TaxTMI 
TaxTMI 
2024 (5) TMI 427
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........................................................................................... 10 C. SUBMISSIONS ON BEHALF OF THE RESPONDENT/ORIGINAL PLAINTIFF .......................................................................................................... 15 D. ANALYSIS ............................................................................................................ 19 i. Proceedings in respect of FCIL before the BIFR ....................................... 19 ii. Issues for Determination ............................................................................ 21 iii. Overview of Industrial Sickness and the Legislative Scheme of the 1985 Act. ............................................................................................................. 22 iv. ISSUE NO. 1: Whether the suspension of legal proceedings as envisaged under Section 22(1) of the 1985 Act would extend to a civil suit for recovery of money even if the debt sought to be proved in the plaint has not been admitted by the sick industrial company? If so, whether the decree in favour of the original plaintiff could be said to be coram non-judice? ................... 29 v. ISSU....
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....d in the notices inviting tender ("NIT") issued from time to time and the purchase orders issued in pursuance thereof. As per the terms of the NIT, the original defendants were required to make the entire payment within 20 days of the receipt of the bags and approval of the same. The terms of the purchase orders also entitled the original defendants to deduct up to a maximum of 5% of the contract price towards liquidated damages upon delay in supply of bags by the original plaintiff. i. Case of the original plaintiff before the trial court 7. The case of the original plaintiff before the trial court was that the original defendants placed with it certain purchase orders for the supply of the HDPE bags, which were manufactured by it as per the specifications and duly supplied periodically. The purchase orders were amended from time to time to account for the increase in the number of bags which were required by the original defendants. It was the case of the original plaintiff that in pursuance of the communications exchanged with the original defendants, it supplied 42,000 bags over and above the quantity mentioned in the purchase orders to meet with the urgent requirements o....
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....0. Towards interest on Rs. 4,89,919.99 f rom 01.01.1994 to 21.11.1996 3,39,534.69 Total Interest 10,31,803.14 Grand Total 18,58,903.88 ii. Case of the original defendants before the trial court 10. The original defendants filed their written statement before the trial court stating that there was no discrepancy in the purchase order issued subsequent to the supply of the extra bags and that the imposition of liquidated damages was justified as per the terms of the NIT and the purchase orders. It was also stated that the deductions imposed as penalty for the supply of poor quality of the bags was also justified and interest @ 24% was not liable to be imposed. 11. The original defendants further stated before the trial court that as they had been declared to be a sick company under Section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 ("the 1985 Act"), the suit for recovery was not maintainable as per Section 22(1) of the 1985 Act and thus was liable to be dismissed. 12. The trial court, having regard to the specific pleadings of the parties proceeded to frame 10 issues as tabulated hereinbelow. S. No. ....
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....n this issue. Hence, the defendant company failed to prove that it is a sick industry and the plaintiff 's suit is maintainable. I answer this issue in favour of the Plaintiff accordingly" 14. The final decree drawn by the trial court reads thus: "1. That the suit of the plaintiff be and is hereby decreed. 2. That the defendants 1 to 4 be and are hereby directed to pay Rs. 55,710/-, Rs. 100,848 and Rs. 1,18,000/- to the plaintiff together with interest @ 12% per annum from 01.01.1994 till realization. 3. That the defendants 1 to 4 be and are hereby further directed to pay Rs. 1,72,734/- to the plaintiff together with interest @ 12% per annum from 16.07.1994 till realization. 4 That the suit of the plaintiff for the rest of the claim of Rs. 4,89,919/- be and is hereby dismissed. 5. That the defendants do pay Rs. 37,169/- to the plaintiff towards the costs of the suit." iii. Appeals before the High Court 15. Both the parties went to the High Court in appeal against the aforesaid decision of the trial court. The original plaintiff contended before the High Court, inter alia, that the deductions towards the liquidated damages and pe....
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....s revival. 22. It was argued that the provisions of the 1985 Act should be given the widest possible import in light of the fact that the same is a self-contained code containing provisions like the statutory bar on civil suits for recovery of money from sick industrial companies under Section 22 and the non-obstante clause under Section 32 by virtue of which the provisions of the 1985 Act are given an overriding effect. Reliance was placed by the learned senior counsel upon the decisions of this Court in Jay Engineering Works Ltd. v. Industry Facilitation Council reported in (2006) 8 SCC 677 and Tata Motors Ltd. v. Pharmaceutical Products of India Ltd. reported in (2008) 7 SCC 619. 23. It was further submitted that the impugned judgment and order passed by the High Court failed to take into consideration the law settled by this Court in Bhoruka Textiles Ltd. v. Kashmiri Rice Industries reported in (2009) 7 SCC 521 which held that if the jurisdiction of the civil court was ousted in terms of the jurisdictional bar imposed under Section 22 of the 1985 Act, then any judgment rendered by it would be coram non-judice and as a result a nullity. 24. To fortify her aforesaid subm....
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....the contract. 27. It was argued that the liability, if any, of the original defendants to pay interest on the amount of Rs 4,89,919.99/- should be limited from the date of the impugned judgment, wherein the High Court while partially modifying the decree awarded by the trial court, awarded the amount as above in favour of the original plaintiff for the first time. 28. It was also argued that the High Court erred in interfering with the exercise of discretion by the trial court in awarding 12% pendente lite interest in favour of the original plaintiff. 29. The learned senior counsel further submitted that the original plaintiff had the option of taking recourse to the mechanism prescribed under Section 6 of the 1993 Act which provides for making a reference of any dispute to the Industry Facilitation Council for acting as an arbitrator or a conciliator. However, by consciously approaching the civil court by way of a suit for recovery of money despite the jurisdictional bar contained under Section 22 of the Act, the original plaintiff must now face the consequences of approaching a nonjurisdictional forum. 30. Lastly, it was submitted by the learned senior counsel that th....
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....ance placed by the original defendants on Jay Engineering (supra) is also of no avail as in the facts of that case, there was no dispute over the quantum of dues and the sick company therein had reckoned the dues and the liabilities were covered in the revised rehabilitation scheme. Further, the decision in the said case only supports the contention of the original plaintiff that the adjudicatory process of making an award is not barred under Section 22 of the 1985 Act and it is only the execution of such an award against a sick company which is protected under Section 22 of the 1985 Act. Thus, as the civil court in this case was the adjudicating authority having inherent jurisdiction to decide the suit under Section 9 of the Civil Procedure Code, 1908, the adjudicatory part of determining the liability couldn't be said to have been barred by Section 22 of the Act. It is only the execution of such a decree arrived at as a result of the adjudicatory process which could be said to be barred under Section 22 of the 1985 Act during the period when the sick company is under the protection of the BIFR. 34. The learned counsel further submitted that the reliance placed by the original ....
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....about its current financial status, the net worth of the defendant company as on 31.03.2022 is in the positive and is at the least not less than 2,000/- crores. D. ANALYSIS 39. Before adverting to the rival submissions canvassed on either side, we would like to briefly discuss the proceedings in respect of the defendant company before the Board for Industrial and Financial Reconstruction ("BIFR") in terms of Section 15 of the 1985 Act. i. Proceedings in respect of FCIL before the BIFR 40. At the end of financial year 1991-92, the defendant company suffered huge erosion in its net worth and became a sick industrial company. Accordingly, a reference was made to the BIFR in terms of Section 15 of the 1985 Act. Thereafter, the BIFR after hearing the representatives and stakeholders declared the defendant company to be a sick company under Section 3(1)(o) of the 1985 Act vide its order dated 06.11.1992. The BIFR also granted FCIL and the Government of India time till 31.03.1993 to submit their final plan for rehabilitating the company. 41. During the entire period of adjudication of the suit by the trial court and for a part of the period during the pendency of the appeal....
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....he original plaintiff could be said to be coram non-judice? II. Whether the High Court was correct in granting 24% compound interest on the principal decretal amount in favour of the original plaintiff? iii. Overview of Industrial Sickness and the Legislative Scheme of the 1985 Act. 47. Before we proceed to answer the aforesaid issues, we would like to discuss briefly the concept of industrial sickness, the legislative scheme of the 1985 Act and the object behind its enactment. This will help us develop a better contextual understanding of the questions before us. 48. Sickness in industries is a natural fall-out of industrialisation. Industrial sickness can be understood to refer to a situation wherein an industrial unit fails to generate surplus and is incurring losses over a period of time resulting in the erosion of its net-worth. Section 3(o) of the 1985 Act defines a 'sick industrial company' to be one which at the end of a financial year accumulates losses equal to or exceeding its net worth. 49. While there could be numerous causes of sickness, the mismanagement of the industrial unit, faulty planning at the inception of an industry, technical drawbacks,....
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....nk of India ("RBI") appointed a committee under the chairmanship of late Shri T. Tiwari to look into the causes of industrial sickness, to assess the depth of the problem and to suggest comprehensive and focussed remedial measures to counter the problem of industrial sickness in India. The committee submitted its report suggesting, inter alia, the setting up of a quasi-judicial body through a special legislation to handle the cases of industrial sickness. This suggestion of the committee led to the enactment of the 1985 Act. 55. The Statement of Objects and Reasons accompanying the Sick Industrial Companies Bill, 1985 reads as follows : "The ill effects of sickness in industrial companies such as loss of production, loss of employment, loss of revenue to the Central and State Governments and locking up of investible funds of banks and financial institutions are of serious concern to the Government and the society at large. The concern of the Government is accentuated by the alarming increase in the incidence of sickness in industrial companies. It has been recognised that in order to fully utilise the productive industrial assets, afford maximum protection of employment....
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....may also make a reference to the Board; (iv) establishment of Board consisting of experts in various relevant fields with powers to enquire into and determine the incidence of sickness in industrial companies and devise suitable remedial measures through appropriate schemes or other proposals and for proper implementation thereof; v) constitution of an Appellate Authority consisting of persons who are or have been Supreme Court Judges, senior High Court Judges and Secretaries to the Government of India, etc. for hearing appeals against the order of the Board. 4. The notes on clauses appended to the Bill explain the various provisions of the Bill. NEW DELHI THE 22nd August, 1985. VISHWANATH PRATAP SINGH" 56. The preamble to the 1985 Act reads as follows: "An Act to make, in the public interest, special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement ....
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....des for the suspension of legal proceedings of the nature as specified in the said section. 60. The fourth chapter, among other things, provides for the detection of potentially sick companies in the initial stages by mandating the Board of Directors of such companies to bring such potential sickness to the knowledge of the BIFR and the shareholders of the companies. Punishment of up to two years imprisonment along with fine is also prescribed in case of default in complying with the requirement. The issue of mismanagement leading to sickness in companies is sought to be dealt with under Section 24 of the 1985 Act which provides strict measures in case of proved misfeasance, breach of trust, etc. Section 26 bars the jurisdiction of civil courts in respect of matters which the BIFR or the AAIFR are empowered to determine. Section 32 is the non-obstante provision which imparts overriding effect to the 1985 Act over other laws in force except for the two legislations mentioned in the said section itself. The 1985 Act was repealed by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003 which was notified on 01.12.2016. 61. Having discussed in detail the scheme of t....
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....er Section 25 of the 1985 Act is pending. 65. If one of the four conditions as mentioned aforesaid is fulfilled, then notwithstanding 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 Companies Act, 1956 or other law, proceedings in the nature of the following cannot be initiated, and if already initiated, cannot be proceeded with, except with the consent of the BIFR or the AAIFR, as the case may be: I. Winding up of the industrial company; II. Execution, distress or the like against any of the properties of the industrial company; III. Appointment of receiver in respect of any of the properties of the industrial company; IV. Suit for recovery of money from the industrial company; V. Suit for enforcement of a security against the industrial company; VI. Suit for enforcement of a guarantee in respect of loans or advance granted to the industrial company. 66. It is pertinent to mention that prior to the coming into force of the Sick Industrial Companies (Amendment) Act, 1993 w.e.f. 01.02.1994, ....
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....e judgment, the Board of Directors of the defendant company, passed a resolution dated 20.04.1992 to the effect that the company had become a sick company for the purposes of the 1985 Act and thus a reference to the BIFR was required to be made. In accordance with the resolution, a reference was accordingly made under Section 15(1) of the 1985 Act. Subsequently, a bench of the BIFR took up the reference of the defendant company for consideration and vide order dated 06.11.1992, inter alia, decided that the company fulfilled all the criteria prescribed under Section 3(1)(o) of the 1985 Act for being declared a sick company. The bench also granted the defendant company and the Government of India time till 31.03.1993 to submit a proposal for rehabilitation of the company for the consideration of the bench. 70. The defendant company continued to remain a sick company under the 1985 Act and proceedings before the BIFR continued and it was only on 27.06.2013, after a detailed consideration of the progress made by the company towards revival, that the BIFR declared the defendant company to have ceased to be a sick industrial company. Consequently, the defendant company was deregistere....
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....the Bombay High Court quashing recovery proceedings towards property taxes and other amounts due under the provisions of the Bombay Village Panchayat Act, 1959 against the respondent company therein, which had been declared to be a sick company under the Act, the Bench held: "5. The question is whether the Panchayat could not recover the amount due to it from out of the properties of the sick industrial company without the consent of the Board? xxx xxx xxx 7. 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 are to be suspended or presumed to be suspended. The nature of the proceedings which are automatically suspended are: (1) Winding up of the industrial company; (2) Proceedings for execution, distress or the like against the properties of sick industrial company; and (3) Proceedings for the appointment of receiver. The proceedings in respect of these matters could, however, be continued against the sick industrial company with the co....
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....ies or for the appointment of a Receiver in respect thereof. Now Section 22(1) uses the expression 'proceedings' and not 'legal proceedings' which expression is albeit used in the marginal note to the said provision. Mr Rao contended that Section 22 must be read in the light of the marginal note and when so read it becomes obvious that only legal proceedings of the type mentioned in subsection (1) thereof are barred and not the exercise of a right such as the one conferred by Section 29 of the 1951 Act. In support of his contention that the marginal note can be used as an aid to interpretation he invited our attention to a seven-Judge Bench decision of this Court in Bengal Immunity Company Ltd. v. State of Bihar [(1955) 2 SCR 603, 636 : AIR 1955 SC 661 : (1955) 6 STC 446] . In that case the marginal note to Article 286 of the Constitution was referred to and it was said that it furnished some clue as to the meaning and purpose of the Article. But at the same time the Court pointed out that unlike the marginal notes in the statutes of the British Parliament, the various Articles of the Constitution were passed by the Constituent Assembly with the marginal notes and, therefore, the C....
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....riginal goods. It is, therefore, obvious on a plain reading of Section 29 of the 1951 Act 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 concern whereas in the case of a Financial Corporation that right is conferred on the creditor corporation itself which is permitted to take over the management and possession of the properties and deal with them as if it were the owner of the properties. 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. We are, therefore, of the opinion ....
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....e designed for the sick industrial company, steps by way of giving financial assistance etc. by Government, banks or other institutions, are contemplated. In other words, the scheme is implemented or given effect to, by affording financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices by Government, banks, public financial institutions and other authorities. In order to see that the scheme is successfully implemented and no impediment is caused for the successful carrying out of the scheme, the Board is enabled to have a say when the steps for recovery of the amounts or other coercive proceedings are taken against sick industrial company which, during the relevant time, acts under the guidance/control or supervision of the Board (BIFR). Any step for execution, distress or the like against the properties of the industrial company or other similar steps should not be pursued which will cause delay or impediment in the implementation of the sanctioned scheme. In order to safeguard such state of affairs, an embargo or bar is placed under Section 22 of the Act against any step for execution, distress or the like or other similar proceedings a....
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....r which proceedings for recovery, had to be taken. The two decisions of this Court as also the decisions of High Courts brought to our notice are, therefore, distinguishable. They will not apply to a situation as has arisen in this case. We are, therefore, of the opinion that Section 22(1) should be read down or understood as contended by the Revenue. The decision to the contrary by the High Court is unreasonable and unsustainable. We set aside the judgment of the High Court and allow this appeal. There shall be no order as to costs." ( Emphasis supplied ) 79. The decision in Corromandal Pharmaceuticals (supra) was referred to and relied upon by a two-Judge Bench of this Court in Jay Engineering (supra) which set aside the order of the High Court as it failed to consider that the liabilities of the appellant-sick company therein with respect to the creditor were indisputably a part of the revised rehabilitation scheme. This Court held that if the liabilities of the creditor were duly considered and made a part of the rehabilitation scheme, the bar under Section 22(1) of the 1985 Act would apply, notwithstanding the fact that the liabilities arose after the company was d....
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....ort as regards suspension of legal proceedings from the moment, the inquiry is started till after the implementation of the scheme or disposal of the scheme under Section 25 of the 1985 Act. It was categorically held: "... it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the sanctioned scheme...." The ratio laid down in the said decision, therefore, instead of assisting the respondent assists the appellant." ( Emphasis supplied ) 80. The original defendants have strongly relied upon the decision of a two-judge bench of this Court in Bhoruka Textiles (supra). In the said case, the respondent therein, filed a suit for recovery against the appellant, a sick industrial company. The civil court decreed the suit in favour of the respondent therein with the finding that the transaction referred to took place subsequent to the reference of the appellant company to the BIFR and thus the suspension under Section 22(1) of the 1985 Act would not apply. The civil court also held that in the absence of any final order declaring the appellant company as a sick company by th....
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.... effect to the larger public interest. It should be given primacy because of its higher public purpose. Section 26 of SICA bars the jurisdiction of the civil courts. 32. What scheme should be prepared by the operating agency for revival and rehabilitation of the sick industrial company is within the domain of BIFR. Section 26 not only covers orders passed under SICA but also any matter which BIFR is empowered to determine. 33. The jurisdiction of the civil court is, thus, barred in respect of any matter for which the Appellate Authority or the Board is empowered. The High Court may not be a civil court but its jurisdiction in a case of this nature is limited." 12. If the civil court's jurisdiction was ousted in terms of the provisions of Section 22 of the Act, any judgment rendered by it would be coram non judice. It is a well-settled principle of law that a judgment and decree passed by a court or tribunal lacking inherent jurisdiction would be a nullity. In Kiran Singh v. Chaman Paswan [AIR 1954 SC 340] this Court held: (AIR p. 342, para 6) "6. ... It is a fundamental principle well established that a decree passed by a court without jurisd....
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....nd the scheme of SICA 1985. It is a settled canon of interpretation of statutes that the statute should not (sic) be construed in its entirety and a sub-section or a section therein should not be read and construed in isolation. Chapter III, in fact, is the soul and essence of SICA 1985 and it provides for the methodology that is to be adopted for the purposes of detecting, reviving or even winding up a sick industrial company. Provisions under SICA 1985 also provide for an appeal against the orders of BIFR before another specialised body i.e. Aaifr. To put it simply, this is a self-contained code and because of the non obstante provisions, contained therein, it has an overriding effect over the other laws. As per Section 32 of SICA 1985, the Act is required to be enforced with all its vigour and in precedence to other laws. xxx xxx xxx 54. Firstly, the facts of these cases are different and distinct and, therefore, conclusions of the Court have to be read with reference to the facts of the respective cases only and not dehors thereof. Once the dictum of this Court is read with reference to the facts of the respective cases, it would be evident that there is no co....
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....e consideration and finalisation of the scheme, would become operative. This is done primarily with the object that the assets of the company are not diverted, wasted, taken away and/or disposed of in any manner, during the relevant period. xxx xxx xxx 69. Sections 22, 22-A, 26 and 32 have to be read and construed conjointly. A common thread of legislative intent to treat this law as a special law, in contradistinction to the other laws except the laws stated in the provisions and to ensure its effective implementation with utmost expeditiousness, runs through all these provisions. It also mandates that no injunction shall be granted by any court or authority in respect of an action taken or to be taken in pursuance of the powers conferred to or by under this Act. xxx xxx xxx 78. The expression "no proceedings" that finds place in Section 22(1) is of wide spectrum but is certainly not free of exceptions. The framers of law have given a definite meaning to the expression "proceedings" appearing under Section 22(1) of SICA 1985. These proceedings are for winding up of the industrial company or for execution, distress or the like against any of the ....
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....ing the ambit of its protective umbrella, yet it has also been mindful to extend such protection only to such cases where the refusal to allow such extension would result in miscarriage of the very purpose of the Act, which is the expeditious revival of sick companies. 85. The ameliorative object of the 1985 Act, as envisaged by the legislature, is sought to be achieved, inter alia, by the smooth formulation and implementation of a rehabilitation scheme. Thus, if any impediment exists to the successful execution of the scheme, such an impediment is curtailed at the outset by the embargo provided under Section 22(1) of the 1985 Act. 86. It can be said without a cavil of doubt that the proceedings in the nature of execution or distress by way of appointment of receiver or attachment of immovable property, bank accounts, etc. would affect the assets of a sick company and may inevitably come in the way of the preparation or execution of the rehabilitation scheme. However, to hold that the protective shield of Section 22(1) of the 1985 Act would apply even to those proceedings which do not have any impact on the prospects of successful formulation and implementation of the scheme,....
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....) of the 1985 Act in the context of the object sought to be achieved by it and held that the term 'suit for recovery' as it appears in the said provision must be construed ejusdem generis, meaning thereby that only such a suit for recovery which is in the nature of execution or any other coercive enforcement will be suspended by the effect of the provision. The relevant parts of the said decision are extracted hereinbelow: "5. We think it appropriate, however, to consider the provision of SICA and analyse what it endeavours to achieve. We must immediately take note of the fact that SICA has been repealed by Sick Industrial Companies (Special Provisions) Repeal Act, 2003. While it is yet to be notified, it is significant that provisions akin to Section 22 are conspicuous by their absence in the new Scheme of revival of sick companies inserted in form of Part VIA, namely, "Revival and Rehabilitation of Sick Industrial Companies". Obviously, empirical analysis discloses that more often than not companies which have sought shelter of SICA have done so to procrastinate, delay and defer clearing its liability, with the obvious intention of coercing creditors into unfair settleme....
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.... the balance tilts in favour of the latter. A holistic reading of Section 22(1) of SICA makes it manifestly clear that Parliament's intention was to insulate sick companies only against proceedings for winding-up or for execution, or distress or the like or for enforcement of any security or guarantee. In the case in hand, despite several opportunities granted to the Appellant, it has miserably and perhaps deliberately failed to substantiate that the claim mentioned in the Suit has been reflected in the Scheme placed before the BIFR but even more poignantly, that a scheme was, in fact, pending before BIFR. If an Appeal is pending, has BIFR failed to grant or has withdrawn registration under SICA. We see the conduct of the Appellant as nothing more than an abuse of SICA. 7. The Apex Court has in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals, (1997) 10 SCC 649 enunciated the law in the context of SICA to be that a cessation of legal proceedings would be justified only if the dues in respect of which adjudication is ongoing is also included in or within the contemplation of the Scheme presented to BIFR. Their Lordships had analysed and distinguished its pre....
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....enforced." ( Emphasis supplied ) 90. The original plaintiff has placed strong reliance upon the decision of a single judge of the Delhi High Court in Sunil Mittal (supra). It was held therein that since the liability was neither admitted nor taken into consideration by any rehabilitation scheme, the suit proceedings could not have been adjourned sine die under Section 22(1) of the 1985 Act. The relevant paragraphs are extracted hereinbelow: " 21. In view of the aforesaid facts and circumstances of the case, I feel as the FChas not admitted its liability to pay the amount to the tune as claimed by the plaintiff nor such an amount has been reckoned or taken into consideration by any scheme of rehabilitation of the sick defendant company, therefore, the proceedings of the present suit cannot be adjourned sine die. As a matter of fact the defendant has not placed on record any documentary evidence to show that any such scheme has been formulated as yet and if formulated whether the said amount has been taken care of allegedly being owed to the Plaintiff. 22. For the aforesaid reasons, I feel that the application of the Defendant totally misconceived and ac....
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.... ( Emphasis supplied ) 93. In M/s Haryana Steel & Alloys Ltd. v. M/s Transport Corporation of India reported in (2012) SCC OnLine Del 2140 it was held that the mere contention of the sick company unsubstantiated by any material indicating that the amount forming subject-matter of the recovery suit is covered under the scheme, would not be sufficient to bring the company under the protective ambit of Section 22(1) of the Act. The relevant paragraphs of the said decision are extracted thus: " 11. However, there is another dimension to the said embargo placed on filing of the suit for recovery against a company when the proceedings are pending under the SICA, which is the necessity of the inclusion of the dues payable by the company to the plaintiff in the scheme formulated before the BIFR. It is a settled legal position that it is not by mere pendency of an enquiry under Section 16 of the said Act or preparation of the scheme thereof being under consideration or even filing of an appeal under section 25 before the appellate authority that by itself would entitle the appellant for the said statutory injunction against the respondent/plaintiff as the benefit of the prohi....
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....becomes proceedings in the nature of execution, distress or like, and only such suits of recovery where there would be proceedings which cause liquidation of assets of a sick company, would be those suits which would be hit by the bar of Section 22 of SICA. 4. In the present case, the suit for recovery of money is a suit for recovery of money simplicitor. Counsel for the plaintiff does not press the interim applications under Order 38 Rule 5 of Code of Civil Procedure, 1908 (CPC) and Order 39 Rules 1 and 2 CPC. Accordingly, in the subject suit, there is no threat to the liquidation of the assets of the sick company and therefore no prior permission is required under Section 22 of SICA." ( Emphasis supplied ) 95. In FMI Investment Pvt. Ltd. v. Montari Industries Ltd. and Another reported in (2012) SCC OnLine Del 5354, the High Court undertook a comprehensive analysis of the dictum as laid in Raheja Universal (supra) and Saketh India (supra) and held thus: " 6. The salient conclusions which can be arrived at from reading of the aforesaid paras in the case of Raheja Universal (supra) are : - (i) The proceedings which are affected by Section 22(1)....
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....o affect the scheme of revival. The suit is a simple suit for recovery under Order 37 CPC not having proceedings, whether interim or final, of execution, distress or the like and hence the suit is not hit by Section 22 of SICA. So far as defendant No. 2/guarantor is concerned, the suit against him will not surely hit any assets of the sick company and hence is not barred under Section 22 of SICA." ( Emphasis supplied ) 96. In one recent decision of the Delhi High Court in Chhattisgarh Distilleries Ltd. v. Percept Advertising Limited reported in 2023 SCC OnLine Del 6417, while considering the question on applicability of Section 22(1) of the 1985 Act, it was held thus: " 8. It is well settled that there was legal duty cast upon the appellant/defendant to bring it to the notice of the Court that it had qualified for the protection under the SICA, and this obligation was not discharged. There is no gainsaying that the aforesaid provision has been interpreted in umpteen number of cases decided by the Apex Court as well as this Court. In the cited case of Saketh India Limited (supra), it was observed that the phrase "recovery of money" must be construed ejusdem gene....
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....he dues arising under the alleged illegal deductions under the contract. This cannot be said to be a proceeding in the nature of execution, distress or the like and hence the suit was not hit by Section 22(1) of the 1985 Act. 99. By no stretch of imagination could it be said that the legislature intended to include even the proceedings for the adjudication of the liabilities not admitted by a sick company within the protective ambit of Section 22(1) of the 1985 Act. Such an adjudicatory process only determines the liability of the defendant towards the plaintiff, and does not threaten the assets of the sick company or interfere with the formulation of the scheme unless execution proceedings are initiated pursuant to the completion of such adjudicatory process. In the case of Jay Engineering (supra), it was rightly observed by this Court in the context of arbitration proceedings under the 1993 Act for the adjudication of claims, that while the execution of an award would definitely be suspended under Section 22(1) of the 1985 Act, the adjudicatory process for arriving at such an award cannot be said to be suspended by the said provision. This position also seems to be justified i....
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....judicatory process, but the execution of an award which would be restricted by Section 22(1) of the 1985 Act. This judgment, thus, only furthers the line of reasoning we have adopted to negate the contention of the original defendants on the applicability of Section 22(1) of the 1985 Act. 103. The decision in Bhoruka Textiles (supra) dealt with the specific facts in that case and should be read alongwith the decision in Raheja Universal (supra) wherein the scope of Section 22(1) of the 1985 Act was considered in detail by a three-Judge bench. We would also like to observe that the reliance placed by this Court in Bhoruka Textiles (supra) on the decision in Tata Motors (supra) seems to be misplaced. The relevant paragraph of Bhoruka Textiles (supra) is reproduced hereinbelow: "10. Section 22 of the Act must be interpreted giving a plain meaning to its contents. An enquiry in terms of Section 16 of the Act by the Board is permissible upon receipt of a reference. Thus, reference having been made on 27-12-2001 and the suit having been filed on 17-12-2002, the receipt of a reference must be held to be the starting period for proceeding with the enquiry. 11. The effe....
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....as under consideration. As opposed to Section 26 of the Act, which bars the jurisdiction of the civil courts in respect of those matters for which the BIFR or the AAIFR are empowered, Section 22 only places a temporary embargo on the initiation or continuation of legal proceedings in respect of certain matters mentioned therein. Further, unlike Section 22, where the said suspension can be revoked by seeking express permission of the BIFR or the AAIFR, no such permission can be sought under Section 26 of the 1985 Act. Again, in any view of the matter, the adjudication and determination of a contested liability under a contract is undoubtedly the domain of the civil court or an arbitral tribunal and not that of the BIFR or the AAIFR. v. ISSUE NO. 2: Whether the High Court was correct in granting 24% Compound Interest on the Principal Decretal Amount in favour of the original Plaintiff? 105. The High Court in its impugned judgment considered, as a separate issue, whether the original plaintiff was entitled to claim 24% compound interest from the original defendants on the delayed payments. a. Concept of Interest 106. When interest is awarded by the Court, our normal ....
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....10. The original plaintiff has further submitted that the High Court considered the floor rate charged by the SBI for the financial year 1993-1994, which was 19%, as observed under the Table 74 on Structure of Interest Rates in the Handbook of Statistics of Indian Economy published by the Reserve Bank of India. 111. We shall briefly consider the object and scope of the 1993 Act for a better understanding of the issue before us. The Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Ordinance, 1992 was promulgated by the President of India on 23.09.1992. To replace this ordinance, the 1993 Act was enacted on 02.04.1993 and came into force with retrospective effect from 23.09.1992. Subsequently, the 1993 Act was repealed by the Micro Small and Medium Enterprises Development Act, 2006 ("MSMED Act, 2006"). The statement of objects and reasons to the 1993 Act reads as under: "A policy statement on small scale industries was made by the Government in Parliament. It was stated at that time that suitable legislation would be brought to ensure prompt payment of money by buyers to the small industrial units. 2. Inadequate working capital in....
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....e buyer regarding acceptance of goods or services within thirty days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services; (c) "buyer" means whoever buys any goods or receives any services from a supplier for consideration; xxx xxx xxx (f) "supplier" means an ancillary industrial undertaking or a small scale industrial undertaking holding a permanent registration certificate issued by the Directorate of Industries of a State or Union territory and includes,- (i) the National Small Industries Corporation, being a company, registered under the Companies Act, 1956 (1 of 1956); (ii) the Small Industries Development Corporation of a State or a Union territory, by whatever name called, being a company registered under the Companies Act, 1956 (1 of 1956).]" 113. Section 3 of the 1993 Act provides for the liability of the buyer to make payment to the small-scale industries whereas Section 4 and 5 respectively of the said Act pertain to the date from which and the rate at which interest is payable. Section 5 of the 1993 Act also stipulates that the buyer shall ....
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....eir realisation by the original plaintiff. While there is no doubt that the rate of interest applicable to the dues of the original plaintiff as determined by the High Court is correct, we think it is necessary to examine if the compound interest can be said to have continued to accrue even when FCIL was declared a sick company and was awaiting its revival before the BIFR. In other words, it is not the rate of interest but the period for which it is applicable, is the question that is to be determined. 116. We have discussed at length in the foregoing paragraphs of the judgment the object behind the enactment of the 1985 Act. Sickness of industrial companies was considered to be a problem that affected the country at large, and thus the 1985 Act was enacted as per the policy directions contained in Article 39 of the Constitution to provide, inter alia, ameliorative steps for the revival of sick companies, and for the expeditious detection of potentially sick companies. In particular, we would like to mention that Section 19 of the 1985 Act provides that the scheme for rehabilitation of a sick company may provide for financial assistance to the sick company by way of loans, advan....
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....s: "6. Recovery of amount due - (1) The amount due from a buyer, together with the amount of interest calculated in accordance with the provisions of sections 4 and 5, shall be recoverable by the supplier from the buyer by way of a suit or other proceeding under any law for the time being in force. (2) Notwithstanding anything contained in sub-section (1), any party to a dispute may make a reference to the Industry Facilitation Council for acting as an arbitrator or conciliator in respect of the matters referred to in that sub-section and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such dispute as if the arbitration or conciliation were pursuant to an arbitration agreement referred to in sub-section (1) of section 7 of that Act." 122. We do not find any force in this contention of the original defendants. Section 6 merely provides that for the purpose of recovery of the amounts due under the 1993 Act, a supplier may make a reference to the Industries Facilitation Council, which is established under Section 7A of the 1993 Act. First, at the time of the institution of the suit by the original plaintiff, the In....
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....nt on the principal decretal amount. Thus, while there is a stay on proceedings in the nature of distress and execution, etc. against the properties of the sick company, to safeguard its assets, awarding interest for that very same period, though not expressly barred under any provision of the Act, could not have been the intention of the legislature. 127. Any other interpretation would only lead to an absurd result that as soon as a sick company is revived after the steps taken by the BIFR, and concessions, financial support, etc. provided by the government, it would be prone to the liability of having to pay exorbitant interest that would have accrued on any decree which can be put to execution after the end of BIFR proceedings. 128. The net effect would be that a freshly revived sick company would potentially be saddled with huge amounts, as has happened in the present case because of the impugned judgment, and be at a risk of being rendered sick again, thus defeating the very purpose of the 1985 Act. 129. A two-judge bench of this Court, in a recent decision in Modi Rubber Ltd. v. Continental Carbon India Ltd., reported in 2023 SCC OnLine SC 296 decided the issue as to....
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....e SICA does not provide that at the time of preparing of the scheme under Section 18 or when it is sanctioned by the Board, the unsecured creditors are required to be heard. The only provision for the consent required is Section 19 and the agency/person, who is required to give the financial assistance, its consent is required. Once the rehabilitation scheme/scheme under Section 18 prepared by the operating agency is sanctioned by the BIFR, which may include the scaling down the value of dues of the unsecured creditors, the same shall bind all, otherwise the rehabilitation scheme shall not be workable at all and the object and purpose of enactment of the SICA, 1985 will be frustrated. If some persons/unsecured creditors and/or even the labourers are permitted to get out of the purview of the scheme and thereafter permitting such or some of the unsecured creditors to wait till the scheme for rehabilitation of the sick company has worked itself out, in that case, the scheme shall not be workable at all. To make the company viable, the concerned persons including the unsecured creditors have to sacrifice to some extent otherwise the revival efforts shall fail. xxx xxx xxx ....
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....bilitation is accepted, in a given case, the sick company, which has been able to revive because of the scaling down the value of the dues, may again become sick, if the entire dues of the unsecured creditors are to be paid thereafter. It may again lead to becoming such a revived company again as a sick company. If such a thing is permitted, in that case, it will again frustrate the object and purpose of enactment of the SICA, 1985. 64. Now, so far as the submission on behalf of the unsecured creditors that to compel the unsecured creditors to accept the scaled down value of its dues would tantamount to and would be violative of Article 300A of the Constitution of India is concerned, the same has also no substance. Scaling down the value of the dues is under the rehabilitation scheme prepared under Section 18 of the SICA, which has a binding effect on all the creditors. Therefore, the same cannot be said to be violative of Article 300A of the Constitution of India. The law permits framing of the scheme taking into consideration and to provide the measures contemplated under Section 18, therefore, the rehabilitation scheme which provides for scaling down the value of dues o....
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.... enunciated in that case are equally applicable in the present case. Thus, only for the reason that the dues of the original plaintiff were not a part of the scheme and thus could not be settled at a scaled-down value, it cannot be held that it will now be open for the original plaintiff to recover its dues along with compound interest for the entire period in a manner that will saddle the defendant company with enormous liability, thereby possibly rendering the entire process of its revival futile. This, in our view, could never have been the object of the 1985 Act and the provisions of the 1993 Act thus have to be harmonised so as to give effect to the true object of the 1985 Act. 133. We also had the occasion to look into the decision of a 2-Judge bench of this Court in LML Limited v. Union of India & Others reported in (2014) 13 SCC 375 wherein this Court was considering the purport of Section 19 of the MSMED Act, 2006 which is in pari-materia to the Section 7 of the 1993 Act. The provisions read as under: MSMED Act, 2006 The 1993 Act "19. Application for setting aside decree, award or order. No application for setting aside any decree, award or other order made ....
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....ure to deposit the amount as directed by the District Judge, Kanpur Nagar in its order dated 12-5-2011 would not result in dismissal of the arbitration petition filed by the petitioner under Section 34 of the 1996 Act challenging the award dated 22-12-2008. The said arbitration petition may remain pending with the District Judge until the finalisation of scheme by BIFR under Section 18 of the 1985 Act. We order accordingly. 10. The special leave petition is disposed of as above. Respondent 3 is granted liberty to apply to BIFR to hear it before finalisation of the scheme. We observe that if such an application is made, BIFR shall hear Respondent 3 before finalisation of the scheme or any other order that may be passed by BIFR terminating the proceedings under 1985 Act." ( Emphasis supplied ) 136. We would also like to advert to the principle of harmonious construction to understand the interplay between the 1985 Act and the 1993 Act. Simply put, the doctrine of harmonious construction is based on the principle that the legislature would not lightly take away from one hand what it had given with the other. Thus, this doctrine provides, that as far as possible, t....
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....ued on March 20, 2013. However, the appellant paid the dues only on April 25, 2015. The question would be, in the facts and circumstances, what would be the date, on which, the repayment of the loan is due. 29. The Department's contention is that it should be the date, on which, the default occurred. If that is to be reckoned as the date, then an order of cancellation of the agreement followed by recovery proceedings should have been taken by the Department, which admittedly has not been done. This is presumably for the reason that from 2003 to 2013, the appellant was before the Board and it was declared as a sick industrial company and in terms of section 22 of the SICA, the respondent-Department was prohibited from proceeding with any recovery against the appellant and this is a statutory prohibition, which binds the respondent-Department. 30. From the representation given by the appellant to the Government dated August 5, 2014, we find that the Sales Tax Department did not appear before the Board on several dates when the case was heard. Be that as it may, the due date for repayment could have never occurred, in the facts and circumstances, between August 1....