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1997 DIGILAW 894 (PAT)

Mishrilal Jain (P) Ltd. v. Nacro Chemicals Ltd.

1997-12-12

S.N.JHA

body1997
Order Order of winding-up of the Company, M/s Nacro Chemicals Limited was passed on 1.8.97. An application (flag 3') has been filed under Section 466 of the Companies Act read with Rule 9 of the Companies (Court) Rules, 1959 and Section 151 of the Code of Civil Procedure for recall/modification/stay of the order. 2. In support of the application it has been contended on behalf of the petitioner that as an enquiry has been initiated within the meaning of Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short 'the Sick Companies Act'), by the Board for Industrial and Financial Reconstruction (BIFR), in terms of the provision of Section 22 of that Act, the winding-up proceeding cannot continue. On behalf of the petitioner-company it has been submitted that no reference within the meaning of Section 15 of the Sick Companies Act has been made till date and, therefore, the provisions of Section 22 of that Act are not applicable and the application is premature. Stand has also been taken that the order of winding-up dated 1.8.97 being an appeal-able order, if the respondent-company had any grievance against it, it should have preferred appeal. In reply, it has been submitted that the provision of Section 466 of the Companies Act and Rule 9 of the Companies (Court) Rules confer enough power on this Court to pass any proper order, such as recall, modification or stay. In any view, it has been submitted that as the order of winding up deprive the company of any opportunity to negotiate, as it creates cloud over its reputation and viability, it would be in the ends of justice to stay the further proceeding to enable the company to work out the solution and improve its financial position. 3. The State Bank of India also has opposed the application. According to it, the company owes to the bank a sum of Rs. 2.62 crores and it would like to have its remedy worked out in the present proceeding itself. 4. 3. The State Bank of India also has opposed the application. According to it, the company owes to the bank a sum of Rs. 2.62 crores and it would like to have its remedy worked out in the present proceeding itself. 4. As far as the letter of the BIFR dated 25.3.97, on the basis of which submissions as to the applicability of Section 22 of the Sick Companies Act have been made, it appears that in response to some letter of the Director of the respondent-company, the BIFR expressed its opinion that as the net worth of the company had been fully eroded by the accumulated losses for the financial year 1995-96 to the extent of 138%, the company comes within the purview of Section 3(1)(o) of the Sick Companies Act and therefore, the company may make a reference in the prescribed form. It therefore appears that till 25.3.97 no formal reference had been made to the BIFR. In fact, till the date of hearing of this matter no formal reference was said to have been made. May be, it was on account of pendency of this case. Be that as it may, from the contents of the aforesaid letter dated 25.3.97 it is abundantly clear that the BIFR already expressed its opinion and no sooner reference in the prescribed form is made, an enquiry in terms of Section 16 of the Sick Companies Act shall commence. Section 16 empowers BIFR to make such enquiry as it may deem fit to determine whether any industrial company has become a sick industrial company either (a) upon receipt of a reference under Sec. 15 or (b) upon information or upon its own knowledge as to the financial condition of the company. Sec. 22 which is the sheet anchor of the submission on behalf of the petitioner runs, so far as relevant, as follows :- "Where in respect of an industrial company, an enquiry under Section 15 is pending or ........ no proceedings for the winding-up of the industrial company or for execution. distress or the like against any of the parties 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." 5. no proceedings for the winding-up of the industrial company or for execution. distress or the like against any of the parties 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." 5. In Gram Panchayat vs. Shri Ballabh Glass Works Ltd., (1990)2 SCC 440 the Supreme Court held, interpreting the provision of Section 22 of the Sick Companies Act that after steps have been taken under Section 16 or 17 of that Act and the company is declared as sick industrial company under Section 3(1) (o), the Gram Panchayat cannot recover property tax and other amounts due from the company by initiating coercive proceeding under• Section 129 of the Bombay Village Panchayat Act, 1959 without consent of the BIFR. The said decision was followed in Maharashtra Tubes Ltd. vs. State Industrial & Investment Corporation of Maharashtra Ltd. (1993) 2 SCC 144 . That was a case of sale of the assets of the company under Sections 29 and 30 of the State Financial Corporation Act, 1951. The Supreme Court held that proceedings within the meaning of Section 29 and/or 31 of that Act, fall within the meaning of the expression 'proceeding' and 'or the like'. In Hig Temp Chemicals Pvt. Ltd. vs. Satya Steel Strips (P) Ltd., (1991)72 Company Cases 447 the Andhra Pradesh High Court took the view that the Sick Companies Act operates as self-contained code for various steps to be taken in respect of a company which is declared as a sick industrial company under Section 3(1) (o) of that Act. Accordingly, if the BIFR has already passed an order declaring the company a sick industrial company no proceeding for winding-up of the company under the Companies Act would lie by virtue of Section 22 of that Act. In that case the Court also took the view that no purpose would be served by keeping the proceeding pending indefinitely on the ground of pendency of the matter before the BIFR and accordingly, dismissed the winding-up petition observing that if the Board after enquiry finds that it is just and equitable that the company be wound- up, the winding-up petition would revive. Similar view was taken by Gujrat High Court in Testeals Ltd. vs. Radhaben Ranchhodlal Charitable Trust, AIR 1988 Gujarat 213. 6. Counsel for the petitioner also relied on G.T. Swamy vs. Goodluck Agencies, (1990) 69 Company Cases 819, in support of contention that even where the provisions of Section 22 of the Sick Companies Act are held to be inapplicable, in appropriate cases the Court has inherent power to recall the order of winding-up, in order to do justice between the parties by virtue of provision of rules 6 and 9 of Companies (Court) Rules read with Section 151 of the Civil Procedure Code. 7. Rules 6 and 9 of the Companies (Court) Rules, 1959 are in these terms :- "6. Practice and procedure of the Court and provisions of the Code to apply. - Save as provided by the Act or by these Rules, the practice and procedure of the Court and the provisions of the Code so far as applicable, shall apply to all proceedings under the Act and these Rules. The Registrar may decline to accept any document which is presented otherwise than in accordance with these Rules or the practice and procedure of the Court." "9. Inherent powers of Court.-Nothing in these Rules shall be deemed to limit or otherwise affect the inherent powers of the Court to give such directions or pass such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court." Section 466 of the Companies Act on which also, reliance has been placed on behalf of the petitioner, runs, so far as relevant, as follows: "The Court may at any time after making a winding-up order, on the application either of the Official Liquidator or of any creditor or contributory, and of proof to the satisfacation of the Court that all proceedings in relations to the winding-up ought to be stayed, make an order staying the proceeding, either altogether or for limited time, and on such time and condition as the Court thinks fit." 8. In Hindon Foods (Pvt.) Ltd. vs. Golden Dragon Sea Food Factory (Pvt.) Ltd., (1991) 70 Company Cases 335, the Orissa High Court after having found that the ground for winding up had been made out, thought it appropriate to stay operation of the order for one year in order to give "breathing space to refund the amount to the petitioner-company". 9. From the above-said decision it is clear that where an enquiry within the meaning of Section 16 of the Sick Companies Act has already commenced in respect of a company, the Company Court has to stay its hand off. In fact, the application for winding-up does not lie and where it is pending, the same cannot proceed further except with the consent of the Board, i.e. BIFR or the Appellate Authority, i.e. Appellate Authority for Industrial and Financial Reconstruction. In the present case, as noted above, formal enquiry as contemplated by Section 16 of the Sick Companies Act does not appear to have commenced as yet. Nonetheless the enquiry seems to be in offing. If as held by the Andhra Pradesh High Court in (1991)72 Company Cases 447 and the Gujarat High Court in AIR 1988 Gujarat 213, winding-up proceeding is fit to be dismissed once enquiry had commenced, it would only be fit and proper to stay the operation of the winding-up order for some time. As noticed above, even otherwise the Court has power to stay the proceeding under Section 466 of the Companies Act and Rules 6 and 9 of the Companies (Court) Rules. Neither the petitioner-company nor the State Bank has anything to lose permanently. It may be a question only of time, and after the enquiry commences by the BIFR it is open to it to bring the relevant facts to its notice for coming into right conclusion. It need hardly be pointed out that if the BIFR comes to the conclusion after making enquiry, that it is just and equitable that the company be wound-up, on receipt of such opinion from it, the winding-up order has ultimately to be passed by the High Court and further steps be taken under the Companies Act. 10. It need hardly be pointed out that if the BIFR comes to the conclusion after making enquiry, that it is just and equitable that the company be wound-up, on receipt of such opinion from it, the winding-up order has ultimately to be passed by the High Court and further steps be taken under the Companies Act. 10. In the above premises I am inclined to stay the operation of the order dated 1.8.97 for a period of one year to enable the BIFR to form its own opinion or till the commencement of formal enquiry under Section 16 of the Sick Companies Act. In the event the BIFR decides to formally initiate the enquiry it will be open to the respondent-company to bring the fact to the notice of this Court for further order in the light of decision of the Andhra Pradesh High Court and Gujarat High Court referred to above. It is open to the respondent-company, in the meantime to enter into negotiation with the petitioner-company and/or other secured creditors. 11. The application at flag 3' stands disposed of accordingly.