Trackparts Of India Ltd. vs Cosmos Co-Operative Bank Ltd. And ...
2004 Latest Caselaw 213 Bom

JUDGMENT

R.M.S. Khandeparkar J.

1. The short point for consideration which arises in the matter is whether the restrictions imposed against continuation of the proceedings without the consent of the competent authority under the provision of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter called as "the SICA"), apply even to the appeals filed by an industrial company against the order of the lower court/authority pertaining to a monetary claim against such industry.

2. The respondents filed a dispute under Section 9 of the Maharashtra Cooperative Societies Act, 1960, for recovery of the amount alleged to be due from the petitioner-company wherein an ex parte award dated February 20, 1999, came to be passed against the petitioner by the co-operative court and the same was challenged by the petitioner by an appeal filed in May, 1999. By an order dated May 18, 1999, passed by the Co-operative Appellate Court, the appeal was admitted for final hearing and the parties were directed to maintain status quo in relating to the alleged properties of the petitioner-company. Meanwhile, the petitioner, on the ground that the net worth of the company had been eroded, made a reference under the SICA which was registered as Reference No. 152 of 2001. However, the said reference came to be dismissed on January 24, 2003, whereupon the petitioner filed appeal under Section 25 of the SICA being Appeal No, 89 of 2003 before the appellate authority and the same is pending for final disposal. Meanwhile, Appeal No. 30 of 1999 before the Co-operative Appellate Court came up for hearing on July 9, 2003, however, applying the provision of Section 22(1) of the SICA, the Co-operative Appellate Court suspended the proceedings till further orders. Hence the present petition.

3. The contention of the learned advocate for the petitioner is that the provision of Section 22 of the SICA apply to proceedings initiated against the sick company and not to proceedings filed by the sick company or the company claiming to be so. Reliance is sought to be placed on the decisions in the matters of Nirfabrics Ltd. v. Nirlon Ltd. , Messrs Duke Offshore Ltd. v. Burns Standard Company Ltd. , Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663 ; AIR 1987 SC 1023 and R (Quintavalle) v. Secretary of State for Health [2003] 2 All ER 113 ; 2 AC 687 (HL). Attention is also sought to be drawn to the statements and objects of the SICA. On the other hand, the learned advocate appearing for the respondents has submitted that the restriction imposed under Section 22 of the SICA apply to all the proceedings irrespective of the fact whether they are initially instituted against the sick company or by the sick company when they relate to monetary claim against the sick company. Reliance is placed on the decision in the matters of Patheja Bros. Forgings and Stamping v. I. C. I. C. I. Ltd. , and Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. . Section 22(1) of the SICA provides as :

"Where in respect of an industrial company, an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in 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."

4. The term "appellate authority" is defined in Section 3(a) of the SICA to mean the Appellate Authority for Industrial and Financial Reconstruction constituted under Section 5. The term "Board" is defined in Section 3(b) to mean the Board for Industrial and Financial Reconstruction established under Section 4. The expression "industrial company" is specified in Section 3(e) to mean a company which owns one or more industrial undertakings, and the expression "sick industrial company" has been defined in Section 3(o) to mean an industrial company being a company registered for not less than five years which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth.

5. Section 22(1) is to be found in Chapter III of the SICA. The said Chapter relates to "References, Inquires and Schemes" and it comprises Sections 15 to 22A. Section 15 thereunder relates to reference to Board. In terms of Section 15(1) when an industrial company becomes a sick industrial company, such company has to make a reference to the Board within the period prescribed thereunder. Even otherwise the Central Government or the State Government as well as the Reserve Bank and other public financial institutions or scheduled banks are also entitled to make a reference under Section 15(2). Inquiry into the working of the sick industrial companies is contemplated under Section 16. On completion of such inquiry, Section 17 empowers the Board to make suitable orders. Further, Section 18 provides for preparation and sanction of schemes under the SICA. The provisions relating to rehabilitation by giving financial assistance are to be found in Section 19. The provisions for winding up of the sick industrial company after the inquiry under Section 16 and on consideration of relevant facts and the circumstances have been made under Section 20. The matters relating to preparation of complete inventory by operating agency of sick industries are dealt with under Section 21. These provisions are followed by the provisions relating to suspension of legal proceedings, contracts, etc. The legal proceedings include the proceedings relating to winding up of such company as well as proceedings relating to properties, assets and liabilities of such company, including suits for recovery of money from and for enforcement of any security or of any guarantee in respect of loans or advance granted to such companies. Section 22A, which is the last section in Chapter III, empowers the Board to issue directions not to dispose of the assets of such company during the preparation or consideration of scheme under Section 18 or during the investigation relating to winding up under Section 20 of the SICA.

6. Section 22(1), in short, provides that in cases where there is any inquiry pending under Section 16 or any scheme in terms of Section 17 is either under preparation or sanction or even under consideration under Section 18 or when there is an appeal pending under Section 25 of the SICA relating to any industrial company, then irrespective of any provision of any other law or instructions having statutory recognition, there shall be no proceedings instituted or proceeded with further when such proceedings relate to any claim against the properties or assets or concerning monetary liability of such industrial company, except with the consent of the competent authority, i.e., the Board or the Appellate Authority, as the case may be. In other words, any proceeding dealing with the monetary claim against or relating to the properties or assets of such industrial company cannot be instituted or proceeded with when the circumstances specified under Section 22(2) are prevailing. The section nowhere specifically provides that the restrictions imposed upon such proceedings are applicable only in cases where such proceedings are originated consequent to initiation thereof by or at the instance of a party or person other than the industrial company, nor it specifies that the proceedings initiated or continued by the industrial company in relation to monetary claim or the matters relating to its properties or assets against such industrial company do not attract the said provision of law. Therefore, the provision, as it stands, merely prescribes embargo over the proceedings relating to monetary claim and pertaining to the properties and assets against such industrial companies without the consent of the Board or the appellate authority, as the case may be.

7. Referring to the clause "... 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 . . .", it is sought to be contended that the said clause clearly indicates that the provision relating to bar for proceeding or suits against industrial company apply to those initiated by others and would not apply to those initiated by the industrial company itself. The argument is totally unrelated to the matter in issue under consideration. The point for consideration does not relate to the maintainability of the proceedings originated at the instance of such industrial company but it relates to the stage of appeal which is undisputedly a second stage in any judicial proceedings and those lie before the higher courts than the courts dealing with the matters at the original stage in such proceedings and therefore for the purpose of deciding the issue under consideration the expression important in Section 22 is "... be proceeded with further ..." and not the one which is sought to be referred to by the learned advocate for the petitioner.

8. The expression "... or be proceeded with further ..." clearly denotes that any proceeding or suit instituted for enforcement of monetary claim either for the purpose of adjudication of right in that regard or for executing any order already passed on such adjudication, then such proceeding shall not be proceeded further once the circumstances enumerated under Section 22(1) of the SICA are found to be prevailing. It cannot be disputed that while dealing with the points sought to be raised in the appeal by the industrial company, the appellate court will have to decide the issue relating to the claim against the industrial company by the respondent in the appeal, at whose instance the original proceedings had commenced. Being so, in fact, it would be an adjudication at the appellate stage of the claim against the industrial company. The apex court in Patheja Bros. Forgings and Stamping v. I. C. I. C. I. Ltd. while interpretating Section 22(1) of the SICA has clearly held that (page 24) :

"It is not possible to read the relevant words in Section 22 as meaning that only a suit against the industrial company will not lie without such consent. There is no requirement in Section 22, as analysed above, that, to be covered thereby, a suit for the enforcement of a guarantee in respect of a loan or advance to the industrial company should be against the industrial company."

9. The above ruling, read with the decision in Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. clearly reveals that the expressions "legal proceedings" and "be proceeded with further" should be given wider interpretation so as to include all the proceedings wherein the issue relates to the monetary claim or enforcement of guarantee or security pertaining to loans or advance to the industrial company and the same is made against such company.

10. Referring to the Statements of Objects and Reasons as well as the Notes on the Clauses appended thereto, it was sought to be contended that the same clearly bring out the intention of the Legislature to give protection to such industries and with that view the claim against those companies are sought to be suspended and not the claim of those companies against others. Again, this is also de hors the issue for consideration for the reasons stated above which need not be repeated. However, it is true that reference to the Statement of Objects and Reasons is certainly permissible for understanding the back ground, the antecedent state of affairs, surrounding circumstances in relation to the statute and evil which the statute was sought to remedy but not as an aid to the construction of the statute or for ascertaining the meaning of the words used in the statute and the law in that regard is well settled by the decision of the apex court in State of West Bengal v. Subodh Gopal Bose, .

11. It is then sought to be contended that the construction of the statutory provisions should be contextual and textual and bearing in mind the object behind the statute, Section 22(1) cannot be interpreted to include the proceedings, even at the stage of appeal, at the instance of the industrial company against others, as otherwise it would be contrary to the objects and purpose of the SICA. Attention is drawn to the observations by the House of Lords in R (Quintavalle) v. Secretary of State for Health [2003] 2 AC 687, 695 ; [2003] 2 All ER 113 (HL) to the effect that "controversial provisions should be read in the context of the statute as a whole and the statute as a whole should be read in the historical context of the situation which led to its enactment". In the matter of interpretation of the statutory provision due importance is required to be given to the context in which every word is used, has been reiterated by our apex court time and again and in Reserve Bank of India v. Peerless General Finance and Investment Co. Ltd. [1987] 61 Comp Cas 663, 692 ; AIR 1987 SC 1023, it was held that :

"Interpretation must depend on the text and the context. They are the bases of interpretation. One may well say if the text is the texture, context is what gives the colour. Neither can be ignored. Both are important. That interpretation is best which makes the textual interpretation match the contextual."

12. If one considers the objects and the purpose of the statute, it is primarily to safeguard the economy of the country and in the process to provide measures for salvaging and securing the public money, to afford adequate protection to employment, and revitalise and rehabilitate the sick industries. The preamble of the SICA reads that "An Act to make, in the public interest, special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measure so determined and for matters connected therewith or incidental thereto." Even the Notes on the Clauses appended to the Statements of Objects and Reasons to which attention was drawn by the learned advocate for the petitioner, speak of suspension of legal proceedings with respect to such industrial companies, in relation to the provisions contained in Section 22 of the SICA, without any reservation or exclusion of the proceedings continued by such company against an order passed in the matter originated from the proceedings instituted by others against the company.

13. In Maharashtra Tubes Ltd. , it was held by the apex court that (page 813) :

". . . Section 22(1) provides that during the pendency of (i) an inquiry under Section 16 or (ii) preparation or consideration of a scheme under Section 17 or (iii) an appeal under Section 25, no proceedings for winding up of the concerned industrial company or for execution, distress or the like shall lie or be proceeded with in relation to the properties of that concern unless BIFR/appellate authority has consented thereto. The underlying idea is that every such action should be frozen unless expressly permitted by the specified authority until the investigation for the revival of the industrial undertaking is finally determined. . . ."

14. The observation "every such action should be frozen" clearly relate to the continuation of any such proceedings without exclusion of the proceedings instituted by the industrial company.

15. In Patheja Bros. , while disapproving the decision of the Division Bench of this court in Madalsa International Ltd. v. Central Bank of India, AIR 1998 Bom 247 ; [2000] 99 Comp Cas 153, it was held that (page 25 of 102 Comp Cas) :

"We have analysed the relevant words in Section 22 and found that they are clear and unambiguous and that they provide that no suit for the enforcement of a guarantee in respect of any loan or advance granted to the concerned industrial company will lie or can be proceeded with without the consent of the Board or the appellate authority. When the words of a legislation are clear, the court must give effect to them as they stand and cannot demur on the ground that the Legislature must have intended otherwise."

16. There is yet another reason for not accepting the interpretation sought to be given on behalf of the petitioner. If one accepts the interpretation as suggested by the petitioner's advocate, it would virtually lead to absurdity inasmuch as that in a case where the respondent files cross appeal or cross objections in the very appeal filed by the industrial company, the appellate court would be entitled to proceed with the appeal but will be forbidden from proceeding with such cross objections or cross appeal arising out of the same transaction or from the same set of facts and evidence. No statutory provision can be integrated to lead to absurdity or ambiguity. On the contrary, the interpretation has to be to eradicate the ambiguity. Even where two interpretations are possible, the court has to adopt the one which ensures smooth and harmonious working and enforcement of the statute and should avoid the one which may lead to absurdity or which may result in inconvenience for effective implementation of the statute for the purpose for which it is enacted or provision being rendered nugatory.

17. The decision in Nirfabrics Ltd. v. Nirlon Ltd. is in relation to the provisions of the Bombay Relief Undertakings (Special Provisions) Act, 1958, which are not in pari materia with those of the SICA and, therefore, the ruling therein is of no help to the case in hand.

18. Another decision of the learned single judge in Messrs Duke Offshore Ltd. v. Burns Standard Co. Ltd. does not lay down any proposition of law relating to the point in issue. No doubt there is an observation to the effect that the decision of the apex court in the case of Real Value Appliances Ltd. v. Canara Bank , nowhere lays down that the company against which proceedings have been initiated is prohibited from taking legal steps for enforcement of its rights. That cannot be construed to mean contrary to the statutory provision in Section 22(1), prescribing restrictions on the continuation of such proceedings in any manner and more particularly in view of the ruling by the apex court in Maharashtra Tubes Ltd. . The decision of the apex court in Real Value's case was in totally different set of facts and the question involved was not the one under consideration in the matter in hand. Therein the point raised was to the effect that for the application of the provisions of Section 22(1), BIFR, subsequent to the registration of the reference vide Section 15, shall apply its mind and consider it necessary vide Section 16 to make an inquiry and issue notices on reference to the affected parties who are required to be heard and only then it can be said that an inquiry is pending and unless an inquiry is pending there cannot be statutory stay of proceedings as contemplated by Section 22 of the SICA. Rejecting the said contention, it was held that (page 40) :

". . . Once the reference is registered and when once it is mandatory simultaneously to call for information/documents from the informant and such a direction is given, then inquiry under Section 16(1) must--for the purposes of Section 22--be deemed to have commenced. Section 22 and the prohibitions contained in it shall immediately come into play."

19. The decision of the learned single judge in Duke Offshore Ltd. was delivered on September 2, 1998, i.e., prior to the decision in Patheja Bros.'s case . The decision in Duke Offshore's case was in the facts of the said case. In the said case, the industrial company was seeking to enforce the bank guarantee given by the third party--the petitioner in the said case. In other words, the petitioner therein was seeking to restrain the industrial company from initiating the proceedings at the original stage. The matter in the said case did not pertain to the proceedings at the appellate stage or at the stage "further" to the stage on conclusion of the one at the stage of the proceedings initiated by others against the industrial company.

20. In the circumstances, while answering the point for consideration in affirmative, as no fault can be found with the impugned order, the petition fails and is dismissed with no order as to costs.