2007 (11) TMI 406 - HC - Companies Law

Company judge not bound by BIFR recommendations in winding-up petition. Importance of independent evaluation emphasized.

Ashoka Alloy Steels Ltd. Versus Board For Industrial & Financial Reconstruction

The company judge is not bound by the recommendations of the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies ... Winding up of the sick industrial company, under section 20(2) of the SICA - Whether the company judge exercising powers under section 20(2) of the Sick Industrial Companies (Special Provisions) Act, 1985, is bound by the recommendations/opinion of the Board for Industrial and Financial Reconstruction ('the BIFR') under section 20(1) of the SICA recommending winding up of the company ? Held that:- Order of the learned single judge ordering winding up of the company solely on the basis of the opinion of the Board cannot be sustained. The learned judge did not form his own opinion in the matter. As held above, the company judge should have formed his own opinion and thereafter was bound to follow the Companies (Court) Rules, 1959, from the stage of advertisement of the petition of winding up onwards. In view of the above discussion the impugned order is set aside and the matter is remanded to the learned single judge who shall consider the opinion of the Board in the light of the law as mentioned hereinabove pass such orders on the petition as he deems fit. Issues Involved:1. Whether the company judge exercising powers under section 20(2) of the Sick Industrial Companies (Special Provisions) Act, 1985, is bound by the recommendations/opinion of the Board for Industrial and Financial Reconstruction ('the BIFR') under section 20(1) of the SICA recommending winding up of the company.2. What is the procedure to be followed by the company judge while proceeding with the winding up of the sick industrial company, under section 20(2) of the SICA.Issue-wise Detailed Analysis:Issue 1: Binding Nature of BIFR RecommendationsThe primary question was whether the company judge is bound by the BIFR's recommendation to wind up a company under section 20(1) of the SICA. The judgment clarified that:- The Supreme Court in V.R. Ramaraju v. Union of India [1997] 89 Comp. Cas. 609 held that the company judge cannot abdicate his function of determining the question of winding up and must consider the BIFR's recommendation but is not bound by it.- The Madras High Court in J.M. Malhotra v. Union of India [1997] 89 Comp. Cas. 600 stated that while the BIFR's opinion forms the basis for winding up proceedings, the High Court must independently assess the correctness of the opinion.- Other High Courts, including the Calcutta High Court in Eastern Paper Mills Ltd. v. BIFR [2002] 109 Comp. Cas. 1065 and the Gujarat High Court in Board Opinion v. Hathising Manufacturing Co. Ltd. [2004] 119 Comp. Cas. 25, have echoed this sentiment, emphasizing that the High Court must form its own opinion and is not merely a rubber stamp for the BIFR's recommendations.- The Bombay High Court's view in Modistone Ltd., In re [2004] 119 Comp. Cas. 232, which suggested that the High Court is obliged to pass a winding-up order based on the BIFR's report, was not considered correct in light of the Supreme Court's ruling.Conclusion: The company judge is not bound by the BIFR's recommendations and must independently evaluate the opinion before deciding on the winding-up petition.Issue 2: Procedure to be Followed by the Company JudgeThe second issue concerned the procedure the company judge should follow under section 20(2) of the SICA. The judgment detailed the following procedural steps:- Rule 96 of the Companies (Court) Rules, 1959: The petition for winding up should be listed for admission before the judge in chambers, who may direct the advertisement of the petition and decide on the notice to be served.- Rule 106: After admitting the winding-up petition, the court may appoint a provisional liquidator.- Rule 112 and Rule 113: These rules provide for directions at the time of winding up and the advertisement of the winding-up order.Key Points:- The company judge must form his own opinion after considering the BIFR's recommendation.- The judge may decide to issue notice to the parties before ordering the advertisement of the winding-up petition.- The opinion of the BIFR, being from a body of experts, should be given due weightage but is not binding.- The judge can appoint a provisional liquidator at the initial stage if deemed fit.- The High Court must follow the Companies (Court) Rules, 1959, from the stage of advertisement of the winding-up petition onwards.Conclusion: The company judge must follow the procedural rules laid down in the Companies (Court) Rules, 1959, and cannot order the winding up of the company straightaway based solely on the BIFR's opinion.Final Judgment:The order of the learned single judge ordering the winding up of the company solely on the basis of the BIFR's opinion was set aside. The matter was remanded to the learned single judge to consider the BIFR's opinion in light of the law and pass appropriate orders. The parties were directed to appear before the learned company judge on December 11, 2007, and the registry was instructed to list the matter accordingly.