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M/s. Madura Coats Limited v. M/s. Modi Rubber Ltd. & Anr.

Civil Appeal · Neutral citation not assigned (Civil Appeal No. 1475 of 2006)Decided 29 Jun 2016
Civil Appeal No. 1475 of 2006
Justice J.S. Khehar · Justice Madan B. Lokur · Justice C. Nagappan

Background

Madura Coats filed a winding-up petition against Modi Rubber for non-payment of debts, and the Company Court at Allahabad ordered Modi Rubber wound up in 2004. Modi Rubber appealed, revealing that it had separately applied to the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies Act (SICA) just before the winding-up order, and the Allahabad High Court's Division Bench set aside the winding-up order on the ground that the SICA reference (once registered) barred further winding-up proceedings. When the matter reached the Supreme Court, a two-judge bench doubted an earlier precedent (Rishabh Agro) on this point and referred the question to a larger bench.

Decision Breakdown

The three-judge bench held that whenever a reference is validly registered with the BIFR under the SICA, the SICA's provisions (including the statutory stay on winding-up proceedings under Section 22) prevail over the Companies Act, affirming its earlier rulings in Real Value Appliances and Rishabh Agro Industries and declining to disturb them. It also noted that during the pendency of this appeal, Modi Rubber's rehabilitation scheme had been approved by the BIFR, Madura Coats had participated in those proceedings without challenge, and had already accepted and received part-payment of its dues under the sanctioned scheme, meaning nothing substantively remained in dispute. On both grounds (the point of law being settled in Modi Rubber's favour, and the dispute being practically resolved), the Court dismissed the appeal.

Lesson Learnt

Once a company's reference to the BIFR under the Sick Industrial Companies Act is registered, ongoing winding-up proceedings against it before a Company Court must stop and give way to the SICA process: a creditor cannot force liquidation while a registered rehabilitation reference is pending.

Official source (sci.gov.in)View Judgment (PDF)

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