1990 (9) TMI 360 - HC - Indian Laws

Interpretation of Sections 16 and 22 - Whether under these circumstances the winding up proceedings against the company must be stayed under the provisions of Section 22(1) of the Act -Principle of beneficial construction - Phrase enquiry under Section 16 is pending in Section 22(1) of the Act - HELD THAT - The use of the words under Section 16 limits the words enquiry pending in Section 22(1). The provisions of Section 22(1) apply only to such enquiries and to no other. It is well-established that if the language is clear the court must give effect to it for the words of the statute speak the intention of the Legislature . As stated one of the objects of the Act is to protect public investment made through financial institutions. If we accept the construction of Section 22(1) put forward by Mr. Mitra it would defeat the objectives sought to be achieved by the Act. For example a company with the mischievous intent of avoiding its creditors could file a reference under Section 15 with untruthful but correct documentation. It may be that the circumstances of the case may not warrant the filing of a reference in fact. According to Mr. Mitra the documentation being in order the secretary would register the reference under regulation 19 and the enquiry under Section 16 would be pending from that date. The result would be that recovery proceedings by a financial institution would be stalled for a crucial period allowing the dishonest company time to siphon off its assets. This cannot have been the intention of the Legislature. Section 16(3) of the Act also indicates that the enquiry is to be commenced by the Board. The Board is required to complete- the enquiry within 60 (sixty) days from the commencement of the enquiry. This cannot mean that the Board must complete the enquiry within 60- (sixty) days from the registration of the reference but must be construed as meaning from when the Board first applies its mind. We also accept Mr. Sarkar s submissions that mere registration of a reference by the secretary to the Board cannot mean any application of mind by the Board itself. Furthermore it will appear from Section 22(1) that proceedings may be continued against the industrial company with the consent of the Board. This would suggest that the Board would have to apply its mind for the purpose of determining whether the consent should be granted or not. If the Board has not commenced any enquiry at all it would not be in a position to accord such consent. Therefore the phrase pending enquiry under Section 16 in Section 22(1) of the Act must include references registered under Section 15 is in our view a non sequitur. Merely because Parliament in its wisdom has made Section 22(1) applicable to appeals and permitted proceedings against the company to be stayed pending such appeal that cannot lead to the conclusion that the phrase on enquiry under Section 16 in Section 22(1) must include a reference under Section 15 of the Act. Suffice it to say that in view of the clear wording of Section 22(1) there is no need to embark upon an enquiry into the intention of Parliament. In that view of the matter we dismiss this application and vacate all interim orders.

Summary

The judgment addresses the issue of whether winding up proceedings against Bengal Lamps Ltd. should be stayed under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, following a reference made by the company to the Board for Industrial and Financial Reconstruction (BIFR). The core legal question is whether the registration of a reference under Section 15 of the Act automatically stays the winding up proceedings under Section 22(1).

The legal framework centers around Sections 15, 16, and 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. Section 15 deals with references to the BIFR, Section 16 concerns the inquiry into the working of sick industrial companies, and Section 22(1) provides for the suspension of legal proceedings against a company when an inquiry under Section 16 is pending.

The Court's interpretation of Section 22(1) is pivotal. It concludes that the phrase "enquiry pending under Section 16" does not encompass a reference under Section 15. The Court reasons that the statutory language is explicit in limiting the application of Section 22(1) to inquiries under Section 16, not references under Section 15. The Court emphasizes that if the Legislature intended Section 22(1) to apply to references, it would have explicitly stated so.

Key evidence and findings include the distinction between a reference and an inquiry, as highlighted by the Act's scheme and the regulations. Regulation 19 pertains to references, while Regulation 20 deals with inquiries. The Court likens an inquiry to the trial stage of a suit, which is distinct from the filing of a reference. The Court also notes that the registration of a reference is a ministerial act by the secretary and does not involve the Board's discretion or decision-making.

The Court addresses competing arguments by acknowledging Mr. Mitra's contention that the Act is remedial and should be interpreted to prevent the frustration of its purpose. However, the Court finds this argument unpersuasive, given the clear statutory language. The Court also considers Mr. Sarkar's argument that the Board has discretion under Section 16 to decide whether to hold an inquiry, which supports the view that an inquiry is not automatically pending upon registration of a reference.

Significant holdings include the Court's determination that the registration of a reference under Section 15 does not stay winding up proceedings under Section 22(1). The Court emphasizes that the statutory language is clear and must be given effect, rejecting the application of beneficial construction in this context. The Court also highlights that the Act aims to protect public investment and prevent companies from using the reference process to evade creditors.

The final determination is that the application for stay is dismissed, and all interim orders are vacated. The appeal is also dismissed, with no order as to costs. The Court concludes that there is no ambiguity in the statutory language that would warrant a different interpretation.