JUDGMENT
A.R. Lakshmanan, J.
1. The plaintiff above-named filed a memo under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as “the Act”), to stay the proceedings in C. S. No. 439 of 1992, on the ground that no suit for recovery of money or enforcement of any security against the industrial company or of any guarantee in respect of any loan or advance granted to the industrial company shall lie or be proceeded with further except with the consent of the Board for Industrial and Financial Reconstruction (hereinafter referred to as”the Board”). In view of the said amendment to the Act by Amendment Act 12 of 1994, the company suit cannot be proceeded with inasmuch as there is a counter – claim seeking recovery of the money against the plaintiff. The plaintiff, therefore, prayed that since the plaintiff is a sick industrial undertaking and due to the amended provisions of section 22 of the Act, the suit cannot be proceeded with as the provisions are mandatory.
2. The first defendant filed C. P. No. 69 of 1991 in this court on July 25, 1991, for winding up of the plaintiff on the ground that it had failed and neglected to pay the sum of Rs. 49,62,101 with interest. Pending disposal of the main company petition, the first defendant filed Company Application No. 1028 of 1991 to direct the plaintiff to deposit a sum of Rs. 57,39,464 in this court or to direct the plaintiff to furnish a bank guarantee for the said sum or in the alternative to appoint the official liquidator as provisional liquidator to take charge of the assets and affairs and be in charge of the plaintiff-company pending disposal of the main company petition.
3. Company Application No. 2266 of 1991 was filed by the plaintiff to revoke the order of admission in C. P. No. 69 of 1991, dated August 2, 1991, and direct the same to be dismissed with costs. By judgment dated January 7, 1992, I dismissed Company Application No. 2266 of 1991, and directed the plaintiff to a furnish bank guarantee for a sum of Rs. 30 lakhs within a month of the said order and posted the company petition for hearing on April 9, 1992.
4. The plaintiff filed O. S. No. 480 of 1991 on the file of the First Additional Sub-Court, Trichy, against the defendants herein for a decree in favour of the plaintiff for a total claim of Rs. 53,40,408.77 together with subsequent interest at the rate of 18.5 per cent. per annum from the date of plaint till realisation and for costs. The said suit was filed on June 26, 1991. Subsequently, by consent of both parties, the same was withdrawn from the Sub-Court, Trichy, to the file of this court to be tried along with C. P. No. 69 of 1991. The same was renumbered as C. S. No. 439 of 1992 and was called along with C. P. No. 69 of 1991.
5. The first defendant claimed a sum of Rs. 86,10,605 from the plaintiff in the form of an additional written statement and by way of counterclaim, together with interest at 25 per cent. per annum from March 25, 1994, till realisation. It was filed on October 9, 1993, in the above suit and the same was taken on file on March 11, 1994. It is pertinent at this stage to notice that the amended Act came into force from February 1, 1994.
6. The examination of the plaintiff’s witnesses commenced in August, 1993, continued thereafter from time to time and concluded on January 20, 1995. Thereafter, the examination of DW-1 was commenced and his examination-in-chief was concluded on February 10, 1995. The plaintiff took time for cross-examination of the said witness. While so, a memo under section 22 of the Act for stay of all further proceedings was filed on April 21, 1995. The above fact would clearly establish that notwithstanding the counter-claim, the plaintiff had participated in the proceedings and decided to proceed with the suit.
7. An objection was filed to the memo by the defendants through their learned counsel, Mr. C. Harikrishnan. According to him, the defendants came to know that the plaintiff had made a reference to the Board constituted under the Act. The first defendant wrote a letter on October 24, 1994, to the Board expressing its desire to participate in the proceedings. A reminder letter was sent to the Board on February 11, 1995, and a petition under regulation 20(6) of the Board for Industrial and Financial Reconstruction Regulations, 1987, was sent to the Board on May 15, 1995. It is also to be noticed that the company proceedings commenced even as early as 1991 and the suit immediately thereafter and as on date, there was no prohibition from any court to try the suit and grant a decree.
8. Mr. C. Harikrishnan also contended that the Act was amended by the Sick Industrial Companies (Special Provisions) Amendment Ac, 1993, and the same had received the assent of the President of India on February 1, 1994. By the Amendment Act, section 22 of the Act was amended and the following 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, except with the consent of the Board or, as the case may be, the appellate authority” were inserted. Therefore, it is submitted that the above-amended provision does not apply to the present situation in which the present proceedings are pending in this court. Further, it is submitted that the suit was not filed by any third party against an alleged sick industrial company but one filed by the sick industrial company itself. Therefore, there is no total prohibition on this court to try a suit, the only requirement is that the suit can be proceeded with the approval of the Board. There is no reasonable nexus between the object of the Act and the prohibition to file or proceeding with any suit and on this ground also the provision relating to the stay of the suit is liable to be struck down. There cannot be any blanket provision to prevent a suit pending in this court being proceeded further.
9. At the time of hearing Mr. T. K. Seshadri said that in view of the amendment to section 22 of the Act, on the round that the plaintiff-company was declared to be a sick industry on October 5, 1994, and that as per the amended section no suit for recovery of money against an industrial company will lie or be proceeded further with except with the consent of the Board, the company suit cannot be proceeded with. Further, the proceedings under the Act are pending before the Board. It was further submitted that though the above suit was filed by the plaintiff, still the suit has to be stayed in view of the counter-claim made by the first defendant. Elaborating the matter further, Mr. T. K. Seshadri relied on the provisions of Order VIII, rules 6 of the Civil Procedure Code, 1908, and argued that when a counter-claim is made, the court shall deal with the same as a counter-suit and deliver a common judgment both in the claim of the plaintiff as well on the counter-claim. He also cited the corresponding provision in the Original Side Rules, viz., Order V. rule 7. He also referred to section 446 of the Companies Act, 1956, as an analogy. He also invited my attention to show that the proceedings are pending before the Board.
10. Countering the above submissions, Mr. C. Harikrishnan, appearing for the defendants, contended that the bar under the amended section applies only to suits against the sick company and in this case, since the suit was filed by the sick company itself, the plaintiff cannot seek to stay the suit at this stage on the ground of pendency of the counterclaim. In answering the contention of Mr. T. K. Seshadri, Mr. C. Harikrishnan contended that under Order VIII, rule 6(c) of the Civil Procedure Code, 1908, an option is given to the plaintiff to exclude dealing by the court with the counter-claim on the ground that the same should be done only by an independent suit. But the plaintiff did not exercise its option but wanted the suit and the counter-claim to be dealt with together. The counter-claim is a part of the suit. To show the conduct of the plaintiff, Mr. C. Harikrishnan wanted me to take note of the several events that took place in the present proceedings.
11. According to Mr. C. Harikrishnan, the suit was originally filed on July 23, 1991, in the Sub-Court, Trichy, and in the said suit, the plaintiff had given credit to a sum of Rs. 45,12,420, admittedly due to the first defendant, and claimed only the balance. The first defendant had filed C. P. No. 69 of 1991 in this court on July 25, 1991, for winding up of the plaintiff-company on the ground that it had failed and neglected to pay the sum of Rs. 49,62,101 with interest. Thereupon, by consent of parties, the suit pending in the Sub-Court, Trichy, was withdrawn to be heard along with C. P. No. 69 of 1991. The transferred C. S. No. 439 of 1992 was all along called along with C. P. No. 69 of 1991. The first defendant on October 9, 1993, made a counter-claim for Rs. 86,10,605 in the suit filed by the plaintiff and the same was taken on file on March 11, 1994. As already seen, both the parties have examined their witnesses and the matter was adjourned for the plaintiff to cross-examine the defence witness. The above facts narrated would clearly establish that notwithstanding the counter-claim, the plaintiff decided to proceed with the suit.
12. As rightly contended by Mr. C. Harikrishnan, there is no total prohibition on the court to try any suit nor does every kind of suit come within the purview of section 22 of the Act. Explaining the matter further, he drew my attention to sections 16 to 18 of the Act and contended that the words found in section 22 of the Act relating to the bar on suits can apply only to certain situations mentioned in the said section itself. Section 15 of the Act makes it obligatory for an industrial company to report its sickness to the Board on the happening of certain events. Under section 16 of the Act, after receipt of the report as aforesaid, the Board has to pass an order declaring the sickness or otherwise. Under section 17(1) of the Act, the Board should order an enquiry after being satisfied that the company is sick to find out whether the company itself could make its net worth positive within a reasonable time. If the company agrees to make its net worth positive as per section 17(1) of the Act, then the Board could pass an order under section 17(2) directing the company itself to make its net worth positive. Only if the company expresses its inability to make its net worth positive, then an order under section 17(3) of the Act will be passed appointing an operating agency to prepare a scheme. Thereafter, under section 18 of the Act, the scheme is taken up for consideration by the Board and sanctioned with or without modification of the scheme formulated by the operating agency.
13. According to Mr. C. Harikrishnan, so far as the plaintiff is concerned, the enquiry under section 16 of the Act is over and on the available material, it is not clear whether any scheme under preparation under section 17(3) of the Act. On the material furnished, the Board has not decided whether to apply a scheme under section 17(3) of the Act of whether or whether to act under section 17(2) of the Act. If the matter does not fall within the ambit of section 17(3) of the Act, there is no application of section 22 of the Act. I see much force in the above legal contention of Mr. C. Harikrishnan.
14. The further contention of Mr. C. Harikrishnan is that there can be an interval between section 16 and section 17(3) of the Act and that this will be relevant for considering the bar now recently introduced by the amendment. It is for this court to consider that even assuming that there is a bar under section 22 of the Act to proceed further with the suit, the said bar cannot be applied to pending proceedings. As pointed out by learned counsel for the defendants, the amendment having come into force on February 1, 1994, cannot be applied retrospectively to a suit filed on July 23, 1991. It is well settled that if an amendment is on a procedural aspect, the presumption is that the amendment has a retrospective effect, but if it is a matter relating to a substantive right, it will have only prospective effect unless the Amending Act makes it very clear without ambiguity that the amended provisions apply retrospectively. The filing of a suit and proceeding with the same are substantive rights. In support of his submissions Mr. C. Harikrishnan cited two decisions reported in Y. Arul Nadar v. Authorised Officer, [FB]; Katikara Chintamani Dora v. Guatreddi Annamanaidu, .
15. In Y. Arul Nadar v. Authorised Officer, , a Full Bench of this court has observed as follows (headnote) :
“The general rule is, when an amendment is introduced in the statute governing the case already pending, the rights and obligations of parties should be decided only according to the law, which existed when the action was begun, unless a clear contrary intention is evident in the Amending Act. There could not be imputation of retrospective operation to an Amending Act and that could be done only by the Amending Act either expressly or necessary implication. In the instant case the Amending Act has indicated that the amendments introduce shall have only prospective operation and pending proceedings should continue as if the Amending Act had not been passed.”
16. In the decision reported in Katikara Chintamani Dora v. Guatreddi Annamanaidu, , the Supreme Court has observed as follows (at page 1079) :
“It is well-settled that ordinarily, when the substantive law is altered during the pendency of an action, rights of the parties are decided according to law, as it existed when the action was begun unless the new statute shows a clear intention to vary such rights. A plain reading of the impugned Act would show that there was nothing of this kind which expressly or by necessary intendment affects pending actions.
There is no non-obstante clause in these Amending Acts 17 and 18 of 1957 with reference to pending or closed civil actions. These amending Acts were published in the Government Gazette of December 23, 1957, and will, therefore, be deemed to have come into force from that date only. They could, therefore, be construed as having prospective operation only.
In the Amending Act 20 of 1960, also no back date for its commencement has been mentioned. It will, therefore, be deemed to have commenced on June 23, 1960, which is the date on which it was published in the Government Gazette.”
17. In view of the abovesaid legal position, I am of the view that there cannot be any stay of the suit as there is no retrospective effect for the amendment.
18. In a recent judgment in Sharad R. Khanna v. Karimjee Ltd. [1995] 84 Comp Cas 611, a Bench of the Bombay High Court consisting of Sujata Manohar C.J., as she then was, and Dr. B. P. Saraf J., held that the amendment to section 22 of the Act would only be prospective. That was a case of a decree obtained against the appellant before the Bombay High Court in his capacity as a guarantor for certain debts incurred by a company remaining unsatisfied. The judgment-creditor served an insolvency notice on the appellant. The appellant took out a notice of motion against the insolvency notice. But, a learned single judge held against him. On appeal, contending that since in respect of the company, for whose debts he was guarantor, proceedings under section 25 of the Act were pending, section 22 of the Act protected the appellant from insolvency proceedings. The Bench held as follows (at page 614) :
“It is next submitted that section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, has been amended by the Amending Act of 1993, as a result of which certain protection is given to a guarantor. In the present case, the decree against the appellant is in his capacity as a guarantor of certain debts incurred by a company which is at present before the Board for Industrial and Financial Reconstruction. The application of the company has been rejected by the Board but an appeal under section 25 is still pending. Under the amended section 22, inter alia, no suit for the enforcement 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. This amendment came into effect from February 1, 1994. The question is whether the issuance of an insolvency notice and its service can be considered as the original suit for the enforcement of guarantee being further proceeded with. It is difficult to consider the issuance of an insolvency notice as proceeding further with the original suit. It is an independent proceeding with its own consequences although it may be considered as a mode of equitable execution. In any case this amendment came into force only with effect from February 1, 1994. It cannot affect retrospectively an insolvency notice issued and served long prior to the coming into effect of the Amending Act. The Amending Act is prospective and will apply to all the suits filed or proceeded with after the amendment came into effect. Section 22, therefore, as amended, cannot affect the order in the present case which is in a notice of motion to set aside the insolvency notice. This point was also not urged before the learned single judge. However, since it is a point of law, we have allowed the appellant to urge it.”
19. Though Mr. T. K. Seshadri contended that there is no quarrel about the legal proposition relating to operation of the amended provision prospectively or retrospectively, the words “shall not be proceeded with further” make it clear that the amended provision would apply to pending proceedings also. I am unable to countenance the said contention.
20. In the decision in Shree Vallabh Glass Works Ltd. v. State of Maharashtra , a Division Bench has held as follows (headnote of AIR 1990) :
“It is not disputed, and indeed it cannot be disputed, that the Sick Industrial Companies (Special Provisions) Act, 1985, has been passed by Parliament in exercise of its legislative power contained in List I of the Seventh Schedule of the Constitution. If this is so, naturally the provisions in the Act cannot be controlled by the Bombay Village Panchayats Act, 1958, which has been passed by the State Legislature in exercise of its legislative power under List II of the Seventh Schedule of the Constitution. The Act does not touch upon the powers of the Gram Panchayat to levy property tax. It only puts a restriction on the recovery proceedings that may be adopted for recovering the taxes which the Gram Panchayat may legally levy. Such a provision must be regarded as incidental to the main provision contained in the Act, namely, the provision to nurse and bring back to health the sick industrial units. Even if it is held that such a provision interferes to some extent with the power of the Gram Panchayat as conferred by a valid piece of legislation enacted by the State, it must override the provisions of the State Act. and , relied on.
What is mentioned in sub-section (3) of section 22 or even its broad language does not control the provisions contained in sub-section (1) of section 22. Properly analysed, the provisions of section 22 show that in sub-section (1) recovery of claims which have become crystallised as due is arrested, while under sub-section (3), crystallisation of claims under instruments or transactions referred to therein is stopped. Even when there are settlements or awards, the Board has been given power to suspend the same, so that amounts payable under them do not become due. The contexts of the provisions in the two sub-sections are different; the stages at which they come into operation are also different. The contention that the language of sub-section (3) of section 22 must be referred to in order to understand the nature of the recovery proceedings that are stopped or arrested under sub-section (1) cannot be accepted.”
21. As pointed out by the Division Bench, what is arrested under section 22 of the Act is the recovery by coercive procedure of any amount due by the company and that the properties of the company shall not be proceeded against for satisfaction of any claim against the company. It is, therefore, clear that the power of the Gram Panchayat to impose tax remains totally unimpaired. It is only prohibited by section 22(1) of the Act from proceeding against the properties of the company while recovering the amounts due by way of property tax.
22. The above judgment of the Bombay High Court was affirmed by the Supreme Court in Gram Panchayat v. Shree Vallabh Glass Works Ltd. . The Supreme Court has held as follows (at page 173 of Comp Cas) :
“In the light of the steps taken by the Board under section 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company shall lie or be proceeded with further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the company’s properties. As soon as the inquiry under section 16 is ordered 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 company for the recovery of their dues/outstandings/overdues or arrears by whatever name they are 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 limitation for recovering the dues.”
23. In the decision in Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust , P. R. Gokulakrishnan C.J., speaking for the Bench, observed as follows (headnote of AIR) :
“Under section 22 the winding up proceedings already started against an industrial company can be dismissed. The words ‘be proceeded with further’ in section 22 cannot be interpreted to mean that the winding up proceedings already started should be kept in abeyance without further proceeding in the matter. The various provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, which have been enacted to safeguard the economy of the nation and to protect the viable sick companies, definitely puts an end both to the contemplated winding up proceedings and the pending winding up proceedings. It is too much to say that the proceedings already instituted can only be stayed, but cannot be dismissed. The words ‘or be proceeded with’ occurring in section 22, cannot, in any way, restrict the meaning that has to be given to the words ‘no proceedings shall lie’. The legislation in order to revive and rehabilitate the sick industry has come forward with specific provisions. The financial assistance envisaged under section 19 cannot be forthcoming if the winding up proceeding is not dismissed. Various other schemes envisaged under section 18 cannot be effectively administered by having the winding up proceedings alive without the same being dismissed. The continuance of a pending proceeding for winding up, if allowed by the court in exercise of is discretion, would clearly conflict with the paramount object for which section 16(4) of the Act is enacted.”
24. According to P. R. Gokulakrishnan C.J., on a reading of the provisions of sections 16, 17, 19 and 20 of the Act in the background of the Statement of Objects and Reasons for enacting the said law, it is clear that the legislation in order to revive and rehabilitate the sick industry has come forward with specific provision and that the financial assistance envisaged under section 19 of the Act, as contended by the counsel appearing for the appellant therein, cannot be forthcoming if the winding up proceeding is not dismissed, and that various other schemes envisaged under section 18 of the Act cannot be effectively administered by having the winding up proceedings alive without the same being dismissed.
25. A contrary view was taken by a learned single judge of the Bombay High Court in Ramniklal and Co. v. Wallace Flour Mills Co. Ltd. [1993] 78 Comp Cas 546; [1992] 3 CLJ 258. The learned judge has held as follows (at page 554 of Comp Cas) :
“The operative part of section 22(1) of the Act provides that the winding up proceedings may continue with the consent of the Board or the consent of the appellate authority. If the proceedings can continue with the consent of the Board or consent of the appellate authority or in the event of the conditions precedent prescribed under section 22(1) of the Act ceasing to exist, there is no reason as to why the pending winding up petitions must necessarily abate or must necessarily be dismissed. Section 31 of the Act provide that certain pending proceedings shall not abate where the receiver or the official liquidator was already appointed before the commencement of the Act. This section cannot be reasonably pressed into service for the purpose of making a submission to the effect that in all other cases the proceedings abate when the operative part of section 22 of the Act can be reasonably interpreted to mean that the winding up proceedings are merely required to be suspended and kept in abeyance and are not required to be dismissed and they do not abate.”
26. With great respect, I disagree with the view taken by a Division Bench of the Gujarat High court in Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust . In my opinion, section 22(1) of the Act can be reasonably interpreted to mean that the winding up proceedings are merely required to be suspended and kept in abeyance and are not required to be dismissed as suggested by the Gujarat High Court.
27. In the decision in Sponge Iron India Ltd. v. Neelima Steels Ltd. [1990] 68 Comp Cas 201 (AP); [1992] 3 CLJ 266, a learned single judge of the Andhra Pradesh High Court held as follows (page 207 of Comp Cas) :
“The next point for consideration is the effect of section 22 on these company petitions for winding up. It was contended by several counsel for the petitioners that the matters should be adjourned from time to time awaiting the further progress before the Board for Industrial and Financial Reconstruction. It is contended that this is necessary as the petitioners were not parties before the Board for Industrial and Financial Reconstruction and are not in a position to know the developments, and they do not like to lose the advantage of taking benefits of the extension of the period of limitation for enforcement of some of their rights in view of sections 441 to 458A of the Companies Act, etc. Section 22(1) affects only a limited class of actions like winding up petitions. After it is determined that section 3(o) applied to a company, broadly, three alternatives are possible under sections 17 to 20, viz., (a) measures to revive a company where its net worth can be increased; (b) framing a scheme; and (c) taking steps for winding up. The Board is given wide powers and the petitioners can certainly approach the Board for relief during this stage. At the same time, the hardship caused to the petitioners when the companies have become sick is apparent. Till the Board passes an order under section 22(3), there is no restraint against the companies in alienating their properties and, probably, the petitioners may be able to move the Board, if considered necessary. The language of section 22(1) and that of section 31 indicates that such winding up proceedings shall not be proceeded with further. The question whether they stand abated or not was not canvassed and I do not consider it appropriate to go into it at this stage in view of the order which I propose to pass. Apart from the difference in language of section 22(1) and section 31, it is also open to the petitioners to seek and get consent of the Board to continue any winding up petitions.”
28. In K. SP. V. Shunmugam v. Maharashtra State Co-operative Cotton Growers” Marketing Federation Ltd. [1990] 70 Comp Cas 440 (Kar); [1992] 3 Comp LJ 271, a learned judge of the Karnataka High Court held as follows (at page 443 of Comp Cas) :
“From the definitions of the two expressions, it is clear that one has to bear in mind the distinction between an ‘industrial company’ and an ‘industrial undertaking’ for purpose of the Act. The manner in which an industrial company has been defined clearly makes the legislative intent unambiguous in that after the coming into force of the Act, industrial undertakings must be carrying on an activity of manufacturing specified in the Schedule and if, for any reason, it has ceased to manufacture or is not carrying on the scheduled industry, then it cannot be held to be an industrial undertaking. Further, what is clear from the language employed in section 22(1) of the Act, is its reference only to an inquiry under section 16 pending or any scheme referred to under section 17 of the Act which scheme is either under preparation or under consideration or is sanctioned and as such is under implementation or where there is an appeal against any of the findings recorded by the Board under section 25 of the Act is pending, then only the provisions of sub-section (1) of section 22 are attracted and not otherwise. There are numerous special conditions prescribed in section 15 of the Act before which the board of directors of a company may move the Board under the Act to institute an inquiry into the causes of sickness and make appropriate recommendations for its rehabilitation. In other words, for a reference to be made to the Board, the pre-requisite is the existence of a board of directors of the industrial company which is sick. If that board does not exist in the eye of law on any given date, then the competence to make a reference itself disappears. As I have noticed earlier, Vishnu Textiles Ltd. came to be wound up on June 3, 1988, by an order of this court. From the date of communication of that order, the board of directors ceased to hold office and they are directors only for purposes of filing the statement of affairs in aid of the winding up proceedings and they do not exist for any other purpose. Therefore, if a reference is made by any body of persons claiming to be the board of directors after the winding up order was made, then that reference itself appears to be wholly incompetent and the provisions of sections 16, 17 and 22(1) will not be attracted.’
29. In Industrial Finance Corporation of India v. Maharashtra Steels Ltd. [1990] 67 Comp Cas 412 (All); [1992] 3 Comp LJ 274, a learned single judge of the Allahabad High Court held that where a reference is registered under the Act and an enquiry is pending before the Board, it is open to the petitioners seeking appointment of a receiver, say, over the mortgaged properties of a body corporate, to obtain the consent of the Board for such appointment.
30. The Supreme Court has very succinctly analysed the provisions of sub-section (1) of section 22 of the Act in Gram Panchayat v. Shree Vallabh Glass Works Ltd. [1991] 71 Comp Cas 169 and held that only the following proceedings were automatically suspended, viz.,
(i) Winding up of a sick industrial company;
(ii) Proceedings for execution, distress or the like against the properties of a sick industrial company; and
(iii) Proceedings for the appointment of a receiver thereof.
However, the amendments made by the Sick Industrial Companies (Special Provisions) Amendment Act, 1993, have also brought the following proceedings against the sick industrial company within the frame work of section 22(1) :
(i) Suit for recovery of money;
(ii) Suit for enforcement of any security or any guarantee in respect of any loans or advances granted to the company.
31. This section gives a clear mandate and prohibits the continuance of any proceedings for winding up, execution, distress or the like against any of the properties of a company which has been declared a sick unit under the Act.
32. As already seen, the Gujarat High Court in Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust , has held that the words “no proceedings shall lie” will not denote that the winding up proceedings already started shall lie in abeyance. Once the company come within the purview of the Act, winding up proceedings pending against the company would stand dismissed for the object of the Act is to protect viable sick units and if winding up proceedings lie in abeyance the financial institutions would feel shy in coming forward to advance any amount to such a company. However, any creditor can have the proceedings continued with due consent of the Board or the appellate authority, as the case may be.
33. As already seen, a contrary view has been taken by the Bombay High Court in Ramniklal and Co. v. Wallace Flour Mills Co. Ltd. [1993] 78 Comp Cas 546. The said court held that the Act provides that all proceedings pending against the properties of a sick company would lie in abeyance pending the enquiry under section 16 or preparation of a scheme or pending the implementation of the same. The proceedings are just to be suspended. The operative part of section 22 provides that the winding up proceedings can be taken up with the consent of the Board or the appellate authority, as the case may be. If the same can be continued, with their consent or where the conditions prescribed in section 22(1) cease to exist, there is no reason why the pending winding up petitions must necessarily abate or must necessarily be dismissed. I am also of the same view.
34. However, the case on hand stands on a different footing. In this case, as already seen, the bar in the amended section applies only to the suit against a sick company. But, in the instant case, the suit was filed by the sick company itself. This apart, the plaintiff did not exercise its option but wanted the suit and the counter-claim to be dealt with together. In the circumstances, I am of the view, the plaintiff cannot at this stage, seek the stay of the suit on the ground of pendency of the counter-claim. As rightly contended by Mr. C. Harikrishnan, the amendment having come into force of February 1, 1994, cannot be applied retrospectively to a suit filed on July 23, 1991. His contention is also fortified by the judgment of the Division Bench of the Bombay High Court in Sharad R. Khanna v. Karimjee Ltd. [1995] 84 Comp Cas 611.
35. For all the reasons aforesaid, I am of the view that the memo filed by the plaintiff praying to stay the proceedings in C. S. No. 439 of 1992, under section 22 of the Act cannot be countenanced. Therefore, I reject the memo. Post the suit for trial on December 1, 1995.