Andhra HC (Pre-Telangana)
Hig Temp Chemicals Pvt.Ltd. vs Satya Steel Strips (P.) Ltd. on 17 September, 1990
Equivalent citations: 1991(1)ALT24, [1991]72COMPCAS447(AP)
JUDGMENT
1. These twelve company petitions have been filed by the various creditors of Satya Steel Strips Ltd. (hereinafter referred to as "SSSL" or "the respondent company") seeking the relief of winding up of the repondent company mainly on the ground of its inability to pay debts in spite of the statutory notices issued under section 434 of the Companies Act, 1956,expect in the case of Company Petition No. 27 of 1990.
2. The various contentions put forth in all the company petitions and the allegations urged in the counters filed by the respondent-company need not be set out in detail because admittedly the Board for Industrial and Financial Reconstruction (hereinafter referred to as "the BIFR or the Board") passed an order declaring the respondent-company a sick industrial company as defined under section 3(1) (0) of the Sick Industrial Companies (Special provisions) Act,1985 (hereinafter referred to as "the Act").
3. The Central Legislature considering the imperative need to enact a legislation to provide for the timely detection of sickness in industrial units and for expeditious determination by a body of experts of the preventive, ameliorative, remedial and other measures that would be needed for enforcement of the appropriate measures, has enacted the Act. The main object of the Act is to establish a Board consisting of persons who are considered experts in various fields to enquire into and determine the incidence of sickness in industrial companies and to devise suitable remedial measures through appropriate schemes and for implementation thereof. The main intention of the Legislature seems to be that not merely the promoters and shareholders of an industrial unit have concern with the proper functioning of the industrial unit but also the Central and the State Governments, their undertakings, financial institutions and banks which provide the initial finance for the industrial unit are also equally interested in the proper functioning of the industrial unit thereby promoting the national output. That is the reason why the Act provides the scheme for enquiring into the working of sick industrial companies, for preparation and sanction of schemes with the idea of rehabilitation of the sick industrial companies by providing financial and other assistance. The BIFR, after making an inquiry under section 16 of the Act, is empowered to decide whether it is practicable for the company to make its net worth positive within a reasonable time and to give an opportunity to the company to make its net worth positive. If, on the other hand, the Board decides that it is not practicable for the sick industrial company to make its net worth positive within a reasonable time, the Board can direct any operating agency to prepare a scheme providing for measures for the revival of the company in any of the methods provided under section 18 of the Act. The scheme may also provide for financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices form the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State Level institution or any institution or other authority to the sick industrial company. The Board is thus authorised to explore all possible means at its command to prepare and sanction schemes for the revival and rehabilitation of a sick industrial company.
4. C-72-29
5. If the Board, after making inquiry under section 16 of the Act and after consideration of all the relevant facts and after giving an opportunity of being heard to all the concerned parties, is of the opinion that it is just and equitable that the sick industrial company should be wound up it may record and forward its opinion to the concerned High Court. Thereupon, the High Court shall, on the basis of the opinion of the Board, order winding up of the sick industrial company in accordance with the provision of the Companies Act.
6. The Act thus operates as a self-contained code for various steps to be taken in respect of a company which is declared as a sick industrial company under section 3(1) (0) of the Act provides that wherever in respect of an industrial company, an inquiry under section 16 of the Act is pending, or any scheme referred to under section 17 of the Act is under preparation or consideration, or a sanctioned scheme is under implementation or where an appeal under section 25 of the Act relating to an industrial company is pending, then notwithstanding anything contained in the companies Act, 1956, or any other law, or the memorandum and articles of association of the industrial company or any other instrument having effect under the Companies Act or other law,no proceedings for the winding up of the industrial company shall lie or be proceeded with further except with the consent of the Board or the appellate authority. It is an admitted fact that in this case, SSSL has been declared as a sick industrial company under section 3(1) (0) of the Act and the Board is finding out ways and means of reviving the respondent- company.
7. Learned counsel for the petitioner in Company Petition No.62 of 1987 submitted that the Board by its order dated January 9,1990, has fixed the date as April 5,1990, for hearing the suggestions and objections against the proposed winding up of the respondent- company and also directed issue of notices of hearing to the various institutions mentioned in the order as well as general notice in one English newspaper and one Telugu newspaper having circulation in Andhra Pradesh for the information of shareholders, creditors employees of the respondent-company and other interested persons. He further submitted that on May 15, 1990, the Board directed the Canara Bank to submit its report within two months for circulating the copies thereof to all the parties concerned and also directed that an inter-institutional meeting should be held in order to arrive at an agreement in principle to the proposals to the extent possible before the next hearing of the next hearing of the Bench. Since the period of two months mentioned in the order dated May 15, 1990, has expired, learned counsel for the petitioner in Company Petition No. 62 of 1987 argued that the Board did not prepare or sanction any scheme for the revival or rehabilitation of SSSL and hence the only other option left for this court is to proceed with the enquiry in the various company petitions and to order winding up of the respondent-company.
8. When once there is a reference to the Board with regard to SSSL treating it as a sick industrial company, as I mentioned already, the procedure prescribed under the Act which is a self-contained code with regard to sick industrial companies should be exhausted. No doubt, the order dated May 15,1990, gave two months' time to the Canara Bank to submit its report as to whether the respondent company is technically, economically and commercially viable. Certain guidelines are indicated in the said order about the scheme which should be proposed by the Canara Bank. It is not as if the Board ceased to contimue its jurisdiction after the period of two months given to the Canara Bank for submitting a report suggesting a scheme for implementation has expired. Learned counsel for the respondent- company submitted that the Board had not met so far to consider the revival of SSSL and that a schemeis under preparation by the Canara Bank. Whatever it is, learned counsel for the petitioners in the various company petitions referred to above have not produced any order passed by the Board subsequent to May 15, 1990. Only two courses are open to the Board after making an inquiry as required under section 16 of the Act. They are (1) if the Board is satisfied that it is possible to order revival or rehabilitation of the sick industrial company, to prepare ; and sanction the scheme, and (2) if, on the other hand, the Board is of the opinion that it is not possible to order revival or rehabilitaion of the sick industrial company or to sanction a scheme in respect of the sick industrial company, the only other option left to the Board is to record a finding that it is just and equitable that the sick industrial company should be wound up and forward its opinion to the High Court to enable the High Court to proceed with the winding up of the sick industrial company in accordance with the provisions of the Companies Act.
9. In the light of the various provisions contained in the Act in respect of a sick industrial company, and especially in view of section 22 of the Act providing that where an inquiry under section 16 of the Act is pending or any scheme referred to under section17 of the Act is under preparation or consideration, no proceedings for the winding up of the sick industrial company shall lie or be proceeded with further except with the consent of the Board. None of the petitioners have taken steps to obtain the consent of the Board for proceeding with the winding up proceddings in respect of SSSL pendingbefore the court. On the other hand, the Board is making attempts for preparation of a scheme under section 17 of the Act.
10. Under these circumstances, I hold that section 22 of the Act operates as a bar to this court's enquiring into the various company petitions filed for winding up of the respondent-company in the absence of the consent of the Board.
11. Learned counsel for the respondent-company submitted that all the creditors who are parties to the various company petitions have appeared before the BIFR and are parties to the proceedings before the BIFR. That fact is not disputed by learned counsel for the petitioners. Even otherwise, by order dated January 9, 1990, the Board has directed issuance of notices of hearing not only to the various institutions mentioned in its order by has also directed that a general notice be published in two daily newspapers, one in English and one Telugu having circulation in Andhra Pradesh, for the information of the shareholders, etc. Thereby, all the interested parties are deemed to have notice of the proceedings before the BIFR. If the Board is unable to formulate any scheme for the proper functioning of the respondent company and is of the opinion that it is just and equitable that SSSL should be wound up, the Board has to record its opinion and forward the same to the High Court for proceeding with the winding up proceedings.
12. Learned counsel for the petitioner in Company Petition No.62 of 1987 submitted that in view of the pendency of the proceedings before the BIFR the company petitions might be adjourned from time to time till the proceedings before the BIFR are concluded. I cannot accede to that request.
13. My learned brother, Upendralal Waghray J. passed an order dated December 23, 1988, in Company Applications Nos.235, 300, 302, 303, 309 and 310 of 1988, appointing a receiver. That order was obviously passed before the proceedings were initiated before the BIFR under the Act. The learned judge observed that there was no material placed before him that any reference has been registered before the BIFR. Therefore, that order passed before proceedings were initiated before the BIFR under the Act does not bind the parties in view of the admitted subsequent event of initiation of proceedings under the Act and the pendency of the proceedings before the BIFR.
14. Having regard to the procedure prescribed under the Act and in the light of the provisions contained in sections 20 and 22 of the Act, I hold that no useful purpose would be served by keeping the company petitions pending indefinitely. The only consequence that follows is that the company petitions should be dismissed.
15. I am supported in the view taken by me above by a Division Bench decision of the Gujarat High Court in Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust, wherein the learned judges held that under section 22 of the Act, the winding up proceedings already started against an industrial company can be dismissed and need not be kept in abeyance indefinitely without taking any further action in the matter.
16. In the result, Company Petitions Nos. 44, 62 of 1987, 16, 23, 26, 34, 39, 43, 57 of 1988, 1, 2 of 1989 and 27 of 1990 are dismissed subject to the condition that in the event of the BIFR recording its opinion that it is just and equitable that SSSL should be wound up and forwarding its opinion to this court, the above company petitions would be revived and further proceedings would be continued. In the circumstances of the case, I direct each party to bear its own costs.