# MAHARASHTRA TUBES LTD v. STATE INDUSTRIAL AND INVESTMENT CORPORATION OF MAHARASHTRA LTD. AND ANR

- **Citation:** [1993] 1 S.C.R. 340
- **Court:** Supreme Court of India
- **Decided:** 1993-01-29
- **Case number:** Civil Appeal No. 289 of 1993
- **Bench:** L.M. Sharma, A.M. Ahmadi
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/maharashtra-tubes-ltd-v-state-industrial-and-investment-corporation-of-11880
- **Pages:** 26

## Headnote

State Finance Corporation Act, 1951~bject and scope of-Finance
Corporation--Constitution-Purpose of
Sick Industrial Companies (Special Provisions) Act, 1985-0bject and
scope of
State Finance Corporation Act, 1951-Section 46B and read with SecD
lions 22, of the Sick Industrial Companies (Special Provisions) Ac4 1985Both Special statutes-Distinction-Non-obstante clause of latter Act whether
prevails over the non-obstante clause of former Act.
E
F
G
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Sick Industrial Companies (Special Provisions) Act, 1985-Section 2£-
0bject of-''Or the like'~ 'the like" "Proceedings"-Construction of
State Finance Corporation Act, 1951-Sections 29, 31.read with sections
22, 25 of the Sick Industrial Companies (Special Provisions) Ac4 1985Default in repayment of loan/advance-Question whether company a 'sick
industry' pending in appeal u/s 25 of 1985 Act-Taking recourse u/s 29/31 of
1951 Act for recovery of loan/advance-Legality of
In July, 1982, the appellant-Company, incorporated under the Companies Act, 1956 commenced manufacture of steel pipes/tubes etc. of
various sizes and dimensions for export.
By July, 1986, labour unrest, strikes, financial constraints, etc. necessitated the cessation of manufacturing activities.
On 28th August, 1988 the Company by its letter informed the Board
for Industrial and Financial Reconstruction (BIFR) of its accumulated
losses and sought financial assistance for revival of the unit.
340
,
MAHARASIITRA TUBES v. STATE INVESTMENT CORPN.
341
The Director (Finance) of the BIFR desired the company to report. A
the sickness in Form A and to take appropriate action under section 15(1)
of the Sick Industrial Companies (Special Provisions) Act, 1985. The
Company submitted the proposal in Form A.
The BIFR held a preliminary hearing on 12th September, 1991, at
which the company confirmed the information given in Form A. The Bench
of the BIFR sought further information to enable it to form an opinion
on the question whether or not the company was a sick industrial company
under section 3(l)(o) of the 1985 Act. The Bench directed the company to
submit the authenticated documents regarding the number of workers,
audited/finalised accounts for the years 1989-90 and 1990-91 with detailed
explanation in regard to the delay in making the reference and other
discrepancies pointed out in the course of hearing. The Bench also directed
the bank and other financial institutions to submit the reports regarding
the conduct of the company and their role in providing necessary funds.
On 20th July, 1992, considering the facts on record and submissions
made, the BIFR dismissing the reference held that the company could not
be held to be a sick industrial company under section 3(l)(o) of the 1985
Act.
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The respondent No. 1 thereafter initiated proceedings under section
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29 of the State Financial Corporation Act, 1951 for taking possession or
the factory premises of the company.
On 20th August, 1992, the company liled an appeal under section 25
of the 1985 Act against the order of the BIFR Bench and requested the
respondent No. 1 not to proceed under section 29 of the 1951 Act, in view
F
of the provision in section 22(1) of 1985 Act.
The respondent No. 1 sought the permission of the Appellate
Authority under the 1985 Act, to take possession of the assets of the
company.
The action of the respondent No. 1 was challenged in a writ before
the High Court.
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The High Court dismissed the writ petition holding that the bar of
section 22(1) of the 1985 Act did not apply to proceedings initiated under
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342
SUPREME COURT REPORTS
(1993} 1 S.C.R.
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section 29/31 of the 1951 Act.
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c
The view of the High Court was assailed in this appeal by special leave.
The respondent No. 1 contended that the 1985 Act was a general
statute covering a larger number of industrial conctrns than the 1951 Act
and therefore the latter would prevail over the former in the event of
confiict; that as the right conferred on the Financial Corporation by
section 29 of the 19

## Text

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MAHARASHTRA TUBES LTD.
v.
STATE INDUSTRIAL AND INVESTMENT CORPORATION OF
MAHARASHTRA LTD. AND ANR.
JANUARY 29, 1993
[L.M. SHARMA, CJ. AND A.M. AHMADI, J.]
State Finance Corporation Act, 1951~bject and scope of-Finance
Corporation--Constitution-Purpose of
Sick Industrial Companies (Special Provisions) Act, 1985-0bject and
scope of
State Finance Corporation Act, 1951-Section 46B and read with SecD
lions 22, of the Sick Industrial Companies (Special Provisions) Ac4 1985Both Special statutes-Distinction-Non-obstante clause of latter Act whether
prevails over the non-obstante clause of former Act.
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F
G
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Sick Industrial Companies (Special Provisions) Act, 1985-Section 2£-
0bject of-''Or the like'~ 'the like" "Proceedings"-Construction of
State Finance Corporation Act, 1951-Sections 29, 31.read with sections
22, 25 of the Sick Industrial Companies (Special Provisions) Ac4 1985Default in repayment of loan/advance-Question whether company a 'sick
industry' pending in appeal u/s 25 of 1985 Act-Taking recourse u/s 29/31 of
1951 Act for recovery of loan/advance-Legality of
In July, 1982, the appellant-Company, incorporated under the Companies Act, 1956 commenced manufacture of steel pipes/tubes etc. of
various sizes and dimensions for export.
By July, 1986, labour unrest, strikes, financial constraints, etc. necessitated the cessation of manufacturing activities.
On 28th August, 1988 the Company by its letter informed the Board
for Industrial and Financial Reconstruction (BIFR) of its accumulated
losses and sought financial assistance for revival of the unit.
340
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MAHARASIITRA TUBES v. STATE INVESTMENT CORPN.
341
The Director (Finance) of the BIFR desired the company to report. A
the sickness in Form A and to take appropriate action under section 15(1)
of the Sick Industrial Companies (Special Provisions) Act, 1985. The
Company submitted the proposal in Form A.
The BIFR held a preliminary hearing on 12th September, 1991, at
which the company confirmed the information given in Form A. The Bench
of the BIFR sought further information to enable it to form an opinion
on the question whether or not the company was a sick industrial company
under section 3(l)(o) of the 1985 Act. The Bench directed the company to
submit the authenticated documents regarding the number of workers,
audited/finalised accounts for the years 1989-90 and 1990-91 with detailed
explanation in regard to the delay in making the reference and other
discrepancies pointed out in the course of hearing. The Bench also directed
the bank and other financial institutions to submit the reports regarding
the conduct of the company and their role in providing necessary funds.
On 20th July, 1992, considering the facts on record and submissions
made, the BIFR dismissing the reference held that the company could not
be held to be a sick industrial company under section 3(l)(o) of the 1985
Act.
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The respondent No. 1 thereafter initiated proceedings under section
E
29 of the State Financial Corporation Act, 1951 for taking possession or
the factory premises of the company.
On 20th August, 1992, the company liled an appeal under section 25
of the 1985 Act against the order of the BIFR Bench and requested the
respondent No. 1 not to proceed under section 29 of the 1951 Act, in view
F
of the provision in section 22(1) of 1985 Act.
The respondent No. 1 sought the permission of the Appellate
Authority under the 1985 Act, to take possession of the assets of the
company.
The action of the respondent No. 1 was challenged in a writ before
the High Court.
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The High Court dismissed the writ petition holding that the bar of
section 22(1) of the 1985 Act did not apply to proceedings initiated under
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342
SUPREME COURT REPORTS
(1993} 1 S.C.R.
A
section 29/31 of the 1951 Act.
B
c
The view of the High Court was assailed in this appeal by special leave.
The respondent No. 1 contended that the 1985 Act was a general
statute covering a larger number of industrial conctrns than the 1951 Act
and therefore the latter would prevail over the former in the event of
confiict; that as the right conferred on the Financial Corporation by
section 29 of the 1951 Act was not a legal proceeding but merely an action
permitted by statute, section 22(1) of the 1985 Act would not apply because
it only bars legal proceedings for the winding up of any industrial company
or for execution, distress or the like against any of its properties or for the
appointment of a Receiver in respect thereof.
Allowing the appeal of the company, this Court,
HELD : 1.01. The primary object of the State Finance Corporations
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Act, 1951 is to extend financial assistance to industrial concerns with a
view to hasten the pace of industrialisation and with that in view the
Financial Corporations have been statutorily enjoined or charged with
duty to provide credit facilities tu industrial concerns. (3550)
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1.02. The purpose of constituting State Level Financial Corporations
was to augment industrialization by extending financial assistance to
certain industrial concerns. The Corporation is authorised to grant loans
to Industrial concerns and/or !o guarantee loans raised by such concerns,
even to underwrite the issue of stocks, shares, debentures, etc. floated by
such concerns. Such loans etc. are repayable within a stated period. [354G)
1.03. Incidental power to take over is given and summary procedures
have been laid down by sections 29 and 31 for the realisation of its dues
from defaulting industrial concerns. The power conferred by section 29
and the remedy provided in section 31(1) is not the underlying object and
purpose of the statute, the real objective of the law is to create an instrnmentality through which financial assistance can he extended to
deserving entrepreneurs. This is the main purpose, scope and object of
this special law. [355G]
2.01. The Sick Industrial Companies (Special Provisions) Act, 1985
was enacted, with a view to timely detection of sick or potentially sick
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MAHARASH'IRA TUBES v. SfATE INVESTMENT CORPN.
343
companies owning industrial undertakings, the identification oftbe nature
of sickness through experts In relevant fields with a view to devising
suitable remedial measures thnugh appropriate schemes and their ex·
peditious implementation. The emphasis is to prevent sickness and in
cases of sick undertakings to prepare schemes for their rehabilitation by
providing financial assistapce by way of loans, advances or guarantees or
by providing reliefs, concessions or sacrifies from Central or State Gov.ern·
ments, Scheduled banks, etc. [355H, 356A-B)
2.02 The basic idea is to revive sick units, if necessary, by extending
further financial assistance after a thorough examination of the units by
experts and only when the units is found to be more capable of rehabilitation, that the option of winding up may be resorted to. It Is for that reason
that section 22(1) provides that during the pendency of (j) an inquiry
under section 16 or (ii) preparation or consideration of a scheme under
section 17 or (iii) an appeal under section 25, no proceedings for winding
up of the concerned industrial company or for execution, distress or the
like shall lie or be proceeded with in relation to the properties of that
concern unless BIFR/ Appellate Authority has consented thereto. The un·
derlying idea is that every such action should be frozen unless expressly
permitted by <he specified authority until the investigation for the revival
of the industrial undertaking is finally determined. [356C-D)
2.03. The main thrust of this special legislation is at revival or
rehabilitation of the sick industrial undertaking and it is only when it is
realised that the same is not feasible that tbe option of winding up of the
unit can be resorted to. [356E)
3.01. The 1951 Act and the 1985 Act are special statutes, each having
a different objective, the emphasis in the case of the former being on giving
of financial assistance to entrepreneur for setting up industries while lo
the case of latter It being to revive or rehabilitate industries which have
on account or economic or other related reasons gone sick. The latter Act
also contemplates giving of financial assistance for revival or rehabilita·
lion of a sick industrial undertaking but that is by way of a remedy or as
a measure at revival of the sick unit. [356F-G]
3.02 Both the statutes have competing non-obstante provisions. Section 468 of the 1951 Act provides that the provision of that statute and of
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any rule or order made thereunder shall have effect notwithstanding
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SUPREME COURT REPORTS
(1993) 1 S.C.R.
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anything inconsistent therewith contained in any other law for the time
being in force; whereas section 22(1) of the 1985 Act also provides that the
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provisions of the said Act and of any rules or schemes made thereunder
shall have effect notwithstanding anything inconsistent therewith con·
tained in any other law. Section 22(1) also carries a non-obstante clause
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and says that the said provision shall apply notwithstanding anything
contained in Companies Act, 1956 or any other law. (3600)
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3.03. The 1985 Act being a subsequent enactment, the non-obstante
clause therein would ordinarily prevail over the non-obstante clause found
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in section 468 of the 1951 Act unless it is found that the 1985 Act is a
general statute and the 1951 Act is a special one. In that event the maxim
generalia specia/ibus non-derogant would apply. [360E]
3.04.
lo the present case on a consideration of. the relevant
provisions of the two statutes it is clear that the 1951 Act deals with
pre-sickness situation while the 1985 Act deals with post-sickness situa·
tion. It is, therefore, not possible to agree that the 1951 Act is a special
statute vis-a-vis the 1985 Act. Both are special statutes dealing with
different situations notwithstanding a slight overlap here and there, for
example, both of them provide for grant of financial assistance though in
different situations. [360F-G]
4.01. Section 22(1) provides that where an appeal under section 25
relating to an industrial company is pending, then, notwithstanding any·
thing contained in any 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 appointment of a Receiver in
respect thereof shall lie or be proceeded with further, except with the
consent of the BIFR or, as the case may be, the Appellate Authority. The
purpose and object of this provision is clearly to await the outcome of the
reference made to the BIFR for the revival and rehabilitation of the sick
industrial company. [361F-G]
4.02. The words 'or the like' which follow the words 'execution' and
'distress' are clearly intended to convey that the properties of the sick
industrial company shall not be made the subject-matter of coercive action
of similar quality and characteristic till the IllFR finally disposes of the
reference made under section 15 of the enactment. The legislature has
advisedly used an omnibus expression 'the like' as it could not have
MAHARASHTRA TUBES v. SfATE INVESTMENT CORPN.
345
conceived of all possible coercive measures that may be taken against a
sick undertaking. (3610, 362A]
4.03. The word 'proceedings' in section 22(1) cannot be given a
narrow or restricted meaning to limit the same to legal proceedings. Such
a narrow meaning would run counter to the scheme of the law and
frustrate the very object and purpose of section 22(1) of the 1985 Act.
[362G]
4.04. The expression 'proceedings' in section 22(1) cannot be confined to legal proceedings understood in the narrow sense of proceedings
in a court oflaw or a legal tribunal for attachment and sale of the debtor's
property. (365C)
The Bengal Immunity Company Ltd. v. The State of Bihar & Ors.,
(1955] 2 SCR 603 at 636 and Board of Muslim Wakfs, Rajasthan v. Radha
Kishan & Ors., (1979] 2 SCC 468, referred to.
Black's Law Dictionary (Fourlh Edition), referred to.
5.01. On a plain reading of section 29 of the 1951 Act, i; is obvious
that it permits coercive action against the defaulting industrial concern of
the type which would be taken in execution or distress proceedings; the
only difference being that in the latter case the concerned party would have
to use the forum prescribed by law for the purpose of securing attachment
and sale of property of the defaulting industrial coneern whereas in the
case of a Financial Corporation that right is conferred on the creditor
corporation itself which is permitted to takeover the management and
possession of the properties and deal with them if it were the owner of the
properties. (3620-E]
5.02. The action contemplated by section 29 of the 1951 Act is
undoubtedly a coercive measure directed at the take over of the manage·
ment and property of the industrial concern and confers a further right
on the Financial Corporation to transfer by way of lease or sale the
properties of the said concern and any such transfer effected by the
Financial Corporation would vest in the transferee all rights in or to the
transferred property as if the transfer was made by the owner of the
property. So also under the said provision the Financial Corporation will
have the same rights and powers with respect to goods manufactured or
produced wholly or partly from goods forming part of the security held by
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SUPREME COURT REPORTS
[1993) 1 S.C.R.
it as it had with respect to the original goods. [362B·C]
5.03. In the first place action under section 29 of the 1951 Act is to
seize the property of the defaulting industrial concern and to appropriate
it for satisfying the debt. It gets diverted from the general body of creditors.
The Corporation is fq!ly empowered to dispose it of to a third party and
pass a clear marketable title. All this can be done by the Corporation
without the need to go to a court or tribunal or any other recovery agency.
The Corporation is itself permitted to play that role. From the point of
view of quality and character the remedy is the same as in execution or
distress proceedings. [363C-DJ
5.04. If the Corporation is permitted to resort to the provision of
section 29 of the 1951 Act while proceedings under sections 15 to 19 of the
1985 Act are pending it will render the entire process nugatory. In such a
situation the law merely expects the corporation and for that matter any
other creditor to obtain the consent of the BIFR or, as the case may be,
the Appellate Authority to proceed against the industrial concern. The law
has not left them without a remedy. [362F]
5.05. It must be realised that in the modern industrial environment
large industries are generally finalised by banks and statutory corpora·
lions created specially for that purpose and if they are permitted to resort
to independent action in total disregard of the pending inquiry under
sections 15 to 19 of the 1985 Act the entire exercise under the said
provisions would be rendered nugatory by the time the BIFR is able to
evolve a scheme of revival or rehabilitation of the sick industrial concern
by the simple device of the Financial Corporation resorting to section 29
of the 1951 Act. [364H, 365A]
5.06. Where an inquiry is pending under section 16/17 or an appeal
is pending under section 25 of the 1985 Act there should be cessation of
the coercive activities of the type mentioned in section 22(1) to permit the
BIFR to consider what remedial measures ii should take with respect to
the sick industrial company. [365B]
Gram Panchayat & Anr. v. Shree Va/labh Glass Worl<s Ltd. & Ors.,
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[1990] 2 SCC 400 = AIR 1990 SC 1017; Tqteels Ltd. v. Radhaben
Ranchhodlal Charitable Trnst, AIR 1988 Gujarat 213; Industrial Finance
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Corporation of India & Ors. v. Maharashtra Steel Ltd. & Ors., AIR 1988
MAHARASIITRA 11.JBES v. STATE INVESTMENT CORPN. (AHMADI, J.] 347
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Allahabad 170and TheAndhra Cement Co. Ltd., Secunderabad v.A.P. State
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Electricity Board & Ors., AIR 1991 A.P. 269, referred to.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 289 of
1993.
From the Judgment and Order dated 6.10.1992 of the Bombay High
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Court in Writ Petition No. 1999 of 1992.
G.L. Rawal, Ms. Alpana Poddar and Kailash Vasdev for the Appel-
!ant.·
P.P. Rao, S.K. Dholkia, Dr. Suman! Bhardwaj, A.M. Khanwilkar and
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A.S. Bhasme for the Respondents.
The J udgrnent of the Court was delivered by
AHMADI, J. Special leave granted.
The short but interesting question which arises for determination in
this appeal is whether in a case where an industrial concern makes any
default in repayment of any loan or advance or any instalment thereof or
otherwise fails to meet its obligations under the terms of any agreement
with the Financial Corporation, such as the respondent herein, can the
latter take recourse to sections 29 and/or 31 of the State Financial Corporations Act, 1951 (hereinafter called the '1951 Act') notwithstanding the
bar of Section 22 of the Sick Industrial Companies (Special Provisions)
Act, 1985 (hereinafter called the '1951 Act')? In order to answer the
aforesaid question it is necessary to bear in mind the provisions of the
aforesaid two statutes. ·
The 1951 Act was enacted to provide for the establishment of State
Financial Corporations. Section 3 empowers the State Government to
establish a State Fmancial Corporation as a body corporate with an
authorised capital of such sum as may be fixed by the State Government
in this behalf. Section 9 provides that the general superintendence, direction and management of the affairs and business of the Financial Corporation shall \est in a Board of Directors which may exercise all the powers
and discharge all the functions which may be exercised and discharged by
the Financial Corporation. Under Section 15 one of the Directors may be
nominated by the State Government to be the Chairman of the Board of
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SUPREME COURT REPORTS
[1993] 1 S.C.R.
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Directors. Section 25 enumerates the business which the Financial Corporation may transact. These include among others, guaranteeing, on such
terms and conditions as may be agreed upon, loans raised by Industrial
concerns which are repayable within twenty years and are floated in the
public market, loans raised by industrial concerns from scheduled banks
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or State Cooperative banks or other financial institutions and granting
loans and advances to an industrial concern repayable within a period not
exceeding twenty years from the date on which they are granted. Section
29, insofar as relevant for our purpose, then provides as under :
"29(1) Where any industrial concern, which is under a
liability to the Financial Corporation under an agreement,
makes any default in repayment of any loan or advance
or any instalment thereof or in meeting its obligations in
relation to any guarantee given by the Corporation or
othei-wise fails to comply with the terms of its agreement
with the Financial Corporation, the Financial Corporation
shall have the right to take over the management or
possession or both of the industrial concern, as well as the
right to transfer by way of lease or sale and realise the
property pledged, mortgaged, hypothecated or assigned
to the Financial Corporation."
Where the Financial Corporation, in exercise of the aforesaid rights, transfers any property, sub-section (2) provides that the same shall vest in the
transferee all rights in or to the transferred property as if the transfer had
been made by the owner of the property. Section 31 next provides as under:
"Where an industrial concern, in breach of any agreement,
makes any default in repayment of any loan or advances
or any instalment thereof or in meeting its obligations in
relation to any guarantee given by the Corporation or
otherwise fails to comply with the terms of the agreement
with the Financial Corporation or where. the Financial
Corporation requires an industrial concern to make immediate repayment of any loan or advance under section
30 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of section
29 of this Act and of section 69 of the Transfer of Property
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MAHARASHTRA TUBES v. STAIB INVESTMENT CORPN. (AHMADI, J.] 349
Act, 1882 any Officer of the Financial Corporation,
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generally or specially authorised by the Board in this
behalf, may apply to the District Judge within the limits
of whose jurisdiction the Industrial concern carries on the
whole or a substantial part of its business for one or more
of the following reliefs :
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(a) for an order for the sale of the property pledged,
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mortgaged, hypothecated or assigned to the Financial
Corporation as security for the loan or advance; or
(aa) for enforcing the liability of any surety; or
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(b) for transferring the management of the Industrial
concern to the Financial Corporation; or
( c) for an ad interim injunction restraining the industrial
concern from transferring or removing its machinary or
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plant or equipment from the premises of the industrial
concern without the permission of the Board, where such
removal is apprehended.'
Section 32 outlines the procedure which the District Judge must follow in
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respect of an application made· under Section 31. Section 32A empowers
the Financial Corporation to appoint Directors or Administrators of an
industrial concern, the management whereof is taken over by the Financial
Corporation. Section 32E lays down that where the management of an
industrial concern, being a company as defined in the Companies Act, 1956
is taken over by the Financial Corporation, then, notwithstanding anything
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contained in the said Act or in the Memorandum o~ Articles of Association
of such concern, it shall not be lawful for the shareholders of such concern
or any other person to nominate or appoint any person to be a Director
of the said concern nor shall any resolution passed at the meeting of the
shareholders of such concern be given effect to unless approved by the
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Financial Corporation. It also precludes the filing of a winding up proceedings or for the appointment of a Receiver in respect of such concern in any
:..._
court unless consented to by the Financial Corporation. So also Section
32F places a restriction on the filing of suits for dissolution, etc., of an
industrial concern other than a company whose management is taken over.
Section 32G provides for recovery of amounts due to the Financial CorH
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SUPREME COURT REPORTS
(1993] 1 S.C.R.
poration as an arrear of loan revenue. And Section 46B says that the
provisions of the said Act and any rule or order made tl\ereunder shall
have effect notwithstanding anything inconsistent therewith in any other
law for the time being in force. It further says that the provisions of the.
Act shall be in addition to, and not in derogation of, any such law
applicable to an industrial concern. It will thus be seen that the consequences of a take over of the industrial concern are quite drastic and virtually
denudes the management of such industrial concern of its power to administer the properties and assets of such concern.
While on the one hand the 1951 Act provide for grant of financial
assistance to industrial concerns, on the other hand the ever increasing
problem of industrial sickness and its consequential fall-out on the nation's
economy and the problems faced by the Financial Corporations in the
matter of recovery of their dues and/or rehabilitation of a sick industrial
undertaking led to the appointment of a Committee known as the Tiwari
Committee in 1981 which submitted its report in 1983 leading to the
enactment of the 1985 Act with a view to securing the timely detection of
sick and potentially sick companies owing industrial undertakings, the
speedy determination by a body of experts of the preventive, ameliorative,
remedial and other measures needed to be taken V<ith respect to such
companies and the expeditious enforcement of the measures so determined
and for other matters connected therewith or incidental thereto. This Act
extends to the whole of India and Section 2 thereof carries a declaration
that it is enacted for giving effect to the policy of the State towards securing
the principles specified in Clauses (b) and ( c) of Article 39 of the Con-
•titution. The dictionary of the Act is to be found in Section 3. Section 3( e)
defines an 'industrial company' to mean a company which owns one or
more industrial undertakings and Section 3(!) defines an 'industrial
undertaking' to mean an undertaking pertaining to a scheduled industry
carried on in one or more factories by any company but does not include
an ancillary industrial undertaking as defined in clause (aa) of Section 3 of
the Industries (Development & Regulation) Act, 1951 and a small scale
industrial undertaking as defined in Section 3G) of the same statute. Since
Section 3(2) provides that words and expressions used but not defined
under the said Act or the Companies Act, 1956, shall have the meaning
assigned to them in the Industries (Development & Regulation) Act, 1951,
we must look to the definition of factory in that law. 'Factory' as defined
in Section 3( c) of that law, inter alia, means any premises including the
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MAHARASHTRA TUBES 1•. STATE INVESTMEl\'T CORPN. [AHMADI. .l.J 351
precincts thereof in any part of which a manufacturing process is being . A
carried on or is ordinarily so carried on with the aid of power, provided
that fifty or more workers are working or were working thereon on any day
of the preceding twelve months. Again Section 3(n) defines a 'scheduled
industry' to mean any of the industries specified for the time being in the
First Schedule of that law. Srction 3( o) defines a sick industrial company
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to mean an industrial company (not 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
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cash losses in such financial year and the financial year immediately
preceding such financial year. The expression 'cash loss' means loss as
computed without providing for depreciation. Chapter II provides for
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establishment of a Board and Appellate Authority for Industrial & Financial Reconstruction. Section 4(1) empowers the Central Government to
establish a Board to be known. as the 'Board for Industrial & Financial
Reconstruction' (B!FR) to exercise the jurisdiction and powers and discharge the functions and duties conferred or imposed thereon by or under
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the provisions of the said Act. Section 5 envisages constitution of an
Appellate Authority to be called the 'Appellate Authority for Industrial &
Financial Reconstruction' for hearing appeals against the orders of the
BlFR. Section 12 posits that the jurisdiction, powers and authority of the
BIFR or the Appellate Authority may be exercised by benches to be
constituted by their respective Chairmen. Section 14 says that the proceedE
ings before the BIFR or the Appellate Authority shall be deemed to be
judicial proceedings. Then comes Chapter Ill entitled 'References, Inquiries and Schemes'. Section 15(1) provides that 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
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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 BIFR for determination of the measures which shall be
adopted with respect to the company. If, however, the Board of Directors
of the Company had for sufficient reasons formed an opinion before the
finalisation of ·the duly audited accounts that the company had become a
sick industrial company, they could make a reference within sixty days after
the formation of such opinion for determination of the measures to be
adopted with respect to the company. Upon receipt of such reference with
respect of such company or upon information received or upon its own
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knowledge as to the financial condition of the company a duty is cast by
Section 16(1) on the BIFR to make such inquiry as it deems fit for
determining whether any industrial company has become a sick industrial
company. Where the BIFR deems it fit to make such an inquiry or to cause
an inquiry to be made into any industrial company, sub-section ( 4) requires
it to appoint one or more persons to lie a special director or special
directors of the company for safeguarding the financial and other interests
of the company. Section 17 next provides that if after making an inquiry
under Section 16 of the BIFR is satisfied that a company has become a
sick industrial company, it shall, after considering all the relevant facts and
circumstances of the case, decide, whether it is practicable for the company
to make its net worth positive within a reasonable time. If the BIFR decides
in the affirmative, it shall, by order in writing give such time to the company
as it may deem fit to make its net worth positive but if it decides in the
negative and considers it necessary or expedient in the public interest to
adopt all or any of the measures specified in Section 18, it may, by written
order direct any operating agency to prepare a scheme providing for such
measures in relation to such company. Section 18 provides that where an
order is made under the aforesaid provisions in relation to any sick
industrial company, the operating agency shall prepare a scheme with
respect to such company providing for any one or more of the following
measures, namely :
(a) the reconstruction, revival or rehabilitation of the sick
industrial company;
(b) the proper management of the sick industrial company
by change in, or take over of, management of the sick
industrial company;
( c) the amalgamation of the sick industrial company with
any other industrial company;
( d) the sale or lease of a part or whole of any industrial
undertaking of the sick industrial company;
( e) such other preventive, ameliorative and remedial
measures as may be appropriate;
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A copy of the draft scheme prepared by the BIFR is required to be sent
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to the sick industrial company as well as the operating agency. After the
draft scheme is finalised, it has to be sanctioned by the BIFR and then be
brought into force with effect from such date as the BIFR may specify in
this behalf. Provision is also made for reviewing a sanctioned scheme and
making modifications therein if the exigencies of administration so require.
Where the scheme relates to preventive, ameliorative, remedial or other
measures with respect to any sick industrial company, t\.e scheme may
provide for finaacial assistance by way of loans, advances, guarantees,
reliefs, concessions or sacrifices from the Central Government, a State
Government, any scheduled bank or other bank, a public financial institution or State level institution or any institution or other authority to the sick
industrial company, vide Section 19(1) of the Act. Section 20, however,
provides that where the BIFR after making an inquiry under Section 16
is of opinion that it is just and equitable to wind up the sick industrial
company, it may forward its opinion in that behalf to the concerned High
Court whereupon the High Court shall, on the basis thereof, order winding
up of the sick industrial company. That brings us to Section 22, Sub-section
( 1) whereof needs to be reproduced :
"22(1) Wh ·n- 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 seciion 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
indtistriaf eompany or for the · appoincment of a receiver
in respect. ·thereof shall lie or be proceeded wich further,
except with the consent of the Board or, as the case may
be, the Appellate Authority."
We now come to Chapter IV entitled 'Proceedings in case of potentially
sick indusll;ial companies, misfeasance proceedings, appeals and miscellaA
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neous'. Section 25 provides for an appeal and reads as under:
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"25(1) Any person aggrieved by an order of the Board
made under t~. Act may, within forty five days from the
date on which a copy of the order is issued to him, prefer
an appeal to the Appellate Authority:
Provided that the Appellate Authority may entertain any
appeal after the said period of forty-five days but not after
sixty days from the date aforesaid if it is satisfied that the
appellant was prevented by sufficient cause from filing the
appeal in time.
(2) On receipt of an appeal under sub-section (1), the
Appellate Authority niay, after giving .an opportunity to
the appellant to br heard, if he so desires, and after
making such further inquiry as it deems fit, confirm,
modify or set aside the order appealed against."
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Section 26, however, states that no order passed or proposal made under
this Act shall be appealable except as provided therein and no civil court
shall have jurisdiction in respect of any matter which the Appellate
Authority or the BIFR is empowered by or under this Act to determine
and no injunction shall be granted by any court or other authority in respect
of any action taken or to be taken in pursuance of any power conferred by
or under this Act. Section 32 says that the provisions of this Act and of any A
Rules or Schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the
provisions of the Foreign Exchange Regulation Act, 1973 and the Urban
Land (Ceiling & Regulation) Act, 1976 for the time being in force or in
the Memorandum or Articles of Association of an industrial company or
in any other instrument having effect by virtue of any law other than this
Act. This, in brief, is the scheme of 1985 Act.
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From the relevant provisions of the 1951 Act it is clear that the
purpose of constituting State level Financial Corporations was to augment
industrialisation by extending financial assistance to certain industrial concerns. The Corporation is authorised to grant loans to industrial concerns
and/or to guarantee loans raised by such concerns, even to underwrite the
issue of stocks, shares, debentures, etc., floi.ted by such concerns. Such
loans, etc., are repayable within a stated peric,d. The enactment has undergone amendments from time to time 'with a view to enlarging the functions
MAHARASHTRA TUBES v. SfATE INVESTMENT CORPN. (AHMADI, J.) 355
and powers of the Financial Corporations. The said Act was amended in
1956 (Act 56 of 1956) inter alia to extend its benefit to industrial concerns
engaged in small scale and cottage industries and to widen the powers of
management vested in the Corporation in regard to concerns taken over
by the Corporation. Experience gained over a period of time necessitated
a further amendment in 1962 (Act 6 of 1962) to provide for extending the
benefit of financial assistance to hotel and transport industries and to meet
the growing need of the industry occasioned by the rising tempo of industrialisation in the country. The amendments were introduced to enable
the Corporations to guarantee loans raised from Scheduled Banks, State
Co-operative Banks, etc., and to retain underv.ritten shares beyond seven
years and to convert loans/debentures into share capital. A further amendment was made in 1972 (Act 77 of 1972) as it was felt that technical
entrepreneurs and units situate in b~ckward areas should also be granted
soft term loans and such other benefits. At the same time certain constraints on the Corporations were removed to ensure their smooth working.
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It is clear from the foregoing discussion that the primary object of this
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statute is to extend fmancial assistance to industrial concerns with a view
to hasten the :iace of industrialisation and with that in view the Financial
Corporations have been statutorily enjoined or charged with the duty to ·
proyide credit facilities to industrial concerns. Undoubtedly Financial Corporations have been empowered by section 29 to take over management of
defaulting industrial concerns for realisation of its dues. Similarly, section
31(1) also prescribes a special remedy for enforcement of Corporation
claims through the judicial machinery by sale etc. of
pledged/mortgaged/hypothecated or assigned property of the defaulting
industrial concern. It is thus clear from the provisions of this law that its
primary objective is to provide an impetus to industrialisation by providing
through a statutory corporation financial assistance to industrial concerns
and incidental power to take over is given and summary procedures have
been laid down by sections 29 and 31 for the realisation of its dues from
defaulting industrial concerns. The power conferred by section 29 and the
remedy provided in section 31(1) is not the underlying object and purpose
of the statute, the real o!Jjective of the law is to create an instrumentality
through which financial assistance can be extended to deserving
entrepreneurs. This is the main purpose, scope and object of this special
law.
On the other hand the 1985 Act was enacted, as its preamble
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manifests, with a view to timely detection of sick or potentially sick companies owning industrial undertakings, the identification of the nature of
sickness through experts in relevant fields with a view to devising suitable
remedial measures through appropriate schemes and their expeditious
implementation. Here the emphasis is to prevent sickness and in cases of
sick undertakings to prepare schemes for their rehabilitation by providing
financial assistance by way of loans, advances or guarantees or by providing
reliefs, concessions or sacrifices from Central or State Governments,
scheduled banks, etc. The basic idea is to revive sick units. If necessary, by
extending further financial assistance after a thorough examination of the
units by experts and only when the unit is found to be more capable of
rehabilitation, that the option of winding. up may be resorted to. It is for
that reason that section 22(1) provides that during the pendency of (i) an
inquiry under section 16 or (ii) preparation or consideration of a scheme
under section 17 or (iii) an appeal under section 25, no proceedings for
winding up of the concerned industrial company or for execution, distress
or the like shall lie or be proceeded with in relation to the properties of
that concern unless BIFR/ Appellate Authority has consented thereto. The
underlying idea is that every such action should be frozen unless expressly
permitted by. the specified authority until the investigation for the revival
of the industrial undertaking is finally determined.