TMI Blog2024 (5) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... favour of the original plaintiff? - HELD THAT:- It is 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 before the BIFR or the AAIFR. Secondly, the nature of proceedings sought to be suspended should be one which falls within the ambit of proceedings. 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 - 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 indust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration. 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. Whether the High Court was correct in granting 24% Compound Interest on the Principal Decretal Amount in favour of the original Plaintiff? - HELD THAT:- 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 l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riod between 06.11.1992 and 27.06.2013. Thus, in short, it was held as follows: I. The suit instituted by the original plaintiff before the trial court was not hit by the embargo envisaged under Section 22(1) of the 1985 Act. Thus, the decree awarded in favour of the original plaintiff by the trial court and modified by the High Court, cannot be said to be coram nonjudice. II. The High Court committed no error in awarding 24% interest to the original plaintiff on its dues as per the provisions of the 1993 Act. However, the period during which the defendant company was a sick company as per the 1985 Act should be excluded for the purposes of calculation of interest. The impugned judgment and order of the High Court is upheld subject to the modification of the period for which interest may be granted as discussed aforesaid. To clarify, the interest will be calculated at 24% p.a. with monthly compounding - Appeal disposed off. - J. B. Pardiwala And Sandeep Mehta , JJ. For the Appellant : Mr. Chirag Joshi, Adv. Mr. Ghanshyam Joshi, AOR For the Respondent : Mr. Sundeep Pothina, Adv. Mr. Vaibhav Dwivedi, Adv. Mr. Raghav Sharma, Adv. Mr. Parmod Kumar Vishnoi, Adv. Ms. Ankita Chaudhary, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lenge is also to the self-same impugned common judgment and order passed by the High Court, those were taken up for hearing analogously and are being disposed of by this common judgment and order. 2. The appellants herein are the original defendants and the respondent herein is the original plaintiff. 3. The present appeals arise from the impugned common judgment and order dated 10.06.2022 ( impugned judgment ) passed by the High Court of Telangana at Hyderabad partly allowing the Appeal Suit No. 808 of 2002 and Appeal Suit No. 913 of 2004 respectively preferred by the original defendants and the original plaintiff respectively against the judgment and decree dated 19.09.2001 passed by the Senior Civil Judge, Peddapalli in O.S. No. 37 of 1996 decreeing the suit partly in favour of the original plaintiff. 4. M/s Coromandal Sacks Private Limited, that is, the original plaintiff, is a company registered under the Companies Act, 1956 established with the assistance of the Andhra Pradesh Industrial Development Corporation Limited ( APIDC ) and is engaged in the manufacturing of High Density Poly Ethylene ( HDPE ) bags. 5. Fertilizer Corporation of India Ltd. ( FCIL ), that is, the defen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pply of the alleged poor quality of the bags. The original plaintiff also claimed to have suffered losses due to the refusal of the original defendants to accept 25,000 bags after placing the order, which were printed as per the specifications prescribed by the original defendants and had to be sold as scrap due to non-acceptance by the original defendants. 9. With a view to recover the aforesaid losses, the original plaintiff instituted the civil suit for the recovery of Rs 8,27,100.74/- along with Rs 10,31,803.14/- towards interest up to the date of institution of the suit. A detailed break-up of the claim of the original plaintiff before the trial court is as follows: S. No. Particulars Amount (Rs.) 1. Towards price difference for 33,000 bags, i.e., from Rs. 8.75/bag to Rs. 10.25/bag 49,500 2. Towards price difference for 9,000 bag s, i.e., from Rs. 8.75/bag to Rs. 9.44/bag 6,210 Total Rs. 55,710.00 (Towards price difference for 42000 bags) 3. Towards Liquidated Damages ded ucted by the defendants 1,63,470.75 4. Towards deduction against penalties 4,89,919.99 5. Towards loss incurred on 25,000 Bag s printed which was sold as waste @ 50% price on account of not taking delivery. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw? Partly decided in favour of the plaintiff Interest rate of 12% granted on the payments held as due and delayed. 6. Whether the plaintiff had printed 2 5,000 bags as per the oral order of the defendants? If so, whether the plaintiff sustained loss at the rate of 50% of the value due to refusal on the part of the defendants to take delivery of the bags? Decided in favour of the plaintiff Rs 1,18,000/- with interest @ 12% p.a. from 01.01.1994 till realisation. 7. Whether the defendants had called for a fresh tender after placing of the orders to the plaintiff and in which M/s Neptune Polymers, Ahmedabad quoted rate of a bag at Rs. 8.46, the same has become binding on the plaintiff? Decided in favour of the plaintiff 8. Whether the defendants had regularis ed the supply of 33,000 bags at Rs. 8.46/bag vide P.O. No. 40893 dated 21.04.1994 and same was accepted by the plaintiff? Decided in favour of plaintiff 9. Whether the suit was not maintaina ble as the defendants have been declared as Sick Industry by the BIFR vide Case No. PUC/C/515/92 dated 06.11.1992? Decided in favour of the plaintiff 10. Whether the suit of the plaintiff was b arred by limitation? Decided in favour of the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defendants to accept the delivery of 25,000 bags. Pertinently, the High Court accepted the contention of the original plaintiff on the issue of interest and granted 24% compound interest on the amounts due. 18. Despite recording the submissions of the parties on the applicability of Section 22(1) of the 1985 Act, neither any point for determination was framed nor any finding was returned on the same by the High Court. 19. Aggrieved by the impugned judgment, more particularly as regards the awarding of 24% interest in favour of the original plaintiff which has inflated the principal decretal amount to one of mammoth proportions the original defendants are before this Court with the present appeals. B. SUBMISSIONS ON BEHALF OF THE APPELLANTS/ORIGINAL DEFENDANTS 20. Ms. Malvika Trivedi, the learned senior counsel appearing on behalf of the original defendants submitted that the 1985 Act overrides the 1993 Act as the same was enacted in the larger public interest by the Parliament with a view to secure the directive specified under Article 39 of the Constitution. 21. It was further submitted that the 1993 Act having been enacted to provide for and regulate the payment of interest on d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the contention of the original plaintiff that the statutory bar under Section 22 of the 1985 Act applies only against a recognized creditor and such debts as are acknowledged before the BIFR during the pendency of the reference application is not the correct understanding of the law and is against the beneficial object of the Act. It was contended that the reliance placed by the original plaintiff on the decision of the Delhi High Court in Sunil Mittal Properties of Shree Shyam Packaging Industries v. M/s LML Ltd. reported in (2011) 123 DRJ 249 is misplaced as the said decision failed to consider the law settled by this Court in Bhoruka Textiles (supra) and thus could be termed as per incuriam. 26. One another submission made by the learned senior counsel was that out of the total claim put forward by the original plaintiff before the trial court, only the amount of Rs 55,710/- could have been recognized as delayed payment. It was submitted that the deductions made by the original defendants towards liquidated damages and penalty while remitting the payment to the original plaintiff could not have been classified as delayed payment for the purpose of computation of interest u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reafter, the jurisdictional bar available under Section 22 of the 1985 Act cannot be said to be applicable to the suit instituted by the original plaintiff. 32. It was further submitted that the reliance placed by the original defendants on Bhoruka Textiles (supra) in support of their contention regarding Section 22 of the 1985 Act is misplaced for the following reasons: I. This Court in Bhoruka Textiles (supra) decided the issue as to whether the bar under Section 22 of the 1985 Act would apply to a suit for recovery instituted for defaults occurring post the reference of the sick industrial company to the BIFR when the reference was pending. However, the issue in the present case is different and pertains to whether a suit for determination of illegal deductions and breach of contract and liability would be barred by virtue of Section 22 of the Act. II. In Bhoruka Textiles (supra), not only the debt but the creditor was also acknowledged before the BIFR and there was no dispute on the issue or size of default. However, in the present case, both the existence and quantum of liability are under dispute. The original defendants have not referred to the original plaintiff as a credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 of the 1985 Act. 36. The learned counsel submitted that the contention of the original defendants that the decision in Sunil Mittal (supra) is rendered per-incuriam as the same failed to consider the decision in Bhoruka Textiles (supra) is incorrect as the court therein had based its decision on the judgment of a division bench of the Delhi High Court in Saketh India Limited v. W. Diamond India Ltd. reported in 2010 SCC OnLine Del 1786. The decision in Saketh India (supra) has exhaustively considered the various decisions of this Court on the issue of applicability of jurisdictional bar under Section 22 of the 1985 Act and thus the decision in Sunil Mittal (supra) cannot be characterised as per-incuriam. 37. The learned counsel submitted that the High Court in its impugned judgment has determined the issue of rate of interest under Section 4 of the 1993 Act. The High Court, after looking into the relevant material, observed that the floor rate charged by the State Bank of India ( SBI ) for the financial year 1993-94 was 19% and thus awarded interest at 24% which is 5 per-cent points above the floor rate. 38. The learned counsel, in the last, submitted that as opposed to the repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reditors, Statutory Authorities are at liberty to recover their dues, if any, according to law. 44. Thus, in view of the directions of the BIFR dated 27.06.2013 referred to above, the defendant company ceased to be a Sick Industrial company during the pendency of the appeals before the High Court. 45. The submissions of the original defendants were focussed on and limited to the following two aspects jurisdictional bar on the civil court in deciding the suit instituted by the original plaintiff by virtue of Section 22(1) of the 1985 Act; and the legality validity of the interest rate of 24% per annum awarded by the High Court in the original plaintiff s favour. ii. Issues for Determination 46. Having heard the parties extensively on the aforesaid aspects and having perused the materials on record, the following two questions fall for our consideration: I. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Central Government to cause investigation into the affairs of an Industrial Company which is to be wound up for the purpose of reviving such Company in the interest of general public by ensuring production, supply or distribution of articles. 52. Nationalisation of sick industries through legislations was another approach adopted by the government to revive or continue the operation of sick industries in national interest. An enactment brought in with the object of dealing with sickness in the textile industry was the Sick Textile Undertaking (Nationalization) Act, 1974 which, inter alia, provided for the reorganisation and rehabilitation of sick textile industries. Similarly, The Aluminium Corporation of India Ltd. (Acquisition and Transfer of Aluminium Undertaking) Act, 1984 and The Futwah Islampur Lightway Line (Nationalisation) Act, 1985 were enacted with similar objects. 53. Industrial Reconstruction Bank of India Act, 1984 was enacted to provide financial assistance to sick industrial companies for their revival. However, the said enactment was repealed thereafter. 54. In 1981, the Reserve Bank of India ( RBI ) appointed a committee under the chairmanship of late Shri T. Ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulation) Act. 1951, with the initial exception of the scheduled industry relating to ships and other vessels drawn by power, which may however be brought within the ambit of the legislation in due course: (ii) identification of sickness in an industrial company, registered for not less than seven years, on the basis of the symptomatic indices of cash losses for two consecutive financial years and accumulated losses equalling or exceeding the net worth of the company as at the end of the second financial year, (iii) the onus of reporting sickness and impending sickness at the stage of erosion of fifty per cent, or more of the net worth of an industrial company is being laid on the Board of Directors of such company; where the Central Government or the Reserve Bank is satisfied that an industrial company has become sick, it may make a reference to the Board, likewise if any State Government, scheduled bank or public financial institution having an interest in an industrial company is satisfied that the industrial company has become sick, it may also make a reference to the Board; (iv) establishment of Board consisting of experts in various relevant fields with powers to enquire i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eference is made, it is open to the BIFR to conduct an inquiry for determining whether the company has become sick. If the BIFR is satisfied on completion of the inquiry that the company has become sick, it can adopt any of the measures envisaged in Section 17 of the 1985 Act. When an order is made under Section 17 a scheme with respect to the company shall be prepared by the operating agency specified in such order under Section 18. The operating agency may also be directed by the BIFR under Section 21 to prepare, inter alia, an inventory of the books of account of the sick company and its assets and liabilities, a list of shareholders and secured and unsecured creditors, a valuation report in respect of the shares and the assets etc. Section 20 provides for the winding up of a sick company where the BIFR is of the opinion that such a company is not likely to become viable in the future. Section 22, which is at the heart of the dispute before us, inter alia, provides 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 man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority . 63. Section 22(1) of the 1985 Act provides that subject to the fulfilment of the conditions as described in the sub-section, proceedings of the nature mentioned therein shall remain suspended in respect of a sick industrial company. 64. For the bar under the said sub-section to get attracted, it is necessary that in respect of an industrial company: I. An inquiry under Section 16 of the 1985 Act is pending; OR II. A scheme under Section 17 of the 1985 Act is under preparation or consideration; OR III. A sanctioned scheme is under implementation; OR IV. An appeal under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said appeal stood revived and was pending before the Appellate Authority. In that view of the matter, it cannot be said that any proceedings under the Act were pending before the Board or the Appellate Authority on the date of the passing of the order dated August 14, 1991 by the learned Single Judge of the Karnataka High Court for winding up of the company or on November 6, 1991 when the Division Bench passed the order dismissing O.S.A. No. 16 of 1991 filed by the appellantcompany against the order of the learned Single Judge dated August 14, 1991. Section 22(1) of the Act could not, therefore, be invoked and there was no impediment in the High Court dealing with the winding up petition filed by the respondents ( Emphasis supplied ) 69. As discussed hereinbefore in paragraph 40 of the 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 referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of the original plaintiff is that if a suit for recovery of money is brought against a sick company during the pendency of proceedings before the BIFR or the AAIFR with respect to the recovery of an acknowledged debt, then such a suit will be hit by Section 22(1) and cannot lie or be proceeded with except with the permission of the BIFR or the AAIFR, as the case may be. 75. This Court including many of the High Courts have had the occasion of interpreting Section 22(1) of the 1985 Act. One of the earliest decisions concerning Section 22(1) was rendered by a two-Judge Bench of this Court in Gram Panchayat and Another v. Shree Vallabh Glass Works Limited and Others reported in (1990) 2 SCC 440. In the said case, while deciding an appeal against the decision of 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Industrial Investment Corpn. of Maharashtra Ltd. reported in (1993) 2 SCC 144. In this case, this Court, while deciding the interplay between the power of recovery under the State Financial Corporations Act, 1951 and the suspension of certain legal proceedings under Section 22 of the 1985 Act, held thus: 10. It was next contended that the right conferred on the Financial Corporation by Section 29 of the 1951 Act is not a legal proceeding but merely an action permitted by statute and, therefore, Section 22(1) will have no application as it only bars legal proceedings for the winding up of any industrial company or for execution, distress or the like against any of its properties 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oubtedly a coercive measure directed at the take over of the management and property of the industrial concern and confers a further right on the Financial Corporation to transfer by way of lease or sale the properties of the said concern and any such transfer effected by the Financial Corporation would vest in the transferee all rights in or to the transferred property as if the transfer was made by the owner of the property. So also under the said provision the Financial Corporation will have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In that behalf, BIFR is enabled to frame an appropriate scheme. To enable the BIFR to do so, certain preliminaries are required to be followed. It starts with the reference to be made by the Board of Directors of the sick company. The BIFR is directed to make appropriate inquiry as provided in Sections 16 and 17 of the Act. At the conclusion of the inquiry, after notice and opportunity afforded to various persons including the creditors, the BIFR is to prepare a scheme which shall come into force on such date as it may specify in that behalf. It is in implementation of the scheme wherein various preventive, remedial or other measures are 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. v. State Industrial Investment Corpn. of Maharashtra Ltd. [(1993) 2 SCC 144] It does not appear from the above two decisions of this Court nor from the decisions of the various High Courts brought to our notice, that in any one of them, the liability of the sick company dealt with therein itself arose, for the first time after the date of sanctioned scheme. At any rate, in none of those cases, a situation arose whereby the sick industrial unit was enabled to collect tax due to the Revenue from the customers after the sanctioned scheme but the sick unit simply folded its hands and declined to pay it over to the Revenue, for 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. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sick company for the first time arose after the date of sanctioned scheme and the sick industrial unit was enabled to collect tax due to the Revenue from the exporters thereafter but declined to pay it over to the Revenue wherefor recovery proceedings had to be taken. This Court categorically opined that there cannot be any impediment in the enforcement of the scheme. Section 22 of the 1985 Act provides for a safeguard against impediment that is likely to be caused in the implementation of the scheme. Section 22 was also held to be of wide import 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 Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fect of the 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld not be executable against the sick company, particularly when the party in whose favour the award was made was, as in the present case, included in the category of dormant creditors of the sick company. xxx xxx xxx 48. All these provisions which fall under Chapter III of SICA 1985 have to be read conjointly and that too, along with other relevant provisions and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there should be no impediment caused to the smooth execution of the scheme of revival of the sick industrial company. It is only when the specified period of restrictions and declarations contemplated under the provisions of SICA 1985 is over, that the status quo ante as it existed at the time of the 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 fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 22(1) seeks to achieve by suspending the proceedings of the nature either mentioned specifically in the provision, or the proceedings of a like nature. Although this Court has interpreted the provision liberally by widening 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. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation or implementation of the scheme. ( Emphasis supplied ) 89. A Division Bench of the Delhi High Court in Saketh India (supra) considered the scope of Section 22(1) 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 she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... incurring expenditure in legal fees. When this is weighed against the interests of a person claiming that the company is indebted to it, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l stage of the dissolution of the Company came to be reached, was the moratorium of Section 22 of the SICA 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontinuation of the suit would not arise. ( 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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) are proceedings in the nature of execution, distress or the like. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, 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 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct. 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 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/liabil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cability 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 effect of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her, 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 feeling is that it is so awarded by way of penalty or punishment. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 a small scale or an ancillary industrial undertaking causes serious and endemic problems 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, governm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 be liable to pay compound interest. Sections 3, 4 and 5 respectively of the 1993 Act, as existing at the time when the dispute between the parties arose, are reproduced 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 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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, advances, reliefs or concessions or sacrifices from the Central Government, a State Government, a public financial institution etc. 117. In the present case, in pursuance of Section 19 of the Act, a number 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 se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 (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 Industries Facilitation Councils didn t exist as the provision for their establishment was only brought in vide an amendment in 1998. Secondly, even otherwise, Section 6(2) of the 1993 Act merely provides for an alternate avenue 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 impact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich 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 whether it was open to an unsecured creditor to not accept the scaled down value of its dues, as computed in the rehabilitation scheme, and wait for the revival of the sick company to recover its debt with interest post the rehabilitation. This Court, after 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 reha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted 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 59. If the submission on behalf of the unsecured creditors, which has been accepted by the High Court in the case of Continental Carbon India Ltd. (supra) that an unsecured creditor can opt out of the scheme sanctioned by the BIFR under the SICA, 1985 and is allowed not to accept the scaled down value of its dues 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of the creditors/unsecured creditors and even that of the labourers cannot be said to be violative of Article 300A of the Constitution of India as submitted on behalf of the unsecured creditors. 65. In view of the above and for the reasons stated above, the view taken by the High Court of Delhi in Continental Carbon India Ltd. (supra) that on approval 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein 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 either by the Council itself or by any institution or centre providing alternate dispute resolution services to which a reference is made by the Council, shall be entertained by anyf court 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, the other order in the manner 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) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 85 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, two seemingly conflicting provisions within a statute, or the seemingly conflicting provisions of one statute vis a vis another, should be construed in a manner so as to iron out any conflict. 137. Section 10 of the 1993 Act provides for an overriding effect to the provisions of the said Act to the extent of inconsistency with any other statute. Similarly, Section 32 of the 1985 Act provides overriding 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore 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, 2003 when the appellant was referred to the BIFR and May 31, 2006, the appellant was declared as a sick industrial company till its net worth turned positive and it was discharged from the Board on February 5, 2013. 31. Thus, on facts, we hold that the date, on which, the repayment became due for the appellant's case shall be fixed on February 6, 2013. Admittedly, the appellant cleared the entire sales tax on April 25, 2015. Hence, for the 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 defend ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
