CWP No. 9521 of 2008 1 IN THE HIGH COURT OF PUNJAB & HARYANA, CHANDIGARH CWP No. 9521 of 2008 Date of decision July 14, 2009 M/s Arihant Threads Ltd. ....... Petitioner Versus Employee's State Insurance Corporation Panchdeep Bhawan, Sector 19-A, Madhya Marg, Chandigarh and another. ........ Respondents CORAM: HON'BLE MR. JUSTICE K. KANNAN Present:- Mr. Anand Chhibbar , Advocate for the petitioner. Mr. B. S. Bhalla, Advocate for the respondents. **** 1. Whether reporters of local newspapers may be allowed to see the judgment ? 2. To be referred to the reporters or not? 3. Whether the judgment should be reported in the digest? K. Kannan, J. 1. The writ petition challenges the issue of notice by the Regional Officer, Employees State Insurance Corporation directing the alleged arrears of Rs. 31,25,604/- as payable under Section 39(5) of the ESI Act on pain of by arrest and imprisonment, if the amount was not paid. The challenge at the instance of the petitioner is on the basis that the Company which was alleged to liable for making the payment viz. M/s Arihant Threads Ltd. has filed proceedings before Board for Financial and Industrial Reconstruction (BIFR) and the reference has been admitted and declared as a 'Sick Company' with IDBI appointed as the Operating Agency under Section 17 (3) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The jurisdictional error according to the petitioner which gives rise to an action seeking for intervention by issue of writ of certiorari is the statutory interdict contained under Section 22 of SICA. According to CWP No. 9521 of 2008 2 the learned counsel Mr. Anand Chhibbar appearing on behalf of the petitioner the notice which is the nature of proceedings for recovery of money is to be stayed by virtue of Section 22-A of SICA. The relevant provisions of SICA under Section 22 reads as under:- 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 anything contained in the Companies Act, 1956 (1 to 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, 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. “ 2. Learned counsel for the petitioner would refer to several decisions of the Supreme Court which have dealt with the scope of operation of this provision. Admittedly there is no decision, however, of the Supreme Court or of this Court pertaining to scope of its application to a notice emanating under the ESI Act. Learned counsel would, therefore, urge that the principles laid down by the Hon'ble Supreme Court in the decision would apply proprio vigore also to proceedings under ESI Act. 3. Morgan Securities and Credit Pvt. Ltd. Vs. Modi Rubber Ltd. JT 2007(1) SC 432 refers to a decision that examines CWP No. 9521 of 2008 3 the interplay of the provisions of SICA and the Arbitration and Conciliation Act, 1996. The Supreme Court ruled that the provisions of Section 22 of SICA will prevail over the provisions of Arbitration and Conciliation Act. It is not possible to derive any strength from this decision since this did not pertain any proceedings for recovery of money. The same proposition also obtains through the decision of the Hon'ble Supreme Court in M/s Pandey Co. Builders Pvt Ltd. Vs. State of Bihar and another JT 2006 10 SC 414. Tata Davy Ltd. Etc. Vs. State of Orissa and others JT 1997 (7)SC 216 dealt with the case of recovery of arrears of tax under the Orissa Sales Tax Act, 1947 and the effect of Section 22 (1) of SICA. The Supreme Court had held that coercive process of recovery of tax would not be permissible without consent of BIFR. The recovery was sought by resort to attachment of the property under Section 13-A of the said Act. There could be no doubt about the proceedings for recovery through attachment of property would also be covered within the expression “ 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” occurring in the Section. Maharashtra Tubes Ltd. Vs. State Industrial & Investment Corporation of Maharashtra Ltd. and another reported in JT 1993 SC 310 referred to the inter play of provisions of SICA and the State Financial Corporations Act and the continuation of proceedings under Section 29 and 31 of the said Act. It is common knowledge that the provisions of Section 29 and 31 refer to jurisdiction of the District Court to cause attachment and sale of properties which would also be covered by the expressions referred to above under Section 22 of SICA. M/s Patheja Bros. Forging & Stamping and another JT 2000(8) SC 252 dealt with the situation of recovery of money against the Company which was admittedly under reference to BIFR under SICA. The issue that fell for consideration before the Supreme Court was whether a claim of guarantee CWP No. 9521 of 2008 4 would also be covered in a case where the suit was filed against the Company and its assets. The operation of Section 22 as covering claims against a guarantor could be seen from the term of the Section itself which includes “ a benefit that is available to a guarantor for the loan advanced to the Company” and therefore the operation of Section 22 of SICA is easily discernible. M/s Pandey & Co. Builders Pvt Ltd. Vs. State of Bihar and another JT 2006 (10) 414 and Real Value Appliances Ltd. Vs. Canara Bank and others dealt with the effect of proceedings for winding before the Company Court and when there was also a reference to BIFR under SICA. The application to proceedings for a Company under winding up is also specifically dealt with under Section 22 where it contains expression “ no proceedings for the winding up of the industrial Company.......” shall lie or be proceeded with........ M/s Rishabh Agro Industries Ltd. Vs. P.N.B. Capital Services Ltd. JT 2000 (6) SC 447 dealt with the overriding effect of SICA when the Hon'ble Supreme Court held even after a liquidator is appointed by a Company Court, The Board of Directors shall have power to apply for rehabilitation under SICA. Jay Engineering Works Ltd. Vs. Industry Facilitation Council and another JT 2006 (12) 171 is followed for the proposition that the provisions of SICA shall prevail over the provisions relating to interest and Delayed Payments in Small Scale and Ancillary Industrial Undertaking Act, 1993 and no proceedings for recovery which the 1993 Act contemplated by resort to attachment and sale of properties would avail when proceedings were pending before BIFR. Paramjeet Singh Patheja Vs. ICDS Ltd. JT 2006 (10) SC 41 resolved the controversy relating to the effect of award passed under the Arbitration Act and an insolvency notice issued under Presidency Towns Insolvency Act, 1909 for non-payment of the amount due under the award, when proceedings were also pending before BIFR under SICA. The action under Insolvency Act was sought against private individual as a guarantor CWP No. 9521 of 2008 5 for the Company and therefore the pointed reference to “enforcement of a guarantee in respect of loan or advance granted to the Industrial Company” was clearly applicable. 4. It should be noted that all the decisions have either a bearing to continuation of proceedings in relation to the property of a Company or enforcement of a guarantee for a debt borrowed by a Company. None of them referred to an action for recovery of money against an individual which is in the nature of a guarantee for a loan or advance granted to the Industrial Company. Learned counsel appearing for the petitioner Mr. Chhibbar would urge that notice issued under ESI against the private individual who was a Director of the Company which has been declared sick was also covered under Section 22, since the Company operates always through Directors and if recoveries could not be made against the property of the Company even a Director could not be proceeded against personally. 5. It will be futile to extend the operation of Section 22 to arreas which it does not contemplate. If any action had been taken under ESI Act for recovery by execution, distress or the like against any of the properties of the industrial Company, Section 22 would be clearly attracted. Again if there was a suit or proceeding for recovery of money or for the enforcement of security against the Industrial Company it would be possible to apply Section 22. A notice for recovery of amount due under the ESI Act to a Director of the Company cannot be taken to be a notice issued against the Company either by way of execution against the property of the Company or a suit for recovery of money against the Company. The only protection that is available to a Director of the Company who may be in a position of a guarantor shall be in respect of any loan or advance granted to the Industrial Company. A claim for recovery of the amount against a Director as dues under the ESI Act could CWP No. 9521 of 2008 6 be neither a loan or a advance granted to an industry to fall within Section 22 of SICA. None of these judgments therefore, avail to the benefit of the petitioner to quash the notice. 6. There is yet another formidable objection for filing of the writ petition. The writ petition has been filed at the stage of issue of notice itself. If there is a dispute regarding either the amount which is claimed or the liability of the Company in any way the remedy shall be by raising a dispute and seeking for adjudication under Sections 75 and 76 of the ESI Act. Learned counsel for the petitioner would state jurisdictional error could be corrected by resort to Article 226 and it need not be only through adjudication before the ESI Court. I have already pointed out that there is no error in issuance of notice and there cannot be any jurisdictional bar and Section 22 of SICA itself is not applicable. 7. Learned counsel for the respondent refers me to the decision of a Bombay High Court in Ralliwolf Limited Vs. The Regional Provident Fund Commissioner-I where the Bombay High Court has held that the provisions of Section 22 will not operate against enforcement of liability of the Company under the Provident Fund Act. There is no direct parallel to the point at issue in this case but the reasoning adopted by the Bombay High Court would still apply also to the ESI Act. 8. The writ petition ought to therefore fail and is dismissed. No costs. (K. KANNAN) JUDGE July 14, 2009 archana