No proceedings against the assets of the company can be taken before any decision is taken by the BIFR

Supreme Court : While dealing with the issue relating to jurisdiction of BIFR in winding up proceedings, the Court held that winding up proceedings before the Company Court cannot continue after a reference has been registered by the BIFR and an enquiry has been initiated under Section 16 of the SICA

In the present case, the appellants Madura Coats had filed a petition in the Company Court for winding up of Modi Rubbers on the allegation that Modi Rubbers was unable to pay its huge undisputed debts. The Company Court passed an order for winding up of the Company. Modi Rubbers appealed before the Divisional bench of the High Court which had set-aside the order of the Company Court on the pretext that Modi Rubbers had made an application to BIFR- Board of Industrial & Financial Reconstruction under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and hence should be entitled to the benefits of the provisions of Section 22 of the SICA. The  Court discovered that Modi Rubbers was willing to pay the dues to Madhura Coats in terms of the rehabilitation scheme passed by BIFR. The Court also based it’s reliance on Real Value Appliances Ltd. v. Canara Bank, (1998) 5 SCC 554, where the question was raised that whether on the registration of a reference, the Division Bench of the High Court could pass orders in an appeal against an interim order passed by the Company Court , to which the Court had replied that the SICA is intended to revive and rehabilitate a sick industry before it can be wound up under the Companies Act. The legislative intention is to ensure that no proceedings against the assets of the company are taken before any decision is taken by the BIFR because if the assets are sold or the company is wound up, it may become difficult to later restore the status quo ante.

The bench comprising of Madan B. Lokur J., finally concluded that the Company Court and the BIFR do not exercise concurrent jurisdiction. Till the company remains a sick company having regard to the provisions of sub-section (4) of Section 20 [of the SICA], BIFR alone shall have jurisdiction as regards sale of its assets till an order of winding up is passed by a Company Court and hence set aside the order passed by the Company Court and upheld the order passed by the Divisional bench of High Court. [Madura Coats Limited v. Modi Rubber Ltd., 2016 SCC OnLine SC 626, decided on 29.06.2016]

 

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