BIFR cannot issue directions to company which is not sick industrial company...

BIFR cannot issue directions to company which is not sick industrial company [read order]

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Board for Industrial & Financial Reconstruction (BIFR) does not have competence to issue directions to a company which is not a sick industrial company under Section 22 A of the Sick Industrial Companies (Special Provisions) Act, 1985. This is what has been held on 18 November 2016 by a two-judge bench of the Supreme Court comprising Justice Anil R. Dave and Justice L. Nageswara Rao in the case of President/Secretary, J.K. Synthetics Mazdoor Union (Citu), Indira Gandhi Nagar, Kota & Ors. vs. Arfat Petrochemicals Pvt. Ltd. & Ors. [Civil Appeal No. 8597 of 2010].

The Supreme Court referred to Section 22-A of the Sick Industrial Companies (Special Provisions) Act, 1985, which is as under:

22-A. 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.”

The court also referred to the definition of “sick industrial company” in clause (o) of Section 3 of the said Act:

“(o) “sick industrial company” means an industrial company (being a company registered for not less than five years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth.

Explanation.—For the removal of doubts, it is hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special Provisions) Amendment Act, 1993, registered for not less than five years and having at the end of any financial year accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company;”

The Supreme Court held that it is clear from a plain reading of Section 22A of the Act that the BIFR can issue a direction not to dispose of assets only to a sick industrial company. In the present case, there was no dispute that the First Respondent was not a sick industrial company and that it purchased the assets from a sick industrial company in accordance with the Sanctioned Scheme. Therefore, it was held that the BIFR was not correct in passing an order of status quo and directing the First Respondent not to alienate/transfer the assets by its orders dated 05.05.2008 and 30.06.2008. The Supreme Court agreed with the findings of the High Court in the impugned judgment that the BIFR does not have competence to issue directions to a company which is not a sick industrial company under Section 22A of the said Act.

In this regard, the court also referred to its earlier judgment in the case of U.P. State Sugar Corporation Ltd. v. U.P. State Sugar Corporation Karamchari Association, (1995) 4 SCC 276, wherein it was held as follows:

“It runs counter to the express terms of Section 22A of the Act which confers a limited power on the Board to pass an order prohibiting a sick industrial company from disposing of its assets only during the period specified in Clause (a) and (b).”

Read full order of the court:

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