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Judgment
Ajoy Nath Ray, J.—This is an application for the passing of a receiving order upon a winding up application. The applicant one Mehboob Productions Pvt. Ltd. had transferred certain copyrights to the company, namely, the Gramophone Company Ltd. and it is said that dues above Rs. 2,00,000 have not been paid in this regard. Annexure ''B'' to the petition at p. 11 is relied upon in that respect.
Parties have been more or less ad. idem that a statutory notice was served for the unpaid dues and that the dues in fact remain unpaid save for the part payment of a sum of Rs. 50,000.
The only point that has been taken by the company in resistance to this, application is that at present no proceedings for the winding up of the company can be proceeded with nor would the same lie, because the consent of the Board being the BIFR was not obtained u/s 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
The provisions of the said Act now place a preliminary obstacle before winding up can proceed in any High Court in relation to sick companies.
Section 3 Sub-section (o) defines sick companies as companies Which have suffered loss in a certain manner and the exact wording is as follows:
3(o). Sick industrial company means an industrial company (being a company registered for not less than seven years) which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth and has also suffered cash losses in such financial year and the financial year immediately proceding such financial year,
Under the Act information of a company becoming a sick industrial company is to be sent to the Board and then the Board may start u/s 16 an enquiry as to whether it is truly a sick industrial company. The terms of Section 16, Sub-section (1) are set out below:
Inquiry into working of sick industrial companies:
(1) The Board may make such inquiry as it may deem
fit for determining whether any industrial company has
become a sick industrial company-
(a) upon receipt of a reference with respect to such company u/s 15 ; or
(b) upon information received with respect to such company or upon its own knowledge as to the financial condition of the company.
The next stage is governed by Section 17 where the Board is given power either to give time to the company to make its net worth positive u/s 17(2) or to frame a scheme of rehabilitation u/s 17(3). The exact terms of Section 17 and its various Sub-sections are as follows:
Powers of Board to make suitable order on the completion of inquiry.
(1) If after making an inquiry u/s 16, the Board is satisfied that a company has become a sick industrial company, the Board shall, after considering all the relevant facts and circumstances of the case, decide, as soon as may be by order in writing, whether it is practicable for the company to make its net worth positive within a reasonable time.
(2) If the Board decides under Sub-section (1) that it is practicable for a sick industrial company to mae its net worth positive within a reasonable time, the Board shall, by order in writing and subject to such restrictions or conditions as may be specified in the order, give such time to the company as it may deem fit to make its net worth positive.
(3) If the Board decides under Sub-section (1), that it is not practicable for a sick industrial company to make its net worth positive within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in Section 18 in relation to the said company, it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company.
(4) The Board may,
(a) if any of the restrictions or conditions, specified in an order made under Sub-section (2) are not complied with by the company concerned, review such order on a reference in that behalf from any agency referred to in Sub-section (2) of Section 15 or in its own motion and pass a fresh order in respect of such company under Sub-section (3) ;
(b) if the operating agency specified in an order made under Sub-section (3) makes a submission in that behalf, review such order and modify the order in such manner as it may deem appropriate.
Section 22 provides for suspension of legal proceedings and the first three Sub-sections thereof are set out below:
Suspension of legal proceedings, contracts etc.
(1) Where in respect of an industrial company, an inquiry 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 (I 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 shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.
(2) Where the management of the sick industrial company is taken over or change, notwithstanding anything contained in the Companies Act, 1956 (I of 1956) or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law-(a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company ; (b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board.
(3) During the period of consideration of any scheme u/s 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or, that all or any of the rights, privileges, obligations and liabilities accruing or arising there under before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board;
Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.
In this case the BIFR has granted time to the Gramophone Company to make its net worth positive by 1993-94 and it is within that time that the present winding up application has been made.
The question is whether the terms of Section 22 prevent institution of a winding up application during the period when the time permitted u/s 17(2) is elapsing.
Mr. Mukherjee appearing for the petitioning creditor has said that according to the Division Bench judgment of this Court in Bengal Lamps Ltd., v. Furmanite Nicco Ltd. 1990 (2) C.L.J. 339 (D.B) the words of Section 22 would call for a strict construction. Mr. Mukherjee has said that this- is because the section ousts the jurisdiction of the Company Court which is today at par with an ordinary civil Court. Mr. Mukherjee has also said that in the Division Bench judgment it was held that there "Was no question of application of the principles of beneficial construction, because the Act was passed in the interests of the entire economy of the country which might benefit either from staying of winding up or from winding up of the company, depending upon whether the same is likely to revive or is likely only to create further unsatisfiable liabilities. Mr. Mukherjee placed in this regard inter alia para Sections 13, 14 and 15 from the judgment of Mrs. Ruma Pal J. speaking of the Division Bench, which are quoted below:
In view of the express wording of the statute, there is no question of the application of the principles of beneficial constuction. In any event Section 2 of the Act indicates that the Act has been enacted for giving effect to the directive principles as contained in Article 39(b) and (c) of the Constitution of India. The principles contained in Article 39(b) and (c) relate to subserving the common good as opposed to concentration of wealth.
It would appear from the statements of objects and reasons of the Act that one of the objects of the Act is to salvage the productive assets and realise the amount due to the Banks and other financial institutions to the extent possible from the non-viable Industrial Companies through liquidation of those Companies.
In other words, the benefit of the legislation is not aimed merely at reviving a sick industry but also to put an end to a non-viable sick industry with a view to protecting investment of public finds.
With respect, and also indeed as I cannot but I heartily agree with the brief and effective statements.
In that case, the information about the company becoming sick had been tendered to the Board but the Board had not yet actually started an inquiry under 1990 (2) C.L.J. 339 (D.B) 16. It is held that unless the enquiry is started, by way of a mere beneficial constuction, the moratorium cannot be impliedly assumed to have already commenced.
Mr. Mukherjee also relied upon a judgment of Monjula Bose J. in the case of The India Jute and Industries Ltd. v. Free India Dry Accumulators Ltd. Unreported delivered on February 13, 1989 and said that that case was exactly in point. There also the question was whether an exercise of power u/s 17(2) by the Board would stop further commencement of winding up proceedings. The learned Judge said as follows:
For the reasons aforesaid, the Court thinks it fit and proper not to pass any order on this application save and except that the order of stay granted on February 5, 1986, u/s 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, is vacated as there appears to be no pending enquiry in elation to the affairs of the company. Nor is there any scheme referred to u/s 17 under preparation, consideration or implementation and the Court noting that the only statutory scheme contemplated by the Special Act being the one referred to in Section 17(3) finds no impediment for proceeding with the petition in so far as the above requisites are concerned. It is made clear that this order is made without prejudice to the point of jurisdiction taken by the company, viz., that this Court has no jurisdiction to wind up a company which has been declared to be a sick industrial company without it being so-recommended by the Board as provided by Section 20 of the said Act, and that the application for winding up is not maintainable as the company is declared a sick industrial company by the order dated 23.11.87.
Mr. Ghosh for the company submitted that the said order of the learned Single Judge did not in fact decide the issue. The rights of the parties were left open, in spite of the observation -that the only statutory scheme contemplated by the said Act. is the one referred to in Section 17(3) and that no such scheme was under preparation, consideration or implementation. There is no ratio as to why the scheme was not under consideration, and the reason why I pick this one out of the three words will appear later on.
Mr. Ghosh also relied upon a decision of a learned Single Judge of the Bombay High Court in M/s. Ramniklal and Co. and others Vs. The Wallace Flour Mills Co. Ltd., Company, and placed specially the portion of the judgment at para. 11 where His lordship said that in interpreting provision regarding stay contained in Section 22, a ''hypertechnical'' construction could not be adopted as the same would defeat the very purpose of the Act.
In view of the Division Bench judgment of our Court, I am unable to agree that Section 22 should not be strictly construed. I however agree with Mr. Ghosh that there is no final pronouncement in the above unreported judgment that in case there is a period allowed by the Board u/s 17(2), then in no case can the point of jurisdiction of the Court to proceed further with winding up be taken. He said this correctly, because the learned Judge made it clear that the order was without prejudice to the point of jurisdiction, although the learned Judge mentioned specifically only the two points that the company had become sick, and that there was no recommendation by the Board to wind up. There is no indication, however, that all other points of jurisdiction were finally decided upon, and not merely as a preliminary finding, subject to further consideration.
The above Bombay case dealt with a company which had been found already by the Board to have become a sick industrial company. Thus the Board was considering the matter at the stage of Section 17(1). Mr. Mukherjee said that at this stage the Board might go one of two ways, either u/s 17(2) giving time, or u/s 17(3) for framing a scheme. Thus said Mr. Mukherjee, even if the Bombay case were applicable and the principles therein were appropriate, it would not be of any help in this case, because here the Board has already decided to grant time u/s 17(2). This case is, thus materially different from the Bombay situation and Mr. Mukherjee is, in my opinion, right.
In my view, this matter has to be decided by the poper interpretation of the words "any scheme referred to in Section 17 is under preparation or consideration" occurring in Section 22(1).
Mr. Ghosh submitted that the word ''scheme'' should be taken to mean the entire scheme of Section 17 and would thus encompass the order u/s 17(2). He referred to dictionaries and decisions (e.g., State of West Bengal and Others Vs. Swapan Kumar Guha and Others, to emphasize that the word ''scheme'' means systematic arrangement or a plan for doing something. He said that the entire Section 17 is composed of such a system or such a plan. However, in my opinion, Mr. Mukherjee correctly said that the words do not say that any scheme ''under'' Section 17 is to be afoot, but that the scheme must be one ''referred to under'' Section 17. He said further that the only scheme referred to in Section 17 is a scheme of rehabilitation u/s 17(3). Mr. Mukherjee in my opinion is again right.
Mr. Ghosh next submitted that a Section 17(3) scheme is to be either under preparation or consideration, and in each of the two cases there would be a stay of winding up. Though I an unable to accede to his contention that the scheme referred to in Section 17, taken as a whole, is under preparation, yet in my opinion, even when time granted to the company u/s 17(2) for making its net worth positive, in that case also a scheme referred to u/s 17(3) is under consideration. This is because, in case the time (which can be granted conditionally) is inappropriately utilised, or any conditions arc not complied with, the Board u/s 17(4) can turn Section 17(2) company into, so to speak a Section 17(3) company by starting the preparation of a scheme. A scheme might be under consideration during its operation (say, as to its practical working and workability), or even before iu. commencement (say, as to whether it should be commenced at all or not).
Although a strict construction of the ouster clause in Section 22 has to be made, yet it is also the settled law of construction now that the purpose of the Statute is as important in the matter of construction as the actual words used. In case it is held that a winding up can proceed during the Section 17(2) time, then it is possible that the company breaks Section 17(2) condition and is also proceeded to be wound up by a High Court. In that event the Board would lose its powers for starting the preparation of a scheme under the combined powers of Section 17(3) and Section 17(4). This, in my opinion, would be an odd construction of the Statute, not in keeping with the purpose thereof, as expressed by the actual words of the sections. To repeat, it must be held that even when the time u/s 17(2) is running out the scheme or a possible future scheme u/s 17(3) is not, even then, entirely out of consideration by the Board, and it might revert to a fuller consideration thereof at any time contemplated u/s 17(4).
Under these circumstances, I come to the conclusion that the instant application shall not lie upon the express words of Section 22 of the Act and the same shall accordingly stand dismissed. However, since the matter is one of almost first impression, and since the company fairly admits its indebtedness (though the legal process upon such indebtedness cannot be now be had), there should be no order as to costs. Stay of operation of this order is prayed for but the same is refused. This order will naturally not prevent any application to the Board by any of the parties or any subsequent legal proceeding if the same is appropriately instituted in accordance with law.
All parties and others concerned to act on a signed copy of this dictated order on the usual undetakings of the company.