Holding

The scheme approved by the BIFR is binding, and any doubt about the inclusion of the late‑payment surcharge within the waived interest or damages must be clarified by the BIFR before the High Court can decide the matter.

Summary

The Bijli Cotton Mill, a unit of National Textile Corporation (NTC), ceased production in 1992 and its electricity supply was disconnected. The mill was placed under the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985, and a scheme was approved that waived interest and damages on electricity dues, allowing payment of only the principal. The electricity board later demanded a late‑payment surcharge in addition to the principal, which the mill paid but contested, arguing that the surcharge was covered by the waiver in the scheme. The Allahabad High Court held the surcharge payable, rejecting the mill’s claim and distinguishing it from the earlier Lord Krishna Mills case. The Supreme Court held that the approved scheme is binding and any ambiguity about whether the surcharge falls within the waived interest or damages must be clarified by the BIFR; consequently, it allowed the appeal, directed the parties to seek clarification from the BIFR, and remitted the matter to the High Court for expeditious disposal.

Issues considered

Whether the late‑payment surcharge is included within the interest and damages waived under clause 5.04 of the BIFR‑approved scheme.
Whether the High Court erred in refusing to follow the relief granted in the Lord Krishna Mills case.

Legislation cited

Sick Industrial Companies (Special Provisions) Act, 1985s. 18(8), s. 18(9)

Subjects

Sick Industrial Companies ActBIFR schemelate payment surchargeinterest waiverelectricity duescorporate restructuringscheme binding effectappellate jurisdiction

Judgment

}
BULi COTTON MILL (UNIT OF NATIONAL TEXTILE A
CORPORATION U.P. LIMITED)
V.
U.P. POWER CORPORATION LIMITED & ORS.

NOVEMBER 16, 2007 B
-~ [DR.ARIJITPASAYAT AND
LOKESHWAR SINGH PANTA, JJ.]

Sick Industrial Companies (special Provisions) Act, 1985: c
Sick Unit of National Textile Corporation-Electricity
disconnection-Liability to pay late payment surcharge-Under the
Scheme approved by BIFR, Electricity Board to writ offinterest and
damages--HELD: High Court failed to refer various letters and stands
..
,,
, urged before it-Matter remitted to High Court~Parties would move
D
BIFR to clarifj; whether delayed payment surcharge is included in
interest or damages in view ofconceded position that no interest was
levied-Order ofBIFR shall be placed before High Court which would
thereqfter decide the matter expeditiously.
E
The appellant-Cotton Mill was a unit of National Textile
,-
Corporation U.P. Ltd. Production in the Mill was stopped in 1992,
and the electricity supply to it was disconnected. The matter of
sickness of the Mill was referred to the Board for Industrial and
Financial Reconstruction under the Sick Industrial Companies F
(Special Provisions) Act, 1985. BIFR approved the Scheme, in para
5.03(v) and 5.04 whereof the Electricity Board was to writ off interest
and damages on electricity as regards the appellant-Mill and to
accept only the principal amount. A bill towards principal amount
for electricity consumption and a sum towards late payment G
surcharge was raised by the respondent-Corporation. According to
-' the appellant it paid the principal amount and took a stand that
demand for late payment surcharge was contrary to the scheme.
The High Court held against the Mill.
129 H
130 SUPREME COURT REPORTS [2007] 12 S.C.R. ~

A In the instant appeal filed by the Mills, it was contended for ?-·
the appellant that in the case of another Unit of the NTC, namely,
Lord Krishna Mills' case, similar relief was claimed and granted and,
there being no distinctive feature in the instant case, the High Court
was not justified in refusing the relief.
B
Allowing the appeal and remitting the matter to the High Court,
the Court '.
~

HELD: 1.1. There is no doubt about the binding effect of the
Scheme. The approved Scheme was circulated. High Court has not
c discussed as to why and in what manner Lord Krishna Mills' case
was distinguishable on facts. If there was any doubt about the true
effect of clauses 5.03 and 5.04 of the Scheme, the matter could have
bee~ highlighted before the BIFR and could have been clarified. The
High Court has also not referred to various letters and the stands
D taken and urged before it, particularly those mentioned in the
judgment. [Para 10 and 12] [132-G; 133-G; 134-A, E) ....

Mis L.ML. Ltd., Kanpur v. State of UP. and Ors., AIR (2001)
Allahabad 321, held inapplicable.

E 1.2. The BIFR shall be moved by the parties to clarify whether
del~yed payment surcharge is included in the 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.
Thl! effect of waiver in the case of Lord Krishna Mills and the
F relevance of documents referred to in the judgment shall be duly
considered. The High Court would decide the matter expeditiously ·''
after receipt of the order ofBIFR.
[Para 12 and 13) [134-G; 135-A, BJ
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5275 of
G 2007.

From the Judgment and Order dated 7.11.2006 of the High Court .,
of Judicature at Allahabad in Civil Misc. Writ Petition No. 56241 of2005.
G.E. Vahanvati, SG., Dr. K.P. Kylasanatha Pillay, Ayyoobu Khan,
H
,/
J BIJLICOTTON. MILL(UNITOFNATIONAL TEXTILE 131
CORPN.U.P.LTD.)v. U.P.POWERCORPN.LTD.[PASAYAT,J.]

"'"' M., Ch. Leela Sarveswar and Vijay Kumar for the Appellant. A
B.P. Singh Dhakray, AK. Bhattacharya, Ajit Kumar, Sunil Kumar,
D.B. Raj Vohra, Dharam Bir Raj Vohra, Subramonium Prasad, Vivek
Kohli and Tarun Mehra for the Respondents.
The Judgment of the Court was delivered by B

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 c
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:
D
..\ The appellant unit was involved in the manufacture of Cotton yarn.
"t
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, E
1985 (in short 'SICA'). The electricity connection of the mill was
disconnected. A bill dated 15.11.2003 for a sum ofRs.33,52,251.18
towards principal and a sum ofRs.54,50,326.07 towards late payment
surcharge (totalling to Rs.88,02,577.25) was raised.
F
4. Stand of the appellant was that the demand of rate 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 G
_, 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 H
132 SUPREME COURT REPORTS [2007] 12 S.C.R.

A Mills, another unit ofNTC, the Corporation itself had taken a decision ,. ._
to write off late payment surcharge. That was 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
B High Court relied on earlier decision in Mis L.ML. 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
C apphcable. It held that there was provision for levy of late payment
surcharge and so the amount wa5 payable. It is not in the nature of penalty
or compensation. This according to the High Court was the ratio in Ml
s L.ML. 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
D 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
E Krishna Mills case relief as has been claimed by the appellant was
granted. The decision in Mis L.ML. case (supra) has no application
becau~e the issue involved in that case related to surcharge on energy
charg~s. There was no distinctive feature so far as Lord Krishna Mills
,.
case is concerned and, therefore, the High Court was not justified in
F 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.
G 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: 1-
"5.03 - State Government (Uttar Pradesh)
H (i) To declare NTCUPL and its mills as Relief Undertaking for
/
j BIJLICOTTON.MILL(UNITOFNATIONAL TEXTILE 133
CORPN. U.P.LTD.)v. U.P.POWERCORPN.LTD. [PASAYAT,J.]

the purpose of granting reliefs concessions including sales tax, A
holiday defennent 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 B
of surplus machinery scrap subject to the master plan.
(rii) To grant necessary clearances approvals pertaining to closure
ofunviable mills activity and to extend necessary support in
this regard. c
(iv) To grant pennission 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. D
(v) To waive the interest and damages on the electricity, water
a.'ld 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 E
sale of scrap and other material rendered surplus.
"5.04 - Kanpur Electricity Board/State Electricity Board/State
Government Power.
To writ off interest and damages in respect of arrears current dues F
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."
G
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 Mis L.ML. 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 H
134 SUPREME COURT REPORTS [2007] 12 S.C.R.

A 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
B 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
c 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
D' 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
E 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
F ' 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 ofUttar Pradesh addressed to
BIFR. In the circumstances, the matter is remitted to the High Court with
the following directions:
G
(I) The BIFR shall be moved by the parties to clarify whether
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
H
} BIJLICOTTON.MILL(UNITOFNATIONAL TEXTILE 135
CORPN. U.P.LTD.)v. U.P.POWERCORPN.LTD. [PASAYAT,J.]
necessary orders within two months thereafter. A
(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. B
4• 13. The High Court is requested to consider the matter within four
months of the receipt of the order ofBIFR.
14. I.A. Nos.3 & 4 of2006 have been filed by Anand Vrindaban
(a partnership firm) for impleadment and directions. No order is necessary c
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.
.·~
D
RP . Appeal allowed.

•