1991 (4) TMI 333 - HC - Companies Law

Summary

Issues Involved:
1. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Status of winding up petitions and applications for interim reliefs.
3. Effect on ad interim orders dated October 5, 1990, and October 11, 1990.

Detailed Analysis:

1. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:

The court examined whether Section 22 of the Act is applicable to the current situation and whether the company can avail of its provisions. The court noted that the company had been declared a sick industrial company by the Board for Industrial and Financial Reconstruction (BIFR) under Section 3(1)(o) of the Act. The Board had adjourned the proceedings to allow the company to present a scheme for consideration. The court rejected the argument that Section 22(1) is only applicable if a scheme under Section 17(3) is under preparation. The court held that Section 22 is applicable as the proposed scheme is referable to the implied power of the Board under Sections 17(1) and 17(2) of the Act.

2. Status of Winding Up Petitions and Applications for Interim Reliefs:

The court had to decide whether the winding up petitions and applications for interim reliefs should be dismissed, treated as abated, or merely suspended and kept in abeyance. The court disagreed with the Gujarat High Court's interpretation that winding up petitions should be dismissed if the conditions of Section 22 are met. Instead, the court held that the petitions should be suspended and kept in abeyance, with the possibility of revival with the consent of the Board or the appellate authority, or if the conditions of Section 22(1) cease to exist.

3. Effect on Ad Interim Orders Dated October 5, 1990, and October 11, 1990:

The court considered whether the ad interim orders should be automatically suspended, vacated, or modified. The court held that these orders are not automatically suspended but cannot be taken up for final orders unless the petitioning creditors obtain the consent of the Board or Section 22(1) ceases to apply. The court modified the orders to allow the company to alienate its assets only with the prior leave of the Board and not otherwise, ensuring that the Board can exercise its statutory functions without being affected by the court's injunctions. If the Board sanctions a scheme for the sale of the company's properties, the injunctions will stand vacated.

Conclusion:

The court concluded that:
1. The winding up petition is not liable to be dismissed or treated as having abated.
2. The winding up petition and the judge's summonses are to be suspended and kept in abeyance, with liberty to revive them with the consent of the Board or the appellate authority, or if Section 22(1) ceases to apply.
3. The ad interim orders dated October 5, 1990, and October 11, 1990, are not automatically suspended but are modified to allow the company to alienate its assets with the prior leave of the Board and to ensure that the Board can implement the requisite scheme under the Act.
4. There shall be no order as to costs of the hearing on the issue of applicability and effect of Section 22 of the Act.