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M/S. d.p. Bags (P) Ltd. Vs.m/s. Nav Bharat International Ltd. - Court Judgment

LegalCrystal Citation
CourtDelhi High Court
Decided On
AppellantM/S. d.p. Bags (P) Ltd.
RespondentM/S. Nav Bharat International Ltd.
Excerpt:
.....system if a creditor is disallowed even from proving the indebtedness of a recalcitrant debtor sica company, it would cause unjustified hardship. whichever way we look at the matter, there can be no logic in denying legal recourse to a party for proving its debt. in the event that at least the principal amount, or a substantial part of it stands admitted, either in the suit or by means of a mention in the scheme placed before the bifr, the aggrieved party must be permitted to prove its claim. in holding so, the only prejudice that we can conceive of is incurring expenditure in legal fees. when this is weighed against the interests of a person claiming that the company is indebted to it, the balance tilts in favour of the latter. a holistic reading of section 22(1) of sica makes it.....
Judgment:

* + IN THE HIGH COURT OF DELHI AT NEW DELHI Reserved on:

28. h September, 2016 Pronounced on:27th October, 2016 CS (OS) 2049/2014 M/S. D.P. BAGS (P) LTD. ..... Plaintiff Through: Mr. Arjun Singh Bhati, Advocate Versus M/S. NAV BHARAT INTERNATIONAL LTD. .... Defendant Through: Mr. Karan Batura, Advocate CORAM: HON'BLE MR. JUSTICE R.K.GAUBA ORDER IA No.5392/2015 (u/S. 22(1) of SICA by the defendant) 1. The application at hand has been moved by the defendant invoking Section 22 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (“SICA”) praying for dismissal of the suit instituted by the non-applicant (plaintiff) for recovery of ₹1,08,43,173/- alongwith interest at 15% p.a. and pendente lite from the date of the suit till realization, primarily on the ground that the applicant company (defendants), incorporated in the State of UP on 13.02.2004, having commenced commercial production on 01.04.2011, it being engaged in the processing of rice paddy had suffered erosion of its entire net worth, as per audited balance sheet as CS(OS) 2049/2014 Page 1 of 8 on 31.12.2011, had filed a reference under Section 15(1) of SICA on 15.06.2012 which was registered as case no.43/2012 on 21.08.2012 and it having come up on 10.10.2012 has been pending before the Board for Industrial and Financial Reconstruction (BIFR) ever since, consequently rendering it impermissible for any suit for recovery of money against the company being instituted or proceeded with further. The application has been resisted by the plaintiff, inter alia, pointing out that the defendants by way of written statement filed on 02.12.2014 seek to contest the suit, amongst others, on the ground of denial of any liability on its part.

2. Arguments were heard at length on the application and with the assistance of the learned counsels on both sides record has been perused.

3. Besides the above mentioned facts, it only needs to be further noted here that the claim of the plaintiff arises out of supply of material (Jute Hessian cloth / fabric for packing its product) to the defendant, as per its requests and / or against invoices raised from time to time, liability having been acknowledged lastly by way of balance confirmation through the ledger account for the period 01.04.2011 to 31.03.2012, the principal amount being ₹73,83,120.50.

4. Section 22(1) of SICA, which has been invoked, reads thus : “22. Suspension of legal proceedings, contracts, etc.— (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under CS(OS) 2049/2014 Page 2 of 8 implementation or where an appeal under section 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 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. industrial company or the for 5. The defendant relies on the decisions of the Supreme Court in Real Value Appliances Ltd. Vs. Canara Bank and Ors., (1998) 5 SCC554 Ghanshyam Sarda Vs. Shiv Shankar Trading Company and Ors., (2015) 1 SCC298 and KSL and Industries Ltd. Vs. Arihant Threads Ltd. and Ors., (2015) 1 SCC166 Per contra, the plaintiff’s contention is that since the defendant contests the claim and since there is no scheme brought before the BIFR wherein the interests of the plaintiff were duly protected, inhibition in Section 22 (1) of SICA cannot be invoked. Reliance is placed on the decision of the Supreme Court in Raheja Universal Ltd. Vs. NRC Ltd. and Ors., (2012) 4 SCC148and of a division bench of this court in Saketh India Ltd. Vs. W. Diamond India Ltd., 2010 (119) DRJ190 besides the view taken on CS(OS) 2049/2014 Page 3 of 8 similar lines by a learned single judge of this court in FMI Investment Pvt. Ltd. Vs. Montari Industries Ltd., 2012 (194) DLT687 6. Having considered the relevant contentions urged on both sides, this court finds merit in the objection raised by the plaintiff to the invocation of Section 22(1) of the SICA by the defendant.

7. In Real Value Appliances Ltd. (supra), the Supreme Court did observe that once the reference under SICA is registered rendering it mandatory requirement of information / documents to be simultaneously called for, inquiry under Section 16(1) is “deemed to have commenced” for purposes of Section 22. But mere commencement of such an inquiry does not bring the prohibition in Section 22 of the SICA into play so as to unexceptionally bar all suits or proceedings.

8. The following observations of the Supreme Court in Raheja Universal Ltd. (supra) need to be borne in mind :-

"“78. The expression „no proceedings‟ that finds place in Section 22(1) is of wide spectrum but is certainly not free of exceptions. The framers of law have given a definite meaning to the expression “proceedings” appearing under Section 22(1)of SICA1985 These proceedings are 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.

79. The expression “the like” has to be read ejusdem generis to the term “proceedings”. The words “execution, distress or the like” have a definite connotation. These proceedings can have the effect of nullifying or obstructing the sanctioning or implementation of the revival scheme, as contemplated under the provisions of SICA1985 This is what is required to be avoided for effective implementation CS(OS) 2049/2014 Page 4 of 8 9. of the scheme. The other facet of the same Section is that, no suit for recovery of money, or for enforcement of any security against the industrial company, or any guarantee in respect of any loan or advance granted to the industrial company shall lie, or be proceeded with further without the consent of the BIFR. In other words, a suit for recovery and/or for the stated kind of reliefs cannot lie or be proceeded further without the leave of the BIFR. Again, the intention is to protect the properties/assets of the sick industrial company, which is the subject matter of the scheme.

80. It is difficult to state with precision the principle that would uniformly apply to all the proceedings/suits falling under Section 22(1) of SICA1985 Firstly, it will depend upon the facts and circumstances of a given case, it must satisfy the ingredients of Section 22(1) and fall under any of the various classes of proceedings stated thereunder. Secondly, these proceedings should have the impact of interfering with the formulation, consideration, finalization or implementation of the scheme.” As is clear from the above noted ruling, the crucial test to be applied is as to whether the proceedings against the company (in a suit for recovery) would have the “impact of interference” with the proceedings before the BIFR, which are expected to lead to formulation, consideration, finalization or implementation of the scheme for rehabilitation of the company claimed to be a sick company.

10. Similar questions arose before a division bench of this court in Saketh India Ltd. (supra). The following observations in the said judgment need to be extracted :-

"“6. Courts, however, have always been alive to the possible mischief that invocation of SICA can lead to. In a CS(OS) 2049/2014 Page 5 of 8 the in fact nutshell, where the net worth of a company is reduced to a negative, and the amelioration that is sought is for reviving the company rather than winding it up, the recourse to the Act would be legitimate. There is no justifiable reason, therefore, for all legal proceedings to be immediately even held in abeyance, if not dismissed. We are mindful of that Parliament has incorporated an amendment in the Section with effect from 1.2.1994 in these words - "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". It appears to us that the phrase "recovery of money" must be construed ejusdem generis and accordingly recovery proceedings the nature of execution or any other coercive enforcement that has been ordained to be not maintainable. We do not find any logic in holding legal proceedings to be not maintainable, or to be liable to be halted unless, even if the debt sought to be proved in the Plaint has not been admitted. Given the delays presently endemic in the justice delivery system if a creditor is disallowed even from proving the indebtedness of a recalcitrant debtor SICA company, it would cause unjustified hardship. Whichever way we look at the matter, there can be no logic in denying legal recourse to a party for proving its debt. In the event that at least the principal amount, or a substantial part of it stands admitted, either in the suit or by means of a mention in the Scheme placed before the BIFR, the aggrieved party must be permitted to prove its claim. In holding so, the only prejudice that we can conceive of is incurring expenditure in legal fees. When this is weighed against the interests of a person claiming that the company is indebted to it, the balance tilts in favour of the latter. A holistic reading of Section 22(1) of SICA makes it manifestly clear that Parliament‟s intention was to insulate sick companies CS(OS) 2049/2014 Page 6 of 8 only against proceedings for winding-up or for execution, or distress or the like or for enforcement of any security or guarantee. In the case in hand, despite several opportunities granted to the Appellant, it has miserably and perhaps deliberately failed to substantiate that the claim mentioned in the Suit has been reflected in the Scheme placed before the BIFR but even more poignantly, that a scheme was, in fact, pending before BIFR. If an Appeal is pending, has BIFR failed to grant or has withdrawn registration under SICA. We see the conduct of the Appellant as nothing more than an abuse of SICA.” 11. While holding that the protection of Section 22 of the SICA would automatically have to be implemented as soon as a claim stands admitted, either because it had been reflected in the scheme presented before the BIFR or because it stands favourably adjudicated in the court of law, the court in Saketh India Ltd. (supra) referred, with approval, the view taken by a learned single judge of this court in Sirmor Sudburg Auto Ltd. vs. Kuldip Singh Lamba, (1998) 91 Comp. Cas 727 to the effect that “mere pendency of the enquiry would not suffice; the claimed dues must be reckoned or included in the sanctioned scheme.” 12. The views taken in Ghanshyam Sarda (supra) and KSL and Industries Ltd. (supra) do not assist the defendant as the observations in those decisions were in different context.

13. In the present case, difficulties for the defendant in pressing home the application at hand are not only that the claim of the plaintiff has been disputed but also that there is nothing shown to the court that claim of the plaintiff in the suit would be covered by any scheme formulated or presented to the BIFR for its approval. CS(OS) 2049/2014 Page 7 of 8 14. Thus, the application under Section 22(1) of the SICA is found devoid of merits and is dismissed. CS (OS) 2049/2014 15. The case shall be listed for framing of issues on 27.02.2017. OCTOBER27 2016 yg (R.K. GAUBA) JUDGE CS(OS) 2049/2014 Page 8 of 8


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