Full Judgment Text
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PETITIONER:
REAL VALUE APPLIANCES LTD. ETC., ENGINEERING KAMGAR SANGH
Vs.
RESPONDENT:
CANARA BANK & ORS. ETC., VARDHMAN SPINNING & GEN. MILLS LTD.
DATE OF JUDGMENT: 05/05/1998
BENCH:
S. SAGHIR AHMAD, M. JAGANNADHA RAO
ACT:
HEADNOTE:
JUDGMENT:
THE 5TH DAY OF MAY, 1998
Present:
Hon’ble Mr. Justice S. Saghir Ahmad
Hon’ble Mr. Justice M. Jagannadha Rao
Soli J. Sorabjee, Attorney General of India, Harish N.
Salve, Sr. Adv. and Jay Salve, Adv. with them for the
Appellants in C.A. Nos. 2572 and 2573/98
S. Wasim A. Qadri and Jana Kalyan Das, Advs. for the
appellant in C.A. No. 2574/98
Altaf Ahmed, Additional Solicitor General, Pradeep Dewan,
Ms. Praveena Goutam, Pramod B. Aggarwala, Advs. with him for
the Respondent in C.A. No. 2572/98
Bharat Sangal, Adv. for the Respondents in C.A.No. 2573/98
and C.A. No.2574/98
J U D G M E N T
The following Judgment of the Court was delivered:
WITH
CIVIL APPEAL NO .... 2573 ................. /1998
(Arising out of S.L.P. (C) No. 14750/1997)
AND
CIVIL APPEAL NO ........2574 .............../1998
(Arising out of S.L.P (C) No. 15736/1997)
J U D G M E N T
M. JAGANNADHA RAO, J.
Special leave granted in all the Special leave
petitions.
Civil Appeal arising out of SLP (C) No. 14327/1997 is
filed by ‘Real Value Appliances Ltd’ against order of the
High Court of Bombay dated 28.7.1997 passed by a Division
Bench in an interlocutory appeal appointing a Receiver to
take formal possession of the mortgaged properties which are
subject matter of suit No. 82 of 1997 pending before a
learned Single Judge of the said High Court on the Original
Side. The respondent Canara Bank, which is the plaintiff in
the suit is claiming in consortium with Union Bank of India
a sum of Rs. 23.67 crores (approximately) as due to it as on
24.12.1996. Earlier the Single Judge of the Bombay High
Court in his order dated 10.1.1997 had disallowed the
application for appointment of Receiver in view of the stay
of appointment of provisional Liquidator granted by a
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Division Bench of the Bombay High Court in winding up
proceedings on 20.12.1996.
Civil Appeal (arising out of SLP (C) No. 14750 of 1997)
is filed by the appellant Company against the order passed
by another Division Bench of the Bombay High Court dated
8.8.1997 in Appeal No. 1193 of 1996 by which the order of
the learned Single Judge on Company Side appointing a
provisional Liquidator on 18.10.1996 was affirmed. Thereby
an earlier order of stay dated 20.12.96 (granted by the
Division Bench in respect of the Company Judge’s order dated
18.10.96) stood vacated. The respondents are Vardhman
Spinning & General Mills Ltd., the creditors, who filed the
winding up petition 415/1996 on 6.8.1996 against the
appellant in the High Court of Bombay.
Civil Appeal (arising out of SLP (C) NO. 15736/1997) is
filed by the workmen (Engineering Kamgar Sangh) against the
order dated 8.8.1997 passed by the Division Bench in winding
up proceedings confirming the order of the Single Judge
appointing provisional Liquidator. They are supporting the
appellant company.
That is how these three appeals have arisen and have
come before us. The appellant company had, after taking some
adjournments before the Division Bench in the Company Appeal
- which was filed against the order of the learned Single
Judge appointing provisional liquidator - submitted a
reference before the Board for Industrial and Financial
Reconstruction (hereinafter called the ‘BIFR’) on 17.7.1997
under the Sick Industrial Companies (Special Provision) Act,
1985 (hereinafter called the ‘Act’). The said reference was
registered 24.7.1997 as Case No.97 of 1997. The point raised
in these appeals is that once the reference was registered
by the BIFR on 24.7.1997, the Division Bench of the High
Court ought not to have passed orders on 8.8.1997 vacating
the interim stay granted by it on 24.12.1996 and ought not
to have confirmed the order of the learned Company Judge
dated 18.10.1996 appointing provisional liquidator, in view
of the mandate of section 22 of the Act. Likewise, it is
argued that the order of another Division Bench dated
28.7.1997 appointing a Receiver in the interlocutory appeal
arising out of the Civil Suit is also had in view of section
22 of the Act.
We may state that the order of the High Court in
proceedings arising out of suit - appointing Receiver on
28.7.1997 was stayed by this Court on 5.8.1997 in SLP
14327/1997. Similarly the order of the High Court, in
proceedings arising out of winding up proceedings, dated
8.8.1997 vacating the stay and confirming the Company Judges
order appointing provisional Liquidator was stayed on
12.8.1997 in SLP 14750/1997 and it was further ordered that
the provisional Liquidator shall not take any further steps.
One other important fact to be noted is that on
10.11.1997 in SLP 14327/1997, this Court passed an order, -
after hearing both sides, adjourning the SLPs "to enable the
BIFR to come to a decision’. This Court, however, directed
the appellant-Company not to dispose of or alienate or
create any third party interests in any of the assets of the
Company except with the previous approval of the BIFR and
that before passing any orders, the BIFR will give hearing
to the Canara Bank. This Court also recorded an assertion by
the Bank that the Receiver had taken formal possession of
the properties. This assertion was no doubt denied by the
Company. This Court also noticed that the High Court of
Bombay had, in its order dated 8.8.97 accepted as true the
serious allegations made by the Canara Bank against the
appellant Company.
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At this stage, it is necessary to refer to the conduct
of the Company, already adverted to, which came up for
severe criticism by the High Court of Bombay in its order
dated 8.8.1997. What happened was that after securing a stay
order from the Division Bench on 20.12.1996 - in respect of
the order of the learned Single Judge appointing a
provisional Liquidator, - the Company obtained adjournments
before the Division Bench on 4.11.1996, 2.12.1996,
9.12.1996, 18.12.1996, 20.12.1996. On 20.12.1996 the case
was adjourned to 22.7.1997 when an affidavit was filed -
without disclosing that the Company had approached the BIFR
on 17.7.1997 - and the matter was got adjourned to 29.7.1997
and again to 8.8.1997. The factum of registration of the
reference by the BIFR on 24.7.97 was not disclosed to the
High Court till 8.8.1997. The Bench, therefore, rightly
criticised the conduct of the appellant for not disclosing
these facts to the High Court before 8.8.1997. Further, in
the High Court the Company was opposing the appointment of
provisional Liquidator on the plea that it was a viable unit
but when it approached the BIFR, it was claiming that it was
a sick industry. These contradictory pleas also came up for
adverse comment by the High Court. The Bench referred to
section 22 and section 16 of the Act and felt that the mere
registration of the reference under Section 15 did not
amount to "pendency of any inquiry" under Section 16 and
that, therefore, section 22 was not attracted and,
therefore, the Bench was well within its powers in vacating
the stay and confirming the appointment of provisional
liquidator or in appointing a Receiver. In that context, the
Bombay High Court followed a decision of a Division Bench of
the Calcutta High Court in Bengal Lamps Ltd. vs. Furmanite
Nicco Limited [1991 (72) Com. Cases 146 (Cal.)] in
preference to the Judgments of other High Courts which had
taken a contrary view. The Bench then gave several findings
to the effect that the Company had indulged in various
"irregularities" or "misconduct" in its accounting
procedures etc. with a view to show that it was a viable
unit and to show that it was not liable to be wound up.
Having enumerated the alleged financial irregularities as
pointed by the Bank and the suppression of facts, the High
Court in its order dated 8.8.1997 vacated the stay order
dated 20.12.1996 and confirmed the appointment of
provisional Liquidator. It also issued a contempt notice to
the officers of the Company.
It is necessary to refer to certain subsequent events
which have since taken place after the orders under appeal
were passed by the High Court. These events relate mainly to
three orders passed by the BIFR.
(i) On 9.9.1997, the BIFR passed orders, after hearing the
representatives of the appellant - Company and Canara Bank
and the IDBI (which was also to get around Rs. 38 crores
from the company), directing the IDBI under Section 16(2) of
the Act to examine and analyse the audited balance sheets of
the Company upto 30.6.1997 and submit a status report. The
Bank was also directed to submit its reaction or comments to
the IDBI. The contentions raised by the Bank’s
representatives were elaborately set out.
(ii) On 24.11.1997 the BIFR passed orders recording that the
IDBI had submitted a report and that on that basis and on
the basis of the submissions made, "the Company was to be
declared as a sick industry’ under section 16 read with
section 3(o) of the Act. It then said that it is necessary
in the public interest to adopt the measures specified in
Sections 18 and 19 of the Act in relation to the Company. It
accordingly appointed IDBI as the Operating Agency under
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Section 16(2) of the Act and directed it under section 17(3)
to prepare a rehabilitation Report. The Company was directed
under Section 22-A, not to alienate any of its assets.
(iii) A notice was issued by BIFR fixing 15.12.1997 as the
date on which the allegations of the Canara Bank against the
Company would be heard. On 15.12.1997, the BIFR passed
further orders after hearing the Bank’s representatives
observing that the allegations made by the Bank against the
Company had been considered by the IDBI and that the IDBI
had prepared a status report and that the BIFR was satisfied
that the allegations of the Bank against the company - in
regard to the change in the accounting year and provision
for depreciation and interest and in regard to the
preparation of the balance sheet - could not be accepted
inasmuch as these actions "were permissible under the
various provisions of the Companies Act, 1956 and as such
these were valid under law". The matter was adjourned to
enable the company to submit its revival/rehabilitation
proposals. These are the three orders passed by the BIFR
subsequent to the impugned orders of the Bombay High Court.
It was contended before us by Sri Soli Sorabjee and Sri
Harish Salve, appearing for the Company in the two appeals
filed by the Company and by the counsel for the workmen in
the third appeal that the Division Bench ought not have
vacated the stay dt. 20.12.96 nor confirmed the appointment
of provisional Liquidator dated 18.10.96 by its order dated
8.8.1997 when by that date, Section 22 of the Act had come
into play on account of the registration of the reference
dated 17.7.1997 by the BIFR on 24.7.1997. For the same
reasons, it was contended that the Division Bench could not
have appointed a Receiver on 28.7.1997 in the interlocutory
appeal filed in the suit proceedings. It was contended that
the appeals should, therefore, be allowed and the impugned
orders vacated in view of the mandate under Section 22. Sri
Sorabjee cited several rulings of the High Courts to contend
that registration of the reference was sufficient for
purposes of the applicability of Section 22. It was argued
that now the matters have reached the stage of section 17(3)
of the Act before the BIFR and, therefore, no orders can be
passed restoring the Receiver or the provisional liquidator.
It was also brought to our notice that the High Court had
dropped the contempt proceedings by its order dated
13.2.1998 pursuant to the apology tendered.
On the other hand, the learned Additional Solicitor
General, Sri Altaf Ahmad contended that while the contention
of the appellants in relation to Section 22 could be
correct, the appellant was guilty of suppression of facts
before the Division Bench of the High Court as pointed in
the order dated 8.8.1997. It took adjournments before the
High Court without informing the Court that it was either
approaching or that it had approached the BIFR and got its
reference registered. The Company also took contradictory
pleas before the High Court and before the BIFR, in regard
to its viability. This conduct was wholly unbecoming. On
account of its suppression of facts and mutually contrary
pleas, the reference to the BIFR must be treated as vitiated
and as amounting to ‘fraud’ and, therefore, all
consequential orders of the BIFR must be ignored.
On the basis of the above contentions, the following
points arise for consideration:
(1) Could it be said that the conduct of the appellant
Company before the High Court on account of the contrary
pleas taken by it before the High Court and the BIFR and on
account of the suppression of facts, - would render the
reference under section 15 and the registration of the
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reference and the subsequent orders of the BIFR bad?
(2) Whether, once the BIFR had registered the reference
dated 17.7.97 on 24.7.97 under section 15 of the Act read
with the Regulations, it was permissible for the Division
Bench of the High Court to pass orders on 8.8.97 vacating
the stay order dated 20.12.96 and confirming the appointment
of provisional liquidator on the company side and also
whether it was permissible for another Division Bench of the
High court to appoint a Receiver on 28.7.97 in the
proceedings arising out of the suit, in view of section 22
of the Act?
Point 1:
It is true that in the winding up proceedings and in
the civil suit, the appellant company contended that it was
a viable unit and that neither a Receiver nor a provisional
liquidator could be appointed. The appellant was, on the one
hand seeking adjournments before the Division Bench while on
the other hand it had approached the BIFR on 17.7.97 and got
its reference registered on 24.7.97 seeking to be declared a
sick company. It is also true that in the affidavit filed on
its behalf in the High Court on 22.7.97 seeking an
adjournment, it had not disclosed to the Division Bench that
it had moved the BIFR on 17.7.97. The Company sought an
adjournment to 29.7.97 and then again to 8.8.97. Neither on
22.7.97 nor on 29.7.97 was the High Court informed about the
application filed before the BIFR nor about its
registration. A disclosure of these facts was made only on
8.8.97.
This conduct of the appellant, in our view, was
certainly very unfair to the High Court and, therefore, the
High Court had rightly depreciated the same. In our view,
there was a clear attempt to keep the Court in the dark.
But the question is whether, on that account, the
reference application to the BIFR would become bad. It is
clear from the application filed before the BIFR that the
BIFR was informed about the proceedings taken against the
company in the High Court both on the company side and on
the original side. So far as the BIFR was concerned, there
was no suppression of facts before it. We are at a loss to
understand as to how any conduct of the appellant company
before the High Court of Bombay could make the registration
of the reference before the BIFR bad. If any orders were
obtained by the Company from the High Court by way of fraud
it was certainly open to the respondent to ask the High
Court to recall such orders. No such thing was done. We,
therefore, cannot accept the contention of the respondents
that the reference under section 15 of the Act and the
registration thereof by the BIFR became bad because of any
conduct of the Company before the High Court. It follows
that equally the subsequent orders passed by the BIFR on the
reference cannot, on that account, be said to be invalid.
This contention of the respondents is rejected. Point 1 is
held against the respondents.
Point 2:
The legal issue under this point is of considerable
importance in proceedings arising under this Act.
We shall, therefore, refer to the relevant provisions
of the Act and Regulations and the headings of the Chapters
in the Act and the headings of the Chapters in the
Regulations.
Chapter III of the Act contains section 15 to section
22A and bears the heading "Reference, Inquiries and
Schemes". Section 15 of the Act refers to the ‘Reference to
Board’ either by the industrial Company under sub-clause (1)
of Section 15 or by the Central Government or the Reserve
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Bank or a State Government or by a public financial
institution or by State local institutions or Scheduled
Banks. Section 16 refers to ‘Inquiry into the working of
Sick Industrial Companies’ and to the declaration of the
unit as a sick industry, after inquiry. Section 17 deals
with ‘Powers of Board to make suitable orders on the
completion of inquiry’ to the company so as to make its net
worth exceed its accumulated losses within a reasonable time
or to direct the operating agency to prepare a scheme in the
manner provided in section 18. Section 19 deals with
‘Rehabilitation by the giving financial assistance’. Section
20 refers to the winding up of the industrial unit if it is
not likely that the Company will be able to make its net
worth exceed its accumulated losses. Section 22 of the Act
with which we are concerned here, deals with ‘Suspension of
legal proceedings, contracts etc.’ where ‘an inquiry under
section 16 is pending or any scheme under Section 17 is
under preparation or consideration or a sanctioned scheme is
under implementation or where an appeal under section 25
before the appellate authority (AAIFR) is pending.
The point which has, in this context, been raised in
several High Courts is that the mere registration of a
reference by the BIFR under the Act, would not result in the
automatic cessation of all proceedings which are pending
either in civil courts or in the Company Court etc. as
against its assets. It is argued that in order that section
22 of the Act can come into operation, the BIFR must -
subsequent to the registration of the reference under
section 15 - apply its mind and consider it necessary under
section 16 to make an inquiry and issue notices on the
reference to the affected parties who are required to be
heard, and that only then it can be said that an ‘inquiry’
is pending. Unless an inquiry is pending there cannot be a
statutory stay of proceedings etc. as contemplated by
section 22 of the Act.
For the purpose of understanding the above point, it is
necessary to refer to sub-clauses (1) to (4) of section 16
and section 22(1) of the Act. They read as follows:
"S. 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 an
inquiry under sub-section (1),
require by order any operating
agency to enquire into and make a
report with respect to such matters
as may be specified in the order.
(3) The Board or as the case may
be, the operating agency shall
complete its inquiry as
expeditiously as possible and
endeavour shall be made to complete
the inquiry within sixty days from
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the commencement of the inquiry.
Explanation - For the purposes
of this sub-section, an inquiry
shall be deemed to have commenced
upon the receipt by the Board of
any reference or information or
upon its own knowledge reduced to
writing by the Board.
(4) Where the Board deems it fit to
make an inquiry or to cause an
inquiry to be made into any
industrial company under sub-
section (1) or, as the case may be,
under sub-section (2), it may
appoint one or more persons to be a
special director or special
directors of the company for
safeguarding the financial and
other interests of the company or
in the public interest.
"Section 22(1): suspension of legal
proceedings, contracts etc.: Where
in respect of an industrial
company, an inquiry under Section
16 is pending or any scheme
referred to under Section 17 is
under preparation or consideration
or a sanctioned scheme is under
implementation or where an appeal
under section 25 relating to an
industrial company is pending,
then, notwithstanding anything
contained in the Companies Act,
1956 (1 of 1956), or any other law
or the memorandum and articles of
association of the industrial
company or any other instrument
having effect under the said Act or
other law, no proceedings for the
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 a
receiver in respect thereof (and no
suit for the recovery of money or
for the enforcement of any security
against the industrial company or
of any guarantee in respect of any
loans or advance granted to the
industrial company) shall lie or be
proceeded with further, except with
the consent of the Board or, as the
case may be, the Appellate
Authority."
It is to be noticed that according to section 22, in
case an "inquiry under section 16" is pending, then,
notwithstanding anything in the Companies Act or any other
instrument etc., no proceedings for the winding up of the
company or for execution or distress or the like against the
property of the company or for the appointment of a receiver
and no suit for recovery of money or enforcement of any
security or of any guarantee - shall lie or be proceeded
with further, except with the consent of the Board or, as
the case may be, by the appellate authority. Section 22A
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permits the Board pass certain conditional orders.
It is also to be noticed that sub-clause (1) of section
16 says that the Board ‘may’ make such inquiry as it may
deem fit for determining whether any industrial company has
become a sick industrial unit - (a) upon receipt of a
reference under section 15 or (b) upon information received
by it or upon its own knowledge as to the financial
condition of the company. Under sub-clause (2) of section
16, the Board ‘may’, if it deems it necessary or expedient,
require any operating agency to inquiry and report to it.
Under sub-clause (3), the Board or the operating agency is
to endeavour to complete the inquiry within 60 days from the
date of commencement of the inquiry. Explanation below sub-
clause (3) explains that for purposes of sub-clause (2),
that is to say, for computing the period of 60 days, an
inquiry shall be deemed to have commenced upon the receipt
by the Board or any reference or information or upon its own
knowledge reduced to writing by the Board. Under sub-clause
(4), when the Board deems it fit to make an inquiry under
sub-clause (1) or (2) of section 16, it may (the word
‘shall’ has been omitted by Act 12 of 1994) appoint one or
more directors etc.
Relying on the use of the word ‘may’ in section 16(1)
of the Act it has been contended in some High Courts that
the word ‘may’ in that section shows that the BIFR has power
to reject a reference 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/documents or without hearing
the Company or other parties. Further, the Act is intended
to revive and rehabilitate sick industries before they can
be wound up under the Companies Act, 1956. Whether the
Company seeks a declaration that it is sick or some other
body seeks to have it declared as a sick Company, it is, in
our opinion, necessary that the Company be heard before any
final decision is taken under the Act. It is also the
legislative intention to see that no proceedings against the
assets are taken before any such decision is given by the
BIFr for in the case the Company’s assets are sold, or the
company wound up it may indeed become difficult later to
restore the status quo ante. Therefore, in our view, the
High Court of Allahabad in Industrial Finance Corporation
vs. Maharashtra Steels Ltd. [1990 67 Comp. Cases 412 (All)],
the High Court of Andhra Pradesh in Sponge Iron India Ltd.
vs. Neelima Steels Ltd. [1990 68 Comp. Cases 201 (AP)], the
High Court of Himachal Pradesh in Orissa Sponge Iron Ltd.
vs. Rishab Ispat Ltd. [1993] 78 Comp. Cases 264] are right
in rejecting such a contention and in holding that the
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inquiry must be treated as having commenced as soon as the
registration of the reference is completed after scrutiny
and that from that time, action against the Company’s assets
must remain stayed as stated in section 22 till final
decisions are taken by the BIFR.
The other view that mere registration does not amount
to "commencement of inquiry under section 16(1)" for
purposes of section 22(1) has been taken by the Calcutta
High Court in Bengal Lamps Case (supra), and by the
Rajasthan High Court in Maruti Udyog Ltd. vs.
Instrumentation Ltd. [1995 82 Comp. cases 485 (Raj)]. This
view is mainly based upon the provisions of the Regulations
made under the Act.
We shall refer to these Regulations briefly. Chapter II
of the Regulations framed under section 13 of the Act bears
the heading ‘Reference under section 15’ and contains
Regulation 19. Chapter III deals with ‘General provisions
regarding Inquiries’ and contains Regulation 20 while
Chapter IV which bears the heading "Inquiry under section
16" contains Regulations 21 to 25. Chapter V deals with
proceedings under section 17 and contains Regulation 26. For
the present purpose, we are not referring to the other
Chapters which are not very relevant.
The Division Bench of the Calcutta High Court in Bengal
Lamps Ltd Case (supra) - which case has been relied upon by
the Bombay High Court in the impugned order dated 8.8.1997,
- has held that at the stage of registration of the
Reference under section 15 of the Act read with Regulation
19 (in Chapter II of the Regulations which refers only to
section 15), there can be no question of commencement of any
‘inquiry’ referable to section 16 of the Act. Such an
inquiry can be treated as having commenced only at the stage
of section 16 read with Regulation 21 (in Chapter IV of the
Regulations which refers to section 16). On that reasoning
it held that there can be stay as contemplated by section 22
only when section 16(1) stage of inquiry has arrived and not
at the stage of section 15 dealing with registration of the
reference. It further held that it is only when the BIFR,
i.e. the Bench of the BIFR issues notices under section
16(1) for inquiry or asks the operating agency to inquire, -
that the ‘inquiry’ can be said to have commenced. This line
of reasoning has been applied by the Rajasthan High Court
also and by the Bombay High Court in the judgment under
appeal. Question is whether this view is correct?
Now, Regulation 19(4) which is concerned with section
15 requires that upon receipt of a reference, an
acknowledgement is to be issued stating expressly that the
reference has been received ‘subject to verification that
the reference is in order’. If on scrutiny, the reference is
in order, then it will be registered under Regulation 19(5).
Regulation 19(5) has been amended recently with effect from
24.3.1994 which is of a date very much subsequent, in point
of time, to the date of Judgment of the Calcutta High Court.
The new Regulation 19(5) as substituted w.e.f. 24.3.1994 is
in two parts and reads as follows:
"Reg. 19(5): If on scrutiny, the
reference is found to be in order,
it shall be registered, assigned a
serial number and submitted to the
Chairman or assigning it to a
Bench. Simultaneously, remaining
information/documents required, if
any, shall be called for from the
informant."
The first part says that the reference, if it is in order,
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will be registered. The second part says that simultaneously
notice shall be issued calling for information or documents
from the informant. The effect of the amended Regulation
19(5) is that even before any Bench of the BIFR can think of
calling for information under Regulation 20(1) or under
Regulation 21 read with section 16, it is now mandatory
after the amendment that as soon as a reference is
registered, information/documents shall be called for from
the informant straightaway. The point is whether when such
information/documents are required to be simultaneously
called for at Regulation 19(5) stage, can it be said that an
‘inquiry’ under section 16(1) has commenced?
The above question depends upon what is meant by the
word ‘inquiry’ used in section 16(1) of the Act. According
to the New Standard Dictionary, the word ‘inquiry’ includes
‘investigation’ into facts, causes, effects and relations
generally; ‘to inquire’, according to the same dictionary
means ‘to exert oneself to discover something. Chamber’s
20th Century Dictionary lays down that the meaning of the
term ‘to inquire’ is "to ask, to seek" and the meaning of
the term ‘inquiry’ is given as: "search for knowledge;
investigation : a question".
Inasmuch as under the latter part of Regulation 19(5)
it is necessary that simultaneously with the registration of
the reference, information/documents are to be called for
from the informant - the ‘inquiry’ must, in our opinion, be
deemed to have commenced under section 16 of the Act at that
stage itself, namely, at stage of the second part of
Regulation 19(5) and it is no longer permissible to say that
such a stage is reached only when the BIFR issues notices
and starts an inquiry under Regulation 20 calling for
additional information ‘in relation to the inquiry’ or only
when orders are passed by the BIFR under Regulation 21, read
with section 16(1). The result is that strictly speaking,
after the amendment of Regulation 19(5) on 24.3.1994 the
latter part of Regulation 19(5) falls into Chapters III and
IV of the Regulations which are referable to ‘Inquiries’
under section 16 of the Act, rather than into Chapter II
which deals with ‘References’ under section 15. The Chapter
headings cannot, in out opinion, be treated as rigid
compartments.
There can, therefore, be no difficulty in holding that
after the amendment to Regulation 19 w.e.f. 24.3.1994, once
the reference is registered and when once it is mandatory
simultaneously to call for information/documents from the
informant and such a direction is given, then inquiry under
section 16(1) must - for the purposes of section 22 - be
deemed to have commenced. Section 22 and the prohibitions
contained in it shall immediately come into play. In that
view of the matter, we need not go into the correctness of
the view expressed by the Calcutta, Rajasthan and Bombay
High Courts which relied upon the unamended Regulation 19.
Point 2 is decided accordingly.
On the facts of this case, the impugned orders dated
28.7.1997 and 8.8.1997 of the High Court have been passed
after the BIFR proceedings reached the stage of second part
of Regulation 19(5) on 24.7.1997 that is to say, when
proceedings, as per the amended Regulation 19(5) reached the
stage of inquiry under section 16(1). It must, therefore, be
deemed that the said orders are illegal and are in violation
of the prohibition contained in section 22 of the Act.
For the aforesaid reasons, the order passed by the
Division Bench on 28.7.97 appointing Receiver and the order
passed by another Bench of the High Court on 8.8.97
restoring the provisional liquidator, are set aside. The
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Civil appeals are accordingly allowed. There will be no
order as to costs. The respondents are free, if need be, to
approach the BIFR under section 22 and section 22A of the
Act for further orders, if any, in addition to the orders
already passed by the BIFR in this behalf.