2000 (5) TMI 954 - SC - Companies Law

Whether any industrial company had become a sick industrial company in accordance with the procedure prescribed therein? Held that - Appeal allowed. The words no proceeding for winding up of the industrial company or for execution distress or the like against any of the properties of the industrial company or for the appointment of receiver in respect thereof shall lie or be proceeded with further, leave no doubt in our mind that the effect of the section would be applicable even after the winding up order is passed as no proceeding even thereafter can be proceeded with further under the Companies Act. The High Court appears to have not taken note of the aforesaid words, i.e., to be proceeded with further. As the impugned judgment is based upon wrong assumption of the provision of law and completely ignoring the vital words noticed hereinabove, the same cannot be sustained. The board of directors in the instant case were not in any way by any judicial order debarred from taking recourse to the provisions of the Act for the purposes of rehabilitation of the company. If there existed a power, its exercise cannot be termed to be mala fide only because it was initiated after availing the opportunity to make the payment of the amounts due and passing of the order of winding up of the company.

Issues Involved:
1. Interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Applicability of Section 22 after the passing of a winding-up order.
3. Jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR) after the winding-up order.
4. Powers of the board of directors post winding-up order.
5. Commencement and effect of winding-up proceedings under Section 441 of the Companies Act, 1956.

Issue-wise Detailed Analysis:

1. Interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:
The appellant-company argued that the Division Bench of the High Court misinterpreted Section 22 by holding that the proceedings referred to in Section 22(1) apply only up to the stage of passing of the winding-up order and not thereafter. The appellant contended that once an application under Section 15 is filed, an inquiry under Section 16 is deemed to be pending, warranting a stay of the proceedings in terms of Section 22.

2. Applicability of Section 22 after the Passing of a Winding-up Order:
The High Court had concluded that Section 22(1) was not applicable after the winding-up order was passed. However, the Supreme Court disagreed, noting that the words "no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further" indicate that the effect of Section 22 would be applicable even after the winding-up order is passed.

3. Jurisdiction of the Board for Industrial and Financial Reconstruction (BIFR) after the Winding-up Order:
The respondent-bank argued that since no inquiry under Section 16 was pending at the time of the winding-up order, the proceedings could not be stayed. The Supreme Court referred to the case of Real Value Appliances Ltd. v. Canara Bank, which held that once a reference is registered after scrutiny, it is mandatory for the BIFR to conduct an inquiry, and action against the company's assets must remain stayed until final decisions are taken by the BIFR.

4. Powers of the Board of Directors Post Winding-up Order:
The respondent-bank suggested that the board of directors had no jurisdiction to move the BIFR after the winding-up order. The Supreme Court clarified that despite the appointment of the Official Liquidator, the board of directors retains all residuary powers for the benefit of the company, including taking steps for its rehabilitation. The board of directors was not judicially debarred from taking recourse to the provisions of the Act for rehabilitation.

5. Commencement and Effect of Winding-up Proceedings under Section 441 of the Companies Act, 1956:
The Supreme Court noted that the winding-up order is not the culmination but the commencement of the process, with the ultimate order being the dissolution of the company under Section 481 of the Companies Act. The term "shall be deemed to commence" in Section 441 indicates that winding-up proceedings are presumed to commence from the presentation of the petition, even if they do not in fact commence at that time.

Conclusion:
The Supreme Court found that the High Court's judgment was based on a misinterpretation of the law, particularly ignoring the vital words "to be proceeded with further" in Section 22. The appeal was allowed, setting aside the High Court's order and directing that the proceedings before the Company Judge remain in abeyance until the disposal of the application/appeal before the authorities under the Act. The Court emphasized that the interpretation of the law must adhere to the legislative intent and cannot be altered by judicial decisions.

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