Gram Panchayat
& Anr Vs. Shree Vallabh Glass Works Limited & Ors [1990] INSC 88 (15 March 1990)
Shetty,
K.J. (J) Shetty, K.J. (J) Sahai, R.M. (J)
CITATION:
1990 AIR 1017 1990 SCR (1) 966 1990 SCC (2) 440 JT 1990 (1) 438 1990 SCALE
(1)439
ACT:
The
Sick Industrial Companies (Special Provisions) Act, 1985: Ss. 16. 17 &
22--Sick industrial company--Proceedings for recovery of amount due--Validity
of.
HEAD NOTE:
Section
16 of the Sick Industrial Companies (Special Provisions) Act, 1985 authorises
the Board for Industrial and Financial Reconstruction established under the Act
to make enquiry for determining whether any industrial company has become a
sick industrial company. Section 17(2) empowers the Board to grant a reasonable
time to such a company to make its net worth positive. Where such a course is
not practicable s. 17(3) empowers the Board to appoint an oper- ating agency to
prepare a scheme for rehabilitation/revival of the company. Section 22(1)
provides that in case the enquiry under s. 16 is pending or any scheme referred
to under s. 17 is under preparation or consideration by the Board or any appeal
under s. 25 is pending, then proceedings for winding up, execution, distress or
the like are to be suspended or presumed to be suspended. The proceedings in
respect of these matters could, however, be continued with the consent of the
Board or of the appellate authority as the case may be. Section 22(5) provides
for exclusion of the period during which the remedy remains suspended, in comput-
ing the period of limitation for enforcement of the right.
The
respondent company had been declared by the Board to be a sick industrial
company under s. 16 of the Act and an operating agency had been appointed under
s. 17(3) to pre- pare a scheme for rehabilitation/revival of the company.
The
respondent company owed a large sum to the petition- er Panchayat on account of
property tax and other dues. When the petitioners initiated coercive
proceedings to recover that amount the company moved the High Court by way of a
writ petition under Article 226 of the Act. The High Court restrained the
petitioners from recovering the said amount without the consent of the Board.
Dismissing
the special leave petition, the Court, 967
HELD:
The High Court was justified in quashing the recovery proceedings taken against
the properties of the company. [970G-H] The Board by order dated 27 August,
1987 had stated that it was satisfied that the company had become a sick indus-
trial company and directed that further proceedings under .the Act shall be
taken. By another order made on the same day under s. 17(2) the Board had found
that it was not practicable for the company to make its net worth positive
within a reasonable time and had proceeded to take action under s. 17(3) and
appointed the ICICI as the operating agency to prepare a scheme for
rehabilitation/revival of the company.
In
view of these steps taken by the Board under ss. 16 and 17 of the Act, no
proceedings for execution, distress or the like against any of the properties
of the industrial company shall lie or be proceeded with further by virtue of
s. 22(1) except with the consent of the Board. [970A-D] The Board at its
discretion may accord approval. If the approval is not granted the remedy is
not extinguished. It is only postponed. Sub-section (5) of s. 22 provides for
exclusion of the period during which the remedy is suspended while computing
the period of limitation for recovering the dues. [970F-G]
CIVIL
APPELLATE JURISDICTION: Special Leave Petition (Civil) No. 14395 of 1989.
From
the Judgment and Order dated 18.7.1989 of the Bombay High Court in W.P. No.
6108 of 1987.
V.N. Ganpule
for the Petitioners.
P. Chidambram,
Mrs. Raian Karaniawala, N.H. Seerbai, Karanjawala and Ravinder Kumar for the
Respondents.
The Judgment
of the Court was delivered by K. JAGANNATHA SHETTY, J. The petitioners seek
leave to appeal against the decision of the Bombay High Court in Writ Petition
No. 6108/87 quashing the proceedings for recovery of property tax and other
expenses due from the first re- spondent-company.
The
matter arises in this way: For the purpose of pre- vention and revival of sick
industries, the Central
Govern- ment has
enacted the Act called "The Sick Industrial Compa- nies (Special
Provisions) Act, 1985 968 ('The Act'). The Act extends to the whole of India including the State of Jammu &
Kashmir. It came into force (except sections 15 to 34) with effect from 15 May 1987. The Act covers only sick industrial companies or
industrial compa- nies which have the potential to become sick. The Act empow- ers
the Central Government to establish a Board to be known as the Board for
Industrial & Financial Reconstruction to exercise the jurisdiction and
powers, and discharge the functions and duties imposed under the Act.
The first
respondent-company M/s Shree Vallabh Glass Works Ltd. has been declared to be a
sick industrial company within the meaning of clause (0) of sub-section (1) of
Section 3 of the Act. '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 preceding such financial year." The first
petitioner is the Gram Panchayat, Salwad and second petitioner is the Chairman
of the Gram Panchayat. The petitioners initiated coercive proceedings under
Section 129 of the Bombay Village Panchayat Act to recover a sum of Rs.9,47,539
stated to be the property tax and other amounts due from the company.
Challenging that proceedings, the Company moved the High Court by way of Writ
Petition under Article 226 of the Constitution claiming protection provided
under Section 22 of the Act. The High Court has accepted the writ petition and
restrained the petitioners from recovering the said amount without the consent
of the Board.
The
question is whether the Panchayat could not recover the amount due to it from
out of the properties of the sick industrial company without the consent of the
Board? Section 22 provides, as far as material, as follows:
"Section
22--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 sanc- tioned
scheme is under implementation or where an appeal under Section 25 relating to
an industrial company 969 is pending, then, notwithstanding anything contained
in the Companies Act, 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.
22(2)
to 22(4) xxx xxx xxx 22(5) In computing the period of limitation for the
enforce- ment of any right, privilege, obligation or liability, the period
during which it or the remedy for the enforcement thereof remains suspended
under this section shall be ex- cluded." Section 22(1) provides that in
case the enquiry under Section 16 is pending or any scheme referred to under
Sec- tion 17 is under preparation or consideration by the Board or any appeal
under Section 25 is pending then certain proceedings against the sick
industrial company are to be suspended or presumed to be suspended. 'The nature
of the proceedings which are automatically suspended are: (1) Winding up of the
industrial company, (2) Proceedings for execution, distress or the like against
the properties of sick industrial company, and (3) Proceedings for the ap- pointment
of receiver. The proceedings in respect of these matters could, however, be
continued against the sick indus- trial company with the consent or approval of
the Board or of the Appellate Authority as the case may be.
Section
16 authorises the Board to make such enquiry as it may deem fit for determining
whether any industrial company has become a sick industrial company. Where
Board is satisfied that a company has become a sick industrial compa- ny, it
could give a reasonable time to the company to make its net worth positive
(Sec. 17(2)). Where it is not prac- ticable for sick industrial company to make
its net worth positive within a reasonable time, Section 17(3) steps in authorising
the Board to direct any operating agency to prepare a scheme in relation to the
company. The Board may specify the various measures to be considered by the operat-
ing agency. These measures are detailed out in Section 18.
The
operating agency has to prepare a scheme as per the order specified by the
Board.
970 In
the instant case, the Board by order dated 27 August 1987 has stated that it was satisfied
that the company has become a sick industrial company. The Board directed that
further proceedings under the Act shall be taken with re- spect to the company.
On the same day the Board after having heard the representatives of the ICICI,
the company, the concerned Banks, the other public financial institutions and
the State Government of Gujarat, considered the entire material on record, held
that it was not practicable for the company to make its net worth positive
within a reasonable time and that further proceedings under sub-section (3) of
Section 17 of the Act are, therefore, to be taken. Accord- ingly, in exercise
of the powers conferred under Section 17(3) of the Act, the Board appointed the
ICICI as the operating agency to prepare a scheme for rehabilitation/revival of
the company keeping in view of the provisions of Sections 18 and 19 and the
guidelines. At the same time the Board appointed Shri Y.V. Sivaramakrishnayya
as the special director of the company for safeguarding its financial andother
interests.
In the
light of the steps taken by the Board under Sections 16 and 17 of the Act, no
proceedings for execution, distress or the like proceedings against any of the
proper- ties of the company shall lie or be proceeded further except with the
consent of the Board. Indeed, there would be auto- matic suspension of such proceedings
against. the company's properties. As soon as the inquiry under Section 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.
It may
be against the principles of equity if the credi- tors are not allowed to
recover their dues from the company, but such creditors may approach the Board
for permission to proceed against the company for the recovery of their dues/outstandings/overdues
or arrears by whatever name it is called. The Board at its discretion may
accord its approval for proceeding against the company. If the approval is not
granted, the remedy is not extinguished. It is only post- poned. Subsection (5)
of Section 22 provides for exclusion of the period during which the remedy is
suspended while computing the period of limitation for recovering the dues.
In our
opinion, the High Court was justified in quashing the recovery proceedings
taken against the properties of the company and we accordingly, reject this
petition, with no order as to costs.
P.S.S.
Petition dismissed.
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