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. ISSUE NO. 2: Whether the High Court was correct in granting....
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.... 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 of the original defendants, on the understanding that a subsequent purcha....
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....3.14 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. Issue Decision of the trial court 1. Whether the plaintiff had supplied 4 2,000 bags (33,000 + 9,000) on the advice and urgency showed....
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....ordingly" 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 penalty were wrongly imposed on it by the original defendants, and that the interest at the rate of 24% with monthly compounding ought to have been granted on the delayed payments in light of the provisions of the I....
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....ts 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 submission, the learned senior counsel argued that the facts of the present case are similar to the facts in Bhoruka Textiles (supra) as follows: I. The defendant company was declared as a sick industrial undertaking under Section 3(1....
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....warded 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 the defendant company remained under BIFR for a period of 21 years and was revived in 2013 after intervention of the Cabinet Committee on Economic Affairs. The economic distress caused by the enforcement of the liability imposed upon the original defendants by the Hi....
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....rther, 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 defendants on the decision of this Court in Tata Motors (supra) is also misplaced as the said decision pertains to Section 26 of the 1985 Act while the case on hand pertains to the applicability of Section 22 of the 1985 Act. He contended that even the said decision supports the case of ....
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.... 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 appeals before the High Court, the defendant company continued to remain a Sick Industrial company with a Special Director appointed by the BIFR and the SBI appointed as the Operating Agency. 42. On 09.05.2013, the Cabinet Committee on Economic Affairs ("CCEA") met and took decisions on the revival of the de....
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....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, recession in the market, labour disputes, changes in the fiscal policies of the government, unavailability of credit facilities, and nonavailability of raw-materials are some of the prominent factors causing industrial sickness. 50. As the Indian economy transitioned from being an agriculture-intensive one towards a more industry-centric one, a growing num....
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....i-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 and optimise the use of the funds of the banks and financial institutions, it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible. It would also be equally imperative to salvage the productive assets and realise the amounts due to the banks and financial institutions, to the extent possible, from the non-viabl....
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....e 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 of the measures so determined and for matters connected therewith or incidental thereto." 57. Having discussed the object behind the enactment of the 1985 Act and the developments leading up to its inception, we shall now briefly discuss the scheme and scope of the 1985 Act. 58. The 1985 Act is divided into four chapters. The first chapter contains preliminary provisions including the definitions and a declaration that the 1985 Act is enacted in ....
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....f 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 the 1985 Act and the object and purpose behind its enactment, we shall now proceed to answer the issues framed by us. 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 t....
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....FR, 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, the proceedings in the nature of a suit as mentioned in (iv), (v) and (vi) in paragraph 65 above were exempt from the ambit of the suspension as envisaged under Section 22(1) of the 1985 Act. 67. Thus, as can be seen from the plain reading of Section 22(1) of the 1985 Act, for an industrial company to avail the benefit of suspension of legal proceedings, two conditions have to be fulfilled - First, one of the four requirements as mentioned in paragraph 64 should be satisfied, that is, the industrial company must be at the prescribed stage of proceedings....
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....) 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 deregistered from BIFR on the said date. 71. It is the case of the original defendants that the original civil suit for the recovery of money having been filed against the defendant company during the pendency of proceedings before the BIFR, the trial court committed an error in deciding the suit despite the statutory bar as envisaged under Section 22(1) of the 1985 Act. 72. From a perusal of the facts as discussed above, it is clear that the civil suit was instituted by the original plaintiff on 21.11.1996, that is, indeed, during the pendency of the proceedings in respect of the d....
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.... 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 consent or approval of the Board or of the appellate authority as the case may be. xxx xxx xxx 10. In the light of the steps taken by the Board under Sections 16 and 17 of the Act, no proceedings for execution, distress or the like proceedings against any of the properties of the company shall lie or be proceeded further except with the consent of the Board. Indeed, there would be automatic suspension of such proceedings against the company's properties. As soon as the inquiry under Section 16 is ordered by the Board, the various proceedings set out under sub-section (1) of Section 22 would be ....
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....h 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 Court considered it permissible to use the marginal note to understand the meaning and purport of the Article. But so far as statutes are concerned this Court in the case of Board of Muslim Wakfs, Rajasthan v. Radha Kishan [(1979) 2 SCC 468] held in no uncertain terms that the weight of the authority was in favour of the view that the marginal note appended to a section cannot be used for construing the section (see paragraph 24 at p. 479). Section 22(1) shorn of the irrelevant part provides that where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in any other law, no proce....
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.... 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 that 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." ( Emphasis supplied ) 77. The decisions in Gram Panchayat (supra) and Maharashtra Tubes (supra) considered the unamended Section 22(1) of the 1985 Act. However, the said provision came to be amended by the Sick Industrial Companies (Amendment) Act, 1994 which came into effect from 01.02.1994. The suit in question before us having been filed in 1996, it is the amende....
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....nst 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 against the company without the consent of the Board or, as the case may be, the appellate authority. The language of Section 22 of the Act is certainly wide. But, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme. If that be so, only the liability or amounts covered by the scheme will be taken in, by Section 22 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an ap....
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....e 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 declared to be a sick one. The relevant observations of this court are extracted hereinbelow: "9. In the said scheme, the award made in favour of the respondents finds place in the category of "dormant creditors". The liabilities of the appellant vis-à-vis Respondent 2 were, therefore, indisputably a subject-matter of the said scheme. The High Court, in our opinion, committed an error in proceeding on the premise that the awarded amount had not been included and could not be included in the sanctioned rehabilitation scheme, the same being part of transactions which took place after 21-11-1997 ignoring the revised scheme made in the year 2003. xxx xxx xxx ....
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....rein, 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 the BIFR, mere reference of the said company to the BIFR would not bring the protection under Section 22(1) of the 1985 Act into effect. 81. This Court negatived both the findings noted above and held that the civil court committed a manifest error in holding that the transaction in question was subsequent to the reference, when from the admitted facts it was apparent that it took place prior to the referral. It was observed by the Bench thus: "7. Chapter III of the Act provides for reference, enquiries and schemes. Section 15 of the Act provides for reference to the Board in terms whereof the Board of Directors of the company is required to make a reference within 60 days from the date of the duly audited accounts ....
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....f 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 jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the court to pass any decree, and such a defect cannot be cured even by consent of parties." (See also Chief Engineer, Hydel Project v. Ravinder Nath [(2008) 2 SCC 350 : (2008) 1 SCC (L&S) 940] , SCC p. 361, para 26.)" ( Emphasis supplied ) 82. A three-Judge Bench of this Court in Raheja Universal Limited v. NRC Limited and Others reported in (2012) 4 SCC 148 undertook a comprehensive study of the various decision....
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....her 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 conflict of views within the ambit of ratio decidendi of the respective judgments to make both of them legal and binding precedents. 55. Despite these judgments and with an intention to clarify the law, we would state that the matters which are connected with the sanctioning and implementation of the scheme right from the date on which it is presented or the date from which the scheme is made effective, whichever is earlier, would be the matters which squarely fall within the ambit and scope of Section 22 of SICA 1985 subject to their satisfying the ingredients stated under that provision. This would include the proceedings before the civil court, Revenue Authorities and/or any other competent forum in the form of execution or distress in relation to recovery of amount by sale or otherwise of the assets of the sick industrial ....
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....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 properties of the industrial company or for the appointment of a Receiver in respect thereof. 79. The expression "the like" has to be read ejusdem generis to the term "proceedings". The words "execution, distress or the like" have a definite connotation. These proceedings can have the effect of nullifying or obstructing the sanctioning or implementation of the revival scheme, as contemplated under the provisions of SICA 1985. This is what is required to be avoided for effective implementation of the scheme. The other facet of the same section is that, no suit for recovery of money, or for enforcement of any security against the industrial company, or any guarantee in respect of any loan or advance granted to the industrial company shall lie, or be proceeded with further without the consent of BIFR. In other words, a suit for recovery and/or for the stated kind of reliefs cannot....
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....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, and the possibility of revival of the sick company, would run contrary to the object of the Act, which was never to confer absolute immunity or impunity on the sick company. 87. Thus, as explained in paragraph 67 of this judgment, a perusal of the plain text of Section 22(1) of the 1985 Act brings out only two conditions for the suspension of legal proceedings to operate. However, various decisions of this Court, by necessary implication, have read into the said provision a third condition which too has to be fulfilled before a sick company can seek protection of the said provision. This third condition is that for a legal proceeding to be suspended under Section 22(1) of the 1985 Act, it should be shown to be interfering with the formulation, consideration, finalisation or implementation of a rehabilitation scheme. 88. A Single Judge of the Delhi High Court has explained very succinctly these conditio....
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....ously, 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 settlements rather than implementing projected schemes supposed to assist in their reconstruction. When the statute is notified, amendments to the Companies Act, 1956 will become effective and all proceedings pending before BIFR will stand abated. To some extent, therefore, the present controversy has been rendered academic. 6. Courts, however, have always been alive to the possible mischief that invocation of SICA can lead to. In a nutshell, where the not worth of a company is reduced to a negative, and the amelioration that is sought is for reviving the company rather than winding it up, the recourse to the Act would be legitimate. There is no justifiable reason, therefore, for all legal proceedings to be immediately even held in abeyance, if not dismissed. We are mindful of the fact that Parliament has incorporated an amendment in the Section with effect from 1.2.1994 in these words - "no suit for the recovery of money or for the enforcement o....
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....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 previous decisions in Gram Panchayat v. Shree Vallabh Glass Works Limited, (1990) 2 SCC 440 as well as Maharashtra Tubes Ltd. v. State of Industrial and Investment Corporation of Maharashtra Ltd., (1993) 2 SCC 144 on the reasoning that in those cases the liability of the sick company had arisen for the first time after the sanction of the Scheme by BIFR.... 8. In Sirmor Sudburg Auto Ltd. v. Kuldip Singh Lamba, [1998] 91 Comp. Cas. 727, R.C. Lahoti, J., as the Learned Single Judge of this Court then was, opined that to be entitled to a stay of legal proceedings under Section 22 of the Act, a mere pendency of the enquiry would not suffice; the claimed dues must be reckoned or included in the sanctioned scheme. A suit for eviction against a sick industrial company is not liable to be stayed under Section 22(1) of the SICA. This decision has been followed by the Division Bench of the Calcutta High Court in Taulis Pharma Ltd. v. Bengal Immunity Ltd., [2002] ....
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....rmulated 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 accordingly, the same is dismissed. " ( Emphasis supplied ) 91. It has come to our notice that the said decision in Sunil Mittal (supra) was challenged in appeal before a division bench of the Delhi High Court in LML Ltd. v. Sunil Mittal reported in 2013 SCC OnLine Del 1766 wherein the bench set aside the decision and held that Section 22(1) of the 1985 Act would apply to the facts of the case. The bench observed that from the record it was clear that the amount as claimed by the plaintiff in the recovery suit was admittedly covered by the scheme and thus the proceeding was liable to be suspended by application of Section 22(1) of the 1985 Act. Thus, the position of law held in Sunil Mittal (supra), could not be said to have been disturbed, but only its incorrect application to the facts of the specific case was set aside in LML Ltd. (supra). 92. The decision in LML Ltd. (supra), on the contrary, fortifies the interpretation of Section 22(1) as was done in Sunil Mittal (supra) and....
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....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 prohibition or embargo created under section 22 of the Act would come into operation only where the appellant/defendant has disclosed before the Court, that the amounts claimed by the respondent/plaintiff have been duly shown and disclosed in the scheme formulated and laid before the BIFR. The Apex Court in the case of Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals, (1997) 10 SCC 649 enunciated the law to hold that a cessation of legal proceedings would be justified only if the dues in respect of which adjudication is ongoing is also included in the contemplation of scheme presented by BIFR... xxx xxx xxx 14. In the light of the above settled legal position, analyzing the facts of the case at hand, it is manifest that no material was placed on record by the appellant to show that the amount in respect of which the respondent laid its claim in the said recovery suit was reflected in the scheme laid before the BIFR. The only contention raised by the appellant before the trial court as well as before t....
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....resaid paras in the case of Raheja Universal (supra) are : - (i) The proceedings which are affected by Section 22(1) are proceedings in the nature of execution, distress or the like. (ii) It depends on facts of each case as to whether the suit is hit by Section 22 i.e. all suits including of recovery, are not hit by Section 22(1). (iii) Only those suits which have the effect of execution, distress or like action against the properties of the sick company are hit by Section 22 i.e. where a suit is simply for recovery of moneys, and the properties of a sick company are not threatened by the proceedings including interim proceedings such as appointment of receiver, execution, distress or the like, such suits can continue without permission under Section 22. 7. Learned counsel for the defendant no. 2 sought to place reliance on the following three judgments to argue that permission under Section 22 is a sine qua non. (i) Managing Director, Bhoruka Textiles Ltd. v. Kashmiri Rice Industries (2009) 7 SCC 521; (ii) Tata Davy Ltd. v. State of Orissa (1997) 6 SCC 669; (iii) Dr. B.K. Modi v. Morgan Securities and Credits Pvt. Ltd. and Morgan Securities and Credits Pvt. Lt....
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.... "recovery of money" must be construed ejusdem generis and accordingly recovery proceedings in the nature of execution or any other coercive enforcement that has been ordained to be not maintainable. There is nothing in the said provision so as to hold the legal proceedings to be not maintainable, or liable to be halted, even if the debt sought to be proved in the plaint has not been admitted. Furthermore, it was observed that there can be no logic in denying legal recourse to a party for proving its debt. The said decision was relied upon by this Court again in the decision of Ralson Industries Ltd. (now known as Da Rubber Industries Ltd) (supra), wherein it was categorically held that the proceedings that can be halted by invoking Section 22 of the SICA should be in the nature of execution, distress or the like. " ( Emphasis supplied ) 97. From the aforesaid discussion, the position of law on the first issue before us appears to be that for the applicability of Section 22(1) of the 1985 Act, three aspects need to be considered - I. First, an inquiry under Section 16 of the 1985 Act must be pending; or any scheme referred to in Section 17 of the 1985 Act must be under prepa....
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....s to be justified in light of the fact that the proceedings before the BIFR under the 1985 Act were generally long-drawn and time consuming and it would subserve the interest of justice if a party was prevented even from proving the debt/liability of the sick company for the entirety of that lengthy period. 100. We may also look at Section 22(1) of the 1985 Act by applying the mischief rule of interpretation. G.P. Singh in his authoritative commentary on the interpretation of statutes describes the mischief rule of construction as follows: "The rule which is also known as 'purposive construction' or 'mischief rule', enables consideration of four matters in construing an Act: (i) What was the law before the making of the Act, (ii) What was the mischief or defect for which the law did not provide, (iii) What is the remedy that the Act has provided, and (iv) What is the reason of the remedy. The rule then directs that the courts must adopt that construction which "shall suppress the mischief and advance the remedy."" 101. Applying the aforesaid rule to Section 22(1) of the Act, we find that there was a vacuum in the legal framework to deal with sick industrial com....
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....e provisions of the Act has been considered by a three-Judge Bench decision of this Court in Tata Motors Ltd. v. Pharmaceutical Products of India Ltd. [(2008) 7 SCC 619] wherein it, in no uncertain terms, held that SICA is a special statute and, thus, overrides other Acts like the Companies Act, 1956, stating: (SCC p. 635, paras 31-33) "31. SICA furthermore was enacted to secure the principles specified in Article 39 of the Constitution of India. It seeks to give 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....
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....nishment. But interest in all cases is not granted by way of penalty or punishment. In this regard, reference may be made to the decision of this Court in the case of Alok Shanker Pandey v. Union of India, reported in 2007 AIR (SC) 1198, wherein the concept of grant of interest has been explained in the following manner: "It may be mentioned that there is misconception about interest. Interest is not a penalty or punishment at all, but it is the normal accretion on capital. For example, if A had to pay B a certain amount, say ten years ago, but he offers that amount to him today, then he has pocketed the interest on the principal amount. Had A paid that amount to B ten years ago, B would have invested that amount somewhere and earned interest thereon, but instead of that A has kept that amount with himself and earned interest on it for this period. Hence equity demands that A should not only pay back the principal but also interest thereon to B." 107. The above-noted decision of this Court makes it clear that interest on the delayed payment of the claim amount accrues due to the continuing wrong committed by the wilful withholding of the payment towards the claim, resulting in ....
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....lems affecting the health of such undertaking. Industries in this sector have also been demanding that adequate measures be taken in this regard. The Small Scale Industries Board, which is an apex advisory body on policies relating to small scale industrial units with representatives from all the States, governmental bodies and the industrial sector, also expressed this view. It was, therefore, felt that prompt payments of money by buyers should be statutorily ensured and mandatory provisions for payment of interest on the outstanding money, in case of default, should be made. The buyers, if required under law to pay interest, would refrain from withholding payments to small scale and ancillary industrial undertakings. 3. An Ordinance, namely, the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Ordinance, 1992, was, therefore, promulgated by the President on the 23rd September, 1992. 4. The Bill seeks to replace the said Ordinance and to achieve the aforesaid objects." 112. It is evident from the aforesaid statement of objects and reasons that the legislature desired to bring about a legislation which would ensure prompt payment of money to....
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....ed thus: - "3. Liability of buyer to make payment - Where any supplier supplies any goods or renders any services to any buyer, the buyer shall make payment therefor on or before the date agreed upon between him and the supplier in writing or, where there is no agreement in this behalf, before the appointed day. 4. Date from which and rate at which interest is payable - Where any buyer fails to make payment of the amount to the supplier, as required under section 3, the buyer shall, notwithstanding anything contained in any agreement between the buyer and the supplier or in any law for the time being in force, be liable to pay interest to the supplier on that amount from the appointed day or, as the case may be, from the date immediately following the date agreed upon, at such rate, which is five per cent points above the floor rate for comparable lending. Explanation: For the purposes of this section, "floor rate for comparable lending" means the highest of the minimum lending rates charged by scheduled banks (not being co-operative banks) on credit limits in accordance with the directions given or issued to banking companies generally by the Reserve Bank of India under th....
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....umber of decisions were taken by the CCEA on 09.05.2013 including the waiver of loans and interest thereon by the Central Government which ran into thousands of crores. As per the document F.No. 18055/13/2012-FCA-1 titled "Gist of the CCEA decisions dated 09th May, 2013" published by the Ministry of Chemicals and Fertilizers, it appears that the dues of the major unsecured creditors were settled at 30% of their dues as on 31.03.2003. Further, the dues of some other parties were settled without any interest or penalty, as otherwise the entire process of revival might have gotten derailed. 118. We have also discussed how Section 22(1) of the 1985 Act suspends any legal proceedings of the nature specified therein if they can potentially interfere with the consideration, sanction or execution of the rehabilitation scheme. The intention behind the sanction and execution of a rehabilitation scheme, without a doubt, is to increase the chances of the revival of the sick company in public interest. 119. Thus, on one hand we have the beneficial provisions of the 1985 Act, enacted to maximise the chances of revival of sick industrial companies, while on the other, we have the 1993 Act, whic....
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.... to the supplier in addition to a suit or any other legal proceedings as mentioned in Section 6(1) of the 1993 Act. 123. It is also pertinent to mention that in the absence of the express permission of the BIFR, Section 22(1) of the 1985 Act suspends any legal proceedings in the nature of execution during the pendency of the scheme before the BIFR, as execution would necessarily result in negatively impacting the assets of a sick company, thereby affecting the preparation, sanction or implementation of scheme and as a net effect, would bring down the chances of revival of the sick company. 124. In the present case, the suit was decreed in favour of the original plaintiff by the trial court vide its judgment dated 19.09.2001. However, while the adjudication of the suit of the original plaintiff could not have been said to be barred under Section 22(1) of the 1985 Act as it was for the mere determination of liability of the parties inter-se, the execution of decree obtained as a result thereof was expressly suspended during the period as mentioned in the said provision, unless the requisite permission from the BIFR or the AAIFR could be obtained. 125. Interest of justice requires ....
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.... an exhaustive consideration of the object of the 1985 Act, answered the issue in the negative and held as follows: "40. The short question, which is posed for the consideration of this Court is:- "Whether on approval of a scheme by the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, an unsecured creditor has the option not to accept the scaled down value of its dues, and to wait till the scheme for rehabilitation of the respondent - sick company has worked itself out, with an option to recover the debt with interest post such rehabilitation?" xxx xxx xxx 49. Thus, the primary concern of the Board would be the revival of the sick company and to save the sick company from winding up. That is why with a view to see that there is no impediment in framing the rehabilitation scheme and to get out the sick company from sickness. Section 22 provides for suspension of legal proceedings, contracts etc. On a bare reading of Section 22 and Section 22A of SICA, it appears that these two provisions primarily ensure that the scheme prepared by BIFR does not get frustrated because of certain other legal proceedings and to prevent untimely and unwarranted dispos....
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....s and may wait till the scheme for rehabilitation of the sick company has worked itself out, with an option to recover the debt post such rehabilitation is accepted/allowed, in that case, the minority creditors may frustrate the rehabilitation scheme, which may frustrate the object and purpose of enactment of SICA, 1985. xxx xxx xxx 61. Thus, minority creditors and that too some unsecured creditors cannot be permitted to stall the rehabilitation of the sick company by not accepting the scaled down value of its dues. Unless and until there is a sacrifice by all concerned, including the creditors, financial institutions, unsecured creditors, labourers, there shall not be any revival of the sick industrial company/company. 62. Now, so far as the submission on behalf of the unsecured creditors that the unsecured creditors should have an option not to accept the scaled down value of its dues and to wait till the scheme for rehabilitation of the sick company has worked itself out, with an option to recover the debt post such rehabilitation is concerned, the same has no substance and cannot be accepted. It is required to be noted that in a given case, because of the scaling down ....
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....proval of a scheme by the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, the unsecured creditors has an option not to accept the scaling down value of its dues and to wait till the rehabilitation scheme of the sick company has worked itself out with an option to recover the debt with interest post such rehabilitation is erroneous and contrary to the scheme of SICA, 1985 and the same deserves to be quashed and set aside and is accordingly quashed and set aside." (Emphasis supplied) 130. It is clear from the aforesaid observations of this Court that the revival of a sick industry should be given utmost priority and any interpretation which may result in a newly revived company becoming sick again should be avoided at all costs. In the case on hand, the decree in favour of the original plaintiff was not a part of the scheme of rehabilitation approved by the BIFR. Had it been so, it is nothing but obvious that the scheme would have proposed to settle the dues of the original plaintiff at a scaled down value, since a similar approach was adopted in the scheme to settle the dues of all the other creditors. In that scenario, the original plaintiff would not ....
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....er directed by such court: Provided that pending disposal of the application to set aside the decree, award or order, the court shall order that such percentage of the amount deposited shall be paid to the supplier, as it considers reasonable under the circumstances of the case, subject to such conditions as it deems necessary to impose." "7. Appeal - No appeal against any decree, award or other order shall be entertained by any court or other authority unless the appellant (not being a supplier) has deposited with it seventy-five per cent. of the amount in terms of the decree, award or, as the case may be, other order in the manner directed by such court or, as the case may be, such authority." 134. In the aforesaid case, the petitioner therein, having become a sick company, filed a reference to the BIFR under Section 15(1) of the 1985 Act. Around the same time, one of the respondents filed a claim petition before the Industries Facilitation Council under Section 6 of the 1993 Act. The 1993 Act was replaced by the MSMED Act, 2006 during the pendency of the proceedings. While the reference of the company remained pending before the BIFR, the Industries Facil....
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....ng effect to the provisions of the said Act except for the enactments specified therein. Dealing with a case involving the apparent conflict between the two statutes containing overriding provisions, this Court in Sarwan Singh v. Shri Kasturi Lal reported in (1977) 1 SCC 750 held as follows: "When two or more laws operate in the same field and each contains a non obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of interpretation arise. Since statutory interpretation has no conventional protocol, cases of such conflict have to be decided in reference to the object and purpose of the laws under consideration." ( Emphasis supplied ) 138. Similarly, in Jay Engineering (supra), it was observed by this Court thus: "31. The endeavour of the court would, however, always be to adopt a rule of harmonious construction." 139. We would also like to refer to a recent decision of the Madras High Court in Metafilms India Ltd. v. Assistant Commissioner (CT) (Addl.), Amaindakarai Assessment Circle, Chennai and Others reported in (2022) 96 GSTR 272. Although the said decision was rendered in the peculiar facts of the case t....
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.... period from February 6, 2013 to April 25, 2015, the appellant is liable to pay interest." ( Emphasis supplied ) 140. For the period during which the defendant company was sick and before the BIFR, it cannot be said that the withholding of the payment of the dues of the original plaintiff was wilful and intentional. We say so because first, the liability of the original defendants was disputed and was finally adjudicated only by way of the impugned judgment, much after the BIFR proceedings had come to an end; and secondly, even if the liability of the original defendants was not disputed, or was even acknowledged before the BIFR, recovery of the same could not have been done without the permission of the BIFR in view of the suspension of recovery proceedings by Section 22(1) of the 1985 Act. 141. Thus, in view of our aforesaid discussion, we deem it fit to exclude the period commencing from the date when FCIL was declared to be a sick company under the 1985 Act going up to the date when it was discharged by the BIFR and declared to be no longer a sick industrial company from the purview of the applicability of the interest provision under the 1993 Act. Thus, while the applica....