2000 (3) TMI 940 - HC - Companies Law

Summary

Issues:
1. Validity of notice and unit takeover under section 29 of the State Financial Corporation Act, 1951.
2. Commencement of enquiry under section 16 of the Sick Industrial Companies (Special Provision) Act, 1985.
3. Interpretation of section 22 of the SICA regarding the timing of enquiry commencement.
4. Allegation of the petitioner not being a sick company and the jurisdiction of the court in such matters.

Analysis:
1. The petition challenged a notice dated 25-2-2000 and the subsequent takeover of the unit by the respondent under section 29 of the State Financial Corporation Act, 1951. The petitioner had referred to the Board for Industrial and Financial Reconstruction (BIFR) under the SICA, claiming to be a sick industrial company. The respondent demanded payment, leading to the takeover. The petitioner argued that the action was against the mandate of section 22 of the SICA, as the enquiry had commenced before the notice. The court had to determine the legality of the respondent's actions.

2. The central issue revolved around when the enquiry under section 16 of the SICA should be considered to have started to trigger the application of section 22. Citing a Supreme Court decision, the court emphasized that once the reference was registered and information was sought, the inquiry was deemed to have commenced. In this case, the BIFR had registered the reference and taken action before the notice, activating section 22 and prohibiting the respondent's actions without the Board's consent.

3. The court rejected the respondent's argument that the petitioner was not a sick company, stating that determining sickness was the Board's prerogative under the SICA. The court clarified its role in assessing the respondent's actions' compliance with section 22, which, in this instance, were found to be in violation. Consequently, the court quashed the notice and the unit takeover, directing the respondent to return possession to the petitioner while allowing the respondent to pursue appropriate actions before the BIFR.

4. The judgment highlighted the limited scope of the court's review regarding the respondent's actions under the SICA, focusing on the procedural compliance with section 22 rather than the petitioner's financial status. By upholding the importance of the statutory provisions and the proper sequencing of events, the court ruled in favor of the petitioner, emphasizing the necessity of adhering to the legal framework governing industrial distress situations.