2008 (8) TMI 574 - HC - Companies Law

Preventing the recovery of the amounts of sugar cane by coercive method will - Held that - Where an industrial company continues its activities in spite of a reference pending before the BIFR and as seen in the instant case the liabilities are incurred subsequent to the cut-off date those liabilities will have to be honoured by the concerned industrial company. These liabilities will not become a part of the scheme or of the package of rehabilitation. Sugar cane is being purchased as a raw material subsequent to the cut-off date the price there for will have to be paid. If workers are engaged to work in the factory subsequent to this cut-off date obviously their wages will have to be paid. There cannot be an escape therefrom on the ground of section 22 of the Sick Industrial Companies (Special Provisions) Act 1985. The prayer for preventing the recovery of the amounts of sugar cane by coercive method will therefore has to be rejected. W.P. dismissed.

Issues Involved:
1. Modification of the Central Government's loan finance scheme.
2. State Government's refusal to provide a guarantee.
3. Recovery certificate issued by the Cane Commissioner.
4. Application of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

Issue-wise Detailed Analysis:

1. Modification of the Central Government's Loan Finance Scheme:

The petitioner sought a writ of mandamus directing the Union of India to modify its scheme of loan finance to exclude the necessity of obtaining a guarantee from the State Government for NPA units, arguing that it is superfluous. The Central Government defended its scheme, stating it was necessary due to excess production of sugar and resultant decline in sugar prices, which could lead to mounting cane price arrears. The scheme was designed to clear cane price arrears relating to SMP only, and it was deemed unfair and financially disastrous to ask banks to grant fresh loans to NPA units without State Government guarantees. The court found no improper, irrational, unjustified, or illegal aspects in the policy or the stand taken by both Governments, thus rejecting the petitioner's prayer.

2. State Government's Refusal to Provide a Guarantee:

The petitioner also sought to quash the State Government's order dated April 5, 2008, which declined to provide a guarantee for the sugar cane price. The State Government defended its position, citing Article 293(1) of the Constitution of India, which makes it impossible for the State Government to give guarantees to private institutions. The court upheld the State Government's stance, noting that these are policy matters for the Central and State Governments to decide, and found no infirmity in the policy or the stand taken by the Governments. Consequently, this prayer was also deemed not maintainable.

3. Recovery Certificate Issued by the Cane Commissioner:

The petitioner challenged a recovery certificate issued by the Cane Commissioner for an amount of about Rs. 15.68 crores. The petitioner claimed to have made payments for the years 2006-07 and partially for 2007-08. However, the State Government defended the recovery certificate, stating that payments made were to give an impression to the farmers to get more supply of sugar cane. The court noted that the petitioner's liability was disputed and that the amounts due were essential for the years 2007-08 and subsequent to the cut-off date. The court emphasized that liabilities incurred subsequent to the cut-off date must be honored by the concerned industrial company, and thus, the prayer to quash the recovery certificate was rejected.

4. Application of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:

The petitioner argued that coercive measures to recover cane dues should be restrained under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, as a reference for revival had been registered, and a draft rehabilitation scheme was framed. The court referred to several judgments, including Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals and Jay Engineering Works Ltd. v. Industry Facilitation Council, to determine the applicability of Section 22. It concluded that the liabilities arising during the pendency of proceedings before the BIFR, especially those subsequent to the cut-off date, must be paid. The court held that the protection of Section 22 does not extend to liabilities incurred during the company's continued operations. Therefore, the prayer to prevent the recovery of amounts by coercive methods was rejected.

Conclusion:

The court dismissed the petition with costs, finding no merit in the petitioner's claims. The Central Government's scheme and the State Government's refusal to provide guarantees were upheld as policy decisions. The recovery certificate was deemed valid, and the application of Section 22 did not protect the petitioner from liabilities incurred during continued operations.

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