Dajodwal and Terpentines vs Synthetic and Chemicals

Y.P. Nargotra, J.—Notices were issued to the respondents under registered covers, but the same have not been received back served or

unserved, therefore, their service is deemed and they are set ex-parte.

Whether a suit filed for recovery of money against an industrial company on whose reference made u/s 15 an inquiry in terms of Section 16 of The

Sick Industrial Companies (Special Provision) Act, 1985 is pending determination before the Board for Industries and Financial Reconstruction

(BIFR), has to be dismissed or made to lie over until the decision of the reference"" is the question involved in this appeal.

The appellant filed a suit for recovery of Rs. 26,96,100/- against the respondents in the Court of Additional District Judge, Jammu. The

respondents while contesting the maintainability of the suit, filed an application for seeking dismissal of the suit on the ground that an inquiry u/s 16

of the Sick Industrial Companies Act (Special Provision), 1985 before the BIFR was pending. The learned trial Court vide its order dated 30-8-

2000 dismissed the suit being of the view that the same could not be proceeded with against the assets of the defendants-company due to the facts

that the matter is pending disposal before the BIFR.

The contention of learned Counsel for appellant is that the learned trial Court ought not to have dismissed the suit and should have made the

same to lie over until the decision of the Board. He submits that during the pendency of the appeal, the Board for Industrial Financial

Reconstruction vide its order dated 9-3-2001 has dismissed the reference of the company made u/s 15 of the Act. He further submits that even the

appeal filed before the appellate authority by the respondents against the order of the Board has also been dismissed by order dated 23-8-2001.

He has placed on record the certified copies of the judgments of the Board as well as the appellate authority.

The answer to the question formulated above lies in the provision of Section 22 Sub-section (1) of Sick Industrial Companies (Special

provision) Act, 1985 which reads as follow:

22(1) 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 under 25 relating to an

industrial company is pending, then, not withstanding 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 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 loan 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.

Section 22 thus provides that no suit for recovery shall lie or be proceeded with against the industrial company in respect of which an inquiry in

terms of Section 16 of the Act is pending. Would it mean that no suit for recovery can be filed against such a company at all?

In my considered opinion, the bar contemplated by the Section is not to the filing of the suit but is to its continuation during the pendency of the

proceedings before the Board or appellate authority. Had the legislature intended to create absolute bar for filing the suit, they would not have

provided for continuation of the suit with the consent of the Board or the Appellate Authority. No distinction can be made between the suits filed

before the initiation of inquiry u/s 16 of the Act or after the initiation of such inquiry, for the reason that the person filing the suit may not be aware

of the pendency of proceedings of the Industrial Company before the BIFR. As the Section essentially deals with the suspension of legal

proceedings, therefore, the bar created has to be with regard to maintainability or to the continuation of the suit and not with regard to filing of the

suit. Therefore, in a case where the suit has been filed during the pendency of the inquiry, it becomes not proceedable during such pendency unless

the Board or the Appellate Authority under the Act consented for its continuation.

The bar created by Section 22 relates to the maintainability of the suit or to its continuation during the period the Board or Appellate Authority is

seized of the matter. During such period the jurisdiction of the Court to proceed with the cause of action projected in the suit gets suspended.

Therefore, if a suit comes to be filed, in that event Court would have two options which are; either to return the suit to the plaintiff for presentation

after the bar gets removed by decision of the case by the Board or appellate authority or it may make the suit to lie over during such period. The

Court cannot dismiss such suit because dismissal in itself contemplates proceeding with the suit.

This being the position, the learned trial Court ought not to have dismissed the suit and should have made the suit to lie over until the decision of

the reference u/s 15 of the Act.

The appeal is, therefore, allowed and the order impugned dated 30-8-2000 passed by the learned trial Court is set aside. As the reference

made by the respondents u/s 15 of the Act stands dismissed, therefore, there is no legal impediment to the continuation of the proceedings in the

suit. Accordingly, the suit is remitted back to the trial Court for proceeding with the same in accordance with law after service of the

respondents/defendants. Learned Counsel for the appellant is directed to cause the appearance of plaintiff personally or through counsel before the

learned trial Court on 10th August, 2007.

Record of the trial Court along with g copy of this order be sent back forthwith.