It is always interesting when two important statutory
rights are tested for their prominence over each other. In a recent case that I
dealt with I had an opportunity to witness one such instance. In this case the
dispute was between the petitioner and respondent who claimed their rights
under The Sick Industrial Companies (Special Provisions) Act, 1985 and
Employees Provident Funds and Miscellaneous Provisions Act, 1952. It is an
irrefutable fact that both the parties are conferred with substantial rights
which cannot be brushed aside lightly.
In this case the dispute was over the recovery of
statutory dues that are to be paid by a company, which is declared to be sick,
to its workmen along with consequential damages and interest for delay in its
payment. The primary question of law that was up for the consideration of the
Court in the case was upon the overriding effect of Sick Industrial Companies
Act (SICA) over other statutes. This especially has to be seen in the context
of the case wherein the dispute involves the Employees Provident Funds Act (EPC
Act). The relevant provision, Section 22 of SICA, which acts as a non-obstante
clause is reproduced below.
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 section
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 32 [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.
From the above provision it
clear that the intention of the legislature is to provide precedence to the
revival of a sick industrial undertaking, for which necessary steps already
stands initiated under the relevant provision of the SICA. The underlying
reasoning for this protection that is offered for sick companies is to provide
a veritable opportunity for their commercial revival. This fact, as
contemplated by the legislature while enacting SICA, was duly countenanced by
the Supreme Court in the case of Maharashtra
Tubes Ltd. Vs. State Industrial and Investment Corporation of Maharashtra Ltd.
(1993) 2 SCC 144. There it was held
as follows:
The purpose and object of this provision is clearly to await the outcome
of the reference made to BIFR for the revival and rehabilitation of the sick
industrial company. The words or the like' which follow the words 'execution'
and 'distress are clearly intended to convey that the properties of the sick
industrial company shall not be made the subject-matter of coercive action of
similar quality and characteristic till the BIFR finally disposes of the
reference made under 15 of the said lent. The legislature has advisedly used an
omnibus expression' the like' as it could not have conceived of all possible
coercive measures that may be taken against a sick undertaking.
This
proposition abovementioned has been followed in many subsequent decisions.
However, it is of importance to note that all the decisions, albeit upholding
the primacy of SICA, were declared to be so in specific context of certain
legislations which were subject matter of challenge in those cases. Few
important decisions to this effect are as follows:
a. Jay Engg.
Works Ltd. Vs. Industry Facilitation Council (2006) 8 SCC 677: In this case the Supreme Court upheld the primacy
of SICA against the proceedings initiated for delayed payments under Small
Scale and Ancillary Industrial Undertakings act, 1993, upon a sick company. It was specifically held
that any coercive measures against a sick company cannot be initiated, except
with the prior consent of the board.
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.
b. Raheja
Universal Limited Vs. NRC Limited & Ors (2012) 4 SCC 148: As mentioned above in this note, the Apex Court
while observing specifically that cases discussed therein (Shree Vallabh Glass Works Ltd. (1990)2
SCC 440; Jay Engg. Works Ltd. Supra)
the facts of the cases are distinct the conclusions thereof are to read in
reference to those facts. However, it went on to clarify that there is no
conflict as far as the protection that is to be granted under Section 22 of the
SICA. It is worthy mention here that the proposition was upheld in the context
of Transfer of Property Act.
55. Despite these judgments and with an intention to clarify the law, we
would state that the matters which are connected with the sanctioning and
implementation of the scheme right from the date on which it is presented or
the date from which the scheme is made effective, whichever is earlier, would
be the matters which squarely fall within the ambit and scope of Section 22 of
the Act of 1989 subject to their satisfying the ingredients stated under that
provision. This would include the proceedings before the civil court, revenue
authorities and/or any other competent forum in the form of execution or
distress in relation to recovery of amount by sale or otherwise of the assets
of the sick industrial company. It is difficult for us to hold that merely
because a demand by a creditor had not been made a part of the scheme, pre or
post-sanctioning of the same for that reason alone, it would fall outside the
ambit of protection of Section 22 of the Act of 1985.
56. The BIFR, being a specialised body which is required to act as per
the legislative intent indicated above, has jurisdiction to examine the matter
and grant or refuse its consent for institution, continuation and recovery of
dues payable to a particular creditor, whatever the nature of such dues may be.
If such an interpretation is not given, the very purpose of the Act of 1985 may
stand defeated. For instance, a scheme is sanctioned by the BIFR and is at the
stage of successful completion, where demand from the Revenue with regard to
the sick industrial company is allowed, this can render the scheme ineffective
and impossible to be executed, if permitted to be enforced against such company
without approval/consent of the specialised body like the BIFR.
c. Ghanshyam
Sarda Vs. Shiv Shankar Trading Company & Ors. (2015) 1 SCC 298: A more recent decision on this subject matter. In
this case while discussing the cases cited hereinabove extensively the Supreme
Court declared that the provisions of SICA has to necessarily be given effect
to, for the purposes of revival of a sick company. Moreover, the non-obstante
clause provided under Section 22 of SICA necessarily extinguishes the
jurisdiction to any other forum provided thereunder. It was also observed that
during the entirety of implementation of scheme SICA grants protection to the
company and leaves it to the discretion of BIFR whether to permit filing and
maintaining of suit or other proceedings.
In the
context of recovery of provident fund and other allied dues from a company,
which is admittedly a sick undertaking was decided in the case of S.L.M. Maneklal Industries Ltd. Vs. Regional
Provident Fund Commissioner 1997 (2)
LLJ 283. The High Court while relying upon the case of Chamundi Mopeds v. Church of South India Trust 1991 (75) Comp. Case 440, to interpret the
term "or the like" with reference to the words preceding namely,
"for execution, distress" in Section 22 of SICA, held as follows
In the light of the steps taken by the Board under Sections 16 and 17 of
the Act, no proceedings for execution, distress or the like proceedings against
any of the properties of the petitioner-Company shall lie or to be proceeded
further including the proceedings under the Act of 1952 except with the consent
of the Board. The provisions are also in consonance with the principles of
equity, inasmuch as that the Board has been given discretion to accord its
approval for proceeding against the company by creditors, for the recovery of
their dues, outstanding over-dues or arrears. Since the enquiry under Section
16 is ordered by the Board, the various proceedings set out under sub-section
(1) of Section 22 are deemed to have been suspended under the provision does
not extinguish the recovery but it only postpones, sub-section (5) of Section
22 provides for exclusion of the period during which the remedy is suspended
while computing the period of limitation for recovering the dues.
In view of the aforesaid, the impugned notice dated July 28, 1995 for
recovery of the arrears of Provident Fund and allied dues is ex facie illegal
and is accordingly quashed and set aside. It is, however, open to the
Respondent to approach the Board for appropriate directions under the
provisions of the Act of 1985. @Para 5 & 6
As
mentioned in the previous paragraphs, in specific context of recovery of
Provident Fund (PF) dues, the interpretation offered for the overriding effect
of SICA from the likes of Shree Chamundi
Moped (Supra) case has not been followed in many subsequent cases. In all
such cases it was held that holding the protection of SICA cannot be granted
for provident fund dues, however upon different reasoning. Since mentioning all
such decisions here will unnecessarily make this post lengthy only a few of
those decisions are mentioned in the foot note hereunder.[1]
At this
juncture an important question, as to the protection of SICA in the context of
PF dues, arises. One of factor that is of fundamental importance, which has
been ignored in the above mentioned case laws, is that the coercive action
contemplated under the EPF Act such as executions, distress or similar process,
for the recovery of dues remains the same. Such actions have specifically been
deprecated by the Supreme Court in the above mentioned case laws. Technically,
while the law as held by the Supreme Court in this background is holding the
ground all the above mentioned case law does not hold good, for its reasoning
goes against the ratio laid down by
the Apex Court.
In the
same subject matter a decision rendered by a division bench of Karnataka High
Court[2],
specific to the context of recovery of PF dues and accumulated interest
therein, attains some significance. It was held that the punitive measure as
initiated is liable to be quashed, as it was done without the express
permission of the board. Extract of the relevant paragraph has been provided
below.
It is not possible to accept the contention of the learned counsel for
the appellants that the orders at Annexures-"E and F" are not
punitive in nature as the said coders clearly commands that the writ petitioner
should pay interest and penal damages as per the demand at Annexures "E
and F" failing which steps would be taken for recovery of the amounts
without further nonce under Sections 8B to 8G of EPF Act Section 8B to 80 of
the EPF Act deals with recovery of dues towards PF Contribution including power
to sell the property belonging to the company and the impugned orders at
Annexures-"E and F" are issued stating that without further notice,
such coercive steps would be taken. The orders do not spell out that the orders
are only for determination of interest and penal damages and that it will not
be executed without the consent of the BIFR. Therefore, the contention of the
learned counsel appearing for the appellants that the orders at
Annexures-"E and F" are not punitive in nature cannot be accepted. As
rightly held by the learned Single Judge when once it is held that
Annexures-"E and F" are hold to be punitive in nature, the provisions
of Section 22(1) of the SICA Act gets attracted and as admittedly no consent is
obtained the orders cannot be sustained and are liable to be quashed.
Case laws abound the legislations
pitted against each other, prima facie,
though may seem to be placed upon an equal pedestal, one cannot deny the
obvious bias that exists towards the workmen and their cause. At any rate the
abuse of Sick Industrial Companies Act that is prevalent leaves much to be
desired. Unfortunately companies without sufficient bona fides take the
protective umbrella of the legislation with sole intention to avoid temporarily
their statutory duties. Therefore it is imperative that the workmen are allowed
the protection against such an abuse. To that extent large number of case laws
affirms this point of view and rightly so.
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