SUPREME COURT OF INDIA
Jay Engineering Works Limited
Vs
Industry Facilitation Council and Another
Appeal (Civil) 4126 of 2006 (Arising Out of S.L.P. (C) No. 909 of 2005) With Civil Appeal No.4127 of 2006 (Arising Out of S.L.P. (C) No. 991 of 2005)
(S. B. Sinha and Dalveer Bhandari, JJ)
14.09.2006
S. B. SINHA, J.
Leave granted.
The Appellant herein is a public limited company engaged in business of
manufacturing electronic fans and fuel injection equipments. Respondent No. 2
is a small scale industry. It manufactures copper wires. It supplied its
products to the Appellant herein during the period 28th December, 1996 and 3rd
June, 2000. As the Appellant Company became sick, its Board of Directors made a
reference in terms of Section 15 of the Sick Industrial
Companies (Special Provisions) Act, 1985 (for short 'the 1985 Act') on
8.4.1994. The Appellant Company was declared as sick unit by the Board for
Industrial and Financial Construction (for short "the Board"). A
rehabilitation scheme was framed by the Board but it was declared to have
failed by an order on 12.7.2001. By reason of the said order, however,
Industrial Development Bank of India (IDBI) was appointed as an operating
agency. A fresh report was submitted by the said operating agency on 20th
March, 2003 which was accepted by the Board whereupon a fresh rehabilitation
scheme was sanctioned on 8.4.2003.
In the meanwhile, the Respondent No. 2 herein filed a claim petition before the
Industry Facilitation Council (for short "the Council") Respondent
No. 1 herein in terms of the provisions of the Interest on Delayed Payments to
Small Scale and Ancillary Industrial Undertakings Act, 1993 (for short
"the 1993 Act"). Before the Council, the Appellant herein raised a
plea that it had been declared to be a sick company by the Board and as such
the matter should not be proceeded further. The Council, however, opined that
only because the Appellant Company has been declared sick by the Board, it
would not bind the Council to take a decision in the matter. It passed an award
directing:
"That upon the submissions made by both the parties in the above case
and in the light of contentions raised it is prayed that the delay of two years
to four years was caused by the respondents for making the payment to the
petitioner, which is enough. Therefore, Council has passed the order that an
amount of Rs. 10, 92, 253.00 and one and half percent interest of PLR of State
Bank of India is due to the Petitioner Messrs. Diamond Wire Industries, Ratlam,
of the Respondent Messrs. Jay Engineering Works Limited, New Delhi."
The said award of the Council was put in execution. The bank account of the
Appellant was attached by the District Court, Ratlam. A writ petition was filed
by the Appellant herein before the Madhya Pradesh High Court questioning the
same which by reason of the impugned judgment has been dismissed by a learned
Single Judge. A Letters Patent Appeal preferred thereagainst was dismissed by
the impugned judgment.
The High Court in its impugned judgment proceeded on the premise that the 1993
Act could prevail over the 1985 Act.
Mr. S. Ganesh, learned senior counsel appearing on behalf of the Appellant, at
the outset, drew our attention to the fact that the award made by the Council
in favour of the Respondent had been taken into consideration in the revised
Scheme itself and as such the award of the Council was non-executable. It was
urged that both the 1985 Act and 1993 Act operate in different fields and in
that view of the matter, the question that the 1993 Act prevailing over the
1985 Act would not arise in the instant case.
Mr. Sushil Kumar Jain, learned counsel appearing on behalf of the Respondents,
on the other hand, submitted that the Scheme approved by the Board in 2003 is
not applicable to the case of the Respondents. It was submitted that in any
event by reason of the said Scheme the liability of the creditors could not be
reduced.
It is not in dispute that the award was made by the Council in favour of the
Respondent No. 2. However, it is also not in dispute that the Board in terms of
its order dated 8.4.2003 approved the Scheme which inter alia envisaged the
following:
"(xi) Rs. 462 lakhs for Settlement of "Dormant Trade
Creditors" on the basis of 25% principal amount, (xii) Rs. 540 lakhs for
settlement of current overdues of suppliers to be paid over a period of 18
months."
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-'-vis
the Respondent No. 2 was, therefore, indisputably a subject matter of the said
Scheme. The High Court, in our opinion, committed an error in proceeding on the
premise that the awarded amount had not been included and could not be included
in the sanctioned rehabilitation scheme, the same being part of transactions
which took place after 21.11.1997 ignoring the revised scheme made in the year
2003.
The High Court furthermore opined that inclusion of the Respondent as a
deferred creditor in the fresh rehabilitation scheme dated 8.4.2003 also did
not affect the situation in favour of the Appellant presumably on the premise
that the 1993 Act was a special Act.
Before we advert to the contentions raised by the learned counsel for the
parties, we may notice sub-section (2) of Section 6 of the 1993 Act which reads
as under:
"(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 disputes as the
arbitration or conciliation were pursuant to an arbitration agreement referred
to in sub-section (1) of section 7 of that Act."
We may also notice that Section 10 thereof provides for a non- obstante clause
in the following terms:
"10. Over-riding effect.--The provisions of this Act shall have effect notwithstanding
anything inconsistent therewith contained in any other law for the time being
in force."
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.
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.
It is no doubt true that an award in relation to a claim of a small- scale
industry if made by the Council would be governed by the provisions of the Arbitration and Conciliation Act, 1996 (for short
"the 1996 Act").
The 1985 Act is a complete code by itself. Section 22 of the 1985 Act provides
for special provisions. Sub-section (1) of Section 22 was amended in the year
1994 by Act No. 12 of 1994 which reads as under:
"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 sections 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 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."
The said provision, thus, mandates that no proceeding inter alia for execution,
distress or the like against any of the properties of the industrial company
and no suit for recovery of money or for the enforcement of any security, shall
lie or be proceeded with further, except with the consent of the Board or as
the case may be, the Appellate Authority. The said statutory injunction
will operate when an inquiry had been initiated under Section 16 or a scheme
referred to under Section 17 is under preparation and/ or inter alia a sanctioned
scheme is under implementation. It is not disputed before us that the amount
awarded in favour of the Respondent by the Council finds specific mention in
the sanctioned scheme which is under implementation.
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.
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.
The 1985 Act also contains a non-obstante clause in sub-section (1) of Section
32 which reads as under:
"32. Effect of the Act on other laws.--(1) The provisions of this Act
and of any rules or schemes made thereunder shall have effect notwithstanding
anything inconsistent therewith contained in any other law except the
provisions of the Foreign Exchange Regulation Act, 1973
(46 of 1973) and the Urban Land (Ceiling and Regulation)
Act, 1976 (33 of 1976) for the time being in force or in the Memorandum
or Articles of Association of an industrial company or in any other instrument
having effect by virtue of any law other than this Act."
The 1985 Act was enacted in public interest. It contains special provisions.
The said special provisions had been made with a view to secure the timely
detection of sick and potentially sick companies owning industrial
undertakings, the speedy determination by a Board of experts for 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.
The High Court has placed strong reliance on Deputy Commercial Tax Officer and
Others v. Corromandal Pharmaceuticals and Others 1997 (10) SCC 649
wherein this Court was considering an exceptional situation by reason of the
fact that the liability of the sick company for the first time arose after the
date of sanctioned scheme and the sick industrial unit was enabled to collect
tax due to the Revenue from the exporters thereafter but declined to pay it
over to the Revenue wherefor recovery proceedings had to be taken. This Court
categorically opined that there cannot be any impediment in the enforcement of
the Scheme. Section 22 of the 1985 Act provides for a safeguard against
impediment that is likely to be caused in the implementation of the Scheme.
Section 22 was also held to be of wide import as regards suspension of legal
proceedings from the moment, the inquiry is started till after the
implementation of the scheme or disposal of the scheme under Section 25 of the
1985 Act. It was categorically held:
"it will be reasonable to hold that the bar or embargo envisaged in
Section 22(1) of the Act can apply only to such of those dues reckoned or
included in the sanctioned scheme."
The ratio laid down in the said decision, therefore, instead of assisting the
Respondent assists the Appellant.
In Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of
Maharashtra Ltd. and Another this Court held:
"On the other hand, the 1985 Act was enacted, as its preamble
manifests, with a view to timely detection of sick or potentially sick
companies owning industrial undertakings, the identification of the nature of
sickness through experts in relevant fields with a view to devising suitable
remedial measures through appropriate schemes and their expeditious
implementation. Here the emphasis is to prevent sickness and in cases of sick
undertakings to prepare schemes for their rehabilitation by providing financial
assistance by way of loans, advances or guarantees or by providing reliefs,
concessions or sacrifices from Central or State Governments, scheduled banks,
etc. The basic idea is to revive sick units, if necessary, by extending further
financial assistance after a thorough examination of the units by experts and
only when the unit is found to be no more capable of rehabilitation, that the
option of winding up may be resorted to"
Both the Acts operate in different fields. If the 1985 Act is attracted, the
question of its giving way of the 1993 Act would not arise.
In Allahabad Bank v. Canara Bank and Another , this Court held :
"There can be a situation in law where the same statute is treated as a
special statute vis-'-vis one legislation and again as a general statute
vis-'-vis yet another legislation"
In that case, it was further opined that although both the Companies
Act, 1956 and the Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 are special laws, normally the latter
shall prevail.
We have noticed hereinbefore that the 1985 Act was amended in 1994. The 1994
Amending Act was enacted after the coming into force of the 1993 Act.
Both the Acts contain non-obstante clauses. Ordinary rule of construction is
that where there are two non-obstante clauses, the latter shall prevail. But it
is equally well-settled that ultimate conclusion thereupon would depend upon
the limited context of the statute. [See Allahabad Bank (supra) para 34].
In Maruti Udyog Ltd. v. Ram Lal and Others it was observed :
"The interpretation of Section 25-J of the 1947 Act as propounded by Mr
Das also cannot also be accepted inasmuch as in terms thereof only the
provisions of the said chapter shall have effect notwithstanding anything
inconsistent therewith contained in any other law including the Standing Orders
made under the Industrial Employment (Standing Orders) Act, but it will have no
application in a case where something different is envisaged in terms of the
statutory scheme. A beneficial statute, as is well known, may receive liberal
construction but the same cannot be extended beyond the statutory
scheme"
In Shri Sarwan Singh and Another v. Shri Kasturi Lal , this Court opined
:
"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"
The endeavour of the court would, however, always be to adopt a rule of
harmonious construction.
In NGEF Ltd. v. Chandra Developers (P) Ltd. and Another 2005 (8) SCC 219,
interpreting sub-section (4) of Section 20 of SICA, it was held :
"It is difficult to accept the submission of the learned counsel appearing
on behalf of the respondents that both the Company Court and BIFR exercise
concurrent jurisdiction. If such a construction is upheld, there shall be chaos
and confusion. A company declared to be sick in terms of the provisions of
SICA, continues to be sick unless it is directed to be wound up. Till the
company remains a sick company having regard to the provisions of sub-section
(4) of Section 20, BIFR alone shall have jurisdiction as regards sale of its
assets till an order of winding up is passed by a Company Court."
It was further held :
"Section 32 of SICA contains a non obstante clause stating that
provisions thereof shall prevail notwithstanding anything inconsistent with the
provisions of the said Act and of any rules or schemes made thereunder
contained in any other law for the time being in force. It would bear
repetition to state that in the ordinary course although the Company Judge may
have the jurisdiction to pass an interim order in exercise of its inherent
jurisdiction or otherwise directing execution of a deed of sale in favour of an
applicant by the Company sought to be wound up, but keeping in view the express
provisions contained in sub-section (4) of Section 20 of SICA such a power, in
our opinion, in the Company Judge is not available. (See BPL Ltd.)
We may, however, observe that the opinion of the Division Bench in BPL Ltd. to
the effect that the winding-up proceeding in relation to a matter arising out
of the recommendations of BIFR shall commence only on passing of an order of
winding up of the Company may not be correct. It may be true that no formal
application is required to be filed for initiating a proceeding under Section
433 of the Companies Act as the recommendations therefor are made by BIFR or
AAIFR, as the case may be, and, thus, the date on which such recommendations
are made, the Company Judge applies its mind to initiate a proceeding relying
on or on the basis thereof, the proceeding for winding up would be deemed to
have been started; but there cannot be any doubt whatsoever that having regard
to the phraseology used in Section 20 of SICA that BIFR is the authority
proprio vigore which continues to remain as custodian of the assets of the
Company till a winding-up order is passed by the High Court."
In ICICI Bank Ltd. v. Sidco Leathers Ltd. and Others 2006 (5) SCALE 27
the law is stated in the following terms :
"The non-obstante nature of a provision although may be of wide
amplitude, the interpretative process thereof must be kept confined to the
legislative policy. Only because the dues of the workmen and the debt due to
the secured creditors are treated pari passu with each other, the same by
itself, in our considered view, would not lead to the conclusion that the
concept of inter se priorities amongst the secured creditors had thereby been
intended to be given a total go-by.
A non-obstante clause must be given effect to, to the extent the Parliament
intended and not beyond the same."
For the reasons aforementioned, the impugned judgment cannot be sustained.
Before parting with this case, however, we may observe that we have not
adverted to the question raised by the learned counsel for the Respondents as
to whether the Board while implementing the scheme could reduce the quantum of
the liability of creditors, as we are of the opinion that such a contention
need not be gone into at this stage. It will, therefore, further be open to the
Respondent No. 2 to approach the Board, if any occasion arises therefor.
The impugned judgments are set aside. The appeals are allowed. No costs.