M/s. Coimbatore Popular Spinning Mills Ltd. and Mr. Venkatramachandran vs M/s. Hindustan Textile Spares

K. Ravichandra Baabu, J.—The judgment debtors in a suit for recovery of money are the petitioners in both the Civil Revision Petitions. The

first petitioner is the company and the second petitioner is the Managing Director of the first petitioner company. They are aggrieved against the

order passed in E.A. No. 210 in E.P. No. 197 of 2008 whereby the application filed by the petitioners under Order 21 Rule 106 CPC read with

Section 151 praying for setting aside the ex-parte order passed in the E.P. was rejected by the Court below. Likewise, the petitioners are

aggrieved against an order made in E.A. No. 211 of 2009 in E.P. No. 197 of 2008 whereby the application filed u/s 151 CPC read with Section

22 of the Sick Industrial Companies (Special Provisions Act) seeking for stay of further proceedings was also rejected by the Court below. The

short facts that are required for consideration in this Civil Revision Petition are as follows:-

The petitioner company filed a reference application under, before the Board for Industrial and Financial Reconstruction established under the said

Act for declaring the petitioner company as a sick company and for determination of the measures to be adopted in respect of the said company.

The said reference application was considered by the said Board and after having satisfied that the company fulfilled various criteria under the said

Act for declaring it as sick industrial company as on 31.3.2000 in terms of Section 3(1)(o) of the said Act, the Board declared the petitioner

company as a sick industrial company. The Board, while passing the said order on 20.2.2006, appointed IDBI as operating agency with a

direction to prepare a revival scheme. The operating agency was further directed to keep in view the provisions of Section 18 of the said Act and

also the guidelines issued by the Board, while carrying out the preparation of such revival scheme. The Board had fixed the cut-off date for the

scheme as 31.3.2006.

In the mean time, the respondent filed O.S. No. 288 of 2005 on the file of the Additional Subordinate Judge, Coimbatore against the petitioners

for recovery of a sum of Rs. 1,85,275/- with interest based on certain business transaction. In the said suit, an ex parte decree came to be passed

on 31.1.2006. Thereafter, the respondent based on the said ex parte decree, filed E.P. No. 197 of 2008 on 15.4.2008 for execution of the said

decree. In the said execution petition, an ex-parte order came to be passed on 20.11.2008. Thereafter, the above said applications, viz., one for

setting aside the ex parte order and another for staying of all further proceedings were filed by the petitioners before the executing court.

The petitioners contended before the Court below that very filing of the said suit and continuation of the same thereof is not maintainable as there

is a specific bar u/s 22 of the Sick Industrial Companies (Special Provisions) Act 1985. It is also stated by the petitioners that the second petitioner

being the Managing Director of the first Petitioner Company was out of station due to his business tours and also had to appear frequently before

the BIFR at New Delhi. Therefore, he was not in a position to meet his counsel to file a counter statement in the execution petition in time. The said

applications were resisted by the respondent on the ground that the BIFR order dated 20.2.2006 was passed subsequent to the decree of the Civil

Court only and therefore the petitioners cannot have any protection u/s 22(1) of the said Act. It is further stated by the respondent that clause 14

of the Guidelines issued by the Board along with the order dated 22.2.2006 stipulated that the recovery of dues from the petitioner shall not be

covered by the BIFR declaration.

The court below rejected the applications by holding that the decree of the Civil court came to be passed on 31.1.2006 prior to the declaration

by BIFR and when the cut off date for the scheme was fixed as 31.3.2006 and the respondent obtained the decree even before the said cut-off

date, the petitioners are not entitled to the benefit u/s 22 of the Sick Industrial Companies (Special Provisions) Act 1985.

Though notice was served on the respondent in these two Civil Revision Petitions, they have not chosen to appear before this Court either

through counselor in person.

Heard the learned counsel for the petitioner and perused the materials placed before this Court.

The point for consideration in these Civil Revision Petitions is as to whether or not the petitioners are protected u/s 22(1) of the Sick Industrial

Companies (Special Provisions) Act, 1985 as against the decree for recovery of money passed by a competent Civil Court.

The relevant dates are as follows:-

The petitioners filed an application on 31.3.2000 u/s 15 of the said Act seeking for reference to the Board to declare the first petitioner company

as a sick company and for preparation of a scheme. On 20.2.2006, the Board passed an order declaring the first petitioner company as a sick

company with effect from 31.3.2000. In the very same order, the Board has also appointed IDBI as the operating agency to prepare a revival

scheme. The suit for recovery of money was filed by the respondent on 8.3.2005 and an ex parte decree came to be passed therein on 31.1.2006.

After nearly three years, the execution petition was filed by the respondent in which an ex parte order was passed on 20.11.2008.

Going by those dates and events, it is seen that even before filing of the suit by the respondent, an application u/s 15 of the said Act came to be

filed by the petitioners on 31.3.2000 before the BIFR to declare the first petitioner company as a sick company and for framing the scheme. No

doubt, the Board passed an order only on 20.2.2006 thereby declaring the first petitioner company as a sick company, however, with effect from

31.3.2000. Even though an ex-parte decree came to be passed on 31.1.2006, prior to such declaration by the Board, admittedly the execution

petition came to be filed only on 15.4.2008 after nearly two years from the date of the order of the BIFR. Under these circumstances, let us

consider the scope of Section 22 of the said Act.

For proper appreciation, the said provision is extracted hereunder:-

(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.

A perusal of the said provision of law, shows that no proceedings for execution and no suit for the recovery of money shall lie or be proceeded

with further except with the consent of the Board or the Appellate Authority in respect of an industrial company where any scheme referred to u/s

17 is under preparation or consideration or a sanctioned scheme is under implementation. Even though the said provision contemplates that no suit

for recovery shall lie or be proceeded with further, as the execution proceedings of a decree passed in such a suit is nothing but the continuation of

the suit, the said execution proceedings would also come within the purview of Section 22(1), more particularly, within the phrase ""be proceeded

with further"". Therefore, the said decree, even though, was made before the order passed by the Board, still the same cannot be executed in view

of the specific bar u/s 22(1) of the said Act.

We should also bear it in mind that while declaring the company as a sick Company, the Board had given retrospective effect from the date of

original application u/s 15. For all practical purposes, the first respondent Company has been declared as a sick company with effect from

31.3.2000 and hence a suit filed thereafter i.e. in the year 2005 is not maintainable, even otherwise. At this juncture it is to be noted that once a

declaration with retrospective effect is made by BIFR, the company so declared as sick company is entitled to have all protection under the said

Act more particularly u/s 22, not from the date of such declaration but from the date on which such retrospective effect is given. If that be not the

intention of the legislature, then the object which is sought to be achieved u/s 22 would be defeated. At any event, in this case, when the execution

petition itself came to be filed only on 15.4.2008, much after the declaration made by the Board, the said proceedings are certainly barred u/s

22(1) of the said Act and consequently, the Court below is not justified in rejecting the applications filed by the petitioners.

The Court below has taken the cut-off date fixed by the Board as a crucial date for determining the issue before it. In my considered view,

such approach by the court below is erroneous. The said cut off date was fixed by the Board to give effect to the scheme. That does not mean that

the earlier proceedings, which are otherwise barred u/s 22(1) are to be considered as a valid proceedings. No doubt, under the guidelines given by

the Board for preparation of the scheme, it is contemplated under clause 14 that the Company should be regular in the payment of all its current

dues arising after the cut off date, since the recovery of such dues shall not be covered under the said rehabilitation scheme. It is also made clear

under clause 12 that the protection u/s 22(1) of the said Act will not be available to the company against withholding of any of the workers dues,

including EPF and ESIC dues, gratuity, wages.

A combined reading of Clause 12 and 14 would only indicate that the suit claim made by the respondent will not come either under clause 12

or under clause 14 and even otherwise when Section 22(1) specifically contemplates that no proceedings for execution, no suit for recovery of the

money shall lie or be proceeded with further pending preparation or consideration of any scheme u/s 17, the execution petition filed in the year

2008 will not escape from the clutches of the bar provided u/s 22(1).

An identical issue was considered by a learned single Judge of Delhi High Court in the decision reported in Uzi Justman Vs. Telephone Cables

Ltd. and Another, . In that case an arbitral award was sought to be executed through the execution proceedings against the company, which has

been declared as a sick company in respect of which a reference was pending before the Board. It was argued before the learned Judge that the

execution will not come under the purview of Section 22(1). The learned Judge rejected the said contention and found that once the arbitral award

is executable as a decree, the effect of Section 22(1) cannot be whittled down. It is also found by the learned Judge that the purport of Section

22(1) is to protect the properties of a sick company under rehabilitation from being attached/sold in execution at the instance of the individual

creditors as it would come in the way of rehabilitation in the larger interest. The learned Judge also relied on a decision of the Hon''ble Apex Court

in Jay Engineering Works Ltd. Vs. Industry Facilitation Council and Another, in support of his conclusion by specifically pointing out that the

observation of Hon''ble Supreme Court that once the award is being executed as a decree before a Civil Court, it would definitely attract Section

22 of the said Act. Section 22(1) is intended to protect the properties of the Sick companies from being proceeded with in execution of a decree,

as the same would affect the preparation or implementation of the scheme in the larger interest. That is why, the specific phraseology is used in the

said provision viz., ""no proceedings for execution against any properties of the industrial company and no suit for recovery of money shall lie or be

proceeded with further"". Therefore, the intention of the legislature is to protect the properties of the sick companies at any stage of the

proceedings, if such proceedings were initiated or pending in respect of an industrial company where any scheme as referred to u/s 17 is under

preparation or consideration. Therefore, in my considered view, the lower court is not justified in rejecting the petitioners'' applications. The

petitioners are certainly entitled to protection u/s 22(1) of the said Act. Consequently, the Civil Revision Petitions are allowed and the orders

passed by the Court below in E.A. Nos. 210 and 211 of 2009 in E.P. No. 197 of 2008 are set aside. Consequently, the connected M.P. is

closed. No costs.