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TMI Blog1993 (9) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... the Sick Industrial Companies (Special Provisions) Act, 1985 (for short "the Act of 1985"). The court, therefore, directed that this petition be placed along with Petitions Nos. 6 of 1982 and 8 of 1983. On May 28, 1993, the court recorded that the matter is pending before the Board for Industrial and Financial Reconstruction/the appellate authority and no final order has been passed so far. When the case was taken up for hearing on August 13, 1993, it was given out by learned counsel for the non-petitioner that proceedings under the Act of 1985 have still not been finalised and this continued to be the position even on August 16, 1993. Shri Kuhad, learned counsel for the non-petitioner, has argued that once the company has filed an application under the 1985 Act, further proceedings cannot be taken in the company petition filed by the petitioner. He submitted that once a company is declared to be a sick undertaking in terms of the provisions of the 1985 Act, jurisdiction of this court to proceed with the company petition ceases and, therefore, the company petition is liable to be declared as having abated. He placed reliance on the decision of the Gujarat High Court in Testeels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto." Section 3 of the 1985 Act contains definitions of various terms. Section 4 provides for establishment of the Board. Section 5 provides for constitution of the appellate authority. Section 6 deals with the term of office, conditions of service, etc., of the chairman and other members. Section 7 contains a provision for removal of members from office in certain circumstances. Section 8 contains a provision for appointment of a secretary to the Board and appellate authority, other officers and employees of the Board and the appellate authority. Section 9 lays down that the salaries, etc., of the members and the administrative expenses shall be defrayed out of the Consolidated Fund of India. Section 10 contains a declaratory provision that the proceedings of the Board and of the appellate authority shall not be questioned on the ground of vacancy or defect in the constitution of the Board or the appellate authority. Section 11 also contains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such company or upon its own knowledge as to the financial condition of the company. (2) The Board may, if it deems necessary or expedient so to do, for the expeditious disposal of an inquiry under sub-section (1), require by order any operating agency to enquire into and make a report with respect to such matters as may be specified in the order. (3) The Board or, as the case may be, the operating agency, shall complete its inquiry as expeditiously as possible and endeavour shall be made to complete the inquiry within sixty days from the commencement of the inquiry. (4) Where the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under sub-section (1) or, as the case may be, under sub-section (2), it shall appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company. (5) The appointment of a special director referred to in sub-section (4) shall be valid and effective notwithstanding anything to the contrary contained in the Companies Act, 1956 (1 of 1956), or in any other law for the time being in force or in the memorandum and a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 1956). 22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, 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, except with the consent of the Board or, as the case may be, the appellate authority. (2) Where the management of the sick industrial company is taken over or changed, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed. 25. Appeal. (1) Any person aggrieved by an order of the Board made under this Act may, within forty-five days from the date on which a copy of the order is issued to him, prefer an appeal to the appellate authority: Provided that the appellate authority may entertain any appeal after the said period of forty-five days but not after sixty days from the date aforesaid if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time. (2) On receipt of an appeal under sub-section (1), the appellate authority may, after giving an opportunity to the appellant to be heard, if he so desires, and after making such further inquiry as it deems fit, confirm, modify or set aside the order appealed against. 32. Effect of the Act on other laws. (1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thority. Section 20 also speaks of the winding up of the company at the instance of the Board where the Board is of the opinion that it is just and equitable to wind up the sick industrial company. It is, thus, clear that the 1985 Act is designed as a special statute for making efforts to protect the sick industrial companies from death. As far as possible, attempts are to be made for revival of the company and only when the Board comes to the conclusion that revival is not possible, winding up proceedings can be taken by the High Court on a reference made by the Board. Being a special statute in relation to sick industrial companies, provisions contained in the 1985 Act will prevail qua the general provisions contained in the Companies Act. The maxim generalia specialibus non derogant will apply in such cases and the provisions of the 1985 Act will be construed to be having overriding effect on the provisions of the 1956 Act. In so far as the non obstante clause contained in section 529A is concerned, it is to be noted that section 22 as well as section 32 of the 1985 Act also contain non obstante clauses. Sub-section 22(1) uses the following expression: "Notwithstanding a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... auses contained in sections 22(1) and 32(1) shall prevail. The next question which requires determination is as to whether the proceedings on the winding up petition should be declared to have abated immediately after the Board orders an enquiry under section 16 of the 1985 Act or on framing of a scheme under section 17 or consideration or implementation of such scheme or where an appeal is pending. Shri Kuhad's submission is that the words "or be proceeded further" should be construed as meaning that the winding up petition pending under the Companies Act before the High Court has to be dismissed and the High Court has no option but to pass an order to that effect by treating the petition as having abated. Learned counsel for the petitioner however, pleaded that those words cannot have that meaning. The court can at best stay proceedings on the winding up petition. The effect of the provisions contained in section 22(1) has been considered by the Gujarat High Court in Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust [1989] 66 Comp. Cas. 555 ; AIR 1988 Guj 213, Sponge Iron India Ltd. v. Neelima Steels Ltd. [1990] 68 Comp. Cas. 201 (AP), the Karnataka High Court in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oceedings shall lie' to mean that neither can fresh proceedings be instituted nor can proceedings already instituted be sustained. It is too much to say that the proceedings already instituted can only be stayed, but cannot be dismissed. The words 'or be proceeded with' occurring in section 22, cannot, in any way, restrict the meaning that has to be given to the words 'no proceedings shall lie'." In Sponge Iron India Ltd.'s case [1990] 68 Comp. Cas. 201, the Andhra Pradesh High Court expressed the view that once proceedings under section 16 have started, the winding up petition is to be closed with liberty to the petitioners to make an application for reviving it in the event it becomes permissible by virtue of a subsequent decision of the Board. The Bombay High Court considered the decisions both of the Gujarat, Andhra Pradesh and the Karnataka High Courts and observed (at page 554 of 78 Comp Cas): "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 under section 16 or framing of the scheme under the Act or pending the implementation of the scheme framed thereunder. The marginal note to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly when the unit is found to be no more capable of rehabilitation, that the option of winding up may be resorted to. It is for that reason that section 22(1) provides that during the pendency of ( i ) an inquiry under section 16, or ( ii ) preparation or consideration of a scheme under section 17, or ( iii ) an appeal under section 25, no proceedings for winding up of the concerned industrial company or for execution, distress or the like shall lie or be proceeded with in relation to the properties of that concern unless the Board for Industrial and Financial Reconstruction/appellate authority has consented thereto. The underlying idea is that every such action should be frozen unless expressly permitted by the specified authority until the investigation for the revival of the industrial undertaking is finally determined. It is thus crystal clear that the main thrust of this special legislation is on revival or rehabilitation of the sick industrial undertaking and it is only when it is realised that the same is not feasible that the option of winding up of the unit can be resorted to." A close reading of the judgment of the Gujarat High Court shows that the Division Bench of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word "proceedings". The Supreme Court has approved the judgment of Testeels Ltd.'s case [1989] 66 Comp. Cas. 555 only in so far as it gives a broad construction to the word "proceedings". Moreover, the question as to whether the proceedings on a winding up petition should be treated as abated or merely stayed, had not arisen for consideration before the Supreme Court. Therefore, the decision of the Supreme Court cannot be treated as laying down a proposition of law that section 22(1) results in abatement of the proceedings under the Companies Act when proceedings under sections 16, 17 or 18 of the 1985 Act have been taken. The theory of abatement of the proceedings pending under the Companies Act, 1956, is negatived even by the proviso to section 22(1) itself which permits continuance of proceedings with the consent of the Board or the appellate authority. Even the Legislature had intended that with the commencement of inquiry under section 16 or framing of a scheme referred to under section 17 or where an appeal is pending under section 25 of the 1985 Act, proceedings pending under the Companies Act or any other law shall abate or shall die, there could not have been any justi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he provisions of the 1985 Act are special provisions qua the Companies Act, 1956, and, therefore, the former shall prevail over the latter in case of inconsistency. (2)Non obstante clauses contained in sections 22(1) and 32(1) of the 1985 Act shall prevail over non obstante clauses contained in section 529A of the Companies Act, 1956. (3)A petition for winding up filed against a company shall not be treated as having abated on the ground of initiation of action under sections 16, 17 and 18 or on account of pendency of an appeal under section 25 of the 1985 Act. Such proceedings shall however, be consigned to record and shall not be proceeded with further till the conclusion of the proceedings under the 1985 Act. However, it shall be open to the applicant to continue/revive the proceedings with the permission of the Board. Likewise, it shall be open to the applicant to seek revival after the proceedings under the 1985 Act have concluded. In the result, it is ordered that the proceedings on Company Petition No. 6 of 1991, Union of India v. Krishna Mills Ltd., Beawar, shall remain stayed and shall not proceed further. This petition shall be consigned to record. It shall be t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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