TaxTMI 
TaxTMI 
1988 (11) TMI 321
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.... the petitioners in some of the cases contended that the mere registration of a reference under section 16(1) will not attract the applicability of section 22 of the Act and, therefore, the company petitions may be proceeded with. As a common question as to the effect of section 22 of the Act is involved, I have heard several counsel for the petitioners and also counsel for the respondent companies who have appeared. They have also addressed arguments on the action to be taken by the court in the event section 22 is held applicable. The points that arise for consideration are: (a)Whether the mere proof of a reference being registered by the BIFR under section 16(1) of the Act attracts the provisions of section 22? (b)If section 22 is held applicable, its effect on these company petitions? The Act has received the assent of the President on January 8, 1986, and some of its provisions were enforced from January 12, 1987, and others from May 15, 1987. Its section 2 contains a declaration and it is for giving effect to the policy of the State towards securing the directive principles specified in article 39(b) and (c) of the Constitution. According to the Objects and Rea....
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....entioned in the said provisions. Section 22(1) provides for suspension of certain legal proceedings. Section 22(2) provides for some fetters on the rights of the shareholders of the sick company. Sub-section (3) enables the Board to pass certain orders which may suspend the operation of the contracts, etc., entered into by the company. Sub-section (4) gives overriding effect to the order passed by the Board under sub- section (3) and sub-section (5) provides for suspension of period of limitation for enforcement of any right or privilege during which its remedy for enforcement was suspended under this section. It is useful to extract some relevant statutory provisions, viz., "16. Inquiry into working of sick industrial companies. - (1) The Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company - (a)upon receipt of a reference with respect to such company under section 15; or (b)upon information received with respect to such company or upon its own knowledge as to the financial condition of the company. (2) The Board may, if it deems necessary or expedient so to do for the expeditious disposal of....
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.... controversy as to whether the industrial company has become sick within the meaning of section 3(o), the Board may conduct an inquiry on that aspect keeping in view the provisions of other subsections of section 16. The Board consists of a chairman and members who are persons of ability, integrity and experience in these fields. The main object of an inquiry under section 16 is to determine whether the provisions of section 3(o) apply and, therefore, it is a sick company with a view to take measures under sections 17 to 20. Point (a) : The commencement of an inquiry under section 16(1)(a) will be either consequent on a reference made by the sick industrial company itself or a financial institution named in section 15(2). In a reference under section 15(1), the company does not dispute that it is sick, and in a reference under section 15(2), the necessary material is furnished by the financial institution about its being a sick company. The question whether an industrial company is sick or not has to be determined with reference to the criteria laid down in the definition under section 3(o) which is to be generally on the basis of documents available with the Registrar of Compan....
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....h the alternative measures to be adopted under sections 17 to 20. Where there is no reference and the Board chooses to commence an inquiry, naturally there will be a contest by the company itself and in such cases, the Board will conduct an inquiry keeping in view the provisions of the other sub-sections of section 16. If the Board comes to the conclusion that section 3(o) applies to the company in respect of which the inquiry is being held, it will then consider one of the alternative measures under sections 17 to 20. According to the scheme of the Act, after an inquiry under section 16 has commenced and it is determined that it is a sick company within the meaning of section 3(o), the proceeding will terminate only after one of the alternative measures under sections 17 to 20 are taken. In several of the cases, large amounts (the liability for which is not disputed by the respective companies) have not been paid by the companies and the respective petitioners are suffering hardship. Probably, the petitioners or other creditors can intervene at the stage of inquiry before determination of the question of applicability of section 3(o). if they dispute it and have material to sho....