Bombay High Court
Dbs Bank Ltd vs M/S. Innoventive Industries Ltd. ... on 13 October, 2015
Bench: S.C. Gupte
9.10.2015.ca.121.2015.doc
dik
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
COMPANY APPLICATION NO.121 OF 2015
IN
COMPANY PETITION NO. 148 OF 2015
DBS Bank Ltd. ...Applicant/Petitioner
vs
M/s. Innoventive Industries Ltd. ...Respondent
ig .....
Mr. Huzefa Nasitwala a/w Freddy Daruwala & Raman Misra i/b. Nasikwala Law
Office for the Petitioner.
Mr. Ashish Kamat a/w/ Kunal Mehta and Ms.Shivani Parekh i/b. Crawford Bayley
& Co. for the Respondent.
.....
CORAM : S.C. GUPTE, J.
RESERVED ON : 22 SEPTEMBER, 2015
PRONOUNCED ON : 13 OCTOBER, 2015.
ORDER :
The company application seeks appointment of provisional
liquidator of the Respondent company and an interim restraint order concerning
the disposal of the company's assets pending such appointment.
2 The company is said to be indebted to the Applicant (who is the
original Petitioner in the Company Petition) in the sum of over Rs.24.91 Crores.
The Company has been referred to the Corporate Debt Restructuring (CDR) cell
and a consortium of lenders led by Central Bank of India has proposed a CDR
scheme for the company. The Applicant herein is not part of CDR lenders, but its
debt of Rs.24.91 Crores has been acknowledged in the debt profile of the
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company under the caption 'Non CDR lenders' in the report of the reference
made to the CDR cell. It is the case of the Applicant that the company has not
proposed any scheme for discharge of its outstanding claim. It is submitted that
the company inter alia proposes to dispose of its assets in pursuance of the CDR
scheme and also otherwise without making any payment to the Applicant and
with a view to defeat the legitimate claim of the Applicant. It is submitted that the
financials of the company present a dismal picture of the financial standing of the
company and its ability to continue as a going concern. The Applicant has, in the
premises, sought an order of provisional liquidator or at any rate, protective relief
concerning the company's property and assets.
3.
This court has held in a number of matters that mere existence of a
CDR scheme, which is under implementation, is no answer by itself to a winding
up petition. In any event, even in the face of a CDR scheme, though this Court
may defer the admission of a winding up petition, nothing prevents this court from
passing appropriate protective orders concerning the property of the company. In
the premises, this Court, in its order dated 31 July 2015, noted the statement of
the company's counsel that certain assets specified in the order shall not be dealt
with by the company until further orders.
4. It is, however, submitted on behalf of the Respondent company that
on 22 July 2015, it has been declared as a relief undertaking under the Bombay
Relief Undertakings Act, 1958 ("B.R.U. Act"). It is submitted that in view of
Sections 3 and 4 of that Act, on and from 22 July 2015, the Company Court
would have no jurisdiction to either continue its order of protective relief qua the
property of the company or pass any order or direction in that behalf. It is
submitted by learned Counsel that the protection granted by the BRU Act is
greater than the one afforded by the Sick Industrial Companies (Special
Provisions) Act, 1985 ('S.I.C.A.'). Learned Counsel relies on the judgment of the
Supreme Court in Binod Mills Co. Ltd. Ujjain (M.P.) Vs. Suresh Chandra
Mahaveer Prasad Mantri1 and of this Court in Baroda Rayon Corporation Ltd.
1 (1987) 3 SCC 99
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Vs. ICICI Ltd. (Debenture Trustees)2 in support of his submissions.
5. Sections 3 and 4 of the B.R.U. Act, which is an enactment making
temporary provisions for industrial relations and other matters as a measure of
preventing unemployment or of unemployment relief, provide as follows :-
"3. Declaration of relief undertaking. (1) If at any time it appears to
the State Government necessary to do so, the State Government
may, by notification in the Official Gazette, declare that an
industrial undertaking specified in the notification, whether started,
acquired or otherwise taken over by the State Government, and
carried on or proposed to be carried on by itself or under its
authority, or to which any loan, guarantee or other financial
assistance has been provided by the State Government shall, with
effect from the date specified for the purpose in the notification, be
conducted to serve as a measure of preventing unemployment or
of unemployment relief and the undertaking shall accordingly be
deemed to be a relief undertaking for the purposes of this Act.
(2) A notification under sub-section (1) shall have effect for such
period not exceeding twelve months as may be specified in the
notification; but it shall be renewable by like notifications from time
to time for further periods not exceeding twelve months at a time,
so however that all the periods in the aggregate do not exceed
fifteen years.
4. Power to prescribe Industrial relations and other facilities
temporarily for relief undertaking. (1) Notwithstanding any law,
usage, custom, contract, instrument, decree, order, award,
submission, settlement, standing order or other provision
whatsoever, the State Government may, by notification in the
Official Gazette,
direct that -
(i) in relation to any relief undertaking and in respect of the period
for which the relief undertaking continues as such under sub-
section (2) of section 3-
(a) all or any of the laws in the Schedule to this Act or any
provisions thereof shall not apply (and such relief undertaking
shall be exempt therefrom), or shall, if so directed by the State
Government, be applied with such modifications (which do not
however affect the policy of the said laws) as may be specified in
the notification ;
(b) all or any of the agreements, settlements, awards or standing
orders made under any of the laws in the Schedule to this Act,
which may be applicable to the undertaking immediately before it
2 2002 Bom.C.R.608
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was acquired or taken over by the State Government or before
any loan, guarantee or other financial assistance was provided to
it by, or with the approval of, the State Government, for being run
as a relief undertaking, shall be suspended in operation or shall, if
so directed by the State Government, be applied with such
modifications as may be specified in the notification ;
(iii) rights, privileges, obligations and liabilities shall be determined
and be enforceable in accordance with clauses (i) and (ii) and the
notification;
(iv ) any right, privilege, obligation or liability accrued or incurred
before the undertaking was declared a relief undertaking and any
remedy for the enforcement thereof shall be suspended and all
proceedings relative thereto pending before any court, tribunal,
officer or authority shall be stayed;
(b) the right, privilege, obligation or liability referred to in clause (a)
(iv) shall, on the notification ceasing to have force, revive and be
enforceable and the proceedings referred to therein shall be
continued :
Provided that, in computing the period of limitation for the
enforcement of such right, privilege, obligation or liability, the
period during which it was suspended under clause (a) (iv) shall
be excluded notwithstanding anything contained in any law for the
time being in force.
(2) A notification under sub-section (1) shall have effect from such
date, not being earlier than the date referred to in sub-section (1)
of section 3, as may be specified therein, and the provisions of
section 21 of the Bombay General Clauses Act, 1904, shall apply
to the power to issue such notification."
If the conditions prescribed in Sub-Section (1) of Section 3 are
satisfied, the State Government is empowered to declare an industrial
undertaking specified in the notification as a relief undertaking. This power exists
as a temporary measure of preventing unemployment or as an unemployment
relief. One of the conditions so prescribed includes acquisition or taking over of
or, provision of a loan, guarantee or other financial assistance to, the undertaking
by the State Government. The notification remains effective for such period not
exceeding twelve months as may be specified in the notification subject to further
renewals of maximum twelve months at a time, but not so as to exceed fifteen
years in the aggregate. The effect of such declaration is provided for in Section
4. In the first place, laws specified in the Schedule to the B.R.U. Act do not apply
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or apply with such modifications as may be specified in the notification.
Secondly, agreements, awards etc. made under the laws specified in the
schedule applicable to such undertaking immediately before its acquisition or
take-over by the State Government or provision of loan, financial assistance, etc.
to it by the Government, stand suspended in operation or are applied to it with
such modifications as specified. In the result, the rights, liabilities, etc. vis-a-vis
such undertaking are determined or are enforceable in accordance with the
above two consequences and the notification. Thirdly, rights, privileges or
liabilities, etc. accrued or incurred by the undertaking before its declaration as a
relief undertaking remain suspended and proceedings in connection therewith
stayed. These rights, liabilities, etc. revive on the notification ceasing to have
force and proceedings which were stayed can then continue.
6. The submission of learned counsel for the Respondent is that this
protection is even larger than SICA, since not only the proceedings, but even
underlying contracts are suspended. That is not quite correct. Only those
contracts, settlements, etc. which are made under the laws specified in the
schedule remain suspended. (The present contract, with which we are
concerned, is not under any of those laws.) Generally, however, what remain
suspended are the rights, privileges, liabilities, etc. accrued or incurred by the
relief undertaking before the declaration and remedies in connection therewith.
That does not mean that no interim relief can be granted in a proceeding, which is
filed for enforcement of any previously accrued right or liability of the undertaking,
during the time the proceeding remains suspended. An interim order granted in a
proceeding filed for enforcement of any right or liability is not in itself an
enforcement of such right or liability. The purpose of granting an interim order is
to preserve the property, which is the subject matter of a proceeding or which is
necessary to be preserved, pending adjudication of the rights or liabilities so as
not to deny the fruits of the final order to the successful party. Even when a suit
is stayed under the provisions of the Code of Civil Procedure, say, under Section
10 thereof, the Court can always grant interim relief on this basis. By its very
nature, a declaration of relief undertaking is for a short period as an
unemployment relief. No party can take advantage of this temporary measure
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and deal with the property of the relief undertaking to the prejudice of the other
party during the period the proceeding remains stayed. If there is any such
possibility, the Court is duty bound to protect the property during the period of
stay.
7. Binod Mills case (supra) was a case, where a decree was brought
before a District Judge in Ujjain, M.P. for execution. This decree was passed by
Bombay High Court against an undertaking declared to be a relief undertaking
under the State law of M.P. The undertaking objected to the execution citing
Section 5 of the M.P. Act. The Section is quoted below :-
"5. Suspension of suits or other legal proceedings against relief
undertakings. - As from the date specified in the notification
under sub-section (1) of section 3, no suit or other legal
proceedings shall be instituted or commenced or, if pending,
shall be proceeded with against the industrial undertaking during
the period in which it remains a relief undertaking any law,
usage, custom, contract, instrument, decree, order, award,
settlement or other provisions whatsoever notwithstanding."
The question in that case was, whether on a true construction of Section 5 of that
Act (which was in pari materia with Section 4 of the B.R.U. Act), execution of the
decree could be proceeded with against the undertaking. The M.P. Court
rejected the contentions of the undertaking and allowed the execution to
continue. The M.P. High Court upheld the trial Court order, holding that the
determination of rights between the parties had to be in accordance with the
substantive law applicable to the State of Maharashtra and once such rights were
adjudicated upon as per that law, such rights could not again be subjected to
and/or regulated by any law in the State of M.P. to which the decree was sent
only for execution. The Supreme Court reversed the M.P. High Court order,
holding that the execution in the M.P. Court had to remain stayed. This is what
the Supreme Court had to say :
"A close scrutiny of the above section reveals that Section
5 has a free field of operation unfettered by any limitation. The
section is not happily worded. What the section intends to convey,
according to us, if the words are re-arranged, would be as follows:
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"Notwithstanding any law,usage, custom, con- tract, instrument,
decree, order, award, settlement or other provisions, no suit or
other legal proceedings shall be instituted or commenced or if
pending shall be proceeded against the industrial undertaking as
from the date specified in the notification under sub- section (1) of
Section 3 during the period in which it remains a relief
undertaking."
So read, the object of the section becomes clear. The section
seeks to confer benefit to the relief undertakings from the ravages
of litigation during the period it remains a relief undertaking. The
expression 'decree' is very mate- rial for our purpose. Inclusion of
'decrees' in the section shows that the fact that decrees were
validly obtained against a relief undertaking will not pose any
danger to it during the period the declaration is in force. In other
words, the section prevents execution of a decree validly obtained
against the undertaking during the period mentioned above. That
takes us to the question as to whether the words "other legal
proceedings" in the section would take in execution proceedings.
It is not disputed that the Section bars institution of suits and
starting of other proceedings. What is disputed is that expression
"other legal proceed- ings" will not take in execution proceedings.
The contention is grounded on the general principle that the
execution court cannot go behind a valid decree and that the
execution court cannot, therefore, refuse to execute it. It is admit-
ted that the decree obtained from the Bombay High Court is a
valid decree. That being so, law should take its course and
execution should proceed. It is by virtue of the enabling provisions
contained in Sections 40 & 42 of the Civil Proce- dure Code that
this validly obtained decree got transferred to the Court in Madhya
Pradesh. It is contended that by the mere transfer of this decree in
accordance with the proce- dural law, its validity does not
disappear nor its binding force cease to exist. We find difficulty in
accepting this contention. If we are to accept this submission, it
would be rendering section 5 of the Act nugatory and to 258
destroy the benefits sought to be conferred by that section.
Nobody questions the validity of the decree. All that is sought to
be done is to suspend its animation for the period mentioned in
the notification. No Court in Madhya Pradesh can question its
validity, nor can refuse to execute it after the period is over. To
direct execution of the decree in the teeth of Section 5 would be to
encourage filing of suits in Courts outside Madhya Pradesh,
secure decrees and defeat the purpose of the Act. We do not
think that such an abuse is permissible in the face of Section 5 of
the Act. We have, therefore, to answer this question in favour of
the appellant."
As the Supreme Court held in Binod Mills' case till the notification
of relief undertaking operates, the proceedings for execution remain in
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suspended animation for the period mentioned in the notification and can
continue only after such period.
8. Relying on the judgment in Binod Mills' case, our Court in Baroda
Rayon Corporation's case (supra) held that State legislation of Gujarat declaring
an undertaking as a relief undertaking would cover properties of the undertaking
within the State of Gujarat and execution against such properties could not be
proceeded with.
9. These judgments do not lay down that as long as proceedings
remain stayed, no interim relief can be granted to a creditor or claimant against
the undertaking declared as a relief undertaking. Even if the proceedings remain
stayed, appropriate interim relief, which is merely in aid of the final relief that can
be granted once the stay expires and the proceedings are taken up for hearing,
can always be granted. Surely, the relief undertaking cannot deal with its
property otherwise than in the course of its business to the detriment of the
creditor or the claimant except by showing cause to the Court in support of its
purposed dealing.
10. In fact, the interim relief sought in the present petition is to protect
the company's property from being dissipated. Such relief does not run counter
to the purpose of a notification of relief undertaking or objective behind it, which is
to preserve and perpetuate the undertaking, untramelled by ravages of litigation,
during the period it remains a relief undertaking so as to prevent, or give relief
from, unemployment. If, on the other hand, a genuine need arises for any
disposal of the property and such disposal is in keeping with the purpose or
objective behind the declaration as a relief undertaking, the Respondent
Company could always approach this Court and seek a leave.
11. Accordingly, the following order is passed :-
(a) Pending admission of the petition and until further orders, the
Respondent shall not dispose of any of its assets or create any third
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party rights therein otherwise than in usual course of its business,
without leave of this Court.
(b) The Respondent shall keep the Petitioner informed from time to
time about the progress and status of the implementation of the
C.D.R. Scheme and important developments thereunder as also of
the declaration of relief undertaking.
(c) The Petitioner shall be at liberty to press for admission of the
petition and further relief in the matter as and when the notification
of relief undertaking ceases to apply to the Respondent.
(d) The petition is adjourned sine die till then.
(e) Company Application is disposed of accordingly.
(f) Liberty to apply.
( S.C.GUPTE J. )
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