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

This appeal is directed against the order of the learned Single Judge dated 18th October, 1996 on the company petition filed by the respondents for winding up of the appellant company, by which the learned Single Judge appointed the Official Liquidator as the provisional liquidator of the appellantappeal is directed against the order of the learned Single Judge dated 18th October, 1996 on the company petition filed by the respondents for winding up of the appellant company, by which the learned Single Judge appointed the Official Liquidator as the provisional liquidator of the appellantcompany. When this appeal came up for admission on 4th November 1996, it was contended before us on behalf of the appellant company that its financial condition was quite sound and the interest of the unsecured creditors was fully secured. It was submitted that failure of the appellant company to pay its creditors in time was only because of temporary liquidity crunch and for no other reason. We were told that the appellant company was in a position to pay all its unsecured creditors. Time was sought till 2nd December 1996 to submit a scheme for paying the unsecured creditors. In view of these submissions of the appellant company, the hearing of this appeal for admission was adjourned till 9th December 1996 with a direction to the appellant company not to incur any fresh liability in the meantime. It was further adjourned to 18th December, 1996. Finally this appeal was taken up for admission on 20th December 1996. At that time also, the learned Counsel for the appellant company reiterated the submissions made earlier on 4th November 1996 about financial soundness of the appellant company and its capacity to pay its unsecured creditors and others. We were told that failure of the appellant company to pay its unsecured creditors was only because of "temporary liquidity crunch".

Court's reasoning:
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.