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CASE NO.: Appeal (civil) 4709  of  1998

PETITIONER: M/S.RISHABH AGRO INDUSTRIES LTD.

       Vs.

RESPONDENT: P.N.B. CAPITAL SERVICES LTD.

DATE OF JUDGMENT:       09/05/2000

BENCH: M B SHAH, & R.P. SETHI.

JUDGMENT:

SETHI,J. L...I...T.......T.......T.......T.......T.......T.......T..J

   On being satisfied that the appellant-company was unable to meet the obligations of making the payment of the amounts@@         JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ due  to the creditors, the learned Single Judge of the  High@@ JJJJJJJJJJJ Court  vide his order dated 5th September, 1997 directed its winding  up.  Official Liquidator attached to the Court  was appointed  as  Liquidator of the company with directions  to take  charge  of  the  assets and other  properties  of  the appellant-company.   The notice of the winding up order  was directed  to  be published in the Indian Express and  Dainik Tribune.   The operation of the order of the learned  Single Judge  was stayed by the Division Bench of the High Court in Civil  Appeal  No.26  of 1997 on 18.9.1997.   The  appellant thereafter  filed Reference under Section 15(1) of the  Sick Industrial   Companies   (Special   Provisions)  Act,   1985 (hereinafter  referred to as the ’Act’) before the Board for Industrial  and Financial Reconstruction (hereafter referred to as "the Board").  The appellant then moved an application in  the High Court under Section 22 of the Act with a prayer for  staying  the  proceedings arising out  of  the  Company Petition  No.111  of  1985 which was the subject  matter  of Company  Appeal No.26 of 1997.  The application was rejected by  the  Division  Bench of the High Court  vide  the  order impugned herein.  After holding that as no proceedings under the  Act of 1985 were pending on the date of passing of  the winding  up  order, the application under Section 22 of  the Act  was  misconceived.  It was further found that  no  such proceedings  were pending even on the date of passing of the said  order by the Division Bench in Company Appeal No.26 of 1997  and only on the basis of a Reference made to the Board the  proceedings of winding up petition could not be ordered to be held in abeyance.  Not satisfied with the order of the Division  Bench of the High Court, the appellant-company has preferred  this appeal.  Some of the facts relevant for  the purpose  of  determining the controversy in this appeal  are that  the respondent-bank filed a Company Petition No.111/95

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on 30.9.1995 under Section 433(e)&(f) and Section 434 of the Companies  Act, 1956 for winding up of the appellant-company on  the  ground that the company had been unable to pay  the loan  of Rs.50 lacs and the agreed rate of interest thereon. On  14.12.1995  a  compromise  was arrived  at  between  the parties  whereby the appellant company agreed to pay monthly instalments as per stipulations made in the compromise deed. In  pursuance  to  the  compromise arrived  at  between  the parties,  the  appellant-company  claimed to have  paid  the instalments  and  completed  the full payment  of  principal amount  of  Rs.50  lacs.  Regarding  interest,  the  company referred  to  further transactions between the bank and  its other  sister  concerns.  However, instead of agreeing  with the request of the company to return the collateral security of  5 lacs shares of Rs.10/- each aggregating to Rs.50 lacs, the  respondent- bank is stated to have insisted for payment of  instalment for the months of October and November,  1996 as  per  compromise.  It is contended that having failed  to get  the  security  the   appellant-company  per  force  had defaulted  the  payment of balance amount  towards  interest with   the   result  that   the  respondent-bank  moved   an application  before  the Company Judge in  Company  Petition No.111/95  praying  for revival of the winding up  petition. The  learned Single Judge admitted the petition for  hearing and  passed  an order for issuance of publication  vide  its orders  dated  14.3.1997.  Feeling aggrieved, the  appellant herein  preferred  a  special leave petition in  this  Court which  was withdrawn on 28th August, 1997 purportedly with a view  to  approach  the  learned Company  Judge  with  fresh proposal of settlement.  An application was moved before the learned  Company Judge wherein the appellant proposed to pay alleged  balance principal amount of Rs.14,11,010/- and  the amount  of  Rs.7,06,120/-  as interest  thereon  in  monthly instalment of Rs.2 lacs each to be paid on or before 7th day of each English calendar month together with future interest at  the rate of 12% per annum thereon on a reducing  balance basis  till  the  liquidation  of the  entire  amount.   The aforesaid  application was dismissed by the learned  Company Judge on 5th September, 1997 when he directed the winding up of  the company.  As noticed earlier, during the pendency of the  appeal  filed against the order of the learned  Company Judge,  a petition for Reference under Section 15(1) of  the Act  was preferred before the Board on 30th September, 1997. Shri  Anurag  Kumar Aggarwal, the learned counsel  appearing for  the appellant has submitted that the Division Bench  of@@          JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ the  High  Court committed a mistake of law in  interpreting@@ JJJJJJJJJJJJJJJJ Section  22  of the Act and by holding that the  proceedings appearing  in Section 22(1) of the Act, meant the proceeding upto  the stage of passing of winding up order by the  Court and  not  thereafter.  It is contended that the  High  Court completely ignored the mandate of the Section which provided that  no  proceedings for the winding up of  the  industrial company shall lie or be proceeded with further in respect of the  industrial company when an enquiry under Section 16  is shown  to be pending or any claim referred to under  Section 17  or  under  preparation or  consideration  of  sanctioned scheme  or under the implementation or when an appeal  under Section  25  relating to an industrial company was  pending. According  to  the learned counsel, after the filing of  the application  under Section 15 an enquiry under Section 16 of the  Act is deemed to be pending warranting the stay of  the proceedings  in terms of Section 22 of the Act.  Shri Jagdip Kishore,  the learned counsel who appeared on behalf of  the

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respondent-bank  submitted  that the reasoning of  the  High Court  was  based  upon  proper appreciation  of  the  legal position  and as no enquiry under Section 16 of the Act  was pending  at  the  time the order of the winding  up  of  the company  was  passed, the proceedings for winding up of  the company,  could not be stayed.  Relying upon the judgment of the  Karnataka High Court in Shanmugam v.  Maharashtra State Co-operative Cotton Growers Marketing Federation Ltd.  [1991 (70)  Comp.   Cases 440], the learned counsel has  tried  to make a distinction between the stage prior to the passing of order  of  winding  up and thereafter.  The  Karnataka  High Court  had  held:  "The Court must not fail to  notice  that there  is always a difference between an order in winding up and  an  order  of  winding  up  of  a  company.   Generally understood,  an order in winding up is any order made by the company  court  from  the  time   the  company  petition  is presented  till the final order of winding up the company is made.   An  order  of winding up is the culmination  of  the petition  presented to the court either under Section 398 or section  433 or section 583.  Therefore, the distinction  is only at the stage at which the order is made by the court."

   The  Act is shown to have been made, in public interest, with  a  view to securing the timely detection of  sick  and potentially  sick companies owning industrial  undertakings, the  speedy  determination  by  a Board of  experts  of  the preventive,  ameliorative, remedial and other measures which need  to  be  taken with respect to such companies  and  the expeditious  enforcement  of the measures so determined  and for  matters connected therewith or incidental thereto.  The object of the Act appears to be to afford maximum protection of  employment,  optimise  the use of  financial  resources, salvaging  the  assets of production, realising the  amounts due  to the Banks and to replace the existing time consuming and   inadequate  machinery  by   efficient  machinery   for expeditious  determination by a body of experts to safeguard the  economy  of the country and protect viably sick  units. Chapter  III deals with the reference, enquiries and claims. Section  15 provides that when an industrial company becomes a  sick industrial company as defined under Section 2(o)  of the  Act,  the  Board of Directors of  the  Company,  shall, within  60  days from the date of finalisation of  the  duly audited  accounts of the company for the financial year make a  reference to the Board for determination of the  measures which shall be adopted with respect to the company.  Section 16 obliges the Board to make such enquiry as it may deem fit for  determining whether any industrial company had become a sick  industrial  company in accordance with  the  procedure prescribed  therein.   Explanation  to  Sub-section  (3)  of Section 16 was inserted by Act No.12 of 1994 which provides: "Explanation--For  the  purposes  of  this  sub-section,  an inquiry  shall be deemed to have commenced upon the  receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board."

   It  follows, therefore, that from the date of submission of reference under Section 15, an enquiry shall be deemed to have  been  commenced for the purposes of Section 22 of  the Act.   This  Court dealt with this aspect of the  matter  in Real  Value  Appliances Ltd.  v.  Canara Bank & Ors.   [1998 (5) SCC 554] and held as under:

   "In  our view, when Section 16(1) says that the BIFR can

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conduct the inquiry ’in such manner as it may deem fit’, the said  words  are  intended  only  to  convey  that  a   wide discretion  is vested in the BIFR in regard to the procedure it  may follow for conducting an inquiry under Section 16(1) and  nothing more.  In fact once the reference is registered after  scrutiny, it is, in our view, mandatory for the  BIFR to  conduct  an inquiry.  If one looks at the format of  the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Company’s assets, liabilities, etc. Indeed,  it  will be practically impossible for the BIFR  to reject   a   reference   outright    without   calling   for information/documents  or  without  hearing the  Company  or other  parties.  Further, the Act is intended to revive  and rehabilitate  sick  industries before they can be  wound  up under  the Companies Act, 1956.  Whether the company seeks a declaration that it is sick or some other body seeks to have it  declared  as  a  sick company, it is,  in  our  opinion, necessary  that  the  Company  be  heard  before  any  final decision is taken under the Act.  It is also the legislative intention  to see that no proceedings against the assets are taken  before any such decision is given by the BIFR for  in case  the Company’s assets are sold, or the company wound up it  may indeed become difficult later to restore the  status quo  ante.   Therefore,  in  our view,  the  High  Court  of Allahabad   in  Industrial  Finance   Corpn.   of  India  v. Maharashtra  Steels Ltd.  [1990 (67) Comp Cas 412(All)], the High  Court of Andhra Pradesh in Sponge Iron India Ltd.   v. Neelima Steels Ltd.  [1990 (68) Comp Cas 201 (AP)], the High Court  of  Himachal Pradesh in Orissa Sponge Iron  Ltd.   v. Rishab Ispatt Ltd.[1993 (78) Comp Cas 264 (HP)] are right in rejecting  such a contention and in holding that the inquiry must  be  treated  as  having   commenced  as  soon  as  the registration  of  the reference is completed after  scrutiny and that from that time, action against the Company’s assets must  remain  stayed  as  stated in Section  22  till  final decisions are taken by the BIFR."

Learned  counsel appearing for the respondent has submitted that such an interpretation would defeat the ends of justice and  make the petitions under the Companies Act, infructuous inasmuch  as  any unscrupulous litigant, after suffering  an order of winding up, may approach the Board merely by filing a  petition  and  consequently get the  proceedings  in  the Company  Case stayed.  Such a grievance may be justified and the  submission having substance but in view of the language of Sections 15 and 16 of the Act particularly Explanation to Section  16 inserted by Act No.12 of 1994, this Court has no option  but to adhere to its earlier decision taken in  Real Value  Appliances  (Supra).  While interpreting, this  Court only  interprets  the  law and cannot legislate  it.   If  a provision  of  law is misused and subjected to the abuse  of process of law, it is for the Legislature to amend modify or repeal  it  by having recourse to appropriate procedure,  if deemed necessary.

   Hence,  we find it difficult to agree with the  findings of   the  High  Court  to   the  effect:   "The   expression@@                 JJJJJJJJJJJJJJJJJJJJJJJJ ’proceeding’  appearing  in Section 22, sub- section (1)  of the  Act  means the proceeding upto the stage of passing  of winding  up  order by the Court.  In terms of Section  22(1) the  proceedings  for  winding up of the company  cannot  be proceeded  with and all such proceedings shall remain stayed

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till the conclusion of the proceedings before the BIFR if an enquiry  is  pending  under Section 16 of 1985  Act  or  any scheme  is  framed under Section 17 of the said  Act.   This provision  is not attracted in a case in which the order  of winding up has already been made because once the winding up of  the company comes to an end, and other provisions in the Companies  Act, 1956, relating to the company in liquidation comes  into  play and the official liquidator, after  taking possession  of the assets of the company in liquidation  has to   discharge  the  functions  as  specified   in   various provisions  of the Companies Act, relating to the company in liquidation."

Section 22 of the Act provides:

   "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 sanctioned scheme is under implementation or where an appeal under  section  25  relating  to an  industrial  company  is pending,  then,  notwithstanding anything contained  in  the Companies  Act,  1956 (I 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 and no suit for the recovery of money or for the enforcement of any security  against the industrial company or of any guarantee in  respect  of  any  loans  or  advances  granted  to   the industrial  company shall lie or be proceeded with  further, except with the consent of the Board or, as the case may be, the Appellate Authority.

   (2)  Where the management of the sick industrial company is  taken  over  or  changed  in  pursuance  of  any  scheme sanctioned   under  section   18,  notwithstanding  anything contained  in  the Companies Act, 1956 (1 of 1956),  or  any other  law or in the memorandum and articles of  association of  such  company or any instrument having effect under  the said Act or other law--

   (a)  it  shall  not be lawful for shareholders  of  such company  or  any  other person to nominate  or  appoint  any person to be a director of the Company;

   (b)  no  resolution  passed  at   any  meeting  of   the shareholders of such company shall be given effect to unless approved by the Board.

   (3)  Where an enquiry under section 16 is pending or any scheme  referred  to in section 17 is under  preparation  or during  the  period  of consideration of  any  scheme  under section   18  or  where  any   such  scheme  is   sanctioned thereunder,  for due implementation of the scheme, the Board may  by  order declare with respect to the  sick  industrial company  concerned  that the operation of all or any of  the contracts,  assurances of property, agreement,  settlements, awards  standing  orders or other instruments in  force,  to which  such sick industrial company is a party or which  may be  applicable  to such sick industrial company  immediately before  the  date of such order, shall remain  suspended  or that  all or any of the rights, privileges, obligations  and

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liabilities  accruing or arising thereunder before the  said date,  shall  remain suspended or shall be enforceable  with such adoptions and in such manner as may be specified by the Board.

   Provided  that such declaration shall not be made for  a period exceeding two years which may be extended by one year at  a  time  so, however, that the total  period  shall  not exceed seven years in aggregate.

   (4)  Any  declaration  made under sub-section  (3)  with respect  to  a  sick industrial company  shall  have  effect notwithstanding  anything  contained in the  Companies  Act, 1956  (1  of  1956), or any other law,  the  memorandum  and articles  of  association of the company or  any  instrument having  effect  under  the  said  Actor  other  law  or  any agreement  or  any  decree or order of  a  court,  tribunal, officer  or other authority or of any submission, settlement or standing order and accordingly, --

   (a)  any  remedy  for  the  enforcement  of  any  right, privilege, obligation and liability suspended or modified by such  declaration,  and  all  proceedings  relating  thereto pending  before  any  court,   tribunal,  officer  or  other authority  shall  remain stayed or be continued  subject  to such declaration;  and

   (b) on the declaration ceasing to have effect--

   i)  any  right,  privilege, obligation or  liability  so remaining  suspended  or modified, shall become revived  and enforceable as if the declaration had never been made;  and

   ii)   any  proceeding  so   remaining  stayed  shall  be proceeded  with, subject to the provisions of any law  which may  then be in force, from the stage which had been reached when the proceedings became stayed.

   (5)  In  computing  the  period of  limitation  for  the enforcement   of  any  right,   privilege,   obligation   or liability,  the period during which it or the remedy for the enforcement  thereof  remains  suspended under  the  section shall  be  excluded."  It  is true  that  for  invoking  the applicability of Section 22 it has to be established that an inquiry  under Section 16 is pending or any scheme  referred to  under  Section  17 is under  preparation  or  sanctioned scheme is under implementation or an appeal under Section 25 to  an industrial company is pending.  But it cannot be said that  despite  existence of any of the aforesaid  exigencies the provision of Section 22 would not be attracted after the order of winding up of the company is passed.  The words "no proceeding  for 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 receiver in  respect thereof shall lie or be proceeded with  further, leave  no  doubt in our mind that the effect of the  section would  be  applicable  even after the winding  up  order  is passed  as  no proceeding even thereafter can  be  proceeded with  further  under  the  Companies Act.   The  High  Court appears  to have not taken note of the aforesaid words  i.e. to  be proceeded with further.  As the impugned judgment  is based  upon  wrong  assumption of the provision of  law  and completely ignoring the vital words noticed hereinabove, the same  cannot be sustained.  It has been further suggested on behalf  of  the  respondent-bank  that  the  action  of  the

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appellant  was malafide inasmuch as it sought time from  the court  to  make  the  payment of the amount  due  and  after seeking indulgence malafidely made the reference to the BIFR on  30th  September, 1997.  It is contended that  after  the order  of the winding up and appointment of the  liquidator, the  Board of Directors had no jurisdiction to move the BIFR by  passing  a  resolution.   Such a  submission  cannot  be accepted.   In  a  winding  up petition  the  liquidator  is appointed to protect the assets of a company for the benefit of  its creditors, secured and unsecured and others.  It  is not  the  function of the official liquidator to  start  the process  of  rehabilitation  of the company as is  aimed  at under   the  Act.   Despite   appointment  of  the  official liquidator,  the  Board  of Directors continue to  hold  all residuary  powers  for  the  benefit of  the  company  which includes  the  power to take steps for  its  rehabilitation. The  Board of Directors in the instant case were not in  any way  by any judicial order debarred from taking recourse  to the provisions of the Act for the purposes of rehabilitation of  the  company.   If there existed a power,  its  exercise cannot  be  termed  to  be  malafide  only  because  it  was initiated after availing the opportunity to make the payment of the amounts due and passing of the order of winding up of the  company.  It may also be noticed that winding up  order passed under the Companies Act is not the culmination of the proceedings  pending  before  the Company Judge  but  is  in effect  the commencement of the process.  The ultimate order to  be  passed in such a petition is the dissolution of  the company  in terms of Section 481 of the Companies Act.   The words  "shall  be deemed to commence" in Section 441 of  the Companies  Act clearly show the intention of the legislature that  although the winding up of a petition does not in fact commence  at the time of presentation of the petition itself but  it shall be presumed to commence from that stage.   The word  "deemed"  used  in  the   Section  would  thus   mean, "supposed",  "considered", "construed", "thought", "taken to be"  or "presumed".  During the course of the proceedings it was  pointed  out  that  as the  application  filed  by  the appellant  under Section 15 of the Act has been dismissed by the  Board  on  merits, the proceedings before  the  Company Judge  cannot  be  stayed.   However,  the  learned  counsel appearing for the appellant placed on record the copy of the order  passed by the Board which shows that the  application has  not  been  dismissed on merit but on  the  ground:   "A perusal  of  the  facts of the case and the  various  orders passed  by  the  Punjab  & Haryana High Court  as  also  the Supreme  Court  revealed  the  position that  the  Punjab  & Haryana  High  Court had passed an order of winding  up  the company  on  5.9.97 i.e.  before the company’s reference  to the  BIFR.   Further, the Supreme Court had ordered that  no further  proceedings in winding up shall be taken before the High  Court.   The Bench observed that the winding up  order had  not  been  quashed  which could have  resulted  in  the restoration  of  the  position as it stood on  the  date  of passing  of  the order which had been quashed.  The stay  of the  order meant that the orders which had been stayed would not  be  operative from the date of the passing of the  stay order  and it did not mean that the order had been wiped out from  existence.  In the circumstances, the Bench held  that since the company had been ordered to be wound up before its reference  to BIFR, the Board no longer had the jurisdiction to continue with further proceedings."

   It  is  further  submitted that an  appeal  against  the aforesaid  order  has been filed before the AAIFR, which  is@@

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                 JJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJJ still  pending.   In  the  light of what  has  been  noticed@@ JJJJJJJJJJJJJJJ hereinabove we are of the opinion that the order of the High Court  impugned  in  this appeal cannot be  sustained.   The appeal  is accordingly allowed by setting aside the order of the High Court with a direction that the proceedings pending before  the Company Judge shall remain in abeyance till  the disposal  of  the application/appeal before the  authorities under the Act.  No costs.