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of <h1>Winding-up petition stayed under Companies Act during Sick Industrial Companies Act proceedings.</h1> <h3>Union of India Versus Krishna Mills Ltd.</h3> The High Court held that the winding-up petition under the Companies Act, 1956, should be stayed, not abated, during the pendency of proceedings under the ... Winding up – Overriding preferential payments, Company when deemed unable to pay its debts Issues Involved:1. Jurisdiction of the High Court to proceed with the winding-up petition under the Companies Act, 1956, when proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985, are pending.2. Interpretation of non obstante clauses in the Companies Act, 1956, and the Sick Industrial Companies (Special Provisions) Act, 1985.3. Whether the winding-up petition should be declared abated or merely stayed during the pendency of proceedings under the 1985 Act.Detailed Analysis:1. Jurisdiction of the High Court:The petition was filed under Section 439(b) of the Companies Act, 1956, seeking the winding up of the non-petitioner company under Sections 433(c) and 433(f) and the appointment of an official liquidator. The High Court issued a notice, but no appearance was made by the non-petitioner. Subsequently, the court ordered the advertisement of the petition. However, proceedings were stayed due to the Sick Industrial Companies (Special Provisions) Act, 1985, specifically Section 22 of the Act, which suspends legal proceedings when an inquiry or scheme under the Act is pending. The court noted that the matter was pending before the Board for Industrial and Financial Reconstruction (BIFR) and the appellate authority, and no final order had been passed.2. Interpretation of Non Obstante Clauses:The petitioner argued that proceedings under the Companies Act should not be stayed or declared abated merely because a petition under the 1985 Act was filed, citing the overriding effect of Section 529A of the Companies Act. However, the respondent argued that the jurisdiction of the High Court ceases once a company is declared sick under the 1985 Act, relying on precedents from the Gujarat High Court and the Supreme Court. The court examined the non obstante clauses in Sections 22 and 32 of the 1985 Act, which state that the provisions of the 1985 Act prevail over any other law, including the Companies Act. The court concluded that the non obstante clauses in the 1985 Act would prevail over those in the Companies Act due to the special nature of the 1985 Act and its subsequent enactment.3. Abatement or Stay of Winding-Up Petition:The court analyzed whether the winding-up petition should be declared abated or merely stayed during the pendency of proceedings under the 1985 Act. The Gujarat High Court in Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust had held that winding-up proceedings should be dismissed once proceedings under the 1985 Act are initiated. However, the Bombay High Court in Ramnihlal and Co. v. Wallace Flour Mills Co. Ltd. and the Supreme Court in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. interpreted Section 22(1) to mean that proceedings should be suspended, not abated. The court agreed with the latter interpretation, stating that the words 'be proceeded with further' indicate that the proceedings should be stayed and not dismissed. The court emphasized that the legislative intent was to freeze proceedings during the pendency of the inquiry or scheme under the 1985 Act, not to abate them.Conclusion:1. The 1985 Act is a special statute designed to revive and rehabilitate sick industrial companies and prevails over the Companies Act, 1956, in case of inconsistency.2. The non obstante clauses in Sections 22(1) and 32(1) of the 1985 Act prevail over Section 529A of the Companies Act, 1956.3. A winding-up petition should not be treated as abated due to the initiation of proceedings under the 1985 Act. Instead, such proceedings should be stayed and consigned to record, subject to revival with the permission of the BIFR or after the conclusion of proceedings under the 1985 Act.Order:The proceedings in Company Petition No. 6 of 1991 shall remain stayed and consigned to record. The petition can be revived based on an application made by a party in accordance with the observations made in the judgment.
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