1999 (4) TMI 497 - HC - Companies Law

Summary

Issues Involved:
1. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) to the winding-up proceedings.
2. Whether the petitioner's claim, arising after the sanction of the rehabilitation scheme, is excluded from the embargo under Section 22(1) of SICA.
3. Interpretation of legal precedents concerning the applicability of Section 22(1) of SICA.

Issue-wise Detailed Analysis:

1. Applicability of Section 22(1) of SICA to the Winding-Up Proceedings:
The petitioner sought the winding up of the company under the Companies Act, 1956, alleging non-payment for goods sold and wrongful termination of the contract. The company, registered with the Board for Industrial and Financial Reconstruction (BIFR) and under a sanctioned rehabilitation scheme, argued that the proceedings were barred by Section 22(1) of SICA. This section suspends legal proceedings against a sick industrial company during the implementation of a sanctioned scheme. The court set out the provisions of Section 22(1), emphasizing that no proceedings for winding up or recovery of money can proceed without the consent of the BIFR or appellate authority.

2. Exclusion of Petitioner's Claim from the Embargo under Section 22(1):
The petitioner argued that their claim arose after the sanction of the scheme and was not included in it, thus Section 22(1) should not apply. They relied on the Supreme Court's decision in Corromondal Pharmaceuticals Ltd., which held that the embargo in Section 22(1) applies only to dues included in the sanctioned scheme. However, the company contended that the language of Section 22(1) was clear and that all proceedings, including the petitioner's claim, were barred to prevent further financial burden on the sick company.

3. Interpretation of Legal Precedents:
The court referenced several legal precedents to interpret Section 22(1). In Corromondal Pharmaceuticals Ltd., the Supreme Court held that the embargo applies only to dues included in the sanctioned scheme, specifically in cases involving tax collected by the company for the revenue. The court noted that this principle was limited to exceptional situations involving public interest and revenue claims, not general money claims. The Delhi High Court in Sirmor Sudburg Auto Ltd. held that eviction proceedings were not stayed under Section 22(1), but proceedings for recovery of money were. The Andhra Pradesh High Court in a similar context emphasized that the scope of legislation should not be expanded beyond its plain meaning to protect sick companies.

Conclusion:
The court concluded that the facts of the present case attracted the embargo under Section 22(1) of SICA. The petitioner's claim was a simple money claim, not involving public interest or revenue, and allowing it would undermine the purpose of SICA to rehabilitate sick companies. The court distinguished the Supreme Court's decision in Corromondal Pharmaceuticals Ltd. as applicable only to exceptional situations involving tax claims. Consequently, the court held that the petitioner's application for winding up was barred by Section 22(1) and dismissed the application without adjudicating the merits of the case. There was no order as to costs.