1995 (3) TMI 334 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the winding up order during the pendency of proceedings before the BIFR.
2. Applicability and interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
3. Rights of secured creditors during the pendency of BIFR proceedings.
4. Possession of the company's assets post-judgment.

Issue-wise Detailed Analysis:

1. Validity of the Winding Up Order:
The appeal was directed against the winding up order dated January 7, 1994. The appellant, a public limited company, challenged the order on the grounds that the winding up proceedings should not have been continued during the pendency of the reference before the Board for Industrial and Financial Reconstruction (BIFR). The court noted that the BIFR had not rendered its final opinion under Section 20 of the Act when the winding up order was passed. The court held that the learned company judge could not have proceeded with the winding up proceedings during the pendency of the reference before the BIFR and the subsequent appeal before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR). Therefore, the winding up order was set aside, and the matter was remitted to the company court to await the final decision of the AAIFR.

2. Applicability and Interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:
The main contention was that Section 22 of the Act mandates that no proceedings for the winding up of a company shall lie or be proceeded with further during the pendency of a reference under Section 15 of the Act. The court referred to the Supreme Court's interpretation in Gram Panchayat v. Shree Vallabh Glass Works Ltd., which clarified that proceedings for winding up, execution, distress, or the like are automatically suspended during the pendency of an inquiry under Section 16 or an appeal under Section 25. The court emphasized that the purpose of Section 22 is to allow the BIFR to consider remedial measures for the revival of the sick industrial company without interference from coercive actions. The court concluded that the winding up proceedings against the company stood suspended within the purview of Section 22(1) of the Act.

3. Rights of Secured Creditors During the Pendency of BIFR Proceedings:
The court addressed the rights of secured creditors who opted out of the winding up proceedings and did not file affidavits either supporting or opposing the winding up. It was held that such secured creditors have no locus standi to intervene and oppose the appeal by the company. The court cited Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd., which held that the overriding effect of Section 22 prevents creditors from taking independent action that would render the BIFR's process nugatory. The court reiterated that creditors must seek the BIFR's consent to proceed against the company for recovery of their dues.

4. Possession of the Company's Assets Post-Judgment:
The court considered whether the appellant was entitled to get back possession of the company. It was conceded that the unsealing of the factory and delivery of possession to the company could be done subject to reasonable conditions. The court ordered the official liquidator to unseal and deliver possession of the factory to the appellant, subject to the appellant's undertaking not to alienate the assets and properties of the company until the final disposal of the proceedings before the AAIFR and the court. Additionally, the management was directed to include a nominee of the financial institutions involved as a director to oversee the company's management. The AAIFR was given the authority to modify these conditions as necessary.

Conclusion:
The appeal was allowed, and the winding up order was set aside. The matter was remitted to the company court to await the final decision of the AAIFR. The official liquidator was directed to unseal and deliver possession of the factory to the appellant, subject to specific conditions. The AAIFR was directed to dispose of the appeal expeditiously within four months. The request for a stay of the judgment was rejected.