Section 22 sick company protection overrides winding-up proceedings once rehabilitation reference is registered and enquiry begins

Where a reference is duly registered before the Board for Industrial and Financial Reconstruction and enquiry is initiated, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 bars further coercive action and overrides inconsistent winding-up proceedings under the Companies Act, 1956. The Court reiterated that the special rehabilitation regime is designed to protect revival efforts before asset recovery steps continue, so a prior winding-up order does not displace the statutory bar. After rehabilitation proceedings were undertaken, a scheme was sanctioned and dues were addressed within that framework, leaving no live controversy for adjudication.

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Issues: (i) Whether, on registration of a reference before the Board for Industrial and Financial Reconstruction, the protective bar under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 applies so as to stall continuing winding-up proceedings under the Companies Act, 1956. (ii) Whether any effective controversy survived for adjudication in view of the subsequent rehabilitation proceedings and acceptance of dues under the sanctioned scheme.

Issue (i): Whether, on registration of a reference before the Board for Industrial and Financial Reconstruction, the protective bar under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 applies so as to stall continuing winding-up proceedings under the Companies Act, 1956.

Analysis: The statutory scheme of Sections 15, 16 and 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 is intended to secure revival and rehabilitation of a sick company before coercive proceedings against its assets progress further. Once a reference is registered after scrutiny and an enquiry is initiated, the bar under Section 22 comes into operation. The Court reaffirmed that the protective regime of the special enactment prevails over the Companies Act, 1956 in the field covered by it, and that a winding-up order does not prevent Section 22 from operating where the reference has been duly registered and enquiry commenced.

Conclusion: The bar under Section 22 applied, and the winding-up proceedings could not continue despite the prior winding-up order.

Issue (ii): Whether any effective controversy survived for adjudication in view of the subsequent rehabilitation proceedings and acceptance of dues under the sanctioned scheme.

Analysis: After the reference was registered, the company participated in the rehabilitation process, a scheme was sanctioned, and the creditor's dues were addressed under that framework. In view of these subsequent events, the Court treated the dispute as having no practical residual significance and noted that the exercise was largely academic.

Conclusion: No live issue survived for determination.

Final Conclusion: The special rehabilitation regime prevailed over the winding-up proceedings, and the appeal failed.

Ratio Decidendi: Where a reference under the sick industrial rehabilitation law is duly registered and enquiry is initiated, the statutory bar on further proceedings operates with overriding effect over inconsistent winding-up proceedings under the Companies Act, 1956.

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