Punjab-Haryana High Court
Rishabh Agro Industries Ltd. vs Pnb Capital Services Ltd. on 18 April, 1998
Equivalent citations: [2000]101COMPCAS245(P&H)
Author: K.S. Kumaran
Bench: K.S. Kumaran
JUDGMENT G.S. Singhvi, J.
1. By this order, we are deciding the application filed by the applicant under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the Act of 1985"), for staying the proceedings arising out of Company Petition No. III of 1995.
2. The facts necessary for deciding this application are that the respondent instituted a petition under section 433(e) and (f) read with section 434 of the Companies Art, 1956, with the allegation that the applicant-company has failed to pay the amount due and payable to it, i.e., the respondent. After issuing notice of the petition, the learned company judge granted three adjournments to the appellant-company on December 15, 1995, March 14, 1996, and May 16, 1997, in view of its undertaking that the amount due to the petitioner (respondent herein) will be paid. However, the appellant failed to act in accordance with the undertaking given before the learned company judge. Consequently, he ordered the winding up of the appellant-company.
3. The appellant-company filed Company Appeal No. 26 of 1997 for quashing of the order passed by the learned company judge. Along with the appeal, it filed C.M. No. 63 of 1997 for staying the operation of the order, dated September 5, 1997.
4. When the matter was listed for motion hearing on September 18, 1997, the Division Bench took cognisance of the statement made by learned counsel for the appellant that his client is willing to pay all outstanding dues and directed the issuance of notice of motion. Simultaneously, the operation of the order, dated September 5, 1997, was stayed.
5. After the issuance of notice of motion in Company Appeal No. 26 of 1997 and the grant of stay by the Division Bench of the High Court, the board of directors of the appellant-company passed a resolution to make reference to the Board for Industrial and Financial Reconstruction (hereinafter described as "BIFR") under section 15(1) of 1985 Act to declare the appellant a sick undertaking. The reference made by the appellant-company was received in the office of the BIFR on September 30, 1997. It was registered on October 16, 1997, and on December 1, 1997, a Bench of the BIFR declared that it was necessary in public interest to take measures specified under section 18 of the Act in relation to the company. Accordingly, it appointed the IDBI as the operating agency to examine and prepare a viability study report.
6. Learned counsel for the applicant-appellant argued that in view of the provisions of section 22 of the Act of 1985, the proceedings arising out of Company Petition No. 111 of 1995 should be stayed because the BIFR has entertained the application filed by the appellant and initiated action under section. 17(3) of the Act of 1985. He argued that in view of the prohibitive language used in section 22(1) of the Act of 1985, which also contains a non obstante clause, the hearing of the company appeal must be adjourned sine die till the decision of the petition filed by the appellant before the BIFR. Jagdeep Kishore, learned counsel for the respondent, opposed the prayer made by Narang and argued that the provisions of section 22 of 1985 Act are not attracted in a case like the present one because the winding up order was passed prior to the making of the reference under section 15(1) of the 1985 Act. Learned counsel further argued that the stay order passed by the Division Bench on September 18, 1997, cannot enure to the benefit of the appellant because it did not have the effect of obliterating the order of winding up passed by the learned company judge.
7. We have thoughtfully considered the respective contentions. Section 22(1) of the 1985 Act, which has been relied upon by learned counsel for the applicant-appellant, for indefinite adjournment of the proceedings of the appeal reads as under :
"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 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 proceeding 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."
8. The submission of Narang is that the expression "proceedings" used in section 22(1) of the Act covers all stages of winding up proceedings, i.e., both prior to the passing of the order of winding up and subsequent thereto, until the official liquidator takes possession of the assets of the company. In our opinion, the aforesaid contention of Narang is without merit. The expression "proceeding" appearing in section 22, sub-section (1) of the Act means the proceeding up to the stage of passing of winding up order by the court. In terms of section 22(1), proceedings for winding up of the company cannot be proceeded with and all such proceedings shall remain stayed till the conclusion of the proceedings before the BIFR, if an enquiry is pending under section 16 of the 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 order has been made by the court, proceedings for winding up of the company come to an end, and the other provisions in the Companies Act, 1956, relating to the company in liquidation come 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.
9. In K. S. P. V. Shanmugam v. Maharashtra State Co-operative Cotton Growers Marketing Federation Ltd. [1991] 70 Comp Cas 440 (Kar) the Karnataka High Court while interpreting section 22(f) of 1985 Act made a distinction between the stage prior to the making of an order of winding up and thereafter and observed as follows (page 443) :
". . . the court must not fail to notice that there is always a difference between an order in winding up and an order of winding 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. Orders in winding up may be many and may relate to several matters which arise before the court, before making the final order allowing or dismissing the petition. If the petition is allowed, a winding up order must necessarily follow as provided under the Act and the consequences automatically follow if a winding up order is made. Therefore, what is contemplated under sub-section (1) of section 22 is the staying of the proceedings before the court in case a winding up order is not made and not where a winding up order is made. With this one exception, if an order in winding up is made appointing the official liquidator or a receiver, then also by virtue of section 31 of the Act, the proceedings of winding up will continue notwithstanding the Act as mandated under section 31 of the Act, which reads as follows :
'31. Saving of pending proceedings. - Where a receiver or an official liquidator has been appointed in any proceedings pending immediately before the commencement of this Act in any High Court for winding up of an industrial company, such proceedings shall not abate but continue in that High Court'.
Therefore, from whatever angle one may look at it, this petition is liable to the dismissed. It is accordingly, dismissed subject to the observation that if there is a rehabilitation scheme which may revive the company, such scheme should be proposed to the court after notice to the official liquidator and that will be considered and disposed of in accordance with law."
10. The above extracted observations made by the Karnataka High Court have been treated as laying down the correct law by a Bench of the Calcutta High Court in Smith Stanistreet Pharmaceuticals Ltd. v. Nester Pharmaceuticals (P.) Ltd. [1995] 82 Comp Cas 395. The facts of that case show that after the issuance of an order of admission of the company petition, the learned company judge ordered winding up of the appellant-company on September 7, 1992. While doing so, he rejected the contention urged on behalf of the appellant that it had made a reference to the BIFR under section 15 of the Act of 1985. The appellant-company challenged the orders of the learned company judge in appeal and sought its stay on the ground of pendency of reference under the Act of 1985. A Division Bench of the Calcutta High Court relied on the observations made in K. S. P. V. Shanmugam's case [1991] 70 Comp Cas 440 (Kar), and held that the BIFR has no jurisdiction to initiate and entertain the proceedings relating to the company liquidation, and on that ground, it refused to stay the operation of the order of the learned company judge.
11. In Shree Chamundi Mopeds Ltd. v. Church a South India Trust Association [1992] 75 Comp Cas 440; AIR 1992 SC 1439, their Lordships of the Supreme Court considered the effect of the stay order passed by the Delhi High Court on the order of the Appellate Authority. In that case the proceedings under section 433(3) of the Companies Act were initiated against the appellant. During the pendency of the winding up petition, the appellant filed a reference under section 15(1) of the 1985 Act. On April 26, 1990, the BIFR gave a final opportunity to submit a rehabilitation proposal, etc., subject to the condition that if no acceptable rehabilitation scheme is received by the BIPR within one month, the case for winding up will be forwarded to the High Court. The appeal filed by the company against the order of the BIFR was dismissed by the Appellate Authority. However, in a writ petition filed by the appellant in the High Court of Delhi, the operation of the order passed by the Appellate Authority was stayed. In the meantime, the winding up petition was taken up for consideration by the learned single judge of the Karnataka High Court who passed an order of winding up on August 14, 1991. The appeal filed by the appellant was dismissed by the Division Bench. One of the questions raised before the apex court was whether the proceedings initiated under the Act of 1985 could be treated as pending in view of the stay order passed by the Delhi High Court staying the operation of the order passed by the Appellate Authority. Their Lordships of the Supreme Court analysed the provisions of section 22(1) in the following words (page 447) :
"A perusal of the aforesaid provision shows that it is applicable, in respect of an industrial company, where (i) an enquiry under section 16 is pending; or (ii) a scheme referred to in section 17 is under preparation or consideration, or (iii) a sanctioned scheme is under implementation; or (iv) where an appeal under section 25 relating to the industrial company is pending. In any of the events, no proceedings 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 appointment of receiver in respect thereof shall lie or be proceeded with further. This injunction is, however, subject to the exception that the proceedings can be instituted or proceeded with further with the consent of the Board or the Appellate Authority. In other words there is no absolute bar to the institution of proceedings referred to in section 22(1) and for the operation of the bar imposed by the said section, it is necessary that one of the four matters referred to therein should be pending so that directions may be obtained either from the Board or the Appellate Authority for institution or continuation of a proceeding of the type specified in section 22(1)."
12. Thereafter, the Supreme Court examined the effect of the stay order passed by the Delhi High Court and held as under (page 448) :
"The said stay order of the High Court cannot have the effect of reviving the proceedings which had been disposed of by the Appellate Authority by its order, dated January 7, 1991. While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order. Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay of operation of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order, and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the Appeal which had been disposed of by the said order of the Appellate Authority would be restored, and it can be said to be pending before the Appellate Authority after, the quashing of the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of the Appellate Authority because in spite of the said order, the order of the Appellate Authority continues to exist in law and so long as it exists, it cannot be said that the appeal which has been disposed of by the said order has not been disposed of and is still pending. We are, therefore, of the opinion that the passing of the interim order, dated February 21, 1991, by the Delhi High Court staying the operation of the order of the Appellate Authority, dated January 7, 1991, does not have the effect of reviving the appeal which had been dismissed by the Appellate Authority by its order, dated January 7, 1991, and it cannot be said that after February 21, 1991, the said appeal stood revived and was pending before the Appellate Authority. In that view of the matter, it cannot be said that any proceedings under the Act were pending before the Board or the Appellate Authority on the date of the passing of the order, dated August 14, 1991, by the learned single judge of the Karnataka High Court for winding up of the company or on November 6, 1991, when the Division Bench passed the order dismissing O.S.A. No. 16 of 1991 filed by the appellant-company against the order of the learned single judge dated August 14, 1991. Section 22(1) of the Act could not, therefore, be invoked and there was no impediment in the High Court dealing with the winding up petition filed by the respondents. This is the only question that has been canvassed in Civil Appeal No. 126 of 1992, directed against the order for winding up of the appellant-company. The said appeal, therefore, fails and is liable to be dismissed."
13. In the present case, the proceedings under the Act of 1985 were not pending on the date of passing of the winding up order, i.e., September 5, 1997. In fact, such proceedings were not pending even on the date of passing of the stay order by the Division Bench in Company Appeal No. 26 of 1997. It appears from the record that after having succeeded in per-suading the Division Bench to stay the operation of the order, dated September 5, 1997, the board of directors of the appellant-company resolved to make reference to the BIFR with a view to avoid the consequences of the winding up order. In our considered opinion, on the basis of reference made by the board of directors to the BIFR on September 30, 1997, the proceedings of winding up petition cannot be ordered to be held in abeyance. Similarly, the stay order passed by the Division Bench on September 18, 1997, cannot be made a ground to stultify the proceedings arising out of Company Petition No. 111 of 1995 and applying the ratio of the decisions of the Karnataka and Calcutta High Courts and the Supreme Court, we hold that section 22(1) of the Act of 1985 is not attracted in the present case in view of the fact that the order of winding up had already been made.
14. reasons mentioned above, the application filed under section 22 of the 1985 Act is dismissed.