[Decided on 07/02/2012]
Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (Act of 1985) read with section 53A of the Transfer of Property Act, 1882 (Act of 1882) – Agreement to sell land by a sick company – Possession of land given to the purchaser – BIFR restricts the sale-Whether correct – Held, Yes.
Brief facts
In order to bring in additional funds required for financial restructuring, the Respondent company NRC Limited intensified its efforts to dispose of the surplus land and entered into a MOU with the appellant company. There was some dispute between the parties with regard to the manner and time in which these payments were or were not made.
In 2008, the Respondent company registered itself with the BIFR as sick company. Meanwhile, the Appellant refused to release the third instalment.
The BIFR, vide its order fixed the cut-off date . It directed that the sale of assets, including investments, will require prior approval of the BIFR. The BIFR treated the land as an investment and put certain restrictions thereupon. Aggrieved from this order, both the Appellant as well as the Respondent preferred an appeal before the Appellate Authority for Industrial & Financial Reconstruction (AAIFR) , which made major variations in the order of the BIFR. The correctness and legality of this order of the AAIFR was questioned by the Appellant, Respondent and the NRC Mazdoor Sangh before the High Court. The High Court quashed the order of the AAIFR and confirmed the order passed by the BIFR. The appellant appealed to the Supreme Court.
Decision: Appeal dismissed.
Reason:
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. 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 and by part performance, as they had been given possession of the land in 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. 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. 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 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 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.
The principle of law that emerges, 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 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 Sections 22(1), 22(3) and 22A of the Act of 1985. For the reasons afore-recorded, the present appeals are dismissed. The order of the BIFR dated 16th July, 2009 which has merged into the order of the High Court dated 29th 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.