Suspension of Contracts and Impact of Section 22(3) of SICA

Section 22(3) of the Act of 1985 contemplates that where an inquiry under Section 16 is pending or any scheme referred to in Section 17 is under preparation or during the period of consideration of any scheme under Section 18 or where any such scheme is sanctioned thereunder for due implementation of the scheme, the BIFR may, by order, declare that with respect to the sick industrial company concerned, the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations or liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adoptions and in such manner as may be specified by the BIFR. This power of the BIFR is subject to the proviso which states that the declaration made under this provision shall not be for a period exceeding two years and which may be extended by one year at a time, but the total period shall not exceed seven years in aggregate. Section 22A of the Act of 1985 empowers the BIFR to pass orders in the interest of the sick industrial company or even in public interest requiring the sick industrial company not to dispose of, except with the consent of the BIFR, any asset during the period of preparation or consideration of the scheme under Section 18 of the Act of 1985 and during the period beginning with the recording of opinion for winding up of the company under Section 20(1) of the Act of 1985 by the BIFR upto commencement of the proceedings relating to winding up before the High Court.[1]

So long as the scheme is under consideration before the BIFR or it is being implemented after being sanctioned and is made operational from a given date, it is the legislative intent that such scheme should not be interjected by any other judicial process or frustrated by the impediments created by third parties and even by the management of the sick industrial company, in relation to the assets of the company.[2]

The powers of the BIFR under Section 22(3) can be segregated under two different heads. Firstly, the power to suspend simplicitor the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or any other instrument in force, to which the sick industrial company is a party or which may be applicable to the sick industrial company before the date of such order. Secondly, any rights, privileges, obligations or liabilities accruing or arising before the said date, shall be enforceable with such adaptation and in such manner as may be specified by the BIFR.[3]

[1] Raheja Universal Limited vs. NRC Limited and Ors. AIR2012SC1440, Supreme Court, Para 20

[2] Ibid. Para 22

[3] Ibid.Para 27

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