Holding

Section 22(1) of the 1985 Act does not bar a simple recovery suit that does not threaten the sick company's assets or scheme, so the decree is not coram non‑judice, and the High Court's 24% compound interest award is valid but the interest period must exclude the time the company was under BIFR protection.

Summary

M/s Coromandal Sacks supplied HDPE bags to Fertilizer Corporation of India Ltd (FCIL) and sued for recovery of unpaid amounts, alleging price differences, liquidated damages, penalties and loss of unsold bags. FCIL contended it was a sick industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and invoked Section 22(1) to claim the suit should be stayed, arguing the decree would be coram non‑judice. The trial court rejected the sick‑company defence, decreed the suit and awarded 12% simple interest; the High Court modified the interest to 24% compound under the Interest on Delayed Payments Act, 1993. The Supreme Court examined whether Section 22(1) applies to a simple recovery suit and whether the interest award was proper. It held that the suit did not threaten the assets of the sick company nor interfere with the rehabilitation scheme, so Section 22(1) did not bar the proceeding and the decree is not void; it also upheld the 24% interest but excluded the period during which FCIL was under BIFR protection from interest calculation. The appeals were disposed of, affirming the High Court order with the modified interest period.

Issues considered

The applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 to a civil suit for recovery of money where the debt is not admitted by the sick company, and whether a decree in such a suit would be coram non‑judice.
The correctness of the High Court's award of 24% compound interest on the decretal amount under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, and the period for which interest should be calculated.

Legislation cited

Subjects

Suspension of legal proceedingsSuit for recovery of moneySick industrial companyCoram non-judiceCompound interestPrincipal decretal amountMischief ruleRevival of sick companyRehabilitative schemeRecovery of debtsEjusdem generisInterest on Delayed PaymentsInterpretation of statutesPrinciple of harmonious constructionConflicting provisions within a statuteBeneficial provisionsBeneficial enactmentsInterestContinuing wrongWilful withholding of the paymentContinuous injury

Judgment

[2024] 5 S.C.R. 321 : 2024 INSC 348

Fertilizer Corporation of India Limited & Ors.
v.
M/s Coromandal Sacks Private Limited
(Civil Appeal Nos. 5366-5367 of 2024)
26 April 2024
[J.B. Pardiwala* and Sandeep Mehta, JJ.]

Issue for Consideration
Suspension of legal proceedings as envisaged u/s. 22(1) of the
Sick Industrial Companies (Special Provisions) Act, 1985, if would
extend to a suit for recovery of money even if the debt sought to
be proved in the plaint has not been admitted by the sick industrial
company and if so, whether the decree in favour of the original
plaintiff could be said to be coram non-judice; and the High Court,
if erred in granting 24% compound interest on the principal decretal
amount in favour of the original plaintiff.

Headnotes
Sick Industrial Companies (Special Provisions) Act, 1985 –
s. 22(1) – Suspension of legal proceedings – Suit for the
recovery of money instituted by the original plaintiff-small-
scale industrial undertaking against the defendant company
during the pendency of proceedings in respect of the defendant
company before the BIFR, though later the defendant company
ceased to be a sick industrial company – Trial court holding
that the defendant company failed to prove that it was a sick
industry, decreed the suit granting 12% interest pa on the
amount – In appeal, the High Court granted 24% compound
interest on the amount due – Suspension of legal proceedings
u/s. 22(1), if would extend to a suit for recovery of money even
if the debt sought to be proved in the plaint not admitted by
the sick industrial company and if so, the decree in favour of
the original plaintiff if could be said to be coram non-judice:
Held: Suit instituted by the original plaintiff not hit by the embargo
envisaged u/s. 22(1) – Thus, the decree awarded in favour of the
original plaintiff by the trial court and modified by the High Court,
cannot be said to be coram nonjudice – Suit for recovery was not
of a nature which could have proved to be a threat to the properties

* Author
322 [2024] 5 S.C.R.

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of the defendant sick company or would have adversely impacted
the scheme of revival – Suit was a simple suit for recovery of
money towards the dues arising under the alleged illegal deductions
under the contract – This could not be said to be a proceeding
in the nature of execution, distress or the like and thus, not
hit by s. 22(1) – Furthermore, the legislature did not intend to
include even the proceedings for the adjudication of the liabilities
not admitted by a sick company within the protective ambit of s.
22(1) – Such an adjudicatory process only determines the liability
of the defendant towards the plaintiff, and does not threaten the
assets of the sick company or interfere with the formulation of the
scheme unless execution proceedings are initiated pursuant to
the completion of such adjudicatory process. [Paras 98, 99, 142]
Sick Industrial Companies (Special Provisions) Act, 1985 – s.
22(1) – Application of mischief rule:
Held: Applying the mischief rule to s. 22(1), it is found there
was a vacuum in the legal framework to deal with sick industrial
companies and provide ameliorative steps for their revival – 1985
Act was enacted to fill in this vacuum – Mischief which was sought
to be dealt with by the enactment of s. 22 was any such legal
proceeding which could impact the assets of the sick company
and in-turn negatively impact the formulation and implementation of
the rehabilitative scheme – This provision was inserted to provide
a remedy by ensuring that the multiple recourses available under
the law for recovery of debts, etc. were suspended for the period
during which the sick company was under the ameliorative shelter
of the BIFR – It was to shield the formulation and implementation
of the revival scheme from any impediments thereby maximising
the chances of revival of sick company, the ultimate object sought
to be achieved by the Act. [Para 101]
Sick Industrial Companies (Special Provisions) Act, 1985
– ss. 22(1), 16, 17 and 25 – Benefit of suspension of legal
proceedings in respect of sick industrial company u/s. 22(1)
– Conditions to be fulfilled for the applicability of s. 22(1):
Held: Firstly an inquiry u/s. 16 must be pending; or any scheme
referred to in s. 17 must be under preparation or consideration or
a sanctioned scheme must be under implementation; or an appeal
u/s. 25 must be pending-in relation the company against whom the
legal proceedings sought to be suspended have been initiated –
Secondly, the the proceedings must be one from amongst the six
[2024] 5 S.C.R. 323

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

types as described, or of a similar nature, i.e. ejusdem generis to
the said six types of proceedings – Thirdly, the proceedings must
have the effect of threatening the assets of the sick company
and interfering with the formulation, consideration, finalisation or
implementation of the scheme. [Paras 63-65, 67, 87, 97]
Interest on Delayed Payments to Small Scale and Ancillary
Industrial Undertakings Act, 1993 – Compound interest
on the principal decretal amount – Claim of – High Court
granted 24%pa compound interest on the principal decretal
amount in favour of the original plaintiff-small-scale industrial
undertaking from the original defendants, from the date the
amounts were determined to have become due till the date
of their realisation by the original plaintiff, setting aside the
decree of the trial court which granted 12% simple interest
in favour the original plaintiff – Correctness:
Held: High Court committed no error in awarding 24% interest
to the original plaintiff on its dues as per the provisions of the
1993 Act – However, the period during which the defendant
company was a sick company as per the 1985 Act is excluded
for the purposes of calculation of interest – For the period during
which the defendant company was sick and before the BIFR, it
cannot be said that the withholding of the payment of the dues
of the original plaintiff was wilful and intentional – Liability of the
original defendants was disputed and was finally adjudicated
only by way of the impugned judgment, much after the BIFR
proceedings had come to an end; and even if the liability of the
original defendants was not disputed, or was even acknowledged
before the BIFR, recovery of the same could not have been done
without the permission of the BIFR in view of the suspension of
recovery proceedings by s. 22(1) of the 1985 Act – Thus, the
period commencing from the date when original defendant was
declared to be a sick company under the 1985 Act going up to
the date when it was discharged by the BIFR and declared to be
no longer a sick industrial company is excluded from the purview
of the applicability of the interest provision under the 1993 Act –
Interest would not be calculated for the aforesaid period – Thus,
the impugned judgment and order of the High Court is upheld
subject to the modification of the period for which interest may be
granted – Interest would be calculated at 24% p.a. with monthly
compounding. [Paras 140-143]
324 [2024] 5 S.C.R.

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Interpretation of Statutes – Principle of harmonious
construction – Interplay between the Sick Industrial
Companies (Special Provisions) Act, 1985 and the Interest
on Delayed Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993:

Held: Doctrine of harmonious construction is based on the
principle that the legislature would not lightly take away from one
hand what it had given with the other – Doctrine provides, that
as far as possible, two seemingly conflicting provisions within a
statute, or the seemingly conflicting provisions of one statute vis
a vis another, should be construed in a manner so as to iron out
any conflict – Beneficial provisions of the 1985 Act, was enacted
to maximise the chances of revival of sick industrial companies,
while the 1993 Act, was enacted with the intention to ensure
that small-scale industries are paid their dues in time – This
object of the 1993 Act was sought to be achieved by providing
a high interest rate, with monthly compounding, so as to act
as a deterrent for the buyers – Interest of justice requires that
both the 1985 Act and the 1993 Act, which are in the nature of
beneficial enactments, should be read harmoniously so as to
impart a meaningful construction to the language of each of the
enactments. [Paras 119, 125, 136]

Interest – Grant of interest – Concept of :

Held: When interest is awarded by the Court, normal feeling is
that it is so awarded by way of penalty or punishment, however,
interest in all cases is not granted by way of penalty or punishment
– Interest on the delayed payment of the claim amount accrues
due to the continuing wrong committed by the wilful withholding
of the payment towards the claim, resulting in a continuous injury
until such payment is made, or in other words, until the claim is
realised. [Paras 106, 107]

Sick Industrial Companies (Special Provisions) Act, 1985 –
Legislative scheme of the Act – Object of enactment – Stated.
[Paras 48-52, 85]

Sick Industrial Companies (Special Provisions) Act, 1985 – s.
3(1)(o) – Industrial sickness – Concept of. [Paras 48-50]
Sick Industrial Companies (Special Provisions) Act, 1985 – s.
22(1) – Interpretation of – Explained. [Paras 75-84]
[2024] 5 S.C.R. 325

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

Interest on Delayed Payments to Small Scale and Ancillary
Industrial Undertakings Act, 1993 – Object and scope of. [Paras
111, 112, 113, 114]

Case Law Cited
Modi Rubber Ltd. v. Continental Carbon India Ltd.
[2023] 3 SCR 1026 : 2023 SCC OnLine SC 296 –
distinguished.
Jay Engineering Works Ltd. v. Industry Facilitation
Council [2006] Supp. 6 SCR 189 : (2006) 8 SCC
677; Tata Motors Ltd. v. Pharmaceutical Products of
India Ltd. [2008] 9 SCR 267 : (2008) 7 SCC 619;
Bhoruka Textiles Ltd. v. Kashmiri Rice Industries
[2009] 9 SCR 463 : (2009) 7 SCC 521; Sunil Mittal
Properties of Shree Shyam Packaging Industries
v. M/s LML Ltd. (2011) 123 DRJ 249; Saketh India
Limited v. W. Diamond India Ltd., 2010 SCC OnLine
Del 1786; Shree Chamundi Mopeds Ltd. v. Church of
South India Trust Association CSI CINOD Secretariat,
Madras [1992] 2 SCR 999 : (1992) 3 SCC 1; Gram
Panchayat and Another v. Shree Vallabh Glass Works
Limited and Others [1990] 1 SCR 966 : (1990) 2 SCC
440; Maharashtra Tubes Ltd. v. State Industrial &
Investment Corpn. of Maharashtra Ltd. [1993] 1 SCR
340 : (1993) 2 SCC 144; Deputy Commercial Tax
Officer and Others v. Corromandal Pharmaceuticals
and Others [1997] 2 SCR 1026 : (1997) 10 SCC
649; Raheja Universal Limited v. NRC Limited and
Others [2012] 3 SCR 388 : (2012) 4 SCC 148; Goyal
MG Gases Pvt. Ltd. v. SBQ Steels Ltd. (2016) SCC
OnLine Del 5100; M/s Haryana Steel & Alloys Ltd. v.
M/s Transport Corporation of India (2012) SCC OnLine
Del 2140; Kusum Products Ltd. v. Hitkari Industries
Ltd. (2014) SCC OnLine Del 4926; FMI Investment
Pvt. Ltd. v. Montari Industries Ltd. and Another (2012)
SCC OnLine Del 5354 – referred to.

Books and Periodicals Cited
Interpretation of statutes by G.P. Singh; Handbook of
Statistics of Indian Economy published by the Reserve
Bank of India – referred to.
326 [2024] 5 S.C.R.

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List of Acts
Sick Industrial Companies (Special Provisions) Act, 1985; Interest
on Delayed Payments to Small Scale and Ancillary Industrial
Undertakings Act, 1993; Companies Act, 1956; Industrial
Development and Regulation Act, 1951; Sick Textile Undertaking
(Nationalization) Act, 1974; Aluminium Corporation of India Ltd.
(Acquisition and Transfer of Aluminium Undertaking) Act, 1984;
Futwah Islampur Lightway Line (Nationalisation) Act, 1985;
Industrial Reconstruction Bank of India Act, 1984; Sick Industrial
Companies (Special Provisions) Repeal Act, 2003; Sick Industrial
Companies (Amendment) Act, 1993; Bombay Village Panchayat
Act, 1959; State Financial Corporations Act, 1951; Sick Industrial
Companies (Amendment) Act, 1994; Micro Small and Medium
Enterprises Development Act, 2006; Constitution of India.

List of Keywords
Suspension of legal proceedings; Suit for recovery of money;
Sick industrial company; Coram non-judice; Compound interest;
Principal decretal amount; Mischief rule; Revival of sick company;
Rehabilitative scheme; Recovery of debts; Ejusdem generis;
Interest on Delayed Payments; Scaled-down value; Interpretation of
statutes; Principle of harmonious construction; Conflicting provisions
within a statute; Beneficial provisions; Beneficial enactments;
Interest; Continuing wrong; Wilful withholding of the payment;
Continuous injury; Industrial sickness.

Case Arising From

CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 5366-5367 of
2024
From the Judgment and Order dated 10.06.2022 of the High Court
for the State of Telangana at Hyderabad in AS Nos.808 of 2002 and
913 of 2004

Appearances for Parties

Ms. Malvika Trivedi, Sr. Adv., Chirag Joshi, Shailendra Slaria,
Ghanshyam Joshi, Advs. for the Appellants.
Sundeep Pothina, Vaibhav Dwivedi, Ms. Ankita Chaudhary, Ms.
Archana Pathak Dave, Advs. for the Respondent.
[2024] 5 S.C.R. 327

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

Judgment / Order of the Supreme Court

Judgment
J. B. Pardiwala, J.
For the convenience of exposition, this judgment is divided into the
following parts: -
INDEX*

A. FACTUAL MATRIX ........................................................... 2

i. Case of the original plaintiff before the trial court.. 4

ii. Case of the original defendants before the trial
court ........................................................................... 6

iii. Appeals before the High Court ................................. 9

B. SUBMISSIONS ON BEHALF OF THE APPELLANTS/
ORIGINAL DEFENDANTS ............................................... 10

C. SUBMISSIONS ON BEHALF OF THE RESPONDENT/
ORIGINAL PLAINTIFF ...................................................... 15

D. ANALYSIS ........................................................................ 19

i. Proceedings in respect of FCIL before the BIFR ..... 19

ii. Issues for Determination .......................................... 21

iii. Overview of Industrial Sickness and the Legislative
Scheme of the 1985 Act ............................................. 22

iv. Issue No. 1: Whether the suspension of legal
proceedings as envisaged under Section 22(1)
of the 1985 Act would extend to a civil suit for
recovery of money even if the debt sought to be
proved in the plaint has not been admitted by the
sick industrial company? If so, whether the decree
in favour of the original plaintiff could be said to
be coram non-judice? .............................................. 29

* Ed. Note: Pagination as per the original Judgment.
328 [2024] 5 S.C.R.

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v. Issue No. 2: Whether the High Court was correct
in granting 24% Compound Interest on the
Principal Decretal Amount in favour of the original
Plaintiff? ................................................................... 68

a. Concept of Interest ............................................. 68

E. CONCLUSION .................................................................. 90

A. FACTUAL MATRIX
1. Since the issues raised in both the captioned appeals are the same;
the parties are also the same and the challenge is also to the self-
same impugned common judgment and order passed by the High
Court, those were taken up for hearing analogously and are being
disposed of by this common judgment and order.
2. The appellants herein are the original defendants and the respondent
herein is the original plaintiff.
3. The present appeals arise from the impugned common judgment and
order dated 10.06.2022 (“impugned judgment”) passed by the High
Court of Telangana at Hyderabad partly allowing the Appeal Suit No.
808 of 2002 and Appeal Suit No. 913 of 2004 respectively preferred
by the original defendants and the original plaintiff respectively against
the judgment and decree dated 19.09.2001 passed by the Senior
Civil Judge, Peddapalli in O.S. No. 37 of 1996 decreeing the suit
partly in favour of the original plaintiff.
4. M/s Coromandal Sacks Private Limited, that is, the original plaintiff,
is a company registered under the Companies Act, 1956 established
with the assistance of the Andhra Pradesh Industrial Development
Corporation Limited (“APIDC”) and is engaged in the manufacturing
of High Density Poly Ethylene (“HDPE”) bags.
5. Fertilizer Corporation of India Ltd. (“FCIL”), that is, the defendant
company, is a Public Sector Undertaking (“PSU”) of the Government of
India established for the manufacturing of fertilisers and are operating
under the administrative control of the Ministry of Chemicals and
Fertilizers, Government of India.
[2024] 5 S.C.R. 329

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

6. The original defendants required HDPE bags for the purpose of
packaging and supply of fertiliser to their customers. They had been
placing orders for the same with the original plaintiff since 1986-87
onwards. The terms and conditions including the technical specifications
of the bags and terms of payment were specified in the notices inviting
tender (“NIT”) issued from time to time and the purchase orders
issued in pursuance thereof. As per the terms of the NIT, the original
defendants were required to make the entire payment within 20 days
of the receipt of the bags and approval of the same. The terms of the
purchase orders also entitled the original defendants to deduct up to
a maximum of 5% of the contract price towards liquidated damages
upon delay in supply of bags by the original plaintiff.
i. Case of the original plaintiff before the trial court
7. The case of the original plaintiff before the trial court was that the
original defendants placed with it certain purchase orders for the
supply of the HDPE bags, which were manufactured by it as per the
specifications and duly supplied periodically. The purchase orders
were amended from time to time to account for the increase in the
number of bags which were required by the original defendants.
It was the case of the original plaintiff that in pursuance of the
communications exchanged with the original defendants, it supplied
42,000 bags over and above the quantity mentioned in the purchase
orders to meet with the urgent requirements of the original defendants,
on the understanding that a subsequent purchase order would be
issued to account for the extra supply.
8. The grievance of the original plaintiff was that when a formal purchase
order was subsequently issued by the original defendants to account
for the extra bags supplied by the original plaintiff, the price per
bag mentioned in the said order fell short of the price agreed upon
between the parties. The original plaintiff was also aggrieved by the
deductions made by the original defendants towards the liquidated
damages for the alleged delay in supply of the bags and the penalty
imposed towards the supply of the alleged poor quality of the bags.
The original plaintiff also claimed to have suffered losses due to the
refusal of the original defendants to accept 25,000 bags after placing
the order, which were printed as per the specifications prescribed
by the original defendants and had to be sold as scrap due to non-
acceptance by the original defendants.
330 [2024] 5 S.C.R.

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9. With a view to recover the aforesaid losses, the original plaintiff
instituted the civil suit for the recovery of Rs 8,27,100.74/- along
with Rs 10,31,803.14/- towards interest up to the date of institution
of the suit. A detailed break-up of the claim of the original plaintiff
before the trial court is as follows:

S. No. Particulars Amount (Rs.)
1. Towards price difference for 33,000 bags, 49,500
i.e., from Rs. 8.75/bag to Rs. 10.25/bag
2. Towards price difference for 9,000 bags, 6,210
i.e., from Rs. 8.75/bag to Rs. 9.44/bag
Total Rs. 55,710.00
(Towards price difference for 42000 bags)
3. Towards Liquidated Damages deducted 1,63,470.75
by the defendants
4. Towards deduction against penalties 4,89,919.99
5. Towards loss incurred on 25,000 Bags 1,18,000.00
printed which was sold as waste @ 50%
price on account of not taking delivery.
Principal Grand Total 8,27,100.74
6. Towards Interest on Rs. 55,710 from 38,609.32
01.01.1994 to 21.11.1996 at the rate of
24%
7. Towards Interest on Rs. 1,63,470.75 from 1,13,298
01.01.1994 to 21.11.1996
8. Towards Interest on delayed payment 3,45,467
up to 15.07.1994 as per the Debit Note
dated 15.07.1994
9. Towards interest on Rs. 3,45,467 from 1,94,900.18
16.07.1994 to 21.11.1996
10. Towards interest on Rs. 4,89,919.99 from 3,39,534.69
01.01.1994 to 21.11.1996
Total Interest 10,31,803.14
Grand Total 18,58,903.88
[2024] 5 S.C.R. 331

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

ii. Case of the original defendants before the trial court
10. The original defendants filed their written statement before the trial
court stating that there was no discrepancy in the purchase order
issued subsequent to the supply of the extra bags and that the
imposition of liquidated damages was justified as per the terms
of the NIT and the purchase orders. It was also stated that the
deductions imposed as penalty for the supply of poor quality of
the bags was also justified and interest @ 24% was not liable to
be imposed.
11. The original defendants further stated before the trial court that as
they had been declared to be a sick company under Section 3(1)
(o) of the Sick Industrial Companies (Special Provisions) Act, 1985
(“the 1985 Act”), the suit for recovery was not maintainable as per
Section 22(1) of the 1985 Act and thus was liable to be dismissed.
12. The trial court, having regard to the specific pleadings of the parties
proceeded to frame 10 issues as tabulated hereinbelow.

S. Issue Decision of the trial
No. court
1. Whether the plaintiff had supplied Decided in favour of the
42,000 bags (33,000 + 9,000) on plaintiff
the advice and urgency showed by
the defendants on his own?
2. Whether the defendants after Decided in favour of the
taking and consuming the bags plaintiff – Rs 55,710/-
even without placing order can with interest @ 12%
deny the agreed price for the p.a. from 01.01.1994 till
42,000 bags? realisation
3. Whether the defendants had any Partly decided in favour
right to deduct Rs. 1,63,471/- as of the defendants
Liquidated Damages?
4. Whether the defendants were Decided in favour of the
entitled to deduct Rs. 4,89,919.99 defendants
as penalty. If so, whether it was
in accordance with the terms and
conditions of order/tender?
332 [2024] 5 S.C.R.

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5. Whether the plaintiff was entitled Partly decided in favour
to interest for the delayed payment of the plaintiff – Interest
as per law? rate of 12% granted on
the payments held as
due and delayed.
6. Whether the plaintiff had printed Decided in favour of the
25,000 bags as per the oral order of plaintiff – Rs 1,18,000/-
the defendants? If so, whether the with interest @ 12%
plaintiff sustained loss at the rate p.a. from 01.01.1994 till
of 50% of the value due to refusal realisation.
on the part of the defendants to
take delivery of the bags?
7. Whether the defendants had called Decided in favour of the
for a fresh tender after placing plaintiff
of the orders to the plaintiff and
in which M/s Neptune Polymers,
Ahmedabad quoted rate of a bag
at Rs. 8.46, the same has become
binding on the plaintiff?
8. Whether the defendants had Decided in favour of
regularised the supply of 33,000 plaintiff
bags at Rs. 8.46/bag vide P.O. No.
40893 dated 21.04.1994 and same
was accepted by the plaintiff?
9. W h e t h e r t h e s u i t w a s n o t Decided in favour of the
maintainable as the defendants plaintiff
have been declared as Sick
Industry by the BIFR vide Case No.
PUC/C/515/92 dated 06.11.1992?
10. Whether the suit of the plaintiff was Decided in favour of the
barred by limitation? plaintiff

13. On the issue of applicability of Section 22 of the 1985 Act, it was
observed thus by the trial court:
“Both sides have not argued on this issue and no material
is produced before the Court and no evidence is also
[2024] 5 S.C.R. 333

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

adduced on this issue. Hence, the defendant company
failed to prove that it is a sick industry and the plaintiff’s
suit is maintainable. I answer this issue in favour of the
Plaintiff accordingly”
14. The final decree drawn by the trial court reads thus:
"1. That the suit of the plaintiff be and is hereby decreed.
2. That the defendants 1 to 4 be and are hereby directed
to pay Rs. 55,710/-, Rs. 100,848 and Rs. 1,18,000/- to
the plaintiff together with interest @ 12% per annum
from 01.01.1994 till realization.
3. That the defendants 1 to 4 be and are hereby further
directed to pay Rs. 1,72,734/- to the plaintiff together
with interest @ 12% per annum from 16.07.1994 till
realization.
4. That the suit of the plaintiff for the rest of the claim
of Rs. 4,89,919/- be and is hereby dismissed.
5. That the defendants do pay Rs. 37,169/- to the plaintiff
towards the costs of the suit.”
iii. Appeals before the High Court
15. Both the parties went to the High Court in appeal against the aforesaid
decision of the trial court. The original plaintiff contended before the
High Court, inter alia, that the deductions towards the liquidated
damages and penalty were wrongly imposed on it by the original
defendants, and that the interest at the rate of 24% with monthly
compounding ought to have been granted on the delayed payments
in light of the provisions of the Interest on Delayed Payments to
Small Scale and Ancillary Industrial Undertakings Act, 1993 (“the
1993 Act”).
16. The original defendants on the other hand contested that the trial
court had failed to consider the evidence properly and had wrongly
awarded the amounts under different heads to the original plaintiff.
The contention as to the applicability of Section 22(1) of the 1985
Act was also raised by the original defendants.
17. The High Court, vide the impugned judgment partly allowed both
the appeals. The original defendants were allowed to deduct an
334 [2024] 5 S.C.R.

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amount of Rs 1,63,471/- towards the liquidated damages, whereas
the original plaintiff was allowed to recover the amounts deducted
towards penalty, price difference in the supply of 42,000 bags and the
loss incurred due to the refusal of the original defendants to accept
the delivery of 25,000 bags. Pertinently, the High Court accepted
the contention of the original plaintiff on the issue of interest and
granted 24% compound interest on the amounts due.
18. Despite recording the submissions of the parties on the applicability of
Section 22(1) of the 1985 Act, neither any point for determination was
framed nor any finding was returned on the same by the High Court.
19. Aggrieved by the impugned judgment, more particularly as regards
the awarding of 24% interest in favour of the original plaintiff –
which has inflated the principal decretal amount to one of mammoth
proportions – the original defendants are before this Court with the
present appeals.
B. SUBMISSIONS ON BEHALF OF THE APPELLANTS/
ORIGINAL DEFENDANTS
20. Ms. Malvika Trivedi, the learned senior counsel appearing on behalf
of the original defendants submitted that the 1985 Act overrides the
1993 Act as the same was enacted in the larger public interest by
the Parliament with a view to secure the directive specified under
Article 39 of the Constitution.
21. It was further submitted that the 1993 Act having been enacted to
provide for and regulate the payment of interest on delayed payments
to the small-scale industries, does not envisage a situation where an
industrial undertaking becomes sick and requires a scheme for its revival.
22. It was argued that the provisions of the 1985 Act should be given
the widest possible import in light of the fact that the same is a self-
contained code containing provisions like the statutory bar on civil
suits for recovery of money from sick industrial companies under
Section 22 and the non-obstante clause under Section 32 by virtue
of which the provisions of the 1985 Act are given an overriding
effect. Reliance was placed by the learned senior counsel upon the
decisions of this Court in Jay Engineering Works Ltd. v. Industry
Facilitation Council reported in (2006) 8 SCC 677 and Tata Motors
Ltd. v. Pharmaceutical Products of India Ltd. reported in (2008)
7 SCC 619.
[2024] 5 S.C.R. 335

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

23. It was further submitted that the impugned judgment and order passed
by the High Court failed to take into consideration the law settled by
this Court in Bhoruka Textiles Ltd. v. Kashmiri Rice Industries
reported in (2009) 7 SCC 521 which held that if the jurisdiction of
the civil court was ousted in terms of the jurisdictional bar imposed
under Section 22 of the 1985 Act, then any judgment rendered by
it would be coram non-judice and as a result a nullity.
24. To fortify her aforesaid submission, the learned senior counsel argued
that the facts of the present case are similar to the facts in Bhoruka
Textiles (supra) as follows:
I. The defendant company was declared as a sick industrial
undertaking under Section 3(1)(o) of the 1985 Act and was
referred to the BIFR for its revival on 06.11.1992 and an
enquiry under Section(s) 16 and 17 respectively of the 1985
Act was pending in respect of the defendant company at the
time of the institution of the suit by the original plaintiff before
the trial court.
II. The suit for recovery of money was instituted by the original
plaintiff against the original defendants without obtaining the
consent of the BIFR, as mandated by Section 22 of the 1985 Act.
III. Despite the statutory bar under Section 22 against the institution
of a suit for the recovery of money, the trial court decided the suit
and decreed it. Even the High Court in the impugned judgment
failed to decide the issue of lack of jurisdiction of the trial court
in deciding the suit.
25. The learned senior counsel further submitted that the contention of
the original plaintiff that the statutory bar under Section 22 of the
1985 Act applies only against a recognized creditor and such debts
as are acknowledged before the BIFR during the pendency of the
reference application is not the correct understanding of the law and
is against the beneficial object of the Act. It was contended that the
reliance placed by the original plaintiff on the decision of the Delhi
High Court in Sunil Mittal Properties of Shree Shyam Packaging
Industries v. M/s LML Ltd. reported in (2011) 123 DRJ 249 is
misplaced as the said decision failed to consider the law settled by
this Court in Bhoruka Textiles (supra) and thus could be termed
as per incuriam.
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26. One another submission made by the learned senior counsel was that
out of the total claim put forward by the original plaintiff before the trial
court, only the amount of Rs 55,710/- could have been recognized
as delayed payment. It was submitted that the deductions made by
the original defendants towards liquidated damages and penalty
while remitting the payment to the original plaintiff could not have
been classified as delayed payment for the purpose of computation
of interest under the 1993 Act and the interest could only have been
claimed on the undisputed and agreed upon sum under the contract.
27. It was argued that the liability, if any, of the original defendants to pay
interest on the amount of Rs 4,89,919.99/- should be limited from
the date of the impugned judgment, wherein the High Court while
partially modifying the decree awarded by the trial court, awarded the
amount as above in favour of the original plaintiff for the first time.
28. It was also argued that the High Court erred in interfering with the
exercise of discretion by the trial court in awarding 12% pendente
lite interest in favour of the original plaintiff.
29. The learned senior counsel further submitted that the original plaintiff
had the option of taking recourse to the mechanism prescribed under
Section 6 of the 1993 Act which provides for making a reference of any
dispute to the Industry Facilitation Council for acting as an arbitrator
or a conciliator. However, by consciously approaching the civil court
by way of a suit for recovery of money despite the jurisdictional bar
contained under Section 22 of the Act, the original plaintiff must now
face the consequences of approaching a non-jurisdictional forum.
30. Lastly, it was submitted by the learned senior counsel that the
defendant company remained under BIFR for a period of 21
years and was revived in 2013 after intervention of the Cabinet
Committee on Economic Affairs. The economic distress caused by
the enforcement of the liability imposed upon the original defendants
by the High Court may potentially overwhelm the efforts at revival
of the defendant company.
C. SUBMISSIONS ON BEHALF OF THE RESPONDENT/
ORIGINAL PLAINTIFF
31. Mr. Sundeep Pothina, the learned counsel appearing on behalf of
the original plaintiff submitted at the outset that Section 22 of the
1985 Act is not applicable to the instant case as neither the debt
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Fertilizer Corporation of India Limited & Ors. v.
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came to be acknowledged, nor the name of the creditor company
figured before the BIFR. Since, in the case on hand, the original
defendants did not include the liability of the original plaintiff in their
list of liabilities in accordance with Section 21(a)(i) of the 1985 Act
nor in their book of accounts under Section 21(a)(ii) of the 1985 Act
nor did it include the original plaintiff company in the list of creditors
under Section 21(b) of the 1985 Act at the time of reference or
thereafter, the jurisdictional bar available under Section 22 of the
1985 Act cannot be said to be applicable to the suit instituted by
the original plaintiff.
32. It was further submitted that the reliance placed by the original
defendants on Bhoruka Textiles (supra) in support of their contention
regarding Section 22 of the 1985 Act is misplaced for the following
reasons:
I. This Court in Bhoruka Textiles (supra) decided the issue as to
whether the bar under Section 22 of the 1985 Act would apply
to a suit for recovery instituted for defaults occurring post the
reference of the sick industrial company to the BIFR when the
reference was pending. However, the issue in the present case
is different and pertains to whether a suit for determination of
‘illegal deductions’ and ‘breach of contract’ and liability would
be barred by virtue of Section 22 of the Act.
II. In Bhoruka Textiles (supra), not only the debt but the creditor
was also acknowledged before the BIFR and there was no
dispute on the issue or size of default. However, in the present
case, both the existence and quantum of liability are under
dispute. The original defendants have not referred to the original
plaintiff as a ‘creditor’ before any forum.
33. It was further argued that the reliance placed by the original defendants
on Jay Engineering (supra) is also of no avail as in the facts of
that case, there was no dispute over the quantum of dues and the
sick company therein had reckoned the dues and the liabilities were
covered in the revised rehabilitation scheme. Further, the decision
in the said case only supports the contention of the original plaintiff
that the adjudicatory process of making an award is not barred under
Section 22 of the 1985 Act and it is only the execution of such an
award against a sick company which is protected under Section
22 of the 1985 Act. Thus, as the civil court in this case was the
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adjudicating authority having inherent jurisdiction to decide the suit
under Section 9 of the Civil Procedure Code, 1908, the adjudicatory
part of determining the liability couldn’t be said to have been barred
by Section 22 of the Act. It is only the execution of such a decree
arrived at as a result of the adjudicatory process which could be
said to be barred under Section 22 of the 1985 Act during the period
when the sick company is under the protection of the BIFR.
34. The learned counsel further submitted that the reliance placed
by the original defendants on the decision of this Court in Tata
Motors (supra) is also misplaced as the said decision pertains
to Section 26 of the 1985 Act while the case on hand pertains to
the applicability of Section 22 of the 1985 Act. He contended that
even the said decision supports the case of the original plaintiff
as it explains the distinction between the adjudicatory authority
of a civil court and the BIFR and holds that the jurisdiction of a
civil court is barred in respect of any matter for which the BIFR or
the Appellate Authority for Industrial and Financial Reconstruction
(“AAIFR”) is empowered.
35. The learned counsel, while placing reliance on the decision of the
Delhi High Court in Sunil Mittal (supra), argued that the facts of
the present case are squarely covered by the said decision. It was
submitted that in the said case, a distinction was drawn between the
‘process of assessment’ and ‘quantified recoveries’ and it was held
that while the realisation of the latter is stayed by virtue of Section
22 of the 1985 Act, the former, which is the process of finalisation
of liability, does not get stayed by operation of Section 22 of the
1985 Act.
36. The learned counsel submitted that the contention of the original
defendants that the decision in Sunil Mittal (supra) is rendered
per-incuriam as the same failed to consider the decision in Bhoruka
Textiles (supra) is incorrect as the court therein had based its
decision on the judgment of a division bench of the Delhi High Court
in Saketh India Limited v. W. Diamond India Ltd. reported in 2010
SCC OnLine Del 1786. The decision in Saketh India (supra) has
exhaustively considered the various decisions of this Court on the
issue of applicability of jurisdictional bar under Section 22 of the
1985 Act and thus the decision in Sunil Mittal (supra) cannot be
characterised as per-incuriam.
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37. The learned counsel submitted that the High Court in its impugned
judgment has determined the issue of rate of interest under Section
4 of the 1993 Act. The High Court, after looking into the relevant
material, observed that the floor rate charged by the State Bank of
India (“SBI”) for the financial year 1993-94 was 19% and thus awarded
interest at 24% which is 5 per-cent points above the floor rate.
38. The learned counsel, in the last, submitted that as opposed to the
representations made by the defendant company about its current
financial status, the net worth of the defendant company as on
31.03.2022 is in the positive and is at the least not less than 2,000/-
crores.
D. ANALYSIS
39. Before adverting to the rival submissions canvassed on either side,
we would like to briefly discuss the proceedings in respect of the
defendant company before the Board for Industrial and Financial
Reconstruction (“BIFR”) in terms of Section 15 of the 1985 Act.
i. Proceedings in respect of FCIL before the BIFR
40. At the end of financial year 1991-92, the defendant company
suffered huge erosion in its net worth and became a sick industrial
company. Accordingly, a reference was made to the BIFR in terms
of Section 15 of the 1985 Act. Thereafter, the BIFR after hearing the
representatives and stakeholders declared the defendant company
to be a sick company under Section 3(1)(o) of the 1985 Act vide
its order dated 06.11.1992. The BIFR also granted FCIL and the
Government of India time till 31.03.1993 to submit their final plan
for rehabilitating the company.
41. During the entire period of adjudication of the suit by the trial court
and for a part of the period during the pendency of the appeals
before the High Court, the defendant company continued to remain
a Sick Industrial company with a Special Director appointed by the
BIFR and the SBI appointed as the Operating Agency.
42. On 09.05.2013, the Cabinet Committee on Economic Affairs (“CCEA”)
met and took decisions on the revival of the defendant company.
The Government of India waived off its loan and interest amounting
to Rs. 10,643/- crore and the debt owed to the other PSUs were
settled at 30% of their respective dues as on 31.03.2003.
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43. Meanwhile, the BIFR in the course of one important hearing looked
into the progress towards the revival of the defendant company in
detail. After taking into account the developments over the course
of 20 years, the BIFR issued the following relevant directions: -
“i. The company, M/s Fertilizer Corpn. Of India (Case No.
515/1992) ceases to be a Sick Industrial Company, within
the meaning of Section 3(1)(o) of the SICA as its net-worth
has turned positive. It is therefore, de-registered from the
purview of SICA/BIFR.
xxx xxx xxx
iv. The Board discharges the State Bank of India from
the responsibility of Operating Agency (OA) to the Board.
v. All Secured Creditors, Statutory Authorities are at liberty
to recover their dues, if any, according to law.”
44. Thus, in view of the directions of the BIFR dated 27.06.2013 referred
to above, the defendant company ceased to be a Sick Industrial
company during the pendency of the appeals before the High Court.
45. The submissions of the original defendants were focussed on and
limited to the following two aspects – jurisdictional bar on the civil
court in deciding the suit instituted by the original plaintiff by virtue
of Section 22(1) of the 1985 Act; and the legality & validity of the
interest rate of 24% per annum awarded by the High Court in the
original plaintiff’s favour.
ii. Issues for Determination
46. Having heard the parties extensively on the aforesaid aspects and
having perused the materials on record, the following two questions
fall for our consideration:
I. Whether the suspension of legal proceedings as envisaged
under Section 22(1) of the 1985 Act would extend to a civil suit
for recovery of money even if the debt sought to be proved in
the plaint has not been admitted by the sick industrial company?
If so, whether the decree in favour of the original plaintiff could
be said to be coram non-judice?
II. Whether the High Court was correct in granting 24% compound
interest on the principal decretal amount in favour of the original
plaintiff?
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iii. Overview of Industrial Sickness and the Legislative Scheme
of the 1985 Act.
47. Before we proceed to answer the aforesaid issues, we would like
to discuss briefly the concept of industrial sickness, the legislative
scheme of the 1985 Act and the object behind its enactment. This will
help us develop a better contextual understanding of the questions
before us.
48. Sickness in industries is a natural fall-out of industrialisation. Industrial
sickness can be understood to refer to a situation wherein an industrial
unit fails to generate surplus and is incurring losses over a period
of time resulting in the erosion of its net-worth. Section 3(o) of the
1985 Act defines a ‘sick industrial company’ to be one which at the
end of a financial year accumulates losses equal to or exceeding
its net worth.
49. While there could be numerous causes of sickness, the mismanagement
of the industrial unit, faulty planning at the inception of an industry,
technical drawbacks, recession in the market, labour disputes,
changes in the fiscal policies of the government, unavailability of
credit facilities, and non-availability of raw-materials are some of the
prominent factors causing industrial sickness.
50. As the Indian economy transitioned from being an agriculture-intensive
one towards a more industry-centric one, a growing number of
industries suffered huge financial losses resulting in their closure,
which in turn led to the loss of employment, government revenue and
locking up of the investible funds of banks and financial institutions
which were invested in setting up of those industries. In order to
curb industrial sickness and its detrimental impacts on the Indian
economy, many policies and legislations were enacted over the
years by the executive and the legislative wing respectively. The aim
of such enactments was two-fold – first, to reduce the incidence of
sickness in industries by promoting a conducive industrial climate
and secondly, to identify sick companies and take effective remedial
steps for revival of such companies and upon failure, to wind them up.
51. One of the first such enactments was the Industrial Development and
Regulation Act, 1951 (“IDRA Act, 1951”) which contained provisions
empowering the Central Government to cause investigation into the
affairs of an Industrial Company which is to be wound up for the
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purpose of reviving such Company in the interest of general public
by ensuring production, supply or distribution of articles.
52. Nationalisation of sick industries through legislations was another
approach adopted by the government to revive or continue the
operation of sick industries in national interest. An enactment brought
in with the object of dealing with sickness in the textile industry
was the Sick Textile Undertaking (Nationalization) Act, 1974 which,
inter alia, provided for the reorganisation and rehabilitation of sick
textile industries. Similarly, The Aluminium Corporation of India Ltd.
(Acquisition and Transfer of Aluminium Undertaking) Act, 1984 and
The Futwah Islampur Lightway Line (Nationalisation) Act, 1985 were
enacted with similar objects.
53. Industrial Reconstruction Bank of India Act, 1984 was enacted to
provide financial assistance to sick industrial companies for their
revival. However, the said enactment was repealed thereafter.
54. In 1981, the Reserve Bank of India (“RBI”) appointed a committee
under the chairmanship of late Shri T. Tiwari to look into the causes
of industrial sickness, to assess the depth of the problem and to
suggest comprehensive and focussed remedial measures to counter
the problem of industrial sickness in India. The committee submitted
its report suggesting, inter alia, the setting up of a quasi-judicial
body through a special legislation to handle the cases of industrial
sickness. This suggestion of the committee led to the enactment of
the 1985 Act.
55. The Statement of Objects and Reasons accompanying the Sick
Industrial Companies Bill, 1985 reads as follows:
“The ill effects of sickness in industrial companies such as
loss of production, loss of employment, loss of revenue
to the Central and State Governments and locking up of
investible funds of banks and financial institutions are of
serious concern to the Government and the society at large.
The concern of the Government is accentuated by the
alarming increase in the incidence of sickness in industrial
companies. It has been recognised that in order to fully
utilise the productive industrial assets, afford maximum
protection of employment and optimise the use of the
funds of the banks and financial institutions, it would be
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Fertilizer Corporation of India Limited & Ors. v.
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imperative to revive and rehabilitate the potentially viable
sick industrial companies as quickly as possible. It would
also be equally imperative to salvage the productive assets
and realise the amounts due to the banks and financial
institutions, to the extent possible, from the non-viable
sick industrial companies through liquidation of those
companies.
2. It has been the experience that the existing institutional
arrangements and procedures for revival and rehabilitation
of potentially viable sick industrial companies are both
inadequate and time-consuming. A multiplicity of laws and
agencies makes the adoption of coordinated approach
for dealing with sick industrial companies difficult. A need
has, therefore, been felt to enact in public interest a
legislation to provide for timely determination by a body of
experts of the preventive, ameliorative, remedial and other
measures that would need to be adopted with respect to
such companies and for enforcement of the measures
considered appropriate with utmost practicable despatch.
3. The salient features of the Bill are-
(i) Application of the legislation to the industries specified
in the First Schedule to the Industries (Development
and Regulation) Act. 1951, with the initial exception
of the scheduled industry relating to ships and other
vessels drawn by power, which may however be
brought within the ambit of the legislation in due
course:
(ii) identification of sickness in an industrial company,
registered for not less than seven years, on the basis
of the symptomatic indices of cash losses for two
consecutive financial years and accumulated losses
equalling or exceeding the net worth of the company
as at the end of the second financial year,
(iii) the onus of reporting sickness and impending
sickness at the stage of erosion of fifty per cent, or
more of the net worth of an industrial company is
being laid on the Board of Directors of such company;
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where the Central Government or the Reserve Bank
is satisfied that an industrial company has become
sick, it may make a reference to the Board, likewise
if any State Government, scheduled bank or public
financial institution having an interest in an industrial
company is satisfied that the industrial company has
become sick, it may also make a reference to the
Board;
(iv) establishment of Board consisting of experts in
various relevant fields with powers to enquire into
and determine the incidence of sickness in industrial
companies and devise suitable remedial measures
through appropriate schemes or other proposals and
for proper implementation thereof;
v) constitution of an Appellate Authority consisting
of persons who are or have been Supreme Court
Judges, senior High Court Judges and Secretaries
to the Government of India, etc. for hearing appeals
against the order of the Board.
4. The notes on clauses appended to the Bill explain the
various provisions of the Bill.
NEW DELHI
THE 22nd August, 1985. VISHWANATH PRATAP SINGH”
56. The preamble to the 1985 Act reads as follows:
“An Act to make, in the public interest, special provisions
with a view to securing the timely detection of sick and
potentially sick companies owning industrial undertakings,
the speedy determination by a Board of experts of the
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.”
57. Having discussed the object behind the enactment of the 1985 Act
and the developments leading up to its inception, we shall now briefly
discuss the scheme and scope of the 1985 Act.
[2024] 5 S.C.R. 345

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58. The 1985 Act is divided into four chapters. The first chapter contains
preliminary provisions including the definitions and a declaration that
the 1985 Act is enacted in furtherance of the principles enshrined in
clauses (b) and (c) of the Article 39 of the Constitution. The second
chapter, inter alia, provides for the establishment of the BIFR and
the AAIFR and prescribes the term of office and conditions of service
of their chairperson and members and also the procedure to be
followed by them.
59. The third chapter, which is often described as the soul and essence
of the 1985 Act, provides for the methodology that is to be adopted
for the purposes of detecting, reviving or even winding up a sick
industrial company. Section 15 enables the Board of Directors of
a company which has become sick to make reference to BIFR for
determination of measures which shall be adopted with respect to
the company. The Central Government or the Reserve Bank or the
State Government concerned may also make the reference to the
BIFR for the same purpose if it has sufficient reasons to believe that
a company has become sick. Once a reference is made, it is open to
the BIFR to conduct an inquiry for determining whether the company
has become sick. If the BIFR is satisfied on completion of the inquiry
that the company has become sick, it can adopt any of the measures
envisaged in Section 17 of the 1985 Act. When an order is made
under Section 17 a scheme with respect to the company shall be
prepared by “the operating agency” specified in such order under
Section 18. The operating agency may also be directed by the BIFR
under Section 21 to prepare, inter alia, an inventory of the books of
account of the sick company and its assets and liabilities, a list of
shareholders and secured and unsecured creditors, a valuation report
in respect of the shares and the assets etc. Section 20 provides for
the winding up of a sick company where the BIFR is of the opinion
that such a company is not likely to become viable in the future.
Section 22, which is at the heart of the dispute before us, inter alia,
provides for the suspension of legal proceedings of the nature as
specified in the said section.
60. The fourth chapter, among other things, provides for the detection of
potentially sick companies in the initial stages by mandating the Board
of Directors of such companies to bring such potential sickness to
the knowledge of the BIFR and the shareholders of the companies.
Punishment of up to two years imprisonment along with fine is also
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prescribed in case of default in complying with the requirement. The
issue of mismanagement leading to sickness in companies is sought
to be dealt with under Section 24 of the 1985 Act which provides
strict measures in case of proved misfeasance, breach of trust, etc.
Section 26 bars the jurisdiction of civil courts in respect of matters
which the BIFR or the AAIFR are empowered to determine. Section
32 is the non-obstante provision which imparts overriding effect to
the 1985 Act over other laws in force except for the two legislations
mentioned in the said section itself. The 1985 Act was repealed by
the Sick Industrial Companies (Special Provisions) Repeal Act, 2003
which was notified on 01.12.2016.
61. Having discussed in detail the scheme of the 1985 Act and the object
and purpose behind its enactment, we shall now proceed to answer
the issues framed by us.
iv. Issue No. 1: Whether the suspension of legal proceedings
as envisaged under Section 22(1) of the 1985 Act would
extend to a civil suit for recovery of money even if the debt
sought to be proved in the plaint has not been admitted
by the sick industrial company? If so, whether the decree
in favour of the original plaintiff could be said to be coram
non-judice?
62. To answer the issue before us, it is important to first delineate the
scope of the relevant provision, which is reproduced hereinbelow:
“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 and
no suit for the recovery of money or for the enforcement
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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….”
63. Section 22(1) of the 1985 Act provides that subject to the fulfilment
of the conditions as described in the sub-section, proceedings of
the nature mentioned therein shall remain suspended in respect of
a sick industrial company.
64. For the bar under the said sub-section to get attracted, it is necessary
that in respect of an industrial company:
I. An inquiry under Section 16 of the 1985 Act is pending; OR
II. A scheme under Section 17 of the 1985 Act is under preparation
or consideration; OR
III. A sanctioned scheme is under implementation; OR
IV. An appeal under Section 25 of the 1985 Act is pending.
65. If one of the four conditions as mentioned aforesaid is fulfilled, then
notwithstanding anything contained in the Companies Act, 1956 or
any other law or the memorandum and articles of association of
the industrial company or any other instrument having effect under
the Companies Act, 1956 or other law, proceedings in the nature of
the following cannot be initiated, and if already initiated, cannot be
proceeded with, except with the consent of the BIFR or the AAIFR,
as the case may be:
I. Winding up of the industrial company;
II. Execution, distress or the like against any of the properties of
the industrial company;
III. Appointment of receiver in respect of any of the properties of
the industrial company;
IV. Suit for recovery of money from the industrial company;
V. Suit for enforcement of a security against the industrial company;
VI. Suit for enforcement of a guarantee in respect of loans or
advance granted to the industrial company.
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66. It is pertinent to mention that prior to the coming into force of the Sick
Industrial Companies (Amendment) Act, 1993 w.e.f. 01.02.1994, the
proceedings in the nature of a suit as mentioned in (iv), (v) and (vi) in
paragraph 65 above were exempt from the ambit of the suspension
as envisaged under Section 22(1) of the 1985 Act.
67. Thus, as can be seen from the plain reading of Section 22(1) of the
1985 Act, for an industrial company to avail the benefit of suspension
of legal proceedings, two conditions have to be fulfilled – First, one
of the four requirements as mentioned in paragraph 64 should be
satisfied, that is, the industrial company must be at the prescribed
stage of proceedings before the BIFR or the AAIFR. Secondly, the
nature of proceedings sought to be suspended should be one which
falls within the ambit of proceedings mentioned in paragraph 65 above.
68. We shall first examine whether the first of the two conditions as
mentioned above is satisfied, as the protective shield of Section
22(1) of the 1985 Act is only available so long as the proceedings
before the BIFR or the AAIFR are pending. It was observed by a
three-judge bench of this Court in Shree Chamundi Mopeds Ltd. v.
Church of South India Trust Association CSI CINOD Secretariat,
Madras reported in (1992) 3 SCC 1 thus:
“….We are, therefore, of the opinion that the passing of the
interim order dated February 21, 1991 by the Delhi High
Court staying the operation of the order of the Appellate
Authority dated January 7, 1991 does not have the effect
of reviving the appeal which had been dismissed by the
Appellate Authority by its order dated January 7, 1991
and it cannot be said that after February 21, 1991, the
said appeal stood revived and was pending before the
Appellate Authority. In that view of the matter, it cannot
be said that any proceedings under the Act were pending
before the Board or the Appellate Authority on the date
of the passing of the order dated August 14, 1991 by the
learned Single Judge of the Karnataka High Court for
winding up of the company or on November 6, 1991 when
the Division Bench passed the order dismissing O.S.A.
No. 16 of 1991 filed by the appellant-company against the
order of the learned Single Judge dated August 14, 1991.
Section 22(1) of the Act could not, therefore, be invoked
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and there was no impediment in the High Court dealing
with the winding up petition filed by the respondents…”
(Emphasis supplied)
69. As discussed hereinbefore in paragraph 40 of the judgment, the
Board of Directors of the defendant company, passed a resolution
dated 20.04.1992 to the effect that the company had become a sick
company for the purposes of the 1985 Act and thus a reference to
the BIFR was required to be made. In accordance with the resolution,
a reference was accordingly made under Section 15(1) of the 1985
Act. Subsequently, a bench of the BIFR took up the reference of
the defendant company for consideration and vide order dated
06.11.1992, inter alia, decided that the company fulfilled all the
criteria prescribed under Section 3(1)(o) of the 1985 Act for being
declared a sick company. The bench also granted the defendant
company and the Government of India time till 31.03.1993 to submit
a proposal for rehabilitation of the company for the consideration
of the bench.
70. The defendant company continued to remain a sick company under
the 1985 Act and proceedings before the BIFR continued and it was
only on 27.06.2013, after a detailed consideration of the progress
made by the company towards revival, that the BIFR declared the
defendant company to have ceased to be a sick industrial company.
Consequently, the defendant company was deregistered from BIFR
on the said date.
71. It is the case of the original defendants that the original civil suit
for the recovery of money having been filed against the defendant
company during the pendency of proceedings before the BIFR, the
trial court committed an error in deciding the suit despite the statutory
bar as envisaged under Section 22(1) of the 1985 Act.
72. From a perusal of the facts as discussed above, it is clear that the
civil suit was instituted by the original plaintiff on 21.11.1996, that
is, indeed, during the pendency of the proceedings in respect of
the defendant company before the BIFR. Thus, the first condition
precedent for the applicability of the restriction under Section 22(1)
of the 1985 Act being satisfied, the only aspect that is now required
to be determined is whether the suit instituted by the original plaintiff
was of a nature as contemplated under Section 22(1).
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73. From a bare reading of the provision, it appears that any ‘suit for
recovery of money’ against a sick industrial company shall not lie or
be proceeded with during the pendency of the proceedings in respect
of such a company before the BIFR or the AAIFR, except with the
permission of the BIFR or the AAIFR, as the case may be. However,
it has been contended by the original plaintiff that it is not a suit for
recovery of money simpliciter is not barred under the provision, and
only such suits for recovery of money which are instituted towards
recovery of liabilities admitted by the sick company before the BIFR
that fall within the protective ambit of Section 22(1).
74. In other words, the contention of the original plaintiff is that if a suit
for recovery of money is brought against a sick company during the
pendency of proceedings before the BIFR or the AAIFR with respect
to the recovery of an acknowledged debt, then such a suit will be
hit by Section 22(1) and cannot lie or be proceeded with except
with the permission of the BIFR or the AAIFR, as the case may be.
75. This Court including many of the High Courts have had the occasion
of interpreting Section 22(1) of the 1985 Act. One of the earliest
decisions concerning Section 22(1) was rendered by a two-Judge
Bench of this Court in Gram Panchayat and Another v. Shree
Vallabh Glass Works Limited and Others reported in (1990) 2
SCC 440. In the said case, while deciding an appeal against the
decision of the Bombay High Court quashing recovery proceedings
towards property taxes and other amounts due under the provisions
of the Bombay Village Panchayat Act, 1959 against the respondent
company therein, which had been declared to be a sick company
under the Act, the Bench held:
“5. The question is whether the Panchayat could not recover
the amount due to it from out of the properties of the sick
industrial company without the consent of the Board?
xxx xxx xxx
7. Section 22(1) provides that in case the enquiry under
Section 16 is pending or any scheme referred to under
Section 17 is under preparation or consideration by the
Board or any appeal under Section 25 is pending then
certain proceedings against the sick industrial company
are to be suspended or presumed to be suspended.
[2024] 5 S.C.R. 351

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

The nature of the proceedings which are automatically
suspended are: (1) Winding up of the industrial company;
(2) Proceedings for execution, distress or the like
against the properties of sick industrial company; and
(3) Proceedings for the appointment of receiver. The
proceedings in respect of these matters could, however,
be continued against the sick industrial company with
the consent or approval of the Board or of the appellate
authority as the case may be.
xxx xxx xxx
10. 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 company shall lie or be proceeded further except
with the consent of the Board. Indeed, there would be
automatic suspension of such proceedings against the
company’s properties. As soon as the inquiry under Section
16 is ordered by the Board, the various proceedings set
out under sub-section (1) of Section 22 would be deemed
to have been suspended.
11. It may be against the principles of equity if the creditors
are not allowed to recover their dues from the company,
but such creditors may approach the Board for permission
to proceed against the company for the recovery of their
dues/outstandings/overdues or arrears by whatever
name it is called. The Board at its discretion may accord
its approval for proceeding against the company. If the
approval is not granted, the remedy is not extinguished. It
is only postponed. 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.
12. In our opinion, the High Court was justified in quashing
the recovery proceedings taken against the properties of
the company and we accordingly, reject this petition, with
no order as to costs.”
(Emphasis supplied)
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76. One another decision interpreting Section 22(1) of the 1985 Act was
delivered by a two-judge bench of this Court in Maharashtra Tubes
Ltd. v. State Industrial & Investment Corpn. of Maharashtra
Ltd. reported in (1993) 2 SCC 144. In this case, this Court, while
deciding the interplay between the power of recovery under the State
Financial Corporations Act, 1951 and the suspension of certain legal
proceedings under Section 22 of the 1985 Act, held thus:
“10. It was next contended that the right conferred on the
Financial Corporation by Section 29 of the 1951 Act is not a
‘legal proceeding’ but merely an action permitted by statute
and, therefore, Section 22(1) will have no application as
it only bars legal proceedings for the winding up of any
industrial company or for execution, distress or the like
against any of its properties or for the appointment of a
Receiver in respect thereof. Now Section 22(1) uses the
expression ‘proceedings’ and not ‘legal proceedings’ which
expression is albeit used in the marginal note to the said
provision. Mr Rao contended that Section 22 must be
read in the light of the marginal note and when so read it
becomes obvious that only legal proceedings of the type
mentioned in sub-section (1) thereof are barred and not the
exercise of a right such as the one conferred by Section
29 of the 1951 Act. In support of his contention that the
marginal note can be used as an aid to interpretation he
invited our attention to a seven-Judge Bench decision of
this Court in Bengal Immunity Company Ltd. v. State of
Bihar [(1955) 2 SCR 603, 636 : AIR 1955 SC 661 : (1955)
6 STC 446] . In that case the marginal note to Article 286
of the Constitution was referred to and it was said that it
furnished some clue as to the meaning and purpose of
the Article. But at the same time the Court pointed out
that unlike the marginal notes in the statutes of the British
Parliament, the various Articles of the Constitution were
passed by the Constituent Assembly with the marginal
notes and, therefore, the Court considered it permissible
to use the marginal note to understand the meaning and
purport of the Article. But so far as statutes are concerned
this Court in the case of Board of Muslim Wakfs, Rajasthan
v. Radha Kishan [(1979) 2 SCC 468] held in no uncertain
[2024] 5 S.C.R. 353

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

terms that the weight of the authority was in favour of
the view that the marginal note appended to a section
cannot be used for construing the section (see paragraph
24 at p. 479). Section 22(1) shorn of the irrelevant part
provides that where an appeal under Section 25 relating
to an industrial company is pending, then, notwithstanding
anything contained in any 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 appointment of a Receiver in
respect thereof shall lie or be proceeded with further,
except with the consent of the BIFR or, as the case may
be, the appellate authority. The purpose and object of this
provision is clearly to await the outcome of the reference
made to the 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 Section 15 of the said
enactment. 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. The action contemplated by Section
29 of the 1951 Act is undoubtedly a coercive measure
directed at the take over of the management and property
of the industrial concern and confers a further right on the
Financial Corporation to transfer by way of lease or sale
the properties of the said concern and any such transfer
effected by the Financial Corporation would vest in the
transferee all rights in or to the transferred property as if
the transfer was made by the owner of the property. So
also under the said provision the Financial Corporation
will have the same rights and powers with respect to
goods manufactured or produced wholly or partly from
goods forming part of the security held by it as it had with
respect to the original goods. It is, therefore, obvious on a
plain reading of Section 29 of the 1951 Act that it permits
354 [2024] 5 S.C.R.

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coercive action against the defaulting industrial concern
of the type which would be taken in execution or distress
proceedings; the only difference being that in the latter
case the concerned party would have to use the forum
prescribed by law for the purpose of securing attachment
and sale of property of the defaulting industrial concern
whereas in the case of a Financial Corporation that right
is conferred on the creditor corporation itself which is
permitted to take over the management and possession of
the properties and deal with them as if it were the owner of
the properties. If the Corporation is permitted to resort to the
provision of Section 29 of the 1951 Act while proceedings
under Sections 15 to 19 of the 1985 Act are pending it
will render the entire process nugatory. In such a situation
the law merely expects the corporation and for that matter
any other creditor to obtain the consent of the BIFR or,
as the case may be, the appellate authority to proceed
against the industrial concern. The law has not left them
without a remedy. We are, therefore, of the opinion that
the word ‘proceedings’ in Section 22(1) cannot be given
a narrow or restricted meaning to limit the same to legal
proceedings. Such a narrow meaning would run counter
to the scheme of the law and frustrate the very object and
purpose of Section 22(1) of the 1985 Act.”
(Emphasis supplied)
77. The decisions in Gram Panchayat (supra) and Maharashtra Tubes
(supra) considered the unamended Section 22(1) of the 1985 Act.
However, the said provision came to be amended by the Sick
Industrial Companies (Amendment) Act, 1994 which came into effect
from 01.02.1994. The suit in question before us having been filed
in 1996, it is the amended Section 22(1) which would apply. Thus,
we shall now look into some of the decisions wherein the amended
Section 22(1) of the 1985 Act was interpreted.
78. The question whether proceedings for the recovery of dues
arising after the sanctioning of the scheme would also be covered
under the protective umbrella of Section 22(1) of the 1985 Act
fell for the consideration of a two-judge bench of this Court in
Deputy Commercial Tax Officer and Others v. Corromandal
[2024] 5 S.C.R. 355

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

Pharmaceuticals and Others reported in (1997) 10 SCC 649. This
Court, while answering the issue in the negative, distinguished the
facts before it from the decisions in Gram Panchayat (supra) and
Maharashtra Tubes (supra) and held thus:
“13. On a fair reading of the provisions contained in Chapter
III of Act 1 of 1986 and in particular Sections 15 to 22,
we are of the opinion that the plea put forward by the
Revenue is reasonable and fair in all the circumstances
of the case. Under the statute, the BIFR is to consider in
what way various preventive or remedial measures should
be afforded to a sick industrial company. In that behalf,
BIFR is enabled to frame an appropriate scheme. To enable
the BIFR to do so, certain preliminaries are required to be
followed. It starts with the reference to be made by the
Board of Directors of the sick company. The BIFR is directed
to make appropriate inquiry as provided in Sections 16 and
17 of the Act. At the conclusion of the inquiry, after notice
and opportunity afforded to various persons including the
creditors, the BIFR is to prepare a scheme which shall come
into force on such date as it may specify in that behalf.
It is in implementation of the scheme wherein various
preventive, remedial or other measures are designed
for the sick industrial company, steps by way of giving
financial assistance etc. by Government, banks or other
institutions, are contemplated. In other words, the scheme
is implemented or given effect to, by affording financial
assistance by way of loans, advances or guarantees or
reliefs or concessions or sacrifices by Government, banks,
public financial institutions and other authorities. In order
to see that the scheme is successfully implemented and
no impediment is caused for the successful carrying out
of the scheme, the Board is enabled to have a say when
the steps for recovery of the amounts or other coercive
proceedings are taken against sick industrial company
which, during the relevant time, acts under the guidance/
control or supervision of the Board (BIFR). Any step for
execution, distress or the like against the properties of
the industrial company or other similar steps should not
be pursued which will cause delay or impediment in the
356 [2024] 5 S.C.R.

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implementation of the sanctioned scheme. In order to
safeguard such state of affairs, an embargo or bar is
placed under Section 22 of the Act against any step for
execution, distress or the like or other similar proceedings
against the company without the consent of the Board
or, as the case may be, the appellate authority. The
language of Section 22 of the Act is certainly wide. But,
in the totality of the circumstances, the safeguard is only
against the impediment, that is likely to be caused in the
implementation of the scheme. If that be so, only the
liability or amounts covered by the scheme will be taken
in, by Section 22 of the Act. So, we are of the view that
though the language of Section 22 of the Act is of wide
import regarding suspension of legal proceedings from the
moment an inquiry is started, till after the implementation
of the scheme or the disposal of an appeal under Section
25 of the Act, it 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. Such amounts like sales tax, etc.,
which the sick industrial company is enabled to collect
after the date of the sanctioned scheme legitimately
belonging to the Revenue, cannot be and could not have
been intended to be covered within Section 22 of the Act.
Any other construction will be unreasonable and unfair and
will lead to a state of affairs enabling the sick industrial
unit to collect amounts due to the Revenue and withhold
it indefinitely and unreasonably. Such a construction which
is unfair, unreasonable and against the spirit of the statute
in a business sense, should be avoided.
14. The situation which has arisen in this case seems to be
rather exceptional. The issue that has arisen in this appeal
did not arise for consideration in the two cases decided
by this Court in Gram Panchayat v. Shree Vallabh Glass
Works Ltd. [(1990) 2 SCC 440] and Maharashtra Tubes
Ltd. v. State Industrial & Investment Corpn. of Maharashtra
Ltd. [(1993) 2 SCC 144] It does not appear from the above
two decisions of this Court nor from the decisions of the
various High Courts brought to our notice, that in any one
[2024] 5 S.C.R. 357

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

of them, the liability of the sick company dealt with therein
itself arose, for the first time after the date of sanctioned
scheme. At any rate, in none of those cases, a situation
arose whereby the sick industrial unit was enabled to
collect tax due to the Revenue from the customers after
the “sanctioned scheme” but the sick unit simply folded
its hands and declined to pay it over to the Revenue, for
which proceedings for recovery, had to be taken. The
two decisions of this Court as also the decisions of High
Courts brought to our notice are, therefore, distinguishable.
They will not apply to a situation as has arisen in this
case. We are, therefore, of the opinion that Section 22(1)
should be read down or understood as contended by the
Revenue. The decision to the contrary by the High Court
is unreasonable and unsustainable. We set aside the
judgment of the High Court and allow this appeal. There
shall be no order as to costs.”
(Emphasis supplied)
79. The decision in Corromandal Pharmaceuticals (supra) was referred
to and relied upon by a two-Judge Bench of this Court in Jay
Engineering (supra) which set aside the order of the High Court as
it failed to consider that the liabilities of the appellant-sick company
therein with respect to the creditor were indisputably a part of the
revised rehabilitation scheme. This Court held that if the liabilities of
the creditor were duly considered and made a part of the rehabilitation
scheme, the bar under Section 22(1) of the 1985 Act would apply,
notwithstanding the fact that the liabilities arose after the company
was declared to be a sick one. The relevant observations of this
court are extracted hereinbelow:
“9. 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-à-vis
Respondent 2 were, 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
358 [2024] 5 S.C.R.

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after 21-11-1997 ignoring the revised scheme made in
the year 2003.
xxx xxx xxx
18. 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.
19. 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.
xxx xxx xxx
22. The High Court has placed strong reliance on CTO
v. Corromandal Pharmaceuticals [(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 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
[2024] 5 S.C.R. 359

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

of the scheme under Section 25 of the 1985 Act. It was
categorically held:
“… it 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….”
The ratio laid down in the said decision, therefore, instead
of assisting the respondent assists the appellant.”
(Emphasis supplied)
80. The original defendants have strongly relied upon the decision of a
two-judge bench of this Court in Bhoruka Textiles (supra). In the
said case, the respondent therein, filed a suit for recovery against
the appellant, a sick industrial company. The civil court decreed
the suit in favour of the respondent therein with the finding that the
transaction referred to took place subsequent to the reference of
the appellant company to the BIFR and thus the suspension under
Section 22(1) of the 1985 Act would not apply. The civil court also
held that in the absence of any final order declaring the appellant
company as a sick company by the BIFR, mere reference of the said
company to the BIFR would not bring the protection under Section
22(1) of the 1985 Act into effect.
81. This Court negatived both the findings noted above and held that the
civil court committed a manifest error in holding that the transaction
in question was subsequent to the reference, when from the admitted
facts it was apparent that it took place prior to the referral. It was
observed by the Bench thus:
“7. Chapter III of the Act provides for reference, enquiries
and schemes. Section 15 of the Act provides for reference
to the Board in terms whereof the Board of Directors of
the company is required to make a reference within 60
days from the date of the duly audited accounts of the
company for the financial year as at the end of which the
company has become a sick industrial company. Such
reference is made for determination of the measures
which may be adopted with respect to the company. The
proviso appended thereto, however, entitles the Board of
Directors to make a reference within 60 days from the
360 [2024] 5 S.C.R.

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date of formation of the opinion that the company had
become a sick industrial company before the audited
accounts of the financial year in question are finalised.
Section 16 of the Act empowers the Board to make such
enquiry as it may deem fit for determining whether any
industrial company has become a sick industrial company,
inter alia, upon receipt of a reference with respect to such
company under Section 15.
xxx xxx xxx
10. Section 22 of the Act must be interpreted giving a plain
meaning to its contents. An enquiry in terms of Section
16 of the Act by the Board is permissible upon receipt of
a reference. Thus, reference having been made on 27-
12-2001 and the suit having been filed on 17-12-2002,
the receipt of a reference must be held to be the starting
period for proceeding with the enquiry.
11. The effect of the provisions of the Act has been
considered by a three-Judge Bench decision of this Court
in Tata Motors Ltd. v. Pharmaceutical Products of India
Ltd. [(2008) 7 SCC 619] wherein it, in no uncertain terms,
held that SICA is a special statute and, thus, overrides
other Acts like the Companies Act, 1956, stating: (SCC
p. 635, paras 31-33)
“31. SICA furthermore was enacted to secure the
principles specified in Article 39 of the Constitution
of India. It seeks to give effect to the larger public
interest. It should be given primacy because of its
higher public purpose. Section 26 of SICA bars the
jurisdiction of the civil courts.
32. What scheme should be prepared by the operating
agency for revival and rehabilitation of the sick
industrial company is within the domain of BIFR.
Section 26 not only covers orders passed under
SICA but also any matter which BIFR is empowered
to determine.
33. The jurisdiction of the civil court is, thus, barred in
respect of any matter for which the Appellate Authority
[2024] 5 S.C.R. 361

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

or the Board is empowered. The High Court may not
be a civil court but its jurisdiction in a case of this
nature is limited.”
12. If the civil court’s jurisdiction was ousted in terms of the
provisions of Section 22 of the Act, any judgment rendered
by it would be coram non judice. It is a well-settled principle
of law that a judgment and decree passed by a court or
tribunal lacking inherent jurisdiction would be a nullity. In
Kiran Singh v. Chaman Paswan [AIR 1954 SC 340] this
Court held: (AIR p. 342, para 6)
“6. … It is a fundamental principle well established
that a decree passed by a court without jurisdiction
is a nullity, and that its invalidity could be set up
whenever and wherever it is sought to be enforced
or relied upon, even at the stage of execution and
even in collateral proceedings. A defect of jurisdiction,
whether it is pecuniary or territorial, or whether it is
in respect of the subject-matter of the action, strikes
at the very authority of the court to pass any decree,
and such a defect cannot be cured even by consent
of parties.”
(See also Chief Engineer, Hydel Project v. Ravinder Nath
[(2008) 2 SCC 350 : (2008) 1 SCC (L&S) 940] , SCC p.
361, para 26.)”
(Emphasis supplied)
82. A three-Judge Bench of this Court in Raheja Universal Limited v.
NRC Limited and Others reported in (2012) 4 SCC 148 undertook
a comprehensive study of the various decisions of this Court on the
interpretation of Section 22 of the 1985 Act to clarify the divergences
and settle the position of law on the said provision. The relevant
observations are as follows:
“23. The provisions of SICA 1985 impose an obligation on
the sick industrial companies and potentially sick industrial
companies to make references to BIFR within the time
specified under SICA 1985. Default thereof is punishable
under the provisions of SICA 1985. Largely, the proceedings
before BIFR are specific to rehabilitation or winding up of
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the sick company and SICA 1985 hardly contemplates
adversarial proceedings. The bodies constituted under
SICA 1985 would least exercise their jurisdiction to a lis
between any party or upon the rival interests of the parties.
xxx xxx xxx
30. Dealing with the language of Section 22 of SICA 1985,
this Court in Jay Engg. case [(2006) 8 SCC 677 : AIR 2006
SC 3252] took the view that the said Act shall prevail and
though the adjudicatory process of making an award under
the 1993 Act would not come under the purview of SICA
1985, once an award is made and sought to be executed,
the provisions of Section 22 of SICA 1985 shall take over
and such award would not be executable against the sick
company, particularly when the party in whose favour the
award was made was, as in the present case, included
in the category of dormant creditors of the sick company.
xxx xxx xxx
48. All these provisions which fall under Chapter III of SICA
1985 have to be read conjointly and that too, along with
other relevant provisions and the scheme of SICA 1985.
It is a settled canon of interpretation of statutes that the
statute should not (sic) be construed in its entirety and a
sub-section or a section therein should not be read and
construed in isolation. Chapter III, in fact, is the soul and
essence of SICA 1985 and it provides for the methodology
that is to be adopted for the purposes of detecting, reviving
or even winding up a sick industrial company. Provisions
under SICA 1985 also provide for an appeal against the
orders of BIFR before another specialised body i.e. Aaifr.
To put it simply, this is a self-contained code and because
of the non obstante provisions, contained therein, it has
an overriding effect over the other laws. As per Section
32 of SICA 1985, the Act is required to be enforced with
all its vigour and in precedence to other laws.
xxx xxx xxx
54. Firstly, the facts of these cases are different and distinct
and, therefore, conclusions of the Court have to be read
[2024] 5 S.C.R. 363

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

with reference to the facts of the respective cases only
and not dehors thereof. Once the dictum of this Court is
read with reference to the facts of the respective cases,
it would be evident that there is no conflict of views within
the ambit of ratio decidendi of the respective judgments to
make both of them legal and binding precedents.
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 SICA 1985 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 SICA 1985.
xxx xxx xxx
58. Section 22 is the reservoir of the statutory powers
empowering BIFR to determine a scheme, right from its
presentation till its complete implementation in accordance
with law, free of interjections and interference from other
judicial processes. Section 22(1) deals with the execution,
distress or the like proceedings against the company’s
properties, including appointment of a Receiver. It also
specifically provides that even a winding-up petition would
not be instituted and no other proceedings shall lie or
proceed further, except with the consent of BIFR.
xxx xxx xxx
61. It can safely be perceived that the provisions of Section
22 of SICA 1985 are self-explanatory. They would cease
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to operate within their own limitations and not by force of
any other law, agreement, memorandum or even articles of
association of the company. The purpose is so very clear
that during the examination, finalisation and implementation
of the scheme, there should be no impediment caused to
the smooth execution of the scheme of revival of the sick
industrial company. It is only when the specified period
of restrictions and declarations contemplated under the
provisions of SICA 1985 is over, that the status quo ante
as it existed at the time of the consideration and finalisation
of the scheme, would become operative. This is done
primarily with the object that the assets of the company
are not diverted, wasted, taken away and/or disposed of
in any manner, during the relevant period.
xxx xxx xxx
69. Sections 22, 22-A, 26 and 32 have to be read and
construed conjointly. A common thread of legislative intent
to treat this law as a special law, in contradistinction to
the other laws except the laws stated in the provisions
and to ensure its effective implementation with utmost
expeditiousness, runs through all these provisions. It also
mandates that no injunction shall be granted by any court
or authority in respect of an action taken or to be taken in
pursuance of the powers conferred to or by under this Act.
xxx xxx xxx
78. The expression “no proceedings” that finds place in
Section 22(1) is of wide spectrum but is certainly not free
of exceptions. The framers of law have given a definite
meaning to the expression “proceedings” appearing under
Section 22(1) of SICA 1985. These proceedings are for
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.
79. The expression “the like” has to be read ejusdem
generis to the term “proceedings”. The words “execution,
distress or the like” have a definite connotation. These
[2024] 5 S.C.R. 365

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

proceedings can have the effect of nullifying or obstructing
the sanctioning or implementation of the revival scheme,
as contemplated under the provisions of SICA 1985. This is
what is required to be avoided for effective implementation
of the scheme. The other facet of the same section is
that, no suit for recovery of money, or for enforcement
of any security against the industrial company, or any
guarantee in respect of any loan or advance granted to
the industrial company shall lie, or be proceeded with
further without the consent of BIFR. In other words, a suit
for recovery and/or for the stated kind of reliefs cannot lie
or be proceeded with further without the leave of BIFR.
Again, the intention is to protect the properties/assets of
the sick industrial company, which is the subject-matter
of the scheme.
80. It is difficult to state with precision the principle that
would uniformly apply to all the proceedings/suits falling
under Section 22(1) of SICA 1985. Firstly, it will depend
upon the facts and circumstances of a given case, it must
satisfy the ingredients of Section 22(1) and fall under any
of the various classes of proceedings stated thereunder.
Secondly, these proceedings should have the impact of
interfering with the formulation, consideration, finalisation
or implementation of the scheme.”
(Emphasis supplied)
83. While the decisions in each of the aforesaid cases should be seen
in the context of the specific factual situation therein, there is a
common thread that binds them all together. All of the aforesaid
decisions proceed on the footing that any proceeding which can
possibly interfere with the formulation, consideration, finalisation
or implementation of a rehabilitation scheme as envisaged under
Chapter III of the Act, has to be suspended under Section 22(1) of
the 1985 Act.
84. It is the above purpose which the scheme of Section 22(1) seeks to
achieve by suspending the proceedings of the nature either mentioned
specifically in the provision, or the proceedings of a like nature.
Although this Court has interpreted the provision liberally by widening
the ambit of its protective umbrella, yet it has also been mindful to
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extend such protection only to such cases where the refusal to allow
such extension would result in miscarriage of the very purpose of
the Act, which is the expeditious revival of sick companies.
85. The ameliorative object of the 1985 Act, as envisaged by the
legislature, is sought to be achieved, inter alia, by the smooth
formulation and implementation of a rehabilitation scheme. Thus, if
any impediment exists to the successful execution of the scheme,
such an impediment is curtailed at the outset by the embargo provided
under Section 22(1) of the 1985 Act.
86. It can be said without a cavil of doubt that the proceedings in the
nature of execution or distress by way of appointment of receiver or
attachment of immovable property, bank accounts, etc. would affect
the assets of a sick company and may inevitably come in the way of
the preparation or execution of the rehabilitation scheme. However, to
hold that the protective shield of Section 22(1) of the 1985 Act would
apply even to those proceedings which do not have any impact on
the prospects of successful formulation and implementation of the
scheme, and the possibility of revival of the sick company, would run
contrary to the object of the Act, which was never to confer absolute
immunity or impunity on the sick company.
87. Thus, as explained in paragraph 67 of this judgment, a perusal
of the plain text of Section 22(1) of the 1985 Act brings out only
two conditions for the suspension of legal proceedings to operate.
However, various decisions of this Court, by necessary implication,
have read into the said provision a third condition which too has to
be fulfilled before a sick company can seek protection of the said
provision. This third condition is that for a legal proceeding to be
suspended under Section 22(1) of the 1985 Act, it should be shown
to be interfering with the formulation, consideration, finalisation or
implementation of a rehabilitation scheme.
88. A Single Judge of the Delhi High Court has explained very succinctly
these conditions in Goyal MG Gases Pvt. Ltd. v. SBQ Steels Ltd.
reported in 2016 SCC OnLine Del 5100 thus:
“25. The applicability of embargo contained in Section 22(1)
of SICA requires the cumulative and conjoint satisfaction
of two conditions; namely; a) the proceeding sought to
be suspended should clearly satisfy the ingredients of
[2024] 5 S.C.R. 367

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

Section 22(1) and fall within one or more of the categories
of proceedings indicated in the said provision and b)
additionally, the continuance of the proceeding should
have the impact of interfering with the formulation of the
scheme.
26. The Supreme Court has also made it clear that the
applicability of the embargo contained in Section 22(1)
of SICA depends on the facts and circumstances of each
individual case; and no principle of universal application
can be laid down in all such matters.
27. The use of the expressions “Firstly” and “Secondly”,
in para 80 of Raheja Universal Ltd. (supra) would make it
clear that both the conditions given in the judgment have
to be satisfied cumulatively. Even if the suit/proceeding
is of the category contemplated in Section 22(1), that by
itself will not attract the bar contained in the said provision,
unless it additionally has the impact of “interfering with the
formulation, consideration, finalisation or implementation
of the scheme.”
(Emphasis supplied)
89. A Division Bench of the Delhi High Court in Saketh India (supra)
considered the scope of Section 22(1) of the 1985 Act in the context
of the object sought to be achieved by it and held that the term ‘suit
for recovery’ as it appears in the said provision must be construed
ejusdem generis, meaning thereby that only such a suit for recovery
which is in the nature of execution or any other coercive enforcement
will be suspended by the effect of the provision. The relevant parts
of the said decision are extracted hereinbelow:
“5. We think it appropriate, however, to consider the
provision of SICA and analyse what it endeavours to
achieve. We must immediately take note of the fact that
SICA has been repealed by Sick Industrial Companies
(Special Provisions) Repeal Act, 2003. While it is yet to be
notified, it is significant that provisions akin to Section 22 are
conspicuous by their absence in the new Scheme of revival
of sick companies inserted in form of Part VIA, namely,
“Revival and Rehabilitation of Sick Industrial Companies”.
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Obviously, empirical analysis discloses that more often
than not companies which have sought shelter of SICA
have done so to procrastinate, delay and defer clearing
its liability, with the obvious intention of coercing creditors
into unfair settlements rather than implementing projected
schemes supposed to assist in their reconstruction. When
the statute is notified, amendments to the Companies Act,
1956 will become effective and all proceedings pending
before BIFR will stand abated. To some extent, therefore,
the present controversy has been rendered academic.
6. Courts, however, have always been alive to the possible
mischief that invocation of SICA can lead to. In a nutshell,
where the not worth of a company is reduced to a negative,
and the amelioration that is sought is for reviving the
company rather than winding it up, the recourse to the
Act would be legitimate. There is no justifiable reason,
therefore, for all legal proceedings to be immediately even
held in abeyance, if not dismissed. We are mindful of the
fact that Parliament has incorporated an amendment in
the Section with effect from 1.2.1994 in these words —
“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”. It appears to us that the
phrase “recovery of money” must be construed ejusdem
generis and accordingly recovery proceedings in the nature
of execution or any other coercive enforcement that has
been ordained to be not maintainable. We do not find any
logic in holding legal proceedings to be not maintainable,
or to be liable to be halted unless, even if the debt sought
to be proved in the Plaint has not been admitted. Given the
delays presently endemic in the justice delivery system if a
creditor is disallowed even from proving the indebtedness
of a recalcitrant debtor SICA company, it would cause
unjustified hardship. Whichever way we look at the matter,
there can be no logic in denying legal recourse to a party
for proving its debt. In the event that at least the principal
[2024] 5 S.C.R. 369

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

amount, or a substantial part of it stands admitted, either
in the suit or by means of a mention in the Scheme placed
before the BIFR, the aggrieved party must be permitted
to prove its claim. In holding so, the only prejudice that
we can conceive of is incurring expenditure in legal fees.
When this is weighed against the interests of a person
claiming that the company is indebted to it, the balance
tilts in favour of the latter. A holistic reading of Section
22(1) of SICA makes it manifestly clear that Parliament’s
intention was to insulate sick companies only against
proceedings for winding-up or for execution, or distress or
the like or for enforcement of any security or guarantee.
In the case in hand, despite several opportunities granted
to the Appellant, it has miserably and perhaps deliberately
failed to substantiate that the claim mentioned in the Suit
has been reflected in the Scheme placed before the BIFR
but even more poignantly, that a scheme was, in fact,
pending before BIFR. If an Appeal is pending, has BIFR
failed to grant or has withdrawn registration under SICA.
We see the conduct of the Appellant as nothing more than
an abuse of SICA.
7. The Apex Court has in Deputy Commercial Tax Officer
v. Corromandal Pharmaceuticals, (1997) 10 SCC 649
enunciated the law in the context of SICA to be that a
cessation of legal proceedings would be justified only if
the dues in respect of which adjudication is ongoing is
also included in or within the contemplation of the Scheme
presented to BIFR. Their Lordships had analysed and
distinguished its previous decisions in Gram Panchayat
v. Shree Vallabh Glass Works Limited, (1990) 2 SCC 440
as well as Maharashtra Tubes Ltd. v. State of Industrial
and Investment Corporation of Maharashtra Ltd., (1993) 2
SCC 144 on the reasoning that in those cases the liability
of the sick company had arisen for the first time after the
sanction of the Scheme by BIFR….
8. In Sirmor Sudburg Auto Ltd. v. Kuldip Singh Lamba,
[1998] 91 Comp. Cas. 727, R.C. Lahoti, J., as the Learned
Single Judge of this Court then was, opined that to be
entitled to a stay of legal proceedings under Section 22
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of the Act, a mere pendency of the enquiry would not
suffice; the claimed dues must be reckoned or included
in the sanctioned scheme. A suit for eviction against a
sick industrial company is not liable to be stayed under
Section 22(1) of the SICA. This decision has been followed
by the Division Bench of the Calcutta High Court in Taulis
Pharma Ltd. v. Bengal Immunity Ltd., [2002] 108 Comp.
Cas. 237. Similar views have also been expressed in
Vibgyar Ink Chem (Pvt.) Ltd. v. Safe Pack Polymers Ltd.,
[1998] 93 Com. Cas. 407, which likewise is a decision
of the Division Bench of the Andhra Pradesh High Court
which enunciates that “an independent transaction de hors
the scheme obviously cannot thus be covered within the
ambit of Section 22 of the 1985 Act”.
9. Justice Lahoti’s view has also been followed by a Single
Bench of the Calcutta High Court in Fort William Industries
Limited v. Usha Bentron Limited, [2002] 108 Comp. Cas.
176. His Lordship, Dr. Mukundakam Sharma, J. has, in
the Cement Corporation of India v. Manohar Basin, 82
(1999) DLT 343 : 1999 (51) DRJ 535 observed that since
no documentary proof had been furnished to disclose that
any scheme stood sanctioned the so-called SICA bar was
not attracted. A Single Bench of the Bombay High Court
in Special Steels v. Jay Prestressed Products Ltd., [1991]
72 Comp. Cas. 277 has opined that the pivotal question
in connection with the current conundrum concerns the
assets of the Company and its functioning, and these
would not be jeopardized if a civil suit continues. In Hardip
Singh v. Income Tax Officer, Amritsar, [1979] 118 ITR 57
(SC) the winding-up petition was allowed to continue and
only when the third and final stage of the dissolution of
the Company came to be reached, was the moratorium
of Section 22 of the SICA enforced.”
(Emphasis supplied)
90. The original plaintiff has placed strong reliance upon the decision of
a single judge of the Delhi High Court in Sunil Mittal (supra). It was
held therein that since the liability was neither admitted nor taken
into consideration by any rehabilitation scheme, the suit proceedings
[2024] 5 S.C.R. 371

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

could not have been adjourned sine die under Section 22(1) of the
1985 Act. The relevant paragraphs are extracted hereinbelow:
“21. In view of the aforesaid facts and circumstances of the
case, I feel as the FChas not admitted its liability to pay the
amount to the tune as claimed by the plaintiff nor such an
amount has been reckoned or taken into consideration by
any scheme of rehabilitation of the sick defendant company,
therefore, the proceedings of the present suit cannot be
adjourned sine die. As a matter of fact the defendant has
not placed on record any documentary evidence to show
that any such scheme has been formulated as yet and if
formulated whether the said amount has been taken care
of allegedly being owed to the Plaintiff.
22. For the aforesaid reasons, I feel that the application
of the Defendant totally misconceived and accordingly,
the same is dismissed.”
(Emphasis supplied)
91. It has come to our notice that the said decision in Sunil Mittal
(supra) was challenged in appeal before a division bench of the
Delhi High Court in LML Ltd. v. Sunil Mittal reported in 2013 SCC
OnLine Del 1766 wherein the bench set aside the decision and held
that Section 22(1) of the 1985 Act would apply to the facts of the
case. The bench observed that from the record it was clear that the
amount as claimed by the plaintiff in the recovery suit was admittedly
covered by the scheme and thus the proceeding was liable to be
suspended by application of Section 22(1) of the 1985 Act. Thus,
the position of law held in Sunil Mittal (supra), could not be said to
have been disturbed, but only its incorrect application to the facts
of the specific case was set aside in LML Ltd. (supra).
92. The decision in LML Ltd. (supra), on the contrary, fortifies the
interpretation of Section 22(1) as was done in Sunil Mittal (supra)
and Saketh India (supra). The relevant paragraph of the decision
in LML Ltd. (supra) is extracted hereinbelow:
“16. The principle of law is thus unambiguous. Where
the amount claimed or the liability sought to be set up is
covered under the scheme, Section 22(1) will be attracted
and there would be an automatic suspension of all legal
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proceedings including a suit for recovery of money. In the
present case, the amount Rs. 21,74,490.88 is admittedly
a part of the DRS pending before the BIFR. The debt of
Rs. 3,00,000/- on account of sales tax dues, the petitioner
admits as his liability. Even if this amount is not permitted
to be adjusted at this stage as has been pointed out by
the learned counsel for the respondent, keeping in view
the wide import of the language of Section 22 of the said
Act there can be no question of continuing with the suit
proceedings. It also cannot be lost sight of the fact that
the parties were maintaining a running account; payments
were being made from time to time; it would thus not
be possible to segregate the element of debt since the
question would be whether the debt due to the plaintiff
is correctly reflected or a lesser amount is in fact due
to him. The language of Section 22 would take into its
sweep a situation even where if the full amount is not a
part of the DRS. The question of continuation of the suit
would not arise.”
(Emphasis supplied)
93. In M/s Haryana Steel & Alloys Ltd. v. M/s Transport Corporation
of India reported in (2012) SCC OnLine Del 2140 it was held that
the mere contention of the sick company unsubstantiated by any
material indicating that the amount forming subject-matter of the
recovery suit is covered under the scheme, would not be sufficient to
bring the company under the protective ambit of Section 22(1) of the
Act. The relevant paragraphs of the said decision are extracted thus:
“11. However, there is another dimension to the said
embargo placed on filing of the suit for recovery against
a company when the proceedings are pending under the
SICA, which is the necessity of the inclusion of the dues
payable by the company to the plaintiff in the scheme
formulated before the BIFR. It is a settled legal position
that it is not by mere pendency of an enquiry under Section
16 of the said Act or preparation of the scheme thereof
being under consideration or even filing of an appeal under
section 25 before the appellate authority that by itself would
entitle the appellant for the said statutory injunction against
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Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

the respondent/plaintiff as the benefit of the prohibition
or embargo created under section 22 of the Act would
come into operation only where the appellant/defendant
has disclosed before the Court, that the amounts claimed
by the respondent/plaintiff have been duly shown and
disclosed in the scheme formulated and laid before the
BIFR. The Apex Court in the case of Deputy Commercial
Tax Officer v. Corromandal Pharmaceuticals, (1997) 10
SCC 649 enunciated the law to hold that a cessation of
legal proceedings would be justified only if the dues in
respect of which adjudication is ongoing is also included
in the contemplation of scheme presented by BIFR…
xxx xxx xxx
14. In the light of the above settled legal position, analyzing
the facts of the case at hand, it is manifest that no material
was placed on record by the appellant to show that the
amount in respect of which the respondent laid its claim
in the said recovery suit was reflected in the scheme
laid before the BIFR. The only contention raised by the
appellant before the trial court as well as before this
Court was that the prohibition or embargo as envisaged
in Section 22 would come into operation immediately
once the defendant brings to the notice of the Court that
an inquiry under Section 16 is pending before the Board
or an appeal is pending relating to the said inquiry before
the Appellate Authority. Having failed to place any such
material on record, this Court is of the clear view that the
bar or embargo envisaged under Section 22 of the Act will
not apply to the facts of the present case as the appellant
cannot take the advantage of the said provision merely
because an inquiry under Section 16 was pending before
the BIFR or an Appeal under Section 25 against the order
of BIFR was pending before the AAIFR.”
(Emphasis supplied)
94. In Kusum Products Ltd. v. Hitkari Industries Ltd. reported in
2014 SCC OnLine Del 4926, a learned Single Judge of the Delhi
High Court, relying upon the decision in Raheja Universal (supra)
held that a suit for recovery of money simpliciter will not be liable
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to be suspended under Section 22(1) of the 1985 Act. It was
observed thus:
“3. The aforesaid paragraphs show that the proceedings
for which prior permission is required under Section 22 of
SICA are proceedings in the nature of execution, distress
or like. It is not every suit or every suit for recovery which
automatically becomes proceedings in the nature of
execution, distress or like, and only such suits of recovery
where there would be proceedings which cause liquidation
of assets of a sick company, would be those suits which
would be hit by the bar of Section 22 of SICA.
4. In the present case, the suit for recovery of money is
a suit for recovery of money simplicitor. Counsel for the
plaintiff does not press the interim applications under Order
38 Rule 5 of Code of Civil Procedure, 1908 (CPC) and
Order 39 Rules 1 and 2 CPC. Accordingly, in the subject
suit, there is no threat to the liquidation of the assets of
the sick company and therefore no prior permission is
required under Section 22 of SICA.”
(Emphasis supplied)
95. In FMI Investment Pvt. Ltd. v. Montari Industries Ltd. and Another
reported in (2012) SCC OnLine Del 5354, the High Court undertook
a comprehensive analysis of the dictum as laid in Raheja Universal
(supra) and Saketh India (supra) and held thus:
“6. The salient conclusions which can be arrived at from
reading of the aforesaid paras in the case of Raheja
Universal (supra) are : -
(i) The proceedings which are affected by Section 22(1) are
proceedings in the nature of execution, distress or the like.
(ii) It depends on facts of each case as to whether the
suit is hit by Section 22 i.e. all suits including of recovery,
are not hit by Section 22(1).
(iii) Only those suits which have the effect of execution,
distress or like action against the properties of the sick
company are hit by Section 22 i.e. where a suit is simply
for recovery of moneys, and the properties of a sick
[2024] 5 S.C.R. 375

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

company are not threatened by the proceedings including
interim proceedings such as appointment of receiver,
execution, distress or the like, such suits can continue
without permission under Section 22.
7. Learned counsel for the defendant no. 2 sought to place
reliance on the following three judgments to argue that
permission under Section 22 is a sine qua non.
(i) Managing Director, Bhoruka Textiles Ltd. v. Kashmiri
Rice Industries (2009) 7 SCC 521;
(ii) Tata Davy Ltd. v. State of Orissa (1997) 6 SCC 669;
(iii) Dr. B.K. Modi v. Morgan Securities and Credits Pvt.
Ltd. and Morgan Securities and Credits Pvt. Ltd. v.
Dr. B.K. Modi MANU/DE/2779/2012
8. In my opinion, all the three judgments, which have been
cited on behalf of defendant no. 2 have no application
because the legal position is sufficiently elaborated by
the Supreme Court in the judgment of Raheja Universal
(supra).
9. None of the aforesaid judgments cited on behalf of
defendant no. 2 deal with the issue of interpretation of
Section 22 of SICA as has been done by the Division Bench
of three Judges in the case of Raheja Universal (supra)
and which holds that unless the suit proceedings are in
the nature of ‘execution, distress or the like’, the suit can
continue. The judgments relied upon by the defendant no.
2 are judgments which simply hold that once a company
is a sick company, permission is required under Section
22 of the SICA, however, none of the judgments cited on
behalf of the defendant no. 2 deal with the proposition as
incorporated in the later judgment of the Division Bench of
three Judges of the Supreme Court in the case of Raheja
Universal (supra). Accordingly, it is held that the suit is
maintainable.
10. In the present suit for recovery it cannot be said that
the suit is of a nature which has impact of or threat to
the properties of the defendant No. 1 sick company to
affect the scheme of revival. The suit is a simple suit for
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recovery under Order 37 CPC not having proceedings,
whether interim or final, of execution, distress or the
like and hence the suit is not hit by Section 22 of SICA.
So far as defendant No. 2/guarantor is concerned, the
suit against him will not surely hit any assets of the sick
company and hence is not barred under Section 22 of
SICA.”
(Emphasis supplied)
96. In one recent decision of the Delhi High Court in Chhattisgarh
Distilleries Ltd. v. Percept Advertising Limited reported in 2023
SCC OnLine Del 6417, while considering the question on applicability
of Section 22(1) of the 1985 Act, it was held thus:
“8. It is well settled that there was legal duty cast upon the
appellant/defendant to bring it to the notice of the Court that
it had qualified for the protection under the SICA, and this
obligation was not discharged. There is no gainsaying that
the aforesaid provision has been interpreted in umpteen
number of cases decided by the Apex Court as well as this
Court. In the cited case of Saketh India Limited (supra), it
was observed that the phrase “recovery of money” must
be construed ejusdem generis and accordingly recovery
proceedings in the nature of execution or any other coercive
enforcement that has been ordained to be not maintainable.
There is nothing in the said provision so as to hold the
legal proceedings to be not maintainable, or liable to be
halted, even if the debt sought to be proved in the plaint
has not been admitted. Furthermore, it was observed that
there can be no logic in denying legal recourse to a party
for proving its debt. The said decision was relied upon by
this Court again in the decision of Ralson Industries Ltd.
(now known as Da Rubber Industries Ltd) (supra), wherein
it was categorically held that the proceedings that can be
halted by invoking Section 22 of the SICA should be in
the nature of execution, distress or the like.”
(Emphasis supplied)
97. From the aforesaid discussion, the position of law on the first issue
before us appears to be that for the applicability of Section 22(1) of
the 1985 Act, three aspects need to be considered –
[2024] 5 S.C.R. 377

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

I. First, an inquiry under Section 16 of the 1985 Act must be
pending; or any scheme referred to in Section 17 of the 1985
Act must be under preparation or consideration or a sanctioned
scheme must be under implementation; or an appeal under
Section 25 of the 1985 Act must be pending – in relation the
company against whom the legal proceedings sought to be
suspended have been initiated.
II. Secondly, the proceedings must be one from amongst the six
types as described in paragraph 65 of this judgment, or of a
similar nature, i.e. ejusdem generis to the said six types of
proceedings.
III. Thirdly, the proceedings must have the effect of threatening the
assets of the sick company and interfering with the formulation,
consideration, finalisation or implementation of the scheme.
98. Applying the aforesaid tests to the facts of the present case, we have
already observed that requirement (i) is fulfilled. The proceeding in
question being a suit for recovery of money, requirement (ii) is also
satisfied. However, we are of the considered opinion that the third
requirement is not fulfilled. We say so because the suit for recovery
was not of a nature which could have proved to be a threat to the
properties of the defendant sick company or would have adversely
impacted the scheme of revival. The suit was a simple suit for recovery
of money towards the dues arising under the alleged illegal deductions
under the contract. This cannot be said to be a proceeding in the
nature of execution, distress or the like and hence the suit was not
hit by Section 22(1) of the 1985 Act.
99. By no stretch of imagination could it be said that the legislature
intended to include even the proceedings for the adjudication of the
liabilities not admitted by a sick company within the protective ambit
of Section 22(1) of the 1985 Act. Such an adjudicatory process only
determines the liability of the defendant towards the plaintiff, and
does not threaten the assets of the sick company or interfere with
the formulation of the scheme unless execution proceedings are
initiated pursuant to the completion of such adjudicatory process. In
the case of Jay Engineering (supra), it was rightly observed by this
Court in the context of arbitration proceedings under the 1993 Act
for the adjudication of claims, that while the execution of an award
would definitely be suspended under Section 22(1) of the 1985
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Act, the adjudicatory process for arriving at such an award cannot
be said to be suspended by the said provision. This position also
seems to be justified in light of the fact that the proceedings before
the BIFR under the 1985 Act were generally long-drawn and time
consuming and it would subserve the interest of justice if a party was
prevented even from proving the debt/liability of the sick company
for the entirety of that lengthy period.
100. We may also look at Section 22(1) of the 1985 Act by applying
the mischief rule of interpretation. G.P. Singh in his authoritative
commentary on the interpretation of statutes describes the mischief
rule of construction as follows:
“The rule which is also known as ‘purposive construction’
or ‘mischief rule’, enables consideration of four matters
in construing an Act: (i) What was the law before the
making of the Act, (ii) What was the mischief or defect for
which the law did not provide, (iii) What is the remedy that
the Act has provided, and (iv) What is the reason of the
remedy. The rule then directs that the courts must adopt
that construction which “shall suppress the mischief and
advance the remedy.””
101. Applying the aforesaid rule to Section 22(1) of the Act, we find that
there was a vacuum in the legal framework to deal with sick industrial
companies and provide ameliorative steps for their revival. The 1985
Act was thus enacted to fill in this vacuum. The mischief which was
sought to be dealt with by the enactment of Section 22 was any such
legal proceeding which could impact the assets of the sick company
and in-turn negatively impact the formulation and implementation
of the rehabilitative scheme. This provision was inserted to provide
a remedy by ensuring that the multiple recourses available under
the law for recovery of debts, etc. were suspended for the period
during which the sick company was under the ameliorative shelter
of the BIFR. Finally, it can be said that the reason for the remedy
was to shield the formulation and implementation of the revival
scheme from any impediments thereby maximising the chances of
revival of sick company, which was the ultimate object sought to be
achieved by the Act.
102. The original defendants have placed strong reliance on 3 decisions of
this Court in Jay Engineering (supra), Bhoruka Textiles (supra) and
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Tata Motors (supra) respectively. We have discussed in the foregoing
parts of this judgment as to how this Court in Jay Engineering
(supra) expressly observed that it was not the adjudicatory process,
but the execution of an award which would be restricted by Section
22(1) of the 1985 Act. This judgment, thus, only furthers the line of
reasoning we have adopted to negate the contention of the original
defendants on the applicability of Section 22(1) of the 1985 Act.
103. The decision in Bhoruka Textiles (supra) dealt with the specific facts
in that case and should be read alongwith the decision in Raheja
Universal (supra) wherein the scope of Section 22(1) of the 1985
Act was considered in detail by a three-Judge bench. We would also
like to observe that the reliance placed by this Court in Bhoruka
Textiles (supra) on the decision in Tata Motors (supra) seems to
be misplaced. The relevant paragraph of Bhoruka Textiles (supra)
is reproduced hereinbelow:
“10. Section 22 of the Act must be interpreted giving a plain
meaning to its contents. An enquiry in terms of Section
16 of the Act by the Board is permissible upon receipt of
a reference. Thus, reference having been made on 27-
12-2001 and the suit having been filed on 17-12-2002,
the receipt of a reference must be held to be the starting
period for proceeding with the enquiry.
11. The effect of the provisions of the Act has been
considered by a three-Judge Bench decision of this Court
in Tata Motors Ltd. v. Pharmaceutical Products of India
Ltd. [(2008) 7 SCC 619] wherein it, in no uncertain terms,
held that SICA is a special statute and, thus, overrides
other Acts like the Companies Act, 1956, stating: (SCC
p. 635, paras 31-33)
“31. SICA furthermore was enacted to secure the
principles specified in Article 39 of the Constitution
of India. It seeks to give effect to the larger public
interest. It should be given primacy because of its
higher public purpose. Section 26 of SICA bars the
jurisdiction of the civil courts.
32. What scheme should be prepared by the operating
agency for revival and rehabilitation of the sick
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industrial company is within the domain of BIFR.
Section 26 not only covers orders passed under
SICA but also any matter which BIFR is empowered
to determine.
33. The jurisdiction of the civil court is, thus, barred in
respect of any matter for which the Appellate Authority
or the Board is empowered. The High Court may not
be a civil court but its jurisdiction in a case of this
nature is limited.”
12. If the civil court’s jurisdiction was ousted in terms of the
provisions of Section 22 of the Act, any judgment rendered
by it would be coram non judice. It is a well-settled principle
of law that a judgment and decree passed by a court or
tribunal lacking inherent jurisdiction would be a nullity. In
Kiran Singh v. Chaman Paswan [AIR 1954 SC 340] this
Court held: (AIR p. 342, para 6)
“6. … It is a fundamental principle well established
that a decree passed by a court without jurisdiction
is a nullity, and that its invalidity could be set up
whenever and wherever it is sought to be enforced
or relied upon, even at the stage of execution and
even in collateral proceedings. A defect of jurisdiction,
whether it is pecuniary or territorial, or whether it is
in respect of the subject-matter of the action, strikes
at the very authority of the court to pass any decree,
and such a defect cannot be cured even by consent
of parties.”
(See also Chief Engineer, Hydel Project v. Ravinder
Nath [(2008) 2 SCC 350 : (2008) 1 SCC (L&S) 940],
SCC p. 361, para 26.)”
104. A perusal of the above indicates that in Tata Motors (supra), it
was Section 26 and not Section 22 of the 1985 Act which was
under consideration. As opposed to Section 26 of the Act, which
bars the jurisdiction of the civil courts in respect of those matters
for which the BIFR or the AAIFR are empowered, Section 22 only
places a temporary embargo on the initiation or continuation of legal
proceedings in respect of certain matters mentioned therein. Further,
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unlike Section 22, where the said suspension can be revoked by
seeking express permission of the BIFR or the AAIFR, no such
permission can be sought under Section 26 of the 1985 Act. Again,
in any view of the matter, the adjudication and determination of a
contested liability under a contract is undoubtedly the domain of the
civil court or an arbitral tribunal and not that of the BIFR or the AAIFR.
v. ISSUE NO. 2: Whether the High Court was correct in granting
24% Compound Interest on the Principal Decretal Amount
in favour of the original Plaintiff?
105. The High Court in its impugned judgment considered, as a separate
issue, whether the original plaintiff was entitled to claim 24%
compound interest from the original defendants on the delayed
payments.
a. Concept of Interest
106. When interest is awarded by the Court, our normal feeling is that it
is so awarded by way of penalty or punishment. But interest in all
cases is not granted by way of penalty or punishment. In this regard,
reference may be made to the decision of this Court in the case of
Alok Shanker Pandey v. Union of India, reported in 2007 AIR (SC)
1198, wherein the concept of grant of interest has been explained
in the following manner:
“It may be mentioned that there is misconception about
interest. Interest is not a penalty or punishment at all, but
it is the normal accretion on capital. For example, if A
had to pay B a certain amount, say ten years ago, but he
offers that amount to him today, then he has pocketed the
interest on the principal amount. Had A paid that amount
to B ten years ago, B would have invested that amount
somewhere and earned interest thereon, but instead of that
A has kept that amount with himself and earned interest on
it for this period. Hence equity demands that A should not
only pay back the principal but also interest thereon to B.”
107. The above-noted decision of this Court makes it clear that interest
on the delayed payment of the claim amount accrues due to the
continuing wrong committed by the wilful withholding of the payment
towards the claim, resulting in a continuous injury until such payment
is made, or in other words, until the claim is realised.
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108. The High Court relied upon the provisions of the 1993 Act to hold
that as per Sections 4 and 5 respectively of the said legislation,
the original plaintiff, which was a small-scale industrial undertaking,
was entitled to claim compound interest @ 24% per annum from
the original defendants. As a result, the High Court set aside the
decree of the trial court which granted 12% simple interest in favour
the original plaintiff.
109. The original defendants are aggrieved by the awarding of 24% interest
in favour of the original plaintiff, which they contend has resulted in
the principal decretal amount getting inflated exorbitantly. The original
plaintiff, on the other hand, has argued that the impugned judgment
of the High Court insofar as it deals with the issue of interest cannot
be said to suffer from any infirmity and was arrived at after due
consideration of relevant material viz. the Handbook of Statistics of
Indian Economy published by the Reserve Bank of India, etc. and
after hearing the parties at length.
110. The original plaintiff has further submitted that the High Court
considered the floor rate charged by the SBI for the financial year
1993-1994, which was 19%, as observed under the Table 74 on
Structure of Interest Rates in the Handbook of Statistics of Indian
Economy published by the Reserve Bank of India.
111. We shall briefly consider the object and scope of the 1993 Act for a
better understanding of the issue before us. The Interest on Delayed
Payments to Small Scale and Ancillary Industrial Undertakings
Ordinance, 1992 was promulgated by the President of India on
23.09.1992. To replace this ordinance, the 1993 Act was enacted
on 02.04.1993 and came into force with retrospective effect from
23.09.1992. Subsequently, the 1993 Act was repealed by the Micro
Small and Medium Enterprises Development Act, 2006 (“MSMED
Act, 2006”). The statement of objects and reasons to the 1993 Act
reads as under:
“A policy statement on small scale industries was made by
the Government in Parliament. It was stated at that time
that suitable legislation would be brought to ensure prompt
payment of money by buyers to the small industrial units.
2. Inadequate working capital in a small scale or
an ancillary industrial undertaking causes serious
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and endemic problems affecting the health of such
undertaking. Industries in this sector have also been
demanding that adequate measures be taken in this
regard. The Small Scale Industries Board, which is an
apex advisory body on policies relating to small scale
industrial units with representatives from all the States,
governmental bodies and the industrial sector, also
expressed this view. It was, therefore, felt that prompt
payments of money by buyers should be statutorily
ensured and mandatory provisions for payment of interest
on the outstanding money, in case of default, should be
made. The buyers, if required under law to pay interest,
would refrain from withholding payments to small scale
and ancillary industrial undertakings.
3. An Ordinance, namely, the Interest on Delayed Payments
to Small Scale and Ancillary Industrial Undertakings
Ordinance, 1992, was, therefore, promulgated by the
President on the 23rd September, 1992.
4. The Bill seeks to replace the said Ordinance and to
achieve the aforesaid objects.”
112. It is evident from the aforesaid statement of objects and reasons that
the legislature desired to bring about a legislation which would ensure
prompt payment of money to small scale units, as the absence of
working capital may have severe impacts on the functioning of small
scale and ancillary industries. The 1993 Act envisaged that there
should be minimal delay in payments to small scale units. Section 2
of the 1993 Act provides for the certain important definitions which
are reproduced hereinbelow:
“(b) “appointed day” means the day following immediately
after the expiry of the period of thirty days from the date
of acceptance or the day of deemed acceptance of any
goods or any services by a buyer from a supplier;
Explanation.—For the purposes of this clause,—
(i)“the day of acceptance” means,—
(a) the day of the actual delivery of goods or the
rendering of services; or
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(b) where any objection is made in writing by the
buyer regarding acceptance of goods or services
within thirty days from the day of the delivery of
goods or the rendering of services, the day on
which such objection is removed by the supplier;
(ii) “the day of deemed acceptance” means, where no
objection is made in writing by the buyer regarding
acceptance of goods or services within thirty days from the
day of the delivery of goods or the rendering of services,
the day of the actual delivery of goods or the rendering
of services;
(c) “buyer” means whoever buys any goods or receives
any services from a supplier for consideration;
xxx xxx xxx
(f) “supplier” means an ancillary industrial undertaking or
a small scale industrial undertaking holding a permanent
registration certificate issued by the Directorate of Industries
of a State or Union territory and includes,—
(i) the National Small Industries Corporation, being a
company, registered under the Companies Act, 1956 (1
of 1956);
(ii) the Small Industries Development Corporation of a
State or a Union territory, by whatever name called, being
a company registered under the Companies Act, 1956 (1
of 1956).]”
113. Section 3 of the 1993 Act provides for the liability of the buyer to
make payment to the small-scale industries whereas Section 4 and
5 respectively of the said Act pertain to the date from which and
the rate at which interest is payable. Section 5 of the 1993 Act also
stipulates that the buyer shall be liable to pay compound interest.
Sections 3, 4 and 5 respectively of the 1993 Act, as existing at the
time when the dispute between the parties arose, are reproduced
thus: -
“3. Liability of buyer to make payment - Where any
supplier supplies any goods or renders any services to
any buyer, the buyer shall make payment therefor on or
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before the date agreed upon between him and the supplier
in writing or, where there is no agreement in this behalf,
before the appointed day.
4. Date from which and rate at which interest is
payable - Where any buyer fails to make payment of the
amount to the supplier, as required under section 3, the
buyer shall, notwithstanding anything contained in any
agreement between the buyer and the supplier or in any
law for the time being in force, be liable to pay interest to
the supplier on that amount from the appointed day or,
as the case may be, from the date immediately following
the date agreed upon, at such rate, which is five per cent
points above the floor rate for comparable lending.
Explanation: For the purposes of this section, “floor rate for
comparable lending” means the highest of the minimum
lending rates charged by scheduled banks (not being co-
operative banks) on credit limits in accordance with the
directions given or issued to banking companies generally
by the Reserve Bank of India under the Banking Regulation
Act, 1949 (10 of 1949).
5. Liability of buyer to pay compound interest -
Notwithstanding anything contained in any agreement
between a supplier and a buyer or in any law for the time
being in force, the buyer shall be liable to pay compound
interest (with monthly interest) at the rate mentioned in
section 4 on the amount due to the supplier.”
114. On a perusal of Section 3 of the 1993 Act, we find that where any
supplier supplies any goods, the buyer shall make payment on or
before the date agreed upon between him and the supplier in writing
or, where there is no agreement in this behalf, before the appointed
day. In the instant case, as per the terms of the NIT, payment was
to be made within 20 days from the receipt of the goods.
115. As discussed in the preceding paragraphs of this judgment, the High
Court has awarded 24% compound interest on the amounts due
to the original plaintiff from the date the amounts were determined
to have become due till the date of their realisation by the original
plaintiff. While there is no doubt that the rate of interest applicable
to the dues of the original plaintiff as determined by the High Court
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is correct, we think it is necessary to examine if the compound
interest can be said to have continued to accrue even when FCIL
was declared a sick company and was awaiting its revival before
the BIFR. In other words, it is not the rate of interest but the period
for which it is applicable, is the question that is to be determined.
116. We have discussed at length in the foregoing paragraphs of the
judgment the object behind the enactment of the 1985 Act. Sickness
of industrial companies was considered to be a problem that affected
the country at large, and thus the 1985 Act was enacted as per the
policy directions contained in Article 39 of the Constitution to provide,
inter alia, ameliorative steps for the revival of sick companies, and for
the expeditious detection of potentially sick companies. In particular,
we would like to mention that Section 19 of the 1985 Act provides
that the scheme for rehabilitation of a sick company may provide for
financial assistance to the sick company by way of loans, advances,
reliefs or concessions or sacrifices from the Central Government, a
State Government, a public financial institution etc.
117. In the present case, in pursuance of Section 19 of the Act, a number
of decisions were taken by the CCEA on 09.05.2013 including the
waiver of loans and interest thereon by the Central Government
which ran into thousands of crores. As per the document F.No.
18055/13/2012-FCA-1 titled “Gist of the CCEA decisions dated 09th
May, 2013” published by the Ministry of Chemicals and Fertilizers,
it appears that the dues of the major unsecured creditors were
settled at 30% of their dues as on 31.03.2003. Further, the dues of
some other parties were settled without any interest or penalty, as
otherwise the entire process of revival might have gotten derailed.
118. We have also discussed how Section 22(1) of the 1985 Act suspends
any legal proceedings of the nature specified therein if they can
potentially interfere with the consideration, sanction or execution
of the rehabilitation scheme. The intention behind the sanction and
execution of a rehabilitation scheme, without a doubt, is to increase
the chances of the revival of the sick company in public interest.
119. Thus, on one hand we have the beneficial provisions of the 1985
Act, enacted to maximise the chances of revival of sick industrial
companies, while on the other, we have the 1993 Act, which was
enacted with the intention to ensure that small-scale industries are
paid their dues in time. This object of the 1993 Act was sought to be
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achieved by providing a high interest rate, with monthly compounding,
so as to act as a deterrent for the buyers.
120. A preliminary contention was raised by the original defendants that
the original plaintiff chose to institute a civil suit for recovery of money,
rather than following the process prescribed under Section 6 of the
1993 Act, which provides for the referring of a dispute arising under
the 1993 Act to arbitration before the Industry Facilitation Council,
and thus for this reason, the suit for recovery, which is expressly
suspended under Section 22(1) of the Act, should be held as not
maintainable. It was also argued that even otherwise no interest
should be granted on the amount claimed as due since the mechanism
prescribed under Section 6(2) of the 1993 Act was not followed.
121. Section 6 of the 1993 Act reads as follows:
“6. Recovery of amount due -
(1) The amount due from a buyer, together with the
amount of interest calculated in accordance with the
provisions of sections 4 and 5, shall be recoverable by
the supplier from the buyer by way of a suit or other
proceeding under any law for the time being in force.
(2) Notwithstanding anything contained in 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 dispute as if the arbitration or conciliation were
pursuant to an arbitration agreement referred to in
sub-section (1) of section 7 of that Act.”
122. We do not find any force in this contention of the original defendants.
Section 6 merely provides that for the purpose of recovery of the
amounts due under the 1993 Act, a supplier may make a reference to
the Industries Facilitation Council, which is established under Section
7A of the 1993 Act. First, at the time of the institution of the suit by
the original plaintiff, the Industries Facilitation Councils didn’t exist
as the provision for their establishment was only brought in vide an
amendment in 1998. Secondly, even otherwise, Section 6(2) of the
1993 Act merely provides for an alternate avenue to the supplier in
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addition to a suit or any other legal proceedings as mentioned in
Section 6(1) of the 1993 Act.
123. It is also pertinent to mention that in the absence of the express
permission of the BIFR, Section 22(1) of the 1985 Act suspends any
legal proceedings in the nature of execution during the pendency of
the scheme before the BIFR, as execution would necessarily result in
negatively impacting the assets of a sick company, thereby affecting
the preparation, sanction or implementation of scheme and as a net
effect, would bring down the chances of revival of the sick company.
124. In the present case, the suit was decreed in favour of the original
plaintiff by the trial court vide its judgment dated 19.09.2001. However,
while the adjudication of the suit of the original plaintiff could not
have been said to be barred under Section 22(1) of the 1985 Act as
it was for the mere determination of liability of the parties inter-se,
the execution of decree obtained as a result thereof was expressly
suspended during the period as mentioned in the said provision,
unless the requisite permission from the BIFR or the AAIFR could
be obtained.
125. Interest of justice requires that both the 1985 Act and the 1993
Act, which are in the nature of beneficial enactments, should be
read harmoniously so as to impart a meaningful construction to the
language of each of the enactments. It was held in Jay Engineering
(supra) on the interplay between the two Acts as follows:
“13. 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.
14. 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.”
(Emphasis supplied)
126. In our opinion, it would defy logic to hold that even for the period
when the principal decretal amount awarded by the civil court under
a decree could not have been realised in lieu of the suspension of
execution proceedings, interest would continue to mount on the
principal decretal amount. Thus, while there is a stay on proceedings
in the nature of distress and execution, etc. against the properties of
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the sick company, to safeguard its assets, awarding interest for that
very same period, though not expressly barred under any provision
of the Act, could not have been the intention of the legislature.
127. Any other interpretation would only lead to an absurd result that as
soon as a sick company is revived after the steps taken by the BIFR,
and concessions, financial support, etc. provided by the government,
it would be prone to the liability of having to pay exorbitant interest
that would have accrued on any decree which can be put to execution
after the end of BIFR proceedings.
128. The net effect would be that a freshly revived sick company would
potentially be saddled with huge amounts, as has happened in the
present case because of the impugned judgment, and be at a risk
of being rendered sick again, thus defeating the very purpose of
the 1985 Act.
129. A two-judge bench of this Court, in a recent decision in Modi
Rubber Ltd. v. Continental Carbon India Ltd., reported in 2023
SCC OnLine SC 296 decided the issue as to whether it was open
to an unsecured creditor to not accept the scaled down value of its
dues, as computed in the rehabilitation scheme, and wait for the
revival of the sick company to recover its debt with interest post
the rehabilitation. This Court, after an exhaustive consideration of
the object of the 1985 Act, answered the issue in the negative and
held as follows:
“40. The short question, which is posed for the consideration
of this Court is:—
“Whether on approval of a scheme by the BIFR under the
Sick Industrial Companies (Special Provisions) Act, 1985,
an unsecured creditor has the option not to accept the
scaled down value of its dues, and to wait till the scheme
for rehabilitation of the respondent - sick company has
worked itself out, with an option to recover the debt with
interest post such rehabilitation?”
xxx xxx xxx
49. Thus, the primary concern of the Board would be the
revival of the sick company and to save the sick company
from winding up. That is why with a view to see that there
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is no impediment in framing the rehabilitation scheme and
to get out the sick company from sickness. Section 22
provides for suspension of legal proceedings, contracts
etc. On a bare reading of Section 22 and Section 22A of
SICA, it appears that these two provisions primarily ensure
that the scheme prepared by BIFR does not get frustrated
because of certain other legal proceedings and to prevent
untimely and unwarranted disposal of the assets of the sick
industrial company. These sections clearly state certain
restrictions which will impact upon the implementation
of the scheme as well as on the assets of the company.
xxx xxx xxx
53. Keeping in mind the statement of objects and reasons
for enactment of SICA, 1985 and the powers exercised
by the BIFR and the primary concern to revive the sick
industry for which the rehabilitation scheme is to be framed
under Section 18, the question posed is required to be
considered.
xxx xxx xxx
56. The operating agency is defined under Section 3(i)
and it means any public financial institution, State-level
institution, scheduled bank or any other person as may
be specified by general or special order as its agency
by the Board. No other persons including the unsecured
creditors comes into picture like preparing the scheme
under Section 18. Section 18 of the SICA does not provide
that at the time of preparing of the scheme under Section
18 or when it is sanctioned by the Board, the unsecured
creditors are required to be heard. The only provision
for the consent required is Section 19 and the agency/
person, who is required to give the financial assistance,
its consent is required. Once the rehabilitation scheme/
scheme under Section 18 prepared by the operating agency
is sanctioned by the BIFR, which may include the scaling
down the value of dues of the unsecured creditors, the
same shall bind all, otherwise the rehabilitation scheme
shall not be workable at all and the object and purpose
of enactment of the SICA, 1985 will be frustrated. If some
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persons/unsecured creditors and/or even the labourers
are permitted to get out of the purview of the scheme
and thereafter permitting such or some of the unsecured
creditors to wait till the scheme for rehabilitation of the sick
company has worked itself out, in that case, the scheme
shall not be workable at all. To make the company viable,
the concerned persons including the unsecured creditors
have to sacrifice to some extent otherwise the revival
efforts shall fail.
xxx xxx xxx
59. If the submission on behalf of the unsecured creditors,
which has been accepted by the High Court in the case of
Continental Carbon India Ltd. (supra) that an unsecured
creditor can opt out of the scheme sanctioned by the BIFR
under the SICA, 1985 and is allowed not to accept the
scaled down value of its dues and may wait till the scheme
for rehabilitation of the sick company has worked itself out,
with an option to recover the debt post such rehabilitation
is accepted/allowed, in that case, the minority creditors may
frustrate the rehabilitation scheme, which may frustrate the
object and purpose of enactment of SICA, 1985.
xxx xxx xxx
61. Thus, minority creditors and that too some unsecured
creditors cannot be permitted to stall the rehabilitation
of the sick company by not accepting the scaled down
value of its dues. Unless and until there is a sacrifice by
all concerned, including the creditors, financial institutions,
unsecured creditors, labourers, there shall not be any
revival of the sick industrial company/company.
62. Now, so far as the submission on behalf of the
unsecured creditors that the unsecured creditors should
have an option not to accept the scaled down value of
its dues and to wait till the scheme for rehabilitation of
the sick company has worked itself out, with an option
to recover the debt post such rehabilitation is concerned,
the same has no substance and cannot be accepted. It
is required to be noted that in a given case, because of
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the scaling down of the value of the dues of the creditors,
the company survives. The company has survived in view
of the rehabilitation scheme because of the sacrifice/
scaling down the value of the dues of the creditors
including the financial institutions. How such a benefit
can be permitted to be given to the unsecured creditors,
who does not accept the scaled down value of its dues.
Such an unsecured creditor cannot be permitted to take
the benefit of the revival scheme, which is at the cost
of other creditors including the financial institutions and
even the labourers.
63. Now, so far as the view taken by the High Court
that the unsecured creditor had an option not to accept
the scaled down value of its dues and can wait till the
scheme for rehabilitation of the company has worked itself
out with an option to recover the debt with interest post
such rehabilitation is accepted, in a given case, the sick
company, which has been able to revive because of the
scaling down the value of the dues, may again become
sick, if the entire dues of the unsecured creditors are to
be paid thereafter. It may again lead to becoming such a
revived company again as a sick company. If such a thing
is permitted, in that case, it will again frustrate the object
and purpose of enactment of the SICA, 1985.
64. Now, so far as the submission on behalf of the
unsecured creditors that to compel the unsecured creditors
to accept the scaled down value of its dues would
tantamount to and would be violative of Article 300A of the
Constitution of India is concerned, the same has also no
substance. Scaling down the value of the dues is under
the rehabilitation scheme prepared under Section 18 of
the SICA, which has a binding effect on all the creditors.
Therefore, the same cannot be said to be violative of Article
300A of the Constitution of India. The law permits framing
of the scheme taking into consideration and to provide
the measures contemplated under Section 18, therefore,
the rehabilitation scheme which provides for scaling down
the value of dues of the creditors/unsecured creditors and
even that of the labourers cannot be said to be violative
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of Article 300A of the Constitution of India as submitted
on behalf of the unsecured creditors.
65. In view of the above and for the reasons stated above,
the view taken by the High Court of Delhi in Continental
Carbon India Ltd. (supra) that on approval of a scheme
by the BIFR under the Sick Industrial Companies (Special
Provisions) Act, 1985, the unsecured creditors has an
option not to accept the scaling down value of its dues and
to wait till the rehabilitation scheme of the sick company
has worked itself out with an option to recover the debt with
interest post such rehabilitation is erroneous and contrary
to the scheme of SICA, 1985 and the same deserves to
be quashed and set aside and is accordingly quashed
and set aside.”
(Emphasis supplied)
130. It is clear from the aforesaid observations of this Court that the
revival of a sick industry should be given utmost priority and any
interpretation which may result in a newly revived company becoming
sick again should be avoided at all costs. In the case on hand, the
decree in favour of the original plaintiff was not a part of the scheme
of rehabilitation approved by the BIFR. Had it been so, it is nothing
but obvious that the scheme would have proposed to settle the
dues of the original plaintiff at a scaled down value, since a similar
approach was adopted in the scheme to settle the dues of all the
other creditors. In that scenario, the original plaintiff would not have
had any other option but to accept the scaled down value and settle
its dues as per the dictum in Modi Rubber (supra).
131. The decree awarded by the trial court was contested by both the
parties before the High Court. No material was placed before us to
show whether any steps were taken by the original plaintiff to obtain
the permission of the BIFR for the execution of the decree of the
trial court, or for the inclusion of the said decree in the rehabilitation
scheme. At the same time, the original defendants too failed to bring
anything on record to show if any steps were taken by them for
the inclusion of the dues of the original plaintiff in the rehabilitation
scheme.
132. Although the facts of the case on hand are different from the facts in
Modi Rubber (supra), we are of the opinion that the general principles
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enunciated in that case are equally applicable in the present case.
Thus, only for the reason that the dues of the original plaintiff were
not a part of the scheme and thus could not be settled at a scaled-
down value, it cannot be held that it will now be open for the original
plaintiff to recover its dues along with compound interest for the entire
period in a manner that will saddle the defendant company with
enormous liability, thereby possibly rendering the entire process of
its revival futile. This, in our view, could never have been the object
of the 1985 Act and the provisions of the 1993 Act thus have to be
harmonised so as to give effect to the true object of the 1985 Act.
133. We also had the occasion to look into the decision of a 2-Judge bench
of this Court in LML Limited v. Union of India & Others reported in
(2014) 13 SCC 375 wherein this Court was considering the purport
of Section 19 of the MSMED Act, 2006 which is in pari-materia to
the Section 7 of the 1993 Act. The provisions read as under:

MSMED Act, 2006 The 1993 Act
“19. Application for setting aside decree, “7. Appeal –
award or order.
No appeal against
No application for setting aside any decree, any decree, award
award or other order made either by the or other order shall
Council itself or by any institution or centre be entertained by
providing alternate dispute resolution services any court or other
to which a reference is made by the Council, a u t h o r i t y u n l e s s
shall be entertained by anyf court unless the the appellant (not
appellant (not being a supplier) has deposited being a supplier)
with it seventy-five per cent. of the amount has deposited with
in terms of the decree, award or, as the it seventy-five per
case may be, the other order in the manner cent. of the amount
directed by such court: in terms of the
decree, award or,
Provided that pending disposal of the
as the case may be,
application to set aside the decree, award
other order in the
or order, the court shall order that such
manner directed by
percentage of the amount deposited shall
such court or, as the
be paid to the supplier, as it considers
case may be, such
reasonable under the circumstances of the
authority.”
case, subject to such conditions as it deems
necessary to impose.”
[2024] 5 S.C.R. 395

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

134. In the aforesaid case, the petitioner therein, having become a sick
company, filed a reference to the BIFR under Section 15(1) of the
1985 Act. Around the same time, one of the respondents filed a claim
petition before the Industries Facilitation Council under Section 6 of
the 1993 Act. The 1993 Act was replaced by the MSMED Act, 2006
during the pendency of the proceedings. While the reference of the
company remained pending before the BIFR, the Industries Facilitation
Council passed an award in the favour of the said respondent, which
the petitioner sought to appeal under the Section 34 of the Arbitration
and Conciliation Act, 1996. However, both the District Court and the
High Court dismissed the challenge petition for not complying with
the Section 19 of the MSMED Act, 2006, which mandates that 75%
of the decretal/award amount has to be deposited by the appellant
before the appeal can be entertained by the appellate court.
135. However, this Court set aside the dismissal orders and held as follows:
“9. Having regard to the above position, we are satisfied
that this is not a case where we should go into the legal
question noted by us in the beginning of our order. We
are satisfied that interest of justice shall be subserved if
it is directed that failure to deposit the amount as directed
by the District Judge, Kanpur Nagar in its order dated
12-5-2011 would not result in dismissal of the arbitration
petition filed by the petitioner under Section 34 of the 1996
Act challenging the award dated 22-12-2008. The said
arbitration petition may remain pending with the District
Judge until the finalisation of scheme by BIFR under
Section 18 of the 1985 Act. We order accordingly.
10. The special leave petition is disposed of as above.
Respondent 3 is granted liberty to apply to BIFR to hear
it before finalisation of the scheme. We observe that if
such an application is made, BIFR shall hear Respondent
3 before finalisation of the scheme or any other order
that may be passed by BIFR terminating the proceedings
under 1985 Act.”
(Emphasis supplied)
136. We would also like to advert to the principle of harmonious construction
to understand the interplay between the 1985 Act and the 1993 Act.
Simply put, the doctrine of harmonious construction is based on the
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principle that the legislature would not lightly take away from one
hand what it had given with the other. Thus, this doctrine provides,
that as far as possible, two seemingly conflicting provisions within
a statute, or the seemingly conflicting provisions of one statute vis
a vis another, should be construed in a manner so as to iron out
any conflict.
137. Section 10 of the 1993 Act provides for an overriding effect to the
provisions of the said Act to the extent of inconsistency with any
other statute. Similarly, Section 32 of the 1985 Act provides overriding
effect to the provisions of the said Act except for the enactments
specified therein. Dealing with a case involving the apparent conflict
between the two statutes containing overriding provisions, this Court
in Sarwan Singh v. Shri Kasturi Lal reported in (1977) 1 SCC 750
held as follows:
“When 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.”
(Emphasis supplied)
138. Similarly, in Jay Engineering (supra), it was observed by this Court
thus:
“31. The endeavour of the court would, however, always
be to adopt a rule of harmonious construction.”
139. We would also like to refer to a recent decision of the Madras High
Court in Metafilms India Ltd. v. Assistant Commissioner (CT)
(Addl.), Amaindakarai Assessment Circle, Chennai and Others
reported in (2022) 96 GSTR 272. Although the said decision was
rendered in the peculiar facts of the case therein, yet the reasoning
behind the same appears to have been similar to the one that we
have employed. The relevant parts of the judgment are extracted
hereinbelow:
“27. Hence, the question would be, in the facts and
circumstances of the present case, what is the date,
on which, the repayment is due. As we have mentioned
[2024] 5 S.C.R. 397

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

earlier, the case on hand is very peculiar and appears
to have not arisen in any of the earlier litigations and
therefore, it requires to be dealt with in a different manner
and obviously on such a reasoning, any observation or
direction, which we may issue in this judgment, cannot be
treated as a precedent.
28. As mentioned above, the appellant was de-registered
by the BIFR on February 5, 2013. The first demand notice
was issued on March 20, 2013. However, the appellant
paid the dues only on April 25, 2015. The question would
be, in the facts and circumstances, what would be the
date, on which, the repayment of the loan is due.
29. The Department’s contention is that it should be
the date, on which, the default occurred. If that is to be
reckoned as the date, then an order of cancellation of the
agreement followed by recovery proceedings should have
been taken by the Department, which admittedly has not
been done. This is presumably for the reason that from
2003 to 2013, the appellant was before the Board and it
was declared as a sick industrial company and in terms of
section 22 of the SICA, the respondent-Department was
prohibited from proceeding with any recovery against the
appellant and this is a statutory prohibition, which binds
the respondent-Department.
30. From the representation given by the appellant to the
Government dated August 5, 2014, we find that the Sales
Tax Department did not appear before the Board on several
dates when the case was heard. Be that as it may, the
due date for repayment could have never occurred, in the
facts and circumstances, between August 1, 2003 when
the appellant was referred to the BIFR and May 31, 2006,
the appellant was declared as a sick industrial company
till its net worth turned positive and it was discharged from
the Board on February 5, 2013.
31. Thus, on facts, we hold that the date, on which, the
repayment became due for the appellant’s case shall
be fixed on February 6, 2013. Admittedly, the appellant
cleared the entire sales tax on April 25, 2015. Hence, for
398 [2024] 5 S.C.R.

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the period from February 6, 2013 to April 25, 2015, the
appellant is liable to pay interest.”
(Emphasis supplied)
140. For the period during which the defendant company was sick and
before the BIFR, it cannot be said that the withholding of the payment
of the dues of the original plaintiff was wilful and intentional. We say
so because first, the liability of the original defendants was disputed
and was finally adjudicated only by way of the impugned judgment,
much after the BIFR proceedings had come to an end; and secondly,
even if the liability of the original defendants was not disputed, or was
even acknowledged before the BIFR, recovery of the same could not
have been done without the permission of the BIFR in view of the
suspension of recovery proceedings by Section 22(1) of the 1985 Act.
141. Thus, in view of our aforesaid discussion, we deem it fit to exclude
the period commencing from the date when FCIL was declared to
be a sick company under the 1985 Act going up to the date when
it was discharged by the BIFR and declared to be no longer a sick
industrial company from the purview of the applicability of the interest
provision under the 1993 Act. Thus, while the applicability of the
1993 Act to the dues of the original plaintiff is not disputed, such
interest shall not be calculated for the period between 06.11.1992
and 27.06.2013.
E. CONCLUSION
142. The net effect of the aforesaid discussion and findings is as follows:
I. The suit instituted by the original plaintiff before the trial court
was not hit by the embargo envisaged under Section 22(1) of
the 1985 Act. Thus, the decree awarded in favour of the original
plaintiff by the trial court and modified by the High Court, cannot
be said to be coram non-judice.
II. The High Court committed no error in awarding 24% interest to
the original plaintiff on its dues as per the provisions of the 1993
Act. However, the period during which the defendant company
was a sick company as per the 1985 Act should be excluded
for the purposes of calculation of interest.
143. As a result, the impugned judgment and order of the High Court is
upheld subject to the modification of the period for which interest
[2024] 5 S.C.R. 399

Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited

may be granted as discussed aforesaid. To clarify, the interest will
be calculated at 24% p.a. with monthly compounding.
144. The appeals are disposed of in the aforesaid terms. The final
amount that may be determined in accordance with the final decree
shall be paid to the original plaintiff within a period of 4 weeks from
today, failing which interest at the rate of 36% p.a. with monthly
compounding shall accrue.
145. Pending application(s), if any, shall stand disposed of.
146. Parties to bear their own costs.

Headnotes prepared by: Nidhi Jain Result of the case:
Appeals disposed of.