Ram Kishan and Others vs Kanwar Papers Pvt. Ltd.

Devinder Gupta, J.—This application has been moved by the respondent-applicant with a prayer to stay the proceedings in the main appeal pending completion of enquiry under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (Act No. 1 of 1986) (briefly "the Act").

It is averred in the application that the applicant-company is covered by the provisions of the Act and has become a sick company. The board of directors of the company had made a reference to the Board for Industrial and Financial Reconstruction constituted under the Act for determination of the measures required to be adopted with respect to the company. It is also averred that the reference has since been registered as Case No. 163 of 1989 with the Board and proceedings for enquiry into the working of the company u/s 16 of the Act are pending before it, and, therefore, in view of the provisions of Section 22 of the Act, proceedings in the appeal deserve to be stayed.

The application has been resisted by the appellants on the ground that the applicant-company is not covered by the provisions of the Act since 51% of the paid-up share capital of the company is not held by any State Government or by any institution or institutions mentioned in Sub-clauses (i) and (ii) of Section 3 of the Act or partly by one or more public financial institution or institutions mentioned in Sub-clauses (i) and (iii) of Section 3 of the Act.

We have heard learned counsel for the parties. The contention of learned counsel for the appellant is not tenable as the entire basis of his arguments is on the plea pertaining to the definition of public financial institution given in Section 3(k) of the Act. "Company" and "industrial company" have been defined in Section 3(d) and (e) of the Act as follows :

"(d) ''company'' means a company as defined in Section 3 of the Companies Act, 1956, but does not include a Government company as defined in Section 617 of that Act ;

(e) ''industrial company'' means a company which owns one or more industrial undertakings ;"

The applicant-company is fully covered by the above definition and is not a public financial institution as defined in Section 3(k) of the Act, on the basis of which learned counsel for the appellant has based his arguments.

The Letters Patent Appeal arises out of the judgment dated December 22, 1988, delivered by a learned single judge of this court in Company Petition No. 2 of 1984. The company petition was for winding up of the company (applicant) on various grounds.

The Supreme Court in The Gram Panchayat and another Vs. Shree Vallabh Glass Works Ltd. and others, while interpreting Section 22 of the Act, has observed in paragraph 10 of the report as under (at page 173 of 71 Comp Cas) :

. 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. Indeed, there would be automatic suspension of such proceedings against the company''s properties. As soon as the inquiry u/s 16 is ordered by the Board, the various proceedings set out under Sub-section (1) of Section 22 would be deemed to have been suspended."

In view of the above, we have no option but to allow the application and to direct stay of proceedings in the appeal till the conclusion of the proceedings before the Board. Order accordingly.

Liberty, however, is reserved to the appellants to approach the Board for seeking permission to proceed with the appeal against the applicant-company.