HIGH COURT OF
Modi Rubber Ltd.
v.
Board for Industrial and Financial Reconstruction
Sanjay Kishan Kaul and S. Ravindra Bhat, JJ.
Writ Petition (C) No. 10284 of 2005
June 8, 2005
Section 22, read with section 19A, of the Sick Industrial Companies (Special Provision) Act, 1985 - Suspension of legal proceedings, contracts, etc. - Petitioner made application under sections 19A and 22(3) to BIFR for availing of public offer issued on behalf of ‘H’ Ltd. for purchasing certain shares held by petitioner at rate of Rs. 70 per share - Board rejected petitioner’s application - Hence, instant petition was filed which was resisted by one of unsecured creditors namely MSCPL - It was contended by MSCPL that petitioners should not be given permission to sell shares in question as they had already secured an award in their favour against petitioner under Arbitration and Conciliation Act, 1996 - Whether even if there was award in favour of MSCPL, that did not preclude BIFR from passing appropriate directions and in fact enforcement of such award could be kept in abeyance - Held, yes - Whether since MSCPL was neither willing to purchase share for a price of Rs. 70 per share nor to make up deficiency on account of fact that shares might not get such price at subsequent date, it could be concluded that MSCPL had adopted policy of dog in manger by not permitting amount to be released for benefit of creditors - Held, yes - Whether in such circumstances, petitioner was to be permitted to sell shares at Rs. 70 per share in pursuance of public offer - Held, yes
The petitioner made an application under sections 19A and 22(3) to the BIFR for availing of the public offer issued on behalf of ‘H’ Ltd. for purchasing certain shares held by the petitioner at the rate of Rs. 70 per share. As the petitioner’s application was not being considered by the BIFR on account of there being problems in constitution of the Bench, the petitioner filed a writ petition which was disposed of directing the chairman of the Board to consider the application. The application was considered but rejected by the Board. Hence, the instant petition was filed which was opposed by one of the unsecured creditors of the petitioner namely, MSCPL. The MSCPL contended that the petitioner should not be given permission to sell the shares in question because they had already availed of legal recourse against the petitioner by invoking the jurisdiction of the arbitrator under the Arbitration and Conciliation Act, which had resulted in passing of an award in its favour and there were some injunctive orders as well forming part of the said award.
Sub-section (3) of section 22, makes it clear that the same has to be
made to rehabilitate the applicant-company. Thus, various recoveries and orders
are required to kept in abeyance. Despite the
injunctive orders, such power is vested with the Board under sub-section (3) of
section 22. It was not possible to accept the submission of the MSCPL that
since there was an award in favour of MSCPL, under the Arbitration and Conciliation
Act, which is later Act to the said Act, a higher status had to be conferred
upon such an award. The award only results in an enforceable decree with the
right of any party to file objections within the parameters permitted under the
Arbitration and Conciliation Act. Thus, it is clear that even if there was such
an award, that did not preclude the BIFR from passing appropriate directions
and in fact enforcement of such award could be kept in abeyance. A reference
may also be made to the provisions of section 32 which also shows the
overriding power of the BIFR which is again in furtherance of the scheme and
objects of the said Act. (
Further since the MSCPL had vehemently
contended that the offer of Rs. 70 per share might
not be an appropriate offer and that there might be possibility of share price
going up manifold, it was put to counsel whether MSCPL was willing cither to
purchase the said share for a price of Rs. 70 per
share or was willing to make up the deficiency on account of the fact that the
share might not get such price at subsequent date. This was not acceptable to
MSCPL. (
Thus, the MSCPL had adopted a policy of a dog in the manger by not
permitting the amount to be released for the benefit of the creditors. It was
possibly because MSCPL was unsecured creditor and the Court cannot permit such
unsecured creditors to steal a march over the other secured creditors or the
unsecured creditors. This was specially, so, since recovery in pursuance of
decree had to take place, the MSCPL still stood in the queue of the unsecured
creditors. (
In view of the aforesaid, the petitioner was permitted to sell shares at Rs. 70 per share in pursuance to the public offer and the
amount to be released be kept in a non-lien account of IFCI, the secured
credit. However, this amount was to be kept in separate account subject to any
directions to be passed by the BIFR in this behalf after hearing the
submissions of the secured and the unsecured creditors. (
The petition was disposed of accordingly. (