D.G. Karnik, J.@mdashThe petitioner is a non-banking finance Company carrying on business, inter alia, of giving on lease/hire different equipments. The respondent Company was incorporated on 26-6-1992 under the name of Mantri Housing and Constructions Limited. By passing the necessary resolutions in a General Meeting held on 26th May, 2000, the respondent Company changed it''s name to Global Infrastructure and Technologies Limited and also amended objects clause of it''s Memorandum of Association by adding two Clauses 1A and 1B as the main objects of the Company. A fresh certificate of Incorporation with the amended name was issued by the Registrar of Companies on 29th June, 2000.
2. Initially, the respondent Company had only one main object of carrying on business of Real Estate including sale and purchase of the land, building and owning, buying, hiring, letting, maintaining and giving on tenancy or sub-tenancy buildings, tenements, blocks, flats, shops, godowns, dwelling houses etc. The additional main object No. 1A which was included by amendment of May 2000 read as follows :
To carry on in India or elsewhere, either along or jointly or in association with one or more persons, Government, local or other bodies, the business to construct, build, alter, acquire, convert, improve design, erect, establish, equip, develop, dismantle, pull down, turn to account, furnish, level, decorate, fabricate, install, finish, repair, maintain, search, survey, examine, test, inspect, locate, modify, own, operate, protect, promote, provide, participate, rebuild buildings, dams, factories, roads, bridges structures and constructions of all kinds, undertake and contribute, assist and to act as civil engineer, interior decorator, consultant, advisor, broker, agent, supervisor, administrator, contractor, sub-contractor, turnkey contractor, and manager of all types of constructions, infrastructure, developments such as roads, ways, culverts, dams, bridges, railway tramways, water tanks, reservoirs, canals, wharves, warehouses, factories, buildings, structures, drainage and sewage work, water distribution and filtration systems docks, harbours piers, irrigation works, foundation works, flyovers airports, runways, rock drilling, aqueducts, stadiums, hydraulic units, sanitary work, power supply work, power stations, hotels, hospitals, dharmashalas, multi-storeyed colonies, complexes, housing projects, other construction projects including industrial Technology park and other similar works and for the purpose to acquire handover, purchase, sell, own cut to size, develop, distribute or otherwise deal in all sorts of lands and buildings and to carry on all or any of the foregoing activities for building materials, goods, plants machineries, accessories, parts, tools fittings articles, materials and facilities of whatsoever nature and to do all incidental acts and things necessary for attainment of the foregoing objects.
The Underlined words "and for the purpose" govern the words following them. In other words, the activities which are mentioned after the words "and for that purpose" are to be carried out for attainment of the objects mentioned earlier. The object of carrying on the activity for building materials was thus, subsidiary to the earlier objects, which consists of business of construction, and of advisor, broker, agent, contractor, manager etc.
3. The respondent Company took on lease from the petitioner Company certain equipments worth about Rs. Two crores under two separate lease/hire/ purchase agreements dated 27-3-1997 and 23-7-1997.
4. The respondent Company did not pay the lease rent/hire charges on time despite several demands. The petitioner therefore, filed this Company Petition for winding up of the respondent Company on the ground that respondent was unable to pay it''s debts. Consent terms were filed by the petitioner and the respondent Company on 5th July, 2000 and this Court (Coram Mrs. K.K. Baam, J.) passed an order in terms of the consent terms. Under the said consent terms, the respondent Company admitted that a sum of Rs. 44,77,211/- was due and payable by the respondent Company to the petitioner as principal amount as on 31-3-1998. The petitioner agreed to re-schedule the payment and to reduce interest on the amount due. The respondent Company agreed and undertook to pay a sum of Rs. 1,10,000/- (sic) to the petitioner immediately and also agreed to pay the balance in installments as mentioned in the consent terms. Consent terms also provided that if the respondents committed default in payment of three consecutive installments, the Company Petition (for winding up) shall stand admitted. It is common ground between the parties that the respondent Company has committed a default in payment of more than three consecutive installments and therefore, the Company Petition stands admitted as per the order of this Court dated 5th July, 2000. As the default in payment was committed the petitioner filed an affidavit dated 5th November, 2001, requesting that the matter be placed on board for "directions". Thereupon, the respondent Company filed an affidavit on 8th November, 2001, stating that it has filed a reference to Board of Industrial and Financial Reconstruction (hereinafter referred as ''BIFR'') under Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred as ''SICA'') and therefore, the petition should be adjourned sine die, in view of the Provisions of Section 22 of the SICA.
5. Shri Janak V. Dwarkadas, learned Senior Counsel appearing on behalf of the respondent Company submitted that even if a petition is deemed to have been admitted by virtue of an order of this Court dated 5th July, 2000, as soon as the reference is registered by BIFR u/s 16 of the SICA, an enquiry must be deemed to have commenced and consequently all further proceedings in the winding up petition must be stayed. Relying upon the judgments of the Hon''ble Supreme Court of India in (i) Rishabh Agro Industries Ltd. v. PNB Capital Services Limited reported in AIR 2000 SC 1583 and (ii) Real Value Appliances Ltd. v. Canara Bank reported in 1998 93 Com Cas 26 and submits that filing of reference u/s 15 of the SICA is a ministerial act on the part of the respondent Company but, reference is registered only after scrutiny and therefore, registration of the reference is a Judicial act or has colour of judicial act. Scrutiny before registration of reference under Sub-section (1) of Section 16 is a judicial act and registration of a reference is made only after the scrutiny and enquiry. Extending this argument, it was further stated that making this scrutiny u/s 16 is an exclusive jurisdiction of BIFR and therefore any order or act of registration of a reference u/s 16 is conclusive and binding on all Courts including the High Court hearing the winding up petition. It was submitted that the High Court cannot go behind the order/act of registration of a reference and must accept the registration of reference by BIFR at the face value and stay it''s hands u/s 22 of SICA. Counsel further submitted that even if the action of BIFR in registration of a reference after scrutiny is erroneous (even for lack of inherent jurisdiction), the Company Court cannot go behind it.
6. I accept the first part of the submission of Mr. Dwarkadas that the reference is registered after the scrutiny u/s 16 of SICA and that this scrutiny u/s 16 is not an administrative act but, is a judicial act or atleast has colour on a judicial act. It is also true that even if the order of registration of reference being a judicial act even an erroneous decision of registration of reference would be binding, on all including the High Court. This is because even an erroneous determination of a matter on which the Court or Tribunal has jurisdiction to decide binds all. An error within the Jurisdiction cannot be corrected or looked into in a co-lateral proceedings. The position, however is different, when the error relates to the Jurisdiction. Any Court or Tribunal or any Body entitled and/or authorised by law to decide any issue affecting the rights of the parties must act within it''s jurisdiction. If it exceeds it''s jurisdiction or assumes jurisdiction which is not vested in it and passes an order, such an order is a nullity and a waste paper and can be ignored by any person whose rights are affected by such order. The person can set up the defence, that the order is a nullity and does not bind him, in any proceedings and at any stage, whenever and wherever; such an order which is without jurisdiction is set up against him.
7. I am fortified in this view by a decision of the Full Bench of this Court rendered in
"Those cases have established that where an authority which purports to pass an order is acting without jurisdiction, the purported order is a mere nullity, as Sir Lawrence Jenkins puts it, it is mere waste paper; and it is not necessary for anybody who objects to that order to apply to set it aside. He can rely on it''s invalidity when it is set up against him, although, he has not taken steps to set it aside."
8. This judgment of the full bench was followed by a Division Bench of this Court in the case of Husein Miyan Dosumia v. Chandubhai Jethabhai Desai reported in 55 BLR 946 . Chagla, C.J. speaking for the Court observed :
"It is clear that if an order itself is ultra vires, it is a nullity and there is no obligation upon a party against whom the order is made to prefer an appeal against that order"
The Court then further observed :
"If the order is nullity, the party is entitled to ignore it, to treat it as a waste paper and go to a Civil Court for a declaration that the order is a nullity and no action should be taken against the party under that order which would prejudice his rights."
9. In
"It is a fundamental principle well settled that a decree passed by a Court without jurisdiction is a nullity, and that it''s invalidity could be set up whenever and wherever it is sought to be enforced and relied upon, even at the stage of execution and even in a co-lateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial or whether it is in respect of the subject matter of the action, strikes at the very authority of the Court to pass any decree and such a defect cannot be cured even by consent of the parties".
10. Later, in Sunder Dass v. Ram Prakash reported in (1997) 2 SCC 622 the Supreme Court of India again affirmed this position and observed in para 3 of the judgment.
Now, it is well settled that an executing Court cannot go behind the decree nor can it question its legality or correctness. But, there is one exception to this general rule and that is that where the decree is sought to be executed is a nullity for lack of inherent jurisdiction in the Court passing it, its invalidity can be set up in an execution proceedings. Where there is lack of inherent jurisdiction, it goes to the root of competence of the Court to try the case and a decree which is a nullity is void and can be declared to be void by any Court in which it is presented.
11. It is thus, well settled position in law that where there is inherent lack of jurisdiction, the order passed by any Court or Tribunal is a nullity and it is not necessary for a party aggrieved to file an appeal against the order which is nullity and the party can set up the defence of a nullity or an order in any Court or Tribunal when the order is presented against him. I therefore, hold that it is open to the petitioner to show and satisfy this Court that the order or action of BIFR of registration of the reference u/s 16 of the SICA is a nullity, being done without jurisdiction and should, therefore, be ignored. If the petitioner successfully established that BIFR lacked inherent jurisdiction to register a reference u/s 16 of the SICA, then, this Court and any Court in which any suit or other proceedings is pending can ignore the said order and proceed with the winding up petition or the trial of the suit or execution of a decree as the case may be, without any bar of Section 22 of the SICA. At the cost of repetition, I must however, mention that the order of registration of a reference u/s 16 which is challenged must be shown to be not merely an erroneous order but, an order passed with inherent lack of jurisdiction.
12. I, therefore proceed to consider what would take away the inherent, jurisdiction of the BIFR to register and entertain a reference. For this purpose, it is necessary to refer to certain provisions of SICA and Industries Development and Regulation Act, 1951, (for short, "IDR Act").
13. Section 2(d) of SICA defines the Company to mean a company as defined u/s 3 of the Companies Act; Section 2(e) defines an Industrial Company to mean a Company, which owns one or more industrial undertakings. Section 2(f) defines industrial undertaking to mean any undertaking pertaining to a scheduled industry (i.e. industry specified in the First Schedule to IDR Act) carried on in one or more factories by any Company but does not include ancillary industrial undertaking as defined under Clause (aa) of Section 3 of IDR Act or a small scale industrial undertaking as defined under Clause (j) of Section 3 of IDR Act. Section 2(o) defines ''Sick Industrial Company to mean an Industrial Company which is registered for not less than five years and which has at the end of any financial year accumulated losses equal to or exceeding it''s entire net worth; Section 15 of the SICA provide that when an ''Industrial Company'' has become a Sick Industrial Company, it shall make a reference to the BIFR. Section 16 provides that when a reference is made to it u/s 15 or upon it''s own knowledge, the board may make such inquiry as it may deem fit for determining whether any Industrial Company has become a Sick Industrial Company. The enquiry is to be conducted as expeditiously as possible and is preferably to be completed within 60 days from the commencement of the enquiry. Section 17 provides that after an enquiry u/s 16 of the SICA, the board is satisfied that the Company has become a Sick Industrial Company, it shall decide by an order in writing whether it is practicable for the company to make it''s net worth exceed the accumulated losses within a reasonable time. Section 18 contemplates preparation and sanctioning of a scheme of rehabilitation and/or reconstruction of the Sick Industrial Company. Section 22 provides that when a scheme u/s 17 is under preparation or consideration, all legal proceedings against the company shall be stayed and shall not be proceeded with except with the consent of BIFR. It is thus, clear that the provisions of SICA are applicable only in respect of an Industrial Company which is registered for not less than five years and which owns one or more of the industrial undertaking, in relation to an Industry specified in the First Schedule of the IDR Act. The BIFR would not therefore, have jurisdiction to decide whether a partnership firm which is not a Company as defined in the Companies Act has become sick. BIFR also would not have jurisdiction to declare as sick any Company which does not own any industrial undertaking carrying on a scheduled industry falling under First Schedule of the IDR Act. If BIFR passes an order in respect of a partnership firm that it is a Sick Industrial Company, the order would obviously be without jurisdiction. Similarly, if BIFR passes an order that a company which is not an Industrial Company has become a Sick Industrial Company. Such order would also be without jurisdiction. Even an act of registration of a reference in respect of a partnership firm or a company which is not an Industrial Company would be without jurisdiction.
14. Here, a distinction must be made between an inherent lack of jurisdiction and an erroneous decision within jurisdiction. If a Company which is an Industrial Company registered for more than 5 years and owns an industrial undertaking makes a reference to the BIFR that it has become sick than whether or not it''s net worth at the end of the financial year is completely eroded is a matter which is required to be decided by the BIFR. Even an erroneous decision by BIFR that a net worth of Company has been eroded (though, infact net worth might not have been eroded), such a decision of a BIFR would be an error within jurisdiction which can be corrected only by an appeal under SICA and cannot be enquired into in a co-lateral proceedings.
15. The jurisdictional facts, existence of which is necessary for the purpose of conferment of jurisdiction on BIFR can be stated as follows :
(i) The applicant who makes an application u/s 15 must be a" Company" as defined u/s 3 of the Companies Act. [Section 3(d)]
(ii) The applicant Company must be an "Industrial Company", owning one or more industrial undertaking [Section 2(e)]
(iii) The applicant being an Industrial Company must be engaged in an industry which is a scheduled industry specified in First Schedule of the IDR Act and must not be (a) ancillary industrial undertaking (b) a small scale industry undertaking, [Section 2(f)]
(iv) The applicant "Industrial Company" must be registered for not less than five years prior to the making of an application. [Section 3(o)]
16. Let me now examine whether these jurisdictional facts exist in the present case. If they do, then the order of registration of a reference would be "within jurisdiction" of BIFR and the winding up petition would have to be stayed u/s 22 of the BIFR Act.
17. The Counsel for the respondent Company handed over to me a compilation containing pages numbered from 1 to 385 (with index) being the office copy of the application u/s 15 of SICA made in Form A along with it''s enclosures, and a forwarding letter dated 20th February, 2001. Compilation is taken on record. Column No. 3(c) of the application (Form A) states that the applicant Company is engaged in manufacturing of items Nos. 1(A)(7) and 35 of the First Schedule of IDR Act under the headings "Metallurgical Industries" and "Cement Gypsum Products". Column No. 3(d) of the application (Form A) gives the number and date or registration or licence under IDR Act, to be 5-12-2000 and 20-12-2000. Thus, the respondent Company itself admits that it was registered as an "Industrial Company" and started an industrial activity covered under First Schedule of the IDR Act only after 5-12-2000 when the first licence under IDR Act was acquired. In paragraphs 1 and 2 above, I have already pointed out that amendment to the objects clause of the Memorandum of Association was made on 29-6-2000 as per the resolution passed on 26-5-2000. Thus, prior to 26-5-2000, the Company did not have as it''s object "manufacturing of building materials" which was added as Clause no. (1 A) in the Memorandum of Association.
18. Paragraph numbers 26 to 28 of the application (Form A) give the financial position of the Company for the years ending 31-3-1997, 31-3-1998, 31-3-1999, 31-3-2000 and 31-12-2000. Item No. (ix) of para-28 of the ''Form A'' shows that the Company made a profit of Rs. 443.70 lakhs for the year ending 31-3-1997, a profit of Rs. 83.98 lakhs for the year ending 31-3-1998 and a profit of Rs. 18.08 lakhs for the year ending 31-3-1999. The respondent Company suffered a loss of Rs. 1397.21 lakhs for the year ending 31-3-2000 and a further loss of Rs. 1040.05 lakhs for the year ending 31-12-2000. The Company was thus, making profit till the year ending 31-3-1999. It is for the first time that the Company made a loss, and that too a huge loss, of nearly Rs. 14 crore for the year ending 31-3-2000. Soon after the Company incurred its first loss, the management with ulterior motive of keeping the creditors at bay, devised the trick of amending the object clause and to convert the Company which was of "Builders and Promoters" and make it an "Industrial Company". The Company sought to amend it''s object clause within two months of the end of accounting year ending 31-3-2000 in which it made it''s first ever major loss and passed a resolution dated 26-5-2000 for amending the objects clause to add the object No. 1A mentioned above. After such amendment, an application was made for a licence under IDR Act and licence was first obtained on 5-12-2000 to arm it with a status of "Industrial Company" engaged in an industry covered under First Schedule to IDR Act. Till the year ending 31-3-2000, the Company was engaged in the business of Real Estates and purchase and sale of land and/or buildings and construction of tenements, blocks, flats, shops, godowns, garages, dwelling houses etc. as mentioned in para (1) of the objects clause. The intention of the Company in acquiring the licence under IDR Act and/or claiming that it is an Industrial Company is thus, clearly mala fide and made with a view to somehow or the other claim protection u/s 22 of the SICA.
19. Unfortunately, the respondent Company lost sight of the requirement of Section 2(o) of SICA which lays down that the Industrial Company must be registered for a period of not less than five years.
20. Shri Janak V. Dwarkadas, learned Counsel for the respondent Company submitted that the period of five years u/s 2(o) of SICA is to be computed from the date of registration of a Company and not from the date on which the Company was registered as an "Industrial Company" within the meaning of Section 2(e) of SICA. Section 2(o) reads as under:
"2(o) Sick Industrial Company" means an industrial company (being a company registered for not less than five years) which has at the end of financial year accumulated losses equal to or exceeding it''s entire net worth."
The words in bracket apply not the word "Company" but the expression "Industrial Company", appearing immediately before them. Thus, what must be registered at least for a period of five years is not a company but an "industrial company" otherwise the word "industrial" appearing before the word company would become otiose. SICA was enacted with a view to give protection to the Sick Industrial Companies. Care was also taken to see that fly by night operators do not misuse the provisions of SICA and therefore, it was provided u/s 2(o) that the industrial company must be registered for not less than five years. (Initially, the period of registration was seven years which was reduced to five years by an amendment.) This ensured that an uncanny promoter does not form an Industrial Company, immediately obtain a loan from banks and financial institutions, siphon off the funds and then prevent filing of any suit against the Industrial Company by filing a reference under SICA. To illustrate, let us take a case of a trading company which is in existence of more than five years. If such a Company incurs losses in a particular year, can the persons in management of such Company acquire an industrial unit and on the next day, claim that though it has become an Industrial Company now, it was registered as a Company for more than five years ago and claim protection under SICA. Certainly, not. If two interpretations are possible, one which furthers the object of the statute and the other defeats it or permits a cunning person to commit a fraud, the former which furthers the object of the statute must be given. Therefore, the ''words "Industrial Company (being a company registered for a period of five years)" should be interpreted that Industrial Company is registered for a period of five years. This interpretation is in consonance with the object of Section 2(o) and would prevent fraudulent conversion of a trading company into an Industrial Company only for the purpose of claiming protection of SICA.
21. During the course of arguments, the Counsel for the respondent handed in a copy of the Second Annual Report of the Company for the year 1993-1994 and I was asked to look into it. This Second Annual Report for the year 1993-1994 was not produced before the BIFR and that was not the material which was available to the BIFR when it registered the reference. When I am considering whether the BIFR had jurisdiction to register and entertain a reference u/s 15, I must restrict myself looking at the material which was placed before the BIFR for invoking it''s jurisdiction. I therefore, cannot look into the Second Annual Report for the year 1993-1994 which was handed in.
22. Assuming however, that the said report can be looked into all that was contended by relying upon this report was that Company had passed a resolution as far back on 30-6-1994 u/s 149(2A) of the Companies Act, 1956 enabling it to carry out the business of manufacturing of concrete blocks by pursuing other objects mentioned as Sub-clause (c) of Clause III of the Memorandum of Association. Assuming that Company had power to manufacture concrete blocks, it is admitted position that till 5-12-2000, the Company did not have any licence under IDR Act and therefore, could not carry out a business covered under First Schedule to IDR Act. If at all the business was of manufacturing of concrete blocks was carried out prior to 5-12-2000. It could only be ancillary business as defined in proviso to Section 11-B(1) of the IDR Act i.e. for captive consumption (any large builder of flats would make his own concrete Blocks of bricks to save costs) which did not require a licence under IDR Act. Such a business being ancillary u/s 3(1)(f)(i) of SICA is not regarded as an "Industrial Undertaking".
23. I therefore, hold that respondent Company did not own any industrial undertaking at least till 5-12-2000. By virtue of Section 3(1) of the SICA, the respondent Company was therefore, not an "Industrial Company" which is a sine qua non for the exercise of a jurisdiction by the BIFR. This is a jurisdictional fact. As this jurisdictional fact was absent, the BIFR lacked inherent jurisdiction to register a reference and hold an enquiry under SICA. Therefore, the registration of a reference by BIFR u/s 16 of SICA was without jurisdiction. If so, such registration is a nullity and can be ignored by this Court. This being the position, it is not necessary to stay the winding up petition sine die as prayed by the respondent Company.
24. On merits, the respondent Company admits that more than three consecutive defaults have been committed and therefore, the Company Petition stands admitted by virtue of an order dated 5th July, 2000. It is therefore, necessary to issue the usual directions which follow as a consequence of admission of a Company Petition.
25. At this stage, the Counsel for the petitioner makes an oral prayer that an Official Liquidator should be appointed as Provisional Liquidator particularly in view of the mala fide conduct of the respondent Company and if the Provisional Liquidator is not appointed, the Company may squander away it''s assets and properties. To an extent, the creditors are protected by virtue of Subsection (2) of Section 536 of the Companies Act in disposition of the property of the Company after the commencement of the winding up, unless otherwise ordered by the Court is void. I am not inclined to appoint Official Liquidator as a Provisional Liquidator on the oral request as the respondent Company should, have an opportunity of placing material before this Court as why a Provisional Liquidator should not be appointed. In the circumstances, the petitioner is directed, to file, if it so desires, to file a separate written application for appointment of Official Liquidator as Provisional Liquidator.
26. For the present, I only issue a direction that the petition should be advertised in English in The Economic Times and in Marathi in Sakal, Mumbai and Pune Editions as also in the Maharashtra Government Gazette, at the costs of the petitioner.
27. At the request of the Counsel for the respondent, this order is stayed for a period of two weeks.
Petition returnable on 10th April, 2002.
Respondent waives service.
