Bombay High Court
Kotak Mahindra Finance Ltd. vs Mafatlal Industries Ltd. on 21 January, 2004
Equivalent citations: 2004(5)BOMCR792, [2004]122COMPCAS231(BOM), (2004)4COMPLJ492(BOM)
Author: A.M. Khanwilkar
Bench: A.M. Khanwilkar
JUDGMENT A.M. Khanwilkar, J.
1. By this chamber summons, the respondents pray for declaration that the rights of the claimants are governed by the sanctioned scheme dated October 30, 2002, read with order dated January 16, 2003 and are not entitled to recover any further amounts from the respondents under consent terms dated January 20, 2000 and July 31, 2000. The respondents further pray that the Court Receiver, High Court, Bombay, appointed as receiver in the award/arbitration proceedings and execution proceedings be discharged, with directions to hand over formal possession of the hypothecated equipment back to the respondents.
2. The claimants had extended loan facility to the respondents, in respect of which loan agreement dated October 17, 1994, was executed between the parties. Besides the loan agreement, memorandum of hypothecation of equipment, belonging to the respondents, was also executed. As dispute arose between the parties, the matter was referred to sole arbitrator, who, in turn, passed arbitral award on January 21, 2000, as per the consent terms signed by the parties. The claimants had filed Arbitration Petition No. 359 of 1999, in which court receiver was appointed as per order dated October 29, 1999. The court receiver took possession of the subject property and appointed the respondents as agents of the court receiver in December, 1999. The above factual position is not in dispute. However, after the arbitral award was passed by the sole arbitrator in February, 2000, Case No. 104 of 2000 came to be filed before the BIFR at the instance of the respondents under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as "the SICA" for the sake of brevity). While the said proceedings were pending, Execution Application Lodging No. 270 of 2000 came to be filed by the claimants in this court, which, however, was disposed of, again on the basis of consent terms on August 28, 2000. Clause 8A of the consent terms provides that the respondents do pay to the claimants amount specified therein together with further interest at the rate of 21 per cent. per annum on the reducing balance from July 1, 2000, till the date of actual payment and/or realisation thereof, on or before the dates and in the manner set out in the Schedule appended thereto as exhibit 2A. Clause 8B provides that the respondents do pay to the claimants the Indian rupees equivalent of US dollar 315,040.50, together with further interest thereon at the rate of six-month London Inter Bank Offer Rate (LIBOR) plus 3.665 percentage points per annum on the reducing balance from May 15, 2000, on or before the dates and in the manner set out in the Schedule annexed as exhibit 2B. It further provides that the Indian rupee equivalent shall be worked out on the basis of the prevailing exchange rate as on the relevant dates of payment and/or realisation. Clause 10 of the said consent terms provides that the respondent is ordered and directed that if a revival package for the respondent is sanctioned by the BIFR, the respondent do pay to the claimants the entire balance of the decretal amount outstanding as on that date, within a period of 6 (six) months from the date of disbursement of amounts under such revival package. It is apposite to make reference to Clause 16 of the said consent terms, which reads thus :
"It is further ordered that if any of the aforesaid default is committed or occurred, then in that event,
(i) the entire decretal amount together with further interest as provided herein till the date of payment and/or realisation thereof (less the amounts paid if any after the date hereof), shall become forthwith payable by the respondent to the claimants and the respondent do pay the same to the claimants ; and
(ii) without prejudice to the other rights and remedies of the claimants including right and remedy to recover and receive from the respondent the amounts mentioned in Sub-clause (i) hereinabove, the Court Receiver, High Court, Bombay, is ordered to forthwith take actual physical possession of the hypothecated equipment (described in the Schedule being exhibit A to the statement of claim) and hand over the same to the claimants and on such handing over of the hypothecated equipment to the claimants, the Court Receiver, High Court, Bombay, shall stand discharged without passing any, accounts and the claimants shall be entitled to sell and/or otherwise transfer the hypothecated equipment (described in the Schedule annexed as exhibit A to the statement of claim) to such persons, in such manner, and at such price as the claimants may deem fit and receive and appropriate the proceeds thereof in the following manner :
(a) firstly towards the costs, charges and expenses relating to the sale/transfer of the equipment and,
(b) secondly towards the amounts due and payable by the respondent to the claimants and the decree shall be marked partly satisfied accordingly :
Provided that the claimants shall not sell the hypothecated equipment, if the respondent pays all the amounts due and payable by them to the claimants within a period of 15 days after the date on which notice of sale is received by the respondent from the claimants.
(iii) Without prejudice to the other rights and remedies of the claimants including right and remedy to recover and receive from the respondent the amounts mentioned in Sub-clause (i) hereinabove and right to sell the hypothecated equipment and appropriate the sale proceeds as mentioned in Sub-clause (ii) hereinabove, the claimants shall be entitled to proceed with the above execution proceedings for the recovery of balance amount due."
After the execution application was disposed of on the basis of the aforesaid consent terms on August 28, 2000, the proceedings before the BIFR continued further in which the claimants, being creditor, was given notice pursuant to which the claimants by a letter placed on record its agreement for the proposal mooted in respect of the respondent-company, but expressed reservation only with regard to the cut-off date to be changed to March 31, 2001. This position is reflected in the minutes of the joint meeting held on September 24, 2001, at page 61. Having regard to the stand taken on behalf of the claimants and other creditors, etc., with regard to the proposal of revival of the respondent-company and their respective claim qua the respondent-company, the scheme came to be framed. Again, second notice was issued to the claimants. However, the claimants did not participate in the joint meeting held on August 21, 2002, as is reflected from the minutes at page 72. Since the claimants did not respond to the notice given regarding the proposal of rehabilitation, it was deemed that consent has been given by the claimants. Eventually, final scheme has been sanctioned by the BIFR, vide order dated October 30, 2002. In so far as the claim of the claimants against the respondent-company is concerned, the same is adverted to by the BIFR in the sanctioned scheme as can be discerned from Clause 5.1.A, but no provision for default has been provided, as has been done in respect of another secured creditor, ILFS, in terms of Clause (viii) of the said para. It is not in dispute that the respondents have paid a sum of Rs. 486,96,037.12 from time to time from December 15, 1998, till July 31, 2002. No payment has been made by the respondents to the claimants after the final scheme has been framed by the BIFR, as referred to above, which makes provision for total sum of Rs. 63,00,000 only in so far as the claimants are concerned, being secured term liabilities as can be discerned from appendix III at page 123.
3. It is relevant to advert to the letters sent by the claimants dated October 8, 2002, at pages 75 and 76 respectively, inter alia, making grievance that consent order has been passed in favour of the claimants and the company was expected to honour its commitment under the said consent terms. Although this grievance was placed on record before the BIFR, the BIFR proceeded to formulate the scheme on October 30, 2002, as referred to above. It is in this backdrop the present application has been filed by the respondents for declaration and further relief, as referred to above.
This chamber summons is resisted by the claimants on the ground that the application is not maintainable and moreover, the relief as claimed cannot be granted by this court.
In so far as the objection regarding maintainability of the present chamber summons is concerned, it is contended on behalf of the claimants that as the execution application has already been disposed of on August 28, 2000, the question of entertaining this chamber summons in the disposed of execution application does not arise. This submission has been rightly countered by the respondents by contending that the chamber summons is obviously referable to remedy under Section 47 of the Code of Civil Procedure. There is substance in the argument that in view of the expansive provision contained in Section 47 of the Code, the chamber summons as filed is obviously maintainable, because it raises question between the parties to the proceedings in which decree has been passed, which is relating to the execution or satisfaction of the decree. Such question can be considered exclusively by the court executing the decree. The fact that the execution application has been finally disposed of is no impediment in considering the present chamber summons, because, going by the arguments of the claimants, it is obvious that the decree has not been satisfied in terms of requirements of Order XXI, Rule 2 of the Civil Procedure Code. In that sense, the question relating to the execution of the decree or satisfaction of the decree does arise and has been raised by way of the present chamber summons filed by the respondents.
4. Indeed, counsel appearing for the parties made submissions with regard to several aspects and placed reliance on the documents on record, but, in my opinion, the principal question that needs to be addressed is : Whether the rights of the claimants are now governed by the sanctioned scheme and they are not entitled to recover any further amounts from the respondents, much less under the consent terms dated January 20, 20QO and July 31, 2000. According to the claimants, the respondents having agreed for disposal of the execution application by filing consent terms cannot be heard to say that the claimants are not entitled for recovery of amounts as per the consent terms entered into between the parties. Reliance was placed on the Division Bench decision of the Madhya Pradesh High Court reported in Kedia Distilleries Ltd. v. Appellate Authority for Industrial and Financial Reconstruction [2002] 109 Comp Cas 444. In the said decision, it has been held that the provisions of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, were not attracted to the execution of a consent decree, even though such decree was technically a decree within the meaning of Section 2(2) of the Code of Civil Procedure and was also executable. It is relevant to note that in that case respondent was not a party to the BIFR proceedings and his request for impleadment was rejected. However, after the order was passed by the Board declaring the petitioner therein as sick company and calling upon it to submit a rehabilitation scheme that was challenged by the respondent in appeal wherein it was held that Section 22 of the SICA cannot be invoked to resile from the consent decree passed by the court. On that view, the appellate authority allowed the respondent to execute the decree against the assets of the petitioner-company, which view is upheld by the High Court in the facts of that case. Reliance is then placed on the decision of this court reported in Industrial Development Bank of India v. Nira Pulp and Paper Mills Ltd. [1994] 79 Comp Cas 811. In that case, the court rejected the plea of the defendants that the Court Receiver appointed by the court cannot be continued in view of the subsequent reference made to the BIFR. The court held that the properties in question became custodia legis and the defendants were holding those properties only as agents of receiver. The court has found that the date on which the BIFR passed orders, the defendants had no independent possession of the suit properties in their own rights as lawful owners thereof and for which reason, Section 22 of the SICA did not apply. Reliance is also placed on the decision of this court reported in I. C. I. C. I. Ltd. v. Alpine Industries Ltd. , which deals with the issue as to what is the effect of registration of reference with the BIFR in relation to property, which is custodia legis.
5. The above arguments have been, in my opinion, rightly countered by counsel for the respondents on the argument that in the present case, it cannot be disputed that the arbitration proceedings, as also the execution application, has been disposed of on the basis of consent terms entered into by the parties. However, the proceedings before the BIFR under the provisions of the SICA were initiated and scheme for rehabilitation of the respondent-company has been framed therein. That has been done after following necessary procedure, including by issuing notice to the claimants. Indisputably, the claimants initially consented for the original proposal with reservation only regarding the cut-off date. The consent obviously was in the context of the provision relating to the claim of the claimants in the proposed scheme of rehabilitation. Having agreed in that behalf and it is on that basis, the scheme for rehabilitation of the respondent-company came to be formulated by the BIFR, the claim of the claimants would get crystallised as per the said scheme. This is so having regard to the mandate of law, as can be spelt out on conjoint reading of Sections 18(8), 19(2) and 32 of the SICA. Section 18(8) is a provision regarding preparation and sanction of schemes, which postulates that on and from the date of 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. The scheme so formulated is statutorily binding on the claimants, because, in the present case, as rightly contended on behalf of the respondents, in the first scheme as formulated, in fact ; and, in the final scheme dated October 30, 2002, in law, the claimants have consented thereto. Section 19(2) postulates that every scheme referred to in that section shall be circulated to every person required by the scheme to provide financial assistance for his consent within a period of sixty days from the date of such circulation or within such further period, not exceeding sixty days, as may be allowed by the Board, and if no consent is received within such period or further period, it shall be deemed that consent has been given. As mentioned earlier, when the first scheme was formulated, the claimants gave express consent with reservation only regarding the cut-off date, as stated in the minutes dated September 24, 2001. That was consent, in fact. Whereas, before the final scheme was framed, no response was given by the claimants within the specified time, as is mentioned in the minutes dated August 21, 2002. This is consent in law in view of the deeming fiction envisaged in Section 19(2) of the SICA. It is not the case of the claimants that the proposed scheme was not circulated to it at all. Understood thus, the scheme crystallises the claim of the claimants qua the respondent-company in terms of the scheme and the provision made therefor in the scheme and the same is statutorily binding on the claimants. It is only if the scheme was to be suitably modified so as to make further provision for the claim of the claimants, it would become entitled to recover further amount commensurately. It is also possible to take the view that if the BIFR was to grant permission to the claimants under Section 22 of the SICA to proceed with the execution, even then the claimants may become entitled to recover further amounts as per the decree of the court, having participated in the process of finalisation of the scheme notwithstanding. The authority while considering the request to grant consent under Section 22 of the SICA or modify the scheme can legitimately consider the grievance of the claimants that the sickness claimed by the respondents post decree is or is not an induced sickness and a stratagem to resile from its own commitments already consciously made.
6. Be that as it may, Section 32 of the SICA expressly provides that the provisions of the SICA and of any rules or "schemes" made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force. Understood thus, on conjoint reading of Sections 18(8), 19(2) and 32 of the SICA, the final scheme formulated by the BIFR in respect of the respondent-company not only binds the claimants, but its claim as against the respondent-company is crystallised in accord with the provision made in the said scheme for that purpose.
7. As mentioned earlier, the claimants had registered its protest on record before the BIFR while the final scheme was being formulated, making reference to arbitration proceedings between the parties and the consent terms and the agreements arrived at, as expressed in the consent terms duly signed and accepted in court. In spite of the said representation, the final scheme has been formulated making provision in respect of the claim of the claimants being creditors. If the grievance of the claimants were to be entertained in this court, that would virtually amount to entertaining an argument questioning the correctness of the scheme framed by the BIFR in exercise of the powers under the SICA. To my mind, such a course is not open in view of the express bar provided in Section 26 of the SICA--which provides that no order passed or proposal made under that Act shall be appealable except as provided therein and "no civil court shall have jurisdiction in respect of any matter which the Appellate Authority or the Board is empowered by, or under, this Act to determine" and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act. In my opinion, if the grievance of the claimants as it were to be is one of wrongful exclusion of their claim in the scheme finally made, such a grievance can be considered only by the specified authority in terms of the SICA.
8. On the above reasoning, to my mind, none of the decisions pressed into service on behalf of the claimants will be of any avail. The question that arises for my consideration was obviously not in issue in any of the abovesaid decisions.
I also find substance in the argument canvassed on behalf of the respondents that the claimants cannot be permitted to agitate the above grievance before this court, especially when the claimants have already filed proper application before the BIFR in Case No. 104 of 2000 praying for the following reliefs :
"(a) recall its order dated October 30, 2002, read with order dated January 16, 2003, in so far as it relates to the applicant;
(b) Order and direct the company to make provision for the repayment of the entire decretal amount outstanding in accordance with the order dated August 28, 2000, of the hon'ble High Court, Bombay ;
(c) to declare the sanctioned scheme as failed in the event the company fails to provide and pay the entire decretal amount outstanding as per prayer (b) above ;
(d) in any event and without prejudice to prayers (a), (b) and (c) above, grant immediate permission under Section 22(1) of the Act, if found to be required, to proceed with the execution of its decree as per the order dated August 28, 2000, passed in the matter of consent terms dated July 31, 2000 ;
(e) to pass a speaking and reasoned order with respect to the prayers contained in Clauses (a) to (d) above ; and
(f) for such other order/s and direction/s as it deems appropriate in the facts and circumstances of the case."
9. On the above reasoning, the principal question that arises in the present case as to whether the claimants is governed and bound by the sanctioned scheme and is not entitled to recover any further amounts from the respondents under consent terms dated January 20, 2000 and July 31, 2000, will have to be answered in the affirmative, in favour of the respondents.
10. Counsel for the claimants had placed reliance on Clause 10 of the consent terms filed in execution application, which provides that if a revival package for the respondent-company is sanctioned by the BIFR, the respondent would be required to pay to the claimants the entire balance of the decretal amount outstanding as on that date within a period of six months from the date of disbursement of the amount under such revival package. I find substance in the argument of the respondent that the said clause could be of avail to the claimants only if the final scheme (revival package) was to provide for disbursement of amounts by the financial institution. In the present case, however, the final scheme, as formulated by the BIFR, makes no provision for disbursement of amounts by financial institutions. Understood thus, the liability of the respondents to pay the entire balance of the decretal amount cannot be said to have arisen on account of this clause. In any case, for the reasons already mentioned above, having regard to the mandatory provisions of the SICA, the final scheme binds the claimants being creditor and it cannot be permitted to set up claim for recovery of any further amount, as no such provision has been made in the scheme.
11. Counsel for the claimants vehemently contended that so long as the decree is not satisfied in the manner provided by the provisions of Order XXI, Rule 2 of the Code of Civil Procedure, such a decree was enforceable against the respondents in law. It was his submission that there is nothing on record to show that the decree as passed in terms of consent terms has been satisfied by the respondents. It was argued that this court ought not to countenance the situation that the decree passed by the competent civil court is rendered into a paper decree, having regard to the fact that the same was passed when the proceedings before the BIFR were pending and the respondents consciously agreed for the disposal of the execution application in spite of the pendency of those proceedings under the SICA. Moreover, such a plea is untenable in view of the mandate of Section 34 of the Arbitration and Conciliation Act, 1996. Indeed, it is not the case of the respondents that the decree in terms of consent terms has been satisfied by them. It is also not the case of the respondents that the arbitral award in excess of the amounts specified in the final scheme be set aside. To my mind, although the argument raised on behalf of the claimants seems to be attractive, however, for the reasons already recorded earlier, that the final scheme would bind the claimants being creditor, it would not be entitled for any further claim save and except provided for in the scheme as framed or to be modified in future, having regard to the mandate of the provisions contained in the SICA, the argument deserves to be rejected. Understood thus, in the present case, the fact that the decree passed by the competent court has not been satisfied or that it was a consent decree will be of no avail, because the claimants would be entitled to recover amounts only in conformity with the provision made in the final scheme or such or further order to be passed by the authority under the SICA. No more and no less.
12. As the principal question has been answered in favour of the respondents, as a necessary consequence, the respondents will be entitled also for the relief in terms of prayer Clause (b), because it is seen from the record that the respondents have already paid to the claimants amount, which is much more than the amount provided for and payable to the claimants in the final scheme.
13. While parting, it is made clear that none of the observations made in this judgment ought to influence the proceedings taken out by the claimants before the BIFR or any other or further proceedings between the parties filed or to be instituted hereafter, inasmuch as I have confined this decision to the principal legal question that was raised before me relating to the execution or satisfaction of the decree.
Accordingly, this chamber summons is made absolute in terms of prayer Clauses (a) and (b), which read thus :
"(a) For a declaration that the rights of the claimants are governed by the sanctioned scheme dated October 30, 2002, read with order dated January 16, 2003 and are not entitled to recover any further amounts from the respondent under consent terms dated January 20, 2000 and July 31, 2000.
(b) That the Court Receiver, High Court, Bombay, appointed receiver in the above award/arbitration proceedings and execution proceedings be discharged with directions to hand over formal possession of hypothecated equipment back to the respondents." No order as to costs.
14. At this stage, counsel for the claimants prays that the operation of this order be suspended for some time to enable the claimants to take the matter in appeal, if so advised. I think the request is reasonable. Accordingly, operation of this order is stayed for a period of six weeks from today.
15. All concerned to act on duly authenticated copy of this decision to be issued by the court stenographer/associate of this court.