Onida Savak Ltd. vs Muthumeera Agencies

A. Ramamurthi, J.—The applicant/defendant has filed this application to pass an order staying the proceedings in accordance with Section

22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, and directing release to the applicant-company of the amount of Rs.

10,80,101.40.

The case in brief is as follows :

The applicant-company has incurred heavy financial loss during the years 1996-1999. As per the balance-sheet, the company has become a sick

company. The company in its annual general body meeting adopted the accounts and filed a reference for rehabilitation before the Board for

Industrial and Financial Reconstruction u/s 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as

SICA, 1985). It was registered as Case No. 191 of 1999. Further, the stocks of washing machines lifted by the applicant from the godown of the

plaintiff were defective. The applicant-company received complaints from consumers with regard to the defects in the washing machines. After

inspection, it was found out that the washing machines lifted from the godown were defective. The company had to remove and rectify the defects

at its own cost and expenses. The plaintiff is not entitled to receive any amount as the company had incurred heavy expenses for rectifying the

defects. A major fire also broke out in the premises of the applicant-company at Noida, Uttar Pradesh, on April 24, 1998, and the company had

suffered loss of crores of rupees. A comprehensive scheme for revival of the company was submitted to State Bank of India, which was the lead

bank. The bank also granted credit facility of Rs. 2.5 crores over the repair/replacement of assets destroyed in the fire. The State Bank of India

released part payment for insurance claim on December 14, 1998, but they withheld a sum of Rs. 10,80,101.40 on account of the alleged claim of

the plaintiff, though at that time there was no order to deposit the money. The insurance claim is hypothecated to the bank and the plaintiff cannot

claim the said amount. The rehabilitation of the applicant-company is already under process. When the enquiry is pending under the BIFR for

rehabilitation, the proceedings have to be stayed u/s 22(1) of the SICA, 1985. Further the aforesaid amount has to be remitted back to the

applicant-company. Now the amount has been deposited in the court on January 10, 2000. Hence, the application.

The respondent/plaintiff filed a detailed counter affidavit and denied the various averments. The applicant-company sent a letter dated December

22, 1998, acknowledging liability to pay an amount of Rs. 6,02,496.60. The plaintiff filed the present suit for recovery of the amount due from the

defendant. The plaintiff was able to ascertain the information regarding the amount payable by the garnishee to the defendant in respect of a fire

claim. The plaintiff filed Application No. 4454 of 1998 and obtained orders restraining the garnishee from making the payment. The defendant has

not brought to the notice of this court at the earliest point of time about the BIFR proceedings. On the other hand, the defendant has taken time

from this court on the ground of settlement.

This court passed an order on December 14, 1999, restraining the garnishee from making the payment. Even then, the defendant has not

brought to the notice of the court about the BIFR proceedings. At the time of taking delivery of all the consignments, it was endorsed in the

delivery receipt that the washing machines were taken in good order and condition. The present application is only to delay and deny the plaintiff its

legitimate right to claim the amount. If the washing machines were found to be defective, the plaintiff ought to have raised the issues by filing a

counter to Application No. 4454 of 1998. The defendant has not come to the court with clean hands. He has been adopting different tactics

before different forums thereby trying to siphon off the funds of the company without knowledge of the creditors as well as the financial institutions.

The defendant is not entitled to get refund of the money lying to the credit of the suit and the application is liable to be dismissed. Section 22

equally applies and operates as a stay for both the parties to the proceedings. The applicant cannot withdraw the money and at the same time pray

for stay of the proceedings.

Heard learned counsel for both the sides.

The points that arise for consideration are :

(1) Whether the applicant/defendant is entitled to get refund of the sum of Rs. 10,80,101.40 deposited in the court ?

(2) Whether further proceedings in the suit have to be stayed in view of Section 22(1) of the SICA of 1985 ?

(3) To what relief ?

Points : The respondent/plaintiff has filed a suit for recovery of a sum of Rs. 10,80,101.40 together with interest and for costs. The respondent

filed Application No. 4454 of 1998 and obtained a prohibitory order restraining the garnishee from paying the aforesaid amount to the

applicant/defendant. Pursuant to the prohibitory order, it appears that the garnishee had deposited the aforesaid amount in the court on January 10,

2000. Now the applicant/defendant has filed this application on the ground that the company has become a sick company and there are

proceedings before the BIFR and in view of Section 22(1) of the SICA, the plaintiff-company is not entitled to file a suit for recovery of money

and further proceedings have to be stayed. Apart from that, the money deposited by the garnishee in the court also has to be refunded to the

defendant.

It is necessary to state that the defendant has not brought to the notice of the court about the proceedings in the BIFR for a very long time. The

case has been registered in the BIFR as No. 191 of 1999 and in spite of this, only for the first time the defendant has come forward with this

application and that too, for the purpose of getting refund of the amount deposited in the court. It is clear from Section 22 that 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. If the defendant had brought to the notice of the court, the plaintiff would have taken steps to get the consent of the Board for

proceeding further in the case. For reasons best known, the defendant had deliberately kept quiet without informing about the pendency in the

BIFR proceedings and only when the garnishee deposited the amount, the defendant thought it fit to bring it to the notice of the court about the

proceedings in the BIFR with the sole idea of getting the amount if possible and to defeat the valuable rights of the creditors. The dispute between

the parties with reference to the defects in the washing machines and the alleged repairs that have to be carried out by the defendant are matters

that can be thrashed out during the course of trial. For the purpose of this application, the only question that has to be considered is whether further

proceedings in the suit have to be stayed in view of Section 22 and whether the defendant is entitled to get refund of the said amount.

Learned counsel for the plaintiff relied on Gopalaiyar v. Thiruvengadam, AIR 1918 Mad 1158, relating to a decision under Order 37, Rule 4

of the CPC and this has no relevancy to the case on hand. Learned counsel for the applicant/defendant relied on Patheja Bros. Forgings and

Stamping v. I. C. I. C. I. Ltd. [2000] 102 Comp Cas 21 ; [2000] 8 JT 252, wherein it was observed as follows (page 25) :

Section 22 provides that no suit for the enforcement of a guarantee in respect of any loan or advance granted to the concerned industrial company

will lie or can be proceeded with, without the consent of the Board or the Appellate Authority. When the words of a legislation are clear, the court

must give effect to them as they stand and cannot demur on the ground that the Legislature must have intended otherwise.

This decision is applicable to the case on hand in all fours. Under the circumstances, I am of the view that no suit for recovery of money is

maintainable and, as such, the proceedings ought to be stayed.

Learned counsel for the defendant wanted a direction to release the amount of Rs. 10,80,101.40. Even according to the statement of the

defendant, it is a sick company and for a rehabilitation scheme, they have approached the appropriate authority and this scheme has not yet been

framed. When the defendant-company is a sick company, they are not entitled to get back the amount as a matter of right. When the defendant

takes advantage of the SICA 1985, the same equally applies to the defendant also and he is also not entitled to get back the amount. Neither the

plaintiff nor the defendant is entitled to get back the amount till the proceedings in the BIFR come to an end. Under the circumstance, I am of the

view that the amount can be deposited in a nationalised bank under fixed deposit till the disposal of the BIFR proceedings.

For the reasons stated above, the application fails and is dismissed. The Registry is directed to deposit a sum of Rs. 10,80,101.40 in Indian

Bank, Alwarpet Branch, under fixed deposit for a period of two years. The suit is stayed.