INDIAN SHAVING PRODUCTS LTD. versus BOARD OF INDUSTRIAL AND FINANCIAL RECONSTRUCTIONS & ANOTHER

Citation: [1996] 1 S.C.R. 31 · Decided: 03-01-1996 · Supreme Court of India · Bench: S.P. BHARUCHA · Disposal: Appeal(s) allowed

Judgment (excerpt)

1 
INDIAN SHAVING PRODUCTS LTD. 
v. 
BOARD OF INDUSTRIAL AND FINANCIAL 
RECONSTRUCTIONS & ANOTHER 
JANUARY 3, 1996 
[S.P. BHARUCHA AND S. SAGHIR AHMED, JJ.j 
Income Tax Acr 196I : Section 72A--Accumulated loss and the 
unabsorbed depre<.:iation of the a111alglunaling cn1npany shall be deenied to 
A 
B 
be the loss or allo1'vance for depreciation nf the an1algan1ated con1pany. 
C 
Sick Industrial Companies (Special Provisions) Act I91i5-Sectimis 
3(0), I7, iii and 32(2)-Reference to BIFR for declaration as a Sick 
Cnn1pany and sanction for a111algtunation--Sanctinn granted under Section 
I Ii-Refusal of benefits under Section 72A of the Income Tax Act--Held 
Requirenzentsfor Sanction under Section 1 Rare sirnilar to declaration under D 
Sel'tion 12A of the lncrnne Tt.1x Act-Hence, sanction of anralgamatinn also 
implies grant of benefits of Section 72A of the Income Tax Act. 
According to the Appellants, Sharp Edge Ltd, was its ·subsidiary 
company which manufactured carbon steel blades. As on 31st March 
1989, the accumulated loss of Sharp Edge amounted to Rs. 298 Iakhs 
against its paid up capital of Rs. 212 Iakhs. Sharp Edge having become 
a Sick Industrial Company, a reference was made to the· Board of 
Industrial and Financial Reconstruction (BIFR) under section 15(8) of 
the Sick Industrial Companies (Special Provisions) Act 1985 (hereinafter 
referred to as the 'Said Act'). 
BIFR discussed the amalgamation of Sharp Edge with the appel-
lant company and noted that it was not possible for sharp Edge to make 
its net worth positive on its own and appointed ICICI as ~he operating 
agency to examine the financial viability of Sharp Edge, and also to 
prepare a scheme for rehabilitation. Subsequently, amalgamation was 
allowed by BIFR but without granting any benefits of Section 72A of the 
Income Tax Act. 
E 
F 
G 
A request to reconsider its order was made to BIFR by the 
appellants and the same was rejected on the grounds that sharp Edge was 
H 
31 
•
32 
SUPREME COURT REPORTS 
[1996] 1 S.C.R. 
A 
a closely held company and its liabilities were mainly in respect of the 
appellants which was a strong base company; and that sharp Edge had 
been showing a cash profit for the last three years and its net worth had 
since become positive. 
On an appeal preferred by the appellants, the appellate authority 
B 
upheld the order of BIFR. 
c 
D 
Hence, this appeal. 
Allowing the appeal, this Court 
HELD : 1.1. For the purposes of according sanction to a scheme 
of amalgamation of a Sick Industrial Undertaking with any other 
Company under Section 18 of the Sick Industrial Companies (Special 
Provisions) Act, 1985, BIFR has to be satisfied that the amalgamating 
company is not financially viable, which is the effect of Section 3 (0) of 
the said Act, and that the amalgamation is necessary or expedient in the 
public interest, which is the effect of Section 17 and 18 of the said Act 
read together. [40-E] 
1.2. Sanction of a scheme of amalgamation under Section 18 of the 
said Act necessarily implies tlilat the requirements of section 72A Act of 
E 
the Income Tax Act have been met and BIFR must exercise the power 
conferred upon it by Section 32(2) of the said Act and make the declara-
tion contemplated by section 72A of the Income Tax Act. 
F 
Commissioner of Income Tax, Bombay and Ors. v. Mahindra and 
Mahindra Ltd. and Ors., 144, ITR. 225, referred to. [40-F-G] 
1.3. The conditions for !>anctioning a scheme under Section 18 of 
the said Act being the same as those required for a declaration under 
Section 72A of the Income Tm< Act, BIFR could not have sanctioned the 
scheme of amalgamation of Sharp Edge with the appellant but declined 
to make the declaration under Section 72A of the Income Tax Act with 
G 
regard to that amalgamation. [ 40-G-H] 
' 
CIVIL APPELLATE JURISDICTION 
Civil Appeal No. 5638 of 
~ 
1994. 
From the Judgment and Order dated 20.12.93 of the Appellate Author-
H 
ity for Industrial and Financial Reconstruction, New Delhi in Appeal No. 51 
-..; 
INDIAN SHAVING PRODucrs LTD. 1: BO. OF JNDL. & FINANCIAL RECONSTRUCTIONS [BHARUCHA, J.] 33 
of 1992. 
R.K.P. Shankar Dass and Ashok Grover for the Appellant. 
The Judgment of the Court was delivered by. :" 
BHARUCHA, J. This appeal by special leave impugns an order of the 
Appellate Authority for Industrial & Financial Reconstruction. The im-
pugned order upheld the order of the Board for Industrial and Financial 
Reconstruction, established under the Sick Indu

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