Choksi Tube Company Ltd

IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 13569 of 2011 For Approval and Signature:

HONOURABLE MR.JUSTICE K.M.THAKER =========================================

1 Whether Reporters of Local Papers may be allowed to see the judgment ?

2 To be referred to the Reporter or not ?

3 Whether their Lordships wish to see the fair copy of the judgment ?

Whether this case involves a substantial

4 question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ?

5 Whether it is to be circulated to the civil judge ?

========================================= CHOKSI TUBE COMPANY LTD - Petitioner(s) Versus APPELLATE AUTHORITY & 2 - Respondent(s) ========================================= Appearance :

MR GM JOSHI for Petitioner(s) : 1, NOTICE SERVED BY DS for Respondent(s) : 1 - 2. MS HINA DESAI for Respondent(s) : 3, ========================================= CORAM : HONOURABLE MR.JUSTICE K.M.THAKER Date : 04/09/2012 CAV JUDGMENT

1. The petitioner has prayed for below mentioned relief:

“7(a) This Honourable Court may be pleased to issue an appropriate writ, direction or order quashing and setting aside the impugned orders passed by the respondent no.1 the Board of Industrial and Financial Reconstruction in Case No.111 of 2006 on the order passed by the respondent no.1 BIFR on 8th June 2010 as well as the order dated 22 July 2010 passed by the respondent no.2 AAIFR in Appeal No.181 of 2010 confirming the order of respondent no.1 as illegal, bad in law and nonest.”

2. By the impugned order dated 22.07.2010, the Appellate Authority for Industrial and Financial Reconstruction (AAIFR for short) has confirmed the order passed by Board for Industrial and Financial Reconstruction (BIFR for short) and rejected the appeal preferred by present petitioner.

3. The relevant facts involved in and leading to present petition are as mentioned below:

3.1. It emerges from the record that somewhere in April 2006 a Private Limited Company M/s. Reachwell KSM Properties Pvt. Ltd. (respondent no.3 herein) lodged 3582422 shares with the petitioner company for transfer.

3.2. The petitioner company rejected the request for transfer of said shares under its communication dated 27.06.2006.

3.3. At this stage, it is necessary to mention that so far as the respondent no.3 who lodged the said shares with request for transfer is concerned, it has claimed that actually the said shares were pledged by the petitioner company with respondent no.3. The respondent no.3 has asserted that during the period between August 2003 and July 2004 the respondent no.3 had placed certain inter-corporate deposits with the petitioner company and that the petitioner company had executed security deposits which included resolution of the Board, Demand Promissory Notes and pledging of equity shares of the petitioner company.

3.4. It is also claimed by the respondent no.3 that since the petitioner company failed to return the inter-corporate deposit, the respondent no.3 demanded transfer of the said shares in its name and the excuse given by the petitioner company to unjustifiably support its decision rejecting demand for transfer for shares is incorrect and malicious.

3.5. The respondent no.3 has also alleged that the petitioner company illegally and unauthorizedly retained the original share certificates and the transfer forms.

3.6. Subsequently, on or around 11.09.2006, the learned Company Judge passed order for winding up of the petitioner company.

3.7. It also emerges from the record that in November 2006 the petitioner company had also made a reference to BIFR under Section 15 of Sick Industrial Companies (Special Provision) Act, 1985 (SICA for short) and the said reference was not accepted by BIFR and was rejected under its order dated 26.02.2007 on the ground that the reference abated in view of the provisions under third proviso to Section 15 (1) of SICA inasmuch as Bank of India had initiated action under Section 13 of SAFRAESI.

3.8. It appears that aggrieved by the order directing winding up, the petitioner company had preferred appeal being OJ Appeal No.101 of 2006.

3.9. The petitioner company also preferred appeal before AAIFR against BIFR’s order dated 26.02.2007. The said appeal before AAIFR was registered as Appeal No.77 of 2007.

3.10. The AAIFR, under its order dated 25.09.2007, partly allowed said Appeal No.77 of 2007 setting aside the order dated 26.02.2007 passed by BIFR and directed BIFR to decide the question of sickness of the petitioner company.

3.11. It emerges from the record that the respondent no.3 had preferred Company Application No.17 of 2007 under Section 446 of Companies Act, 1956 (the Act for short) praying for leave to file application before Company Law Board (CLB for short) against the petitioner company in the matter of its request for transfer of shares. The learned Company Judge allowed the said application under order dated 01.02.2007 permitting the respondent no.3 to take out appropriate proceedings before CLB.

3.12. In the OJ Appeal No.101 of 2006 the petitioner company had also taken out a Civil Application which was partly allowed by the Division Bench under order dated 27.06.2007 whereby interim stay against operation and execution of order dated 11.09.2006 (directing winding up of the petitioner company) was granted by the Division Bench.

3.13. In pursuance of the permission granted by the learned Company Judge under Section 446 of the Act, the respondent no.3 preferred application before CLB under Section 111(A) read with Section 113 of the Act. The said application was registered as Application No.22 of 2007.

3.14. Somewhere in February 2008, the Division Bench passed further order in OJ Appeal No.101 of 2006 directing that since reference was pending before BIFR, the winding up proceedings shall remain stayed and Official Liquidator should handover possession of the company to its erstwhile management.

3.15. It is claimed that in compliance of the direction by the Division Bench to make payment of the outstanding charges etc., it completed the payment of the entire outstanding amount and consequently the possession of company’s record and assets was handed over to the management.

3.16. On the other hand, the CLB initiated the hearing of Company Application No.22 of 2007 filed by the respondent no.3 wherein the petitioner company raised defence on ground of the proceedings pending before BIFR and claimed protection in view of the provisions under Section 22 of SICA. Upon hearing the respondent no.3 and the petitioner company in connection with the said Application No.22 of 2007, CLB passed order dated 15.05.2008.

3.17. In the meanwhile, BIFR, under its order dated 19.12.2007, declared the petitioner company as Sick Industrial Undertaking and State Bank of India came to be appointed as Operating Agency.

3.18. By the said order dated 15.05.2008, CLB declared and observed that:

“ By virtue of sub-section (1) of Section 22 of the SICA, no proceedings for the winding up of the industrial company or for execution distress of the like against any of the properties of the industrial company or for the appointment of a receiver thereof and no suit for recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans, or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the BIFR. In the present case, the petitioner is seeking to enforce the security against the company, being the impugned shares offered by the promoters securing ICD granted to the company, which cannot be proceeded with further, except with the consent of the BIFR. In the circumstances, the petitioner is at liberty to make its claim before the BIFR for transfer of the impugned shares in its favour.”

Thus, CLB observed that it would be open to respondent no.3 to make its claim before BIFR for transfer of the shares in question, in its favour. In the said order, CLB also observed that:

“The Respondents have also not disputed the signatures of the Respondents No.2 to 8 appearing on the share transfer deeds lodged by the petitioner with Respondent No.1. Further the actions of Respondent No.1 are influenced by the other respondents being promoters, directors and shareholders of Respondent No.1 and I find that the intention of the Respondent No.2 to 8 are reflected in the action of Respondent No.1 and I find that the sole intention of the Respondents No.2 to 8 is to deny the petitioner their rightful does first by defaulting on the repayment of the dues of ICDs accepted by Respondent No.1 and secondly to retain the shares presently standing their names somehow or the other and deprive the petitioner of the same, thus going back on their resolutions, agreements and undertakings. The grounds cited by the Respondent No.1 in refusing to register the share transfers reflect and confirm my view.

Under the circumstances I am fully convinced that the grounds of objection raised by the Respondent No.4 are a camouflage and with definite motive of depriving the petitioner his entitlement to the shares. I may incidentally point out that the Sick Industrial Companies (Special Provisions) Act, 1985, has also been repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (Act 1 of 2004) to which assent of the President has already been received on January 1, 2004 and published in the Gazette of India dated January 2, 2004. Now only date of coming into effect of repeal is pending to be notified.”

3.19. Aggrieved by the said order dated 15.05.2008 passed by CLB, the petitioner company preferred appeal being OJ Appeal No. 31 of 2008 under Section 10(F) of the Act.

3.20. At this stage, it is also appropriate to take note of another related aspect mentioned by the petitioner company i.e. the petitioner company has filed a complaint under Section 409, 380, 406, 420, 467, 468, 471, 411, 34 and 120B of IPC against the respondent no.3 and one Mr.H.J.Baxi. It also transpires from the record that in connection with the said complaint one Mr.Kishor Mehta a Director of respondent no.3 has preferred Misc. Criminal Application No.6310 of 2010 under Section 482 of Cr.P.C. and the said proceedings are pending in the Court.

3.21. When the OJ Appeal No.31 of 2008 was heard by the Court it appears that it was contended that the aspects related to the merits of Application No.22 of 2007 were not urged before CLB and that therefore the Court allowed the petitioner company to withdraw the said OJ Appeal No.31 of 2008 and passed order dated 25.03.2010 accepting the petitioner company’s request so as to enable it to prefer review application before CLB. Accordingly, the appeal was disposed of as withdrawn.

3.22. Thereafter, the petitioner herein preferred Application No.126 of 2010 before CLB and prayed for review of order dated 15.05.2008.

3.23. It also comes out from the record that after the said order dated 15.05.2008 passed by CLB the respondent no.3 filed appropriate application before BIFR and prayed for consent under Section 22 of SICA.

3.24. The said application by respondent no.3 was taken up for hearing by BIFR and after hearing the concerned parties order dated 8th June 2010 came to be passed whereby BIFR having regard to CLB's observations in the order dated 15.05.2008 accepted the request of respondent no.3 with the observation that the petitioner company should register the transfer of 3582422 equity shares in favour of respondent no.3.

3.25. Being aggrieved by the said order dated 8th June 2010 the petitioner preferred appeal before AAIFR under Section 25 of SICA. The appeal was registered as Appeal No.181 of 2010.

3.26. The said Appeal No.181 of 2010 was heard by AAIFR and by order dated 22.07.2010 AAIFR has dismissed the said appeal. Against the said order dated 22.07.2010 passed in Appeal No.181 of 2010 by AAIFR, the petitioner preferred writ petition in this Court being Special Civil Application No. 9947 of 2010 challenging the order dated 08.06.2010 by BIFR and the order dated 22.07.2010 by AAIFR.

3.27. At one stage the said petition was dismissed for non- prosecution. However, subsequently, it was restored at petitioner’s request but after considerably long time.

3.28. In the meantime, i.e. before the proceedings came to be restored, certain developments took place. It transpires that the review application which was preferred by present petitioner pursuant to the order dated 25.03.2010 passed by Division Bench in OJ Appeal No.31 of 2008, came to be rejected by CLB under its order dated 24.02.2011.

3.29. The petitioner has claimed that when the petitioner tried to place the subsequent development of Special Civil Application No.9947 of 2010 it was observed that it would be appropriate if the petitioner filed fresh composite petition narrating all relevant facts and details and that therefore the said petition was withdrawn with a liberty to file fresh petition. Accordingly, the petition came to be disposed of under order dated 16.06.2011.

3.30. It has also emerged from the record that somewhere in 2011 the petitioner had taken out application praying for revival of OJ Appeal No.31 of 2008. In view of delay caused in preferring such application, application praying for condonation of delay was also preferred. The said applications were considered by the Division Bench and under order dated 16.02.2012 the said applications came to be rejected. The said order dated 16.02.2012 reads thus:

“These applications are made for condoning delay of 375 days caused in preferring the applications seeking revival of O.J. Appeals No.30 of 2009 and 31 of 2009 respectively by extending the period of limitation to that extent. Neither any valid ground for condoning the said delay is made out in the applications nor is any legal provision or precedent relied upon for maintaining an application seeking revival of the O.J. Appeals, which were admittedly disposed as withdrawn after specific permission sought in that regard having been granted. Therefore, the applications are not entertained and summarily dismissed.”

3.31. The petitioner has also claimed that certain proceedings have been taken out in the High Court of Bombay on behalf of IDBI against the petitioner company which have been registered as Suit No.234 of 2011. A Notice of Motion No.377 of 2011 was also preferred wherein certain interim relief has been granted, but it is also subsequently clarified that it does not affect the order by CLB.

3.32. In the aforesaid factual background the petitioner has preferred present petition which is resisted by respondent no.3 who has filed affidavit-in-reply dated 25.11.2011.

3.33. Mr. A.L.Shah, learned counsel has appeared with Mr.

G.M.Joshi, learned counsel for petitioner and Mr. K.M.Patel, learned Senior Advocate has appeared with Ms. Desai, learned advocate for respondent no.3.

4. Learned counsel for the petitioner has contended that the order dated 08.06.2010 passed by BIFR and the confirming order dated 22.07.2010 passed by AAIFR are without authority in law and beyond the purview of jurisdiction of BIFR. It is also claimed that the proceedings before CLB and BIFR stand vitiated because Official Liquidator was not impleaded in the proceedings, despite direction by the Court while granting permission which was prayed for by filing application under Section 446 of the Act. It is also contended on behalf of the petitioner that the BIFR has committed error in not appreciating the purport of the order passed by CLB, inasmuch as CLB had not given any direction for transfer of shares but had asked the respondent no.3 to seek permission from BIFR under Section 22 of the Act. It is also submitted that BIFR has proceeded on incorrect premise that CLB finally concluded the issue as regards the shares in the hand of respondent no.3 and invocation of its right against the shares which were pledged with it.

5. Per contra, learned Senior Advocate appearing for respondent no.3 has opposed the contention raised on behalf of the petitioner. As regards the contention on the ground that Official Liquidator was not impleaded as party opponent in the proceedings before CLB, the respondent no.3 has heavily relied on order dated 27.06.2007 passed by the Division Bench whereby the winding up order dated 11.09.2006 and the order directing appointment of Official Liquidator was stayed. In light of the said order it is submitted that since the order directing initiation of winding up proceedings and appointment of Official Liquidator was stayed, there was no need to implead Official Liquidator in the proceedings before CLB. It is also contended that the order dated 08.06.2010 by BIFR is not beyond the jurisdiction of BIFR.

6. So as to appreciate rival contentions against the order dated 8th June 2010 by BIFR it is relevant and necessary to keep in focus, primarily, four aspects viz. CLB's observations and directions in the order dated 15.05.2008, the observations and direction by BIFR in order dated 08.06.2010 and the provision under Section 22 of SICA and the fact that the CLB's order dated 15.05.2008 has attained finlity.

7. So far as the relevant observations and directions under CLB’s order dated 15.05.2008 are concerned, CLB has observed and directed in the said order that:

“5. The subject matter of the petition relates to remedies sought by the Petitioner against refusal to register the shares lodged for transfer by Respondent No.1. The respondents have raised any dispute as to the amount of the claim of the petitioner for the principal and interest dues under the terms of inter-corporate deposit placed by the petitioner with the Respondent no.1 company or the procedure adopted by the petitioner company for enforcing its lien on the pledged shares and/or lodgment of the shares with the Respondent company and/or the validity of the transfer deeds have been disputed.

The respondents have also failed to show as to how the blank signed share transfer forms and the share certificates for shares standing in the name of the Respondents No.2 to 8 landed with the petitioner while refusing to transfer the shares stating that the transferors have not given the shares as pledge/security in respect of the ICDs placed by the petitioner. On the other hand the petitioner has lodged the documents evidencing pledge of the shares with the petitioner as security against the ICDs placed by the petitioner with the Respondent No.1.

6. I am of the opinion that the enforcement of security by the petitioner has already taken place in February 2006 after which the shares have been lodged for Transfer in the last week of April 2006 prior to the winding up order passed by the Gujarat High Court, filing of Reference under SICA by the Respondents and order passed by the BIFR declaring the Respondent No.1 as sick.

I do not find any merit in the contention of the Respondent No.4. The shares in question have already become the property of the petitioner even before the Respondent thought about reference to be made to the BIFR under the provisions of SICA and the shares are not the properties of the Respondent No.1 but they belong to the shareholders who have rightfully become entitled to them for consideration. All that the Respondent No.1 required to do was to register the share transfers lodged by giving effect to the change of ownership of the shares from the Respondents No.2 to 8 to the petitioner. The Respondents have also not disputed the signatures of the Respondents No.2 to 8 appearing on the share transfer deeds lodged by the petitioner with Respondent No.1. Further the actions of Respondent No.1 are influenced by the other respondents being promoters, directors and shareholders of Respondent No.1 and I find that the intention of the Respondent No.2 to 8 are reflected in the action of Respondent No.1 and I find that the sole intention of the Respondents No.2 to 8 is to deny the petitioner their rightful does first by defaulting on the repayment of the dues of ICDs accepted by Respondent No.1 and secondly to retain the shares presently standing their names somehow or the other and deprive the petitioner of the same, thus going back on their resolutions, agreements and undertakings. The grounds cited by the Respondent No.1 in refusing to register the share transfers reflect and confirm my view.

Under the circumstances I am fully convinced that the grounds of objection raised by the Respondent No.4 are a camouflage and with definite motive of depriving the petitioner his entitlement to the shares. I may incidentally point out that the Sick Industrial Companies (Special Provisions) Act, 1985, has also been repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (Act 1 of 2004) to which assent of the President has already been received on January 1, 2004 and published in the Gazette of India dated January 2, 2004. Now only date of coming into effect of repeal is pending to be notified.

The undisputed facts are that the company availed of ICD facilities from the petitioner to carry on its business against the security of pledge of the impugned shares held by the promoters. The impugned share certificates together with blank transfer forms duly signed by the promoters were lodged with the petitioner securing the credit facilities availed of by the company. The dues of the company are not closed in full. The company is now a sick industrial company in terms of Section 3(1)(o) of the SICA and as such the BIFR declared it as a sick company by its order in terms of the provisions of the SICA. By virtue of sub-section (1) of Section 22 of the SICA, no proceedings for the winding up of the industrial company or for execution distress of the like against any of the properties of the industrial company or for the appointment of a receiver thereof and no suit for recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans, or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the BIFR. In the present case, the petitioner is seeking to enforce the security against the company, being the impugned shares offered by the promoters securing ICD granted to the company, which cannot be proceeded with further, except with the consent of the BIFR. In the circumstances, the petitioner is at liberty to make its claim before the BIFR for transfer of the impugned shares in its favour.

8. So far as the BIFR’s order dated 08.06.2010 is concerned the relevant observations in the said order are:

“2.4 The ld advocate appearing on behalf of M/s. Reachwell KSM Properties Pvt. Ltd. (RKPPL) stated thathad filed an application dated 26.8.2008 with the Board wherein RKPPL had informed the Board that CTCL had suppressed certain facts concerning their shareholding in CTCL. The representative further stated that Company Law Board (CLB), Mumbai vide its order dated 15.5.2008 had unequivocally declared the RKPPL as the holder & owner of 35,85,422 Equity Shares of Rs.10.00 each CTCL. CLB had directed the RKPPL to approach BIFR for consent for registration of the share transfers in view of the provisions u/s. 22 of SICA as company's case was pending before the Board. The ld advocate read out the following last 2 paragraphs CLB's order dated 15.5.2008 before the Bench:-

“Under the circumstances I am fully convinced that the grounds of objection of objection raised by the Respondent No.4 are a camouflage and with definite motive of depriving the petitioner his entitlement to the shares. I may incidentally point out that the Sick Industrial Companies (Special Provisions) Act, 1985, has also been repealed the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 (Act 1 of the 2004) to which asset of the President has already been received on January 1, 2004 and published in the Gazette of India dt. January 2, 2004. Now only date of coming into effect of repeal is pending, to be notified.”

The undisputed facts are that the company availed of ICD facilities from the petitioner to carry on its business against the security of pledge of the impugned shares held by the promoters. The impugned share certifies together with blank transfer forms duly signed by the promoters were lodged with the petitioner securing the credit facilities availed of by the company is now a sick industrial company in terms of section 3(1)(o) of the SICA and as such the BIFR declared it as a sick company by its order in terms of provisions of SICA. By virtue of sub-section 22 of SICA, no proceedings for the winding up of the industrial company for execution, distress of the like against any of the properties of the industrial company or for the appointment of a receiver thereof and no suit for recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loans, or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the BIFR. In the present case, the petitioner is seeking to enforce the security against the company being the impugned shares offered by the promoters securing ICD granted to the company, which cannot be proceeded with further, except with the consent of the BIFR. In the circumstances, the petitioner is at liberty to make its claim before the BIFR for transfer of the impugned shares is its favour. With the above observations, the petition stands disposed of. No order to costs.

2.8 The representative of Gujarat Kamgar Panchayat (GKP) stated that GKP had filed an application before the Board requesting for rejection of company's reference. The company had been closed since 2003 due to disconnection of electricity. There was no employee in the company. The company had not paid PF dues and workers dues. The representative requested the Bench to direct the company to pay the workers dues. At this juncture, the ld advocate of the company stated that GKP was not a recognized union of the company. The Bench directed that GKP was permitted to approach labour court for redressal of its grievances.

2.9. The ld advocate appearing on behalf of the company stated that the company had submitted a Drs to SBI (OA). The company had not entered into a settlement with its secured creditors. However, the company had proposed to settle the dues of secured creditors at 50% of the outstanding principal amount in the DRS. Continuing, the ld advocate stated that ARCIL who was holding 70% debt of the company was the major secured creditor. The company was negotiating with its secured creditors. The company had also identified an investor who would infuse who would infuse funds for revival of the company. The ld advocate further stated that permission sought by RKPPL for implementation of order of CPL should not be granted as it would adversely effect the revival process of the company. At this juncture the Bench observed as to how the transfer of shares in favour of RKPPL would affect the revival process and company should implement the directions of CLB.

2.10 After considering the submissions made and the materials made and the materials on record, the Bench issued the following directions:-

(i) ................

(ii) M/s. Reachwell KSM Properties Pvt. Ltd. (RKPPL) SG has requested the Board to grant consent for implementation of order dated 15.5.2008 of Company Law Board (CLB), Mumbai. Accordingly, under the provisions of Section 22(1) of SICA the Bench grants consent to the order dated 15.5.2008 of CLB, Mumbai. The company is accordingly directed to register transfer of 35,82,422 Equity Shares of Rs.10.00 each of CTCL lodged by the RKPPL with CTCL in favour of RKPPL.

(iii) ...............

(iv) ...............

(v) ...............

(vi) The next hearing in the case will be held on 18.8.2010.

9. The provision under Section 22 of SICA reads thus:

“22.Suspension of legal proceedings, contracts, etc.-(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof 3*[and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.

(2) .............

(3) [Where an inquiry under section 16 is pending or any scheme referred to in section 17 is under preparation or during the period] of consideration of any scheme under section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board:

Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.

(4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly,--

(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and

(b) on the declaration ceasing to have effect--

(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and

(ii) any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed.

(5) ”

10. It is noticed from the order passed by CLB that it has taken note of the fact that the respondent no.3 had placed inter-corporate deposits for short periods with the petitioner company and the total amount of the said deposits was to the tune of about Rs.1,41,50,000/- and the said deposits were secured by pledging the shares and that the pledging of the said shares had been done by executing blank share transfer forms by respective shareholders.

11. It is also noticed by CLB that according to respondent no.3 the petitioner company had failed to repay the outstanding amount of the inter-corporate deposits and principal amount and interest accrued thereon was not paid by the petitioner company to the respondent.

12. Since the respondent no.3 failed to receive the payment, it decided to appropriate the pledged shares and for that purpose asked the petitioner company to transfer the shares in its name i.e. in the name of respondent no.3.

13. With the said demand the respondent no.3 lodged the pledged shares for transfer.

14. Thus, the shares which were lodged for transfer were pledged with the respondent no.3 and then they were, in exercise of its rights over pledged shares, appropriated/forfeited in view of petitioner's default in repaying the inter-corporate deposit. Thus, there is no substance, as held by CLB, in the allegation that shares belonging to others were lodged by respondent no.3 whereas actually the shares were pledged with respondent no.3. However, the petitioner company refused to register the transfer.

15. The CLB has also taken note of the relevant events and proceedings e.g. the order of winding up, the order under Section 446 granting permission to initiate proceedings before CLB, the reference proceedings before BIFR, the order of AAIFR, the BIFR’s order dated 19.12.2007 declaring the petitioner company as Sick Industrial Undertaking, the details mentioned in the affidavit filed by Mr.H.H.Choksi etc. and then the CLB observed that the application filed by respondent no.3 relates to the objection by the petitioner company to refuse the registration of shares lodged for transfer.

16. CLB has noticed that the petitioner company failed to show as to how the blank duly signed share transfer forms and share certificates could be available with the respondent no.3 company and that the petitioner company had also not disputed the signatures of the concerned persons i.e. the opponent Nos. 2 to 8 before CLB. CLB has also noticed that the sole intention of the petitioner and the said opponents was to deny the respondent no.3 company its rightful dues of the inter-corporate deposits.

17. Having noticed such aspects CLB has expressly observed and recorded that, “I am of the opinion that enforcement of security by the petitioner (i.e. present respondent no.3) has already taken place in February 2006 after which the shares have been lodged for transfer in the last week of April 2006 prior to the winding up order passed by Gujarat High Court…..” (emphasis supplied).

17.1. The CLB has further observed that “I do not find any merit in contention of respondent no.4. The shares in question have already become the property of the petitioner (i.e. present respondent No.3) even before the respondent thought about reference to be made to the BIFR under provisions of SICA and the shares are not the property of respondent no.1 (i.e. present petitioner company) but they belong to the shareholders who have rightfully become entitled to them for consideration. All that the respondent no.1 (i.e. present petitioner company) required to do was to register the share transfer lodged by giving effect……..” (emphasis supplied).

17.2. The CLB has further observed that “Under the circumstances the grounds of objection raised by respondent no.4 are a camouflage and with definite motive of depriving the petitioner (i.e. present respondent no.3) his entitlement to the shares.”

18. It is with the said observation that the CLB observed and directed that “…….in the present case the petitioner is seeking to enforce the security against the company…….. which cannot be proceeded with further except with the consent of BIFR. In the circumstances the petitioner is at liberty to make its claim before the BIFR for transfer of the impugned shares in its favour………”

19. From the above quoted observations it emerges that so far as the issued related to the claim and right to get the shares in question transferred in its name and to get the transfer of the shares in question, duly registered in the share register is concerned, the said aspect has been adjudicated and decided by CLB vide order dated 15.05.2008. The said order dated 15.05.2008 has attained finality. Thus, there was no question before BIFR to adjudicate and decide the said issues and the only point before BIFR was either to permit or refuse the execution of the said order dated 15.05.2008.

20. So far as the said order dated 15.05.2008 passed by CLB is concerned, it is pertinent that the petitioner herein had preferred appeal under Section 10(F) of the Act against the said order which was registered as OJ Appeal No.31 of 2008 and the petitioner had subsequently sought permission to withdraw the said appeal which was granted and the appeal was dismissed as withdrawn under order dated 25.03.2010.

Even the review application preferred before CLB has been rejected under order dated 24.02.2011 passed by CLB. The said order dated 24.02.2011 has not been challenged by the petitioner. Accordingly, the said order dated 15.05.2008 passed by CLB has attained finality. Now, therefore, any contention (including the contention regarding maintainability of the proceedings in which the said order dated 15.05.2008 came to be passed) against the said order dated 15.05.2008 cannot be permitted to be raised as the order dated 15.05.2008 has attained finality.

21. It is in this background that the relevant part of the order dated 08.06.2010 by BIFR is required to be considered, which read thus.

“(ii) M/s. Reachwell KSM Properties Pvt. Ltd. (RKPPL) SG has requested the Board to grant consent for implementation of order dated 15.5.2008 of Company Law Board (CLB), Mumbai. Accordingly, under the provisions of Section 22(1) of SICA the Bench grants consent to the order dated 15.5.2008 of CLB, Mumbai. The company is accordingly directed to register transfer of 35,82,422 Equity Shares of Rs.10.00 each of CTCL lodged by the RKPPL with CTCL in favour of RKPPL. (emphasis supplied).”

22. It can be seen from the said order that the BIFR has merely and actually granted “consent to the order dated 15.05.2008 of CLB”. Thus, under its order dated 08.06.2010 merely initiation of proceedings for execution and implementation of the order dated 15.05.2008 by CLB is permitted by BIFR. The subsequent observations by the BIFR (i.e. the observations that “the company is accordingly directed to register transfer of 35,85,422 equity shares…….”) cannot be read in isolation and by detaching the said observations from the preceding observation granting consent for execution and implementation of CLB’s order dated 15.05.2008.

23. In this context, it is necessary to recall that (a) vide its order dated 19.12.2007, BIFR declared the petitioner a sick undertaking; and (b) the earlier quoted provision u/s.22 of SICA which prescribes requirement for BIFR's consent – permission if any step or action is to be taken for “execution, distress or the like” in case of a sick undertaking or if any inquiry under Section 16 of SICA is pending. Therefore, request for BIFR's consent – permission was made by respondent no.3 in light of direction by CLB and the Board granted such consent – permission vide its order dated 08.06.2010.

24. In this view of the matter, it is misconceived to contend that the BIFR has passed direction beyond its jurisdiction.

25. Under CLB’s order dated 15.05.2008 the respondent no.3 was required to seek BIFR’s consent in view of the pendency of proceedings before BIFR since the CLB’s order dated 15.05.2008 would, in view of CLB, amount to execution of security and by its order dated 08.06.2010 the Board has merely granted such sanction.

26. It is necessary and appropriate to recall the order dated 15.05.2008 passed by CLB wherein CLB specifically observed that, “under the circumstances, I am fully convinced that the grounds of objections raised by the respondent No.4 are camouflage and with definite motive of depriving the petitioner his entitlement to the shares.”

27. Furthermore, in respect of the said order, it is also appropriate and necessary to recall that the CLB also recorded that:

“I am of the opinion that the enforcement of security by the petitioner has already taken place in February 2006 after which the shares have been lodged for transfer in the last week of April 2006 prior to winding up order passed by Gujarat High Court, filing of reference under SICA by the respondents and order passed by BIFR declaring respondent no.1 (i.e. present petitioner) as sick.”

28. At this stage it is pertinent to recall that the said findings and conclusions by CLB in its order dated 15.05.2008 have attained finality and that therefore now it is not open to question and/or test the said findings and conclusion.

29. Thus, CLB has, as a matter of finding of fact, recorded its finding of conclusion that enforcement of security had taken place in February 2006 i.e. before the order of winding up and/or before the order declaring the petitioner as Sick Industrial Undertaking and even before submission of reference before BIFR. In this context, it would be relevant to recall and take into account some of the relevant events and dates.

(1) August 2003 to July 2004 The respondent No.3 placed certain inter-corporate deposits and the petitioner executed certain security documents including the shares in questions which were pledged with the respondent no.3.

(2) 25.04.2006 In view of the default by petitioner in making payment towards the aforesaid deposits, the respondent No.3 lodged 3582422 equity shares (which were pledged by the petitioner with respondent no.3) for transfer along with transfer deeds.

(3) 27.06.2006 Petitioner did not carry out the request for transfer of said shares and retained the share certificates as well as transfer forms.

(4) 03.08.2006 Pursuant to the permission granted by High Court, respondent no.3 filed Company Application No.22/2007 before CLB (wherein the above referred order dated 15.05.2008 came to be passed).

(5) 11.09.2006 The learned Company Court passed order directing winding up of the petitioner company.

(6) 02.11.2006 The petitioner company submitted reference before BIFR.

(7) 27.06.2007 Operation and execution of winding up order dated 11.09.2006 came to be stayed.

(8) December 2008 Petitioner filed appeal under Section 10(F) of the Act against CLB's order dated 15.05.2008.

(9) 25.03.2010 The said appeal under Section 10(F) of the Act was withdrawn by the petitioner.

30. The aforesaid chronology of events clarifies and establishes that the respondent No.3 had enforced the security much before the winding up order came to be passed in September 2006 and/or much before the submission of reference by petitioner to BIFR (which was made on 2nd November 2006) and that therefore the contentions and objections raised by the petitioner against the order dated 08.06.2010 passed by BIFR are not sustainable.

31. It is pertinent that actually, and in effect, BIFR has merely permitted the respondent No.3, in pursuance of CLB's order dated 15.05.2008, to execute CLB's order. On perusal and consideration of BIFR's order dated 08.06.2010 it cannot be said that BIFR has passed directions beyond its jurisdiction and has directed CLB to effect transfer of shares.

32. Actually, it was CLB, who, in its order dated 15.05.2008, reached the conclusion that request of respondent no.3 deserved to be and was required to be granted.

33. However, it is the CLB, who, at the relevant time, restrained itself and refrained from passing any order directing registration of transfer, only because it was informed about the proceedings before BIFR and that therefore in its order dated 15.05.2008 CLB observed that:

“in the present case, the petitioner is seeking to enforce the security against the company which cannot be proceeded with further, except with consent of BIFR. In the circumstances, the petitioner is at liberty to make its claim before BIFR, for transfer of impugned shares in its favour”

34. It was in pursuance of such observations that request before BIFR was made and in turn, in its order dated 08.06.2010, BIFR has observed, inter alia, that:

“M/s. Reachwell KSM Properties Pvt. Ltd. (RKPPL) SG has requested the Board to grant consent for implementation of order dated 15.05.2008 of Company Law Board ”

35. The said observations by BIFR in its order clarify the nature and scope of the request which was made by respondent no.3.

36. Having clarified the said aspect, BIFR has further observed in the said order dated 08.06.2010 that:

“...........Accordingly, under the provisions of Section 22(1) of SICA the Bench grants consent to the order dated 15.05.2008 by CLB, Mumbai ”

37. The said observation is actual and real effect of BIFR's order dated 08.06.2010. The subsequent observations in the order to the effect that, “........The company is accordingly directed to register transfer of 35,85,422 equity shares ”

cannot be read in isolation and/or by divorcing said subsequent observations from the preceding observations and/or by isolating the said observation from the CLB's order dated 15.05.2008.

Once the said subsequent observations are read in light of and in consonance with the conclusion, observations and clarifications by CLB in its order dated 15.05.2008 as well as the preceding observations by BIFR in its order dated 08.06.2010, then the fallacy in the petitioner's contention would emerge and become apparent.

38. Under the circumstances, it cannot be held that in its order dated 08.06.2010, BIFR has travelled beyond its jurisdiction and/or has issued directions to the petitioner.

39. Actually the said conclusion and directions are made by CLB and CLB had required the respondent no.3 to seek permission from BIFR to enforce its conclusion and directions and that is what BIFR has permitted.

40. The impugned order dated 08.06.2010 by BIFR, therefore, does not suffer from any infirmity. The said order cannot be termed as an order without jurisdiction or authority in law or beyond the purview of BIFR's jurisdiction. Thus, on overall consideration of the case and in light of the facts and circumstances, the petition must fail and it deserves to be rejected and it is accordingly hereby rejected.

(K.M.THAKER, J.) jani