FA/490520/2008 1/13 JUDGMENT IN THE HIGH COURT OF GUJARAT AT AHMEDABAD FIRST APPEAL No. 4905 of 2008 For Approval and Signature: HONOURABLE MR.JUSTICE H.K.RATHOD Sd/- ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ? YES 2 To be referred to the Reporter or not ? YES 3 Whether their Lordships wish to see the fair copy of the judgment ? YES 4 Whether this case involves a substantial question of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ? NO 5 Whether it is to be circulated to the civil judge ? NO ========================================================= CENTRAL BANK OF INDIA - Appellant(s) Versus COAST WEST FERRO ALLOYS & 7 - Defendant(s) ========================================================= Appearance : MR NAGESH C SOOD for Appellant(s) : 1, None for Defendant(s) : 1, 8, MS SEJAL K MANDAVIA for Defendant(s) : 2 - 7. ========================================================= CORAM : HONOURABLE MR.JUSTICE H.K.RATHOD Date : 14/10/2008 ORAL JUDGMENT 1. Heard learned advocate Mr. Nagesh C. Sood appearing on behalf of appellant and learned advocate Ms. Sejal K. Mandavia appearing on behalf of FA/490520/2008 2/13 JUDGMENT respondent Nos.2 to 7 on caveat. 2. The appellant – Central Bank of India has filed present appeal challenging the order passed by Civil Court in Special Civil Suit No.153 of 2000 vide Exh.44 dated 22nd March 2007. The Civil Court has dismissed the suit considering the bar of Section 22 of the Sick Industrial Companies Act (hereinafter referred to as 'SICA') read with Order VII Rule 11 of the Code of Civil Procedure (hereinafter referred to as 'CPC'). 3. Learned advocate Mr. Sood submitted that Special Civil Suit is filed by appellant against respondents, where, contention raised by respondent vide Exh.44 that respondent being a sick unit declared by Board of Industrial Finance and Reconstruction (hereinafter referred to as 'BIFR'), therefore, under Section 22(1) of SICA, present suit is not to be maintainable against respondents. 4. This aspect has been examined by Civil Court while considering the reply given by appellant Exh.48. The Civil Court has considered the relevant provisions of Section 22(1) of SICA and also considered that respondent Unit is declared sick on 4th June 1999 and Civil Suit is filed on 28th September 2000. It is not disputed by appellant before this Court that respondent is not sick unit declared by BIFR. Only contention which is raised by learned advocate Mr. Sood is that language used or FA/490520/2008 3/13 JUDGMENT incorporated under Section 22(1) suggests the suspension of the proceedings, even, Civil Court should not have suspend the suit which otherwise come in way of appellant in filing fresh proceedings, therefore, question of limitation will also arise. Therefore, he submitted that Civil Court has committed gross error in understanding the provisions of Section 22(1) of SICA. 5. Learned advocate Mr. Sood relied upon one decision of Apex Court in case of Gram Panchayat and Another v. Shree Vallabh Glass Works Limited and Others reported in (1990) 2 SCC 440 – Para 7. After relying upon aforesaid decision of Apex Court, in short, the submission of learned advocate Mr. Sood is Civil Suit should not have to be dismissed by Civil Court. It should have to be remained pending but proceedings should have to be suspended by Civil Court. 6. Learned advocate Ms. Mandavia supported the order passed by Civil Court vide Exh.44. 7. I have considered the submissions made by learned advocate Mr. Sood and learned advocate Ms. Mandavia. I have also perused the order passed by Civil Court – Exh.44. The short question is that suit proceedings which has been initiated claiming the amount from sick unit whether it is permissible under provisions of Section 22(1) of SICA and whether suit can lie without prior permission of BIFR under the FA/490520/2008 4/13 JUDGMENT provisions of Section 22(1) of SICA. 8. The said aspect has been recently examined by Apex Court in case of KSL Industries Limited v. M/s. Arihant Threads Limited and Others reported in 2008 (12) Scale 42. The relevant discussions are made in Para 20 to 25 interpreting the provisions of Section 22(1) and also considered the ambit and scope of SICA, therefore, the same are quoted as under : “20. So far as SICA is concerned, it has been stated in the Preamble that the Act has been enacted in public interest "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 and for matters connected therewith or incidental thereto". While interpreting various provisions of the Act, the said object has to be kept in mind by Courts. Section 2 is in the form of `declaration' and declares that the Act has been enacted for giving effect to the policy of the State towards securing the principles specified in clauses (b) and (c) of Article 39 of the Constitution. Section 3 defines various terms used in the Act. Chapter II relates to establishment of Board and Appellate Authority, term of office, FA/490520/2008 5/13 JUDGMENT conditions of service of officials and working of the Board and Appellate Authority. References, Inquiries and Schemes have been dealt with in Chapter III. Whereas Section 15 provides for Reference to Board, Section 16 speaks of Inquiry into working of sick industrial companies. Section 17 empowers the Board to make suitable order on the completion of inquiry. Sections 18, 19 and 19A deal with Preparation of Schemes, Rehabilitation and Arrangement for continuing operations during inquiry. Winding up of sick industrial company is found in Section 20. Section 21 allows Operating Agency to prepare inventory. Under Section 22A, directions can be issued preventing disposal of assets in certain cases. 21. Section 22 is a material provision which relates to suspension of legal proceedings, contracts, etc. Sub-section (1) is important and may be reproduced; 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 implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding FA/490520/2008 6/13 JUDGMENT 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. ..... ..... ..... ..... 22. Chapter IV covers potentially sick industrial Companies, misfeasance proceedings, appeals and other miscellaneous matters with which the Court is not concerned in the present case except Section 32 which gives `overriding effect' to the provisions of the Act. It reads as under: 32. Effect of the Act on other FA/490520/2008 7/13 JUDGMENT laws.-- (1) The provisions of this Act and of any rules or schemes made thereunder 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 or 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 72A 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 in relation to the amalgamation of a company owning an industrial undertaking with another company.” FA/490520/2008 8/13 JUDGMENT RDDB Act - Ambit and scope 23. The RDDB Act (Recovery of Debts Due to Banks and Financial Institutions Act, 1993) has been enacted with a view "to provide for the establishment of Tribunals for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto". Chapter I is Preliminary in nature and Section 2 defines various terms. Chapter II provides for establishment of Tribunals and Appellate Tribunals, their composition, qualifications and term of office of the staff, salaries, allowances, etc. Jurisdiction, powers and authority of Tribunals are found in Chapter III. The Tribunals are required to follow procedure laid down in Chapter IV. Chapter V relates to `Recovery of debt determined by the Tribunal'. Section 29 declares that the provisions of the Second and Third Schedules of the Income Tax Act, 1961 will apply to the recovery of amount due under the RDDB Act. Chapter VI is Miscellaneous. One section, however, is of extreme importance. It is Section 34 which allows `overriding effect' to the provisions of the Act over other laws. It is a crucial provision and may be quoted in extenso; 34. Act to have overriding effect.-- FA/490520/2008 9/13 JUDGMENT (1) Save as provided under sub- section (2), the provisions of this Act shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in any instrument having effect by virtue of any law other than this Act. (2) The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948, the State Financial Corporations Act, 1951, the Unit Trust of India Act, 1963, the Industrial Reconstruction Bank of India Act, 1984 and the Sick Industrial Companies (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989. (emphasis supplied) 24. According to the Company, there is a bar against initiation or continuation of proceedings under Section 22 of SICA against sick companies. The High Court was, therefore, right in allowing the petitions filed by the Company. The case of the appellant and supporting respondents, on the other hand, is that Section 22 of SICA has no application to the case on hand and the High FA/490520/2008 10/13 JUDGMENT Court was in error in invoking the said section and denying relief to the auction purchaser as well as other creditors by wrongly extending benefit of the said provision to the Company. The appellant alternatively contended that even if the proceedings pending against the Company are covered by Section 22 of SICA, non-obstante clause in Section 34 of RDDB Act, which is a subsequent legislation will operate and recovery could not have been suspended, stalled or arrested. Interpretation of statutes. 25. The question, therefore, is whether the High Court was right in holding that the proceedings were barred under Section 22 of SICA. I have extracted the relevant part of the said section. It has two limbs. The first part enacts that "no proceeding 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 ...shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority." The second part which is independent of the first part declares 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 FA/490520/2008 11/13 JUDGMENT company shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority." The two parts use two different expressions; (i) `proceeding' and (ii) `suit'.“ 8. Considering the observations made by Apex Court in aforesaid decision in Para 25, where, it is made clear that Section 22 having two parts; first part enacts that “no proceeding 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... shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority”. The second part which is independent of the first part declares that “no suit for the recover 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.” These two parts use two different expressions; (i)'proceeding' and (ii) 'suit'. So, proceedings can be suspended, but, suit cannot be filed after the Unit declared sick by competent authority. This fact is not properly understand and therefore, the appeal is filed by appellant. If the proceedings is pending and FA/490520/2008 12/13 JUDGMENT meanwhile, the Unit becomes sick, then, proceedings can be suspended. But, if a company or unit became sick prior point of time and then file a suit by Bank against that sick company or unit, then, suit shall not lie unless the permission from BIFR. This is the distinction between two parts of Section 22(1) of SICA. 9. Therefore, the submissions made by learned advocate Mr. Sood that suit shall have to be remained pending or proceedings of the suit shall have to be suspended, cannot be made applicable to the facts of this case, because, looking to the fact that on 4th June 1999, a respondent Unit declared sick and subsequently a suit was filed on 28th September 2000. Therefore, in such circumstances, whether suit can lie ? The answer is 'No', unless except having the prior permission from BIFR. Therefore, Civil Court has rightly considered Order VII Rule 11 of CPC while dismissing the suit because in Order VII Rule 11(d), where the suit appears from the statement in the plaint to be barred by any law, then, it can be rejection of the plaint by Civil Court which having power to reject the plaint on this ground. For that, according to my opinion, Civil Court has not committed any error which required interference by this Court. 10. Therefore, there is no substance in present Appeal. Accordingly, present First Appeal is dismissed. FA/490520/2008 13/13 JUDGMENT Sd/- [H.K. RATHOD, J.] #Dave