Bank of New York Mellon London Branch v. Zenith Infotech Limited (SC) BS831254
SUPREME COURT OF INDIA

Before:-Ranjan Gogoi and Abhay Manohar Sapre, JJ.

Civil Appeal No.3055 of 2017 (Arising Out of S.L.P.(C) No.1587 of 2015). D/d. 21.2.2017.

Bank of New York Mellon London Branch - Appellant

Versus

Zenith Infotech Limited - Respondents

For the Appellant :- Ms. Anindita Roy Choudhary, Ms. Vatsala Rai, Ms. Liz Mathew, Advocates.

For the Respondent :- Akshat Kumar, Advocate.

Sick Industrial Companies (Special Provision) Act, 1986, Sections 15, 3(e), 3(f), 12, 13 and 14 - Board for Industrial and Financial Reconstruction Regulations (1987), Regn. 19 - Insolvency and Bankruptcy Code (2016), Section 252 - Reference to Board - Jurisdiction of Registrar and Secretary - Power of adjudication has not been conferred on them - Dismissal of applicable for reference by Registrar holding that the company is not an industrial company within the meaning of Section 3(e) and 3(f) of the Act, held to be beyond their jurisdiction and legally non est - Reference deemed to be pending before the Board on relevant date attracting provisions of Section 252 of Insolvency and Bankruptcy Code.

[Paras 17 to 20]

Cases Referred :-

Jamal Uddin Ahmad v. Abu Saleh Najmuddin, 2003(2) RCR (Civil) 215 : (2003) 4 SCC 257.

Real Value Appliances Ltd. v. Canara Bank, 1998(3) RCR (Civil) 457 : (1998) 5 SCC 554.

Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., (2000) 5 SCC 515.

JUDGMENT

Ranjan Gogoi, J. - Leave granted.

2. At the very outset, it will be necessary to take note of the relevant statutory enactments and changes that have come about after hearing of the case had been concluded. The said enactments and the changes in the existing enactments give rise to a somewhat altered scenario, as will be noticed hereinafter, though essentially the core of the question that has arisen remains substantially unaffected.

3. The Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the SICA") had been repealed by the SICA Repeal Act, 2003. However, it is only by Notification dated 25.11.2016 that the repeal has been given effect to on and from 1.12.2016. Under Section 4(b) of the repeal Act, all proceedings before the B.I.F.R. or the Appellate Authority, as the case may be, stood abated and in respect of such abated proceedings provisions have been made to enable the company to seek a reference as per provisions of Part VI-A of the Companies Act, 1956 within 180 days from the date of the repeal Act. Interestingly, the provisions of Part VI-A of the Companies Act, 1956 which, though brought about by the Companies (Second Amendment) Act of 2002 had/have not been made effective. In fact, effective 1.11.2016 Section 4(b) of the Repeal Act has been amended by Section 252 of the Insolvency and Bankruptcy Code of 2016 (hereinafter referred to as "the Code") and provisions have been made therein akin to those in repealed Section 4(b) except that reference by a company in respect of an abated proceeding is to be made to the National Company Law Tribunal within 180 days of the Code coming into force. Such a reference is required to be dealt with in accordance with the provisions of the Code. The code has been enacted and given effect to w.e.f. 1.12.2016. Relevant details thereof will be noticed hereinafter.

4. At this stage, it will also be necessary to take note of the fact that the National Company Law Tribunal envisaged under the Companies (Second Amendment) Act of 2002 has been authorized to exercise and discharge its powers and functions with effect from 1.6.2016 and, in fact, the Tribunals with Benches throughout the country have since been constituted and are presently functioning.

5. Having noticed the above position, we may now turn to the provisions of the Insolvency and Bankruptcy Code, 2016. It is a comprehensive Code enacted as the Preamble states, to

6. Section 3(8) defines a `Corporate Debtor' to mean "a corporate person who owes a debt to any person."

Section 5(1) of the Code defines "Adjudicating Authority" to means the National Company Law Tribunal constituted under Section 408 of the Companies Act, 2013. The definition of "corporate applicant" in Section 5(5) includes a "corporate debtor." Under Section 6, amongst others, a "corporate debtor" who has committed a default may file an application with the Adjudicating Authority for initiating a corporate insolvency resolution process. Such a process may also be initiated by others, including a financial creditor, against the corporate debtor in respect of default committed by the corporate debtor. Under Section 7 (Explanation-1), default includes "a default in respect of a financial debt owed not only to the applicant financial creditor but to any other financial creditor of the corporate debtor. Under Section 13 once the Adjudicating Authority admits the application of the corporate applicant [defined by Section 5(5)] filed under Section 10, the said Authority may proceed to declare a moratorium for the purposes referred to in Section 14. Section 14 is in the following terms:

Section 16 of the Code visualizes the appointment of an interim resolution professional to manage the affairs of the corporate debtor. Such appointment is to be made by the Adjudicating Authority.

Under Section 20 of the Code, the interim resolution professional appointed under Section 16 is to manage the operations of the corporate debtor as a going concern and make every endeavour to protect and preserve the value of the property. Section 25 which enumerates the duty of the resolution professional is in the following terms:

Section 30 of the Code contemplates submission of a resolution plan and approval thereof by the Adjudicating Authority failing which the liquidation process of the corporate debtor as contemplated in Chapter III of the Code would be required to be initiated.

7. The above provisions of the Code have been noticed in some detail and the provisions thereof, so far as the same are material for the purposes of the present case, have also been extracted and highlighted. We may now proceed to examine and see what has happened in the present case.

8. Briefly the facts relevant are as follows.

On 23.07.2013 the respondent No. 1 company-Zenith Infotech Ltd. filed a Reference before the Board for Industrial and Financial Reconstruction (hereinafter for short "the Board") under Section 15 of the SICA. The said application was refused registration by the Registrar of the Board on 12.08.2013 on the ground that respondent No.1 company is not an industrial company within the meaning of Section 3(e) and 3(f) of the SICA. An appeal was filed by the respondent No. 1 company before the Secretary of the Board against the order of Registrar which was dismissed on 13.09.2013. There was a further appeal to the Chairman of the Board against the order of the Secretary. Though the maintainability of the second appeal before the Chairman of the Board would be in serious doubt in view of the provisions of Regulation 19(4) read with sub Regulation 8 (1) and (2) of Regulation 19 of the Board for Industrial and Financial Reconstruction Regulations, 1987 (hereinafter for short "the Regulations") it will not be necessary to deal with the said question in the present proceedings except to state that the Chairman of the Board also dismissed the second appeal filed by the respondent No. 1 company by order dated 03.04.2014.

9. What would be of significance is the events that had transpired while the matter was before the authorities of the Board, namely, the Secretary and Chairman of the Board. It appears that on 30.07.2013 a petition for winding up of the respondent No.1 company was admitted by the High Court of Bombay and the order of admission was affirmed by the Division Bench in appeal. The approach to this Court also was not successful with the Special Leave Petition filed by the respondent No.1 company having been dismissed on 30.09.2013. Thereafter, it appears that on 13.12.2013 the High Court of Bombay passed orders for winding up of the respondent No. 1 which was upheld in appeal by the Division Bench of the High Court on 23.04.2014. Though, a stay was ordered by the High Court of its winding up order till 31.08.2014, it would appear that the High Court understood the said interim order to have been vacated by efflux of time, in the absence of any specific order of extension. Thereafter the Official Liquidator came to be appointed by the High Court on 02.09.2014.

10. The orders of the Secretary and Chairman of the Board rejecting the application for Reference filed by the Respondent No.1 company were subjected to a challenge in a writ petition filed by the respondent-company before the Delhi High Court out of which the present proceedings have arisen.

11. Two questions arose before the High Court of Delhi in the writ petition.

The first was whether the dismissal of the application for Reference by the Registrar, Secretary and Chairman of the Board was within the jurisdiction of the said authorities. The second question, which was implicit if there was to be a positive answer to the first, is whether in view of the order of winding up passed by the Company Court, and affirmed by the Division Bench of the Bombay High Court, there is any further scope for registration of the Reference sought for by the respondent No. 1 company under the provisions of the SICA if the order declining registration by the aforesaid authorities is to be understood to be non est.

12. The High Court, by the impugned order, took the view that under the provisions of the SICA read with the Regulations, the Registrar and the other authorities like the Secretary and the Chairman of the Board have not been conferred any power of adjudication which would necessarily be involved in determining the question as to whether the respondent No.1 company is an industrial company within the meaning of Section 3(e) and 3(f) of the SICA. Since an adjudicatory function and role has been performed by the Registrar, whose order has been affirmed by the Secretary and the Chairman of the Board and as registration of the Reference sought for by the respondent No. 1 company was refused on that basis the said orders are non est in law. Regarding the second question, the High Court of Delhi relying on the decisions of this Court in Real Value Appliances Ltd. v. Canara Bank and Others, 1998(3) RCR (Civil) 457 : (1998) 5 SCC 554 and Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., (2000) 5 SCC 515 came to the conclusion that the winding up order passed by the Company Court would not foreclose the proceedings under the SICA and registration of a Reference under Section 15 and the inquiry under Section 16 can still be made. The question that was agitated in the present appeal is consequential to the above determination and revolve around the application of Section 22 of SICA to bar further steps in the winding up proceeding before the High Court. The above question would no longer survive in the context of the provisions of the now repealed Act but would still require an answer from the stand point of the provisions of the Insolvency and Bankruptcy Code in force with effect from 1.12.2016.

13. The first question, namely, the one with regard to the power and jurisdiction of the Registrar and Secretary to refuse registration of the application for reference made by the respondent company on the grounds mentioned above may now be taken up. To answer the aforesaid question, the following provisions of SICA may be noticed:

14. In addition, Section 16 deals with the inquiry to be made by the Board for determining whether an industrial company has become sick, whereas Section 17 deals with the power of the Board to make suitable orders on completion of inquiry.

15. Under Section 13 of the SICA the Board has enacted a set of Regulations, namely, the Board for Industrial and Financial Reconstruction Regulations, 1987. Chapter II of the Regulations deals with References sought under Section 15 of the Act (SICA) and contains provisions as to how such References are required to be made and dealt with. Regulation 19 would need to be extracted to show what is contemplated to be the role of the Registrar and the Secretary on receipt of a Reference. The said provision therefore is extracted below.

16. From the provisions of Regulation 19(5) it would appear that on receipt of a Reference under Regulation 19(4) the Secretary or the Registrar, as may be, after making an endorsement of the date on which the same has been received in the office of the Board is required to make a scrutiny and, thereafter, if found to be in order, to register the same; assign a serial number thereto and place the same before the Chairman for being assigned to a Bench. After completion of the aforesaid exercise under Regulation 19(5) the later part of the said Regulation contemplates that simultaneously, remaining information/documents required, if any, may be called for from the applicant. Regulation 20 contained in Chapter III and Regulation 21 contained in Chapter IV deal with the manner in which the proceedings of inquiry after registration of the Reference is to be made.

17. Regulation 19(5) extracted above, requires the Registrar or the Secretary, as may be, to make an endorsement of the date of receipt of the Reference [Regulation 19(4)] and thereafter on scrutiny thereof to register the same and place before the Chairman for being referred to the Bench. When the Regulations framed under the statute vests in the Registrar or the Secretary of the Board the power to "scrutinize" an application prior to registration thereof and thereafter to register and place the same before the Bench, we do not see how such power of scrutiny can be understood to be vesting in any of the said authorities the power to adjudicate the question as to whether a company is an industrial company within the meaning of Section 3(e) read with 3(f) and 3(n) of the SICA. A claim to come within the ambit of the aforesaid provisions of the SICA i.e. to be an industrial company, more often than not, would be a contentious issue. In the present case, it certainly was. The specific stand of the respondent No. 1 company in this regard need not detain the Court save and except to state that by a detailed description of the manufacturing process the respondent No. 1 company had sought to contend that it is an industrial company. Surely, the rejection of the above stand could have been made only by a process of adjudication which power and jurisdiction clearly and undoubtedly is vested by the SICA and the Regulations framed thereunder in a Bench of the Board and not in authorities like the Registrar and the Secretary. In this regard, one can only be reminded of the observations made by this Court in paras 13 and 14 in the case of Jamal Uddin Ahmad v. Abu Saleh Najmuddin and Another, 2003(2) RCR (Civil) 215 : (2003) 4 SCC 257 which may be extracted below.

18. The High Court, in view of what has been discussed above, was correct in coming to the conclusion that the refusal of registration of the reference sought by the respondent Company by the Registrar, Secretary/Chairman of the Board was non-est in law. The reference must, therefore, understood to be pending before the Board on the relevant date attracting the provisions of Section 252 of the Insolvency and Bankruptcy Code.

19. The second question arising before the High Court, namely, whether the reference before the Board stood foreclosed by the order of winding up of the respondent Company and the appointment of liquidator was answered in the negative relying on Real Value Appliances Ltd. (supra) and Rishab Agro Industries Ltd. (supra). The core principles laid down in the said decisions of the Court, namely, that immediately on registration of a reference under Section 15 of the erstwhile SICA, the enquiry under Section 16 is deemed to have commenced and that the winding up proceedings against a company stood terminated only after orders under Section 481 of the Companies Act, 1956, are passed, will have to be noticed to adjudge the correctness of the said view of the High Court. In any event, the aforesaid question becomes redundant in view of our conclusion that the reference sought by the respondent Company must be deemed to have been pending on the date of commencement of the Insolvency and Bankruptcy Code, particularly, Section 252 thereof (effective 1.11.2016).

20. We, therefore, dispose of the appeal by holding that it would still be open to the respondent Company to seek its remedies under the provisions of Section 252 of the Code read with what is laid down in Sections 13, 14, 20 and 25. We make it clear that we should not be understood to have expressed any opinion on the scope and meaning of the said or any other provisions of the Code and the adjudicating authority i.e. National Company Law Tribunal would be free and, in fact, required to decide on the said questions in such manner as may be considered appropriate.

21. Appeal, consequently, is disposed of accordingly.

.