9911796707
TMI Blog2007 (11) TMI 406X X X X Extracts X X X X X X X X Extracts X X X X ..... s Act, 1956, having its head office at village Missarwala, post office Majra, tehsi! Paonta Sahib, district Sirmour. By the year 1990, the company had lost all its equity and could not pay the instalments of loans raised from the financial institutions. The plant of the company was closed in 1990. Thereafter, the case of the company was taken up by the BIFR in the year 1991 and rehabilitation scheme was sanctioned by the Board in December, 1994. Despite such rehabilitation scheme having been sanctioned, the company could not be resuscitated and was declared to be not viable in February, 1997. The BIFR issued show-cause notice to the company as to why it should not be wound up. The company approached the appellate authority. A debt reschedulement scheme was circulated by the appellate authority, but the promoters could not establish their resourcefulness and the said scheme could not be sanctioned by the appellate authority. The appeal filed by the company was dismissed on January 20, 1999, since the company and its promoters were unable to mobilise and induct funds. Thereafter, the Board after hearing the parties including the promoters, the State of Himachal Pradesh, the lending ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the company. Notice in this behalf shall be published in The Indian Express and Jansatta, Chandigarh edition, and it shall also be published in the H.P. Rajpatra within one month. Dasti copy on usual terms." Aggrieved by the said order, the company has filed this appeal before this court. Mr. R.L. Sood, learned senior advocate, has challenged the said order on the following grounds : 1.That on the first date of hearing the company judge proceeded to pass the order without giving any opportunity to the petitioner-company to put forth its case ; 2.That the recommendations of the BIFR may at best be taken seriously, but the company judge is not bound by the same and should have given his own reasons for accepting or rejecting the opinion of the BIFR; and 3.That before ordering winding up, notice of the petition should have been given to the other creditors, workmen and other persons entitled to notice under the Companies Act. Mr. R.L. Sood, learned senior counsel, appearing for the company, has also urged that during the pendency of this appeal the promoters of the company have pumped in crores of rupees into company and, therefore, the company is now viable and is working ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assets of the sick industrial company in such manner as it may deem fit and forward, the sale proceeds to the High Court for orders for distribution in accordance with the provisions of section 529A, and other provisions of the Companies Act, 1956 (1 of 1956)." A perusal of the aforesaid section shows that under sub-section (1) the Board is required to make an inquiry by giving opportunity of hearing to all concerned parties. If it forms the opinion that the sick industrial company is not likely to become viable then it may record and forward its opinion to the concerned High Court. The concerned High Court means the High Court where the registered office of the company is situate. Sub-section (2) provides that the High Court "shall" on the basis of the opinion of the Board, order winding up of the industrial company. The question that arises is whether the word "shall" makes it mandatory on the High Court to follow the opinion of the Board and order winding up or does the High Court have the judicial discretion to consider the opinion of the Board and make its own assessment in the matter. This question first came up for consideration before the Madras High Court in J.M. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial company', but nevertheless, it further says that 'and may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956'. Therefore, it appears to us that even though the opinion submitted by the Board forms the basis for ordering winding up of the sick industrial company by the High Court, it is nevertheless open to the High Court to go into the correctness of the opinion so submitted by the Board and decide as to whether it should proceed and cause to proceed with the winding up of the sick industrial company, in accordance with the provisions of the Companies Act." The Madras High Court further went on to hold that the High Court is not precluded from examining the correctness of the opinion of the Board and it is not obligatory on the High Court to order winding up of the sick industrial company on the basis of the opinion of the Board without examining the correctness of such opinion after hearing the concerned parties. However, an important caveat was added that normally such opinion being an opinion of a Board consisting of experts will have greater weight in deciding the question as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any and may proceed or cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act. Therefore, it is clear that the opinion furnished by the BIFR/AAIFR can only form a basis for the proceedings to be continued against the sick industrial company for the purpose of winding up and the further proceedings are to be conducted in accordance with the provisions contained in the Companies Act for winding up of the company. Upon receipt of the opinion of the BIFR/AAIFR the learned company judge in accordance with the practice obtaining in this High Court, rightly in our opinion, gave notice to the company and also an opportunity of hearing was afforded to the company after it had filed its affidavit-in-opposition. The learned company judge ought to have thereafter formed the prima facie opinion and directed admission of the petition and advertisement thereof in newspapers. It is only after advertisements are published, as held by the Division Bench in Khaitan Paper Machine Ltd. v. Wires and Fabrics (S.A.) Ltd. (A.C.C. No. 16 of 1999, C.A. No. 361 of 1999, C.P. No. 432 of 1997), the matter becomes a representative one. Even at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Supreme Court in V.R. Ramaraju v. Union of India [1997] 89 Comp. Cas. 609, where the Supreme Court has said that section 20(2) of the SICA has to be construed to mean that the High Court in deciding the question of winding up of the company has to take into account the opinion of the Board forwarded under subsection (1) and is not to abdicate its own function of determining the question of winding up. If that is so the mandate of the statute as appearing in the aforesaid rule 96 read with rule 99 read with rule 24 of the Companies (Court) Rules, 1959, will stand violated and the very purpose behind the same will also stand defeated, in case winding up order is passed upon receipt of the Board opinion." The Gujarat High Court in Kamdar Ladat Simiti of Nanikram Shobraj Mills Ltd. and Association Union v. Nanikram Shobraj Mills Ltd. [2005] 125 Comp Cas 740, also took a view that opinion of the Board is not binding on the court. In view of the various decisions quoted above and the bare provisions of law it is more than clear that the court is not bound by the opinion of the Board, It is in fact obligatory upon the court to examine the opinion of the Board. The court may deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xperts who have gone into all economic and legal details and who have come to the conclusion after hearing the parties that it is just and equitable to wind up the company. This opinion of the Board cannot be brushed aside. This opinion must be given its due weightage. The SICA was enacted to give benefit to sick industrial companies so that they could be rehabilitated. The Board and the appellate authority under the SICA have very wide powers to enable the reconstruction of the company. They in fact exercise many powers which are not even vested in the company judge. However, as discussed above, the opinion of the Board is only an opinion and cannot bind the High Court. The High Court is bound to form its own opinion in the matter. Therefore, when the opinion of the Board is received in the High Court, there are two options before the company judge. He, after perusing the opinion of the experts, may come to the conclusion that it is a fit case where the advertisement can be issued without issuing notice or giving hearing to the company or he may decide to issue notice to the parties before passing orders. In cases where the Board recommends the winding up of a company, the company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It is not the duty of the court to ask the parties to file objections. Therefore, we are of the opinion that the company had more than ample opportunities to place its case before the learned single judge. In view of the above discussion we are clearly of the view that the order of the learned single judge ordering winding up of the company solely on the basis of the opinion of the Board cannot be sustained. The learned judge did not form his own opinion in the matter. As held above, the company judge should have formed his own opinion and thereafter was bound to follow the Companies (Court) Rules, 1959, from the stage of advertisement of the petition of winding up onwards. In view of the above discussion the impugned order is set aside and the matter is remanded to the learned single judge who shall consider the opinion of the Board in the light of the law as mentioned hereinabove pass such orders on the petition as he deems fit. Keeping in view the fact that the matter has been pending for a long time, we would request the learned single judge to hear the matter and pass appropriate orders as expeditiously as possible. The petition is disposed of in the aforesaid terms with n ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
