Chander Mohan Chadha and Others vs Singer India Ltd.

S. Ravindra Bhat, J.—The question which arises for determination in the present application is whether the present suit, so far as it concerns the first defendant cannot be proceeded with since it is a sick company, under provisions of the Sick Industrial Companies (Special Provisions) Act (hereafter called "SICA"). The first defendant says that it filed an application u/s 22 of the said enactment before the Board for Industrial and Financial Reconstruction (BIFR); on 17-8-2005, it was declared a sick company. It therefore alleges that the present suit, for recovery of amounts, allegedly due and payable as mesne profits/ damages for use and occupation of erstwhile tenanted premises, from it, by the plaintiff, cannot be continued, and have to be stayed.

Section 22 of SICA reads as follows:

Suspension of legal proceedings, contracts, etc.-(1) Where in respect of an industrial company, an inquiry 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 (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 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 shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.

The plaintiff, which contests the application, and urges that the proceedings in the suit should continue, relies upon the judgment of the Supreme Court in Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, to say that the requirement of debt being reflected in the sanctioned scheme is a necessary condition to stay the proceedings. Since in this case, the present debt was not reflected in the sanctioned scheme or proposals, the suit could not be stayed, and should be continued.

It was contended that in view of the decision in Sirmor Sudburg Auto Ltd. Vs. Kuldip Singh Lamba, the suit cannot be stayed. The court relied upon the ruling of the Supreme Court in the case of Shree Chamundi Mopeds Ltd. to say that so far as the relief of eviction is concerned the suit is not liable to be stayed. Despite the word ''proceedings'' being given a liberal meaning, it would not cover proceedings for eviction of the tenant, though it may be a sick Company for it is neither a proceeding for winding up of the Company nor for execution, distress or the like. Counsel submitted that this Court held, however that so far as recovery of amounts were concerned, the court held that if the debt or amount was not included in any scheme before the BIFR, it could be proceeded with in other proceedings. The court had held as follows:

Still question would arise what the defendant objector has to show in order to successfully make out a case u/s 22(1) of the Act. The question was examined very recently by their Lordships of the Supreme Court in Deputy Commercial Tax Officer v. Corromandal Pharmaceuticals 1997 3 ADSC 713. The petitioner-Company was an assessed to sales tax assessed for the years 1992-93 and 1993-94 by orders dated 3.1.1994 and in 1995 respectively. A scheme under SICA was sanctioned by the BIFA on 19.11.1990. Recovery proceedings for the sales tax were assailed and stay was sought u/s 22 of the Act. The revenue contended that as the arrears of sales tax in question were related to the period after sanctioned scheme was brought under implementation, Section 22 of the Act was inapplicable and could apply only in respect of sales tax dues included in the sanctioned scheme. Their Lordships upheld the contention of the revenue and formed an opinion that Section 22(1) should be read down. Their Lordships held:

Any step for execution, distress or the like against the properties of the industrial Company other of similar as 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 affairs, an embargo or bar is placed u/s 22 of the Act against any step for execution, distress or the like or other similar proceedings against the Company without the consent of the Board or, as the case may be, the Appellate Authority. The language of Section 22 of the Act is certainly wide. But, in the totality of the circumstance, 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.

In view of the above decisions and submissions, it was urged that the present suit could be proceeded with.

This position was contested on behalf of the defendant No. 1. Its counsel contended that the plain words of Section 22 constitute a bar on the maintainability of the present suit, as far as the proceedings before BIFR are pending. He also submitted that in the Corromondel case, the only proposition which emerged that statutory debts like sales tax, etc. which the Sick Industrial Company is capable and obliged to collect after the date of the sanctioned scheme belong to the Revenue. He also relied upon a decision of this Court in National Textile Corporation v. Shri Ramesh Chander Puri Cr. No. 449/2002 decided on 8-5-2002 in support of the submission that the present suit is not maintainable, so long as permission of the BIFR is not secured. In the subsequent judgment of the Supreme Court in Tata Davy Ltd. Vs. State of Orissa and Others, in para 13 the court explained Corromondal as follows:

The Corromandal Pharmaceuticals judgment dealt with a sick industrial company which was unable to collect amounts like sales tax after the date of the sanctioned scheme. This Court said: ''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 and could not have been intended to be covered within Section 22 of the Act.'' It added that the issue that had arisen before it had not arisen in the case of Vallabh Glass Works. It did not appear there from or from any other decision of this Court or of the High Courts ''that in any one of them, the liability of the sick dealt with therein itself arose, for the first time after the date of sanctioned scheme. At any rate, in none of those cases, a situation arose whereby the sick industrial unit was enabled to collect tax due to the Revenue from the customers after the `sanctioned scheme'' but the sick unit simply folded its hands and declined to pay it over to the Revenue, for which proceedings for recovery had to be taken''. Clearly, the facts in the Corromandal Pharmaceuticals case differ from the facts of the Vallabh Glass Works case and those before us. The reference to the Corromandal Pharmaceuticals case is, therefore, inapposite.

The object of Section 22 of SICA, precluding institution of a suit for the recovery of money apparently is to keep in abeyance legal proceedings, contracts etc. which have the effect of impeding revival of the sick company or adding to its liabilities. This condition, regarding stay of suits for recovery of money was introduced by an Amendment Act in 1994. It has to be harmoniously interpreted to advance such an object. If the contention of the plaintiffs were to be accepted, though eviction proceedings can be allowed to continue, and be decreed, a land lord can still bring about fresh action for recovery of amounts, without reference to the pre-existing liability of the lessee tenant. The nature of such suit, i.e one for recovery of amounts, does not cease to be so, merely because the character of liability was founded on property at one point of time. This understanding is strengthened by two subsequent decisions of the Supreme Court, in Real Value Appliances Ltd. Vs. Canara Bank and Others, where it was held that the inquiry u/s 16 of the SICA

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 decision is taken by the BIFR.

That ruling was affirmed in M/s. Rishabh Agro Industries Ltd. Vs. P.N.B. Capital Services Ltd., it was clarified that Section 22 would be attracted even after a winding up order is issued.

In the present case, undisputedly the previous suit led to passing of a decree against the defendants; the suit property was vacated. In the meanwhile the first defendant sought a reference under SICA; the present suit was filed to recover amounts said to be outstanding and payable to the plaintiff, for the period it occupied the premises. The nature of the suit is therefore, not one for recovery of possession; it is plain and simplicitor, one for recovery of money, whatever be the basis for the claim. In these circumstances, the suit, so far as it concerns the first defendant, is clearly covered by Section 22.

In view of the above circumstances, the application has to succeed, as far as the first defendant is concerned. It is accordingly stayed. However, it is open to the plaintiff to seek liberty of the BIFR for continuing with the present suit.

The application, IA 7644/2007 is accordingly allowed in the above terms. No costs.