When reference made to BIFR, SICA prevails over Companies Act, rules Supreme Court

The Supreme Court has reiterated that whenever a reference is made to Board of Industrial and Financial Reconstruction (BIFR) under Sections 15 and 16 of the Sick Industrial Companies Act (SICA), the provisions of the SICA would come into play and they would prevail over the provisions of the Companies Act..The judgment was delivered by a 3-judge Bench comprising Justices JS Khehar, Madan B Lokur and C Nagappan in an appeal filed by Madura Coats Limited against a judgment of the Allahabad High Court..The dispute has its genesis in a winding up petition filed with respect to Modi Rubber Limited on the claim that Modi Rubber was unable to pay its debts. The Company Court passed an order on March 12, 2004 holding that Modi Rubber was unable to pay its debts, and hence be wound up. An Official Liquidator was appointed to take charge of the assets of the company and to submit a report..Modi Rubber preferred an appeal against this order before the Division Bench of the Allahabad High Court..Before the Division Bench it was brought out for the first time that the Board of Directors of Modi Rubber had passed a resolution to file a reference before the BIFR under SICA..Pursuant to the aforesaid resolution, an application was made by Modi Rubber to the BIFR on February 3, 2004 which was received by the BIFR on February 4, 2004. On March 17, 2004 the reference made by Modi Rubber was registered as Case No. 153 of 2004. Interestingly, while the application for making a reference was sent to the BIFR before the winding up order was passed by the Company Court, the reference was actually registered after the winding up order was passed by the Company Court..The High Court took into consideration the registration of the reference by the BIFR and relying upon Rishabh Agro Industries Ltd. v. P.N.B. Capital Service Ltd. held that Modi Rubber was entitled to the benefit of the provisions of Section 22 of the SICA. It also held that a winding up order passed under the Companies Act is not the culmination of the proceedings pending before the Company Court. The final order to be passed in the winding up proceedings is an order of dissolution of the company under Section 481 of the Act. It, therefore, set aside the winding up order passed by the Company Court and directed that the proceedings before company court remain in abeyance till the disposal of proceedings before the authorities under the SICA..This was challenged in appeal before the Supreme Court..Before the Supreme Court, certain additional facts were also placed on record. Madura Coats had participated in the proceedings before BIFR. Pursuant to those proceedings, a rehabilitation scheme was drawn up by BIFR which was not challenged by Madura Coats. Taking into account the law and the facts the Supreme Court held,.“From the above it is quite clear that different situations can arise in the process of winding up a company under the Companies Act but whatever be the situation, whenever a reference is made to the BIFR under Sections 15 and 16 of the SICA, the provisions of the SICA would come into play and they would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under the SICA.”.It therefore, held that winding up proceedings before the Company Court cannot continue after a reference has been registered by the BIFR and an enquiry initiated under Section 16 of the SICA..“The present appeal is squarely covered by the primacy given to the provisions of the SICA over the Companies Act as delineated in Real Value, Rishabh Agro and Tata Motors. Consequently, the High Court was right in concluding that the provisions of Section 22 of the SICA would come into play and that the Company Court could not proceed further in the matter pending a final decision in the reference under the SICA.”.The Court also upheld its earlier decisions which deal with reference to BIFR in various situations..“As far as the reference is concerned we are of the view that Real Value and Rishabh Agro do not require any reconsideration. Tata Motors was decided by a Bench of three Judges and we see no reason to differ from the view taken therein that the provisions of SICA prevail over the provisions of the Companies Act.”.The Court, therefore, dismissed the appeal..Read the judgment below.