Jurisdiction of BFIR vis a vis High Court

What scheme should be prepared by the operating agency for revival and rehabilitation of the sick industrial company is within the domain of BIFR. Section 26 not only covers orders passed under SICA but also any matter which BIFR is empowered to determine.

The jurisdiction of civil court is, thus, barred in respect of any matter for which the appellate authority or the Board is empowered. The High Court may not be a civil court but its jurisdiction in a case of this nature is limited. Section 15 of SICA provides for making reference by the Board of Directors of the Company on becoming an industrial company, a sick industrial company, to the Board for determination of the measures to be adopted with respect to the company.       Section 16 provides for making inquiry into the working of sick industrial company by the Board after receiving reference.



Section 17 of SICA provides for powers of Board to make suitable order on the completion of inquiry. Section 18 thereof provides for preparation and sanction of Scheme. Section 19 provides for rehabilitation by giving financial assistance. According to sub section (1), Where the scheme relates to  preventive, ameliorative, remedial and other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financia   institution or State level institution or any  institution or other authority (any Government, bank, institution or other authority required by a  scheme to provide for such financial assistance being hereafter in this section referred to as the  person required by the scheme to provide financial assistance) to the sick industrial company.

The supreme court held that :

“The provisions of a special Act will override the provisions of a general Act. A later of it will override an earlier Act. 1956 Act is a general Act. It consolidates and restates the law relating to companies and certain other associations. It is prior in point of time to SICA.

……… Wherever any inconstancy is seen in the provisions of the two Acts, SICA would prevail. SICA furthermore is a complete code. It contains a non-obstante clause in Section 32.

…..SICA is a special statute. It is a self contained Code. The jurisdiction of the Company Judge in a case where reference had been made to BIFR would be subject to the provisions of SICA.”

In NGEF Ltd. vs. Chandra Developers (P) Ltd. : (2005) 8 SCC 219 (see also, Morgan Securities and Credit Pvt. Ltd. v. Modi Rubber Ltd. [AIR 2007 SC 683), in regard to the jurisdiction of the Company Court it was held :-

"39. The provisions of SICA contain non obstante  clauses. It is a special statute. It is a complete code in itself. The jurisdiction of the Company Court in  such matters would arise only when BIFR or AAAIFR, as the case may be, has exercised its jurisdiction under Section 20 of SICA  recommending winding up of the Company upon arriving at a finding that there does not exist any chance of revival of the Company."

It was further held:

The satisfaction arrived at by BIFR that the Company is not likely to become viable in future and it is just and equitable that the Company should be wound up must be based on objective criteria. The High Court indisputably on receipt of such recommendation of BIFR would initiate a proceeding for winding up in terms of Section 433 of the Companies Act. Sub-section (2) of Section 536 ipso facto does not confer any jurisdiction upon the Company Court to direct sale of the assets of the sick company. It has to exercise its power thereunder subject to the provisions of the special statute governing the field. Despite the fact that the procedures laid down under the Companies Act would be applicable therefore but they must be read with sub-section (4) of Section 20 of SICA which contains a non obstante clause and in terms thereof, BIFR is authorised to sell the assets of the sick industrial company in such a manner as it may dee fit. By reason of the said provision, BIFR is also empowered to forward the sale proceeds to the High Court for orders for distribution in accordance with Section 529-A and other provisions of the Companies Act which in no uncertain terms would mean that the distribution of the sale proceeds would be for the  purpose of meeting the claims of the creditors in the  manner laid down therein. The intention of Parliament in enacting the said provision becomes clear as in terms of Section 22-A of SICA, BIFR is empowered to issue any direction in the interest of the sick industrial company or its creditors or shareholders and direct the sick industrial  company not to dispose of its assets except with its assent. Section 32, contains a non obstante clause. The scheme suggests that BIFR retains control over the assets of the Company and in terms of the aforementioned provisions may either sick industrial company. Such a power in BIFR remains  till a winding-up order is passed by the High Court and a  stage arrives for the High Court for issuing orders for distribution of the sale proceeds.

……SICA was furthermore enacted subsequent to the  provisions of the Companies Act. It is not, thus, possible   to accept the submission that the High Court exercises a concurrent jurisdiction."

It was ruled that the Company Court and the BIFR do not exercise concurrent jurisdiction. It was held that: It may be true that the High Court's  jurisdiction is that of the Appellate Authority but  keeping in view the terminology contained in sub-  section (4) of Section 20 read with Section 32 of  the Act, it leaves no manner of doubt that the  provisions of SICA shall prevail over the   provisions of the Companies Act. For the  aforementioned purpose, it was not necessary for Parliament to mention specifically the provisions of sub-section (4) of Section 20 that the same shall prevail over Section 536 of the Companies Act…..”

“BIFR admittedly had the power to sell the assets of the Company but the High Court until a  winding-up order is issued does not have the same.”

In Bombay Dyeing & Manufacturing Co. Ltd. vs. Bombay Environmental Action

Group : (2006) 3 SCC 434 It was held that:

13. The 1993 Act was enacted to provide for and regulate the payment of interest on delayed  payments to small-scale and ancillary industrial undertakings and for matters connected therewith.

4. The provisions of the 1993 Act, therefore, do not envisage a situation where an industrial  company becomes sick and requires framing of a  scheme for its revival.

15. It is no doubt true that an award in relation to a  claim of a small-scale industry if made by the Council would be governed by the provisions of   the Arbitration and Conciliation Act, 1996 .”

In Damji Valli Shah v. Life Insurance Corporation of India, [(1965) 2 SCR 665 ], the question which arose for consideration was as to whether a similar provision made in the Life Insurance Corporation Act, 1956 shall bar the jurisdiction of the Company Court in terms of Section 446 (1) of the Companies Act. Referring to Section 41 of the Life Insurance Corporation Act, 1956 it was stated that the Tribunal constituted under the LIC Act will have exclusive jurisdiction.