1999 (1) TMI 417 - HC - Companies Law

Board can refer company to BIFR post provisional liquidator appointment. BIFR order stands post suppression of facts. Actions suspended post BIFR registration.

Chemox Chemical Industries Ltd. Versus Tata Finance Ltd.

The court held that the board of directors can refer the company to BIFR for rehabilitation even after the appointment of a provisional liquidator. The ... Suspension of legal proceedings, contracts, etc. Issues Involved:1. Whether on appointment of a Provisional Liquidator, the board of directors can move BIFR under the provisions of the Act, 1985.2. Whether on account of suppression of facts, the Order of BIFR can be considered non est and of no effect and can be ignored by this Court.3. Whether the act of the Official Liquidator taking possession of the assets is merely an administrative act and consequently does not stand suspended despite the registration of the case on 1-12-1998.Detailed Analysis:Issue 1: Whether on appointment of a Provisional Liquidator, the board of directors can move BIFR under the provisions of the Act, 1985.The court examined Section 450(3) of the Companies Act, 1956, which indicates that a provisional liquidator has the same powers as a liquidator unless limited by the court. The court referred to the case of *Union Accident Insurance Co. Ltd., In re* [1972] 1 ALL ER 1105, where it was established that the board retains some residuary powers even after the appointment of a provisional liquidator. The court noted that the Sick Industrial Companies (Special Provisions) Act, 1985 aims to rehabilitate sick companies, a function not within the powers of a liquidator. Therefore, the board retains the power to refer the company to BIFR for rehabilitation purposes. The court also cited judgments from the Delhi High Court and Kerala High Court supporting the view that the board retains certain powers despite the appointment of a provisional liquidator.Issue 2: Whether on account of suppression of facts, the Order of BIFR can be considered non est and of no effect and can be ignored by this Court.The court referred to the Supreme Court judgment in *Real Value Appliances Ltd. v. Canara Bank* AIR 1998 SC 2064, which clarified that any misconduct before the High Court does not invalidate the registration of the reference before the BIFR. The Supreme Court held that if orders were obtained by fraud, the aggrieved party could request the High Court to recall such orders. Therefore, the court concluded that the order of BIFR could not be considered non est due to suppression of facts.Issue 3: Whether the act of the Official Liquidator taking possession of the assets is merely an administrative act and consequently does not stand suspended despite the registration of the case on 1-12-1998.The court examined Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, which mandates that all proceedings, including winding up, must be suspended once a case is registered with BIFR. The court cited the Supreme Court's interpretation in *Maharashtra Tubes Ltd. v. State Industrial & Investment Corpn. of Maharashtra Ltd.* [1993] 78 Comp. Cas. 803, which emphasized that the purpose of the Act is to freeze all actions against the sick company until its revival is determined. The court rejected the argument that taking possession is merely an administrative act, noting that all proceedings, including those by the Official Liquidator, must be suspended once the case is registered with BIFR.Conclusion:The court concluded that all further proceedings against the company are stayed under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The petitioners can move the court if the BIFR order is set aside or if BIFR passes any order allowing the court to assume jurisdiction in the matter of appointing a provisional liquidator.