Case: Real Value Appliances Limited Vs. Vardhaman Spinning &amp; General Mills Limited

or to cause an inquiry to be made into any industrial company under sub-section (1), which naturally can be only after application of mind by the Board to the facts and circumstances of the case and in case of a reference by the industrial company, on consideration thereof. Inquiry under section 16 cannot commence merely on filing of a reference or registration of the same by the Registrar or the Secretary.15. This view of ours also gets support from the proviso to sub-section (3) of section 16 which enacts a legal fiction for the purpose of that sub-section that an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board. This legal fiction has been created for the purpose of sub-section (3) only and it cannot be expanded beyond that. By specifically providing that it was only for the purposes of sub-section (3) of section 16, the legislature has made its intention abundantly clear. Hence, for the purposes of the Act (except sub-section (3) of section (16) something more is necessary to commence an inquiry and that something is the opinion of the Board, formed on an application of mind to the reference or the information, that the case is a fit one to make an inquiry. This is also clear from Chapters II and III of the BIFR Regulations. Regulation 19 deals with reference under section 15. It provides for filing of the reference, scrutiny of same by the Secretary or the Registrar, registration of the same by them if found to be in order and refusal to register the same if it is not found to be in order. It is made clear that a reference declined to be registered shall be deemed not to have been made. Appeal is also provided against the order declining to register a reference. Chapter III contains general provisions regarding inquiry. Chapter IV deals with the manner of inquiry.Regulation 21 is important. It reads :"21. Upon a reference with respect to an industrial company under section 15 or upon information received with respect to such company, or upon its own knowledge as to the financial condition of the company, the Board may --(a) itself make such inquiry, as it may deem fit, for determining whether the industrial company has become a sick industrial company; or(b) if it deems necessary or expedient so to do, for the expeditious disposal of inquiry mentioned at (a) above, direct by an order, an operating agency, to be specified in the order, to enquire into and make a report with respect to such matters, as may be specified in the order :Provided that reasonable opportunity for making submissions shall be given by the Board to the informant, and to the concerned industrial company, if it is not the informant, before deciding whether the said company has become a sick industrial company or not."It is clear from Regulation 21 that after registration of the reference under section 15, the first step, is to determine or decide whether to make inquiry or to direct the operating agency to do the same. That being so, an inquiry under section 16 can be said to have commenced only when the Bench of the BIFR, to which the reference is assigned by the Chairman after its registration, deems it fit to make an inquiry or to cause an inquiry to be made by the operating agency. Till that stage, it is merely a reference registered by the office of the Board. It cannot be said that an inquiry has commenced and is pending.16. We are strengthened in our above conclusion by Clause 4 of the 1992 Guidelines of the BIFR, which deals with "Procedure in BIFR" where it is categorically stated :"4.2.1 The inquiry is made under section 16 of the Act.4.2.2 The inquiry commences with the hearing of the parties invited by the Bench as per notice issued."(Emphasis supplied)17. From the foregoing discussion, it is clear that inquiry under section 16 can be said to have commenced only when an inquiry is ordered by the Board and at that stage only legal proceedings set out in sub-section (1) of section 22 of the Sick Industrial Companies Act would be suspended. We are supported in our above conclusion by the following observations of the Supreme Court in (Gram Panchayat v. Shree Vallabh Glass Works Ltd.)7, 1990(3) Bom.C.R. 109 :1990 Bank.J. 595 (S.C.) : 1991(71) Comp. Cas. 169."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."18. We are also supported in our above conclusion by the decision of the Calcutta High Court in Bengal Lamps Ltd. v. Furmanite Nico Ltd. (supra), wherein the Division Bench of the Calcutta High Court held that inquiry under section 16 of the Sick Industrial Companies Act cannot be said to be pending merely because reference is filed. In the above case, the Calcutta High Court was of the opinion that inquiry under section 16 commences only on the Board taking a decision under sub-section (1) of section 16 to hold a cause an inquiry to be held.19. We have also perused the two Single-Judge decisions of this Court in Oman International Bank S.A.O.G. v. M/s. Madalsa International Ltd. (supra) and Central Bank of India v. Madalasa International Ltd. (supra) where, following the Calcutta High Court decision in Bengal Lamps Ltd. v. Furmanite Nico Ltd. (supra), it has been held that by mere filing of a reference under section 15 or registration of the same, it cannot be said that inquiry has commenced and is pending. We are in agreement with the above conclusion.20. In view of the foregoing discussion, we are of the clear opinion that in the facts and circumstances of the present case, section 22 of the Sick Industrial Companies Act had no application.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]18. We are also supported in our above conclusion by the decision of the Calcutta High Court in Bengal Lamps Ltd. v. Furmanite Nico Ltd. (supra), wherein the Division Bench of the Calcutta High Court held that inquiry under section 16 of the Sick Industrial Companies Act cannot be said to be pending merely because reference is filed. In the above case, the Calcutta High Court was of the opinion that inquiry under section 16 commences only on the Board taking a decision under(1) of section 16 to hold a cause an inquiry to be held.19. We have also perused the twodecisions of this Court in Oman International Bank S.A.O.G. v. M/s. Madalsa International Ltd. (supra) and Central Bank of India v. Madalasa International Ltd. (supra) where, following the Calcutta High Court decision in Bengal Lamps Ltd. v. Furmanite Nico Ltd. (supra), it has been held that by mere filing of a reference under section 15 or registration of the same, it cannot be said that inquiry has commenced and is pending. We are in agreement with the above conclusion.From the foregoing discussion, it is clear that inquiry under section 16 can be said to have commenced only when an inquiry is ordered by the Board and at that stage only legal proceedings set out in(1) of section 22 of the Sick Industrial Companies Act would be suspended. We are supported in our above conclusion by the following observations of the Supreme Court in (Gram Panchayat v. Shree Vallabh Glass Works Ltd.)7, 1990(3) Bom.C.R. 109 :1990 Bank.J. 595 (S.C.) : 1991(71) Comp. Cas. 169."As soon as the inquiry under section 16 is ordered by the Board, the various proceedings set out under(1) of section 22 would be deemed to have been suspended.It is clear from a perusal of the above provisions of section 1516 that there is a material difference between reference and inquiry. When a reference under(1) of section 15 is made to the BIFR and it is found to be in order, it is registered. This is done by the Secretary or the Registrar of the BIFR. After registration, it has to be placed before the Chairman of the BIFR for assigning it to a Bench. Thereafter only the question of inquiry can arise, because power to conduct inquiry under section 16 is vested in the Board and not in the Secretary or Registrar of the BIFR. The expression used in section 22 is "an inquiry under section 16 is pending". The power to commence and conduct an inquiry under section 16 is vested only in the Board, which means the Board for Industrial and Financial Reconstruction established under section 4, comprising of the Chairman and the members. Registrar or the Secretary of the BIFR is not "Board". It is when only the Bench of not less than 2 members, to which the reference is assigned by the Chairman of the Board, takes up the matter and decides to make such inquiry as it may deem fit, that inquiry can be said to have commenced. It is thus clear that inquiry under section 16 commences only when the Board deems it fit to make an inquiry or to cause an inquiry to be made into any industrial company under(1), which naturally can be only after application of mind by the Board to the facts and circumstances of the case and in case of a reference by the industrial company, on consideration thereof. Inquiry under section 16 cannot commence merely on filing of a reference or registration of the same by the Registrar or the Secretary.15. This view of ours also gets support from the proviso to(3) of section 16 which enacts a legal fiction for the purpose of thatthat an inquiry shall be deemed to have commenced upon the receipt by the Board of any reference or information or upon its own knowledge reduced to writing by the Board.