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  • Mr. Ganpat Singh Singhvi
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Smart Summary

Structured Summary of Opinion — G.S. Singhvi, J.

Factual and Procedural Background

The respondent-company filed an application on December 8, 1993 under rule 9 of the Companies (Court) Rules, 1959, read with section 151 of the Civil Procedure Code, and section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 ("the Act"). Earlier, the court had dismissed an application by the respondent-company seeking dismissal of a company petition on the ground that an enquiry under section 16 of the Act was pending; that dismissal occurred on October 14, 1993, and a special appeal against that order was pending before the Division Bench.

The December 8 application sought dismissal of the liquidation petition (filed under sections 433 and 439 of the Companies Act) on the ground that, after October 14, 1993, the respondent-company had taken steps (including a board resolution of July 29, 1993 and a reference to the BIFR in Form "AA") which showed that an enquiry under section 16 had been initiated and was pending. Relevant dates in the record include delivery of the reference to the BIFR office (October 5, 1993), registration as Case No. 509 of 1993 (October 28, 1993), submission of additional information (November 10, 1993), and issuance of a notice by the BIFR Registrar dated November 30, 1993.

Legal Issues Presented

  1. Whether, for the purposes of section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, an "enquiry under section 16" is to be treated as having commenced (and therefore being "pending") at the moment the board of directors files a reference under section 15(1) or only after the Board for Industrial and Financial Reconstruction (BIFR) has taken cognizance and applied its mind to initiating an enquiry.
  2. If an enquiry under section 16 is deemed to be pending, whether the non-obstante clause in section 22(1) bars further proceedings under the Companies Act (including winding-up proceedings) and what the appropriate consequence for the company petition should be (dismissal versus remaining in abeyance/being frozen).
  3. Whether issuance of a notice by the Registrar of the BIFR (signed "By order of the Board") is sufficient evidence that the Board has applied its mind and that the enquiry is pending for the purposes of section 22(1).

Arguments of the Parties

Respondent-Company's Arguments (as represented by Shri S.M. Mehta)

  • The respondent-company's board resolved on July 29, 1993 to make a reference under section 15(1) to the BIFR; the company filed the reference in Form "AA" and it was delivered to the BIFR office on October 5, 1993 and registered as Case No. 509 of 1993 on October 28, 1993.
  • Following scrutiny by the Registrar and submission of further information (November 10, 1993), the case was assigned to Bench No. 1 of the BIFR and the Board decided to issue notices to affected parties; a notice was issued by the Registrar on November 30, 1993.
  • Submission that an enquiry must be deemed to have been initiated immediately on making the section 15 reference and, at the latest, must be deemed pending once the Board has taken cognizance after scrutiny by the Registrar.
  • Reliance on the non-obstante clause in section 22(1) of the Act to argue that once an enquiry under section 16 is pending, statutory bar under section 22 operates to prevent further proceedings under the Companies Act and therefore the petition under sections 433 and 439 should be dismissed.
  • Reliance also placed on a Bill introduced in Parliament (amending section 16(3)) to support the inference that the Legislature intended enquiry to be deemed to commence upon submission of the reference under section 15.

Petitioner (Maruti Udyog Ltd.)'s Arguments (as represented by Shri Paras Kuhad)

  • The December 8 application is frivolous and vexatious, filed only to delay the hearing of the company petition on merits; the respondent-company had earlier failed to obtain a stay from the Division Bench and now seeks delay by renewed application despite no material change of facts.
  • The findings recorded by the company court in its order dated October 14, 1993 are res judicata and there is therefore no need for fresh examination.
  • The notice dated November 30, 1993 (annexure 3) was issued by the Registrar of the BIFR and there has been no application of mind by the Board itself; until the Board itself considers the matter, enquiry cannot be treated as having been initiated.
  • With respect to the Parliamentary Bill relied on by Shri Mehta, submission that until a Bill is passed into law it cannot be treated as legislation or relied upon for interpreting statutory provisions of sections 16 and 22 of the Act.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court
Union of India v. Krishna Mills Ltd., Company Petition No. 6 of 1991; order dated September 9, 1993; reported [1994] 81 Comp Cas 50 That attraction of section 22 does not automatically require dismissal of a company petition; proceedings under the Companies Act are to be frozen (kept in abeyance) until the BIFR or the Appellate Authority finally decides the matter. The court relied on and followed this earlier order to reject the respondent-company's submission that the company petition should be dismissed merely because section 22 is attracted; instead, the court held that proceedings should remain in abeyance until the BIFR decides the reference.

Court's Reasoning and Analysis

The court began by recalling its earlier analysis of the Act's provisions (sections 15, 16, 17 and 22) and emphasized the distinct roles the Legislature assigned to those sections: section 15 provides for making a reference by the board of directors, section 16 contemplates the enquiry by the BIFR, section 17 deals with schemes, and section 18 with schemes as well. The court stressed that the crucial phrase requiring interpretation is "an enquiry under section 16 is pending."

The court observed that "When the Legislature has deliberately used different provisions, it is not possible to hold that the enquiry envisaged under section 16 must be deemed to have commenced as soon as a reference under section 15 is filed by the board of directors of the company."

The court explained the test for when section 22(1)'s bar operates: the enquiry under section 16 must actually have commenced and be pending, or there must be a scheme under preparation/consideration under section 17, or a sanctioned scheme under implementation, or an appeal under section 25 pending. A stage prior to a decision by the Board to initiate an enquiry cannot be equated with commencement of the enquiry envisaged under section 16(1).

Turning to the facts presented, the court examined the post-October 14 events: registration of the reference as Case No. 509 of 1993, rectification of defects after Registrar scrutiny, assignment to a Bench of the BIFR, and issuance of a notice dated November 30, 1993. The court placed weight on the fact that the notice bore the expression "By order of the Board" and was signed by the Registrar "under the instruction of the Board." The court treated that expression as indicating that the Board itself had applied its mind and had taken a decision to call upon affected parties to make submissions before any decision on the reference was taken.

On that basis, the court concluded that the Board had taken cognizance of the reference and initiated proceedings; consequently, the enquiry as envisaged under section 22(1) was pending once the notice of November 30, 1993 was issued.

Having concluded that an enquiry was pending, the court held that the non-obstante clause in section 22 of the Act is attracted and therefore the company court could not proceed further with the winding-up petition. However, the court rejected the respondent-company's specific submission that the company petition should be dismissed outright; instead, the court relied on its earlier decision in Union of India v. Krishna Mills Ltd. to adopt the remedy of freezing or keeping the proceedings in abeyance until the BIFR or appellate authority finally decides the matter.

Holding and Implications

Holding: The application filed by the respondent-company dated December 8, 1993 is ALLOWED. The court ordered that the proceedings in Company Petition No. 8 of 1993 shall remain in abeyance until the Board for Industrial and Financial Reconstruction decides the reference made by the respondent-company under section 15(1) of the Act.

Implications:

  • Direct effect on the parties: The company court is barred by section 22(1) from proceeding further with the winding-up petition while the BIFR enquiry is pending; the company petition is not dismissed but is to remain in abeyance pending the BIFR's decision.
  • The court explicitly declined to order dismissal of the petition merely because section 22 is attracted, relying on prior authority that proceedings should be frozen until the BIFR or appellate authority concludes the matter.
  • No broader new precedent was announced beyond the application of the court's prior reasoning; the decision applies the statutory interpretation and prior authority to the facts before the court.
Show full summary ...

    Maruti Udhyog Ltd. v. Instrumentation Ltd.

    G.S Singhvi, J.:— By this order, the application filed by the respondent-company on December 8, 1993, under rule 9 of the Companies (Court) Rules, 1959, read with section 151 of the Civil Procedure Code, and section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, is being disposed of.

    2. An application filed by the respondent-company for dismissal of the company petition on the ground that an enquiry under section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short “the Act”), was pending had been dismissed by the court on October 14, 1993, and a special appeal filed against that order is pending consideration before the Division Bench.

    3. In this application filed on December 8, 1993, a prayer has been made for dismissal of the petition filed for liquidation on the ground that after October 14, 1993, a number of developments have taken place and they show that enquiry under section 16 of the Act has been initiated and is pending.

    4. Shri S.M Mehta, senior advocate, appearing for the respondent-company, has invited the court's attention to the fact that the board of directors of the respondent-company had in their meeting held on July 29, 1993, resolved to make a reference under section 15(1) of the Act to the Board for Industrial and Financial Reconstruction (for short “the BIFR”). The company made a reference to the BIFR in Form No. “AA”. On October 5, 1993, a copy of the reference was delivered in the office of the Board. On October 28, 1993, the reference made by the board of directors of the company has been registered as Case No. 509 of 1993. After scrutiny of the reference had been made, the company was required to furnish certain informations. These informations have been submitted by the respondent-company, vide letter dated November 10, 1993. Thereafter, the case has been assigned to Bench No. 1 of the BIFR and the Board has decided to issue notice to 12 persons/institutes, whose names have been given out in the enclosure to the notice, which has been issued by the Registrar of the BIFR on November 30, 1993. Shri Mehta submitted that enquiry must be deemed to have been initiated immediately on the making of the reference application by the respondent-company and in any case the enquiry must be deemed to be pending as soon as the Board has taken cognizance of the reference application after the same was scrutinised by the Registrar of the BIFR. Shri Mehta argued that in view of the non-obstante clause contained in section 22(1), the statutory bar against taking further proceedings under the Companies Act, 1956, operates and as such the petition filed by the petitioner under sections 433 and 439 of the Companies Act should be dismissed.

    5. Shri Mehta has also relied on a Bill which according to him has been introduced in Parliament for amendment of the Act. Shri Mehta invited the court's attention to some amendments introduced with reference to section 16(3) of the Act and submitted that this Bill is also indicative of the intention of the Legislature that as soon as an application is submitted by the board of directors of the company under section 15 of the Act, the enquiry must be deemed to have commenced and must be deemed to be pending for the purposes of section 22(1). Shri Paras Kuhad, learned counsel for the petitioner, has strenuously argued that the application dated December 8, 1993, filed by the respondent-company is frivolous and vexatious and it has been filed with the sole object to delay the hearing of the petition on the merits. Shri Kuhad argued that having failed to persuade the Division Bench to stay the order dated October 14, 1993, passed by the company court, the respondent-company has moved this application even though there has been no material change in the fact situation. Shri Kuhad argued that the findings recorded by the court in its order dated October 14, 1993, must be treated as res judicata and, therefore, there is no need for fresh examination of the case. Shri Kuhad also argued that the notice annexure 3 filed with the application dated November 30, 1993, has been issued by the Registrar of the BIFR and there has been no application of mind by the Board itself. He submitted that till the matter is considered by the Board, enquiry cannot be treated as having been initiated. In regard to the Bill on which reliance has been placed by Shri Mehta, Shri Kuhad argued that till the Bill is passed by Parliament, it cannot be treated as a piece of legislation and no reliance can be placed on such Bill for the purposes of interpretation of the statutory provision contained in section 16 and section 22 of the Act.

    6. I have given my thoughtful consideration to the rival submissions. While deciding the application filed by the respondent-company on an earlier occasion for dismissal of the company petition, I had analysed the provisions of sections 15, 16, 17 as well as 22 of the Act and observed:

    “Section 22(1) of the Act no doubt uses a non-obstante clause and in terms of that provision, 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 of the appellate authority, as the case may be. However, before application of section 22(1) is attracted, there must be an enquiry under section 16 pending or any scheme referred to under section 17 under preparation or consideration or a sanctioned scheme under implementation or an appeal under section 25 relating to an industrial company pending. Thus, till any of the three eventualities are the provisions of section 22(1) cannot be attracted. Logically, the proceedings pending against a company under the provisions of the Companies Act, 1956, or any other proceeding pending against the company or its properties under any other law of the land, cannot be stayed or frozen. The crucial words which call for interpretation in this case are ‘an enquiry under section 16 is pending’. As I have already noticed, section 15 of the Act of 1985, deals with reference, sections 16 and 17 deal with enquiry and section 18 deals with scheme. It is, therefore, clear that the Legislature has deliberately made different provisions for making a reference by the board of directors of the company, determination of the question regarding sickness of the company by the board which may be done either on the basis of the reference or on the basis of any other information which the Board for Industrial and Financial Reconstruction may receive. When the Legislature has deliberately used different provisions, it is not possible to hold that the enquiry envisaged under section 16 must be deemed to have commenced as soon as a reference under section 15 is filed by the board of directors of the company. Clearly the Legislature had intended that it will be the Board for Industrial and Financial Reconstruction which shall apply its mind to the question as to whether and when enquiry should have commenced for determining whether the company has become a sick company or not. A stage prior to a decision by the Board to initiate an enquiry, cannot be equated with commencement of the enquiry envisaged under section 16(1) and an enquiry can be treated as pending only after it has commenced and not prior to that.”

    7. If in the light of the above quoted observations the present day position of the reference made by the respondent-company to the BIFR is examined, it is clearly revealed that after October 14, 1993, the reference has been registered by the Registrar of the Board. Case number has been given to the respondent-company as 509 of 1993. Defects pointed out by the Registrar of the Board have been rectified by the company and then a notice dated November 30, 1993, has been issued by the Board. Annexure 3 clearly shows that although the notice has been signed by the Registrar, he has done so under the instruction of the Board. The use of the expression “By order of the Board”, is clearly indicative of the fact that notice has in fact been issued as per the order passed by the Board. It is, therefore, clear that the Board for Industrial and Financial Reconstruction has applied its mind and has taken a decision to call upon the affected parties to make their submissions before any decision is taken on the reference made by the respondent-company. The petitioner, Maruti Udhyog Ltd., is one of the parties to whom notices have been ordered to be issued by the Board. It is, therefore, clear that the Board for Industrial and Financial Reconstruction has taken cognizance of the reference made by the company and has initiated the proceedings. With the issue of notice dated November 30, 1993, it has to be considered that the enquiry, as envisaged under section 22(1), is pending.

    8. Once the enquiry under section 16 is treated to be pending, the provisions of section 22 of the Act are attracted and the company court cannot proceed further with the matter.

    9. The argument of Shri Mehta that the company petition should be dismissed, cannot be accepted. I need not make an elaborate discussion on the subject in view of the order dated September 9, 1993, passed by me in Company Petition No. 6 of 1991—Union of Union Of India v. Krishna Mills Ltd., [1994] 81 Comp Cas 50. In that case, I have considered the entire matter at length and have not found merit in the submission made that the company petition is liable to be dismissed as soon as the provisions of section 22 are attracted. It has been held in the said case that the proceedings under the Companies Act or such like statutes are to be frozen till the matter is finally decided by the Board or by the Appellate Authority, as the case may be.

    10. In view of the above, the application filed by the respondent-com-pany is allowed and it is ordered that the proceedings of Company Petition No. 8 of 1993, shall remain in abeyance till the Board for Industrial and Financial Reconstruction decides the reference made by the respondent-company under section 15(1) of the Act.

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    Comments

    Maruti Udhyog Ltd. v. Instrumentation Ltd.
    (Dec 17, 1993)