Mrs. Sujata V. Manohar, J.
1. The these two petitions are filed by creditors of the company, Kosmek Plastics Manufacturing Limited, for the purpose of winding up of the company on the ground that the company is unable to pay its debts. Company Petition No. 385 of 1986 has been fled by a creditor who had supplied form June 4, 1985, to August 13, 1985, various goods to the company. the company is liable to pay to the creditor in that petition a total sum of Rs. 1, 38,471.87. In Company Petition No. 44 of 1986, the petitioner had supplied raw materials to the company form time to time in respect of which the company has to pay to the petitioner a sum of Rs. 9,47,204 as on November 30, 1985, together with further interest on the principal amount. There is also a petition filed by the company itself for voluntary winding up, being company Petition No. 612 of 1985. there are, however, proceedings pending before the appellate Disputes Act which will be relevant in determination of Company Petition No. 612 of 1985. Hence that petition has been adjourned for 2 weeks.
2. When the two company petitions herein filed by the creditors were called up for hearing, Miss buch, learned advocated for the Mazdoor Congress, a trade union registered under the Trade Unions Act, 1926, to which about 270 workmen employed in the company are affiliated, applied for intervention. Since the workers will be affected by any orders that may be passed, I have allowed her to intervene and she has made submissions in connection with these tow petitions which require to be considered.
3. The sick Industrial Companies (Special Provisions) Act, 1985, was enacted and it received the assent of the President on January 8, 1968. Sections 1 to 14 of this Act were brought into operation as form january 12, 1987. Sections 15 to 34 of the Act have been brought into operation form May 15, 1987. Under this Act, section 3, sub-section (o), defines 'sickindustrial company' as follows:
'Sick industrial company' means an industrial company (being a company registered for not less than seven years) which has at the end of any fantail 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.'
4. It is not in dispute that the present company is a sick industrial company as defined under the Sick Industrial Company (Special Provisions) Act, 1985. In order to fall under the definition of a sick industrial company, the company has to satisfy various requirements, namely: (i) it should have been registered for not less than seven years, (ii) at the end of any financial year, its accumulated losses should be equal to or exceed its entire net worth, and (iii) it should also have suffered cash losses in such financial year as also in the financial year immediately preceding such financial year. Kosmek Plastics Manufacturing Limited complied with all these three requirements for the first time at the end of its financial year ending on March 31, 1985, that is to say, prior to this Act coming into operation. The question is whether the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 and in particular the provisions of section 22 apply to this company . If so, the present winding up petitions cannot be proceeded with.
5. The preamble to the Act states that this Act makes in public interest special provisions with a view to securing the timely detection of sick and potentially sick complains and its industrial undertakings. Secondly, it state that the Act is meant to provide a speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of measures so determined. the Act exists, therefore, for the purpose of providing a speedy remedy to secure sick or potentially sick or potentially sick companies. Under the Act, a Board for industrial and Financial Reconstruction has been set up to discharge various functions as set out in the Act. Under section 15(1) of the Act, it is provided as follows:
'15 Reference to Board - (1) Where an industrial company has become a sick industrial company, the board of directors of the company, shall, within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the board for determination of the measures which shall be adopted with respect to the company.'
6. Under section 15(2), without prejudice to the provisions of section 15(1), the Central Government or the Reserve Bank of India, or a State Government or a public financial institution or a State level institution of a scheduled bank may also make a referenced to the Board provided, inter alia, in the case of public financial institutions or scheduled banks, they have an interest in the company by reason of any financial assistance or obligation rendered by them. The relevant sub-sections of section 16 are as follows:
'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...
(3) The Board or, as the case may be, the operating agency shall complete its inquiry as expeditiously as possible and endeavor shall be made to complete the inquiry within sixty days from the commencement of the inquiry.
(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 shall 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.'
7. Under section 17, if after making an inquiry under section 16, the Board is satisfied that a company has become a sick industrial company, the Board shall decide by an order in writing, whether it is practicable for the company to make its net worth positive within a reasonable time. If so, the Board has the power to order various measures to be taken by that company. Under section 18, where an order is made under section 17, sub-section (3) in relation to any sick industry, the operating agency specified in the order is required within 90 days to prepare a scheme with respect to such company and provide for various measures set out in the section for reconstruction, proper management, amalgamation, etc., in connection with the affairs of the company. Section 19 provides for rehabilitation and giving financial assistance. Section 20 provides that where the Board, after making an inquiry under section 16 and after consideration of all the relevant facts and circumstances and after giving an opportunity of being heard to all concerned parties, is of opinion that it is just and equitable that the sick industrial company should be wound up, it may record and forward its opinion to the concerned High Court. Under section 20, sub-section (2). the High Court shall, on the basis of the opinion of the Board, order winding up of the sick industrial company and may proceed with the winding up of the company in accordance with the provisions of the Companies Act, 1956.
8. Section 22, sub-section (1), provides as follows:
'(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 the 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 shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority.'
9. Under section 33, penalties are provided for violation of the provisions of the Act. Section 33, sub-section (1), states as under:
'33. (1) Whoever violates the provisions of this Act or any scheme, or any order of the Board, or the appellate authority and whoever makes a false statement or gives false evidence to the Board or the appellate authority, shall be punishable with simple imprisonment for a term which may extend to three years and shall also be liable to fine.'
10. In the light of these provisions, it has to be considered whether the present winding up petition can be proceeded with.
11. Under section 22, if an enquiry is pending under section 16, or if any scheme as is referred to in section 17, etc., is under preparation or consideration, then no proceedings for the winding up of such company shall be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority.
12. In the present case, the company became 'sick' prior to the coming into force of the Act. But the board of directors of the company have passed a resolution on June 30, 1987, to the following effect:
'Resolved that the matter be referred to Messrs Crawford Bayley and Co., Solicitors, for their opinion and advice and for the purpose of making a reference to the Board for Industrial and Financial Reconstruction under section 15 of the Sick Industrial Companies (Special Provisions)Act, 1985.' This resolution is not yet entered in the minutes book of the company. The resolution is for the purpose of obtaining legal opinion for making a reference under section 15. There reference is not yet made under section 15(1). So far, no enquiry is pending against the company under section 16. Hence, the application of later provisions of sections 17 and 18 and others do not come into the picture at all. It is, however, submitted by Miss Buch that section 15(1) is retrospective in operation. It applies to the present company. The board of directors of the company have also contemplated a reference under section 15(1). Once section 15(1) applies to the company, the subsequent provisions of sections 16 and 17, etc., would necessarily come into operation also. And, hence, the submits that under section 22 of the Act, the present winding-up petition cannot be proceeded with.
In order to appreciate the submission, it is necessary to look at the provisions of section 15. Under section 15, where an industrial company has become a sick industrial company, there is an obligation cast on the board of directors to make a reference to the board within 60 days from the date of finalisation of the duly audited accounts of the company for the financial year, at the end of which the company became a sick company. Failure to discharge this obligation results in penal consequences for the board of directors. Under section 33, the punishment is simple imprisonment up to three years and, in addition perhaps a fine. A drastic punishment of imprisonment is imposed if the board of directors does not comply with its obligations under section 15(1) within 60 days. In the present case, the company became a sick company on March 31, 1985. The accounts of the company were finalised on July 16, 1985. The period of 60 days under section 15(1) expired prior to the coming into operation of the said Act. Will section 15(1) apply to such a company?
It is a well-established rule of interpretation that a statute does not have retrospective operation unless the statute is either made expressly retrospective or its retrospective application arises by necessary implication from the provisions of the statute. As is set out in Maxwell on the Interpretation of Statutes, Twelfth edition, at page 215: 'Upon the presumption that the Legislature does not intend what is unjust rests the leaning against giving certain statutes a retrospective operation. They construed as operating only in cases or on facts which come into existence after the statutes were passed unless a retrospective effect is clearly intended. It is a fundamental rule of English law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication.' There is, however, an exception to this rule in the case of statutes which are procedural. Maxwell on the Interpretation of Statutes, at page 222, states: 'The presumption against retrospective construction has no application to enanctments which affect only the procedure and practice of the courts. No person has a vested right in any course of procedure.'
13. On behalf of the company, reliance is placed upon a decision of the Supreme Court in the case of Arjan Singh v State of Punjab, : [1969]2SCR347 , where it is stated that it is a well-settled rule of construction that no provision in a statute should be given retrospective effect unless the Legislature, by express terms or by necessary implication, has made it retrospective and that where a provision is made retrospective, care should be taken not to extend its retrospective effect beyond what was intended. There are similar observations in the case of Moti Ram v Suraj Bhan, : [1960]2SCR896 , and in the case of State of Bombay v Vishnu Ramchandra, : 1961CriLJ450 .
14. It is submitted by Miss Buch that section 15(1) is a procedural section and hence must be given retrospective operation. In this connection, she relies upon the preamble to the ACt which sets out that the Act makes in public interest special provisions with a view to secure the timely detection of sick and potentially sick companies. Making of special provisions, however, does not mean that the ACt is purely procedural in nature. The Act undoubtedly prescribes the manner in which steps can be taken to improve the working of sick industrial companies. All the provisions which are prescribed are substantive provisions which create special rights and obligations. They cannot be considered as purely procedural.
15. It is also submitted by Miss Buch that the provisions of the Act are retrospective by necessary implication. The ACt is in furtherance of the provisions of article 39, clauses (b) and (c), of the Constitution which prescribe that ownership and control of the material resources of the community are so distributed as best to subserve the common good and that the operation of the economic system does not result in the concentration of wealth and means of production to the common detriment. She submits that looking to this laudable object, the Act should be construed as retrospective in operation and protection should be given to the workers of the company who would otherwise be rendered jobless. But an Act cannot be made retrospective simply because its object is laudable.
16. The definition of a sick industrial company is such that a specific point of time is fixed when a industrial company becomes sick. From this specific point of time, a period of sixty days is given to the board of directors under section 15(1) to make a reference to the Board for determination of measures which shall be adopted in respect of such a company. The obligation, therefore, of the board of directors arises at a specific point of time. The Act further provides that if this obligation is not discharged within sixty days, penal consequences follow for the board of directors. These entail imprisonment of the directors. In the case of a company which has become sick and where sixty days as prescribed under section 15(1) have elapsed prior to the coming into operation of the ACt, there is no way in which the board of directors could have complied with the requirements of section 15(1) within a period of sixty days. If section 15(1) is applied to such a company, the directors would face penal provisions of the ACt. They can certainly make a reference on a later date under section 15(1). But they may be visited with penal consequences which include imprisonment. It is possible that the penal provisions of section 33 may not be enforced in such a case. But making section 15(1), therefore, cannot be construed as retrospective. This, of course, does not mean that in the case of such sick industrial companies, there is no recourse to the provisions of the Act. Under section 15, sub- section (2). it is open the Central Government and other authorities including scheduled banks to make a reference in respect of such a company if the requirements of sub-section (2) are fulfilled. Sub-section (2) does not set out any point of time when this right to make a reference arises. This reference can be made at any time provided the company is a sick industrial company In the present case also, it is possible for a scheduled bank which may have given financial assistance to the company to make a reference under section 15, sub-section (2). Under section 16 also, the Board may make an inquiry on the basis of information received. The provisions, however, of section 15, sub-section (1), have no retrospective application.
17. In these circumstances, there is, as of today, no reference made to the Board either under section 15(1) or 15(2). Nor is any enquiry pending under section 16. Incidentally, even under section 16, there is no compulsion on the Board to recommend measures for rehabilitation of a sick industrial company. The Board has to decide whether to recommend measures for rehabilitation or not. In the present case, therefore, it is not possible to say that any measures are being taken or are even likely to be taken for the purpose of rehabilitation of this company. No enquiry is in progress under section 16. There is no material which would suggest that any scheme 22, therefore, have not come into operation. These provisions which, inter alia, prevent winding up proceedings come into operation if an enquiry under section 16 is pending or any scheme under section 17 is under preparation or implementation or where an appeal under section 25 is pending. None of these provisions apply in the present case. It is, therefore, not possible to hold that the present proceedings should be suspended under section 22 of the said Act.
18. Under section 31, where in a pending proceeding, immediately before the commencement of the Act, a receiver or official liquidator has been appointed, such proceedings are to be continued. This section was relied upon by Mr.Doctor, learned counsel for the company. This section, however, does not apply in the present case since no receiver or official liquidator was appointed in the case of this company prior to the coming into operation of the Act.
19. Looking to the scheme of the Act, the provisions of section 15(1) do not have retrospective operation, either expressly or by necessary implication. Section 15(1) applies in the case of those companies where the audited statement of accounts is finalised for the financial year at the end of which the company becomes a sick industrial company, after coming into operation of the Act. The Act, therefore, does not prevent the present proceedings.
20. In Company Petition No 44 of 1986, the petitioners are creditors of the company in respect of material supplied for a sum of Rs.9,47,204. In reply to their statutory notice, the company has stated that they have applied for a winding up. The company is clearly unable to pay its debts. In these circumstance, in Company Petition No 44 of 1986, there will be an order for winding up as prayed. Official Liquidator appointed liquidator of the company. The order of winding up to be advertised in Free Press Journal and Bombay Samachar within six weeks from today. In view of the order passed in Company Petition No 44 of 1986, there will be no order in |Company Petition No 385 of 1986.
21. On the application of Miss Buch, there will be a stay of the operation of this order for a period of 4 weeks from today.