2006 (6) TMI 208 - HC - Companies Law

Ownership rights upheld: Petitioner can repossess machinery under Hire Purchase Agreements

ELGI Finance Ltd. Versus Essrope Mills Ltd.

The court held that Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 did not apply to the case as the suit was not for ... Suspension of legal proceedings, contracts, etc. Issues Involved1. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.2. Ownership and repossession rights under Hire Purchase Agreements.3. Impact of BIFR registration on legal proceedings.Detailed Analysis1. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985The primary issue was whether Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, applied to the case, thereby staying the suit proceedings. Section 22(1) states that no proceedings for the winding up of an industrial company, execution, distress, or the like against any of the properties of the company, or for the appointment of a receiver, or for the recovery of money or enforcement of any security against the industrial company, shall lie or be proceeded with further, except with the consent of the Board or appellate authority.The court found that Section 22(1) did not apply to the present case because the suit was not for winding up, execution, distress, or the like against the properties of the respondent/defendant. The properties in question, namely the machineries, were still owned by the petitioner/plaintiff under the Hire Purchase Agreements. The court emphasized that Section 22(1) would only apply if the properties were owned by the sick company, which was not the case here.2. Ownership and Repossession Rights under Hire Purchase AgreementsThe petitioner/plaintiff, a finance company, had entered into Hire Purchase Agreements with the respondent/defendant, a private textile mill, for 22 machineries. Due to defaults in payment by the respondent, the petitioner sought to repossess the machineries. The court noted that under the Hire Purchase Agreements, the ownership of the machineries remained with the petitioner/plaintiff until the entire instalments were paid by the respondent/defendant.The court found merit in the petitioner's argument that the suit was for a permanent injunction to restrain the respondent from obstructing the repossession of the machineries. Since the ownership vested with the petitioner/plaintiff, the repossession did not fall under the prohibitions of Section 22(1) of the Act.3. Impact of BIFR Registration on Legal ProceedingsThe respondent/defendant argued that the registration with the Board for Industrial and Financial Reconstruction (BIFR) and the pending scheme for rehabilitation should invoke Section 22(1) protections, thereby staying the suit proceedings. The court, however, referred to multiple judgments, including those from the Bombay and Delhi High Courts, which consistently held that Section 22(1) did not apply to properties not owned by the sick company.The court cited the case of Kotak Mahendra Finance Ltd. v. Deve Paints Ltd. and GE Capital Transportation Financial Services v. Dee Pharma Ltd., which established that finance companies could repossess their properties without being affected by the BIFR proceedings. The court also referred to its own Division Bench judgment in O.S.A.No.89/2003, which held that the ownership of the hired machinery remained with the financier and thus did not fall within the scope of Section 22(1).ConclusionThe court concluded that the trial court had erred in staying the suit proceedings based on Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. It held that the petitioner/plaintiff's right to repossess the machineries was not affected by the respondent/defendant's registration with the BIFR. Consequently, the order of the trial court dated 7-4-2003 staying the suit proceedings was set aside, and the Civil Revision Petition was allowed.