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Madura Coats Ltd Vs. Modi Rubber Ltd & ANR

October 21, 2016


Appellant: Madura Coats Ltd


Respondent: Modi Rubber Ltd & ANR


Civil Appeal No. 1475 of 2006


Supreme Court of India

Facts: The appellant (Madura Coats) is aggrieved by the judgment and order dated 20th May, 2004 passed by the Division Bench of the Allahabad High Court in Special Appeal No. 420 of 2004. By the impugned judgment and order the Division Bench allowed the Special Appeal of the respondent and stayed further proceedings before the Company Court consequent upon a winding up order passed against the respondent (Modi Rubber) till a final decision is taken on a reference made by Modi Rubber to the Board for Industrial and Financial Reconstruction (BIFR). Modi Rubber who entered appearance, but took several adjournments in the matter on one pretext or the other and eventually, after two years of adjournments, the Company Court declined to grant any further adjournment to Modi Rubber. Accordingly, on a consideration of the material on record and after hearing learned counsel for the parties, the Company Court passed an order on 12th March, 2004 holding that Modi Rubber was unable to pay its undisputed debts and that it was just and equitable that the company be wound up. An Official Liquidator was appointed to take charge of the assets of the company and to submit a report along with the inventory. Feeling aggrieved by the winding up order, Modi Rubber preferred an appeal before the Division Bench of the High Court. Before the Division Bench it was brought out for the first time that a reference to the BIFR had been made on 3rd February, 2004 which was received by the BIFR on 4th February, 2004. Thereafter, the application was scrutinized and on 17th March, 2004 the reference made by Modi Rubber was registered as Case No. 153 of 2004. It will be seen that 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 Division bench allowed the appeal and passed the impugned judgement which is under challenge before the Supreme Court. Decision: Appeal dismissed. Reason: On hearing the learned counsel for the parties on these facts, we are of the opinion that different situations can arise in the interplay between the Companies Act and the Sick Industrial Companies Act, 1985 (SICA) in the matter of winding up of a company and these situations have already been dealt with by this Court. This Court concluded that once a reference is registered after scrutiny, it is mandatory for the BIFR to conduct an enquiry. It was also held 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. However, the High Court took into consideration the following subsequent events:
  • A situation when proceedings are pending both before the BIFR and the Company Court but no order of winding up has been passed against the company. In such a situation, this Court stated that provisions of SICA would prevail over the provisions of the Companies Act held in Tata Motors Ltd v. Pharmaceutical Products of India Ltd. (2008) 7 SCC 619).
  • Registration of the reference and relying upon Rishabh Agro Industries Ltd. v. P.N.B. Capital Service Ltd (2000) 5 SCC 515, the company was ordered to be wound up but this order was stayed by the Division Bench of the concerned High Court. Thereafter the company made a reference to the BIFR under the SICA.
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 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. In this state of the law, in so far as the present appeal is concerned, we do not find any error in the view taken by the High Court in concluding that the 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. Quite apart from the above, we are also of opinion that in view of the subsequent developments and the fact that Madura Coats had participated before the BIFR and has taken its dues in terms of the rehabilitation scheme approved and sanctioned by the BIFR, nothing really survives for consideration in this appeal. Strictly speaking, we have merely undertaken an academic exercise pursuant to a reference made to a larger Bench.


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