Bombay High Court
Bhoruka Steel Ltd. vs Fairgrowth Financial Services Ltd. on 9 February, 1996
Equivalent citations: [1997]89COMPCAS547(BOM)
Author: S.N. Variava
Bench: S.N. Variava
JUDGMENT
S.N. Variava J.
1. By this application the applicants seek stay of further proceedings in Case No. 15 of 1995 and Miscellaneous Application No. 145 of 1995 and Miscellaneous Application No. 6 of 1996.
2. Mr. Hegde seeks to intervene in this application. He submits that against his client there is a pending petition, being Miscellaneous Petition No. 57 of 1995. He submits that an identical question of law is involved. He submits that on the question of law involved he should also be heard, as otherwise this judgment will affect him. On the question of law Mr. Hegde has been allowed to intervene and argue. The question of law involved is whether the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, "the Sick Companies Act" prevail over the provisions of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992 ("the said Act"). The facts set out hereinafter do not apply to Mr. Hegde's client and are restricted only to this application.
3. The facts briefly stated are that the custodian had demanded from the applicants herein a sum of Rs. 24,79,999 with interest thereon. This was the amount due and payable by the applicants to Fairgrowth Financial Services Ltd., a notified party. The applicants herein filed Miscellaneous Application No. 111 of 1994 praying for time to pay the amount and for return of certain shares which were pledged with Fairgrowth Financial Services Ltd. By an order dated July, 7 1994, the applicants were permitted to make payment and on payment the shares were to be returned to them.
4. The applicants then took out Miscellaneous Application No. 145 of 1995, for extension of time to make payment. By an order dated March 23, 1995, time for payment was extended till December 31, 1995. It was, however, clarified that if the applicants failed to pay the amount within that time then the pledged shares were to be sold and the net sale proceeds to be appropriated towards the dues of the applicants to Fairgrowth Financial Services Ltd.
5. The applicants then filed Miscellaneous Application No. 6 of 1996 again for extension of time to make payment. In Miscellaneous Application No. 6 of 1996 on January 29, 1996, the following order was passed :
"By prayers (a) and (d) of the application, in effect modification is sought of order dated July 6, 1994, in Miscellaneous Application No. 111 of 1994. These are not pressed before me.
By prayer (c) extension of time is sought for making payment under the order dated July 6, 1994, as modified by order dated March 23, 1995, in Miscellaneous Application No. 145 of 1995."
6. Mr. Mathew very fairly informs the court that the applicants have after the passing of the order dated March 23, 1995, i.e., after taking an extension from this court, filed a reference under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter called "the said Act"). He submits that extension of time was asked for because till the date of the filing of this application the reference was not registered. He fairly states that now the reference is registered. He states the applicants have now filed Miscellaneous Application No. 35 of 1996 for stay of the order dated July 6, 1994, under section 22 of the said Act.
7. In my view, under these circumstances the question of extension of time does not arise. There will accordingly be no orders on this application. No order as to costs.
8. The applicants have now taken out this application for stay under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. This on the ground that a reference has been registered under section 16. Exhibit "C" to this application is the letter of the Registrar of the Board for Industrial and Financial Reconstruction certifying that the reference has been registered.
9. Section 22 of the Act, reads as follows :
"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 the 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."
10. It is the submission of Mr. Mathew and Mr. Hegde that the Sick Companies Act prevails over every other law including the said Act. They submit that by virtue of section 22 no proceedings of any nature can lie against a company in respect of which an inquiry is pending under section 16. Mr. Mathew submits that the words "or the like" in section 22 are very wide and would include all types of proceedings.
11. Both of them rely on the Statement of Objects and Reasons of the Sick Companies Act wherein it is mentioned that the ill-effects of sickness in industrial companies results in loss of production, loss of employment, loss of revenue to the Central and State Governments and locking up of investible funds of banks and financial institutions. They submit that it is to meet these evils that the Sick Companies Act was enacted. They submit that the mechanism laid down therein provides for the revival of sick industries so that neither the labour nor the industrial company nor bank and financial institutions (which have advanced amounts to them) nor the revenue suffer by reason of the closure of the units. They submit that the objects of the Sick Companies Act are for public good. They submit that the provisions of the Sick Companies Act are paramount and prevail over the provisions of any other law, including that of the said Act. They also rely upon the provisions of section 32 wherein again it has been provided that the provisions of the Sick Companies Act will have effect notwithstanding anything contained in any other law.
12. In support of his submission, Mr. Hegde relies upon the judgment in the case of Sarwan Singh v. Kasturi Lal, , wherein the Supreme Court has held as follows (page 274) :
"Speaking generally, the object and purpose of a legislation assume greater relevance if the language of the law is obscure and ambiguous. But, it must be stated that we have referred to the object of the provisions newly introduced into the Delhi Rent Act in 1975 not for seeking light from it for resolving an ambiguity, for there is none, but for a different purpose altogether. When two or more laws operate in the same field and each contains a non-obstante clause stating that its provisions will override those of any other law, stimulating and incisive problems of interpretation arise. Since statutory interpretation has no conventional protocol, cases of such conflict have to be decided in reference to the object and purpose of the laws under consideration. A piquant situation, like the one before us, arose in Shri Ram Narain v. Simpla Banking and Industrial Co. Ltd [1956] 26 Comp Cas 280; , the competing statutes being the Banking Companies Act, 1949, as amended by Act 52 of 1953, and the Displaced Persons (Debts Adjustment) Act, 1951. Section 45A of the Banking Companies Act, which was introduced by the Amending Act of 1953, and section 3 of the Displaced Persons Act, 1951, contained such a non-obstante clause, providing that certain provisions would have effect 'notwithstanding anything inconsistent therewith contained in any other law for the time being in force...' This court resolved the conflict by considering the object and purpose of the two laws and giving precedence to the Banking Companies Act by observing : 'It is, therefore, desirable to determine the overriding effect of one or the other of the relevant provisions in these two Acts, in a given case, on much broader considerations of the purpose and policy underlying the two Acts and the clear intendment conveyed by the language of the relevant provisions therein' (page 615). As indicated by us, the special and specific purpose which motivated the enactment of section 14A and Chapter IIIA of the Delhi Rent Act would be wholly frustrated if the provisions of the Slum Clearance Act requiring permission of the competent authority were to prevail over them. Therefore, the newly introduced provisions of the Delhi Rent Act must hold the field and be given full effect despite anything to the contrary contained in the Slum Clearance Act.
For resolving such inter se conflict, one other test may also be applied though the persuasive force of such a test is but one of the factors which combine to give a fair meaning to the language of the law. That test is that the later enactment must prevail over the earlier one. Section 14A and Chapter IIIA having been enacted with effect from December 1, 1975, are later enactments in reference to section 19 of the Slum Clearance Act which, in its present form, was placed on the statute book with effect from February 28, 1965, and in reference to section 39 of the same Act, which came into force in 1956, when the Act itself was passed. The Legislature gave overriding effect to section 14A and Chapter IIIA with the knowledge that sections 19 and 39 of the Slum Clearance Act contained non-obstante clauses of equal efficacy. Therefore, the later enactment must prevail over the former. The same test was mentioned with approval by this court in Shri Ram Narain's case, ."
13. Mr. Hegde and Mr. Mathew also rely upon the judgment in the case of Maharashtra Tubes Ltd. v. State Industrial and Investment Corporation of Maharashtra Ltd. [1993] 78 Comp Cas 803 (SC). In this case, after considering the objects of the two Acts, the Supreme Court held that the provisions of the Sick Companies Act prevailed over the provisions of the State Financial Corporations Act.
14. Both Mr. Hedge and Mr. Mathew, relying upon the above judgments, submit that the Supreme Court has taken into consideration the objects of the Sick Companies Act and has also taken into consideration the fact that the Sick Companies Act was a post-sickness Act and the State Financial Corporation Act was a pre-sickness Act. They submit that even looking to the objects of the two Acts the Sick Companies Act must prevail.
15. To be noted that in both the judgments, relied upon by counsel, the Supreme Court has held that generally where there are two special statutes, which contain non-obstante clauses, the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non-obstante clause. If the Legislature still confers the later enactment with a non-obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply. In the present case, the said Act is later. The said Act provides that its provisions are to prevail over any other Act. This would include the Sick Companies Act. If the Legislature wanted to provide otherwise, they would have specifically so provided.
16. In this behalf it must be noted that the said Act was enacted in 1992. It was amended in 1994 to specifically give civil jurisdiction to this court. The Sick Companies Act was already in existence. The Legislature was well aware that this court was being given exclusive jurisdiction in respect of very large claims by banks and financial institutions. The Legislature was well aware that when large claims are involved, the concerned counterparty may very well become a sick company if it was not already a sick company. The Legislature was aware of the existence of the Sick Companies Act. Yet while enacting the said Act the Legislature provided, in section 13, that the provisions of the said Act are to prevail over any other law for the time being in force. Had the Legislature wanted to exclude the provisions of the Sick Companies Act from the ambit of the said Act, the Legislature would have specifically so provided. The fact that the Legislature did not specifically so provide necessarily means that the Legislature intended that the provisions of the said Act were to prevail even over the provision of the Sick Companies Act.
17. Even if one were to look at the provisions of the two Acts it is clear that the provisions of the said Act must prevail over the provisions of the Sick Companies Act. Under section 3 of the said Act, all property of the notified parties is to stand attached. Under section 3(4), it is only this court which can give direction to the custodian in respect of property of the notified party. Similarly, under section 11(1), this court can give directions regarding property of a notified party. Under section 11(2), this court is to distribute the assets of the notified party in the manner set out thereunder. There can be no argument, in fairness to counsel it must be stated, that it is not even suggested otherwise, that monies payable to notified parties are assets of the notified party and are, therefor, assets which stand attached. These are assets which have to be collected by this court for the purposes of distribution under section 11(2). The distribution can only take place provided the assets are first collected. The whole aim of these provisions is to ensure that monies which are siphoned off from banks and financial institutions into private pockets are returned to the banks and financial institutions. The time and manner of distribution is to be decided by this court only. Under section 22 of the Sick Companies Act, no proceedings for recovery or for execution can ever lie. Therefore, this court which has been specifically empowered to recover and distribute would be prevented from collecting and distributing if the provisions of section 22 were to prevail. Under section 22, recovery proceedings can only be with the consent of the Board or the Appellate Authority under that Act. Therefore, it would mean the distribution by this court would then become the subject of the decision of the Board or the Appellate Authority under the Sick Companies Act. If the intention of the Legislature was that the decision of the Board or the Appellate Authority was to prevail then the Legislature should have so specifically provided. The Legislature being aware of the provisions of section 22 still empowered only this court to give directions to recover and to distribute the assets in the manner set down under section 11(2) of the said Act. This can only mean that the Legislature wanted the provisions of section 11(2) to prevail over the provisions of any other law including the Sick Companies Act.
18. Mr. Hegde submitted that on an interpretation such as this the provision of the Sick Companies Act would be nullified. He submitted that if the sick company is forced to pay the amounts due to notified parties then there may be no possibility of reconstruction. He submitted the public good sought to be achieved would be defeated. He submitted that it may then result in loss of production, loss of employment, loss of revenue and/or locking up of investible funds of banks and financial institutions. He submitted that it is clear that the enactment seeking to achieve public good must prevail.
19. In my view, there is a clear conflict between the provisions of the two Acts. The intention of the Legislature being clear the provisions of the said Act would have to be given effect to. There is another reason for holding thus. It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction the two Acts can be harmoniously construed then the latter must be adopted. As seen above, if an interpretation is given that the Sick Companies Act is to prevail then there is a clear conflict. However, there would be no conflict if it is held that the said Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that the public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board whilst considering a scheme for reconstruction has to keep the liability to a notified party in mind. The Board would have to keep in mind the fact that it is to be paid off or directed by this court. This court can, if it is convinced, grant time or instalments.
20. Mr. Hegde next submitted that the question of recovery and distribution only arise if a party has first got a right to recover. He submitted that a notified party has no special right and is not put in a better position than an ordinary citizen. He submits that by virtue of section 22 the right to recover is itself taken away. He submits that if the right to recover is taken away then merely because a person is notified, that does not mean that he can recover properties contrary to the provisions of section 22. In my view, this argument begs the question. The main question is whether the provisions of the Sick Companies Act are in conflict with the provisions of the said Act. If the two provisions are in conflict, as they undoubtedly would be if interpreted in the manner suggested by Mr. Hegde, then the provisions of the said Act must prevail. The provisions of the Sick Companies Act, which are in conflict, cannot have any effect at all. Thus, it will have to be held that there can be no stay of any proceedings for recovery so far as this court is concerned.
21. As regards the present application it must be mentioned that there are, in fact, no proceedings at all. Neither the custodian nor the notified party filed any proceedings before this court. It was the company which came before this court with a scheme to pay the amounts in a particular manner. That was allowed. Thereafter it was the company which came for extension of time to make payment. That was also allowed. Thereafter it was the company which came for the second time for extension of time. That application was withdrawn. The notified party had taken out Miscellaneous Petition No. 15 of 1995. However, that petition became infructuous, because on the application of the sick company, a decree had already been passed. Therefore, so far as the present application is concerned, there are, in fact, no pending proceedings which can be stayed. For that reason also this application will have to be dismissed.
22. Accordingly, this application stands dismissed with costs. This being a frivolous petition, in my view, the company must pay actual costs. The applicants to pay costs to respondent No. 1 fixed at Rs. 15,000 and to the custodian fixed at Rs. 20,000.