2004 (7) TMI 363 - HC - Companies Law

Summary

Issues Involved:

1. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Whether the proceedings in Company Petition No. 13 of 2003 should be kept in abeyance.
3. Interpretation of Section 392(2) of the Companies Act, 1956.
4. Approval and sanction of the scheme of arrangement between the appellant companies.

Detailed Analysis:

1. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985:

The primary issue was whether Section 22(1) of the 1985 Act applied to the proceedings in Company Petition No. 13 of 2003. Section 22(1) states that no proceedings for winding up, execution, distress, or the like against the properties of an industrial company shall proceed without the consent of the BIFR or the Appellate Authority. The court referred to the judgment in Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association, which clarified that eviction proceedings initiated by a landlord against a tenant company do not fall under the categories automatically suspended under Section 22(1). The court concluded that the proceedings in Company Petition No. 13 of 2003 did not fall within the scope of Section 22(1) as they were not proceedings for winding up, execution, or distress initiated by someone other than the company.

2. Whether the proceedings in Company Petition No. 13 of 2003 should be kept in abeyance:

The learned single judge had ordered that the proceedings in Company Petition No. 13 of 2003 be kept in abeyance until the BIFR decided the reference made by the first appellant under Section 15 of the 1985 Act. The Division Bench, however, found that Section 22 of the 1985 Act did not apply to the facts of this case and thus, the proceedings could not be suspended on this ground. The court emphasized that the scheme of arrangement needed to be considered on its own merits, independent of the BIFR reference.

3. Interpretation of Section 392(2) of the Companies Act, 1956:

Respondent No. 4 argued that the proceedings in Company Petition No. 13 of 2003 should be treated as a winding-up petition under Section 22(1) of the 1985 Act, relying on Section 392(2) of the Companies Act, which allows the court to order winding up if a compromise or arrangement sanctioned under Section 391 cannot be worked satisfactorily. The court rejected this argument, clarifying that the order under Section 391 is distinct from a winding-up order, and the question of winding up arises only after a sanctioned arrangement fails. Therefore, the proceedings in Company Petition No. 13 of 2003 could not be construed as winding-up proceedings.

4. Approval and sanction of the scheme of arrangement between the appellant companies:

The appellants sought the court's sanction for a scheme of arrangement involving the transfer of the textile division of the first appellant to the second appellant. The learned single judge had directed the holding of meetings of creditors and shareholders, where the modified scheme was approved by a majority. Despite objections from some creditors, the modified scheme was submitted for final sanction. The Division Bench remitted the matter to the learned single judge for consideration on its merits, emphasizing that the scheme's approval should be based on a thorough evaluation of all relevant aspects.

Conclusion:

The appeal was allowed, and the impugned judgment dated June 10, 2004, was set aside. The matter was remitted to the learned single judge for disposal of Company Petition No. 13 of 2003 on its merits, with a request for an expedited hearing due to the urgency of the matter. The court directed that the petition be listed before the learned single judge on July 19, 2004, for further proceedings.