Sick industrial company protection extends to pending winding up proceedings even after a winding up order under the special statute.

Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 was read as continuing to suspend winding up proceedings even after a winding up order, because a reference under section 15 triggers a deemed inquiry under section 16 and the statute bars proceedings from being "proceeded with further" while that inquiry is pending. The board of directors also retained residuary power to move the Board for Industrial and Financial Reconstruction after the winding up order, and that reference was not invalid or mala fide merely for being made at that stage. The appeal succeeded, the High Court order was set aside, and winding up proceedings were kept in abeyance pending the special statutory process.

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Issues: (i) Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 continued to bar winding up proceedings even after a winding up order had been passed, once a reference under section 15 had been made and an inquiry under section 16 was deemed to be pending; (ii) whether the board of directors of the company could validly initiate proceedings before the Board for Industrial and Financial Reconstruction after the winding up order and whether such reference was mala fide.

Issue (i): Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 continued to bar winding up proceedings even after a winding up order had been passed, once a reference under section 15 had been made and an inquiry under section 16 was deemed to be pending?

Analysis: The statutory scheme makes a reference under section 15 the trigger for the deemed commencement of inquiry under section 16, and section 22 uses expansive language that no proceedings for winding up shall lie or be proceeded with further where such inquiry is pending. The words "to be proceeded with further" are decisive and show that the bar is not confined to the stage before the winding up order. The object of the Act is to secure rehabilitation of sick industrial companies and to prevent actions that would defeat that purpose before the Board has taken a final decision.

Conclusion: The bar under section 22 applied even after the winding up order, and the proceedings before the Company Judge were liable to remain stayed.

Issue (ii): Whether the board of directors of the company could validly initiate proceedings before the Board for Industrial and Financial Reconstruction after the winding up order and whether such reference was mala fide?

Analysis: Appointment of the Official Liquidator does not extinguish all residuary powers of the board of directors, and those powers include taking steps for rehabilitation of the company under the special statute. The reference was not rendered invalid merely because it was made after the winding up order. In the absence of any judicial interdiction, the exercise of that power could not be characterised as mala fide only because it followed an order of winding up.

Conclusion: The reference before the Board for Industrial and Financial Reconstruction was maintainable and was not vitiated by mala fides.

Final Conclusion: The appeal succeeded, the High Court order was set aside, and the winding up proceedings were directed to remain in abeyance until disposal of the proceedings before the authorities under the special enactment.

Ratio Decidendi: Where a reference under section 15 has resulted in a deemed inquiry under section 16, the statutory suspension under section 22 extends to pending winding up proceedings even after a winding up order, because the Act prohibits such proceedings from being further proceeded with until the special mechanism is concluded.

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