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Canara Bank v/s Simplex Woollen Mills Ltd.& Ors.

    NOTICE AND MOTION NO.526 OF 93 IN SUIT NO. 442 OF 1993

    Decided On, 16 July 1996

    At, High Court of Judicature at Bombay


    Mr. N.S.Sanghvi i/by M/s.Desai & Diwanji for Plaintiff. Mr. O.S.Kutty i/by K.S.Kallapura for Defendants. Ms. Gayatri Singh i/by Collin Gonsalves for workers.

Judgment Text


This is a bank suit for recovering an amount of Rs.7.00 crores, which by now according to the Plaintiff's Advocate might have reached figure of Rs.10.000 crores. Prayer, today, in the Motion, that was pressed was for appointment of Receiver in respect of the property without powers of sale. It was argued that the property is not being looked after properly, there is no management of the property that there are no guards or watchman to protect the property and the workers are removing machineries causing loss of the property and consequently loss to the Plaintiff with whom the property is mortgaged by an equitable mortgage. It is also argued by the Plaintiff's Advocate that Defendant is trying to sell the property to the detriment of the interest of the Plaintiff. And considering the claim involved and the aforesaid factors, appointment of Receiver was pressed.

2.On the other hand, it was argued by the Defendant's Advocate that the Defendant Company is declared as `Sick Unit', that under the "Sick Industrial Companies (Special Previsions) Act, 1985 and Board for Industrial and Financial Reconstruction Regulations, 1987" there was an Order of the BIFR dated 25/5/1990 against which the Defendant Company preferred an Appeal and on dismissal of the Appeal the Defendant Company filed Writ Petition with Delhi High Court, wherein ad-interim order was granted on 23/9/1992 and this order was confirmed on 5/10/1993. Therefore, according to the Defendant's Advocate, in view of the order of the Delhi High Court in the aforesaid Writ Petition, no Receiver can be appointed in respect of the property Defendant-Company.

3.According to the Plaintiff's Advocate, the Order of the Delhi High Court does not affect the jurisdiction of this Court in appointing Receiver in appropriate cases. Counsel for the Plaintiff relied upon a Judgment of the Bombay High Court reported in AIR 1992 BOMBAY 365 of Justice Jhunjhunuwala. It was also argued by the learned Counsel for the Plaintiff that in Order under Section 22 of the aforementioned Act applies, there must be enquiry pending as contemplated in this Section and since no enquiry is pending this Section does not become applicable to the instant case.

4.Regarding arguments of the Plaintiff's Counsel about the loss, damage or waste of the suit property, it was argued by the Counsel for the Defendant that the Plaintiff-Bank annually inspects the property and during those inspection Bank did not find much discrepancies in the property mortgaged and property found in custody. As against this it is argued by the Plaintiff's Advocate that thefts are being committed of the machinery and other property is getting deteriorated and therefore Receiver is necessary.

5.The crucial question is whether in view of the Order of the Delhi High Court Plaintiff's prayer of appointment of Receiver can be granted. In this regard, it is pertinent to note that after ad-interim order was granted to the Defendant in the Writ Petition filed by them before the Delhi High Court on 23/3/92, the Plaintiff filed the present Suit. Therefore, it is clear that on the date of the filing of the suit ad-interim order of Delhi High Court was in force and was binding on the parties. Secondly, the contention of the Plaintiff-Bank that no scheme was ever suggested by the Defendant as contemplated under Section 17 and the orders that were passed by BIFR Board and the Appellant Authority were foe winding up of the company and according to him section 22 was not attracted. I do not find any legal force in his arguments, firstly, because there is a reference to an enquiry under Section 16, in Section 22 of the Act and secondly an order of winding up of `Sick Industrial Company' can be passed by the Court under Section 20 after completing an enquiry under Section 160. It is, therefore, clear that an order of winding up of Company is an order by the Board in exercise of the power conferred by this Act, it is preceded by enquiry under Section 16 and also by an order under Section 20. Since there is direct reference to the Section 16 and the enquiry conducted thereunder, Section 22 of the Act directly applies to the case and it cannot be allowed to be argued that because no scheme under Section 17 was suggested, prepared or submitted by the Defendant, Section 22 of the Act should not be held applicable.

6.The second question is whether the judgment of the Bombay High Court relied upon by the Plaintiff's Advocate, reported in AIR 1992 BOMBAY 365 applies to the present case or Judgment of the Supreme Court relied upon by the Defendant's Advocate reported in (1993) 2 Supreme Court Cases 144. Admittedly the Supreme Court Judgment will be required to give preference and weightage as against the Judgment of the Bombay High Court. The facts of the case of the Bombay High Court are as under:-

"In the present case, in a suit filed for recovery of money with interest due thereon and for enforcement and sale of mortgaged and hypothicated properties, the Receiver of suit properties was appointed with all powers under 0.40, Rule 1, CPC except power of sale. The receiver took possession of the suit properties and they become custodia legis through its duly appointed Receiver. Permission was given to the defendants to retain and use suit properties as agents of the Receiver and not in their absolute or own rights as owners thereof. The defendant company was then declared as sick industrial company. Subsequently, the Receiver restored possession to himself in view of the default on part of the defendants in depositing royalty amount fixed by the Receiver. The appointment of the Receiver in respect of the suit properties as well as his taking possession thereof from the defendants were much prior to even institution of enquiry u/s. 16 of the Act."

It appears from the order that stress was laid down on the peculiar facts and circumstances of the case and in the background of those circumstances, it was held by Justice Jhunjhunuwala, Section 22 did not apply to that case. Justice Jhunjhunuwala has accepted that under Sec. 22 of the Act the proceedings are required to be suspended. However, inspite of that he came to the conclusion that proceedings for appointment of Receiver would lie and could be proceeded with.

7.In my opinion, the Supreme Court has directly dealt with the object of the legislature behind the Sick Industrial Companies (Special Provisions) Act, 1985 and BIFR Regulations, 1987 and has interpreted the relevant provisions. With reference to the object, it has been observed by the Supreme Court that merely because Creditors of Sick Industrial Concern happen to be banks or State Financial Corporations different considerations would not come into play. I am reproducing para 14 of the Supreme Court Judgment.

"14. Now we come to the impugned decision. The High Court was considerably influenced by the fact that the appellant-company owed crores of rupees to banks and felt that so far as such creditors are concerned, different considerations may come into play but the High Court with respect failed to appreciate that the 1985 Act was enacted primarily to assist sick industrial undertakings which inter alia failed to meet their financial obligations. It is, therefore, difficult to accept the view of the High Court that where the creditors of a sick industrial concern happen to be banks or State Financial Corporations different considerations would come into play. It must be realised that in the modern industrial environment large industries are generally financed by banks and statutory corporations credited specially for that purpose and if they are permitted to resort to independent action in total disregard of the pending inquiry under section 15 to 19 of the 1985 Act the entire exercise under the said provisions would be rendered nugatory by the time the BIFR is able to evolve a scheme of revival or rehabilitation of the sick industrial concern by the simple device of the Financial Corporation resorting to Section 29 of the 1951 Act. We are, therefore, of the opinion that where an inquiry is pending under Sections 16/17 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 expression `proceedings' in Section 22(1), therefore, cannot be confined to legal proceedings understood in the narrow sense of proceedings in a court of law or a legal tribunal for attachment and sale of the debtor's property."

It will, therefore, be clear that as rightly observed and held by the Supreme Court the object of the impugned Act is to allow the Board constituted under the BIFR to consider remedial measures which are required to be taken with respect to sick industrial companies. As against the interest of the sick industries' interest of Financial Institutions cannot be given preference to. Because, if this approach is adopted then the provisions of BIFR would be rendered nugatory.

8.It is clear from the aforesaid observations of these two Courts that when matters come to the Court and it is found that the Company is declared as `sick unit' and the proceedings are pending before the BIFR, Courts are required to give due consideration and prime importance to the provisions of the aforesaid Act and not to consider the interest of an individual bank of Financial Institution. To do so, would amount to frustration of the provisions of the Act.

9.In the light of these observations of the supreme court and on proper interpretation of Section 22 wherein there is direct reference to inquiry under Section 16. It is an inquiry of winding up and which culminates into order of winding up under sec. 20, it is clear that the provisions of Section 22 are required to be taken into consideration where prayer for appointment of Receiver are made.

10.It was argued by the Plaintiff's Counsel that proceedings before the Board and the Appellant Authority were terminated or come to an end and the Writ petition is not continuation of proceedings. By this submission the Advocate of the Plaintiff wanted to urge that pendency of Writ Petition or an order in Writ Petition cannot come in the way of the Plaintiff because there is no reference to any right of the parties to file the Writ Petition against the order. Here again I am unable to accept with the Plaintiff's Advocate. Because, admittedly, the Order of the Appellate Authority under this Act is given finality and no further remedy is provided. In such circumstances, Writ Petition is the only remedy and though in strict scene Writ Petition is not a continuation of the proceedings, the word `proceedings' or `legal proceedings' cannot be confined to and restricted in the narrow sense as per the findings of the Supreme Court. Therefore, when Writ Petition is pending before the Delhi High Court, for the purpose of Section 22 and for the purpose of considering the prayers of the Plaintiff the Court has to take into consideration the pendency of the Writ Petition.

11.In fact the suit of the Plaintiff has been filed after the ad-interim order staying the case of the Plaintiff that the Plaintiff was aware of the ad-interim order as prayed by the Defendants before the Delhi High Court apart from the as-interim order was made absolute on 5/10/1993 and the Delhi High Court has given specific directions that Receiver will not be appointed in respect of the property.

12.It was argued by the Plaintiff's Advocate that firstly the Delhi High COurt has no jurisdiction to pass order in respect of property situate in Bombay but this point was not pressed much after I brought to the notice of the Plaintiff's Advocate that every day orders appointing Receiver in respect of property situate anywhere in India are passed by this Court. Other contentions raised in this regard have already been considered by me as above.

13.So far as allegations of the Plaintiff that the Defendants are trying to deal with or dispose of the property are concerned, it was argued by the Plaintiff's Advocate that the Defendants have entered into an Agreement with one Universal Builders. However, the force behind this argument and submission was taken away by the Defendant's Advocate when he pointed out from affidavit-in-reply that Agreement wit

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h the `Universal Builders' was of 1986, i.e. about 7 years before the institution of the suit. It is, therefore, not a case of the Plaintiff that defendant is dealing with property or disposing of the property or has entered into Agreements subsequent to the institution of the suit, Relying upon transaction before the institution of the suit would not help Plaintiff in appointing Receiver. 14.Considering, therefore, all the facts, the prayer for appointment of Receiver cannot be accepted. However, sufficient material is available before the Court to hold that the property requires protection. Because admittedly about 40 workers are residing in the campus or area of the factory at Dahisar and two guards or watchmen appointed by the Defendants are almost inadequate and since they are part of the same Company some additional guards are required to be appointed at the cost of Defendant Advocate for the Defendants agreed to this. I, therefore, pass the following order. ORDER Prayer for appointment of Receiver is rejected. Ad-interim injunction to continue. The Plaintiff is empowered to appoint and keep three guards of its choice at the cost of the Defendant. Liberty given to the Plaintiff to take out fresh Motion after the Proceedings before the Delhi High Court are over or order of stay is vacated. Motion is disposed of.