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Case Number
Attorney(S)
  • V.B.Singh
  • Uday Pratap Singh
  • Ajay Bhanot
Judges
  • M. Katju
  • K.N Ojha, JJ.
Acts
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citation codes
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Attorney(S)
  • V.B.Singh
  • Uday Pratap Singh
  • Ajay Bhanot
Judges
  • M. Katju
  • K.N Ojha, JJ.
Acts
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Smart Summary

Structured Summary of the Legal Opinion (M. Katju, J.)

Factual and Procedural Background

Several creditors filed petitions for winding up M/s. Modi Rubber Ltd. on the ground that the company was unable to pay its debts. On March 13, 2002 the court made a prima facie finding of inability to pay and restrained the company from dealing with its assets without prior permission of the court. By order dated May 17, 2002 the court recorded an admitted liability of Rs. 3,22,91,636. On May 21, 2002 the petition was admitted and a direction was issued to publish an advertisement under rule 24 of the Rules.

Between July 2002 and March 2004 the company was repeatedly given opportunities to disclose financial arrangements and to place concrete proposals for repayment or revival (including negotiations with Appollo Tyres Ltd. and a German company), but the court found the company’s conduct dilatory and lacking any complete proposal. The learned single judge refused further adjournment on March 12, 2004, recorded that the company was unable to pay its debts, ordered winding up and appointed the official liquidator with directions to take charge of assets and file an inventory report within six weeks.

The company (appellant) filed a special appeal against the impugned order of March 12, 2004. The board of directors had passed a resolution on December 6, 2003 to file a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985; a reference application dated February 3, 2004 was received by the BIFR on February 4, 2004 and was registered by the BIFR on March 17, 2004 (registered as Case No. 344/2004 or No. 153/2004 in the appellant’s affidavit—registration date in the record is March 17, 2004).

Legal Issues Presented

  1. Whether the protection under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (which stays winding up proceedings when an enquiry under section 16 is pending or a scheme under section 17 is under consideration) applied to Modi Rubber Ltd. given that the reference application was received by the BIFR on February 4, 2004 but was registered on March 17, 2004, after the impugned March 12, 2004 order.
  2. Whether the receipt of a reference application by the BIFR constitutes the registration (and thereby commencement of the enquiry under section 16) for the purpose of invoking section 22, or whether actual registration after scrutiny is the material event.
  3. Whether a company (through its board of directors) may file an appeal against a winding up order once a reference under the Sick Industrial Companies Act has been registered, or whether only the official liquidator can maintain such an appeal.
  4. Whether events or changes (specifically registration of the BIFR reference) occurring during the pendency of an appeal can be considered by the appellate court so as to affect the outcome (i.e., whether the appellant can obtain the benefit of section 22 even though registration occurred after the impugned order but during the appeal).

Arguments of the Parties

Appellant's Arguments (M/s. Modi Rubber Ltd., represented by Sri V.B. Singh)

  • The board had passed a resolution to refer the company to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985; a reference application dated February 3, 2004 was received by the BIFR on February 4, 2004 and registered (the appellant contended the registration must be deemed to have been on February 4, 2004).
  • Relying on the Supreme Court decision in Real Value Appliances Ltd. v. Canara Bank (1998) 5 SCC 554, the appellant submitted that the enquiry under section 16(1) must be treated as having commenced as soon as registration of the reference is completed after scrutiny, and therefore, as the BIFR had received the reference on February 4, 2004, section 22 of the Act operated to bar the impugned March 12, 2004 order.
  • Implicitly, the appellant sought the benefit of any protection under section 22 arising from the filing/registration of the BIFR reference and relied on authorities that events during the pendency of appeal can be considered by the appellate court.

Respondents' Arguments (creditors, represented by Sri Ajay Bhanot and others)

  • It was argued that the Appollo Tyres Ltd. proposal was inadequate (a 25% composition) and therefore the company’s conduct in seeking postponements was dilatory and lacked substance.
  • Respondents relied on older precedents (Sirmur Chemical & General Industries Ltd. v. Union of India; Great Indian Motor Works Ltd. v. Their Employees; Shree Tej Protap Textile Mills v. Granaries Ltd.) to contend that the appeal by the company was not maintainable and that only the official liquidator could have filed the appeal.
  • One respondent counsel submitted that the reference to the BIFR had been filed only to defeat the winding up order (i.e., it was a device to delay enforcement of the winding up).

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Real Value Appliances Ltd. v. Canara Bank, (1998) 5 SCC 554 Holds that the enquiry under section 16(1) of the Sick Industrial Companies Act shall be treated as having commenced as soon as registration of the reference is completed after scrutiny. The court interpreted this decision to mean registration must follow scrutiny; it rejected the appellant's submission that mere receipt by BIFR (on Feb 4, 2004) equated to registration for purposes of section 22.
Bai Dosabai v. Mathurdas Govinddas, (1980) 3 SCC 545 Appellate court can take into consideration events and changes in law or facts occurring during the pendency of the appeal. The court applied this principle to hold that registration of the reference on March 17, 2004 (during the pendency of the appeal) could benefit the appellant under section 22.
Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., (2000) 5 SCC 515 Where a reference under the Sick Industrial Companies Act is filed during the pendency of an appeal against a winding up order, the appellant may be entitled to the benefit of section 22; the winding up order is not the final culmination (the court stressed the board and directors retain powers to seek rehabilitation). The court found this decision on similar facts directly supportive and followed its ratio to allow the appeal and to hold that the company could obtain the benefit of section 22 when registration occurred during appeal.
Shyam Sunder Lal v. Shagun Chand, AIR 1967 All 214; Putta Kannayya v. Venkat Narasayya, AIR 1918 Mad 998; Atchayya v. Venkata, AIR 1915 Mad 1223; Damodar Mukherjee v. Bonwarilal Agarwalla, AIR 1960 Cal 469; M.M. Quasim v. Manohar Lal Sharma, (1981) 3 SCC 36 Support for the proposition that an appeal is a continuation of the original proceedings (so events during pendency can be considered). The court cited these authorities to reinforce that the registration occurring during the pendency of the appeal entitles the appellant to the benefit of section 22.
Patheja Bros. Forgings and Stamping v. ICICI Ltd., (2000) 6 SCC 545 Illustrates operation of section 22(1) — that proceedings for winding up shall be suspended in specified circumstances and that suit/proceedings may lie against the company only with consent of BIFR in certain cases. The court noted that nothing on record showed consent of BIFR had been taken under section 22(1) for filing a suit against the company, applying the principle to the facts.
Sirmur Chemical & General Industries Ltd. v. Union of India, (1962) 32 Comp Cas 826 (SC); Great Indian Motor Works Ltd. v. Their Employees, AIR 1959 SC 1186; Shree Tej Protap Textile Mills v. Granaries Ltd., (1961) 31 Comp Cas 610 (Cal) Earlier precedents relied upon to contend that only the official liquidator could file an appeal against winding up (court practice before SICA). The court distinguished these decisions on the ground that they were not delivered in the context of the Sick Industrial Companies Act, 1985 (which post-dates those decisions) and therefore are not applicable to the present statutory framework.
Vibhuti Singh v. Damari Lal, AIR 1978 All 370; Themmalapuram Bus Transport v. R.T.A., AIR 1967 Ker 285 Additional authorities cited for the proposition that appellate courts may consider events during the pendency of an appeal. Used to support the conclusion that the appellate court may take notice of the registration of the BIFR reference occurring during the appeal and apply section 22 accordingly.

Court's Reasoning and Analysis

The court proceeded by reviewing the factual matrix and the procedural history leading up to the single judge's winding up order dated March 12, 2004, noting the repeated opportunities afforded to the company and the absence of any concrete rehabilitation proposal acceptable to creditors.

On the specific statutory and procedural issue raised by the appellant (operation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985), the court examined the timing of the BIFR reference. The court distinguished the concepts of receipt and registration of a reference under the Act: relying on the language of Real Value Appliances Ltd. v. Canara Bank, the court held that the enquiry under section 16(1) commences when registration of the reference is completed after scrutiny — mere receipt by the BIFR does not equate to registration.

Applying that interpretation to the facts, the court observed that although the reference application was received by the BIFR on February 4, 2004, the BIFR registered the reference only on March 17, 2004 — i.e., after the impugned order of March 12, 2004. Consequently, the protection of section 22 was not in effect at the time the single judge passed the winding up order.

However, the court then addressed whether the registration having taken place during the pendency of the special appeal could be taken into account. Invoking the settled principle that an appeal is a continuation of the original proceedings (and authorities permitting appellate courts to consider events occurring during the pendency of an appeal), the court concluded that registration on March 17, 2004 — although subsequent to the impugned order — occurred during the pendency of the appeal and therefore the appellant could obtain the benefit of section 22.

The court further examined the respondents’ reliance on older precedents to argue that only the official liquidator could prosecute an appeal and rejected that submission. The court reasoned that those decisions were not delivered in the context of the Sick Industrial Companies Act, which post-dates those cases and introduces a scheme of rehabilitation and revival. Relying on the Supreme Court’s observations in Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., the court accepted that the board of directors, despite the winding up order, retain residuary powers and may take steps for rehabilitation (including making a reference to the BIFR) and that directors may logically be permitted to file an appeal against a winding up order where appropriate.

The court was also influenced by practical considerations: if only the official liquidator could file an appeal, the interests of revival could be prejudiced because the official liquidator may have no personal interest in pursuing rehabilitation, and assets might be disposed of in the meantime making revival futile.

Considering these legal principles and precedents, the court concluded that the appellant was entitled to the benefit of section 22 because registration of the BIFR reference occurred during the pendency of the appeal and that the company (through its board) could maintain the appeal.

Holding and Implications

Holding: The court allowed the special appeal. The impugned order of the learned single judge dated March 12, 2004 is quashed.

Consequential direction (direct effect on the parties): The winding up proceedings before the learned company judge are to remain in abeyance until the disposal of the proceedings/appeal before the authorities under the Sick Industrial Companies (Special Provisions) Act, 1985 (i.e., until the BIFR process or related appellate process is concluded).

Broader implications: The court applied existing Supreme Court authority (notably Rishabh Agro) and statutory interpretation to permit a company (through its board/directors) to seek the benefit of section 22 when a BIFR reference is registered during the pendency of an appeal. The opinion distinguishes earlier authorities that predate the Sick Industrial Companies Act and does not purport to lay down a novel legal principle beyond applying and following the cited precedents. Therefore, the decision operates by applying existing precedent and statutory interpretation to the facts rather than announcing a new legal doctrine.

Note: This summary is based exclusively on the content of the provided opinion and does not add facts or inferences beyond those expressly contained in the opinion.

Show full summary ...

    Modi Rubber Ltd. v. Madura Coats Ltd. And Another

    M. Katju, J.:— This special appeal has been filed against the impugned order of the learned single judge dated March 12, 2004, in Company Petition No. 1 of 2002 Modi Rubber Ltd. v. Madura Coats Ltd. An impleadment application has been filed on behalf of Phillips Carbon Black Ltd. which we have allowed.

    2. We have heard learned counsel for the parties and have perused the record. The facts of the case are given in some detail in the impugned order dated March 12, 2004. It appears that a bunch of creditors petitions were filed in this court praying for winding up of M/s. Modi Rubber Ltd. on the ground that the said company is unable to pay its huge debts. On March 13, 2002, the court passed an order giving its prima fade finding that the respondent-company was unable to pay its debts and injuncted the respondent-company from dealing with or encumbering any of its assets without seeking prior permission of the court. Thereafter by order dated May 17, 2002, it was held by the court that there was a liability of Rs. 3,22,91,636 admitted by M/s. Modi Rubber Ltd. On May 21, 2002, the court again recorded a finding that the company was unable to pay its debts. Hence, the petition was admitted and a direction was given to issue an advertisement under rule 24 of the Rules.

    3. On July 9, 2002, while granting the said company liberty to furnish a payment schedule for repayment of its admitted dues to its creditors the court recorded a finding that the application of the company did not make a complete and truthful disclosure of the financial arrangements proposed with the banks and financial institutions, and hence two weeks' time was granted to make complete and truthful disclosure of the financial status of the company as it obtained on June 30, 2002, along with the proposals submitted to the financial institutions. This disclosure was not made and hence on July 23, 2002, one week's further time was granted to the company as a last opportunity to comply with the order dated July 9, 2002, with the rider that if the order was not complied with the prayer for appointment of a provisional liquidator would be considered.

    4. Again on March 4, 2003, adjournment was sought by the company with the request that its arrangement with Appollo Tyres Ltd. could not be finalized because of the death of Sri Raunak Singh, the managing director of Appollo Tyres Ltd. It was also stated that apart from negotiations with Appollo Tyres Ltd., negotiations were going on with some German company also.

    5. While observing that these were a dilatory tactics on frivolous excuses this court again granted a last opportunity and fixed the case for March 10, 2003. Again on March 11, 2003 the case was adjourned to April 3, 2003 requiring the company to place on record the progress in the negotiations. Thereafter several dates were fixed but till the date of the order there was no complete proposal or arrangement suggested by M/s. Modi Rubber Ltd.

    6. On March 12, 2004, learned counsel for M/s. Modi Rubber Ltd. again sought an adjournment on the ground that an agreement is likely to be signed between M/s. Modi Rubber Ltd. and Appollo Tyres Ltd. Hence it was prayed that the court should postpone and defer the winding up petitions of several creditors of M/s. Modi Rubber Ltd. which had been pending for the past more than two years for decision.

    7. By the impugned order the learned single judge recorded a finding that the company is unable to pay its debts. The court's reason for postponement of these proceedings earlier was due to a faint hope that by the process of negotiations some buyer of M/s. Modi Rubber Ltd. may come forward who may revive the company thereby saving the jobs of the workers. This hope was belied repeatedly and nothing concrete appeared during the period of two years. Affidavits of financial institutions like IFCI, IDBI, UTI, insurance companies, etc. have been filed which did not bring out anything of substance and did not hold out any fruitful prospect. During the arguments before the learned single judge, learned counsel for M/s. Modi Rubber Ltd. submitted that Appollo Tyres Ltd. had framed some scheme in which the claims of the creditors would be satisfied. However, it was pointed out by Sri Ajay Bhanot, advocate, representing the creditors in the leading company petition, namely, Madura Coats Ltd. that the proposal given by Appollo Tyres Ltd. was only that the creditors of the company should accept 25 per cent. of their dues in full and final satisfaction of their claim. Sri Bhanot stated that this proposal was ridiculous and deserves to be rejected outright.

    8. The learned single judge by the impugned order held that the adjournment sought by the Modi Rubber Ltd. was nothing but dilatory tactics on frivolous excuses and hence he refused to adjourn the case. The learned single judge held that there was no doubt that M/s. Modi Rubber Ltd. was unable to pay its debts as had been observed in the earlier orders also. The debts were huge and the financial condition of the company was not sound. Hence he was of the opinion that it was just and equitable that Modi Rubber Ltd. be wound up. He directed accordingly. He also directed that the official liquidator be appointed as liquidator of the company and he will proceed to take charge of the assets of the company and submit his report along with the inventory within six weeks.

    9. Sri Vijai Bahadur Singh, learned counsel for the appellant has submitted that on December 6, 2003, the board of directors of M/s. Modi Rubber Ltd. passed a resolution to file a reference to the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985. Accordingly a reference application under the aforesaid Act was sent to the BIFR by M/s. Modi Rubber Ltd. through letter dated February 3, 2004, which was received by the BIFR on February 4, 2004, and the reference was registered as Case No. 344 of 2004 on March 17, 2004.

    10. Sri V.B Singh has relied on the judgment of the Supreme Court in Real Value Appliances Ltd. v. Canara Bank, [1998] 93 Comp Cas 26 : (1998) 5 SCC 554. In that decision it was held that the enquiry under section 16(1) of the Sick Industrial Companies (Special Provisions) Act must be treated as having commenced as soon as the registration of the reference is completed after scrutiny, and from that time action against the company's assets must remain stayed in view of section 22 of the Act till the final decision is taken by the BIFR.

    11. Sri V.B Singh submitted that since the reference application of Modi Rubber Ltd. was received by the BIFR on February 4, 2004, it must be deemed that it was registered on February 4, 2004, and hence the impugned order which was passed subsequently on March 12, 2004 was illegal as it violated section 22 of the Sick Industrial Companies (Special Provisions) Act.

    12. We do not agree. It may be that the reference application of M/s. Modi Rubber Limited was received on February 4, 2004, but it was registered only on March 17, 2004. The decision of the Supreme Court in Real Value Appliances Ltd. v. Canara Bank, [1998] 93 Comp Cas 26 : (1998) 5 SCC 554 does not say that the enquiry under section 16(1) must be treated as having commenced as soon as the reference application is received by the BIFR. It states that the enquiry under section 16(1) shall be treated as having commenced as soon as registration of the reference is completed after scrutiny. The words “as soon as the registration of the reference is completed after scrutiny” clearly imply that the registration can only be done after scrutiny. Mere receipt of the reference application by the BIFR on a particular date does not mean that the registration shall be deemed to have been done on that particular date. After receiving the reference application the BIFR has to do its scrutiny and then only register the reference. In the present case the reference was registered only on March 17, 2004, and not on March 4, 2004. Hence we cannot accept this submission of Sri V.B Singh.

    13. In fact this was not even a plea taken up before the learned single judge when he passed the impugned order dated March 12, 2004. There is no mention of the Sick Industrial Companies (Special Provisions) Act in the impugned order dated March 12, 2004. Thus M/s. Modi Rubber Limited was itself conscious of the fact that there was no enquiry under section 16 of the Sick Industrial Companies (Special Provisions) Act pending when the order dated March 12, 2004, was passed. Hence it did not take the plea of the prohibition of section 22 before the learned single judge. Now, in special appeal this new plea is sought to be taken by M/s. Modi Rubber Limited, and we have to consider whether the plea can be taken now.

    14. Under section 22 of the Sick Industrial Companies (Special Provisions) Act proceedings for winding up shall be suspended if 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 when an appeal under section 25 is pending. In our opinion none of these conditions were satisfied when the impugned order dated March 12, 2004, was passed.

    15. It was not brought to the knowledge of the learned single judge that any reference application had been sent by M/s. Modi Rubber Limited to the BIFR. However this averment has come in paragraph 22 of the affidavit filed by the appellant along with the stay application in this appeal. In this paragraph it is mentioned that the company filed a reference application before the BIFR under section 15 of the Act and the said reference application dated February 3, 2004, was received by the BIFR on February 4, 2004, and has been registered as case No. 153 of 2004. Copy of Form A and confirmation of registration dated March 17, 2004, has been filed as annexure 20 to the affidavit filed along with the stay application in this appeal.

    16. Thus it is true that the reference was registered subsequent to the impugned order dated March 12, 2004. However, that order has been challenged before us in this appeal.

    17. It is well settled that an appeal is a continuation of the original proceedings vide Shyam Sunder Lal v. Shagun Chand, AIR 1967 All 214 [FB] : Putta Kannayya v. Venkat Narasayya, AIR 1918 Mad 998 [FB] : Atchayya v. Venkata, AIR 1915 Mad 1223 [FB] : Damodar Mukherjee v. Bonwarilal Agarwalla, AIR 1960 Cal 469 : M.M Quasim v. Manohar Lal Sharma, (1981) 3 SCC 36 : AIR 1981 SC 1113 (vide para. 17), etc. Since the order of the registration of the reference was passed on March 17, 2004, it has been passed during the pendency of this appeal, and since an appeal is a continuation of the original proceeding, we are of the opinion that the appellant will get the benefit of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. As held by the Supreme Court in Bai Dosabai v. Mathurdas Govinddas, (1980) 3 SCC 545 : AIR 1980 SC 1334, the appellate court can take into consideration events and changes in the law occurring during the pendency of the appeal (see also Vibhuti Singh v. Damari Lal, AIR 1978 All 370 : Themmalapuram Bus Transport v. R.T A., AIR 1967 Ker 285 [FB] and M.M Quasim v. Mahohar Lal Sharma, (1981) 3 SCC 36 : AIR 1981 SC 1113 (vide para. 17) etc.

    18. On similar facts in Rishabh Agro Industries Ltd. v. P.N.B Capital Services Ltd.., [2000] 101 Comp Cas 284 : (2000) 5 SCC 515, the Supreme Court took a similar view as we are taking. In that decision the learned single judge of the High Court passed a winding up order dated September 5, 1997. Against that order an appeal was filed before the Division Bench of that court and during the pendency of that appeal a reference application under section 15 of the Sick Industrial Companies (Special Provisions) Act was filed before the BIFR. The Supreme Court held after interpreting the provisions of the Act that the appellant is entitled to the benefit of section 22.

    19. The Supreme Court in that decision also held that the order for winding up under the Companies Act is not the culmination of the winding up proceedings pending before the company judge. The ultimate order passed on such petition is the order of dissolution of the company under section 481 of the Companies Act. In paragraph 10 of the said judgment in Rishabh Agro Industries Ltd. v. P.N.B Capital Services Ltd.., [2000] 101 Comp Cas 284 : (2000) 5 SCC 515, the Supreme Court also repelled the contention that after the order of winding up and appointment of the liquidator, the board of directors had no jurisdiction to move the BIFR or to take any other steps. The Supreme Court observed (page 292):

    “It is contended that after the order of the winding up and appointment of the liquidator, the board of directors had no jurisdiction to move the BIFR by passing a resolution. Such a submission cannot be accepted. In a winding up petition the liquidator is appointed to protect the assets of a company for the benefit of its creditors, secured and unsecured and others. It is not the function of the official liquidator to start the process of rehabilitation of the company as is aimed at under the Act. Despite appointment of the official liquidator, the board of directors continue to hold all residuary powers for the benefit of the company which includes the power to take steps for its rehabilitation.”

    20. In view of the above observation of the Supreme Court we find no merit in the submission of learned counsel for the respondents that after passing of the impugned order the board of directors has no right to file this appeal. Although in the above quoted observations the Supreme Court has held that the board of directors of the company can, despite the winding up order, move the BIFR, in our opinion a logical inference can be drawn from the ratio of the above observation that it can also file an appeal against the winding up order.

    21. It may be mentioned that under section 17 of the Sick Industrial Companies (Special Provisions) Act, 1985, the court has to make an enquiry under section 16 about the company through an operating agency, and then decide whether it is practicable to make its net worth exceed the accumulated losses within a reasonable time, in which case an effort has to be made to revive the company. However, if the Board is of the opinion that it is not practicable to make its net worth exceed the accumulated losses within a reasonable time it may direct the operating agency to prepare a scheme providing for such measures as mentioned in section 18 as may be specified in its order. Thereafter the operating agency has to prepare a scheme under section 18 and efforts have to be made to try to revive the company. The scheme may provide for financial assistance under section 19 by way of loans, advances, etc. from the Central Government, State Government, scheduled bank or other banks, financial institutions, etc.

    22. It is only when the Board after making the enquiries under sections 16 and 17 and considering all the relevant facts and circumstances and after giving opportunity of being heard to the concerned parties 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 it should be wound up, that the Board can record its finding and forward its opinion to the concerned High Court under section 20(1).

    23. Thus a perusal of the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, shows that first a serious effort should be made to revive the company. On the other hand, in winding up proceedings under the Companies Act there is no such provision for making such effort. The Sick Industrial Companies (Special Provisions) Act, 1985, is a special law and hence its provisions will prevail over the general provisions of the Companies Act.

    24. Of course a suit may lie against the company after obtaining consent of the Board as provided for in section 22(1) but otherwise the winding up of the proceeding have to remain stayed under section 22(1) vide Patheja Bros. Forgings and Stamping v. ICICI Ltd., [2000] 102 Comp Cas 21 : (2000) 6 SCC 545. There is nothing on record to show that the consent of the BIFR or the appellate authority has been taken under section 22(1) in this connection for filing a suit against the company.

    25. Learned counsel for the respondent has relied on the decision of the Supreme Court in Sirmur Chemical and General Industries Ltd. v. Union of India, [1962] 32 Comp Cas 826 and Great Indian Motor Works Ltd. v. Their Employees, AIR 1959 SC 1186 and the decision in Shree Tej Protap Textile Mills v. Granaries Ltd., [1961] 31 Comp Cas 610 (Cal), etc. and has contended on the strength of those decisions that this appeal by the company is not maintainable and in fact only the official liquidator could have filed the appeal. We do not agree. A careful perusal of the above decisions show that these decisions were not delivered in the context of the Sick Industrial Companies (Special Provisions) Act, 1985. In fact, the aforesaid Act was not even in existence when the aforesaid judgments were delivered. As mentioned in the decision of the Supreme Court in Rishabh Agro Industries Ltd. v. P.N.B Capital Services Ltd.., [2000] 101 Comp Cas 284 : (2000) 5 SCC 515, in the Companies Act there is no provision for rehabilitation and revival of sick industrial companies. All that the official liquidator can do under the Companies Act is to protect the assets of the company (after the order of winding up) for the benefit of its creditors secured and unsecured and others. On the other hand, under the Sick Industrial Companies (Special Provisions) Act first a serious attempt has to be made for revival of the sick industrial company, and only when it fails can winding up be ordered.

    26. If it is held that only an official liquidator can file an appeal against the order of winding up then when a case under the Sick Industrial Companies (Special Provisions) Act is registered it may cause serious prejudice to the company. Obviously the official liquidator has no personal interest in attempting to revive and rehabilitate the sick company, and hence he may not file an appeal at all. On the other hand, the directors, shareholders, etc., may have such interest. If the winding up proceedings continue despite the registration of a case under the Sick Industrial Companies (Special Provisions) Act then the proceedings for revival or rehabilitation of the sick company may become redundant and futile because in the meantime the official liquidator may sell away the assets of the company to satisfy the claims of the creditors. How can a company revive if its assets have been sold away. Hence the benefit of the Sick Industrial Companies (Special Provisions) Act will become illusory, futile and otiose if pending proceedings under the Act the company is wound up.

    27. Hence, the decision in Sirmur Chemical and General Industries Ltd. v. Union of India, [1962] 32 Comp Cas 826 (SC) : Great Indian Motor Works Ltd. v. Their Employees, AIR 1959 SC 1186 and Shree Tej Protap Textile Mills v. Granaries Ltd., [1961] 31 Comp Cas 610 (Cal) are in our opinion distinguishable. The facts of the case are covered by the decision of the Supreme Court in Rishabh Agro Industries Ltd. v. P.N.B Capital Services Ltd.., [2000] 101 Comp Cas 284 : (2000) 5 SCC 515.

    28. Shri Ajay Bhanot, learned counsel for the respondent has submitted that the reference to the BIFR was made only to defeat the impugned winding up order. This precise argument was advanced before the Supreme Court in Rishabh Agro Industries Ltd. v. P.N.B Capital Services Ltd.., [2000] 101 Comp Cas 284 : (2000) 5 SCC 515 and was repelled (vide para. 6 of the said judgment). It was held by the Supreme Court that if a provision of law is misused and abused it is for the Legislature to amend the law.

    29. The appellant has filed a supplementary affidavit in this appeal stating that during the pendency of the winding up petition Appollo Tyres Ltd., which is a major tyre producing company, had expressed genuine interest in taking over the company, and this would enable about 3000 workers of the company, who had lost their jobs in August 2001, to get re-employed, and thus they and their families consisting of 15000 persons would get back their bread and butter.

    30. It is also stated in this supplementary affidavit that the financial institutions which have 44.24 per cent. shares in the company have not applied for winding up. The U.T.I which has 16.85 per cent. share has categorically opposed the winding up petition.

    31. It is not necessary for us to go into the correctness or otherwise of these facts because we are of the opinion that for the reasons given above, and particularly in view of the decision of the Supreme Court in the case of Rishabh Agro Industries Ltd. v. P.N.B Capital Services Ltd.., [2000] 101 Comp Cas 284 : (2000) 5 SCC 515, this appeal deserves to be allowed.

    32. For the reasons given above this appeal is allowed and the impugned order of the learned single judge dated March 12, 2004, is quashed and it is directed that the winding up proceedings before the learned company judge shall remain in abeyance till the disposal of the proceedings/appeal before the authorities under the Sick Industrial Companies (Special Provisions) Act.

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    Modi Rubber Ltd. v. Madura Coats Ltd. And Another
    (May 20, 2004)