Sunil Mittal Properties Of M/S ... vs M/S Lml Ltd.
2011 Latest Caselaw 235 Del

*             IN THE HIGH COURT OF DELHI AT NEW DELHI

+                   IA 7089/2009 in CS(OS) NO.2449/2008

                                               Date of Decision : 17.01.2011

SUNIL MITTAL PROPERTIES OF M/S SHREE SHYAM
PACKAGING INDUSTRIES                ......Plaintiff
                     Through: Mr.Dinesh Goyal, Advocate.

                                          Versus

M/S LML LTD.                                          ...... Defendant
                                       Through:      Mr.R.Singh, Advocate.


CORAM :
HON'BLE MR. JUSTICE V.K. SHALI

1.     Whether Reporters of local papers may be
       allowed to see the judgment?                                  YES
2.     To be referred to the Reporter or not ?                       YES
3.     Whether the judgment should be reported
       in the Digest ?                                               YES

V.K. SHALI, J.

IA No. 7089/2009

1. This order shall dispose of IA bearing no. 7089/2009 under

Section 22(1) of the Sick Industrial Companies (Special)

Provisions Act, 1985 (hereinafter referred as 'the Act').

2. Briefly stated the facts of the case are that the plaintiff had

filed a suit in the month of November 2008 for recovery of a

sum of Rs.44,05,803.47 against the defendant. It was alleged

in the plaint that the plaintiff is a proprietor of M/s Shree

Shyam Packaging Industries, Gulshan Park, Opposite

Rajdhani Dal Mill, Main Rohtak Road, Nangloi, Delhi-110041

and is engaged in the business of manufacturing and selling

packaging material. The defendant is a company engaged in

the business of manufacturing and selling of two-wheeler

scooters in the domestic as well as in foreign market. In the

course of its business activities, the defendant required

wooden crates for packaging of its scooters meant for the

purpose of export. On account of the said crates having been

supplied by the plaintiff, it was alleged that the defendant on

account of non-payment of various bills starting from

26.11.2005 to 31.01.2006 owed a sum of Rs.24,83,409.27.

In respect of the aforesaid amount, the plaintiff filed a suit

along with the interest @ 24% per annum because of the

default on the part of the defendant to clear the payment

within 45 days for which the credit was given to the

defendant. The interest component which was calculated

was to the tune of Rs.15,39,714.20 starting from 01.04.2006

till the filing of the present suit i.e. 31.10.2008 and that is

how a sum of Rs.44,05,803.47 was claimed.

3. The defendant filed its written statement and contested the

claim of the plaintiff. The preliminary objection was raised

regarding the maintainability of the plaint itself on the ground

that the defendant was a sick company and the present suit

could not be proceeded. The jurisdiction of the Court was

also challenged as it was alleged that the Court in Kanpur

has the exclusive jurisdiction. On merits, the defendant

denied the liability to pay the aforesaid amount to the

plaintiff.

4. After completion of the pleadings, the defendant filed an

application raising a plea that the proceedings of the suit be

adjourned sine die on account of the fact that the defendant

was a sick company and by virtue of Section 22 (1) of the Act,

the suit for recovery could not be continued for want of

permission by the BIFR. In order to support its contention,

the defendant along with the application had placed on record

the photocopy of the letter dated 15.09.2006 written to the

whole-time Director of the defendant company, by the

Registrar, BIFR, intimating that its reference dated

08.09.2006 was registered as a case no. 80/2006 with the

BIFR on appeal to the Secretary, BIFR. A copy of the order

dated 17.05.2007 in Case no. 80/2006 by the BIFR was also

annexed wherein it was observed as under:

"(ii) The secured/unsecured creditors are not permitted to file/pursue suits already filed at this stage. The bench, however, would reconsider its decision if the direction/guidelines issued are not complied with by the company within the given time frames."

5. On the basis of these orders having been passed by the

BIFR, the contention of the learned counsel for the

defendant, is that as the defendant being a sick

industrial company within the definition of Section (3)

(1) (o) of the Act, and as there are orders passed by the

BIFR on 15.09.2006 and 17.05.2007, by virtue of

Section 22 of the Act, the proceedings of the present

suit be adjourned sine die, awaiting the final decision of

the BIFR. In order to support its contention, the

defendant in para 5 of the application has referred to

various judgments of the Apex Court as well as of the

High Courts although they are not cited.

6. The plaintiff in its reply to the application took a plea

that the defendant had not admitted its liability to pay

the suit amount and the dues are not reckoned in the

scheme of rehabilitation, consequently the proceedings

cannot be stayed. It was stated that since the

defendant has denied its liability, therefore, in the light

of the pronouncement of the Hon'ble Supreme Court in

case titled Dy. Commercial Tax Officer Vs.

Corromandal Pharmaceuticals AIR 1997 SC 2027, the

suit must continue, notwithstanding that the defendant

being a sick company.

7. During the pendency of the suit, the defendant also

purported to have filed an affidavit dated 01.05.2010 of

Mr. D. R. Dogra wherein a statement of accounts of M/s

Shree Shyam Packaging Industries, the proprietary

concern of the plaintiff, as on 31.03.2006 has been

enclosed. It has been stated that in the statement

defendant is shown to have been owing a sum of

Rs.21,70,490.88 to the plaintiff as on 31.03.2006 and

this was supported by the auditor's certificate annexed

along with the affidavit. However, it was contended that

the said statement shows that the debit notes which

were duly issued by the defendant, have not been

considered by the plaintiff. It has also been alleged that

there was a difference in the opening balance as on

01.04.2005 reflected in the accounts of the two parties

and this was on account of certain bills not taken into

account in the statement. It is alleged that once the

statement of accounts is reconciled then the plaintiff

could apply to the BIFR and claim the amount due and

payable to him as an unsecured creditor. It has also

been contended that the plaintiff has not refuted the

contention of the defendant with regard to the

averments made in the affidavit.

8. I have heard the learned counsel for the parties and

perused the record. The main contention of the

defendant is, since the reference of the defendant, has

been registered on 15.09.2006 with the BIFR, the

present suit for recovery filed by the plaintiff in the year

2008, ought not to be continued in the absence of a

specific permission obtained from the BIFR in this

regard. Reliance in this regard was placed on the order

dated 17.05.2007 of the BIFR, relevant portion of which

has been reproduced hereinabove in para 3. It was also

contended that the plaintiff is an unsecured creditor,

and therefore, once the accounts were reconciled he

could stand in the queue along with the other

unsecured creditor and retrieve the amount which may

be payable to him on the direction of the BIFR. The

learned counsel for the defendant has not cited any

specific judgment in order to support his submission

although a number of judgments have been mentioned

in the application itself and a couple of photocopies of

the Apex Court judgment have been given.

9. The learned counsel for the plaintiff refuted this

contention with regard to adjourning the proceedings of

the case sine die, on account of pending reference on

the ground that the debt of the plaintiff was neither

reckoned nor admitted by the defendant, and therefore,

in terms of the judgment of Apex Court in Corromandal

Pharmaceuticals case (Supra) the suit must continue

till the time the liability of the defendant is determined.

With regard to the non filing of the reply to the affidavit

of Mr. D. R. Dogra, it was contended by the learned

counsel for the plaintiff that the entire effort on the part

of the defendant is to mislead the Court by taking

contrary stand thereby ensuring that the proceedings of

the present suit for recovery gets delayed. It was urged

that apart from preliminary objections, the defendant in

its written statement has specifically denied the liability

to pay any amount to the plaintiff. It was only during

the course of pendency of the suit that the present

affidavit of Mr. D. R. Dogra was filed wherein a reference

has been made to the effect that according to the

statement of account duly audited by the auditors, only

a sum of Rs. 21 lakhs or so was shown to be owed by

the defendant to the plaintiff but even this admission by

the defendant against its own interest is not without

any condition. It has been contended by the learned

counsel for the plaintiff that the defendant has taken

the plea that while calculating this amount as an

outstanding amount, the plaintiff has not taken into

account various debit notes which were issued by the

defendant, and therefore, the accounts need to be

reconciled. So indirectly the admission which is

purported to have been made by the defendant is

withdrawn by the said defendant or it could at its best,

be a conditional admission of its liability which is no

admission in eyes of law. In the absence of

unambiguous admission by the defendant, it will not be

feasible to stay the proceedings of the present suit.

10. I have carefully considered the submissions of the

respective sides and have also gone through the record

as well as through the judgments referred to by the

learned counsel. Before dealing with the facts of the

case, it would be worthwhile to reproduce the Section

3(1)(o) of the Act which defines the sick company and

the Section 22 of The Industrial Companies (Special

Provisions) Act,1985.

"Section 3(1) (o) sick industrial company" means 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."

"22. Suspension of legal proceedings, contracts, etc--(1) 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."

11. A perusal of the said two provisions clearly shows that there

is no dispute about the fact that the defendant is a sick

company and a reference registered by the BIFR vide case no.

80/2006 is pending for consideration. Although the said

reference is pending with the BIFR for the last more than five

years, the defendant has not been able to place on record any

document to show as to what is the present status of the said

reference, as to whether the BIFR has declared that the

defendant company cannot be revived or whether it can be

revived and in case, it can be revived, whether any scheme of

rehabilitation has been formulated. Therefore, in the

absence of this information the only thing which is to be

assumed is that the reference is still pending for final disposal

in respect of the defendant company.

12. Section 22 of the Act which prohibits the filing or continuing

of the legal proceedings and contracts, has been a subject

matter of intense consideration and exhaustive examination

by the Apex Court and by the other High Courts including

that of our own High Court. The following propositions

broadly emerged from the analysis of Section 22 of the Act.

The object of Section 22(1) of the Act is essentially to protect

the sick companies against the proceedings for winding up or

for execution or distress or for enforcement of any security or

guarantee against the said company on account of the fact

that the company in question is a sick company and is

already under consideration of an appropriate forum that is

BIFR or AAIFR as to whether it be restored back to its

financial health so as to make it a viable functioning unit or

whether it should be wound up for the good. Section 22 of

the Act has been enacted by the legislature also with a view to

prevent any strain on the resources of the already scarce

resources of the sick company or from creating any obligation

or impediment in restoring it back to its normal health.

13. It is in this backdrop of aforesaid object of Section 22 of the

Act that the Courts have come to the rescue of the sick

company to restrain recovery proceeding on account of

various statutory liabilities like sale tax, income tax, octroi,

house tax and other liabilities, sought to be affected against

the sick company.

14. The Division Bench of our own High Court in case titled

Intercraft Limited Vs. Cosmique Global and Anr. in W.P.(C)

No. 8803/2009 dated 30.09.2010 has set aside the

confirmation by the appellate forum of the sale and the

auction of the property in favour of the respondent no. 1.

Similarly, in case titled Shree Chamundi Mopeds Ltd. Vs.

Church of South India Trust Association AIR 1992 SC

1439, the Apex Court did not stay the eviction of the sick

company from a tenanted premises as it does not put any

strain on its financial resources. It was observed that there

should be no impediment on account of Section 22 of the Act

in continuing with the eviction proceedings against the sick

company. Thus, a pragmatic and practical view was taken

by the Court in continuing with the eviction proceedings

against the sick company as it did not put any strain on the

financial resources of the sick company, and therefore, did

not create any impediment.

15. This case by case approach is also dealt with by another

Division Bench of our own High Court in case titled Saketh

India Limited Vs. W. Diamond India Ltd. in RFA(OS)

No.114/2009, where it has practically analyzed almost all the

judgments of importance on the subject and observed as

under:

"Courts, however, have always been alive to the possible mischief that invocation of SICA can lead to. In a nutshell, where the net worth of a company is reduced to a negative, and the amelioration that is sought is for reviving the company rather than winding it up, the recourse to the Act would be legitimate. There is no justifiable reason, therefore, for all legal proceedings to be immediately even held in abeyance, if not dismissed. We are mindful of the fact that Parliament has incorporated an amendment in the Section with effect from 1.2.1994 in these words - "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". It appears to us that the phrase "recovery of money" must be construed ejusdem generis and accordingly recovery proceedings in the nature of execution or any other coercive enforcement that has been ordained to be not maintainable. We do not find any logic in holding legal 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."

16. Obviously the Division Bench have echoed observation of the

Apex Court in Dy. Commercial Tax Officer Vs.

Corromandal Pharmaceuticals AIR 1997 SC 2027 wherein

the following observations were made

"Any step for execution, distress or the like against the properties of the industrial company other of similar as steps should not be pursued which will cause delay or impediment in the implementation of the sanctioned scheme. In order to safeguard such state of affairs, an embargo or bar is placed under Section 22 of the Act against any step for execution, distress or the like or other similar proceedings against the company without the consent of the Board or, as the case may be, the appellate authority. The language of Section 22 of the Act is certainly wide. But, in the totality of the circumstances, the safeguard is only against the impediment, that is likely to be caused in the implementation of the scheme. If that be so, only the liability or amounts covered by the scheme will be taken in, by Section 22 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal under Section 25 of the Act, it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the sanctioned scheme. Such amounts like sales tax, etc, which the sick industrial company is enabled to collect after the date of the sanctioned scheme legitimately belonging to the Revenue, cannot be and could not have been intended to be covered within Section 22 of the Act. Any other construction will be unreasonable and unfair and will lead to a state of affairs 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 spirit of the statute in a business sense, should be avoided.

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 and Anr. v.

Shree Vallabh Glass Works Ltd. and Ors. MANU/SC/0188/1990 : [1990] 1 SCR 966 and Maharashtra Tubes Ltd. v. State Industries and Investment Corporation of Maharashtra Ltd. and Anr. MANU/SC/0427/1993 : [1993] 1 SCR 340 . 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 for recovery, had to be taken. The two decisions of this Court as also the decisions of High Courts brought to our notice are, therefore, distinguishable. They will not apply to a situation as has arisen in this case. We are, therefore, of the opinion that Section 22(1) should be read down or understood as contended by the Revenue. The decision to the contrary by the High Court is unreasonable and unsustainable. We set aside the judgment of the High Court and allow this appeal. There shall be no order as to cost."

17. Thus, the aforesaid judgments clearly lays down that

the proceedings of a recovery simplictor need not be

stayed unless and until the amount sought to be

recovered by the defendant is reckoned or taken into

consideration in the rehabilitation scheme before BIFR.

The judgment of Corromandal case (supra) has been

referred to in the application by the defendant but in my

view on account of the observations quoted above, it

does not support the case of the defendant.

18. It may be pertinent here to refer to some of the

judgments which find mention in the application of the

defendant for staying the proceedings. The judgments

of Apex Court in Jay Engineering Works Ltd. Vs.

Industry Facilitation Council AIR 2006 SC 3252,

Gram Panchayat Vs. Shree Vallabh Glass Works Ltd.

AIR 1990 SC 1017, Real Value Appliances Ltd. Vs.

Canara Bank AIR 1998 SC 2064 have been considered

by the Division Bench of this Court in Saketh's case

(supra) and despite this, it has affirmed the principles of

law laid down in Corromandal's case (supra) and

therefore, these judgments are of no help to the

defendant.

19. Some of the other judgments which have been relied

upon by the plaintiff are dealing with the recovery of

statutory dues or recoveries like Octroi, sales tax,

Municipal Tax, etc. There also the Court has drawn a

distinction between the process of assessment and the

quantified recoveries while as in the former only a

process of finalization of liability has arisen, which has

not been stayed but in the latter case where the

recovery is actually sought of the quantified amount

under any statutory dues that has to be stayed.

Reliance in this regard has been placed on Rishab Agro

Industries Ltd. Vs. P.N.B. Capital Services AIR 2000

SC 1583, Tata Devy Ltd. Vs. State of Orissa 1997 (94)

ELT 477 (SC), Modi Stone Ltd. Vs. State of Kerala

(2004) 6 COMPLJ 184 (Ker) DB. Some of the other

judgments which find mention in the application are of

different High Courts which are not referred in view of

the repeated pronouncements of the Apex Court laying

down the law clearly.

20. In the instant case, admittedly the defendant has denied

its liability to pay the principle amount as well as the

interest thereon in the written statement. During the

pendency of the suit an affidavit of Mr. D.R. Dogra has

been filed on 01.05.2010 wherein the reference is made

by the defendant to the statement of accounts as on

31.03.2006 along with the auditor's report to urge that

the statement shows an amount of Rs.21 lakhs or so

due and payable to the plaintiff but in the same breath

the defendant again has disputed the sanctity, validity

and the correctness of the said statement by urging that

certain debit notes issued by the defendant have not

been taken into account, and therefore, till the time the

statement is reconciled it cannot be assumed to be

correct. In effect it only shows that the defendant has

still not admitted its liability to pay the amount to the

plaintiff but has tried to add to the confusion regarding

the maintainability of the suit of the plaintiff.

21. In view of the aforesaid facts and circumstances of the

case, I feel as the defendant has not admitted its

liability to pay the amount to the tune as claimed by the

plaintiff nor such an amount has been reckoned or

taken into consideration by any scheme of rehabilitation

of the sick defendant company, therefore, the

proceedings of the present suit cannot be adjourned

sine die. As a matter of fact the defendant has not

placed on record any documentary evidence to show

that any such scheme has been formulated as yet and if

formulated whether the said amount has been taken

care of allegedly being owed to the plaintiff.

22. For the aforesaid reasons, I feel that the application of

the defendant totally misconceived and accordingly, the

same is dismissed.

23. List for further proceedings on 24.03.2011.

V.K. SHALI, J.

JANUARY         17, 2011
KP