Bombay High Court
Unilab Chemicals & Pharmaceuticals vs Smith Stanistreet Pharmaceuticals ... on 26 February, 1999
Equivalent citations: 1999(2)BOMCR402, (1999)1BOMLR878, [2001]103COMPCAS122(BOM), 1999(2)MHLJ289, 1999 A I H C 2657, (1999) 2 MAH LJ 289, (2000) 1 MAHLR 169, (1999) 3 COMLJ 389, (2000) 1 BANKCAS 100, 1999 BOM LR 1 878, (1999) 4 CIVLJ 899, (2001) 103 COMCAS 122, (1999) 2 BOM CR 402
Author: R.J. Kochar
Bench: R.J. Kochar
ORDER R.J. Kochar, J.
1. The defendants have filed the present Chamber Summons for the following reliefs:
(a) that the Ex-parte Decree dated 23-9-98 passed by the Hon'ble Court be set aside:
(b) that the Vakalatnama of the Defendant's Advocate be taken on record on the file of the above suit;
(c) that delay in taking out the Chamber Summons and filing the Vakalatnama on behalf of the defendants, be condoned;
(d) that pending the hearing and final disposal of the Chamber Summons, the execution of the Ex-parte Decree dt. 23-9-98 be stayed;
In support of the Chamber Summons an affidavit of one Shri. S. Chandrashekharan Iyer, Constituted Attorney of the defendants is filed.
2. The plaintiffs have filed their reply whereafter a Rejoinder is given by the defendants and also an additional affidavit which is followed by a Sur-Rejoinder on the part of the plaintiffs.
3. I have heard the learned Advocates for both the parties. Even on the merits of the case it was inevitable to touch the merits.
4. The facts in nutshell are as under:
5. On 21-8-1998 the plaintiffs were granted leave under Clause XII of the Letters Patent and on 31-8-1998 plaint was admitted and the suit was registered. On 7-9-1998 a Writ of Summons was served upon the defendants and they were supposed to enter their appearance on or before 16-9-1998. On their failure to enter their appearance the plaintiffs have quickly moved for an ex-parte decree and on 23-9-1998 an ex-parte decree was passed in favour of the plaintiff. By the present Chamber Summons which was filed on 9-10-1998, the defendants have sought setting aside of the ex-parte decree and have also sought an order for their Vakalatnama to be taken on record and that the delay in filing of the Vakalatnama be condoned. As far as leave to file Vakalatnama and condonation of delay in filing Vakalatnama no Orders are required or necessary. The defendants have filed their Vakalatnama along with the present Chamber Summons which they are entitled to file. It appears that the learned Advocate for the defendants was under an impression that there has been a delay in filing of the Vakalatnama as is contemplated under Rule 3(1) of Order 37 in the main suit. Since the main Suit has been disposed of there is no question of now filing the Vakalatnama in that suit. The defendants have filed their Advocate's Vakalatnama along with the Chamber Summons and, therefore, there is no question of granting leave to them to file Vakalatnama and to condone delay. These prayers are misconceived as the defendants are as a matter of right entitled to file the Chamber Summons and their Advocate's Vakalatnama.
5. Now the only question that remains is setting aside of the decree dated 23-9-1998. Under Order 37, Rule 4 the defendants have to show special circumstances for setting aside the ex-parte decree.
6. The defendants have filed an affidavit to show such special circumstances why the ex-parte decree should be set aside and why they were not able to enter their appearance within ten days from the service of the writ of summons. Shri Bharat Mehta, learned Advocate for the defendants has explained the delay. From the record he submits that writ of summon was served on 7-9-1998 at the Bombay Office of the defendants. The Bombay Office contacted the Head office at Calcutta for instructions which were received on 29-9-1998. It is explained that the defendants are a Government undertaking and decision in the Court matters is required to be taken by Asstt. Area Executive Shri Mukherjee who was at that time on business tour and there was no one else to take decision in such matters. No sooner he returned from the tour, he attended the matter and gave instructions to the Bombay Office on 29-9-1998. It appears that it was too late for the defendants to file their Vakalatnama as the plaintiffs had already obtained an ex-parte decree on 23-9-1998. According to me, the defendants have explained the circumstances for their not being able to enter their appearance in the suit within ten days from the date of receipt of the writ of summons. The plaintiffs were within their legal rights to have obtained an ex-parte decree on the defendants, failure to file their appearance within ten days. According to me, the period of ten days is a very short period particularly for the undertakings which are owned by large Corporations or State Governments or Union of India. In the large organisations decisions are not taken as quickly as they perhaps are taken by Proprietary or partnership firms or small Private Organisations. It takes more than ten days to move the papers from even the despatch department to the appropriate table. The State machinery, as is well known, moves like a royal elephant. It is therefore, unrealistic to expect a Vakalatnama to be filed in a Court of law within such a short period of ten days. According to me, it is rather too early to give an ex-parte decree immediately after expiry of ten days from the date of the service of the writ of summons. It would be always advisable to wait for a reasonable period. In the present case the defendants are a Government of India undertaking and the decision making in such matters is rightly entrusted to the higher responsible personnel of the Managerial cadre. It is not that the decision was taken belatedly or after a lapse of unreasonable period. The Bombay Office received the writ of summons on 7-9-1988 and they received instructions on 29-9-1998. Shri Mehta submits that immediately thereafter he went to file his Vakalatnama but he found that ex-parte decree was already passed on 23-9-1998 as appearance was not entered within ten days from 7-9-1998. According to Shri Mehta, there was a delay of about 20 days and he has taken out the Chamber Summons within 30 days from the date of the ex-parte decree. According to me, there is absolutely no delay in filing the Chamber Summons as it is filed well within 30 days from the date of ex-parte decree. I am satisfied that in the circumstances explained above the defendants could not file their appearance within 10 days and, therefore, ordinarily they would be under the aforesaid circumstances entitled to get the ex-parte decree set aside.
7. However, a main hurdle which is created by Shri Shah, the learned Advocate for the plaintiffs, is that this Court should also find out whether there is good case on merits and unless a good case on merits is shown by the defendants simultaneously with the circumstances for setting aside the decree the ex-parte decree should not be set aside. According to Shri Shah, the defendants have no case on merits at all. According to Shri Shah, the defendants have no defence at all the entire claim is based on the documents and is an ascertained or admitted claim. He has pointed out from the correspondence that the defendants have admitted the payments and have never disputed the same. Shri Shah further submits that the defendants have nowhere stated in their affidavit that they have a good case on merits and they have not even denied that they were not liable to pay to the plaintiffs. He further submits that transactions are admitted, the defendants have received the goods from the plaintiffs under the Invoice/Bills and the outstanding amount to the tune of Rs. 6,18,107/- is an ascertained claim of the plaintiffs. The learned Advocate for the plaintiffs finally submitted that there is not even a whisper of challenge to the plaintiffs' claim from the defendants and, therefore, assuming that the defendants have shown good grounds they have no merits in the case and they have no defence in the suit on merits, to constitute "special circumstances" under Order 37, Rule 3 for setting aside the ex-parte decree.
8. In the aforesaid circumstances I have also at the request of the learned Advocates delved in the merit part of the case to find out what defence the defendants have and if so whether 1 would be justified in setting aside the ex-parte decree. Since the points raised by the learned Advocates are interlinked, I have further gone into the question whether the defendants have really a good case on merits. Shri Mehta for the defendants has disclosed from the record that the defendants have been declared as a sick company by the B.I.F.R. and a scheme has been sanctioned or formulated on 31-8-1994 and the said Scheme is still under the operation. The learned Advocate for the defendants submits that in view of the declaration of the defendants company as a sick unit and in view of the formulation of the scheme by the B.I.F.R. the present suit as filed by the plaintiffs was not maintainable and it would squarely attract section 22(1) of the S.I.C. Act, 1985. He further contended that there cannot be even execution of the ex-parte decree during the pendency of the operation of the scheme by the B.I.F.R.. He therefore, submitted that the scheme was formulated and order dated 31 -8-1994 were published in Press immediately thereafter and the present suit which was filed on 31-8-1998 for money decree could not be maintainable and if maintainable was required not to be proceeded further.
9. In the normal course the points raised by Mr. Mehta would be a good defence. However, as submitted by Shah for the plaintiffs that in the present case section 22(1) of the S.I.C. Act will not be attracted for the reason that declaration by the B.I.F.R. and the formulation of the scheme is on 31-8-1994 and in the scheme the dues of the plaintiffs are not covered, as the plaintiffs dues have arisen after the defendants getting declared sick. He has also submitted that the defendants company never disclosed to the plaintiffs while entering into various transactions after August, 1994 that they were declared sick by the B.I.F.R. and that there were no notices displayed any where to show that the company was a sick unit as declared under the S.I.C.A. Act and that any one who deals with such a company does so at his own risk. It is an admitted position that nowhere at any conspicuous place of the sick company it was displayed that it was operating under the scheme sanctioned by the B.I.F.R. There was no mention even on the printed letter heads or Bills/Invoices of the company that they were declared under the S.I.C.A. Act a sick industrial company. It is an admitted position that even under the law there is no prescribed condition to disclose the fact of statutory sickness. Shri Mehta, however, submitted that it was declared in press and had appeared in the newspaper circulated in Calcutta and, therefore, it was publicly made known and if the plaintiffs had entered into transactions with the defendants they knowingly did so and therefore, they cannot make any grievance and , therefore, the provisions of the S.I.C.A. Act are attracted and that the defendants have good defence on merits. A crucial point which requires a decision is whether section 22(1) of the S.I.C. Act also takes into its ambit the transactions which have taken place subsequent to the declaration of a company as a sick unit.
10. Section 16 of the Act requires the Board to make an inquiry to determine whether any industrial company has become a sick industrial company. The Board inquires after the receipt of a reference with respect to such company under section 15. Now the inquiry is to be made in the past of the company and to find out why and how and where the company has become a sick unit. If the Board is satisfied on an inquiry that the company in question had become sick then a declaration is granted and a scheme under section 18 is formulated. The scheme may further formulate rehabilitation of the sick unit by getting financial assistance. There is no indication in the Act any where that what will be the fate of such transactions or dealing which have taken place during the post declaration period. Since the scheme contemplates a revival of a sick unit by continuing production and all commercial or mercantile transactions during the period of revival or rehabilitation. Whether all such transactions are protected and whether they will also attract under section 22(1) of the Act? In my opinion if a sick unit is to be revived it has to function as a usual company or commercial unit and carry on all the usual activities so that a sick unit can revive during the course of time. For that purpose, according to me, if all such transactions which take place during the post declaration period are also to be brought in the clutches of section 22(1) of the Act no party would enter into any commercial dealings with such a sick unit and in that case the chances of revival would be absolutely bleak. No party would sell its raw materials or any goods or machinery to such a sick unit from which recovery of money would be neither easy nor possible and if that happens, such a sick unit will not be able to operate if the creditors are told that there was absolutely no certainty of getting their money for the goods sold by them. Such an event would defeat the very purpose of this Act, that is, the revival of a sick unit in the larger public interest. I, therefore, hold that the Act does not contemplate to bring in its net even, the transactions which take place during the post declaration period and during the operation of the sanctioned scheme to revive the unit . 11. There is second aspect to this point. Since the sick units are not required to declare their sickness and in fact they conceal such declarations and the third parties bond fide enter into transactions with such sick units virtually they get cheated or deceived. If knowingly they enter into any transactions with such units it would be a different thing. Such unfair dealings are never contemplated by the law. The law never encourages or breeds unfairness and dishonesty. The Supreme Court has in the latest judgment in the case of Deputy Commercial Tax Officer and others v. Corromandal Pharmaceuticals and others, reported in 1997 Bank.J. 554 (S.C.) : Company Cases Volume 89-1997 has protected the State revenue such as Sales Tax etc. for the post declaration period. The Supreme Court has said that though the language of section 22 of the Act is wide, in the totality of the circumstances, the safeguard is only against the impediment that is likely to be caused to the implementation of the scheme. It is further held that only the liability or amounts covered by the scheme will be taken in by section 22 of the Act. and it is further held that 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. It is very significant to note that Supreme Court has covered within section 22 of the Act the Sales Tax collected by the sick company after the date of sanctioned scheme, the Supreme Court has very succinctly described this position as under :
"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."
The Supreme Court has further warned while construing section 22 as under :
"We have come across cases where unfair advantage is sought to be taken of the provisions of section 22 by certain industrial companies and the wide language employed in the section is providing them a cover. We are sure section 22 was not meant to breed dishonesty nor can it be so operated as to encourage unfair practices. The ultimate prejudice to public monies should not be overlooked in the process of promoting industrial progress."
I am further supported in my view that section 22(1) of the Act does not cover the transactions which have taken place during the period after the declaration and sanction of a scheme by the B.I.F.R. by the judgment of the Delhi High Court in the case of Sirmor Sudburg Auto Ltd. v. Kuldip Singh Lamba, reported in 1998 Volume 91 Com.Cas. page 727. The ratio of the said judgement is the dues must be reckoned or included in the sanctioned scheme of revival and section 22(1) is also not attracted to the dues incurred after the date of the sanctioned scheme. In another judgment of the Allahabad High Court in the case of Amitabh Textiles Mills Ltd. Dehradun and another v. U.P. State Electricity Board, Dehradun & others, reported in A.I.R. 1998 Allahabad 62 the Division Bench of that High Court has protected the electricity dues for the post declaration period. It is pertinent to note the following observation of the Division Bench :
"The legislative intent was to rehabilitate the sick company in various modes as provided under section 18 of the Act. The Company, however, by functioning and taking raw materials, electric connection or consuming any other article or incurring further liability. cannot take shelter of section 22 of the Act by saying that the amount which it is liable to pay to the supplier will not be paid unless the consent of the Board is taken." (Emphasis is given by me) A similar view was expressed by that Court in another matter viz.
"In Misc. Writ petition No. 11220 of 1996 Foremost Industries (India) Ltd. Kailashpur, Dehradun Road, Saharanpur bv. State of U.P. and others) this Court held that where the petitioner was carrying on business even after it has been declared as sick company but went on purchasing raw materials i.e. milk etc. it was liable to pay cess amount which was levied on the milk used by the petitioner and can be recovered even by coercive process."
12. In the aforesaid circumstances though the plea of section 22(1) of the S.I.C.A Act appears to be a good defence for the defendants at the first blush after a little probe, in the matter it can be definitely said that the defence is worthless. It is only a sham or moonshine defence which would not stand for scrutiny for a single minute. I, therefore, hold that the so-called good defence for the defendants on merits is only a smoke-screen and, I therefore, hold for the aforesaid reasons that the defendants have no good case on merits at all.
12-A. The learned advocate for the plaintiffs Shri Shah submitted that the defendants must satisfy the Court simultaneously that they had special circumstances for getting the exparte decree set aside and that they have a good defence or a good case on merits. In support of his contention he has relied on a judgment of this Court (R.M. Lodha, J.) in the case of Harshad Shah v. Bhor Industries Ltd., reported in 1998(4) L.J. 334. The learned Judge has analysed the relevant provisions of the Civil Procedure Code, and in particular the Order 37, Rule 4. The learned Judge has followed his earlier judgment which is quoted below :
"Order IX, Rule 13 C.P.C. has no application for setting aside ex-parte decree in summary Suit. Specific provision is made under Order XXXVII, Rule 4 C.P.C. whereunder the defendant has to show the special circumstances for setting aside exparte decree passed in Summary Suit under Order XXXVII, C.P.C, To spell out special circumstances the defendant has to first satisfy the Court that there was not due service of writ of summons or Summons for judgment or that he was prevented by sufficient cause from getting leave to defend and then secondly to show that he has good, substantial and/or meritorious defence in the suit. In the absence of satisfaction of first condition it may not be necessary to go into second condition at all. Having not applied for leave to defend despite service of summons for judgment it is not open to the defendant to now urge that he has substantial, meritorious and good defence in contesting the suit because in the very nature of claim made by the plaintiff under Order XXXVII or for that matter summary procedure prescribed under Order XXXVII could not be invoked. If a defendant deliberately or negligently sits over the matter after the service of summons for judgment and does not apply for leave to defend and lets the Court pass decree exparte, he cannot be permitted to derive premium for his deliberate omission or negligence and urge later in his application for setting aside such decree that he has good, meritorious and substantial defence in the suit. The power to set aside ex-parte decree in summary suit cannot be exercised on the sole ground that the defendant has been able to demonstrate that there was sufficient cause for his failure to obtain leave to defend or when having obtained leave he failed to appear, but defendant has to further show the merit of his defence. The two circumstances combined together may take out special circumstances as contemplated under Rule 4 of Order XXXVII C.P.C.".
I am in respectful agreement with the decision of the learned Judge. Under the aforesaid provisions the defendants have to satisfy the twin conditions. In the present case though the defendants have satisfied me to some extent that they were prevented by good and sufficient reasons for not entering their appearance within ten days from the date of receipt of the writ of summons they have totally failed to satisfy me that they have good and meritorious defence. I, therefore, do not find any special circumstances for setting aside the ex-parte decree, hence the Chamber Summons is dismissed with no order as to costs.
After the order was pronounced by me in the Court, the learned Advocate for the defendants prays for stay of the order for four weeks. The operation of the Order in the above Chamber Summons is stayed for four weeks.
13. Chamber Summons dismissed.