Case: M.D.,Bhoruka Textiles Limited Vs. M/S Kashmiri Rice Industries

2. This appeal is directed against a judgment and order dated 29.1.2008 passed by the High Court of Karnataka at Bangalore in RFA No.982 of 2007 whereby and whereunder judgment and decree dated 21.12.2006 passed by the Civil Judge, Senior Division, decreeing the suit being OS No.728 of 2002 filed by the respondent was affirmed.3. A partnership firm known as M/s. Kashmiri Rice Industries has its place of business at Hangal. The said firm entered into a contract for supply of paddy husk with the appellant. Inter alia, on the premise that appellant herein, despite supply of the agreed quantity of paddy husk, failed and/or neglected to pay the price therefore, the respondent filed a suit for recovery of a sum of Rs.2,61,696/- in the Court of Civil Judge, Hangal.One of the contentions raised by the appellant in the said suit was that as the appellant-company has become a sick industry within the meaning of the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, `the Act) and a reference having been made to the Board of Industrial and Financial Reconstruction (BIFR) in terms of the provisions of the Act, the suit was not maintainable.The learned Trial Judge, inter alia, framed the following issuedefendants prove that suit is also hit by Section 22 of Industrial Companies (Special Provisions) Act as contended in Para 7 of W.S. Preliminarya perusal of the judgment, it appears that no argument was advanced before the learned Trial Judge on the said issue. However, it was opined that Section 22 of the Act provides for suspension of the proceedings and in view of the fact that no final order has been passed by the BIFR declaring the appellant as a sick industry, mere reference would not suffice. A finding of fact furthermore was arrived at that the transaction in question being subsequent to the reference, Section 22 of the Act would have no application.4. An appeal preferred thereagainst has been dismissed by the High Court by reason of the impugned order. The High Court, although noticed issue No.3, did not record any positive finding

Court's reasoning:
The learned Trial Judge, therefore, committed a manifest error in opining that the transaction in question was subsequent to the reference. It is also apparent from the record that respondent was aware of the fact that the appellant had made reference to the BIFR in terms of the provisions16 of the Act empowers the Board to make such enquiry as it may deem fit for determining whether any Industrial Company has become a sick industrial company, inter alia, upon receipt of a reference with respect to such company under Section 15.The Act was enacted to make, in the public interest, special provisions 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.Indisputably, thus, appellant is an industrial undertaking. Chapter III of the Act provides for reference, enquiries and schemes. Section 15 of the Act provides for reference to the Board in terms whereof the Board of Directors of the Company is required to make a reference within 60 days from the date of the duly audited accounts of the company for the financial year as at the end of which the Company has become a sick industrial company. Such reference is made for determination of the measures which may be adopted with respect to the company. The proviso appended thereto, however, entitles the Board of Directors to make a reference within 60 days from the date of formation of the opinion that the Company had become a sick industrial company before the audited accounts of the financial year in question are finalized.