9911796707
TMI Blog1993 (1) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... aforesaid question it is necessary to bear in mind the provisions of the aforesaid two statutes. The 1951 Act was enacted to provide for the establishment of State Financial Corporations. Section 3 empowers the State Government to establish a State Financial Corporation as a body corporate with an authorised capital of such sum as may be fixed by the State Government in this behalf. Section 9 provides that the general superintendence, direction and management of the affairs and business of the Financial Corporation shall Nest in a Board of Directors which may exercise all the powers and discharge all the functions which may be exercised and discharged by the Financial Corporation. Under Section 15 one of the Directors may be nominated by the State Government to be the Chairman of the Board of Directors. Section 25 enumerates the business which the Financial Corporation may transact. These include among others, guaranteeing, on such terms and conditions as may be agreed upon, loans raised by Industrial concerns which are repayable within twenty years-and are floated in the public market, loans raised by industrial concerns from scheduled banks or State Cooperative banks or other fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rial concern to the Financial Corporation; or (c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended." Section 32 outlines the procedure which the District Judge must follow in respect of an application made under Section 31. Section 32A empowers the Financial Corporation to appoint Directors or Administrators of an industrial concern, the management whereof is taken over by the Financial Corporation. Section 32E lays down that where the management of an industrial concern, being a company as defined in the Companies Act, 1956 is taken over by the Financial Corporation, then, notwithstanding anything contained in the said Act or in the Memorandum or Articles of Association of such concern, it shall not be lawful for the shareholders of such concern or any other person to nominate or appoint any person to be a Director of the said concern nor shall any resolution passed at the meeting of the shareholders of such concern be given effect to unless approved by the Financial Corporation. It als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(f) defines an 'industrial ,undertaking' to mean an undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include an ancillary industrial undertaking as defined in clause (aa) of Section 3 of the Industries (Development & Regulation) Act, 1951 and a small scale industrial undertaking as defined in Section 3(j) of the same statute. Since Section 3(2) provides that words and expressions used but not defined under the said Act or the Companies Act, 1956, shall have the meaning assigned to them in the Industries (Development & Regulation) Act, 1951, we must look to the definition of factory in that law. 'Factory' as defined in Section 3(c) of that law, inter alia, means any premises including the precincts thereof in any part of which a manufacturing process is being carried on or is ordinarily so carried on with the aid of power, provided that fifty or more workers are working or were working thereon on any day of the preceding twelve months. Again Section 3(n) defines a 'scheduled industry' to mean any of the industries specified for the time being in the First Schedule of that law. Section 3(o) defines a sick industrial compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e such inquiry as it deems fit for determining whether any industrial company has become a sick industrial company. Where the BIFR deems it fit to make such an inquiry or to cause an inquiry to be made into any industrial company, sub-section (4) requires it to 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. Section 17 next provides that if after making an inquiry under Section 16 of the BIFR is satisfied that a company has become a sick industrial company, it shall, after considering all the relevant facts and circumstances of the case, decide, whether it is practicable for the company to make its net worth positive within a reasonable time. If the BIFR decides in the affirmative, it shall, by order in writing give such time to the company as it may deem fit to make its net worth positive but if it decides in the negative and considers it necessary or expedient in the public interest to adopt all or any of the measures specified in Section 18, it may, by written order direct any operating agency to prepare a scheme providing for such measures in relation to such company. Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nything 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." We now come to Chapter IV entitled 'Proceedings in case of potentially sick industrial companies, misfeasance proceedings, appeals and miscellaneous'. Section 25 provides for an appeal and reads as under: "25(1) Any person aggrieved by an order of the Board made under the 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 fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing need of the industry occasioned by the rising tempo of in- dustrialisation in the country. The amendments were introduced to enable the Corporations to guarantee loans raised from Scheduled Banks, State Co-operative Banks, etc., and to retain underwritten shares beyond seven years and to convert loans/debentures into share capital. A further amendment was made in 1972 (Act 77 of 1972) as it was felt that technical entrepreneurs and units situate in backward areas should also be granted soft term loans and such other benefits. At the same time certain constraints on the Corporations were removed to ensure their smooth working. It is clear from the foregoing discussion that the primary object of this statute is to extend financial assistance to industrial concerns with a view to hasten the pace of industrialisation and with that in view the Financial Corporations have been statutorily enjoined or charged with the duty to' provide credit facilities to industrial concerns. Undoubtedly Financial Corporations have been empowered by section 29 to take over management of defaulting industrial concerns for realisation of its dues. Similarly, section 31(1) also prescribes a special remed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uthority 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 at 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. It will be seen from the above discussion that both the 1951 Act and the 1985 Act are special statutes, each having a different objective, the emphasis in the case of the former being on giving of financial assistance to entrepreneurs for setting up industries while in the case of the latter it being to revive or rehabilitate industries which have on account of economic or other related reasons gone sick. No doubt the latter Act also contemplates giving of financial assistant for revival or rehabilitation of a sick industrial undertaking but that is by way of a remedy or as a measure at revival of the sick unit. Now that we have clarified the respective schemes and objects of the two enactments we may notice a few background facts which have a bearing on the question under consideration. The appellant-company was incor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the total number of workers employed by the company at the relevant date was not clear and the company had also not submitted the audited accounts for the financial year ended 31st March, 1991. Several other discrepancies were also pointed out to the Managing Director of the company and the Bench directed him to submit the authenticated documents regarding the number of workers, audited/finalised accounts for the years 1989-90 and 1990-91 with a detailed explanation in regard to the delay in making the reference and other discrepancies pointed out in the course of hearing. The bank and other financial institutions were also directed to submit the reports regarding the conduct of the company and their role in providing necessary funds. The Chief Manager of the Bank of Baroda addressed a letter to the company on 4th October, 1991 reminding it to furnish by return of post the information in regard to the number of workers employed during the period from 1st July, 1987 to 30th August, 1987 duly authenticated by the Registrar/Commissioner of Labour, reasons for not reporting to BIFR in time, inventory of fixed and current assets of the company along with a copy of the audited ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 90] SC 1017 held as under: "...we are of the view that when 1st respondent seeks to enforce its special rights under sub-section (1) of Section 29 of the State Financial Corporations Act, 1951, such an action would not attract the bar of sub- section (1) of Section 22 of the 1985 enactment. In our view, some distinction has to be made between the rights of the 1st respondent Corporation to proceed under sub- section (1) of section 31 of the said Act which amounts to initiation of proceedings. Preventing the financial institution like the 1st respondent Corporation from even resorting to its rights under section 29 of the 1951 Act would, in our view render the said provisions totally nugatory. While appreciating the public interest contemplated behind the enactment of section 22(1) of the 1985 enactment, it must be observed that it is not everybody who may have a special or a higher right of the kind provided under sub-section (1) of section 29 of the 1951 Act. For example, in this very case, we are told at the bar that the petitioner owes crores of rupees to some banks and so far as such creditors are concerned, different considerations may come into play. As far as the States Fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t which is at general statute. Both are special statutes dealing with different situations notwithstanding a slight overlap here and there, for example, both of them provide for grant of financial assistance though in different situations. We must, therefore, hold that in cases of sick industrial undertakings the provisions contained in the 1985 Act would ordinarily prevail and govern. It was next contended that the right conferred on the Financial Corporation by Section 29 of the 1951 Act is not a 'legal proceeding' but merely an action permitted by statute and, therefore, section 22(1) will have no application as it only bars legal proceedings for the winding up of any industrial company or for execution, distress or the like against any of its properties or for the appointment of a Receiver in respect thereof Now section 22(1) uses the expression 'proceedings' and not 'legal proceedings' which expression is albeit used in the marginal note to the said provision. Mr. Rao contended that section 22 must be read in the light of the marginal note and when so read it becomes obvious that only legal proceedings of the type mentioned in sub- section (1) thereof are barred and not the e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... undertaking. The action contemplated by section 29 of the 1951 Act is undoubtedly a coercive measure directed at the takeover of the management and property of the industrial concern and confers a further right on the Financial Corporation to transfer by way of lease or sale the properties of the said concern and any such transfer effected by the Financial Corporation would vest in the transferee all rights in or to the transferred property as if the transfer was made by the owner of the property. So also under the said provision the Financial Corporation will have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods. It is, therefore, obvious on a plain reading of section 29 of the 1951 Act that it permits coercive action against the defaulting industrial concern of the type which would be taken in execution or distress proceedings; the only difference being that in the latter case the concerned party would have to use the forum prescribed by law for the purpose of securing attachment and sale of property of the defaulting industrial concern whereas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the 1985 Act, no difficulty is experienced in taking the view that it must be widely construed. Reliance was placed on decisions of two High Courts in support of the contentions urged on behalf of the appellant Company. We shall deal with them briefly. In Texteels Ltd. v. Radhaben Ranchhodlal Charitable Trust AIR 1988 Gujarat 213 the short point for decision was whether a winding up proceeding already commenced against an industrial company ought to be dismissed or stayed during the pendency of the reference under section 15 of the 1985 Act. The High Court held that the word 'be proceeded with further' in section 22 cannot be interpreted to mean that the proceedings should be kept in abeyance but the various provisions of the enactment must be construed to put an end to both the contemplated and pending winding up proceedings. The High-Court held that if the winding up proceedings are kept pending it may be difficult to effectively administer the schemes under section 18 or grant financial assistance under section 19 of the 1985 Act. The High Court held that the provision must be broadly construed keeping in mind the scheme of the law so that the ultimate objective is achieved a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Financial Corporations different considerations would come into play. 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 they are permitted to resort to independent action in total. disregard of the pending inquiry under sections 15 to 19 of the 1985 Act the entire exercise under the said provisions would be rendered nugatory by the time the BIFR is able to evolve a scheme of revival or rehabilitation of the sick industrial concern by the simple device of the Financial Corporation resorting to section 29 of the 1951 Act. We are, therefore, of the opinion that where an inquiry is pending under section 16/17 or an appeal is pending under section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in section 22(1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. The expression 'proceedings' in section 22(1) therefore, cannot be confined to legal proceedings understood in the narrow sense of proceedings in a court of law or a legal tribunal for attachme ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
