U.P. STATE SUGAR CORPN. LTD versus U.P. STATE SUGAR CORPN. KARAMCHARI ASSO. AND ORS

Citation: [1995] 3 S.C.R. 1004 · Decided: 02-05-1995 · Supreme Court of India · Bench: S.C. AGRAWAL, SUJATA V. MANOHAR · Disposal: Appeal(s) allowed
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Judgment (excerpt)

A 
U.P. STATE SUGAR CORPN. LTD. 
v. 
U.P. STATE SUGAR CORPN. KARAMCHARI ASSO. AND ORS. 
,._. 
MAY 2, 1995 
B 
(S.C. AGRAWAL AND SUJATA V. MANOHAR, JJ.) 
Sick Industrial Companies (Special Provisions) Act, 1985-Sections 15, 
22A and 23-Disposal of assets-Right of a Sick Industrial Company and a 
potentially sick company when can be exercised. 
,.l • 
c 
Sick Industrial Companies (Special Provisions) Act, 1985-Sections 15 
and 23-fi.eference and report-Difference between. 
Judiciary-Disparaging remarks against executive-Need for restraint. 
D 
The appellant is a company was incorporated with the object of 
taking over and run certain private sugar mills which had been acquired 
by the State of U.P. Sugar undertakiugs (Acquisition) Act, 1971. Certain 
units thus acquired had been suffering from continuous losses. A decision 
was taken to sell continuing loss making units. Eight such units were 
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marked for sale and an advertisement was published in newspapers on 
20.3.1994 for outright sale of the said units. 
The annual audited accounts of the appellant corporation for the 
financial year 1989-90 ending on March 31, 1990 were adopted at the 
annual general meeting held on 25.10.1993. The said accounts revealed that 
F the net worth of the corporation bad been eroded by more than 50 per cent 
which makes a company potentially sick industrial company and makes it 
obligatory on the company to report such erosion to the Board of lndustrial 
and Financial Reconstruction under Section 23(l)(a)(i) of the Sick In· 
dustrial Companies (Special Provisions) Act, 1985. The fact of erosion of 
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the net worth was reported by the company to the Board of Industrial and 
Financial Reconstruction vide its letter dated May 7/11, 1994 but the said 
letter was described by the company as reference under the provisions of 
the Act. Enclose with the letter dated May 7/11, 1994 was an application 
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in 'Form CC' which is a form prescribed for a report under Section 23 of 
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Sick Industrial Companies (Special Provisions) Act, 1985 for a potentially 
H sick industrial company. The letter dated May 7/11, 1994 was construed as 
1004 
•. . J.. 
SUGAR CORPN. v. SUGAR CORPN. KARAMCHARI ASSO. 
1005 
a report under Section 23 by the Board of Industrial and Financial A 
Reconstruction. 
The respondent filed a writ petition challenging the decision to sell 
the sugar units and for quashing the advertisement for sale of the said 
units on the ground that the appellant could not have alienated its assets 
as it was a sick industrial company and proceedings were pending against B 
it before the Board of Industrial and Financial Reconstruction. The appel-
lant, in its counter affidavit, denied that the company was a sick industrial 
company . 
The High Court allowed the writ petition filed by the respondent. The C 
High Court also directed the Registrar of the High Court to file complaint 
against the deponent of the counter affidavit as well as the Secretary of the 
appellant Corporation and the Board of Directors for violation of 
provisions of Chapter XI of the !PC by making false and misleading 
statements in the counter affidavit. The High court further disparagingly 
referred to the attitude of the Civil servants in running the industrial D 
undertakings in the pnblic sector. 
\ . 
f 
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Hence the present appeal. 
Allowing the appeal, this Court 
HELD: 1.1. The i:ick Industrial Companies (Special Provisions) Act, 
1985 makes a distinction between the role assigned to the Board of In-
. dustrial and Financial Ikconstrnction in relation to a sick industrial 
company, provisions for which are contained in Sections 15 to 22A in 
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'i 
Chapter Ill, and in respect of a potentially sick industrial company for F 
which provisions are contained in Sections 23, 23A and 23B in Chapter IV. 
In respect of potentially sick industrial company the Board has been 
assigned a more limited role of requiring such company to furnish periodic 
information as to the steps taken by the company to make its net worth 
exceed its accumulated losses. (1014-B-E] 
1.2. Under the Sick Industrial Companies (Special provisions) Act 
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1985 the only restriction on the right of an industrial company to dispose 
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of its asset is that contained in Section 22A whereby the Board of In-
dustrial and Financial Reconstruction has been empowered to pass an 
order directing a sick industrial company not to dispose of, except with H 
1006 
SUPREME COURT REPORTS 
[1995] 3 S.C.R
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