Madras High Court
Tan India Ltd. (In Liquidation) vs Sundaram Finance Ltd. on 30 November, 2001
Equivalent citations: [2002]108COMPCAS591(MAD)
JUDGMENT E. Padmanabhan, J.
1. This application has been taken out by Tan India Ltd., seeking to set aside the order of winding up passed by this court on 25-6-2001, in C.P. No. 243 of 1997. This application is being resisted by the petitioner in the company petition on very many grounds.
2. Before taking up this application, it is essential to refer to the earlier order. In C.P, No. 243 of 1997, N.V. Balasubramanian J., on 25-6-2001, passed an order winding up Tan India Ltd. The said winding up order has been passed as the learned judge arrived at the conclusion that the company is unable to pay its debts and the company is commercially insolvent. The learned judge held thus :
"2. Insofar as C.P. No. 243 of 1997 is concerned, the case of the petitioner is that it carries on business in extending hire purchase and leasing facility on vehicles and machinery and equipment. According to the petitioner, the respondent entered into a hire purchase agreement with it. The respondent undertook to pay amount due in instalments. The respondent-company committed default in payment of instalments due from November 30, 1995, in respect of several other hire purchase agreements. In spite of demands made by the petitioner, the respondent has not made any payment. According to the petitioner, the respondent is due and liable to the petitioner, as on 15-2-1997, for a sum of Rs. 1,02,52,136.96 in respect of several hire purchase agreements. It is stated that notice has been issued on 18-1-1997, demanding the respondent-company to pay the said sum of Rs. 1,02,52,136.96. But the respondent-company even after the receipt of statutory notice has failed to make the payment.
3. The respondent-company was served and has been taking time. They have not filed counter-affidavit. They have not seriously disputed their liability. The attitude of the respondent-company in other company petitions is also similar. The respondent-company has been taking time in one pretext or other and the matter was getting adjourned at the request of the respondent-company.
4. On 11-6-2001, the managing director of the respondent-company filed an affidavit staling that the respondent-company as on 30-9-2000, has become a sick industrial company within the meaning of Section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act. Balance-sheets for five years were also filed. Annual general body meeting of the company was held on 31-3-2001. It is stated that a reference has been made under Section 15 of the said Act to the Board for Industrial and Financial Reconstruction (BIFR), New Delhi on 30-5-2001. The managing director of the respondent-company has prayed that in view of the pendency of the matter before the BIFR, the matter should be stayed and the company petitions should be adjourned.
5. Along with the affidavits, the respondent-company has also enclosed references made to the Secretary, BIFR, New Delhi, enclosing the board resolution copies, company's registration certificate, factory licence for four divisions, etc., and a receipt issued by Blue Dart Express Limited on 30-5-2001.
6. Learned counsel for the respondent relied upon a decision reported in Rishab Agro Industries Ltd. v. P.N.B. Capital Services Ltd. and submits that in view of Sections 15 and 16 of the Sick Industrial Companies (Special Provisions) Act, 1985, an enquiry shall be deemed to have been commenced for the purposes of Section 22 of the Act, from the date of submission of the reference under Section 15 of the Act. He further submits that since reference has been sent to the BIFR under Section 22 of the said Act, further proceedings should be stayed. Learned counsel for the petitioner referred to a decision of the Supreme Court in Real Value Appliances Ltd. v. Canara Bank , and submitted that 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 courts, etc., as against its assets and unless an inquiry is pending there cannot be a statutory stay of proceedings, etc., as contemplated by Section 22 of the Act.
7. Learned counsel for the petitioner submits that the respondent-company has not produced any material to prove the reference being made to the BIFR under Section 15 of the Act and as there is not proof, bar under Section 22 of the Act does not apply.
8. I have carefully considered the submissions made by learned counsel for the petitioner as well as by the respondent-company. Though in the affidavit, the managing director has stated that reference has been made to the BIFR, he has not filed any proof of receipt by the BIFR except a receipt from Blue Dart Express Limited dated 30-5-2001, and there is no proof for the receipt of reference to the BIFR.
9. Learned counsel for the respondent-company requires adjournment for production of the material for the proof of receipt of reference made to the BIFR and the matter has been adjourned. Today, the matter is posted. Today also the respondent has not produced any proof of evidence, though it has been stated in the affidavit that reference has been received by the BIFR on 31-5-2001.
10. In the absence of the material or evidence to show that reference has been received by the BIFR, I have to hold that the bar under Section 22 of the Act does not apply. The respondent has not established the bar under Section 22 would apply as there is no receipt for the reference by the BIFR. Once, Section 22 of the Act is out of the way, I hold that the respondent-company is liable to be wound up. The petitioner submits that the respondent-company is liable to pay Rs. 1,02,52,136.96 even as early as 15-2-1997. The respondent-company has not seriously disputed the same. The respondent- company is also liable to pay huge sums to other petitioners in other company petitions. The respondent-company is not in a position to discharge their current liability and has not established that it is commercially solvent.
11. I therefore hold that the respondent is not in a position to discharge their current liability and accordingly, the respondent-company is ordered to be wound up."
Thereafter, the present application has been filed on 29-6-2001, seeking to set aside the order dated 25-6-2001, under Section 466 of the Companies Act, 1956, read with rules 9 and 11 of the Companies (Court) Rules, read with Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The application is being opposed as not maintainable, in that the order of winding up has been passed even prior to a reference being made under Section 15 of the Sick Industrial Companies (Special Provisions) Act.
3. Mr. Kadarkarai, the learned counsel appearing for the company, Tan India Ltd., who is the applicant in this company application contended that the order of winding up has to be set aside.
4. According to the company, the company is a sick industrial company and a reference under Section 15 of the Sick Industrial Companies (Special Provisions) Act, was made on 30-6-2001. The said reference was received by the BIFR on 1-6-2001. The affidavit has also been placed by the counsel on record apart from the supporting affidavit filed by the managing director of the applicant-company. It is admitted that on 25-6-2001, the company petitions filed by various creditors came up for enquiry before this court. This court ordered winding up of the company on the basis that there is no proof to show that a reference under Section 15 is made to the BIFR by the company. Subsequently, proof has been received and, it is contended that this court may set aside the order dated 25-6-2001, and reopen C.P. No. 243 of 1997.
5. The only ground on which the order of winding up is sought to be set aside is that at the time of winding up, the company could not produce the materials in support of its claim that reference under Section 15 has been made and that the winding up proceedings has to be set aside as proof has been submitted.
6. On behalf of the petitioner-company, the said application has been resisted relying upon the decision of the Apex Court in Real Value Appliances Ltd. v. Canara Bank [1998] 93 Comp. Cas. 26, 16 SCL 445; and contending that from the time of registration of reference by the BIFR, the enquiry under Section 16 is deemed to commence. In other words, the proceedings under the Sick Industrial Companies (Special Provisions) Act, commence only from the time of registration and not before. In the present case, it is pointed out that the winding up order came to be passed by this court on 25-6-2001, and being a valid order, it is not liable to be set aside.
7. As already pointed out, a number of winding up petitions were pending against Tan India Ltd. It is essential to set out certain material dates. C.P. No. 243 of 1997 was presented on 29-4-1997. The company petition was taken on file on 3-9-1997. This court ordered notice regarding admission on 12-9-1997. Since then onwards, the company petition is kept pending. As held by N.V. Balasubramanian, J. the respondent-company had not filed its counter nor has it disputed its liability. The respondent-company has been taking time under some pretext or other and is only interested in postponing the hearing.
8. On 25-6-2001, this court ordered winding up of the respondent-company and appointed the Official Liquidator to take charge and manage the affairs of the company. The said order of winding up had not been challenged, but the present application has been filed to set aside the order on the sole ground that a reference has been made under Section 15 of the Sick Industrial Companies (Special Provisions) Act. It is pointed out that the reference has been registered as Case No. 311 of 2001, dated 6-8-2001. The company has filed an affidavit and has also produced a copy of the reference. The order of winding up has been passed as no material has been placed before the learned judge to show that a reference under Section 15 is pending.
9. It is rightly pointed out that on the date of hearing, the respondent-company has merely produced a courier service receipt to show that the company had forwarded papers to the BIFR. However, now only the company had produced a true copy of the letter from the registrar, BIFR, dated 6-8-2001. The letter has been certified to be a true copy on 9-8-2001. As seen from the said letter, a reference dated 29-5-2001, has been registered as Case No. 311 of 2001 on 1-6-2001. The company has been directed to send a copy of Form A along with the enclosures filed by the company to the banks and financial institutions immediately and report compliance with the directions to be undersigned within fifteen days of receipt of the said letter. The reference has been made under Section 15, but it had not been taken on file on the date. The registry has also received a letter on 10-8-2001, from the registrar, BIFR, dated 6-8-2001, to the effect that a reference under Section 15 has been registered in Case No. 311 of 2001, dated 6-8-2001.
In the light of the above material dates, the question that arises for consideration is :
"Whether the order passed in the company petition is liable to be set aside on the ground that a reference before the BIFR is pending ?"
10. The order of winding up could be set aside under Rule 9, or under Rule
11. In the present case, only on 6-8-2001, a reference made under Section 15 has been numbered as Case No. 311 of 2001, dated 6-8-2001. But even on 25-6-2001, the company has been ordered to be wound up. Therefore, it is clear that on the date when this court ordered winding up, there was no legal impediment and the order of winding up is not liable to be set aside, nor liable to be interfered with on that score.
However, Mr. Kadarkarai, the learned counsel appearing for the company, while drawing the attention of this court to Section 22 of the Sick Industrial Companies (Special Provisions) Act, points out that all the further proceedings have to be stayed, which includes the proceedings even after winding up order being passed.
11. Per contra, Mr. Seshadri, the learned counsel appearing for the petitioner-company points out that the winding up order has been validly passed and it is not liable to be interfered with and if at all, there could be a stay of all further proceedings, but the same will not take away the vesting of the properties of the company with the liquidator.
12. The attention of this court is drawn to the pronouncement of the Apex Court in Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. [2000] 101 Comp. Cas. 284. The Apex Court in the said case held that the passing of winding up order is the commencement and not culmination of the proceedings before the company judge. It has also been held that passing of an order of winding up by a company court will not denude the powers of the board of directors of the company of its jurisdiction to move the BIFR under Section 15(1). The Apex Court, further held that the object of the Sick Industrial Companies (Special Provisions) Act, is to afford maximum protection and Section 22 of the Act stays all further proceedings even after the passing of the winding up order. While considering the scope of Section 22, the Apex Court held thus :
"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 may also be noticed that the 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 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'." (p. 292) Therefore, it follows that all further proceedings to be proceeded after winding up order under the company petition has to be stayed by this court till the disposal of pending reference in Case No. 31. of 2001 on the file of the BIFR has to be stayed.
13. This court is not inclined to set aside the winding up order since on the date when the winding up order was passed, the learned judge had rightly held that the company has to be wound up as it is unable to pay its debts, it is commercially insolvent and it is not in a position to discharge its current liability.
Therefore, the order of winding up is not liable to be set aside, but there will be a stay of all further proceedings in the company petition pending the reference in Case No. 311 of 2001 pending before the BIFR. Liberty is given to either parties to move this court as and when the proceedings before the BIFR conclude. It is needless to add that the vesting of the company on the passing of winding up and the consequence under Section 456(1) and (2) will be operative, but subject to the proceedings before the BIFR.