Sivananda Steels Ltd. and Another vs India Cements Capital Finance Ltd., (Formerly known as Aruna Sugars and Finance Ltd.)

A. Kulasekaran, J.—When the matter is listed for admission, after hearing the learned counsel for both sides, the same is disposed of in

limine.

This appeal has been filed to set aside the order dated 27.10.2003 passed in Application No. 4298 of 2003, rejecting the request of the

appellants to set aside the order dated 29.4.2003 made in Application No. 5074 of 2002 in appointing the Advocate Commissioner.

Learned counsel Mr. C.S. Dhanasekaran, appearing for the appellants, has submitted as follows:

The appellants and the respondent entered into a Hire Purchase Agreement dated 25.2.1998 in respect of the schedule machineries; the first

appellant company has been duly declared as sick u/s 3(1)(o) of the Sick Industrial Companies Act and, therefore, the proceedings taken u/s 9 of

the Arbitration and Conciliation Act, 1996, are not maintainable. The first appellant company has been directed by an order dated 22.9.2000 u/s

22-A of the Sick Industrial Companies Act by the BIFR, not to dispose of any fixed or current assets of the company, without the consent of the

BIFR. Hence, non-payment of dues is neither wilful nor wanton, but for the restraint order passed by the BIFR. An arbitrator was appointed on

3.10.2002 to adjudicate the claim. During the pendency of arbitration proceedings, an advocate commissioner was appointed by this Court by

virtue of an order dated 29.4.2003, to take custody of the machineries set out in the schedule. The said order was obtained ex parte. The

advocate commissioner did not act upon immediately.

Later on, extension of time to execute the warrant was sought for and this Court, by an order dated 16-7.2003, was pleased to extend the time by

four weeks. The advocate commissioner has taken the symbolic possession of those machineries and thus executed the warrant. Further, an

advertisement was made for sale of those machineries in public auction. In the said advertisement offers are invited, by fixing the dates of inspection

and the venue for opening those offers on 11.10.2003. The entire proceedings taken out by the advocate commissioner affect the working as well

as the financial condition of the appellant company. The seizure and sale of the machineries of the sick company without the consent of B1FR the

deprecated by the judicial dicta laid down by the Apex Court. The proceedings taken out by the advocate commissioner do not have the consent

of the BIFR, which is mandatory.

Learned counsel further submitted that Section 32 of the Sick Industrial Companies (Special Provisions) Act, 1985, is having overriding effect

on other acts and, hence, an application u/s 9 of the Arbitration Act cannot be entertained, when the matter is pending before BIFR.

In support of his contention, the learned counsel relied on Sections 22 and 32 of the Act.

Per contra, learned counsel appearing for the respondent has submitted that they are owners of the machineries, which were hired to the

appellants, and since the appellants committed default, they are entitled to repossess the said machineries, in terms of the agreement. The

agreement also contains arbitration clause and in view of the same, the matter has been referred to the arbitrator and an award has also been

passed. For an interim measure of protection, they have invoked Section 9 and filed necessary application. This Court, after affording an

opportunity to the parties concerned, rightly appointed an advocate commissioner, who has taken symbolic possession and proceeded further for

sale. Since the property hired to the appellant is not the property of the appellant company, the provisions of the Sick Industrial Companies

(Special Provisions) Act cannot be made applicable. It is also submitted that, after passing of the award, the appellants admitted their liability and

entered into second schedule of agreement dated 21.4.2001, but again committed default in paying the instalments.

In support of his contention, the learned counsel relied upon the below mentioned judgments.

(i) Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras, , wherein the Supreme Court has

held as under:

................ The submission is that the lease hold right of the appellant-company in the premises leased out to it is property and since the eviction

proceedings would result in the appellant-company being deprived of the said property, the said proceedings would be covered by category (2).

We are unable to agree. The second category contemplates proceedings for execution, distress or the like against any other properties of the

industrial company. The words `or the like have to be construed with reference to the preceding words, namely, ''for execution, distress'' which

means that the proceedings which are contemplated in this category are proceedings whereby recovery of dues is sought to be made by way of

execution, distress for similar process against the property of the company. Proceedings for eviction instituted by a landlord against a tenant who

happens to be a sick industrial company, cannot in our opinion, be regarded as falling in this category. We may, in this context, point out that, as

indicated in the preamble, the Act has been enacted to make special provisions with a view to securing the timely detection of sick and potentially

sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other

measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined. The provision

regarding suspension of legal proceedings contained in Section 22(1) seeks to advance the object of the Act by ensuring that a proceeding having

an effect on the working or the finances of a sick industrial company shall not be instituted or continued during the period the matter is under

consideration before the Board or the Appellate Authority or a sanctioned scheme is under implementation without the consent of the Board or the

Appellate Authority. It could not be the intention of Parliament in enacting the said provision to aggravate the financial difficulties of a sick industrial

company while the said matters were pending before the Board of the Appellate Authority by enabling a sick industrial company to continue to

incur further liabilities during this period. This would be the consequence if Sub-section (1) of Section 22 is construed to bring about suspension of

proceedings for eviction instituted by landlord against a sick industrial company which has ceased to enjoy the protection of the relevant rent law

on account of default in payment of rent. It would also mean that the landlord of such a company must continue to suffer a loss by permitting the

tenant (sick industrial company) to occupy the premises even though it is not in a position to pay the rent. Such an intention cannot be imputed to

Parliament. We are, therefore, of the view that Section 22(1) does not cover a proceeding instituted by a landlord of a sick industrial company on

the eviction of the company premises let out to it.

(ii) Ananta Udyog Private Ltd. Vs. Cholamandalam Investment and Finance Co. Ltd., , wherein this Court has held as under:

Thus, it is clear that the property which is sought to be seized by the respondent pursuant to the order made in Application No. 2307 of 1994 is

not the property of the appellant and it will not fall within the scope of Section 22(1) of the Act. The language of the Section is very clear and the

proceedings which are stayed and suspended are only the proceedings against any of the properties of the industrial company"".

(iii) Sundaram Finance Limited v. Kamaraj National Labour Organisation 2003 (4) CTC 69, wherein, in para 9, a Division Bench of this Court has

held as follows:

On consideration of the rival submissions, it is clear hat there has been a complete misunderstanding on the part of the learned single Judge in

firstly entertaining the writ petition. It is a trite position in law that equities are not allowed to bypass the law. That is precisely the contention raised

by the learned counsel for the appellant. We have perused the order of the BIFR and we do not find that the sale has been ordered in the

proceedings before the BIFR at all. At nay rate, considering the law laid down by this Court in Shri Ananta Udyog case, cited supra, with which

we respectfully agree, there was no question of BIFR issuing any such direction or permission for the sale of the hired machinery, which did not

belong to the sick-mill. There can be no question that ownership would get transferred in favour of the hirer in the absence of any prior agreement

to that effect between the parties. It is not as if the property cannot be transferred. It could be so transferred provided there is an agreement to that

effect. Learned counsel for the appellant is at pains to point out that the hire purchase agreements specifically that the ownership would not transfer

in favour of the hirer unless and until the payment of all the instalments is made and honoured by the hirer. Therefore, there was no question of the

property being transferred in favour of the sick-mill and in that case the position will be clear that the ownership of the hired machinery will still

remain with the appellant company and, therefore, it will be outside the mischief of Section 22 of SICA and would eventually be outside the

jurisdiction of the BIFR altogether. Once that position is clear, it will be crystal clear that the order for sale of the machinery did not emanate out of

the proceedings before the BIFR and it indeed could not have been so yet, a submission came to be made that the sale of the machinery was in

pursuance, of the order dated 23.4.2002 passed by the BIFR. We have already reiterated that we do not find anything in the BIFR''s order to that

effect"".

Now, we look into the objects and reasons of the Act and also the relevant Sections 22(1) and 32 of the Act.

8.1. The Sick Industrial Companies (Special Provisions) Act has been made in public interest with special provisions, with a view to securing the

timely deduction of sick and potential sick companies owning industrial undertakings, the speedy determination by a board of experts of the

preventive, ameliorative, remedial ,and other measures, which need be taken, with respect to such companies and the expeditious enforcement of

measures so determined and for matters connected therewith or accidental thereto.

8.2. ""22, 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 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"".

32, Effect of the Act on the laws :- (1) The provisions of this Act and of any rules or schemes made there under shall have effect notwithstanding

anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and

the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum of Articles of Association of an

industrial company or in any other instrument having effect by virtue of any law other than this Act.

(2) Where there has been under any scheme under this Act an amalgamation of a sick industrial company with another company, the provisions of

Section 72-A of the Income Tax Act, 1961 (43 of 1961) shall, subject to the modifications that the power of the Central Government under that

section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such

amalgamation as they apply to the amalgamation of a company owning an industrial undertaking with another company"".

A cursory reading of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, makes it clear that u/s 22, when an inquiry

u/s 16 is pending or any scheme referred to u/s 17 is under preparation or consideration or sanctioned scheme is under implementation or where

an appeal u/s 25 relating to an industrial company is pending, 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 shall lie or be proceeded with

further, except with the consent or the Board or the Appellate Authority, as the case may be.

Section 32(1) is the general overriding provision giving effect to the provisions of this Act over other laws, excepting the provisions of Foreign

Exchange Regulation Act, 1973, and Urban Land (Ceiling and Regulation) Act, 1976. It is necessary to mention that there are certain provisions in

this Act, which specifically refer to the Companies Act and the Income Tax Act for the purpose of giving supremacy over them. The impact is that

the provisions of the Companies Act, 1956, or the Income Tax Act, 1961, can be overridden by the provisions of the Act or any rules or schemes

made under the Act. The overriding effect of the provisions of the Act, scheme or rules made thereunder would be there only when there is

anything inconsistent in the said Act, rules or scheme vis-a-vis the other laws or provisions. If the rules or schemes made under the Act are silent

on any particular subject matter and the other law requires any particular action being taken in respect thereof, such a law would have to be

complied with.

It cannot be said that the action initiated by the respondent u/s 9 of the Arbitration Act is inconsistent to the Act or Rules or Scheme provided

under this Act. Both on the score of general overriding provisions in Section 32(1) as also the specific overriding provisions contained in Sub-

sections 16(5), 22(1), 22(2), 22(3), 22(4) and 23(1)(c) etc., nothing is indicated that they prevail over Arbitration Act. In other words, the

provisions of Section 32(1) have overriding effect only in respect of those laws, which are inconsistent with the said Act on same subject. The

Arbitration Act and this Act occupied two separate and distinct fields, hence no question of repugnancy between the two. Section 32 of this Act

does not have overriding effect on Arbitration Act. Either BIFR or AIFR has no competence or jurisdiction to pass orders in respect of the

property, not belonged to the company.

It is crystal clear when we look into Section 22(1) that it is applicable to the following proceedings, as categorized by the Hon''ble Supreme

Court in the case of Shree Chamundi Mopeds Ltd. Vs. Church of South India Trust Association CSI Cinod Secretariat, Madras, : (i) Proceedings

for winding up of the industrial company; (ii) Proceedings for execution, distress or the like against the properties of Sick Industrial Company, and

(iii) Proceedings for appointment of receiver. Applying the said ratio, the proceedings initiated by the respondent u/s 9 of the Act would not fall in

the said three categories. Moreover, the property is not the property of the appellant company.

It is more appropriate to mention in this context the other judgments of this Court in the cases of Shri Atlanta Udyog Private Limited v.

Cholamandalam Investment Organisation 2003 (4) CTC 69, cited supra. The ratio laid down in the above judgments is squarely applicable to the

case on hand.

Allowing the company to continue the possession of the machineries belonging to the respondent causes further liability. The owner namely the

respondent herein continues to suffer the loss, by allowing the appellant to keep the machineries in their custody till the disposal of the cases before

BIFR or AIFR. The provisions of Section 22 are not enacted by the Parliament to aggravate the financial difficulties of a Sick Industrial Company,

while the matter is pending before the BIFR or AIFR.

It is evident from the act of the appellants that after passing the order by BIFR dated 22.9.2000, they have chosen to enter into second

schedule of agreement dated 21.4.2001 thereby agreed to pay the arrears. The reason is obvious that the leased out property belonged to the

respondents. The provisions of Sections 22(1) and 32(1) did not bar the proceedings initiated u/s 9 of the Arbitration Act.

In the result, the appeal is dismissed, but, in the circumstances of the case, no order as to costs. Consequently, the connected C.M.P. is also

dismissed.