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2018 (1) TMI 433

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..... the Company Court is not required in order to commence proceedings under RDB Act, for the reason that RDB Act is a special law which would prevail over the Companies Act, 1956 being the general law and even assuming that both the statutes are special enactments, the latter one would prevail over the former, if the latter law contains a provision giving an overriding effect. In the case at hand, in view of Section 34 of RDB Act, it was held that the said Act overrides the Companies Act, to the extent of any inconsistency between the two enactments. Therefore, applying the ratio of this judgment to the present case, in view of Section 238 of IBC, provisions of IBC shall supersede and prevail over the Companies Act, to the extent of any inconsistency between the two. This judgment has been approved by a larger bench of the Supreme Court in the case of Rajasthan State Financial Corporation v. Official Liquidator (2005 (10) TMI 280 - SUPREME COURT OF INDIA) . Whether NCLT can entertain a petition after the order of admission or appointment of Provisional Liquidator by Company Court? - Held that:- The legislative intent behind the enactment of IBC is to consolidate provisions of SICA .....

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..... Mr. Zal Andhyarujina a/w. Ms. Akanksha Agarwal, Ms. Silpa Nair, Ms. Lizum Wangdi and Mr. Akshay Aurora i/b. Trilegal for petitioner in CP/434/2015 and for respondent in CA/572/2017. Ms. Arundathi Venkataraman i/b. Khaitan and Co. for petitioner in CP/878/2015. Mr. Kunal Chheda a/w. Mr. Arsh Misra i/b. M.V. Kini and Co. for petitioner in CP/1048/2015. Mr. Rohit Gupta a/w. Mr. Nikhil Rajani i/b. V. Deshpande and Co. for applicant in CAL/417/2017 (Intervenor). P.C.: 1. Respondent -applicant- PSL Limited, who is respondent in the company petitions, has filed this application seeking the order dated 19th July 2017 in company application (lodging) no.333 of 2017 be vacated/recalled. By this non -speaking order, the Learned Company Judge was pleased to stay the proceedings filed by respondent -applicant under Section 10 of Insolvency and Bankruptcy Code, 2016 ( IBC ) before National Company Law Tribunal (NCLT), Ahmedabad for insolvency resolution. The issue which arises for consideration in the present application is whether the Company Court has any jurisdiction to stay the proceedings filed by a Corporate Debtor before NCLT even though a previously instit .....

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..... 6. On 18th July 2017, IBC Application made by respondent -applicant was taken up for hearing by NCLT, Ahmedabad, and the secured creditors to whom notice of IBC Application was given, were also heard. After hearing the parties, NCLT, Ahmedabad, reserved the matter for orders and directed the same to be listed on 20th July, 2017. On the same day, petitioner herein, filed company application (lodging) no.333 of 2017 seeking the appointment of a Provisional Liquidator. 7. On 19th July 2017, petitioner herein, mentioned the company application (lodging) No.333 of 2017 before this Court for the appointment of a provisional liquidator. After hearing the counsels, the Learned Judge was pleased to pass an order restraining the Hon ble NCLT, Ahmedabad, from continuing with IBC Application and placed the company application (lodging) No.333 of 2017 to be heard on 26th July 2017. This order for convenience is hereinafter referred to as impugned order dated 19th July 2017 . 8. On 20th July 2017 appeal (lodging) no.280 of 2017 was filed by respondent -applicant challenging the order dated 19th July 2017. 9. On 1st August 2017 order was passed by the Division Bench of this Court .....

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..... of Civil Court to entertain proceedings on the issue over which NCLT has jurisdiction. This Section is pari materia to Section 34 of SARFAESI Act, 2002. Section 231 of IBC, specifically curtails the power of Civil Court or any other authority to restrain any action taken or to be taken before NCLT. This clearly curtails the power of this Court to pass any injunction against respondent -applicant from pursuing the pending IBC Application. (f) The impugned order dated 19th July 2017 is clearly contrary to the view taken in Ashok Commercial Enterprises (Supra) in as much as in the impugned order, primacy has been given to winding up proceedings filed before this court. This despite the mandate of Section 64 (2) of IBC which is an express bar against any court granting any injunction in respect of proceedings before NCLT. [GhanshyamSarda v. Shiv Shankar Trading Company (2015) 1 SCC 298 (para 2628) and Mardia Chemicals Ltd. Ors. v. Union of India Ors. (2004) 4 SCC 311 para 41] (g) The statutory bar against a corporate debtor from filing an application under section 10 of IBC operates, if and only if, there is an order of liquidation against the corporate debtor. .....

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..... edings before NCLT to be stayed. 15. The issue is whether this Court can stay proceedings before NCLT, especially in light of the provisions of IBC, which specifically bars such intervention? It cannot, otherwise, in light of the fact that on admission of petition before NCLT, petition before this Hon ble Court gets stayed as per Section 14, it will make provisions of IBC meaningless. 16. Section 63 of IBC bars jurisdiction of Civil Courts to entertain proceedings on the issue over which NCLT has jurisdiction. This Section is pari materia to Section 34 of SARFAESI Act, 2002. Section 231 of IBC, specifically curtails the power of Civil Courts or any other authority to restrain any action taken or to be taken before NCLT. This clearly curtails the power of this Court to pass any injunction against the Bank/Intervenor from pursuing the pending application. 17. The power of this Court to pass order to restrain proceedings before any other Court is under Section 446. The provisions of IBC, by virtue of Section 238 of IBC will override the provisions of the Companies Act to that extent. 18 Further, the powers of this Court, while acting as a Company Court under Companies Act, .....

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..... l over the Companies Act, to the extent of any inconsistency between the two. This judgment has been approved by a larger bench of the Supreme Court in the case of Rajasthan State Financial Corporation v. Official Liquidator (2005) 8 SCC 190. (II) Whether NCLT can entertain a petition after the order of admission or appointment of Provisional Liquidator by Company Court? 22 The order of admission or the order of appointment of Provisional Liquidator, will not create any bar on filing of petition and passing of orders by NCLT as the order of admission is merely commencement of proceedings and not final order of winding up which is passed under Section 481 of the Companies Act, 1956. Till the company is ordered to be wound up, i.e., the final order is passed, NCLT can entertain a petition or an application. 23 A similar issue had come up before the Hon ble Supreme Court in the case of Madura Coats Ltd. (Supra) where the Hon ble Supreme Court stayed the proceedings before the Company Court, in view of the applicability of Section 15 and 22 of SICA even when the Company Court has directed that the Company be wound up. It is not out of place to mention that Section 15 o .....

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..... nder the following provisions a. Section 434 of the Companies Act, 2013 (the 2013 Act), inter alia, deals with the transfer of the proceedings, pending under the 1956 Act before any District Court or High Court, to the Tribunal upon its constitution. b. IBC, which came into effect in 2016, amended Section 434 of the 2013 Act. Section 255 read with the Eleventh Schedule of IBC, inter alia, amends the 2013 Act in the following manner 255. Amendments of Act 18 of 2013 The Companies Act, 2013 shall be amended in the manner specified in the Eleventh Schedule. The Eleventh Schedule Amendments to the Companies Act, 2013 34. For section 434, the following section shall be substituted, namely: - 434. Transfer of certain pending proceedings. - (1) On such date as may be notified by the Central Government in this behalf,- (a) (b) .. (c) all proceedings under the Companies Act, 1956, including proceedings relating to arbitration, compromise, arrangements and reconstruction and winding up of companies, pending immediately before such date before any District Court or High Court, shall stand transferred to the Tribunal and .....

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..... g.1 The two classes of petitions under Section 434(e) of the 1956 Act being (i) the Saved Petitions, i.e., petitions pending in the High Court wherein notice was served to respondent and all other petitions pending against the same Company in the High Court where notice was not served to respondent. (ii) all petitions not saved, i.e., petitions that may have been filed in the High Court, but not served to respondent. g.2 In terms of the petitions in class (i), the legislative intent is that the petitions shall be dealt with and disposed of in accordance with the 1956 Act to the complete exclusion of IBC. g.3 In terms of the petitions in class (ii), the legislative intent is clear that those petitions are to be transferred to NCLT and filed as applications under Sections 7, 9 and 10 in accordance with the provisions of IBC and the regulations thereunder. (II) Non obstante provision under Section 238 of IBC not applicable: 29 The provisions of the 1956 Act are not inconsistent with the provisions of IBC in so far as the Saved Petitions are concerned and therefore, the provisions of IBC do not override the provisions of the 1956 Act under Section 238 .....

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..... Members of NCLT, Mumbai vide its order dated 27th July 2017 has held that Therefore, we are of the view that Section 238 will not have any overriding effect over Section 433(e) proceedings pending before the High Courts, where notice has already been served upon the Corporate Debtor. 31 The Special Bench of NCLT, Delhi has considered the issues raised before various co ordinate benches of NCLT with respect to the proceedings pending before the High Court and initiated in NCLT against the same Company. NCLT Delhi has, vide its order dated 21st August 2017, escalated the following issues to a special bench to be constituted by the Hon ble President of NCLT, in the matter of Union Bank of India v Era Infra Engineering Ltd. The issues have been heard by the bench constituted by the President of the NCLT and has been reserved for Orders. 1. Whether the process under the Insolvency and Bankruptcy Code, 2016 can be triggered in the face of the pendency of the winding up petitions before the respective High Courts or it is to be considered as an independent process? 2. In case the process is considered to be not independent, whether the petition filed under .....

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..... scretion in saved petitions to decide whether to retain the winding up jurisdiction with respect to such companies or to allow the Adjudicating Authority to also deal with application with respect to such Companies. In this context, it is also relevant, as the operational creditor does not form a part of the Committee of Creditors under Section 21 of IBC and the operational creditor cannot propose or initiate liquidation proceedings against the Company, the operational creditors are in fact at a considerable disadvantage under IBC. Accordingly, in appropriate cases when Saved Petitions are brought at the instance of such creditors, the Company Court may exercise its discretion to retain such Saved Petitions and to prevent the Adjudicating Authority from exercising its jurisdiction. 38 Assuming that such a question was to arise, it is submitted on demurrer, that a harmonious and purposive construction of Section 14 of IBC and the saving provisions of the 2013 Act must necessarily lead to an interpretation that the inconsistent provisions of IBC, including the moratorium will not apply to Saved Petitions. The effect of Section 14 of IBC would otherwise, snatch away irreversi .....

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..... t abuse of the process of the Court. b. The Company Court may exercise its powers under Sections 442 and 443 of the 1956 Act, to stay or restrain proceedings against the company in any other Court. Section 442 reads as under: 442. Power of Court to stay or restrain proceedings against Company At any time after the presentation of a winding up petition and before a winding up order has been made, the company, or any creditor or contributory, may (a) where any suit or proceeding against the company is pending in the Supreme Court or in any High Court, apply to the Court in which the suit or proceeding is pending for a stay of proceedings therein; and (b) where any suit or proceeding is pending against the company in any other Court, apply to the Court having jurisdiction to wind up the company, to restrain further proceedings in the suit or proceeding; and the Court to which application is so made may stay or restrain the proceedings accordingly, on such terms as it thinks fit. c. It is an admitted position that Section 442 of the 1956 Act remains valid and subsisting and was not deleted by the Companies (Second) Amendment Act, 2002. So also, both parties .....

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..... e Hon ble Mr. Justice A. S. Gadkari have duly exercised their aforesaid discretionary powers in passing the Orders dated 9th March 2017 (hereinafter referred to as the Admission Order ) and 19th July 2017 (hereinafter referred to as the Stay Order ), respectively. 45 This Court in the Admission Order, has considered the relevant facts and has exercised its powers under Sections 442 and 443 of the 1956 Act restraining respondent from approaching NCLT. The Hon ble Judge has in context of the possibility of revival of respondent -applicant observed that the CDR Scheme could not be implemented and that prima facie, respondent -applicant cannot be revived. 46 Hon ble Mr. Justice A. S. Gadkari J. has exercised powers under Sections 442 and 443 of 1956 Act, in the Stay Order and held as follows 1. Circulation is granted for 26.07.2017. To be placed high on board. 2. In the meantime the National Company Law Tribunal (NCLT), Ahmedabad is directed not to proceed further with CP (IB) No. 37 of 2017. (VII) Harmonious construction of the 1956 Act, the 2013 Act and IBC : 47 With respect to the Saved Petitions, the provisions of the 1956 Act, the 2013 Act and IBC mu .....

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..... a Creditors Committee , where all financial creditors have a vote in proportion to magnitude of debt they held. As to what should happen to a defaulting firm, in the opinion of Creditors Committee is a business decision and only creditors should make it. The Reforms Committee also came to the conclusion that liquidation is not a viable solution because of delays in implementing liquidation process which resulted in liquidation value going down with time on account of high economic rate of depreciation. As noted at Pg.7 of Innoventive (supra) the Reforms Committee has stated: The Committee believes that there is only one correct forum for evaluating such possibilities, and making a decision: a creditors committee, where all financial creditors have votes in proportion to the magnitude of debt that they hold. In the past, the laws in India have brought arms of the government (legislature, executive or judiciary) into this question. This has been strictly avoided by the Committee. The appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it. The Committee came to the conclusion that the creditors and debtors ought to be l .....

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..... applies to all companies (public and private); (ii) Since it is now well settled that a company has various stakeholders other than just shareholders like workmen, creditors etc. as held in National Textile Workers' Union v. P.R. Ramakrishnan Ors. (supra), a company which has suffered a temporary financial set back maybe revived, by granting it a temporary reprieve by giving it an opportunity to put itself back on its feet. (iii) Unlike in the case of the erstwhile winding up provisions of the 1956 Act or the 2013 Act, where a single creditor, whose debt was undisputed could wind up a company, thus bringing about its untimely financial death, IBC on the other hand mandatorily requires that an attempt at revival be made by appointing an IRP to examine whether such a company can be revived. (iv) The process of insolvency resolution is strictly time bound and as held by the Supreme Court in Innoventive (supra) speed is of essence for the working of the bankruptcy code Paragraph 16 page 7 . The Supreme Court has held that there cannot be any relaxation of the time lines prescribed in the Code Paragraph 16 page 7 and Paragraph 28 page 18 . (v) The initi .....

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..... rence which was pending before BIFR prior to the repeal of SICA. Respondent-applicant has, within the prescribed period of 180 days, made an application to NCLT by an application under Section 10 of IBC. Of course, counsel for petitioner made certain grievance that respondent -applicant waited until the last few days to make an application to NCLT under Section 10 of IBC and this Court had declined to grant further time or wait till the company applied to NCLT. In my view, these are all irrelevant so long as the application under Section 10 was made in time. 53 It has now been held by the Supreme Court in Bank of New York Mellon (Supra) that by virtue of Section 252 of IBC, even in the case of a company where a winding up order has been passed, it is open to such a company, whose reference was deemed to be pending with BIFR, to seek remedies under IBC before NCLT. (IV) No carving out of existing winding up proceedings : 54 Section 252 of IBC has amended the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 in the manner specified in 8th Schedule of IBC. The 8th Schedule provides as under: In section 4, for sub clause (b), the following sub clause sha .....

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..... o force may have been admitted and pending final disposal in the jurisdictional High Court. 58 In the transfer of proceedings rules dated 7th December 2016 it has been provided that winding up petitions in respect of which notice has been issued to the respondent company or which have been admitted, as held in the unreported judgment dated 23rd December 2016 of Gupte J. in West Hills Realty Pvt. Ltd (supra), remain with the jurisdictional high court whereas, all other winding up petitions get transferred to NCLT. 59 If the legislature intended, that those winding up petitions, of which the jurisdictional high court remain seized, would have primacy over NCLT proceedings which may be filed in respect of the same company by another creditor, the legislature would have said so, either in IBC or in the transfer rules Notification. 60 On the contrary, the provisions of Section 64 (2) of IBC would indicate that the legislature did not intend that the Company Court would have the power to injunct proceedings before NCLT. Furthermore, when IBC was enacted and the provisions of SICA were repealed by the Notification dated 21st December 2016, companies which had filed a reference un .....

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..... pay debts (1) All petitions relating to winding up under clause (e) of section 433 of the Act on the ground of inability to pay its debts pending before a High Court, and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal established under sub section (4) of section 419 of the Act, exercising territorial jurisdiction and such petitions shall be treated as applications under sections 7, 8 or 9 of the Code, as the case may be, and dealt with in accordance with Part II of the Code: 6. Transfer of pending proceedings of Winding up matters on the grounds other than inability to pay debts All petitions filed under clauses (a) and (f) of section 433 of the Companies Act, 1956 pending before a High Court and where the petition has not been served on the respondent as required under rule 26 of the Companies (Court) Rules, 1959 shall be transferred to the Bench of the Tribunal exercising territorial jurisdiction and such petitions shall be treated as petitions under the provisions of the Companies Act, 2013 (18 of 2013). 65 The Companies (Removal of Difficul .....

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..... rom the Companies (Removal of Difficulties) Fourth Order that in fact what is saved are only the proceedings of winding up pending before the jurisdictional High Court and not the Company itself in relation to which such proceedings are saved. That is to say, such a Company is still subject to the provisions of IBC, if invoked and only the post notice winding up proceedings, which are retained by the High Court, are saved. This does not mean that IBC is inapplicable to the said Company, if it is invoked. 70 It is clear from the above that the winding up petitions retained by the High Court are being decided under the Companies Act, 1956 only as a transitional provision. It only provides that winding up proceedings under Section 433 (1) (e) pending in the High Court would continue in the High Court Prasanta Kumar Mitra (Supra). 71 Furthermore, this transitional provision cannot in any way affect the remedies available to a person under IBC, vis vis the company against whom a winding up petition is filed and retained in the High Court, as the same would amount to treating IBC as if it did not exist on the statute book and would deprive persons of the benefit of the new legi .....

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..... ceedings under IBC is expressly barred by virtue of section 63 of IBC. Further, by virtue of Section 64(2) of IBC, the Company Court is prohibited from injuncting NCLT from exercising its jurisdiction under IBC. By virtue of section 238 of IBC, it overrides the provisions of the Companies Act, 1956. The Apex Court has, in a few cases, considered provisions similar to Section 64 (2) of IBC. In GhanshyamSarda v. Shiv Shankar Trading Company (supra), the Hon ble Supreme Court considered the bar of the Civil Court s jurisdiction under the Sick Industrial Companies Act, 1985 ( SICA ), Insolvency and Bankruptcy Code, 2016 Sick Industrial Companies Act, 1985 64. (2) No injunction shall be granted by any court, tribunal or authority in respect of any action taken, or to be taken, in pursuance of any power conferred on the National Company Law Tribunal or the National Company Law Appellate Tribunal under this Code. 26. Bar of Jurisdiction No order passed or proposal made under this Act shall be appealable except as provided therein and no civil court shall have jurisdiction in respect of any matter whi .....

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..... bted, stand on a different footing from the one where invocation and exercise of jurisdiction at the initial stage is not disputed but what is projected is that by subsequent or supervening circumstances the concerned Tribunal has lost jurisdiction. In the present case the fact that the company was registered as a sick company is not doubted nor has it been contended that the BIFR had wrongly assumed initial jurisdiction. But what is projected is that the net worth having become positive the BIFR has now lost jurisdiction over the company. In our view, the BIFR having correctly assumed jurisdiction and when all the financial affairs of such company were directly under the supervisory control of the BIFR, the power to decide whether it has since then lost the jurisdiction or not, is also in the exclusive domain of the BIFR. The BIFR alone is empowered to determine whether net worth has become positive as a result of which it would cease to have such jurisdiction. Any inquiry into such issue regarding net worth by anyone outside the Act including civil court, would be against the express intent of the Act and would lead to incongruous and undesired results. The suit as framed seeking .....

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..... reading of section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken or to be taken in pursuance of any power conferred under this Act . That is to say the prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under sub section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all such matters which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under sub section (4) of Section 13. (Emphasis supplied) (VIII) No power to Injunct : 77 NCLT is not a court subordinate to the High Court and hence as prohibited by the provisions of Section 41 (b) of the Specific Relief A .....

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..... has to vindicate the right and then when injunction is vacated, he has to approach the court for relief. In other words, he would have to go through the gamut over again: When defending against a claim of injunction the person vindicates the claim and right to enforce the same. If successful he does not get relief but a door to court which was bolted in his face is opened. Why should he be exposed to multiplicity of proceedings? In order to avoid such a situation the Legislature enacted Section 41(b) and statutorily provided that an injunction cannot be granted to restrain any person from instituting or prosecuting any proceeding in a court not subordinate to that from which the injunction is sought. At any rate the court is precluded by a statutory provision from granting an injunction restraining a person from instituting or prosecuting a proceeding in a court of coordinate jurisdiction or superior jurisdiction. (emphasis supplied) 81 It may also be noted that apart from there being no provision in the Companies Act, 1956 to injunct proceedings before NCLT instituted under IBC, petitioner cannot take recourse under the inherent powers of the High Court to support .....

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..... ference summarily without going into merits and that it is only when the BIFR takes up the reference for consideration on merits under Section 16(1) that it can be said that the 'inquiry' as contemplated by section has commenced. It is argued that if the reference before the BIFR is only at the stage of registration under Section 15, then section 22 is not attracted. This contention, in our opinion, has no merit. In our view, when Section 16(1) says that the BIFR can conduct the inquiry in such manner as it may deem fit , the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the procedure it may follow for conducting an inquiry under Section 16(1) and nothing more. In fact, once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an inquiry. If one looks at the format of the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Company's assets, liabilities, etc. Indeed, it will be practically impossible for the BIFR to reject a reference outright without calling for information/documen .....

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..... Supra) that even after a winding up order is passed the provisions of Section 22 of SICA apply and the Court under the Companies Act, 1956 would have no power to injunct proceedings before BIFR in view of Section 22 of SICA: It is true that for invoking the applicability of Section 22 it has to be established that an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or sanctioned scheme is under implementation or an appeal under Section 25 to an industrial company is pending. But it cannot be said that despite existence of any of the aforesaid exigencies the provision of Section 22 would not be attracted after the order of winding up of the company is passed. The words no proceeding for winding up of the industrial company or for execution distress or the like against any of the properties of the industrial company or for the appointment of receiver in respect thereof shall lie or be proceeded with further, leave no doubt in our mind that the effect of the section would be applicable even after the winding up order is passed as no proceeding even thereafter can be proceeded with further under the Companies Act. The High Court .....

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