Sick Industrial Companies (Special Provisions) Act, 1985 – s. 22(1) – Suspension of legal proceedings – Suit for the recovery of money instituted by the original plaintiff-small- scale industrial undertaking against the defendant company during the pendency of proceedings in respect of the defendant company before the BIFR, though later the defendant company ceased to be a sick industrial company – Trial court holding that the defendant company failed to prove that it was a sick industry, decreed the suit granting 12% interest pa on the amount – In appeal, the High Court granted 24% compound interest on the amount due – Suspension of legal proceedings u/s. 22(1), if would extend to a suit for recovery of money even if the debt sought to be proved in the plaint not admitted by the sick industrial company and if so, the decree in favour of the original plaintiff if could be said to be coram non-judice:

Held: Suit instituted by the original plaintiff not hit by the embargo envisaged u/s. 22(1) – Thus, the decree awarded in favour of the original plaintiff by the trial court and modified by the High Court, cannot be said to be coram nonjudice – Suit for recovery was not of a nature which could have proved to be a threat to the properties of the defendant sick company or would have adversely impacted the scheme of revival – Suit was a simple suit for recovery of money towards the dues arising under the alleged illegal deductions under the contract – This could not be said to be a proceeding in the nature of execution, distress or the like and thus, not hit by s. 22(1) – Furthermore, the legislature did not intend to include even the proceedings for the adjudication of the liabilities not admitted by a sick company within the protective ambit of s. 22(1) – Such an adjudicatory process only determines the liability of the defendant towards the plaintiff, and does not threaten the assets of the sick company or interfere with the formulation of the scheme unless execution proceedings are initiated pursuant to the completion of such adjudicatory process. [Paras 98, 99, 142]

Sick Industrial Companies (Special Provisions) Act, 1985 – s. 22(1) – Application of mischief rule:

Held: Applying the mischief rule to s. 22(1), it is found there was a vacuum in the legal framework to deal with sick industrial companies and provide ameliorative steps for their revival – 1985 Act was enacted to fill in this vacuum – Mischief which was sought to be dealt with by the enactment of s. 22 was any such legal proceeding which could impact the assets of the sick company and in-turn negatively impact the formulation and implementation of the rehabilitative scheme – This provision was inserted to provide a remedy by ensuring that the multiple recourses available under the law for recovery of debts, etc. were suspended for the period during which the sick company was under the ameliorative shelter of the BIFR – It was to shield the formulation and implementation of the revival scheme from any impediments thereby maximising the chances of revival of sick company, the ultimate object sought to be achieved by the Act. [Para 101]

Sick Industrial Companies (Special Provisions) Act, 1985 – ss. 22(1), 16, 17 and 25 – Benefit of suspension of legal proceedings in respect of sick industrial company u/s. 22(1) – Conditions to be fulfilled for the applicability of s. 22(1):

Held: Firstly an inquiry u/s. 16 must be pending; or any scheme referred to in s. 17 must be under preparation or consideration or a sanctioned scheme must be under implementation; or an appeal u/s. 25 must be pending-in relation the company against whom the legal proceedings sought to be suspended have been initiated – Secondly, the the proceedings must be one from amongst the six types as described, or of a similar nature, i.e. ejusdem generis to the said six types of proceedings – Thirdly, the proceedings must have the effect of threatening the assets of the sick company and interfering with the formulation, consideration, finalisation or implementation of the scheme. [Paras 63-65, 67, 87, 97]

Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 – Compound interest on the principal decretal amount – Claim of – High Court granted 24%pa compound interest on the principal decretal amount in favour of the original plaintiff-small-scale industrial undertaking from the original defendants, from the date the amounts were determined to have become due till the date of their realisation by the original plaintiff, setting aside the decree of the trial court which granted 12% simple interest in favour the original plaintiff – Correctness:

Held: High Court committed no error in awarding 24% interest to the original plaintiff on its dues as per the provisions of the 1993 Act – However, the period during which the defendant company was a sick company as per the 1985 Act is excluded for the purposes of calculation of interest – For the period during which the defendant company was sick and before the BIFR, it cannot be said that the withholding of the payment of the dues of the original plaintiff was wilful and intentional – Liability of the original defendants was disputed and was finally adjudicated only by way of the impugned judgment, much after the BIFR proceedings had come to an end; and even if the liability of the original defendants was not disputed, or was even acknowledged before the BIFR, recovery of the same could not have been done without the permission of the BIFR in view of the suspension of recovery proceedings by s. 22(1) of the 1985 Act – Thus, the period commencing from the date when original defendant was declared to be a sick company under the 1985 Act going up to the date when it was discharged by the BIFR and declared to be no longer a sick industrial company is excluded from the purview of the applicability of the interest provision under the 1993 Act – Interest would not be calculated for the aforesaid period – Thus, the impugned judgment and order of the High Court is upheld subject to the modification of the period for which interest may be granted – Interest would be calculated at 24% p.a.with monthly compounding. [Paras 140-143]

Interpretation of Statutes – Principle of harmonious construction – Interplay between the Sick Industrial Companies (Special Provisions) Act, 1985 and the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993:

Held: Doctrine of harmonious construction is based on the principle that the legislature would not lightly take away from one hand what it had given with the other – Doctrine provides, that as far as possible, two seemingly conflicting provisions within a statute, or the seemingly conflicting provisions of one statute vis a vis another, should be construed in a manner so as to iron out any conflict – Beneficial provisions of the 1985 Act, was enacted to maximize the chances of revival of sick industrial companies, while the 1993 Act, was enacted with the intention to ensure that small-scale industries are paid their dues in time – This object of the 1993 Act was sought to be achieved by providing a high interest rate, with monthly compounding, so as to act as a deterrent for the buyers – Interest of justice requires that both the 1985 Act and the 1993 Act, which are in the nature of beneficial enactments, should be read harmoniously so as to impart a meaningful construction to the language of each of the enactments. [Paras 119, 125, 136]

Interest – Grant of interest – Concept of :

Held: When interest is awarded by the Court, normal feeling is that it is so awarded by way of penalty or punishment, however, interest in all cases is not granted by way of penalty or punishment – Interest on the delayed payment of the claim amount accrues due to the continuing wrong committed by the wilful withholding of the payment towards the claim, resulting in a continuous injury until such payment is made, or in other words, until the claim is realised. [Paras 106, 107]

Sick Industrial Companies (Special Provisions) Act, 1985 – Legislative scheme of the Act – Object of enactment – Stated. [Paras 48-52, 85]

Sick Industrial Companies (Special Provisions) Act, 1985 – s. 3(1)(o) – Industrial sickness – Concept of. [Paras 48-50]

Sick Industrial Companies (Special Provisions) Act, 1985 – s. 22(1) – Interpretation of – Explained. [Paras 75-84]

Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 – Object and scope of. [Paras 111, 112, 113, 114]