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

- **Citation:** [1990] 1 S.C.R. 966
- **Court:** Supreme Court of India
- **Decided:** 1990-03-15
- **Bench:** K. Jagannatha Shetty, R.M. Sahai
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/gram-panchayat-and-anr-v-shree-vallabh-glass-works-limited-and-ors-10687
- **Pages:** 5

## Headnote

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The Sick Industrial Companies (Special Provisions) Act, 1985:
Ss. 16, 17 & 22-Sick industrial company-Proceedings for recovery of
amount due-Validity of
Section 16 of the Sick Industrial Companies (Special Provisions)
Act, 1985 authorises the Board for Industrial and Financial Reconstruction established under the Act to make enquiry for determining
whether any industrial company has become a sick industrial company.
Section 17(2) empowers the Board to grant a reasonable time to such a
company to make its net worth positive. Where such a course is not
practicable s. 17(3) empowers the Board to appoint an operating agency
to prepare a scheme for rehabilitation/revival of the company. Section
22(1) provides that in case the enquiry under s. 16 is pending or any
scheme referred to under s. 17 is under preparation or consideration by
the Board or any appeal under s. 25 is pending, then proceedings for
winding np, execution, distress or the like are to be suspended or presumed to be suspended. The proceedings in respect of these matters
could, however, be continued with the consent of the Board or of the
appellate authority as tbe case may be. Section 22(5) provides for exclusion of the period during which the remedy remains suspended, in
computing the period of limitation for enforcement of the right.
The respondent company had been declared by the Board to be a
sick industrial company under s. 16 of the Act and an operating agenc;i:
had been appointed under s. 17(3) to prepare a scheme for rehabilitation/revival of the company.
The respondent company owed a large sum to the petitioner
Panchayat on account of property tax and other dues. When the
petitioners initiated coercive proeeedings to recover that amount the
company moved the High Court by way of a writ petition under Article
226 of the Act. The High Court restrained the petitioners from recovering the said amount ltithout the consent of the Board.
B:
Dismissing the special leave petition, the Court,
966
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GRAM PANCHAYAT v. VALLABH GLASS WORKS {SHETTY, J.]
967
HELD: The High Court was justified in quashing the recovery
proceedings taken against the properties of the company. [970G-H]
The Board by order dated 27 August, 1987 had stated that it was
satisfied that the company had become a sick industrial company and
directed that further proceedings under the Act shall be taken. By
another order made on the same day under s. 17(2) .the Board had
found that it was not practicable for the company to make its net worth
positive within a reasonable time and had proceeded to take action
under s. 17(3) and appointed the ICICI as the operating agency to
prepare a scheme for rehabilitation/revival of the company. In view of
these steps taken by the Board under ss. 16 and 17 of the Act, no
proceedings for execution, distress or the like against any of the properties of the industrial company shall lie or be proceeded with further by
virtue of s. 22(1) except with the conseutof the Boai-d. [970A-D]
The Board at its discretion may accord approval. If the approval
is not granted the remedy is not extinguished. It is only postponed.
Sub-section (5) of s. 22 provides for exclusion of the period during
which the remedy is suspended while computing the period of limitation
for recovering the dues. [970F-GJ

## Text

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GRAM PANCHAYAT AND ANR.
v.
SHREE VALLABH GLASS WORKS LIMITED AND ORS.
MARCH 15, 1990
B
[K. JAGANNATHA SHETTY AND R.M. SAHAI, JJ.]
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The Sick Industrial Companies (Special Provisions) Act, 1985:
Ss. 16, 17 & 22-Sick industrial company-Proceedings for recovery of
amount due-Validity of
Section 16 of the Sick Industrial Companies (Special Provisions)
Act, 1985 authorises the Board for Industrial and Financial Reconstruction established under the Act to make enquiry for determining
whether any industrial company has become a sick industrial company.
Section 17(2) empowers the Board to grant a reasonable time to such a
company to make its net worth positive. Where such a course is not
practicable s. 17(3) empowers the Board to appoint an operating agency
to prepare a scheme for rehabilitation/revival of the company. Section
22(1) provides that in case the enquiry under s. 16 is pending or any
scheme referred to under s. 17 is under preparation or consideration by
the Board or any appeal under s. 25 is pending, then proceedings for
winding np, execution, distress or the like are to be suspended or presumed to be suspended. The proceedings in respect of these matters
could, however, be continued with the consent of the Board or of the
appellate authority as tbe case may be. Section 22(5) provides for exclusion of the period during which the remedy remains suspended, in
computing the period of limitation for enforcement of the right.
The respondent company had been declared by the Board to be a
sick industrial company under s. 16 of the Act and an operating agenc;i:
had been appointed under s. 17(3) to prepare a scheme for rehabilitation/revival of the company.
The respondent company owed a large sum to the petitioner
Panchayat on account of property tax and other dues. When the
petitioners initiated coercive proeeedings to recover that amount the
company moved the High Court by way of a writ petition under Article
226 of the Act. The High Court restrained the petitioners from recovering the said amount ltithout the consent of the Board.
B:
Dismissing the special leave petition, the Court,
966
•
GRAM PANCHAYAT v. VALLABH GLASS WORKS {SHETTY, J.]
967
HELD: The High Court was justified in quashing the recovery
proceedings taken against the properties of the company. [970G-H]
The Board by order dated 27 August, 1987 had stated that it was
satisfied that the company had become a sick industrial company and
directed that further proceedings under the Act shall be taken. By
another order made on the same day under s. 17(2) .the Board had
found that it was not practicable for the company to make its net worth
positive within a reasonable time and had proceeded to take action
under s. 17(3) and appointed the ICICI as the operating agency to
prepare a scheme for rehabilitation/revival of the company. In view of
these steps taken by the Board under ss. 16 and 17 of the Act, no
proceedings for execution, distress or the like against any of the properties of the industrial company shall lie or be proceeded with further by
virtue of s. 22(1) except with the conseutof the Boai-d. [970A-D]
The Board at its discretion may accord approval. If the approval
is not granted the remedy is not extinguished. It is only postponed.
Sub-section (5) of s. 22 provides for exclusion of the period during
which the remedy is suspended while computing the period of limitation
for recovering the dues. [970F-GJ
CIVIL APPELLATE JURISDICTION: Special Leave Petition
· (Civil) No. 14395 of 1989.
From the Judgment and Order dated 18.7.1989 of the Bombay
High Court in W.P. No. 6108of 1987.
V .N. Ganpule for the Petitioners.
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P. Chidambmm, Mrs. Raian Karanjawala, N:H. Seer.bai, KaranF
jawala and Ravinder Kumar for the Respondents.
The Judgment of the Court was delivered by
K. JAGANNATHA SHETTY, J. The petitioners seek leave to
appeal against the decision of the Bombay High Court in Writ Petition
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No. 6108/87 quashing the proceedings for recovery of property tax and
other expenses due from the first respondent-co~pany.
The matter arises in this way: For the purpose of prevention and
revival of sick industries, the Central Government has enacted the Act
called "Tlt~i_ck Industri_al Coml'._anies (Special Provisions) Act, 1985
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968
SUPREME COURT REPORTS
[1990] 1 S.C.R.
('The Act'). The Act extends to the whole of India including the State
of J ammu & Kashmir. It came into force (except sections 15 to 34)
with effect from 15 May 1987. The Act covers only sick industrial
companies or industrial companies which have the potential to become
sick. The Act empowers the Central Government to establish a Board
to be known as the Board for Industrial & Financial Reconstruction to
exercise the jurisdiction and powers, and discharge the functions and
duties imposed under the Act.
The first respondent-company M/s Shree Vallabh Glass Works
Ltd. has been declared to be a sick industrial company within the
meaning of clause ( o) of sub-section ( 1) of Section 3 of the Act. 'Sick
Industrial Company' "means an iridustrial company being a company
registered for not less than seven years which has at the end of any
financial year accumulated losses equal to or exceeding its entire net
worth and has also suffered cash losses in such financial year and the
financial year immediately preceding such financial year."
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The first petitioner is the Gram Panchayat, Salwad and second
petitioner is the Chairman of the Gram Panchayat. The petitioners
initiated coercive proceedings under. Section 129 of the Bombay Village Panchayat Act to recover a sum of Rs.9,47,539 stated to be the
property tax and other amounts due from the company. Challenging
that proceedings, the Company moved the High Court by way of Writ
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Petition under Article 226 of the Constitution claiming protection provided under Section 22 of the Act. The High Court has accepted the
writ petition and restrained the petitioners from recovering the said
amount without the consent of the Board.
The question is whether the Panchayat could not recover the
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amount due to it from out of the properties of the sick industrial
company without the consent of the Board?
Section 22 provides, as far as material, as follows:
"Section 22-Suspension of Legal Proceedings, contracts,
etc.
(1) Where in respect of an industrial company, an inquiry
under Section 16 is pending or any scheme referred to
under Section 17 is under preparation or consideration or a
sanctioned scheme is under implementation or where an
appeal under Section 25 relating to an industrial company
\{ '·
GRAM PANCHAYAT v.·VALLABH GLASS WORKS !~HETTY, J.]
969
is pending, then, notwiihstanding anything contained in the
Companies Act, 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.
22(2)
to
22(4)
xxx
xxx
xxx
22(5) In computing the period of limitation for the
enforcement of any right, privilege, obligation or liabiliiy,
the period .during which it or the remedy for the enforcement thereof remains suspended under this section shall be
exduded."
Section 22(1) provides that in case the enquiry under Section 16
is pending or any scheme referred to under Section 17 is under preparation or consideration by the Board or any appeal under Section 25
is pending then certain proceedings against the sick industrial company
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are to be suspended or presumed to be suspended. The nature of the
proceedings which are automatically suspended are: (1) Winding up of E
the industrial company; (2) Proceedings for execution, distress or the
like against the properties of sick industrial company, and (3) Proceedings for th~ .appointment of receiver. The proceedings in respect of
these matters could, however, be continued against the sick industrial
company with the consent or approval of the Board or of the Appellate
Authority as the case may be.
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Section 16 authorises the Board to make such enquiry as it may
deem fit for determining whether any industrial company has become
a sick industrial company. Where Board is satisfied that a company has
become a sick industrial company, it could give a reasonable time to
the company to make its net worth positive (Sec. 17(2)). Where it is
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not practicable for sick industrial company to make its net worth positive within a reasonable time, Section 17(3) steps in authorising the
Board to direct any operating agency to prepare a scheme in relation
to the company. The Board may specify the various measures to be
considered by the operating agency. These measures are detailed out
in Section 18. The operating agency has to prepare a scheme as per the
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order specified by the Board.
970
SUPREME COURT REPORTS
[1990] 1 S.C.R.
A
In the instant case, the Board by order dated 27 August 1987 has
stated that it was satisfied that the company has become a sick industrial company. The Board directed that further proceedings under the
Act shall be taken with respect to the company. On the same day the
Board after having heard the representatives of the ICICI, the company, the concerned Banks, the other public financial institutions and
B the State Government of Gujarat, considered the entire material on
record, held that it was not practicable for the company to make its net
worth positive within a reasonable time and that further proceedings
under sub-section (3) of Section 17 of the Act are, therefore, to be
taken. Accordingly, in exercise of the powers conferred under Section
17(3) of the Act, the Board appointed the ICICI as the operating
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agency to prepare a scheme for rehabilitation/revival of the company
keeping in view of the provisions of Sections 18 and 19 and the
guidelinef. At the same time the Board appointed Shri Y.V. Sivaramakrishnayya as the special director of the company for safeguarding its ·
financial and·other interests.
It>
In the light of the steps taken by the Board under Sections 16 and
17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company shall lie or be
proceeded further except with the consent of the Board. Indeed, there
would be automatic suspension of such proceedings against the company's properties. As soon as the inquiry under Section 16 is ordered
E by the Board, the various proceedings set out under sub-section (1) of
Section 22 would be deemed to have been suspended.
It may be against the principles of equity if the creditors are not
allowed to recover their dues from the company, but such creditors
may approach the Board for permission to proceed against the comF pany for the recovery of their dues/outstandings/overdues or arrears by
whatever name it is called. The Board at its discretion may accord its
approval for proceeding against the company. If the approval is not
granted, the remedy is not extinguished. It is only postponed. Subsection (5) of Section 22 provides for exclusion of the period during
which the remedy is suspended while computing the period of limitaG tion for recovering the dues.
In our opinion, the High Court was justified in quashing the
recovery proceedings taken against the properties of the company and
we accordingly, reject this petition, with no order as to costs.
H P.S.S.
Petition dismissed.
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