GRAM PANCHAYAT AND ANR.versusSHREE VALLABH GLASS WORKS LIMITED AND ORS.

                     GRAM PANCHAYAT AND ANR.                                     •
A                         v.
     SHREE VALLABH GLASS WORKS LIMITED AND ORS.

                               MARCH 15, 1990

B         [K. JAGANNATHA SHETTY AND R.M. SAHAI, JJ.]

           The Sick Industrial Companies (Special Provisions) Act, 1985:
     Ss. 16, 17 & 22-Sick industrial company-Proceedings for recovery of
     amount due-Validity of

           Section 16 of the Sick Industrial Companies (Special Provisions)
c    Act, 1985 authorises the Board for Industrial and Financial Recons-
     truction established under the Act to make enquiry for determining
     whether any industrial company has become a sick industrial company.
     Section 17(2) empowers the Board to grant a reasonable time to such a
     company to make its net worth positive. Where such a course is not
D    practicable s. 17(3) empowers the Board to appoint an operating agency
     to prepare a scheme for rehabilitation/revival of the company. Section
     22(1) provides that in case the enquiry under s. 16 is pending or any
     scheme referred to under s. 17 is under preparation or consideration by
     the Board or any appeal under s. 25 is pending, then proceedings for
     winding np, execution, distress or the like are to be suspended or pre-
     sumed to be suspended. The proceedings in respect of these matters
E    could, however, be continued with the consent of the Board or of the
     appellate authority as tbe case may be. Section 22(5) provides for exclu-
     sion of the period during which the remedy remains suspended, in
     computing the period of limitation for enforcement of the right.

p          The respondent company had been declared by the Board to be a
     sick industrial company under s. 16 of the Act and an operating agenc;i:
     had been appointed under s. 17(3) to prepare a scheme for rehabilita-
     tion/revival of the company.

           The respondent company owed a large sum to the petitioner
     Panchayat on account of property tax and other dues. When the
G
     petitioners initiated coercive proeeedings to recover that amount the
     company moved the High Court by way of a writ petition under Article
     226 of the Act. The High Court restrained the petitioners from recover-
     ing the said amount ltithout the consent of the Board.

B:         Dismissing the special leave petition, the Court,

                                        966
    GRAM PANCHAYAT v. VALLABH GLASS WORKS {SHETTY, J.]                    967

         HELD: The High Court was justified in quashing the recovery
                                                                                 A
    proceedings taken against the properties of the company. [970G-H]

           The Board by order dated 27 August, 1987 had stated that it was
    satisfied that the company had become a sick industrial company and
    directed that further proceedings under the Act shall be taken. By
    another order made on the same day under s. 17(2) .the Board had             B
    found that it was not practicable for the company to make its net worth
    positive within a reasonable time and had proceeded to take action
    under s. 17(3) and appointed the ICICI as the operating agency to
    prepare a scheme for rehabilitation/revival of the company. In view of
    these steps taken by the Board under ss. 16 and 17 of the Act, no
    proceedings for execution, distress or the like against any of the proper-
    ties of the industrial company shall lie or be proceeded with further by     c
    virtue of s. 22(1) except with the conseutof the Boai-d. [970A-D]

          The Board at its discretion may accord approval. If the approval
    is not granted the remedy is not extinguished. It is only postponed.
    Sub-section (5) of s. 22 provides for exclusion of the period during         D
    which the remedy is suspended while computing the period of limitation
    for recovering the dues. [970F-GJ

            CIVIL APPELLATE JURISDICTION: Special Leave Petition
    · (Civil) No. 14395 of 1989.
                                                                                 E
          From the Judgment and Order dated 18.7.1989 of the Bombay
     High Court in W.P. No. 6108of 1987.

          V .N. Ganpule for the Petitioners.

~        P. Chidambmm, Mrs. Raian Karanjawala, N:H. Seer.bai, Karan-             F
    jawala and Ravinder Kumar for the Respondents.

          The Judgment of the Court was delivered by

          K. JAGANNATHA SHETTY, J. The petitioners seek leave to
    appeal against the decision of the Bombay High Court in Writ Petition        G
    No. 6108/87 quashing the proceedings for recovery of property tax and
    other expenses due from the first respondent-co~pany.

           The matter arises in this way: For the purpose of prevention and
     revival of sick industries, the Central Government has enacted the Act
     called "Tlt~i_ck Industri_al Coml'._anies (Special Provisions) Act, 1985    H
          968                    SUPREME COURT REPORTS             [1990] 1 S.C.R.

          ('The Act'). The Act extends to the whole of India including the State
     A    of J ammu & Kashmir. It came into force (except sections 15 to 34)
          with effect from 15 May 1987. The Act covers only sick industrial
          companies or industrial companies which have the potential to become
          sick. The Act empowers the Central Government to establish a Board
          to be known as the Board for Industrial & Financial Reconstruction to
     B    exercise the jurisdiction and powers, and discharge the functions and
          duties imposed under the Act.                                              \{ '·
                The first respondent-company M/s Shree Vallabh Glass Works
          Ltd. has been declared to be a sick industrial company within the
          meaning of clause (o) of sub-section ( 1) of Section 3 of the Act. 'Sick
          Industrial Company' "means an iridustrial company being a company
     Q    registered for not less than seven years which has at the end of any
          financial year accumulated losses equal to or exceeding its entire net
          worth and has also suffered cash losses in such financial year and the
          financial year immediately preceding such financial year."

     p          The first petitioner is the Gram Panchayat, Salwad and second
          petitioner is the Chairman of the Gram Panchayat. The petitioners
          initiated coercive proceedings under. Section 129 of the Bombay Vil-
          lage Panchayat Act to recover a sum of Rs.9,47,539 stated to be the
          property tax and other amounts due from the company. Challenging
          that proceedings, the Company moved the High Court by way of Writ
     !£   Petition under Article 226 of the Constitution claiming protection pro-
          vided under Section 22 of the Act. The High Court has accepted the
          writ petition and restrained the petitioners from recovering the said
          amount without the consent of the Board.

              The question is whether the Panchayat could not recover the
     JI   amount due to it from out of the properties of the sick industrial
          company without the consent of the Board?

                Section 22 provides, as far as material, as follows:

                      "Section 22-Suspension of Legal Proceedings, contracts,
                      etc.

                      (1) 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
-I                    sanctioned scheme is under implementation or where an
                      appeal under Section 25 relating to an industrial company
GRAM PANCHAYAT v.·VALLABH GLASS WORKS !~HETTY, J.]                 969

           is pending, then, notwiihstanding anything contained in the
                                                                           A
           Companies Act, 1956, or any other law or the memoran-
           dum 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 indust-
           rial company or for execution, distress or the like against
           any of the properties of the industrial company or for the      B
           appointment of a receiver in respect thereof shall lie or be
           proceeded with further,; except with the consent of the
           Board or, as the case may be, the Appellate Authority.

           22(2)      to      22(4)      xxx      xxx      xxx

           22(5) In computing the period of limitation for the             c
           enforcement of any right, privilege, obligation or liabiliiy,
           the period .during which it or the remedy for the enforce-
           ment thereof remains suspended under this section shall be
           exduded."
                                                                           D
      Section 22(1) provides that in case the enquiry under Section 16
is pending or any scheme referred to under Section 17 is under pre-
paration or consideration by the Board or any appeal under Section 25
is pending then certain proceedings against the sick industrial company
are to be suspended or presumed to be suspended. The nature of the
proceedings which are automatically suspended are: (1) Winding up of       E
the industrial company; (2) Proceedings for execution, distress or the
like against the properties of sick industrial company, and (3) Proceed-
ings for th~ .appointment of receiver. The proceedings in respect of
these matters could, however, be continued against the sick industrial
company with the consent or approval of the Board or of the Appellate
Authority as the case may be.                                              F '-

      Section 16 authorises the Board to make such enquiry as it may
deem fit for determining whether any industrial company has become
a sick industrial company. Where Board is satisfied that a company has
become a sick industrial company, it could give a reasonable time to
the company to make its net worth positive (Sec. 17(2)). Where it is       G
not practicable for sick industrial company to make its net worth posi-
tive within a reasonable time, Section 17(3) steps in authorising the
Board to direct any operating agency to prepare a scheme in relation
to the company. The Board may specify the various measures to be
considered by the operating agency. These measures are detailed out
in Section 18. The operating agency has to prepare a scheme as per the     H
order specified by the Board.
      970                  SUPREME COURT REPORTS            [1990] 1 S.C.R.

A           In the instant case, the Board by order dated 27 August 1987 has
      stated that it was satisfied that the company has become a sick indust-
      rial company. The Board directed that further proceedings under the
      Act shall be taken with respect to the company. On the same day the
      Board after having heard the representatives of the ICICI, the com-
      pany, the concerned Banks, the other public financial institutions and
B     the State Government of Gujarat, considered the entire material on
      record, held that it was not practicable for the company to make its net
      worth positive within a reasonable time and that further proceedings
      under sub-section (3) of Section 17 of the Act are, therefore, to be
      taken. Accordingly, in exercise of the powers conferred under Section
      17(3) of the Act, the Board appointed the ICICI as the operating
t     agency to prepare a scheme for rehabilitation/revival of the company
      keeping in view of the provisions of Sections 18 and 19 and the
      guidelinef. At the same time the Board appointed Shri Y.V. Sivarama-
      krishnayya as the special director of the company for safeguarding its ·
      financial and·other interests.

It>     In the light of the steps taken by the Board under Sections 16 and
  17 of the Act, no proceedings for execution, distress or the like pro-
  ceedings against any of the properties of the company shall lie or be
  proceeded further except with the consent of the Board. Indeed, there
  would be automatic suspension of such proceedings against the com-
  pany's properties. As soon as the inquiry under Section 16 is ordered
E by the Board, the various proceedings set out under sub-section (1) of
  Section 22 would be deemed to have been suspended.                             -
        It may be against the principles of equity if the creditors are not
  allowed to recover their dues from the company, but such creditors
  may approach the Board for permission to proceed against the com-
F pany for the recovery of their dues/outstandings/overdues or arrears by
  whatever name it is called. The Board at its discretion may accord its
  approval for proceeding against the company. If the approval is not
  granted, the remedy is not extinguished. It is only postponed. Sub-
  section (5) of Section 22 provides for exclusion of the period during
  which the remedy is suspended while computing the period of limita-
G tion for recovering the dues.

           In our opinion, the High Court was justified in quashing the
      recovery proceedings taken against the properties of the company and
      we accordingly, reject this petition, with no order as to costs.

H P.S.S.                                                  Petition dismissed.