9911796707
TMI Blog1995 (3) TMI 334X X X X Extracts X X X X X X X X Extracts X X X X ..... nding up of the company on the ground under sections 433(e) and 434(1)( a) and (c) of the Companies Act seeking winding up of the company for non-payment of certain amounts due to it. The said petition was admitted on February 12, 1988. While the said petition was pending, the company having become a sick industrial unit made a reference before the Board for Industrial and Financial Reconstruction (hereinafter referred to as "the BIFR") under section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the Act"). The company petition was being adjourned from time to time until June 16, 1989, when it was adjourned sine die in view of the pendency of the reference before the BIFR. It transpires that the BIFR prepared a scheme for implementation. During the pendency of the said proceedings, a proposal was made for a one-time settlement on payment of certain sums of money. This proposal failed as the company was not in a position to raise the necessary funds. Thereupon, the BIFR issued a show-cause notice as to why the company should not be directed to be wound up. This notice was challenged before the Appellate Authority for Industrial and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 25 is pending. That, admittedly the impugned winding up order came to fee passed even before the BIFR rendered its final opinion under section 20(1) of the Act and which order being challenged in the statutory appeal under section 25 of the Act is pending before the AAIPR. In the circumstances, the learned company judge could not at all have proceeded further with the winding up proceedings much less passed the impugned order directing winding up of the company, Sri Sirsi, learned counsel appearing for the intervening applicant and Sri S. K.V. Chalapathy, learned counsel appearing for one of the creditors, have urged that in the facts and circumstances of the case the statutory bar under section 22 of the Act against a proceeding or passing an order of winding up by the court, was not attracted. The scope and ambit of section 22 of the Act having come up for consideration before the Supreme Court in Gram Panchayat v. Shree Vallabh Glass Works Ltd. [1991] 71 Comp. Cas. 169, the Supreme Court has held thus (at page 172) : "Section 22(1) provides that in case the enquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideratio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecourse to section 29 and/or 31 of the State Financial Corporations Act, 1951, notwithstanding the bar of section 22 of the Act. Referring to the relevant provisions of the Act of 1951 and the Act of 1985, it is held that if the corporation is permitted to resort to the provision of section 29 of the 1951 Act, while proceedings under sections 15 to 19 of the 1985 Act are pending, it will render the entire process nugatory. Therefore, where an inquiry is pending under section 16/17 of the Act or an appeal is pending under section 25 of the Act, there should be cessation of the coercive activities of the type mentioned in section 22(1) of the Act to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. In this context, it is stated thus (at page 813) : "On the other hand the 1985 Act was enacted, as its preamble manifests, with a view to timely detection of sick or potentially sick companies owning industrial undertakings, the identification of the nature of sickness through experts in the relevant fields with a view to devising suitable remedial measures through appropriate schemes and their expeditious implementation. Here ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k industrial company shall not be made the subject-matter of coercive action of similar quality and characteristic till the BIFR finally disposes of the reference made under section 15 of the said enactment The Legislature has advisedly used an omnibus expression 'the like' as it could not have conceived of all possible coercive measures that may be taken against a sick undertaking... (underlining ours) If the corporation is permitted to resort to the provision of section 29 of the 1951 Act, while proceedings under sections 15 to 19 of the 1985 Act are pending it will render the entire process nugatory. In such a situation the law merely expects the corporation and for that matter any other creditor to obtain the consent of the BIFR or, as the case may be, the appellate authority to proceed against the industrial concern. The law has not left them without a remedy. We are, therefore, of the opinion that the word 'proceedings' in section 22(1) cannot be given a narrow or restricted meaning to limit the same to legal proceedings. Such a narrow meaning would run counter to the scheme of the law and frustrate the very object and purpose of section 22(1) of the 1985 Act." In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence, the provisions of section 22 have to be broadly construed keeping in mind the scheme of the law so that the ultimate objective is achieved and not defeated. A similar view was taken by the Allahabad High Court in Industrial Finance Corporation of India v. Maharashtra Steels Ltd., AIR 1988 All 170 ; [1990] 67 Comp. Cas. 412. In Maharashtra Tubes case'[1993] 78 Comp. Cas. 803, the Supreme Court has observed that these two cases reinforce the view that the provision of section 22(1) of the Act should receive a broad construction that the expression "proceedings" in section 22(1) need not be limited to "legal proceedings" as understood in the narrow sense notwithstanding the use of that expression in the marginal note. It is further pertinent to note the observations of the Supreme Court while rejecting the view that where the creditors of a sick industrial concern happen to be banks or State Financial Corporations, different considerations would come into play; it was observed thus (at page 821) : "It must be realised that in the modern industrial environment large industries are generally financed by banks and statutory corporations created specially for that purpose and if t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tay of further proceedings under the Act and as on the date when the impugned winding up order was made, the Board was yet to take a final decision on the material on record to decide whether it was not practicable for the company to make its net worth positive and consequently to recommend winding up thereon. The Board having approved and recommended winding up of the company, an appeal under section 25 of the Act was entertained before the appellate authority which is still pending. Hence, in the view taken by the Supreme Court in Gram Panchayat v. Shree Vallabh Glass Works Ltd., AIR 1990 SC 1017 ; [1991] 71 Comp. Cas. 169, the winding up proceedings against the company stood suspended or presumed to be suspended" within the purview of section 22(1) of the Act. The other two decisions cited by Sri Chalapathy are State of U.P. v. Synthetics and Chemicals Ltd. [1991] 4 SCC 139 and Municipal Corporation of Delhi v. Gurnam Kaur [1989] 1 SCC 101. These are pertaining to the binding nature of the precedents under article 141 of the Constitution in which it is observed that per incuriam and sub silentio decisions and orders made with consent of parties, etc., are not of binding nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 22 of the Act becomes applicable and proceedings for winding up the company cannot continue. However, the creditors can intervene and seek relief at the stage of inquiry before determination of the question of applicability of section 3(o) of the Act to the company, if they dispute it and have material to show that the industrial sickness is a device to defeat the claims. But this is a matter which can be examined and decided only by the Board. In view of the above discussion, it is difficult to sustain the order of winding up as the same has undoubtedly been made during the pendency of the reference which becomes final only by the order of the Board under section 20 or by the final order made by the AAIFR in an appeal under section 25 of the Act which is now pending. In the result, this appeal is allowed. The order of winding up passed by the learned company judge dated January 7, 1994, is set aside. The matter is remitted to the company court to await the final decision of the Appellate Authority for Industrial and Financial Reconstruction in the company's appeal pending before it. Before parting with this appeal, the only other question that remains for consideration is w ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
