IN THE HIGH COURT OF CALCUTTA 

S. N. Mookerji, R. Bachawat & S. K. Bajoria for the Petitioner. Md. Farhaduddin & Md. Shahid Imam for the Respondent. 

ORDER 

1. This was an application for winding up of the company under the relevant provisions of the Companies Act, 1956, (hereinafter 'the Act'). It was alleged in the petition that in pursuance of a contract between the parties the petitioner had sold and delivered to the company diverse Quantities of goods which the company had received and accepted but did not pay the price in that respect, in spite of demands. The petitioner claimed the price of the goods, and damages on the basis of allegations that the respondent-company had wrongfully terminated the contract. 

1.2 The company did not reply to the statutory notice of demand. In its affidavit in opposition, the company denied the alleged claims of the petitioner. It was alleged on behalf of the company that sometime in 1995 the company had been registered with the Board for Industrial and Financial Reconstruction (hereinafter 'the BIFR'), and that a scheme for rehabilitation had been sanctioned. There was nothing to substantiate the allegations of the company. It was contended on behalf of the petitioner that its claim had not been included in the alleged scheme and that its claim arose after the scheme had been sanctioned. On the prayer made on behalf of the petitioner, liberty was given and the petitioner filed a supplementary affidavit enclosing the copy of the alleged scheme, three letters dated 10th August, 1998, 2nd September, 1998 and 16 December, 1998 were produced by the company, and it was confirmed that the sanctioned scheme was continuing to be in the process of implementation. 

2. According to the petitioner, the embargo under section 22 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter 'the SIC') was not applicable to the present winding up proceedings as the transaction between the parties had taken place after the sanction of the scheme and the petitioner's claim was not included in the sanctioned scheme. On that ground, according to the counsel for the petitioner, this application for winding up could be taken up for hearing by the court and dispose of the matter accordingly. The debt of the petitioner was not before the BIFR, he argued earnestly, and that the intention of the legislators must have been to exclude such claims from the effect of section 22 (1) of the section 24 SICA. In support of his contentions, he cited and relied on the decisions in Dy. CTO v. Corromondal Pharmaceuticals Ltd. [1997] 25 CLA 10 (SC)/[1997] 10 SCC 649 and Sirmor Sudhburg Auto Ltd. v. Kuldip Singh Lamba [1997] 27 CLA 219/[1998] 91 Comp. Cas 727 (Delhi). Strong reliance was placed in particular on the decision in Corromondal Pharmaceuticals Ltd. case (supra) and the counsel for the petitioner argued that though the facts in that case related to the recovery of sales-tax, from the company by the Revenue authorities, the principle laid down by the Supreme Court in that case was applicable generally and was not restricted to claims by the Revenue only and the petitioner would, therefore, be entitled in law to continue with its present proceedings against the company. 

3. It was submitted on behalf of the company that the principles of law which had been applied in deciding the case of Corromondal Pharmaceuticals Ltd. case (supra) were restricted to the facts of that case. He contended that the language of section 22 (1) was clear, and the petitioner was barred from instituting the present proceedings against the company, or continuing with it further. It was contended that the company was a sick industrial company within the meaning of the SICA and it could not be, nor it was, the intention of either the legislators or the courts, in their enunciation of the law, that the sick industrial company should be further burdened with financial liability as that would frustrate the very purpose of the framing of a scheme to rehabilitate and run the business smoothly. The decision which has been relied on by the counsel for the petitioner, it was argued on behalf of the company, did not support the case of the petitioner and the law was and continued to be that a claim as that of the petitioner must be stayed in accordance with the embargo contained in the provisions in section 22 (1). 

4. For the sake of convenience, I would here set out the provisions of section 22 (1) : 
 
"Suspension of legal proceedings, contracts, etc.- (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 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 shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority." 

4.1 The SICA was amended and the Amendment Act, 1993 came into force on 1st February, 1994. Sub-section (1) of section 22 was amended by section 12 (a) of the Amendment Act, and after amendment the words : "For the appointment of a receiver in respect thereof" appearing in the earlier section 22 (1) would be followed by the words : "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 loan or advance granted to the industrial company". There was no dispute that the company was enjoying the protection from its creditors afforded to 'sick' industrial companies by statute, and that there was a scheme which had been sanctioned by the BIFR, and that the scheme was in the process of implementation. The Supreme Court in its decision in Corromondal Pharmaceuticals Ltd. case (supra) had in no uncertain terms pronounced that : 

So we are of the view that .... it will be reasonable to hold that the bar of embargo envisaged in section 22 (1) 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. 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." [pp. 16-17 of 25 CLA] 

4.3 The question sought to have been raised by the petitioning creditor was fully dealt with and decided by the Supreme Court in the above mentioned case. Their lordships had noted various High Court decisions in the matter. Their earlier decisions, and in particular the two decisions in Gram Panchayat v. Shree Vallabh Glass Works Ltd. [1990] 3 CLA 236 (SC)/[1990] 2 SCC 440 and Maharashtra Tubes Ltd. v. State Industrial & Investment Corpn. of Maharashtra Ltd. [1993] 10 CLA 181 (SC)/[1993] 2 SCC 144. Their lordships approved the following finding in Gram Panchayat case (supra). 

"In the light of the steps taken by the Board under section 16 and section 17 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 is suspended. [p 157 of 25 CLA] 

4.4 And also the following finding in Maharashtra Tubes Ltd. case (supra) : 

'Where an inquiry is pending under section 16/section 17 or an appeal is pending under section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in section 22 (1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. 

The purpose and object of suspension of proceedings, etc., under section 22 (1) of the 1985 Act is 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 1985 Act. The Legislature had 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 ..... [p 15 of 25 CLA] 

4.5 In short, what their lordships had held, as would appear to me, would be that proceedings to recover money claims would not attract the applicability of section 22 (1) where (a) the claimant was the Revenue, (b) the claim was in respect of tax which the company had in fact collected with the only object to pay to the Revenue, and (c) the claim had arisen after the sanctioning of a scheme where the claim was not reckoned or included. In the ultimate paragraph of their decision, their lordships had made it abundantly clear as to the precise circumstances when the embargo would not be applicable. I quote below that portion of the judgment which according to me was relevant for the purpose at hand : 

"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 (supra) and Maharashtra Tubes Ltd. (supra). 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 customer 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, to be taken. The two decisions of this, court as also the decisions of High Courts 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 .... [p. 17 of 25 CLA] 

4.6 Their lordships were categorical that the principal enunciated in their decision was to be restricted to the 'rather exceptional' situation which had arisen in the case and "that section 22 (1) should be read down or understood as contended by the Revenue". Their lordships in those 'rather exceptional' situation concluded : 

"On a fair reading of the provisions contained in Chapter III of Act 1 of 1986 and in particular section 15 to section 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." [p. 16 of 25 CLA]. 

And it was on the basis of the 'contention' of the Revenue that the Hon'ble Judges upheld the plea put forward by the Revenue that section 22 (1) should be read down or A understood as contended by the Revenue, and distinguished the two decisions as not applicable in the facts before them. In other words, it would appear, would it not, that in no other circumstances proceedings to recover a money claim, which would in effect increase the financial liability of the sick industrial company, would be allowed to be instituted or continued with, in spite of the embargo contained in section 22 (1). 

5. In a decision in Sirmor Sudhburg Auto Ltd. case (supra), the Delhi High Court considered the applicability of section 22 (1) with regard to a suit for eviction, and held A that proceedings for eviction of a tenant, which was a sick company, was not liable to be stayed though the embargo would be attracted to proceedings for the recovery of arrears of rent, damages and mesne profits, as those proceedings would be in furtherance of recovery of money, which would cast further financial liability on the sick company. 

5.1 This question was also considered in the Bench decision reported in Vibgyar Ink Chem (P.) Ltd. v. Safe Pack Polymers Ltd. [1998] 31 CLA 432/AIR 1999 AP 45 where their lordships considered that 'on the factual backdrop' it appeared, "that the BIFR was considering the scheme without there being any reference to the petitioner's claims". The Division Bench was satisfied, "that the question of attracting the provisions of section 22 (1) in the contextual facts does not and cannot arise". According to the Bench, "It is not the intention of the law court, in our view, to expand the scope of legislation and one ought not to read anything further than one reads in plain and simple manner". Earlier it had also observed, "as a matter of fact, the Act has been enacted to safeguard the economy of the country and protect variable sick units. Its object is to revitalise and rehabilitate sick industries ...". With the greatest of respect and in utmost humility bearing in mind that the law courts ought not to deliberate which would expand the scope of legislation, I would be of the view that a protection of the rights of a sick industrial company, as contained in the form of the embargo in section 22 (1) must be appreciated by the courts. Should there appear to be conflict in the interpretation of legislations, it was today a settled principle of law that a harmonious interpretation must be afforded. If the restriction was to be made not applicable to all money claims, because it had not been reckoned or included in the sanctioned scheme, then I would very humbly opine that the endeavour of the BIFR to rehabilitate and revitalise the sick industrial company would be put in peril and it would be contrary to the intent of the legislators "to safeguard the economy of the country and protect viable sick units". In the light of the decision of the Supreme Court in the case of Corromondal Pharmaceutical Ltd. (supra), unless it was in the interest of the exchequer of a larger national interest of public importance, the embargo contained in section 22 (1) would be attracted to claims for money which would further burden the already sick industrial company. In the alternative, the very purpose of the enactment to rehabilitate sick companies would be frustrated. The embargo would cease to have any effect whatsoever. It was the considered view of the Supreme Court, in allowing the claim of the Revenue, that merely because the claim was not included or reckoned in the scheme it could not be assumed that the money claim could be considered to be out of the scope of the embargo. As regard the Bench decision, I would very humbly quote the observations in the Bench decision of the Madras High Court in J. M. Malhotra v. UOI [1997] 26 CLA 230/[1997] 89 Comp Cas 600 that "there is no question of comparison of one company with another because proceedings against each company will have to be decided in accordance with the particular facts and circumstances of each case". 

6. In those circumstances, I hold unhesitatingly that the facts of the case before this court would indeed attract the embargo envisaged in section 22 (1). Here was a simple money claim against the company. If proceedings for such claims were adjudged not to attract the provisions contained in section 22 (1) the very purpose of the statute would be frustrated. The endeavour of the legislators to revive a sick industrial company would hardly be appreciated if the company was to be burdened with further financial liabilities. The provisions in the section in that event would be rendered quite superfluous, and it would be against the spirit of the statute'. Simply put, the Supreme Court, I would find, was not inclined to allow avoidance of payment of a mere money claim, but a claim for the payment of tax through a money claim, a claim by the Revenue of money admittedly collected by the company in order to pay to the Revenue. 'The tax so collected' their lordships had found, 'really belongs to the State'. No further adjudication was required in that respect, nor was there any dispute as to the factum or the quantum of the payment which the company was to make to the Revenue. It was on those 'rather exceptional' grounds only, I would with utmost respect find, that the Supreme Court had rejected the plea of legal bar sought to have been urged by the company. It concerned the larger interest, which included recovery of public money by the Revenue and an unreasonable refusal by the company to pay such money. The facts of the case before this court had nothing to do with payment of tax, nor was there any larger or public interest involved. There was nothing 'exceptional' in the present facts or circumstances which would or could warrant the embargo contained in section 22 (1) to be rendered as not applicable. On the contrary, if the embargo was not to apply in the present case, then in utmost humility, I would be of the view that, it would be in derogation of the findings of the Supreme Court in its decision in the case of Corromandal Pharmaceutical Ltd. (supra). 

6.1 Advocates for the parties had made submissions also on the merits of their respective cases. In view of my findings as above, I do not consider it necessary to adjudicate the merits of the case. I am inclined to be of the view that this application, on the basis of my above observations, does not lie. I make it clear that I have not adjudicated on the merits of the winding up application. 

7. For those reasons, the contentions of the petitioner as regards the non-applicability of the embargo of section 22 (1) are not acceptable. The prayer of the petitioning creditor in this application was squarely barred by the restriction created by the statutory provisions contained in section 22 (1). This application is dismissed. A There shall be no order as to costs.