# GHANSHYAM SARDA v. MIS. SHIV SHAN KAR TRADING CO. & ORS

- **Citation:** [2014] 14 S.C.R. 556
- **Court:** Supreme Court of India
- **Decided:** 2014-11-13
- **Case number:** Civil Appeal No. A 10221of2014
- **Bench:** A~~L R. D~Ve, U~Ay Umesh_ Laut
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/ghanshyam-sarda-v-mis-shiv-shan-kar-trading-co-ors-29754
- **Pages:** 32

## Headnote

Sick Industrial Companies (Special Provisions) Act,
1985-'ss. 22(1), 26, 32'- Scope and ambit of- Company
C registered as_ a sick company - Net worth having become
positive, jurisdiction of the Board for Industrial and Financial
Reconstruction (BIFR) over the company - Held: The Act
gives complete supervisory control to the BIFR over the
affairs of a sick Industrial Company from the stage of
~
.
•
,
I
0
registration of reference and questions concerning status of
sickness of such company are in the exclusive domain of
the BIFR - Aspects of revival of such company b'eing
completely within its exclusive domain, BIFR alone
determines the issue whether such company nqw stands
revived or not -
Thus, BIFR would continue to have
E jurisdiction over the sick company even if its net worth
become positive .'... BIFR alone is empowered to determine
whether net worth has become positive as a result of which it
would cease to liave such jurisdiction -Any inquiry into such
issue regarding net worth by anyone outside the Act including
F' civil court, would be against the express intent of the Act and
would lead to incongruous and undesired results - Suit as
framed seeking deCiaration that the c0mpany was no longer
a sick company within the meaning of the Act, not competent
and maintainable - Civil court not right and justified in issuing
G injunction.
Allowing.the appeals, the Court
HELD : 1.1 It is clear that after a reference is
registered by the Board, all throughout the subsequent
H stages, the BIFR has complete supervisory control over
556
GHANSHYAM SARDA v. M/S. SHIV SHAN KAR TRADING
557
. CO. &ORS.
the affairs of such company till it is revived or the decision A
to wind up such company is taken. The ambit and extent .
of such control means and includes determination of
such measures to achieve revival of the sick company
and to check whether by such measures the revival is
being achieved or not. This must cover the power to B
decide at any stage subsequent to the registration of
reference under Section 16 whether such company has
ceased to be sick company or not. Cessation of the
status as a sick company can be under Section 17(1) or
as a result of scheme for revival being implemented and C
determination of such.issue.is in the exclusive domain
of the BIFR. [Para 25)[580-A-D]
1.2. The Sick Industrial Companies (Special
Provisions) Act, 1985 is a self-contained Code in itself.
The Act gives complete supervisory control to the BIFR D
over the affairs of a sick Industrial Company from the
stage of registration of reference and questions
concerning status of sickness of such company are in
the exclusive domain of the BIFR. Any submission or
assertion by anyone including the Company that by E
certain developments the Company has revived itself
and/or that its net worth since the stage of registration
having become positive no such· scheme for revival
needs to be undertaken, must be and can only be dealt
with by the BIFR. Any such assertion or claim has to be F
made before the BIFR and only upon the satisfaction of
the BIFR that a sick company is no longer sick, that such
company could be .said to have ceased to be amenable
to its supervisory control under the Act. The aspects of
revival of such company being completely within its G
exclusive domain, it is the BIFR alone, which can
determine the issue whether such company now stands
revived or not. The jurisdiction of the civil court in
respect of these matters stands completely excluded.
[Paras 26, 27][580-G-H; 581-8-F]
H
558
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A
· 1.3 In the instant case, the.fact that the company
. was registered as· a sick company is not doubted nor
has it been contended that the BIFR had wrongly
assumed initial jurisdiction. But what is projected is that
the net worth having become positive the BIFR has now
8 lost.jurisdiction over the company. The BIFR having
correctly assumed jurisdiction and when all the financial
affairs of·such company were directly under the

## Text

_Characters 0–39,994 of 63,809. This is a partial read: ask again with offset=39994 for what follows._

A
[2014] 14 S.C.R. 556
GHANSHYAM SARDA
v.
MIS. SHIV SHAN KAR TRADING CO. & ORS.
(Civil Appeal No .. 10221of2014)
B
" NOVEMBER 13, 2014
t
[A~~L R. D~VE AND U~AY UMESH_ LAUT, JJ.]
Sick Industrial Companies (Special Provisions) Act,
1985-'ss. 22(1), 26, 32'- Scope and ambit of- Company
C registered as_ a sick company - Net worth having become
positive, jurisdiction of the Board for Industrial and Financial
Reconstruction (BIFR) over the company - Held: The Act
gives complete supervisory control to the BIFR over the
affairs of a sick Industrial Company from the stage of
~
.
•
,
I
0
registration of reference and questions concerning status of
sickness of such company are in the exclusive domain of
the BIFR - Aspects of revival of such company b'eing
completely within its exclusive domain, BIFR alone
determines the issue whether such company nqw stands
revived or not -
Thus, BIFR would continue to have
E jurisdiction over the sick company even if its net worth
become positive .'... BIFR alone is empowered to determine
whether net worth has become positive as a result of which it
would cease to liave such jurisdiction -Any inquiry into such
issue regarding net worth by anyone outside the Act including
F' civil court, would be against the express intent of the Act and
would lead to incongruous and undesired results - Suit as
framed seeking deCiaration that the c0mpany was no longer
a sick company within the meaning of the Act, not competent
and maintainable - Civil court not right and justified in issuing
G injunction.
Allowing.the appeals, the Court
HELD : 1.1 It is clear that after a reference is
registered by the Board, all throughout the subsequent
H stages, the BIFR has complete supervisory control over
556
GHANSHYAM SARDA v. M/S. SHIV SHAN KAR TRADING
557
. CO. &ORS.
the affairs of such company till it is revived or the decision A
to wind up such company is taken. The ambit and extent .
of such control means and includes determination of
such measures to achieve revival of the sick company
and to check whether by such measures the revival is
being achieved or not. This must cover the power to B
decide at any stage subsequent to the registration of
reference under Section 16 whether such company has
ceased to be sick company or not. Cessation of the
status as a sick company can be under Section 17(1) or
as a result of scheme for revival being implemented and C
determination of such.issue.is in the exclusive domain
of the BIFR. [Para 25)[580-A-D]
1.2. The Sick Industrial Companies (Special
Provisions) Act, 1985 is a self-contained Code in itself.
The Act gives complete supervisory control to the BIFR D
over the affairs of a sick Industrial Company from the
stage of registration of reference and questions
concerning status of sickness of such company are in
the exclusive domain of the BIFR. Any submission or
assertion by anyone including the Company that by E
certain developments the Company has revived itself
and/or that its net worth since the stage of registration
having become positive no such· scheme for revival
needs to be undertaken, must be and can only be dealt
with by the BIFR. Any such assertion or claim has to be F
made before the BIFR and only upon the satisfaction of
the BIFR that a sick company is no longer sick, that such
company could be .said to have ceased to be amenable
to its supervisory control under the Act. The aspects of
revival of such company being completely within its G
exclusive domain, it is the BIFR alone, which can
determine the issue whether such company now stands
revived or not. The jurisdiction of the civil court in
respect of these matters stands completely excluded.
[Paras 26, 27][580-G-H; 581-8-F]
H
558
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A
· 1.3 In the instant case, the.fact that the company
. was registered as· a sick company is not doubted nor
has it been contended that the BIFR had wrongly
assumed initial jurisdiction. But what is projected is that
the net worth having become positive the BIFR has now
8 lost.jurisdiction over the company. The BIFR having
correctly assumed jurisdiction and when all the financial
affairs of·such company were directly under the
supervisory control of the BIFR, the power to decide
whether it has since then lost the jurisdiction or not, is
c also in the exclusive domain of the BIFR. The BIFR alone
is empowered to determine whether net worth has
become positive as a result of whiCh it would cease. to
have such jurisdiction. Any inquiry,into such Issue
regarding net worth by anyone outside the Act including
D
civil~court, would .be against the express intent of the
Act and would ,lead to incongruous and undesired
results. The .suit as framed seeking declaration that the
company was no longer a sick company within the
meaning of the _Act, was therefore not competent and
E maintainable. The Civil Court was not right and justified
in issuing injunction as; it di~. The counsel who ·
represented the company before the BIFR, correctly
submitted that before dis~harging the company the
BIFR can examine the audited balance sheet and satisfy
F itself whether the net worth had turned positive.
[Para 28)[581 ~G-H; 582-A-DL .
, ·
• , · 1.4 As regards, the recovery of money, the matter is
completely covered by Section 22(1) of•the Act. The
language employed in Section 22(1) of the Act refers to
G the entirety of the period beginning from the inquiry
under Section 16 till the implementation of sanctioned
scheme for revival. Section 22(1) bars any 'suit for
recovery of money or for the enforcement of any security
against·the industrial company'without the express
H consent of the Board. Reference in Section 22(1) is to
GHANSHYAM SARDA v. MIS. SHIV SHANKAR TRADING
559
CO.&ORS.
"an Industrial Company" and not to "the sick Industrial A
Company" as found in·later sub-sections of the same
Section. The bar is during'the p'eriod contemplated in
said Section 22(1). Such bar is period specific a.nd subsection (5) of Section 22 entitles exclusion of such
period while computing limitation. During the entirety of B
that period the Act grants protection to the company and
leaves it to the discretion of the BIFR whether to permit
filing and maintaining of suit or other proceedings. In
the instant case, the BIFR was considering Draft
Rehabilitation Scheme which is a stage under Section c
18(3) and is completely covered by the period under
Section 22 of the Act. The suit as framed for recovery of
money filed without the consel")t of the BIFR was not
competent and maintainable. The suit could lie.or be
proceeded with only after express consent of the BIFR o
Wara 29][582-E-H; 583-A-B; 584~E-Fj
. '
"
1.5 The Title Suit.pending on the file of.the civil court
is not maintainable insofar as it seeks declaration that
the company was no longer a sick company within the
meaning of the Act and that the BIFR ceased to have E
jurisdiction over the company and that all the
·proceedings in the BIFR after filing of the positive
balance-sheet wer!;l without jurisdiction .. Consequently
the order of injunction passed by the civil court is set
aside. Insofar as the said suit pertains to the claim for F
recovery of money from the Company, the suit could lie
and be proceeded with only after express consent of the
BIFR is received by the plaintiff. The Jute Mills Company
continues to be under the jurisdiction of the BIFR. It is
left to the BIFR to satisfy itself and determine the issues G
whether the riet worth of the company has turned
positive or not. If the BIFR is so satisfied, it would deregister the company and upon such declaration the
company would be out of the supervisory jurisdiction
of the BIFR under the Act. If the BIFR is not satisfied that H
560 .
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A the net worth of the company has turned positive, it
would go ahead and consider the scheme for revival of
the company. [Para 31][585-C-H] ...
•· 1.6 Since the company continues to be a sick
. company and it was not competent for anyone except
B the BIFR to determine whether'the·net worth of the
company had turned positive, the sale of property
effected by the company without express leave or
permission of the BIFR fo· be questionable. However;
since the transferee of that property is not before this
C Court the matter is relegated for appropriate assessment
by the BIFR after issuing due notice' to the transferee. It
is left to the BIFR to consider and assess whether there
was any necessity or expediency to sell the property in
question. [Para 32][586-B-E]
D
1. 7 The original plaintiff sought consent of the BIFR
under Section 22(1) of the Act and was before the BIFR.
However, he did not disclose either the factum that he
had so 'sought such consent or that the BIFR was in
seisin of the matter and considering whether the net
E worth 'of the company· had turned positive. Nondisclosure of these two essential facts, was not
accidental. Therefore~ costs of Rs.5 lacs is imposed on
the original plaintiff. Though the conduct of the company
as defendant before the Civil Court was of the same
F order, since it is a sick company, no cost is imposed on
G
the company. [Para 33][586-GcH;'587-A-C)
,
Managing Director Bhoruka Textiles Limited v.
Kashmiri Rice Industries 2009 (9).SCR 463: 2009 .
(7) SCC 521 ; Raheja Universal Limited v.. NRG
Limited & Ors. 2012 (2) SCC.148- referred to.
. .
"
.
CASE LAW REFERENCE
2009 (9) SCR 463
2012 (2) sec 148
H
· Referred to
Referred to
Para 19
Para 19
GHANSHYAM SARDA v. M/S. SHIV SHANKARTRADING
561
CO.&ORS.
CIVILAPPELLATE JURISDICTION: Civil Appeal No.
A
10221of2014.
From the Judgment and Order dated 06.01.2014 of the
High Court of Gauhati in FAQ No. 10 of 2013.
With
C. A. Nos. 10222, 10223, 10224-10225 & 10226 of
2014, Contempt Petition (C) No. 338 of2014 in SLP (C) No.
5249 of 2014 and Contempt Petition (C) No. 375 of 2014 in
SLP (C) No. 8610 of 2014.
B
Kapil Sibal, Sanjeev Sen, Krishnan K. Venugopal, C
Sr. Advs., Pradeep Aggarwal, Ashok Jain, Gaurav Kejriwal,
Atanu Mukherjee, Lal Pratap Singh, Umesh Pratap Singh, Ms.
Ruchi Kohli, Advs. for the Appellant.
C. U. Singh, S. Guru Krishna Kumar, Harin Rawal,
Sr. Advs., Shakil Ahmad, Arjun Garg, K. K. Mohan, Vikas D
Upadhyay, Umang Shankar, B. Ramana Murthy,Advs. forthe
Respondents.
The Judgment of the Court was delivered by
UDAY UMESH LALIT, J.
E
1. Permission to file SLP granted· in SLP(C) Nos.861112/2014. Leave to appeal granted in all Special Leave
Petitions.
2. All these Special Leave Petitions arise out of a
common judgment and order dt. 06.01.2014 passed by the
F
High Court of Gauhati in FAQ No. 1Oof2013 and Writ Petition
Nos. 4303 of 2013 and 6286 of 2013 and are being disposed
by this common judgment and order. These petitions raise
questions regarding scope and ambit of Sections 22(1), 26
and 32(1) of the Sick Industrial Companies (Special G
Provisions) Act 1985, hereinafter referred to as the Act.
3. A company named J.K. Jute Mill Company Ltd .
. (hereinafter referred to as 'the company') having its registered
office at Kanpur, Uttar Pradesh filed Reference No. 149of1994
before the Board for Industrial and Financial Reconstruction
H
562
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A
("BIFR" for short) under the provisions of the Act. Though the
scheme was initially sanctioned for reconstruction, the BIFR
subsequently held the scheme to have failed and directed the
company to be wound up. These orders were stayed t:iy the
Appellate Authority for Industrial and Financial Reconstruction
B ("AAIFR" for short) and further proceedings before the BIFR
continued. While the matter Was thus pending, "Sarda Group"
took over the Company through Rainey Park Suppliers Private
Ltd. (RPSPL) in 2007. BIFR by its order dated 17.12.2008
approved such take .over of the management:
The
c management of the company was handed over to Shri Govind
Sarda. It appears that in 2009, Shri Goitind Sarda assigned
the debt held by RPSPL in favour of an entity named Libra
Retailer Pvt. Ltd. (LRPL) and he is stated to have handed over
Jute Mill of the company to a third party. As he failed to revive
D the company, show cause notice for winding up was issued by .
·the BIFR. This action was challenged by the Company by filing
Appeal No. 186 of 2009 before theAAIFR which appeal is still
pending.
11
·~
4. At this stage, Shri Ghanshyam Sarda, .(hereinafter
E referred to as the present appella'nt) filed an application for
impleading himself in the proceedings which application was
accepted by AAIFR. Upon this order being challenged, the
High Court of Delhi in W.P. No.2839 of 2010 held the present
appellant to be entitled to present his point of view in. the form
F of proposal/scheme, which order was confirmed by this Court
by dismissing Special Leave Petition filed at the instance of
the Company. In· terms of the aforesaid orders'the BIFR
impleaded the present appellant who thereafter submitted a
proposal for revival of the company and also filed MA No.162
G · of 2012 in the BIFR for restoration of shareholding pattern.
On 18.02.2013 the BIFR iss'ued directions to the operating
agency to consider the scheme of the present management
and the scheme submitted by the present Appellant and
thereafter submit a fully tied up Draft Revival Scheme ("DRS"
H for short). The BIFR fixed the next date for hearing of MA 162
GHANSHYAM SARDA v. MIS. SHIV SHANKAR TRADING
563
CO. & ORS. [UDAY UMESH LAUT, J.]
of 2012 on 04.04.2013. In the proceedings dated 27.02.2013, A
it was decided that the DRS be circulated seeking objections
and suggestions from all the concerned.
5. On 03.04.2013, two applications were filed before the
BIFR by M/S Shyam Jute Supplier, Chindwara M.P. and M/S
Shiv ShankarTranding Co. & Ors, GauhatiAssam (hereinafter B
referred to as 'SSTC') signed by the same person through
same Counsel stating that they were unsecured creditors and
sought permission from the BIFR to institute Civil Suit for
recovery of money stated to be recoverable from the company.
On 04.04.2013 the BIFR held a hearing to consider the change C
in the share holding pattern of the company without due
permission from BIFR. At that stage Counsel appearing for
the Company submitted thatApplication No. 162 of2012.could
not be considered as the BIFR no longer retained jurisdiction
over the Company. It was submitted that in the Audited D
Balance-Sheet for the period of nine months i.e. 01.04.2012
to 31.12.2012 the net worth of the Company having turned
positive, the Company ought to be discharged from the BIFR.
Learned counsel appearing for Shyam Jute Supplier and
SSTC supported such submissions.
E
6. Paragraphs (4.1, 4.3,4.4, 4.8, 4.12 and 4.13) of the
proceedings dated 04.04.2013 are quoted here under which
are self eloquent.
"4.1. Today's hearing (04.04.2013) was fixed for F
consideration of MA No. 162/BC/2012 filed by Shri
Ghanshyam Sarda praying as under:
·
a) Declare that the change in shareholding pattern to the
extent the same reduces the shareholding of RPSPL from
86:23% to 5.34% without approval of BIFR as null and
G
void;
b) Restore the management and the shareholding pattern
of JKJMCL as approved by the learned BIFR vide its
order dated 18.09.2008.
H
564
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2014) 14 S.C.R.
c) Initiate action Linder section 33 read with section 34
against the management for changing the shareholding
pattern of the sick· company without seeking permission
from BIFR; and
d) Appoint a special director (BIFR Nominee) in the
Board of the Company to look into and monitor its ·affairs;
e) Pass such other further order(s) as this Hon'ble BIFR
may deem fit and proper in the facts and circumstances
of the case;
4.3. Shri Sudhansu Batra, Sr. Advocate appearing on
behalf of the Sick Company intervened and stated the
MA NO. 162/BC/2012 cannot be considered today since
BIFR no longer retains jurisdiction over the company. Shri
Batra, Sr. Advocate stated that the Balance sheet as on
31.12.2012 has been audited which shows that the
networth of the company has turned positive and the
company has to be discharged from BIFR. Upon a query
from the Bench, Shri Sudhansu Batra, Sr. Advocate
stated that the company has already filed a letter dated
25.03.2013 with the BIFR informing that the networth of
the company as on 31.12.2012 has turned positive. Upon
a query_from the Bench, Shri Sudhansu Batra, Sr.
Advocate stated that the financial period of the company
is normally for 12 months but this year the accounts have
been closed by auditing the balance sheet for 9 months
period from 01.04.2012 to 31.12.2012. The Ld. Senior
Advocate prayed that in view of the networth turning
positive the company should be discharged from the
BIFR. The Ld. Senior advocate argued th.at there are no
provision under SICA for deregistration of a reference
when the net worth becomes positive and the Sick
Company is not required to make a formal application
to the BIFR for discharge when the company's net worth
becomes positive. The Ld. Advocate further stated that
the sickness of the company is to be decided ex facie
GHANSHYAM SARDA v. M/S. SHIV SHANKAR TRADING
565
CO. & ORS. [UDAY UMESH LAUT, J.)
•
on the basis of the audited Balance Sheet and as the A
Audited Balance Sheet as at 31.12.2012 is showing
positive Networth, BIFR ceases to have any jurisdiction.
The Ld. Senior Advocate to support of this submissions
referred to and relied upon the judgment passed by
Hon'ble Delhi High Court in the case of: Cahtolic Syrian
B
Bank V/s BIFR ~ Ors. On a query from the bench that
assuming the networth has turned positive whether BIFR
would automatically lose its jurisdiction or BIFR still has
the powers to examine the audited balance sheet and
formally pass an order of discharge, Shri Sudhansu Batra C
Sr. Advocate agreed and in fairness conceded that
before discharging the company, the BIFR can examine
the audited balance sheet as on 31.12.2012 by all means
and methods and satisfy itself. Shri Sudnansu Batra, Sr.
Advocate stated that his clients is not required to file an o
application seeking discharge and BIFR on its own may
. examine the audited Balance Sheet and discharge the
company from BIFR.
4.4. Shri Ashish Mohan, Advocate appearing for an
unsecured creditor stated that his clients have filed
E
application seeking impleadment as well as permission
under section 22(1) of SICA to file recovery proceedings
against the management of the company; but in view of
the networth of the company turning positive the company
may be discharged from BIFR so that his clients may file
F
recovery suit against the company. The learned Advocate
stated that since the networth of the Sick Company has
turned positive, he would not be pressing any of his
application (s) and would take legal recourse against the
-company iri court of law.
G
4.8 The representatives of IDBI (OA) stated that they
are not in a position to comment upon the Audited
Balance Sheet as on 31.12. 2012without examining the
same. The OA further stated that the ASC is going ahead
H
566
SUPREME COURT REPORTS .
[2014) 14 S.C.R.
A
B
c
D
E
F
G
H
as per its schedule and the next meeting of the ASC is
on 16.04.2013. The Bench observed thattheASC inay
go ahead with its schedule and that ASC should do
nothing more at present except opening and evaluating
the bids and submit its report on such evaluation to the
BIFR and that BIFR shall~ake a final view upon the bids
r• ·and the sale of assets at the time of approval of DRS.
The bench further observed that DRS has already been
circulated on 26.02.2013 and the objections &
suggestions shall be considered on 20. 05.2013. Till such
time either the Ben'ch considers the DRS or.discharge
the company from SICA; the Bench shall safeguard the
assets of the company a·nd retain its jurisdiction over the
ccimpany/its assets.
'
4.12. The Bench stated that they would consider the
arguments of the parties including the arguments of Mr.
Aggarwal on the next date of hearing. The Bench also
. i
.
~
observed that as per the Company's ABS as on
31.03.2012, (12 months) the networth of the company is
Rs. 5.71 crores and the accumulated losses are Rs.
36.23 crores and it wciuld like to satisfy itself about the
Balance Sheet as'at 31.12.2012 to which Mr. Batra
agreed that the BIFR could undertake such an exercise.
Since the issue of lack of jurisdiction has been raised;
the Bench would decide the said issue alongwith MA No.
162/BC/2012. ·
4.13. Having considered the submissions made in the
hearing, materials on record, the Bench issued the
following directions:
(i)T-he company to submit certified copy of its ABS as on
31.12.2012 along with all relevant papers &documents
in support of its netWorth within one week from today.with
copy to the iDBI (QA) and all concerned parties alongwith
' documentary evidehce;
•
GHANSHYAM SARDA v. MIS. SHIV SHANKAR TRADING
567
CO. & ORS. [UDAY UMESH LAUT, J.]
(ii) The ASC would go-ahead as per its schedule and
A
confirmation of sell, if any will take place upon approval
of DRS on 20.05.2013, with the consent of.Bench.
(iii) The Bench fixed the next date of hearing on
26.04.2013 at 11.30 AM for considering the submission
of the Company that its networth has turned positive as
B
on 31.12.2012 and also hearthe MA No. 162/BC/2012
on the said date."
7. At this stage some of the other proceedings need a
mention. J.K. Jute Mazdoor Sabha filed Writ Petition No. C
22897 of 2013 before the Allahabad High Court on 25.04.2013
challenging the BIFR's order dated 04.04.2013. Said Writ
Petition having been dismissed by a Single Judge, in an
appeal therefrom. the Division Bench in its order dated
01.05.2013 observed that the BIFR would be in a better
position to assess the net worth position of the company, In D
the meantime, Shyam Jute Suppliers approached the High
Court of Madhya Pradesh by filing Writ Petition No.7534 of
2013 questioning the order dated 04.04.2013 of the BIFR. The
petition was dismissed by a Single Judge on the ground of
lack of territorial jurisdiction which order was approved in
E
appeal by the Division Bench of the High Court.
8. On 22.04.2013, SSTC filed Title Suit No. 166 of2013
in Civil Court at Kamroop, Gauhati against the Company
adding BIFR as proforma defendant. It was inter alia averred
F
".. . . Now it appears fror:n the balance sheet of the
defendant company filed before the proforma defendant
that its net worth had become positive. In view of the said
admission on the part of the defendant No. 2 it is no longer
a sick establishment under the Sick Industrial Companies G
(Special Provisions) Act, 1985 and consequently the
proforma defendant No. 2 has ceased to have jurisdiction
over the defendant No. 1 and as such the defendant No.
1 is no longer entitled to any benefit under the Sick
Industrial Companies (Special Provisions) Act, 1985. H
568
SUPREME COURT REPORTS
. (2014] 14 S.C.R.
A
Thus the defendant No: 1 under the aforesaid facts and
circumstances has become liable to be sued in a Civil
Court of competent jurisdiction with effect from the date
the 2012 balance sheet as submitted by it before the
proforma defendant No. 2 and the proforma defendant
B
ceased to have any jurisdiction whatsoeveL--" ·
The plaintiff prayed for declaration, inter alia, that the
company was no longer a sick company within the meaning of
the Act and that the BIFR ceased to have jurisdiction over the
company and all the proceedings in BIFR after filing of positive
C
balance-sheet be declared without jurisdiction. The Civil Court
by its order dated 23.04.2014 while issuing notices to the
defendants directed that status-quo be maintained in respect
of the BIFR case till the next date of hearing.
9. Th_e company filed its written objections on 13.05.2013.
D
Though the claim of the plaintiff and its entitlement to recover
the sum stated to be due was denied, the company accepted
that it was no longer a sick company. The relevant averments
were to the following effect.
F
G
H
" ....... That the answering opposite party humbly states
that the statements made in paragraph number 1 of Misc.
(J) Case No. 254/13 are to the extent that the opposite
party is no longer a sick establishment is not denied."
" .... That the answering opposite party admits the
statement made in paragraph number 10 and admit that
on and from the financial year 2012-2013 it is no longer
a sick company. The balance sheet is also admitted. The
rest of the statements regard jurisdiction is a matter of
fact and law and the opposite party has no comment to
offer." ·
10. The matter came up before the Civil Court on
13.05.2013. It noted the aforementioned stand and in view of
such admitted position held that the BIFR ceased to have any
jurisdiction over the defendant company. It was observed:-
GHANSHYAM SARDA v. MIS. SHIV SHANKAR TRADING
569 .
CO. & ORS. [UDAY UMESH LAUT, J.]
" .... But a question that is still required to be answered A
at this juncture is as to whether this Court has the
jurisdiction to grant the relief of temporary injunction as
sought for in the instant case. Section 26 of the SICA,
which provides inter a/ia that no injunction shall be granted
by any court or other authority in respect of any action
B
taken or to be taken in pursuance of any power conferred
by or under this Act, shall not be applicable to the
opposite party no. 1 company any more as it is no more
a sick industrial company admittedly and the provisions
of the SICA are not applicable to it anymore, and, C
therefore, the civil court will definitely have jurisdiction
over it. Hence, this Court has jurisdiction to grantthe relief
as sought for in the instant case .... "
In the premises, the Civil Court restrained the defendants
including the BIFR from proceeding with BIFR case no. 149 of D
1994. Neither ttie Plaintiff nor the Company at any stage
placed on record before the Civil Court the proceedings dated
04.04.2013 of the BIFR nor was the Civil Court appraised of
the fact that the Plaintiff had sought leave under Section 22 (1)
of the Act from the BIFR to file the Civil Suit.
E
11. In the meantime while dealing with appeals preferred
against the orders of the BIFR including one dated 27 .02.2013,
the AAIFR was appraised that the issue of Net worth was under
consideration of the BIFR, so vide its order dt.16.05.2013 it
preferred to await such decision.
In
the
subsequent F
proceedings of the same day i.e. 16.05.2013 the aforesaid
order of the Civil Court was placed before the BIFR which
observed that it had not given any permission under Section
22 ( 1) of the Act to SSTC to file any recovery suit against the
company and the matter was adjourned in the presence of the G
counsel concerned for considering the submission of the
parties on the issue of net worth as on 31.12.2012. It was.
further observed that in the absence of permission under
Section 22 (1) the suit filed by SSTC was not competent and
that, the company had not yet been de-registered from BIFR H
570
'SUPREME COURT REPORTS
[2014] 14 S.C.R
.
'
A
and a filing of Civil Suit without taking permission was violative
of the Act. Taking note of the order of the AAIFR dated
16.05.2013 and the order passed by the High Court of
Allahabad dated 01.05.2013, it was observed that it had to
decide the issue whether the net worth of the company had
B , turned positive or not. The BIFR thus directed the parties to
file their written submission on the aspect of the net worth of
the company as on 31.12.2012.
·~
.
12. On 30.05.2013, the present appellant filed an
application for impleadment as defendant in the aforesaid'Suit.
C ·Adverting to -the orders' passed by the BIFR and AAIFR
-
•.
f
impleading him in the proceedings before the BIFR and the
subsequent orders passed by the Division Bench of the High
Court of Delhi and this Court on his impleadment and the fact
that he had submitted a proposal for revival, the present .
D appellant prayed that he be impleaded in said suit as a
defendant. The present appellant thereafter filed FAO No.10
of'2013 before Gauhati High Court challenging the Civil Court's
order dated 13:05.2013. A learned Single Judge after
preliminary hearing by his order dated 14.06.2013 admitted
E - the appeal for hearing and also passed interim order to the
effect that no third party rights in respect of the.property of the
respondents/defendants be created during the p1mdency of
the appeal.
, ·
13·. In the meantime, the matter appeared before the BIFR
F
on 01.07 .2013. It primafacie was of the view that the Audited
Balance-Sheet as on 31.12.2012 of the company did not reflect
true and fairview and that the matter required examination as
to how the net worth of the company, all of a sudden, turned
positive. It was observed that SSTC was not granted any
G - permission by the BIFR under Section 22 (1) of the Act and
the suit of SSTC was not competent,· that SSTC ·had
suppressed the fact from the Civil Court and that the order
passed by the Civil Court being without jurisdiction was a nullity
in the eyes of law and not binding upon the BIFR. It was further
H observed that the .SIFR had to satisfy itself whether the net
GHANSHYAM SARDA v. M/S. SHIV SHANKAR TRADING
571
CO. & ORS. [UDAY UMESH LAUT, J.)
worth had turned positive due to some positive development A
and not merely by manipulation of the accounts. In the premises
it .directed the State Bank ·of India to appoint independent
auditor for Special Investigative Audit and to file its report about
net worth position of the company as on 31.12.2012.
-.
14. SSTC who was the original plaintiff in the aforesaid
B
Suit filed Writ Petition No. 4303 of 2013 in Gauhati High Court
challenging the orders dated 16.05.2013 and 01.07.2013 of
the BIFR. Said Writ Petition came up before the Single Judge
who by his order dated 01.08.2013 impleaded the present
appellant as Respondent No. 3 in the Writ Petition and further C
directed that till the next date of hearing further proceedings in
BIFR case No. 149 of2014 shall remain stayed. Subsequently,
the matter appeared before the Single Judge again who, on
14.08.2013 directed that the matter be placed before Hon'ble
the Chief Justice for directions whether the Writ Petition could D
be heard along with FAO No.10 of 2013.
15. On 04.09.2013, State Bank of India as directed by
the BIFR submittEld the Report of the Special Investigative Audit
pointing out the manipulation in the balance-sheet submitted
by the company and that the net worth of the company as on E
31.12.2012 was in fact on the negative side by Rs.36 crores
in nine months. In the proceedings before the BIFR dated
05.09.2013, the aforesaid Report was taken on record and
comments from the parties were invited.
16. Immediately the company filed Writ Petition No.4286
of 2013 before Gauhati High Court questioning the order dated
05.09.2013 of the BIFR. The matter came up before a Single
Judge on 30.09.2013 who issued rule in the Writ Petition and
F
by way of interim order directed that further proceedings in G
BIFR case No.194 of 1994 shall remain stayed. This order
was vacated by Division Bench of the High Court in Writ
Appeals vide its order dated 14.11.2013. These three matters
namely FAQ No.10 of 2013 and Writ Petition Nos.4303 and
6286 of 2013 were thereafter clubbed and posted before the H
572
SUPREME COURT REPORTS
(2014) 14 S.G.R.
A
Single Judge on 21.11.2013, who adj~urned the matters to
04. ~ 2.2013 and observed that. since the Court was in seisin
of the matter it was expected that the BIFR may not proceed
further with th~ case till conclusion of the hearing before the
learned Single Judge. In def~rence to the aforesaid order
B dated 21.11.20,13, the BIFR adjourned the case.
. .
~ '
.
17. These three matters then came up before the High
Court which observed that FAO No.10 of2013 was filed by
the prese,nt appellant who was not yet a party before the Civil
Court and that said FAO which was filed without seeking
C appropriate leave _of the Appellate Court was not maintainable
and as such it was not necessary to enter upon deliberations
on merits of the matter. The High Court was of the view that
since the application for impleadment was still pending before
the Civil Court, as.and when the present appellant was
D impleaded as defendant in the suit, it.would then be open to
him to file such application for variation or setting aside of the
order of injunction. It was held that in the absence of any
challenge, the order of injun_ction was Still in operation and that
"
• . •
I~·
.
until and unless such orde~. v:as vacated and recalled by
E appropriate judicial forum, the same had to be respected and
given effect to. The High Court also disposed of Writ Petitions
on the ground that since all the proceedings before BIFR stood
~ •
I
-
.
stayed, further proceeding in BIFR would be of no legal
,. -
' -
.
consequence. It was further observed that one of the members
F of BIFR having recused himself from hearing the case on the
earlier occasions as noted in.the order dated 31:01.2013, of
the BIFR, said member ought not to have participated in any
further proceedings.
'
18. This common order pas.sed by the High Court has
G given rise to six Special. Leave Petitions, three by present
appellant namely' SLP No. 5249, 5897 and 6412 challenging
the order of the High Court in respect of FAQ No.10 of 2013,
Writ Petition No.4303 of2013'and Writ Petition No.6286 of
H
GHANSHYAM SARDA v. M/S. SHIV SHANKAR TRADING
573
CO. & ORS. [UDAY UMESH LAUT, J.]
2013 respectively. The other three petitions are by J.K. Jute A
Mill Mazdur Ekta Unions beirig Special Leave Petition Nos.
8610, 8611 and 8612 of 2014 against the aforesaid order in
respect of three proceedings as stated above respectively.
This Court issued notice in the matter on 24.03.2014 on which
date the company had appeared on caveat. By order dated
B
08.05.2014, it was directed that till further orders the capital
assets ofthe Company shall not be disposed of without taking
permission of this court. Soon thereafter Civil Contempt
Petition Nos.338 and 375 of 2014 were filed by the present
appellant and J.K. Jute Mills Mazdoor Union contending inter C
a/iathat in violation of order dated 08.05.2014, the contemnors
in the petition had caused certain properties of the Company
to be transferred .. During the pendency of these matters SSTC
assigned in favour of M/s Good life Merchants Pvt. Ltd. all the
. rights in respect of the debt of the Company.
D
19. All the aforesaid matters were taken up for hearing
together by this Court. Appearing for the present appellant,
Mr. Kapil Sibal, learned Senior Counsel submitted that the Act
is a complete code in itself and given the true scope and purport
of Sections 22 , 26 and· 32 of the Act, the jurisdiction of the
E
BIFR over any company in question would continue till its formal
discharge by BIFR either after the net worth of the company
turned positive by successful implementation of the scheme
or by the order of winding up passed in respect of such
company .. It was further submitted that the BIFR alone will
F
have competence and jurisdiction to declare a company which
was once a sick company, to be no longer sick and discharge
it from the purview of the Act and that the Civil Court will not
have jurisdiction or competence to decide these questions. It
was further submitted that the Civil Court is not the appropriate G
forum and lacks jurisdiction to examine the correctness of the
annual accounts and conclude whether the company in question
was no longer amenable to be dealt with under the Act. In
support of his submissions, reliance was placed on the
H
574
SUPREME COURTREPORTS
[2014) 14 S.C.R.
A decisions of this Court in Managing Direc.tor ~Bhoruka
Textiles Limited Vs. Kashmiri Rice lndustries1 and Raheja
Universal Limited Vs. NRC l.:imited & Ors. 2 Appearing for
J.K. Jute Mill Mazdur Ekta·Union, Shri Krishnan Venugopal
and Shri R.P. Bhatt, learned Senior Counsel adopted the
B submissions of ShriSibal. Shri Venugopal, learned Senior
Counsel also invited the attention of this Court to the report of
the State Bank of India to show how the net worth of the
companywas still on the negative siqe. Shri Kapil Sibal and
Shri Sanjeev Sen, learned Senior·counsel also invited the
c ·attention of the Court and submitted that the alleged
contemnors in aforementioned Contempt Petitions had
flagrantly violated· orders of this Court.
20. Shri Guru Krishna Kumar, learned Senior Counsel
appearing for SSTC original plaintiff and the transfree Mis
D Goodlife Merchants.Pvt. Ltd. in all the matters submitted that
since the audited balance-sheet as on 31.12.2012 showed
· the net worth of the company on positive side; the company
was out of the purview of the provisions of the Act and it was
competent forthe company to claim itself to be no longer
E amenable to the jurisdiction of the BIFR. It was submitted that
· it was open to assert, upon the net worth being pbsitive, that
the. company ipso facto was no longer amenable to the
jurisdiction of the .. BIFR. In support, reliance was placed on the
view taken by the High Courts of Calcutta3, Madras• and
F
Delhi5. Dr. A.M. Singhvi and Shri Harin Rawal, learned Senior
Counsel appearing for the company submitted inter alia that
12009(7) sec 521
22012 (2)SCC.148
G
'Dat('!d 08.08. J 995 in ZuariAgro Chemicals Ltd. &AnrVs. The Industrial
Credit and Investment Corporation of India. & Ors. in Matter No.362 of
H
1995 (OS).
.
'
'Dated 19.12.2007 in Dunlop India Ltd. Vs, Container Corporation of India
Ltd. & Anr. in Writ Petition No.24422 of 2006.
'Dated 21. 10.2009 in Catholic Syrian Bank Vs. BIFR & Ors. in W.P. (C)
No.8361of2008.
·
GHANSHYAM SAR DA v. M/S. "SHIV SHAN KAR TRADING
575
CO. & ORS. [UDAY UMESH LAUT, J.]
while the matters were pending before this Court, the Trial A
Court by its order dated 29.08.2014 had allowed the
application for impleadment filed by present appellant in Title
Suit No.166 of 2013 and that it was now open to the present
appellant to go before the Trial Court and ask for variation and
modification of the order of injunction passed by it. It was
B
submitted that BIFR which is a Tribunal with limited jurisdiction
could not have disobeyed the order of the Civil Court. Relying
on the views taken by the High Courts of Calcutta, Madras
and Delhi in the aforestated cases it was submitted that there
was no provision in the Act under which BIFR could pass an C
order discharging a company under the Act and as such the
matter could lie in the domain of the Civil Court. Shri C.U.
Singh, learned Senior Counsel appearing for LRPL, one of·
the secured creditors, adopted the submissions and further
submitted that various proceedings before the BIFR actually o
showed that the members of the BIFR were biased against
the Company.
21. Before we .deal with the legal issues involved in the
matter certain factual facets of the matter need clarification
and assessment. During the course of submissions, it was E
submitted that the Counsel appearing for the company had
never agreed before the BIFR on 04.04.2013 that the BIFR
could examine the audited balance sheet itself to satisfy
whether the net worth of the company had turned positive or
not. In support, reliance was placed on letter dated 18.04.2013 F
stated to have been written on behalf of the company to the
Secretary Bench 3, BIFR, copy of which letter was also placed
on record. Said letter purportedly stated that the recording of
such submission was wrong and that the learned counsel had
never submitted that before discharging the company the BIFR G
could examine the audited balance sheet and satisfy itself.
Be it noted that the letter was not written by the learned counsel
nor any affidavit was sworn by the learned counsel denying
such factum. Furthermore, in none of the subsequent
proceedings after 04.04.2013, as per the record of the BIFR,
H
576
SUPREME COURT REPORTS
[2014] 14 S.C.R.
A
any argument disputing or denying such submission appears
to have been made, .nor is there any reference in tlie
subsequent proceedings to the letter dated 18.04.2013.