L.G. Electronics India Pvt. Ltd. vs Usha India Ltd. And Ors.
2003 Latest Caselaw 1010 Del

JUDGMENT

Manmohan Sarin, J.

1. Judgment Debtor No. 1 M/s Usha India Ltd. has moved the present application under Section 22 of Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as `SICA`) for stay of the execution proceedings. Judgment Debtor No. 1 Company made a reference under Section 15 of the SICA before the BIFR on 17th January 2002, which was registered as case No. 117/2002. The BIFR conducted an enquiry in terms of Section 16 of the SICA and rejected the reference on 28.10.2002. The BIFR took the view that the losses claimed by the judgment debtor were not permissible as per the accounting standards and practices. The judgment debtor has preferred an appeal under Section 25 of the SICA before AAIFR on 26.12.2002, which is pending.

2. The judgment debtor in these facts contends that Section 22 of the SICA is attracted and the decree holder cannot seek or proceed with the recovery of the decretal amount of Rs. 2, 31, 25, 803/-, decreed on 6.9.2002.

3. Reply to the application has been filed by the decree holder. It is contended that mere filing of an appeal under Section 25 of the SICA would not attract provisions of Section 22 of the Act. Reference made under Section 15 has already been rejected after enquiry under Section 16 of SICA. It is submitted that the present application is by only one of the judgment debtors, while there are other judgment debtors in respect of which no application or reference is pending and the execution is, therefore liable to be proceeded against them and present application is liable to be dismissed.

4. The decree holder/tenant M/s LG Electronics Pvt. Ltd. had instituted a suit for recovery of the security deposit given to the owner/landlord M/s Usha India Ltd. and others towards rent, maintenance charges, hire charges for fittings and fixtures. The tenancy was brought to an end, possession handed over to Local Commissioner, the suit was decreed on 6.9.2002 for a sum of Rs. 2, 31, 25, 803/- against all the judgment debtors with proportionate costs and interest at the rate of 12% per annum.

5. It is urged that an appeal had been preferred by the judgment debtor No. 1 M/s Usha India Ltd. bearing No. FAO (OS)164/2003 against the judgment in suit on 19.10.2002. The Division Bench, vide its order of 1.8.2003, dismissed the appeal, holding that the order of the learned Single Judge in directing payment of the security amount deposited by the tenant was just and fair. The appeal was held as devoid of merit and dismissed. Similar appeals FAO (OS) 171/2003 preferred by Varun Rauz and others and all No FAO (OS)162/2003 preferred by Srikant Pittie and others were dismissed as withdrawn with liberty to approach the learned Single Judge.

6. During the pendency of the suit, no application invoking Section 22 of SICA was moved. The judgment debtor in the grounds of appeal did not take the plea of the bar under Section 22 of SICA. However, during the proceedings, an affidavit was filed by the judgment debtor giving the status of the proceedings with regard to the reference under Section 15 of SICA and the enquiry under Section 16 of SICA.

7. Learned Senior counsel for the Decree-Holder Mr. Amarjeet Singh Chandhiok in opposing the present application filed under Section 22 of SICA in Execution proceedings, submits that the objection under Section 22 of SICA having already been taken before the Division Bench by filing of the affidavit and the Division Bench having dismissed the appeal, the present application would be barred by resjudicata. Even if the plea had not been raised but ought to have been raised, it would be barred by principles of constructive res judicata. Mr. Chandhiok also submitted that the benefit of Section 22 of SICA would not be available for return of the security deposit as it was an integral part of the agreement for lease and the tenanted premises are not to be regarded as asset or property of the sick company. Accordingly, Mr. Chandhiok submits that the present application in Execution proceedings seeking stay of the execution on the ground of Section 22 of the SICA was barred and not maintainable. The judgment-debtor/applicant, on the other hand, contends that its appeal under Section 25 of the SICA was pending before the AAIFR and, as such, the present proceedings for execution were liable to be stayed.

8. Based on the pleas raised, the following questions arise for determination:

(i)Whether Section 22 of SICA would be attracted when reference under Section 15 has been dismissed after enquiry under Section 16 during the pendency of an appeal under Section 25 of SICA?

(ii) Whether the protection of Section 22 of SICA is not to be available in respect of the security deposit for the tenanted premises since the latter is not treated as an asset or property of the sick company?

(iii) Whether an application under Section 22 of SICA was barred by res judicata due to the dismissal of the appeal by the Division Bench, wherein by an affidavit the plea of applicability of Section 22 of SICA, during the pendency of appeal under Section 25 of SICA was raised?

9. Let us consider point '(i)' as noted above:

The submission of the counsel for Decree-Holder is that the pendency of an enquiry under Section 16 of SICA is sine qua non for the applicability of Section 22. In support, he refers to the provisions and contents of Section 16 of SICA itself, requiring the conduct of an enquiry upon receipt of reference or other information. He submits that in the instant case, after an enquiry, the reference was dismissed. Hence, there was no enquiry pending under Section 16 of SICA for invoking Section 22. Mr. Chadhiok placed reliance on judgment of the learned Single Judge of this Court in Industrial Development Bank of India v. Surekha Coated Tubes and Sheets Ltd. (formerly known as Tirupati Udyog Ltd. (1996) 85 Company Cases page 594. In the cited case, refrence made under Section 15 had been dismissed by the BIFR as not maintainable holding that the enquiry under Section 16 of the Act was not conducted because of insufficiency of the particulars of company's claim regarding the number of workers employed with the company. The company preferred an appeal before the AAIFR against the dismissal of the reference. During the pendency of this appeal, it was held that the Court had to proceed on the basis that no enquiry had been initiated under Section 16 and therefore, Section 22 of SICA was not attracted. Mr. Chandhok thus submits that the pendency of an enquiry under Section 16 of SICA was a sine qua non for invoking Section 22 of SICA.

10. Mr. Vibhu Bakhru on behalf of the judgment debtor No. 1 refutes the above submission and submits that in the instant case reference under Section 15 of SICA was filed on 17.1.2002 and enquiry had been conducted by BIFR in terms of Section 16 of SICA. The BIFR took the view that the loss claimed by the judgment debtor was not permissible as per the accounting practice and standards. It, therefore, rejected the reference. The judgment debtor, thereafter preferred an appeal under Section 25 of SICA. Mr. Vibhu Bakhru relying on Orissa Sponge Iron Ltd. v. Rishabh Ispaat Ltd. (1993) 78 Company Cases page 264 submits that once a reference has been received and registered, it implied that the Board on consideration thought it fit that an enquiry should be made under Section 16 of SICA. The fact that further steps for conducting the enquiry may not have been taken, would not mean that the enquiry was not pending before the Board. In other words, once the reference is received and registered, the enquiry deemed to be pending.

11. Mr. Vibhu Bakhru rightly submits that Section 22 of SICA would also be applicable and attracted when even after the dismissal of the reference after enquiry, an appeal has been preferred under Section 25. This is also evident from the provision of Section 22(1) of SICA which reads as under:

''(1) Where in respect of an industrial company, an enquiry 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 sections 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 like or be proceeded with further, except with the consent of the Board or, as the as may be, the Appellate Authority.''

12. Section 25 of SICA provides for filing an appeal against an order of the Board. Indisputably in this case an appeal has been preferred under Section 25 of SICA against the order dismissing the reference. The provisions of Section 22 of SICA are, therefore, attracted during the pendency of the appeal even though the enquiry under Section 16 of SICA would have been completed.

13. Reference may also be usefully made to the decision of the Supreme Court in Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd. . In the cited case, in a petition for winding up after the failure of compromise due to non-payment of interest, publication of the notice of winding up was directed. This order was stayed by the Division Bench. The appellant-borrower then filed a reference under Section 15 of SICA followed by an application under Section 22 of SICA for staying the proceedings arising out of the company petition. The Division Bench rejected the application, holding that no proceedings were pending on the date of passing of the order by Division Bench and simply on the basis of a reference made to BIFR, the proceedings for winding up could not ordered to be held in abeyance. The Supreme Court held that for invoking the applicability of Section 22 of SICA, it has only to be established that an enquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or an appeal under Section 25 is pending. But it cannot be said that despite the existence of any of the aforesaid exigencies, the provisions of Section 22 of SICA would not be attracted after the order of widing up of the company is passed. The Court held that ''In view of Sections 15, 16 and Explanation to Section 16(3) from the date of submission of reference under Section 15, an inquiry shall be deemed to have been commenced for the purposes of Section 22 of SICA''. The Court followed its decision in Real Value Appliances Ltd. v. Canara Bank and others . To sum up the court held that even if the winding up order had been passed and if a reference under Section 15 of SICA had been submitted and admitted, the enquiry under Section 16 would be deemed to be commenced and the provision of Section 22 of SICA would be attracted. From the foregoing judgments it would be seen that in the instant case on account of pendency of the appeal under Section 25, the provisions of Section 22 of SICA would be applicable. The first question is answered accordingly.

Point (ii) Whether the protection of Section 22 of SICA is not to be available in respect of the security deposit for the tenanted premises since the latter is not treated as an asset or property of the sick company.?

The submission of the decree holder is that provisions of Section 22 of SICA cannot be available in respect of security deposit for the tenanted premises since the latter is not treated as an asset or property of the sick company. This is not a case for ossession of the tenanted premises. The decree that has been passed by the Court is a money decree for refund of the security deposit given for due performance of the agreement terms, maintenance and other charges. Simply because the money decree may relate to or arise from the claim for refund of the security deposit for tenanted premises, it cannot be said that the same is not in the nature of proceedings for execution, distress or like or for recovery of money or for enforcement of any security or guarantee in respect of loans and advances granted. The submission made is negated by the express language of Section 22 and has no merit. The plea of the decree-holder is without any merit.

Point (iii)

14. Coming to the question of whether the present application under Section 22 of SICA stands barred by res judicata on account of dismissal of the appeal by the Division Bench, would depend upon whether the objection under Section 22 of SICA has been decided and determined on merits so as to operate as res judicata or not. The submission of Mr. Chandhiok that even if the bar of Section 22 had not been pleaded in the grounds of appeal, the decision would still operate as resjudicata on account of principle of constructive res judicata is misplaced and does not arise. The principles of constructive res judicata have no application as in this case, on the showing of the decree holder himself, an affidavit as per the directions of the Division Bench requiring the judgment debtor to give the status of the pending proceedings before the BIFR and AAIFR had been filed. Accordingly, objection under Section 22 of SICA had been duly placed before the Division Bench. The Division Bench dismissed the appeal i.e. FA (OS).164/2003, of the judgment debtor No. 1, vide its order dated 1.8.2003. The order passed in a short one and is reproduced for facility of reference:

''FAO(OS) 164/03

The tenant L.G. Electronics (India) Ltd. has already vacated the premises. The short question which arises in the appeal is as to whether the tenant is entitled to security amount deposited by it or not. The Ld. Single Judge has directed to pay the security amount deposited by the tenant. The judgment which is passed by the Ld. Single Judge seems to be just and correct. No interference is called for by this Court. The appeal is devoid of merits and is dismissed. FAO(OS) 164/03 and CM Nos. 402 and 403 of 200 are accordingly disposed of.

Dalveer Bhandari, J.

H.R.Malhotra, J.''

15. It is in this background that the plea of the decree holder that the appeal of the judgment debtor having been dismissed, as above, and objections of Section 22 of SICA having been taken by way of an affidavit filed, the present application under Section 22 of SICA in execution proceedings is barred by res judicata is to be considered.

16. The basis on which the rule of res judicata is founded and its applicability have been succinctly set out in Daryao and others v. State of U.P. And others . ''The rule of res judicata as indicated in Section 11 of the Code of Civil Procedure has no doubt some technical aspects for instance the rule of constructive res judicata may be said to be technical. But the basis on which the said rule rests is founded on consideration of public policy. It is in the interest of public at large that a finality should attach to the binding decisions pronounced by Courts of competent jurisdiction, and it is also in the public interest that individuals should not be vexed twice over with the same kind of litigation.'' For the rule of resjudicata to apply it is necessary that the decision arrived at was on merits to be binding on the parties. Further, that the decision is arrived at where in a contest both parties have an opportunity to prove their case. The Court ruled that when writ petition was dismissed in liming on grounds of laches or alternative remedy being available, the said decision shall not operate as res judicata. The Court observed, ''If a writ petition is dismissed in liming and an order is pronounced in that behalf, whether or not the dismissal would constitute a bar would depend upon the nature of the order. If the order is on the merits it would be a bar; if the order shows that the dismissal was for the reason that the petitioner was guilty of laches or that had an alternative remedy it would not be a bar, except in cases which are already indicated. If the petition is dismissed in liming without passing a speaking order then such dismissal cannot be treated as creating a bar of res judicata. It is true that, prima facie, dismissal in liming even without passing a speaking order in that behalf may strongly suggest that the Court took the view that there was no substance in the petition at all but in the absence of a speaking order it would not be easy to decide what factors weighed in the mind of the Court and that makes it difficult and unsafe to hold that such a summary dismissal is a dismissal on merits and as such constitutes a bar of res judicata against a similar petition filed.''

17. Reference may be made to P.D. Sharma v. State Bank of India , where the Supreme Court noted that ''the High Court summarily dismissed the writ petition filed by the appellant. The order dismissing the writ petition as not a speaking order. Hence no question of res judicata arises.''

18. The Supreme Court again in Hoshnak Singh v. Union of India reported at (1979) 3 Supreme Court Cases 135 reiterated the observations made in Daryao and others v. State of U.P.(Supra). Reference may also be usefully made to Krishan Lal v. State of J&K reported at (1994) 4 Supreme Court Cases 422. Para 12 of the said judgment may be usefully reproduced:

''Insofar as the second ground given by the High Court-the same being bar of res judicata-it is clear from what has been noted above, that there was no decision on merits as regards the grievance of the appellant, and so the principle of res judicata had no application. The mere fact that the learned Single Judge while disposing of the writ petition No. 23 of 78 had observed that:

''This syndrome of errors, omissions and oddities, cannot be explained on any hypothesis other than the one that there is something fishy in the petitioner's version....''

which observations have been relied upon by the High Court in holding that the suit was barred by res judicata do not at all make out a case of the suit was barred by res judicata. The conclusion of the High Court on this score is indeed baffling to us, because, for res judicata to operate the involved issue must have been ''heard and finally decided''. There was no decision at all on the merit of the grievance of the petitioner in the aforesaid writ petition and, therefore, to take a view that the decision in earlier proceeding operated as res judicata was absolutely erroneous, not to speak of its being uncharitable.''

19. The Supreme Court again in Ferro Alloys Corpn. Ltd. and another v. Union of India and others reported at (1999) 4 Supreme Court Cases 149 held that before any issue is said to be heard and finally decided, the Court considering it has to be shown to have expressly considered such an issue and have decided it one way or the other and such decision should have obtained finality in the hierarchy of proceedings. Then only such an issue can be said to be heard and finally decided between the parties.''

20. From the legal principles enunciated in the aforesaid judicial pronouncements, for the applicability of principle of res judicata, it would be seen that the decision to operate as res judicata must be a decision on merits. It has to be by a speaking order. A dismissal in liming without a speaking order would not operate as res judicata. The Court noted that it may suggest that there was no substance or merit in the petition but in the absence of speaking order, it would not be easy to decide what factors weighed in the mind of the Court. For a decision to operate as res judicata, it should be a decision on merits. As regards the grievance of the parties, the issue involved should be heard and finally decided. There should be a decision on merits on the grievance of the parties. The parties to the lis should have had reasonable opportunity to contest the matter on merits.

21. Let us consider whether the decision of the Division Bench in FAO(OS) No. 164/2003 is a decision on merits, which would operate as res judicata and debar the judgment debtor from raising the objection under Section 22 of SICA. No doubt, the Division Bench has found the judgment of the Single Judge just and fair and the appeal without merit. There is no observation in the said order, which reveals or gives a clue as to whether the question of bar under Section 22 of SICA was noticed or even considered the Division Bench. The present case falls squarely within the observation of Supreme Court in Krishan Lal v. State of J and K.(Supra) requiring the involved issue to have been ''heard and finally decided.'' From the order of the Division Bench, it cannot be said that the objections with regard to the bar of Section 22 was ''heard and finally decided'' in the case. There does not appear to be a decision at all on the merits of this issue. In these circumstances, it cannot be said that the question of applicability of Section 22 of SICA was considered and finally determined between the parties. The Division Bench's order insofar as the issue of applicability of bar of Section 22 is concerned is not a speaking order. It is, therefore, held that the decision of the Division Bench in FAO(OS) 164/2003 would not operate as res judicata. In view of the decision on points (i), (ii) and (iii) above, it is held that EA. No. 50/2003 under Section 22 of SICA deserves to be allowed and is allowed. The execution proceedings against the judgment debtor are stayed till the disposal of the appeal before the AAIFR or till the decree holder obtains the permission or consent under Section 22 of SICA from BIFR.