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TMI Blog2012 (4) TMI 831X X X X Extracts X X X X X X X X Extracts X X X X ..... is also the case of the appellant that in the leave to defend application filed by the appellant in response to the summons for judgment issued by the learned Trial Court in the said summary suit, one of the main objections, besides others, was that the appellant company was registered with the BIFR at serial No. 389/99 and, therefore, the said proceedings of the summary suit were liable to be stayed in terms of Section 22 of Sick Industrial Companies (Special Provisions) Act, 1985. It is further the case of the appellant that on 11.6.2002, BIFR had rejected the reference made by the appellant company and against the said order, the appellant had filed an appeal (appeal No. 200/2002) but despite the fact that the appellant had placed on record the entire record of the said appeal before the learned Trial Court, yet the learned Trial Court ignored the pendency of the appeal before AAIFR and wrongly dismissed the leave to defend application preferred by the appellant, ultimately decreeing the summary suit filed by the respondent. 2. Arguing for the appellant, Mr. Anil Grover, Learned Counsel submitted that the learned Trial Judge had ignored the mandate of Section 22 of Sick Industr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd vide order dated 26th May, 2009, the AAIFR had stayed the order dated 21st October, 2008 passed by BIFR. Counsel for the appellant placed reliance on Section 26 of SICA, which bars the jurisdiction of the Civil Court in respect of any matter, which the Appellate Authority or the Board is empowered by, or under, the said Act to determine. Counsel also submitted that the winding up petition filed by the appellant company is now pending consideration before the company Court at High Court of Punjab and Haryana where the official liquidator has already been appointed in the matter and in view of the appellant company being under liquidation, the respondent is required to approach the official liquidator for the said claim or any other claim against the appellant company. In support of his arguments counsel for the appellant placed reliance on the following judgments:- 1. Bhoruka Textiles Ltd. -vs-Kashmiri Rice Industries, 2009(7) SCC 521. 2. Intercraft Ltd. -vs-Cosmique Global Anr. 173(2010) DLT 116 (DB) 3. Stitchting Doen-Postcode Loterji -vs-Vin Poly Recyclers Pvt. Ltd., 167 (2010) DLT 333 4. Tata Motors Ltd. -vs-Pharmaceutical Products of India Ltd., 2008(7) SCC 619 5. Chief Engi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etal amount and the same now be directed to be released by this Court in favour of the respondent with the amount of interest accrued thereon. 4. I have heard Learned Counsel for the parties at considerable length and given my thoughtful consideration to the arguments advanced by them. 5. The respondent is a public limited company which had filed a suit under Order 37 CPC to claim recovery of an amount of Rs. 5,20,529/- with pendente lite and future interest @ 24% per annum against the appellant. The main allegation of the respondent was that the appellant had engaged the services of the respondent company for transporting its material to various destinations and consequently bills were raised by the respondent against such transportation charges but no payment was made by the appellant and the respondent thus claimed that an amount of Rs. 3,89,393/- towards amount of the bills and interest @ 24% per annum from the date of bills and a sum of Rs. 5,20,529/- with pendente lite and future interest @24% per annum became payable by the appellant. Leave to defend application was filed by the appellant and one of the principal objections raised was that the appellant was registered with B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof {and 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. (2) Where the management of the sick industrial company is taken over or changed {in pursuance of any scheme sanctioned under section 18}, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law (a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company. (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge which had been reached when the proceedings became stayed. (5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded. 7. A plain and simple reading of the aforesaid provision would clearly show that a suit for recovery is barred where an inquiry under section 16 of the Act is pending. This provision further shows that even where an appeal under Section 25 relating to an industrial company is pending, then also a suit would be barred except with the consent of the Board or the Appellate Authority, as the case may be. The aforesaid provision clearly mandates that no proceedings inter alia for execution, distress or the like against any of the properties of the industrial company or for the appointment of a Receiver in respect thereof and no suit for the recovery of money or for the enforcement of any security against 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. The statutory injunction as envisaged in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the order of BIFR rejecting the reference is invalid and therefore it is directed that a sick company needs to be rehabilitated by formulating a scheme, then, in certain cases there would be futility of such remand orders because unless Section 22 applies after filing of an appeal under Section 25 it is possible that there would be scramble among the creditors to appropriate the assets, whether by getting the decrees or otherwise, of a sick company and that by the time AAIFR sends the matter back to BIFR for formulating and implementing a revival scheme, there may not be available any assets or sufficient assets for revival of the sick company on account of eventuality of Section 22 not applying during the pendency of an appeal against an order rejecting the registration of a reference by BIFR. In such scenario, if a sick company succeeds in AAIFR, the appeal would yet become infructuous because in the meanwhile all the assets of the sick company would have been lost. We would hasten to add here that in such circumstances it is incumbent upon AAIFR to decide the appeal under Section 25 most expeditiously and without delay to avoid any eventuality of a sick company taking und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 benefit of the prohibition or embargo created under section 22 of the Act would come into operation only where the appellant/defendant has disclosed before the Court, that the amounts claimed by the respondent/plaintiff have been duly shown and disclosed in the scheme formulated and laid before the BIFR. The Apex Court in the case of Deputy Commercial Tax Officer and Ors. vs Corromandal Pharmaceuticals and Ors., (1997) 10 SCC 649 enunciated the law to hold that a cessation of legal proceedings would be justified only if the dues in respect of which adjudication is ongoing is also included in the contemplation of scheme presented by BIFR. The relevant paragraph of the said judgment for better appreciation is reproduced herein: 10. On a fair reading of the provisions contained in Chapter III of Act 1/1986 and in particular Sections 15 to 22, we are of the opinion that the plea put forward by the Revenue is reasonable and fair in all circumstances of the case. Under the statute, the BIFR is to consider in what ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uage of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal under Section 25 of the Act, 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. Such amounts like sales tax, etc. which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within Section 22 of the Act. Any other construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statutes in a business sense, should be avoided. 11. In Sirmor Sudburg Auto Ltd. vs Kuldip Singh Lamba, 1997 IVAD(Delhi)364 this Court following the principles laid down in Deputy Commercial Officer (Supra) also held that mere pendency of the enquiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dues reckoned or included in the sanctioned scheme. Another construction will be unreasonable and unfair and will lead to a state of affairs enabling the sick industrial unit to collect amounts due to the Revenue and withhold it indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statute in a business sense, should be avoided. (13) It follows from the law laid down by the Supreme Court in Corromandal Pharmaceuticals case (supra) that to be entitled to stay of the legal proceedings under Section 22 of the Act a mere pendency of the enquiry would not suffice; the dues must be reckoned or included in the sanctioned scheme. Section 22(1) is also not attracted to the dues incurred after the date of the sanctioned scheme. 12. The Hon'ble Division Bench of this Court recently in Saketh India Limited vs W. Diamond India Limited 2010 (119) DRJ 190 relying on both the above judgments also reiterated the same view. Relevant para of the said judgment is also reproduced herein: 6. Courts, however, have always been alive to the possible mischief that invocation of SICA can lead to. In a nutshell, where the net worth of a company is redu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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. 13. In the light of the above settled legal position, analyzing the facts of the case at hand, it is manifest that no material was placed on record by the appellant to show that the amount in respect of which the respondent laid its claim in the said recovery suit was reflected in the scheme laid before the BIFR. The only contention raised by the appellant before the trial court as well as before this Court was that the prohibition or embargo as envisaged in Section 22 would come into operation immediately once the defendant brings to the notice of the Court that an inquiry under Section 16 is pending before the Board or an appeal is pending relating to the said inquiry before the Appellate Authority. Having failed to place any such material on record, this Court is of the clear view that the bar or embargo envisaged under Section 22 of the Act will not apply to the facts of the present case as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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