Delhi District Court
Unknown vs M/S J. K. Udaipur Udyog Ltd on 22 February, 2012
IN THE COURT OF SHRI MAN MOHAN SHARMA
ADDITIONAL DISTRICT JUDGE (CENTRAL) 12,
TIS HAZARI COURTS, DELHI.
Case no. 24/2010
22.02.2012
Sh. Vikram Lamba
.........Counter Claimant/plaintiff
Versus
1. M/s J. K. Udaipur Udyog Ltd.
2. M/s J. K. Jakshmi Cement Ltd.
........Defendants
ORDER:
1. The defendant no. 1 M/s J. K. Udaipur Udyog Ltd. (Udaipur Cement Works Ltd.) has filed an application under section 22 of the Sica Industrial Companies (Special Provisions) Act, 1985 (SICA) for stay of the proceedings of the suit citing that in a reference under Section 15 of SICA the company has been declared sick vide orders dated 31.03.2002 and vide order dated 01.06.2010 BIFR has declared that all proceedings against the said company shall not proceed without specific prior consent of the Board/BIFR, therefore the proceedings of the present suit are liable to be stayed.
2. The application has been vehemently opposed by the plaintiff C. S. 24/10 Page 1 of 9 stating that it is a misuse of process of law and there is one and the same company under different names, the defendant has concealed the order dated 21.07.2009 in CM (M) 1041/07 passed by Hon'ble High Court of Delhi by virtue of which the counter claimant can pursue his suit against both the defendants. It is also submitted that the claim of counter claimant is not subjudice before BIFR.
3. I have heard Shri Mukesh Goyal, ld. Counsel for the plaintiff/non applicant and Shri G. K. Seth, ld. Counsel for the defendants/applicant. They have addressed arguments in terms of their pleadings.
4. The relevant provision viz. section 22 of the Sick Industrial Companies (Special Provisions) Act (hereinafter 'SICA') reads as under: "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 C. S. 24/10 Page 2 of 9 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 C. S. 24/10 Page 3 of 9 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.
(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 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 C. S. 24/10 Page 4 of 9 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 stayed.
(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. In Deputy Commercial Tax Officer Vs. Corromandal Pharmaceuticals AIR 1997 SUPREME COURT 2027, it has been held as under:
'The language of Section 22 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. So, though the language of Section 22 is of wide import regarding suspension of legal proceedings from the C. S. 24/10 Page 5 of 9 moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal under section 25 it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) 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 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 object of the Act is undoubtedly laudatory but it must also provide for appropriate measures against persons responsible where it is found that sickness is caused by factors other than circumstances beyond the control of the management. It is also a wellknown fact that the proceedings before the Board of Industrial and Financial Reconstruction take a long time to conclude and all the while the protective umbrella of Section 22 is held over the company which has reported sick. We have come across cases where unfair advantage is sought to be taken of the C. S. 24/10 Page 6 of 9 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. We are quite sure that the Government is fully alive to the situation and are equally certain that they must be thinking of necessary modifications in the Act. These few observations are meant merely to record the need for changes in the Act."
6. In Cement Corporation of India vs. Smt. Manohar Bhasin 82(1999) DELHI LAW TIMES 343 it has been held that the suit for recovery of damages and mesne profits cannot be stayed for the same not been included in the sanctioned scheme of the BIFR.
7. In Cement Corporation of India vs. Smt. M. P. Joseph 111(2004) DELHI LAW TIMES 120 it has been held that where a sick company declines to admit its liability, the plaintiff can have his claim adjudicated upon.
8. In U. P. State Spinning Co. Ltd. Vs. T. T. Ltd. 141(2007) DELHI LAW TIMES 83 reliance was placed upon the law enunciated in the case of Deputy Commercial Tax Officer v. C. S. 24/10 Page 7 of 9 Corromandal Pharmaceuticals AIR 1997 SUPREME COURT 2027. The case of Cement Corporation of India vs. Smt. M. P. Joseph 111(2004) DELHI LAW TIMES 120 was also relied upon wherein it has been held that where a sick company denies its liability to make payment, the plaintiff can have his claim adjudicated upon and section 22 of the Act is not applicable.
9. In the present case there is a draft rehabilitation scheme formulated by BIFR and on page no. 36 of the same the following particulars appear:
157 Divya Traders. Rs.124750/
10. The above entry corresponds to original claim of plaintiff Sh. Vikram Lamba Proprietor M/s Divya Traders on reading of para 1, 2 and 7 of the plaint where similar figure has been referred to. The total claim of plaintiff in above suit is Rs. 189503.54 which includes the principles sum of Rs. 124750/ and interest till the filing of suit @15% per annum. Therefore, in view of the claim of the plaintiff being subjudice before BIFR and in view of specific mandate of law, the proceedings against respondent no. 1 are liable to be stayed in the present civil suit. From the plaint the cause of action against both the defendants is not distinct but is intertwined and therefore consequently C. S. 24/10 Page 8 of 9 the entire proceedings have to be stayed as the suit cannot proceed in a piecemeal manner.
11. The application is therefore allowed and further proceedings of the suit/counter claim shall remain stayed till the pendency of proceedings before BIFR.
Announced in the Open Court On this 22nd day of February 2012 (MAN MOHAN SHARMA) ADJ (Central)12, Delhi C. S. 24/10 Page 9 of 9