of the
investments. OA shall also submit copies of
the approvals given by the secured creditors
for the sale of the said land along with the
copies of valuation report and the details of
the valuer and the procedure followed based
on which the sale consideration of
Rs.166.40 crores was arrived at. OA shall
also submit a copy of the approvals by
secured creditors for sale of investment
giving details of the investments. The
company shall fully co-operate with the OA
8
Page 9 in furnishing the documents/details
required by them.
(iv)The company shall submit within 15
days under copy to the OA (PNB) copies of
the No Objection Certificates for sale of land
and release of charge issued by all the
charge holder lenders and the State
Government in respect of 350 acres of land
for which MOU and agreement of sale are
stated to be entered into in 2006 and 2007
respectively with K. Raheja Universal Pvt.
Ltd. under copy to the PNB (OA). The
company should also submit certified copies
of the Board resolutions of the company
authorizing these transactions to the OA
with a copy to the Board. The company
shall similarly submit full details of the
investments to be sold under the CDR
scheme. It is reiterated that sale of assets
including investments will require the prior
approval of BIFR as the company is now
under the purview of SICA.
(v)The company shall submit a copy of
the clearance stated to have been received
from Hon’ble High Court of Bombay for sale
of 350 acres of land under copy to the OA
(PNB).
(vi)The secured creditors are directed u/s
22(1) of SICA not to take any coercive action
against the company without prior
permission of BIFR.”
6.As is evident from the above-noted directions, the BIFR
treated the land as an investment and has put certain
restrictions thereupon, including that of sale of assets, which
required the prior approval of BIFR as the Respondent-
9
Page 10 Company was under the purview of the Act of 1985. With
reference to the land, it was directed that Capacity Valuation
Report should be placed on record to show how the sale
consideration of Rs.166.40 crore was arrived at. Aggrieved
from this order, the Appellant-Company as well as the
Respondent-Company, both have preferred an appeal before
the Appellate Authority for Industrial and Financial
Reconstruction (for short the ‘AAIFR’) under Section 25 of the
Act of 1985. The AAIFR made major variations in the order of
the BIFR. Firstly, it held that BIFR should not have fixed 30
th
July, 2007 as the cut-off date and secondly, that the
provisions of Section 22A would not apply to an agreement for
sale which had already been entered into, registered, acted
upon and was in the process of completion. While dealing
with the order of the BIFR, AAIFR vide its order dated 28
th
May, 2010, set aside certain findings of the BIFR as well as
passed certain other directions. It is useful to refer to some of
the findings recorded by the AAIFR in its order which are as
under:
“22. ......... The BIFR has also not
considered the impact of Section 22A or the
transactions, contracts/agreements entered
into between the company and third parties
10
Page 11 prior to the filing of reference when the
company was not a sick entity. If the BIFR
was of the view that the agreement for sale
of land was not in the interest the company,
it could have suspended the contract under
Section 22(3) of SICA as it was a pre-
existing contract. Despite arguments to the
contrary, the BIFR has not given any
reasons to justify how Section 22A of SICA
applies to a pre-existing agreement for sale
entered into between the company and a
third party prior to filing of the reference. In
fact, the agreement for sale is a clog on the
absolute ownership of the property of the
appellant company and the property cannot
be said to be free from encumbrance unless
the registered agreement for sale is
cancelled. The property under agreement
cannot be sold to others during the
subsistence of agreement for sale.
XXX XXX XXX
24. In view of the aforesaid discussion and
considering the various provisions of the
MOU dated 13.4.06, agreement for sale
dated 01.3.07 and supplementary
agreement dated 21.9.07, we are of the view
that the provisions of Section 22A will not
apply to the agreement for sale already
entered into, registered, and acted upon and
in the process of completion. Had it been
the intention of the legislature to cover the
past transactions within the ambit of
Section 22A, the provisions for suspension
of existing contracts etc. would not have
been provided under Sub-Section (3) of
Section 2 of SICA under which the BIFR has
not passed any order. Readiness and
willingness of the parties to the sale
11
Page 12 agreement to honour the contract is also a
paramount consideration.”
7.AAIFR summed up its conclusion in paragraphs 41 and
42 which read as under:
“41. To sum up :
The sale-purchase agreement dated
30.6.2009 was signed after the reference
was filed and 15 days before the BIFR
passed the restraint order under section
22A;
There is no evidence to show whether
various provisions of SEBI Take Over Code
have been complied with;
The company has violated the amended
terms and conditions of STL dated
29.6.2009 by not paying to PNB one
instalment of Rs.2.78 crores before
30.6.2009;
Consequently, PNB ha not released the
shares of AOL for re-pledge by ISG Traders
Ltd.:
According to PNB, however, the company
has shown the entire shares of AOL as sold:
There is no evidence to show that sale
consideration has been paid; and
The ISG Traders Ltd. is neither a party
before the BTR nor before this Authority.
In these circumstances, the BIFR was fully
justified in seeking full details of the
investments to be sold in the CDR scheme
and to direct that the sale of investments
will require the prior approval of the BIFR.
12
Page 13 We find no reasons to interfere with the
aforesaid order of the BIFR regarding sale of
investments.
42. We observed that the BIFR has fixed the
cutoff date as 30.07.2007 on the basis of
the CDR scheme while passing the order
under Section 17(3). The fixation of cut off
date implies that the liabilities and the dues
of the creditors will be determined as on
that date and the repayment obligations will
commence during the year following the cut
oil date. If there is a substantial gap
between the cut off date fixed and the date
of sanction of the scheme, the scheme will
become a non starter because the sick
industrial company will be unable to fulfill
its repayment obligations for the period
between the cut off date as stipulated in the
impugned order and date of sanction of the
scheme, The issue can be resolved by
determining a prospective cut off date.
Section 17(4)(b) of SICA vests in the BIFR
the necessary power to review and modify
its orders under Section 17(3) of SICA.
Therefore, in our view the cut off date fixed
by the BIFR in the impugned order is
required to be suitably modified by the
BIFR.”
8.With the above findings, the AAIFR recorded that the
scheme could be approved but subject to pre-payment of the
entire remaining consideration of Rs.124.64 crores, as per its
directions, for setting off labour dues. In other words, it
permitted the land, though an asset of the company, to be
sold. The correctness and legality of this order of the AAIFR
13
Page 14 was questioned by the Appellant-Company, the Respondent-
Company and the NRC Mazdoor Sangh before the High Court.
These Writ Petitions, along with other connected Writ
Petitions, were disposed of by the High Court by a common
judgment dated 29
th
July, 2011. The High Court, primarily,
framed two questions for discussion: firstly, whether the land
covered by the agreement of sale dated 1
st
March, 2007 and
supplementary agreement signed on 29
th
September, 2007,
was an existing asset of the Respondent-Company and
secondly, what was the scope of the powers of the BIFR under
Section 22(3) of the Act of 1985. The High Court quashed the
order of the AAIFR and confirmed the order passed by the
BIFR holding as under:
“(8)..................The AIFR further held that
prior to the filing of the reference under
Section 15 of SICA, a debt restructuring
scheme under the CDR mechanism on
12/12/2007 and 21/1/2008, the CDR
package envisaged sale of surplus land as
well as sale of investments of the appellant
company. Any restraint order on the sale of
land, under the agreements for sale, would
not only complicate the matter but would
hamper the revival process and would also
lead to a prolonged litigation between the
parties and this will not be in the interest of
revival of the sick company. The provisions
of Section 22A which are prospective in
nature would not impact pre existing
14
Page 15 contract for sale entered into by the
company before it filed reference under
Section 15(1) of SICA and, therefore, the
directions given under Section 22A will not
apply to the agreement for sale deed
1/3/2007. The restraint order passed by
the BIFR would apply to any subsequent
proposals for disposal of assets of the
company, if any. But these agreements will
be subject to interim orders and final orders
to be passed by the High Court in the
pending writ petition challenging the
settlement dated 5/9/2008. For all these
reasons, the AIFR held that the agreement
for sale cannot be part of DRS under
Section 18(d) of SICA as the same is under
transfer and unencumbered and legally
enforceable contract exists between the
appellant company and respondent no.13.
However, the AIFR held that the balance
sale consideration in respect of the land to
the tune of Rs.124.64 crores receivable by
the company from respondent no.13 should
form part of the means of finance in the
DRS to be formulated by the BIFR for
rehabilitation of the company. One payment
of balance sale consideration by respondent
no.13, the same shall be deposited with an
interest bearing NLA with the operating
agency for utilisation as per the
rehabilitation scheme to be sanctioned by
the BIFR. The said scheme was for workers
dues including Rs.45 crores for ERS and
appropriately crystallized amount for ex-
employees dues as per the settlement dated
5/9/2008 with NRC Mazdoor Sangh. The
AIFR further observed that if the BIFR
considers it necessary to make payment to
the workers as provided for in the
agreement with the workers, before the
sanction of the revival scheme, it could do
so to alleviate the hardships of the workers.”
15
Page 16
9.After dealing with these two questions at length, the High
Court was of the opinion that BIFR order dated 16
th
July, 2009
was within the scope of Section 22(3) of the Act of 1985. It
held that the order of the AAIFR permitting the sale of the land
in furtherance to the agreement between the parties was not
sustainable as it was part of the scheme and sale had been
permitted subject to the final orders of the BIFR. This
judgment of the High Court is impugned by the Appellant-
Company before us.
Legislative Scheme of the Act of 1985 :
10.The framers of law felt that the existing institutional
arrangements and procedure for revival and rehabilitation of
potentially viable sick industrial companies are both
inadequate and time consuming. Multiplicity of law and the
regulatory agencies makes the adoption of a coordinated
approach for dealing with sick industrial companies difficult.
Thus, a need was felt to enact, in public interest, a legislation
to provide for timely determination, by a body of experts, of the
preventive, ameliorative, remedial and other measures that
16
Page 17 would be needed to be adopted with respect to such
companies and for enforcement of the appropriate measures
with utmost practicable despatch. The ill-effects of sickness in
industrial companies, such as cessation of production, loss of
employment, loss of revenue to the Central and State
Governments and blocking up of investible funds of the banks
and financial institutions, were of serious concern to the
Government as well as the society at large. It had
repercussions on the industrial growth of the country. With
the passage of time the number of sick industrial units
increased rapidly. Therefore, it was imperative to salvage the
productive assets and release, to the extent possible, the
amounts due to the banks and financial institutions from non-
viable sick industrial debtor companies by liquidation of those
companies or through formulation of rehabilitation schemes.
With these objects, the Bill was introduced with the salient
features inter alia of identification of sickness in the industrial
companies, on the basis of symptomatic indices of cash losses
for the specified periods. Wherever the Government or the
Reserve Bank were satisfied that an industrial company has
become sick, they were required to make a reference to the
17
Page 18 BIFR. The BIFR consists of experts, in various relevant fields,
with powers to inquire into and determine the incidences of
sickness in the industrial companies and devise suitable
measures through appropriate schemes to revive them. An
appeal lies from the order of BIFR to an appellate authority
(the AAIFR) consisting of members selected from amongst
Supreme Court or High Court Judges or Secretaries to the
Government of India. With this background, objects and
reasons, this Bill was passed by the Indian Parliament and it
received the assent of the President of India on 8
th
January,
1986. Thus, it became an Act of the Parliament intended to
revolutionize the mechanism of revival or liquidation of sick
industrial units and channelization of the complete
administrative-cum-quasi judicial process within the
framework of the Act of 1985.
Nature and Scope of the Act of 1985
11.Having dealt with the legislative history and object of the
Act of 1985, we may now examine the very nature of this
legislation. The Act of 1985 basically and predominantly is
remedial and ameliorative in so far as it empowers the quasi-
18
Page 19 judicial body, the BIFR, to take appropriate measures for
revival and rehabilitation of the potentially viable sick
industrial companies and for liquidation of non-viable
companies. It is regulatory only to a limited extent. The
provisions of the Act of 1985 impose an obligation on the sick
industrial companies and potentially sick industrial
companies to make references to the BIFR within the time
specified under the Act of 1985. Default thereof is punishable
under the provisions of the Act of 1985. Largely, the
proceedings before the BIFR are specific to rehabilitation or
winding up of the sick company and the Act of 1985 hardly
contemplates adversarial proceedings. The bodies constituted
under the Act of 1985 would least exercise their jurisdiction to
a lis between any party or upon the rival interests of the
parties. With regard to the matters covered under the Act of
1985, the jurisdiction of the civil courts is ousted and the
matters which are even allied to the formulation and sanction
of the scheme would have to be decided by the BIFR itself.
Even this aspect has been a matter of judicial divergence. In
the case of Gram Panchayat & Anr. v. Shree Vallabh Glass
Works Ltd. & Ors. [(1990) 2 SCC 440], this Court was
19
Page 20 concerned with a company which had been declared ‘sick’
within the meaning and scope of clause (o) of Sub-section (1)
of Section 3 of the Act of 1985. The Gram Panchayat had
initiated coercive proceedings as per Section 129 of the
Bombay Village Panchayat Act, 1959 to recover a sum of
Rs.9,47,539/- stated to be the property tax and other
amounts due from the company. This demand was
challenged. The Bombay High Court quashed the demand
and the recovery proceedings. This Court, while dealing with
the scope of Section 22 read with Sections 16 and 17 of the
Act of 1985, took the view that all proceedings for execution,
distress or the like against the properties of the company
would automatically be suspended and could not continue
without the consent of the BIFR. This Court held as under: -
“10. In the light of the steps taken by the
Board under Sections 16 and 17 of the Act,
no proceedings for execution, distress or the
like proceedings against any of the
properties of the company shall lie or be
proceeded further except with the consent
of the Board. Indeed, there would be
automatic suspension of such proceedings
against the company's properties. As soon
as the inquiry under Section 16 is ordered
by the Board, the various proceedings set
out under sub-section (1) of Section 22
would be deemed to have been suspended.
20
Page 21 11. It may be against the principles of
equity if the creditors are not allowed to
recover their dues from the company, but
such creditors may approach the Board for
permission to proceed against the company
for the recovery of their
dues/outstandings/overdues or arrears by
whatever name it is called. The Board at its
discretion may accord its approval for
proceeding against the company. If the
approval is not granted, the remedy is not
extinguished. It is only postponed. Sub-
section (5) of Section 22 provides for
exclusion of the period during which the
remedy is suspended while computing the
period of limitation for recovering the dues.”
12.This Court in the case of Deputy Commercial Tax Officer
& Ors. v. Corromandal Pharamaceuticals & Ors. [(1997) 10 SCC
649] had taken a somewhat divergent view to the view taken in
Shree Vallabh Glass Works (supra). In this case, this Court,
while examining the language of Section 22 of the Act of 1985,
came to the conclusion that it was certainly a wide provision.
In the totality of the circumstances, the safeguards stated
under Section 22 of the Act of 1985 are only against any
impediment that is likely to be caused in the implementation
of the scheme. If the matter falls outside the purview of the
scheme and the dues are not reckoned or included in the
sanctioned scheme of rehabilitation, recovery of sales tax dues
would not be covered under this provision and as such the bar
21
Page 22 of Section 22(1) of the Act of 1985 would not operate. This
Court held as under: -
“.....The language of Section 22 of the Act is
certainly wide. But, in the totality of the
circumstances, the safeguard is only
against the impediment, that is likely to be
caused in the implementation of the
scheme. If that be so, only the liability or
amounts covered by the scheme will be
taken in, by Section 22 of the Act. So, we
are of the view that though the language of
Section 22 of the Act is of wide import
regarding suspension of legal proceedings
from the moment an inquiry is started, till
after the implementation of the scheme or
the disposal of an appeal under Section 25
of the Act, it will be reasonable to hold that
the bar or embargo envisaged in Section
22(1) of the Act can apply only to such of
those dues reckoned or included in the"
sanctioned scheme. Such amounts like
sales tax, etc. which the sick industrial
company is enabled to collect after the date
of the sanctioned scheme legitimately
belonging to the Revenue, cannot be and
could not have been intended to be covered
within Section 22 of the Act. Any other
construction will be unreasonable and
unfair and will lead to a state of affairs
enabling the sick industrial unit to collect
amounts due to the Revenue and withhold
it indefinitely and unreasonably. Such a
construction which is unfair, unreasonable
and against spirit of the statutes in a
business sense, should be avoided.”
13.While taking the above view, this Court also noticed the
judgment in Shree Vallabh Glass Works (supra) but
22
Page 23 distinguished the same by stating that the facts in that case
were distinct.
14.The above two judgments covered the field of law in this
regard for a considerable time, till the judgment of this Court
was rendered in the case of Jay Engineering Works Ltd. v.
Industry Facilitation Council & Anr. [AIR 2006 SC 3252]. In the
said judgment, this Court was dealing with a question as to
whether the award made under Interest on Delayed Payments
to Small Scale and Ancillary Industrial Undertakings Act,
1993 was covered under Section 22 of the Act of 1985 or
despite the pendency of such proceedings before the BIFR the
award could be executed. This Court also discussed the issue
as to which of the above two Acts would prevail. Dealing
with the language of Section 22 of the Act of 1985, this Court
took the view that the said Act shall prevail and though the
adjudicatory process of making an award under the 1993 Act
would not come under the purview of the Act of 1985, once an
award is made and sought to be executed, the provisions of
Section 22 of the Act of 1985 shall take over and such award
would not be executable against the sick company,
particularly when the party in whose favour the award was
23
Page 24 made was, as in the present case, included in the category of
dormant creditors of the sick company. This Court in the said
judgment held as under: -
“17. The said provision, thus, mandates
that no proceeding inter alia for execution,
distress or the like against any of the
properties of the industrial company and no
suit for recovery of money or for the
enforcement of any security, shall lie or be
proceeded with further, except with the
consent of the Board or as the case may be,
the Appellate Authority. The said statutory
injunction will operate when an inquiry had
been initiated under Section 16 or a scheme
referred to under Section 17 is under
preparation and/ or inter alia a sanctioned
scheme is under implementation. It is not
disputed before us that the amount
awarded in favour of the Respondent by the
Council finds specific mention in the
sanctioned scheme which is under
implementation.
18. The award of the Council being an
award, deemed to have been made under
the provisions of the 1996 Act, indisputably
is being executed before a Civil Court.
Execution of an award, beyond any cavil of
doubt, would attract the provisions of
Section 22 of the 1985 Act. Whereas an
adjudicatory process of making an award
under the 1993 Act may not come within
the purview of the 1985 Act but once an
award made is sought to be executed, it
shall come into play. Once the awarded
amount has been included in the Scheme
approved by the Board, in our opinion,
Section 22 of the 1985 Act would apply.
24
Page 25 XXX XXX XXX
21.The 1985 Act was enacted in public
interest. It contains special provisions. The
said special provisions had been made with
a view to secure the timely detection of sick
and potentially sick companies owning
industrial undertakings, the speedy
determination by a Board of experts for
preventive, ameliorative, remedial and other
measures which need to be taken with
respect to such companies and the
expeditious enforcement of the measures so
determined and for matters connected
therewith or incidental thereto.”
15.Furthermore, in a recent judgment of this Court in the
case of Shree Sajjan Mills Limited & Ors. v. Municipal
Corporation, Ratlam [(2009) 17 SCC 665], this Court was
dealing with a company which had approached the BIFR for
being registered as a sick company and was so declared on
21
st
November, 1989. The BIFR had recommended the
winding up of the sick company but the AAIFR had taken the
view that the company could be rehabilitated and, therefore,
framed the scheme for its revival. For the purpose of revival,
an Assets Sales Committee was constituted for selling, via
tender process, the surplus land belonging to the appellant-
company. The issue under consideration was that when the 20
per cent of the purchase price deposited by the tenderer as
25
Page 26 earnest money as per the terms and conditions of the sale was
forfeited, whether the same could be challenged only before
the BIFR or the civil courts could determine the dispute and
whether the bar contained under Section 26 of the Act of 1985
would operate. This Court took the view as under: -
“12. We agree with the view expressed by
the High Court that the forfeiture of the
earnest money by the Assets Sale
Committee could not have been the subject-
matter of a dispute within the meaning of
Section 26 which either BIFR or AAIFR has
the jurisdiction to determine. Accordingly,
we see no reason to interfere with the
judgment and order of the High Court
impugned in this appeal.”
16.We may notice that though the Bench had noticed the
view taken in the case of Jay Engineering (supra), no detailed
reasoning was recorded for rejecting the said view.
17.In order to affirmatively answer whether the view of this
Court expressed in Shree Vallabh Glass Works (supra) is the
correct and acceptable exposition of law, it is but necessary for
this Court to examine the scheme of the Act of 1985 and some
of its relevant provisions. As already noticed, the Act of 1985
was enacted by the Legislature, primarily with the object of
establishing a specialized body for revival, rehabilitation and
26
Page 27 even winding up of sick industrial companies and wherever
necessary, providing them with financial assistance. The
provisions contained in Chapter III of the Act of 1985, which
deals with References, Inquiries and Schemes, are the relevant
provisions which can throw some light on the matter and
issues before us. Section 15 of the Act of 1985 places an
obligation upon an industrial company, which has become
sick in terms of that provision, to make a reference to the
BIFR established under Section 4 of the Act of 1985 within the
period of limitation prescribed. While under Section 15(2)
where the Central Government or Reserve Bank of India or a
State Government or a Public Financial Institution has
sufficient reasons to believe that any industrial company has
become, for the purpose of the Act of 1985, a sick industrial
company, would also make a reference of such company to the
Board for determination of the measures which may be
adopted with regard to such company. Section 16 of the Act of
1985 deals with the conduct of an inquiry by the BIFR and the
manner in which the BIFR is expected to deal with the matter
upon receipt of a reference under Section 15 of the Act of
1985. Section 16 vests the BIFR with very wide powers of
27
Page 28 inquiry and passing appropriate orders. Section 16(2)
empowers the BIFR to pass an order, in its discretion,
directing any operating agency to inquire into and to make a
report with regard to the matters as may be specified in the
order. Such operating agency is expected to complete the
inquiry expeditiously and preferably within 60 days from the
date of commencement of inquiry. The BIFR is vested with
powers such as appointing special directors for the sick
company and issuing directions to the special directors in
relation to discharge of their duties and to improve the
performance of any or all of the functions postulated under
Section 16(6) of the Act of 1985. After the inquiry by the BIFR
or by the operating agency is completed, BIFR if satisfied that
the company has become sick and upon considering all
relevant facts and circumstances of the case in exercise of its
powers under Section 17 of the Act of 1985, may pass orders
requiring the company to make its net worth exceed the
accumulated losses within a reasonable time and for that
purpose it may impose such restrictions or conditions as may
specified in the order in terms of Section 17(2) of the Act of
1985. Further, where the BIFR decides that it is not
28
Page 29 practicable for a sick industrial company to make its net
worth exceed the accumulated losses within a reasonable time
and that it is otherwise necessary or expedient in public
interest to adopt all or any of the measures specified in
Section 18 of the Act of 1985 in relation to the said company,
it may, having regard to the guidelines, as may be specified,
pass an order formulating a scheme providing for such
measures in relation to the sick industrial company. In the
event of non-compliance of the restrictions or conditions
specified in the order of the BIFR or where the company fails
to revive itself in pursuance to the order, the BIFR can pass
any of the directions/orders as required under Section 17(4) of
the Act of 1985. Section 18 of the Act of 1985 again is a
remedial provision which contains specified guidelines for the
preparation and sanction of the schemes for the revival of the
sick industrial company. Where an order is made under
Section 17(3) in relation to a sick industrial company, the
operating agency is required to prepare, as expeditiously as
possible, ordinarily within 90 days from the date of such
order, a scheme with respect to such company providing for
any one or more of the measures stated under sub-clauses (a)
29
Page 30 to (f) of Section 18(1) of the Act of 1985. The scheme so
framed may provide for any one or more of the measures
stated under clauses (a) to (m) of Section 18(2) of the Act of
1985. The scheme which has been prepared in consonance
with the provisions of Section 18(1) and 18(2) then has to be
examined by the BIFR in terms of Section 18(3) of the Act of
1985 and if the BIFR makes any modifications to the scheme,
the same draft scheme, in brief, shall be published or caused
to be published in such daily newspapers as the BIFR may
consider necessary, for receipt of suggestions and objections,
if any. In light of the suggestions and objections received in
response to such publication, the BIFR may still make further
modifications. Also, where the scheme relates to
amalgamation of the companies, the procedures specified
therein shall be followed. In such cases, the shareholders of
the company, other than the sick industrial company, are
expected to pass a resolution of approval of the scheme. The
scheme thereafter shall be sanctioned by the BIFR and shall
come into force on such date as the BIFR may specify in this
behalf and in exercise of the powers vested in it under Section
18(4) of the Act of 1985. This scheme does not attain finality
30
Page 31 which is unalterable. Once the scheme is sanctioned and
comes into force even then, on the recommendation of the
operating agency, the BIFR can consider further modifications
or even prepare a fresh scheme providing for such measures
as the operating agency may consider it necessary and
recommended in terms of Section 18(5) of the Act of 1985.
18.Section 18(7) of the Act of 1985 is an important provision
which provides that the sanction accorded by the BIFR shall
be conclusive evidence that all the requirements of the scheme
relating to reconstruction or amalgamation or any measure
specified therein have been complied with and a copy of the
sanctioned scheme certified in writing by an officer of the BIFR
to be a true copy thereof shall be admissible as evidence in all
legal proceedings. To resolve the difficulties that may arise in
giving effect to the provisions to the sanctioned scheme, the
BIFR may, on the recommendation of the operating agency or
otherwise, by order do anything, not inconsistent with such
provisions, which appears to it to be necessary or expedient
for the purpose of removing difficulty in terms of Section 18(9)
of the Act of 1985. The role of the BIFR does not end here and
it may even periodically monitor the implementation of the
31
Page 32 scheme. Where the scheme relates to preventive, ameliorative,
remedial and other measures with respect to any sick
industrial company, the scheme may provide for financial
assistance by way of loans, advances or guarantees from the
Government or financial institutions. Before any financial
institution is called upon to proceed to release the financial
assistance to the sick industrial company in fulfilment of the
requirements in that regard, the procedure contemplated
under the provisions of Section 19 of the Act of 1985 has to be
followed. Where the BIFR, after making inquiry under Section
16 of the Act of 1985, considering all relevant facts and
circumstances and giving an opportunity of being heard to all
concerned parties, is of the opinion that the sick industrial
company is not likely to make its net worth exceed the
accumulated losses within a reasonable time while meeting all
its financial obligations and that the company as a result
thereof is not likely to become viable in future and that it is
just and equitable that the company should be wound up, it
may record and forward its opinion to the concerned High
Court as per the provisions of Section 20 of the Act of 1985
whereafter the company shall be wound up in accordance with
32
Page 33 the provisions of the Companies Act, 1956. The High Court
may even appoint any officer of the operating agency as the
liquidator of the sick industrial company. Section 21 of the
Act of 1985 requires the operating agency to prepare an
inventory, if so directed by the BIFR.
19.Sections 22 and 22A have a significant bearing upon the
controversy that arises for consideration of the Court in the
present case and it will be useful to refer to those provisions at
this stage itself:
“22. Suspension of legal proceedings,
contracts, etc.- (1) Where in respect of an
industrial company, an inquiry under section 16
is pending or any scheme referred to under
section 17 is under preparation or consideration
or a sanctioned scheme is under
implementation or where an appeal under
sections 25 relating to an industrial company is
pending, then, notwithstanding anything
contained in the Companies Act, 1956 (1 of
1956), or any other law or the memorandum
and articles of association of the industrial
company or any other instrument having effect
under the said Act or other law, no proceedings
for the winding up of the industrial company or
for execution, distress or the like against any of
the properties of the industrial company or for
the appointment of a receiver in respect thereof
[and no suit for the recovery of money or for the
enforcement of any security against the
industrial company or of any guarantee in
respect of any loans or advance granted to the
industrial company] shall lie or be proceeded
33
Page 34 with further, except with the consent of the
Board or, as the case may be, the Appellate
Authority.
(2) Where the management of the sick industrial
company is taken over or changed, in
pursuance of any scheme sanctioned under
section 18, notwithstanding anything contained
in the Companies Act, 1956 (1 of 1956), or any
other law or in the memorandum and articles of
association of such company or any instrument
having effect under the said Act or other law -
(a) it shall not be lawful for the
shareholders of such company or any other
person to nominate or appoint any person
to be a director of the company;
(b) no resolution passed at any meeting of
the shareholders of such company shall be
given effect to unless approved by the
Board.
(3) Where an inquiry under section 16 is
pending or any scheme referred to in section 17
is under preparation or during the period of
consideration of any scheme under section 18 or
where any such scheme is sanctioned
thereunder, for due implementation of the
scheme, the Board may by order declare with
respect to the sick industrial company
concerned that the operation of all or any of the
contracts, assurances of property, agreements,
settlements, awards, standing orders or other
instruments in force, to which such sick
industrial company is a party or which may be
applicable to such sick industrial company
immediately before the date of such order, shall
remain suspended or that all or any of the
rights, privileges, obligations and liabilities
accruing or arising thereunder before the said
date, shall remain suspended or shall be
enforceable with such adoptions and in such
manner as may be specified by the Board:
34
Page 35 Provided that such declaration shall not be
made for a period exceeding two years which
may be extended by one year at a time so,
however, that the total period shall not exceed
seven years in the aggregate.
(4) Any declaration made under sub-section (3)
with respect to a sick industrial company shall
have effect notwithstanding anything contained
in the Companies Act, 1956 (1 of 1956), or any
other law, the memorandum and articles of
association of the company or any instrument
having effect under the said Act or other law or
any agreement or any decree or order of a court,
tribunal, officer or other authority or of any
submission, settlement or standing order and
accordingly, -
(a) any remedy for the enforcement of any
right, privilege, obligation and liability
suspended or modified by such declaration,
and all proceedings relating thereto pending
before any court, tribunal, officer or other
authority shall remain stayed or be
continued subject to such declaration; and
(b) on the declaration ceasing to have effect
-
(i) any right, privilege, obligation or
liability so remaining suspended or
modified, shall become revived and
enforceable as if the declaration had
never been made; and
(ii) any proceeding so remaining stayed
shall be proceeded with, subject to the
provisions of any law which may then
be in force, from the stage which had
been reached when the proceedings
became stayed.
(5) In computing the period of limitation for the
enforcement of any right, privilege, obligation or
35
Page 36 liability, the period during which it or the
remedy for the enforcement thereof remains
suspended under this section shall be excluded.
22A. Direction not to dispose of assets - The
Board may, if it is of opinion that any direction
is necessary in the interest of the sick industrial
company or creditors or shareholders or in the
public interest, by order in writing direct the
sick industrial company not to dispose of,
except with the consent of the Board, any of its
assets -
(a) during the period of preparation or
consideration of the scheme under section
18; and
(b) during the period beginning with the
recording of opinion by the Board for
winding up of the company under sub-
section (1) of section 20 and up to
commencement of the proceedings relating
to the winding up before the concerned
High Court.
20.A bare reading of the above provision shows that Section
22 of the Act of 1985 is concerned with the suspension of legal
proceedings, execution and distress sale etc. against the
assets of a sick company while Section 22A deals with power
of the Board to issue directions restraining the disposal of
assets of such companies. These two provisions primarily
ensure that the scheme prepared by the BIFR does not get
frustrated because of certain other legal proceedings and to
prevent untimely and unwarranted disposal of the assets of
36
Page 37 the sick industrial company. These sections clearly state
certain restrictions which will impact upon the
implementation of the scheme as well as on the assets of the
company. These sections operate at different stages and in
different fields. Section 22(3) of the Act of 1985 contemplates
that where an inquiry under Section 16 is pending or any
scheme referred to in Section 17 is under preparation or
during the period of consideration of any scheme under
Section 18 or where any such scheme is sanctioned
thereunder for due implementation of the scheme, the BIFR
may, by order, declare that with respect to the sick industrial
company concerned, the operation of all or any of the
contracts, assurances of property, agreements, settlements,
awards, standing orders or other instruments in force, to
which such sick industrial company is a party or which may
be applicable to such sick industrial company immediately
before the date of such order, shall remain suspended or that
all or any of the rights, privileges, obligations or liabilities
accruing or arising thereunder before the said date, shall
remain suspended or shall be enforceable with such adoptions
and in such manner as may be specified by the BIFR. This
37
Page 38 power of the BIFR is subject to the proviso which states that
the declaration made under this provision shall not be for a
period exceeding two years and which may be extended by one
year at a time, but the total period shall not exceed seven
years in aggregate. Section 22A of the Act of 1985 empowers
the BIFR to pass orders in the interest of the sick industrial
company or even in public interest requiring the sick
industrial company not to dispose of, except with the consent
of the BIFR, any asset during the period of preparation or
consideration of the scheme under Section 18 of the Act of
1985 and during the period beginning with the recording of
opinion for winding up of the company under Section 20(1) of
the Act of 1985 by the BIFR upto commencement of the
proceedings relating to winding up before the High Court.
21.All these provisions which fall under Chapter III of the
Act of 1985 have to be read conjointly and that too, along with
other relevant provisions and the scheme of the Act of 1985.
It is a settled canon of interpretation of statutes that the
statute should not be construed in its entirety and a sub-
section or a section therein should not be read and construed
in isolation. Chapter III, in fact, is the soul and essence of the
38
Page 39 Act of 1985 and it provides for the methodology that is to be
adopted for the purposes of detecting, reviving or even winding
up a sick industrial company. Provisions under the Act of
1985 also provide for an appeal against the orders of the BIFR
before another specialised body, i.e., the AAIFR. To put it
simply, this is a self-contained code and because of the non
obstante provisions, contained therein, it has an overriding
effect over the other laws. As per Section 32 of the Act of
1985, the Act is required to be enforced with all its vigour and
in precedence to other laws.
22.The BIFR has been vested with wide powers and, being
an expert body, is required to perform duties and functions of
wide-ranged nature. If one looks into the legislative intent in
relation to a sick industrial company, it is obvious that the
BIFR has to first make an effort to provide an opportunity to
the sick industrial company to make its net worth exceed the
accumulated losses within a reasonable time, failing which the
BIFR has to formulate a scheme for revival of the company,
even by providing financial assistance in cases wherein the
BIFR in its wisdom deems it necessary and finally only when
both these options fail and the public interest so requires, the
39
Page 40 BIFR may recommend winding up of the sick industrial
company. So long as the scheme is under consideration
before the BIFR or it is being implemented after being
sanctioned and is made operational from a given date, it is the
legislative intent that such scheme should not be interjected
by any other judicial process or frustrated by the impediments
created by third parties and even by the management of the
sick industrial company, in relation to the assets of the
company. In other words, the object and purpose of the Act of
the 1985 is to ensure smooth sanctioning of the scheme and
its due implementation. Both these stages, i.e., pre and post
sanctioning of the scheme by the BIFR, are equally material
stages where the provisions of Sections 22 and 22A read with
Section 32 of the Act of 1985 would come into play. Such an
approach would also be acceptable as otherwise the entire
scheme under Chapter III of the Act of 1985 would be
frustrated. Doctrine of frustration envisages that an exercise
of special jurisdiction in futility, is neither the requirement of
legislature nor judicial dictum.
23.In Shree Vallabh Glass Works (supra), this Court had
taken a general view that in the light of Sections 16 and 19 of
40
Page 41 the Act of 1985, no proceedings for execution, distress or the
like against any of the property of the company shall be
allowed to be proceeded further except with the consent of the
BIFR. Reference in this regard was made to the provisions of
the Section 22(1) of the Act of 1985. Despite non-obstante
language of Section 22(1) and the prohibition contained
therein, there is no absolute bar for institution and
continuation of legal proceedings against a sick industrial
company or its assets. The same can continue only after
obtaining the consent of the BIFR or the AAIFR, as the case
may be. Once permission is granted, the proceedings can
continue and decree can be executed. In the case of
Corromandal Pharmaceuticals & Ors. (supra), the scope of
Section 22 of the Act of 1985 was sought to be restricted only
to the items which have been reckoned or included in the
scheme for rehabilitation failing which the recovery or
proceedings in relation to that particular liability would
continue despite the provisions of the Act of 1985. In that
case the Court was concerned with the recovery of sales tax
dues, which the sick industrial company was enabled to
collect after the date of sanction of the scheme. The revenue
41
Page 42 was due to the department and the recovery of such amount
was held to be beyond the purview of the Act of 1985.
24.In Jay Engineering (supra), the dictum of this Court was
that the Act of 1985 is a complete code in itself and the
provisions of Section 22 of the Act of 1985 would apply to an
award made under the Interest on Delayed Payments to Small
Scale and Ancillary Industries Undertaking Act, 1993, which
would be governed by the provisions of the Arbitration and
Conciliation Act, 1996. This Court also stated the principle
that the Act of 1985 would have an overriding effect over other
statutes, i.e. the 1993 Act in that case. However, the question
whether the BIFR, while implementing the scheme, could
reduce the quantum of liability of the creditors was left open.
25.Firstly, the facts of these cases are different and distinct
and, therefore, conclusions of the Court have to be read with
reference to the facts of the respective cases only and not de
hors thereof. Once the dictum of this Court is read with
reference to the facts of the respective cases, it would be
evident that there is no conflict of views within the ambit of
ratio decidendi of the respective judgments to make both of
them legal and binding precedents. Despite these judgments
42
Page 43 and with an intention to clarify the law, we would state that
the matters which are connected with the sanctioning and
implementation of the scheme right from the date on which it
is presented or the date from which the scheme is made
effective, whichever is earlier, would be the matters which
squarely fall within the ambit and scope of Section 22 of the
Act of 1989 subject to their satisfying the ingredients stated
under that provision. This would include the proceedings
before the civil court, revenue authorities and/or any other
competent forum in the form of execution or distress in
relation to recovery of amount by sale or otherwise of the
assets of the sick industrial company. It is difficult for us to
hold that merely because a demand by a creditor had not been
made a part of the scheme, pre or post-sanctioning of the
same for that reason alone, it would fall outside the ambit of
protection of Section 22 of the Act of 1985. The BIFR, being a
specialised body which is required to act as per the legislative
intent indicated above, has jurisdiction to examine the matter
and grant or refuse its consent for institution, continuation
and recovery of dues payable to a particular creditor, whatever
the nature of such dues may be. If such an interpretation is
43
Page 44 not given, the very purpose of the Act of 1985 may stand
defeated. For instance, a scheme is sanctioned by the BIFR
and is at the stage of successful completion, where demand
from the Revenue with regard to the sick industrial company
is allowed, this can render the scheme ineffective and
impossible to be executed, if permitted to be enforced against
such company without approval/consent of the specialised
body like the BIFR.
26.Section 22A was introduced by the Amending Act 12 of
1994. The obvious intent of introducing the said provision
was to empower the BIFR to issue any direction to the sick
industrial company, its creditors and shareholders, in the
interest of the company or even in public interest, directing
the company not to dispose of any assets, except with the
consent of the BIFR. The directions so issued are to remain in
force during the preparation and consideration of the scheme.
BIFR is also vested with similar powers where it recommends
to the High Court for winding up of a company. The directive
issued by BIFR would remain in force upto the
commencement of the proceedings for winding up before the
High Court. Section 22 is the reservoir of the statutory powers
44
Page 45 empowering the BIFR to determine a scheme, right from its
presentation till its complete implementation in accordance
with law, free of interjections and interference from other
judicial processes. Section 22(1) deals with the execution,
distress or the like proceedings against the company’s
properties, including appointment of a Receiver. It also
specifically provides that even a winding up petition would not
be instituted and no other proceedings shall lie or proceed
further, except with the consent of the BIFR. In
contradistinction to this power, Section 22(3) states that
pending an enquiry or a scheme under the provisions of the
Act of 1985 and even where the scheme is sanctioned, for the
due implementation of such scheme, the BIFR may, by an
order, declare with respect to the sick industrial company
concerned that the operation of all or any of the contracts,
assurances of property, agreements, settlements, awards,
standing orders or other instruments in force to which such
sick industrial company is a party or which may be applicable
to such sick industrial company immediately before the date
of such order, shall remain suspended or that all or any of the
rights or privileges, obligations and liabilities accruing or
45
Page 46 arising thereunder before the said date, shall remain
suspended and shall be enforceable with such adoption and in
such a manner as may be specified by the BIFR. In other
words, all those instruments to which the sick industrial
company is a party, will be subject to the orders of the BIFR.
Further, such proceedings can even be modified by the BIFR,
of course, for the limited purpose of implementing the scheme.
The declarations made by the BIFR under Section 22(3) are
subject to the restrictions of time as stated under the proviso
to this section. The maximum period for which such a
declaration in aggregate can continue is seven years. The
legislative intent of giving an over-riding effect to the
declarations of the BIFR, as contemplated under Section 22(3)
of the Act of 1985, is further fortified by the language of
Section 22(4), which states that any declaration made under
Section 22(3) shall take effect notwithstanding anything
contained in the Companies Act, 1956 or any other law, the
memorandum and articles of association of the company or
any instrument, decree, order of a court, settlement etc. Any
remedy for enforcement of a right which may be available to a
third party and any such proceedings before any court or
46
Page 47 tribunal shall remain stayed or be continued subject to such
declaration. Section 22(4)(b) brings status quo ante and in
fact, makes it clear that on cessation of such a declaration,
the right, privilege, obligation or liability which was suspended
shall become revived and enforceable as if the declaration had
never been made. The proceedings will continue from the
stage at which they were stayed. It can safely be perceived
that the provisions of Section 22 of the Act of 1985 are self-
explanatory. They would cease to operate within their own
limitations and not by force of any other law, agreement,
memorandum or even articles of association of the company.
The purpose is so very clear that during the examination,
finalization and implementation of the scheme, there should
be no impediment caused to the smooth execution of the
scheme of revival of the sick industrial company. It is only
when the specified period of restrictions and declarations
contemplated under the provisions of the Act of 1985 is over,
that the status quo ante as it existed at the time of the
consideration and finalization of the scheme, would become
operative. This is done primarily with the object that the
47
Page 48 assets of the company are not diverted, wasted, taken away
and/or disposed of in any manner, during the relevant period.
27.The powers of the BIFR under Section 22(3) can be
segregated under two different heads. Firstly, the power to
suspend simplicitor the operation of all or any of the
contracts, assurances of property, agreements, settlements,
awards, standing orders or any other instrument in force, to
which the sick industrial company is a party or which may be
applicable to the sick industrial company before the date of
such order. Secondly, any rights, privileges, obligations or
liabilities accruing or arising before the said date, shall be
enforceable with such adaptation and in such manner as may
be specified by the BIFR.
28.This dissection clearly demonstrates the intent of the
framers of law, that the BIFR has the power to even make
changes in such instruments, documents etc. which create
rights and liabilities vis-à-vis the sick industrial company, and
before permitting them to be enforced. Such an approach
alone can be justified, as otherwise the expression ‘shall be
enforceable with such adaptation and in such manner as may
be specified by the BIFR would be meaningless. It is a settled
48
Page 49 principle of interpretation of statutes that every word and
expression used by the legislature has to be given its proper
and effective meaning as the legislature uses no expression
without purpose or meaning. The maxim Lex Nil Frusta Jubet
i.e. Law Commands nothing vainly further elucidates this
principle. Of course, the power to make this declaration as
already noticed is controlled by limitation of time as specified
in the proviso to the Section. Lifting of such declaration by
lapse of time or otherwise or in accordance with the provisions
of Section 22(4) shall bring the status quo ante as if such
declaration had never been made. Section 22A is obviously a
power over and above the wide powers vested in BIFR under
the provisions of Section 22 of the Act of 1985. Section 22 is
the reservoir of the statutory powers empowering the BIFR to
deal with the scheme, right from its presentation till its
complete implementation in accordance with law, free of
interjections and interference from other judicial processes.
29.Section 22A of the Act of 1985 empowers the BIFR to
pass injunctive or restraint orders in relation to the assets of
the sick industrial company. These injunctive orders are to be
in operation during the period of preparation or consideration
49
Page 50 of the scheme under Section 18 of the Act of 1985. Section
22A, thus, has a narrower scope than Section 22. Section 22
operates from the presentation of the scheme, its
consideration, preparation, finalization and ultimately the
implementation of the said scheme and consequent
rehabilitation of the sick industrial company, while Section
22A operates only during the preparation or consideration of
the scheme, or upto the commencement of the proceedings for
winding up before the concerned High Court, in the event the
BIFR recommends winding up proceedings.
30.The relevant provisions of the Act of 1985 clearly
demonstrate that BIFR is vested with the power to issue
directions in the interest of the company or even in public
interest, to prevent the disposal of assets of the company
during the period of preparation, consideration or
implementation of the scheme. Not only this, BIFR is expected
to ensure proper implementation by appropriately monitoring
the scheme during the entire relevant period. Sections 22 and
22A thus specify the complete jurisdiction and authority of the
BIFR in relation to preparation, consideration, finalization and
50
Page 51 implementation of a revival scheme in relation to a sick
industrial company.
31.Where Section 22(1) deals with the restrictions and
limitations vis-à-vis the court proceedings while Section 22(3)
of the Act of 1985 deals with the agreement, intents or other
obligations as stated in that provision and declarations which
will be made by the BIFR for the purposes of finalization and
effective implementation of the scheme. There, Section 22A
deals with restrictions and prohibitory orders which the BIFR
can pass, all for the purposes of preparation of the scheme
and proper implementation and effective management of the
revival of the sick industrial company. These provisions have
to be read along with the provisions of Section 26 of the Act of
1985 which ousts the jurisdiction of the civil courts and vests
exclusive jurisdiction for the specified purposes with the BIFR.
Another relevant provision in this regard is Section 32 of the
Act of 1985, which gives an overriding effect to the provisions
of the Act of 1985 over the other laws in force except the law
specifically stated therein. Sections 22, 22A, 26 and 32 have
to be read and construed conjointly. A common thread of
legislative intent to treat this law as a special law, in
51
Page 52 contradistinction to the other laws except the laws stated in
the provisions and to ensure its effective implementation with
utmost expeditiousness, runs through all these provisions. It
also mandates that no injunction shall be granted by any
court or authority in respect of an action taken or to be taken
in pursuance of the powers conferred to or by under this Act.
CASE LAW
32.In the case of Shree Vallabh Glass Works Ltd. (supra), as
already noticed, this Court had taken a very wide view and
given liberal constructions to the provisions of Section 22 and
held that no proceedings for execution or distress or like
proceedings against any of the properties of the company shall
lie or be proceeded, except with the consent of the BIFR. The
Court also held that the BIFR, at its discretion, may accord its
approval for proceeding against the company. This view of
wide interpretation was accepted by another Bench of this
Court in the case of Maharashtra Tubes Ltd. v. State
Industrial and Investment Corporation of Maharashtra [(1993) 2
SCC 144], wherein this Court took the view that the word
‘proceedings’ under Section 22(1) cannot be given a narrower
or restricted meaning to limit the same to a legal proceeding
52
Page 53 and even the proceedings invoked by a financial institution
under the State Financial Corporation Act were held to be
covered within the ambit of Section 22(1) of the Act of 1985. A
similar view was also taken in the case of Tata Davy Ltd. v.
State of Orissa [AIR 1998 SC 2928]. Answering the question
that steps to recover the sales tax under Section 13A of the
said Act were in the nature of proceedings by way of
execution, distress or the like contemplated by Section 22(1) of
the Act, this Court followed its earlier view and held that even
the proceedings for recovery of tax under the State Act were
covered within the scope of Section 22(1) of the Act of 1985,
and thus, could not be given effect to without
approval/consent of the BIFR.
33.As already noticed above, in the case of Corromandal
Pharmaceuticals (supra), this Court had taken the view that
the bar or embargo envisaged in Section 22(1) can apply only
to such of those cases where it is reckoned or included in the
sub-judice schemes. Amounts like the sales tax which the
sick industry is enabled to collect after the date of the
sanction of the scheme, had to be recovered in the normal
53
Page 54 course, by the Revenue and protection of Section 22(1) was
not available.
34.This view, however, was not clearly adopted by this Court
in subsequent judgments of Jay Engineering (supra), where
this Court accepted the wider connotation of the words
‘proceedings’ appearing in Section 22(1) where an award
passed under the Interest on Delayed Payments to Small Scale
and Ancillary Industries Undertaking Act, 1993 was being
executed, the Court took the view that the award could not be
executed against the sick industry without the leave of the
BIFR as the Act of 1985 would override the provisions of the
1993 Act and approval of the BIFR was essential. Still in
another case, Morgan Securities and Credit Pvt. Ltd. (supra),
this Court had held that the Act of 1985 has an overriding
effect and Section 22(3) of the Act even covers the execution of
non-contractual liabilities like enforcement of an arbitral
award. The Court further held that the imperative character
of an enquiry at the hands of the BIFR is inherent in the
scheme of the Act. The Court also expressed doubt as to
whether the courts of limited jurisdiction, vested with the
power of passing interim orders, could pass interim orders in
54
Page 55 exercise of its incidental power for sale of assets where the
matter was pending before the BIFR.
35.On the analytical analysis of the above-stated dictum of
this Court and the legislative purpose and object of the Act, it
has to be held that on its plain reading the provisions of
Sections 22(1) and 22(3) of the Act are the provisions of wide
connotation and would normally bring the specified
proceedings, contractual and non-contractual liabilities,
within the ambit and scope of the bar and restrictions
contained in Sections 22(1) and 22(3) of the Act of 1985
respectively. The legislative intent is explicit that the BIFR has
wide powers to impose restrictions in the form of declaration
and even prohibitory/injunctive orders right from the stage of
consideration of a scheme till its successful implementation
within the ambit and scope of Sections 22(3) and 22A of the
Act. Section 22 of the Act of 1985 is very significant and of
wide ramifications and application. More often than not, the
jurisdiction of the BIFR is being invoked, necessitated by
varied actions of third parties against the sick industrial
company. The proceedings, taken by way of execution,
distress or the like, may have the effect of destabilizing the
55
Page 56 finalization and/or implementation of the scheme of revival
under consideration of the BIFR. It appears that, the
Legislature intended to ensure that no impediments are
created to obstruct the finalization of the scheme by the
specialized body. To protect the industrial growth and to
ensure revival, this preventive provision has been enacted.
The provision has an overriding effect as it contains non
obstante clauses not only vis-à-vis the Companies Act but
even qua any other law, even the memorandum and articles of
association of the industrial company and/or any other
instrument having effect under any other Act or law. These
proceedings cannot be permitted to be taken out or continued
without the consent of the BIFR or the AAIFR, as the case may
be. The expression ‘no proceedings’ that finds place in Section
22(1) is of wide spectrum but is certainly not free of
exceptions. The framers of law have given a definite meaning
to the expression ‘proceedings’ appearing under Section 22(1)
of the Act of 1985. These proceedings are for winding up of
the industrial company or for execution, distress or the like
against any of the properties of the industrial company or for
the appointment of a Receiver in respect thereof. The
56
Page 57 expression ‘the like’ has to be read ejusdem generis to the term
‘proceedings’. The words ‘execution, distress or the like’ have
a definite connotation. These proceedings can have the effect
of nullifying or obstructing the sanctioning or implementation
of the revival scheme, as contemplated under the provisions of
the Act of 1985. This is what is required to be avoided for
effective implementation of the scheme. The other facet of the
same Section is that, no suit for recovery of money, or for
enforcement of any security against the industrial company, or
any guarantee in respect of any loan or advance granted to the
industrial company shall lie, or be proceeded with further
without the consent of the BIFR. In other words, a suit for
recovery and/or for the stated kind of reliefs cannot lie or be
proceeded further without the leave of the BIFR. Again, the
intention is to protect the properties/assets of the sick
industrial company, which is the subject matter of the
scheme. It is difficult to state with precision the principle that
would uniformly apply to all the proceedings/suits falling
under Section 22(1) of the Act of 1985. Firstly, it will depend
upon the facts and circumstances of a given case, it must
satisfy the ingredients of Section 22(1) and fall under any of
57
Page 58 the various classes of proceedings stated thereunder.
Secondly, these proceedings should have the impact of
interfering with the formulation, consideration, finalization or
implementation of the scheme. Once these ingredients are
satisfied, normally the bar or limitation contained in Section
22(1) of the Act of 1985 would apply. For instance, execution
of a decree against the assets of a company, if permitted, is
bound to result in disturbing the scheme, which has or may
be framed by the BIFR. The sale of an asset during such
execution or even withdrawing the money from the bank
account of the company would certainly defeat the very
purpose of the protection sought to be created by the
Legislature under Section 22(1) of the Act of 1985. On the
other hand, a proceeding taken out for possession of the
tenanted premises, under the provisions of Karnataka Rent
Control Act, have been held to be proceedings not falling
within the ambit and scope of Section 22(1) of the Act of 1985.
This was for the reason that the contractual tenancy between
the company and the owner had been terminated and the
company only had an interest as a statutory tenant. Such
interest was neither assignable nor transferable. This Court
58
Page 59 held that it could not be regarded as ‘property’ of the sick
company for the purposes of the provisions of Section 22(1)
and as such, these provisions were not attracted. (M/s. Shree
Chamundi Mopeds Ltd. v. Church of South India Trust
Association, Madras [AIR 1992 SC1439]).
36.Referring to the facts of the present case, the land was
one of the major assets of the Respondent Company and in the
event the said asset was kept outside the scope of the scheme
or its sale was permitted by the BIFR, probably the company
could never be revived and any effort in that direction de hors
such asset of the company would be in futility. Besides, the
fact that the statutory protection contained in Section 22(3)
was available to the company, it could be stated with more
emphasis that the BIFR could even adopt and permit the
transaction with such adoption as it may have deemed
appropriate. The imperative nature of the functions of the
BIFR under the provisions of the Act of 1985 and the
overriding effect of its provisions fully support such a view.
Overriding effect of the Act of 1985 :-
37.This Court has taken the view in Tata Motors Ltd. [(2008)
7 SCC 619] that the Act of 1985 has been enacted to secure
59
Page 60 the principles specified in Article 359 of the Constitution of
India. It seeks to give effect to the larger public interest. It
should be given primacy because of its higher public purpose.
As the Act of 1985 is a special law and on the principle that a
special law will prevail over a general law, it is permissible to
contend that even if the provisions contained in Section 22(1)
read with Section 32 of the Act, giving overriding effect vis-à-
vis the other laws, other than the Foreign Exchange
Regulation Act, 1973 and the Urban Land Ceiling and
Regulation Act, 1976 had not been there, the provisions of the
general law like the Companies Act, for regulation,
incorporation, winding-up etc. of the companies would have
still been overridden to the extent of inconsistency. We have
already seen that this Court had, in the case of Jay
Engineering (supra), taken the view that the Interest on
Delayed Payments to Small Scale and Ancillary Industries
Undertaking Act, 1993 shall have to give way for enforcement
of the provisions of the Act of 1985. In the case of Tata Davy
(supra) also, the Court took the view that the State Sales Tax
Act would have to be read and construed in comity to the
provisions of the Act of 1985 which shall have the overriding
60
Page 61 effect. In the case of Tata Motors Ltd. v. Pharmaceuticals
Product of India Ltd. (supra), this Court was concerned with
the provisions of mismanagement and oppression contained in
Sections 391 and 394 of the Companies Act and whether the
Company Court will have the jurisdiction to pass orders in
preference to the proceedings pending before the Court under
the Act of 1985. The Court while holding the primacy of the
Act of 1985 held as under: -
“SICA furthermore was enacted to secure the
principles specified in Article 39 of the
Constitution of India. It seeks to give effect to
the larger public interest. It should be given
primacy because of its higher public purpose.
Section 26 of SICA bars the jurisdiction of the
civil Courts.
What scheme should be prepared by the
operating agency for revival and rehabilitation
of the sick industrial company is within the
domain of BIFR. Section 26 not only covers
orders passed under SICA but also any
matter which BIFR is empowered to
determine.
23. The jurisdiction of civil court is, thus,
barred in respect of any matter for which the
appellate authority or the Board is
empowered. The High Court may not be a civil
court but its jurisdiction in a case of this
nature is limited.”
38.Even in the case of NGEF Ltd. v. Chandra Developers (P)
Ltd. and Anr. [(2005) 8 SCC 219], this Court specifically
61
Page 62 reiterated and with emphasis the principle that the provisions
of the Act of 1985 contained non-obstante clauses, it is a
special statute which is a complete code in itself and that the
jurisdiction of the Company Court in such matters would arise
only when AAIFR and BIFR have exercised their jurisdiction
under Section 20 and 25 respectively of the Act of 1985. The
provisions of SICA would prevail over the provisions of the
Companies Act.
39.From the above judgments of this Court, the
unambiguous principle of law that emerges is that the
provisions of the Act of 1985 shall normally override the other
laws except the laws which have been specifically excluded by
the Legislature under Section 32 of the Act of 1985. The Act
of 1985 has been held to be a special statute vis-à-vis the
other laws, most of which have been indicated above. In the
present case, we are concerned with the provisions of the Act
of 1882. It is the case of the respondent-company before us
that they have got an interest in the immovable property by
virtue of the Memorandum of Understanding, Agreements
dated 1
st
March, 2007 and 17
th
August, 2010 and by part
performance, as they had been given possession of the land in
62
Page 63 question. It was contended that as their interests were duly
protected under the provisions of the Act of 1882, the
BIFR/AAIFR, in exercise of its powers under Sections 22(1),
22(3) and 22A of the Act of 1985, cannot place any restriction
upon their title or interest in the immovable property. In
other words, the contention is that vis-à-vis the Act of 1985,
the provisions of the Act of 1882 shall prevail.
40.The Act of 1882 is a general law and controls and
operates in a very wide field. It was an Act enacted for and
related to transfer of immovable property in India and to
decide the disputes as well as to resolve the confusion and
conflict, which was in existence, as the courts were forced to
decide the disputes according to their own notions of justice
and fair play. The Act of 1882 does not have application to a
particular situation or class of persons. On the contrary, the
Act of 1985 is a special legislation providing for imperative
functioning of specialized bodies like the BIFR and AAIFR and
is intended to apply to a very specific situation, i.e., where a
company is a sick industrial company. It has no application
even to other different kinds of companies within the purview
of the Companies Act, except sick industrial companies. The
63
Page 64 Legislature has undoubtedly given an overriding effect to the
provisions of the Act of 1985 and even restricted the
jurisdiction of the civil courts, as is demonstrated from the
language of Sections 26 and 32 of the Act of 1985. Thus, we
have no hesitation in holding that the provisions of the Act of
1985 shall prevail over the provisions of the Act of 1882.
Discussion on Merits with reference to Factual Matrix of
the Case
41.Having dealt with the basic legal questions arising for
consideration of this Court in the facts of the present case,
now we will now proceed to examine the issues of facts and
law with reference to the present case. The Respondent-
Company, upon some negotiations had executed a
Memorandum of Understanding with the appellant-company
on 13
th
April, 2006. A land admeasuring about 344 acres,
situated in the revenue estate of villages Ambivali, Mohone,
Wadavli, Atalee and Galegaon in taluk Kalyan, District Thane
was agreed to be sold on the conditions which were stated
therein and it had also postulated the execution of a proper
Agreement to Sell. Principal Agreement of Sale was executed
64
Page 65 on 1
st
March, 2007 between the parties. As certain amounts
were found to have been incorrectly stated in the Principal
Agreement and parties intended to pre-pone the payment of
instalments as per the terms of that agreement, they executed
First Supplementary Agreement dated 29
th
September, 2007.
It may be noticed here that the Respondent Company, in the
meanwhile, had financial crisis and was not able to pay off its
debt of nearly Rs.147 crore as on 31
st
March, 2006. The
company itself had approached the BIFR for declaring the
company as a ‘sick industrial company’ and to examine the
possibility of its revival through a scheme, in accordance with
the provisions of the Act of 1985.
42.The scheme of rehabilitation in relation to the sick
industrial company was presented before the Corporate Debt
Restructuring (CDR) Empowered Group which was appointed
by the consortium of the banks to whom large sums were due
from the said company on 13
th
June, 2007. The scheme was
approved by the CDR on 12
th
December, 2007 which resulted
in issuance of a letter of approval dated 21
st
January, 2008.
Prior to the complete implementation of the revival scheme,
the Respondent Company applied to the BIFR under Section
65
Page 66 15 of the Act of 1985 for being declared as a ‘sick company’ on
3
rd
December, 2008. During the consideration of this
application, the rehabilitation scheme approved by the CDR
was placed before the BIFR for its acceptance and adoption.
Vide its order dated 16
th
July, 2009, passed under Section
17(3) of the Act of 1985, the Scheme was adopted and for the
purposes of implementation of the Scheme, the cut-off date
was declared as 30
th
July, 2007 by the BIFR. As already
noticed, the parties had entered into a Memorandum of
Understanding dated 13
th
April, 2006 and the Agreement to
Sell dated 1
st
March, 2007 for sale of the land belonging to the
company. The BIFR, while approving the scheme, had taken
into consideration these events in relation to the sale of the
land. Thereafter, the parties executed Supplementary
Agreements dated 29
th
September, 2007 and 17
th
August,
2010. The Agreements provided for pre-ponement of the
instalments payable in terms of the Agreements as well as
giving of possession of the land to the Appellant Company.
The Agreement dated 29
th
September, 2007 was executed
when the rehabilitation scheme was pending consideration
before the BIFR, while the Agreement dated 17
th
August, 2010
66
Page 67 was executed subsequent to the adoption of the Scheme by
the BIFR. It appears from the record that the Second
Supplementary Agreement dated 17
th
August, 2010 was not
executed between the parties with prior approval of the BIFR.
The BIFR, vide its order dated 16
th
July, 2009, had placed
certain restrictions and had not permitted the transfer of the
land without its prior approval. It had also raised certain
other queries including valuation, etc. This order was set
aside by the AAIFR, which had permitted the sale of the land
in favour of the Appellant Company, even during the
consideration and implementation of the revival scheme. This
order of the AAIFR dated 28
th
May, 2010 was disturbed by the
High Court vide its order dated 29
th
July, 2011. The High
Court practically restored the order of BIFR, giving rise to the
present appeal.
43.The contention raised before us is that in view of the
provisions of Sections 53A and 54 of the Act of 1882, the title
in the property in question is vested in the Respondent-
Company and they are entitled to transfer of the property, free
from any restrictions or limitations. As such, the order of the
High Court is liable to be set aside and that of the AAIFR be
67
Page 68 restored. In view of our afore-stated discussion and the
reasons to follow, we are unable to accept this contention
entirely or even in part for that matter. Firstly, we may
examine whether an agreement to sell in relation to an
immovable property transfers or creates any right or title in
the immovable property itself in favour of the purchaser.
Section 54 defines ‘Sale’ as a transfer of ownership in
exchange for price paid or promised or part-paid and part-
promised. Such a transfer of tangible immovable property of
the value of Rs.100/- and upwards can be made only by a
registered instrument. The ‘contract for sale’ has been
explained under this very provision as follows: -
“Contract for sale:- A contract for the sale of
immoveable property is a contract that a sale
of such property shall take place on terms
settled between the parties.
It does not, of itself, create any interest
in or charge on such property.”
44.Thus, on a plain reading of the statutory provisions, it is
clear that an agreement for sale or an agreement to sell itself
does not create any interest or charge in such property. Mulla
on ‘Transfer of Property Act’, 9
th
Edition, page 181, clearly
68
Page 69 states that Section 54 enacts that an agreement for the sale of
land does not itself create an interest in land. There was a
considerable conflict of decisions as to the application of the
rule against perpetuity to such agreements. This conflict has
been resolved by judgment of this Court in the case of
Rambaran Prosad vs. Ram Mohit Hazra [AIR 1967 SC 744]
where this Court held that a mere contract for sale of
immovable property does not create any interest in the
immovable property. In this case, this Court held as under:-
“10. In the case of an agreement for sale
entered into prior to the passing of the
Transfer of Property Act, it was the accepted
doctrine in India that the agreement created
an interest in the land itself in favour of the
purchaser. For instance, in Fati Chand
Sahu v. Lilambar Sing Das (1871) 9 B.L.R.
433 a suit for specific performance of a
contract for sale was dismissed on the
ground that the agreement, which was held
to create an interest in the land, was not
registered under s. 17, clause(2) of the
Indian Registration Act of 1866. Following
this principle, Markby J. in Tripoota
Soonduree v. Juggur Nath Dutt (1875) 24
W.R. 321 expressed the opinion that a
covenant for pre-emption contained in a
deed of partition, which was unlimited in
point of time, was not enforceable in law.
The same view was taken by Baker J. in
Allibhai Mahomed Akuji v. Dada Alli Isap
A.L.R. 1931 Bom. 578 where the option of
purchase was contained in a contract
entered into before the passing of the
69
Page 70 Transfer of Property Act. The decision of the
Judicial Committee in Maharaj Bahadur
Singh v. Bal Chanad 48 I.A. 376 was also a
decision relating to a contract of the year
1872. In that case, the proprietor of a hill
entered into an agreement with a society of
Jains that, if the latter would require a site
thereon for the erection of a temple, he and
his heirs would grant the site free of cost.
The proprietor afterwards alienated the hill.
The society, through their representatives,
sued the alienees for possession of a site
defined by boundaries, alleging notice to the
proprietor requiring that site and that they
had taken possession, but been
dispossessed. It was held by the Judicial
Committee that the suit must fail. The
Judicial Committee was of the opinion that
the agreement conferred on the society no
present estate or interest in the site, and
was unenforceable as a covenant, since it
did not run with the land, and infringed the
rule against perpetuity. Lord Buckmaster
who pronounced the opinion of the Judicial
Committee observes as follows:
"Further, if the case be regarded in
another light - namely, an agreement
to grant in the future whatever land
might be selected as a site for a temple
- as the only interest created would be
one to take effect by entry at a later
date, and as this date is uncertain, the
provision is obviously bad as offending
the rule against perpetuities, for the
interest would not then vest in
present, but would vest at the
expiration of an indefinite time which
might extend beyond the expiration of
the proper period."
70
Page 71 (11) But there has been a change in the
legal position in India since the passing of
the Transfer of Property Act. Section 54 of
the Act states that a contract for sale of
immovable property "does not, of itself,
create any interest in or charge on such
property". Section 40 of the Act is also
important and reads as follows:
"40. Where, for the more beneficial
enjoyment of his own immovable
property, a third person has,
independently of any interest in the
immovable property of another or of
any easement thereon, a right to
restrain the enjoyment in a particular
manner of the latter property, or
Where a third person is entitled to the
benefit of an obligation arising out of
contract, and annexed to the
ownership of immovable property, but
not amounting to an interest therein
or easement thereon,
such right or obligation may be
enforced against a transferee with
notice thereof or a gratuitous
transferee of the property affected
thereby, but not against a transferee
for consideration and without notice of
the right or obligation nor against
such property in his hands."
The second paragraph of s. 40 taken
with the illustration establishes two
propositions: (1) that a contract for
sale does not create any interest in the
71
Page 72 land, but is annexed to the ownership
of the land and (2) that the obligation
can be enforced against a subsequent
gratuitous transferee from the vendor
or a transferee for value but with
notice. Section 14 of the Act states as
follows:
"14. No transfer of property can
operate to create an interest which is
to take effect after the lifetime of one
or more persons living at the date of
such transfer, and the minority of
some person who shall be in existence
at the expiration of that period, and to
whom, if he attains full age, the
interest created is to belong."
Reading S. 14 along with S. 54 of the
Transfer of Property Act its manifest that a
mere contract for sale of immovable
property does not create any interest in the
immovable property and it therefore follows
that the rule of perpetuity cannot be applied
to a covenant of pre-emption even though
there is no time limit within which the
option has to be exercised. It is true that
the second paragraph of s. 40 of the
Transfer of Property Act make a substantial
departure from the English law, for an
obligation under a contract which creates
no interest in land but which concerns land
is made enforceable against an assignee of
the land who takes from the promisor either
gratuitously or takes for value but with
notice. A contract of this nature does not
stand on the same footing as a mere
personal contract, for it can be enforced
72
Page 73 against an assignee with notice. There is a
superficial kind of resemblance between the
personal obligation created by the contract
of sale described under s. 40 of the Act
which arises out of the contract, and
annexed to the ownership of immovable
property, but not amounting to an interest
therein or easement thereon and the
equitable interest of the person purchasing
under the English Law, in that both these
rights are liable to be defeated by a
purchaser for value without notice. But the
analogy cannot be carried further and the
rule against perpetuity which applies to
equitable estates in English law cannot be
applied to a covenant of pre-emption
because s. 40 of the statute does not make
the covenant enforceable against the
assignee on the footing that it creates an
interest in the land.”
45.This very view was reiterated by this Court in the cases of
State of U.P. v. District Judge and Ors. [AIR 1997 SC 53[;
Dharma Naika v. Rama Naika [AIR 2008 SC 1276] and Mrs.
Saradamani Kandappan vs. Rajalakshmi & Ors. [JT 2011 (8)
SC 129].
46.Heavy reliance was placed by the learned counsel
appearing for the Respondent-Company, upon the provisions
of Section 53A of the Act of 1882 to substantiate his argument
73
Page 74 that in part performance of the contract, possession of the
property having been given, the execution of the title
documents and transfer of the property in its favour could not
be hampered or controlled by the BIFR in exercise of its
powers under Section 22(3) of the Act of 1985. We are not
called upon in this case to adjudicate upon the merits or
otherwise the rights and liabilities of the parties arising out of
the agreement dated 1
st
March, 2007 or the agreements
entered into subsequent thereto. We would also not like to
venture upon and decide whether the second supplementary
agreement dated 17
th
August, 2010 vide which the payment of
intallments was pre-poned and the possession of the land in
question is alleged to have been given to the Appellant-
Company is a valid, enforceable and its consequences in law.
Suffices it to note that memorandum of understanding and
agreement to sell the land belonging to the company between
the appellant and the respondent-company was signed prior to
the presentation of the scheme before the BIFR. However,
second supplementary agreement was executed not only
subsequent to the presentation of the scheme before the BIFR
but even after the BIFR had passed an order under Section
74
Page 75 17(3) of the Act of 1985. It cannot be disputed that even the
sale proceeds received under the agreements have been
utilized for the revival of the company to a large extent. The
agreement with the workers dated 5
th
September, 2008 stands
testimony to this fact. Once the asset of the company and/or
its sale proceeds have been integral part of the formation and
finalization of the revival scheme, such transaction by any
stretch of imagination cannot be stated to be beyond the ambit
and scope of Section 22(3) of the Act of 1985. Thus BIFR has
the power to issue declarations in relation to contracts,
agreements, settlements, awards, standing orders or even
other instruments in force to which the sick industrial
company is a party. The power to suspend or power to enforce
the same subject to such adaptations as the BIFR may
consider appropriate is a power of great magnitude and scope,
the only restriction thereupon is as contemplated in the
proviso to Section 22(3) of the Act of 1985.
47.The provisions of Section 53A of 1882 Act recognize a
right of a transferee, where a transferor has given and the
transferee has taken possession of the property or any part
thereof. Even this provision does not create title of the
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Page 76 transferee in the property in question but gives him a very
limited right, that too, subject to the satisfaction of the
conditions as stated in Section 53A of the Act of 1882 itself.
In the case of State of U.P. v. District Judge (supra), this Court,
while deliberating upon the rights emerging from Section 53A
of the Act of 1882, held as under:
“… That protection is available as a
shield only against the transferor, the
proposed vendor, and would disentitle
him from disturbing the possession of
the proposed transferees who are put
in possession pursuant to such an
agreement. But that has nothing to do
with the ownership of the proposed
transferor who remains full owner of
the said land till they are legally
conveyed by Sale Deed to the proposed
transferees.”
48.Thus, even if the part performance of the agreement is
accepted, still no title is created in favour of the Respondent-
Company. Provisions of Section 53A would also not, in any
way, alter the position of the Act of 1985 having an overriding
effect vis-à-vis the provisions of the Act of 1882. We have
already held that the provisions of Act of 1985 shall have
precedence and overriding effect over the provisions of the Act
of 1882.
76
Page 77 49.This brings us to the last and final question arising for
consideration of this Court in the present case, that is,
whether in the facts and circumstances of the case, the BIFR
had the jurisdiction to issue a direction or make a declaration
in relation to the agreement in question in exercise of the
powers vested in it under Section 22(3) of the Act of 1985 and,
if answer to the above is in the affirmative, whether the order
dated 16
th
July, 2009 of the BIFR and that of the High Court
dated 29
th
July, 2011 are unsustainable on facts? The BIFR
vide its order dated 16
th
July, 2009, after declaring the
Respondent-Company as a sick company and appointing the
Punjab National Bank as the Operating Agency, had fixed the
cut off date as 30
th
July, 2007, as indicated in the CDR
Scheme. The CDR scheme had been approved, after taking
into consideration the agreement to sell and the sale proceeds
likely to be received therefrom. The BIFR had passed certain
directions/declarations in the order passed under Section
17(3) of the Act of 1985 requiring the company to state clearly
the details of the land to be sold including survey numbers as
well as the remaining land with the company and confirming if
the remaining land was adequate for functioning and viability
77
Page 78 of the company on long term basis. The BIFR raised the query
whether all the secured creditors who had charge over the
land, had approved the sale of 350 acres of land belonging to
the respondent-company at Kalyan, Thane for a sum of
Rs.166.40 crore and for entering into memorandum of
understanding with the appellant company in that behalf.
Besides issuing a directive that assets including investments
will require prior approval of the BIFR as the company was
under the purview of SICA, it also issued a clear prohibitory
order requiring the secured creditors not to take any coercive
steps against the company without prior permission of the
BIFR. This order of the BIFR was therefore passed clearly at
the stage of the consideration of the revival scheme which had
been approved by the CDR Group as well as the secured
creditors. The scheme for revival of the company on long term
basis, thus, was primarily dependent upon the sale proceeds
of the land in question on the one hand and the utility of the
remaining land for revival of the company on the other. To
put it simply, the land was the paramount asset of the
company for its revival and successful implementation of the
scheme in accordance with law. The asset was duly taken into
78
Page 79 consideration in formulation of the scheme as contemplated
under Sections 17 and 18 of the Act of 1985 and appropriate
directions, prohibitory orders were issued within the ambit
and scope of Sections 22(1), 22(3) and 22A of the Act of 1985.
In view of the clear statement of law, as afore-recorded, and
facts of the present case, we are unable to find any merit in
the submission of the Respondent-Company that the BIFR
had no jurisdiction to pass such directives.
50.AAIFR had disturbed the above order and held that the
contract between the parties could not be suspended under
Section 22(3) and it was not in the interest of the Respondent-
Company. In other words, it had permitted the sale to be
completed without any restriction. This order was set aside
and the order of the BIFR was restored by the High Court. We
find no jurisdictional or other error in the order of the High
Court in restoring the order of the BIFR. The land being the
primary asset of the Respondent-Company, could not be
permitted to be dissolved by sale or otherwise without the
consent and approval of the BIFR. The BIFR is the authority
proprio vigore and required to oversee the entire affairs of a
sick industrial company and to ensure that the same are
79
Page 80 within the framework of the scheme formulated and approved
by the Board for revival of the company in accordance with the
provisions of the Act of 1985. On facts as well, neither the
BIFR nor the High Court had exceeded its jurisdiction in
passing the impugned orders. It is not that the Respondent-
Company has been divested of its right by the BIFR. All that
has been done is to suspend the final transfer of the property
in its favour in accordance with the provisions of the Act and
the limitations imposed therein. Once the scheme is
implemented or the period specified under the provisions of
Sections 22(3) and 22(4) expires, the declaration would cease
to exist and the appellant would be entitled to enforce its
rights in accordance with law as if no such declaration or
restriction ever existed.
51.The principle of law that emerges from the afore-referred
discussion, which consistently has judicial benediction, is that
a scheme for rehabilitation or restructuring of a sick industrial
company undertaken by a specialized body like the
BIFR/AAIFR should, as far as legally permissible, remain
obstruction free and the events should take place as pre-
ordained, during consideration and successful implementation
80
Page 81 of the formulated scheme. Wide jurisdiction is vested in
BIFR/AAIFR to issue directives, declarations and prohibitory
orders within the rationalized scope and limitations prescribed
under Section 22(1), 22(3) and 22A of the Act of 1985.
52.An objection to the maintainability of a composite
petition, taken before the High Court, has been reiterated
before this Court, of course, half-heartedly. Argument is that
Article 227 vests the High Court with supervisory powers while
Article 226 is the reservoir of extra-ordinary jurisdiction of the
High Courts to issue prerogative writs and orders and, as
such, a joint petition under both these Articles could not be
maintainable.
53.Reliance has been placed in this regard to the case of
Shalini Shyam Shetty & Anr. v. Rajendra Shankar Patil [(2010)
8 SCC 329]. This objection was neither pressed before us
during the course of arguments nor do we consider it
necessary to decide this issue in view of the facts and
circumstances of the present case and the fact that we have
decided the entire matter on merits.
81
Page 82 54.For the reasons afore-recorded, the present appeals are
dismissed. The order of the BIFR dated 16
th
July, 2009 which
has merged into the order of the High Court dated 29
th
July,
2011 is maintained while that of the AAIFR dated 28th May,
2010 is set aside. The parties are directed to appear before
the BIFR which shall proceed with the matter in accordance
with law. However, we express a poised hope that the BIFR
would deal with and dispose of the matter expeditiously.
….................................CJI.
(S.H. Kapadia)
……..............................J.
(K.S. Radhakrishnan)
……..............................J.
(Swatanter Kumar)
New Delhi;
February 7, 2012
82
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