Calcutta High Court
Taulis Pharma Ltd. vs Bengal Immunity Ltd. on 30 August, 1999
Equivalent citations: [2002]108COMPCAS237(CAL)
Author: Satya Brata Sinha
Bench: Satya Brata Sinha
JUDGMENT Satya Brata Sinha, Actg. C.J. 1. This appeal is directed against the judgment and order dated 8-4-1999, passed by a learned single judge of this court whereby and whereunder an application filed by the appellant herein for winding up of a company was dismissed. The only question which arises for consideration in this appeal is the interpretation of the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 ('the Act'). 2. The admitted facts of the matter are that pursuant to a contract between the parties the petitioner had sold and delivered to the company diverse quantities of goods which the company had received and accepted but failed and/or neglected to pay the price thereof despite several demands. The respondent has terminated the contract. 3. A statutory notice in terms of Section 434 of the Companies Act, 1956, was served but the same had not been replied to. It is also admitted that the company has filed an application in terms of the second proviso appended to Section 15 of the Act before the Board for Industrial and Financial Reconstruction ('the BIFR') wherein a rehabilitation scheme had been sanctioned. Admittedly, the claim of the writ petitioner had not been included in the scheme as the same arose after sanction thereof but during its implementation. 4. The contention of Mr. S.N. Mukherjee, the learned counsel appearing on behalf of the appellant, is that keeping in view the provisions of Section 22 any claim made after the order sanctioned in the scheme passed by the BIFR would not attract the provision of Sub-section (3) of Section 22 and in support of the said contention reliance has been placed on Dy. CTO v. Corromandal Pharmaceuticals [1997] 89 Comp. Cas. 1, 14 SCL 154 (SC), Sirmor Sudburg Auto Ltd v. Kuldip Singh Lamba [1998] 91 Comp. Cas. 727 (Delhi), Pranami Press v. Vinedale Distilleries Ltd. [1998] 94 Comp. Cas. 926, 17 SCL 10 (AP) and Vibgyar Ink Chem (P.) Ltd. v. Safe Pack Polymers Ltd., [1998]93 Comp. Cas. 407. 5. Mr. B.R. Bhattacharjee, the learned counsel appearing on behalf of the respondent, on the other hand, inter alia, submitted that the appellant had already filed a suit in respect of the self-same claim. According to the learned counsel the provisions of Section 22(3) had to be read in the light of Sub-section (8) of Section 18 as also Sub-section (4) of Section 22. The learned counsel submits that winding up proceedings being executory in nature and a moratorium in respect of all claims having been granted under Section 22(3) will come into operation. Reliance in this connection has been placed on Corromandal Pharmaceuticals case (supra). 6. The Sick Industrial Companies (Special Provisions) Act, was enacted to make special provision with a view to securing the timely detection of sick and potentially sick companies owningindustrial 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 and for matters connected therewith or incidental thereto, 7. Sick industrial company has been defined in Section 3(o) of the Act to mean : "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." When a company considers itself to be a sick company, it may take recourse to the provisions of Chapter III of the Act, Section 15 of the Act provides for reference to the BIFR. 8. Upon such reference an enquiry in respect of the sick industrial company is to be made and on completion thereof a suitable order is required to be passed in terms of Section 17. Sub-section (3) of Section 17 reads thus : "(3) If the Board decides under Sub-section (1) that it is not practicable for a sick industrial company to (make its net worth exceed the accumulated losses) within a reasonable time and that it is necessary or expedient in the public interest to adopt all or any of the measures specified in Section 18 in relation to the said company it may, as soon as may be, by order in writing, direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified in the order, a scheme providing for such measures in relation to such company." When an order is made under Sub-section (3) of Section 17 in relation to any sick industrial company, the operating agency specified in the order is required to prepare a scheme as expeditiously as possible and ordinarily within a period of ninety days of such order. The measures which were to be considered for making a scheme are stated in Clauses (a) to (f) of Sub-section (1) of Section 18. 9. The scheme referred to in Sub-section (1) may also provide for any one or more of the matters referred to in Sub-section (2) thereof. 10. Sub-sections (8) and (9) of Section 18 read thus : "(8) On and from the date of the coming into operation of the sanctioned scheme or any provision thereof, the scheme or such provision shall be binding on the sick industrial company and the transferee company or, as the case may be, the other company and also on the shareholders, creditors and guarantors and employees of the said companies. (9) If any difficulty arises in giving effect to the provisions of the sanctioned scheme, the Board may, on the recommendation of the operating agency (or otherwise), by order do anything, not inconsistent with such provisions, which appears to it to be necessary or expedient for the purpose of removing the difficulty." 11. Sub-section (1) of Section 22 provides for a valuable right, Sub-section (3) of Section 22 reads thus : "(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 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, privileges, 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 time so, however, that the total period shall not exceed seven years in the aggregate." The aforementioned provisions came up for consideration in several decisions of different High Courts as also the Apex Court. 12. The core question involved in this appeal is as to whether any person entering into a contract with a sick industrial company, is entitled to take recourse to the proceedings for recovery of its dues after a scheme is framed in terms of the Act. 13. With a view to interpret the aforementioned provisions the court has to keep in mind the following salient principles of interpretation of statute : 1. A person is entitled to initiate proceedings in a court of law for the purpose of recovering its dues unless the same is either expressly or by the necessary implication excluded; 2. Any statutory embargo barring or suspending the jurisdiction of the court is to be strictly construed. 14. In Corromandal Pharmaceuticals case (supra), the Apex Court upon taking into consideration the relevant provisions of the Act and in particular Section 22 held : ".....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 them indefinitely and unreasonably. Such a construction which is unfair, unreasonable and against spirit of the statute in a business sense, should be avoided." (p. 10) The said decision has been followed by the Delhi High Court in Sirmor Sudburg Auto Ltd.'s case (supra), by the Andhra Pradesh High Court in Pranami Press's case (supra) and Vibgyar Ink Chem. (P.) Ltd.'s case (supra). 15. In all the cases, the High Courts were dealing with the questions relating to the recovery of amount in terms of an agreement entered into by and between the sick industrial company and creditors, after the scheme was made. 16. The claims of the appellant were those which arose after scheme was presented and the claims were in the nature of transactions de hors the sanctioned scheme. Before or at the time of preparation of the scheme parties concerned are heard. Their debts and the extent thereof are taken into consideration. A scheme is prepared keeping in view the assets and liabilities of the company as on the date of preparation of the scheme. No provision exists in the said Act for taking into consideration a future liability of the sick company which may arise after preparation of such scheme. 17. The parties who have participated in the proceedings before the BIFR and had agreed to grant moratorium benefits and privileges at that stage may be bound thereby but not the third parties or those whose claims arise after the preparation thereof. 18. Sub-section (8) of Section 18 upon which strong reliance has been placed by Mr. Bhattacharjee merely provides that the same would be binding on the sick industrial company and the transferee company or the other company and also on the shareholders, creditors and guarantors and employees of the said companies. The word 'creditor' in the context of Sub-section (8) of Section 18 must, in our considered view, mean creditors who were before the BIFR, i.e., at the time when the said scheme was prepared and does not embrace within its fold such creditors who had entered into contract with the sick industrial company thereafter Sub-section (3) of Section 22 must be read as a whole and must be strictly construed. The said provision postulates passing of an order declaring 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. Thus, Sub-section (3) which suspends the proceedings and further forbids enforceability of any rights, privileges, obligation and liabilities accruing or arising thereunder before the said date refers to a declaration in respect of the matters which were existing immediately before the date thereof. The aforementioned provision, therefore, in our opinion, cannot embrace within its fold any right, privilege, obligation or liabilities accruing after the preparation of the scheme. The declaration postulates suspension of the matters specified therein which were existing immediately before the date of passing of such order and not thereafter. The sanctioned scheme cannot comprehend those which had not been included in the sanctioned scheme. So construed, we are of the opinion that the claim of the appellant herein would not come within the bar envisaged under Section 22. 19. The ratio of the Supreme Court in Corromandal Pharmaceutical's case (supra), is clear and unambiguous to the extent that the bar as envisaged in terms of Section 22 is restrictive in nature so as to cover the state of affairs up to the date of presentation of the scheme or on the basis "of the scheme as prepared by the operating agency and approved by the BIFR. 20. We cannot accept the contention of Mr. Bhattacharjee to the effect that the ratio of the judgment of the Supreme Court in Corromandal Pharmaceutical's case (supra) must be confined only to the sales tax or State revenues collected by the company from third parties in respect whereof it acts as a trustee. The aforementioned submission cannot be accepted keeping in view the fact that in all recovery proceedings the assets of the company may be the subject-matter of execution. Even in a case of sales tax, the sick company might not have realised the same from customers but still it is liable to pay the same. 21. In Hoechst Pharmaceutical Ltd. v. State of Bihar ; the Supreme Court was considering a case where surcharges had been levied on sales tax on the basis of the gross turnover of the company. In cases where surcharges were levied, the same cannot be recovered from the buyers, still then in law the same can be enforced. Similar may be the case with other taxes, rates or revenues as, for example, Central excise, municipal tax, etc. In any event, the Act does not contemplate any discrimination between the public dues and the private dues. If such a construction is made, the same may not stand the test of equal protection of law and equity before law as envisaged under article 14 of the Constitution. Such a construction, in our opinion, thus, must be avoided. 22. For the reasons aforementioned, the impugned judgment cannot be sustained which is set aside accordingly and the matter is remitted back to the learned trial judge for considering the matter on the merits in accordance with law. In the facts and circumstances of this case, there will be no order as to costs. Ansari, J.
23. I agree.