2024 INSC 348 Civil Appeal Nos. 5366-5367 of 2024 Page 1 of 91

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 5366-5367 OF 2024

FERTILIZER CORPORATION OF INDIA

LIMITED & ORS.

…APPELLANTS

VERSUS

M/S COROMANDAL SACKS PRIVATE LIMITED …RESPONDENT

J U D G M E N T

J. B. PARDIWALA, J.:

For the convenience of exposition, this judgment is divided into the following

parts: -

INDEX

A. FACTUAL MATRIX ............................................................................................. 2

i. Case of the original plaintiff before the trial court ...................................... 4

ii. Case of the original defendants before the trial court .................................. 6

iii. Appeals before the High Court .................................................................... 9

B. SUBMISSIONS ON BEHALF OF THE APPELLANTS/ORIGINAL

DEFENDANTS .................................................................................................... 10

C. SUBMISSIONS ON BEHALF OF THE RESPONDENT/ ORIGINAL

PLAINTIFF .......................................................................................................... 15

D. ANALYSIS ............................................................................................................ 19

Civil Appeal Nos. 5366-5367 of 2024 Page 2 of 91

i. Proceedings in respect of FCIL before the BIFR ....................................... 19

ii. Issues for Determination ............................................................................ 21

iii. Overview of Industrial Sickness and the Legislative Scheme of the 1985

Act. ............................................................................................................. 22

iv. ISSUE NO. 1: Whether the suspension of legal proceedings as envisaged under

Section 22(1) of the 1985 Act would extend to a civil suit for recovery of

money even if the debt sought to be proved in the plaint has not been

admitted by the sick industrial company? If so, whether the decree in favour

of the original plaintiff could be said to be coram non-judice? ................... 29

v. ISSUE NO. 2: Whether the High Court was correct in granting 24%

Compound Interest on the Principal Decretal Amount in favour of the

original Plaintiff? ....................................................................................... 68

a. Concept of Interest ........................................................................................ 68

E. CONCLUSION .................................................................................................... 90

A. FACTUAL MATRIX

1. Since the issues raised in both the captioned appeals are the same; the parties

are also the same and the challenge is also to the self-same impugned common

judgment and order passed by the High Court, those were taken up for hearing

analogously and are being disposed of by this common judgment and order.

2. The appellants herein are the original defendants and the respondent herein is

the original plaintiff.

Civil Appeal Nos. 5366-5367 of 2024 Page 3 of 91

3. The present appeals arise from the impugned common judgment and order

dated 10.06.2022 (“impugned judgment”) passed by the High Court of

Telangana at Hyderabad partly allowing the Appeal Suit No. 808 of 2002 and

Appeal Suit No. 913 of 2004 respectively preferred by the original defendants

and the original plaintiff respectively against the judgment and decree dated

19.09.2001 passed by the Senior Civil Judge, Peddapalli in O.S. No. 37 of

1996 decreeing the suit partly in favour of the original plaintiff.

4. M/s Coromandal Sacks Private Limited, that is, the original plaintiff, is a

company registered under the Companies Act, 1956 established with the

assistance of the Andhra Pradesh Industrial Development Corporation Limited

(“APIDC”) and is engaged in the manufacturing of High Density Poly

Ethylene (“HDPE”) bags.

5. Fertilizer Corporation of India Ltd. (“FCIL”), that is, the defendant company,

is a Public Sector Undertaking (“PSU”) of the Government of India

established for the manufacturing of fertilisers and are operating under the

administrative control of the Ministry of Chemicals and Fertilizers,

Government of India.

6. The original defendants required HDPE bags for the purpose of packaging and

supply of fertiliser to their customers. They had been placing orders for the

Civil Appeal Nos. 5366-5367 of 2024 Page 4 of 91

same with the original plaintiff since 1986-87 onwards. The terms and

conditions including the technical specifications of the bags and terms of

payment were specified in the notices inviting tender (“NIT”) issued from

time to time and the purchase orders issued in pursuance thereof. As per the

terms of the NIT, the original defendants were required to make the entire

payment within 20 days of the receipt of the bags and approval of the same.

The terms of the purchase orders also entitled the original defendants to deduct

up to a maximum of 5% of the contract price towards liquidated damages upon

delay in supply of bags by the original plaintiff.

i. Case of the original plaintiff before the trial court

7. The case of the original plaintiff before the trial court was that the original

defendants placed with it certain purchase orders for the supply of the HDPE

bags, which were manufactured by it as per the specifications and duly

supplied periodically. The purchase orders were amended from time to time

to account for the increase in the number of bags which were required by the

original defendants. It was the case of the original plaintiff that in pursuance

of the communications exchanged with the original defendants, it supplied

42,000 bags over and above the quantity mentioned in the purchase orders to

meet with the urgent requirements of the original defendants, on the

understanding that a subsequent purchase order would be issued to account

for the extra supply.

Civil Appeal Nos. 5366-5367 of 2024 Page 5 of 91

8. The grievance of the original plaintiff was that when a formal purchase order

was subsequently issued by the original defendants to account for the extra

bags supplied by the original plaintiff, the price per bag mentioned in the said

order fell short of the price agreed upon between the parties. The original

plaintiff was also aggrieved by the deductions made by the original defendants

towards the liquidated damages for the alleged delay in supply of the bags and

the penalty imposed towards the supply of the alleged poor quality of the bags.

The original plaintiff also claimed to have suffered losses due to the refusal of

the original defendants to accept 25,000 bags after placing the order, which

were printed as per the specifications prescribed by the original defendants

and had to be sold as scrap due to non-acceptance by the original defendants.

9. With a view to recover the aforesaid losses, the original plaintiff instituted the

civil suit for the recovery of Rs 8,27,100.74/- along with Rs 10,31,803.14/-

towards interest up to the date of institution of the suit. A detailed break-up of

the claim of the original plaintiff before the trial court is as follows:

S. No. Particulars Amount (Rs.)

1. Towards price difference for 33,000 bags, i.e., from

Rs. 8.75/bag to Rs. 10.25/bag

49,500

2. Towards price difference for 9,000 bags, i.e., from Rs.

8.75/bag to Rs. 9.44/bag

6,210

Total Rs. 55,710.00

Civil Appeal Nos. 5366-5367 of 2024 Page 6 of 91

(Towards price difference for 42000 bags)

3. Towards Liquidated Damages deducted by the

defendants

1,63,470.75

4. Towards deduction against penalties 4,89,919.99

5. Towards loss incurred on 25,000 Bags printed which

was sold as waste @ 50% price on account of not

taking delivery.

1,18,000.00

Principal Grand Total 8,27,100.74

6. Towards Interest on Rs. 55,710 from 01.01.1994 to

21.11.1996 at the rate of 24%

38,609.32

7. Towards Interest on Rs. 1,63,470.75 from 01.01.1994

to 21.11.1996

1,13,298

8. Towards Interest on delayed payment up to

15.07.1994 as per the Debit Note dated 15.07.1994

3,45,467

9. Towards interest on Rs. 3,45,467 from 16.07.1994 to

21.11.1996

1,94,900.18

10. Towards interest on Rs. 4,89,919.99 from 01.01.1994

to 21.11.1996

3,39,534.69

Total Interest 10,31,803.14

Grand Total 18,58,903.88

ii. Case of the original defendants before the trial court

10. The original defendants filed their written statement before the trial court

stating that there was no discrepancy in the purchase order issued subsequent

to the supply of the extra bags and that the imposition of liquidated damages

was justified as per the terms of the NIT and the purchase orders. It was also

stated that the deductions imposed as penalty for the supply of poor quality of

the bags was also justified and interest @ 24% was not liable to be imposed.

Civil Appeal Nos. 5366-5367 of 2024 Page 7 of 91

11. The original defendants further stated before the trial court that as they had

been declared to be a sick company under Section 3(1)(o) of the Sick Industrial

Companies (Special Provisions) Act, 1985 (“the 1985 Act”), the suit for

recovery was not maintainable as per Section 22(1) of the 1985 Act and thus

was liable to be dismissed.

12. The trial court, having regard to the specific pleadings of the parties

proceeded to frame 10 issues as tabulated hereinbelow.

S. No. Issue Decision of the trial court

1. Whether the plaintiff had supplied 42,000

bags (33,000 + 9,000) on the advice and

urgency showed by the defendants on his

own?

Decided in favour of the

plaintiff

2. Whether the defendants after taking and

consuming the bags even without placing

order can deny the agreed price for the

42,000 bags?

Decided in favour of the

plaintiff – Rs 55,710/- with

interest @ 12% p.a. from

01.01.1994 till realisation

3. Whether the defendants had any right to

deduct Rs. 1,63,471/- as Liquidated

Damages?

Partly decided in favour of

the defendants

4. Whether the defendants were entitled to

deduct Rs. 4,89,919.99 as penalty. If so,

whether it was in accordance with the terms

and conditions of order/tender?

Decided in favour of the

defendants

5. Whether the plaintiff was entitled to interest

for the delayed payment as per law?

Partly decided in favour of

the plaintiff – Interest rate

of 12% granted on the

payments held as due and

delayed.

6. Whether the plaintiff had printed 25,000

bags as per the oral order of the

defendants? If so, whether the plaintiff

Decided in favour of the

plaintiff – Rs 1,18,000/- with

Civil Appeal Nos. 5366-5367 of 2024 Page 8 of 91

sustained loss at the rate of 50% of the value

due to refusal on the part of the defendants

to take delivery of the bags?

interest @ 12% p.a. from

01.01.1994 till realisation.

7. Whether the defendants had called for a

fresh tender after placing of the orders to

the plaintiff and in which M/s Neptune

Polymers, Ahmedabad quoted rate of a bag

at Rs. 8.46, the same has become binding on

the plaintiff?

Decided in favour of the

plaintiff

8. Whether the defendants had regularised the

supply of 33,000 bags at Rs. 8.46/bag vide

P.O. No. 40893 dated 21.04.1994 and same

was accepted by the plaintiff?

Decided in favour of

plaintiff

9. Whether the suit was not maintainable as

the defendants have been declared as Sick

Industry by the BIFR vide Case No.

PUC/C/515/92 dated 06.11.1992?

Decided in favour of the

plaintiff

10. Whether the suit of the plaintiff was barred

by limitation?

Decided in favour of the

plaintiff

13. On the issue of applicability of Section 22 of the 1985 Act, it was observed

thus by the trial court:

“Both sides have not argued on this issue and no material is

produced before the Court and no evidence is also adduced on this

issue. Hence, the defendant company failed to prove that it is a sick

industry and the plaintiff’s suit is maintainable. I answer this issue

in favour of the Plaintiff accordingly”

14. The final decree drawn by the trial court reads thus:

“1. That the suit of the plaintiff be and is hereby decreed.

2. That the defendants 1 to 4 be and are hereby directed to pay Rs.

55,710/-, Rs. 100,848 and Rs. 1,18,000/- to the plaintiff together

with interest @ 12% per annum from 01.01.1994 till realization.

Civil Appeal Nos. 5366-5367 of 2024 Page 9 of 91

3. That the defendants 1 to 4 be and are hereby further directed to

pay Rs. 1,72,734/- to the plaintiff together with interest @ 12% per

annum from 16.07.1994 till realization.

4 That the suit of the plaintiff for the rest of the claim of Rs.

4,89,919/- be and is hereby dismissed.

5. That the defendants do pay Rs. 37,169/- to the plaintiff towards

the costs of the suit.”

iii. Appeals before the High Court

15. Both the parties went to the High Court in appeal against the aforesaid

decision of the trial court. The original plaintiff contended before the High

Court, inter alia, that the deductions towards the liquidated damages and

penalty were wrongly imposed on it by the original defendants, and that the

interest at the rate of 24% with monthly compounding ought to have been

granted on the delayed payments in light of the provisions of the Interest on

Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act,

1993 (“the 1993 Act”).

16. The original defendants on the other hand contested that the trial court had

failed to consider the evidence properly and had wrongly awarded the amounts

under different heads to the original plaintiff. The contention as to the

applicability of Section 22(1) of the 1985 Act was also raised by the original

defendants.

Civil Appeal Nos. 5366-5367 of 2024 Page 10 of 91

17. The High Court, vide the impugned judgment partly allowed both the appeals.

The original defendants were allowed to deduct an amount of Rs 1,63,471/-

towards the liquidated damages, whereas the original plaintiff was allowed to

recover the amounts deducted towards penalty, price difference in the supply

of 42,000 bags and the loss incurred due to the refusal of the original

defendants to accept the delivery of 25,000 bags. Pertinently, the High Court

accepted the contention of the original plaintiff on the issue of interest and

granted 24% compound interest on the amounts due.

18. Despite recording the submissions of the parties on the applicability of

Section 22(1) of the 1985 Act, neither any point for determination was framed

nor any finding was returned on the same by the High Court.

19. Aggrieved by the impugned judgment, more particularly as regards the

awarding of 24% interest in favour of the original plaintiff – which has inflated

the principal decretal amount to one of mammoth proportions – the original

defendants are before this Court with the present appeals.

B. SUBMISSIONS ON BEHALF OF THE APPELLANTS/ORIGINAL

DEFENDANTS

Civil Appeal Nos. 5366-5367 of 2024 Page 11 of 91

20. Ms. Malvika Trivedi, the learned senior counsel appearing on behalf of the

original defendants submitted that the 1985 Act overrides the 1993 Act as the

same was enacted in the larger public interest by the Parliament with a view

to secure the directive specified under Article 39 of the Constitution.

21. It was further submitted that the 1993 Act having been enacted to provide for

and regulate the payment of interest on delayed payments to the small-scale

industries, does not envisage a situation where an industrial undertaking

becomes sick and requires a scheme for its revival.

22. It was argued that the provisions of the 1985 Act should be given the widest

possible import in light of the fact that the same is a self-contained code

containing provisions like the statutory bar on civil suits for recovery of

money from sick industrial companies under Section 22 and the non-obstante

clause under Section 32 by virtue of which the provisions of the 1985 Act are

given an overriding effect. Reliance was placed by the learned senior counsel

upon the decisions of this Court in Jay Engineering Works Ltd. v. Industry

Facilitation Council reported in (2006) 8 SCC 677 and Tata Motors Ltd. v.

Pharmaceutical Products of India Ltd. reported in (2008) 7 SCC 619.

23. It was further submitted that the impugned judgment and order passed by the

High Court failed to take into consideration the law settled by this Court in

Civil Appeal Nos. 5366-5367 of 2024 Page 12 of 91

Bhoruka Textiles Ltd. v. Kashmiri Rice Industries reported in (2009) 7 SCC

521 which held that if the jurisdiction of the civil court was ousted in terms of

the jurisdictional bar imposed under Section 22 of the 1985 Act, then any

judgment rendered by it would be coram non-judice and as a result a nullity.

24. To fortify her aforesaid submission, the learned senior counsel argued that the

facts of the present case are similar to the facts in Bhoruka Textiles (supra) as

follows:

I. The defendant company was declared as a sick industrial undertaking

under Section 3(1)(o) of the 1985 Act and was referred to the BIFR for

its revival on 06.11.1992 and an enquiry under Section(s) 16 and 17

respectively of the 1985 Act was pending in respect of the defendant

company at the time of the institution of the suit by the original plaintiff

before the trial court.

II. The suit for recovery of money was instituted by the original plaintiff

against the original defendants without obtaining the consent of the

BIFR, as mandated by Section 22 of the 1985 Act.

III. Despite the statutory bar under Section 22 against the institution of a

suit for the recovery of money, the trial court decided the suit and

decreed it. Even the High Court in the impugned judgment failed to

decide the issue of lack of jurisdiction of the trial court in deciding the

suit.

Civil Appeal Nos. 5366-5367 of 2024 Page 13 of 91

25. The learned senior counsel further submitted that the contention of the

original plaintiff that the statutory bar under Section 22 of the 1985 Act applies

only against a recognized creditor and such debts as are acknowledged before

the BIFR during the pendency of the reference application is not the correct

understanding of the law and is against the beneficial object of the Act. It was

contended that the reliance placed by the original plaintiff on the decision of

the Delhi High Court in Sunil Mittal Properties of Shree Shyam Packaging

Industries v. M/s LML Ltd. reported in (2011) 123 DRJ 249 is misplaced as

the said decision failed to consider the law settled by this Court in Bhoruka

Textiles (supra) and thus could be termed as per incuriam.

26. One another submission made by the learned senior counsel was that out of

the total claim put forward by the original plaintiff before the trial court, only

the amount of Rs 55,710/- could have been recognized as delayed payment. It

was submitted that the deductions made by the original defendants towards

liquidated damages and penalty while remitting the payment to the original

plaintiff could not have been classified as delayed payment for the purpose of

computation of interest under the 1993 Act and the interest could only have

been claimed on the undisputed and agreed upon sum under the contract.

27. It was argued that the liability, if any, of the original defendants to pay interest

on the amount of Rs 4,89,919.99/- should be limited from the date of the

Civil Appeal Nos. 5366-5367 of 2024 Page 14 of 91

impugned judgment, wherein the High Court while partially modifying the

decree awarded by the trial court, awarded the amount as above in favour of

the original plaintiff for the first time.

28. It was also argued that the High Court erred in interfering with the exercise

of discretion by the trial court in awarding 12% pendente lite interest in favour

of the original plaintiff.

29. The learned senior counsel further submitted that the original plaintiff had the

option of taking recourse to the mechanism prescribed under Section 6 of the

1993 Act which provides for making a reference of any dispute to the Industry

Facilitation Council for acting as an arbitrator or a conciliator. However, by

consciously approaching the civil court by way of a suit for recovery of money

despite the jurisdictional bar contained under Section 22 of the Act, the

original plaintiff must now face the consequences of approaching a non-

jurisdictional forum.

30. Lastly, it was submitted by the learned senior counsel that the defendant

company remained under BIFR for a period of 21 years and was revived in

2013 after intervention of the Cabinet Committee on Economic Affairs. The

economic distress caused by the enforcement of the liability imposed upon the

Civil Appeal Nos. 5366-5367 of 2024 Page 15 of 91

original defendants by the High Court may potentially overwhelm the efforts

at revival of the defendant company.

C. SUBMISSIONS ON BEHALF OF THE RESPONDENT/ ORIGINAL

PLAINTIFF

31. Mr. Sundeep Pothina, the learned counsel appearing on behalf of the original

plaintiff submitted at the outset that Section 22 of the 1985 Act is not

applicable to the instant case as neither the debt came to be acknowledged, nor

the name of the creditor company figured before the BIFR. Since, in the case

on hand, the original defendants did not include the liability of the original

plaintiff in their list of liabilities in accordance with Section 21(a)(i) of the

1985 Act nor in their book of accounts under Section 21(a)(ii) of the 1985 Act

nor did it include the original plaintiff company in the list of creditors under

Section 21(b) of the 1985 Act at the time of reference or thereafter, the

jurisdictional bar available under Section 22 of the 1985 Act cannot be said to

be applicable to the suit instituted by the original plaintiff.

32. It was further submitted that the reliance placed by the original defendants on

Bhoruka Textiles (supra) in support of their contention regarding Section 22

of the 1985 Act is misplaced for the following reasons:

I. This Court in Bhoruka Textiles (supra) decided the issue as to whether

the bar under Section 22 of the 1985 Act would apply to a suit for

Civil Appeal Nos. 5366-5367 of 2024 Page 16 of 91

recovery instituted for defaults occurring post the reference of the sick

industrial company to the BIFR when the reference was pending.

However, the issue in the present case is different and pertains to

whether a suit for determination of ‘illegal deductions’ and ‘breach of

contract’ and liability would be barred by virtue of Section 22 of the

Act.

II. In Bhoruka Textiles (supra), not only the debt but the creditor was also

acknowledged before the BIFR and there was no dispute on the issue or

size of default. However, in the present case, both the existence and

quantum of liability are under dispute. The original defendants have not

referred to the original plaintiff as a ‘creditor’ before any forum.

33. It was further argued that the reliance placed by the original defendants on

Jay Engineering (supra) is also of no avail as in the facts of that case, there

was no dispute over the quantum of dues and the sick company therein had

reckoned the dues and the liabilities were covered in the revised rehabilitation

scheme. Further, the decision in the said case only supports the contention of

the original plaintiff that the adjudicatory process of making an award is not

barred under Section 22 of the 1985 Act and it is only the execution of such

an award against a sick company which is protected under Section 22 of the

1985 Act. Thus, as the civil court in this case was the adjudicating authority

having inherent jurisdiction to decide the suit under Section 9 of the Civil

Civil Appeal Nos. 5366-5367 of 2024 Page 17 of 91

Procedure Code, 1908, the adjudicatory part of determining the liability

couldn’t be said to have been barred by Section 22 of the Act. It is only the

execution of such a decree arrived at as a result of the adjudicatory process

which could be said to be barred under Section 22 of the 1985 Act during the

period when the sick company is under the protection of the BIFR.

34. The learned counsel further submitted that the reliance placed by the original

defendants on the decision of this Court in Tata Motors (supra) is also

misplaced as the said decision pertains to Section 26 of the 1985 Act while the

case on hand pertains to the applicability of Section 22 of the 1985 Act. He

contended that even the said decision supports the case of the original plaintiff

as it explains the distinction between the adjudicatory authority of a civil court

and the BIFR and holds that the jurisdiction of a civil court is barred in respect

of any matter for which the BIFR or the Appellate Authority for Industrial and

Financial Reconstruction (“AAIFR”) is empowered.

35. The learned counsel, while placing reliance on the decision of the Delhi High

Court in Sunil Mittal (supra), argued that the facts of the present case are

squarely covered by the said decision. It was submitted that in the said case, a

distinction was drawn between the ‘process of assessment’ and ‘quantified

recoveries’ and it was held that while the realisation of the latter is stayed by

virtue of Section 22 of the 1985 Act, the former, which is the process of

Civil Appeal Nos. 5366-5367 of 2024 Page 18 of 91

finalisation of liability, does not get stayed by operation of Section 22 of the

1985 Act.

36. The learned counsel submitted that the contention of the original defendants

that the decision in Sunil Mittal (supra) is rendered per-incuriam as the same

failed to consider the decision in Bhoruka Textiles (supra) is incorrect as the

court therein had based its decision on the judgment of a division bench of the

Delhi High Court in Saketh India Limited v. W. Diamond India Ltd. reported

in 2010 SCC OnLine Del 1786. The decision in Saketh India (supra) has

exhaustively considered the various decisions of this Court on the issue of

applicability of jurisdictional bar under Section 22 of the 1985 Act and thus

the decision in Sunil Mittal (supra) cannot be characterised as per-incuriam.

37. The learned counsel submitted that the High Court in its impugned judgment

has determined the issue of rate of interest under Section 4 of the 1993 Act.

The High Court, after looking into the relevant material, observed that the

floor rate charged by the State Bank of India (“SBI”) for the financial year

1993-94 was 19% and thus awarded interest at 24% which is 5 per-cent points

above the floor rate.

38. The learned counsel, in the last, submitted that as opposed to the

representations made by the defendant company about its current financial

Civil Appeal Nos. 5366-5367 of 2024 Page 19 of 91

status, the net worth of the defendant company as on 31.03.2022 is in the

positive and is at the least not less than 2,000/- crores.

D. ANALYSIS

39. Before adverting to the rival submissions canvassed on either side, we would

like to briefly discuss the proceedings in respect of the defendant company

before the Board for Industrial and Financial Reconstruction (“BIFR”) in

terms of Section 15 of the 1985 Act.

i. Proceedings in respect of FCIL before the BIFR

40. At the end of financial year 1991-92, the defendant company suffered huge

erosion in its net worth and became a sick industrial company. Accordingly, a

reference was made to the BIFR in terms of Section 15 of the 1985 Act.

Thereafter, the BIFR after hearing the representatives and stakeholders

declared the defendant company to be a sick company under Section 3(1)(o)

of the 1985 Act vide its order dated 06.11.1992. The BIFR also granted FCIL

and the Government of India time till 31.03.1993 to submit their final plan for

rehabilitating the company.

41. During the entire period of adjudication of the suit by the trial court and for a

part of the period during the pendency of the appeals before the High Court,

the defendant company continued to remain a Sick Industrial company with a

Civil Appeal Nos. 5366-5367 of 2024 Page 20 of 91

Special Director appointed by the BIFR and the SBI appointed as the

Operating Agency.

42. On 09.05.2013, the Cabinet Committee on Economic Affairs (“CCEA”) met

and took decisions on the revival of the defendant company. The Government

of India waived off its loan and interest amounting to Rs. 10,643/- crore and

the debt owed to the other PSUs were settled at 30% of their respective dues

as on 31.03.2003.

43. Meanwhile, the BIFR in the course of one important hearing looked into the

progress towards the revival of the defendant company in detail. After taking

into account the developments over the course of 20 years, the BIFR issued

the following relevant directions: -

“i. The company, M/s Fertilizer Corpn. Of India (Case No.

515/1992) ceases to be a Sick Industrial Company, within the

meaning of Section 3(1)(o) of the SICA as its net-worth has turned

positive. It is therefore, de-registered from the purview of

SICA/BIFR.

xxx xxx xxx

iv. The Board discharges the State Bank of India from the

responsibility of Operating Agency (OA) to the Board.

v. All Secured Creditors, Statutory Authorities are at liberty to

recover their dues, if any, according to law.”

Civil Appeal Nos. 5366-5367 of 2024 Page 21 of 91

44. Thus, in view of the directions of the BIFR dated 27.06.2013 referred to

above, the defendant company ceased to be a Sick Industrial company during

the pendency of the appeals before the High Court.

45. The submissions of the original defendants were focussed on and limited to

the following two aspects – jurisdictional bar on the civil court in deciding the

suit instituted by the original plaintiff by virtue of Section 22(1) of the 1985

Act; and the legality & validity of the interest rate of 24% per annum awarded

by the High Court in the original plaintiff’s favour.

ii. Issues for Determination

46. Having heard the parties extensively on the aforesaid aspects and having

perused the materials on record, the following two questions fall for our

consideration:

I. Whether the suspension of legal proceedings as envisaged under

Section 22(1) of the 1985 Act would extend to a civil suit for recovery

of money even if the debt sought to be proved in the plaint has not been

admitted by the sick industrial company? If so, whether the decree in

favour of the original plaintiff could be said to be coram non-judice?

II. Whether the High Court was correct in granting 24% compound interest

on the principal decretal amount in favour of the original plaintiff?

Civil Appeal Nos. 5366-5367 of 2024 Page 22 of 91

iii. Overview of Industrial Sickness and the Legislative Scheme of the

1985 Act.

47. Before we proceed to answer the aforesaid issues, we would like to discuss

briefly the concept of industrial sickness, the legislative scheme of the 1985

Act and the object behind its enactment. This will help us develop a better

contextual understanding of the questions before us.

48. Sickness in industries is a natural fall-out of industrialisation. Industrial

sickness can be understood to refer to a situation wherein an industrial unit

fails to generate surplus and is incurring losses over a period of time resulting

in the erosion of its net-worth. Section 3(o) of the 1985 Act defines a ‘sick

industrial company’ to be one which at the end of a financial year accumulates

losses equal to or exceeding its net worth.

49. While there could be numerous causes of sickness, the mismanagement of the

industrial unit, faulty planning at the inception of an industry, technical

drawbacks, recession in the market, labour disputes, changes in the fiscal

policies of the government, unavailability of credit facilities, and non-

availability of raw-materials are some of the prominent factors causing

industrial sickness.

Civil Appeal Nos. 5366-5367 of 2024 Page 23 of 91

50. As the Indian economy transitioned from being an agriculture-intensive one

towards a more industry-centric one, a growing number of industries suffered

huge financial losses resulting in their closure, which in turn led to the loss of

employment, government revenue and locking up of the investible funds of

banks and financial institutions which were invested in setting up of those

industries. In order to curb industrial sickness and its detrimental impacts on

the Indian economy, many policies and legislations were enacted over the

years by the executive and the legislative wing respectively. The aim of such

enactments was two-fold – first, to reduce the incidence of sickness in

industries by promoting a conducive industrial climate and secondly, to

identify sick companies and take effective remedial steps for revival of such

companies and upon failure, to wind them up.

51. One of the first such enactments was the Industrial Development and

Regulation Act, 1951 (“IDRA Act, 1951”) which contained provisions

empowering the Central Government to cause investigation into the affairs of

an Industrial Company which is to be wound up for the purpose of reviving

such Company in the interest of general public by ensuring production, supply

or distribution of articles.

52. Nationalisation of sick industries through legislations was another approach

adopted by the government to revive or continue the operation of sick

Civil Appeal Nos. 5366-5367 of 2024 Page 24 of 91

industries in national interest. An enactment brought in with the object of

dealing with sickness in the textile industry was the Sick Textile Undertaking

(Nationalization) Act, 1974 which, inter alia, provided for the reorganisation

and rehabilitation of sick textile industries. Similarly, The Aluminium

Corporation of India Ltd. (Acquisition and Transfer of Aluminium

Undertaking) Act, 1984 and The Futwah Islampur Lightway Line

(Nationalisation) Act, 1985 were enacted with similar objects.

53. Industrial Reconstruction Bank of India Act, 1984 was enacted to provide

financial assistance to sick industrial companies for their revival. However,

the said enactment was repealed thereafter.

54. In 1981, the Reserve Bank of India (“RBI”) appointed a committee under the

chairmanship of late Shri T. Tiwari to look into the causes of industrial

sickness, to assess the depth of the problem and to suggest comprehensive and

focussed remedial measures to counter the problem of industrial sickness in

India. The committee submitted its report suggesting, inter alia, the setting up

of a quasi-judicial body through a special legislation to handle the cases of

industrial sickness. This suggestion of the committee led to the enactment of

the 1985 Act.

Civil Appeal Nos. 5366-5367 of 2024 Page 25 of 91

55. The Statement of Objects and Reasons accompanying the Sick Industrial

Companies Bill, 1985 reads as follows:

“The ill effects of sickness in industrial companies such as loss of

production, loss of employment, loss of revenue to the Central and

State Governments and locking up of investible funds of banks and

financial institutions are of serious concern to the Government and

the society at large. The concern of the Government is accentuated

by the alarming increase in the incidence of sickness in industrial

companies. It has been recognised that in order to fully utilise the

productive industrial assets, afford maximum protection of

employment and optimise the use of the funds of the banks and

financial institutions, it would be imperative to revive and

rehabilitate the potentially viable sick industrial companies as

quickly as possible. It would also be equally imperative to salvage

the productive assets and realise the amounts due to the banks and

financial institutions, to the extent possible, from the non-viable

sick industrial companies through liquidation of those companies.

2. It has been the experience that the existing institutional

arrangements and procedures for revival and rehabilitation of

potentially viable sick industrial companies are both inadequate

and time-consuming. A multiplicity of laws and agencies makes the

adoption of coordinated approach for dealing with sick industrial

companies difficult. A need has, therefore, been felt to enact in

public interest a legislation to provide for timely determination by

a body of experts of the preventive, ameliorative, remedial and

other measures that would need to be adopted with respect to such

companies and for enforcement of the measures considered

appropriate with utmost practicable despatch.

3. The salient features of the Bill are-

(i) Application of the legislation to the industries specified in the

First Schedule to the Industries (Development and Regulation)

Act. 1951, with the initial exception of the scheduled industry

relating to ships and other vessels drawn by power, which may

however be brought within the ambit of the legislation in due

course:

Civil Appeal Nos. 5366-5367 of 2024 Page 26 of 91

(ii) identification of sickness in an industrial company, registered

for not less than seven years, on the basis of the symptomatic

indices of cash losses for two consecutive financial years and

accumulated losses equalling or exceeding the net worth of the

company as at the end of the second financial year,

(iii) the onus of reporting sickness and impending sickness at the

stage of erosion of fifty per cent, or more of the net worth of an

industrial company is being laid on the Board of Directors of such

company; where the Central Government or the Reserve Bank is

satisfied that an industrial company has become sick, it may make

a reference to the Board, likewise if any State Government,

scheduled bank or public financial institution having an interest in

an industrial company is satisfied that the industrial company has

become sick, it may also make a reference to the Board;

(iv) establishment of Board consisting of experts in various

relevant fields with powers to enquire into and determine the

incidence of sickness in industrial companies and devise suitable

remedial measures through appropriate schemes or other

proposals and for proper implementation thereof;

v) constitution of an Appellate Authority consisting of persons who

are or have been Supreme Court Judges, senior High Court Judges

and Secretaries to the Government of India, etc. for hearing

appeals against the order of the Board.

4. The notes on clauses appended to the Bill explain the various

provisions of the Bill.

NEW DELHI

THE 22

nd

August, 1985. VISHWANATH PRATAP SINGH”

56. The preamble to the 1985 Act reads as follows:

“An Act 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.”

Civil Appeal Nos. 5366-5367 of 2024 Page 27 of 91

57. Having discussed the object behind the enactment of the 1985 Act and the

developments leading up to its inception, we shall now briefly discuss the

scheme and scope of the 1985 Act.

58. The 1985 Act is divided into four chapters. The first chapter contains

preliminary provisions including the definitions and a declaration that the

1985 Act is enacted in furtherance of the principles enshrined in clauses (b)

and (c) of the Article 39 of the Constitution. The second chapter, inter alia,

provides for the establishment of the BIFR and the AAIFR and prescribes the

term of office and conditions of service of their chairperson and members and

also the procedure to be followed by them.

59. The third chapter, which is often described as the soul and essence of the 1985

Act, provides for the methodology that is to be adopted for the purposes of

detecting, reviving or even winding up a sick industrial company. Section 15

enables the Board of Directors of a company which has become sick to make

reference to BIFR for determination of measures which shall be adopted with

respect to the company. The Central Government or the Reserve Bank or the

State Government concerned may also make the reference to the BIFR for the

same purpose if it has sufficient reasons to believe that a company has become

sick. Once a reference is made, it is open to the BIFR to conduct an inquiry

Civil Appeal Nos. 5366-5367 of 2024 Page 28 of 91

for determining whether the company has become sick. If the BIFR is satisfied

on completion of the inquiry that the company has become sick, it can adopt

any of the measures envisaged in Section 17 of the 1985 Act. When an order

is made under Section 17 a scheme with respect to the company shall be

prepared by “the operating agency” specified in such order under Section 18.

The operating agency may also be directed by the BIFR under Section 21 to

prepare, inter alia, an inventory of the books of account of the sick company

and its assets and liabilities, a list of shareholders and secured and unsecured

creditors, a valuation report in respect of the shares and the assets etc. Section

20 provides for the winding up of a sick company where the BIFR is of the

opinion that such a company is not likely to become viable in the future.

Section 22, which is at the heart of the dispute before us, inter alia, provides

for the suspension of legal proceedings of the nature as specified in the said

section.

60. The fourth chapter, among other things, provides for the detection of

potentially sick companies in the initial stages by mandating the Board of

Directors of such companies to bring such potential sickness to the knowledge

of the BIFR and the shareholders of the companies. Punishment of up to two

years imprisonment along with fine is also prescribed in case of default in

complying with the requirement. The issue of mismanagement leading to

sickness in companies is sought to be dealt with under Section 24 of the 1985

Civil Appeal Nos. 5366-5367 of 2024 Page 29 of 91

Act which provides strict measures in case of proved misfeasance, breach of

trust, etc. Section 26 bars the jurisdiction of civil courts in respect of matters

which the BIFR or the AAIFR are empowered to determine. Section 32 is the

non-obstante provision which imparts overriding effect to the 1985 Act over

other laws in force except for the two legislations mentioned in the said section

itself. The 1985 Act was repealed by the Sick Industrial Companies (Special

Provisions) Repeal Act, 2003 which was notified on 01.12.2016.

61. Having discussed in detail the scheme of the 1985 Act and the object and

purpose behind its enactment, we shall now proceed to answer the issues

framed by us.

iv. ISSUE NO. 1: Whether the suspension of legal proceedings as envisaged

under Section 22(1) of the 1985 Act would extend to a civil suit for

recovery of money even if the debt sought to be proved in the plaint

has not been admitted by the sick industrial company? If so, whether

the decree in favour of the original plaintiff could be said to be coram

non-judice?

62. To answer the issue before us, it is important to first delineate the scope of the

relevant provision, which is reproduced hereinbelow:

“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 anything contained in the Companies Act, 1956

Civil Appeal Nos. 5366-5367 of 2024 Page 30 of 91

(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….”

63. Section 22(1) of the 1985 Act provides that subject to the fulfilment of the

conditions as described in the sub-section, proceedings of the nature

mentioned therein shall remain suspended in respect of a sick industrial

company.

64. For the bar under the said sub-section to get attracted, it is necessary that in

respect of an industrial company:

I. An inquiry under Section 16 of the 1985 Act is pending; OR

II. A scheme under Section 17 of the 1985 Act is under preparation or

consideration; OR

III. A sanctioned scheme is under implementation; OR

IV. An appeal under Section 25 of the 1985 Act is pending.

65. If one of the four conditions as mentioned aforesaid is fulfilled, then

notwithstanding anything contained in the Companies Act, 1956 or any other

Civil Appeal Nos. 5366-5367 of 2024 Page 31 of 91

law or the memorandum and articles of association of the industrial company

or any other instrument having effect under the Companies Act, 1956 or other

law, proceedings in the nature of the following cannot be initiated, and if

already initiated, cannot be proceeded with, except with the consent of the

BIFR or the AAIFR, as the case may be:

I. Winding up of the industrial company;

II. Execution, distress or the like against any of the properties of the

industrial company;

III. Appointment of receiver in respect of any of the properties of the

industrial company;

IV. Suit for recovery of money from the industrial company;

V. Suit for enforcement of a security against the industrial company;

VI. Suit for enforcement of a guarantee in respect of loans or advance

granted to the industrial company.

66. It is pertinent to mention that prior to the coming into force of the Sick

Industrial Companies (Amendment) Act, 1993 w.e.f. 01.02.1994, the

proceedings in the nature of a suit as mentioned in (iv), (v) and (vi) in

paragraph 65 above were exempt from the ambit of the suspension as

envisaged under Section 22(1) of the 1985 Act.

Civil Appeal Nos. 5366-5367 of 2024 Page 32 of 91

67. Thus, as can be seen from the plain reading of Section 22(1) of the 1985 Act,

for an industrial company to avail the benefit of suspension of legal

proceedings, two conditions have to be fulfilled – First, one of the four

requirements as mentioned in paragraph 64 should be satisfied, that is, the

industrial company must be at the prescribed stage of proceedings before the

BIFR or the AAIFR. Secondly, the nature of proceedings sought to be

suspended should be one which falls within the ambit of proceedings

mentioned in paragraph 65 above.

68. We shall first examine whether the first of the two conditions as mentioned

above is satisfied, as the protective shield of Section 22(1) of the 1985 Act is

only available so long as the proceedings before the BIFR or the AAIFR are

pending. It was observed by a three-judge bench of this Court in Shree

Chamundi Mopeds Ltd. v. Church of South India Trust Association CSI

CINOD Secretariat, Madras reported in (1992) 3 SCC 1 thus:

“….We are, therefore, of the opinion that the passing of the interim

order dated February 21, 1991 by the Delhi High Court staying the

operation of the order of the Appellate Authority dated January 7,

1991 does not have the effect of reviving the appeal which had been

dismissed by the Appellate Authority by its order dated January 7,

1991 and it cannot be said that after February 21, 1991, the said

appeal stood revived and was pending before the Appellate Authority.

In that view of the matter, it cannot be said that any proceedings under

the Act were pending before the Board or the Appellate Authority on

the date of the passing of the order dated August 14, 1991 by the

learned Single Judge of the Karnataka High Court for winding up of

the company or on November 6, 1991 when the Division Bench passed

Civil Appeal Nos. 5366-5367 of 2024 Page 33 of 91

the order dismissing O.S.A. No. 16 of 1991 filed by the appellant-

company against the order of the learned Single Judge dated August

14, 1991. Section 22(1) of the Act could not, therefore, be invoked and

there was no impediment in the High Court dealing with the winding

up petition filed by the respondents…”

(Emphasis supplied)

69. As discussed hereinbefore in paragraph 40 of the judgment, the Board of

Directors of the defendant company, passed a resolution dated 20.04.1992 to

the effect that the company had become a sick company for the purposes of

the 1985 Act and thus a reference to the BIFR was required to be made. In

accordance with the resolution, a reference was accordingly made under

Section 15(1) of the 1985 Act. Subsequently, a bench of the BIFR took up the

reference of the defendant company for consideration and vide order dated

06.11.1992, inter alia, decided that the company fulfilled all the criteria

prescribed under Section 3(1)(o) of the 1985 Act for being declared a sick

company. The bench also granted the defendant company and the Government

of India time till 31.03.1993 to submit a proposal for rehabilitation of the

company for the consideration of the bench.

70. The defendant company continued to remain a sick company under the 1985

Act and proceedings before the BIFR continued and it was only on

27.06.2013, after a detailed consideration of the progress made by the

company towards revival, that the BIFR declared the defendant company to

Civil Appeal Nos. 5366-5367 of 2024 Page 34 of 91

have ceased to be a sick industrial company. Consequently, the defendant

company was deregistered from BIFR on the said date.

71. It is the case of the original defendants that the original civil suit for the

recovery of money having been filed against the defendant company during

the pendency of proceedings before the BIFR, the trial court committed an

error in deciding the suit despite the statutory bar as envisaged under Section

22(1) of the 1985 Act.

72. From a perusal of the facts as discussed above, it is clear that the civil suit

was instituted by the original plaintiff on 21.11.1996, that is, indeed, during

the pendency of the proceedings in respect of the defendant company before

the BIFR. Thus, the first condition precedent for the applicability of the

restriction under Section 22(1) of the 1985 Act being satisfied, the only aspect

that is now required to be determined is whether the suit instituted by the

original plaintiff was of a nature as contemplated under Section 22(1).

73. From a bare reading of the provision, it appears that any ‘suit for recovery of

money’ against a sick industrial company shall not lie or be proceeded with

during the pendency of the proceedings in respect of such a company before

the BIFR or the AAIFR, except with the permission of the BIFR or the AAIFR,

as the case may be. However, it has been contended by the original plaintiff

Civil Appeal Nos. 5366-5367 of 2024 Page 35 of 91

that it is not a suit for recovery of money simpliciter is not barred under the

provision, and only such suits for recovery of money which are instituted

towards recovery of liabilities admitted by the sick company before the BIFR

that fall within the protective ambit of Section 22(1).

74. In other words, the contention of the original plaintiff is that if a suit for

recovery of money is brought against a sick company during the pendency of

proceedings before the BIFR or the AAIFR with respect to the recovery of an

acknowledged debt, then such a suit will be hit by Section 22(1) and cannot

lie or be proceeded with except with the permission of the BIFR or the AAIFR,

as the case may be.

75. This Court including many of the High Courts have had the occasion of

interpreting Section 22(1) of the 1985 Act. One of the earliest decisions

concerning Section 22(1) was rendered by a two-Judge Bench of this Court in

Gram Panchayat and Another v. Shree Vallabh Glass Works Limited and

Others reported in (1990) 2 SCC 440. In the said case, while deciding an

appeal against the decision of the Bombay High Court quashing recovery

proceedings towards property taxes and other amounts due under the

provisions of the Bombay Village Panchayat Act, 1959 against the respondent

company therein, which had been declared to be a sick company under the

Act, the Bench held:

Civil Appeal Nos. 5366-5367 of 2024 Page 36 of 91

“5. The question is whether the Panchayat could not recover the

amount due to it from out of the properties of the sick industrial

company without the consent of the Board?

xxx xxx xxx

7. Section 22(1) provides that in case the enquiry under Section 16

is pending or any scheme referred to under Section 17 is under

preparation or consideration by the Board or any appeal under

Section 25 is pending then certain proceedings against the sick

industrial company are to be suspended or presumed to be

suspended. The nature of the proceedings which are automatically

suspended are: (1) Winding up of the industrial company; (2)

Proceedings for execution, distress or the like against the

properties of sick industrial company; and (3) Proceedings for the

appointment of receiver. The proceedings in respect of these

matters could, however, be continued against the sick industrial

company with the consent or approval of the Board or of the

appellate authority as the case may be.

xxx xxx xxx

10. In the light of the steps taken by the Board under Sections 16

and 17 of the Act, no proceedings for execution, distress or the like

proceedings against any of the properties of the company shall lie

or be proceeded further except with the consent of the Board.

Indeed, there would be automatic suspension of such proceedings

against the company's properties. As soon as the inquiry under

Section 16 is ordered by the Board, the various proceedings set

out under sub-section (1) of Section 22 would be deemed to have

been suspended.

11. It may be against the principles of equity if the creditors are

not allowed to recover their dues from the company, but such

creditors may approach the Board for permission to proceed

against the company for the recovery of their

dues/outstandings/overdues or arrears by whatever name it is

called. The Board at its discretion may accord its approval for

proceeding against the company. If the approval is not granted,

the remedy is not extinguished. It is only postponed. Sub-section

(5) of Section 22 provides for exclusion of the period during which

the remedy is suspended while computing the period of limitation

for recovering the dues.

Civil Appeal Nos. 5366-5367 of 2024 Page 37 of 91

12. In our opinion, the High Court was justified in quashing the

recovery proceedings taken against the properties of the company

and we accordingly, reject this petition, with no order as to costs.”

(Emphasis supplied)

76. One another decision interpreting Section 22(1) of the 1985 Act was delivered

by a two-judge bench of this Court in Maharashtra Tubes Ltd. v. State

Industrial & Investment Corpn. of Maharashtra Ltd. reported in (1993) 2

SCC 144. In this case, this Court, while deciding the interplay between the

power of recovery under the State Financial Corporations Act, 1951 and the

suspension of certain legal proceedings under Section 22 of the 1985 Act, held

thus:

“10. It was next contended that the right conferred on the

Financial Corporation by Section 29 of the 1951 Act is not a ‘legal

proceeding’ but merely an action permitted by statute and,

therefore, Section 22(1) will have no application as it only bars

legal proceedings for the winding up of any industrial company or

for execution, distress or the like against any of its properties or

for the appointment of a Receiver in respect thereof. Now Section

22(1) uses the expression ‘proceedings’ and not ‘legal

proceedings’ which expression is albeit used in the marginal note

to the said provision. Mr Rao contended that Section 22 must be

read in the light of the marginal note and when so read it becomes

obvious that only legal proceedings of the type mentioned in sub-

section (1) thereof are barred and not the exercise of a right such

as the one conferred by Section 29 of the 1951 Act. In support of

his contention that the marginal note can be used as an aid to

interpretation he invited our attention to a seven-Judge Bench

decision of this Court in Bengal Immunity Company Ltd. v. State

of Bihar [(1955) 2 SCR 603, 636 : AIR 1955 SC 661 : (1955) 6

STC 446] . In that case the marginal note to Article 286 of the

Constitution was referred to and it was said that it furnished some

clue as to the meaning and purpose of the Article. But at the same

time the Court pointed out that unlike the marginal notes in the

Civil Appeal Nos. 5366-5367 of 2024 Page 38 of 91

statutes of the British Parliament, the various Articles of the

Constitution were passed by the Constituent Assembly with the

marginal notes and, therefore, the Court considered it permissible

to use the marginal note to understand the meaning and purport

of the Article. But so far as statutes are concerned this Court in

the case of Board of Muslim Wakfs, Rajasthan v. Radha

Kishan [(1979) 2 SCC 468] held in no uncertain terms that the

weight of the authority was in favour of the view that the marginal

note appended to a section cannot be used for construing the

section (see paragraph 24 at p. 479). Section 22(1) shorn of the

irrelevant part provides that where an appeal under Section 25

relating to an industrial company is pending, then,

notwithstanding anything contained in any 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 appointment of a Receiver in respect

thereof shall lie or be proceeded with further, except with the

consent of the BIFR or, as the case may be, the appellate authority.

The purpose and object of this provision is clearly to await the

outcome of the reference made to the BIFR for the revival and

rehabilitation of the sick industrial company. The words ‘or the

like’ which follow the words ‘execution’ and ‘distress’ are clearly

intended to convey that the properties of the sick industrial

company shall not be made the subject-matter of coercive action

of similar quality and characteristic till the BIFR finally disposes

of the reference made under Section 15 of the said enactment. The

legislature has advisedly used an omnibus expression ‘the like’ as

it could not have conceived of all possible coercive measures that

may be taken against a sick undertaking. The action contemplated

by Section 29 of the 1951 Act is undoubtedly a coercive measure

directed at the take over of the management and property of the

industrial concern and confers a further right on the Financial

Corporation to transfer by way of lease or sale the properties of

the said concern and any such transfer effected by the Financial

Corporation would vest in the transferee all rights in or to the

transferred property as if the transfer was made by the owner of

the property. So also under the said provision the Financial

Corporation will have the same rights and powers with respect to

goods manufactured or produced wholly or partly from goods

forming part of the security held by it as it had with respect to the

original goods. It is, therefore, obvious on a plain reading of

Section 29 of the 1951 Act that it permits coercive action against

the defaulting industrial concern of the type which would be taken

Civil Appeal Nos. 5366-5367 of 2024 Page 39 of 91

in execution or distress proceedings; the only difference being that

in the latter case the concerned party would have to use the forum

prescribed by law for the purpose of securing attachment and sale

of property of the defaulting industrial concern whereas in the

case of a Financial Corporation that right is conferred on the

creditor corporation itself which is permitted to take over the

management and possession of the properties and deal with them

as if it were the owner of the properties. If the Corporation is

permitted to resort to the provision of Section 29 of the 1951 Act

while proceedings under Sections 15 to 19 of the 1985 Act are

pending it will render the entire process nugatory. In such a

situation the law merely expects the corporation and for that

matter any other creditor to obtain the consent of the BIFR or, as

the case may be, the appellate authority to proceed against the

industrial concern. The law has not left them without a remedy.

We are, therefore, of the opinion that the word ‘proceedings’ in

Section 22(1) cannot be given a narrow or restricted meaning to

limit the same to legal proceedings. Such a narrow meaning would

run counter to the scheme of the law and frustrate the very object

and purpose of Section 22(1) of the 1985 Act.”

(Emphasis supplied)

77. The decisions in Gram Panchayat (supra) and Maharashtra Tubes (supra)

considered the unamended Section 22(1) of the 1985 Act. However, the said

provision came to be amended by the Sick Industrial Companies

(Amendment) Act, 1994 which came into effect from 01.02.1994. The suit in

question before us having been filed in 1996, it is the amended Section 22(1)

which would apply. Thus, we shall now look into some of the decisions

wherein the amended Section 22(1) of the 1985 Act was interpreted.

78. The question whether proceedings for the recovery of dues arising after the

sanctioning of the scheme would also be covered under the protective

umbrella of Section 22(1) of the 1985 Act fell for the consideration of a two-

Civil Appeal Nos. 5366-5367 of 2024 Page 40 of 91

judge bench of this Court in Deputy Commercial Tax Officer and Others v.

Corromandal Pharmaceuticals and Others reported in (1997) 10 SCC 649.

This Court, while answering the issue in the negative, distinguished the facts

before it from the decisions in Gram Panchayat (supra) and Maharashtra

Tubes (supra) and held thus:

“13. On a fair reading of the provisions contained in Chapter III

of Act 1 of 1986 and in particular Sections 15 to 22, we are of the

opinion that the plea put forward by the Revenue is reasonable

and fair in all the circumstances of the case. Under the statute, the

BIFR is to consider in what way various preventive or remedial

measures should be afforded to a sick industrial company. In that

behalf, BIFR is enabled to frame an appropriate scheme. To

enable the BIFR to do so, certain preliminaries are required to be

followed. It starts with the reference to be made by the Board of

Directors of the sick company. The BIFR is directed to make

appropriate inquiry as provided in Sections 16 and 17 of the Act.

At the conclusion of the inquiry, after notice and opportunity

afforded to various persons including the creditors, the BIFR is to

prepare a scheme which shall come into force on such date as it

may specify in that behalf. It is in implementation of the

scheme wherein various preventive, remedial or other measures

are designed for the sick industrial company, steps by way of

giving financial assistance etc. by Government, banks or other

institutions, are contemplated. In other words, the scheme is

implemented or given effect to, by affording financial assistance

by way of loans, advances or guarantees or reliefs or concessions

or sacrifices by Government, banks, public financial institutions

and other authorities. In order to see that the scheme is

successfully implemented and no impediment is caused for the

successful carrying out of the scheme, the Board is enabled to have

a say when the steps for recovery of the amounts or other coercive

proceedings are taken against sick industrial company which,

during the relevant time, acts under the guidance/control or

supervision of the Board (BIFR). Any step for execution, distress

or the like against the properties of the industrial company or

other similar steps should not be pursued which will cause delay

or impediment in the implementation of the sanctioned scheme. In

Civil Appeal Nos. 5366-5367 of 2024 Page 41 of 91

order to safeguard such state of affairs, an embargo or bar is

placed under Section 22 of the Act against any step for execution,

distress or the like or other similar proceedings against the

company without the consent of the Board or, as the case may be,

the appellate authority. The language of Section 22 of the Act is

certainly wide. But, in the totality of the circumstances, the

safeguard is only against the impediment, that is likely to be

caused in the implementation of the scheme. If that be so, only the

liability or amounts covered by the scheme will be taken in, by

Section 22 of the Act. So, we are of the view that though the

language of Section 22 of the Act is of wide import regarding

suspension of legal proceedings from the moment an inquiry is

started, till after the implementation of the scheme or the disposal

of an appeal under Section 25 of the Act, 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. Such amounts like sales tax, etc., which the

sick industrial company is enabled to collect after the date of the

sanctioned scheme legitimately belonging to the Revenue, cannot

be and could not have been intended to be covered within Section

22 of the Act. Any other construction will be unreasonable and

unfair and will lead to a state of affairs enabling the sick industrial

unit to collect amounts due to the Revenue and withhold it

indefinitely and unreasonably. Such a construction which is

unfair, unreasonable and against the spirit of the statute in a

business sense, should be avoided.

14. The situation which has arisen in this case seems to be rather

exceptional. The issue that has arisen in this appeal did not arise

for consideration in the two cases decided by this Court in Gram

Panchayat v. Shree Vallabh Glass Works Ltd. [(1990) 2 SCC 440]

and Maharashtra Tubes Ltd. v. State Industrial & Investment

Corpn. of Maharashtra Ltd. [(1993) 2 SCC 144] It does not

appear from the above two decisions of this Court nor from the

decisions of the various High Courts brought to our notice, that in

any one of them, the liability of the sick company dealt with therein

itself arose, for the first time after the date of sanctioned scheme.

At any rate, in none of those cases, a situation arose whereby the

sick industrial unit was enabled to collect tax due to the Revenue

from the customers after the “sanctioned scheme” but the sick unit

simply folded its hands and declined to pay it over to the Revenue,

for which proceedings for recovery, had to be taken. The two

decisions of this Court as also the decisions of High Courts

Civil Appeal Nos. 5366-5367 of 2024 Page 42 of 91

brought to our notice are, therefore, distinguishable. They will not

apply to a situation as has arisen in this case. We are, therefore,

of the opinion that Section 22(1) should be read down or

understood as contended by the Revenue. The decision to the

contrary by the High Court is unreasonable and unsustainable.

We set aside the judgment of the High Court and allow this appeal.

There shall be no order as to costs.”

(Emphasis supplied)

79. The decision in Corromandal Pharmaceuticals (supra) was referred to and

relied upon by a two-Judge Bench of this Court in Jay Engineering (supra)

which set aside the order of the High Court as it failed to consider that the

liabilities of the appellant-sick company therein with respect to the creditor

were indisputably a part of the revised rehabilitation scheme. This Court held

that if the liabilities of the creditor were duly considered and made a part of

the rehabilitation scheme, the bar under Section 22(1) of the 1985 Act would

apply, notwithstanding the fact that the liabilities arose after the company was

declared to be a sick one. The relevant observations of this court are extracted

hereinbelow:

“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-à-vis Respondent 2 were,

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 2003.

xxx xxx xxx

Civil Appeal Nos. 5366-5367 of 2024 Page 43 of 91

18. 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 apply.

19. 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 one.

xxx xxx xxx

22. The High Court has placed strong reliance

on CTO v. Corromandal Pharmaceuticals [(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….”

The ratio laid down in the said decision, therefore, instead of

assisting the respondent assists the appellant.”

(Emphasis supplied)

Civil Appeal Nos. 5366-5367 of 2024 Page 44 of 91

80. The original defendants have strongly relied upon the decision of a two-judge

bench of this Court in Bhoruka Textiles (supra). In the said case, the

respondent therein, filed a suit for recovery against the appellant, a sick

industrial company. The civil court decreed the suit in favour of the respondent

therein with the finding that the transaction referred to took place subsequent

to the reference of the appellant company to the BIFR and thus the suspension

under Section 22(1) of the 1985 Act would not apply. The civil court also held

that in the absence of any final order declaring the appellant company as a sick

company by the BIFR, mere reference of the said company to the BIFR would

not bring the protection under Section 22(1) of the 1985 Act into effect.

81. This Court negatived both the findings noted above and held that the civil

court committed a manifest error in holding that the transaction in question

was subsequent to the reference, when from the admitted facts it was apparent

that it took place prior to the referral. It was observed by the Bench thus:

“7. 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

Civil Appeal Nos. 5366-5367 of 2024 Page 45 of 91

year in question are finalised. Section 16 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.

xxx xxx xxx

10. Section 22 of the Act must be interpreted giving a plain

meaning to its contents. An enquiry in terms of Section 16 of the

Act by the Board is permissible upon receipt of a reference. Thus,

reference having been made on 27-12-2001 and the suit having

been filed on 17-12-2002, the receipt of a reference must be held

to be the starting period for proceeding with the enquiry.

11. The effect of the provisions of the Act has been considered by

a three-Judge Bench decision of this Court in Tata Motors

Ltd. v. Pharmaceutical Products of India Ltd. [(2008) 7 SCC 619]

wherein it, in no uncertain terms, held that SICA is a special

statute and, thus, overrides other Acts like the Companies Act,

1956, stating: (SCC p. 635, paras 31-33)

“31. SICA furthermore was enacted to secure the principles

specified in Article 39 of the Constitution of India. It seeks to

give effect to the larger public interest. It should be given

primacy because of its higher public purpose. Section 26 of

SICA bars the jurisdiction of the civil courts.

32. What scheme should be prepared by the operating agency

for revival and rehabilitation of the sick industrial company is

within the domain of BIFR. Section 26 not only covers orders

passed under SICA but also any matter which BIFR is

empowered to determine.

33. The jurisdiction of the civil court is, thus, barred in respect

of any matter for which the Appellate Authority or the Board is

empowered. The High Court may not be a civil court but its

jurisdiction in a case of this nature is limited.”

12. If the civil court's jurisdiction was ousted in terms of the

provisions of Section 22 of the Act, any judgment rendered by it

would be coram non judice. It is a well-settled principle of law that

a judgment and decree passed by a court or tribunal lacking

inherent jurisdiction would be a nullity. In Kiran Singh v. Chaman

Paswan [AIR 1954 SC 340] this Court held: (AIR p. 342, para 6)

Civil Appeal Nos. 5366-5367 of 2024 Page 46 of 91

“6. … It is a fundamental principle well established that a

decree passed by a court without jurisdiction is a nullity, and

that its invalidity could be set up whenever and wherever it is

sought to be enforced or relied upon, even at the stage of

execution and even in collateral proceedings. A defect of

jurisdiction, whether it is pecuniary or territorial, or whether it

is in respect of the subject-matter of the action, strikes at the

very authority of the court to pass any decree, and such a defect

cannot be cured even by consent of parties.”

(See also Chief Engineer, Hydel Project v. Ravinder Nath [(2008)

2 SCC 350 : (2008) 1 SCC (L&S) 940] , SCC p. 361, para 26.)”

(Emphasis supplied)

82. A three-Judge Bench of this Court in Raheja Universal Limited v. NRC

Limited and Others reported in (2012) 4 SCC 148 undertook a comprehensive

study of the various decisions of this Court on the interpretation of Section 22

of the 1985 Act to clarify the divergences and settle the position of law on the

said provision. The relevant observations are as follows:

“23. The provisions of SICA 1985 impose an obligation on the sick

industrial companies and potentially sick industrial companies to

make references to BIFR within the time specified under SICA

1985. Default thereof is punishable under the provisions of SICA

1985. Largely, the proceedings before BIFR are specific to

rehabilitation or winding up of the sick company and SICA 1985

hardly contemplates adversarial proceedings. The bodies

constituted under SICA 1985 would least exercise their

jurisdiction to a lis between any party or upon the rival interests

of the parties.

xxx xxx xxx

30. Dealing with the language of Section 22 of SICA 1985, this

Court in Jay Engg. case [(2006) 8 SCC 677 : AIR 2006 SC 3252]

took the view that the said Act shall prevail and though the

adjudicatory process of making an award under the 1993 Act

would not come under the purview of SICA 1985, once an award

Civil Appeal Nos. 5366-5367 of 2024 Page 47 of 91

is made and sought to be executed, the provisions of Section 22 of

SICA 1985 shall take over and such award would not be

executable against the sick company, particularly when the party

in whose favour the award was made was, as in the present case,

included in the category of dormant creditors of the sick company.

xxx xxx xxx

48. All these provisions which fall under Chapter III of SICA 1985

have to be read conjointly and that too, along with other relevant

provisions and the scheme of SICA 1985. It is a settled canon of

interpretation of statutes that the statute should not (sic) be

construed in its entirety and a sub-section or a section therein

should not be read and construed in isolation. Chapter III, in fact,

is the soul and essence of SICA 1985 and it provides for the

methodology that is to be adopted for the purposes of detecting,

reviving or even winding up a sick industrial company. Provisions

under SICA 1985 also provide for an appeal against the orders of

BIFR before another specialised body i.e. Aaifr. To put it simply,

this is a self-contained code and because of the non obstante

provisions, contained therein, it has an overriding effect over the

other laws. As per Section 32 of SICA 1985, the Act is required to

be enforced with all its vigour and in precedence to other laws.

xxx xxx xxx

54. Firstly, the facts of these cases are different and distinct and,

therefore, conclusions of the Court have to be read with reference

to the facts of the respective cases only and not dehors thereof.

Once the dictum of this Court is read with reference to the facts of

the respective cases, it would be evident that there is no conflict of

views within the ambit of ratio decidendi of the respective

judgments to make both of them legal and binding precedents.

55. Despite these judgments and with an intention to clarify the

law, we would state that the matters which are connected with the

sanctioning and implementation of the scheme right from the date

on which it is presented or the date from which the scheme is made

effective, whichever is earlier, would be the matters which

squarely fall within the ambit and scope of Section 22 of SICA

1985 subject to their satisfying the ingredients stated under that

provision. This would include the proceedings before the civil

court, Revenue Authorities and/or any other competent forum in

Civil Appeal Nos. 5366-5367 of 2024 Page 48 of 91

the form of execution or distress in relation to recovery of amount

by sale or otherwise of the assets of the sick industrial company.

It is difficult for us to hold that merely because a demand by a

creditor had not been made a part of the scheme, pre- or post-

sanctioning of the same for that reason alone, it would fall outside

the ambit of protection of Section 22 of SICA 1985.

xxx xxx xxx

58. Section 22 is the reservoir of the statutory powers empowering

BIFR to determine a scheme, right from its presentation till its

complete implementation in accordance with law, free of

interjections and interference from other judicial processes.

Section 22(1) deals with the execution, distress or the like

proceedings against the company's properties, including

appointment of a Receiver. It also specifically provides that even

a winding-up petition would not be instituted and no other

proceedings shall lie or proceed further, except with the consent

of BIFR.

xxx xxx xxx

61. It can safely be perceived that the provisions of Section 22 of

SICA 1985 are self-explanatory. They would cease to operate

within their own limitations and not by force of any other law,

agreement, memorandum or even articles of association of the

company. The purpose is so very clear that during the

examination, finalisation and implementation of the scheme, there

should be no impediment caused to the smooth execution of the

scheme of revival of the sick industrial company. It is only when

the specified period of restrictions and declarations contemplated

under the provisions of SICA 1985 is over, that the status quo ante

as it existed at the time of the consideration and finalisation of the

scheme, would become operative. This is done primarily with the

object that the assets of the company are not diverted, wasted,

taken away and/or disposed of in any manner, during the relevant

period.

xxx xxx xxx

69. Sections 22, 22-A, 26 and 32 have to be read and construed

conjointly. A common thread of legislative intent to treat this law

as a special law, in contradistinction to the other laws except the

laws stated in the provisions and to ensure its effective

Civil Appeal Nos. 5366-5367 of 2024 Page 49 of 91

implementation with utmost expeditiousness, runs through all

these provisions. It also mandates that no injunction shall be

granted by any court or authority in respect of an action taken or

to be taken in pursuance of the powers conferred to or by under

this Act.

xxx xxx xxx

78. The expression “no proceedings” that finds place in Section

22(1) is of wide spectrum but is certainly not free of exceptions.

The framers of law have given a definite meaning to the expression

“proceedings” appearing under Section 22(1) of SICA 1985.

These proceedings are for 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.

79. The expression “the like” has to be read ejusdem generis to

the term “proceedings”. The words “execution, distress or the

like” have a definite connotation. These proceedings can have the

effect of nullifying or obstructing the sanctioning or

implementation of the revival scheme, as contemplated under the

provisions of SICA 1985. This is what is required to be avoided for

effective implementation of the scheme. The other facet of the same

section is that, no suit for recovery of money, or for enforcement

of any security against the industrial company, or any guarantee

in respect of any loan or advance granted to the industrial

company shall lie, or be proceeded with further without the

consent of BIFR. In other words, a suit for recovery and/or for the

stated kind of reliefs cannot lie or be proceeded with further

without the leave of BIFR. Again, the intention is to protect the

properties/assets of the sick industrial company, which is the

subject-matter of the scheme.

80. It is difficult to state with precision the principle that would

uniformly apply to all the proceedings/suits falling under Section

22(1) of SICA 1985. Firstly, it will depend upon the facts and

circumstances of a given case, it must satisfy the ingredients of

Section 22(1) and fall under any of the various classes of

proceedings stated thereunder. Secondly, these proceedings

should have the impact of interfering with the formulation,

consideration, finalisation or implementation of the scheme.”

(Emphasis supplied)

Civil Appeal Nos. 5366-5367 of 2024 Page 50 of 91

83. While the decisions in each of the aforesaid cases should be seen in the

context of the specific factual situation therein, there is a common thread that

binds them all together. All of the aforesaid decisions proceed on the footing

that any proceeding which can possibly interfere with the formulation,

consideration, finalisation or implementation of a rehabilitation scheme as

envisaged under Chapter III of the Act, has to be suspended under Section

22(1) of the 1985 Act.

84. It is the above purpose which the scheme of Section 22(1) seeks to achieve

by suspending the proceedings of the nature either mentioned specifically in

the provision, or the proceedings of a like nature. Although this Court has

interpreted the provision liberally by widening the ambit of its protective

umbrella, yet it has also been mindful to extend such protection only to such

cases where the refusal to allow such extension would result in miscarriage of

the very purpose of the Act, which is the expeditious revival of sick

companies.

85. The ameliorative object of the 1985 Act, as envisaged by the legislature, is

sought to be achieved, inter alia, by the smooth formulation and

implementation of a rehabilitation scheme. Thus, if any impediment exists to

Civil Appeal Nos. 5366-5367 of 2024 Page 51 of 91

the successful execution of the scheme, such an impediment is curtailed at the

outset by the embargo provided under Section 22(1) of the 1985 Act.

86. It can be said without a cavil of doubt that the proceedings in the nature of

execution or distress by way of appointment of receiver or attachment of

immovable property, bank accounts, etc. would affect the assets of a sick

company and may inevitably come in the way of the preparation or execution

of the rehabilitation scheme. However, to hold that the protective shield of

Section 22(1) of the 1985 Act would apply even to those proceedings which

do not have any impact on the prospects of successful formulation and

implementation of the scheme, and the possibility of revival of the sick

company, would run contrary to the object of the Act, which was never to

confer absolute immunity or impunity on the sick company.

87. Thus, as explained in paragraph 67 of this judgment, a perusal of the plain

text of Section 22(1) of the 1985 Act brings out only two conditions for the

suspension of legal proceedings to operate. However, various decisions of this

Court, by necessary implication, have read into the said provision a third

condition which too has to be fulfilled before a sick company can seek

protection of the said provision. This third condition is that for a legal

proceeding to be suspended under Section 22(1) of the 1985 Act, it should be

Civil Appeal Nos. 5366-5367 of 2024 Page 52 of 91

shown to be interfering with the formulation, consideration, finalisation or

implementation of a rehabilitation scheme.

88. A Single Judge of the Delhi High Court has explained very succinctly these

conditions in Goyal MG Gases Pvt. Ltd. v. SBQ Steels Ltd. reported in 2016

SCC OnLine Del 5100 thus:

“25. The applicability of embargo contained in Section 22(1) of

SICA requires the cumulative and conjoint satisfaction of two

conditions; namely; a) the proceeding sought to be suspended

should clearly satisfy the ingredients of Section 22(1) and fall

within one or more of the categories of proceedings indicated in

the said provision and b) additionally, the continuance of the

proceeding should have the impact of interfering with the

formulation of the scheme.

26. The Supreme Court has also made it clear that the

applicability of the embargo contained in Section 22(1) of SICA

depends on the facts and circumstances of each individual case;

and no principle of universal application can be laid down in all

such matters.

27. The use of the expressions “Firstly” and “Secondly”, in para

80 of Raheja Universal Ltd. (supra) would make it clear that both

the conditions given in the judgment have to be satisfied

cumulatively. Even if the suit/proceeding is of the category

contemplated in Section 22(1), that by itself will not attract the bar

contained in the said provision, unless it additionally has the

impact of “interfering with the formulation, consideration,

finalisation or implementation of the scheme.”

(Emphasis supplied)

89. A Division Bench of the Delhi High Court in Saketh India (supra) considered

the scope of Section 22(1) of the 1985 Act in the context of the object sought

Civil Appeal Nos. 5366-5367 of 2024 Page 53 of 91

to be achieved by it and held that the term ‘suit for recovery’ as it appears in

the said provision must be construed ejusdem generis, meaning thereby that

only such a suit for recovery which is in the nature of execution or any other

coercive enforcement will be suspended by the effect of the provision. The

relevant parts of the said decision are extracted hereinbelow:

“5. We think it appropriate, however, to consider the provision of

SICA and analyse what it endeavours to achieve. We must

immediately take note of the fact that SICA has been repealed by

Sick Industrial Companies (Special Provisions) Repeal Act, 2003.

While it is yet to be notified, it is significant that provisions akin to

Section 22 are conspicuous by their absence in the new Scheme of

revival of sick companies inserted in form of Part VIA, namely,

“Revival and Rehabilitation of Sick Industrial Companies”.

Obviously, empirical analysis discloses that more often than not

companies which have sought shelter of SICA have done so to

procrastinate, delay and defer clearing its liability, with the

obvious intention of coercing creditors into unfair settlements

rather than implementing projected schemes supposed to assist in

their reconstruction. When the statute is notified, amendments to

the Companies Act, 1956 will become effective and all proceedings

pending before BIFR will stand abated. To some extent, therefore,

the present controversy has been rendered academic.

6. Courts, however, have always been alive to the possible

mischief that invocation of SICA can lead to. In a nutshell, where

the not worth of a company is reduced to a negative, and the

amelioration that is sought is for reviving the company rather than

winding it up, the recourse to the Act would be legitimate. There

is no justifiable reason, therefore, for all legal proceedings to be

immediately even held in abeyance, if not dismissed. We are

mindful of the fact that Parliament has incorporated an

amendment in the Section with effect from 1.2.1994 in these words

— “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”. It

Civil Appeal Nos. 5366-5367 of 2024 Page 54 of 91

appears to us that the phrase “recovery of money” must be

construed ejusdem generis and accordingly recovery proceedings

in the nature of execution or any other coercive enforcement that

has been ordained to be not maintainable. We do not find any logic

in holding legal proceedings to be not maintainable, or to be liable

to be halted unless, even if the debt sought to be proved in the

Plaint has not been admitted. Given the delays presently endemic

in the justice delivery system if a creditor is disallowed even from

proving the indebtedness of a recalcitrant debtor SICA company,

it would cause unjustified hardship. Whichever way we look at the

matter, there can be no logic in denying legal recourse to a party

for proving its debt. In the event that at least the principal amount,

or a substantial part of it stands admitted, either in the suit or by

means of a mention in the Scheme placed before the BIFR, the

aggrieved party must be permitted to prove its claim. In holding

so, the only prejudice that we can conceive of is incurring

expenditure in legal fees. When this is weighed against the

interests of a person claiming that the company is indebted to it,

the balance tilts in favour of the latter. A holistic reading of

Section 22(1) of SICA makes it manifestly clear that Parliament's

intention was to insulate sick companies only against proceedings

for winding-up or for execution, or distress or the like or for

enforcement of any security or guarantee. In the case in hand,

despite several opportunities granted to the Appellant, it has

miserably and perhaps deliberately failed to substantiate that the

claim mentioned in the Suit has been reflected in the Scheme

placed before the BIFR but even more poignantly, that a scheme

was, in fact, pending before BIFR. If an Appeal is pending, has

BIFR failed to grant or has withdrawn registration under SICA.

We see the conduct of the Appellant as nothing more than an abuse

of SICA.

7. The Apex Court has in Deputy Commercial Tax

Officer v. Corromandal Pharmaceuticals, (1997) 10 SCC 649

enunciated the law in the context of SICA to be that a cessation of

legal proceedings would be justified only if the dues in respect of

which adjudication is ongoing is also included in or within the

contemplation of the Scheme presented to BIFR. Their Lordships

had analysed and distinguished its previous decisions in Gram

Panchayat v. Shree Vallabh Glass Works Limited, (1990) 2 SCC

440 as well as Maharashtra Tubes Ltd. v. State of Industrial and

Investment Corporation of Maharashtra Ltd., (1993) 2 SCC 144

on the reasoning that in those cases the liability of the sick

Civil Appeal Nos. 5366-5367 of 2024 Page 55 of 91

company had arisen for the first time after the sanction of the

Scheme by BIFR….

8. In Sirmor Sudburg Auto Ltd. v. Kuldip Singh Lamba, [1998] 91

Comp. Cas. 727, R.C. Lahoti, J., as the Learned Single Judge of

this Court then was, opined that to be entitled to a stay of legal

proceedings under Section 22 of the Act, a mere pendency of the

enquiry would not suffice; the claimed dues must be reckoned or

included in the sanctioned scheme. A suit for eviction against a

sick industrial company is not liable to be stayed under Section

22(1) of the SICA. This decision has been followed by the Division

Bench of the Calcutta High Court in Taulis Pharma Ltd. v. Bengal

Immunity Ltd., [2002] 108 Comp. Cas. 237. Similar views have

also been expressed in Vibgyar Ink Chem (Pvt.) Ltd. v. Safe Pack

Polymers Ltd., [1998] 93 Com. Cas. 407, which likewise is a

decision of the Division Bench of the Andhra Pradesh High Court

which enunciates that “an independent transaction de hors the

scheme obviously cannot thus be covered within the ambit of

Section 22 of the 1985 Act”.

9. Justice Lahoti's view has also been followed by a Single Bench

of the Calcutta High Court in Fort William Industries

Limited v. Usha Bentron Limited, [2002] 108 Comp. Cas. 176. His

Lordship, Dr. Mukundakam Sharma, J. has, in the Cement

Corporation of India v. Manohar Basin, 82 (1999) DLT 343 :

1999 (51) DRJ 535 observed that since no documentary proof had

been furnished to disclose that any scheme stood sanctioned the

so-called SICA bar was not attracted. A Single Bench of the

Bombay High Court in Special Steels v. Jay Prestressed Products

Ltd., [1991] 72 Comp. Cas. 277 has opined that the pivotal

question in connection with the current conundrum concerns the

assets of the Company and its functioning, and these would not be

jeopardized if a civil suit continues. In Hardip Singh v. Income

Tax Officer, Amritsar, [1979] 118 ITR 57 (SC) the winding-up

petition was allowed to continue and only when the third and final

stage of the dissolution of the Company came to be reached, was

the moratorium of Section 22 of the SICA enforced.”

(Emphasis supplied)

Civil Appeal Nos. 5366-5367 of 2024 Page 56 of 91

90. The original plaintiff has placed strong reliance upon the decision of a single

judge of the Delhi High Court in Sunil Mittal (supra). It was held therein that

since the liability was neither admitted nor taken into consideration by any

rehabilitation scheme, the suit proceedings could not have been adjourned sine

die under Section 22(1) of the 1985 Act. The relevant paragraphs are extracted

hereinbelow:

“21. In view of the aforesaid facts and circumstances of the case,

I feel as the FChas not admitted its liability to pay the amount to

the tune as claimed by the plaintiff nor such an amount has been

reckoned or taken into consideration by any scheme of

rehabilitation of the sick defendant company, therefore, the

proceedings of the present suit cannot be adjourned sine die. As a

matter of fact the defendant has not placed on record any

documentary evidence to show that any such scheme has been

formulated as yet and if formulated whether the said amount has

been taken care of allegedly being owed to the Plaintiff.

22. For the aforesaid reasons, I feel that the application of the

Defendant totally misconceived and accordingly, the same is

dismissed.”

(Emphasis supplied)

91. It has come to our notice that the said decision in Sunil Mittal (supra) was

challenged in appeal before a division bench of the Delhi High Court in LML

Ltd. v. Sunil Mittal reported in 2013 SCC OnLine Del 1766 wherein the bench

set aside the decision and held that Section 22(1) of the 1985 Act would apply

to the facts of the case. The bench observed that from the record it was clear

that the amount as claimed by the plaintiff in the recovery suit was admittedly

covered by the scheme and thus the proceeding was liable to be suspended by

application of Section 22(1) of the 1985 Act. Thus, the position of law held in

Civil Appeal Nos. 5366-5367 of 2024 Page 57 of 91

Sunil Mittal (supra), could not be said to have been disturbed, but only its

incorrect application to the facts of the specific case was set aside in LML Ltd.

(supra).

92. The decision in LML Ltd. (supra), on the contrary, fortifies the interpretation

of Section 22(1) as was done in Sunil Mittal (supra) and Saketh India (supra).

The relevant paragraph of the decision in LML Ltd. (supra) is extracted

hereinbelow:

“16. The principle of law is thus unambiguous. Where the amount

claimed or the liability sought to be set up is covered under the

scheme, Section 22(1) will be attracted and there would be an

automatic suspension of all legal proceedings including a suit for

recovery of money. In the present case, the amount Rs.

21,74,490.88 is admittedly a part of the DRS pending before the

BIFR. The debt of Rs. 3,00,000/- on account of sales tax dues, the

petitioner admits as his liability. Even if this amount is not

permitted to be adjusted at this stage as has been pointed out by

the learned counsel for the respondent, keeping in view the wide

import of the language of Section 22 of the said Act there can be

no question of continuing with the suit proceedings. It also cannot

be lost sight of the fact that the parties were maintaining a running

account; payments were being made from time to time; it would

thus not be possible to segregate the element of debt since the

question would be whether the debt due to the plaintiff is correctly

reflected or a lesser amount is in fact due to him. The language of

Section 22 would take into its sweep a situation even where if the

full amount is not a part of the DRS. The question of continuation

of the suit would not arise.”

(Emphasis supplied)

93. In M/s Haryana Steel & Alloys Ltd. v. M/s Transport Corporation of India

reported in (2012) SCC OnLine Del 2140 it was held that the mere contention

Civil Appeal Nos. 5366-5367 of 2024 Page 58 of 91

of the sick company unsubstantiated by any material indicating that the

amount forming subject-matter of the recovery suit is covered under the

scheme, would not be sufficient to bring the company under the protective

ambit of Section 22(1) of the Act. The relevant paragraphs of the said decision

are extracted thus:

“11. However, there is another dimension to the said embargo

placed on filing of the suit for recovery against a company when

the proceedings are pending under the SICA, which is the

necessity of the inclusion of the dues payable by the company to

the plaintiff in the scheme formulated before the BIFR. It is a

settled legal position that it is not by mere pendency of an enquiry

under Section 16 of the said Act or preparation of the scheme

thereof being under consideration or even filing of an appeal

under section 25 before the appellate authority that by itself would

entitle the appellant for the said statutory injunction against the

respondent/plaintiff as the benefit of the prohibition or embargo

created under section 22 of the Act would come into operation only

where the appellant/defendant has disclosed before the Court, that

the amounts claimed by the respondent/plaintiff have been duly

shown and disclosed in the scheme formulated and laid before the

BIFR. The Apex Court in the case of Deputy Commercial Tax

Officer v. Corromandal Pharmaceuticals, (1997) 10 SCC

649 enunciated the law to hold that a cessation of legal

proceedings would be justified only if the dues in respect of which

adjudication is ongoing is also included in the contemplation of

scheme presented by BIFR…

xxx xxx xxx

14. In the light of the above settled legal position, analyzing the

facts of the case at hand, it is manifest that no material was placed

on record by the appellant to show that the amount in respect of

which the respondent laid its claim in the said recovery suit was

reflected in the scheme laid before the BIFR. The only contention

raised by the appellant before the trial court as well as before this

Court was that the prohibition or embargo as envisaged in Section

22 would come into operation immediately once the defendant

brings to the notice of the Court that an inquiry under Section 16

Civil Appeal Nos. 5366-5367 of 2024 Page 59 of 91

is pending before the Board or an appeal is pending relating to the

said inquiry before the Appellate Authority. Having failed to place

any such material on record, this Court is of the clear view that

the bar or embargo envisaged under Section 22 of the Act will not

apply to the facts of the present case as the appellant cannot take

the advantage of the said provision merely because an inquiry

under Section 16 was pending before the BIFR or an Appeal under

Section 25 against the order of BIFR was pending before the

AAIFR.”

(Emphasis supplied)

94. In Kusum Products Ltd. v. Hitkari Industries Ltd. reported in 2014 SCC

OnLine Del 4926, a learned Single Judge of the Delhi High Court, relying

upon the decision in Raheja Universal (supra) held that a suit for recovery of

money simpliciter will not be liable to be suspended under Section 22(1) of

the 1985 Act. It was observed thus:

“3. The aforesaid paragraphs show that the proceedings for which

prior permission is required under Section 22 of SICA are

proceedings in the nature of execution, distress or like. It is not

every suit or every suit for recovery which automatically becomes

proceedings in the nature of execution, distress or like, and only

such suits of recovery where there would be proceedings which

cause liquidation of assets of a sick company, would be those suits

which would be hit by the bar of Section 22 of SICA.

4. In the present case, the suit for recovery of money is a suit for

recovery of money simplicitor. Counsel for the plaintiff does not

press the interim applications under Order 38 Rule 5 of Code of

Civil Procedure, 1908 (CPC) and Order 39 Rules 1 and 2 CPC.

Accordingly, in the subject suit, there is no threat to the liquidation

of the assets of the sick company and therefore no prior permission

is required under Section 22 of SICA.”

(Emphasis supplied)

Civil Appeal Nos. 5366-5367 of 2024 Page 60 of 91

95. In FMI Investment Pvt. Ltd. v. Montari Industries Ltd. and Another

reported in (2012) SCC OnLine Del 5354, the High Court undertook a

comprehensive analysis of the dictum as laid in Raheja Universal (supra) and

Saketh India (supra) and held thus:

“6. The salient conclusions which can be arrived at from reading

of the aforesaid paras in the case of Raheja Universal (supra) are

: -

(i) The proceedings which are affected by Section 22(1) are

proceedings in the nature of execution, distress or the like.

(ii) It depends on facts of each case as to whether the suit is hit by

Section 22 i.e. all suits including of recovery, are not hit by Section

22(1).

(iii) Only those suits which have the effect of execution, distress or

like action against the properties of the sick company are hit by

Section 22 i.e. where a suit is simply for recovery of moneys, and

the properties of a sick company are not threatened by the

proceedings including interim proceedings such as appointment of

receiver, execution, distress or the like, such suits can continue

without permission under Section 22.

7. Learned counsel for the defendant no. 2 sought to place reliance

on the following three judgments to argue that permission under

Section 22 is a sine qua non.

(i) Managing Director, Bhoruka Textiles Ltd. v. Kashmiri Rice

Industries (2009) 7 SCC 521;

(ii) Tata Davy Ltd. v. State of Orissa (1997) 6 SCC 669;

(iii) Dr. B.K. Modi v. Morgan Securities and Credits Pvt.

Ltd. and Morgan Securities and Credits Pvt. Ltd. v. Dr. B.K.

Modi MANU/DE/2779/2012

8. In my opinion, all the three judgments, which have been cited

on behalf of defendant no. 2 have no application because the legal

position is sufficiently elaborated by the Supreme Court in the

judgment of Raheja Universal (supra).

9. None of the aforesaid judgments cited on behalf of defendant

no. 2 deal with the issue of interpretation of Section 22 of SICA as

has been done by the Division Bench of three Judges in the case

of Raheja Universal (supra) and which holds that unless the suit

Civil Appeal Nos. 5366-5367 of 2024 Page 61 of 91

proceedings are in the nature of ‘execution, distress or the like’,

the suit can continue. The judgments relied upon by the defendant

no. 2 are judgments which simply hold that once a company is a

sick company, permission is required under Section 22 of the

SICA, however, none of the judgments cited on behalf of the

defendant no. 2 deal with the proposition as incorporated in the

later judgment of the Division Bench of three Judges of the

Supreme Court in the case of Raheja Universal (supra).

Accordingly, it is held that the suit is maintainable.

10. In the present suit for recovery it cannot be said that the suit is

of a nature which has impact of or threat to the properties of the

defendant No. 1 sick company to affect the scheme of revival. The

suit is a simple suit for recovery under Order 37 CPC not having

proceedings, whether interim or final, of execution, distress or the

like and hence the suit is not hit by Section 22 of SICA. So far as

defendant No. 2/guarantor is concerned, the suit against him will

not surely hit any assets of the sick company and hence is not

barred under Section 22 of SICA.”

(Emphasis supplied)

96. In one recent decision of the Delhi High Court in Chhattisgarh Distilleries

Ltd. v. Percept Advertising Limited reported in 2023 SCC OnLine Del 6417,

while considering the question on applicability of Section 22(1) of the 1985

Act, it was held thus:

“8. It is well settled that there was legal duty cast upon the

appellant/defendant to bring it to the notice of the Court that it had

qualified for the protection under the SICA, and this obligation

was not discharged. There is no gainsaying that the aforesaid

provision has been interpreted in umpteen number of cases

decided by the Apex Court as well as this Court. In the cited case

of Saketh India Limited (supra), it was observed that the phrase

“recovery of money” must be construed ejusdem generis and

accordingly recovery proceedings in the nature of execution or

any other coercive enforcement that has been ordained to be not

maintainable. There is nothing in the said provision so as to hold

the legal proceedings to be not maintainable, or liable to be

Civil Appeal Nos. 5366-5367 of 2024 Page 62 of 91

halted, even if the debt sought to be proved in the plaint has not

been admitted. Furthermore, it was observed that there can be no

logic in denying legal recourse to a party for proving its debt. The

said decision was relied upon by this Court again in the decision

of Ralson Industries Ltd. (now known as Da Rubber Industries

Ltd) (supra), wherein it was categorically held that the

proceedings that can be halted by invoking Section 22 of the SICA

should be in the nature of execution, distress or the like.”

(Emphasis supplied)

97. From the aforesaid discussion, the position of law on the first issue before us

appears to be that for the applicability of Section 22(1) of the 1985 Act, three

aspects need to be considered –

I. First, an inquiry under Section 16 of the 1985 Act must be pending; or

any scheme referred to in Section 17 of the 1985 Act must be under

preparation or consideration or a sanctioned scheme must be under

implementation; or an appeal under Section 25 of the 1985 Act must be

pending – in relation to the company against whom the legal

proceedings sought to be suspended have been initiated.

II. Secondly, the proceedings must be one from amongst the six types as

described in paragraph 65 of this judgment, or of a similar nature, i.e.

ejusdem generis to the said six types of proceedings.

III. Thirdly, the proceedings must have the effect of threatening the assets

of the sick company and interfering with the formulation, consideration,

finalisation or implementation of the scheme.

Civil Appeal Nos. 5366-5367 of 2024 Page 63 of 91

98. Applying the aforesaid tests to the facts of the present case, we have already

observed that requirement (i) is fulfilled. The proceeding in question being a

suit for recovery of money, requirement (ii) is also satisfied. However, we are

of the considered opinion that the third requirement is not fulfilled. We say so

because the suit for recovery was not of a nature which could have proved to

be a threat to the properties of the defendant sick company or would have

adversely impacted the scheme of revival. The suit was a simple suit for

recovery of money towards the dues arising under the alleged illegal

deductions under the contract. This cannot be said to be a proceeding in the

nature of execution, distress or the like and hence the suit was not hit by

Section 22(1) of the 1985 Act.

99. By no stretch of imagination could it be said that the legislature intended to

include even the proceedings for the adjudication of the liabilities not admitted

by a sick company within the protective ambit of Section 22(1) of the 1985

Act. Such an adjudicatory process only determines the liability of the

defendant towards the plaintiff, and does not threaten the assets of the sick

company or interfere with the formulation of the scheme unless execution

proceedings are initiated pursuant to the completion of such adjudicatory

process. In the case of Jay Engineering (supra), it was rightly observed by

this Court in the context of arbitration proceedings under the 1993 Act for the

adjudication of claims, that while the execution of an award would definitely

Civil Appeal Nos. 5366-5367 of 2024 Page 64 of 91

be suspended under Section 22(1) of the 1985 Act, the adjudicatory process

for arriving at such an award cannot be said to be suspended by the said

provision. This position also seems to be justified in light of the fact that the

proceedings before the BIFR under the 1985 Act were generally long-drawn

and time consuming and it would subserve the interest of justice if a party was

prevented even from proving the debt/liability of the sick company for the

entirety of that lengthy period.

100. We may also look at Section 22(1) of the 1985 Act by applying the mischief

rule of interpretation. G.P. Singh in his authoritative commentary on the

interpretation of statutes describes the mischief rule of construction as follows:

“The rule which is also known as 'purposive construction' or

'mischief rule', enables consideration of four matters in construing

an Act: (i) What was the law before the making of the Act, (ii) What

was the mischief or defect for which the law did not provide, (iii)

What is the remedy that the Act has provided, and (iv) What is the

reason of the remedy. The rule then directs that the courts must

adopt that construction which "shall suppress the mischief and

advance the remedy.””

101. Applying the aforesaid rule to Section 22(1) of the Act, we find that there

was a vacuum in the legal framework to deal with sick industrial companies

and provide ameliorative steps for their revival. The 1985 Act was thus

enacted to fill in this vacuum. The mischief which was sought to be dealt with

by the enactment of Section 22 was any such legal proceeding which could

impact the assets of the sick company and in-turn negatively impact the

Civil Appeal Nos. 5366-5367 of 2024 Page 65 of 91

formulation and implementation of the rehabilitative scheme. This provision

was inserted to provide a remedy by ensuring that the multiple recourses

available under the law for recovery of debts, etc. were suspended for the

period during which the sick company was under the ameliorative shelter of

the BIFR. Finally, it can be said that the reason for the remedy was to shield

the formulation and implementation of the revival scheme from any

impediments thereby maximising the chances of revival of sick company,

which was the ultimate object sought to be achieved by the Act.

102. The original defendants have placed strong reliance on 3 decisions of this

Court in Jay Engineering (supra), Bhoruka Textiles (supra) and Tata Motors

(supra) respectively. We have discussed in the foregoing parts of this

judgment as to how this Court in Jay Engineering (supra) expressly observed

that it was not the adjudicatory process, but the execution of an award which

would be restricted by Section 22(1) of the 1985 Act. This judgment, thus,

only furthers the line of reasoning we have adopted to negate the contention

of the original defendants on the applicability of Section 22(1) of the 1985

Act.

103. The decision in Bhoruka Textiles (supra) dealt with the specific facts in

that case and should be read alongwith the decision in Raheja Universal

(supra) wherein the scope of Section 22(1) of the 1985 Act was considered in

Civil Appeal Nos. 5366-5367 of 2024 Page 66 of 91

detail by a three-Judge bench. We would also like to observe that the reliance

placed by this Court in Bhoruka Textiles (supra) on the decision in Tata

Motors (supra) seems to be misplaced. The relevant paragraph of Bhoruka

Textiles (supra) is reproduced hereinbelow:

“10. Section 22 of the Act must be interpreted giving a plain

meaning to its contents. An enquiry in terms of Section 16 of the

Act by the Board is permissible upon receipt of a reference. Thus,

reference having been made on 27-12-2001 and the suit having

been filed on 17-12-2002, the receipt of a reference must be held

to be the starting period for proceeding with the enquiry.

11. The effect of the provisions of the Act has been considered by

a three-Judge Bench decision of this Court in Tata Motors Ltd. v.

Pharmaceutical Products of India Ltd. [(2008) 7 SCC 619]

wherein it, in no uncertain terms, held that SICA is a special

statute and, thus, overrides other Acts like the Companies Act,

1956, stating: (SCC p. 635, paras 31-33)

“31. SICA furthermore was enacted to secure the principles

specified in Article 39 of the Constitution of India. It seeks to

give effect to the larger public interest. It should be given

primacy because of its higher public purpose. Section 26 of

SICA bars the jurisdiction of the civil courts.

32. What scheme should be prepared by the operating agency

for revival and rehabilitation of the sick industrial company is

within the domain of BIFR. Section 26 not only covers orders

passed under SICA but also any matter which BIFR is

empowered to determine.

33. The jurisdiction of the civil court is, thus, barred in respect

of any matter for which the Appellate Authority or the Board is

empowered. The High Court may not be a civil court but its

jurisdiction in a case of this nature is limited.”

12. If the civil court's jurisdiction was ousted in terms of the

provisions of Section 22 of the Act, any judgment rendered by it

would be coram non judice. It is a well-settled principle of law that

a judgment and decree passed by a court or tribunal lacking

Civil Appeal Nos. 5366-5367 of 2024 Page 67 of 91

inherent jurisdiction would be a nullity. In Kiran Singh v. Chaman

Paswan [AIR 1954 SC 340] this Court held: (AIR p. 342, para 6)

“6. … It is a fundamental principle well established that a

decree passed by a court without jurisdiction is a nullity, and

that its invalidity could be set up whenever and wherever it is

sought to be enforced or relied upon, even at the stage of

execution and even in collateral proceedings. A defect of

jurisdiction, whether it is pecuniary or territorial, or whether it

is in respect of the subject-matter of the action, strikes at the

very authority of the court to pass any decree, and such a defect

cannot be cured even by consent of parties.”

(See also Chief Engineer, Hydel Project v. Ravinder Nath

[(2008) 2 SCC 350 : (2008) 1 SCC (L&S) 940] , SCC

p. 361, para 26.)”

104. A perusal of the above indicates that in Tata Motors (supra), it was Section

26 and not Section 22 of the 1985 Act which was under consideration. As

opposed to Section 26 of the Act, which bars the jurisdiction of the civil courts

in respect of those matters for which the BIFR or the AAIFR are empowered,

Section 22 only places a temporary embargo on the initiation or continuation

of legal proceedings in respect of certain matters mentioned therein. Further,

unlike Section 22, where the said suspension can be revoked by seeking

express permission of the BIFR or the AAIFR, no such permission can be

sought under Section 26 of the 1985 Act. Again, in any view of the matter, the

adjudication and determination of a contested liability under a contract is

undoubtedly the domain of the civil court or an arbitral tribunal and not that

of the BIFR or the AAIFR.

Civil Appeal Nos. 5366-5367 of 2024 Page 68 of 91

v. ISSUE NO. 2: Whether the High Court was correct in granting 24%

Compound Interest on the Principal Decretal Amount in favour of the

original Plaintiff?

105. The High Court in its impugned judgment considered, as a separate issue,

whether the original plaintiff was entitled to claim 24% compound interest

from the original defendants on the delayed payments.

a. Concept of Interest

106. When interest is awarded by the Court, our normal feeling is that it is so

awarded by way of penalty or punishment. But interest in all cases is not

granted by way of penalty or punishment. In this regard, reference may be

made to the decision of this Court in the case of Alok Shanker Pandey v.

Union of India, reported in 2007 AIR (SC) 1198, wherein the concept of grant

of interest has been explained in the following manner:

"It may be mentioned that there is misconception about interest.

Interest is not a penalty or punishment at all, but it is the normal

accretion on capital. For example, if A had to pay B a certain

amount, say ten years ago, but he offers that amount to him today,

then he has pocketed the interest on the principal amount. Had A

paid that amount to B ten years ago, B would have invested that

amount somewhere and earned interest thereon, but instead of that

A has kept that amount with himself and earned interest on it for

this period. Hence equity demands that A should not only pay back

the principal but also interest thereon to B."

107. The above-noted decision of this Court makes it clear that interest on the

delayed payment of the claim amount accrues due to the continuing wrong

Civil Appeal Nos. 5366-5367 of 2024 Page 69 of 91

committed by the wilful withholding of the payment towards the claim,

resulting in a continuous injury until such payment is made, or in other words,

until the claim is realised.

108. The High Court relied upon the provisions of the 1993 Act to hold that as

per Sections 4 and 5 respectively of the said legislation, the original plaintiff,

which was a small-scale industrial undertaking, was entitled to claim

compound interest @ 24% per annum from the original defendants. As a

result, the High Court set aside the decree of the trial court which granted 12%

simple interest in favour the original plaintiff.

109. The original defendants are aggrieved by the awarding of 24% interest in

favour of the original plaintiff, which they contend has resulted in the principal

decretal amount getting inflated exorbitantly. The original plaintiff, on the

other hand, has argued that the impugned judgment of the High Court insofar

as it deals with the issue of interest cannot be said to suffer from any infirmity

and was arrived at after due consideration of relevant material viz. the

Handbook of Statistics of Indian Economy published by the Reserve Bank of

India, etc. and after hearing the parties at length.

110. The original plaintiff has further submitted that the High Court considered

the floor rate charged by the SBI for the financial year 1993-1994, which was

Civil Appeal Nos. 5366-5367 of 2024 Page 70 of 91

19%, as observed under the Table 74 on Structure of Interest Rates in the

Handbook of Statistics of Indian Economy published by the Reserve Bank of

India.

111. We shall briefly consider the object and scope of the 1993 Act for a better

understanding of the issue before us. The Interest on Delayed Payments to

Small Scale and Ancillary Industrial Undertakings Ordinance, 1992 was

promulgated by the President of India on 23.09.1992. To replace this

ordinance, the 1993 Act was enacted on 02.04.1993 and came into force with

retrospective effect from 23.09.1992. Subsequently, the 1993 Act was repealed

by the Micro Small and Medium Enterprises Development Act, 2006

(“MSMED Act, 2006”). The statement of objects and reasons to the 1993 Act

reads as under:

“A policy statement on small scale industries was made by the

Government in Parliament. It was stated at that time that suitable

legislation would be brought to ensure prompt payment of money

by buyers to the small industrial units.

2. Inadequate working capital in a small scale or an ancillary

industrial undertaking causes serious and endemic problems

affecting the health of such undertaking. Industries in this sector

have also been demanding that adequate measures be taken in this

regard. The Small Scale Industries Board, which is an apex

advisory body on policies relating to small scale industrial units

with representatives from all the States, governmental bodies and

the industrial sector, also expressed this view. It was, therefore,

felt that prompt payments of money by buyers should be statutorily

ensured and mandatory provisions for payment of interest on the

outstanding money, in case of default, should be made. The buyers,

Civil Appeal Nos. 5366-5367 of 2024 Page 71 of 91

if required under law to pay interest, would refrain from

withholding payments to small scale and ancillary industrial

undertakings.

3. An Ordinance, namely, the Interest on Delayed Payments to

Small Scale and Ancillary Industrial Undertakings Ordinance,

1992, was, therefore, promulgated by the President on the 23rd

September, 1992.

4. The Bill seeks to replace the said Ordinance and to achieve the

aforesaid objects.”

112. It is evident from the aforesaid statement of objects and reasons that the

legislature desired to bring about a legislation which would ensure prompt

payment of money to small scale units, as the absence of working capital may

have severe impacts on the functioning of small scale and ancillary industries.

The 1993 Act envisaged that there should be minimal delay in payments to

small scale units. Section 2 of the 1993 Act provides for the certain important

definitions which are reproduced hereinbelow:

“(b) “appointed day” means the day following immediately after

the expiry of the period of thirty days from the date of acceptance

or the day of deemed acceptance of any goods or any services by

a buyer from a supplier;

Explanation.—For the purposes of this clause,—

(i) “the day of acceptance” means,—

(a) the day of the actual delivery of goods or the rendering of

services; or

(b) where any objection is made in writing by the buyer

regarding acceptance of goods or services within thirty days

from the day of the delivery of goods or the rendering of

services, the day on which such objection is removed by the

supplier;

Civil Appeal Nos. 5366-5367 of 2024 Page 72 of 91

(ii) “the day of deemed acceptance” means, where no objection is

made in writing by the buyer regarding acceptance of goods or

services within thirty days from the day of the delivery of goods or

the rendering of services, the day of the actual delivery of goods

or the rendering of services;

(c) “buyer” means whoever buys any goods or receives any

services from a supplier for consideration;

xxx xxx xxx

(f) “supplier” means an ancillary industrial undertaking or a

small scale industrial undertaking holding a permanent

registration certificate issued by the Directorate of Industries of a

State or Union territory and includes,—

(i) the National Small Industries Corporation, being a company,

registered under the Companies Act, 1956 (1 of 1956);

(ii) the Small Industries Development Corporation of a State or a

Union territory, by whatever name called, being a company

registered under the Companies Act, 1956 (1 of 1956).]”

113. Section 3 of the 1993 Act provides for the liability of the buyer to make

payment to the small-scale industries whereas Section 4 and 5 respectively of

the said Act pertain to the date from which and the rate at which interest is

payable. Section 5 of the 1993 Act also stipulates that the buyer shall be liable

to pay compound interest. Sections 3, 4 and 5 respectively of the 1993 Act, as

existing at the time when the dispute between the parties arose, are reproduced

thus: -

“3. Liability of buyer to make payment - Where any supplier

supplies any goods or renders any services to any buyer, the buyer

shall make payment therefor on or before the date agreed upon

between him and the supplier in writing or, where there is no

agreement in this behalf, before the appointed day.

Civil Appeal Nos. 5366-5367 of 2024 Page 73 of 91

4. Date from which and rate at which interest is payable - Where

any buyer fails to make payment of the amount to the supplier, as

required under section 3, the buyer shall, notwithstanding

anything contained in any agreement between the buyer and the

supplier or in any law for the time being in force, be liable to pay

interest to the supplier on that amount from the appointed day or,

as the case may be, from the date immediately following the date

agreed upon, at such rate, which is five per cent points above the

floor rate for comparable lending.

Explanation: For the purposes of this section, "floor rate for

comparable lending" means the highest of the minimum lending

rates charged by scheduled banks (not being co-operative banks)

on credit limits in accordance with the directions given or issued

to banking companies generally by the Reserve Bank of India

under the Banking Regulation Act, 1949 (10 of 1949).

5. Liability of buyer to pay compound interest - Notwithstanding

anything contained in any agreement between a supplier and a

buyer or in any law for the time being in force, the buyer shall be

liable to pay compound interest (with monthly interest) at the rate

mentioned in section 4 on the amount due to the supplier.”

114. On a perusal of Section 3 of the 1993 Act, we find that where any supplier

supplies any goods, the buyer shall make payment on or before the date agreed

upon between him and the supplier in writing or, where there is no agreement

in this behalf, before the appointed day. In the instant case, as per the terms of

the NIT, payment was to be made within 20 days from the receipt of the goods.

115. As discussed in the preceding paragraphs of this judgment, the High Court

has awarded 24% compound interest on the amounts due to the original

plaintiff from the date the amounts were determined to have become due till

the date of their realisation by the original plaintiff. While there is no doubt

Civil Appeal Nos. 5366-5367 of 2024 Page 74 of 91

that the rate of interest applicable to the dues of the original plaintiff as

determined by the High Court is correct, we think it is necessary to examine

if the compound interest can be said to have continued to accrue even when

FCIL was declared a sick company and was awaiting its revival before the

BIFR. In other words, it is not the rate of interest but the period for which it is

applicable, is the question that is to be determined.

116. We have discussed at length in the foregoing paragraphs of the judgment

the object behind the enactment of the 1985 Act. Sickness of industrial

companies was considered to be a problem that affected the country at large,

and thus the 1985 Act was enacted as per the policy directions contained in

Article 39 of the Constitution to provide, inter alia, ameliorative steps for the

revival of sick companies, and for the expeditious detection of potentially sick

companies. In particular, we would like to mention that Section 19 of the 1985

Act provides that the scheme for rehabilitation of a sick company may provide

for financial assistance to the sick company by way of loans, advances, reliefs

or concessions or sacrifices from the Central Government, a State

Government, a public financial institution etc.

117. In the present case, in pursuance of Section 19 of the Act, a number of

decisions were taken by the CCEA on 09.05.2013 including the waiver of

loans and interest thereon by the Central Government which ran into

Civil Appeal Nos. 5366-5367 of 2024 Page 75 of 91

thousands of crores. As per the document F.No. 18055/13/2012-FCA-1 titled

“Gist of the CCEA decisions dated 09

th

May, 2013” published by the Ministry

of Chemicals and Fertilizers, it appears that the dues of the major unsecured

creditors were settled at 30% of their dues as on 31.03.2003. Further, the dues

of some other parties were settled without any interest or penalty, as otherwise

the entire process of revival might have gotten derailed.

118. We have also discussed how Section 22(1) of the 1985 Act suspends any

legal proceedings of the nature specified therein if they can potentially

interfere with the consideration, sanction or execution of the rehabilitation

scheme. The intention behind the sanction and execution of a rehabilitation

scheme, without a doubt, is to increase the chances of the revival of the sick

company in public interest.

119. Thus, on one hand we have the beneficial provisions of the 1985 Act,

enacted to maximise the chances of revival of sick industrial companies, while

on the other, we have the 1993 Act, which was enacted with the intention to

ensure that small-scale industries are paid their dues in time. This object of the

1993 Act was sought to be achieved by providing a high interest rate, with

monthly compounding, so as to act as a deterrent for the buyers.

120. A preliminary contention was raised by the original defendants that the

original plaintiff chose to institute a civil suit for recovery of money, rather

Civil Appeal Nos. 5366-5367 of 2024 Page 76 of 91

than following the process prescribed under Section 6 of the 1993 Act, which

provides for the referring of a dispute arising under the 1993 Act to arbitration

before the Industry Facilitation Council, and thus for this reason, the suit for

recovery, which is expressly suspended under Section 22(1) of the Act, should

be held as not maintainable. It was also argued that even otherwise no interest

should be granted on the amount claimed as due since the mechanism

prescribed under Section 6(2) of the 1993 Act was not followed.

121. Section 6 of the 1993 Act reads as follows:

“6. Recovery of amount due -

(1) The amount due from a buyer, together with the amount of

interest calculated in accordance with the provisions of sections 4

and 5, shall be recoverable by the supplier from the buyer by way

of a suit or other proceeding under any law for the time being in

force.

(2) Notwithstanding anything contained in sub-section (1), any

party to a dispute may make a reference to the Industry

Facilitation Council for acting as an arbitrator or conciliator in

respect of the matters referred to in that sub-section and the

provisions of the Arbitration and Conciliation Act, 1996 (26 of

1996) shall apply to such dispute as if the arbitration or

conciliation were pursuant to an arbitration agreement referred to

in sub-section (1) of section 7 of that Act.”

122. We do not find any force in this contention of the original defendants.

Section 6 merely provides that for the purpose of recovery of the amounts due

under the 1993 Act, a supplier may make a reference to the Industries

Facilitation Council, which is established under Section 7A of the 1993 Act.

Civil Appeal Nos. 5366-5367 of 2024 Page 77 of 91

First, at the time of the institution of the suit by the original plaintiff, the

Industries Facilitation Councils didn’t exist as the provision for their

establishment was only brought in vide an amendment in 1998. Secondly, even

otherwise, Section 6(2) of the 1993 Act merely provides for an alternate

avenue to the supplier in addition to a suit or any other legal proceedings as

mentioned in Section 6(1) of the 1993 Act.

123. It is also pertinent to mention that in the absence of the express permission

of the BIFR, Section 22(1) of the 1985 Act suspends any legal proceedings in

the nature of execution during the pendency of the scheme before the BIFR,

as execution would necessarily result in negatively impacting the assets of a

sick company, thereby affecting the preparation, sanction or implementation

of scheme and as a net effect, would bring down the chances of revival of the

sick company.

124. In the present case, the suit was decreed in favour of the original plaintiff

by the trial court vide its judgment dated 19.09.2001. However, while the

adjudication of the suit of the original plaintiff could not have been said to be

barred under Section 22(1) of the 1985 Act as it was for the mere

determination of liability of the parties inter-se, the execution of decree

obtained as a result thereof was expressly suspended during the period as

Civil Appeal Nos. 5366-5367 of 2024 Page 78 of 91

mentioned in the said provision, unless the requisite permission from the BIFR

or the AAIFR could be obtained.

125. Interest of justice requires that both the 1985 Act and the 1993 Act, which

are in the nature of beneficial enactments, should be read harmoniously so as

to impart a meaningful construction to the language of each of the enactments.

It was held in Jay Engineering (supra) on the interplay between the two Acts

as follows:

“13. 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

therewith.

14. 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 revival.”

(Emphasis supplied)

126. In our opinion, it would defy logic to hold that even for the period when

the principal decretal amount awarded by the civil court under a decree could

not have been realised in lieu of the suspension of execution proceedings,

interest would continue to mount on the principal decretal amount. Thus, while

there is a stay on proceedings in the nature of distress and execution, etc.

against the properties of the sick company, to safeguard its assets, awarding

interest for that very same period, though not expressly barred under any

provision of the Act, could not have been the intention of the legislature.

Civil Appeal Nos. 5366-5367 of 2024 Page 79 of 91

127. Any other interpretation would only lead to an absurd result that as soon as

a sick company is revived after the steps taken by the BIFR, and concessions,

financial support, etc. provided by the government, it would be prone to the

liability of having to pay exorbitant interest that would have accrued on any

decree which can be put to execution after the end of BIFR proceedings.

128. The net effect would be that a freshly revived sick company would

potentially be saddled with huge amounts, as has happened in the present case

because of the impugned judgment, and be at a risk of being rendered sick

again, thus defeating the very purpose of the 1985 Act.

129. A two-judge bench of this Court, in a recent decision in Modi Rubber Ltd.

v. Continental Carbon India Ltd., reported in 2023 SCC OnLine SC 296

decided the issue as to whether it was open to an unsecured creditor to not

accept the scaled down value of its dues, as computed in the rehabilitation

scheme, and wait for the revival of the sick company to recover its debt with

interest post the rehabilitation. This Court, after an exhaustive consideration

of the object of the 1985 Act, answered the issue in the negative and held as

follows:

“40. The short question, which is posed for the consideration of

this Court is:—

Civil Appeal Nos. 5366-5367 of 2024 Page 80 of 91

“Whether on approval of a scheme by the BIFR under the Sick

Industrial Companies (Special Provisions) Act, 1985, an

unsecured creditor has the option not to accept the scaled down

value of its dues, and to wait till the scheme for rehabilitation

of the respondent - sick company has worked itself out, with an

option to recover the debt with interest post such

rehabilitation?”

xxx xxx xxx

49. Thus, the primary concern of the Board would be the revival

of the sick company and to save the sick company from winding

up. That is why with a view to see that there is no impediment in

framing the rehabilitation scheme and to get out the sick company

from sickness. Section 22 provides for suspension of legal

proceedings, contracts etc. On a bare reading of Section 22 and

Section 22A of SICA, it appears that these two provisions primarily

ensure that the scheme prepared by BIFR does not get frustrated

because of certain other legal proceedings and to prevent untimely

and unwarranted disposal of the assets of the sick industrial

company. These sections clearly state certain restrictions which

will impact upon the implementation of the scheme as well as on

the assets of the company.

xxx xxx xxx

53. Keeping in mind the statement of objects and reasons for

enactment of SICA, 1985 and the powers exercised by the BIFR

and the primary concern to revive the sick industry for which the

rehabilitation scheme is to be framed under Section 18, the

question posed is required to be considered.

xxx xxx xxx

56. The operating agency is defined under Section 3(i) and it

means any public financial institution, State-level institution,

scheduled bank or any other person as may be specified by general

or special order as its agency by the Board. No other persons

including the unsecured creditors comes into picture like

preparing the scheme under Section 18. Section 18 of the SICA

does not provide that at the time of preparing of the scheme under

Section 18 or when it is sanctioned by the Board, the unsecured

creditors are required to be heard. The only provision for the

Civil Appeal Nos. 5366-5367 of 2024 Page 81 of 91

consent required is Section 19 and the agency/person, who is

required to give the financial assistance, its consent is required.

Once the rehabilitation scheme/scheme under Section 18 prepared

by the operating agency is sanctioned by the BIFR, which may

include the scaling down the value of dues of the unsecured

creditors, the same shall bind all, otherwise the rehabilitation

scheme shall not be workable at all and the object and purpose of

enactment of the SICA, 1985 will be frustrated. If some

persons/unsecured creditors and/or even the labourers are

permitted to get out of the purview of the scheme and thereafter

permitting such or some of the unsecured creditors to wait till the

scheme for rehabilitation of the sick company has worked itself

out, in that case, the scheme shall not be workable at all. To make

the company viable, the concerned persons including the

unsecured creditors have to sacrifice to some extent otherwise the

revival efforts shall fail.

xxx xxx xxx

59. If the submission on behalf of the unsecured creditors, which

has been accepted by the High Court in the case of Continental

Carbon India Ltd. (supra) that an unsecured creditor can opt out

of the scheme sanctioned by the BIFR under the SICA, 1985 and

is allowed not to accept the scaled down value of its dues and may

wait till the scheme for rehabilitation of the sick company has

worked itself out, with an option to recover the debt post such

rehabilitation is accepted/allowed, in that case, the minority

creditors may frustrate the rehabilitation scheme, which may

frustrate the object and purpose of enactment of SICA, 1985.

xxx xxx xxx

61. Thus, minority creditors and that too some unsecured creditors

cannot be permitted to stall the rehabilitation of the sick company

by not accepting the scaled down value of its dues. Unless and

until there is a sacrifice by all concerned, including the creditors,

financial institutions, unsecured creditors, labourers, there shall

not be any revival of the sick industrial company/company.

62. Now, so far as the submission on behalf of the unsecured

creditors that the unsecured creditors should have an option not to

accept the scaled down value of its dues and to wait till the scheme

for rehabilitation of the sick company has worked itself out, with

an option to recover the debt post such rehabilitation is concerned,

the same has no substance and cannot be accepted. It is required

Civil Appeal Nos. 5366-5367 of 2024 Page 82 of 91

to be noted that in a given case, because of the scaling down of the

value of the dues of the creditors, the company survives. The

company has survived in view of the rehabilitation scheme because

of the sacrifice/scaling down the value of the dues of the creditors

including the financial institutions. How such a benefit can be

permitted to be given to the unsecured creditors, who does not

accept the scaled down value of its dues. Such an unsecured

creditor cannot be permitted to take the benefit of the revival

scheme, which is at the cost of other creditors including the

financial institutions and even the labourers.

63. Now, so far as the view taken by the High Court that the

unsecured creditor had an option not to accept the scaled down

value of its dues and can wait till the scheme for rehabilitation of

the company has worked itself out with an option to recover the

debt with interest post such rehabilitation is accepted, in a given

case, the sick company, which has been able to revive because of

the scaling down the value of the dues, may again become sick, if

the entire dues of the unsecured creditors are to be paid thereafter.

It may again lead to becoming such a revived company again as a

sick company. If such a thing is permitted, in that case, it will again

frustrate the object and purpose of enactment of the SICA, 1985.

64. Now, so far as the submission on behalf of the unsecured

creditors that to compel the unsecured creditors to accept the

scaled down value of its dues would tantamount to and would be

violative of Article 300A of the Constitution of India is concerned,

the same has also no substance. Scaling down the value of the dues

is under the rehabilitation scheme prepared under Section 18 of

the SICA, which has a binding effect on all the creditors.

Therefore, the same cannot be said to be violative of

Article 300A of the Constitution of India. The law permits framing

of the scheme taking into consideration and to provide the

measures contemplated under Section 18, therefore, the

rehabilitation scheme which provides for scaling down the value

of dues of the creditors/unsecured creditors and even that of the

labourers cannot be said to be violative of Article 300A of

the Constitution of India as submitted on behalf of the unsecured

creditors.

65. In view of the above and for the reasons stated above, the view

taken by the High Court of Delhi in Continental Carbon India

Ltd. (supra) that on approval of a scheme by the BIFR under

Civil Appeal Nos. 5366-5367 of 2024 Page 83 of 91

the Sick Industrial Companies (Special Provisions) Act, 1985, the

unsecured creditors has an option not to accept the scaling down

value of its dues and to wait till the rehabilitation scheme of the

sick company has worked itself out with an option to recover the

debt with interest post such rehabilitation is erroneous and

contrary to the scheme of SICA, 1985 and the same deserves to be

quashed and set aside and is accordingly quashed and set aside.”

(Emphasis supplied)

130. It is clear from the aforesaid observations of this Court that the revival of

a sick industry should be given utmost priority and any interpretation which

may result in a newly revived company becoming sick again should be

avoided at all costs. In the case on hand, the decree in favour of the original

plaintiff was not a part of the scheme of rehabilitation approved by the BIFR.

Had it been so, it is nothing but obvious that the scheme would have proposed

to settle the dues of the original plaintiff at a scaled down value, since a similar

approach was adopted in the scheme to settle the dues of all the other creditors.

In that scenario, the original plaintiff would not have had any other option but

to accept the scaled down value and settle its dues as per the dictum in Modi

Rubber (supra).

131. The decree awarded by the trial court was contested by both the parties

before the High Court. No material was placed before us to show whether any

steps were taken by the original plaintiff to obtain the permission of the BIFR

for the execution of the decree of the trial court, or for the inclusion of the said

Civil Appeal Nos. 5366-5367 of 2024 Page 84 of 91

decree in the rehabilitation scheme. At the same time, the original defendants

too failed to bring anything on record to show if any steps were taken by them

for the inclusion of the dues of the original plaintiff in the rehabilitation

scheme.

132. Although the facts of the case on hand are different from the facts in Modi

Rubber (supra), we are of the opinion that the general principles enunciated

in that case are equally applicable in the present case. Thus, only for the reason

that the dues of the original plaintiff were not a part of the scheme and thus

could not be settled at a scaled-down value, it cannot be held that it will now

be open for the original plaintiff to recover its dues along with compound

interest for the entire period in a manner that will saddle the defendant

company with enormous liability, thereby possibly rendering the entire

process of its revival futile. This, in our view, could never have been the object

of the 1985 Act and the provisions of the 1993 Act thus have to be harmonised

so as to give effect to the true object of the 1985 Act.

133. We also had the occasion to look into the decision of a 2-Judge bench of

this Court in LML Limited v. Union of India & Others reported in (2014) 13

SCC 375 wherein this Court was considering the purport of Section 19 of the

Civil Appeal Nos. 5366-5367 of 2024 Page 85 of 91

MSMED Act, 2006 which is in pari-materia to the Section 7 of the 1993 Act.

The provisions read as under:

MSMED Act, 2006 The 1993 Act

“19. Application for setting aside decree, award or

order.

No application for setting aside any decree, award or

other order made either by the Council itself or by any

institution or centre providing alternate dispute

resolution services to which a reference is made by

the Council, shall be entertained by anyf court unless

the appellant (not being a supplier) has deposited with

it seventy-five per cent. of the amount in terms of the

decree, award or, as the case may be, the other order

in the manner directed by such court:

Provided that pending disposal of the application to

set aside the decree, award or order, the court shall

order that such percentage of the amount deposited

shall be paid to the supplier, as it considers reasonable

under the circumstances of the case, subject to such

conditions as it deems necessary to impose.”

“7. Appeal –

No appeal against any decree,

award or other order shall be

entertained by any court or other

authority unless the appellant

(not being a supplier) has

deposited with it seventy-five

per cent. of the amount in terms

of the decree, award or, as the

case may be, other order in the

manner directed by such court

or, as the case may be, such

authority.”

134. In the aforesaid case, the petitioner therein, having become a sick company,

filed a reference to the BIFR under Section 15(1) of the 1985 Act. Around the

same time, one of the respondents filed a claim petition before the Industries

Facilitation Council under Section 6 of the 1993 Act. The 1993 Act was

replaced by the MSMED Act, 2006 during the pendency of the proceedings.

While the reference of the company remained pending before the BIFR, the

Industries Facilitation Council passed an award in the favour of the said

respondent, which the petitioner sought to appeal under the Section 34 of the

Arbitration and Conciliation Act, 1996. However, both the District Court and

Civil Appeal Nos. 5366-5367 of 2024 Page 86 of 91

the High Court dismissed the challenge petition for not complying with the

Section 19 of the MSMED Act, 2006, which mandates that 75% of the

decretal/award amount has to be deposited by the appellant before the appeal

can be entertained by the appellate court.

135. However, this Court set aside the dismissal orders and held as follows:

“9. Having regard to the above position, we are satisfied that this

is not a case where we should go into the legal question noted by

us in the beginning of our order. We are satisfied that interest of

justice shall be subserved if it is directed that failure to deposit the

amount as directed by the District Judge, Kanpur Nagar in its

order dated 12-5-2011 would not result in dismissal of the

arbitration petition filed by the petitioner under Section 34 of the

1996 Act challenging the award dated 22-12-2008. The said

arbitration petition may remain pending with the District Judge

until the finalisation of scheme by BIFR under Section 18 of the

1985 Act. We order accordingly.

10. The special leave petition is disposed of as above. Respondent

3 is granted liberty to apply to BIFR to hear it before finalisation

of the scheme. We observe that if such an application is made,

BIFR shall hear Respondent 3 before finalisation of the scheme or

any other order that may be passed by BIFR terminating the

proceedings under 1985 Act.”

(Emphasis supplied)

136. We would also like to advert to the principle of harmonious construction to

understand the interplay between the 1985 Act and the 1993 Act. Simply put,

the doctrine of harmonious construction is based on the principle that the

legislature would not lightly take away from one hand what it had given with

the other. Thus, this doctrine provides, that as far as possible, two seemingly

Civil Appeal Nos. 5366-5367 of 2024 Page 87 of 91

conflicting provisions within a statute, or the seemingly conflicting provisions

of one statute vis a vis another, should be construed in a manner so as to iron

out any conflict.

137. Section 10 of the 1993 Act provides for an overriding effect to the

provisions of the said Act to the extent of inconsistency with any other statute.

Similarly, Section 32 of the 1985 Act provides overriding effect to the

provisions of the said Act except for the enactments specified therein. Dealing

with a case involving the apparent conflict between the two statutes containing

overriding provisions, this Court in Sarwan Singh v. Shri Kasturi Lal

reported in (1977) 1 SCC 750 held as follows:

“When two or more laws operate in the same field and each

contains a non obstante clause stating that its provisions will

override those of any other law, stimulating and incisive problems

of interpretation arise. Since statutory interpretation has no

conventional protocol, cases of such conflict have to be decided in

reference to the object and purpose of the laws under

consideration.”

(Emphasis supplied)

138. Similarly, in Jay Engineering (supra), it was observed by this Court thus:

“31. The endeavour of the court would, however, always be to

adopt a rule of harmonious construction.”

139. We would also like to refer to a recent decision of the Madras High Court

in Metafilms India Ltd. v. Assistant Commissioner (CT) (Addl.),

Civil Appeal Nos. 5366-5367 of 2024 Page 88 of 91

Amaindakarai Assessment Circle, Chennai and Others reported in (2022) 96

GSTR 272. Although the said decision was rendered in the peculiar facts of

the case therein, yet the reasoning behind the same appears to have been

similar to the one that we have employed. The relevant parts of the judgment

are extracted hereinbelow:

“27. Hence, the question would be, in the facts and circumstances

of the present case, what is the date, on which, the repayment is

due. As we have mentioned earlier, the case on hand is very

peculiar and appears to have not arisen in any of the earlier

litigations and therefore, it requires to be dealt with in a different

manner and obviously on such a reasoning, any observation or

direction, which we may issue in this judgment, cannot be treated

as a precedent.

28. As mentioned above, the appellant was de-registered by the

BIFR on February 5, 2013. The first demand notice was issued on

March 20, 2013. However, the appellant paid the dues only on

April 25, 2015. The question would be, in the facts and

circumstances, what would be the date, on which, the repayment

of the loan is due.

29. The Department's contention is that it should be the date, on

which, the default occurred. If that is to be reckoned as the date,

then an order of cancellation of the agreement followed by

recovery proceedings should have been taken by the Department,

which admittedly has not been done. This is presumably for the

reason that from 2003 to 2013, the appellant was before the Board

and it was declared as a sick industrial company and in terms of

section 22 of the SICA, the respondent-Department was prohibited

from proceeding with any recovery against the appellant and this

is a statutory prohibition, which binds the respondent-Department.

30. From the representation given by the appellant to the

Government dated August 5, 2014, we find that the Sales Tax

Department did not appear before the Board on several dates

when the case was heard. Be that as it may, the due date for

repayment could have never occurred, in the facts and

Civil Appeal Nos. 5366-5367 of 2024 Page 89 of 91

circumstances, between August 1, 2003 when the appellant was

referred to the BIFR and May 31, 2006, the appellant was declared

as a sick industrial company till its net worth turned positive and

it was discharged from the Board on February 5, 2013.

31. Thus, on facts, we hold that the date, on which, the repayment

became due for the appellant's case shall be fixed on February 6,

2013. Admittedly, the appellant cleared the entire sales tax on

April 25, 2015. Hence, for the period from February 6, 2013 to

April 25, 2015, the appellant is liable to pay interest."

(Emphasis supplied)

140. For the period during which the defendant company was sick and before

the BIFR, it cannot be said that the withholding of the payment of the dues of

the original plaintiff was wilful and intentional. We say so because first, the

liability of the original defendants was disputed and was finally adjudicated

only by way of the impugned judgment, much after the BIFR proceedings had

come to an end; and secondly, even if the liability of the original defendants

was not disputed, or was even acknowledged before the BIFR, recovery of the

same could not have been done without the permission of the BIFR in view of

the suspension of recovery proceedings by Section 22(1) of the 1985 Act.

141. Thus, in view of our aforesaid discussion, we deem it fit to exclude the

period commencing from the date when FCIL was declared to be a sick

company under the 1985 Act going up to the date when it was discharged by

the BIFR and declared to be no longer a sick industrial company from the

purview of the applicability of the interest provision under the 1993 Act. Thus,

while the applicability of the 1993 Act to the dues of the original plaintiff is

Civil Appeal Nos. 5366-5367 of 2024 Page 90 of 91

not disputed, such interest shall not be calculated for the period between

06.11.1992 and 27.06.2013.

E. CONCLUSION

142. The net effect of the aforesaid discussion and findings is as follows:

I. The suit instituted by the original plaintiff before the trial court was not

hit by the embargo envisaged under Section 22(1) of the 1985 Act.

Thus, the decree awarded in favour of the original plaintiff by the trial

court and modified by the High Court, cannot be said to be coram non-

judice.

II. The High Court committed no error in awarding 24% interest to the

original plaintiff on its dues as per the provisions of the 1993 Act.

However, the period during which the defendant company was a sick

company as per the 1985 Act should be excluded for the purposes of

calculation of interest.

143. As a result, the impugned judgment and order of the High Court is upheld

subject to the modification of the period for which interest may be granted as

discussed aforesaid. To clarify, the interest will be calculated at 24% p.a. with

monthly compounding.

144. The appeals are disposed of in the aforesaid terms. The final amount that

may be determined in accordance with the final decree shall be paid to the

Civil Appeal Nos. 5366-5367 of 2024 Page 91 of 91

original plaintiff within a period of 4 weeks from today, failing which interest

at the rate of 36% p.a. with monthly compounding shall accrue.

145. Pending application(s), if any, shall stand disposed of.

146. Parties to bear their own costs.

............................................................. J.

(J.B. Pardiwala)

............................................................. J.

(Sandeep Mehta)

New Delhi

26

th

April, 2024