1999 (1) TMI 415 - HC - Companies Law

Directors' Powers Post Liquidator Appointment | BIFR Order Validity & Recourse

Tata Finance Ltd. Versus Chemox Chemical Industries Ltd.

The court held that the board of directors retains certain powers even after the appointment of a provisional liquidator, including the ability to move ... Winding up – Appointment and powers of provisional liquidator Issues Involved:(a) Whether on appointment of a provisional liquidator, the board of directors can move the BIFR under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985Rs.(b) Whether on account of suppression of facts the order of the BIFR can be considered to be non est and of no effect and can be ignored by this courtRs.(c) Whether the act of the official liquidator taking possession of the assets is merely an administrative act and consequently does not stand suspended in spite of registration of the case on December 1, 1998Rs.Issue-wise Detailed Analysis:(a) Whether on appointment of a provisional liquidator, the board of directors can move the BIFR under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985Rs.The court analyzed Section 450(3) of the Companies Act, which states that a provisional liquidator has the same powers as a liquidator unless restricted by the court. It was argued that the board becomes defunct upon the appointment of a provisional liquidator, rendering any subsequent resolutions or actions, such as moving the BIFR, invalid. However, the court referred to the judgment in Union Accident Insurance Co. Ltd., In re [1972] 1 All ER 1105 (Ch. D.), which established that the board retains some residuary powers even after the appointment of a provisional liquidator, such as defending proceedings or appealing orders. The court concluded that the board retains the power to move the BIFR for the purpose of rehabilitating the company, as these are not powers assumed by the liquidator.(b) Whether on account of suppression of facts the order of the BIFR can be considered to be non est and of no effect and can be ignored by this courtRs.The court referred to the apex court's judgment in Real Value Appliances Ltd. v. Canara Bank [1998] 93 Comp. Cas. 26 (SC), which clarified that any conduct of the appellant-company before the High Court does not invalidate the registration of the reference before the BIFR. If orders were obtained by fraud, the respondent could ask the High Court to recall such orders. Therefore, the suppression of facts does not render the BIFR order non est, and the proper recourse is to move the Board for recalling the order.(c) Whether the act of the official liquidator taking possession of the assets is merely an administrative act and consequently does not stand suspended in spite of registration of the case on December 1, 1998Rs.The court examined Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, which mandates that no proceedings for winding up, execution, distress, or appointment of a receiver can proceed without the consent of the BIFR once a case is registered. The court cited Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp. Cas. 803 (SC) and Real Value Appliances Ltd. v. Canara Bank [1998] 93 Comp. Cas. 26 (SC), which held that the provisions of Section 22 come into effect immediately upon registration of the case, staying all proceedings. The court rejected the argument that the act of taking possession by the official liquidator is merely administrative, concluding that all proceedings, including the liquidator's actions, are suspended upon registration with the BIFR.Conclusion:All further proceedings against the company are stayed in terms of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The petitioners can move the court if the BIFR's order is set aside or if the BIFR passes any order affecting the court's jurisdiction in the matter of appointing a provisional liquidator.