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CASE NO.: Appeal (civil)  5275 of 2007

PETITIONER: Bijli Cotton Mill (Unit of National Textile Corporation U.P. Limited)

RESPONDENT: U.P. Power Corporation Limited & Ors

DATE OF JUDGMENT: 16/11/2007

BENCH: Dr. ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO. 5275           OF 2007 (Arising out of S.L.P. (C) No. 20610 of 2006)  

Dr. ARIJIT PASAYAT, J.

1.      Leave granted.

2.      Challenge in this appeal is to the judgment rendered by a  Division Bench of the Allahabad High Court. The appellant-a  unit of National Textile Corporation U.P. Limited (in short  ’NTC’) had moved the High Court for quashing the recovery  proceedings. Further prayer was for direction to the  respondents not to demand and/or recover any amount from  the appellant.  

3.      Background facts as projected by the appellant are as  follows:

The appellant unit was involved in the manufacture of  Cotton yarn.  The production in the unit stopped in the year  1992.  Out of the 11 units which had become sick, nine could  not be revived and only two could be revived. The appellant  referred the matter of sickness of the mill to the BIFR under  the Sick Industrial Companies (Special Provisions) Act, 1985  (in short ’SICA’). The electricity connection of the mill was  disconnected. A bill dated 15.11.2003 for a sum of  Rs.33,52,251.18 towards principal and a sum of  Rs.54,50,326.07 towards late payment surcharge (totalling to  Rs.88,02,577.25) was raised. 4.      Stand of the appellant was that the demand of late  payment surcharge is contrary to the scheme approved on  5.2.2000 by the Board for Industrial and Financial  Reconstruction (in short ’BIFR’). According to para 5.04 there  was no scope for charging late payment surcharge because the  scheme clearly provided for interest and damage. This plea  was resisted by U.P. Corporation Ltd.  It was the stand of the  Corporation that there was no scope for writing off late  payment surcharge and in any event, the same was not part of  the approved scheme. The appellant had stated that the  principal amount has been paid in full.

5.      The appellant had pointed out that in the case of Lord  Krishna Mills, another unit of NTC, the Corporation itself had  taken a decision to write off late payment surcharge. That was

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a part of the scheme and, therefore, a different yardstick  should not have been applied.

6.      Basic issue is whether the surcharge is included in the  interest and damage as appearing in clause 5.04 of the  approved scheme.  The High Court relied on earlier decision in  M/s L.M.L. Ltd., Kanpur v. State of U.P. and Ors. (AIR 2001  Allahabad 321) to negative appellant’s stand.

7.      The High Court was of the view that late payment  surcharge was applicable. It held that there was provision for  levy of late payment surcharge and so the amount was  payable. It is not in the nature of penalty or compensation.   This according to the High Court was the ratio in M/s L.M.L.  case (supra). It was also noted by the High Court that the  factual position in Lord Krishna Mill case was not clear and,  therefore, even if some relief was granted to the said unit, that  cannot be a ground to hold that late payment of surcharge  was to be written off.

8.      Learned counsel for the appellant submitted that  admittedly no separate levy was made and, therefore, the  question of waiver of interest does not arise.  Additionally, it is  submitted that in the case of Lord Krishna Mills case relief as  has been claimed by the appellant was granted.  The decision  in M/s L.M.L. case (supra) has no application because the  issue involved in that case related to surcharge on energy  charges. There was no distinctive feature so far as Lord  Krishna Mills case is concerned and, therefore, the High Court  was not justified in refusing to grant relief.   

9.      Learned counsel for the Corporation supported the  judgment of the High Court stating that late payment  surcharge is different from interest or damage and, therefore,  the same could not have been waived.

10.     There is no doubt about the binding effect of the scheme.   The approved scheme was circulated and relevant clauses  5.03 and 5.04 read as follows:

"5.03 \026 State Government (Uttar Pradesh) i)      To declare NTCUPL and its mills as Relief  Undertaking for the purpose of granting  reliefs concessions including sales tax,  holiday deferment etc.   ii)     To approve without any condition the sale  of surplus land properties of NTCUPL and  agree to conversion of its identified land  into Commercial residential land use and  sale thereof, exempting conversion  charges and sales tax on sale of surplus  machinery scrap subject to the master  plan. iii)    To grant necessary clearances approvals  pertaining to closure of unviable mills  activity and to extend necessary support  in this regard.  iv)     To grant permission for sale of surplus  leasehold freehold land identified at  various units under Urban Land Ceiling  Act (ULCA) and give exemption from  payment of stamp duty thereof. The  stamp duty would be paid by the  purchaser of the land not by the  company.

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v)      To waive the interest and damages on the  electricity, water and municipal dues and  accept payment of principal amount only  during the year 2001-02.    vi)   To exempt the company from payment of  sales tax on the sale of scrap and other  material rendered surplus. "5.04 \026 Kanpur Electricity Board/State  Electricity Board/State Government Power.

To writ off interest and damages in respect of  arrears current dues of the company to  Kanpur Electricity Board or to any other  Electricity Authority in whose jurisdiction the  mills were located. i)      To ensure to supply the electricity as  required continuously, regularly during  the period of rehabilitation."

11.     It is to be noted that the High Court has not discussed as  to why and in what manner Lord Krishna Mills’ case was  distinguishable on facts. The decision in M/s L.M.L. case  (supra) has no application because the decision in that case  related to surcharge on energy charges. If there was any doubt  about the true effect of clauses 5.03 and 5.04 the matter could  have been highlighted before the BIFR and could have been  clarified. In fact, sub-sections (8) and (9) of Section 18 of SICR  throw considerable light on the issue.  They read as follows:

"18. Preparation and sanction of Schemes

       xxx                     xxx                             xxx (8) On and from the date of the coming into  operation of the sanctioned scheme or any  provision thereof, the scheme or such  provision shall be binding on the sick  industrial company and the transferee  company or, as the case may be, the other  company and also on the shareholders,  creditors and guarantors and employees of  the said companies.  (9) If any difficulty arises in giving effect to  the provisions of the sanctioned scheme, the  Board may, on the recommendation of the  operating agency, [or otherwise], by order to  anything, not inconsistent with such  provisions, which appears to it to be  necessary or expedient for the purpose of  removing the difficulty."  

xxx                     xxx                             xxx

12.     The High Court has not referred to various stands taken  and urged before it. Specific reference was made to Board’s  letter dated 18.6.2003 to Lord Krishna Textile Mill, and  another letter dated 20.6.2003 in the context of waiver of  delayed payment surcharge. Reference was also made to letter  dated 7.9.2005 of the Corporation to the NTC that it has been  decided to act as per decision taken in Lord Krishna Textile  Mills.  Reference was also made to letter dated 3.3.2003 of the  Special Secretary, Government of Uttar Pradesh addressed to  BIFR. In the circumstances, the matter is remitted to the High  Court with the following directions:       (1)     The BIFR shall be moved by the parties to clarify whether

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delayed payment surcharge is included in interest or the  damages in view of the conceded position that no interest was  levied. The order of the BIFR shall be placed on record before  the High Court. The parties shall move the BIFR within one  month and BIFR is requested to pass necessary orders within  two months thereafter.   (2)     The effect of waiver in case of Lord Krishna Mills case  shall be duly considered.   

(3)     The relevance of documents referred to above shall be  duly considered.

13.     The High Court is requested to consider the matter  within four months of the receipt of the order of BIFR.

14.     I.A. Nos.3 & 4 of 2006 have been filed by Anand  Vrindaban (a partnership firm) for impleadment and  directions.  No order is necessary to be passed in those IAs, as  it has no nexus with the issues involved in this appeal.   

15.     The appeal is allowed to the aforesaid extent with no  order as to costs.