Bengal Lamp Limited v. Purmanite Nicco Ltd. — 1990 DIGILAW 370 (CAL)

Judgment Ruma Pal J : 1. The respondent filed an application for winding up Bengal Lamps Limited (hereinafter referred to as the Company). The petition was admitted by an order dated 6th March 1960 An appeal was preferred against the order by the company. This application has been filed in the Appeal for Stay of the order dated 9th March 1990. More than two months after the failing of the appeal a reference was made by the Company under s. 15 of the sick Industrial Companies (Special Provisions) Act,1986 (hereinafter referred to as the Act) to the Board of Industrial and Financial Reconstruction (hereinafter referred to as the Board) constituted under the Act. The reference has been registered by the Secretary of the Board under Regulation 19 of the Board for Industrial & Financial Reconstruction Regulations 1987 (hereinafter referred to as the Regulations) on 25th June 1990. These facts were brought on record by way of a supplementary affidavit filed by the company. 2. The only question to be determined is• whether holder there circumstances the winding up proceedings against the company must be stayed under the provisions of s. 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 referenee an enquiry under s. 16 must be said to be pending within the meaning of s. 22(1) of the Act. According to Mr. Mitra after the registration of a reference under s. 15 the Board has no option but to hold an enquiry under s. 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. 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 (he object of the Act would be frustrated if the winding up proceedings were permitted to be continued after the reference was made and before the Board had an opportunity of considering the case. In support of this proposition reliance has been placed on a passage from' Maxwell on the Interpretation of Statutes (12 Edn.) p. 45 which reads as follows: "If the choice is between two interpretations, the narrower of which would fail to achieve the manifest purpose of the legislation, we should avoid a construction which would reduce the legislation to futility and should rather accept the bolder construction based on the view that Parliament would legislate only for/the purpose of bringing about an effective result." (iii) It is also contended by Mr. Mitra that in the event there was any doubt regarding the construction to be put on 55. IS, 16 and 22 of the Act, the doubt should be resolved in favour of the company on the principle that the Act is a beneficial piece of legislation. In support of this argument Mr. Mitra has relied upon a passage in Maxwell 00 The Interpretation of Statutes (Twelfth Edition) page 92 ; "......... even where the usual meaning of the words falls short of the object of the legislature a more extended meaning may be attributed to them, if they are fairly susceptible of it ............ this relaxation of strictly literal principals of interpretation (has been referred to) as beneficial construction and the modern cases provide may instances of the judges reluctance to stand upon the letter of II statute. They will not, of course, supply omissions, but where they are faced with a choice between a wide meaning which carries out what appears to have been the object of the legislature more fully and a narrow meaning which carries it out less fully or not at all, they will often choose the former. They will not, of course, supply omissions, but where they are faced with a choice between a wide meaning which carries out what appears to have been the object of the legislature more fully and a narrow meaning which carries it out less fully or not at all, they will often choose the former. Beneficial construction is a tendency, rather than a rule." Reliance was also placed on the decision of Pilcher J in Re : ESTATE OF RIPPON reported in 1943 p. 61 (1943 All ER 676) (iv) It is lastly contended by Mr. Mitra that in the event the Board has an option not to hold an enquiry under s. 16 and chooses not to do so, an appeal could he preferred under the Act by any aggrieved person to the Appellate Authority from such refusal In such Case even though the Board has not commenced the enquiry under s. 16 (1) the provisions of s. 221) would in terms be immediately applicable. 4. Mr. S. Sarkar appearing on behalf of the respondent submitted (i) The phrase "enquiry under s. 16 is pending" in s. 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 s. 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 a part of the Board and has distinct functions allotted to him under s. 8 of the Act. (ii) Mr. Sarkar further contended that the language of s 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 no make an enquiry imperative under s, 16. It is further argued that as soon as an enquiry it 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 Company. According to Mr. It is further argued that as soon as an enquiry it 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 Company. According to Mr. Sarkar this would indicate that the enquiry commences only with the Board taking a decision under s. 16 (1) or (2) to hold or to cause an enquiry to be held. In support of this argument reliance has been placed upon the decision of the Supreme Court in Gram Panchayet & anr. v. Shree Vallabh Glass Works Ltd. & ors. reported in (1990) 2 SCC 440 (= A 1990 SC 1017) as well as on the unreported decisions of S.C. Sen,] in The Federal Bank Ltd. v. Shree Hanuman Jute Mills Ltd. (Suit No. 46 of 1988 : Decision dated 24.3.88) ; of M. Bose, J in re: Kndoria Wisconsin Centrifugal Ltd. (C.P. 185 of 1988: Decision dated 11.7.88) and of the Division Bench of this Court in The Nuddea Jute Mills Ltd v. M/s. Jute Fibres. (App No ............ of 1990 decision dated 19.4.90). It is stated that the object behind the appointment of a Director under s. 16(4) is to protect the assets of the Company keeping in view that the proceedings against the Company have been stayed. (iii) It is also argued that it would be open to any company which wished to avoid payment to its creditors to file a reference before the Board and contend that the creditors cannot recover their dues. (iv) In answer to the question of interpretation of ss. 16 and 22, Mr. Sarkar relied upon the principle that the jurisdiction of a Court cannot be excluded or limited except by an express provision of law It is also contended that any statute/purporting to curtail the jurisdiction of Courts must be strictly construed, It is contended that the principle of beneficial construction of a Statute can only apply if there is ambiguity in the wording of the section to be construed. It is stated that ss. 16 and 22 are not ambiguous and that there is no scope for applying the principles of beneficial construction. In support of this facet of his argument Mr. It is stated that ss. 16 and 22 are not ambiguous and that there is no scope for applying the principles of beneficial construction. In support of this facet of his argument Mr. Sarkar has relied upon the decision of the Supreme Court in the case Dhula Bhai v, State of Madhya Pradesh reported in AIR 1969 SC 78 , 5. We are of the view that the contentions of' Mr. Sarkar must be accepted. 6. We do not think that after the registration of a reference under s. 15 of the Act, the Board has no option but to hold an enquiry. The word "may" in s. 16(1) would indicate that Board can refuse to hold an enquiry. This power must, in any event, be taken to be a necessary corollary to the power to hold an enquiry. It is possible that if the Board finds a reference to be frivolous it may exercise its option of not holding an enquiry at all. We are fortified in our finding by the unreported decisions relied upon by Mr. Sarkar. Although this issue was not specifically raised before the Supreme Court in the Gram Panchayet case (supra) we cannot lose sight of the observations of the Supreme Court in paragraph 18 of the decision viz : "As soon as the enquiry under s. 16 is ordered by the Board, the various proceedings set out under sub-so (1) of S. 22 would be deemed to have been suspended." (emphasis supplied).3 7. However in our view it is immaterial whether the Board has an option or not to hold an enquiry under s. 16 of the Act in view of our interpretation of s. 22(1). 8. Section 22(1) in so far as it is material provides as follows: "22(1) Where in respect of all industrial company an inquiry under S. 16 is pending or ............ where an appeal under s. 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 the phrase "enquiry pending under s. 16 does not include a reference under s. 15. We are supported in our view by the Scheme of the Act. ............... 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 the phrase "enquiry pending under s. 16 does not include a reference under s. 15. We are supported in our view by the Scheme of the Act. 10 The scheme of the Act would show that a distinction is drawn between reference, enquiries and schemes. Apart from the heading of Chapter III to the Act the regulations would also show that a distinction is drawn between a reference and an enquiry. Regulations deals with reference under s. 15 while Regulation 20 deals with enquiries under s.16 An inquiry under s. 16 is therefore only a stage in the proceedings contemplated under the Act. If one were to adopt the analogy of a suit as submitted by Mr. Mitra. the inquiry could be equated with the actual trial A trial cannot be said to be pending merely because a suit is filed. Similarly an enquiry under s. 16 cannot be said to be pending merely because a reference is filed. 11. In any event the words of the statute are explicit. Section 22 refers to an enquiry under s. 16. Had it been the intention of the legislature to extend the provisions of s. 22 to a reference made under s. 15 the legislature would have provided for that expressly. This the Legislature has not chosen to do. 12. The use of the words "under s. 16" limits the words "enquiry pending" in s. 22(1). The provisions of s. 22(1) apply only to such enquiries and to no other. It is well established that if the language is clear the Court must give effect to it "for the words of the statute speak the intention of the legislature". In these circumstances the case of In re: Rippon (supra) as well as the two passages from Maxwell cited by Mr. Mitra can have no application. 13, In view of the express wording of the statute, there is no question of the application of the principles of beneficial, construction. In any event s. 2 of the Act indicates that the Act has been enacted for giving effect to the directive principles as contained in Article 39(bi and (c) of the Constitution of India. 13, In view of the express wording of the statute, there is no question of the application of the principles of beneficial, construction. In any event s. 2 of the Act indicates that the Act has been enacted for giving effect to the directive principles as contained in Article 39(bi and (c) of the Constitution of India. The principles contained in Article 39(b) and (c) relate to sub-serving the common good as opposed to concentration of wealth. 14. It would appear from the statements of objects and reasons of the Act that one of the objects of the Act is to salvage the productive assets and realise the amount due to the Banks and other financial 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, 6. 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 constructions of s. 22(1) put forward by Mr. Mitra it would defect 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 s. 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, the documentation being in order the Secretary would register the reference under Regulation 19 and the enquiry under s. 16 would be pending from that date. The result would be that recovery proceedings by a financial institution would be stalled for a crucial period allowing the dishonest Company time to siphon off its assets. This can not have been the intention of the legislature. 17. In this background rhe contention of Mr. The result would be that recovery proceedings by a financial institution would be stalled for a crucial period allowing the dishonest Company time to siphon off its assets. This can not have been the intention of the legislature. 17. In this background rhe contention of Mr. Mitra that any ambiguity in the statute must be resolved in favour of the Company is also not tenable. 18. Section 16(3) of the Act also indicates that the enquiry is to be commenced by the Board. The Board is required to complete the enquiry within 60 (sixty) days from the commencement of the enquiry. This cannot mean that the Board must complete the enquiry within 60 (sixty) days from the registration of the reference but must be construed as meaning from when the Board first applies its mind. We also accept Mr. Sarkar's submissions that mere registration of a reference by the Secretary to the Board cannot mean any application of mind by the Board itself. 19. Furthermore it will appear from s. 22(1) that proceedings maybe continued against the Industrial company with the consent of the Board. This would suggest that the Board would hare to apply its' mind for the purpose of determining whether the consent should be granted or not. If the Board has not commenced enquiry at all, it would not be in a position to accord such consent. 20. The final contention of Mr. Mitra namely that because an appeal may lie from the decision of the Board not to hold an enquiry therefore the phrase "pending enquiry under s. 16 in s. 22(1) of the Act must include reference registered under s. 15 is in our view, a non-sequitur. Merely because Parliament in its wisdom has made s. 22(1) applicable to Appeals and permitted proceedings against the Company to be stayed pending such appeal cannot lead to the conclusion that the phrase "an enquiry under s. 16" in s. 22(1) must include a reference under s. 15 of the Act we do not wish to speculate as to the reason why Parliament included the rendency of Appeals as a situation warranting stay of all Proceedings. Service it to say that in view of the clear wording of s. 22(1) there is no need to embark upon an enquiry into the intention of Parliament. 21. Service it to say that in view of the clear wording of s. 22(1) there is no need to embark upon an enquiry into the intention of Parliament. 21. In that view of the matter we dismiss this application and vacate all interim orders. 22. In the circumstances of this case however there will be no order as 23. In view of the decision given by us in this application we do not think that any useful purpose will be served in keeping the appeal pending. The appeal is therefore treated as on the day's list and dismissed with no orders as to costs. The appellant is discharged from its undertaking. M. N. Roy, J.-I agree. Application and appeal dismissed.