Pnb Capital Services Ltd. vs Swaraj Agroils Ltd.
2003 Latest Caselaw 299 Del

JUDGMENT

Manmohan Sarin, J.

1. The plaintiff is a wholly owned subsidiary of M/s. Punjab National Bank. The plaintiff filed the present suit seeking a mandatory injunction directing the defendant to hand over possession of the Husk Fired Fluid Packed Steam Boiler, Model MTFH-40A, as mentioned in commercial Invoice dated 5.3.1997. Written statement on behalf of the defendant has been duly filed. The plaintiff upon filing of the written statement also moved IA 10331/02 under Order XII Rule 6 CPC seeking a decree on the admissions contained in the written statement.

2. The material facts as averred by the plaintiff in the plaint are not disputed or traversed by the defendant in the written statement. The defendant has raised legal objections to the maintainability of the suit on account of the bar and embargo by virtue of Section 22(1) and (3) of the Sick Industrial Companies (Special Provisions) Act, 1985. Before I advert to the above, the relevant facts in brief may be noted.

3. The plaintiff has filed the present suit for mandatory injunction seeking re-possession of the leased machinery. The suit has been instituted by Mr. D.S. Sunderam as the General Power of Attorney Holder. The plaintiff being in the business of merchants banking and leasing of equipment had been approached by the defendant for grant of Lease Finance Facility for the acquisition of the Boiler. The plaintiff granted Lease Finance Facility of Rs. 35 lacs, to the defendant for the purchase of the Boiler from M/s. Gopan Traders, manufactured by M/s. Thermax Limited, Pune. The lease finance was granted in terms of letter dated 17.12.96. The defendant accepted the said terms and executed among other the following documents i.e. (a) a Promissory Note dated 20.12.1996 for a sum of Rs. 54,60,000/- and (b) lease Agreement dated 20.12.96. Upon approval of the Lease Finance Facility and execution of requisite documents, the plaintiff vide cheque dated 24.12.96 remitted a sum of Rs. 35 lacs in favor of M/s. Gopan Traders, Delhi with margin money being contributed by the defendant. Pursuant to the above finance, one Husk Fired Fluid Pac Steam Boiler, Thermax was delivered at the factory premises of the defendant.

Defendant confirms having availed of the Lease Finance for the Boiler and having put the same to use. Defendant was required to repay a sum of Rs. 54.60 lacs over a 60 months period in 20 quarterly Installments. The following are the material terms of the lease agreement by which the ownership of the equipment was retained and remained with the plaintiff :-

"4.4. Hold the equipment as the bailees of the Lesser and not claim any right, title or interest in the Equipment other than that of a Lessee or contest the Lesser's sole and exclusive ownership thereof.

6.6. As between the Lesser and the Lessee and their respective successors in title the Equipment shall remain personal property of and shall continue to be in the ownership of the Lesser.

8.2.1. The Lesser, shall without any notice be entitled to remove and repossess the Equipment and for that purpose by itself, its servants or agents enter upon any land, buildings or premises where the equipment is situated or is reasonable believed by the Lesser to be situated for the time being and detach and dismantle the same and the Lesser shall not be responsible for any damage which may be caused by any such detachment or removal of the Equipment."

4. The defendant defaulted in the payments. The plaintiff claims to have sent numerous reminders during the period January, 1998 to October, 1999 regarding payment of the lease rentals and over due interest. The defendant in between vide its letters of 25th March, 1998 and 1st June, 1998 sought re-schedulement of Installments from April, 1998, promising to pay regularly in future. Extension of Installments by nine months was sought. It is averred that some of the cheques issued by the defendant were dishonoured. Finally vide a notice sent through the counsel dated 31.12.2000 plaintiff demanded a sum of Rs. 58,33,665/- and also called upon the defendants to hand over the said equipment or pay the amount demanded. The defendant failed to comply with the demand made and hence the present suit.

5. The plaintiff along with the suit had moved application being IA No. 4789/2001 seeking leave under Order XI Rule 2 CPC for the institution of a suit for recovery of Rs. 58.33 lacs at a later stage. The said application was allowed vide orders dated 16.5.2001. The plaintiff has confined relief in the present suit to repossession of the Boiler. The plaintiff has moved IA 10331/02 under Order XII Rule 6 CPC for judgment and decree on admissions in the written statement. It is an admitted position that defendant has already sought a reference for being declared a sick industrial unit and the proceedings are pending before the BIFR. In these circumstances, suit for recovery of money would be barred in terms of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act 1985 without the leave of the BIFR.

6. The defendant in the written statement filed admits that a sum of Rs. 35 lacs had been disbursed by the plaintiff. The defendant also avers that on account of the policy of the Government of India, allowing Vanaspati imports from Nepal, local Vanaspati industry suffered a recession, resulting in defendant ceasing to make profits. The Financial condition of the defendant deteriorated and per-force the defendant approached the BIFR in case No. 1190/1998 to declare the defendant Company as Sick Company. Vide order dated 3.8.98 BIFR admitted the reference and appointed Bank of India as operating agency.

7. The defendant relies on the provisions of Section 22(1) and 22(3) of the SICA to urge that no proceedings for execution distress or the like against any of the properties of the Industrial Company would lie except with the consent of the BIFR. Similarly, the BIFR under Section 22(3) of SICA may suspend the operation of all or any of the contracts, assurance of the property, agreement and other instruments. In these circumstances, the present suit against the properties of the defendant would not be maintainable. Learned counsel also relies on order passed by the BIFR to the following effect :-

"That Company shall not dispose of, encumber or alienate any other way any of its fixed and current assets without specific approval of the BIFR and the charge holders under Section 22A of the Act. However, after the unit resumes operations, the current assets should be utilized for running day-to-day operations subject to keeping proper records thereof and routing all transactions through a cash credit current accounts to be opened by the Company with its financing banks subject to mutually acceptable tagging."

8. The learned counsel, therefore, submits that in view of this order, alienation, in any way, of the assets in charge of the defendants without the prior approval of the BIFR, was not permissible and hence the present suit would not be maintainable. Learned counsel for the defendant submitted that presently the defendant's claim for rehabilitation and restructuring was under consideration and the defendant be granted some time to make an alternative proposal, for settlement of the dues including that of the plaintiffs. Pending the same, orders in the suit be deferred.

9. Mr. Jagdeep Kishore, learned counsel for the plaintiff opposes this request submitting that the default has continued since January,1998. Mr. Jagdeep Kishore states that no order under Section 22(3) of SICA suspending the Hire Purchase Agreement has been passed. With regard to the objections raised on the maintainability of the suit counsel submitted that the whole plea of the defendant proceeded on the assumption that the property and assets in question belonged to the defendant. In the instant case, the ownership and title to the property was that of the plaintiff which had been simply leased to the defendant. The plaintiff was entitled to repossess the same.

10. The question arising for consideration is whether the bar under Section 22 of the SICA would apply in case of properties which are owned by the defendant-Company or not? This question is no longer res integra. Reference may be invited to a decision of this Court in GE Capital Transportation Financial Services Ltd. Vs. Dee Pharma Ltd . In the cited case, the petitioner had sought the appointment of a receiver. This was also a case of lease finance of plant and machinery. Similar arguments were advanced by the defendant submitting that in case a receiver was appointed it would adversely effect the financial position and the revival of the Company. The Court considered whether Section 22(1) of SICA would operate as a bar to the appointment of the Receiver. It was held that execution or distress proceedings would be suspended under Section 2(1) of SICA with regard to the property of the Company and not otherwise. It was held that under the agreement the ownership of the plant and machinery vested with the petitioner though the possession of the same was with the respondent. The Court approved the appointment of the Receiver holding that the respondent was not entitled to the benefit of the provisions of Section 22 of the SICA since the equipment was given on hire to the respondent and the title and ownership vested with the petitioner. Again in Space Capital Services Ltd. Vs. Parkash Industrial Ltd 2000 Company Cases Vol. 101 page 437, the above position was reiterated and it was held that provisions of Section 22 of the SICA would not apply as they in terms apply only to properties belonging to the Company and not those leased to it and there was no bar to the appointment of Receiver to take possession of the leased equipment. The Court also rejected the arguments that the equipment having affixed to the ground was liable to be treated as immovable property. It held that the appointment of receiver to secure the leased equipment could not be resisted and the receiver would take possession of the leased equipment.

11. Reference may also be made to Foremost Industries India Ltd. Vs. Credit Capital Finance Corpn. Ltd. 1997 IV AD (Delhi) 62, holding that an equipment under a hire purchase agreement upon failure to make the payment does not belong to the buyer but to the financier and the hirer could take possession of the equipment as it was owned by it.

12. Again in Wipro Finance Ltd. Vs. Dee Pharma Ltd. 2000 (V) AD Delhi 967, a learned Single Judge of this Court noted and followed the decisions in M/s. Shree Chamudi Mopeds Ltd. Vs. Church of South India Trust Association , wherein it was held that the interest of a sick Company, continuing in occupation of the tenanted premises as a statutory tenant, could not be regarded as property of the Company for purposes of Sub-Section 1 of Section 22 of the SICA as also the decisions in GE Capital Transportation Financial (supra) and the decision of the Division Bench dismissing the appeal against the above decision in M/s. Dee Pharma Pvt. Ltd. Vs. Gee Capital Transportation Financial Services Ltd. (Co. Appeal No. 29/98).

13. Applying the principles enunciated in the aforesaid decisions and noting the agreement terms as reproduced in paras 4.4, 6.6 and 8.2.1, it is clear that the Boiler which was leased belongs to the plaintiff. Once it is held that it is not the property or asset belonging to the defendant-Company, the bar under Section 22 of SICA would not come into operation, as the same applies to only the properties and assets, which belong to the Company in respect of which proceedings under the SICA are pending.

14. In view of the admission of the Defendant in the written statement, admitting disbursal by the plaintiff of the amount financing purchase of Boiler and the default of the defendant in making payment in terms of agreement, plaintif is entitled to a decree on admissions. The objection of the defendant on maintainability of the suit and relief sought by virtue of Section 22 of SICA have been found to be unsustainable. I.A. 10331/2002 is, accordingly, allowed. Accordingly by a decree of mandatory injunction, the defendant is directed to hand over possession to the plaintiff of the Husk Fired Fluid Pac Steam Boiler, Model MTFH-40A. The suit is decreed with costs. A decree of mandatory injunction shall issue directing the defendant to hand over the possession of Husk Fired Fluid Pac Steam Boiler Model MTFH-40A to the plaintiff. The decree shall be executable after a period of 30 days. This time has been granted in view of the prayer made by the defendant that some time be granted to the defendant to make an endeavor to clear the dues. In the meanwhile the restraint on the Defendant from alienating or parting with possession of equipment shall continue. All IAs stand disposed of.