Posted in

Requirements for applicability of punishment to civil suits U/S 22(1) of Sick Industrial Companies Act: SC explains

The Supreme Court explained the requirements for the applicability of the bar to civil proceedings under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

In that context, the Bank of Justice JB Pardiwala And Judge Sandeep Mehta noticed:

I. First, an investigation under section 16 of the 1985 Act must be pending; or a scheme referred to in section 17 of the 1985 Act must be in preparation or consideration, or an approved scheme must be in progress; or there must be an action pending under section 25 of the 1985 Act – in relation to the company against which legal proceedings sought to be stayed.

II. Second, the procedure must be one of six types ((I. Dissolution of the industrial company; II. Execution, coercion and the like against property of the industrial company; III. Appointment of a receiver in respect of one of the properties of the industrial company; IV. Indictment for recovery of money from the industrial company V. Lawsuit for enforcement of a security against the industrial company VI.or of a similar nature, i.e. ejusdem generis for the six types of proceedings mentioned.

III. Third, the procedure must have the effect of endangering the assets of the sick company and disrupting the formulation, consideration, completion or implementation of the scheme.

Senior Advisor Malvika Trivedi appeared for appellants, while Counsel Sundeep Pothina appeared before the respondent.

M/s Coromandal Sacks Private Limited, the plaintiff, manufactured HDPE bags, and Fertilizer Corporation of India Ltd. (FCIL), the defendant, had been ordering bags from them since 1986-87. Disputes arose over prices, fines and failure to accept bags, leading to a recovery action by the plaintiff. FCIL claimed immunity as a sick company under the Sick Industrial Companies Act.

Both parties appealed to the Supreme Court, with the plaintiff seeking higher interest rates under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993. The Supreme Court partly allowed both appeals and allowed deduction by FCIL, but ruled in favor of the Supreme Court. plaintiff on other issues. The High Court awarded the compound interest of 24% in favor of the plaintiff.

FCIL’s counsel submitted that the 1985 Act supersedes the 1993 Act, citing public interest. Counsel for the plaintiff opposed the applicability of section 22 of the 1985 Act to their case as FCIL did not admit fault and did not include the plaintiff’s liability in their proceedings under the 1985 Act.

When hearing the parties, the Supreme Court noted that: In the present case, the decision in favor of the original plaintiff was not part of the rehabilitation program approved by the BIFR. If that had been the case, it is nothing but clear that the scheme would have proposed to settle the original claimant’s contributions at a reduced value, as a similar approach was taken in the scheme to settle the debts of all other creditors . In that scenario, the original claimant would have had no choice but to accept the reduced value and pay his dues”.

It was held that the provisions of the 1993 Act need to be harmonized to give effect to the real purpose of the 1985 Act.

She then came to the following conclusions:

I. The suit brought before the court by the original plaintiff was not affected by the embargo referred to in section 22(1) of the 1985 Act. Thus, it cannot be said that the decision passed by the court in favor of the original claimant was pronounced and amended by the High Court, not Coram doesn’t judge.

II. The High Court did not err in awarding the original claimant interest at the rate of 24% on his contribution, in accordance with the provisions of the 1993 Act. However, for the purpose of calculating the interest, the period during which the defendant company had a sick company was to be disregarded in accordance with the 1985 law.

As a result, the contested judgment was affirmed, subject to the modification of the period for which interest could be awarded, which would be calculated at 24% per annum with monthly increase in interest.


Appellants: Senior Advisor Malvika Trivedi

Respondent: Counsel Sundeep Pothina

Title of Cause: Fertilizer Corporation of India Limited & Ors. vs. M/s Coromandal Sacks Pvt Ltd.

Click here to read/download the judgment