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Karnataka High Court
K.S.V.Shanmugam - Appellant
Versus
Maharastra State Co-op.Cotton Growers Marketing Federation Ltd - Respondent
Decided On : 07-07-89
C.A. : 717 of 1988
Section 22 - Sick Industries (Special Provisions) Act, 1985 - [Section 22] - [Summary of Acts and Sections Referenced: The court discussed Section 22(1) of the Sick Industries (Special Provisions) Act, 1985, which pertains to the suspension of legal proceedings, contracts, etc., in respect of an industrial company where an inquiry is pending, a scheme is under preparation or consideration, or a sanctioned scheme is under implementation. The court also referred to the definitions of 'industrial company' and 'industrial undertakings' under the Act to interpret the applicability of Section 22(1) to the case. The court emphasized the specific conditions prescribed in the Act for making a reference to the Board of Directors and highlighted the impact of a winding up order on the competence to make such a reference. Additionally, the court discussed the distinction between an order in winding up and a winding up order, emphasizing that the provisions of Section 22(1) apply only when a winding up order is not made. The court also referenced Section 31 of the Act, which deals with the saving of pending proceedings in the case of the appointment of a receiver or an official liquidator. The court ultimately dismissed the petition, highlighting the possibility of proposing a rehabilitation scheme to revive the company for future consideration.
Fact of the Case:
The company petition seeking a winding up order for M/s. Vishnu Textiles Ltd. was allowed, and the Official Liquidator was appointed. The former managing director proposed a rehabilitation scheme under the Sick Industries (Special Provisions) Act, 1985, and sought to stay further proceedings pursuant to the winding up order. The creditor and the Official Liquidator resisted the application, leading to the determination of whether Section 22 of the Act is applicable to the case.
Finding of the Court:
The court dismissed the application, emphasizing that the competence to make a reference to the Board of Directors under the Act disappears after a winding up order is made. The court also clarified the distinction between an order in winding up and a winding up order, highlighting that the provisions of Section 22(1) apply only when a winding up order is not made. The court further noted the impact of Section 31 of the Act on the continuation of winding up proceedings in the case of the appointment of a receiver or an official liquidator.
Issues: The key issue before the court was whether Section 22 of the Sick Industries (Special Provisions) Act, 1985, is attracted to the case where a winding up order has already been passed, and whether the prayer in the application for staying further proceedings pursuant to the winding up order should be granted.
Ratio Decidendi: The court's decision was based on the interpretation of the provisions of Section 22(1) of the Act, the definitions of 'industrial company' and 'industrial undertakings' under the Act, and the impact of a winding up order on the competence to make a reference to the Board of Directors. The court also considered the distinction between an order in winding up and a winding up order, as well as the implications of Section 31 of the Act on the continuation of winding up proceedings.
Final Decision: The court dismissed the petition, subject to the observation that a rehabilitation scheme to revive the company may be proposed to the Court after notice to the official liquidator for future consideration.
( 1 ) PRAYER in this application is an order to stop further proceedings pursuant to the winding up order made by this Court on 3-6-1988 in view of Section 22 of the Sick Industries (Special Provisions) Act, 1985 (hereinafter referred to as 'the Act' ).
( 2 ) THE undisputed facts are these:- company Petition No. 6/1988 was filed by a creditor seeking an order of winding up of m/s. Vishnu Textiles Ltd. , Bangalore. That petition came to be allowed on 3-6-1988 and the Official Liquidator attached to this Court was appointed the Liquidator. That order has become final in so far as the provisions of the Companies Act are concerned in that no appeal against the winding up order was filed nor any person aggrieved by that order.
( 3 ) IN the affidavit in support of the prayer in the Company Application under consideration it is stated that the former managing Director of the applicant company has proposed a scheme of rehabilitation to the board constituted under the Sick Industries (Special Provisions) Act, 1985 and therefore has directed an inquiry and therefore in accordance with the provisions contained in sub-section 1 of section 22 of the Act, further proceedings pursuant to the order of winding up should be stayed by this Court.
( 4 ) PRAYER in the application is resisted by the creditor who obtained the order for winding up the Company in question as well as the Official Liquidator. Therefore the question which falls for determination by this court is - whether Section 22 of the Act is attracted to the facts of the case where the court has already passed a winding up order and therefore the prayer in the application may not be granted. Section 22 (1) of the Act is as follows:-"suspension of legal proceedings, contracts, etc.- (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwith- standing 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 proceded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. "
( 5 ) THE expression 'industrial company' is defined under the Act as follows:-"industrial company" means a company which owns one or more industrial undertakings"the following clause (f) of sub-section (1) of Section 3 of the Act defines 'industrial undertakings' as follows:-"industrial undertakings" means any undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include- i) an ancillary industrial undertaking as defined in clause (aa) of Section 3 of the industries (Development and Regulation) act 1951; (65 of 1951) and ii) a small scale industrial undertaking as defined in clause (j) of the aforesaid section 3". From the definitions of the two expressions it is clear, one has to bear in mind the distinction between the 'industrial company' and 'industrial undertakings' for purpose of the act. The manner in which industrial company has been defined clearly makes the legislative intent unambiguous in that after the coming into the force of the Act, industrial undertaking must be carrying on activity of manufacturing specified in the schedule if for any reason it has ceased to manufacture or is not carrying on the scheduled industry then it cannot be held to be an industrial undertaking. Further, what is clear from the language employed in Section 22 (1) of the Ac
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