In Re: C.J. Gelatine Products Ltd.

S.M. Jhunjhunuwala, J.—C.J. Gelatine Products Ltd. (hereinafter referred to as "the company") has been incorporated and registered under the provisions of the Companies Act, 1956 (hereinafter referred to as "the said Act"), having its registered office situated at Bombay.

By a tripartite agreement entered by and between the petitioners, the company and one Bharat Carbon and Ribbon Manufacturing Co. Ltd., on August 24, 1988, the company agreed to pay to the petitioners the sum of Rs. 12,00,000 due and payable by the company to the said Bharat Carbon and Ribbon Manufacturing Co. Ltd., together with interest thereon. Since, despite repeated requests and demands, the company failed and neglected to pay the said amount to the petitioners, the petitioners by their advocate''s letter dated September 8, 1989 duly served a statutory notice of demand upon the company under the provisions of section 434 of the said Act and demanded payment of Rs. 20,50,946 with further interest from the company as mentioned therein. The company did not pay the amount demanded. Correspondence ensued between the petitioners and the company. Ultimately, on November 3, 1990, the present petition has been filed by the petitioners for winding up of the company on the ground that the company is unable to pay its debts and that it is just and equitable that the company be wound up by and under the directions of this court under the provisions of the said Act.

The petition has been declared on May 22, 1990, filed on November 3, 1990, and was presented for acceptance before the company judge on November 7, 1990 when the same was accepted and notice was ordered to be issued to the company returnable on January 9, 1991. Today the petition has been placed for admission.

On behalf of the company, an affidavit of one Sriram Lachhmandas Sethi affirmed on January 14, 1992, has been filed to oppose the admission of the petition. According to the company, on April 2, 1990, the company has been declared as a sick unit under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the said SICA Act"). The reference submitted by the company under the provisions of the Sick Industrial Companies (Special Provisions) Act was registered as Case No. 176 of 1989. The said reference was heard on April 2, 1990, and by its order dated April 2, 1990, the Board for Industrial and Financial Reconstruction (hereinafter for short referred to as the "BIFR") declared the company to be a sick industrial company in terms of the provisions of the Sick Industrial Companies (Special Provisions) Act. By the said order, the State Bank of India was appointed as the Board for Industrial and Financial Reconstruction''s operating agency under the provisions of section 17(3) of the Sick Industrial Companies (Special Provisions) Act in order to prepare a scheme in relation to the company as provided in the said order. The fact that the company was declared a sick industrial company on April 2, 1990, is not in dispute.

Mr. Madan, learned counsel appearing on behalf of the company, has submitted that since the company was declared a sick unit under the provisions of the Sick Industrial Companies (Special Provisions) Act prior to presentation of the petition by the petitioners, in view of the provisions of section 22(1) of the Sick Industrial Companies (Special Provisions) Act, the petition is not maintainable as the consent of the Board for Industrial and Financial Reconstruction was not obtained by the petitioners prior to presentation thereof. Mr. Thakkar, learned counsel appearing for the petitioners, has submitted that in view of the judgment of this court delivered by Dhanuka J. on April 12, 1991, in Company Application No. 314 of 1990, and others taken out in Company Petition No. 512 of 1990, Ramniklal and Co. Vs. Wallace Flour Mills Co. Ltd. and other cases, , the petition is maintainable and since the company has been declared a sick unit, the petition has to be adjourned sine die till the petitioners obtain consent of the Board for Industrial and Financial Reconstruction or the appellate authority under the provisions of the Sick Industrial Companies (Special Provisions) Act, as the case may be, for proceeding with the petition or the conditions precedent prescribed u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act ceasing to operate. Mr. Thakkar has further submitted that the provisions of section 22(1) are to be interpreted in such a manner so as not to defeat any proceedings which have already commenced without the knowledge of the order declaring the company a sick unit passed under the Sick industrial Companies (Special Provisions) Act. Mr. Thakkar has also submitted that an application for consent of the Board for Industrial and Financial Reconstruction has already been made on behalf of the petitioners which is pending. It is also the submission of Mr. Thakkar that as the company did not file any affidavit to oppose the admission of the petition till January 16, 1992, and did not raise any issue as to the maintainability thereof on the ground of the company having been declared as a sick unit, the company is now estopped from urging such pleas or raising such contentions.

The sick Industrial Companies (Special Provisions) Act has been enacted to make in the public interest, special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. The Sick Industrial Companies (Special Provisions) Act received the President''s assent on January 8, 1986. By Notification No. G.S.R. 24(E), dated January 12, 1987 (see [1987] 61 Comp Cas 231, issued by the Central Government (Ministry of Finance, Department of Economic Affairs, Banking Division), the provisions of the Sick Industrial Companies (Special Provisions) Act except sections 15 to 34 came into force as from January 12, 1987. By another Notification being S.O. No. 444(E), dated April 28, 1987 (see [1987] 62 Comp Cas 171, issued by the Central Government, as from May 15, 1987, the said sections 15 to 34 of the Sick Industrial Companies (Special Provisions) Act have also come into force. The Sick Industrial Companies (Special Provisions) Act has complex provisions and covers a wide canvas.

Section 22(1) of the Sick Industrial Companies (Special Provisions) Act reads as under :

"22, 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 (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 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."

In respect of a company against which an inquiry u/s 16 of the Sick Industrial Companies (Special Provisions) Act has commenced, section 22(1) provides for suspension of (i) any winding up proceedings, (ii) any proceedings for execution, etc., in respect of any properties of such company, and (iii) any proceedings for the appointment of a receiver (of the property or undertaking) of such company. But the Board for Industrial and Financial Reconstruction may give consent so that such proceedings can be commenced or continued. However, if an appeal to the appellate authority u/s 25 is pending against any order, scheme, etc., made by the Board for Industrial and Financial Reconstruction, such consent has to be obtained from the appellate authority and not the Board for Industrial and Financial Reconstruction. The starting point of suspension is the commencement of the inquiry u/s 16 and the terminal point is the implementation of the scheme or, as the case may be, the disposal of the appeal by the appellate authority. The words "shall lie" mean "shall be entertained". Therefore, in respect of a company against which an inquiry u/s 16 has commenced, unless prior consent of the Board for Industrial and Financial Reconstruction or, as the case may be the appellate authority has been obtained, no proceedings for winding up of such company shall be entertained. For want of requisite prior consent of the Board for Industrial and Financial Reconstruction or, as the case may be, the appellate authority, the section imposes an absolute embargo on entertainment itself of winding up proceedings by the court. In the instant case, after the inquiry against the company u/s 16 had commenced, the petition has been filed without the consent of the Board for Industrial and Financial Reconstruction and as such, is not maintainable since the filing itself is void ab initio, the court having no jurisdiction to entertain the same. The provisions of the Sick Industrial Companies (Special Provisions) Act have overriding effect over the provisions of the said Act. The inquiry commenced against the company is still pending and the scheme is under preparation. Since filing of the petition itself is void the pendency of the application of the petitioners with the Board for Industrial and Financial Reconstruction for its consent at this stage is of no relevance or significance. Similarly, lack of knowledge on the part of the petitioners about the company being declared a sick unit at the time of filing of the petition as also the company filing the affidavit to oppose admission of the petition after lapse of some time are also of no relevance or significance. When, in the circumstances of the case, the petition could in law be not entertained the question of the company being estopped from challenging the maintainability of the petition on the ground of institution thereof itself being void ab initio does not arise.

In the matter of Ramniklal and Co. Vs. Wallace Flour Mills Co. Ltd. and other cases, , Dhanuka J. was dealing with company applications taken out in company petitions filed for winding up of the company prior to the company''s being declared a sick unit under the provisions of the Sick Industrial Companies (Special Provisions) Act. While interpreting the words "be proceeded with further" as appearing in section 22(1) and in that context, disagreeing with the decision of the Gujarat High Court in the case of Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust [1989] 66 Comp Cas 555 , Dhanuka J. has held that in such circumstances a winding up petition is required to be kept merely in abeyance pending the inquiry u/s 16 or preparation of scheme u/s 17 of the Sick Industrial Companies (Special Provisions) Act or implementation of a sanctioned scheme. The facts in the instant case being different from those in those applications, the decision in the case of Ramniklal and Co. Vs. Wallace Flour Mills Co. Ltd. and other cases, has no application.

In the result, the petition is dismissed. However, in the circumstances of the case, there shall be no order as to costs thereof.