Karnataka High Court
Loharu Steel Industries Ltd. vs D.C.M. Ltd. on 18 August, 2001
Equivalent citations: [2001]107COMPCAS353(KAR), ILR2001KAR4673, 2001 AIR - KANT. H. C. R. 2901, 2002 CLC 80
Author: P. Vishwanatha Shetty
Bench: P. Vishwanatha Shetty, V.G. Sabhahit
JUDGMENT P. Vishwanatha Shetty, J.
1. The appellant in this appeal was the respondent before the Company Judge in Company Petition No. 74 of 1998. In this appeal, he has called in question the correctness of the order dated 1-12-2000, made in the said company petition directing winding up of the appellant-company under the provisions of the Companies Act.
2. The impugned order passed by the learned Single Judge was stayed by this Court on 15-6-2001, for a period of eight weeks. It is not disputed by Sri Thomoas V. Peter appearing for the official liquidator that he has not yet taken possession of the appellant-company,
3. Sri Basavaprabhu S. Patil, the learned counsel appearing for the appellant and Sri Nanjundaswamy, the learned counsel appearing for the first respondent submitted that the dispute between the appellant-company and the first respondent has been amicably settled and in terms of the settlement arrived at between the parties, the appellant has today handed over a DD for a sum of Rs. 5,50,000 in full and final settlement of all the claims of the appellant against the first respondent. They further submitted, since the appellant has paid a sum of Rs. 5,50,000 towards the full and final settlement of all the claims of the first respondent against the appellant, the order passed by the learned Company Judge winding up the appellant-company may be set aside. Sri Nanjundaswamy further submitted that, since the claim of the first respondent has been settled as stated above, the first respondent does not press his petition filed for the winding up of the appellant-company.
4. Sri Basavaprabhu S. Patil further submitted, since the order impugned has been passed by the learned Company Judge on the petition filed by the first respondent seeking winding up of the company and since the claim of the first respondent has been fully satisfied and the first respondent has made his statement before this Court that he does not press the winding up petition filed by him, on that short ground alone, the order impugned passed by the learned Company Judge is required to be set aside.
5. It is the further submission of Sri Patil that, the view taken by the learned Company Judge that once an order is made by the BIFR and an opinion is referred to the court under Sub-section (2) of Section 20 of the Sick Industrial Companies (Special Provisions) Act, 1985 ('the SIC Act'), the court is bound by the decision of the BIFR and required to pass an order of winding up is not correct in law. According to him, though the word 'shall' is used under Sub-section (2) of Section 20, the word 'shall' is in the nature of the power conferred on the Company Court and must be considered as directory in nature allowing a lot of discretion to the court to decide as to whether in the facts and circumstances of the case a company is required to be wound up or not. It is his submission, the power for winding up of a company having been conferred on this Court under Section 433 of the Act, this Court is required to keep in mind the principles governing winding up of the company as set out in the said provision, while considering the opinion furnished by the BIFR under Sub-section (1) of Section 20. In support of his submission that the opinion furnished by the BIFR is not conclusive and the Company Court is required to independently decide the matter, he relied upon the decision of the Madras High Court in J.M. Malhotra v. Union of India [1997] 89 Comp. Cas. 600 and also the decision of the Hon'ble Supreme Court in the case of V.R. Ramaraju v. Union of India [1997] 89 Comp. Cas. 609 approving the decision of the Madras High Court.
6. Having elaborately heard the learned counsels appearing for the parties, we are of the view that the order impugned passed by the learned Company Judge is required to be set aside and the matter requires to be remitted for fresh consideration on two grounds. Firstly, on the ground that the learned Company Judge has proceeded to pass the impugned order, as rightly pointed out by Sri Patil that Sub-section (2) of Section 20 docs not leave any option to the Company Court than to make an order for winding up of a company after an opinion is furnished by the BIFR recommending for winding up of the company. In our view, the said view taken by the learned Company Judge does not appear to be correct. Sub-section (1) of Section 20 empowers the BIFR, if the BIFR after making an enquiry under Section 16 of the Act and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard, is of the opinion that the sick industrial company is not likely to make its net worth exceed the accumulated losses within a reasonable time while meeting all its financial obligations and that the company as a result thereof is not likely to become viable in future and that it is just and equitable that the company should be wound up, it may record its opinion on that behalf and forward the same to the concerned High Court which has a jurisdiction to make an order for winding up under the provisions of the Companies Act. As rightly pointed out by Sri Patil, he power of winding up of the company is conferred on this Court under Section 433. Section 433 provides for the circumstances under which a company can be wound up. Clause (f) of Section 433 provides for the power on the Company Court to pass an order of winding up, if the court is of the view that it is just and equitable that a company should be wound up. No doubt, Sub-section (1) of Section 20 empowers the BIFR to forward its opinion for winding up of the company if on the materials on record, if it is satisfied that it is just and equitable to wind up the company. Merely because the word 'shall' is used under Sub-section (2) of Section 20, in the nature of the power conferred on this Court under Section 433 of the Companies Act on the ground that it is just and equitable to wind up the company, and the language employed under Sub-section (2) of Section 20, it is not possible to take the view that this Court is bound by the opinion furnished by the BIFR recommending for winding up of the company on the ground that it is just and equitable to wind up the company. The power conferred on this Court being judicial in nature, this Court is required to apply its mind and consider the materials on record and take a decision. While so doing, in our view, it is permissible for the Company Court to go into the correctness of the opinion submitted by the BIFR and decide as to whether, in the light of the opinion furnished, the company should be wound up or not. No doubt, the opinion furnished by the BIFR would be one of the most important circumstances and material that the Company Court will have to take into account while taking a decision. But the opinion of the BIFR in our opinion cannot be treated as conclusive and binding on the Company Court. Further, from the language employed in Sub-section (2) of Section 20, in our view, the opinion furnished by the BIFR will only form a basis for the proceedings to be continued against the sick industrial company for the purpose of winding up and further proceedings are to be conducted in accordance with the provisions contained in the Act for the winding up of the company. In our view, we are supported by the decision of the Madras High Court in the case of J.M. Malhotra (supra) and of the Supreme Court in the case of V.R. Ramamju (supra) which has affirmed the said decision. When the validity of Sub-section (2) of Section 20 of the Sick Industrial Companies Act came to be challenged before the Madras High Court, the Madras High Court while upholding the validity of Sub-section (2) of Section 20 has observed as follows :
"...Sub-section (2) of Section 20 of the Act is not happily worded. Though it opens with the words 'High Court shall, on the basis of the opinion of the Board, order winding up of the sick industrial company', but nevertheless, it further says that 'and may proceed and cause to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act, 1956'. Therefore, it appears to us that even though the opinion submitted by the Board forms the basis for ordering winding up of the sick industrial company by the High Court, it is nevertheless open to the High Court to go into the correctness of the opinion so submitted by the Board and decide as to whether it should proceed and cause to proceed with the winding up of the sick industrial company, in accordance with the provisions of the Companies Act. This is clear by the use of the words 'and may proceed and cause to proceed' in Sub-section (2) of Section 20 of the Act. Therefore, it is not possible to hold that even though the opinion submitted by the Board forms the basis for directing the winding up of the sick industrial company by the High Court, the High Court is precluded from examining the correctness of such opinion. Therefore, it cannot be held that it is obligatory on the High Court to order winding up of the sick industrial company once it receives an opinion from the Board in this regard without examining the correctness of such opinion, on hearing the concerned parties...." (p. 607)
7. The said view expressed by the Madras High Court as noticed by us earlier was affirmed by the Hon'ble Supreme Court in the case of V.R. Ramaraju (supra). The Supreme Court has observed as follows :
"It is obvious that Sub-section (2) has to be construed to mean that the High Court in deciding the question of winding up of the company has to take into account the opinion of the Board forwarded to it under Sub-section (1) and is not to abdicate its own function of determining the question of winding up. So read, Sub-section (2) does not suffer from any infirmity. This in substance is the view taken by the High Court in the impugned order." (p. 610) Therefore, we are of the view that the view taken by the learned Company Judge that in the light of the order passed by the BIFR recommending for winding up of the company, the appellant-company is required to be wound up, is not correct. On this ground alone, the order impugned passed by the Company Judge is required to be set aside.
8. Secondly, during the pendency of the appeal, the appellant has settled the dispute with the first respondent by paying a sum of Rs. 5,50,000 to the first respondent towards the full and final settlement of the entire claim of the first respondent. The counsel for the first respondent has also made a statement before us that the first respondent does not press the petition filed by him seeking winding up of the appellant-company. But for the opinion furnished by the BIFR recommending for winding up of the company, we would have allowed this appeal and dismissed the petition filed by the first respondent for winding up the company on the ground that it does not press the company petition filed by it and the dispute has been amicably settled. However, since there is a recommendation made by the BIFR for winding up of the company, we are of the view that it is just and necessary to remit the matter to the Company Judge to reconsider the entire matter in the light of the observations made above and also in the light of the opinion furnished by the BIFR.
9. Accordingly, in the light of the discussions made above, order dated 1-12-2000, made in company petition No. 74 of 1998 is set aside and the matter is remitted to the learned Company Judge.
10. In terms stated above, this appeal is disposed of.