Eastern Steels vs Fort Gloster Industries Ltd.

Indira Banerjee, J.—This application under Sections 433, 434 and 439 of the Companies Act, 1956, is for winding up of Fort Gloster Industries Ltd., an existing company within the meaning of the Companies Act, 1956, having its registered office at 31, Chowringhee Road, Kolkata-700 016, hereinafter referred to as the company.

The petitioning creditor claims to be a partnership firm carrying on business of manufacture of, inter alia, tapes and strips. The petitioning creditor claims to be registered as a Small Scale Industrial Unit with the Directorate of Cottage and Small Scale Industries. It is the case of the petitioning creditor that pursuant to and in terms of orders placed by the company on the petitioning creditor from time to time, the petitioning creditor supplied cold rolled steel tape of diverse quantities to the company.

According to the petitioning creditor, the goods were duly received and accepted by and/or on behalf of the company. It is alleged that the petitioning creditor from time to time raised bills on the company in respect of goods supplied by the petitioning creditor to the company. Particulars of the bills have been given in paragraph 11 of the petition.

According to the petitioning creditor, the company failed and neglected to pay bills aggregating to Rs. 2,45,671. The petitioning creditor issued letters dated November 8, 2003, December 30, 2003 and October 7, 2005, respectively, demanding payment from the company. The company, however, failed and neglected to pay the bills. The petitioning creditor, therefore, served statutory notice of demand dated February 14, 2006, on the company at its registered office.

By a letter dated March 16, 2006, the company replied to the statutory notice, contending that no amount was due and payable by the company to the petitioning creditor.

The petitioning creditor asserts that Rs. 2,45,671 is due on account of principal alone and a further sum of Rs. 1,08,059 on account of interest. Accordingly, the petitioning creditor filed this application. The petitioning creditor also appears to have instituted a suit against the company for recovery of its dues in the city civil court at Calcutta, which is pending.

The company has filed its affidavit-in-opposition contesting the claim of the petitioning creditor. In the affidavit-in-opposition it is contended that the company became sick and was referred to the Board for Industrial and Financial Reconstruction (BIFR) u/s 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the "SICA"). The reference, registered as Case No. 143 of 2001 is still pending.

Mr. Utpal Bose appearing on behalf of the company submitted that the winding up application cannot be entertained in view of Section 22 of the SICA, which provides as follows:

Suspension of legal proceedings, contracts, etc.-(1) Where in respect of an industrial company, an enquiry u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal u/s 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 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 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.

Mr. Bose argued that the winding up application should in any case be dismissed, since a civil suit between the same parties on the same cause of action is pending in the city civil court.

Mr. Bose finally argued that the claims were disputed and at least some of them also barred by the laws of limitation.

At least 3 of the 4 bills claimed to be outstanding are apparently not barred by limitation. So far as the first bill dated January 25, 2003, is concerned, there is an averment in the petition to the effect that the parties maintained a mutual open running current and/or continuous account.

The company has barely denied its liability on account of the bills. The denials in the affidavit-in-opposition are not specific. A supplementary affidavit has been affirmed annexing documents with regard to the reference to the BIFR.

The BIFR by an order dated November 18, 2003, found that no rehabilitation proposal was available for consideration of the Board, despite lapse of considerable time and it was, therefore, necessary to take alternative measures for rehabilitation of the company.

The BIFR, accordingly, directed the operating agency IDBI to issue an advertisement inviting offers for taking over of the company by arriving at a one-time settlement with banks and financial institutions. The order dated November 18, 2003, has, according to the company, been stayed by this court by an order dated January 15, 2004, in W.P. No. 522 (W) of 2004.

There can be little doubt that the amounts claimed by the petitioning creditor in respect of the bills, except the bill dated January 25, 2003, virtually stand admitted.

The question is whether this court should pass an application for winding up of the company in view of Section 22 of the SICA. Section 22 of the SICA clearly provides that where in respect of an industrial company, an enquiry u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration or a sanctioned scheme is under implementation, or where an appeal u/s 25 relating to the industrial companies is pending then, notwithstanding anything contained in the Companies Act, or any other law or memorandum and articles of association of the industrial company or any other instrument no proceedings for winding up of the industrial company shall lie or be proceeded with.

Counsel appearing on behalf of the petitioning creditor has, however, referred to two judgments, one of the Supreme Court, the first in the case of Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, and the other of Vibgyar Ink Chem (Pvt.) Ltd. Vs. Safe Pack Polymers Ltd., .

In the case of Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, , the Supreme Court held as follows (page 10):

The language of Section 22 of the Act is certainly wide. But, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme. If that be so, only the liability or amounts covered by the scheme will be taken in by Section 22 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal u/s 25 of the Act, it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the sanctioned scheme. Such amounts like sales tax, etc., which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within Section 22 of the Act. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold them indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statute in a business sense, should be avoided.

In the case of Vibgyar Ink Chem (Pvt.) Ltd. Vs. Safe Pack Polymers Ltd., the court held as follows (page 414):

The law laid down by the Supreme Court is clear and unambiguous to the extent that the bar as envisaged in terms of Section 22 ought to be restrictive in nature so as to cover the state of affairs up to the date of presentation of the scheme or on the basis of the scheme propounded by the company and approved by the BIFR. This particular transaction in issue admittedly has taken place between February and May, 1996, long after the proceedings initiated before the Board in terms of the provisions of the Act.

In both the aforesaid cases, the court was considering post scheme dues. In this case, no scheme has yet been presented and/or sanctioned Schemes for rehabilitation are, however, under consideration. A winding up application against the company cannot, therefore, be filed or proceeded with.

When the winding up application was filed, a reference had already been made to the BIFR. The winding up application could not have been entertained by this court. Accordingly, the winding up application is dismissed.