1988 (11) TMI 321 - HC - Companies Law

Summary

Issues Involved:
(a) Whether the mere proof of a reference being registered by the BIFR under section 16(1) of the Act attracts the provisions of section 22?
(b) If section 22 is held applicable, its effect on these company petitions?

Issue-wise Detailed Analysis:

Point (a): Applicability of Section 22 upon Registration of Reference under Section 16(1)

The High Court examined whether the registration of a reference by the Board for Industrial and Financial Reconstruction (BIFR) under section 16(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, automatically triggers the suspension of legal proceedings under section 22. The Act aims to provide timely detection and remedial measures for sick industrial companies. Section 16(1) allows the BIFR to make inquiries to determine if a company is sick, based on references under section 15 or other information.

The court noted that an inquiry under section 16(1) can commence upon receiving a reference from the company itself or a financial institution. The Secretary or Registrar has the authority to register such references. The court clarified that the registration of a reference is prima facie proof that an inquiry is pending before the BIFR. Therefore, once a reference is registered, section 22 becomes applicable, suspending legal proceedings, including winding up petitions, against the company.

Point (b): Effect of Section 22 on Company Petitions for Winding Up

The court then considered the implications of section 22 on the pending winding up petitions. Section 22(1) suspends proceedings like winding up petitions once an inquiry under section 16 is pending or a scheme under section 17 is being prepared or implemented. Petitioners argued for adjournments to monitor the progress before the BIFR and to preserve their rights under the Companies Act.

The court acknowledged the hardships faced by petitioners due to the suspension of proceedings but emphasized that the BIFR has wide powers to take measures under sections 17 to 20, including reviving or winding up the company. The court allowed petitioners to approach the BIFR for relief during this stage. The court ordered that the management of respondent companies must update petitioners on the progress before the BIFR every six months and refrain from alienating assets without BIFR's permission for six months.

Conclusion:

The court concluded that the registration of a reference under section 16(1) by the BIFR attracts the provisions of section 22, suspending winding up proceedings. The winding up petitions were closed with liberty to the petitioners to revive them if permissible by a subsequent BIFR decision. The court did not award costs.