Statutory suspension under sick company law bars scheme proceedings that would affect assets, liabilities, securities, or guarantees.

Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 was construed broadly to suspend not only coercive recovery actions, but also proceedings affecting the assets, liabilities, securities, or guarantees of a sick industrial company while a reference is pending or under consideration. Applying that interpretation, the High Court held that a company petition for sanction of a modified demerger scheme under sections 391 to 394 of the Companies Act, 1956 could not continue when the company's BIFR reference had already been made and registered. The petition had to remain in abeyance because proceeding with the scheme would fall within the statutory embargo.

---

---

Issues: Whether the company petition seeking sanction of the modified scheme of arrangement under the Companies Act, 1956 could be proceeded with in view of the pendency and registration of the reference before the Board for Industrial and Financial Reconstruction under the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: The petitioners sought sanction of a modified scheme of arrangement for demerger under sections 391 to 394 of the Companies Act, 1956. A reference under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 had already been made by the first petitioner-company and registered. The Court examined section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, the scheme and purpose of that enactment, and the settled interpretation that the expression covering legal proceedings must receive a wide meaning. It held that the statutory embargo is not confined only to proceedings initiated against the sick company, but also extends to proceedings which affect the assets, liabilities, securities, and guarantees of the company. On that basis, the Court held that the pending company petition, if proceeded with, would amount to dealing with matters hit by the statutory suspension.

Conclusion: The proceedings under sections 391 to 394 of the Companies Act, 1956 could not continue while the BIFR reference remained pending, and the company petition was required to remain in abeyance.

Ratio Decidendi: Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 suspends not only coercive recovery actions but also other proceedings that would affect the assets, liabilities, securities, or guarantees of a sick industrial company while a reference is pending or under consideration.

---