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TMI Blog2024 (5) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 determinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... e; the parties are also the same and the challenge 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 Corpo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ply of the bags and the penalty imposed towards the supply 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with the terms and conditions of order/tender? Decided in favour of the defendants 5. Whether the plaintiff was entitled to in terest for the delayed payment as per law? 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 decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of Rs 1,63,471/- towards the liquidated damages, whereas the original plaintiff was allowed to recover the amounts deducted towards penalty, price difference in the supply of 42,000 bags and the loss incurred due to the refusal of the original 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it for the recovery of money, the trial court decided the suit and decreed it. Even the High Court in the impugned judgment failed to decide the issue of lack of jurisdiction of the trial court in deciding the suit. 25. The learned senior counsel further submitted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bilities in accordance with Section 21(a)(i) of the 1985 Act nor in their book of accounts under Section 21(a)(ii) of the 1985 Act nor did it include the original plaintiff company in the list of creditors under Section 21(b) of the 1985 Act at the time of reference or thereafter, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was drawn between the 'process of assessment' and 'quantified recoveries' and it was held that while the realisation of the latter is stayed by virtue of Section 22 of the 1985 Act, the former, which is the process of finalisation of liability, does not get stayed by operation of Section 22 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strial Company, within the meaning of Section 3(1)(o) of the SICA as its net-worth has turned positive. It is therefore, de-registered from the purview of SICA/BIFR. xxx xxx xxx iv. The Board discharges the State Bank of India from the responsibility of Operating Agency (OA) to the Board. v. All Secured Creditors, 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. Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies by promoting a conducive industrial climate and secondly, to identify sick companies and take effective remedial steps for revival of such companies and upon failure, to wind them up. 51. One of the first such enactments was the Industrial Development and Regulation Act, 1951 ("IDRA Act, 1951") which contained provisions empowering the 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 we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orative, remedial and other measures that would need to be adopted with respect to such companies and for enforcement of the measures considered appropriate with utmost practicable despatch. 3. The salient features of the Bill are- (i) Application of the legislation to the industries specified in the First Schedule to the Industries (Development and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enables the Board of Directors of a company which has become sick to make reference to BIFR for determination of measures which shall be adopted with respect to the company. The Central Government or the Reserve Bank or the State Government concerned may also make the reference to the BIFR for the same purpose if it has sufficient reasons to believe that a company has become sick. Once a reference 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 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act, 1956 (1 of 1956) or any other 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…. " 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 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Secretariat, Madras reported in (1992) 3 SCC 1 thus: "….We are, therefore, of the opinion that the passing of the interim order dated February 21, 1991 by the Delhi High Court staying the operation of the order of the Appellate Authority dated January 7, 1991 does not have the effect of reviving the appeal which had been dismissed by the Appellate Authority by its order dated January 7, 1991 and it cannot be said that after February 21, 1991, the 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…" ( Emph ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any before the BIFR or the AAIFR, except with the permission of the BIFR or the AAIFR, as the case may be. However, it has been contended by the original plaintiff that it is not a suit for recovery of money simpliciter is not barred under the provision, and only such suits for recovery of money which are instituted towards recovery of liabilities admitted by the sick company before the BIFR that fall within the protective ambit of Section 22(1). 74. In other words, the contention 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 sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exclusion of the period during which the remedy is suspended while computing the period of limitation for recovering the dues. 12. In our opinion, the High Court was justified in quashing the recovery proceedings taken against the properties of the company and we accordingly, reject this petition, with no order as to costs." ( Emphasis supplied ) 76. One another decision interpreting Section 22(1) of the 1985 Act was delivered by a two-judge bench of this Court in Maharashtra Tubes Ltd. v. State 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 propert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on' and 'distress' are clearly intended to convey that the properties of the sick industrial company shall not be made the subject-matter of coercive action of similar quality and characteristic till the BIFR finally disposes of the reference made under Section 15 of the said enactment. The legislature has advisedly used an omnibus expression 'the like' as it could not have conceived of all possible coercive measures that may be taken against a sick undertaking. The action contemplated by Section 29 of the 1951 Act is undoubtedly 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he issue in the negative, distinguished the facts before it from the decisions in Gram Panchayat (supra) and Maharashtra Tubes (supra) and held thus: "13. On a fair reading of the provisions contained in Chapter III of Act 1 of 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 the circumstances of the case. Under the statute, the BIFR is to consider in what way various preventive or remedial measures should be afforded to a sick industrial company. 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... airs 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 the spirit of the statute in a business sense, should be avoided. 14. The situation which has arisen in this case seems to be rather exceptional. The issue that has arisen in this appeal did not arise for consideration in the two cases decided by this Court in Gram Panchayat v. Shree Vallabh Glass Works Ltd. [(1990) 2 SCC 440] and Maharashtra Tubes Ltd. 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 fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nion, Section 22 of the 1985 Act would apply. 19. If the liabilities of the appellant are covered by the scheme framed under Section 22 of the 1985 Act, the High Court was clearly in error in coming to the conclusion that the provisions thereof are not attracted only because the debt had been incurred after the Company was declared to be a sick one. xxx xxx xxx 22. The High Court has placed strong reliance on CTO v. Corromandal Pharmaceuticals [(1997) 10 SCC 649] wherein this Court was considering an exceptional situation by reason of the fact that the liability 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, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke such enquiry as it may deem fit for determining whether any industrial company has become a sick industrial company, inter alia, upon receipt of a reference with respect to such company under Section 15. xxx xxx xxx 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sick company and SICA 1985 hardly contemplates adversarial proceedings. The bodies constituted under SICA 1985 would least exercise their jurisdiction to a lis between any party or upon the rival interests of the parties. xxx xxx xxx 30. Dealing with the language of Section 22 of SICA 1985, this Court in Jay Engg. case [(2006) 8 SCC 677 : AIR 2006 SC 3252] took the view that the said Act shall prevail and though the adjudicatory process of making an award under the 1993 Act would not come under the purview of SICA 1985, once an award is made and sought to be executed, the provisions of Section 22 of SICA 1985 shall take over and such award would 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deals with the execution, distress or the like proceedings against the company's properties, including appointment of a Receiver. It also specifically provides that even a winding-up petition would not be instituted and no other proceedings shall lie or proceed further, except with the consent of BIFR. xxx xxx xxx 61. It can safely be perceived that the provisions of Section 22 of SICA 1985 are self-explanatory. They would cease to operate within their own limitations and not by force of any other law, agreement, memorandum or even articles of association of the company. The purpose is so very clear that during the examination, finalisation and implementation of the scheme, 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 ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereunder. Secondly, these proceedings should have the impact of interfering with the formulation, consideration, finalisation or implementation of the scheme." ( Emphasis supplied ) 83. While the decisions in each of the aforesaid cases should be seen in the context of the specific factual situation therein, there is a common thread that binds them all together. All of the aforesaid decisions proceed on the footing that any proceeding which can possibly interfere with the formulation, consideration, finalisation or implementation of a rehabilitation scheme as envisaged under Chapter III of the Act, has to be suspended under Section 22(1) of the 1985 Act. 84. It is the above purpose which the scheme of Section 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation of the scheme. 26. The Supreme Court has also made it clear that the applicability of the embargo contained in Section 22(1) of SICA depends on the facts and circumstances of each individual case; and no principle of universal application can be laid down in all such matters. 27. The use of the expressions "Firstly" and "Secondly", in para 80 of Raheja Universal Ltd. (supra) would make it clear that both the conditions given in the judgment have to be satisfied cumulatively. Even if the suit/proceeding is of the category contemplated in Section 22(1), that by itself will not attract the bar contained in the said provision, unless it additionally has the impact of "interfering with the formulation, consideration, finalisation 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 oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l proceedings to be not maintainable, or to be liable to be halted unless, even if the debt sought to be proved in the Plaint has not been admitted. Given the delays presently endemic in the justice delivery system if a creditor is disallowed even from proving the indebtedness of a recalcitrant debtor SICA company, it would cause unjustified hardship. Whichever way we look at the matter, there can be no logic in denying legal recourse to a party for proving its debt. In the event that at least the principal amount, or a substantial part of it stands admitted, either in the suit or by means of a mention in the Scheme placed before the BIFR, the aggrieved party must be permitted to prove its claim. In holding so, the only prejudice that we can conceive of is 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imited, [2002] 108 Comp. Cas. 176. His Lordship, Dr. Mukundakam Sharma, J. has, in the Cement Corporation of India v. Manohar Basin, 82 (1999) DLT 343 : 1999 (51) DRJ 535 observed that since no documentary proof had been furnished to disclose that any scheme stood sanctioned the so-called SICA bar was not attracted. A Single Bench of the Bombay High Court in Special Steels v. Jay Prestressed Products Ltd., [1991] 72 Comp. Cas. 277 has opined that the pivotal question in connection with the current conundrum concerns the assets of the Company and its functioning, and these would not be jeopardized if a civil suit continues. In Hardip Singh v. Income Tax Officer, Amritsar, [1979] 118 ITR 57 (SC) the winding-up petition was allowed to continue and only when the third and final 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of sales tax dues, the petitioner admits as his liability. Even if this amount is not permitted to be adjusted at this stage as has been pointed out by the learned counsel for the respondent, keeping in view the wide import of the language of Section 22 of the said Act there can be no question of continuing with the suit proceedings. It also cannot be lost sight of the fact that the parties were maintaining a running account; payments were being made from time to time; it would thus not be possible to segregate the element of debt since the question would be whether the debt due to the plaintiff is correctly reflected or a lesser amount is in fact due to him. The language of Section 22 would take into its sweep a situation even where if the full amount is not a part of the DRS. The question of continuation 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 suffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t take the advantage of the said provision merely because an inquiry under Section 16 was pending before the BIFR or an Appeal under Section 25 against the order of BIFR was pending before the AAIFR. " ( Emphasis supplied ) 94. In Kusum Products Ltd. v. Hitkari Industries Ltd. reported in 2014 SCC OnLine Del 4926, a learned Single Judge of the Delhi High Court, relying upon the decision in Raheja Universal (supra) held that a suit for recovery of money simpliciter will not be liable to be suspended under Section 22(1) of the 1985 Act. It was observed thus: "3. The aforesaid paragraphs show that the proceedings for which prior permission is required under Section 22 of SICA are proceedings in the nature of execution, distress or like. It is not every suit or every suit for recovery which automatically becomes proceedings in the 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 plai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... less the suit proceedings are in the nature of 'execution, distress or the like', the suit can continue. The judgments relied upon by the defendant no. 2 are judgments which simply hold that once a company is a sick company, permission is required under Section 22 of the SICA, however, none of the judgments cited on behalf of the defendant no. 2 deal with the proposition as incorporated in the later judgment of the Division Bench of three Judges of the Supreme Court in the case of Raheja Universal (supra). Accordingly, it is held that the suit is maintainable. 10. In the present suit for recovery it cannot be said that the suit is of a nature which has impact of or threat to the properties of the defendant No. 1 sick company to affect the scheme of revival. The suit is a simple suit for recovery under Order 37 CPC not having proceedings, whether interim or final, of execution, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the sick company and interfering with the formulation, consideration, finalisation or implementation of the scheme. 98. Applying the aforesaid tests to the facts of the present case, we have already observed that requirement (i) is fulfilled. The proceeding in question being a suit for recovery of money, requirement (ii) is also satisfied. However, we are of the considered opinion that the third requirement is not fulfilled. We say so because the suit for recovery was not of a nature which could have proved to be a threat to the properties of the defendant sick company or would have adversely impacted the scheme of revival. The suit was a simple suit for recovery of money towards the dues arising under the alleged illegal deductions under the contract. This cannot be said to be a proceeding in the nature of execution, distress or the like and hence the suit was not hit by Section 22(1) of the 1985 Act. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the period during which the sick company was under the ameliorative shelter of the BIFR. Finally, it can be said that the reason for the remedy was to shield the formulation and implementation of the revival scheme from any impediments thereby maximising the chances of revival of sick company, which was the ultimate object sought to be achieved by the Act. 102. The original defendants have placed strong reliance on 3 decisions of this Court in Jay Engineering (supra), Bhoruka Textiles (supra) and Tata Motors (supra) respectively. We have discussed in the foregoing parts of this judgment as to how this Court in Jay Engineering (supra) expressly observed that it was not the adjudicatory process, but the execution of an award which would be restricted by Section 22(1) of the 1985 Act. This judgment, thus, only furthers the line of reasoning we have adopted to negate the contention of the original defendants on the applicability 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 considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the court to pass any decree, and such a defect cannot be cured even by consent of parties." (See also Chief Engineer, Hydel Project v. Ravinder Nath [(2008) 2 SCC 350 : (2008) 1 SCC (L&S) 940] , SCC p. 361, para 26.)" 104. A perusal of the above indicates that in Tata Motors (supra), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he original plaintiff. 109. The original defendants are aggrieved by the awarding of 24% interest in favour of the original plaintiff, which they contend has resulted in the principal decretal amount getting inflated exorbitantly. The original plaintiff, on the other hand, has argued that the impugned judgment of the High Court insofar as it deals with the issue of interest cannot be said to suffer from any infirmity and was arrived at after due consideration of relevant material viz. the Handbook of Statistics of Indian Economy published by the Reserve Bank of India, etc. and after hearing the parties at length. 110. The original plaintiff has further submitted that the High Court considered the floor rate charged by the SBI for the financial year 1993-1994, which was 19%, as observed under the Table 74 on Structure of Interest Rates in the Handbook of Statistics of Indian Economy published by the Reserve Bank of India. 111. We shall briefly consider the object and scope of the 1993 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny goods or any services by a buyer from a supplier; Explanation.--For the purposes of this clause,-- (i) "the day of acceptance" means,-- (a) the day of the actual delivery of goods or the rendering of services; or (b) where any objection is made in writing by the buyer regarding acceptance of goods or services within thirty days from the day of the delivery of goods or the rendering of services, the day on which such objection is removed by the supplier; (ii) "the day of deemed acceptance" means, where no objection is made in writing by the buyer regarding acceptance of goods or services within thirty days from the day of the delivery of goods or the rendering of services, the day of the actual delivery of goods or the rendering of services; (c) "buyer" means whoever buys any goods or receives any services from a supplier for consideration; xxx xxx xxx (f) "supplier" means an ancillary industrial undertaking or a small scale industrial undertaking holding a permanent registration certificate issued by the Directorate of Industries of a State or Union territory and includes,-- (i) the National Small Industries Corporation, being a company, registered und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment 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. In the instant case, as per the terms of the NIT, payment was to be made within 20 days from the receipt of the goods. 115. As discussed in the preceding paragraphs of this judgment, the High Court has awarded 24% compound interest on the amounts due to the original plaintiff from the date the amounts were determined to have become due till the date of their realisation by the original plaintiff. While there is no doubt that the rate of interest applicable to the dues of the original plaintiff as determined by the High Court is correct, we think it is necessary to examine if the compound interest can be said to have continued to accrue even when FCIL was declared a sick company and was awaiting its revival before the BIFR. In other words, it is not the rate of interest but the period for which it is applicable, is the question that is to be determined. 116. We have discussed at length in the foregoing paragraphs of the judgment the object behind the enactment of the 1985 Act. Sickness of industrial companies was considered to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch provides for the referring of a dispute arising under the 1993 Act to arbitration before the Industry Facilitation Council, and thus for this reason, the suit for recovery, which is expressly suspended under Section 22(1) of the Act, should be held as not maintainable. It was also argued that even otherwise no interest should be granted on the amount claimed as due since the mechanism prescribed under Section 6(2) of the 1993 Act was not followed. 121. Section 6 of the 1993 Act reads as follows: "6. Recovery of amount due - (1) The amount due from a buyer, together with the amount of interest calculated in accordance with the provisions of sections 4 and 5, shall be recoverable by the supplier from the buyer by way of a suit or other proceeding under any law for the time being in force. (2) Notwithstanding anything contained in sub-section (1), any party to a dispute may make a reference to the Industry Facilitation Council for acting as an arbitrator or conciliator in respect of the matters referred to in that sub-section and the provisions of the Arbitration and Conciliation Act, 1996 (26 of 1996) shall apply to such dispute as if the arbitration or conciliation were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4. The provisions of the 1993 Act, therefore, do not envisage a situation where an industrial company becomes sick and requires framing of a scheme for its revival. " ( Emphasis supplied ) 126. In our opinion, it would defy logic to hold that even for the period when the principal decretal amount awarded by the civil court under a decree could not have been realised in lieu of the suspension of execution proceedings, interest would continue to mount on the principal decretal amount. Thus, 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. 127. Any other interpretation would only lead to an absurd result that as soon as a sick company is revived after the steps taken by the BIFR, and concessions, financial support, etc. provided by the government, it would be prone to the liability of having to pay exorbitant interest that would have accrued on any decree which can be put to execution after the end of BIFR proceedings. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered. xxx xxx xxx 56. The operating agency is defined under Section 3(i) and it means any public financial institution, State-level institution, scheduled bank or any other person as may be specified by general or special order as its agency by the Board. No other persons including the unsecured creditors comes into picture like preparing the scheme under Section 18. Section 18 of the SICA does not provide that at the time of preparing of the scheme under Section 18 or when it is sanctioned by the Board, the unsecured creditors are required to be heard. The only provision for the consent required is Section 19 and the agency/person, who is required to give the financial assistance, its consent is required. Once the rehabilitation scheme/scheme under Section 18 prepared by the operating agency is sanctioned by the BIFR, which may include the scaling down the value of dues of the unsecured creditors, the same shall bind all, otherwise the rehabilitation scheme shall not be workable at all and the object and purpose of enactment of the SICA, 1985 will be frustrated. If some persons/unsecured creditors and/or even the labourers are permitted to get out of the purview of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r creditors including the financial institutions and even the labourers. 63. Now, so far as the view taken by the High Court that the unsecured creditor had an option not to accept the scaled down value of its dues and can wait till the scheme for rehabilitation of the company has worked itself out with an option to recover the debt with interest post such rehabilitation is accepted, in a given case, the sick company, which has been able to revive because of the scaling down the value of the dues, may again become sick, if the entire dues of the unsecured creditors are to be paid thereafter. It may again lead to becoming such a revived company again as a sick company. If such a thing is permitted, in that case, it will again frustrate the object and purpose of enactment of the SICA, 1985. 64. Now, so far as the submission on behalf of the unsecured creditors that to compel the unsecured creditors to accept the scaled down value of its dues would tantamount to and would be violative of Article 300A of the Constitution of India is concerned, the same has also no substance. Scaling down the value of the dues is under the rehabilitation scheme prepared under Section 18 of the SIC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 132. Although the facts of the case on hand are different from the facts in Modi Rubber (supra), we are of the opinion that the general principles enunciated in that case are equally applicable in the present case. Thus, only for the reason that the dues of the original plaintiff were not a part of the scheme and thus could not be settled at a scaled-down value, it cannot be held that it will now be open for the original plaintiff to recover its dues along with compound interest for the entire period in a manner that will saddle the defendant company with enormous liability, thereby possibly rendering the entire process of its revival futile. This, in our view, could never have been the object of the 1985 Act and the provisions of the 1993 Act thus have to be harmonised so as to give effect to the true object of the 1985 Act. 133. We also had the occasion to look into the decision of a 2-Judge bench of this Court in LML Limited v. Union of India & Others reported in (2014) 13 SCC 375 whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de the dismissal orders and held as follows: "9. Having regard to the above position, we are satisfied that this is not a case where we should go into the legal question noted by us in the beginning of our order. We are satisfied that interest of justice shall be subserved if it is directed that failure to deposit the amount as directed by the District Judge, Kanpur Nagar in its order dated 12-5-2011 would not result in dismissal of the arbitration petition filed by the petitioner under Section 34 of the 1996 Act challenging the award dated 22-12-2008. The said arbitration petition may remain pending with the District Judge until the finalisation of scheme by BIFR under Section 18 of the 1985 Act. We order accordingly. 10. The special leave petition is disposed of as above. Respondent 3 is granted liberty to apply to BIFR to hear it before finalisation of the scheme. We observe that if such an application is made, BIFR shall hear Respondent 3 before finalisation of the scheme or any other order that may be passed by BIFR terminating the proceedings under 1985 Act." ( Emphasis supplied ) 136. We would also like to advert to the principle of harmonious construction to under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... viously on such a reasoning, any observation or direction, which we may issue in this judgment, cannot be treated as a precedent. 28. As mentioned above, the appellant was de-registered by the BIFR on February 5, 2013. The first demand notice was issued on March 20, 2013. However, the appellant paid the dues only on April 25, 2015. The question would be, in the facts and circumstances, what would be the date, on which, the repayment of the loan is due. 29. The Department's contention is that it should be the date, on which, the default occurred. If that is to be reckoned as the date, then an order of cancellation of the agreement followed by recovery proceedings should have been taken by the Department, which admittedly has not been done. This is presumably for the reason that from 2003 to 2013, the appellant was before the Board and it was declared as a sick industrial company and in terms of section 22 of the SICA, the respondent-Department was prohibited from proceeding with any recovery against the appellant and this is a statutory prohibition, which binds the respondent-Department. 30. From the representation given by the appellant to the Government dated August 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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