Case: Jay Engineering Works Ltd Vs. Industry Facilitation Council

2. The Appellant herein is a public limited company engaged in business of manufacturing electronic fans and fuel injection equipments. Respondent No. 2 is a small scale industry. It manufactures copper wires. It supplied its products to the Appellant herein during the period 28th December, 1996 and 3rd June, 2000. As the Appellant Company became sick, its Board of Directors made a reference in terms of Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short the 1985 Act) on 8.4.1994. The Appellant Company was declared as sick unit by the Board for Industrial and Financial Construction (for short "the Board"). A rehabilitation scheme was framed by the Board but it was declared to have failed by an order on 12.7.2001. By reason of the said order, however, Industrial Development Bank of India (IDBI) was appointed as an operating agency. A fresh report was submitted by the said operating agency on 20th March, 2003 which was accepted by the Board whereupon a fresh rehabilitation scheme was sanctioned on 8.4.20033. In the meanwhile, the Respondent No. 2 herein filed a claim petition before the Industry Facilitation Council (for short "the Council") Respondent No. 1 herein in terms of the provisions of the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (for short "the 1993 Act"). Before the Council, the Appellant herein raised a plea that it had been declared to be a sick company by the Board and as such the matter should not be proceeded further. The Council, however, opined that only because the Appellant Company has been declared sick by the Board, it would not bind the Council to take a decision in the matter. It passed an award directing:"That upon the submissions made by both the parties in the above case and in the light of contentions raised it is prayed that the delay of two years to four years was caused by the respondents for making the payment to the petitioner, which is enough. Therefore, Council has passed the order that an amount of Rs. 10,92,253.00 and one and half percent interest of PLR of State Bank of India is due to the Petitioner Messrs. Diamond Wire Industries, Ratlam, of the Respondent Messrs. Jay Engineering Works Limited, New Delhi."4. The said award of the Council was put in execution. The bank account of the Appellant was attached by the District Court, Ratlam. A writ petition was filed by the Appellant herein before the Madhya Pradesh High Court questioning the same which by reason of the impugned judgment has been dismissed by a learned Single Judge. A Letters Patent Appeal preferred thereagainst was dismissed by the impugned judgment5. The High Court in its impugned judgment proceeded on the premise that the 1993 Act could prevail over the 1985 Act.

Reasoning: 9. In the said Scheme, the award made in favour of the Respondents finds place in the category of Dormant Creditors. The liabilities of the Appellant vis-Ã -vis the Respondent No. 2 was, therefore, indisputably a subject matter of the said Scheme. The High Court, in our opinion, committed an error in proceeding on the premise that the awarded amount had not been included and could not be included in the sanctioned rehabilitation scheme, the same being part of transactions which took place after 21.11.1997 ignoring the revised scheme made in the year 200313. The 1993 Act was enacted to provide for and regulate the payment of interest on delayed payments to small scale and ancillary industrial undertakings and for matters connected therewith14. The provisions of the 1993 Act, therefore, do not envisage a situation where an industrial company becomes sick and requires framing of a scheme for its revival15. It is no doubt true that an award in relation to a claim of a small- scale industry if made by the Council would be governed by the provisions of the Arbitration and Conciliation Act, 1996 (for short "the 1996 Act")16. The 1985 Act is a complete code by itself. Section 22 of the 1985 Act provides for special provisions17. The said provision, thus, mandates that no proceeding inter alia for execution, distress or the like against any of the properties of the industrial company and no suit for recovery of money or for the enforcement of any security, shall lie or be proceeded with further, except with the consent of the Board or as the case may be, the Appellate Authority. The said statutory injunction will operate when an inquiry had been initiated under Section 16 or a scheme referred to under Section 17 is under preparation and/ or inter alia a sanctioned scheme is under implementation. It is not disputed before us that the amount awarded in favour of the Respondent by the Council finds specific mention in the sanctioned scheme which is under implementation18. The award of the Council being an award, deemed to have been made under the provisions of the 1996 Act, indisputably is being executed before a Civil Court. Execution of an award, beyond any cavil of doubt, would attract the provisions of Section 22 of the 1985 Act. Whereas an adjudicatory process of making an award under the 1993 Act may not come within the purview of the 1985 Act but once an award made is sought to be executed, it shall come into play. Once the awarded amount has been included in the Scheme approved by the Board, in our opinion, Section 22 of the 1985 Act would apply19. If the liabilities of the Appellant are covered by the Scheme framed under Section 22 of the 1985 Act, the High Court was clearly in error in coming to the conclusion that the provisions thereof are not attracted only because the debt had been incurred after the Company was declared to be a sick one22. The High Court has placed strong reliance on Deputy Commercial Tax Officer and others vs. Corromandal Pharmaceuticals and others [(1997) 10 SCC 649]  wherein this Court was considering an exceptional situation by reason of the fact that the liability of the sick company for the first time arose after the date of sanctioned scheme and the sick industrial unit was enabled to collect tax due to the Revenue from the exporters thereafter but declined to pay it over to the Revenue wherefor recovery proceedings had to be taken. This Court categorically opined that there cannot be any impediment in the enforcement of the Scheme. Section 22 of the 1985 Act provides for a safeguard against impediment that is likely to be caused in the implementation of the Scheme. Section 22 was also held to be of wide import as regards suspension of legal proceedings from the moment, the inquiry is started till after the implementation of the scheme or disposal of the scheme under Section 25 of the 1985 Act. It was categorically held:"...it will be reasonable to hold that the bar or embargo envisaged in Section 22(1) of the Act can apply only to such of those dues reckoned or included in the sanctioned scheme...."