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CASE NO.: Appeal (civil)  4126 of 2006

PETITIONER: Jay Engineering Works Ltd.                                       

RESPONDENT: Industry Facilitation Council and Anr.                           

DATE OF JUDGMENT: 14/09/2006

BENCH: S.B. Sinha & Dalveer Bhandari

JUDGMENT: J U D G M E N T [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, 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

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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

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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."

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       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

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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:

"\005it 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\005."

       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 [(1993) 2 SCC 144] 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\005"

       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 [(2000) 4 SCC  406], 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\005"

       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

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thereupon would depend upon the limited context of the statute.  [See  Allahabad Bank  (supra) \026 para 34].   In  Maruti Udyog Ltd. v. Ram Lal and Others (2005) 2 SCC 638],  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\005"

       In Shri Sarwan Singh and Another v. Shri Kasturi Lal [(1977) 1  SCC 750], this Court opined : "\005When 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\005"  

       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

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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.