Sick company stay protection yields to secured recovery measures, while company court supervision over sale proceeds continues.

Where secured recovery measures have already been initiated under the securitisation statute, the protective stay under the sick industrial companies regime does not survive and cannot be used to halt winding up-related proceedings. The court treated the reference as abated for that purpose and held the stay application not maintainable. It also held that, absent a winding up order, the company court's bar under the Companies Act had not arisen, so interim restraint on asset sale could be modified to allow recovery action to continue. However, the court retained supervisory control over appropriation and disbursal of sale proceeds until further orders.

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Issues: (i) Whether the application for stay of the winding up proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 was maintainable after measures had been taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. (ii) Whether the company court's interim restraint on sale of assets required modification in view of the secured creditor's action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the extent of the company court's continuing jurisdiction.

Issue (i): Whether the application for stay of the winding up proceedings under the Sick Industrial Companies (Special Provisions) Act, 1985 was maintainable after measures had been taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Analysis: The respondent-company relied on the statutory bar under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. The Court noted that possession and recovery measures had already been taken under sections 13(2) and 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. In that situation, the reference under the sick company regime stood abated and the protective stay under section 22 could not be invoked.

Conclusion: The stay application was not maintainable and was dismissed.

Issue (ii): Whether the company court's interim restraint on sale of assets required modification in view of the secured creditor's action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the extent of the company court's continuing jurisdiction.

Analysis: The Court applied its earlier reasoning that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Companies Act, 1956 operate in their respective fields and are not inconsistent. Since no winding up order had yet been made, the bar under section 446 of the Companies Act, 1956 had not arisen. The earlier restraint on alienation was therefore adjusted so that recovery action under the secured asset regime could proceed, while preserving the company court's control over appropriation or disbursal of sale proceeds until further orders.

Conclusion: The interim restraint was modified to permit recovery under the secured asset regime, subject to leave of the Court for appropriation or disbursal of sale proceeds.

Final Conclusion: The proceedings under the sick company law were not stayed, the secured creditor was permitted to proceed with recovery measures, and the company court retained supervisory control over the winding up process and the sale proceeds pending further consideration.

Ratio Decidendi: Where secured recovery measures under the special securitisation statute have been invoked and no winding up order has yet been passed, the sick-company stay protection does not survive and the two statutes operate concurrently within their respective spheres.

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