2024 (5) TMI 427 - SC - Companies Law

Suit for recovery of dues - 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 - legality validity of the interest rate of 24% per annum awarded by the High Court in the original plaintiff s favour - Levy of deductions towards the liquidated damages and penalty - failure to consider the evidence properly and had wrongly awarded the amounts under different heads to the original plaintiff. 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? - HELD THAT - Whether the High Court was correct in granting 24% compound interest on the principal decretal amount in 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 industrial company. Consequently, the defendant company was deregistered from BIFR on the said date. The original defendants have strongly relied upon the decision of a two-judge bench of this Court in Bhoruka Textiles 2009 (5) TMI 546 - SUPREME COURT . In the said case, the respondent therein, 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. In M/s Haryana Steel Alloys Ltd. v. M/s Transport Corporation of India 2012 (4) TMI 831 - DELHI HIGH COURT 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. 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 - there was a vacuum in the legal framework to deal with sick industrial companies and provide ameliorative steps for their revival. The 1985 Act was thus enacted to fill in this vacuum. The mischief which was sought to be dealt with by the enactment of Section 22 was any such legal proceeding which could impact the assets of the sick company and in-turn negatively impact the formulation and implementation of the rehabilitative scheme. In Tata Motors 2008 (5) TMI 423 - SUPREME COURT it was Section 26 and not Section 22 of the 1985 Act which was under consideration. 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 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 - while there is a stay on proceedings in the nature of distress and execution, etc. against the properties of the sick company, to safeguard its assets, awarding interest for that very same period, though not expressly barred under any provision of the Act, could not have been the intention of the legislature. The decree awarded by the trial court was contested by both the parties before the High Court. No material was placed before us to show whether any steps were taken by the original plaintiff to obtain the permission of the BIFR for the execution of the decree of the trial court, or for the inclusion of the said decree in the rehabilitation scheme. At the same time, the original defendants too failed to bring anything on record to show if any steps were taken by them for the inclusion of the dues of the original plaintiff in the rehabilitation scheme. 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 - 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. It is deemed 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 applicability of the 1993 Act to the dues of the original plaintiff is not disputed, such interest shall not be calculated for the period 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.

Summary

Issues Involved:
1. Whether the suspension of legal proceedings u/s 22(1) of the 1985 Act extends to a civil suit for recovery of money not admitted by the sick industrial company.
2. Whether the High Court was correct in granting 24% compound interest on the principal decretal amount in favor of the original plaintiff.

Summary:

Issue 1: Suspension of Legal Proceedings u/s 22(1) of the 1985 Act

Factual Matrix: The appellants (original defendants) contended that the civil suit for recovery of money was barred u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ("1985 Act") as the defendant company was declared a sick company and proceedings were pending before the BIFR.

Court's Analysis: The court analyzed Section 22(1) of the 1985 Act, which suspends legal proceedings against a sick company if such proceedings interfere with the formulation, consideration, finalization, or implementation of a rehabilitation scheme. The court noted that the provision's protective shield applies only if the proceedings threaten the assets of the sick company and interfere with the revival process.

Conclusion: The court held that the suit for recovery of money was not barred u/s 22(1) as it was not a proceeding in the nature of execution, distress, or the like, and did not threaten the assets of the sick company. The decree awarded by the trial court was not coram non-judice.

Issue 2: Granting of 24% Compound Interest by the High Court

Factual Matrix: The High Court granted 24% compound interest on the principal decretal amount under the provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 ("1993 Act"). The appellants contended that the interest rate was exorbitant.

Court's Analysis: The court considered the legislative intent behind the 1993 Act, which mandates prompt payment to small-scale industries. The court also examined the interplay between the 1985 Act and the 1993 Act, noting that while the 1993 Act ensures timely payments with high-interest rates to deter delays, the 1985 Act aims to revive sick companies by providing a temporary suspension of certain legal proceedings.

Conclusion: The court upheld the High Court's decision to grant 24% interest but excluded the period during which the defendant company was under BIFR protection (06.11.1992 to 27.06.2013) from the interest calculation. This harmonized the objectives of both the 1985 Act and the 1993 Act.

Final Order:

The impugned judgment of the High Court is upheld with the modification that the interest shall not be calculated for the period between 06.11.1992 and 27.06.2013. The final amount, with 24% compound interest for the applicable period, shall be paid to the original plaintiff within 4 weeks, failing which interest at 36% p.a. with monthly compounding shall accrue.