2001 (10) TMI 1057 - HC - Companies Law

Summary

Issues:
1. Interpretation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Validity of certificate proceedings under the Public Demand Recovery Act against a sick company.
3. Conflict between State legislation (Co-operative Societies Act) and Central legislation (SICA).

Analysis:

Issue 1: Interpretation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985
The petitioner, a sick company under the Act, argued that section 22 prohibits any proceedings against the company's properties without BIFR's consent. The respondent contended that the company had a statutory liability under the State Act to pay the cooperative society, and section 22 did not bar the certificate case for recovery under the Public Demands Recovery Act. The court referred to precedents like Maharashtra Tubes Ltd. v. State Industrial & Investment Corpn. of Maharashtra Ltd. and held that section 22 prohibits any execution or distress proceedings without BIFR's consent.

Issue 2: Validity of certificate proceedings under the Public Demand Recovery Act against a sick company
The respondent society sought to recover dues from the company under section 58 of the State Act through the Public Demands Recovery Act. The court noted that the recovery as arrears of land revenue under the Public Debt Recovery Act constituted proceedings that required BIFR's consent under section 22 of the SICA. The court emphasized that the purpose of section 22 was to prevent disposal of company assets for creditor recovery.

Issue 3: Conflict between State legislation (Co-operative Societies Act) and Central legislation (SICA)
The court addressed the contention that the State legislation (Co-operative Societies Act) prevailed over the Central legislation (SICA) due to being enacted under the State's legislative power. The court cited the doctrine of "pith and substance" to determine the validity of legislation within the respective legislative fields. It was held that the SICA and the State Act were valid and intra vires, and the recovery proceedings under the Public Demand Recovery Act had to be kept in abeyance pending BIFR's consent.

The judgment directed the petitioner to update the Registrar of Co-operative Societies on the BIFR proceedings and allowed the respondent-society to seek consent for recovery from BIFR. Recovery proceedings under the certificates were to be stayed until BIFR's approval, ensuring compliance with section 22 of the SICA.