The three-Judge Bench of the Supreme Court of India in the case of Madura Coats Limited (“the Appellant”) vs. Modi Rubber Ltd. (the Respondent”) and Ors., decided on June 29, 2016, has observed that the winding up proceedings before the Company Court cannot continue after a reference has been registered by the Board for Industrial and Financial Reconstruction (“BIFR”) and an enquiry has been initiated under Section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”).
Company Court had passed winding up order against the Respondent and official liquidator was also appointed to take charge of the assets of the Respondent and to submit a report along with the inventory. The Board of Directors of the Respondent had passed a resolution to file a reference before the BIFR under the provisions of SICA and after due procedure, reference to BIFR was registered. It is pertinent to note that while the application for reference was sent to the BIFR before the winding up order was passed by the Company Court, the reference was actually registered with the BIFR after the winding up order was passed by the Company Court. Thereafter, BIFR sanctioned the rehabilitation scheme under SICA, also making provision for unsecured creditors (including the Appellant). Some payment was also made by the Respondent to the Appellant pursuant to an order of the Company Court.
The Division Bench of the Allahabad High Court (“HC”) had allowed the Special Appeal of the Respondent and had stayed further proceedings before the Company Court till a final decision was taken on the reference made by the Respondent to the BIFR. This decision of HC was under challenge before the apex Court.
The Supreme Court considered different situations that can arise in the interplay between the Companies Act and the SICA in the matter of winding up of a company, looking at its earlier rulings.
According to the Supreme Court, this appeal from HC decision was squarely covered by the primacy given to the provisions of the SICA over the Companies Act as delineated in its earlier rulings namely, Real Value Appliances Ltd. v. Canara Bank and Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. The apex Court also took note of the subsequent developments in the case and the fact that the Appellant had participated before the BIFR and had taken its dues in terms of the rehabilitation scheme.
The Supreme Court observed that whatever may be situation, whenever a reference is made to the BIFR under Sections 15 and 16 of SICA, the provisions of SICA would come into play and they would prevail over the provisions of the Companies Act. Court affirmed the view taken by the HC 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 SICA.
Adding to the significant rulings in the past by the Supreme Court on this issue, this is yet another judgment pronouncing its stance on the issue concerning primacy of SICA over the Companies Act in certain cases. By this ruling, the apex court has affirmed its ruling in the case of Tata Motors Ltd. v. Pharmaceutical Products of India Ltd, (2008) 7 SCC 619, making it 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 Sections 15 and 16 of the SICA, the provisions of the SICA would come into play and would prevail over the provisions of the Companies Act and proceedings under the Companies Act must give way to proceedings under the SICA.