Bharat Wagon and Engineering Company Ltd. and Another vs Hi-Tech Abrasives Ltd.

This appeal is directed against the judgment and order which a learned Single Judge allowed the writ petition filed by the respondent and directed the appellant company to make payment of the admitted monetary dues to the respondent within a specified time.

The writ petitioner-respondent filed C.W.J.C. No. 2672 of 2003 seeking a direction to the appellant, a Government of India Undertaking, to make payment for the materials supplied to it in October, 2000. On behalf of the appellant it was admitted that it owed Rs. 1,87,152/- to the writ petitioner. It was, however, stated that it had become sick and the matter of its financial rehabilitation was pending before the Board of Industrial and Financial Reconstruction under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. It was further pointed out that in those circumstances any claim against the appellant company for payment of money was barred by Section 22 of the Act. The learned Single Judge simply brushed aside the plea raised on behalf of the appellant and directed it, in a summary way, to make the payment within a specified time.

Mr. Udayan Chaudhary, counsel appearing for the appellants submitted that the order coming under appeal was contrary to the provisions of Section 22 of the Act. He further submitted that a similar monetary claim raised against the appellant by one Modi Welding Electrodes Private Ltd. was similarly allowed by a learned Single Judge but in appeal being L.P.A. No. 402 of 2004 filed by the appellants, the order of the learned Single Judge was set aside and it was held that the claim for recovery of money dues was not maintainable in terms of Section 22(1) of the Act.

Sections 22(1) of the S.I.C. (S.P.) Act is as follows :

22(1) Suspension of legal proceedings, contracts, etc.--Where in respect of an industrial company, an enquiry u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal u/s 25 relating to an industrial company is pending then, 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 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 or shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.

The Division Bench decision in Modi Welding Electrodes is reported in 2004 (4) PUR 217. In that decision, a Division Bench of this Court on noticing Section 22 of the Act observed and held as follows :

The said section provides inter alia that no suit for recovery of the money etc. was lie or be proceeded further, except with the consent of the Board or, as the case may be, the Appellate Authority so long as the enquiry is pending before the competent authority.

The suit means any proceedings pending in the Court of law. Filing of writ application is also covered by the word ''suit'' and in our view, once the proceeding is pending, the claim for recovery was not maintainable in terms of Section 22(1) of the Act. In that view of the matter the learned Single Judge was not right in directing for recovery of the money from the appellant.

(emphasis added)

Mr. Chittaranjan Sinha, Sr. Advocate appearing on behalf of the writ petitioner-respondent submitted that the case of Modi Welding Electrodes was not decided correctly and further submitted that the decision in that case overlooked two basic and fundamental points of constitutional law. First, it was erroneous to, equate a writ proceeding with a suit and to hold that the word ''suit'' would also cover the filing of writ petition. Secondly, any Central or State legislation could not restrict or limit the power of the superior Courts to issue prerogative writs because that has been held to be destructive of the basic structure of the Constitution and in that event the legislative provision may itself be struck down as unconstitutional. In support of the first proposition he relied upon the Supreme Court decisions in (i) Babubhai Muljibhai Patel Vs. Nandlal Khodidas Barot and Others, Para 9 and (ii) Puran Singh and others Vs. State of Punjab and others, and in support of the second, upon a Constitution Bench decision of the Supreme Court in L. Chandra Kumar Vs. Union of India and others,

The submission of Mr. Sinha is well founded and the decision in Modi Welding Electrodes does not appear to be right to the extent it holds that in terms of Section 22(1) of the Act filing of writ application is also covered by word ''suit''.

Mr. Chittaranjan Sinha further submitted that the case of Modi Welding Electrodes was wrongly decided because an earlier decision of the Supreme Court on Section 22 of the Act in Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, was not brought to its notice. On the basis of the decision in Corromandal Pharmaceuticals, Mr. Sinha contended that the bar of Section 22 would come into force only after the scheme was framed and provided further that the due, the recovery of which was in question was covered by the scheme. In support of the submission be relied upon paragraph 10 of the decision and in particular the following passage from that paragraph :

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 of the Act. So, we are of the view that though the language of Section 22 of the Act is of wide import regarding suspension of legal proceedings from the moment an inquiry is started, till after the implementation of the scheme or the disposal of an appeal u/s 25 of the Act, it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act 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 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.

Mr. Sinha submitted that in the case in hand neither any scheme of rehabilitation was sanctioned by the B.I.F.R as yet nor was there any indication that the dues of the writ petitioner- respondent would also be included in the scheme if at all it came.

At the first instance the decision in Corromandal seems to fully support the contention of Mr. Sinha but on a careful scrutiny the decision appears to be quite distinguishable. There were two or three features in Corromandal which it necessary to bear in mind. First, it was a case of recovery of Government revenue; secondly, the sales tax liability of the company was in regard to the period after the date of the sanctioned scheme and it was in that context that the Supreme Court observed that "such amounts like sales tax, etc. which the Sick Industrial Company is enable 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." The distinction seems to lie in the passage from the decision quoted and highlighted here. The Supreme Court took the view that the amounts of sales tax legitimately belonging to the Revenue could not have been intended to be covered within Section 22 of the Act. The same cannot be said of the due claimed by the writ petitioner-respondent and so far as the final sanction of the scheme is concerned the opening words of the section make it clear that the bar would apply even where an enquiry u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration.

I am, therefore, of the considered opinion that the decision in Corromondal does not cover the dues of the nature as claimed by the writ petitioner-respondent.

Mr. Sinha then relied upon a decision in Garden Finance Ltd. Vs. Prakash Inds. Ltd. and Another, The Bombay decision was on completely different facts and it does not seem to have any application to the case in hand.

Mr. Udayan Chaudhary on the other hand submitted that in terms of Section 22(1) of the Act monetary dues could not be recovered by means of a writ proceeding. In support of his submission he relied upon decisions of the Supreme Court in Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras, and in Kailash Nath Agarwal and Others Vs. Pradeshiya Industrial and Investment Corporation of U.P. Ltd. and Another, Those two decisions seem to have no relevance to the facts of the present case and don''t help the appellant in any way.

This brings me back to the provisions of Section 22(1) of the Act which is quoted earlier in this judgment.

The language of Section 22(1) is ex facie very wide and it bars, apart from 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, suit for the recovery of money against the industrial company.

On the question of the power or the Superior Courts to issue prerogative writs, I am in agreement with Mr. Chittaranjan Sinha that neither suit nor proceedings include or cover writ petitions filed before the High Court under Article 226 of the Constitution. Nevertheless, I am of the view that having regard to the aims and objects of the Act and in particular the provisions of Section 22(1) of the Act, it would not be a sound exercise of discretion for a writ Court to issue direction for payment of money dues to an Industrial company, the case of financial rehabilitation of which is pending before the B.I.F.R. Any ad hoc direction by the High Court for payment of monetary claims is bound to jeopardise the enquiry and the preparation/implementation of a scheme of rehabilitation, sanctioned by the Board and may in some cases completely frustrate the exercise. The larger interest would, therefore, demand that the writ Court should, under a self-imposed restrain, refuse to entertain any claims of monetary dues against an industrial company, the case of which is pending before the B.I.F.R.

In the light of the discussions made above, I am unable to sustain the order coming under appeal. The order passed by the learned Single Judge is set aside and the writ petition stands dismissed. The writ petitioner-respondent may, however, approach the Board for its consent for recovery of its money.

In the result, this appeal is allowed but with no order as to costs.

Rekha Kumari, J.

I agree.