SUPREME COURT OF INDIA
Raheja Universal Ltd.
v/s.
NRC Ltd.
CIVIL APPEAL NOS. 1920 TO 1923 OF 2012
FEBRUARY 7, 2012
JUDGMENT
Swatanter Kumar , J
Leave granted in all cases.
1.1 An interesting question of law as to the ambit and scope of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, the ‘Act of 1985’) and its overriding application over the provisions of Transfer of Property Act, 1882 (for short, the ‘Act of 1882’), with particular reference to Section 53A and Section 54 of the latter Act, arises for consideration in the present case.
Reference to the basic facts which give rise to this proposition of law would be necessary and are as follows:
Facts
2. NRC Limited is a company which was originally incorporated under the name and style of ‘National Rayon Corporation Limited’ in the year 1946. However, subsequently, by an appropriate resolution of the Board of Directors, its name was changed to ‘NRC Limited’ on 4th August, 1994 (hereinafter referred to as the ‘Respondent-Company’). The Respondent-Company was engaged in the manufacture of viscos filament yarn, chemicals and allied products with its factory at Mohane, Kalyan, District Thane. As per the facts on record, the Respondent-Company was declared a ‘sick industrial company’ in the year 1987, but as its net worth turned positive, vide order dated 10th January, 1994 passed by the Board for Industrial and Financial Restructuring (for short, the ‘BIFR’), it was discharged from the purview of the Act of 1985. The Respondent-Company had arranged finances and invested nearly Rs. 86 crore in the financial year 2005-06 whereafter it started incurring losses because reduction in the customs duty seriously affected its business. Because of the financial crunch faced by the Respondent-Company, a consortium of five nationalized banks comprising of Punjab National Bank, Dena Bank, Canara Bank, Indian Overseas Bank and the Bank of Baroda had sanctioned a term loan as well as a working capital loan, secured by the current assets as well as the fixed assets of the Respondent-Company including the land in question. The total outstanding amount of loan, as on 31st March, 2006, was approximately Rs.147 crore. The Respondent-Company intensified its efforts to dispose of the surplus land so as to bring in additional funds required for financial restructuring. A Memorandum of Understanding was signed on 13th April, 2006 with ‘K. Raheja Universal Limited’ renamed as ‘Raheja Universal Limited’ (hereinafter referred to as the ‘Appellant-Company’) for sale of about 344 acres of land for a total consideration of Rs .166.40 crore. After obtaining ‘No Objection Certificates’ from the lending banks, an agreement dated 1st March, 2007 was signed between the parties and a sum of Rs. 25 crore was paid by the Appellant-Company to the Respondent-Company. The balance consideration of Rs. 141.40 crore was to be paid as per the terms of the agreement. In terms of the said agreement, the Appellant-Company was to pay the second instalment of Rs. 25 crore, as and when required, to be utilized only to remove the first charge on the saleable land, the third instalment of Rs.48.90 crore was to be paid on receipt of ‘No Objection Certificate’ from the labour, Kalyan Dombivli Municipal Corporation and, on completion of fencing and the vacant possession of non-colony land and the fourth and final instalment of Rs. 72.50 crore was to be paid subsequent thereto.
3. The Agreement dated 1st March, 2007 had postulated payment of the sale consideration in instalments. The parties continued further negotiations in regard to payment of the balance sale consideration. The Respondent-Company had requested the Appellant-Company to advance the payment of instalments. Thereafter, the parties came to an understanding and, in furtherance to such understanding, a supplementary deed to the agreement was signed on 29th September, 2007. As already noticed, the Appellant-Company had declined to pay the third instalment of the consideration payable, causing impediment to payments towards labour costs and other expenses of the Respondent-Company. Then, the parties, by mutual agreement, signed a second supplementary agreement dated 17th August, 2010. This agreement referred to the principal agreement and besides advancing the payment of instalments, the possession of the property was also given to the Appellant-Company.
4. There is some dispute between the parties with regard to the manner and time in which these payments were or were not made. On failure to attain the object of restructuring, the Respondent-Company submitted a proposal to the consortium of banks for Corporate Debt Restructuring (CDR) and improving the performance and to achieve positive results during the year 2006-07. The CDR mechanism used the land sale proceeds. Upon making the proposal, the Respondent-Company discontinued its production activity in the nylon plant. The CDR Empowered Group approved the package for restructuring of debts on 21st January, 2008 but still it could not improve the financial business position of the Respondent-Company till the period ending on 30th June, 2008. On or about 24th September, 2008, the consortium banks released their interest over the property. An agreement with the recognized employees’ unions was also entered into on 5th September, 2008 but then it ran into problems, as it was contended by the Labour Unions that their dues should be cleared first and on transfer of land, Appellant-Company should provide 18 acres of land for a proposed employee’s colony. An early retirement scheme was also introduced and out of the total strength of 3725 employees, about 577 employees opted to take the benefit of this scheme. The Respondent-Company then negotiated with the Appellant-Company sometime in September 2008 for payment of the third instalment of Rs. 48.90 crore. However, simultaneously, the Labour Unions raised the question of payment of bonus which adversely affected the revival plans. The chemical plant of the company was re-started. On 3rd December, 2008, the Respondent-Company moved an application before the BIFR in Case No. 55 of 2008 under Section 15(1) of the Act of 1985. The Appellant-Company refused to release the third instalment and resultantly, even the dues of 577 employees, who had taken the benefit of the early retirement scheme, could not be cleared. The BIFR, vide its order dated 16th July, 2009, fixed the cut-off date as 30th July, 2007. It directed that the sale of assets, including investments, will require prior approval of the BIFR. It also appointed the Punjab National Bank as the Operating Agency under Section 17(3) of the Act of 1985.
5. As per Section 18(8) of the Act of 1985, the cut-off date is the date of coming into operation of the sanctioned scheme, or any provisions thereof. In other words, all matters relating to the company would, after this date, be within the ambit and scope of the provisions of the Act of 1985 and, as already noticed, the BIFR had declared the cut-off date to be 30th July, 2007. Vide its order dated 16th July, 2009, which was passed under Section 17(3) of the Act of 1985, the following directions were given:
“(i) The Company shall submit a fully tied up DRS to the OA (Punjab National Bank) (PNB) within a period of three months. The sale of 350 acres of land stated to be approved by the CDR Empowered Group (EG) and the secured creditors may form part of the DRS. The details of the land to be sold including survey numbers should be clearly specified. The company shall give similar details of the remaining land and conform that it is adequate for the functioning and viability of the company on long term basis. The OA (PNB) shall convene a joint meeting of all concerned and submit a fully tied up DRs, if it emerges, along with the minutes of the joint meeting within a further period of one month.
(ii) Bank of Baroda (BOB) shall submit an authenticated copy of the CDR scheme approved by consortium of banks within a period of 15 days.
(iii) PNB (OA) shall confirm to the Board within a period of 15 days under copy to the company that all the secured creditors who had charge over the land had approved sale of 350 acres of land belonging to the company at Kalyan, Thane Dist. To K. Raheja Universal Pvt. Ltd. For a sum of Rs. 166.40 crore. The secured creditors who had charge over the land shall clearly indicate whether the company had obtained their approval before entering into MOU and agreement for sale of 350 acres of land with K. Raheja Universal Ltd. under copy to the company the OA (PNB) and the Board. Secured creditors shall also similarly submit copy of their approval for sale of investments, giving details of the investments. OA shall also submit copies of the approvals given by the secured creditors for the sale of the said land along with the copies of valuation report and the details of the valuer and the procedure followed based on which the sale consideration of Rs. 166.40 crores was arrived at. OA shall also submit a copy of the approvals by secured creditors for sale of investment giving details of the investments. The company shall fully co-operate with the OA in furnishing the documents/details required by them.
(iv) The company shall submit within 15 days under copy to the OA (PNB) copies of the No Objection Certificates for sale of land and release of charge issued by all the charge holder lenders and the State Government in respect of 350 acres of land for which MOU and agreement of sale are stated to be entered into in 2006 and 2007 respectively with K. Raheja Universal Pvt. Ltd. under copy to the PNB (OA). The company should also submit certified copies of the Board resolutions of the company authorizing these transactions to the OA with a copy to the Board. The company shall similarly submit full details of the investments to be sold under the CDR scheme. It is reiterated that sale of assets including investments will require the prior approval of BIFR as the company is now under the purview of SICA.
(v) The company shall submit a copy of the clearance stated to have been received from Hon’ble High Court of Bombay for sale of 350 acres of land under copy to the OA (PNB).
(vi) The secured creditors are directed u/s 22(1) of SICA not to take any coercive action against the company without prior permission of BIFR.”
6. As is evident from the above-noted directions, the BIFR treated the land as an investment and has put certain restrictions thereupon, including that of sale of assets, which required the prior approval of BIFR as the Respondent-Company was under the purview of the Act of 1985. With reference to the land, it was directed that Capacity Valuation Report should be placed on record to show how the sale consideration of Rs. 166.40 crore was arrived at. Aggrieved from this order, the Appellant-Company as well as the Respondent-Company, both have preferred an appeal before the Appellate Authority for Industrial and Financial Reconstruction (for short the ‘AAIFR’) under Section 25 of the Act of 1985. The AAIFR made major variations in the order of the BIFR. Firstly, it held that BIFR should not have fixed 30th July, 2007 as the cut-off date and secondly, that the provisions of Section 22A would not apply to an agreement for sale which had already been entered into, registered, acted upon and was in the process of completion. While dealing with the order of the BIFR, AAIFR vide its order dated 28th May, 2010, set aside certain findings of the BIFR as well as passed certain other directions. It is useful to refer to some of the findings recorded by the AAIFR in its order which are as under:
“22. … The BIFR has also not considered the impact of Section 22A or the transactions, contracts/agreements entered into between the company and third parties prior to the filing of reference when the company was not a sick entity. If the BIFR was of the view that the agreement for sale of land was not in the interest the company, it could have suspended the contract under Section 22(3) of SICA as it was a pre-existing contract. Despite arguments to the contrary, the BIFR has not given any reasons to justify how Section 22A of SICA applies to a pre-existing agreement for sale entered into between the company and a third party prior to filing of the reference. In fact, the agreement for sale is a clog on the absolute ownership of the property of the appellant company and the property cannot be said to be free from encumbrance unless the registered agreement for sale is cancelled. The property under agreement cannot be sold to others during the subsistence of agreement for sale.
