Jammu & Kashmir High Court
M/S Modi Rubber Ltd vs Ram S. Dubey on 14 August, 2024
Author: Vinod Chatterji Koul
Bench: Vinod Chatterji Koul
HIGH COURT OF JAMMU, KASHMIRAND LADAKH
ATJAMMU
Reserved on : 02.05.2024
Pronounced on: 14.08 .2024
CFANo. 22/2010
M/s Modi Rubber Ltd.
Th. Amit Paliwal .....Appellant(s)
S/o Navin Dutt Paliwai
R. o 133/DG-III Vikaspuri
S. New Delhi
Through:- Mr. R.K.SThakur, Advocate with
Ms.Neha Abrol, Advocate
v/s
Ram S. Dubey .....Respondent(s)
S/o Om Parkash Dubey
R/o 120 Krishna Nagar
Jammu
Through:- Mr. Sunil Datt Sharma, Advocate
Coram:
HON'BLE MR. JUSTICE VINOD CHATTERJI KOUL, JUDGE
ORDER
1. The instant Civil 1st Appeal has been filed by the appellant against the judgment and decree dated 17.05.2010 (for short 'impugned decree') passed by learned 1st Additional District Judge, Jammu ( for short 'trial Court') whereby the suit filed by the plaintiff-respondent herein against the appellant herein has been decreed for recovery of Rs.5,74,003/- with interest @ 7.5 P.A. from the date of filing of the suit till realization.
2. The brief facts of the case are that plaintiff-respondent herein on 24.03.2003 filed a suit for recovery of an amount of Rs. 5,74,003/- against the appellant on account of damage caused to the building under tenancy 2 CFA 22 of 2010 bearing No. 35A/D, situated at Gandhi Nagar, Jammu for recovery of rent for 29 months, for recovery of arrears of electric charges, water tax and also for recovery of favour charges for the execution of enactment decree. During the pendency of the said suit a decision was taken by the Board of Directors of the appellant-Company to file a reference before the Board of Industrial and Financial Reconstruction (for short 'Board') under the provisions of Sick Industrial Companies (Special Provisions) Act 1985, (for short 'SICA'). The appellant-company thereafter filed a reference vide letter dated 03.02.2004, which was addressed to the Secretary to the said Board for a declaration that the appellant be declared as Sick Industrial Company. The said reference was received by the Board on 04.02.2004 and on 26.04.2004 the appellant-Company filed an application under Section 22 of SICA seeking suspension of the proceedings of the aforesaid suit. The said application filed by the appellant-company was dismissed by the trial Court vide order dated 18.01.2005 by observing that mere filing of the reference under Section 15 of SICA or on its registration, the proceedings in the suit could not be stayed under Section 22 of the Act of 1985, unless appellant proves that the Board was holding the inquiry under Section 16 of the said Act. The right of the appellant to file written statement was closed on 21.08.2004 and thereafter appellant was set ex parte and suit of the plaintiff/ respondent herein was decreed on 17.05.2006. The appellant-company was declared Sick by the Board and rehabilitation Scheme for the revival of the appellant-company was sanctioned on 08.04.2008.
3. The impugned decree dated 17.05.2020 has been challenged by the appellant-company precisely, on the following grounds:- 3
CFA 22 of 2010
(i) Application filed by appellant-company before trial Court for staying further proceedings in terms of provisions of Section 22 of the SICA has been wrongly dismissed and the trial Court had no jurisdiction to proceed in the matter, therefore, the impugned decree is void and illegal and deserves to be set-aside;
(ii) Trial Court has wrongly stated that mere filing of application was not sufficient unless the Board was holding an enquiry under Section 16 of the SICA;
(iii) Section 22 of the SICA provides that where in respect of an Industrial Company an enquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration, then notwithstanding anything contained in the companies Act or any other law, no suit for recovery of the money should lie or be proceeded further except with the consent of the Board or as the case may be the appellant authority;
(iv) Section 16 of the SICA provides that the Board might make such enquiry as it may deem fit for determining whether any Industrial Company had became a Sick Industrial Co. Upon receipt of a reference with respect to such company, under Section 15 or upon information received with respect to such company or upon its own knowledge as to the financial condition of the company and sub section 3 of Section 16 of the SICA further provides that the endeavour should be made to complete the enquiry within 60 days from the commencement of the enquiry. The explanation to the said sub Section provides that an enquiry should be deemed to have commenced upon the receipt by the Board of any reference or information;
(v) Appellant-company had submitted reference on 03.02.2004 which was received by the Board on 04.02.2004 and was registered as Case No. 153/2004;
(vi) When the application under Section 22 of the SICA was filed before the trial Court on 26.04.2004, enquiry was very much pending;
(vii) The order dated 18.01.2005 passed by the trial Court, whereby the application filed by appellant under Section 22 of the SICA has been rejected is contrary to the provisions of the SICA;
(viii) Provisions of Section 22 of the SICA is mandatory in nature and judgment and decree passed by the trial Court is contrary to the facts of the case and law on the point. 4
CFA 22 of 2010
4. Learned counsel for the appellant submits that as the reference made by appellant-company was received by the Board on 04.02.2004, therefore, it should be deemed that the enquiry stipulated under Section 16 of the Act of 1985 had commenced on the said date, as such, the trial Court was wrong in rejecting the application as the trial Court was under an obligation to suspend the proceedings of the suit in view of Section 22 of the SICA.
5. In support of his contention reference is being placed on a judgment of the Supreme Court in case titled Real Value Appliance Ltd. Vs. Canara Bank and others, (1998) 5 SCC 554. Para 23 of the said judgment reads as under:-
"23. Relying on the use of the word `may' in section 16(1) of the Act it has been contended in some High Courts that the word `may' in that section shows that the BIFR has power to reject a reference summarily without going into merits and that it is only when the BIFR takes up the reference for consideration on merits under section 16(1) that it can be said that the `inquiry' as contemplated by section has commenced. It is argued that if the reference before the BIFR is only at the stage of registration under section 15, then section 22 is not attracted. This contention, in our opinion, has no merit. In our view, when section 16(1) says that the BIFR can conduct the inquiry "in such manner as it may deem fit", the said words are intended only to convey that a wide discretion is vested in the BIFR in regard to the procedure it may follow for conducting an inquiry under section 16(1) and nothing more. In fact, Once the reference is registered after scrutiny, it is, in our view, mandatory for the BIFR to conduct an inquiry. If one looks at the format of the reference as prescribed in the Regulations, it will be clear that it contains more than fifty columns regarding extensive financial details of the Company's assets, liabilities, etc. Indeed, it will be practically impossible for the BIFR to reject a reference outright without calling for information/documents or without hearing the Company or other parties. Further, the Act is intended to revive and rehabilitate sick industries before they can be wound up under the Companies Act, 1956. Whether the Company seeks a declaration that it is sick or some other body seeks to have it declared as a sick Company, it is, in our opinion, necessary that the Company be heard before any final 5 CFA 22 of 2010 decision is taken under the Act. It is also the legislative intention to see that no proceedings against the assets are taken before any such decision is given by the BIFr for in the case the Company's assets are sold, or the company wound up it may indeed become difficult later to restore the status quo ante. Therefore, in our view, the High Court of Allahabad in Industrial Finance Corporation vs. Maharashtra Steels Ltd. [1990 67 Comp. Cases 412 (All)], the High Court of Andhra Pradesh in Sponge Iron India Ltd. vs. Neelima Steels Ltd. [1990 68 Comp. Cases 201 (AP)], the High Court of Himachal Pradesh in Orissa Sponge Iron Ltd. vs. Rishab Ispat Ltd. [1993] 78 Comp.
Cases 264] are right in rejecting such a contention and in holding that the inquiry must be treated as having commenced as soon as the registration of the reference is completed after scrutiny and that from that time, action against the Company's assets must remain stayed as stated in section 22 till final decisions are taken by the BIFR."
6. Learned counsel for the appellant has also relied upon a judgment of this Court in a case titled as Modi Rubber Limited and another vs. State Tyres Shop and another, 2015 (2) JKJ [HC] 384. In the said case, an ex parte decree for reference of Rs. 8, 85,500/- along with interest passed by the trial Court was set aside in view of the mandatory provisions of Section 22 of the SICA. The only difference in the facts of the aforesaid case and the case in hand is that in the said case, State Tyres shop had instituted a suit for recovery of amount against the appellant on 01.04.2004 i.e., after the reference made by the appellant before the Board was received, whereas in the instant case, the suit was filed by the plaintiff- respondent on 04.02.2004, i.e., prior to the registration by the Board. However, this Court in the Modi Rubber case has held that if a suit is filed prior to making of such reference by the Sick Industrial Company, same shall not be proceeded with further except with the leave of the Board. Para 13 of the said judgment reads as under:-
"13. From a plain reading of the aforesaid provision, it emerges that where in respect of an industrial company, inter alia, an inquiry under Section 16 is pending, no suit for recovery of money or for 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 6 CFA 22 of 2010 with the consent of the Board. It implies that no suit of the type contemplated under this Section would be filed after the date of reference when the Board is seized of the inquiry and that if such suit has been filed prior to making of such reference by the Sick Industrial Company, same shall not be proceeded with further except with the leave of Board."
7. In Modi Rubber Limited vs. Continental Carbon India Ltd, 2023 (3) SCR 1026, the Supreme Court framed the following question of law:-
" Whether on approval of a scheme by the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the 'SICA'), an unsecured creditor has the option not to accept the scaled down value of its dues, and to wait till the scheme for rehabilitation of the respondent - Company has worked itself out, with an option to recover the debt with interest post such rehabilitation?"
8. The Supreme Court in the aforesaid case after discussing the entire law in the subject, more particularly, various provisions of Sick Industrial Companies (Special Provisions) Act, 1985, has held that an unsecured creditor does not have an option not to accept the scaled down value of its dues and to wait till the scheme for rehabilitation of the Sick Company has worked itself out, with an option to recover the debt post of such rehabilitation.
The paras 12 to 15 of the aforesaid judgment reads as under:-
"12. Now, so far as the submission on behalf of the unsecured creditors that the unsecured creditors should have an option not to accept the scaled down value of its dues and to wait till the scheme for rehabilitation of the sick company has worked itself out, with an option to recover the debt post such rehabilitation is concerned, the same has no substance and cannot be accepted. It is required to be noted that in a given case, because of the scaling down of the value of the dues of the creditors, the company survives. The company has survived in view of the rehabilitation scheme because of the sacrifice / scaling down the value of the dues of the creditors including the financial institutions. How such a benefit can be permitted to be given to the unsecured creditors, who does not accept the scaled down value of its dues. Such an unsecured creditor cannot be permitted to take the benefit of the revival scheme, which is at the cost of 7 CFA 22 of 2010 other creditors including the financial institutions and even the labourers.
13. Now, so far as the view taken by the High Court that the unsecured creditor had an option not to accept the scaled down value of its dues and can wait till the scheme for rehabilitation of the company has worked itself out with an option to recover the debt with interest post such rehabilitation is accepted, in a given case, the sick company, which has been able to revive because of the scaling down the value of the dues, may again become sick, if the entire dues of the unsecured creditors are to be paid thereafter. It may again lead to becoming such a revived company again as a sick company. If such a thing is permitted, in that case, it will again frustrate the object and purpose of enactment of the SICA, 1985.
14. Now, so far as the submission on behalf of the unsecured creditors that to compel the unsecured creditors to accept the scaled down value of its dues would tantamount to and would be violative of Article 300A of the Constitution of India is concerned, the same has also no substance. Scaling down the value of the dues is under the rehabilitation scheme prepared under Section 18 of the SICA, which has a binding effect on all the creditors. Therefore, the same cannot be said to be violative of Article 300A of the Constitution of India. The law permits framing of the scheme taking into consideration and to provide the measures contemplated under Section 18, therefore, the rehabilitation scheme which provides for scaling down the value of dues of the creditors /unsecured creditors and even that of the labourers cannot be said to be violative of Article 300A of the Constitution of India as submitted on behalf of the unsecured creditors.
15. In view of the above and for the reasons stated above, the view taken by the High Court of Delhi in Continental Carbon India Ltd. (supra) that on approval of a scheme by the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, the unsecured creditors has an option not to accept the scaling down value of its dues and to wait till the rehabilitation scheme of the sick company has worked itself out with an option to recover the debt with interest post such rehabilitation is erroneous and contrary to the scheme of SICA, 1985 and the same deserves to be quashed and set aside and is accordingly quashed and set aside."
9. In the present case, the Board received the reference made by the appellant- company on 04.02.2004 and registered the same as case No.153/2004, as such, inquiry stipulated under Section 16 of the SICA is deemed to have been 8 CFA 22 of 2010 commenced on 04.02.2004. However, the said fact has not been taken note of by the trial Court while passing the impugned decree and, therefore, indulgence is called for.
10. For the reasons stated hereinabove, this appeal is allowed. The impugned judgment and decree dated 17.05.2010 passed by the trial Court is set aside. The amount of Rs. 5,74,003/- deposited before the Registry of this Court in pursuance of the order dated 26.08.2010 be remitted back to the appellant-Company.
(VINOD CHATTERJI KOUL) JUDGE Jammu 14.08.2024 Bir Whether approved for reporting? Yes/No