2023 (10) TMI 1389 - HC - Companies Law

Levy of penalty on appellant for the negligence of its counsel - respondent/plaintiff despite being aware of the reference under the SICA did not apprise the Court of such proceedings - jurisdiction of impugned order - Suit for recovery - sick company - HELD THAT - Evidently an appearance had been put on behalf of the appellant/defendant on the service of summons by publication however not only was the written statement not filed but the Court was also not apprised about the registration of the reference or pendency of the proceedings before BIFR. Thus there was no due diligence on the part of the appellant/defendant in contesting the proceedings. 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. Learned Single Judge rightly found that appellant/defendant merely took a lame excuse most conveniently blaming its previous counsel but then it is also borne out from the record that the respondent/plaintiff on becoming aware of the reference before the BIFR filed an application before the BIFR on 23 July 2012 seeking its permission to execute the decree. Although the appellant/defendant was provided with an opportunity to file a reply to the said application it was not filed so much so that the respondent/plaintiff was impleaded in the said proceedings before the BIFR on 12 December 2012 and admittedly the appellant/defendant came out of purview of SICA on 18 September 2014. And yet no legal proceedings were initiated by the appellant/defendant up until 2019. The learned Single Judge has committed no illegality perversity or adopted an incorrect approach in passing the impugned order dated 27 May 2009. Appeal dismissed.

Summary

Issues Involved:
1. Whether the suit for recovery was maintainable under Section 22 of the Sick Industrial Companies Act (SICA).
2. Whether the appellant/defendant's application under Order IX Rule 13 CPC to set aside the ex parte decree was justified.

Issue 1: Maintainability of the Suit for Recovery under SICA

The learned Single Judge addressed whether the proceedings were non est due to the appellant/defendant's registration under SICA. It was held that the suit for recovery filed by the respondent against the appellant company, registered under SICA, was not ipso facto rendered non-maintainable. The court relied on precedents such as *Saketh India Limited v. W. Diamond India Limited*, *M/s. Ralson Industries Ltd. v. M/s Adhunik Transport Organisation Ltd.*, and *Raheja Universal Limited v. NRC Limited and Ors.*, concluding that Section 22(1) of SICA is confined to execution, distress, or similar proceedings and does not bar a suit for recovery. The appellant/defendant was declared no longer a sick industrial company on 18 September 2014, and no reasonable explanation for the delay in approaching the court was provided.

Issue 2: Justification for Setting Aside the Ex Parte Decree

The appellant/defendant filed an application under Order IX Rule 13 CPC, claiming unawareness of the suit proceedings until receiving a show cause notice in 2018. The court noted that the appellant/defendant was aware of the decree since 2012, as evidenced by the respondent/plaintiff's application before BIFR seeking permission to execute the decree. The appellant/defendant's failure to contest or respond to the application and the delay in initiating legal proceedings until 2019 demonstrated gross negligence. The court dismissed the application, emphasizing that mere allegations against previous counsel do not justify setting aside the decree.

Grounds of Appeal:

The appellant/defendant argued that it should not be penalized for its counsel's negligence and that the respondent/plaintiff failed to inform the court about the SICA reference. The appellant also contended that the impugned judgment/decree was passed without jurisdiction.

Court's Decision:

The appeal was found to be without merit. The court highlighted the appellant/defendant's lack of due diligence in contesting the proceedings and failing to inform the court about its SICA registration. The court reiterated that Section 22 of SICA does not bar a suit for recovery and emphasized the appellant/defendant's awareness of the decree since 2012. The learned Single Judge's decision was upheld, and the appeal was dismissed without imposing costs.