Calcutta High Court
Smith Stanistreet Pharmaceuticals ... vs Nester Pharmaceuticals (P.) Ltd. on 20 January, 1993
Equivalent citations: (1993)1CALLT234(HC), 1993(1)CHN368, [1995]82COMPCAS395(CAL), 97CWN349
JUDGMENT P.K. Majumdar, J.
1. This is an application by the applicant for stay of the operation of the judgment and order under appeal dated September 7, 1992, passed in Company Petition No. 155 of 1992 (Smith Stanistreet Pharmaceuticals Ltd.) and all proceedings thereunder. Smith Stanistreet Pharmaceuticals Ltd., a company incorporated under the Companies Act, 1956, is the appellant.
2. The petitioning creditor, Nester Pharmaceuticals (P) Ltd., a company incorporated under the Companies Act, 1956, presented an application under Sections 433 and 434 of the Companies Act, 1956, for winding up of the appellant-company on the ground, inter alia, that the company is commercially insolvent. According to the petitioning creditor, the appellant-company was indebted to the respondent petitioning creditor for a sum of Rs. 11,54,244.72 and after giving credit for payments, the balance sum was to the extent of Rs. 10,37,358.17 which sum the appellant-company failed to pay. Statutory notice was served on the appellant-company and there was no reply to such notice from the appellant-company.
3. The appellant-company raised the defence before the trial court that (i) there was no ascertained sum due by the appellant-company to the petitioning creditor. Until the accounts were reconciled, it could not be said as to what was the exact sum payable by the appellant to the petitioning creditor, (ii) the appellant-company had made payments to the petitioning creditor subsequent to the issuance of the statutory notice under Section 434 of the Companies Act and as such the petitioning creditor must be deemed to have waived its right to take proceedings for the purpose of winding up of the company, and (iii) there was no agreement as to the payment of interest.
4. The learned trial judge rejected outright the first two contentions of the appellant-company and regarding the last contention as to interest the learned trial judge held that the letter dated December 4, 1990, being a statutory notice may be construed as notice under the Interest Act. It appeared to the learned trial judge that in any event the presumption of insolvency under Section 434 of the Companies Act, 1956, had not been rebutted by the appellant-company. In the result, the petition was admitted subject to scrutiny for an amount of Rs. 10,37,358.27 together with interest at the rate of 18 per cent. per annum from December 8, 1990, till the date of filing of the petition and cost assessed at 30 G.Ms. The directions for advertisement were given and the application was made returnable six weeks hence.
5. The said petition was duly advertised in terms of the directions of the trial court. On the returnable date the appellant submitted before the learned trial judge that the appellant had made a reference under the Sick Industrial Companies (Special Provisions) Act, 1985 (Act 1 of 1986), but no enquiry had yet been commenced under Section 16 of the said Act. The appellant also prayed before the learned trial judge that the appellant be allowed to make payment of the petitioning creditor's dues by easy instalments in view of the fact that the appellant was under severe financial constraints.
6. The learned trial judge on those submissions held by an order dated September 7, 1992, that mere reference under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985, was not a bar to the court proceeding with the winding up of the company. On the submission regarding financial constraints, the learned trial judge held that the court should also keep in view the interest of the petitioning creditor who could not be driven into a state of sickness by reason of the company's illness or inability to pay the petitioner's dues.
7. By the said order dated September 7, 1992, the appellant-company was directed to be wound up and the official liquidator was directed to take possession of the assets of the company forthwith. The said order, however, provided that if the appellant could make payment of the dues for which the winding up petition has been admitted by monthly instalment of Rs. 1 lakh each, save and except the last one which will be for the amount then remaining due, the operation of the said order dated September 7, 1992, would remain stayed. The first of such instalments was directed to be paid on or before September 25, 1992, and all subsequent instalments to be paid by 25th of each succeeding month. The order further provided that in default of the company making payment of any instalment or any portion thereof as directed by the said order, the stay would stand vacated and the official liquidator should take possession of the assets of the company forthwith.
8. The appellant, by this application is asking for stay of the operation of the said order. It appears that the appellant-company had paid September and October instalments. The November instalment was paid within the time extended by this court. The December instalment has not been paid although on a prayer of the appellant-company, the time for payment of December instalment was extended by this court.
9. It is submitted on behalf of the appellant that the Board for Industrial and Financial Reconstruction (for short "BIFR") has already initiated an enquiry under Section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the said Act"), and a scheme might be formulated under Section 17 of the said Act. Learned counsel appearing on behalf of the appellant, therefore, submits that under Section 22(1) of the said Act, the court should stay the proceedings for winding up of the appellant-company including this appeal, as under the provisions of Section 22(1) of the said Act no proceeding for winding up of the company or for execution, distress or the like against any of the properties of the company or for the appointment of the receiver in respect thereof shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority.
10. The appellant submits that in view of clear mandate in the said Section 22(1) of the Act the operation of the trial court's order under appeal should remain stayed until the conclusion of the proceedings pending before the BIFR. It is also submitted on behalf of the appellant that since the appeal had already been preferred from the trial court's order and it is a continuing proceeding for winding up of the appellant-company, the court should be pleased to stay the operation of the order of the court of first instance directing the payment of the petitioning creditor's dues by instalments.
11. This application is being opposed by the petitioning creditor. Learned counsel for the petitioning creditor submits that when the company has been wound up by an order of court, the BIFR has no jurisdiction to entertain any matter in relation to the company wound up by an order of court so long as the order winding up the company subsists. It is submitted by learned counsel for the respondent petitioning creditor that the proceeding as mentioned in Section 22(1) of the said Act means winding up proceedings up to the stage of the order winding up the company, and the proceeding as contemplated in the said Act comes to an end when the company is wound up by an order of court.
12. Learned counsel for the respondent submits that the sick company as defined in the said Act refers to an existing company and not to a company in liquidation. Therefore, according to the submissions of learned counsel for the respondent, the BIFR can initiate enquiry under Section 16 of the said Act in respect of an existing company and not with regard to a company directed to be wound up by an order of court.
13. Learned counsel for the respondent has referred to a Supreme Court decision in Sudarsan Chits (L) Ltd. v. G. Sukumaran Pillai [1985] 58 Comp Cas 633 and a decision of the Karnataka High Court in Shanmugam (K.SP.V.) v. Maharashtra State Co-operative Cotton Growers Marketing Federation Ltd. [1991] 70 Comp Cas 440. Counsel has also referred to an unreported judgment of a single judge of this court in New Tobacco Co. Ltd., In re (C. P. No. 621 of 1987) delivered on April 6, 1992.
14. Learned counsel for the appellant has submitted that the said decision of the Karnataka High Court has no application to the present case as in that case there was no reference to the BIFR by the board of directors. In the present case there was a reference by the board of directors during the pendency of the winding up proceedings. But no initiation of enquiry under Section 16 was made during the pendency of the winding up proceedings. It is also submitted by learned counsel for the appellant that in the present case the official liquidator has not yet taken possession of the assets of the company and as such the process of winding up is continuing and it is a proceeding for winding up of the company within the meaning of Section 22(1) of the said Act.
15. Learned counsel for the appellant submits that the expression "proceedings" in Section 22(1) of the Act covers all stages of proceedings of winding up of the company both prior to the order of winding up of the company and subsequent to the order until the official liquidator takes possession of the assets of the company after making of the order winding up the company. We are unable to accept the aforesaid contentions of the appellant.
16. There is some substance in the submissions made on behalf of the respondent petitioning creditor that the operation of the order under appeal cannot be stayed by invoking the provisions contained in Section 22(1) of the said Act, as under the scheme of the said Act the BIFR cannot entertain any proceeding in respect of a company directed to be wound up by an order of court.
Section 22(1) of the said Act reads as follows :
"22. (1) Where, in respect of an industrial company, an enquiry 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 shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority".
17. This provision came up for consideration before the Karnataka High Court in the case of Shanmugam (K. SP. V.) v. Maharashtra State Cooperative Cotton drawers Marketing Federation Ltd, [1991] 70 Comp Cas 440. In interpreting the said Sub-section (1) of Section 22 of the said Act, the Karnataka High Court had made a distinction between the stages prior to the order of winding up of the company and thereafter. It is observed as follows (at 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 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. 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 proceeding 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 be 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."
18. The Supreme Court in Sudarsan Chits (I.) Ltd.'s case, , inter alia, observed that if a winding up petition is pending meaning thereby that an official liquidator is appointed as provisional liquidator which is a stage in the process of winding up, the court before which such proceeding is pending can be styled as a court winding up the company and ipso facto it would have jurisdiction to entertain the proceeding enumerated in Clauses (a) to (d) of Sub-section (2) of Section 446 of the Companies Act. The Supreme Court also observed that it is now well-settled that a winding up order once made can be revoked or recalled, and till it is revoked or recalled it continues to subsist.
19. In our opinion, the expression "proceeding" in Section 22, Sub-section (1) of the Act means the proceeding up to the order of winding up of a company by a court. Under Section 22(1), if there is an enquiry under Section 16 of the said Act or any scheme is formulated under Section 17 of the said Act, the proceedings for winding up of the company should not be proceeded with and all proceedings in the winding up of the proceedings should remain stayed till the conclusion of the proceedings before the BIFR. We are of the opinion that once the winding up order has been made by the court in a proceeding for winding up of the company, the proceeding for winding up of the company comes to an end, and the other provisions in the Companies Act, 1956, relating to the company in liquidation will come into play and the official liquidator after taking possession of the assets of the company in liquidation will discharge his functions as specified in various provisions of the Companies Act, relating to the company in liquidation.
20. In the said unreported decision in New Tobacco Company Ltd., In re (Company Petition No. 621 of 1987, dated April 6, 1992), the learned judge dealing with the case has observed that from the definition of a sick company in Section 3(o), the reference is to an existing company and under Section 20 of the said Act, after considering all possible measures, if BIFR is of the opinion that it is just and equitable that the company should be wound up, it may record and forward its opinion to the concerned High Court. The High Court is then required on the basis of such opinion of the Board to order the winding up of the company. Therefore, as observed in the said judgment, the termination of proceedings before the BIFR is the winding up order and if the company has already been wound up then there would no question of BIFR being of the opinion that the company should be wound up or the court passing a second winding up order on the opinion of the BIFR. It is also observed that the stage of the proceedings relating to the company must be pre-winding up and not where the company has already been wound up. We entirely agree with this observation of the learned judge in the said matter of New Tobacco Co. Ltd., In re (C. P. No. 621 of 1987, dated April 20, 1992).
21. The Karnataka High Court in Shanmugam (K. SP. V.) v. Maharashtra State Co-operative Cotton Growers Marketing Federation Ltd. [19911 70 Comp Cas 440 has also brought out this distinction which we have referred to above. It is observed by the Karnataka High Court that 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. We accept and agree with the view expressed by the Karnataka High Court in Shanmugam's case [1991] 70 Comp Cas 440.
22. We hold, therefore, that in the facts of this case, the BIFR has no jurisdiction to initiate and entertain the proceedings relating to the company in liquidation.
23. For the reasons aforesaid, we are not inclined to grant any stay of the operation of the order of the learned trial court dated September 7, 1992, and the appellant should comply with the direction contained in the said order and may apply to the trial court for extension of time to make payment of the remaining instalments.
24. This application is, therefore, dismissed. In the facts and circumstances of the case, there will be no order as to costs.
25. Counsel for the appellant submits that in view of the judgment and order made today, nothing remains in the appeal and the appeal need not be kept pending.
26. The appeal is treated as on day's list and the appeal stands dismissed for non-prosecution. We affirm the judgment and order under appeal.
Samaresh banerjea, J.
27. I agree.