IN THE HIGH COURT OF HIMACHAL PRADESH SHIMLA O.S.A. No. 10 of 2000 Judgment reserved on:13.5.2008 Date of decision: SSKI Corporate Finance Pvt. Ltd. Appellant-Plaintiff Vs. Sachs India Ltd. Respondent-Defendant Coram: The Hon’ble Mr.Justice Jagdish Bhalla, Chief Justice The Hon’ble Mr. R.B.Misra, Judge. Whether approved for reporting?1 For the Petitioner: Mr. L.C.Sood, Advocate For the Respondents : Mr. Raman Sethi, Advocate. Per R.B.Misra, J. The present Original Side Appeal (O.S.A.)has been preferred against the order dated 21.2.2000 passed by the learned Single Judge of this court in OMP No. 552 of 1999 staying the proceedings in Civil Suit No. 78 of 1999 till cessation of bar. 2. In order to adjudicate the present appeal it is necessary to give brief facts. It appears that the plaintiff-appellant herein filed a civil suit No.78 of 1999 before this court for recovery of Rs.51,69,020.87 paise from the defendant-respondent as a 1 Whether reporter of local papers are allowed to see the judgment ? No.. 2 remuneration for the services rendered by the plaintiff-appellant as per agreement entered into with the defendant-respondent on 5.10.1996. The defendant/respondent, however, had preferred an application being OMP No. 552 of 1992 under Section 22 of ‘The Sick Industrial Companies (Special Provisions) Act, 1985 (in short SICA) read with Section 151 CPC for staying further proceedings in the suit. Despite time having been granted, the plaintiff-appellant, did not prefer any reply. 3. (a) Chapter III of SICA provides for references, inquiries and schemes. Section 15 empowers the Board of Directors of a company to make a reference to the Board for determination of the measures which shall be adopted with respect to the company. The Board on receipt of such an application may make an inquiry into the working of the sick industrial company in exercise of its power conferred under Section 16 thereof, for determining whether the company has become a sick industrial company or not. For the said purpose it may require an operating agency to inquire into and to make a report to it. The Board or the operating agency, as the case may be, is required to complete the enquiry as expeditiously as possible and an endeavour is to be made, to do so within sixty days from the commencement thereof. The Board may during the pendency of the said inquiry appoint Special Directors. 3 Section 17 empowers the Board to make suitable orders on the completion of inquiry if it is found to be practicable for a sick industrial company to make its net worth exceed the accumulated losses within a reasonable time. The Board is also required to make an order in writing and subject to such restrictions or conditions as may be specified therein, give such company as it may deem fit to make its net worth exceed the accumulated losses. However, in the event it comes to the conclusion that it is not practicable for the sick industrial company to make its net worth exceed the accumulated losses within a reasonable time, it may by an order in writing direct any operating agency specified in the order to prepare, having regard to such guidelines as may be specified, a scheme in relation to such company. (b) Section 18 empowers the Board to prepare and sanction a scheme in terms whereof it is permissible for the operating agency, inter alia, to prepare a scheme to direct sale or lease of a part or whole of any industrial undertaking of the sick industrial company. Section 19 provides for rehabilitation by giving financial assistance where the scheme relates to preventive, ameliorative, remedial and other measures with respect to any sick industrial company. Section 19-A of SICA reads as under:- 4 “19-A. Arrangement for continuing operations, etc. during inquiry.-(1) At any time before completion of the inquiry under Section 16, the sick industrial company or the Central Government or the Reserve Bank or a State Government or a public financial institution or a State level institution or a scheduled bank or any other institution, bank or authority providing or intending to provide any financial assistance by way of loans or advances or guarantees or reliefs or concessions to the sick industrial companies may make an application to the Board- (a) agreeing to an arrangement for continuing the operations of the sick industrial company; or (b) suggesting a scheme for the financial reconstruction of the sick industrial company. (2) * * *” (c) Section 20 provides for winding up of sick industrial company, sub-section (4) whereof reads as under:- “20. (4) Notwithstanding anything contained in sub- section (2) or sub-section (3), the board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of Section 529-A, and other provisions of the Companies Act, 1956 (1 of 1956).” 4. For convenience Section 22 of the SICA is quoted as below :- “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 section17 is under preparation or consideration or a sanctioned scheme is under implementation or 5 where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 ( 1 of 19560, 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 (By Act 12 of 1994, Sec. 12 (w.e.f. 1.2.1994) shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. (2) Where the management of the sick industrial company is taken over or changed in pursuance of any scheme sanctioned under section 18, notwithstanding anything contained in the Companies Act, 1956 ( 1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law. ( by Act 12 of 1994, sec. 12 (w.e.f.1.2.1994). (a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company; (b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board. (3) Where an inquiry under section 16 is pending or any scheme referred to in section 17 is under 6 preparation or during the period of consideration of any scheme under section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, 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 adoptions and in such manner as may be specified by the Board ( by Act 12 of 1994, for “During the period” (w.e.f.1.2.1994). Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.” 5. The respondent-company has been declared sick by the Board of Financial and Reconstruction (in short BIFR) on 2.8.1993 (Annexure A). Mr. P.G. Lele was appointed as a Special Director of the respondent Company by the BIFR vide its order dated 8.9.1993 (Annexure B to OMP No. 552 of 1999). Thereafter ICICI bank has been appointed as operating agency by the BIFR. However, keeping in view the uncontroverted contents of the application and accompanying affidavit and taking into the facts that the defendant-respondent 7 is a sick industrial company and a sanctioned scheme is under implementation and the suit in question was instituted by the plaintiff-appellant without the consent of the BIFR, learned Single Judge of this court vide impugned order dated 21.2.2000 has observed that the provisions of Section 22 of the SICA would be attracted according to which when a sanctioned scheme in respect of the sick industrial companies is under implementation, a suit for recovery or for enforcement of any security or guarantee in respect of any loan or advance granted to the sick Industrial Company shall not be proceeded with except with the consent of the ‘BIFR’. 6. For and on behalf of the appellant, following submissions have been advanced:- (a) The declaration of the defendant-respondent by the BIFR as a sick industry vide its order dated 2.8.1993 shall be effective only for 2 years under Section 22(3) of SICA unless extended by the BIFR and such extension would be for one year at a time and maximum for period of aggregate of seven years, as provided in proviso to Section 22(3) of SICA. (b) The pre-proceedings in regard to pre-package contracts etc. dating to or immediately before the date of such declaration the company as sick by BIFR may only be suspended and that too for a period of two years initially unless 8 the said declaration is extended as submitted above for an aggregate period of seven years. According to the appellant in the present case the order dated 2.8.1993 was never extended, otherwise also, after seven years from the date such declaration of defendant/respondent being sick could not survive at all under the law i.e. it was to come to an end on 1.8.2000. (c) The suit of the appellant stayed by learned Single Judge was not in respect of package for which respondent company was declared sick on 2.9.1993. Otherwise also, in the light of para 8 of the impugned order/judgment of learned Single Judge the proceedings taken out by the appellant (which were stayed), stand revived since the cessation of the bar under Section 22(1) has died its natural death in view proviso to Section 22(3). 7. On the other hand, following submissions have been made for the defendant/respondent:- (a) The respondent company after being declared as sick by ‘BIFR’ on 2.8.1993 has been continuing to be under the nursing of ‘BIFR’ and the current proposal of the respondent company for a viable rehabilitation scheme as ordered by Appellate Authority for Industrial and Financial Reconstruction (AAIFR) vide its order dated 16.12.2004 was under active 9 consideration of the operating agency ICICI for the preparation of the rehabilitation scheme for its presentation to the BIFR, therefore, the protection given to the sick company under Section 22(1) of the SICA is available to the respondent company. The proceedings before BIFR have not even reached at a stage envisaged under Section 18 of SICA and the proceedings are still at a stage of Section 17 of SICA. This makes it ample clear that the contractual liability which is the subject matter of the Civil Suit no. 78 of 1999 is the pre- package liability. As such, in view of the foregoing submissions the contention of the appellant that the said contractual liability has a post package origin has no legal force. (b) Section 22(3) of the ‘SICA’ is not at all applicable as far as the present appeal is concerned, in view of the observations of Supreme Court in (2006) 12 SCC 642 Morgan Securities and Credit (P) Ltd. Vs. Modi Rubber Ltd. that Section 22(3) of the Act empowers ‘BIFR’ to suspend the operation of contracts, assurances of property, agreements, settlements, awards, standing orders etc. so that the decrees/awards passed against the Sick Industrial Company can be kept in abeyance, so as, to enable the Board to pass an appropriate order, inter-alia for revival of a sick company for the purpose of giving effect to the purport and object for which 10 the laws relating to corporate insolvency have been enacted, under section 22(3). It is the prerogative of BIFR to pass an appropriate order under Section 22(3) of SICA. Therefore, the provisions of Section 22(1) of ‘SICA’ are applicable in the present case, which has rightly been applied by the learned Single Judge while passing the impugned order dated 21.1.2000. (c) There is a specific bar under Section 22(1) of the ‘SICA’ in respect filing of even suit for recovery of money against the sick company. It could be filed only with the consent of the BIFR and not otherwise. In the present case appellant has not taken any such consent from BIFR before filing Civil Suit No. 78 of 1999, as such there is no illegality in the order of learned Single Judge while staying the proceedings in the said suit till cessation of the bar under Section 22(1) of the ‘SICA’. 8. According to the respondent the decision of Hon’ble Supreme Court in AIR 1997 SC 2027 (Deputy Commercial Tax Officer and others Vs. Corromandal Pharmaceuticals and others) relied upon by the appellant, has no application in the facts and circumstances of the present appeal as in the said referred case Hon’ble Supreme Court has dealt with an exceptional situation, where the scheme was 11 sanctioned but the sales tax dues were not included in the sanctioned scheme, therefore, Hon’ble Supreme Court has specifically observed in para 11 that the situation which has arisen in this case is rather exceptional. In Corromandal Pharmaceuticals (supra), the Hon’ble Supreme Court has laid emphasis on its earlier judgment, i.e. (1990) 2 SCC 440 Gram Panchayat Vs. Shree Vallabh Glass Works Limited which still holds the field as far as present case is concerned where Hon’ble Supreme Court has observed that when steps are taken by the Board under Sections 16 & 17 of the ‘SICA’ the suspension of the proceedings is automatic. 9. According to the respondent Supreme Court in (2006) 12 SCC 642, Morgan Securities & Credit (P) Ltd. Vs. Modi Rubber Ltd. (relevant paragraphs 31,42,45, 47, 49 & 50) has very exhaustively dealt with Section 22 of the SICA whereby the power to pass an order under Section 22(3) of the Act vests with the BIFR. The BIFR can exercise jurisdiction under Section 22(3) of the Act so that the decrees/awards passed against the Sick Industrial Company can be kept in abeyance so as to enable the Board to pass an appropriate order, inter alia, for revival of a sick company for the purpose of giving effect to the purport and object for which the laws relating to corporate insolvency have been enacted. 12 10. The relevant paragraphs of Morgan Securities & Credit (P) Ltd. (supra) are quoted as below:- “31. Section 19-A of SICA as inserted in the year 1994, although may be held to be clarificatory in nature, however, confers a special power to pass an order envisaged thereunder. Section 19-A does not empower the Board to direct sale of the assets at the stage of enquiry. Sections 22(1) and 22(3) again would, however, be applicable where an inquiry under Section 16 is pending. Whereas under sub-section (1) of Section 22 no specific order is required to be passed by the Board, it is necessary in respect of the matters enumerated under sub-section (3) of Section 22 thereof. 32-41. x x x x x x x x x x x x x x x x x x” 42. Thus, an order can be passed by the board for suspending the operation of the award if any occasion arises therefore. 43-44. x x x x x x x x x x x x x x x x x x” 45. However, sub-section (1) of Section 22 would be attracted only when an award becomes a decree and, thus, enforceable in a court of law, albeit in the event a proceeding is initiated therefor. In this case, an objection to the award has been filed. It is, therefore, yet to become a decree. 46. x x x x x x x x x x x x x x x x x” 47. Sub-Section (1) of Section 22 itself provides for a non obstante clause. It not only refers to the provisions of 13 the Companies Act or the memorandum or articles of association of an industrial company or any other instrument in force under the said Act, but also of other laws. 48. x x x x x x x x x x x x x x x x x” 49. The provisions contained in sub-section (1) of Section22, however, appear to be clear and unambiguous. Sub-section (3) of Section 22, on the other hand, does not speak of automatic suspension of the proceedings or bar to the jurisdiction of the court in entertaining any application. The provision empowers the Board to make a declaration in terms whereof, inter alia, operation of a settlement or award, not only where the industrial company is a party, but also where the same would be applicable thereto, would remain suspended. It envisages suspension of not only operation of any contract of assurances of property, agreement, settlement, award, standing orders, etc., but also the rights, privileges, obligations and liabilities accruing or arising thereunder. The result of such declaration is not far to seek. Such declaration, however, either for suspension or operation of the contract or award, etc. for the rights, privileges, obligations and liabilities or all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder is to be made specifically. The Board may choose to make either of the declarations, as provided for thereunder. The period for such suspension, however, is controlled by the proviso appended thereto. 50. A statutory distinction has, thus, been made by the legislature as regards initiation and/or continuance of a 14 proceeding, on the one hand, and suspension thereof, on the other. Whereas in the former case the statutory impact would be automatic, in the latter the court is required to apply its mind having regard to facts and circumstances of each case. When an order is passed by the Board in exercise of its jurisdiction under sub-section (3) of Section 22 directing the parties not to continue the proceeding, an award or decree is not set aside thereby. They are merely kept in abeyance so as to enable the Board to pass an appropriate order, inter alia, for revival of a sick company for the purpose of giving effect to the purport and object for which the laws relating to corporate insolvency have been enacted.” 11. Learned Single Judge has observed in para 7 of the impugned order as below:- “The declaration as contemplated under Section 22(3) of the Act relates to such contracts etc. which were enforceable immediately before the order making the declaration suspending their operation. The prohibition to institute or continue the suit under Section 22(1) of the Act is irrespective of the time of the accrual of the liability. It cannot, therefore, be held that after two years of the declarations under Section 22(3) the prohibition under Section 22(1) will also come to an end because it will cover only the eventualities covered under Section 22(3) of the Act.” 12. We have heard learned counsel for the parties. We find considerable force in the submissions advanced on behalf of learned counsel for the defendant/respondent. 15 13. In view of the aforesaid analysis, it is very clear that the restriction or prohibition to institute or continue the suit under Section 22(1) of SICA is irrespective of the time of accrual of the liability and learned Single Judge has rightly stayed the proceedings in Civil Suit No. 78 of 1999 till the cessation of the bar under Section 22(1) of SICA. Therefore, after careful consideration, we are of the view that there is no illegality and impropriety in the impugned order and there is no merit in the present appeal which is accordingly dismissed. ( Jagdish Bhalla ), C.J. June 6th , 2008(K) ( R. B.Misra ), J.