Orissa Sponge Iron Ltd. vs Rishabh Ispaat Ltd.

Devinder Gupta, J.—Heard. This is an application moved by respondent-company praying for stay of further proceedings in Company Petition No. 4 of 1992, which the petitioner has preferred u/s 439 read with Sections 433 and 434 of the Companies Act, 1956, praying for winding up of Company and for appointing liquidator to take charge of assets and records of the Company.

It is averred in the application that respondent-applicant Company is a Sick Industrial Company within the meaning of provisions of Sick Industrial Company (Special Provisions) Act, 1985 (hereinafter referred to as ''the Act''). The Company has made a reference to the Board for Industrial and Financial Reconstruction (hereinafter referred to as ''the Board'') for determining the measures, which shall be adopted with respect to the Company and as per the communication received by the applicant, the said reference stands registered as case No. 24 of 1993.

This application came up for orders on 31st March, 1993, on which date, learned counsel for the Company was asked to file further affidavit disclosing the stage of the proceedings before the Board. Affidavit of Mr. N.D. Jain. Managing Director of the Company has been filed today, wherein it has been stated that no date has yet been fixed so far by the Board for further proceedings. It has further been stated that the Board registers a reference only when it is prima facie satisfied that the matter needs to be examined by it and it is with the registration of the case that the process of inquiry commences.

The petitioners have contested this application by contending that only a reference has been made by the Company to the Board and mere lodging of reference by Company and its registration by the Board does not amount to commencement of inquiry as contemplated u/s 16 of the Act. No Scheme has so far been framed u/s 17 of the Act. Since neither any inquiry has been made u/s 16, nor an order of Scheme has been framed u/s 17 of the Act, the mere registration of the reference will not have the effect of suspension of either legal proceedings. It has further been stated that there is no lawful justification in staying further proceedings inasmuch as the applicant-Company has not disputed its liability towards the petitioner and there is no reason as to why the petition be not advertised.

Learned counsel for the applicant in support of his submissions that once a reference made u/s 15 is duly registered it would mean that inquiry u/s 16 is pending before the Court and in view of Section 22 of the Aet, proceedings for winding up, if any, ha veto be stayed has placed reliance upon the judgment of a single Judge of Allahabad High Court in Industrial Finance Corporation of India and Another Vs. Maharashtra Steel Ltd. and Others, In holding so, after examining the Act, it was held that the reference made, when on consideration is registered, the Board cannot thereafter decline to enquire into the matter. On inquiry it may come to the conclusion that application for treating the company concerned as sick unit is not acceptable and thus reject the same.

In The Gram Panchayat and another Vs. Shree Vallabh Glass Works Ltd. and others, it has been laid down that no proceedings for execution, distress or the like proceedings against any of the properties of the Company shall lie or be proceeded further except with the consent of the Board in the light of the steps taken by the Board under Sections 16 and 17 of the Act. In the said case the Board has stated that it was satisfied that the Company had become a Sick Industrial Company and also directed that further proceedings under the Act shall be taken with respect to the Company.

In the light of the facts and circumstances of the case, what can be noticed is that under Sub-section (1) of Section 15, after the Board of Direciors of Company-applicant had formed an opinion that the Company had become a sick and reference deserves to be made to the Board for determining the measures, which shall be adopted with respect to the Company, made reference to the Board. As per Anncxure PA, such reference was received by the Board on 13th October, 1992. It was registered as case No. 24 of 1993 on 24th February, 1993, when intimation was conveyed to the Company by the Registrar of the Board through letter Annexure PA. As per the averments made in the affidavit of Shri N.D. Jain, order of registration is made only after the Board has come to a prima facie conclusion that inquiry deserves to be made. Section 16 of the Act provides that on receipt of a reference the Board may make such inquiry as it may deem fil for determining as to whether the industrial company has become a Sick Industrial Unit or not. The procedure which is to be followed by the Board or the steps, which is to be followed by the Board or the steps, which are required 10 be taken by it are enumerated in Sub-sections (2) to (6) of Section 16. Orders, if any, on completion of inquiry are required to be made u/s 17 of the Act. When an order has been made. Schemes etc. is to be prepared u/s 18 of the Act. It is not a case, in which only a reference has been received. But after receipt of the same on 13th October, 1992, the further steps which ihe Board took within the next four months was to register the same, which in other words imply that the Board has, on consideration thought it fit that inquiry deserves to be made. Further steps for conducting the inquiry may not have yet been taken by the Board which might take sometime, may be for various reasons, such as the heavy pendency of such like cases before the Board but that will not mean that inquiry is not pending before the Board.

Section 22 of the Act is pre-emptory in nature and it lays down that where in respect of an industrial company, inquiry u/s 16 is pending or any Scheme referred to u/s 17 is under preparation or consideration, no proceedings for winding up of industrial unit or for execution, distress or the like against any properties of the industrial company shall lie or be proceeded further except with the consent of the Board. From the material placed on record, including the affidavit of Mr. D. N. Jain I have no hesitation in holding that on registration of the reference the stage of commencement of inquiry is reached and it would mean that inquiry is pending before the Board. Consequently, the present proceedings because,of pendency of inquiry deserves to be stayed, hence the same cannot proceed further except with the consent of the Board.

Division Bench of this Court in L.P.A. No. 15 of 1989 (Ram Krishan v. Kanwar Papers Pvt. Ltd.) by an order dated 20th November, 1990, following the decision of Supreme Court in The Gram Panchayat and another Vs. Shree Vallabh Glass Works Ltd. and others, directed the stay of further proceedings in the Letters Patent Appeal, after noticing the fact that the Board had in the said case registered the reference of M/s. Kanwar Papers Pvt. Ltd., Registration of reference was held to amount the pendency of inquiry, as contemplated u/s 16 of the Act.

In the result, the application is allowed and further proceedings in the company petition No. 4 of 1992 are stayed till further orders reserving liberty to the petitioner to approach the Board for obtaining its consent to continue with these proceedings or taking such other remedies against the applicant-company, as may be deemed fit.

Company Petition No. 4 of 1992.

In view of order passed in Company application No. 2 of 1993, further proceedings in the petition are hereby stayed. Parties are at liberty to get the petition revised by moving an appropriate application.