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TMI Blog1991 (4) TMI 333X X X X Extracts X X X X X X X X Extracts X X X X ..... s took out judge's summonses for grant of interim reliefs during the pendency of the petitions for winding up. By the judge's summons in Company Application No. 316 of 1990 (connected with Company Petition No. 515 of 1990), the petitioning-creditor seeks appointment of the official liquidator, High Court, Bombay, as the provisional liquidator of all the assets and properties of the company, including the properties mentioned in the schedule to the judge's summons. By prayer ( b ) of the said judge's summons, the petitioning-creditor seeks an injunction restraining the company and its agents and servants from selling or disposing of or dealing with any of its assets/ properties, including the properties described in the schedule annexed hereto. Similar judge's summonses have been taken out in the companion petitions. It is not disputed and it is not disputable that the company is in financial difficulties and it has not been able to pay its admitted debts in the ordinary course. By an order dated October 5, 1990, I granted ad interim relief in terms of prayer ( b ) of the judge's summonses up to October 10, 1990, after omitting the words "dealing with" therefrom. On October 5, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Board, inter alia , providing for disposal of its surplus non-performing assets. Only after consideration of the scheme which may be proposed by the company, the Board will decide as to whether it is practicable for the company to make its net worth positive within a reasonable time. The powers of the Board under sections 17(1) and 17(2) of the Act are very wide. The said provisions impliedly authorise the Board to permit the company to prepare a scheme for its consideration before the Board decides as to whether it is practicable for the company to make its net worth positive within a reasonable time. If the Board ultimately decides that it is not practicable for the company, which is a sick industrial company, to make its net worth positive within a reasonable time, the Board may direct any of the operating agencies to frame a scheme providing for taking of such measures in relation to such company as the Board deems fit. It is obvious from a plain reading of section 18 of the Act that such a scheme may provide for the sale or lease of a part or whole of the industrial undertaking or any of its assets and prescribe the method to be adopted for sale of some of its assets, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a "sick industrial company" within the meaning of the said expression as defined in section 3(1)( o ) of the Act. Section 16 of the Act provides for holding of an inquiry into the question as to whether the industrial company has become a sick industrial company. The said section also enables the Board to appoint one or more special directors of the company under inquiry. Sections 17(1) and 17(2) of the Act can be considered together. Section 17(1) of the Act provides that if after making an inquiry under section 16 the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing whether it is practicable for the company to make its net worth positive within a reasonable time. Section 17(2) of the Act provides that if the Board decides that it is practicable for a sick industrial company to make its net worth positive within a reasonable time, the Board shall, by order in writing, give such time t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the suspension of proceedings before the various authorities in the contingencies specified therein. Section 31 of the Act provides that where a receiver or official liquidator has been appointed in any proceedings pending immediately before the commencement of the Act in any High Court for winding up of an industrial company, such proceedings shall not abate but continue in the High Court. The Act has an overriding effect over the provisions of the Companies Act, 1956. Mr. Rahimtoola, learned counsel for the petitioners in support of the judge's summonses, has submitted that the inquiry under section 16 of the Act is already concluded and is not pending and no scheme referred to under section 17 of the Act is under preparation or consideration. Learned counsel has submitted that the expression "any scheme referred to under section 17 is under preparation" can only mean the scheme prepared by the operating agency in pursuance of the order of the Board under section 17(3) of the Act. Mr. Rahimtoola has submitted that section 22(1) of the Act is not applicable to the situation prevailing in this case, as the conditions of applicability of the section are not satisfied. The obj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above-referred judgment, the Chief Justice, Shri P.R. Gokulakrishnan, speaking for the Bench of the High Court of Gujarat, observed that the proceedings for winding up could not be kept in abeyance and were liable to be dismissed if the conditions precedent prescribed under the first part of section 22(1) of the Act were satisfied. The Division Bench of the High Court of Gujarat held that the words "or be proceeded with further" cannot be interpreted to mean that the winding up proceedings already started should be kept in abeyance without proceeding further in the matter. The Division Bench referred to the statements and objects pertaining to the Act and held that the Act contemplated dismissal of winding up petitions in the contingencies specified in section 22 of the Act. I have carefully gone through the judgment with the help of learned counsel on both sides. With respect, I am unable to subscribe to the view taken by the Division Bench. Unless the winding up order is passed by the company court, the corporate existence of the company is intact. It is clear from the provisions of the Act that a winding up petition is required to be kept merely in abeyance pending the enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not to winding up petitions. In Appeal No. 1270 of 1987, arising out of summons for judgment No. 327 of 1987, in Summary Suit No. 687 of 1987 ( Star Industrial and Textile Enterprises Ltd. v. United Bank of India ) , Bharucha and Parekh JJ. held that the suit could be proceeded with and section 22 of the Act did not bar further proceedings in the suit. In Special Steels Limited v. Jay Prestressed Products Ltd. [1991] 72 Comp Cas 277 (Bom), Suresh J. held that the intention of the Legislature was to provide for restraint against proceedings in relation to properties of the company, which was sick, and not against determination of liability in the suit. In Podar Mills Ltd. v. J.K. Synthetics Ltd. [1989] 66 Comp Cas 735 (Bom), the Division Bench of our court interpreted section 8(1)( c ) of the Textile Undertakings (Taking Over of Management) Act, 1983. The said section provided that in the contingency specified therein, no proceeding for winding up of the textile company or appointment of a liquidator shall lie in any court, except with the consent of the Central Government. It was held by the Division Bench of our High Court that the said section was applicable als ..... 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