Lease character and ownership of embedded machinery sustained, and sick company protection did not bar receivership.

A Bombay High Court decision treated an equipment transaction as a genuine lease or hiring arrangement because the agreement preserved the plaintiff's exclusive title, restricted the defendant from acting as owner, and granted only a contractual right of use. Temporary embedding of the machinery did not alter ownership, as the fixing was for better utilisation rather than permanent annexation. The Court also held that section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 did not bar appointment of a receiver, since the property remained that of the lessor and the defendant's use-right had already been terminated for default.

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Issues: Whether the equipment transaction was a true lease or a financing arrangement or hire purchase, whether the machinery remained the plaintiff's property despite temporary embedding, and whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 barred appointment of a receiver.

Issue (i): Whether the equipment transaction was a true lease or a financing arrangement or hire purchase

Analysis: The agreement stated that the plaintiff retained sole and exclusive title to the equipment, prohibited the defendant from dealing with the machinery as owner, and conferred only a contractual right of use during the lease term. The Court compared the transaction with bailment and distinguished hire purchase, where an option to purchase is normally present. On the contractual terms and surrounding conduct, the arrangement was treated as a genuine lease or hiring transaction and not as a colourable loan or hire purchase.

Conclusion: The transaction was held to be a genuine lease or hiring arrangement, in favour of the plaintiff.

Issue (ii): Whether the machinery remained the plaintiff's property despite temporary embedding

Analysis: The Court applied the test of the object of annexation and held that the machinery had been fixed only for better utilisation of the equipment and not as a permanent improvement to the premises. Temporary embedding did not destroy the lessor's proprietary rights or convert the contractual arrangement into one transferring ownership to the defendant.

Conclusion: The machinery was held not to have become the defendant's property, in favour of the plaintiff.

Issue (iii): Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 barred appointment of a receiver

Analysis: Section 22(1) protects only proceedings against the properties of the sick industrial company, and section 22(3) requires a specific suspension order if contractual rights are to be stayed. Since the equipment belonged to the plaintiff and the defendant's right to use it had already been validly terminated for default, the machinery could not be treated as the defendant's property for the purpose of the statutory bar. The Court therefore held that the statutory protection did not prevent appointment of a receiver, and the defendant's continued user could be regulated by the receiver on terms.

Conclusion: Section 22 was held not to bar appointment of a receiver, in favour of the plaintiff.

Final Conclusion: The plaintiff established a prima facie right to recover and control the equipment through a receiver, and the defendant's objections based on title, annexation, and statutory suspension failed.

Ratio Decidendi: Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 applies only to property of the sick industrial company, and a terminated contractual right to use equipment owned by another does not attract the statutory bar against receivership.

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