Sudershan Kumar Misra, J.
Co.Appln. No.3298/2015
1. This application moved by the respondent, Tecpro System Limited, under Rule 9 of Company Court Rules, 1959 read with Section 22 (1) of Sick Industrial Companies (Special Provisions) Act, 2002 (SICA); praying that the winding up proceedings pending before this Court, be not proceeded with further in view of the proceedings pending for revival of the respondent before the Board for Industrial and Financial Reconstruction (BIFR); is opposed by the petitioner, who is an unsecured creditor of the respondent company.
2. The petitioner is seeking winding up of the company, inter alia, on the ground of non-payment of a debt of Rs.1,35,89,016/- (Rupees One Crore Thirty Five Lakhs Eighty Nine Thousand Sixteen Only) payable by the respondent company. The petition also mentions the fact that the company has suffered massive losses between 01.04.2013 and 30.09.2013; and that, while the share capital and reserves of the company for the half year ending 30.09.2013 is Rs.563 crores, its liabilities are Rs.4,641 crores, which, according to the petitioner, indicates that the company is, overleveraged . At the same time, it is also mentioned that in the relevant financial statements, the company has also indicated an amount of Rs.1,273 crores as, other current assets . The petitioner has also asserted the fact that the company, is unable to pay its admitted debts . ; meaning thereby, that the company is insolvent or in any case, is not in a position to pay its admitted debts and therefore should be wound up for that reason also.
3. The applicant is stated to have moved a reference before the Board for Industrial and Financial Reconstruction (BIFR) under Section 15 (1) of Sick Industrial Companies (Special Provisions Act 1985) (SICA) alleging that its net worth has become negative. In his letter dated 14.07.2015, the Registrar, BIFR, has informed the applicant that the said reference has been duly registered. It also gives further directions to the applicant, including, inter alia, of stay.
4. In short, the applicant s case is that since the inquiry has commenced pursuant to the registration of the aforesaid reference, the provisions of Section 22(1) Sick Industrial Companies (Special Provisions) Act, 1985 would be applicable; and till that inquiry is pending; and the matter of revival of the respondent company remains before the BIFR, these winding up proceedings; including for the appointment of receiver etc., cannot be proceeded with further; except of course with the consent of the BIFR, as envisaged in Section 22(1) SICA, 1985. The provisions of Section 22(1) are as under;
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 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 32 [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.
5. On the other hand, the petitioner s counsel contended that the statutory bar envisaged under Section 22(1) of SICA does not arise in this particular matter because the respondent company has admitted that there is a debt payable by it; and thereafter it has even placed on record its written consent, to clear the debt due to the petitioner. Some other grounds are also urged.
6. In order to better appreciate the nature and style of counsel s submissions, it has become necessary to reproduce some of her submissions in extenso here. In this context, I might also add that although some time has elapsed since the orders were reserved on 15.12.2015, a reasonably accurate record of the proceedings was kept by the Court Stenographer who was noting the arguments verbatim, as is often done in my Court. This has proved most helpful. They are as follows;
(i) That there is an agreement in writing and the respondent company has agreed on 27.08.2014, that there is an admitted amount . She further submits that, once they have admitted to the position that there is a debt payable by them, thereafter they have placed on record in January 2015, the consent. In that case, provisions of Section 22(1) of SICA cannot apply.
(ii) After lunch, when the matter was taken up again, counsel for the petitioner submitted that her client had filed the petition in 2014, while the reference was filed by the company before the BIFR only thereafter. And further that, there was a consent , by the respondent, that a particular amount was payable to the petitioner. After that, there was also a direction to the respondent to file an affidavit regarding payment; and the respondent submitted that affidavit on 23.01.2015, in which, the respondent company principally stated the schedule of payment and the manner in which payment has to be made. The entire schedule is given. According to her, that affidavit categorically states that the respondent will make payment. This, according to counsel, constituted the agreement to pay.
(iii) According to counsel, it was only thereafter on 23.03.2015, that the respondent filed a reference before the BIFR under Section 15 (1) SICA. According to her, in this reference, the company has wrongly stated that its net worth has become negative and that it has become a sick company on the basis of the balance sheet as on 31.03.2015. She further states that the letter of 14.03.2015 of the Registrar, BIFR, informing the respondent company of the registration of the reference shows, that the respondent has not disclosed the fact that it has given its consent before this Court for making payment. It is on these grounds that counsel has ventured to submit, of course, these are winding up proceedings, but when a party states that I will make payment in the following terms, he has to pay them.
(iv) As regards allegation that the statement of the company before the BIFR to the effect that its net worth has become negative is false, she submits that this is because, before filing of the reference before the BIFR, the company s affidavit that was filed, categorically states that we will make payment .. ; While their application says net worth became negative; this is clearly incorrect and is aimed at giving a wrong impression, and to resile from statement / undertaking . . According to her, the reference and its registration with the BIFR by the respondent company is merely a ploy to waive off its admitted debt. And that in these circumstances, even the, provisions of the Contempt of Courts Act and Article 215 of the Constitution of India will apply because they have wrongly stated .. .
(v) She states that under the circumstances, once they have submitted an affidavit and the consent is there, can they be permitted to resile, that is my submission. She further submits that, what has to be seen in this case is that once there is consensus ad idem, there is consent between two parties. In this particular case, there was a consent, they said we will make payment on these modalities. Once they have accepted to that, they cannot resile from that.
7. The relevant facts available on the record are as follows;
(a) The petitioner has filed the main petition seeking winding up of the respondent also containing a prayer, seeking appointment of the Official Liquidator to take possession of all assets of the respondent company . Along with this, interim applications seeking directions and for appointment of the Provisional Liquidator were also filed.
(b) Notice to show cause was issued by the Court to the respondent on 20.01.2014. Interim orders were passed on that date restraining the respondent from selling, alienating or parting with possession of any of its immoveable properties. The respondent was also restrained from dealing with its moveable properties, except in the normal course of business. Although on 16.04.2014, this Court directed that a reply shall be filed within one week in the event the same has not been filed; and the matter was adjourned to 13.05.2014; however, no formal reply to either the notice to show cause, or even the applications seeking interim directions has been filed by the respondent. On 26.09.2014, it was directed that interim orders are to continue till further orders.
(c) On 13.05.2014, counsel for the respondent pointed out that a Corporate Debt Restructuring (CDR) Scheme is being worked out with the banks and prayed for time to file a proposal under which payment can be made. Again on 16.07.2014, counsel for the respondent pointed out that the proposal is under consideration by a consortium of banks led by the State Bank of India. On some doubts expressed by counsel for the petitioner, this Court also directed notice to be issued to the State Bank of India returnable on 27.08.2014, and the matter was directed to be listed along with other connected matters. On 27.08.2014, counsel for the respondent also stated that the respondent, is not contesting the liability of the amunts claimed by the petitioner .
(d) Ultimately, on 28.11.2014, this Court recorded that;
Respondent has admitted the claim and does not propose to file a reply.
learned counsel appearing for the State Bank of India submits that as per the CDR Scheme after signing of the Master Reconstructing Agreement (MRA) within the stipulated time, the borrower (respondent) is obliged to make the payment to its creditors.
The respondent is directed to file an affidavit enclosing a copy of the letter of approval alongwith the amount, if any, admitted by the respondent, and the proposed schedule of payment to the petitioner in terms of CDR scheme. The affidavit shall be filed within a period of eight weeks from today.
Renotify on 24th March, 2015.
(e) It is seen from the above that;
(i) the respondent stated that it admitted the claim of the petitioner and that it does not propose to file any reply to the petition;
(ii) Further, that according to the Corporate Debt Restructuring (CDR) Scheme approved by the secured creditors and lenders, the Master Reconstructing Agreement (MRA) was to be signed, and then the borrower, i.e., the company herein, was obliged to pay its, pressing , creditors; and it was in these circumstances, that on 28.11.2014, this Court directed the company to file an affidavit setting down therein, inter alia, the proposed schedule of payment to the petitioner in terms of CDR scheme. , and the matter was adjourned to 24.03.2015.
(f) Consequently, pursuant to the aforesaid orders of 28.11.2014, the respondent filed an affidavit of compliance dated 23.01.2015 where a copy of a letter of approval of the Corporate Debt Restructuring Scheme (CDR Scheme) dated 30.09.2014 along with the annexures to that letter (29 pages) was enclosed as Annexure A/1. In addition, and as directed by the Court on 28.11.2014, the respondent company also annexed the proposed schedule of payment in terms of the said CDR scheme, bearing the title, PROPOSED PAYMENT PLAN , as Annexure A/2. Below the said payment schedule, and as part of that proposal, the company has also stated that, the above payment schedule is subject to successful completion of CDR and release of payments accordingly.
(g) Thereafter, when the matter was taken up on 24.03.2015, it was brought to the notice of the Court that despite efforts having been made in that direction, the aforesaid CDR scheme had not come into effect. And, in fact, the State Bank of India had assigned the company s debt; including mortgages on assets of the company held by it; to a third party, namely, Edelweiss Assets Reconstruction Company, on 23.03.2015. This prompted this Court to adjourn the matter, while directing the respondent to file another consolidated affidavit, with regard any financial arrangement it may arrive at to address its current situation . Disclosure of other information was also directed. The relevant portion of that order is extracted below;
Counsel for the respondent states that his clients were making efforts to arrive at some sort of settlement with some of these petitioners, on terms, keeping in view the likelihood of CDR scheme being approved by a consortium of banks, of which, the State Bank of India was the lead bank. He states that after repeated negotiations these steps have not been fruitful since the State Bank of India has assigned its debt to Edelweiss Assets Reconstruction Company Limited vide assessment agreement dated 23rd March, 2015. He submits that by this, Edelweiss Assets Reconstruction Company Limited has obtained substantive interest in the assets of the company, including substantial shareholding of the company which was originally mortgaged to State Bank of India. He, therefore, prays for a short adjournment to enable his clients to try and negotiate with the petitioners for any repayment-cum-debt reconstruction scheme that may be feasible while also keeping in mind its overall financial obligations.
Under the circumstances, the matter is adjourned to 29th October, 2015 to enable the respondent to file a consolidated affidavit with regard to any financial arrangement it may arrive at to address its current situation within four weeks from today.
Pursuant thereto, the company filed an affidavit dated 07.05.2015 once again stating that the amount claimed by the petitioner is not disputed by the respondent. However, nothing further was stated by the company in that affidavit regarding any fresh financial arrangements that it might have concluded to address its current situation; nor was any fresh offer of payment of its debt to the petitioner; either on the lines of the aforesaid earlier conditional offer which was annexed to its affidavit of 23.01.2015 or otherwise, made by the company.
(h) In October 2015, and before the matter could be taken further, the respondent company moved the instant application, being CA No.3298/2015, informing this Court that looking to its financial condition as on 31.03.2015, it had moved the BIFR under Section 15(1) of the SICA; and that on 14.07.2015, the Registrar, BIFR, had informed the company that the said reference had been duly registered by the Board and further directions were also given to the company.
(i) It may also be noted that there were as many as 29 more petitions instituted by separate petitioners seeking winding up of the respondent on the ground of non-payment of their dues; and for convenience, matters were being listed before this Court on the same date to enable this Court to have a better overall picture of the company s affairs. In para 3 of its aforesaid affidavit of 07.05.2015, the company has also said that out of all these, .there are certain petitions ..where the amounts claimed by the respective petitioners have not been disputed by the respondent .. . In all those matters, orders similar to those sought here have already been passed in the light of Section 22(1) SICA.
(j) On 15.12.2015, arguments were heard and the orders were reserved in the instant matter.
8. Counsel s vehement opposition to any deferment of these proceedings is mainly predicated on the ground that since the respondent company had admitted its liability towards the petitioner on 27.08.2014 by a written agreement, even before it approached the BIFR; therefore, the provisions of Section 22 (1) of SICA are not applicable to this case. She also submits that not only has the respondent admitted its liability, it has even placed on record its, written consent , to clear the debts of the petitioner in terms of a schedule of payment, as well as the manner in which the said payment would be made in an affidavit filed by the respondent in this Court on 23.01.2015, and therefore also, there can be no question of further proceedings in the matter being stayed by this Court in terms of Section 22 (1) of SICA. According to her, what has to be seen in the case at hand is that once there is consensus ad idem, there is consent between two parties; and in this particular case there was consent to make payment on modalities. Once the company accepted this, it cannot resile from it.
9. What has to be kept in mind is that under Section 22 (1) of the SICA, it is the action brought by the petitioning creditor seeking winding up of the company that cannot be proceeded with further; and, consequently, this Court is divested of the power to proceed further in the matter. Of course, there can be myriad grounds available to the petitioning creditor to establish respondent s liability for unpaid dues, including an admission of debt. That is another matter entirely. These are only grounds that may persuade the Company Court to admit the petition, and to proceed to wind up the company in the exercise of its jurisdiction under the Companies Act and Rules. The mandate of Section 22 (1) of the SICA is not qualified in any way, enabling the Court to proceed with the petition, and with the process of winding up; or in another words, to continue to exercise its jurisdiction towards that end, merely because there is an admission by the respondent company of the debt in question. The mandate is clear, so long as a petition is pending seeking winding up of the company, then whatever may be the stage or the state of pleadings; as well as the proceedings before it, the High Court is obliged to stop proceeding further in the matter. 10. Since counsel for the petitioner kept insisting to the contrary, she was invited to cite any precedent to support her case. She relies on a judgment of the Bombay High Court in TATA Capital Financial Services Limited v. Ramasarup Industries Limited, 2013 (6) Bom CR 230, paragraph 34 at page 18, which states as follows;
34. .In my view consent terms filed in court by parties was an agreement and steps taken under such agreement cannot be stayed. It is clear that that there is apparent distinguishment between the expression proceedings and suit used in section 22(1) of SICA. In my view, steps taken to enforce the consent order passed under section 9 of the Arbitration and Conciliation Act, 1996 would not be barred by section 22(1) of the SICA.
11. To my mind, that decision of the Single Judge of the Bombay High Court in TATA Capital Financial Services Limited (supra) being relied upon by counsel for the petitioner has no application here. There, the issue related to the stay of execution of an order of the Bombay High Court with regard to the sale of properties of Sureties and Guarantors of a company, in proceedings under Section 9 of the Arbitration and Conciliation Act. And the matter revolved around the scope and ambit of the 1994 amendment in Section 22(1) SICA whereby, a limited protection was provided to Guarantors by the insertion of the words, 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 . Also, in that matter, a specific order directing sale of the properties had been passed by the court, albeit on consent of the parties concerned. Here, apart from other, important distinctions, no order or direction has been passed by the Company Court directing payment by the company to the petitioner either on terms or otherwise; nor has any undertaking been given to the Court by, or on behalf of the company undertaking to pay any amounts to the petitioner. I am therefore not going into the question of the consequences that might have ensued in case there had been any such order or undertaking. All that is before the Company Court exercising jurisdiction under Sections 433 and 434 of the Companies Act is an affidavit admitting the debt claimed by the petitioning creditor while informing the Court that the company has concluded a proposed Corporate Debt Restructuring (CDR) Scheme with the lead bank in a consortium of banks, i.e., the State Bank of India, all of whom are the secured creditors of the respondent company; and also offering to pay that debt on the terms indicated, including the instalments proposed as well as the significant pre-condition that, the above mentioned payment schedule is subject to the successful completion of CDR and release of payments accordingly. These terms have been set down by the company in Annexure A/2 to the affidavit dated 23.01.2015 filed by the company along with the letter of approval of the restructuring proposal under the CDR System, in compliance with the aforesaid orders passed by this Court on 28.11.2014 (Extracted in paragraph 7(d) above).
12. Furthermore, even though a Debt Restructuring Scheme (To which the petitioner was admittedly not a party) may have been approved by a consortium of creditor banks envisaging certain payments towards liquidation of the company s debt to the petitioner on terms set down in that scheme; there is nothing to suggest that because the company has agreed, inter alia, to these terms with the consortium of banks, that must be presumed to be some sort of consensus ad idem, i.e., a bilateral consent between the petitioner and the respondent also. In any case, to my mind, any such agreement by the company to pay its creditors on terms concluded between that company and some of its creditors generally, does not automatically become executable as a decree or order of the court. Not only that, even if it were executable in some fashion, the fact remains that the proceedings before this Court are not execution proceedings. Furthermore, a perusal of the CDR scheme shows that the commitment of the company to pay its creditors is in terms of the letter of approval dated 30.09.2014 issued by the State Bank of India, titled, Letter of Approval Techpro Systems Ltd. (TSL) Restructuring Proposal Approved Under CDR System. This communication runs into 23 pages. Copies of this approval have only been sent to the Bank of India; ICICI Bank; IDBI Bank; Axis Bank; Vijaya Bank and IndusInd Bank. The restructuring package, which was approved by what was known as the, CDR empowered group , has been annexed to this communication, and it envisaged the financial restructuring of term loans given by banks; under various heads, including, inter alia,
(v) Priority Debt-2, which is stated to be;
Priority Debt (PD-2) of Rs.166.25 crore is proposed in the package for the payment towards pressing creditors; PD-2 shall be shared among all lenders (except RIICO). The shares of lenders in PD-2 shall be based on exposure % as on COD as under: (Emphasis added)
13. Significantly, there is no specific mention of any obligation of the company to pay any amount to the petitioning creditor; and at best, the restructuring scheme sanctioned by the lending banks has made a provision of a certain amount in the package, for payment towards pressing creditors . , under what is termed as Priority Debt-2. And that the burden of any such payments, subject to the overall limit of Rs.166.25 crores envisaged in the scheme, shall be shared amongst the lending banks in the agreed proportion.
14. Therefore, before this Court, at best, there was a proposal by the respondent company to repay the petitioner s debt in terms of a schedule annexed to an affidavit dated 23.01.2015 filed by the respondent. This proposal, as well as the circumstances under which it came about have been set down in paragraph 7(c) to 7(g) above. Significantly, that proposed schedule was also, subject to successful completion of the aforesaid CDR scheme and release of payments , by the consortium of lending banks.
15. It appears that ultimately, the proposed CDR scheme did not go through since the State Bank of India, which was the lead bank, has assigned its debt to another company. It was in the light of these developments that on 24.03.2015, this Court directed the respondent to file a consolidated affidavit with regard to any financial arrangement it may arrive at to address its current situation; and the matter was adjourned to 29.10.2015. Although an affidavit was thereafter filed on 07.05.2015 by the respondent, however, nothing is mentioned in that affidavit about any binding financial arrangements concluded by the company with anyone. And, before the matter could be taken any further, the instant application came to be filed by the respondent company.
16. In the light of these facts, counsel s submission that there was, in fact, a consensus ad idem between the petitioner and the respondent; or that there was a binding agreement to pay is factually incorrect, and cannot be countenanced. In any case, the circumstances make it obvious that even if the aforesaid proposed payment schedule annexed with its affidavit of 23.01.2015 by the respondent had been accepted by the petitioner; and the payment permitted by this Court, on the terms proposed; although there is nothing on the record to bear this out; it would have made no difference because the condition precedent, i.e., the, successful completion of CDR and release of payment accordingly. , does not appear to have come about.
17. It bears repetition that although the respondent company has admitted the debt; and at one stage had also offered to repay the same on terms, subject to receiving necessary funding after the acceptance of a Corporate Debt Restructuring Scheme by the consortium of secured creditors and banks; this offer has not been specifically accepted either by the petitioner, or more importantly by this Court, at any time.
A perusal of the record shows that in fact, the stage for this exercise never came about, and all that has come on the record so far is merely the company s acceptance of the debt and its conditional offer to pay on the aforesaid terms. Even the specific acceptance of these terms by the petitioning creditor, which would have been a precursor for the Court to examine the proposal keeping in mind other relevant aspects that have been referred to below, is not there; and that offer is now no longer on the table.
The so-called, consent , by the company to pay is merely a unilateral offer on the aforesaid terms. There is no mutuality. It is also not as if the petitioner had consented to any offer by the company, to indicate that the consensus ad idem claimed by the petitioner s counsel had come about. There was thus no agreement at all. Even assuming, contrary to the facts, that the agreement claimed had come about, it was also clearly conditional upon the actual release of funds by the lenders in terms of the CDR, which never happened. Consequently, it follows that even in this view of the matter, the obligations of the company to pay the petitioner never fructified.
18. It is also urged by counsel for the petitioner that it is within the jurisdiction of the Company Court to pass an order in view of its inherent powers under Rules 6 and 9 of the Companies (Court) Rules, 1959, and the Court may exercise its inherent powers in case either of the parties does not approach the court with clean hands. I do not find any case, either in fact, or in law that could enable this Court to decline the prayer and continue with the winding up proceedings in the exercise of its powers under Rules 6 and 9 of the Companies (Court) Rules. There is also nothing to conclude that there is any malafide on the part of the company.
19. I might also note that repeated suggestions that it is always open to the petitioner to apply to BIFR under Section 22 (1) of the SICA to permit the petitioner to proceed further in this matter, after satisfying the BIFR that the circumstances in this case are indeed unique; have been rebuffed out of hand by counsel for the petitioner, with the response that, BIFR is not sitting right now , and that no enquiry under Section 16 has begun because, BIFR has not conducted hearing as far as I have gathered the information. This is neither here nor there. Any hiatus in an enquiry once commenced cannot, to my mind, be a ground for continuing with the winding up proceedings in the face of the bar under Section 22 (1) of SICA.
20. In response, counsel for the respondent has referred to a decision of the Supreme Court in Managing Director, Bhoruka Textiles Limited v. Kashmiri Rice Industries, (2009) 7 SCC 521, to the effect that, the receipt of a reference must be held to be the starting period for proceeding with the enquiry.
In the same context, it is also noteworthy that even by the communication dated 14.07.2015, informing the company that the reference has been duly registered, further directions have also been communicated to the respondent to the effect that the company is restrained from disposing off or alienating any fixed assets of the company; whilst also directing the company to furnish additional information sought by the Board in connection with the said reference. Merely because the Board is not sitting for any reason is, therefore, no ground for concluding that the enquiry has not commenced. In that view of the matter, it is also obvious that if this Court were to proceed further with the winding up proceedings whilst exercising company jurisdiction, any orders or judgment passed thereafter would be coram non judice.
21. A Full Bench of the Supreme Court in Madura Coats Limited v. Modi Rubber Limited and Another, (2016) 7 SCC 603, has, inter alia, held that, 20. ..the enquiry under Section 16 of SICA must be treated to have commenced as soon as the registration of the reference is completed , and again in paragraph 21 thereof, that once a reference is registered, the enquiry under Section 16(1) of SICA must be deemed to have commenced for the purposes of Section 22 of that Act.
Paragraph 21 of that decision in Madura Coats Limited is as follows;
21. This Court in RealValue case also referred to the Regulations framed under SICA and in connection therewith it was held that after the amendment of Regulation 19 with effect from 24- 3-1994 once a reference is registered and it becomes mandatory to simultaneously call for information or documents from the informant and such a direction is given, then an enquiry under Section 16(1) of SICA must, for the purposes of Section 22 thereof, be deemed to have commenced. This is what this Court held in para 30 of the Report: (SCC p.566)
30. 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(10 must for the purpose of Section 22 be deemed to have commenced. Section 22 and the prohibitions contained in it shall immediately come into play. (emphasis in original)
22. Another novel argument pressed by counsel aimed at persuading this Court not to grant the relief of keeping these winding up proceedings in abeyance sought by the company, is regarding the import of Section 22(1) of SICA which, inter alia, specifically postulates, no proceedings for winding up shall lie or be proceeded with further .. . According to her, this bar under Section 22 (1) means that the sick industrial company will not be put to winding up, which, in effect, means that it will not be liquidated. She seeks to link this statutory mandate, as she sees it, to submit that had the debt amount been paid by the respondent, the issue would have been settled and winding up proceedings would have been closed or withdrawn. Therefore, the effect would have been the same, i.e., there would have been no further proceeding for winding up the company. By this argument, counsel for the petitioner presumably means that if there was no proceeding pending for winding up of the company on the date when the reference was registered by the BIFR under SICA, there would have been no need for this Court to entertain the instant application moved by the company praying that the matter be not proceeded with further in the light of Section 22(1) SICA. While the latter may be true in itself, it requires a prodigious leap of faith from there to conclude that since proceedings for winding are, in fact, pending, therefore the mandate of Section 22 (1) SICA should be ignored by this Court and it should continue with the winding up proceedings. As far as I have been able to make out, this conclusion is also invited by counsel for the petitioner on the ground that these proceedings have not been concluded earlier and remain pending because the company is at fault in not having paid the outstanding amount even though, according to her, it had given its, consent , before this Court. This line of reasoning is deeply flawed and illogical. It is being noted only to be rejected as completely unsustainable for a number of reasons, including the fact that the effect of Section 21(1) SICA is only to put winding up proceedings in abeyance; and not that the company will not be put to winding up at all or that the petition pending before this Court stands dismissed or disposed off; which is quite different from not proceeding further in the matter for the time being. I do not consider it necessary to set down every other reason available both in fact and in law to reject this argument.
23. Counsel for the petitioner then argued that these proceedings in winding up can still continue in the Company Court, if not for the purpose of winding up, then on the grounds of contempt under the Contempt of Courts Act, 1971 and Article 215 of the Constitution of India, for resiling from the written consent. So far as the first part of this submission is concerned, I think they emanate from a lack of understanding on the part of counsel of the difference between the jurisdiction by the Company Court in terms of the Companies Act and its jurisdiction in contempt. And even if the contempt jurisdiction of this Court, which is a separate jurisdiction altogether, were to be exercised, it would be a separate matter and there could be no question of continuing with the winding up proceedings. Also, such jurisdiction could always be invoked by the party concerned through a substantive application; and merely insisting during the course of arguments that because it is open to the court to also proceed suo moto in contempt against the respondent in the light of certain facts being alleged by counsel for the petitioner, therefore, the proceedings in the principal winding up petition should not be halted, or stopped for the time being, in accordance with the mandate of Section 22 (1) of the SICA, has no force.
24. Before counsel argued the contempt aspect of the matter, she had also attempted to state that, as a matter of fact, the agreement/undertaking by the respondent to pay the petitioner constituted a separate, civil agreement, and therefore, to that extent, proceedings for winding up of the company should be permitted to continue. To my mind, counsel appears to have lost sight of the distinction between any settlement or agreement that may have been concluded between the parties and the jurisdiction being exercised by this Court. It is not as if by a settlement between the parties; or even on an undertaking having been given by the company whose winding up is being sought, and is under consideration by the court; the matter has suddenly been converted into a civil suit for recovery. Even if were, that too would come under the bar of Section 22 (1) of the SICA, so I do not really know what learned counsel intended by taking this approach in the matter.
25. In this context, I might add that any offer made before the Company Court in winding up proceedings by the company to pay an unsecured creditor; such as the petitioner; in preference to the debts owed to workers and secured creditors, requires serious application of mind by the Court to all the relevant circumstances, and the affairs of the company. This is necessary for the Court to satisfy itself about the genuine viability of the company as a going concern, so that the Court may not commit the error of allowing preferential payment to be made out to an unsecured creditor in preference to other priority creditors including, inter alia, secured creditors of a company that deserved to be wound up in the first place. To my mind, this obligation assumes greater significance in the light of Sections 531; 531(A); 441; 536 and 537 of the Companies Act, 1956. And the withdrawal of the petition or the closure of the matter by permanently staying the winding up on any such offer, on its acceptance by the petitioning creditor, is not axiomatic.
This aspect is particularly important in the instant case since there are as many as 29 other petitions pending before this Court; and it would be grossly imprudent, and indeed inequitable for this Court to permit an unsecured creditor to walk away with his dues; with the ever present likelihood of a winding up order being passed in another pending matter; since this would, in effect, amount to indirectly permitting payment to an unsecured creditor in preference to secured, and other creditors and workers, all of whom are accorded a higher priority in law; inter alia, because an act of court should prejudice no one, specially those whose debts have been accorded a higher priority by the statute.
26. Under the circumstances, I am satisfied that the application deserves to be allowed.
27. Consequently, the instant winding up proceedings pending before this Court against the respondent company shall be kept in abeyance in the light of the bar under Section 22(1) of SICA; and the petition and all pending applications shall stand adjourned sine die; with liberty to the parties to apply in case they are so advised, and as per law.