Andhra HC (Pre-Telangana)
Hyderabad Abrasives & Minerals (P.) ... vs Andhra Cements Ltd. on 10 December, 2002
Equivalent citations: [2003]42SCL748(AP)
ORDER V.V.S. Rao, J.
1. These four company petitions filed by the alleged creditors of M/s. Andhra Cement Company Ltd., are place before this Court to decide as to whether advertisement of the petitions under Rule 99 of the Companies (Court) Rules, 1959 is to be ordered. As the respondent in all these four company petitions is the same, and the questions of fact and law are common, they are being disposed of by this common order.
2. The petition averments in a nutshell may be stated treating the company petition No. 14 of 2002 filed by M/s. Hyderabad Abrasives & Minerals Pvt. Ltd., as illustrative case. Be it also noted that all the other company petitions contain similar averments. The petitioner is engaged in the business of selling laterlite mineral which is a raw material used in the manufacture of cement. The petitioner and respondent-company have business dealings since 1988-89. The respondent-company used to place purchase orders with the petitioner-company on yearly basis from 1st April to 31st March and both the parties were maintaining a running account. The petitioner, on a review of the outstanding dues, found that the respondent is due an amount of Rs. 4,02,248 as on 1-9-2001. They requested the respondent to pay the same, in vain. The petitioner also sent a detailed statement of accounts requested by the respondent under a covering letter dated 10-10-1992. The same was replied to by the respondent vide their letter dated 27-10-1992 enclosing a reconciliation statement showing the outstanding dues as on that date at Rs. 6.22 lakhsr. There was exchange of correspondence between the petitioner and respondent. In the meanwhile, as the net worth of the respondent eroded, a reference was made to the Board for Industrial and Financial Reconstruction (BIFR) under Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
3. BIFR sanctioned a rehabilitation scheme in case No. 33 of 1990 for rehabilitation of the respondent-company and the said scheme under Clause D provided that the respondent-company shall make payment to the secured creditors over a period of seven years from the date of change of management which happened on 16-6-1994. Even thereafter, within a period of seven years as per the rehabilitation scheme, the respondent-company neglected to repay the dues of the petitioner. Number of reminders were issued to the respondent on 23-3-1999, 29-2-2000 and on other dates demanding payment of money. The respondent sent its reply on 11-8-2001 to the petitioner's notice dated 8-8-2001 inter alia contending that the debt is barred by limitation. Hence the company petitions were filed. As noticed, the averments are made on similar lines. The details of amounts allegedly due and dates of notices :
Sl.
No. Company Petition Amount Due Date of Notice
1. C.P.No. 14 of 2002
Rs. 4,02,248 8-8-2001
2. C.P.NO. 15 of 2002 Rs. 15,76,635 8-8-2001
3. C.P.No. 16 of 2002 Rs. 9,37,607 8-8-2001
4. C.P.NO. 17 of 2002 Rs. 65,814 8-8-2001
4. The company petitions were filed on 19-2-2002 and this Court ordered notice before admission on 25-2-2002 before ordering advertisement of petitions in Form No. 48. After receiving notice, the respondent-company filed counter affidavit, inter alia raising objection as to maintainability of company petitions and also traversing various allegations made against it. Advertisement of the petitions is opposed on the ground that the scheme framed by BIFR is under implementation and, therefore, no company petition can lie for winding up. It is the further case of the respondent that last payment was made by the respondent on 7-2-1992 and that by 6-2-1995, the claim/right of the petitioner got extinguished by operation of law of limitation and, therefore, the debt is not legally enforceable. It is also alleged that the notice as required under Section 434 of the Companies Act was not duly served/delivered at the registered office of the respondent-company and, therefore, the company petitions are liable to be dismissed. The respondent also claims equities, in that it became sick company having a paid up capital of Rs. 56,69,53,820 and it is making sincere efforts and trying to revive in accordance with the scheme framed by BIFR or otherwise and, therefore, it would be inequitable to order winding up at the instance of alleged creditors whose debt is premature.
5. Learned counsel for the petitioner, Sri C. Kodandaram, submits that before ordering advertisement of the petitions, what is required is a prima facie case to invoke the provisions of Sections 433 and 434 of the Companies Act and the question of exercising discretion whether or not to order winding up would arise at a later stage when the parties in support and against winding up lead their evidence. At the initial stage of ordering advertisement of petitions, he would contend, it is not necessary to go into the questions of limitation, equities and whether the debt is disputed or not. He also submits that the notice as required under Section 434 of the Companies Act was duly served at the Registered Office of the respondent-company. In the alternative, he submits that when a company petition is presented for winding up under Section 433(1)(e) and (f) even if a company petition for winding up would not lie for non-compliance of Section 434(1)(a), still a company petition under Section 433 would be maintainable if the petitioner can made out a case under Section 434(1)(c) of the Companies Act. He placed reliance on the judgment of this Court in Ramdas & Co. v. Kitti Steels [2001] 103 Comp. Cas. 199.
6. Opposing the company petitions, Sri Ch. Ramesh Babu made submissions to the following effect. On a reference made by the Directors of the respondent-company, BIFR framed a scheme of rehabilitation which is under implementation. Therefore, by reason of Sub-section (1) of Section 22 of SICA, no proceedings for winding up of the respondent-company can be initiated. If the petitioners desire to proceed with the winding up petitions, they can do so only with the consent of BIFR. Even if BIFR declines to grant consent by reason of Sub-section (5) of Section 22 of SICA, the period of limitation extends and there would no bar to recover the debt. As the petitioners admittedly did not obtain any consent, the debt is barred by limitation and the petitioner cannot seek the benefit of Sub-section (5) of Section 22 of SICA. He also submits that the statutory notice was addressed and served on the Secretarial Office of the respondent at Secunderabad, and, therefore, the company petitions cannot be entertained. In support of the submissions, he placed reliance was on N.L. Mehta Cinema Enterprises v. Pravinchandra P. Mehta [1991] 70 Comp. Cas. 31 (Bom.), B. Viswanathan v. Seshasayee Paper & Boards Ltd. [1992]7 3 Comp. Cas. 136 (Mad.), Vysya Bank Ltd. v. Randhir Steel & Alloys (P.) Ltd. [1993] 76 Comp. Cas. 244 (Bom.). He also submits that the company has substantial paid up capital and it is not equitable to order winding up. In support of the said proposition, he placed reliance on the judgments of the Supreme Court in Amalgamated Commercial Traders (P.) Ltd. v. Krishnaswami [1965] 35 Comp. Cas. 456, Madhusudan Gordhandas & Co. v. M. Woollen Industries (P.) Ltd. , Rishi Enterprises, In re [1992] 73 Comp. Cas. 271 (Guj.), Kanchanganga Chemical Industries v. Mysore Chipboards Ltd. [1998] 91 Comp. Cas. 646 (Kar.). Lastly, he would urge that as the alleged debt is barred by limitation, and as the petitioners are not entitled for the benefit of Sub-section (5) of Section 22 of SICA, the petitioners are not creditors within its legal sense and, therefore, company petitions under Section 433(e) and (f) are barred. He placed reliance on the judgment of High Court of Punjab and Haryana in Bombay House v. New Model Industries (P.) Ltd. [1995] 82 Comp. Cas. 720.
7. In view of the rival submissions, three points would arise for consideration as under:
(1) Whether the company petitions are not maintainable in view of Sub-section (i) of Section 22 of the Sick Industrial Companies (Special Previsions) Act, 1985 ?
(2) Whether the debt of the respondent-company is barred by limitation ? and (3) Whether it is not equitable to order winding up of the respondent-company ?
8. At the outset, as rightly contended by Sri Kodandaram, learned counsel for the petitioner, the questions of equities and limitation cannot directly fall for consideration at this stage, although the question of limitation, as it is intricately connected with Section 22 read with Section 22(5) of SICA, falls for determination to the extent it is necessary. Therefore, the question of equities need not be decided notwithstanding the vehemence with which the submission is placed before this Court. Therefore, ignoring the third point for consideration for the present, the consideration has to be directed on the first two questions framed.
9. BIFR approved the rehabilitation scheme on 16-6-1994, which inter alia, vide Clause D provided that the respondent would phase out settlement of other creditors (presumably unsecured creditors) over a period of seven years from the date of takeover. It is not denied that the management of the respondent-company was taken over by new management on 16-6-1994 and, therefore, the respondent-company ought to have discharged all the dues of unsecured creditors by 15-6-2001. This is not denied. The submission on behalf of the petition is that as the respondent-company failed to settle all the dues of unsecured creditors within a period of seven years i.e., before 15-6-2001, it is no bar to present the company petitions to this Court seeking winding up under Section 433 of the Companies Act. As noticed, the counter submission is that the scheme is still under implementation and even as recently as 31 -7-2002, BIFR has modified the scheme and, therefore, the prohibition under Sub-section (1) of Section 22 of SICA operates in favour of the respondent-company. For better appreciation of the submission, reading of Sub-section (1) of Section 22 of SICA is necessary which reads as under :
"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 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."
10. A plain reading of the above provision would show that notwithstanding anything contained in the Companies Act, 1956 or any other law, no suit for recovery of money or for the enforcement of any security or guarantee in respect of any loans or advances granted to the industrial company shall lie and no proceedings for winding up the industrial company or for execution lie against any of the properties of the industrial company. They remain suspended when (i) an enquiry under Section 16 of the SICA is pending; (ii) when any scheme under Section 17 of SICA is under preparation or consideration; (iii) when a sanctioned rehabilitation scheme is under preparation/implementation and/or when an appeal under Section 25 of SICA, to the appellate authority, is pending. The company petitions were presented on 19-2-2002 and as on that date the rehabilitation scheme sanctioned by BIFR on 16-6-1994 has been under implementation. Therefore, winding up proceedings would not lie. That is not an end in itself. The scheme provided that the respondent-company must discharge all the other creditors within a period of seven years. The question, therefore, would be after expiry of seven years i.e., on 15-6-2001, whether the sanctioned rehabilitation scheme can be said to be under implementation insofar as the other creditors is concerned?
11. In the considered opinion of this Court, for the reasons infra, the rehabilitation scheme though, may provide different periods for accomplishing different stages of rehabilitation, cannot be said to have been completely implemented either in relation to one category of creditors or others. The moment the time schedule fixed for such accomplishment is over, the rehabilitation scheme can be said to be fully implemented only when a sick company is again brought up to a stage where the net worth of the company becomes positive. A conspectus of the various provisions of the SICA would reveal the same.
12. Chapter III of SICA deals with References, Inquiries and Preparation of Schemes for prevention, amelioration and remedial measures for preventing sickness in industrial undertakings owned by Companies and corporations. Under Section 15 of SICA, the Board of Directors of a sick company shall make a reference to BIFR for determination of the measures which shall be adopted with respect to the sick company. Section 16 prescribes a procedure for inquiry into the working of the sick industrial companies which inter alia provides that the Board may take the assistance of any agency for submitting reports with reference to the terms of reference fixed by BIFR. After receipt of an enquiry report as per Section 16, the BIFR, under Section 17 shall consider the same and decide whether it is practicable for the sick company to make its net worth exceed the accumulated losses within a reasonable time. If such a decision is taken, the BIFR may give specific time to the company to make its not worth positive i.e., to make its net worth exceed the accumulated losses. In case the BIFR decides that it is not practicable for the sick company to make its net worth positive within a reasonable time, it may direct an operating agency to prepare a scheme providing for any of the measures specified in Section 18 in relation to such sick company. After such order is passed under Section 17(3) when the BIFR comes to the conclusion that it is not practicable to make the net worth of sick company positive, the operating agency shall prepare a scheme for the purpose of financial reconstruction of sick industrial company, for the proper management of the sick industrial company by change or take over of the management of the sick industrial company, and for the purpose of amalgamation of the sick industrial company with another company or any other company with the sick industrial company. Section 18(2) deals with the matters to be provided in the scheme. The scheme prepared by an agency shall be submitted to BIFR which shall examine and publish a draft scheme in brief in the newspapers inviting suggestions/objections from the shareholders/creditors. Under Clause (b) of Sub-section (3) of Section 18, BIFR may make such modifications in the draft scheme in the light of the suggestions and objections. If the sanctioned scheme is revised and a fresh scheme is prepared under Sub-section (5) of Section 18, again the BIFR has to follow the provisions of Sub-sections (3) and (4). Then only the scheme is given finality as stipulated under Section 18(7) of SICA.
13. As seen from the above synopsis, a scheme which has been sanctioned and made enforceable after duly complying with various provisions of Section 18 of SICA, can even be modified by BIFR in accordance with Clause (b) of Sub-section (3) of Section 18 of SICA. Therefore, the implementation of rehabilitation scheme is a continuous process and can never be said to have been completely implemented with reference to one step or steps in the process of rehabilitation. By reason of the fact that by 15-6-2001, the time granted by BIFR for discharging other creditors is over, the protection under Section 22(1) is not taken away. In the case of SICA, having regard to Section 18(3)(b), where power inheres in the BIFR-to modify the scheme, it is always possible for the respondent-company or others to seek extension of time for accomplishing an important stage in the process of rehabilitation. That a provision prescribing time schedule is not mandatory but directory is a settled proposition of law. A reference may be made to a Full Bench judgment of Patna High Court in Shiveshwar v. District Magistrate . The Full Bench after referring to Montreal Street Railways Co. v. Normandin AIR 1917 PC 142 and State of U.P. v. Manbodhan Lal Srivastava and various authorities including Maxwell on Interpretation of Statutes laid down that a provision regarding time limit is directory and not mandatory. The rehabilitation scheme binds the industrial company, the promoter, the participants of the company and the creditors and is in the nature of contract. Therefore, the same principle of statutory interpretation would equally apply in interpreting the rehabilitation scheme as well. Thus, under Section 22(1) of SICA, on expiry of seven years time schedule prescribed in the scheme for settlement of dues of all the other creditors, the protection granted to the respondent-company does not in any manner diminish or is taken away. By reason of non obstante clause under Sub-section (1) of Section 22 of SICA, the company petitions cannot be entertained and there cannot be an order for advertisement of the petitions.
14. Insofar as the question of limitation is concerned, the submission of the learned counsel for the respondent cannot be accepted. He submits that the benefit of Sub-section (5) of Section 22 of SICA of extending the period of limitation would extend only to a person who applies for the consent of BIFR and fails to set such consent is too incongruous proposition to accept. Any such interpretation of Sub-section (1) of Section 22 of SICA would render itself constitutionally invalid and cannot be accepted, for it is settled point of law that the Court should prefer an interpretation which will render a statutory provision constitutionally valid - K.P. Varghese v. ITO .
15. The Constitution recognised the right of every person to seek appropriate remedy before appropriate forum. To say that the period of limitation where the industrial company in a reference to BIFR gets extended only to those who file application seeking consent of BIFR to initiate legal action against the industrial company and not others would render Sub-section (5) of Section 22 of SICA ultra vires the Constitution. Further, there is nothing in Sub-section (5) of Section 22 of SICA to indicate that in computing the period of limitation for enforcement of any right, privilege or liability, the period during which the remedy remains suspended is available only to those who approach BIFR under Section 22(1) is absent. The Court cannot introduce such element in Sub-section (5) of Section 22 of SICA. The right, privilege, obligation or liability can be enforced by any person against the industrial company subject to Sub-section (1) of Section 22 of SICA after the scheme is implemented. The bar for such enforcement is only during the four stages before BIFR and not otherwise.
16. Insofar as the other contention of the learned counsel for the respondent that the notice is not served at the Registered Office of the respondent-company is belied by reference to the notice dated 23-3-1999 addressed by the Managing Director of the petitioner in C.P. No. 14 of 2002 which is issued on behalf of other petitioners as well. The said notice is addressed to the General Manager (Accounts) of the respondent-company at Dachepally. Even otherwise, I may hasten to add that having regard to the decision of this Court in Ramdas & Co. 's case (supra), if the petitioners can make out a case for winding up under Section 434(1)(c) of the Companies Act, 1956, the non-service of notice at the Registered Office of the respondent-company under Section 434(1)(d) of the said Act does not non suit the petitioners to file the company petitions.
17. The petitioners have already presented application purportedly under Sub-section (1) of Section 22 of SICA on 5-12-2001 before BIFR, New Delhi for registering their claim and also seeking permission to sue the respondent-company. It is open to the petitioners to pursue the same.
18. In the result, in view of my finding on point No. 1, these company petitions cannot be admitted. The company petitions arc accordingly dismissed. There shall be no order as to costs.