Case: Maharashtra Tubes Limited Vs. State Industrial and Investment Corporation of Maharashtra Limited and Another

Dictionary (Fourth Edition) which reads as under "Any proceedings in court of justice...... by which property of debtor is seized and diverted from his general creditors.... This term includes all proceedings authorised or sanctioned by law, and brought or instituted in a court of justice or legal tribunal, for the acquiring of a right or the enforcement of a remedy." * Even this definition does not militate against the view are inclined to take. In first place action under Section 29 of the 1951 Act is to seize the property of the defaulting industrial concern and to appropriate if for satisfying the debt. it gets diverted from the general body of creditors. The Corporation is fully empowered to dispose it of to a third party and pass a clear marketable title. All this can be done by the Corporation without the need to of to a court or tribunal or any other recovery agency. The Corporation is itself permitted to play that role. In substance the Corporation is playing the same role. From the point of view of quality and character the remedy is the same as in execution or distress proceedings. Therefore, even if one goes by the said meaning and understands the term proceedings in the light of the object and purpose of Section 22(1) of the Act 1985 Act, no difficulty is experienced in taking the view that it must be widely construed 12. Reliance was placed on decisions of two High Courts in support of the contentions urged on behalf of the appellant-company. We shall deal with them briefly. In Testeels Ltd., v. Radhaben Ranchhodlal Charitable Trust the short point for decision was whether a winding up proceeding already commenced against an industrial company ought to be dismissed or stayed during the pendency of the reference under Section 15 of the 1985 Act. The High Court held that the words be proceeded with further in Section 22 cannot be interpreted to mean that the proceedings should be kept in abeyance but the various provision of the enactment must be construed to put an end to both the contemplated and pending winding up proceedings. The High Court held that if the winding up proceedings are kept pending it may be difficult to effectively administer the schemes under Section 18 or grant financial assistance under Section 19 of the 1985 Act. The High Court held that the provision must be broadly construed keeping in mind the scheme of the law so that the ultimate objective is achieved and not defeated. In the other case of Industrial Finance Corporation of India v. Maharashtra Steel Ltd., the view taken was that pending inquiry by the BIFR the exercise of power under Section 30 of the 1951 Act would not be proper in view of Section 22(1) of the 1985 Act. Section empowers the Financial Corporation to requires an industrial concern by notice to discharges its liabilities before the agreed date. Even though no legal proceedings are contemplated under that provision, the High Court did not permit such an action during the pendency of proceedings under the 1985 Act. These two cases reinforce the view that the provision of Section 22(1) of the 1985 Act should receive a broad construction. These cases, therefore, support the view that expression proceedings in Section 22(1) need not be limited to legal proceedings understood in the narrow sense notwithstanding the use of that expression in the marginal note 13. Mr. Rao, however, invited our attention to the decision of the Andhra Pradesh High Court in Andhra Cement Co. Ltd., Secunderabad v. A.P. State Electricity Board. That was a case in which the company sought a permanent injunction against the Electricity Board to restrain it from refusing to supply of further goods under a contract cannot, in our view, be equated with the kind of proceedings contemplated by Section 22(1)". Since non-supply of goods in future cannot amount to action proposed against the property of the company, the High Court held that Section 22(1) was not attracted. It is, therefore, obvious that the decision turned on the peculiar facts of that case and does not militate against the view which commends to us 14. Now we come to the impugned decision. The High Court was considerably influenced by the fact that the appellant-company owed crores of rupees to banks and felt that so far as such creditors are concerned, different considerations may come into play but the High Court with respect failed to appreciate that the 1985 Act was enacted primarily to assist sick industrial undertakings which inter alia failed to meet their financial obligations. It is, therefore, difficult to accept the view of the High Court that where the creditors of a sick industrial concern happen to be banks or State Financial Corporations different considerations would come into play. It must be realised that in the modern industrial environment large industries are generally financed by banks and statutory corporations created specially for the purpose and if they are permitted to resort to independent actin in total disregard of the pending inquiry under Section 15 to 19 of the 1985 Act the entire exercise under the said provisions would be rendered nugatory by the time the BIFR is able to evolve a scheme of revival or rehabilitation of the sick industrial concern by the simple device of the Financial Corporation resorting to Section 29 of the 1951 Act. We are, therefore, of the opinion that where an inquiry is pending under Section 16/17 or an appeal is pending under Section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in Section 22(1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. The expression proceedings in Section 22(1), therefore, cannot be confined to legal proceedings understood in the narrow sense of proceedings in a court of law or a legal tribunal for attachment and sale of the debtors property

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 1

Reasoning from the judgment:
1[ds]7. It will be seen from the above discussion that both the 1951 Act and the 1985 Act are special statutes, each having a different objective, the emphasis in the case of the former being on giving of financial assistance to entrepreneurs for setting up industries while in the case of the latter it being to revive or rehabilitate industries which have an account of economic or other related reasons gone sick. No doubt the latter Act also contemplates giving of financial assistance for revival or rehabilitation of a sick industrial undertaking but that is by way of a remedy or as a measure at revival of the sick unit8. Now that we have clarified the respective schemes and objects of the two enactments we may notice a few background facts which have a bearing on the question under consideration. The appellant-company was in-corporated under the Companies Act, 1956 on April 15, 1980 or thereabouts and it commenced its activities of manufacturing steel pipes/tubes etc., of various sizes and dimensions essentially for export sometime in July 1982. Unfortunately within a couple of year of its commencing manufacturing activities it ran into difficulties on account of labour unrest, strikes, financial constraints etc. which necessitated the cessation of manufacturing activities by about July 1986. The disputes with the workmen lingered on for a couple of years and were settled by about August 1988. Since the company had run into serious financial problems on account of accumulated losses and paucity of cash flow, it wrote a letter to the BIFR on August 28, 1988 enclosing therewith a provisional balance-sheet for the year ended June 30, 1988 showing the accumulated losses and sought financial assistance for revival of the unit. The Director (Finance) of the BIFR replied by pointing out certain deficiencies in the statements of accounts forwarded to it and desired the company to report the sickness in Form A and to take appropriate action under Section 15(1) of the 1985 Act. The company submitted the proposal in A showing accumulated losses as on March 31, 1990 at Rs. 369 lakhs with a paid-up capital as on that date of Rs. 1.11 crores and free reserves at Rs. 29.20 lakhs. It was also pointed out that the company suffered a cash loss of Rs. 50.40 lakhs in the financial year ended March 31, 1989 and a further cash loss Rs. 149.79 lakhs in the financial year ended march 31, 1990. The gross value of the plant and machinery of the company as on March 31, 1990 was estimated at Rs. 160 lakhs. On that date the company has 34 workers on its rolls. It appears that after the receipt of Form A the BIFR held a preliminary hearing on September 12, 1991, at which Shri Rajesh Dalmia, Managing Director of the company, confirmed the information given in Form A and stated that during July 1, 1987 to June 30, 1988, the company employed more than 50 workers. Considering the facts on record and the oral submissions made by the Managing Director of the company. the Bench of the BIFR sought information to enable it to form an opinion on the question whether or not the company was a sick industrial company within the meaning of Section 3(1)(o) of the 1985 Act since the information in regard to the total number of workers employed by the company at the relevant date was not clear and the company had also not submitted the audited accounts for the financial year ended March 31, 1991. Several other discrepancies were also pointed out to the Managing Director of the company and the Bench directed him to submit the authenticated documents regarding the number of workers, audited/finalised accounts for the years 1989-90 and 1990-91 with a detailed explanation in regard to the delay in making the reference and other discrepancies pointed out in the course of hearing. The bank and other financial institutions were also directed to submit the reports regarding the conduct of the company and their role in providing necessary funds. The Chief Manager of the Bank of Baroda addressed a letter to the company on October 4, 1991 reminding it to furnish by return of post the information in regard to the number of workers employed during the period from July 1, 1987 to August 30, 1987 duly authenticated by the Registrar/Commissioner of Labour, reasons for not reporting to BIFR in time, inventory of fixed and current assets of the company along with a copy of the audited balance-sheet as on March 31, 1991, reasons for not reporting the details of sister-concerns in Form A and the position in regard to accumulated losses/cash losses for the last three years. At the next hearing held on July 20, 1992 Bench III of BIFR took note of the statement of the Managing Director that "he had no documentary evidence in support of his contention that the unit employed more than 50 workers during one year preceding the date of reference" and after noticing certain discrepancies in regard to sundry debtors, expenditure on security staff, removal of certain movables, etc., the Bench concluded as under"Considering the facts on record and submission made at todays hearing, the Bench observed that despite sufficient opportunity given to the company, it had not submitted the authenticated documents regarding the number of workers employed during the year preceding the date of reference and Shri Dalmia also could not substantiate during the hearing today his statement that company had more than 50 workers at any one time during the year preceding the date of reference to BIFR. The company as such could not be held a sick industrial company under Section 3(1)(o) of the SIC(SP) Act, 1985. The reference is, therefore, non-maintainable and is dismissed." *After the above order was made the first respondent initiated proceedings under Section 29 of the 1951 Act for taking over possession of the factory premises of the company. In the meantime of August 20, 1992, the company filed an appeal under Section 25 of the 1985 Act against the impugned order of the BIFR Bench dated July 20, 1992, extracted hereinabove. On the same day the company also sent a letter to the first respondent requesting it to stay its hands in view of the provisions of Section 22(1) of the 1985 Act. Thereupon, the first respondent wrote a letter to the appellate authority for permission to take possession of the assets of the company. The company challenged this action before the High Court of Bombay by a writ petition which came to be dismissed on October 6, 1992. The controversy before the High Court was whether the bar of Section 22(1) of the 1985 Act applied to proceedings initiated under Section 29/31 of the 1951 Act. The High Court relying on the decision of this Court in Gram Panchayat v. Shree Vallabh Glass Works Ltd., held as under"[W]e are of the view that when the 1st respondent seeks to enforce its special rights under sub-section (1) of Section 29 of the State Financial Corporations Act, 1951, such an action would not attract the bar of sub-section (1) of Section 22 of the 1985 enactment. In our view, some distinction has to be made between the rights of the 1st respondent-Corporation to proceed under sub-section (1) of Section 31 of the said Act which amounts to initiation of proceedings. Preventing the financial institution like the 1st respondent-Corporation from even resorting to its rights under Section 29 of the 1951 Act would, in our view, render the said provisions totally nugatory. While appreciating the public interest contemplated behind the enactment of Section 22(1) of the 1985 enactment, it must be observed that it is not everybody who may have a special or a higher right of the kind provided under sub-section (1) of Section 29 of the 1951 Act. For example, in this very case, we are told at the bar that the petitioner owes crores of rupees to some banks and so far as such creditors are concerned, different considerations may come into play. As far as the State Financial Corporation respondent 1 is concerned, we are in this case concerned with its action under the letter, Exh. F, which falls squarely under sub-section (1) of Section 29 of the 1951 Act. The 1st respondent has not initiated any proceedings, which could be done only under sub-section (1) of Section 31 of the said Act." *It is this view of the High Court which assailed before us in this appeal9. Having reached the conclusion the both the 1951 Act and the 1985 Act are special statutes dealing with different situations - the former providing for the grant of financial assistance to industrial concerns with a view to boost up industrialisation and the latter providing for revival and rehabilitation of sick industrial undertakings, if necessary, by grant of financial assistance, we cannot uphold the contention urged on behalf of the respondent that the 1985 Act is a general statute covering a large number of industrial concerns than the 1951 Act and, therefore, the latter would prevail over the former in the event of conflict. Both the statutes have competing non obstante provisions. Section 46-B of the 1951 Act provides that the provision of that statute and of any rule or order made thereunder shall have effect notwithstanding anything inconsistent therewith contained in way other law for the time being in force whereas Section 32(1) of the 1985 Act also provides that the provisions of the said Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law. Section 22(1) also carries a non obstante clause and says that the said provision shall apply notwithstanding anything contained in Companies Act, 1956 or any other law. The 1985 Act being a subsequent enactment, the non obstante clause therein would ordinarily prevail over the non obstante clause found in Section 46-B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is a special one. In that event the maxim generalia specialibus non derogant would apply. But in the present case on a consideration of the relevant provisions of the two statutes we have come to the conclusion that the Act 1951 Act deals with pre-sickness situation whereas the 1985 Act deals with the post-sickness situation. It is, therefore, not possible to agree that the 1951 Act is a special statutes vis-a-vis the 1985 Act which is a general statute. Both are special statutes dealing with different situations notwithstanding a slight overlap here and there, for example, both of them provide for grant of financial assistance though in different situations. We must, therefore, hold that in cases of sick industrial undertakings the provisions contained in the 1985 Act would ordinarily prevail and govern14. Now we come to the impugned decision. The High Court was considerably influenced by the fact that the appellant-company owed crores of rupees to banks and felt that so far as such creditors are concerned, different considerations may come into play but the High Court with respect failed to appreciate that the 1985 Act was enacted primarily to assist sick industrial undertakings which inter alia failed to meet their financial obligations. It is, therefore, difficult to accept the view of the High Court that where the creditors of a sick industrial concern happen to be banks or State Financial Corporations different considerations would come into play. It must be realised that in the modern industrial environment large industries are generally financed by banks and statutory corporations created specially for the purpose and if they are permitted to resort to independent actin in total disregard of the pending inquiry under Section 15 to 19 of the 1985 Act the entire exercise under the said provisions would be rendered nugatory by the time the BIFR is able to evolve a scheme of revival or rehabilitation of the sick industrial concern by the simple device of the Financial Corporation resorting to Section 29 of the 1951 Act. We are, therefore, of the opinion that where an inquiry is pending under Section 16/17 or an appeal is pending under Section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in Section 22(1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. The expression proceedings in Section 22(1), therefore, cannot be confined to legal proceedings understood in the narrow sense of proceedings in a court of law or a legal tribunal for attachment and sale of the debtors property