SC for implementation of laws to check fraud on creditors

New Delhi, Dec 21 (UNI) The Supreme Court has ruled that it seems that time has come to consider whether the enactments bringing amendments in the Companies Act should be notified by the government to checkmate the misuse of laws by unscrupulous debtors to defraud unsuspecting creditors.

In the present case Morgan Securities and Credit Pvt. Ltd. had given an advance of Rs 5 crores to M/s Modi Rubbers Ltd. by way of Inter-Corporate Deposit (ICD). The respondent committed default in repayment of the money.

Arbitrator made an award of Rs.6,72,63,015 in favour of the appellant Morgan Securities on May 6,2004.

Appellant moved Allahabad High Court for winding up of the respondent company and the order of winding up was passed on March 12,2004. Respondent in the meantime made a reference under section 15 of the Sick Industrial Companies ( Special Provisions ) Act,1985 (SICA) to the Board for Industrial and Financial Reconstruction (BIFR).

The main issue was whether provisions of Arbitration and Reconciliation Act would prevail over SICA. Respondent sought permission from BIFR to sell its 23,10,000 equity shares in M/s Ambuja Cement Eastern Ltd.

Finally under Delhi High Court orders Modi Rubbers sold its shares in Ambuja Cements and deposited the sale proceeds with BIFR.

A bench comprising Justices S B Sinha and P K Balasubramanyan while delivering separate but concurring judgments on December 14 observed,"Occasions are not infrequent when not so scrupulous debtors approach BIFR to stall the proceedings and to keep their creditors at bay. The delay before the BIFR is sought to be taken advantage of. The Parliament has apparently taken note of this and has repealed SICA by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003. The vacuum, thus created has been filled by an amendment to the Companies Act. But so far the provisions of the Amending Act and the Companies Act introduced, have not been brought into force. It appears to be time to consider whether these enactments should not be notified." The apex court, however dismissed the appeal as infructous but disapproved of the approach of Delhi High Court permitting the respondent to sale its shares in Ambuja Cements even when the respondent was before BIFR.

UNI AKS/SC RP KN1814