Krimpex Synthetics And Others vs Industrial Credit And Investment … on 24 June 1993

Bombay High Court
Krimpex Synthetics And Others vs Industrial Credit And Investment … on 24 June, 1993
Equivalent citations: AIR1994BOM171, (1993)95BOMLR993, AIR 1994 BOMBAY 171, 2000 (5) COM LJ 109 BOM, (2000) 5 COMLJ 109, (1993) MAH LJ 1452, (1994) 15 CORLA 106, (1995) 82 COMCAS 556, (1993) 2 BANKCLR 646, (1994) 1 BOM CR 288
ORDER
M. K. Mukherjee, C. J.

1. The respondents Nos. 1 and 2 (hereinafter referred to as the plaintiffs) have filed the suit from which the instant appeal sterns, for declaration that certain amounts as mentioned in the plaint are due and payable by the appellant Company (the defendant No. 1 in the suit) and for declaration that the land and/or building and/or plant and machinery etc. belonging to it are secured to them for securing repayment of the said amounts. After filing the suit the plaintiffs took out a Notice of Motion being No. 1819 of 1989 for an injunction restraining the Company from disposing of and parting with possession of the properties secured to them and for appointment of Court Receiver. In that notice of motion initially an interim order of injunction was passed in favour of the respondents. On a further application for ad interim relief moved by them an order was passed by the learned trial Judge on October 23, 1989 appointing Court Receiver in respect of the properties with a direction to appoint the Company as Court Receiver’s agent without security and compensation. At the final hearing of the said notice of motion on December 18, 1990 the learned trial Judge made it absolute and the Court Receiver was given discretion to appoint the Company as his agent on such terms and conditions as the Receiver might deem fit and proper including as to security and compensation. The Company was given two months time to make application to the Receiver and get themselves appointed as the agents of the Receiver. It was further provided that in the event of the Company not opting to act as the agents of the Receiver within a period of two months as stipulated, the Receiver would be at liberty to appoint any other fit and proper person as his agent on such terms and conditions as he might deem fit and proper. The Receiver was also given liberty to effect sate of the moveables and retain the sale proceeds until further orders of the Court. In the appeal which the Company preferred against the said order, the liberty granted to the Receiver to sell the properties was only curtailed, In terms of the order of the trial Judge, as affirmed by the Appellate Court, the Court Receiver took possession of the securities including land, building, plant, machinery and other movables lying in the Company’s premises on January 15, 1991.

2. Thereafter several meetings were held before the Court Receiver and ultimately by his order dated February 16, 1991 the Court Receiver, after taking into consideration the three valuation reports placed before him and after hearing the parties, fixed the monthly royalty at Rs. 3 lacs and security at Rs. 50 lacs. Challenging the above order/direction of the Court Receiver the Company took out a notice of motion which was dismissed by the learned trial Judge by his order dated April 21, 1993. Aggrieved thereby the instant appeal has been filed by the Company.

3. It appears that while fixing the amount of monthly royalty and security the Court Receiver relied upon the valuation of the properties made by M/s. Nadkarni and Associates, Valuers, who are on the panel of the Court Receiver, in preference to other valuers, appointed at the instance of the Company and the learned trial Judge accepted the report of the Court Receiver giving cogent reasons for the same. Having considered the impugned order of the trial Judge in the context of the material on record and the facts and circumstances of the case, we are of the view that the said order passed by the learned trial Judge in exercise of his judicial discretion docs not require any interference whatsoever.

4. It was however strenuouly argued before us on behalf of the Company that having regard to the fact that the Board for Industrial and Financial Reconstruction (“BIFR” for short) established under the Sick Industrial Companies (Special Provisions) Act, 1985 (“Act” for short) was in sei’sin of an application filed by it for a declaration that it was a sick industrial company, within the meaning of that Act, it was entitled to have the benefit and protection of Section 22 thereof; and that, according to the Company, necessarily meant that the Court Receiver should be discharged and he should be directed to hand over possession of the plant and machinery and the factory to the Company or in the alternative the Court Receiver should be restrained from proceeding further in the matter and directed to stay his hands from appointing the Company as the agents of the Court Receiver. In support of the above contention reliance was also placed upon the judgment of the Supreme Court in the case of Mahrashtra Tubes Limited y. State Industrial and Investment Corporation of Maharashtra Ltd. .

5. To appreciate the above contentions it will be apposite at this stage to refer to the relevant provisions of the Act. Section 15(1) provides that where an industrial company has become a sick industrial company, the Board of Directors of the company, shall within sixty days from the date of finalisation of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the BIFR for determination of the measures which shall be adopted with respect to the company. Section 16(1) says that upon receipt of such a reference with respect to such a company or upon information received or upon its own knowledge as to the financial condition of the Company, the Board may make such inquiry as it may deem fit for determining whether any industrial company has become a sick industrial company. Where the BIFR deems it fit to make such an inquiry or to cause such an inquiry to be made, it is required, under sub-section (4) of Section 16, to appoint one or more persons to be a special director or special directors of the company for safeguarding the financial and other interests of the company. Section 17 provides that if after making an inquiry under Section 16 the BIFR is satisfied that a company has become a sick industrial company, it shall, after considering all the relevant facts and circumstnces of the case decide, whether it is practicable for the company to make its net worth positive within a reasonable time. If the BIFR decides in the affirmative, it shall by order in writing give such time to the company as it may deem fit and make its net worth positive. But if it decides in the negative or considers it necessary or expedient in the public interest to adopt all or any of the measures specified in Section 18, it may, by a written order, direct any operating agency to prepare a scheme providing for such measures in relation to such company. Section 22, so far as it is relevant for our purposes, reads as under:

“22(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 shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.
(2)…..
(3) during the period of consideration of any scheme under Section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order shall remain suspended or that all or any of the rights priviileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board.
Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a lime so, however, that the total period shall not exceed seven years in the aggregate.”

The other relevant section is Section 25, which entitles a person aggrieved by an order of the BIFR made under the Act to prefer an appeal to the Appellate Authority.

6. From a plain reading of sub-section (1) of Section 22 of the Act it is ineluctably (sic) clear that suspension of proceedings referred to therein are dependent on the following fact situations:

(i) an inquiry under Section 16 is pending;
(ii) any scheme under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation; or
(iii) an appeal under S. 25 is pending.
7. Similarly operation of sub-section (3) thereof is confined to the period of consideration of any scheme under Section 18 or implementation thereof. The Company has stated in paragraph 4 of its affidavit in rejoinder that it has made an application to the BIFR under Section 15 of the Act and, according to it, it was filed on February 10, 1993, It has next been stated that the Secretary of the BIFR pointed out certain defects and deficiencies to the said application and, therefore, refused to register the application. According to the Company, even though it rectified the defects, the Secretary declined to register the application for non-compliance of Section 3(1)(o), of the Act and against the order of the Secretary, which was received on May 31, 1993, it preferred an appeal to the Chairman of the BIFR, in accordance with the Rules.

8. On the own showing of the Company, therefore, no reference has been made, far less to any inquiry initiated under Section 16 of the Act. Since initiation of the proceedings under Section 16 is still awaited, neither Section 17 nor 18 can come into play. Therefore, needless to say, Section 25 is also a far cry as no order under the Act has been passed by the BIFR as yet. Conclusion is, therefore, inevitable that there is no scope for application of Section 22 of the Act in the instant case for the present.

9. We hasten to add that even if an inquiry under Section 16 was pending, the Company could not have availed of the relief as the proceeding relating to appointment of Receiver in respect of the properties has been long over with his appointment in the year 1989 and taking over of possession in the month of January 1991. While on this point we may also mention that even though the Company claims that they have filed an application seeking reference under Section 16 of the Act as far back on February 10, 1993, no contention, as the present one, was raised before the trial Judge when the matter was heard in the month of April, 1993.

10. Coming now to the judgment in the case of Maharashtra Tubes Ltd. (1993 AIR SCW 991) (supra), we find that the principal question that was raised therein was whether in a case where an industrial concern made any default in repayment of any loan or advance or any instalment thereof or otherwise failed to meet its obligations under the terms of any agreement with the Financial Corporation could the latter take recourse to Section 29 and/or 31 of the State Financial Corporation Act, 1951 notwithstanding the bar of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (the Act with which we are concerned herein) and the Court answered the same with the following words (at p 1004 of AIR SCW):

“It is, therefore, not possible to agree that the 1951 Act is a special statute vis a vis the 1985 Act which is a general statute. Both the special statutes dealing with different situations notwithstanding a slight overlap here and there, for example, both of them provide for grant of financial assistance though in different situation. We must, therefore, hold that in cases of sick industrial undertakings the provisions contained in the 1985 Act would ordinarily prevail and govern.”
11. The other question raised therein was whether the word “proceedings” appearing in Section 22(1) meant only “legal proceedings” and the Supreme Court answered the same in the negative. It is evident therefore that the principles of law laid down therein have no manner of application to the present case. It was, however, contended that in the above case the Supreme Court took note of the fact that the rejection of the reference at the threshold was also appealable under Section 25 of the Act and, therefore, similar rejection in the instant case would entitle application of Section 25 of the Act and for that matter invocation of Section 22 at the instance of the Company.

12. We are not at all impressed by this contention. The order therein was passed by the BIFR while deciding the question whether the reference was maintainable and not by the Secretary of the BIFR, as in the instant case, who refused to register the application for reference. In other words, while the case before the Supreme Court was one of rejection of a reference by the Board, ours is a case rejection of an application seeking reference by the Secretary of the Board. Similarly, while in the case before the Supreme Court the appeal was under Section 25 of the Act, the appeal in the instant case has been filed by the Company under the Rules framed under the Act.

13. On the conclusions as above, we do not find any justifiable ground to admit this appeal. It is accordingly dismissed, but without any order as to costs.

14. Appeal dismissed.