Andhra HC (Pre-Telangana)
Vibgyar Ink Chem (Pvt.) Ltd. vs Safe Pack Polymers Ltd. on 13 April, 1998
Equivalent citations: 1998(3)ALD638, 1998(3)ALT557, [1998]93COMPCAS407(AP), AIR 1999 ANDHRA PRADESH 45, 1998 (3) COM LJ 457 AP, (1998) 3 COMLJ 457, (1998) 31 CORLA 432, (1999) 1 BANKCAS 472, (1998) 3 ANDHLD 638, (1998) 3 ANDH LT 557, (1998) 93 COMCAS 407, (2000) 2 BANKCLR 258
Author: Umesh Chandra Banerjee
Bench: Umesh Chandra Banerjee, S.S. Hussaini
ORDER Umesh Chandra Banerjee, CJ.
1. The industrial climate in early eightees portrayed a dismal picture affecting the entire economy of the country and by reason of which the Central Government thought it prudent enough to save the industrial units by affording some relief so that the employment potentialities in any unit can be continued and it is on this back drop that the Sick Industrial Companies (Special Provisions) Act, 1985 was brought into the statute book so that full utilisation of productive industrial assets and maximum protection of employment could be had, since the Government was of the view that it would be an imperative necessity to revive and rehabilitate the potentially viable but sick industrial Companies as quickly as possible. With that end in view, the Act of 1985 saw the light of the day and the Preamble to the Act itself records that 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 and for matters connected therewith or incidental thereto. This Act has been enacted in order to afford maximum protection of employment, optimise the use of financial resources, salvaging the assets of production, realising the amounts due to the Banks and to replace the existing . time consuming and inadequate machinery by efficient machinery, for expenditure determination by a body of experts (vide Navnit R. Kamani v. R.R. Kamani, (1989) 66 Comp. Case 132.
2. As a matter of fact, the Act has been enacted to safeguard the economy of the country and protect viable sick units. Its object is to revitalise and rehabilitate sick industries (vide Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust, (1989) 66 Comp. Case555.
3. A brief reference to the provisions of the Statute unmistakably record the effort of the Legislature to protect an otherwise viable unit.
4. In this context reference may be made to Section 22 being a statutory provision for suspension of legal proceedings. Section 22 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 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 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, 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) 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 ail or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable wiyh 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.
(4) Any declaration made under subsection (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 staved.
(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."
5. The statute therefore makes it abundantly clear that where in respect of any industrial Company an inquiry under Section 16 is pending or any scheme referred to in 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, and in that event, notwithstanding anything contained in the Companies Act, 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 shall lie or be proceeded with further. There is, therefore, a total ban as regards enforcement of any decree or even initiation of a civil suit for recovery of money or enforcement of any security as far as the industrial undertaking is concerned. At this juncture it would however be convenient to advert to factual aspects of the matter briefly.
6. The Company being M/s. Safepack Polymers Limited, made a reference to Board for Industrial and Financial Reconstruction (for short BIFR) under Section 15 of the 1985 Act in December, 1994 and was declared as the sick industrial unit. During the pendency of the matter, however, and by reason of the failure on the part of the Company to come up with a revival proposal under Section 17(2) of the Act, IFCI was appointed operating agency under Section 17(3) of the Act with directive to prepare a draft rehabilitation scheme for the Company. The records depict the Company's accumulated losses as on 31-3-1995 stood at Rs.934.49 lakhs which had made its net worth negative as compared to the accumulated losses by Rs.717.60 lakhs. The draft rehabilitation Scheme prepared by the operating agency was approved for circulation and the objections and suggestions to the Scheme were considered by BIFR in the hearings held on 18-4-1995, 25-6-1995 and 20-8-1995. After incorporating me suggestions various changes were directed and the scheme has been sanctioned in February, 1996, as appears from the records produced before us during the course of hearing.
7. On the factual backdrop, it further appears that the petitioner, as per the requirement of the Company, duly supplied various items of goods and materials admittedly between 14-2-96 and 15th May, 1996, but by reason of non-payment, statutory notice was served on 20th September, 96.
8. The contextual facts, as noted above, therefore, depict that the BIFR was considering the scheme without there being any reference to the petitioner's claims. It is at this juncture that the observations of the Supreme Court in the case of Dy. Commercial Tax Officer v. Corromandal Pharmaceuticals, , seem to be rather apposite. The Supreme Court in paragraph 7 of the report observed:
"7. It is common ground that a sanctioned scheme for the rehabilitation of the petitioner Company is under implementation. The scheme was sanctioned on 19-11-1990. It is also admitted before us that the sales tax arrears for which proceedings were initiated by the Revenue are for the assessment years 1992-93 and 1993-94. The assessment orders for these years were passed on 3-1-1994 and in 1995, long after the sanctioned scheme was brought into force. The main contention of the Revenue before the High Court and still in appeal before us is, that the arrears of sales tax in question for which proceedings are initiated against the petitioner Company, relate to the period after the sanctioned scheme was brought under implementation and the legal bar or embargo under Section 22 of the Act can only be in respect of the sales tax dues included in a sanctioned scheme. According to the Revenue, the section should be reasonably construed and understood or read down in the above light. It was argued that apparently the embargo or bar envisaged by Section 22 of the Act is of wide import and covers a long period. This bar or embargo begins to operate the moment an inquiry is ordered or pending, and continues during the course of the inquiry, when a scheme is under preparation or consideration, and still later when the scheme is under implementation or even when an appeal under Section 25 of the Act relating to the Company is pending. It was urged that the inquiry itself will take time and the pendency of the proceedings from the date of the inquiry till the scheme is implemented or an appeal is disposed of, envisage going through various formalities and will take a long time. If the bar or embargo envisaged by Section 22 of the Act is to cover the entire length of time, the situation may lead to very unreasonable or unintended state of affairs similar to the one in the present case; the suspension of proceedings specified in Section 22 of the Act should be confined to matters included, in prepackage state of affairs only, (in the sanctioned scheme) and not post-package matters like the instant one, which should be outside the pale or area of the "sanctioned scheme". Counsel submitted that when the scheme was sanctioned on 19-11-90, there was no assessment for the sales tax for the years 1992-93 and 1993-94. The petitioner (assessee) itself could have collected sales tax for the said years only after the scheme was sanctioned. The tax so collected really belongs to the State. But, the amount is not remitted to the State. If the bar or embargo under Section 22(1) of the Act is held to cover such amounts collected by the assessee, which really belong to the State, and enables it to retain the same, till the implementation is over or the appeal under Section 25 of the Act is disposed of, it will result in a state of aflairs enabling the assessee to retain the amounts due to the State for no reason and indefinitely; the Revenue will have to obtain consent of the Board or as the Appellate Authority even for realising the legitimate amounts due to it and withheld by the asscssee, unreasonably. There may be similar instances where the petitioner/assessee collects amounts due to the Revenue or others and is yet enabled to keep it back with itself unreasonably for a long time if the immunity under Section 22(1) of the Act operates absolutely. According to the Revenue the bar under Section 22(1) of the Act should not lead to such an undesirable, state of affairs and so the section should be understood or read down to act as a bar or embargo any for such of those pre-package dues reckoned or included in the scheme sanctioned. On UK other hand, Counsel for the first respondent (petitioner in the writ petition) Company asserted that the embargo under Section 22(1) of the Act is absolute and cannot be diluted or whittled down. All that is required by Section 22(1) of the Act is that in cases where an inquiry is pending or scheme is under preparation or consideration or a sanctioned scheme is under implementation or an appeal is pending, no proceedings as stated in Section 22 of the Act for execution, distress or the like, shall be proceeded with except with the consent of the Board or as the Appellate Authority. What is contemplated by Section 22(1) of the Act is only a previous consent of the Board for the proceedings to be initiated against a sick Company. It is not an absolute bar. The facts pointed out by the Revenue do not call for reading down the wide import of Section 22(1)of the Act."
The Supreme Court, further, in paragraph 10 has recorded that under the statute, the BIFR is to consider in what way various preventive or remedial measures should be afforded to a sick industrial Company, hi that behalf, the Supreme Court added that the 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 inference to be made by the Board of Directors of the sick Company. The BIFR, then 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. Emphasis has been laid down by the Supreme Court that 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 aflairs an embargo or bar is created in terms of provisions of Section 22 of the Act Therefore, the Supreme Court has been categorical in reading unto the section that the state of affairs prevailing on the date of presentation of the application and the scheme framed on the basis thereof ought to have due sanctity and there ought not to be any further attempt to scuttle it down. The object of the Act cannot but be attributed to be consolidated in nature and the Supreme Court while dealing with the matter and in order to give effect to the statute pleased to record that it is die scheme which is to be protected from outside interference. The Supreme Court was dealing with an exceptional situation since as the Supreme Court laid down that 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. The Supreme Court recorded the matter to be an exceptional one.
9. The contextual facts also cannot but be ascribed to be rather exceptional. The law laid down by the Supreme Court is clear and unambiguous to the extent that the bar as envisaged in terms of Section 22 ought to be restrictive in nature so as to cover the state of affairs up to fee date of presentation of the scheme or on the basis of the scheme propounded by the Company and approved by the BIFR. This particular transaction in issue admittedly has take place between February and May 1996, long after the proceedings initiated before the Board in terms of the provisions of the Act.
10. It is not the intention of the Law-Court, in our view, to expand the scope of legislation and one ought not to read anything further than one reads in plain and simple manner. Admittedly, the Company, while the matter is pending before the Board, has enjoyed the benefits of these supplies. The Board has not been able to consider these claims. Obviously the scheme as framed also has no reference to the claim of the petitioner, a creditor. Does that mean and imply the petitioner-creditor shall have to wait until after the fullest implementation of the scheme, in terms of the scheme, as sanctioned by the Board? It is an independent transaction de hors the scheme and obviously cannot thus be covered within the ambit of Section 22 of the 1985 Act.
11. Learned Advocate for the appellant also relied on a decision of the Delhi High Court in Sirmor Sudburg Auto v. Kuldip Singh Lamba, (1998) 91 Comp. Cas 727, wherein the learned single Judge has been pleased to record that to be entitled to stay of the legal proceedings under Section 22, mere pendency of the inquiry before the BIFR would not suffice. Further, the learned Advocate placed reliance on a decision of this Court in Prohami Press v. Vinedale Distilleries Ltd, , wherein a learned single Judge has been pleased to allow the Company petition on the ground that since the debts incurred after framing of the scheme for rehabilitation by BIFR, no permission of BIFR is required for taking action against the Company including one for winding up. We do record our concurrence with the observations of the learned Judges of the Delhi and A.P. High Courts and record that the question of attracting the provisions of Section 22(1) in the contextual facts docs not and cannot arise.
12. The order of the learned single Judge, for the reasons as recorded above, cannot be sustained. The appeal, therefore, is allowed. The order of the learned single Judge stands set aside. No order as to costs.