Delhi High Court
Modern Dies vs Symphony Comforts Systems Ltd. And Anr. on 7 October, 2005
Equivalent citations: I(2006)BC178, (2006)142PLR15
Author: O.P. Dwivedi
Bench: O.P. Dwivedi
JUDGMENT O.P. Dwivedi, J.
1. This is an application under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short the 'Act') read with Section 151, CPC seeking stay of the proceedings in suit bearing No. CO 8/1997.
2. Petitioner Modern Dies has filed this petition for cancellation of design registration No. 172063 dated 26,2.1997 under the provisions of Section 51-A of the Designs Act, 1911. It is pleaded that the petitioner's sister concern Modern Fans having same partners is dealing in the manufacture and sale of bodies of air coolers, grills for air conditioners, television cabinets and water thermos. Petitioner's firm is engaged in the manufacture of dies and tools for its various clients as well as for its sister firm Modern Fans. It is alleged that respondent has got a design for air cooler registered vide registration No. 172063 dated 26.2.1997 and also filed a Suit No. 587/97 for infringement against the petitioner. According to the petitioner the said registration of the respondent's design is invalid and deserves cancellation as it was obtained by concealment of material facts. Petitioner's case is that Modern Fans, sister concern of the petitioner, has been manufacturing bodies for air coolers for a considerable period of time. Earlier bodies for air coolers of Modern Fans were generally of a rectangular shape and similar to those of other manufacturers. In the year 1994 petitioner and its partners arrived at a D-shape construction of a body of air cooler, as the flow properties within the body of cooler can be improved by a circular surface of the body. Thus, as the front surface of the cooler body having the discharge grills had to be planer or substantially planer in shape. Petitioner and his engineer concluded that the remaining wall surface should preferably be circular in shape and resulting in a D shaped cooler body. The D shape of the air cooler body evolved by the petitioner was not with the object of improving the aesthetic value of the air cooler, but with a functional objective to improve the efficiency of the air flow. The petitioner discussed the said proposal with Mr. Jeet Ram of Model Artisan in 1995. Model Artisan prepared a drawing of a D shaped cooler body and also provided a mock up model of D shaped body of the air cooler to the petitioner from which the petitioner then made the necessary moulds. In May 1995, Modern Fans received the moulds from the petitioner and in June 1995 manufactured five of such D shaped cooler bodies which were then dispatched to their dealer in Hyderabad, M/s. Classic Sales & Services so that the said dealer could exhibit such air coolers to the public. The said dealer M/s. Classic Sales & Services incorporated the additional items such as blower, pump and pads into the five D shaped cooler bodies. However, these bodies were found to be defective and the deficiency was reported to the petitioner by the dealer through a letter dated 2nd September, 1995. The petitioner worked on the deficiencies pointed out by the dealer and after removing those deficiencies dispatched fresh models to the said M/s. Classic Sales and Services on 18th July 1996. The said agent sent a report dated 25.8.96 intimating that the cooler bodies now received are quite satisfactory. Vide said letter dated 25.8.96 the agent also sought permission of the petitioner to print pamphlets relating to such an air cooler, which permission was granted verbally. Accordingly, M/s. Classic Sales and Services got printed pamphlets showing the D design of air cooler and such pamphlets were circulated in September 1996. A copy of the said pamphlet is annexed as Annexure-IV.
3. It is pleaded by the petitioner that petitioner was the first to have conceived a D shaped body of the air cooler and the said shape was made available to the public much prior to the registration of design No. 172063. It is the contention of the petitioner that respondent has obtained registration in respect of D shaped design by misrepresentation of facts and therefore impugned design registration No. 172063 is invalid and liable to be cancelled in view of 51- A of 'The Designs Act, 1911' and hence this petition under Section 51-A of 'The Designs Act, 1911' which has been registered as a suit.
4. Respondent has contested the suit. The plea of the respondent was that their design was registered on 28.8.96 vide Registration No. 172063. Till then petitioner's alleged D shape design had not been published in India. It is denied that the said registration was obtained by misrepresentation of facts.
5. During the pendency of the suit, respondent has filed an application being IA No. 8890/2003 pleading that respondent No. 1 has made a reference under Section 15(1) of the Act to the Board for Industrial and Financial Reconstruction (BIFR) at New Delhi which has been registered as Case No. 338/2002. The respondent company has received a letter dated 4.8.2002 from the BIFR intimating that reference filed by the respondent has been registered with the Board. Therefore, according to the respondent, the proceedings in the suit are liable to be stayed in view of provisions contained under Section 22 of the Act.
Section 22 of the Act is reproduced below:
"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.
(2) Where the management of the sick industrial company is taken over or changed (in pursuance of any scheme sanctioned under Section 18) notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law--
(a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company.
(b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board.
(3) Where an inquiry under Section 16 is pending or any scheme referred to in Section 17 is under preparation or during the period of consideration of any scheme under Section 18 or where any such scheme is sanctioned there under, 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, privileges, obligations and liabilities accruing or arising there under before the said date, shall remain suspended or shall be enforceable with such adoptions 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 time so, however, that the total period shall not exceed seven years in the aggregate.
(4) Any declaration made under Sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a Court, Tribunal, officer or other authority or of any submission, settlement or standing order and accordingly.
(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any Court, Tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and
(b) on the declaration ceasing to have effect--
(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and
(ii) any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed.
(5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded.
6. A copy of the letter dated 4.8.2002 of BIFR has also been placed on record along with the petition. The petitioner did not file any reply to this application.
7. I have heard learned Counsel for the parties and perused the record.
8. It is by now a well settled proposition of law that once a reference has been registered by BIFR, inquiry under Section 16 of the Act will be deemed to have commenced. Reference in this connection may be had to Real Value Appliances Ltd. v. Vardhman Spinning & Gen. Mills Ltd., and Rishabh Agro Industries Ltd. v. PNB Capital Services Ltd., .
9. The moot point for consideration in this case is whether a petition under Section 51-A of The Designs Act would fall within the purview of proceedings for execution, distress "or the like" against properties of the sick industrial company so as to attract the provisions of Section 22 of the Act. Supreme Court in the case of Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association CSI Cinod Secretariat, Madras, while considering the question of applicability of Section 22(1) of the Act to the proceedings initiated by landlord against tenant sick industrial company, in paras 11 and 12 of the judgment, observed as under:
"11. ... In this regard, it may be mentioned that the following proceedings only are automatically suspended under Section 22(1) of the Act:
(i) proceedings for winding up of the industrial company;
(ii) proceedings for execution, distress or the like against the properties of the sick industrial company; and
(iii) proceedings for the appointment of receiver.
12. Eviction proceedings initiated by a landlord against a tenant company would not fall in categories (1) and (3) referred above. The question is whether they fall in category (2). It has been urged by the learned Counsel for the appellant company that such proceedings fall in category (2) since they are proceedings against the property of the sick industrial company. The submission is that the leasehold right of the appellant-company in the premises leased out to it is property and since the eviction proceedings would result in the appellant company being deprived of the said property, the said proceedings would be covered by category (2). We are unable to agree. The second category contemplates proceedings for execution, distress or the like against any other properties of the industrial company. The words 'or the like' have to be construed with reference to the preceding words, namely, 'for execution, distress' which means that the proceedings which are contemplated in this category are proceedings whereby recovery of dues is sought to be made by way of execution, distress or similar proceedings against the property of the company (emphasis added). Proceedings for eviction instituted by a landlord against a tenant who happens to be a sick industrial company, cannot, in our opinion, be regarded as falling in this category. We may, in this context, point out that, as indicated in the Preamble, the Act has been enacted to make special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined. The provision regarding suspension of legal proceedings contained in Section 22(1) seeks to advance the object of the Act by ensuring that a proceedings having an effect on the working or the finances of a sick industrial company shall not be instituted or continued during the period the matter is under consideration before the Board or the Appellate Authority or a sanctioned scheme is under implementation without the consent of the Board or the Appellate Authority. It could not be the intention of Parliament in enacting the said provision to aggravate the financial difficulties of a sick industrial company while the said matters were pending before the Board or the Appellate Authority by enabling a sick industrial company to continue to incur further liabilities during this period. This would be the consequence if Sub-section (1) of Section 22 is construed to bring about suspension of proceedings for eviction instituted by landlord against a sick industrial company which has ceased to enjoy the protection of the relevant rent law on account of default in payment of rent. It would also mean that the landlord of such a company must continue to suffer a loss by permitting the tenant (sick industrial company) to occupy the premises even though it is not in a position to pay the rent. Such an intention cannot be imputed to Parliament. We are, therefore, of the view that Section 22(1) does not cover a proceeding instituted by a landlord of a sick industrial company for the eviction of the company premises let out to it."
10. It is thus clear that the proceedings which attract the bar of Section 22 of the Act will be proceedings for recovery of dues sought to be made by execution, distress or 'the like' against the properties of the company. The same view has been taken by the Supreme Court in the case of Deputy Commercial Tax Officer and Ors. v. Corromandal Pharmaceuticals and Ors., , wherein the Apex Court was considering the question of applicability of Section 22 of the Act to the proceedings initiated by sales tax authorities under Section 17 of the Andhra Pradesh General Sales Tax Act, 1957 for recovery of sales tax dues for the assessment year 1992-93,1993-94. While commenting on Sections 15 to 22 of the Act, the Apex Court in para 10 has observed as under :
"10. On a fair reading of the provisions contained in Chapter III of Act 1/1986 and in particular Sections 15 to 22, we are of the opinion that the plea put forward by the Revenue is reasonable and fair in all the circumstances of the case. Under the statute, the BIFR is to consider in what way various preventive or remedial measures should be afforded to a sick industrial company. In that behalf, BIFR is enabled to frame an appropriate scheme. To enable the BIFR to do so, certain preliminaries are required to be followed. It starts with the reference to be made by the Board of Directors of the sick company. The BIFR is directed to make appropriate inquiry as provided in Sections 16 and 17 of the Act. At the conclusion of the inquiry, after notice and opportunity afforded to various persons including the creditors, the BIFR is to prepare a scheme which shall come into force on such date as it may specify in that behalf. It is in implementation of the scheme wherein various preventive remedial or other measures, are designed for the sick industrial company, steps by way of giving financial assistance etc. by Government, banks or other institutions, are contemplated. In other words, the scheme is implemented or given effect to, by affording financial assistance by way of loans, advances or guarantees or reliefs or concessions or sacrifices, by Government, banks, public financial institutions and other authorities. In order to see that the scheme is successfully implemented and no impediment is caused for the successful carrying out of the scheme, the Board is enabled to have a say when the steps for recovery of the amounts or other coercive proceedings are taken against sick industrial company which, during the relevant time, acts under the guidance/control or supervision, of the Board (BIFR). Any step for execution, distress or the like against the properties of the industrial company or other similar 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."
[Emphasis supplied]
11. In the case of Gujarat Steel Tube Co. Ltd. v .Virchandbhai B. Shah and Ors., , the Supreme Court took the view that Section 22 of the Act does not bar filing of eviction proceedings against the tenant on the ground of non-payment of rent. In the case of Eagle Flask Industries Ltd. v. Telegaon Dabhade Municipal Council and Ors., , again the Supreme Court took the view that effect of Section 22 is to be considered only when there is a demand for recovery of municipal taxes. Section 22 will not apply to assessment proceedings before the Municipal Council.
12. As against this, learned Counsel for the respondent has cited Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of Maharashtra Ltd & Anr., . In that case facts were that the appellant had taken some loan from the State Financial Corporation of Maharashtra. This corporation was governed by the State Financial Corporation Act, 1951. Section 29 of the said Act provided that if any industrial concern which is under a liability to the Financial Corporation makes any default in payment of any loan, advance or Installment thereof the Financial Corporation shall have the right to take over the management or possession of both industrial concern as well as rights to transfer by way of lease or sale etc. Section 31 of the Act further provided that the Financial Corporation may apply to the District Court within the limit of whose jurisdiction the industrial company carries on business, for (1) sale of the property pledged, mortgaged or hypothecated; (2) for enforcement of liability of any surety; (3) transferring management of the industrial corporation to the Financial Corporation; and (4) interim injunction restraining the company from transferring movable or immovable properties from the premises of the industrial concern. In that case when the appellant company failed to re-pay the debt, the respondent corporation started proceedings under Section 29 of the State Financial Corporation Act, 1951 for taking over possession of the factory premises of the company. In the meantime, the company filed an appeal under Section 25 of the SICA against the order dated 20.7.92 of the BIFR. The company filed a writ petition before Bombay High Court contending that in view of the Section 22 of the SICA, the proceedings under Section 29 of the State Financial Corporation Act, 1951 initiated by the respondent are liable to be stayed. The High Court of Bombay relying upon its earlier decision in Gram Panchayat v. Shree Vallabh Glass Works Ltd., , dismissed the writ petition. In appeal, the Supreme Court took the view that the proceedings initiated by State Financial Corporation under Section 29 of State Financial Corporation Act are in the nature of execution, distress 'or the like' for recovery of dues against the properties of the company and therefore Section 22 of SICA will apply.
13. Viewed in this legal perspective, I think, the present petition for cancellation of design under Section 51-A of 'The Designs Act, 1911' does not fall within the purview of Section 22 of the Act. Clearly this petition is not for recovery of any dues through any coercive process against the properties of industrial company. Therefore, in view of the decision in the case of Shree Chamundi Mopeds Ltd. (supra) such a suit (petition) cannot be said to be for recovery of dues against the respondent by execution, distress 'or the like' proceedings against the properties of industrial company. Even if this petition/suit succeeds, result will be that the registration of the design vide registration No. 172063 will stand revoked/cancelled. This need not in any way affect the business potential of the respondent. It is important to note that in the suit (petition) the petitioner has not claimed any relief of damages/ rendition of accounts etc. All that the petitioner is seeking, is the cancellation of design registration No. 172063, therefore, I am of the considered view that it does not fall within the purview of Section 22 of the Act.
14. In view of my observations above, IA 8890/2003 fails and is hereby dismissed.
Co 8/1997List the petition 23rd Janurary, 2006.