1988 (12) TMI 345 - HC - Companies Law

Summary

Issues:
Stay of suit based on pending enquiry before the Board for Industrial and Financial Reconstruction under Sick Industrial Companies Act, 1985.

Analysis:
The defendant-company sought a stay of the suit based on an ongoing inquiry before the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985. The defendant relied on section 22(1) of the Act, which suspends legal proceedings against an industrial company under certain circumstances. The plaintiff argued that not all proceedings need to be stayed, citing a previous judgment by the Division Bench of the court. The defendant contended that the legislative intent was to stay all proceedings, including suits, once an inquiry commences under the Act. The Statement of Objects and Reasons for the Act highlighted the need to revive sick industrial companies for public interest, emphasizing the protection of assets and funds. The court noted that the Act aims to protect company assets and ensure its survival, not to restrain all pending suits against the company.

The court analyzed the language of section 22(1) of the Act, emphasizing that the provision aims to prevent coercive proceedings that may lead to the seizure and sale of company properties, hindering its revival. The defendant argued that the phrase "or the like" in the provision includes suits, but the court rejected this interpretation, stating that it refers to coercive actions affecting the company's assets. The court highlighted that the legislative intent, as expressed in the Act, is to restrain proceedings related to company properties, not other liabilities that may arise from suits.

The court rejected the defendant's argument that a decree in a suit could jeopardize the company's functioning, stating it is a hypothetical scenario. The court clarified that if a decree is passed and the company can pay, there would be no need for winding up or execution. However, if execution becomes necessary due to the company's sickness, the company can invoke section 22(1) of the Act. Ultimately, the court dismissed the motion for stay of the suit, emphasizing that the legislative intent is clear in providing restraint against proceedings related to company properties, not all liabilities that may arise from suits.