HIGH COURT OF CALCUTTA
Indian
Steel & Wire Products Ltd.
v.
Kothari
Metals Ltd.
SANJIB
BANERJEE, J.
C.P.
NOS.193, 196 to 199, 205, 216, 217 and 219 of 2005
April
26, 2007
Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 - Suspension of legal proceedings contracts etc. - Whether, if BIFR sanctions a scheme making provision for payments over several years to creditors, whose dues are reflected in company’s records upto a specified date, then dues of later creditors would not be covered by a scheme - Held, yes - Whether if BIFR, in sanctioned scheme, does not provide for payment to some creditors, whose dues are reflected in the sick company’s books, then it is not to be easily concluded that such creditors need not be paid at all, unless there is specific provision therefor which is subject to appeal and judicial review - Held, yes - Whether an ordinary right of a supplier to receive payment for his wares can be deemed to have evaporated upon his claim not finding mention in scheme sanctioned by BIFR - Held, no - On a reference a rehabilitation scheme was sanctioned by BIFR on 20-12-2003 - Petitioners claimed to have effected supplies to company during 2002-03 and 2003-04 - Whether embargo of section 22 was applicable in case of petitioners - Held, no - Whether petitioners’ could be disregarded merely because scheme was sanctioned at a time subsequent to entirely or part of their payments having fallen due - Held, no
The company made a reference to the BIFR upon it becoming a sick industrial company within the meaning of section 3(1)(o). The scheme was sanctioned on 22-10-2003 and new management took over the running of the company on 20-12-2003.
The petitioners claimed to have effected supplies to the company during the financial years 2002-03 and 2003-04, but prior to the instant management coming at the helm of the company. The petitioners made written demands for payment subsequent to February, 2004 but as their dues were not refected in the sanctioned scheme, the company had taken the stand that the new management could not be held responsible for such transactions and the merits of the petitioners claim could not be urged or heard in view of the bar under section 22(1).
The wide powers given by the Act to the BIFR (and, consequently, the AAIFR) permit it to specify the cut-off date in respect of a scheme. Subject to the miseries that creditors of a sick industrial company suffer under the provisions of the Act, the BIFR may postpone payments to such creditors, provide for interest, if at all, to them and require payments to be made in driblets to the creditors spread over several years. It is, after all, the viability of the sick industrial company, that the BIFR is concerned with, never mind if some of the creditors died in the wake of the ameliorative measures, that the BIFR proposes qua the sick company. There is nothing to suggest in the very wide provisions, that the BIFR needs only to single out of specified classes of creditors. At least, every ordinary, private creditor is subject to the authority and the discretion of the BIFR in the matter of its realization of its dues from the sick company. [Para 24]
Rationally, the BIFR should take into account the future functioning of the sick company at the post-sanction stage, as it is the functioning of the company, that it seeks to preserve. If the BIFR, in the sanctioned scheme, does not provide for payment to some creditors whose dues are reflected in the sick company’s books, then it is not to be easily concluded that such creditors need not be paid at all, unless there is specific provision therefor which is subject to appeal and judicial review. If the BIFR sanctions a scheme making provision for payments over several years to creditors whose dues are reflected in the company’s records up to a specified date, then the dues of the later creditors are not covered by a scheme. An ordinary right of a supplier to receive payment for his wares cannot be deemed to have evaporated upon his claim not finding mention in the scheme sanctioned by the expert body. [Para 25]
The petitioners, in the instant cases, before the Court, were such creditors. Their dues arose after the cut-off date of 31-3-2002 . They were not to be disregarded, merely because the scheme was sanctioned at the time subsequent to the entirety or a part of their payments having fallen due. It was the cut-off date which was relevant and, again, it was the inclusion in the scheme of the creditors, whether directly or by necessary implication, that was the pre-eminent consideration. [Para 26]
None of the petitioner’s claims found mention in the scheme for rehabilitation of the company sanctioned by the BIFR. Nothing had been shown in the scheme that could be construed to obliterate the claims of the petitioners. The claims being the subject-matter of the nine petitions were all for the period beyond that covered by the sanctioned scheme. The embargo section 22(1) did not apply to any of the claims of the nine petitioners. The other argument of the company that since the BIFR had been given wide authority under the Act, it was such forum, that ought to be approached to undo the apparent bar under section 22(1), was not acceptable. A creditor may not be enamoured of the architecture or climate of the capital to approach the BIFR stationed there, if it is not impeded in pursuing its claim under the embargo envisaged therein, and such creditor cannot be faulted. It was the suspension of the ordinary, usual rights that call for stricter scrutiny than the pursuit thereof. [Para 32]