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PETITIONER: GRAM PANCHAYAT AND ANR.

       Vs.

RESPONDENT: SHREE VALLABH GLASS WORKS LIMITED AND ORS.

DATE OF JUDGMENT15/03/1990

BENCH: SHETTY, K.J. (J) BENCH: SHETTY, K.J. (J) SAHAI, R.M. (J)

CITATION:  1990 AIR 1017            1990 SCR  (1) 966  1990 SCC  (2) 440        JT 1990 (1)   438  1990 SCALE  (1)439

ACT:     The Sick Industrial Companies (Special Provisions)  Act, 1985: Ss. 16. 17 & 22--Sick industrial  company--Proceedings for recovery of amount due--Validity of.

HEADNOTE:     Section  16  of the Sick Industrial  Companies  (Special Provisions)  Act, 1985 authorises the Board  for  Industrial and  Financial Reconstruction established under the  Act  to make enquiry for determining whether any industrial  company has become a sick industrial company. Section 17(2) empowers the  Board to grant a reasonable time to such a  company  to make  its  net worth positive. Where such a  course  is  not practicable s. 17(3) empowers the Board to appoint an  oper- ating agency to prepare a scheme for  rehabilitation/revival of  the  company. Section 22(1) provides that  in  case  the enquiry  under  s. 16 is pending or any scheme  referred  to under  s.  17 is under preparation or consideration  by  the Board or any appeal under s. 25 is pending, then proceedings for  winding up, execution, distress or the like are  to  be suspended  or presumed to be suspended. The  proceedings  in respect  of these matters could, however, be continued  with the  consent of the Board or of the appellate  authority  as the case may be. Section 22(5) provides for exclusion of the period during which the remedy remains suspended, in comput- ing the period of limitation for enforcement of the right.     The respondent company had been declared by the Board to be  a sick industrial company under s. 16 of the Act and  an operating  agency had been appointed under s. 17(3) to  pre- pare a scheme for rehabilitation/revival of the company.     The respondent company owed a large sum to the petition- er Panchayat on account of property tax and other dues. When the  petitioners initiated coercive proceedings  to  recover that  amount  the company moved the High Court by way  of  a writ  petition under Article 226 of the Act. The High  Court restrained  the petitioners from recovering the said  amount without the consent of the Board. Dismissing the special leave petition, the Court, 967     HELD:  The  High  Court was justified  in  quashing  the recovery  proceedings  taken against the properties  of  the

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company. [970G-H]     The Board by order dated 27 August, 1987 had stated that it  was satisfied that the company had become a sick  indus- trial   company  and  directed  that   further   proceedings under .the Act shall be taken. By another order made on  the same day under s. 17(2) the Board had found that it was  not practicable  for the company to make its net worth  positive within  a reasonable time and had proceeded to  take  action under  s.  17(3) and appointed the ICICI  as  the  operating agency to prepare a scheme for rehabilitation/revival of the company. In view of these steps taken by the Board under ss. 16 and 17 of the Act, no proceedings for execution, distress or the like against any of the properties of the  industrial company shall lie or be proceeded with further by virtue  of s. 22(1) except with the consent of the Board. [970A-D]     The Board at its discretion may accord approval. If  the approval  is not granted the remedy is not extinguished.  It is  only  postponed. Sub-section (5) of s. 22  provides  for exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering  the dues. [970F-G]

JUDGMENT:     CIVIL  APPELLATE  JURISDICTION: Special  Leave  Petition (Civil) No. 14395 of 1989.     From  the  Judgment  and Order dated  18.7.1989  of  the Bombay High Court in W.P. No. 6108 of 1987. V.N. Ganpule for the Petitioners.     P.  Chidambram,  Mrs. Raian Karaniawala,  N.H.  Seerbai, Karanjawala and Ravinder Kumar for the Respondents. The Judgment of the Court was delivered by     K.  JAGANNATHA SHETTY, J. The petitioners seek leave  to appeal against the decision of the Bombay High Court in Writ Petition  No. 6108/87 quashing the proceedings for  recovery of  property tax and other expenses due from the  first  re- spondent-company.     The  matter arises in this way: For the purpose of  pre- vention and revival of sick industries, the Central  Govern- ment has enacted the Act called "The Sick Industrial  Compa- nies (Special Provisions) Act, 1985 968 (’The Act’). The Act extends to the whole of India including the  State  of Jammu & Kashmir. It came into  force  (except sections  15  to 34) with effect from 15 May 1987.  The  Act covers  only sick industrial companies or industrial  compa- nies which have the potential to become sick. The Act empow- ers the Central Government to establish a Board to be  known as  the Board for Industrial & Financial  Reconstruction  to exercise  the  jurisdiction and powers,  and  discharge  the functions and duties imposed under the Act.     The  first  respondent-company M/s Shree  Vallabh  Glass Works Ltd. has been declared to be a sick industrial company within  the  meaning of clause (0) of  sub-section   (1)  of Section  3 of the Act. ’Sick Industrial Company’  "means  an industrial  company being a company registered for not  less than seven years which has at the end of any financial  year accumulated  losses  equal to or exceeding  its  entire  net worth  and has also suffered cash losses in  such  financial year  and  the  financial year  immediately  preceding  such financial year."     The  first petitioner is the Gram Panchayat, Salwad  and second petitioner is the Chairman of the Gram Panchayat. The petitioners initiated coercive proceedings under Section 129

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of  the  Bombay Village Panchayat Act to recover  a  sum  of Rs.9,47,539 stated to be the property tax and other  amounts due  from  the company. Challenging  that  proceedings,  the Company  moved the High Court by way of Writ Petition  under Article 226 of the Constitution claiming protection provided under Section 22 of the Act. The High Court has accepted the writ petition and restrained the petitioners from recovering the said amount without the consent of the Board.     The question is whether the Panchayat could not  recover the amount due to it from out of the properties of the  sick industrial company without the consent of the Board? Section 22 provides, as far as material, as follows: "Section  22--Suspension  of Legal  Proceedings,  contracts, etc- (1)  Where in respect of an industrial company,  an  inquiry under Section 16 is pending or any scheme referred to  under Section 17 is under preparation or consideration or a  sanc- tioned  scheme  is under implementation or where  an  appeal under Section 25 relating to an industrial company 969 is pending, then, notwithstanding anything contained in  the Companies Act, 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. 22(2)     to     22(4)     xxx     xxx     xxx 22(5) In computing the period of limitation for the enforce- ment  of any right, privilege, obligation or liability,  the period  during  which it or the remedy for  the  enforcement thereof  remains suspended under this section shall  be  ex- cluded."     Section  22(1) provides that in case the  enquiry  under Section  16 is pending or any scheme referred to under  Sec- tion  17 is under preparation or consideration by the  Board or  any  appeal  under Section 25 is  pending  then  certain proceedings  against the sick industrial company are  to  be suspended  or presumed to be suspended. ’The nature  of  the proceedings  which  are  automatically  suspended  are:  (1) Winding  up of the industrial company, (2)  Proceedings  for execution,  distress or the like against the  properties  of sick  industrial  company, and (3) Proceedings for  the  ap- pointment  of receiver. The proceedings in respect of  these matters could, however, be continued against the sick indus- trial  company with the consent or approval of the Board  or of the Appellate Authority as the case may be.     Section 16 authorises the Board to make such enquiry  as it  may  deem  fit for determining  whether  any  industrial company has become a sick industrial company. Where Board is satisfied that a company has become a sick industrial compa- ny,  it could give a reasonable time to the company to  make its  net worth positive (Sec. 17(2)). Where it is not  prac- ticable  for sick industrial company to make its  net  worth positive  within a reasonable time, Section 17(3)  steps  in authorising  the  Board to direct any  operating  agency  to prepare  a scheme in relation to the company. The Board  may specify the various measures to be considered by the operat- ing  agency. These measures are detailed out in Section  18. The  operating  agency has to prepare a scheme  as  per  the order specified by the Board. 970

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   In the instant case, the Board by order dated 27  August 1987  has stated that it was satisfied that the company  has become  a sick industrial company. The Board  directed  that further  proceedings under the Act shall be taken  with  re- spect to the company. On the same day the Board after having heard  the  representatives of the ICICI, the  company,  the concerned Banks, the other public financial institutions and the  State  Government  of Gujarat,  considered  the  entire material on record, held that it was not practicable for the company  to make its net worth positive within a  reasonable time  and that further proceedings under sub-section (3)  of Section  17 of the Act are, therefore, to be taken.  Accord- ingly,  in  exercise of the powers conferred  under  Section 17(3)  of  the  Act, the Board appointed the  ICICI  as  the operating     agency    to    prepare    a    scheme     for rehabilitation/revival of the company keeping in view of the provisions of Sections 18 and 19 and the guidelines. At  the same  time the Board appointed Shri Y.V.  Sivaramakrishnayya as the special director of the company for safeguarding  its financial andother interests.     In  the  light  of the steps taken by  the  Board  under Sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the  proper- ties of the company shall lie or be proceeded further except with the consent of the Board. Indeed, there would be  auto- matic suspension of such proceedings against. the  company’s properties.  As  soon  as the inquiry 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.     It may be against the principles of equity if the credi- tors are not allowed to recover their dues from the company, but such creditors may approach the Board for permission  to proceed  against  the  company for  the  recovery  of  their dues/outstandings/overdues or arrears by whatever name it is called. The Board at its discretion may accord its  approval for  proceeding against the company. If the approval is  not granted,  the remedy is not extinguished. It is  only  post- poned.  Subsection (5) of Section 22 provides for  exclusion of  the  period during which the remedy is  suspended  while computing the period of limitation for recovering the dues.     In our opinion, the High Court was justified in quashing the recovery proceedings taken against the properties of the company  and we accordingly, reject this petition,  with  no order as to costs. P.S.S.                                              Petition dismissed. 971