Jammu & Kashmir High Court
State Bank Of India vs Ess Emm Coated Steel And Anr. on 4 August, 1995
Equivalent citations: AIR1996J&K108, AIR 1996 JAMMU AND KASHMIR 108
ORDER B.A. Khan, J.
1. This petition has been filed by the defendants in Civil Original Suit No. 30/ 94 in which they are facing recovery of Rs. 49,69,78,632.00. They are seeking suspension of proceedings in the suit under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the Act) and alternatively for leave of the Court to allow them to file the written statement which is otherwise under a threat of closure under the per-emptory order dated 30-12-1994 passed in the suit.
2. Two crucial questions that arise for consideration and determination are : (i) whether the proceedings in the suit are liable to be suspended under Section 22(1) of the Act; and, (ii) whether the petitioners deserve to be granted any extension of time to file their written statement? The answer to first question naturally turns on the interpretation of relevant Section 22(1).
3. The petitioner-defendants' case is that they had filed petition No. 26 before the Board for Industrial and Financial Reconstruction (BIFR) constituted under the Act during the pendency of the suit on 20-5-1994 for declaring the company as sick and since the Board had passed order dated 28-7-1994 making the requisite declaration and had ordered inquiry under Section 16 and had issued directions and guidelines for preparation of a scheme for the revival of the company under Sections 17, 18 and 19 of the Act and since the plaintiffs (respondents herein) had failed to seek the consent of the BIFR to proceed further, therefore, all proceedings in the suit were required to be suspended under Section 22(1) of the Act.
4. Interpreting the provisions of the section, Mr.Kohli, learned Counsel for the petitioner-defendants submitted that a mere declaration by the BIFR declaring the company sick resulted in automatic suspension of legal proceedings in the suit. He proceeded further to argue that the order of the BIFR dated 28-7-1994 was binding on the respondents who were represented before the Board when the Company was declared sick. In any case the provisions of the Act had an overriding effect over all statutes and law in force and as such there was no choice or option but to suspend the proceedings in the suit. He derived support from AIR 1990 SC 1017, (1993) 2 SCC 144 : (1993 AIR SCW 991) and AIR 1990 Bom 27.
5. Mr. Kohli further prayed for extension of time in filing the written statement. According to him, the Court had ample power to grant such extension in exercise of power under Order 8, Rule 1 and Section 148 of the Code of Civil Procedure (CPC) in the facts and circumstances of the case. He referred to and relied upon AIR 1961 SC 882, AIR 1982 J&K 92, AIR 1974 Delhi 35 to support his contention.
6. Mr. S. P. Gupta, learned Counsel for the plaintiff-respondent resisted grant of any relief to the petitioners on the ground that none of the conditions provided in Section 22(1) of the Act existed in the present case to warrant suspension of proceedings in the suit. He contended that since the BIFR was not presently seized of any inquiry under Section 16 of the Act, nor was any scheme referred to under Section 17 under preparation or consideration or under implementation, therefore, the provisions of Section 22(1) had no application in the matter. Moreso, as the BIFR had finally passed order dated 1-6-1995 recommending winding up of the sick company, it had become functus officio and as such no proceedings was pending before it to attract the provisions of Section 22(1) and consequently requiring the plaintiff to seek the consent of the Board to go ahead with the proceedings. He cited AIR 1992 SC 1439 in support.
7. On the other issue, Mr. Gupta argued that the petitioners' case did not merit any extension of time for the purpose of filing the written statement. He pointed out that they had filed this C.M.P. on 10-4-1995 after the per-emptory order had been passed by this Court on 30-12-1994 granting them two months last and final opportunity to file the written statement. They had neither sought any extension before the expiry of the prescribed period nor had they approached this Court by showing arty sufficient cause for such extension. This showed that their object and purpose was nothing but to avoid the decree.
8. For dealing with the first issue, it becomes necessary to extract Section 22(1) of the Act which reads thus :
"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 imple-mentation 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 fdr 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 my 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."
This provision places an embargo in maintaining or proceeding with in any of the proceedings mentioned therein including a suit against an industrial company save otherwise than with the consent of B1FR in the following circumstances :
(i) where an inquiry is pending under Section 16;
(ii) where any scheme referred to under Section 17 is under preparation or consideration;
(iii) where a sanctioned scheme is under implementation; and
(iv) where an appeal under Section 25 relating to an industrial company is pending.
In case any of these conditions exist, the section mandates that notwithstanding anything contained in the Companies Act of 1956 or any law or memorandum and articles of association of the Industrial Company or any other instrument having the effect under the said Act or other law, no proceedings of the nature mentioned therein including a suit shall lie or be proceeded with further, except with the consent of the BIFR or the appellate authority, as the case may be.
9. The purpose and object of the suspension of all proceedings under this provision is to await outcome of the reference made to the BIFR for a revival and rehabilitation of the sick industrial company so that no coercive steps are taken against its properties which may militate against its revival, till the Board finally disposes of the reference under Section 15. In such a situation the provision requires a creditor to obtain the consent of the Board to proceed ahead against the industrial company.
9A. A quick look at the relevant sections under Chapter III of the Act, shows that under Section 15 a reference can be made by the Board of Directors of the company to the BIFR for declaring the company as sick. After the Board is seized of the reference, it can order an inquiry under Section 16 for determining whether a company has become a sick industrial company. Section 17 empowers the Board to make a suitable order for completion of the inquiry and Section 18 provides for preparation and sanction of the schemes for revival and rehabilitation of the company. Section 19 envisages the rehabilitation by giving financial assistance and Section 20 provides for recommending of the winding-up of the sick industrial company where the BIFR forms the opinion that the sick industrial company is not likely to make its net worth to exceed the accumulated losses within a reasonable time while meeting all its financial implications. It is in this backdrop that Section 22 provides for suspension of the legal proceedings and the contracts against the sick industrial company in the circumstances and conditions laid down therein.
10. Having said so and by applying all this to the facts and circumstances of the present case and by taking in regard that the BIFR has already washed off its hands by passing order dated 1-6-1995, recommending the winding-up of the company, it is not possible to hold that the provisions of Section 22(1) are attracted to the present case and that the proceedings in the suit are required to be suspended. As a matter of fact, presently none of the conditions provided in the relevant section, exist to warrant such an action. The Board, in my view has become functus officio after passing the order dated 1-6-1995, by recommending winding-up of the company and for the present there is no inquiry pending before it under Section 16 or no scheme referred to under Section 17 is under preparation or consideration before it, nor is there any sanctioned scheme under implementation at this stage. Therefore, it is not possible to accept the contention that the proceedings in the suit are required to be suspended for the reason that the respondents had failed to take the consent of the Board to go ahead with such proceedings. Mr. Kohli's submission that proceedings initiated under Section 16 of the BIFR should be deemed to continue even after its order dated 1-6-1995, recommending winding up is far-fetched and difficult to be accepted. The fact remains that no proceedings of the nature provided in Sections 16 to 20 of the Act, are presently pending before the BIFR, therefore there is no question of suspending the proceedings in the suit.
11. There can be no two opinions about the proposition enunciated by the Supreme Court in AIR 1990 SC 1017 which lays down that where the proceedings have been initialed by the BIFR under Section 16/17 of the Act, it automatically leads to suspension of various proceedings mentioned in the section against the sick industrial company. The Apex Conn has held as under (paras 7 and 10):
"Section 22(1) provides that in case the inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration by the Board or any Appeal under Section 25 is pending then certain proceedings against the sick industrial company are to be suspended or presumed to be suspended......
Indeed, there would be automatic suspension of such proceedings against the company's properties."
As already noticed, the stage envisaged under Sections 16 and 17 of the Act, has passed by in the present case and it is unnecessary to dilate for our purposes whether the ordering of inquiry under Section 16 by the BIFR or preparation of any scheme by it under Section 17 led to automatic suspension of the proceedings in the suit. On the parity of this reasoning, the prayer of the petitioners for suspension of proceedings is rejected.
12. Coming to the second aspect of the matter, all that remains to be seen is whether petitioners deserve to be granted any further time for filing the written statement. By order dated 30-12-1994, two months' last and final opportunity was granted to them for filing their written statement and three weeks thereafter to file documents and to record their admission and denial before the Addl. Registrar on 22-3-1995. Instead of filng the written statement, they moved this C.M.P. on 10-4-1995 praying for suspension of proceedings in the suit. The only cause shown by them for not filing the written statement, in this application, is that it could not be filed in view of the present petition and on account of the specific provisions of the Act."
13. Mr. Kohli has argued that this Court liad ample power under Oder 8, Rule 10 and Section 148, C.P.C, to grant extension in time for filing the written statement. According to him. Order 8. Rule 10 does not necessarily lead to the closure of defence and an immediate prouauncentent of judgment in the suit thereafter. On the cuntrary, it empowers the Court 10 make any such order in relation to the suit as it thinks fit which implies that it am pass an appropriate order allowing a defendant further time to file the written statement despite his failure to do so within the prescribed lime. He additionally contended that Section 148. C.P.C. empowers the Court to enlarge the period of time where such pencil had been fixed even after the prescribed period may have expired. He supported his submissions by a judgment of the Supreme Court reported in AIR 1961 SC 882 and a judgment of this Court reported in AIR 1982 J&K 92 and that of Delhi High Court in AIR 1474 Delhi 35.
14. Mr. Gupta, on the other hand, stoutly resisted all this and submitted that the petitioner had not approached the Court with clean hands and that their request for extension of time was not bona fide in as much as they had failed to take any step to approach this Court for extension of time on or before 31 -12-1994 when per-emptory order prescribing time for filing of the written statement was passed. He pointed out that the petitioners had waited for about 5 months to file the present C.M.P. on 10-4-1995 seeking suspension of legal proceedings, instead of taking any steps to file written statement and to set up their defence to the suit. He urged that they had failed to show any cause for extension.
15. It is true that this Court retains the power to gram extension in time or to enlarge time wherever such lime had been fixed for doing of any of the act or acts prescribed under the CPC. It is equally true that the word "shall" used in Order K, Rule 10 is to be treated as directory and not mandatory as held by the Supreme Court in Mahant Ram Dais's ease AIR 1961 SC 882. But all that does not obviate the necessity for a defaulting party to furnish a good and sufficient cause or explanation while seeking extension in time. Even though it is in the discretion of the Court to parts any such order as it thinks fit in terms of Order 8, Rule 10 in a case where a defendant has defaulted in filing the written statement or to grant extension in time where such time has been fixed, but such discretion is not exercis-able arbitrarily and whimsically but, requires to be exercised judiciously and sparingly on a good cause shown. A defaulting defendant cannot expect or ask for any enlargement of time for filing a written statement as a matter of right. He should be at pains to show circumstances that prevented him from filing it and that warrant extension of time.
16. All these requisites are missing in the present case. The only reason shown by the petitioners is that they had not been able to file the written statement within the time prescribed "in view of the present petition and on account of the specific provisions of the Act'. This is hardly an explanation because the per-emptory order was passed by this Court granting two months' last opportunity to them to file written statement on 30-12-1994 whereas this CM.P. was filed after about 5 months on 10-4-19955 . Therefore, it does not lie in their mouth to plead that their default was attributable to the pendency of this C.M.P. The other ground referable to some specific provisions of the Act is also vague and ambiguous. It is not known how the petitioners formed their own belief that they were not required to file the written statement "in view of some specific provisions of the Act".
17. All this notwithstanding, it still remains to be seen whether the theory of automatic suspension of legal proceedings under Section 22(1) can come to the rescue of the petitioners. Mr. Kohli relying on AIR 1990 SC 1017 pleads that since the BIFR had ordered enquiry under Section 16 and proceeded under Section 17 by order dated 28-7-1994, there was an automatic suspension of proceedings in the suit making the per-emptory order dated 30-12-1994, granting two months last opportunity for filing the written statement, redundant. He argues on this premise that this order could not be enforced against petitioner who still retained the right to file the written statement.
18. The argument appears attractive on the face of it. Given regard to the proposition enunciated by the Supreme Court that pendency of an enquiry under Section 16 or preparation of a scheme under Section 17 by the BIFR leads to the automatic suspension of the proceedings mentioned in Section 22, it is not for sure whether this can apply with full force in a situation where the proceedings have terminated before the BIFR and whether it can be applied retrospectively and that too at the back of the forum in which proceedings are taken against the sick industrial company.
19. I must say that I have my own doubts about the matter and it appears to me that the theory of automatic suspension of legal proceedings cannot be applied retrospectively to avoid compliance of orders passed meanwhile in the suit. But, I feel that the issue would require an authoritative pronouncement and considering the fluid position, benefit of doubt deserves to be given to the petitioner. Therefore, without holding that the doctrine of automatic suspension of legal proceedings under Section 22(1) can operate retrospectively to suspend a proceeding taken against the Sick Industrial Company and the orders passed therein meanwhile but giving benefit of doubt to the petitioners, I deem it just and proper to allow one more opportunity to them to file the written statement and to resist the suit. They are accordingly granted one month's last and final opportunity from today for this purpose subject, however, to the payment of Rs. 50,000 as costs to be deposited before the Addl. Registrar and to be kept in fixed deposit in the High Court complex branch of the Jammu and Kashmir Bank Ltd. in the High Court Welfare Fund to be set up for supporting and sustaining the deserving and destitute dependants of the judicial employees who die in harness. Addl. Registrar to take further necessary action in this regard.
20. This C.M.P. is accordingly disposed of.