Skip to content


The National Iron and Steel Co. Ltd. Vs. Bank of India and ors. - Court Judgment

LegalCrystal Citation
SubjectBanking;Commercial
CourtKolkata High Court
Decided On
Case NumberA.F.O.O. No. 36 of 1977
Judge
Reported inAIR1978Cal379,82CWN1031
ActsCode of Civil Procedure (CPC) , 1908 - Order 43, Rule 1; ;West Bengal Relief Undertakings (Special Provisions) Act, 1972 - Sections 3, 4, 5 and 6
AppellantThe National Iron and Steel Co. Ltd.
RespondentBank of India and ors.
Appellant AdvocateD. Sen and ;Rajat Ghosh, Advs.
Respondent AdvocateS. Pal, ;A.K. Roy, Advs. (for No. 1), ;Aninda Mitra and ;Goutam Mitra, Advs. (for Nos. 6 and 7)
DispositionAppeal allowed
Cases ReferredIn Pushraj Puranmul v. N. Roy
Excerpt:
- .....corporate which has been added as a plaintiff in the suit. 4. on 4th of may, 1972 the west bengal relief undertakings (special provisions) act, 1972 came into force. the object of the act as appears from the preamble is as follows:-- 'an act to enable the state government to make special provisions for a limited period in respect of the industrial relations, financial obligations and other like matters in relation to industrial undertakings the running of which is considered essential as a measure of preventing or of providing relief against, unemployment.' sections 2, 3, 4, 5 and 6 of the act are as follows :-- section 2 definitions. in this act unless the context otherwise requires:-- (4) 'relief undertaking' -- means a state industrial undertaking in respect of which a declaration.....
Judgment:

Salil Kumar Datta, J.

1. This is an appeal against the order of Ajay Kumar Basu, J. dated May 19, 1977 passed in Suit No. 241 of 1968.

2. The Bank of India Ltd. instituted the said suit against the National Iron & Steel Co. Ltd. (hereinafter referred to as the Company) inter alia for a decree for Rs. 28,85,975.16 p. and interest due on account of moneys lent and advanced by the Bank to the Company and interest thereon and for a declaration that the stocks of the iron and steel, and stores, raw or manufactured or in process of manufacture, and products, goods or movable properties of any kind stored in the premises or godown of the Company or wherever situated, present and future book debts and claims, all stand hypothecated and charged by way of first and paramount charge in favour of the Bank for repayment of its aforesaid dues. The defendants Nos. 2 to 8 were also impleaded as guarantors against whom also the decree as aforesaid was prayed for, as they were guarantors to the loans and advances made by the Bank to the Company. On the application of the Bank in the suit, Mr. B. K. Chakraborty, Barrister-at-law, was appointed Receiver of the hypothecated and pledged goods of the Company by an order passed on Feb. 26, 1968, According to the survey conducted by the Superintendence Company of India Ltd. in 1968 after the institution of the suit, the total value of pledged and hypothecated goods was Rupees 39,89,589.98 p. even apart from imported pledged goods. In 1970 the Receiver sold portion of the said goods and realised Rs. 21 lacs which, less charges, was made over to the Bank. There was a further sale in pursuance of the subsequent order of June 1, 1976 for Rupees 56,000/-.

3. The said suit is pending. It appears that under the provisions of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1969 the undertaking of the Bank had thereby vested in the Bank of India, a body corporate which has been added as a plaintiff in the suit.

4. On 4th of May, 1972 the West Bengal Relief Undertakings (Special Provisions) Act, 1972 came into force. The object of the Act as appears from the preamble is as follows:--

'An Act to enable the State Government to make special provisions for a limited period in respect of the industrial relations, financial obligations and other like matters in relation to industrial undertakings the running of which is considered essential as a measure of preventing or of providing relief against, unemployment.'

Sections 2, 3, 4, 5 and 6 of the Act are as follows :--

Section 2 Definitions. In this Act unless the context otherwise requires:--

(4) 'relief undertaking' -- means a State industrial undertaking in respect of which a declaration under Section 3 is in force;

(5) 'State industrial undertaking' means an industrial undertaking-- (a) which is started or which, or the management of which, is under any law or agreement acquired or otherwise taken over by the State Government or by a Government Company and is run or proposed to be run by, or under the authority of, the State Government or a Government Company; or (b) to which any loan, advance or grant has been given, or in respect of any loan whereof, a guarantee has been given, by the State Government or a Government Company.'

Section 3:-- Declaration of relief undertaking. The State Government may, if it is satisfied that it is necessary or expedient so to do in the public interest, with a view to enabling the continued running or restarting of a State industrial undertaking as a measure of preventing, or of providing relief against, unemployment, declare by notification, that the State industrial undertaking shall, on and from such date and for such period as may be specified in the notification be a relief undertaking: provided that period so specified shall not. in the first instance, exceed one year but may, by a like notification, be extended, from time to time, by any period not exceeding one year at any one time, so, however that no notification issued under this section shall in any case remain in force for more than five years in the aggregate ('five years' have been substituted by 'seven years' by the West Bengal Relief Undertakings (Special Provisions) (Amendment) Act, 1974).

Section 4:-- Application of certain enactments and contracts, agreement etc. to relief undertaking. The State Government may, if it is satisfied that it is necessary or expedient so to do for the purposes specified in Section 3, direct, by notification,-- (a) that in relation to any relief undertaking all or any of the enactments specified in the Schedule to this Act shall not apply or shall apply with such adaptations, whether by way of modification, addition or omission (which it does not, however, affect the policy of the said enactments), as may be specified in such notification; or (b) that the operation of all or any of the contracts assurances of the property, agreements, settlements, awards, standing orders or other instruments in force (to which any relief undertaking is a party or which may be applicable to any relief undertaking) immediately before the date on which the State industrial undertaking is declared to be a relief undertaking, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such modifications and in such manner as may be specified in such notification. Section 5 :-- Overriding effect of notification under Section 4. A notification issued under Section 4 shall have effect notwithstanding anything to the contrary contained in any other law, agreement or instrument or any decree or order of the Court, tribunal, officer or other authority.

Section 6:-- Suspension or modification of certain remedies rights, etc, stay of proceedings, their revival and continuance. Any remedy for the enforcement of any right, privilege, obligation or liability referred to in Clause, (b) of Section 4 and suspended or modified by a notification under the section shall, in accordance with the terms of the notification, be suspended or modified, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall accordingly be stayed or continued subject to such modification, so, however, that on the notification ceasing to have effect-- (a) any right, privilege obligation or liability so suspended or modified shall revive and be enforceable as if the notification had never been issued, and (b) any proceeding so stayed shall be proceeded with subject to the provisions of any law which may then be in force from the state which had been reached when the proceeding was stayed.

5. The enactments of the Schedule are (i) the Industrial Employment (Standing Orders) Act, 1946 (ii) the Industrial Disputes Act, 1947 (iii) the Minimum Wages Act. 1948 and (iv) the West Bengal Shops and Establishments Act, 1963.

6. On 30th April, 1976 a notification No. 1779-CSI under Section 3 of the West Bengal Relief Undertakings (Special Provisions) Act, 1972 was published in Calcutta Gazette reciting that inasmuch as in respect of the loan of Rs. 50,000/-from the Industrial Reconstruction Corporation of India Ltd. (hereinafter referred as IRCI) to the Company, a guarantee was given by the State Government and thereby the industrial undertaking under Section 2 (5) (b) became a State Industrial undertaking. It was further recited that the State Government was satisfied that it was necessary and in public interest to enable continued running of the State industrial undertaking as a measure of preventing unemployment. The Government accordingly by the said notification declared that the said State industrial undertaking on and from 30th April, 1976 and for the period up to 29th April, 1977 would be a relief undertaking.

7. On the same date another notification was issued under Section 4 of the said Act which is as follows :--

'No. 1780 CSI -- 30th April, 1976 --Whereas by this Department Notification No. 1779-CSI, dated the 30th April, 1976 issued under Section 3 of the West Bengal Relief Undertakings (Special Provisions) Act, 1972 (West Bengal Act XIII of 1972), the unit known as Messrs National Iron and Steel Company Limited, having its registered office at Belurmath, district Howrah, has been declared to be a relief undertaking (hereinafter referred to as the said relief undertaking).

And whereas the State Government is satisfied that it is necessary and expedient so to do in the public interest, with a view to enabling the continued running of the said relief undertaking as a measure of preventing unemployment;

Now, therefore, in exercise of the power conferred by Section 4 of the said Act, the Governor is pleased hereby to direct that in relation to the said relief undertaking all the enactments specified in the Schedule to the said Act shall not apply and that the operation of all contracts, assurances of property, agreements, settlements, awards standing orders or other instruments in force (to which the said relief undertaking is a party or which may be applicable to the said relief undertaking) immediately before the date on which the said relief undertaking was declared as such, together with all the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, but excluding contracts, assurances of property and agreements entered into immediately before the date on which the said relief undertaking was declared as such, by the said relief undertaking with the Government, the Industrial Reconstruction (Corporation) of India Limited or any other Financing institution shall remain suspended.'

8. On September 21, 1976 two guarantors defendants Nos. 6 and 7 namely B. K. Agarwalla and B. P. Agarwalla, took out a notice of motion for directions on the Receiver for removal of the hypothecated properties to some other godown by police help and for sale thereof without delay as the Bank was obstructing the sale. According to the said guarantors, the value of the hypothecated goods, the sale whereof would otherwise discharge the debts due by the company to the Bank, were fast deteriorating. Without prejudice to their contention that their liability to the Bank under the guarantee stood discharged, the said defendants submitted that the value of the unsold stock would be sufficient to meet the claim in the suit and ensure benefit to all concerned. The application in support of the notice of motion was not opposed by the Bank thougth the allegation that the sale was obstructed by the Bank was denied. The company in its affidavit-in-opposition of May 10, 1976 submitted that it was declared to 'a relief undertaking' under the West Bengal Relief Undertakings (Special Provisions) Act, 1972. Under its provisions there was a suspension of all rights under the contracts and assurances of property in force immediately before the declaration entered into between the Bank and the Company but before the institution of the suit. The application for sale by the Receiver should accordingly be dismissed. Therein an affidavit-in-reply by the said defendants wherein the case as made in their application for sale was reiterated.

9. The notice of motion came up for hearing before Ajay Kumar Basu, J, when the following order was passed:--

'7. It is ordered that the Receiver be at liberty to seek and obtain police help for the purposes of removal of the hypothecated materials lying on the factory premises of the defendant, the National Iron & Steel Company Ltd. (hereinafter referred to as the defendant) at Belurmath and it is further ordered that the Receiver do remove the hypothecated materials lying at the factory premises of the said defendant at Belur and do store the same in some other godown and it is further ordered that the said Receiver do sell the hypothecated materials mentioned in the Annexure 'D' of the said petition of the said defendant dated 27th day of October, 1970 by public auction or private treaty to the best purchaser or purchasers that can be got for the same provided he considers that sufficient sum or sums has or have been offered for the same and it is further ordered that the time for completion of such sale as aforesaid of the materials by the said Receiver be and the same in extended by three months from the date of hearing.'

10. This order was passed on 19th January, 1977 and against this order the Company defendant No. 1 has preferred this appeal.

11. It may be mentioned here that the declaration that the company was a relief undetaking under the said Act was originally for a period from 30th April 1976 up to 29th April 1977. We have been informed and there is no dispute that by subsequent notifications the period aforesaid has been extended and the company has been and still continues to be a relief undertaking under the aforesaid notifications.

12. The order under appeal is not a speaking order, though, it has been said elaborate submissions as made before us, were also made before the learned Judge. In case of an appealable order, we need hardly emphasise, the order should be a speaking order so that the validity or otherwise of such order can be examined by the appellate court in the appeal before such court.

13. A preliminary objection was taken by the said defendants Nos. 6 and 7 about the maintainability of the appeal. It was said that the order directing the Receiver to sell the properties was not an appealable order, as it was not a judgment as contemplated under Clause 15 of the Letters Patent. The above contention may otherwise be sustainable as such order, by itself is not determining any issue on merits or concluding any right in controversy between the parties nor it is an order terminating the proceeding or the suit. Even so, in view of the said legislation and the issue of notifications under Ss, 3 and 4 in respect of the company, the question for consideration is about, the impact of the provisions of the said sections and the notifications which purport to stay the operation of contracts and assurances of property which is sought to be enforced by the suit. The controversy thus involves the question of jurisdiction of the Court to pass the order of sale of hypothecated goods which means and implies the enforcement by suit through the process of law the contracts and assurances of property made by the Company in favour of the Bank. The order involving, as it does, the question of jurisdiction is thus appealable.

14. By the order under appeal dated January 19, 1977 the Receiver was directed to sell the hypothecated properties within three months thereof which period had long passed. In this appeal the appellate Court by its order passed in or about February 8, 1977 stayed the operation of the order of sale passed by the trial court. If the stay is vacated in this appeal, it is submitted, there will be sufficient time for the Receiver to comply with the order of sale within the period specified. It is obvious that it could not accordingly be said that the appeal has become infructuous like the Appeal No. 384 of 1976 against an earlier order for sale dated June 1, 1976 as the period during which the operation of the order under appeal before us has been stayed is to be excluded in computing the period of three months provided for sale of the goods.

15. Mr. D. K. Sen appearing with Mr. Rajat Ghosh, learned counsel appearing for the appellant, contended that the provisions of the West Bengal Relief Undertakings (Special Provisions) Act, 1972 is intended to provide for suspension, for limited period, as may be specified, of the operation of all contracts or assurances of property made by the company in favour of its creditors as the object of the Act is to revive and restart these industrial undertakings which are closed do.wn for various reasons resulting in substantial loss of production and in employment. Accordingly, in view of the notification made under Section 4 as aforesaid and of the provisions of Sections 5 and 6 of the Act, the enforcement of any right or obligation arising out of contracts or assurances of properties is to remain suspended and proceedings relating to such contracts or assurances pending in court for their enforcement shall remain stayed. In the circumstances, it is submitted the Bank could not have proceeded with the suit for the enforcement of contract or assurances of property, for which purpose the suit was instituted. The order for sale is a step in aid for enforcing the contract and assurance of property bv the Bank, though at the instance of the guarantors, which the court has no jurisdiction to pass in the context of the aforesaid legislation and the notifications thereunder.

16. It would be of interest to refer to the statement of objects and reasons of the said Act which is as follows :--

'A number of industrial undertakings in West Bengal are now closed down for various reasons resulting in substantial loss in production and in employment. For continued economic operation of such industrial units, the State Government in some cases advanced loans, furnished guarantees for Bank loans and even took over the equity shares of some units in the past. Unfortunately, most of the money advanced by the Government was consumed by the past liabilities or large overheads of the beneficiary units. In order to enable the State Government to revive and restart these industrial undertakings and operate them efficiently and thereby provide employment to a large number of workers, it is essential that the State Government should have suitable powers to free the industrial undertakings for a short period from certain financial obligations of the past and to exempt them from the scope of certain labour laws.'

17. In Pushraj Puranmul v. N. Roy, : AIR1978Cal215 (FB) a Bench of five Judges of this Court, as required under Article 228-A, Sub-article (3) of the Constitution (since omitted), held that the provisions of the Act are intra vires and within the legislative competence of the West Bengal Legislature. In view of its clear provisions as indicated above it appears that the object of the Act is to give relief to a 'relief undertaking' (as defined in the Act) which has been closed down for various reasons resulting in substantial loss in production and in employment. For continued economic operation of such industrial units the State Government in some cases advanced loans and furnished guarantees for the Bank loans which have not been properly utilised. It was felt that the Government should be enabled to revive and restart such industrial undertakings and to operate them efficiently and thereby provide employment to a large number of workers. The Government accordingly has been given powers by the Act to free the industrial undertakings, for a limited period, of financial obligations of the past and also to exempt such units from the scope of certain labour laws, so that all rights, privileges obligations and liabilities accruing or arising under contracts or assurances of property or awards or settlements under labour laws specifically mentioned and in force on the date of declaration under Section 4 shall remain suspended or be enforceable with such modifications as may be provided in the notification.

18. Accordingly the Government on declaration of the Company as a 'relief undertaking', made provisions in respect thereof by the notification under Section 4 for suspension of application of labour laws as specified and also the operation of the contracts and assurances of the property then in force between the undertaking and its creditors which may be sought to be enforced through the process of law as here by the Bank by the institution of the connected suit. It appears that this suit which is a proceeding relating to enforcement of such contracts or assurances of property by the company in favour of the Bank in the pending suit has to be stayed as provided in Section 6 in so far as it relates to their enforcemerit so long as the company continues to be 'a relief undertaking'. It was suggested that the notification would also affect the operation of the order appointing the Receiver which should for the same reason be suspended. The Receiver, however, is appointed not to enforce the contract or assurances of property sought to be made in the suit, but for conservation and protection of suit properties for the benefit of all concerned. The Receiver as officer of court, will act according to the directions of the court as may be made consistent with the object of the Government to revive and restart the unit of the industrial undertaking so long as it continues to be a 'relief undertaking'. If assets required for revival of the undertaking are sold away, the very purpose of the enactment would be frustrated.

19. The parties before us have, however, differed materially in their respective approach to the proviso in the notification under Section 4. In the notification it is provided that all awards and settlements, as also the operation of all contracts and assurances of property by the relief undertaking in force immediately before the date on which the 'relief undertaking' was declared as such with all rights and liabilities thereunder shall remain suspended. If the notification extended no further, there could be little dispute that the operation of the order for sale of the hypothecated properties of the Company, a 'relief undertaking', which is a step in aid towards enforcement of contracts and assurances of property, would remain suspended. But there is an exception excluding, from the provisions for suspension, the contracts and assurances property entered into immediately before the date on which the relief undertaking was declared as euch, by the said 'relief undertaking' with the Government, the Industrial Reconstruction (Corporation) of India Ltd. or any other Financing Institution, It is contended bv Mr. Mitra as also by Mr. Pal firstly that the provisions of the notification does not apply to order for sale passed by the Court. Further, it is submitted, the words 'immediately before' occurring in two places of the notification must have the same meaning. The said words, mean and imply 'upto' or 'preceding' in the earlier portion, i. e. contracts or assurances of property in force upto or preceding the date of notification. The same words 'immediately before' in the later portion also mean contracts and assurances of property entered into at any time upto or preceding the said notification. The Bank undoubtedly is a financing institution, if not an organ of the Government, so that the contracts and assurances entered into preceding the declaration are excepted from the otherwise blanket suspension contemplated under the Act and in terms of the notifications. There is therefore, it is submitted, no illegality in the order for sale of hypothecated goods which will be for the benefit of all concerned, as the goods are fast deteriorating while the mill is not in working condition for a considerable time.

20. These contentions as also the allegations have been disputed by Mr. Sen who submitted that the exception in the notification does not extend to the contracts and assurances of properties entered into by the company with the Bank long before the institution of the suit in 1968. It may be mentioned here that in Ext. A to the affidavit-in-opposi-tion of the Company dated Nov. 9, 1976 it is disclosed that further sum of Rupees 72.91 lakhs had been advanced by IRCI to the Company for reconstruction of the company and prevention of unemployment. In interpreting the notification under Section 4 relating the company, it is however, not relevant nor is it necessary or permissible to take into consideration the further advances made by IRCI to the Company or whether the company is working its plants as these are matters for the Government and others concerned to decide their course of action. The notification has to be interpreted on its terms as a whole in the light of the intention behind the notification and not on consideration of extraneous matters.

21. The contention that the provisions of Section 4 do not apply to orders of the court is unacceptable. Section 6 expressly suspends the remedies for the enforcement of rights under contracts and assurances of property which rights are suspended or modified by a notification under Section 4 and all proceedings relating thereto pending in any court shall be stayed. Accordingly it seems obvious that the court had no jurisdiction or competence to enforce the remedies by process of law in a pending suit or proceeding in respect of rights which have been suspended or modified by notification under Section 4 except as provided therein. The order for sale accordingly seems without jurisdiction unless excepted by the exception contained in the notification.

22. The notification, as we have seen, applies to all contracts and assurances of property in force immediately before the date of declaration of the company as a 'relief undertaking' thereby made. The only test for bringing such contracts and assurances within the ambit of the notification is that such contracts and assurances must be in force immediately before the notification. The contracts and assurances, thus must not only precede the declaration but they must also be enforceable when the declaration is made, so that words 'immediately before' in this context have to be read not in isolation but with reference to the preceding words 'in force'.

23. The words 'immediately before' in the exception also cannot be read in isolation but have to be read with reference to the words preceding, which, as in the earlier instance, determine their meaning and ambit. The words preceding 'immediately before' in the exception are contracts and assurances of property 'entered into' and this juxtaposition of words means and implies that such contracts and assurances will be ex-cepted which though in force immediately before the declaration, must also be entered into 'immediately before' such declaration. This means that such contracts and assurances between the parties to come under the exception must be entered into in close proximity in respect of time to the date of the declaration. Thus though words 'immediately before' are used in two cases, their meanings are determined by the words preceding them and such interpretation affords a harmonious and consistent meaning and import to the notification.

24. What will be the close proximity in respect of time will have to be determined on the facts of each case and it is not possible to lay down any rule applicable to all cases. It is also not necessary in this case to do so, as the contracts and assurances though in force at the time of the declaration in 1976 were entered into long before and prior to the institution of the suit in 1968.

25. The order under appeal is in respect of contracts and assurances of properties of the company which are within the ambit of the notification and not saved by the exception. The operation of such contracts and assurances has been suspended by the notification and accordingly the Court had no jurisdiction to pass orders for sale in aid of the operation of such contracts and assurances, so long as the declaration of the company as a 'relief undertaking' is in force. The order impugned in the appeal was accordingly without jurisdiction and cannot be sustained.

26. In the premises the appeal succeeds and is allowed and the impugned order is set aside. There will, however, be no order for costs in the circumstances.

27. We have been told by Mr. Mitra that the company is not working its plants which are closed for a considerable time and the goods have already deteriorated and are still deteriorating fast. In this state of affairs it would be for the benefit of all concerned if the goods could he sold even at this stage. This submission, Mr. Mitra reminded, is without prejudice to the contentions of his clients that their guarantees to the Bank for the claims in suit already stood discharged in the events that had happened.

28. It is not for the court to express any opinion or issue directions in the matter in the context of the closure of the plant even if true, but we cannot ignore the force or justification of such contention. Unfortunately neither Government nor IRCI who are also vitally concerned in the matter are before us but we hope these aspects will be taken into consideration by the Government who is the appropriate authority to determine the period the company should be allowed to continue as a 'relief undertaking'.

Sankar Prasad Mitra, C.J.

29. I agree.


Save Judgments// Add Notes // Store Search Result sets // Organizer Client Files //