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PETITIONER: REAL VALUE APPLIANCES LTD. ETC., ENGINEERING KAMGAR SANGH

       Vs.

RESPONDENT: CANARA BANK & ORS. ETC., VARDHMAN SPINNING & GEN. MILLS LTD.

DATE OF JUDGMENT:       05/05/1998

BENCH: S. SAGHIR AHMAD, M. JAGANNADHA RAO

ACT:

HEADNOTE:

JUDGMENT:                   THE 5TH DAY OF MAY, 1998 Present:             Hon’ble Mr. Justice S. Saghir Ahmad             Hon’ble Mr. Justice M. Jagannadha Rao Soli J.  Sorabjee, Attorney  General  of  India,  Harish  N. Salve, Sr.  Adv. and  Jay Salve,  Adv.  with  them  for  the Appellants in C.A. Nos. 2572 and 2573/98 S. Wasim  A. Qadri  and  Jana  Kalyan  Das,  Advs.  for  the appellant in C.A. No. 2574/98 Altaf Ahmed,  Additional Solicitor  General, Pradeep  Dewan, Ms. Praveena Goutam, Pramod B. Aggarwala, Advs. with him for the Respondent in C.A. No. 2572/98 Bharat Sangal,  Adv. for  the Respondents in C.A.No. 2573/98 and C.A. No.2574/98                       J U D G M E N T The following Judgment of the Court was delivered:                             WITH      CIVIL APPEAL NO .... 2573 ................. /1998          (Arising out of S.L.P. (C) No. 14750/1997)                             AND      CIVIL APPEAL NO ........2574 .............../1998          (Arising out of S.L.P (C) No. 15736/1997)                       J U D G M E N T M. JAGANNADHA RAO, J.      Special  leave   granted  in   all  the  Special  leave petitions.       Civil  Appeal arising out of SLP (C) No. 14327/1997 is filed by  ‘Real Value  Appliances Ltd’  against order of the High Court  of Bombay  dated 28.7.1997  passed by a Division Bench in  an interlocutory  appeal appointing  a Receiver to take formal possession of the mortgaged properties which are subject matter  of suit  No. 82  of 1997  pending  before  a learned Single  Judge of the said High Court on the Original Side. The  respondent Canara Bank, which is the plaintiff in the suit  is claiming in consortium with Union Bank of India a sum of Rs. 23.67 crores (approximately) as due to it as on 24.12.1996. Earlier  the Single  Judge of  the  Bombay  High Court in  his  order  dated  10.1.1997  had  disallowed  the application for  appointment of Receiver in view of the stay of  appointment  of  provisional  Liquidator  granted  by  a

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Division Bench  of the  Bombay  High  Court  in  winding  up proceedings on 20.12.1996.      Civil Appeal (arising out of SLP (C) No. 14750 of 1997) is filed  by the  appellant Company against the order passed by another  Division Bench  of the  Bombay High  Court dated 8.8.1997 in  Appeal No.  1193 of  1996 by which the order of the learned  Single  Judge  on  Company  Side  appointing  a provisional Liquidator  on 18.10.1996  was affirmed. Thereby an earlier  order of  stay dated  20.12.96 (granted  by  the Division Bench in respect of the Company Judge’s order dated 18.10.96)  stood   vacated.  The  respondents  are  Vardhman Spinning &  General Mills Ltd., the creditors, who filed the winding  up   petition  415/1996  on  6.8.1996  against  the appellant in the High Court of Bombay.      Civil Appeal (arising out of SLP (C) NO. 15736/1997) is filed by  the workmen (Engineering Kamgar Sangh) against the order dated 8.8.1997 passed by the Division Bench in winding up proceedings  confirming the  order of  the  Single  Judge appointing provisional  Liquidator. They  are supporting the appellant company.      That is  how these  three appeals  have arisen and have come before us. The appellant company had, after taking some adjournments before the Division Bench in the Company Appeal - which  was filed  against the  order of the learned Single Judge  appointing   provisional  liquidator  -  submitted  a reference before  the Board  for  Industrial  and  Financial Reconstruction (hereinafter  called the ‘BIFR’) on 17.7.1997 under the Sick Industrial Companies (Special Provision) Act, 1985 (hereinafter  called the ‘Act’). The said reference was registered 24.7.1997 as Case No.97 of 1997. The point raised in these  appeals is  that once the reference was registered by the  BIFR on  24.7.1997, the  Division Bench  of the High Court ought  not to  have passed orders on 8.8.1997 vacating the interim  stay granted  by it on 24.12.1996 and ought not to have  confirmed the  order of  the learned  Company Judge dated 18.10.1996  appointing provisional liquidator, in view of the  mandate of  section 22  of the  Act. Likewise, it is argued that  the  order  of  another  Division  Bench  dated 28.7.1997 appointing  a Receiver in the interlocutory appeal arising out of the Civil Suit is also had in view of section 22 of the Act.      We may  state that  the order  of  the  High  Court  in proceedings arising  out of  suit -  appointing Receiver  on 28.7.1997 was  stayed by  this  Court  on  5.8.1997  in  SLP 14327/1997. Similarly  the  order  of  the  High  Court,  in proceedings arising  out of  winding up  proceedings,  dated 8.8.1997 vacating the stay and confirming the Company Judges order  appointing   provisional  Liquidator  was  stayed  on 12.8.1997 in  SLP 14750/1997 and it was further ordered that the provisional Liquidator shall not take any further steps.      One other  important  fact  to  be  noted  is  that  on 10.11.1997 in  SLP 14327/1997, this Court passed an order, - after hearing both sides, adjourning the SLPs "to enable the BIFR to  come to  a decision’. This Court, however, directed the appellant-Company  not to  dispose  of  or  alienate  or create any third party interests in any of the assets of the Company except  with the  previous approval  of the BIFR and that before  passing any  orders, the BIFR will give hearing to the Canara Bank. This Court also recorded an assertion by the Bank  that the  Receiver had  taken formal possession of the properties.  This assertion  was no  doubt denied by the Company. This  Court also  noticed that  the High  Court  of Bombay had,  in its  order dated 8.8.97 accepted as true the serious allegations  made by  the Canara  Bank  against  the appellant Company.

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    At this  stage, it is necessary to refer to the conduct of the  Company, already  adverted to,  which  came  up  for severe criticism  by the  High Court  of Bombay in its order dated 8.8.1997. What happened was that after securing a stay order from  the Division Bench on 20.12.1996 - in respect of the  order   of  the   learned  Single  Judge  appointing  a provisional Liquidator,  - the Company obtained adjournments before  the   Division  Bench   on   4.11.1996,   2.12.1996, 9.12.1996, 18.12.1996,  20.12.1996. On  20.12.1996 the  case was adjourned  to 22.7.1997  when an  affidavit was  filed - without disclosing  that the Company had approached the BIFR on 17.7.1997 - and the matter was got adjourned to 29.7.1997 and again  to 8.8.1997.  The factum  of registration  of the reference by  the BIFR  on 24.7.97  was not disclosed to the High Court  till 8.8.1997.  The  Bench,  therefore,  rightly criticised the  conduct of  the appellant for not disclosing these facts  to the  High Court before 8.8.1997. Further, in the High  Court the  Company was opposing the appointment of provisional Liquidator on the plea that it was a viable unit but when it approached the BIFR, it was claiming that it was a sick  industry. These contradictory pleas also came up for adverse comment  by the  High Court.  The Bench  referred to section 22  and section 16 of the Act and felt that the mere registration of  the reference  under  Section  15  did  not amount to  "pendency of  any inquiry"  under Section  16 and that,  therefore,   section  22   was  not   attracted  and, therefore, the  Bench was well within its powers in vacating the stay  and  confirming  the  appointment  of  provisional liquidator or in appointing a Receiver. In that context, the Bombay High Court followed a decision of a Division Bench of the Calcutta  High Court  in Bengal Lamps Ltd. vs. Furmanite Nicco  Limited   [1991  (72)   Com.  Cases  146  (Cal.)]  in preference to  the Judgments  of other High Courts which had taken a  contrary view. The Bench then gave several findings to the  effect that  the Company  had  indulged  in  various "irregularities"   or   "misconduct"   in   its   accounting procedures etc.  with a  view to  show that  it was a viable unit and  to show  that it  was not  liable to  be wound up. Having enumerated  the alleged  financial irregularities  as pointed by  the Bank  and the suppression of facts, the High Court in  its order  dated 8.8.1997  vacated the  stay order dated  20.12.1996   and   confirmed   the   appointment   of provisional Liquidator.  It also issued a contempt notice to the officers of the Company.      It is  necessary to  refer to certain subsequent events which have  since taken  place after the orders under appeal were passed by the High Court. These events relate mainly to three orders passed by the BIFR. (i)  On 9.9.1997,  the BIFR passed orders, after hearing the representatives of  the appellant  - Company and Canara Bank and the  IDBI (which  was also  to get  around Rs. 38 crores from the company), directing the IDBI under Section 16(2) of the Act to examine and analyse the audited balance sheets of the Company  upto 30.6.1997  and submit a status report. The Bank was also directed to submit its reaction or comments to the   IDBI.   The   contentions   raised   by   the   Bank’s representatives were elaborately set out. (ii) On 24.11.1997 the BIFR passed orders recording that the IDBI had  submitted a  report and  that on that basis and on the basis  of the  submissions made,  "the Company was to be declared as  a sick  industry’ under  section 16  read  with section 3(o)  of the  Act. It then said that it is necessary in the  public interest  to adopt  the measures specified in Sections 18 and 19 of the Act in relation to the Company. It accordingly appointed  IDBI as  the Operating  Agency  under

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Section 16(2) of the Act and directed it under section 17(3) to prepare a rehabilitation Report. The Company was directed under Section 22-A, not to alienate any of its assets. (iii) A  notice was  issued by BIFR fixing 15.12.1997 as the date on which the allegations of the Canara Bank against the Company would  be heard.  On  15.12.1997,  the  BIFR  passed further orders  after  hearing  the  Bank’s  representatives observing that  the allegations made by the Bank against the Company had  been considered  by the  IDBI and that the IDBI had prepared a status report and that the BIFR was satisfied that the  allegations of  the Bank  against the company - in regard to  the change  in the  accounting year and provision for  depreciation   and  interest   and  in  regard  to  the preparation of  the balance  sheet -  could not  be accepted inasmuch  as  these  actions  "were  permissible  under  the various provisions  of the  Companies Act,  1956 and as such these were  valid under  law". The  matter was  adjourned to enable the  company  to  submit  its  revival/rehabilitation proposals. These  are the  three orders  passed by  the BIFR subsequent to the impugned orders of the Bombay High Court.      It was contended before us by Sri Soli Sorabjee and Sri Harish Salve,  appearing for  the Company in the two appeals filed by  the Company  and by the counsel for the workmen in the third  appeal that  the Division  Bench ought  not  have vacated the  stay dt. 20.12.96 nor confirmed the appointment of provisional  Liquidator dated 18.10.96 by its order dated 8.8.1997 when  by that  date, Section 22 of the Act had come into play  on account  of the  registration of the reference dated 17.7.1997  by the  BIFR on  24.7.1997.  For  the  same reasons, it  was contended that the Division Bench could not have appointed  a Receiver on 28.7.1997 in the interlocutory appeal filed  in the suit proceedings. It was contended that the appeals  should, therefore,  be allowed and the impugned orders vacated  in view of the mandate under Section 22. Sri Sorabjee cited several rulings of the High Courts to contend that  registration  of  the  reference  was  sufficient  for purposes of  the applicability  of Section 22. It was argued that now the matters have reached the stage of section 17(3) of the  Act before the BIFR and, therefore, no orders can be passed restoring the Receiver or the provisional liquidator. It was  also brought  to our  notice that the High Court had dropped  the   contempt  proceedings   by  its  order  dated 13.2.1998 pursuant to the apology tendered.      On the  other hand,  the learned  Additional  Solicitor General, Sri Altaf Ahmad contended that while the contention of the  appellants  in  relation  to  Section  22  could  be correct, the  appellant was  guilty of  suppression of facts before the  Division Bench  of the  High Court as pointed in the order  dated 8.8.1997.  It took  adjournments before the High Court  without informing  the Court  that it was either approaching or  that it  had approached the BIFR and got its reference registered.  The Company  also took  contradictory pleas before  the High  Court and before the BIFR, in regard to its  viability. This  conduct was  wholly unbecoming.  On account of  its suppression  of facts  and mutually contrary pleas, the reference to the BIFR must be treated as vitiated and  as   amounting   to   ‘fraud’   and,   therefore,   all consequential orders of the BIFR must be ignored.      On the  basis of  the above  contentions, the following points arise for consideration: (1)  Could it  be said  that the  conduct of  the  appellant Company before  the High  Court on  account of  the contrary pleas taken  by it before the High Court and the BIFR and on account of  the suppression  of facts,  - would  render  the reference under  section 15  and  the  registration  of  the

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reference and the subsequent orders of the BIFR bad? (2)  Whether, once  the BIFR  had registered  the  reference dated 17.7.97  on 24.7.97  under section  15 of the Act read with the  Regulations, it  was permissible  for the Division Bench of  the High  Court to  pass orders on 8.8.97 vacating the stay order dated 20.12.96 and confirming the appointment of provisional  liquidator on  the  company  side  and  also whether it was permissible for another Division Bench of the High  court   to  appoint  a  Receiver  on  28.7.97  in  the proceedings arising  out of  the suit, in view of section 22 of the Act? Point 1:      It is  true that  in the  winding up proceedings and in the civil  suit, the appellant company contended that it was a viable  unit and that neither a Receiver nor a provisional liquidator could be appointed. The appellant was, on the one hand seeking adjournments before the Division Bench while on the other hand it had approached the BIFR on 17.7.97 and got its reference registered on 24.7.97 seeking to be declared a sick company. It is also true that in the affidavit filed on its  behalf   in  the  High  Court  on  22.7.97  seeking  an adjournment, it had not disclosed to the Division Bench that it had  moved the  BIFR on  17.7.97. The  Company sought  an adjournment to  29.7.97 and then again to 8.8.97. Neither on 22.7.97 nor on 29.7.97 was the High Court informed about the application  filed   before   the   BIFR   nor   about   its registration. A  disclosure of  these facts was made only on 8.8.97.      This  conduct  of  the  appellant,  in  our  view,  was certainly very  unfair to the High Court and, therefore, the High Court  had rightly  depreciated the  same. In our view, there was a clear attempt to keep the Court in the dark.      But the  question is  whether,  on  that  account,  the reference application  to the  BIFR would  become bad. It is clear from  the application  filed before  the BIFR that the BIFR was  informed about  the proceedings  taken against the company in  the High  Court both  on the company side and on the original  side. So  far as the BIFR was concerned, there was no  suppression of  facts before it. We are at a loss to understand as  to how  any conduct  of the appellant company before the  High Court of Bombay could make the registration of the  reference before  the BIFR  bad. If  any orders were obtained by  the Company from the High Court by way of fraud it was  certainly open  to the  respondent to  ask the  High Court to  recall such  orders. No  such thing  was done. We, therefore, cannot  accept the  contention of the respondents that the  reference under  section 15  of the  Act  and  the registration thereof  by the  BIFR became bad because of any conduct of  the Company  before the  High Court.  It follows that equally the subsequent orders passed by the BIFR on the reference cannot,  on that  account, be  said to be invalid. This contention  of the  respondents is rejected. Point 1 is held against the respondents. Point 2:      The legal  issue under  this point  is of  considerable importance in proceedings arising under this Act.      We shall,  therefore, refer  to the relevant provisions of the  Act and Regulations and the headings of the Chapters in  the  Act  and  the  headings  of  the  Chapters  in  the Regulations.      Chapter III  of the  Act contains section 15 to section 22A  and   bears  the   heading  "Reference,  Inquiries  and Schemes". Section  15 of the Act refers to the ‘Reference to Board’ either by the industrial Company under sub-clause (1) of Section  15 or  by the  Central Government or the Reserve

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Bank  or  a  State  Government  or  by  a  public  financial institution or  by State  local  institutions  or  Scheduled Banks. Section  16 refers  to ‘Inquiry  into the  working of Sick Industrial  Companies’ and  to the  declaration of  the unit as  a sick  industry, after  inquiry. Section  17 deals with ‘Powers  of  Board  to  make  suitable  orders  on  the completion of  inquiry’ to the company so as to make its net worth exceed its accumulated losses within a reasonable time or to direct the operating agency to prepare a scheme in the manner  provided  in  section  18.  Section  19  deals  with ‘Rehabilitation by the giving financial assistance’. Section 20 refers  to the winding up of the industrial unit if it is not likely  that the  Company will  be able  to make its net worth exceed  its accumulated  losses. Section 22 of the Act with which  we are concerned here, deals with ‘Suspension of legal proceedings,  contracts etc.’  where ‘an inquiry under section 16  is pending  or any  scheme under  Section 17  is under preparation or consideration or a sanctioned scheme is under implementation  or where  an appeal  under section  25 before the appellate authority (AAIFR) is pending.      The point  which has,  in this  context, been raised in several High  Courts is  that the  mere  registration  of  a reference by the BIFR under the Act, would not result in the automatic cessation  of all  proceedings which  are  pending either in  civil courts  or in  the Company  Court  etc.  as against its  assets. It is argued that in order that section 22 of  the Act  can come  into operation,  the BIFR  must  - subsequent  to  the  registration  of  the  reference  under section 15  - apply its mind and consider it necessary under section 16  to make  an inquiry  and issue  notices  on  the reference to  the affected  parties who  are required  to be heard, and  that only  then it can be said that an ‘inquiry’ is pending.  Unless an  inquiry is pending there cannot be a statutory  stay  of  proceedings  etc.  as  contemplated  by section 22 of the Act.      For the purpose of understanding the above point, it is necessary to  refer to  sub-clauses (1) to (4) of section 16 and section 22(1) of the Act. They read as follows:      "S. 16:  Inquiry  into  working  of      sick industrial companies - (1) The      Board may  make such  inquiry as it      may  deem   fit   for   determining      whether any  industrial company has      become a sick industrial company-           (a)   upon    receipt   of   a      reference  with   respect  to  such      company under Section 15; or           (b) Upon  information received      with respect  to  such  company  or      upon its  own knowledge  as to  the      financial condition of the company.      (2) The  Board  may,  if  it  deems      necessary or expedient so to do for      the  expeditious   disposal  of  an      inquiry  under   sub-section   (1),      require  by   order  any  operating      agency to  enquire into  and make a      report with respect to such matters      as may be specified in the order.      (3) The  Board or  as the  case may      be,  the   operating  agency  shall      complete     its     inquiry     as      expeditiously   as   possible   and      endeavour shall be made to complete      the inquiry  within sixty days from

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    the commencement of the inquiry.           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.      (4) Where the Board deems it fit to      make an  inquiry  or  to  cause  an      inquiry  to   be  made   into   any      industrial   company   under   sub-      section (1) or, as the case may be,      under  sub-section   (2),  it   may      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 or      in the public interest.      "Section 22(1): suspension of legal      proceedings, contracts  etc.: 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 (1  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  advance  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."      It is  to be  noticed that  according to section 22, in case  an  "inquiry  under  section  16"  is  pending,  then, notwithstanding anything  in the  Companies Act or any other instrument etc.,  no proceedings  for the  winding up of the company or for execution or distress or the like against the property of the company or for the appointment of a receiver and no  suit for  recovery of  money or  enforcement of  any security or  of any  guarantee -  shall lie  or be proceeded with further,  except with  the consent  of the Board or, as the case  may be,  by the  appellate authority.  Section 22A

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permits the Board pass certain conditional orders.      It is also to be noticed that sub-clause (1) of section 16 says  that the  Board ‘may’  make such  inquiry as it may deem fit  for determining whether any industrial company has become a  sick industrial  unit -  (a)  upon  receipt  of  a reference under  section 15 or (b) upon information received by it  or  upon  its  own  knowledge  as  to  the  financial condition of  the company.  Under sub-clause  (2) of section 16, the  Board ‘may’, if it deems it necessary or expedient, require any  operating agency  to inquiry  and report to it. Under sub-clause  (3), the  Board or the operating agency is to endeavour to complete the inquiry within 60 days from the date of  commencement of the inquiry. Explanation below sub- clause (3)  explains that  for purposes  of sub-clause  (2), that is  to say,  for computing  the period  of 60  days, an inquiry shall  be deemed  to have commenced upon the receipt by the Board or any reference or information or upon its own knowledge reduced  to writing by the Board. Under sub-clause (4), when  the Board  deems it  fit to make an inquiry under sub-clause (1)  or (2)  of section  16,  it  may  (the  word ‘shall’ has  been omitted  by Act 12 of 1994) appoint one or more directors etc.      Relying on  the use  of the word ‘may’ in section 16(1) of the  Act it  has been  contended in some High Courts that the word ‘may’ in that section shows that the BIFR has power to reject  a reference  summarily without  going into merits and that it is only when the BIFR takes up the reference for consideration on  merits under  section 16(1) that it can be said that  the ‘inquiry’  as  contemplated  by  section  has commenced. It  is argued  that if  the reference  before the BIFR is  only at the stage of registration under section 15, then section  22 is  not attracted.  This contention, in our opinion, has  no merit. In our view, when section 16(1) says that the  BIFR can 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 the  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 Corporation vs. Maharashtra Steels Ltd. [1990 67 Comp. Cases 412 (All)], the High  Court of  Andhra Pradesh in Sponge Iron India Ltd. vs. Neelima  Steels Ltd. [1990 68 Comp. Cases 201 (AP)], the High Court  of Himachal  Pradesh in  Orissa Sponge Iron Ltd. vs. Rishab  Ispat Ltd.  [1993] 78 Comp. Cases 264] are right in rejecting  such a  contention and  in  holding  that  the

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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.      The other  view that  mere registration does not amount to  "commencement   of  inquiry  under  section  16(1)"  for purposes of  section 22(1)  has been  taken by  the Calcutta High  Court  in  Bengal  Lamps  Case  (supra),  and  by  the Rajasthan   High    Court   in   Maruti   Udyog   Ltd.   vs. Instrumentation Ltd.  [1995 82  Comp. cases 485 (Raj)]. This view is  mainly based upon the provisions of the Regulations made under the Act.      We shall refer to these Regulations briefly. Chapter II of the  Regulations framed under section 13 of the Act bears the  heading  ‘Reference  under  section  15’  and  contains Regulation 19.  Chapter III  deals with  ‘General provisions regarding  Inquiries’   and  contains  Regulation  20  while Chapter IV  which bears  the heading  "Inquiry under section 16" contains  Regulations 21  to 25.  Chapter V  deals  with proceedings under section 17 and contains Regulation 26. For the present  purpose, we  are not  referring  to  the  other Chapters which are not very relevant.      The Division Bench of the Calcutta High Court in Bengal Lamps Ltd  Case (supra) - which case has been relied upon by the Bombay  High Court in the impugned order dated 8.8.1997, - has  held  that  at  the  stage  of  registration  of  the Reference under  section 15  of the Act read with Regulation 19 (in  Chapter II  of the  Regulations which refers only to section 15), there can be no question of commencement of any ‘inquiry’ referable  to section  16  of  the  Act.  Such  an inquiry can be treated as having commenced only at the stage of section  16 read with Regulation 21 (in Chapter IV of the Regulations which  refers to  section 16). On that reasoning it held that there can be stay as contemplated by section 22 only when section 16(1) stage of inquiry has arrived and not at the  stage of section 15 dealing with registration of the reference. It  further held  that it  is only when the BIFR, i.e. the  Bench of  the BIFR  issues notices  under  section 16(1) for inquiry or asks the operating agency to inquire, - that the  ‘inquiry’ can be said to have commenced. This line of reasoning  has been  applied by  the Rajasthan High Court also and  by the  Bombay High  Court in  the judgment  under appeal. Question is whether this view is correct?      Now, Regulation  19(4) which  is concerned with section 15  requires   that  upon   receipt  of   a  reference,   an acknowledgement is  to be  issued stating expressly that the reference has  been received  ‘subject to  verification that the reference is in order’. If on scrutiny, the reference is in order, then it will be registered under Regulation 19(5). Regulation 19(5)  has been amended recently with effect from 24.3.1994 which  is of a date very much subsequent, in point of time, to the date of Judgment of the Calcutta High Court. The new  Regulation 19(5) as substituted w.e.f. 24.3.1994 is in two parts and reads as follows:      "Reg. 19(5):  If on  scrutiny,  the      reference is  found to be in order,      it shall  be registered, assigned a      serial number  and submitted to the      Chairman  or   assigning  it  to  a      Bench.  Simultaneously,   remaining      information/documents required,  if      any, shall  be called  for from the      informant." The first  part says  that the reference, if it is in order,

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will be registered. The second part says that simultaneously notice shall  be issued calling for information or documents from the  informant. The  effect of  the amended  Regulation 19(5) is that even before any Bench of the BIFR can think of calling for  information under  Regulation  20(1)  or  under Regulation 21  read with  section 16,  it is  now  mandatory after  the   amendment  that  as  soon  as  a  reference  is registered, information/documents  shall be  called for from the informant  straightaway. The  point is whether when such information/documents  are  required  to  be  simultaneously called for at Regulation 19(5) stage, can it be said that an ‘inquiry’ under section 16(1) has commenced?      The above  question depends  upon what  is meant by the word ‘inquiry’  used in  section 16(1) of the Act. According to the  New Standard Dictionary, the word ‘inquiry’ includes ‘investigation’ into  facts, causes,  effects and  relations generally; ‘to  inquire’, according  to the  same dictionary means ‘to  exert oneself  to discover  something.  Chamber’s 20th Century  Dictionary lays  down that  the meaning of the term ‘to  inquire’ is  "to ask,  to seek" and the meaning of the term  ‘inquiry’ is  given  as:  "search  for  knowledge; investigation : a question".      Inasmuch as  under the  latter part of Regulation 19(5) it is necessary that simultaneously with the registration of the reference,  information/documents are  to be  called for from the  informant - the ‘inquiry’ must, in our opinion, be deemed to have commenced under section 16 of the Act at that stage itself,  namely,  at  stage  of  the  second  part  of Regulation 19(5) and it is no longer permissible to say that such a  stage is  reached only  when the BIFR issues notices and starts  an  inquiry  under  Regulation  20  calling  for additional information  ‘in relation to the inquiry’ or only when orders are passed by the BIFR under Regulation 21, read with section  16(1). The  result is  that strictly speaking, after the  amendment of  Regulation 19(5)  on 24.3.1994  the latter part  of Regulation 19(5) falls into Chapters III and IV of  the Regulations  which are  referable to  ‘Inquiries’ under section  16 of  the Act,  rather than  into Chapter II which deals  with ‘References’ under section 15. The Chapter headings  cannot,  in  out  opinion,  be  treated  as  rigid compartments.      There can,  therefore, be no difficulty in holding that after the  amendment to Regulation 19 w.e.f. 24.3.1994, once the reference  is registered  and when  once it is mandatory simultaneously to  call for  information/documents from  the informant and  such a direction is given, then inquiry under section 16(1)  must -  for the  purposes of  section 22 - be deemed to  have commenced.  Section 22  and the prohibitions contained in  it shall  immediately come  into play. In that view of  the matter,  we need not go into the correctness of the view  expressed by  the Calcutta,  Rajasthan and  Bombay High Courts  which relied  upon the unamended Regulation 19. Point 2 is decided accordingly.      On the  facts of  this case,  the impugned orders dated 28.7.1997 and  8.8.1997 of  the High  Court have been passed after the  BIFR proceedings reached the stage of second part of Regulation  19(5) on  24.7.1997  that  is  to  say,  when proceedings, as per the amended Regulation 19(5) reached the stage of inquiry under section 16(1). It must, therefore, be deemed that the said orders are illegal and are in violation of the prohibition contained in section 22 of the Act.      For the  aforesaid reasons,  the order  passed  by  the Division Bench  on 28.7.97 appointing Receiver and the order passed  by  another  Bench  of  the  High  Court  on  8.8.97 restoring the  provisional liquidator,  are set  aside.  The

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Civil appeals  are accordingly  allowed. There  will  be  no order as  to costs. The respondents are free, if need be, to approach the  BIFR under  section 22  and section 22A of the Act for  further orders,  if any,  in addition to the orders already passed by the BIFR in this behalf.