At, High Court of Karnataka
By, THE HONOURABLE CHIEF JUSTICE MR. CYRIAC JOSEPH & THE HONOURABLE MRS. JUSTICE B.V. NAGARATHNA
For the Appellants : K. Raghavendra Rao, Advocate. For the Respondent : ----------.
Cyriac Joseph, C.J. (Oral):
This writ appeal is filed against the judgment dated 31-1-2008 in Writ Petition No. 17135 of 2007 which was dismissed by the learned Single Judge. The appellants are the petitioners in the writ petition.
2. According to the averments in the memorandum of writ appeal, the appellant 1 is a private limited company registered under the provisions of the Companies Act, 1956. Appellant 2 is the Director of appellant 1-Company. The respondent filed a false and vexatious suit as O.S. No. 100 of 1995 in the Court of First Additional Civil Judge, Chitradurga seeking recovery of certain amounts from the appellants. The appellants filed written statement contesting the claim of the plaintiff. One of the contentions raised in the written statement is that in view of the proceedings pending before the Board of Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as `the Act'), the legal proceedings initiated by the plaintiff cannot be continued in view of Section 22(1) of the said Act. The Trial Court framed several issues for trial. Issue 3 is "do defendants prove that proceedings are to be suspended as per the provisions of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985". The Trial Court held that the proceedings in the suit need not be suspended as the maximum suspension period under Section 22 of the said Act is only seven years and as the suit was filed in the year 1995. In other words, the Trial Court was of the view that even if the proceedings would be suspended it could have been suspended only upto 2002 and therefore the prayer for suspension of the proceedings did not survive in the year 2007. Challenging the said order of the Trial Court, the appellants filed Writ Petition No. 17135 of 2007 contending that there is no such stipulation of maximum period of seven years in sub-section (1) of Section 22 of the said Act and hence the Trial Court wrongly decided the issue. In the impugned order the learned Single Judge has not adverted to the above aspect. But the learned Single Judge came to the conclusion that as no enquiry under Section 16 of the Act is pending and the appeal filed under Section 25 of the Act also has been dismissed, Section 22(1) of the Act does not get attracted to the facts of the case to warrant stay of further proceedings in the suit. The learned Single Judge also held that pendency of the proceedings before the Madras High Court against the order passed by the Appellate Authority under Section 25 of the Act is not a ground under Section 22(1) of the Act to stay further proceedings in the suit. Aggrieved by the order of the learned Single Judge, this writ appeal has been filed.
3. Having heard learned Counsel for the appellants and having considered the materials placed on record, we do not find any valid and sufficient reasons to interfere with the order of the learned Single Judge.
4. The appellants claim the benefit under Section 22(1) of the Act which is extracted hereunder:
"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 (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".
It is clear from the provisions contained in Section 22(1) that the proceedings in the suit are liable to be suspended or stayed only when an enquiry 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. None of the above contingencies exists in this case. The enquiry under Section 16 was rejected by the AAIFR. Even though the appellants filed Writ Petition No. 4864 of 1999 in the High Court of Judicature at Madras challenging the order dated 6-11-1996 of the BIFR in Case No. 55 of 1988 and the order dated 9-3-1999 passed by the AAIFR in Appeal No. 22 of 1997, the High Court of Madras has not stayed the operation of the above orders and as per the Annexure-F order dated 24-3-1999 the High Court at Madras has stayed only all further proceedings pursuant to the impugned orders dated 6-11-1996 and 9-3-1999. By virtue of the said stay order passed by the High Court of Madras, neither the enquiry under Section 16 nor the appeal under Section 25 has been revived. Therefore as a consequence of Annexure-F order of the High Court of Madras, enquiry under Section 16 or appeal under Section 25 is not pending. Therefore, the learned Single Judge was right and justified in holding that the suit filed by the respondent is not liable to be stayed in view of the provisions contained in Section 22(1) of the Act.
5. Learned Counsel for the appellants placed reliance on the decision of the Hon'ble Supreme Court in M/s. Rishabh Agra Industries Limited vs. P.N.B. Capital Services Limited AIR 2000 SC 1583: (2000) 5 SCC 515 , to support the contentions of the appellants. We have perused the judgment of the Supreme Court and have found that the said judgment has no application to the facts of the present case. Learned Counsel also relied on the decision of the Supreme Court in Zenith Steel Tubes and Industries Limited and Another vs. Sicom Limited (AIR 2008 SC 451: (2007) AIR SCW 7240, to contend that since the scope of Section 22(1) has been referred for decision of a Larger Bench is the scope of the expression "suit" and "proceeding" appearing in Section 22(1) and it has no relevance to the question raised in this writ appeal. Hence we are of the view that the above mentioned two decisions of the Supreme Court relied on by the learned Counsel for the appellants cannot support the case of the appellants.
6. Though learned Single Judge has not adverted to the finding of the Trial Court that the suit is not liable to be stayed on the ground that the stay could have been granted only for a maximum period of seven years, we find it necessary to clarify the position. As rightly contended by the learned Counsel for the appellan
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ts there is no such maximum period stipulated in sub-section (1) of Section 22 of the Act. The maximum period of seven years is mentioned only in the proviso to sub-section (3) of Section 22 of the Act and that the said stipulation of the maximum period of seven years is applicable only to a declaration made under sub-section (3) of Section 22. Hence the reason stated by the Trial Court for rejecting the contention of the defendant while deciding issue 3 is not legally correct. However, it cannot help the appellants in this writ appeal. As rightly held by the learned Single Judge, the appellants are not entitled to any stay or suspension of the proceedings in the suit under the provisions of sub-section (1) of Section 22 of the Act. 7. Hence the writ appeal is dismissed.