2007 (9) TMI 411 - HC - Companies Law

Damages for the libel - derogatory and defamatory remarks were published and a sum of Rs. 1, 01, 000 was claimed as damages - whether the suit instituted by the respondents is covered by section 22 of the Sick Industrial Companies Act 1985? - Held that - The suit filed against the petitioner arises out of tortuous liability attributed against it. The distinction between contractual and tortuous liability is too well-known to be elaborated. Breach of a contract gives rise to the entitlement to recover liquidated damages or other consequences agreed to by the parties. A tort on the other hand if committed enables a wronged person to seek redressal of his rights. Quantification of the damages in such cases is only a measure of retribution of the wrong in terms of money than payment of any liquidated sum. When contractual obligations under a lease agreement or a negotiable instrument are kept outside the protective umbrella of section 22(1) of the Act the suit filed by an individual against a sick industrial company a suit for damages on account of defamation can by no stretch of imagination be treated as barred under that provision. Hence the C.R.P. is dismissed

Summary

Issues:
1. Interpretation of section 22 of the Sick Industrial Companies Act, 1985 regarding suspension of legal proceedings against sick industrial companies.
2. Whether a suit for damages due to defamation against a sick industrial company falls under the purview of section 22 of the Act.

Analysis:
1. The judgment revolves around the interpretation of section 22 of the Sick Industrial Companies Act, 1985, which deals with the suspension of legal proceedings against sick industrial companies. The petitioner, a sick industrial company, filed an application under section 22 to suspend proceedings in a defamation suit filed against them. The court examined the purpose of the Act, which aims to detect sick companies and enforce measures for their revival. Section 22 prohibits certain legal actions against sick companies to protect their assets during the revival process. The court emphasized the temporary nature of the suspension under section 22, ensuring the company's revival without undue interference in legal proceedings.

2. The court analyzed the nature of the suit filed against the petitioner for defamation, distinguishing between contractual and tortuous liabilities. While contractual obligations are protected under section 22, tortuous liabilities, such as defamation claims, were deemed outside the scope of the provision. The court cited precedents where proceedings related to bounced cheques and financial disputes were not covered by section 22. It concluded that a defamation suit does not erode the company's assets or paid-up capital, thus not falling under the protection of section 22. The judgment highlighted the distinction between contractual and tortuous liabilities, affirming that defamation claims are not barred under section 22 of the Act.

In conclusion, the court dismissed the Civil Revision Petition, ruling that the defamation suit against the sick industrial company is not covered by section 22 of the Sick Industrial Companies Act, 1985. The judgment clarified the scope of legal proceedings that are suspended under section 22, emphasizing the protection of assets during the company's revival process. The analysis provided a detailed interpretation of the Act's provisions and their application to the specific case of a defamation suit against a sick industrial company.