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TMI Blog1990 (9) TMI 360X X X X Extracts X X X X X X X X Extracts X X X X ..... nder these circumstances, the winding up proceedings against the company must be stayed under the provisions of Section 22(1) of the Act. No other point has been put forward in support of the stay application on behalf of the company. 3. It is contended by Mr. H. K. Mitra, appearing for the company, that the winding up proceedings must be stayed. In support of this contention, the following submissions have been made : (i) Immediately upon the registration of the reference, an enquiry under Section 16 must be said to be pending within the meaning of Section 22(1) of the Act. According to Mr. Mitra, after the registration of a reference under Section 15, the Board has no option but to hold an enquiry under Section 16 of the Act. It is argued by way of analogy that a suit is said to be pending when it is filed and not only when the court takes up the suit for hearing. Similarly, according to him, an enquiry is pending when the reference is made and- not only when the enquiry is in fact held. (ii) It was further argued by Mr. Mitra that the preamble of the Act would indicate that the Act is a remedial measure for rehabilitation of sick companies and that the object of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould in terms be immediately applicable. 4. Mr. S. Sarkar, appearing on behalf of the respondent, submitted : (i) The phrase enquiry under Section 16 is pending in Section 22(1) of the Act means that the Board should have applied its mind to the question whether it would enquire into the matter or cause an enquiry to be made under Section 16(2). It was argued on behalf of the respondent that the registration of the reference by the secretary under regulation 19 is a mere ministerial act. According to Mr. Sarkar, the secretary does not form part of the Board and has distinct functions allotted to him under Section 8 of the Act. (ii) Mr. Sarkar further contended that the language of Section 16 would make it clear that there is a discretion which is vested in the Board either to make or not to make an enquiry. It is contended that mere registration does not make an enquiry imperative under Section 16. It is further argued that as soon as an enquiry is commenced by the Board, it is a mandatory requirement that the Board should 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 com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olding an enquiry at all. We are fortified in our finding by the three unreported decisions relied upon by Mr. Sarkar. Although this issue was not specifically raised before the Supreme Court in the Gram Panchayat's case, , we cannot lose sight of the observations of the Supreme Court in paragraph 10 of the decision, viz. (at page 173 of 71 Comp Cas) : As soon as the enquiry under Section 16 is ordered by the Board, the various proceedings set out under Sub-section (1) of Section 22 would be deemed to have been suspended. 7. However, in our view, it is immaterial whether the Board has an option to hold or not to hold an enquiry under Section 16 of the Act in view of our interpretation of Section 22(1). 8. Section 22(1) in so far as it is material provides as follows : 22(1) Where, in respect of an industrial company, an inquiry under Section 16 is pending or ... .where an appeal under Section 25 relating to an industrial company is pending, then .... no proceedings for the winding up of the industrial company .... shall be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority. 9. We are of the view that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al institutions to the extent possible from the non-viable industrial companies through liquidation of those companies. 15. In other words, the benefit of the legislation is not aimed merely at reviving a sick industry but also to put an end to a non-viable sick industry with a view to protecting investment of public funds. 16. At the time of the registration of a reference, the secretary is expected only to see whether the documentation is in order. The secretary is not required to come to any decision regarding the merits of the reference. There is necessarily some hiatus between the registration of the reference and the commencement of the enquiry. As stated above, one of the objects of the Act is to protect public investment made through financial institutions. If we accept the construction of Section 22(1) put forward by Mr. Mitra, it would defeat the objectives sought to be achieved by the Act. For example, a company, with the mischievous intent of avoiding its creditors, could file a reference under Section 15 with untruthful but correct documentation. It may be that the circumstances of the case may not warrant the filing of a reference in fact. According to Mr. Mitra ..... X X X X Extracts X X X X X X X X Extracts X X X X
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