Kotak Mahindra Finance Ltd. . v. Deve Paints Ltd. — 1997 DIGILAW 134 (BOM)

JUDGMENT - R.M. LODHA, J. :---The controversy involved in this group of four appeals is identical between the same parties and, therefore, all these appeals have been taken up together and are disposed of by common order. The Appeals No. 85/97 and 86/97 have been preferred by original defendant M/s. Kotak Mahendra Finance Limited. While appeal No. 87/97 and 88/97 have been filed by original plaintiffs M/s. Deve Paints Limited. 2.M/s. Deve Paints Limited, formerly known as M/s. Garware Paints Limited (for short, lessee company) filed two suits before the City Civil Court at Mumbai against M/s. Kotak Mahendra Finance Limited (for short, 'finance company'). The facts averred by the lessee company in both the suits are identical. In Suit No. 3113/96 the relief claimed by lessee company relates to vehicles bearing No. MH-01/A-6835, MH-01/A-9297, MH-01/6750, and MH-01/B-7414 and it is prayed by the lessee company that the finance company be restrained by way of an order and injunction from in any manner taking the possession of the aforesaid vehicles, while, in Suit No. 3646/96 the prayer made by the lessee company relates to vehicle No. MH-01/B-1602 and it is prayed by the lessee company therein that finance company be restrained by an order and injunction from taking possession of the said vehicle in any manner. The narration of facts in both the suits is identical and according to lessee company its new management took over in the month of December - 94 and after assessing the assets and liabilities of the company it transpired that its net worth had been eroaded and accordingly a reference was made to the Board for Industrial Financial Reconstruction (B.I.F.R.) under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. On 25-9-95 the B.I.F.R. declared the lessee company as a sick unit and appointed the Industrial Development Bank of India (IDBI) as operating agency for co-ordinating with the lessee company and submission of revival programmes. The lessee company has averred that it has already submitted rehabilitation package to the BIFR for its consideration and proceedings before the BIFR are going on. It is the case of the lessee company that by various hire purchase agreements/lease agreements entered between it and the finance company, the finance company financed the lessee company for purchasing motor vehicles and office equipments. It is the case of the lessee company that by various hire purchase agreements/lease agreements entered between it and the finance company, the finance company financed the lessee company for purchasing motor vehicles and office equipments. In the first week of June - 96 one representative from finance company visited the office of lessee company and sought information about the whereabouts of the various vehicles, office equipments and all documents concerning them. On 7-6-96 the lessee company requested the finance company to furnish the outstanding details in respect of the vehicles and its grievance is that though the finance company failed to furnish the details as sought by lessee company yet it threatened the lessee company that it would take back possession of the vehicles forcibly from it. That led to the filing of the suits aforesaid. The plaintiff alleges that on 15-6-96 vehicle bearing No. MH-01/B/7414 was forcibly taken possession of by the finance company. The basis of the claim in both the suits filed by lessee company is that it has become a sick unit and its entire affairs are with the BIFR for financial rehabilitation package for reviving it and during pendency of proceedings before the BIFR it is protected against all types of proceedings and attachments particularly under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, 'Act of 1985'). Notices of motion were taken out by the lessee company in both the suits and the trial Court after hearing the learned Counsel for the parties by the impugned order on 14-1-97 dismissed both the notices of motion taken out by the lessee company. However, the trial Court observed that finance company will be at liberty to approach the BIFR to seek further orders about the seizure of vehicles and/or recovery of amounts with them. To complete the narration of facts it may be stated that the lessee company took out contempt notice of motion against the finance company on 20th January - 97. It was alleged therein that the representatives of the finance company forceably took away the possession of the vehicle No. MH-01/B-7414. To complete the narration of facts it may be stated that the lessee company took out contempt notice of motion against the finance company on 20th January - 97. It was alleged therein that the representatives of the finance company forceably took away the possession of the vehicle No. MH-01/B-7414. In the said notice of motion after hearing the learned Counsel for the parties the trial Court directed the finance company to return the seized vehicle within a period of seven days from the passing of the order i.e. before 28-1-97 and thereafter the finance company will be at liberty to approach BIFR with such application as they deem fit. The said order passed by the City Civil Court is challenged in Appeal No. 86/97. It will not be out of place to mention here that on 28-1-97, this Court stayed the operation of the order dt. 21-1-97 and the said order is still operative. 3.The question, principal and foremost, that falls for determination in this group of four appeals is: whether in the facts and circumstances aforestated, section 22 of the Act of 1985 (Sick Industrial Companies [Special Provisions] Act, 1985) is attracted? The fate of all the four appeals is dependent on answer to this question. 4.There is no dispute and rather it is lessee company's own case that by various hire purchase agreements/lease agreements entered into between it and the finance company, the finance company financed the lessee company for purchasing motor vehicles and office equipments. The agreements between the parties are in fact titled as lease agreements and terms and conditions of all these agreements are identical. For the convenience sake, I am referring to one of the agreements dated 10th December - 1990. Vide the said agreement the finance company leased plant and machinery, office equipments and motor vehicles having value of Rs. 15 lacs. In the said lease agreement finance company is described as 'lessor' including its successors and assignees, while the 'lessee company' including successors and assignees is described as the lessee. Under the terms of the said lease agreement the finance company agreed to transfer the lessee company the right to use the equipments, plant and machinery and motor vehicles, as the case may be for the period mentioned therein on lease management fee deposit and rentals as specified therein. Under the terms of the said lease agreement the finance company agreed to transfer the lessee company the right to use the equipments, plant and machinery and motor vehicles, as the case may be for the period mentioned therein on lease management fee deposit and rentals as specified therein. It is agreed by the lessee company to make payments of lease rent and all other dues on time and that upon termination of the agreement by efflux of time or otherwise forthwith deliver or cause to deliver the equipment, plant and machinery and vehicles in good order and condition subject to normal wear and tear to the finance company. It was also agreed between the parties that in the event of any default by the lessee company, the finance company may terminate the lease without any notice except as specified in Clause 8 and 12 at any point of time after occurrence of such events. Upon the termination of the agreement the finance company is entitled to remove and repossess the equipment, plant and machinery or vehicles as the case may be. The lessee company has also covenented that it shall hold the equipment as the bailee of the finance company and shall not claim any right, title or interest therein other than that of lease and shall not contest the finance company's sole and exclusive ownership thereon. 5.On October 8, 1993 the finance company communicated the lessee company that an amount of Rs. 16,72,637/- were outstanding (Rs. 8,93,275/- from Garware Super Market and Rs. 7,74,362/- from Garware Paints Limited). It appears from the said communication dt. 8th October, 93 sent by finance company to lessee company that earlier also they had sent various letters and reminders to the lessee company for payment of the outstanding dues. By the said communication dated 8-10-1993, therefore, the lessee company was called upon to make the outstanding payment within 15 days failing which finance company would be forced to take appropriate action. The lessee company sent reply on 11-10-93 acknowledging various letters and messages received by them from the finance company regarding the lease rent instalments which were outstanding and the lessee company deeply regretted the delay in making the outstanding payment and also for lack of response. The lessee company sent reply on 11-10-93 acknowledging various letters and messages received by them from the finance company regarding the lease rent instalments which were outstanding and the lessee company deeply regretted the delay in making the outstanding payment and also for lack of response. It would be pertinent to note that lessee company in its reply did not dispute its liability and only prayed to the finance company for waiving the interest amounting to Rs. 1,50,000/- and as regards remaining outstanding mount of Rs. 15 lacs, the lessee company requested the finance company to accept the said amount in four instalments i.e. to accept the outstanding amount of lease rent of Rs. 3,50,000/- in the month of January - 93, Rs. 3,50,000/- in the month of December - 93, Rs. 3,50,000/- in the month of January 94 and Rs. 4,50,000/- in the month of February - 94. According to finance company no payment was made by the lessee company towards aforesaid outstanding but according to lessee company some payment was made. However, no material has been placed by the lessee company before the trial Court or before this Court that any payment was made by it to the finance company after October 11,1993. Be that as it may the fact remains that there is huge amount still outstanding. 6.Section 22 of the Act of 1985 which received the assent of the President on 18th January, 1986 was enacted in the public interest with the 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 expeditious enforcement of the measures so determined and for matters connected there with and incidental thereto. Section 22(1) of the Act of 1985. On which the entire debate centres round and which is the basis for relief by the lessee company reads thus: "22. Suspension of legal proceedings, contracts. Section 22(1) of the Act of 1985. On which the entire debate centres round and which is the basis for relief by the lessee company reads thus: "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 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. -----------------------------------------------------------------------------------------------------" 7.Scan of section 22(1) indicates that the following categories of the proceedings are prohibited and liable to be suspended where an inquiry under section 16 is pending or any scheme under section 17 is under preparation or a sanctioned scheme is under implementation in respect of an industrial undertaking or an appeal is pending under section 25. The said categories are (i) proceedings for the winding up for the industrial company, (ii) proceedings for execution, distress or like which are taken against any of the properties of the industrial company, (iii) proceedings for appointment of receiver, (iv) suit for recovery of money against the industrial company, (v) suit for the enforcement of any security against the industrial company, (vi) suit for enforcement of any guarantee in respect of any loans and or the advance granted to the industrial company. The aforesaid categories of the proceedings have to be suspended if already pending against the industrial undertaking and shall not lie against industrial company if not instituted so long as conditions prescribed under section 22(1) are satisfied. The aforesaid categories of the proceedings have to be suspended if already pending against the industrial undertaking and shall not lie against industrial company if not instituted so long as conditions prescribed under section 22(1) are satisfied. The present case is not concerned with the proceedings for winding up of the lessee company, nor the finance company has filed any suit for recovery of money or for the enforcement of any security against the lessee company, nor any suit has been filed by the finance company against the lessee company for enforcement of any guarantee in respect of any loans or advance. Here are the suits filed by the lessee company who claims to be sick industrial company against the finance company from taking possession of various vehicles owned by the finance company and which have been given on lease to the lessee company. The answerable question, therefore, is whether the properties which are not owned by the sick industrial undertaking, are covered under section 22(1) of the Act of 1985? If the finance company resorts to recovery of its properties viz. its vehicles which have been given on lease to the lessee company, it cannot be said that it is property of lessee company (sick industrial undertaking) or it is covered under section 22(1) or such recourse can be equated with the kind of proceedings contemplated under section 22(1). The expression 'against the properties' occurring in section 22(1) is not without significance because it implies that action of winding up or for execution, distress or such like proceeding must be against the property of the sick industrial company. The expression 'against the properties' occurring in section 22(1) is not without significance because it implies that action of winding up or for execution, distress or such like proceeding must be against the property of the sick industrial company. It is true that by the Sick Industrial Companies (Special Provisions) Amendment Act, 1993 section 22(1) was amended and, "and no suit for the recovery of money or for the instrument of any security against the industrial company or guarantee in respect of any loans or advances granted to the industrial company" was inserted after, "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 receiver in respect thereof" : but the said amendment cannot be of any help to the lessee company because as observed above, so far as finance company is concerned it has not filed any suit against the lessee company for recovery of money against the industrial company or for enforcement of any security against the lessee company or for enforcement of guarantee in respect of any loans given to the lessee company or for any advance granted to the lessee company. 8.In (M/s. Shree Chamundi Mopeds Ltd. appellant v. Church of South India Trust Association, Madras respondent)1, A.I.R. 1992 S.C. 1439, the Apex Court was dealing with the question whether lease hold right of sick company in the premises leased-out to it is a property of the sick company and whether section 22(1) was attracted and eviction proceedings could not continue against the sick industrial company. The Apex Court held thus: "12. Eviction Proceedings initiated by a landlord against a tenant company would not fall in categories (1) and (3) referred to above. The question is whether they fall in category (2). It has been urged by the learned Counsel for the appellant company that such proceedings fall in category (2) since they are proceedings against the property of the sick industrial company. The submission is that the lease-hold right of the appellant-company in the premises leased out to it is property and since the eviction proceedings would result in the appellant-company being deprived of the said property, the said proceedings would be covered by category (2). We are unable to agree. The submission is that the lease-hold right of the appellant-company in the premises leased out to it is property and since the eviction proceedings would result in the appellant-company being deprived of the said property, the said proceedings would be covered by category (2). We are unable to agree. The second category contemplates proceedings for execution, distress or the like against any other properties of the industrial company. The words 'or the like' have to be construed with reference to the preceding words, namely, for execution, distress' which means that the proceedings which are contemplated in this category are proceedings whereby recovery of dues is sought to be made by way of execution, distress or similar process against the property of the company. Proceedings for eviction instituted by a landlord against a tenant who happens to be a sick industrial company, cannot in our opinion, be regarded as falling in this category. We may, in this context point out that, as indicated in the Preamble, the Act has been enacted to make 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. The provision regarding suspension of legal proceedings contained in section 22(1) seeks to advance the object of the Act by ensuring that a proceeding having an effect on the working or the finances of a sick industrial company shall not be instituted or continued during the period the matter is under consideration before the Board or the Appellate Authority or a sanctioned scheme is under implementation without the consent of the Board or the Appellate Authority. It could not be the intention of Parliament in enacting the said provision to aggravate the financial difficulties of a sick industrial company while the said matters were pending before the Board of the Appellate Authority by enabling a sick industrial company to continue to incur further liabilities during this period. It could not be the intention of Parliament in enacting the said provision to aggravate the financial difficulties of a sick industrial company while the said matters were pending before the Board of the Appellate Authority by enabling a sick industrial company to continue to incur further liabilities during this period. This would be the consequence if sub-section (1) of section 22 is construed to bring about suspension of proceedings for eviction instituted by landlord against a sick industrial company which has ceased to enjoy the protection of the relevant rent law on account of default in payment of rent. It would also mean that the landlord of such a company must continue to suffer a loss by permitting the tenant (sick industrial company) to occupy the premises even though it is not in a position to pay the rent. Such an intention cannot be imputed to Parliament. We are, therefore, of the view that section 22(1) does not cover a proceeding instituted by a landlord of sick industrial company for the eviction of the company premises let out to it." 9.The Apex Court thus held that the occupation of the premises by the sick industrial company as statutory tenant can not be regarded as property of such company for the purpose of sub-section (1) of section 22 and, therefore, section 22 was not attracted. 10.Applying the aforesaid ratio of the Apex Court, I have no hesitation in holding that the contention of the lessee company that section 22(1) of the Act of 1985 is attracted is wholly misconceived. The finance company cannot be asked to approach BIFR Board for the recovery of its properties viz. vehicles in the present case from the lessee company when the said vehicles are not the properties of the sick industrial company (lessee company) and are not covered under section 22(1) of the Act of 1985. 11.The trial Court, therefore, cannot be said to have committed any error in dismissing the Notice of Motion No. 2936/86 and 3684/86 by the order dated 14-1-97, and, to that extent the order passed by the trial Court on 14-1-97 cannot be faulted. However, in view of the discussion aforesaid, the trial Court was not justified in observing that the defendants will be at liberty to approach the BIFR to seek further orders about the seizure of vehicles and/or recovery of amount due to them. However, in view of the discussion aforesaid, the trial Court was not justified in observing that the defendants will be at liberty to approach the BIFR to seek further orders about the seizure of vehicles and/or recovery of amount due to them. There is no justification for the trial Court to make such observation and said observation being uncalled for is set aside. Now I come to the order dt. 21-1-97 passed by the trial Court in contempt notice of motion taken out by the lessee company whereby it directed the finance company to return the seized vehicles within a period of 7 days and thereafter liberty was granted to approach the BIFR Board with such application as it may deem fit. 12.The terms of the lease agreement between the parties have been referred to by me in extenso above but at the cost of repetition it may be reiterated that the finance company agreed to transfer the right to use the aforesaid vehicles by way of lease by the lessee company for a period agreed to between the parties and upon termination of the said agreement by efflux of time or otherwise the lessee company was bound to deliver the said vehicles forthwith at his cost and expenses. Under the terms of the lease deed lessee company was directed to pay rentals and all dues on the dates agreed and breach thereof would render the lessee company defaulter and liable for termination of lease. Admittedly, number of letters and reminders were sent to the lessee company by finance company and ultimately on 8-10-93 lessee company was asked to make payment of outstanding amount of Rs. 16,72,637/-. The said communication was accepted by the lessee company and by the reply dated 11-10-93 it requested the finance company to waive interest of Rs. 1,50,000/- and outstanding amount of Rs. 15 lacs was requested to be paid by the lessee company in four instalments in the month of January - 93, December - 93, January - 94, February-94. No payment has been made and according to finance company an amount of more than Rs. 15 lacs is outstanding. In this fact situation, the finance company took possession of vehicle No. MH-01/B-7414 on 15-1-97. The learned Counsel for the finance company has placed before me a document dt. 15-1-97 whereby the possession of the said vehicle was taken from the lessee company. 15 lacs is outstanding. In this fact situation, the finance company took possession of vehicle No. MH-01/B-7414 on 15-1-97. The learned Counsel for the finance company has placed before me a document dt. 15-1-97 whereby the possession of the said vehicle was taken from the lessee company. In the said document there is endorsement by the lessee company "key given". Thus possession of the vehicle was given voluntarily by the lessee company to finance company and it cannot be said that finance company forcibly took possession of the said vehicle. Before taking possession of the said vehicle from lessee company, finance company also intimates the concerned Police-Station. Naupada. Thane and the said document has also been produced for my perusal. 13.In this view of the matter when the trial Court dismissed the notices of motion taken by the lessee company there was no justification for directing the finance company to restore back possession of the aforesaid vehicle and then giving liberty to the finance company to approach the BIFR with appropriate application. The order dated 24-1-97 passed by City Civil Court, therefore cannot be sustained and is liable to be set aside and is set aside accordingly. 14.Resultantly, order passed by the trial Court on 14-1-1997 dismissing Notices of Motion No. 2936/96 and 3486/96 is maintained. However, the direction given to the finance company to approach the BIFR is set aside. The order passed by the trial Court on 21-1-1997 in contempt proceeding in S.C. Suit No. 3113/96 is set aside. The appeals are disposed of accordingly. No costs. 15.The learned Counsel for lessee company prays orally for stay of this order. Oral prayer is rejected. Order accordingly.