M J Antony: Conflict of powers

OUT OF COURT

The present trend in adjudication of disputes is to set up specialised tribunals to lighten the burden of the regular courts. Tribunals are cheaper, faster and nearer. But there is a counter point. They take away the jurisdiction of the high courts.

There is a section of legal opinion which apprehends that soon the high courts will be left with only writ jurisdiction. This is an issue currently being debated in the Supreme Court in the matter of setting up of the company law tribunal.

Meanwhile, a bench of the Supreme Court has dealt with the power of the high court vis-à-vis that of the Board for Industrial and Financial Reconstruction (BIFR) while selling the assets of a sick company.

The case, M/s NGEF Ltd vs M/s Chandra Developers Ltd, was an appeal against the Karnataka High Court judgement which had ruled that the order of the company judge would prevail over that of the BIFR.

The Supreme Court reversed the high court view and asserted that the BIFR alone shall have jurisdiction as regards sale of assets till an order of winding up is passed by a company court. Thus, the Supreme Court has supplied some lifeblood, as it were, to the BIFR which is on ventilator, like some other tribunals.

NGEF was a joint venture of the Karnataka government (90.18 per cent) and EHG Electroholding GMBH (9.72 per cent). The company became sick and it was referred to the BIFR in terms of the Sick Industrial Companies (Special Provisions) Act.

Virtually all the company's assets had been placed either under mortgage or offered as collateral security to various financial institutions. The company had been selling some of its surplus lands to public sector undertakings for paying wages to the workers and repaying loans.

The state government tried to revive the company through disinvestment and invited global tenders. The company moved the BIFR seeking an order to the financial institutions to release their charge over the assets to enable it to sell surplus assets. But the BIFR was convinced that the company was beyond revival and recommended its winding up by the high court.

Chandra Developers, which had a contract of sale of certain lands of the sick company, moved the high court for execution of the deed. The high court permitted it. Therefore NGEF appealed to the Supreme Court.

It held that the provisions of the Sick Industries Act made it explicit that its provisions will apply "notwithstanding" other laws and the Act is a special statute. It is a complete code by itself.

The company court will acquire jurisdiction only when the BIFR or its appellate tribunal had exercised its jurisdiction recommending winding up of the company when the revival is found to be impossible.

The argument that both the high court and the BIFR would exercise concurrent jurisdiction in such cases was also rejected. "If such a construction of law is upheld, there shall be chaos and confusion," the court said. "A company declared to be sick in terms of the provisions of SICA continues to be sick unless it is directed to be wound up. Till the company remains a sick company, having regard to the provisions of Section 20(4), BIFR alone shall have jurisdiction as regard sale of its assets till an order of winding up is passed by a company court."

There is an elaborate procedure for the BIFR to follow before it recommends winding up of a company. An enquiry is made under Section 16 in which all relevant facts and circumstances are required to be taken into consideration. The concerned parties are given an opportunity of hearing.

The recommendation to wind up the company must be based on objective criteria. Upon the receipt of the proposal, the high court would initiate winding up proceeding in terms of Section 433 of the Companies Act.

However, Section 536(2) of the Companies Act does not confer any power on it to direct sale of the assets of the company. It has to exercise its power subject to the special powers under the SICA. Thus, BIFR is authorised to sell the assets of the sick company.

It 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. The whole scheme is so devised that the BIFR is the custodian of the interest of the company and its creditors. It retains control over the assets of the sick company "" it could either prevent any sale or permit any sale of its assets.

Thus, this significant issue has been settled two decades after the BIFR was set up. One would hope that the draftsmen would be clearer while setting up new tribunals. There is already enough litigation over their conception itself.