Madras High Court
The Recovery Officer vs Sivananda Steels Ltd on 22 June, 2021
W.A.No.1820 of 2011
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 22.06.2021
CORAM
THE HONOURABLE MR.JUSTICE T.RAJA
AND
THE HONOURABLE MR.JUSTICE V.SIVAGNANAM
W.A.No.1820 of 2011
The Recovery Officer
E.S.I. Corporation
143 Sterling Road
Nungambakkam
Chennai 600 034 .. Appellant
-vs-
1. Sivananda Steels Ltd.,
No.18,19,20 Industrial Estate
Ambattur, Chennai 600 058
rep by its Managing Director
2. M/s Dhanalakshmi Bank Ltd.,
34 CSM Plaza
Venkatakrishnan Road
Mandaveli, Chennai 600 028 .. Respondents
Appeal filed under Clause 15 of the Letters Patent against the order
dated 20.01.2007 made in W.P.No.27951 of 2006.
For Appellant :: Mr.Lakshminarayan
for Mr.K.Prabakar
1/10
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W.A.No.1820 of 2011
For Respondents :: Mr.C.V.Shailandhran for R1
Mr.Maduvaneswaran for
Mr.K.Rajasekaran for R2
JUDGMENT
(Judgment of the Court was made by T.RAJA, J.)
This writ appeal has been filed by the Recovery Officer, ESI
Corporation challenging the correctness of the impugned order dated
20.1.2007 passed in the Writ Petition No.27951 of 2006.
2. Learned counsel appearing for the appellant submitted that the first
respondent/writ petitioner was dealing with manufacture of steel castings.
But due to the labour problem, they declared a lockout by suspending the
production from June, 1999. In the meanwhile, they approached the Board
for Industrial and Financial Reconstruction, hereinafter referred to as the
BIFR, for revival as well as rehabilitation. Reference of the first respondent
company was registered in Case No.107 of 2000 and an enquiry under
Section 16 of the Sick Industrial Companies (Special Provisions) Act, 1985
has been conducted. The scheme for rehabilitation of the company was
under consideration before the BIFR. During the pendency of the BIFR
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W.A.No.1820 of 2011
proceedings, an order of attachment dated 12.12.2003 was served upon the
first respondent. Aggrieved by the order of attachment, the first respondent
moved this Court in W.P.No.36913 of 2003 and the said writ petition was
admitted on 17.12.2003 and an order of interim injunction was granted
against the appellant and his men from taking any action including the
auction pursuant to the order of attachment for realisation of the amount
payable under the ESI Act. In the meanwhile, the BIFR framed a scheme
with a specific order granting waiver of penal interest and other charges and
during the rehabilitation period, direction was issued to the appellant to
accept the principal outstanding amount of Rs.12.64 lakhs and the said
amount was also remitted by the first respondent on 21.6.2006. Since the
interest portion has not been cleared, the notice dated 22.8.2006 impugned
in the writ petition was issued. The learned single Judge, referring to
Section 22(1) of the Sick Industrial Companies (Special Provisions) Act,
setting aside the notice impugned, gave liberty to the appellant to approach
the BIFR under Section 18(9) of the Sick Industrial Companies (Special
Provisions) Act for clarification of any difficulty regarding the interest
whether the same is liable to be paid or not under the sanctioned scheme.
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W.A.No.1820 of 2011
The reasoning is unacceptable and unsustainable in law, it is pleaded.
Although the first respondent has remitted the entire amount that was made
belatedly, they cannot escape from the payment of interest. The learned
single Judge has failed to see that the first respondent is liable to pay
interest as an integral part of the contribution, as per Section 39(5) of the
ESI Act, against the belated payment of contribution dues. Now the first
respondent has to pay the balance due of Rs.1,42,008/- along with the
accrued interest of Rs.7,97,238/- as on the date of notice. The crucial point
that the term “penal interest” mentioned in paragraph 5.2 H of the
sanctioned scheme enclosed in the order of BIFR dated 9.8.2005 should be
taken as “damages” as enunciated under Section 85-B of the ESI Act. When
the interest is payable by the first respondent as per the statutory obligatin
under the provisions of Section 39(5) of the ESI Act against the belated
payment of contribution which would be payable for each month within 21
days of the factory month as per Section 39 of the ESI Act read with
Regulation 31 of the ESI Regulations, 1950, the order quashing the notice
impugned calling upon the first respondent to pay the interest part, is liable
to be set aside by allowing the appeal, he pleaded.
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W.A.No.1820 of 2011
3. Learned counsel appearing for the first respondent submitted that
admittedly the notice impugned dated 22.8.2006 issued by the appellant is
without any legal sanctity, for the simple reason that the first respondent
company, declaring a lockout due to the labour problem and the production
was also suspended from June, 1999, approached the BIFR for
rehabilitation and revival. Reference of the company was registered in Case
No.107 of 2000 and an enquiry under Section 16 of the Sick Industrial
Companies (Special Provisions) Act was conducted. By letter dated
27.11.2003, the appellant was intimated about the pendency of the BIFR
proceedings and also the financial sickness of the company. The appellant
also had served the order of attachment dated 12.12.2003. The same was
questioned in W.P.No.36913 of 2003 and considering the fact that the
matter has been seized by the BIFR for revival and rehabilitation and the
notice of recovery cannot be issued, an order of interim injunction was
granted by this Court on 17.12.2003 and the same was made absolute on
6.3.2004. When the appellant was well aware of the same, the notice
impugned in the writ petition was issued to recover the amount due from the
first respondent company by freezing the account, in spite of the injunction
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W.A.No.1820 of 2011
order passed against the appellant. When further action was taken for
realising the amount payable under the ESI Act without the consent of the
BIFR, a scheme was also sanctioned by the BIFR specifically ordering the
waiver of penal interest and other charges as on the cut-off date and during
the rehabilitation period, to accept the principal outstanding amount of
Rs.12.64 lakhs. The said amount of Rs.12.64 lakhs was remitted on
21.6.2006 by the first respondent and the same has been acknowledged by
the appellant. When the BIFR has specifically ordered to waive the penal
interest, the first respondent approached the writ Court. The learned single
Judge, referring to Section 22(1) of the Sick Industrial Companies (Special
Provision) Act, which bars the legal proceedings as well as execution and
distress proceedings in case where the sanctioned scheme is under
implementation, has quashed the same. The impugned order passed by the
learned single Judge is supported by the ratio laid down by the Apex Court
in Gram Panchayat v. Shree Vallabh Glass Works Ltd., AIR 1990 SC 1017,
wherein the Apex Court has held that Section 22(1) of the Sick Industrial
Companies (Special Provisions) Act automatically suspends the following
proceedings, namely, (a) winding up of the industrial company; (b)
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W.A.No.1820 of 2011
proceedings for execution, distress or the like against the properties against
the sick industrial company and (c) proceedings for the appointment of
receiver. However, it has been stated that such proceedings may continue
against the sick industrial company with the consent of the BIFR or the
appellate authority, as the case may be. This apart, the Full Bench of this
Court also, in the case of Gowri Spinning Mills (P) Ltd., rep by the
Managing Director, Thokkampatti, Dharmapuri District v. Assistant
Provident Fund Commissioner, Salem, 2006 (5) CTC 1, following the
aforementioned judgment of the Apex Court, has held that coercive
proceedings cannot be taken, for the simple reason that where the scheme is
under the formation stage or where the scheme has been sanctioned, till the
same is completely implemented, Section 22(1) of the Sick Industrial
Companies (Special Provisions) Act suspends all sorts of distress
proceedings which includes the proceedings initiated by the appellant in the
present case under the impugned notice issued under Section 45-G of the
ESI Act. Therefore, no fault can be found with, he pleaded.
4. We also agree with the contentions made by the learned counsel
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W.A.No.1820 of 2011
appearing for the first respondent. The reason being that when the first
respondent company, dealing with the manufacture of steel castings, had
declared a lockout due to the labour problem and suspended the production
from June, 1999. In the meanwhile, they approached the BIFR for revival as
well as rehabilitation. Reference of the first respondent company was
registered in Case No.107 of 2000 and an enquiry under Section 16 of the
Sick Industrial Companies (Special Provisions) Act was also conducted.
The pendency of the proceedings before the BIFR was also intimated to the
appellant. Now the scheme has been framed. In the said scheme, the BIFR
has specifically ordered the waiver of penal interest and other charges as on
the cut-off date and during the rehabilitation period, the BIFR also passed
an order directing the ESI Corporation to accept the principal outstanding of
Rs.12.64 laksh and the said amount was also remitted by the first respondent
on 21.6.2006 and the appellant also had acknowledged the same. Therefore,
when the BIFR had framed a scheme for revival and rehabilitation of the
first respondent company with a direction to the first respondent to pay the
entire amount of Rs.12.64 lakhs and the said amount was also paid by the
first respondent and received by the appellant, the direction issued by the
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W.A.No.1820 of 2011
BIFR to waive the interest has to be clarified by the appellant with the
BIFR, as directed by the learned single Judge. Hence, finding no merits
whatsoever, the writ appeal stands dismissed. However, there is no order as
to costs.
Speaking order (T.R.,J.) (V.S.G., J.)
Index : yes 22.06.2021
ss
To
1. The Recovery Officer
E.S.I. Corporation
143, Sterling Road
Nungambakkam
Chennai 600 034
https://www.mhc.tn.gov.in/judis/
W.A.No.1820 of 2011
T.RAJA, J.
and
V.SIVAGNANAM, J.
ss
W.A.No.1820 of 2011
22.06.2021
https://www.mhc.tn.gov.in/judis/
