Case: Podar Mills Limited Vs. J.K. Synthetics Limited

The present appeal is from an order dismissing Judges Summons taken out by the appellants for stay of all further proceedings in Company Petition No. 352 of 1983 and for restraining the respondents from taking any further steps in the Company Petition.2. On 23rd June, 1983 the respondents filed a petition for winding up the Appellant Company. On 14th September, 1983 consent terms were filed in Company Petition under which, inter alia, the Appellant Company admitted the claim of the respondents and agreed to pay the claim amount by monthly instalments. Under Clause 4 of the consent terms it was provided as follows:4. In the event of the Company failing to pay any three instalments or the last instalment on its due date as mentioned hereinabove the petition do stand admitted and the petitioners to give advertisement thereof in the Free Press Journal, Bombay Samachar and Maharashtra Government Gazette. The petition to be made returnable four weeks after the last advertisement is published.The first Instalment became payable on 20th September, 1983. This instalment was sent by the appellants along with their registered letter on 21st September, 1983. It was received by the respondents only on 28th September, 1983, There is also some dispute about the quantum of this instalment (which need not be gone into at this stage). The Next instalment was on 20th October, 1983 On 18th October, 1983 the Textile Undertakings (Taking Over of Management) Ordinance came into force. This Ordinance was later replaced by the Textile Undertakings (Taking Over of Management) Act of 1983. The Act was passed on 25th December, 1983 but deemed to have come into force on 18th October, 1983.In view of the provisions of the Textile Undertakings (Taking Over of Management) Act, 1983 the Management of two undertakings of the appellants which are described at items 9 and 10 of the first schedule to the said Act, have been taken over by the custodian appointed under the said Act as per the provisions of the said Act. The appellants thereupon did not pay the 2nd and 3rd instalments which fell due under the consent terms on 20th October, 1983 and 20th November, 1983. The respondents then addressed a letter dated 21st November, 1983 to the appellants pointing out, inter alia, that the appellant had committed three defaults in payment of instalments under the consent terms. In view of the provisions of Clause 4 of the consent term, they contended that the petition stood admitted and the respondents were entitled to advertise the petition as provided in the consent terms. The appellant took out a Judges summons on 19th January, 1984 being Company Application No. 12 of 1984 for stay of further proceedings in the Company petition.

Court's reasoning:
In view of the clear distinction made in the Act between a textile undertaking and textile Company it is not possible to construe section 8 as applying only to a textile undertaking. In fact section 8 subsection (1) clearly sets out that so long as the management of a textile undertaking of a textile Company remains vested in the Central Government no proceedings for the winding up of the textile company or for the appointment of liquidator or receiver in respect thereof shall lie in any Court except with the consent of the Central Government. The section itself uses both the terms, textile undertakings and textile Company, with a clear reference to their definition. The provisions of section 8(1)(c) apply to the Textile Company itself in the present case, to thedo not see any reason why section 8(1)(c) should be construed in this fashion, The intention of section 8(1) (c) is clearly to prevent a textile Company whose undertaking is covered by the said Act from being wound up. There are other provisions also in the said Act which support this construction. For example under section 4(2) on the appointment of a custodian the management of the textile undertaking shall vest in such custodian and all persons in charge of the management shall cease to be in charge of such management. Under(8) of section 4 every person having possession, custody or control of any property forming part of the textile undertaking is also required to the deliver such property to the custodian. Therefore, every person who is in possession of such textile undertaking is required to hand over possession to the custodian. The Act therefore, clearly contemplates that textile undertakings which are covered by the Act should be in the possession of the custodian an not any other party, including Receiver or Liquidator.In the present case also the words winding up in section 8 of the present Act require to be given the widest amplitude, especially when section 8 (1)(c) clearly sets out that a liquidator cannot be appointed by the Court in a proceeding unless the proceeding is with the consent of the Central Government. Undoubtedly the language of section 8 (1) of the Sick Textile Undertakings (Taking Over of Management) Act, 1972 is somewhat different from the language of section 8 (1) (c) of the present Act. It is true that under section 8 (1) of the Sick Textile Undertakings (Taking Over of Management) Act, 1972 the section refers expressly to proceedings being continued. Such words are absent in the present section 8 (1)(c). But section 8 (1)(c) refers both to proceeding for winding up as also for the appointment of a liquidator or receiver. Therefore, in a pending winding up proceeding where the liquidator is required to be appointed after the coming into operation of the said Act the consent of the Central Government is necessary before the proceeding for the appointment of a liquidator can be continued.13. The words shall lie in section 8(1)(c) in this context do not necessarily refer only to a prospective proceeding. They mean shall be entertained. Under section 10 also it is provided, that no suit etc. shall lie against the Central Government or the custodian for anything which is in good faith done or intended to be done under the Act. It is submitted that the words shall lie in section 10 are clearly prospective. The same phrase is used in section 8. Hence in section 8 also the phrase must be construed as prospective. This contention must be rejected. It is the context of section 10 which makes the provisions of section 10 prospective because section 10 deals with proceedings against the Central Government or the custodian for anything done or intended to be done under the Act. Such Proceeding must necessarily be in respect of anything done after the commencement of the Act. The use of the phrase "shall lie" in section 10 is therefore not responsible for making the section prospective. The phrase in both sections 8 and 10 is intended to mean shall be entertained and nothing more. In our view looking to the provisions of section 8(1)(c) the section applies equally to a pending proceeding for winding up of the Company at the time when the Act came intoare unable to appreciate this submission. When a liquidator cannot be appointed in this winding up petition without the consent of the Central Government it is difficult to see what purpose would be served by advertising the petition for winding up. Construction of section 8 (1)(c) of the said Act is a technical issue where presence or absence of other creditors cannot make any difference. It would be futile to permit the respondents to advertise the petition for winding up when they require the consent of the Central Government before obtaining any final orders in the winding up petition.