2011 (4) TMI 1206 - HC - Companies Law

Court voids winding-up order, citing lack of jurisdiction under Sick Industrial Companies Act. Secured creditors' rights preserved.

The court set aside the winding-up order passed by the Company Court, declaring it void ab initio and without jurisdiction. The court emphasized that ... Winding up – creditors – company unable to pay its debt - During the pendency of the proceedings, the company was referred to the BIFR and was declared a sick industrial unit under the provisions of the Sick Industrial Companies (Special Provisions) Act 1985 - court by its order dismissing all the company petitions, but reserving liberty to them to file an application for revival of their petitions in the event of the company being revived and comes out of the BIFR - one of the creditors of the company-ARCIL filed a miscellaneous application, before the BIFR for abatement of the reference of the company under the third proviso to section 15(1) of the Act in view of the fact that the secured creditors have taken action against the company under section 13(4) of the SARFAESI Act - appellant contended that even if the proceedings before the BIFR was terminated as on January 5, 2010, when an appeal was filed within the time prescribed under law and the appeal was pending, section 22 of the Act is attracted and no order of winding up could have been passed by the company court. Therefore, he submits that without going into the merits and other grounds urged in the appeal memo that the order impugned is liable to be set aside on the short ground of want of jurisdiction of the company judge to pass the order - respondent contended that the application for revival was filed after the proceedings before the BIFR stood abated. The first respondent had no notice of the appeal filed by the company. As this court has reserved the liberty to the first respondent to revive the company petition, after taking out notice to the company, the company court being satisfied with all the ingredients as contemplated under section 434, has proceeded to pass the order of winding up, which is in accordance with law and this appeal is wholly misconceived – Held that:- contention that the SARFAESI Act has a overriding effect on other provisions or other enactment has nothing to do with the power of the company court to entertain and proceed with the winding up petition when an appeal under section 25 of the Act is pending. The language employed in section 22 is absolute and mandatory and the company court is prohibited from proceeding with the winding up proceedings much less to pass winding up order. order passed by the company court or by this court in this proceeding would not affect the proceedings taken by the secured creditors under the provisions of the SARFAESI Act. appeal is allowed Issues Involved:1. Jurisdiction of the Company Court to pass a winding-up order.2. Application of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.3. Abatement of proceedings before the Board for Industrial and Financial Reconstruction (BIFR) under the SARFAESI Act.4. Effect of pending appeals on abatement and winding-up proceedings.5. Overriding provisions of the SARFAESI Act over the Companies Act and the Sick Industrial Companies Act.Detailed Analysis:1. Jurisdiction of the Company Court to Pass a Winding-Up Order:The primary issue was whether the Company Court had jurisdiction to pass a winding-up order on September 22, 2010. The appellant argued that the pending appeal under Section 25 of the Sick Industrial Companies Act barred the Company Court from passing such an order. The respondent contended that the application for revival was filed after the BIFR proceedings had abated, and the Company Court had the jurisdiction to pass the winding-up order.2. Application of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:Section 22 of the Act states that no proceedings for winding up an industrial company shall lie or be proceeded with further if an inquiry under Section 16 is pending, a scheme under Section 17 is under preparation or consideration, a sanctioned scheme is under implementation, or an appeal under Section 25 is pending. The court noted that the appeal was indeed pending, thereby attracting Section 22, which barred the Company Court from proceeding with the winding-up order.3. Abatement of Proceedings Before the BIFR Under the SARFAESI Act:The proceedings before the BIFR abated due to the actions taken by the secured creditors under Section 13(4) of the SARFAESI Act. The appellant argued that the abatement was contested and stayed by the Debts Recovery Tribunal, which was not considered by the BIFR. The court held that the abatement is conditional and requires the fulfillment of specific conditions, which were contested and stayed, thus making the BIFR's order of abatement subject to appeal.4. Effect of Pending Appeals on Abatement and Winding-Up Proceedings:The court emphasized that the appeal against the BIFR's abatement order was pending, and Section 22 of the Act explicitly prohibits the Company Court from proceeding with the winding-up petition during the pendency of such an appeal. The court held that the abatement is not automatic and requires judicial recognition, especially when the conditions for abatement are disputed and subject to appeal.5. Overriding Provisions of the SARFAESI Act Over the Companies Act and the Sick Industrial Companies Act:The respondent argued that the SARFAESI Act overrides other provisions, including the Companies Act and the Sick Industrial Companies Act. However, the court clarified that while the SARFAESI Act has overriding provisions, it does not affect the jurisdictional bar under Section 22 of the Sick Industrial Companies Act when an appeal is pending. The court concluded that the Company Court lacked jurisdiction to pass the winding-up order during the pendency of the appeal.Conclusion:The court set aside the winding-up order passed by the Company Court on September 22, 2010, declaring it void ab initio and without jurisdiction. The court emphasized that Section 22 of the Sick Industrial Companies Act barred the Company Court from proceeding with the winding-up petition during the pendency of the appeal under Section 25 of the Act. The appeal was allowed, and all orders passed in pursuance of the void order were also set aside. The court made it clear that its decision would not affect the proceedings taken by the secured creditors under the SARFAESI Act.