2013 (5) TMI 1069 - HC - Companies Law

Court Allows Appeal: Legal Proceedings Suspended Under Sick Industrial Companies Act, Costs Borne Individually.

LML Ltd. Versus Sunil Mittal

The appeal against the dismissal of the application under Section 22(1) of the Sick Industrial Companies (Special) Provisions Act, 1985, was allowed. The ... - Issues involved:The appeal against the dismissal of an application filed under Section 22(1) of the Sick Industrial Companies (Special) Provisions Act, 1985 for recovery of money.Details of the judgment:1. The respondent filed a suit for recovery of Rs. 44,05,803.47 from the appellant, a company engaged in manufacturing two-wheeler scooters. The suit included principal amount, interest, and sales tax claimed by the respondent.2. The appellant disputed the claim and raised a preliminary objection that the suit was not maintainable as the company was declared sick under the Act. The appellant filed an application under Section 22(1) of the Act, citing discrepancies in the amount claimed by the respondent.3. The single Judge held that the suit could proceed without permission from the Board of Industrial and Financial Reconstruction (BIFR) as the appellant failed to show the current status of the company's revival/rehabilitation. The application was dismissed based on the confusion regarding the actual amount claimed by the respondent.4. The appellant admitted a sum of Rs. 21,74,490.88 payable to the respondent, which was reflected in the Draft Rehabilitation Scheme (DRS) circulated by the BIFR. A dispute of Rs. 3,00,000 arose due to certain C-forms not being issued by the appellant.5. The appellant's affidavit clarified the amount due to the respondent and the issues regarding the difference in figures and C-forms. The appellant assured the court of necessary modifications under the DRS.6. The respondent's affidavit disputed the claim against the C-forms but did not contest other averments made by the appellant.7. The question of the applicability of Section 22 of the Act arose in this context.8. The Act was enacted to provide for the revival and rehabilitation of sick industrial units to prevent adverse effects on production, employment, and revenue. Section 22 prohibits legal proceedings against a company's properties without the consent of the Board.9. The Supreme Court's ruling in Raheja Universal Ltd. Vs. NRC Limited clarified that Section 22 applies when the amount claimed is covered under a scheme. In this case, the amount claimed by the respondent was part of the DRS pending before the BIFR, warranting a suspension of legal proceedings.10. The judgment distinguished a previous case related to sales tax dues and allowed the appeal, directing parties to bear their own costs.