Jay Engineering Works Ltd. vs Industry Facilitation Council and Another

This Judgment has been overruled by : Jay Engineering Works Ltd. Vs. Industry Facilitation Council and Another, AIR 2006 SC 3252 : (2006) 3 ARBLR 594 : (2006) 133 CompCas 670 : (2006) 6 CompLJ 209 : (2006) 12 JT 171 : (2006) 9 SCALE 285 : (2006) 8 SCC 677 : (2006) 71 SCL 189 : (2006) 6 SCR 189 Supp : (2006) 2 UJ 1252 : (2006) AIRSCW 4783 : (2006) 8 Supreme 434

P.C. Agarwal, J.—Present is a intra Court appeal under Clause X of the Letters Patent against the impugned order of the Single Judge in W.P. No. 1156/2003 dismissing the same.

Facts necessary for decision of this appeal are as follows:

(A) Jay Engineering Works Ltd. (to be called as appellant) is a public limited company engaged in business of manufacture of electric fans and fuel injection equipments. M/s. Diamond Wire Ltd. (to be called as R 2) is a small scale industry and supplier of copper wires. Industry Facilitation Council (to be called as council-R1) is a statutory authority formed under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (Act of 1993 for short).

(B) Board for Industrial and Financial Reconstruction (to be called BIFR) had declared the appellant as a sick unit under the Sick Industrial Companies (Special Provisions) Act, 1985 (to be called as SICA) on 8.4.1994 vide (Annexure-A/3). A rehabilitation scheme for the appellant was sanctioned on 21.11.1997 vide (Annexure-A/4), However, this rehabilitation scheme was declared as failed by BIFR on 12.7.2001 vide (Annexure-A5). However, later on initiative of IDBI a fresh rehabilitation scheme was sanctioned by BIFR on 8,4.2003 vide (Annexure-A/6).

(C) The Council (R1) on 21.8.2002 on application of R2 passed an award for payment of Rs. 10,92,253/- with interest 1 1/2 times of PLR of State Bank of India vide (Annexure-A8).

(D) Respondent started execution proceedings before District Judge, Ratlam who refused to grant stay on such execution on 21.4.2003 vide (Annexure-A/10).

As per appellant it being a sick unit in whose favour rehabilitation scheme has been sanctioned and was being enforced the Council could not have entertained or awarded for recovery or enforcement of any liability due to R2 except with the consent of the BIFR. It was claimed that R2 could not have referred the dispute to the Council as there has been no arbitration clause in the agreement. Under the agreement all disputes had been subject to the jurisdiction of the Agra Courts only. Council (R1) stationed at Bhopal had no jurisdiction to decide. The appellant on receipt of notice from the Council (R1) had informed the Council vide its letter dated 7.7.2002 that it had not received the copy of suit along with notice and that it had been registered as sick company by BIFR and, thus, the proceedings should not be proceeded further. Despite such information passage of the award by the Council had been improper and without jurisdiction. It was also claimed that the appellant being a sick unit had not the financial capacity of depositing 75% of the awarded money and, thus, remedy of statutory appeal had been elusory. Moreover, no appellate authority had been in existence. It had been claimed that provisions of Section 10 of the Act of 1993 had not been inconsistent with the provisions of Section 22 of the SICA and effect could have been given to both of them and, thus, only a harmonious construction could be put to the clause providing overriding effect to the Act of 1993.

R 2 in its written statement had raised preliminary objection of delay of 11 months and laches and existence of alternative remedy of statutory appeal provided u/s 7 of the Act of 1993 and had relied upon Section 10 of the Act of 1993 giving overriding effect to that Act in all other laws in force. It further claimed that the appellant had continued to purchase raw material from R2 even after its being declared as sick unit between 28.12.1996 to 3.6.2000 and out of 64 bills for total amount of Rs. 74,16,679/-, 57 bills for Rs. 63,24,436/- had already been paid during the period leaving a balance of only Rs. 10,52,253/-. For payment of this amount the appellant had entered into several agreements--One of each had been on 22.7.1997 vide (Annexures R/2 and R/1) the other being dated 28.9.2000 vide (Annexures R/2 and R/3). It was claimed that rehabilitation scheme dated 21.11.1997 (Annexure A/3) did not refer to the payments to the suppliers after the declaration. No intimation was given to R2 by the appellant that it has been declared a sick unit. The Council had passed the impugned award after consideration of reply of the appellant. Even the fresh scheme of rehabilitation dated 8.4.2003 did not mention anything about payments to the suppliers to the running unit. It was claimed that neither the proceedings of the Council nor its award had been without jurisdiction nor the Civil Court was bound to stay the execution.

The Single Judge after hearing both the parties had dismissed the writ holding that the provisions of Section 10 of the Act of 1993 had given overriding effect to the Act over the provisions of Section 22 of the SICA, Remedy of appeal under the Arbitration and Conciliation Act, 1996 (to be called as the Act of 1996 only) was available to the appellant. The petition was bad for undue delays and laches. Council (R1) had jurisdiction to decide the dispute and had passed an award and the writ petition was devoid of any merit and thus dismissed the same.

The learned Senior Advocate for appellant has strenuously argued that (a) scheme of BIFR had come into force on 8.4.1994 and, thus, the council (R1) could not have entertained the claim of M/s. Diamond Wire Ltd. (R2). (b) provisions of Section 10 of the Act of 1993 could only be harmoniously construed with the provisions of SICA so that not to vender them nugatory and otiose, (c) grounds of laches, delay or existence of alternative remedy did not bar the jurisdiction of the Single Judge to grant a remedy to the appellant.

We have heard Advocates of both the parties and have, perused the record and impugned order of the Single Judge.

The appellant was declared a sick unit under SICA on 8.4.1994. Rehabilitation scheme was sanctioned on 21.11.1997. Thus, inquiry u/s 16 of the SICA had commenced since the dale of registration of reference. Such inquiry included investigation u/s 16 of the SICA. Such inquiry had commenced on 8.4.1994 in view of Real Value Appliances Ltd. Vs. Canara Bank and Others, and M/s. Rishabh Agro Industries Ltd. Vs. P.N.B. Capital Services Ltd., . Obviously, since after 8.4.1994 the appellant being a sick unit had come under the protection of BIFR.

As an effect of Section 22 of SICA "no proceedings for 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 recovery of money or for enforcement of any sick industrial company or any guarantee in respect of any loan or advance granted to industrial company should lie or be proceeded with further except with the consent of the BIFR or the appellate authority." Authorities cited on this point was The Gram Panchayat and another Vs. Shree Vallabh Glass Works Ltd. and others, in which case proceedings to recover property tax u/s 129 of the Bombay Village Panchayat Act were not allowed to be continued without approval of BIFR and in that case the Apex Court had held that the remedy of the Panchayat is not extinguished, it was only postponed. In M/s LLoyd Insulations (India) Ltd. and Others Vs. Cement Corporation of India Ltd. and Another, Company Case 483 the Single Judge of Delhi High Court had stayed the arbitration proceedings for recovery of money against sick company. In Punjab United Forge Ltd. v. Hindustan Hydraulics (P.) Ltd., 1992(75) Company Cases 316 an execution of Civil Courts decree against the sick company was ordered to be stayed. However, with due respect, to these authorities the factual situation in the present case had been entirely different and these propositions are not attracted in this case.

Though, the BIFR had sanctioned a scheme for retrieving the appellant company from its sickness yet as a part of such scheme itself the appellant company was allowed to run and continue its business. The appellant company had purchased the stocks from M/s. Diamond Wire Ltd. (R 2) even after it was declared sick and had been purchasing such stocks between 28.4.1996 and 30.6.2000 and out of 64 bills for the total amount of Rs. 74.16.679/-payment for 57 bills of Rs. 63,23,436/- had been made. A balance of Rs 10,52,253/- had remained unpaid. To enforce payment of such balance amount M/s. Diamond Wire Ltd. (R 2) had approached the facilitation Council (R1). Such balance amount had not been included and could not be included in the sanctioned rehabilitation scheme dated 21.11.1997 Annexure A/4. The same had been related to the later transaction.

The Apex Court in Deputy Commercial Tax Officer and Others Vs. Corromandal Pharmaceuticals and Others, had clearly held that the bar u/s 22 of the SICA can be applied to such of those dues reckoned or included in the sanctioned scheme for rehabilitation and not to others not included. That case related to recovery of sales lax dues incurred after the date of sanctioned scheme and to enforce payment of such dues the Apex Court held that the bar did not apply. In Gargi Huttenes Albertus Pvt. Ltd. v. New Standard Engineering Co. Ltd. II (2002) BC 555, Bombay High Court dealt with the similar situation as in the present case and had held that Section 22 of the SICA did not apply for recovery of price of goods purchased after the sanction of scheme. It is noteworthy that BIFR under its sanctioned scheme itself had allowed the appellant company to run its business and continue to purchase the stock and sell its products in the market. If the appellant company is absolved from liability to pay the goods or stocks so purchased, it could not have transacted any business which would have been against the letter and spirit of the rehabilitation scheme. If protection had to be stressed to that extent that appellant company could transact and continue its business and purchase the goods or stock from the market without incurring any liability to pay the same, it would have been an end of its business and the scheme could not have been carried out at all. No body would have delivered any goods to the unit in that ease. Obviously, the appellant was liable to respect its liabilities incurred after sanction of the scheme to make the scheme effective.

It is noteworthy that the rehabilitation scheme was declared as failed by BIFR on 12.7.2001 or in other words before M/s. Diamond Wire Ltd. (R2) had approached the facilitation Council (R1). On 7.7.2002 when the appellant had informed the facilitation Council (R1) such rehabilitation scheme had already failed and had not been in existence. Thus, there had been no question of application of any bar u/s 2 of the SICA. It is further note worthy that the appellant itself had not approached, at all, BIFR with the prayer for stay of the proceedings before the facilitation Council (R1). The facilitation Council (R1) had passed the impugned award on 21.8.2002 on which date the rehabilitation scheme had not been inforce. Thus, the contentions of the appellants had no substance in them. Inclusion of M/s. Diamond Wire Ltd. (R2) as a deferred creditor in the fresh rehabilitation scheme dated 8.4.2003 also did not affect the situation in favour of the appellant.

It is note worthy that both SICA and Act of 1993 are Central Acts. Both are special acts dealing with specific situations. Both contain non obstante clauses and both have overriding effect on all other laws for the time being in force. SICA overrides every other law than Foreign Exchange Regulation Act, 1973 and the Urban (Ceiling and Regulation) Act, 1976. Section 10 of the Act of 1993 gives that Act an overriding effect by providing non-obstante clause over all other laws in force then. This later Act does not exempt the SICA. It is well settled that in such a situation the later Act has to prevail. Certainly, the Act of 1993 had been passed and enacted by the Parliament with the knowledge of existence and enforcement of SICA. Such well established legal situation had been approved in Maharashtra Tubes Ltd. Vs. State Industrial and Investment Corporation of Maharashtra Ltd. and Another, . While construing the Stale Financial Corporation Act, 1951 and the SICA of 1985, the later had been allowed to prevail on State Financial Corporation Act, 1951. In Solidaire India Ltd. v. Fairgrowth Financial Services Ltd. I (2001) BC 656 : (2001) 3 SCC 71 while dealing with SICA and Special Courts (Trial of Offences Relating to Transactions in Securities) Act, 1992, the Apex Court gave overriding effect to the later Act. On page 73 the Apes Court has pronounced as follows:

"It is clear that both these Acts are special Acts. This Court has laid down in no uncertain terms that in such an event it is the later Act which must prevail. The decisions cited in the above context are as follows: Maharashtra Tubes Ltd. Vs. State Industrial and Investment Corporation of Maharashtra Ltd. and Another, ; Shri Sarwan Singh and Another Vs. Shri Kasturi Lal, ; Allahabad Bank Vs. Canara Bank and Another, and Shri Ram Narain Vs. The Simla Banking and Industrial Co. Limited, ."

The Apex Court in this case has approved the following observations of the Special Court in Bhoruka Steel Ltd. v. Fairgrowth Financial Services Ltd. II (1997) BC 636 : (1997) 89 Comp Case 547 (Special Court):

"Where there are two special statutes which contain non obstante clauses the later statute must prevail. This is because at the time of enactment of the later statute, the Legislature was aware of the earlier legislation and its non obstante clause. If the Legislature still confers the later enactment with a non obstante clause it means that the Legislature wanted that enactment to prevail. If the Legislature does not want the later enactment to prevail then it could and would provide in the later enactment that the provisions of the earlier enactment continue to apply."

The learned Senior Advocate for the appellant has argued that to hold that there has been any real conflict between two statutes, it must be established that both could not stand or act together. The argument of the learned Senior Advocate for appellant has been that the facilitation Council (R1) could have well proceeded with the proceedings for recovery of dues after obtaining a previous consent from the BIFR. He has argued that thereby the remedy was not extinguished but was only postponed, It is argued that in case the award of the facilitation Council (R1) is allowed to be executed the rehabilitation of the appellant company by the BIFR by its sanctioned scheme would be obstructed or barred and thereby the impugned award would run counter to intent and purpose of SICA. However, even this argument does not hold good, firstly because on the date when objection was taken by the appellant before facilitation Council (R1) there had been no sanctioned rehabilitation scheme in existence, secondly under the scheme of the BIFR itself the appellant company was allowed to run and transact its business for profit and, thus, the appellant was bound to respect its liabilities incurred even after the sanction of rehabilitation scheme for the smooth running of the sick unit. Staying the payments for purchases made after sanction of rehabilitation scheme would have hampered the execution of such sanctioned scheme itself. Clearly the appellant could not have taken sh er under the sanctioned scheme of BIFR for staying payments of such purchases, necessary for its transacting business and continuance. It is note worthy that in Solidaire India Ltd. (supra) after consideration of the object and purpose of the Special Court (Trial of Offences Relating to Transactions in Securities) Act, 1992, the Special Court had held, as follows, in Bhoruka Steel Ltd. (supra) which has received the full approval of the Apex Court:

"It is a settled rule of interpretation that if one construction leads to a conflict, whereas on another construction, two Acts can be harmoniously constructed then the latter must be adopted. If interpretation is given that the Sick Industrial Companies (Special Provisions) Act, 1985, is to prevail then there would be a clear conflict. However, there would be no conflict if it is held-that the 1992 Act is to prevail. On such an interpretation the objects of both would be fulfilled and there would be no conflict. It is clear that the Legislature intended that public monies should be recovered first even from sick companies. Provided the sick company was in a position to first pay back the public money, there would be no difficulty in reconstruction. The Board for Industrial and Financial Reconstruction whilst considering a scheme for reconstruction has to keep in mind the fact that it is to be paid of or directed by the Special Court. The Special Court can, if it is convinced, grant time or instalments."

Here in this case respecting the liabilities created after sanction of rehabilitation scheme which allowed further transacting and running the business was necessary for the very success of the rehabilitation scheme itself.

As the appellant had not been able to prove any case for intervention his arguments that either laches, delay, omission or the availability of the alternative remedy would not debar or affect the jurisdiction of the writ Court to grant a discretionary relief in favour of the appellant are not relevant. Citation or reliance on U.P. State v. Mohd. Nooh AIR 1958 SC 86; Moon Mills v. Industrial Court, Bom. AIR 1967 SC 1450; Commissioner of Sales Tax, Madhya Pradesh Vs. Jaswant Singh Charan Singh, and Rohtas Industries Ltd. and Another Vs. Rohtas Industries Staff Union and Others, laying down scope and parameter of the powers of this High Court to grant remedy in a writ is of no avail to the appellant in such a case.

Thus, this appeal has no force or substance. There is no scope for interference in the order of learned Single Judge. Hence, this appeal is dismissed with costs.