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

3. The 1951 Act was enacted to provide for the establishment of State Financial Corporations. Section 3 empowers the State Government to establish a State Financial Corporation as a body corporate with an authorised capital of such sum as may be fixed by the State Government in this behalf. Section 9 provides that the general superintendence, direction and management of the affairs and business of the Financial Corporation shall vest in a Board of Directors which may exercise all the powers and discharge all the functions which may be exercised and discharged by the Financial Corporation. Under Section 15 one of the Directors may be nominated by the State Government to be the Chairman of the Board of Directors. Section 25 enumerates the business which the Financial Corporation may transact. These include among others, guaranteeing, on such terms and conditions as may be agreed upon, loans raised by industrial concerns which are repayable within twenty years and are floated in the public market, loans raised by industrial concerns from scheduled banks or State cooperative banks or other financial institutions and granting loans and advances to an industrial concern repayable within a period not exceeding twenty years from the date on which they are granted. Section 29, insofar as relevant for our purpose, then provides as under"29. (1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both the of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation." *  Where the Financial Corporation, in exercise of the aforesaid rights, transfers any property, sub-section (2) provides that the same shall vest in the transferee all rights in or to the transferred property as if the transfer had been made by the owner of the property. Section 31 next provides as under  "31. Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of the agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under Section 30 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882 any officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance; or  (aa) for enforcing the liability of any surety; or  (b) for transferring the management of the industrial concern to the Financial Corporation; or  (c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended."Section 32 outlines the procedure which the District Judge must follow in respect of an application made under Section 31. Section 32-A empowers the Financial Corporation to appoint Directors or Administrators of an industrial concern, the management whereof is taken over by the Financial Corporation. Section 32-E lays down that where the management of an industrial concern, being a company as defined in the Companies Act, 1956 is taken over by the Financial Corporation, then, notwithstanding anything contained in the said Act or in the Memorandum or Articles of Association of such concern, it shall not be lawful for the shareholders of such concern or any other person to nominate or appoint any person to be a Director of the said concern nor shall any resolution passed at the meeting of the shareholders of such concern be given effect to unless approved by the Financial Corporation. It also precludes the filing of a winding up proceeding or for the appointment of a Receiver in respect of such concern in any court unless consented to by the Financial Corporation. So also Section 32-F places a restriction on the filing of suits for dissolution, etc., of an industrial concern other than a company whose management is taken over. Section 32-G provides for recovery of amounts due to the Financial Corporation as an arrear of land revenue. And Section 46-B says that the provisions of the said Act and any rule or order made thereunder shall have effect notwithstanding anything inconsistent therewith in any other law for the time being in force. It further says that the provisions of the Act shall be in addition to, and not in derogation of, any such law applicable to an industrial concern. It will thus be seen that the consequences of a take over of the industrial concern are quite drastic and virtually denudes the management of such industrial concern of its power to administer the properties and assets of such concern4. While on the one hand the 1951 Act provides for grant of financial assistance to industrial concerns, on the other hand the ever increasing problem of industrial sickness and its consequential fallout on the nations economy and the problems faced by the Financial Corporations in the matter of recovery of their dues and/or rehabilitation of a sick industrial undertaking led to the appointment of a Committee known as the Tiwari Committee in 1981 which submitted its report in 1983 leading to the enactment of the 1985 Act with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a body of experts of the preventive, ameliorative, remedial and other measures needed to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for other matters connected therewith or incidental thereto. This Act extends to the whole of India and Section 2 thereof carries a declaration that it is enacted for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution. The dictionary of the Act is to be found in Section 3. Section 3(e) defines an industrial company to mean a company which owns one or more industrial undertakings and Section 3(f) defines an industrial undertaking to mean an undertaking pertaining to a scheduled industry carried on in one or more factories by any company but does not include an ancillary industrial undertaking as defined in clause (aa) of Section 3 of the Industries (Development and Regulation) Act, 1951 and a small scale industrial undertaking as defined in Section 3(j) of the same statue. Since Section 3(2) provides that words and expressions used but not defined under the said Act or the Companies Act, 1956, shall have the meaning assigned to them in the Industries (Development and Regulation) Act, 1951, we must look to the definition of factory in that law. Factory as defined in Section 3(c) of that law, inter alia, means any premises including the precincts thereof in any part of which a manufacturing process is being carried on or is ordinarily so carried on with the aid of power, provided that fifty or more workers are working or were working thereon on any day of the preceding twelve months. Again Section 3(n) defines a scheduled industry to mean any of the industries specified for the time being in the First Schedule of that law. Section 3(o) defines a sick industrial company to mean an industrial company (not 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 expression cash loss means loss as computed without providing for depreciation. Chapter II provides for establishment of a Board and appellate authority for Industrial and Financial Reconstruction. Section 4(1) empowers the Central Government to establish a Board to be known as the Board for Industrial and Financial Reconstruction (BIFR) to exercise the jurisdiction and powers and discharge the functions and duties conferred or imposed thereon by, or under the provisions of the said Act, Section 5 envisages constitution of an appellate authority to be called the appellate authority for Industrial and Financial Reconstruction for hearing appeals against the orders of the BIFR. Section 12 posits that the jurisdiction, powers and authority of the BIFR or the appellate authority may be exercised by Benches to be constituted by their respective Chairmen. Section 14 says that the proceedings before the BIFR or the appellate authority shall be deemed to be judicial proceedings. Then comes Chapter III entitled References, Inquiries and Schemes. Section 15(1) provides that where an industrial company has become a sick industrial company, the Board of Directors of the Company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year at the end of which the company has become a sick industrial company, make a reference to the BIFR for determination of the measures which shall be adopted with respect to the company. If, however, the Board of Directors of the company had for sufficient reasons formed an opinion before the finalisation of the duly audited accounts that the company had become a sick industrial company, they could make a reference within sixty days after the formation of such opinion for determination of the measures to be adopted with respect to the company. Upon receipt of such reference with respect of such company or upon information received or upon its own knowledge as to the financial condition of the company a duty is cast by Section 16(1) on the BIFR to make such inquiry as it deems fit for determining whether any industrial company has become a sick industrial company. Where the BIFR deems it fit to make such inquiry or to cause an inquiry to be made into any industrial company, sub-section (4) requires it to appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company. Section 17 next provides that if after making an inquiry under Section 16 the BIFR is satisfied that a company has become a sick industrial company, it shall, after considering all the relevant facts and circumstances of the case, decide, whether it is practicable for the company to make its net worth positive within a reasonable time. If the BIFR decides in the affirmative, it shall, by order in writing give such time to the company as it may deem fit to make its net worth positive but if it decides in the negative and considers it necessary or expedient in the public interest to adopt all or any of the measures specified in Section 18, it may, by a written order direct any operating agency to prepare a scheme providing for such measures in relation to such company. Section 18 provides that where an order is made under the aforesaid provisions in relation to any sick industrial company, the operating agency shall prepare a scheme with respect to such company providing for any one or more of the following measures, namely,) the reconstruction, revival or rehabilitation of the sick industrial company;  (b) the proper management of the sick industrial company by change in, or take over of, management of the sick industrial company;  (c) the amalgamation of the sick industrial company with any other industrial company;  (d) the sale or lease of a part or whole of any industrial undertaking of the sick industrial company;  (e) such other preventive, ameliorative and remedial measures as may be appropriateA copy of the draft scheme prepared by the BIFR is required to be sent to the sick industrial company as well as the operating agency. After the draft scheme is finalised, it has to be sanctioned by the BIFR and the be brought into force with effect from such date as the BIFR may specify in this behalf. Provision is also made for reviewing a sanctioned scheme and making modifications therein if the exigencies of administration so require. Where the scheme relates to preventive, ameliorative, remedial or other measures with respect to any sick industrial company, the scheme may provide for financial assistance by way of loans, advances, guarantees, reliefs, concessions or sacrifices from the Central Government, a State Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority to the sick industrial company, vide Section 19(1) of the Act. Section 20, however, provides that where the BIFR after making an inquiry under Section 16 is of opinion that it is just and equitable to wind up the sick industrial company, it may forward its opinion in that behalf to the concerned High Court whereupon the High Court shall, on the basis thereof, order winding up of the sick industrial company. That brings us to Section 22, sub-section (1) whereof needs to be reproduced:"22 (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, notwithstanding 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 to 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."We now come to Chapter IV entitled Proceedings in case of potentially sick industrial companies, misfeasance proceedings, appeals and miscellaneous. Section 25 provides for an appeal and reads as under"25. (1) Any person aggrieved by an order of the Board made under this Act may, within forty-five days from the date on which a copy of the order is issued to him, prefer an appeal to the Appellate Authority  Provided that the Appellate Authority may entertain any appeal after the said period of forty-five days but not after sixty days from the date aforesaid if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal in time  (2) On receipt of an appeal under sub-section (1), the Appellate Authority may, after giving an opportunity to the appellant to be heard, if he so desire, and after making such further inquiry as it deems fit, confirm, modify or set aside the order appealed against." *Section 26, however, states that no order passed or proposal made under this Act shall be appealable except as provided therein and no civil court shall have jurisdiction in respect of any matter which the appellate authority or the BIFR is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. Section 32 says that the provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 and the Urban Land (Ceiling and Regulation) Act, 1976 for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act. This, in brief, is the scheme of 1985 Act

Reasoning: 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