Prevalence of Provisions of SICA prevails over Companies Act

Prevalence of Provisions of SICA prevails over Companies Act

Where a winding up order is passed by court but before final dissolution of company and a reference is made to BIFR under Section 15 of Sick Industrial Companies Act , and then a question will arise that if provisions of Companies Act will prevail or provisions of SICA will prevail. Various courts have discussed this issue in different matters. We have taken three different situations where winding up order is passed and reference is made to BIFR.

Issue 1

Where application for making a reference was sent to the BIFR under SICA Act before the winding up order was passed by the Company Court, however, the reference was actually registered after the winding up order was passed by the Company Court.

Ans

Here, in this case, Assessee Company is entitled to the benefit of Section 22 of the SICA. It is pertinent to know that order passed for winding up under Companies Act is not final and it is just initiation of process of winding up however final order for winding up is an order of dissolution of company under Section 481 of Companies Act, 1956.

Therefore, in this case, the order passed by Company Court shall remain suspended till final disposal of proceeding by SICA authorities.

Issue 2

Where an interim order of winding up was passed by Company Court and winding up proceedings are pending and a reference is made to the BIFR. For Example: winding up proceedings of ABC Ltd. were pending and the appointment of a provisional liquidator was under challenge. At this stage, ABC Ltd. makes reference under Section 15 of the SICA to the BIFR. Now, here issue arises that whether on the registration of a reference, can Court pass orders in an appeal against an interim order passed by the Company Court.

Ans

The prime contention of SICA is to revive and rehabilitate Sick industry before an order of Winding Up is passed. Therefore, no proceedings against the assets of the company (i.e. winding up) can be held before BIFR takes decision on the matter. This is the reason that as soon as the application of reference is registered, inquiry under Section 16 is deemed to have commenced and as per Section 22 of SICA any action against company’s assets must remain stayed till BIFR makes final decision.

Issue 3

Where winding up order is passed by the Company Court but it is stayed in appeal. Thereafter, company made a reference to BIFR under Section 15 of SICA.

Ans

Here, a question arises that can after passing an Order of winding up, reference to BIFR can be made or not. Again, it is pertinent to note that order passed for winding up under Companies Act is not final and it is just initiation of process of winding up however the final order for winding up is an order of dissolution of company under Section 481 of Companies Act, 1956. Therefore, Company Court and High Court proceedings can be initiated only after BIFR makes its final decision.

Conclusion

Therefore, it can be concluded that in any situation that arises in the process of winding up of a company under the Companies Act, if reference is made to BIFR under section 15 and section 16, the provision of SICA will prevail over the provisions of Companies Act.

Please note above analysis is based on Recent Judgment of Honourable Supreme Court in the case of M/s. Madura Coats Limited Vs. M/s. Modi Rubber Ltd. & Anr. , Civil Appeal No. 1475 of 2006, Dated: 29.06.2016

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