Industrial Development Bank of India vs Nira Pulp & Paper Mills Ltd. and others

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1991 Supreme(Bom) 601

IN THE HIGH COURT OF BOMBAY
S.M. Jhunjhunuwala, J.
Industrial Development Bank of India ... Plaintiffs.
Versus
Nira Pulp Paper Mills Ltd. and others... Defendants.
Notice of Motion No. 2287 of 1991 in Suit No. 468 of 1990, decided on 18-12-1991.
Advocates appeared:
Virag Tulzapurkar i/b Pimenta, Kapsi Satpute, for the plaintiffs.
Zaiwala with S.J. Thacker i/b Hariani Co., for defendants 1, 2 and 3.
F. Sikander with Ms. M.V. Shetty i/b Majumdar Co., for defendants 4 and 5.
Umesh Shetty with Mrs. Rekha Pendharkar, for defendant No.7.

Headnote:Section 22 (l)-Applicability-Appointment of Receiver of suit properties -Receiver taking possession of snit properties-Institution of inquiry under Section 16-Industrial owners having no independent possession of suit properties in their own rights as lawful owner thereof-Section 22 inapplicable -Appointment Receiver as well as Receiver taking possession of suit properties was much prior institution of inquiry-Continuation of Receiver, in facts of case not contrary to scheme or objects of Act.
       The appointment of Court Receiver, High Court, Bombay, as Receiver of the suit properties was mane on 13th February 1990. The Receiver had taken possession of the suit properties on 23rd February 1990. The suit properties became custodia legis through its duly appointed Receiver and physical possession by the Receiver, in the facts of the case is of no legal consequence. The Industrial owner were permitted to retain and use the suit properties as the agents of the Receiver and not in their absolute or own rights as owners thereof. As per the order dated 7th August 1991 the agency of the Industrial owner stood terminated and the 1st defendants became disentitled 10 retain or use the suit properties. Accordingly, on 12th August 1991, the Receiver restored the possession to himself which the 1st defendants held as agents of the Receiver. It is correct that under Section 22 of the said Act, the proceedings are to be suspended. However, in the facts and circumstances of the case, the appointment of the Receiver in respect of the suit properties of the 1st defendants as well as Receiver taking possession thereof the 1st defendants were much prior to even institution of inquiry under the provisions of Section 16 of the Act. The industrial owner had no independent possession of the suit properties in their own as lawful owners thereof as on 12th August, 1991 and as such, Section 22 of the said Act din not apply. The continuation of Receiver, in the facts of the case, is not contrary to the scheme or objects of the said Act.
       Section 22 (1)-Proceedings for appointment of Receiver-Enqniry under Section 16 pending-Proceedings for appointment of Receiver can continue.
       It is clear from the provisions of the said Act that in case the inquiry under Section 16 is pending nr any scheme referred to under Section 17 is under preparation or consideration by BIFR or any appeal under Section 25 is pending, then certain proceedings including proceedings for the appointment of Receiver against the industrial company are to be suspended. The marginal note to Section n of the said Act provides an indication that the proceedings in question are merely required to be suspended. Operative part of Section 22 (1) of the said Act provides that such proceedings may continue with the consent of the Board or, as the case may be, the Appellate Authority. If the proceedings can continue with the consent of the Board or, as the case may be, the Appellate Authority or in the event of the condition precedent prescribed under Section 22 (1) of the said Act ceasing to exist, there is no reason as to why proceedings for the appointment of Receiver against the 1st defendants must necessarily abate or be dismissed. Even though the said Act operates as self contained Code for various steps to be taken in respect of a company which is declared as sick industrial company under the provisions thereof, it is not that no proceedings for winding up of much industrial company or for execution distress or the like against any of the properties of such industrial company or for the appointment of Receiver in respect thereof be at all proceeded with.

JUDGMENT - S.M. JHUNJHUNUWALA, J.:---In the suit filed by the plaintiffs to recover from defendants 1,2 and 3 the sum of Rs. 12,90,56,879/- with interest due thereon and for enforcement and sale of mortgaged and hypothecated securities and for other reliefs, as mentioned in the plaint, the defendants, 1, 2 and 3 have taken out the present Notice of Motion for discharge of the Receiver appointed by this Court on 13st February, 1990 and in alternative for directions to the Receiver to hand back to the 1st defendants the possession of the 1st defendants' factory premises taken on 12th August, 1991. It is also prayed that the sum of Rs. 20 lakhs deposited by the 2nd defendant and lying in this Court should not be disbursed but should be utilised in such manner as may be directed by BIFR for rehabilitation of the 1st defendants.

2. Since according to the plaintiffs the 1st defendants have been in tremendous financial difficulties their net worth having become negative, their liabilities being far in excess of the real assets, their share capital having been wiped out and they having stopped carrying on any business, the plaintiffs had taken out Notice of Motion bearing No. 479 of 1990 in this suit for appointment of Court Receiver, High Court Bombay as Receiver of the mortgaged properties described in the schedule Ex. A to the plaint, moveables described in the schedule Ex. B to the plaint and current assets described in the schedule Ex. C to the plaint (hereinafter referred to as 'the suit properties') with all powers under Order XL, Rule 1 of the Code of Civil Procedure, 1908, including the power to sell the said moveables and current assets described in the schedules Exhibits B and C to the plaint and to pay over the net sale proceeds and/or net recovery thereof to the plaintiffs in or towards their claim in the suit and also for an order of injunction restraining the 1st defendant by themselves, their servants and agents from in any manner disposing of or alienating or transferring or parting with possession of or creating any third party title or interest in respect of the suit properties. On 13st February, 1990, Cazi, J., appointed ad-interim Receiver in terms of prayer (a) of the said Notice of Motion excluding the power of sale. Accordingly by the said order dated 13th February, 1990, the Court Receiver High Court Bombay, was appointed Receiver of the suit properties without the power of sale and with directions to him not to dispossess the 1st defendants provided the 1st defendants enter into an agency agreement with usual terms and conditions with the Receiver without security. Ad-interim injunction in terms of prayer (b) of the said notice of motion restraining the 1st defendant from in any manner disposing of or alienating or transferring or parting with possession or creating any third party rights in respect of the suit properties except in the ordinary course of business was also granted. An appeal from the said order dated 13th February, 1990 was preferred by the 1st defendants and on 21st February, 1990, Mukherjee, C.J., and Sugla, J., upheld the order of Cazi, J., subject to modification that pending the hearing and final disposal of the notice of motion, the Receiver was directed not to put up his board. Compensation payable by the 1st defendant was ordered to be determined but was ordered not to be payable for a period of 3 weeks from that date. Accordingly, the Receiver took possession of the suit properties situated at sub-village Vadvali, Village Rajawadi, Taluka Khandala, Sub-District Phaltan, District Satara on 23rd February, 1990 and took inventory of the suit plant and machineries and other moveables. The 1st defendants agreed and undertook to hold the suit properties as agents of the Receiver. The Receiver fixed the royalty amount payable by the 1st defendants for the use and occupation of the suit properties as agents of the Receiver at Rs. 11,60,000/-. The Receiver calculated arrears of royalty which th

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