Separate legal entity principle limits sick company protection; admitted unpaid debt can still justify winding up.

A subsidiary company was held not to receive the Sick Industrial Companies Act protection available to its holding company, because each remains a separate legal entity and section 22 suspension applies only to the company before the Board. On that basis, winding-up proceedings against the subsidiary were not barred. The court also held that where the debt was admitted, unpaid, and no satisfactory ground existed to defer relief, judicial discretion should not be used to withhold or postpone a winding-up order. Commercial insolvency and creditor protection justified winding up on the admitted default.

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Issues: (i) Whether the protective umbrella under the Sick Industrial Companies (Special Provisions) Act, 1985 available to the holding company extended to the subsidiary company so as to bar winding-up proceedings against the subsidiary. (ii) Whether, on an admitted and unpaid debt, the court should exercise its discretion to refuse or postpone a winding-up order.

Issue (i): Whether the protective umbrella under the Sick Industrial Companies (Special Provisions) Act, 1985 available to the holding company extended to the subsidiary company so as to bar winding-up proceedings against the subsidiary.

Analysis: The subsidiary and the holding company were treated as distinct legal entities under company law. The suspension of proceedings under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 applied to the company before the Board and did not automatically extend to a separate subsidiary merely because of corporate control or ownership. The company's liability to the creditor remained independent of the holding company's proceedings.

Conclusion: The statutory protection available to the holding company did not bar winding-up proceedings against the subsidiary.

Issue (ii): Whether, on an admitted and unpaid debt, the court should exercise its discretion to refuse or postpone a winding-up order.

Analysis: A winding-up order under section 433 of the Companies Act, 1956 is discretionary, but the discretion must be exercised judicially. Where the debt is clear, valid and undisputed, the company has remained unable to pay despite statutory demand and subsequent indulgence, and no satisfactory basis exists to defer relief, commercial insolvency is established. In such circumstances, the court may treat the company as unable to pay its debts and grant winding up in the interests of commercial morality and creditors' protection.

Conclusion: The court declined to withhold or postpone winding up and held that the company should be wound up on the admitted default.

Final Conclusion: The winding-up petition was allowed and the company was ordered to be wound up, with a short stay of operation granted on request.

Ratio Decidendi: A separate legal entity is not protected from winding-up proceedings merely because its holding company is before the BIFR, and an admitted, unpaid debt may justify winding up where the company is commercially insolvent and no equitable ground warrants refusal of relief.

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