Binod
Mills Co. Ltd., Ujjain (M.P.) Vs. Suresh Chandra Mahaveer Prasadmantri, Bombay
[1987] INSC 156 (6 May 1987)
KHALID,
V. (J) KHALID, V. (J) OZA, G.L. (J) CITATION: 1987 AIR 1739 1987 SCR (3) 247
1987 SCC (3) 99 JT 1987 (2) 504 1987 SCALE (1)1051
ACT:
Madhya
Pradesh Sahayata Upkram (Vishesh Upbandh) Adhini- yam, 1978: ss. 3 and
5--Relief Undertakings--Suspension of decrees against-Object and Scope
of--Execution whether barred--Whether in conflict with ss. 40 or 42 C.P.C.
Words
and Phrases: Expression other legal proceedings Whether includes execution
petitions.
Sick
Textile Undertakings (Taking over of Management) Act, 1972/Sick Textile
Undertakings Nationalisation Act, 1974: Sick Units-Reseue of--Concern expressed
at loss Government incurs--Necessity for Government to evolve more acceptable
policy--Help labour and modernise industry.
HEADNOTE:
Section
3 of the Madhya Pradesh Sahayata Upkram (Vishesh Upbandh) Adhiniyam, 1978
provides for the declaration of a State industrial undertaking as a relief
undertaking and s. 5 for suspension of suits or other legal proceedings against
such relief undertakings and bars institution or commencement of suits or other
legal proceedings against such an industrial undertaking during the period in
which it remains a relief undertaking notwithstanding any law, usage, custom,
contract, instrument, decree, order, award, or settlement.
The
appellant, a textile undertaking at Ujjain, M.P. was declared a 'relief
undertaking' by notification dated 15.11.1980 issued by the State Government
under s. 3 of the Act and the time extended by subsequent orders till
15.11.1987. The respondent filed a summary suit against the appellant in the
Bombay High Court for a certain sum with interest and costs, which was decreed
ex-parte. He then got the decree transferred for execution to the Court of
District Judge, Ujjain, Madhya Pradesh on 26.9.1986. The appellant resisted
execution on the ground of the bar contained in s. 5 of the Act. The respondent
while admitting that the appellant was a relief undertaking contended that the
District Judge had no jurisdiction to entertain any objection to the execution
of the decree validly passed by the High Court as it could not 248 go behind
the decree, and the decree mandated execution on its terms.
The
District Judge held that the appellant could not take advantage of the
notifications under the Act because the rights and liabilities of the parties
had to be deter- mined by the transferee court in accordance with the substantive
law bearing on the question in the court that passed the decree, and that the
execution of the decree could not be challenged before the transferee court
unless it was shown that the transferor court had no jurisdiction to pass the
decree. The High Court took the view that the executing court could not go
behind the decree even if it was erroneous on law or on facts and after
considering the effect of s. 5 on the general law governing decrees and their
execution as provided in the Civil Procedure Code held that there was no bar
against execution of the decree, and consequently rejected the revision and
affirmed the order of the District Judge.
In
this appeal by special leave it was contended for the respondent that the
expression 'other legal proceedings' would not take in execution proceedings
and the execution court could not, therefore, refuse to execute a valid decree,
that if such a wide construction was given to that expression institution of
even claims of workers under the Industrial Disputes Act and other similar beneficial
legislation would be barred, that the execution court could not, while
executing decrees, adopt a procedure under any special law available in the
State in which the execution court was situate in relation to decrees obtained
outside the States, and finally that s. 5 could not apply to post-notification
liabilities.
Allowing
the appeal, the Court,
HELD:
1. The High Court was in error in allowing execution to proceed. It has
completely overlooked the purpose of the Madhya Pradesh Sahayata Upkram
(Vishesh Upbandh) Adhiniyam, 1978 and the limited period of operation of s. 5.
The bar contained in the section by way of suspension of suits or other legal
proceedings against relief undertakings is an absolute one for the period
contemplated in the Act. [263C;
253B;
262F]
2.
The section is not happily worded. What it intends to convey if the words are
re-arranged, would be: "Not with- standing any law, usage, custom,
contract, instrument, decree, order, award, settlement or other provisions, no
suit or other legal proceedings shall be instituted or commenced or if pending
shall be proceeded against the industrial undertaking as from the date
specified in the notification under sub-s.
249
(1) of s. 3 during the period in which it remains a relief undertaking".
So, read, the object of the section becomes clear. [257BD]
3.
The section has to be construed and interpreted as it stands. It is unambiguous
and full import has to be given to its words and its intent. The expression
'other legal proceedings' in the section includes execution proceedings also.
The non-obstante clause contained therein takes within its ambit all the
decrees passed against relief undertakings. The bar of 'institution or
commencement' takes within its ambit suits or 'other legal proceedings', which
include execution petitions also. The inclusion of the expression 'decree' in
the section further shows that a decree validly obtained against a relief
undertaking cannot be executed during the period the declaration is in force.
[2S8C; 261E;
257DE]
The Governor-General in Council v. Shiromani Sugar Mills Ltd., (1946 FCR 40),
referred to.
State
Bank of India v. Jaipur Udyog & Ors., (AIR 1986 Delhi 357), distinguished.
4.
Section 5 has a free field of operation unfettered by any limitation. It is
independent and uncontrolled by ss. 4, 6 and 7 which deal with suspension or
modification of certain remedies, rights etc., stay of proceedings, their
revival and continuance. It does not make any reference to s. 4. It had been
enacted with a definite object and that is to protect the relief undertakings
from litigations and consequent actions during the period the declaration is in
force. [257B; 261F]
5.
Section 5 operates even against execution of decrees obtained against the
relief undertaking by its creditors outside the State of Madhya Pradesh. To
direct execution of such decrees would be to encourage filing of suits in
courts situated in areas where the Act is not in operation, secure decrees and
then try to circumvent the operation of the Act by getting those decrees
transferred under ss. 40 and 42 of the Civil Procedure Code and defeat the
purpose of the Act. Such an abuse is not permissible in the face ors. 5 of the
Act. [262A; 258B; 253F; 257G]
6.
The transferee court has to execute the decree in accordance with the law
obtaining in the court that passed the decree and determine the rights and
liabilities of the parties in accordance with the substantive law obtaining in
the State where that court is situate. That being so, the judgment debtor
cannot move the execution court and get the benefit of the procedure available
in the State in which the transferee court is situated. [262D] 250 In the
instant case the decree obtained from the Bombay High Court was a valid decree.
No court in Madhya Pradesh could question its validity, nor could refuse to
execute it.
All
that is sought to be done by s. 5 of the Act is to suspend its animation for
the period mentioned in the notification. It is not a permanent relief. Section
5, there- fore, does not come into conflict either with s. 40 or 42 of the
Civil Procedure Code. [257FG; 258AB; 261FG; 262EF]
7.
It cannot be said that the debts incurred prior to the notification under s. 3
alone are barred and debts incurred subsequent to the notification under s. 3
are not barred. Section 5 does not permit such an interpretation.
[263BC]
8.
There is need to evolve a more acceptable procedure while dealing with sick
units. Invariably, the amounts pumped in trying to rescue sick units are
ultimately lost. No purpose will be served by giving life to such units. The
concern for workers must be matched with concern for modernisation also. The
labour should not be left to the mercy of such sick units. The Government will
have to evolve a more acceptable and intelligent policy. Units with decrepit
and antiquated machineries must be got rid of and public money must be saved.
In their places new units must come into existence. If Government finds it
difficult a trial must be undertaken to entrust such units to the labour to
test how they work with their cooperative effort. [263DH]
Civil
Appellate Jurisdiction: Civil Appeal No. 1197 of 1987.
From
the Judgment and Order dated 5.1.1987 of the Madhya Pradesh High Court in Civil
Revision No. 382 of 1986.
K.K.
Venugopal, A.K. Chitale, Deepak K. Thakur and S.K. Gambhir for the Appellant.
Y.S. Chitale, M.S. Ganesh and Ravi Wagmare for the Respondent.
The
Judgment of the Court was delivered by KHALID, J: Special leave granted.
This
is an appeal by special leave against the Judgment & Order dated 5-1-1987,
of the High Court of Madhya Pradesh, Bench at 251 Indore, in Civil Revision No.
382 of 1986, by which the High Court affirmed the order dated 28-11-1986 of the
District Judge, Ujjain in Civil Execution Case No. 1249 of 1986, filed by the
respondent against the appellant.
The
appellant is a textile undertaking at Agra Road, Ujjain. The Madhya Pradesh
Government enacted the Madhya Pradesh Sahayata Upkram (Vishesh Upbandh)
Adhiniyam, 1978 (No. 32 of 1978), for short the Act, with the object of giving
relief to sick undertakings. Relief was given to the appellant-company first by
notification No. F-17-87-79-XI-B-1, dated 15-11-1980, extended from time to
time by subsequent orders, the relief so given to continue till 15-11-1987.
The
respondent filed a summary suit against the appellant in the Bombay High Court
on its original side, as summary suit No. 124 of 1986 claiming a decree for Rs.
12,12,327.50,
with interest and costs. The appellant did not contest the suit. The suit was
accordingly decreed. The respondent got the decree transferred for execution to
the District Judge, Ujjain on 26-9-1986 and then applied for execution of the
decree. The appellant resisted execution by filing objection pleading that it
was a relief undertaking under the Act, the benefits under which Act were
available till 15-11-1986 at the time the objection was filed (now upto
15-11-1987) and that the decree could not therefore be executed against it in
view of the bar contained in Section 5 of the Act. The respondent admitted the
appellant to be a relief undertaking. However, it was contended that the
District Judge had no jurisdiction to entertain any objection to the execution
of the decree, validly passed by the Bombay High Court The Execution Court, it
was contended, could not go behind the decree and the decree mandated execution
on its terms.
The
learned District Judge upheld the contentions of the respondent and held that
the appellant could not take advantage of the notifications under the Act
because the rights and liabilities of the parties had to be determined by the
transferee court in accordance with the substantive law beating on the question
in the court that passed the decree.
He
further held that the execution of the decree could not be challenged before
the transferee court unless it was shown that the transferor Court had no
jurisdiction to pass the decree. The objection of the appellant was thus
rejected.
The
appellant thereupon filed a revision in the High Court. The High Court rejected
the revision and affirmed the order of the District Judge. Hence this appeal.
252
The questions of law raised before us are as follows:
(a)
Whether on a true construction of Section 5 of the Act, execution of the ex-
parte decree obtained by the respondent against the petitioner at Bombay can be
instituted, commenced or proceeded with by the respondent against the
petitioner, even though the petitioner's textile undertaking is admittedly a
State Relief Undertaking under the Act? (b) Whether Section 5 of the aforesaid
Act is substantive law or procedural law? The High Court considered this
question and held that there was no bar against execution of the decree after
considering the effect of Section 5 quoted above on the general law governing
decrees and their execution as provided in the Civil Procedure Code. The High
Court relied upon the settled position that the executing Court cannot go
behind the decree even if it is erroneous on law or on facts. We extract below
the finding by the High Court against the appellant in paragraph 20:
"It
may be stated that it was perhaps due to the position of the law as propounded
in the Delhi decision that the suit in the Bombay High Court was not contested
by the petitioner. With the determination of the rights of the parties by the
Bombay High Court according to the substantive law applicable to the State of
Maharashtra, the non-applicant was manifestly clothed with the absolute right
to execute the decree unless some express provisions of law in Maharashtra empowered
the Court to restrain him from executing the same. Such fight cannot again be
subjected to and/or regulated by any law of the State of M.P. to which the
decree is sent only for execution.
Any
provision to suspend such right of execution of a valid decree does partake of
the character of substantive law and cannot be interpreted as merely a rule of
procedure within the meaning of Sec. 40 of the C.P.C. prescribing the manner of
execution. It has, therefore to be held on the authority of Ramavtar's case
(supra) that the provision in Section 5 of the Adhiniyam pertains to the domain
of substantive law and cannot be said to relate to the realm of adjective or
procedural law. The petitioner, therefore. has no locus standi to seek shelter
under Section 5 of the Adhiniyam, against 253 the execution of the decree
passed by the Bombay High Court, it being a substantive law of the State of
M.P. and not merely a procedural law, within the meaning of Section 40 of the
C.P.C. or procedural power under Section 42 ibid governing the mode of
execution. The suit in the Bombay High Court was not liable to be stayed and so
is the decree therein passed." It is evident from the above discussion
that the High Court completely overlooked the purpose of the Act and the
limited period of operation of Section 5. It has to be borne in mind that the
Act in question was enacted with a specific purpose. The preamble to the Act
states that the Act has been enacted "to enable the State Government to
make special provisions for a limited period in respect of industrial
relations, financial obligations and other like matters in relation to
industrial undertakings the running of which is considered essential as a
measure of preventing, or of providing relief against, unemployment." It
is necessary to note that the State Government and other financial institutions
invest large sums of money to revive sick units or relief undertakings. The
Government and such institutions are interested in seeing that the amount so
invested are utilised for the purpose of running the relief undertaking so that
it can be gradually revived and what is more important, to provide continuous
employment to a large number of workers. The Government is interested in making
sure that the relief undertakings do not incur burdensome debts, engage in
costly litigations and consequent attachment of their machineries and moveable’s
thus gradually destroying the units completely. The Act has been enacted to
safeguard the interest of the general public, the workers and the amounts
invested. It is for this purpose that relief was given to the unit against
execution of decrees for a maximum period of seven years. If creditors of the
relief undertakings ingeniously manage to obtain decrees against them from
Courts situated in areas where the Act is not in operation and thus try to
circumvent the operation of the Act by getting such decrees transferred to the
area where the Act is in operation and plead that their decrees are saved from
the mischief of the Act, such actions would be to defeat the very purpose of
the Act. When we say this, we do not want to encourage such relief undertakings
not to pay current liabilities. We are only concerned here with the interpretation
of the sections of the Act. We will presently refer to some of the relevant
sections and consider their operation both for pre-notification and
post-notification debts.
Section
2(3) defines relief undertaking and s. 2(4) a state industrial undertaking, as
follows:
254
"2(3) "relief undertaking" means a State industrial undertaking
in respect of which a declaration under Section 3 is in force:
2(4)
"State industrial undertaking" means an industrial undertaking.
(a)
which is started or which, or the management of which is under any law or agreement
acquired or otherwise taken over by the State Government or by a Government
company and is run or proposed to be run by, or under the authority of, the
State Government or a Government company; or (b) to which any loan, advance, or
grant has been given, or in respect of any loan whereof, a guarantee has been
given, by the State Government or Government company; or (c) in respect of
which a notified order under the Industries (Development-and Regulation) Act,
1951 (No. 65 of 195 1) is in operation." Declaration of a relief
undertaking is provided for in Section 3 which reads as follows:
"The
State Government may, if it is satisfied that it is necessary or expedient so
to do in the public interest, with a view to enabling the continued running or
re-starting of a State industrial undertaking as a measure of preventing, or of
providing relief against, unemployment, declare, by notification-, that the
State industrial undertaking shall on and from such date and for such period as
may be specified in the notification, be a relief undertaking.
Provided
that the period so specified shall not, in the first instance, exceed one year
but may, by a like notification, be extended, from time to time, by any period
not exceeding one year at any one time so however that such periods in the
aggregate shall not exceed seven years." Section 4 provides for suspension
of certain enactments, contracts, agreements etc.. applicable to relief
undertaking. The Section reads as follows:
255
"4. Application of certain enactments and contracts, agreements, etc. to
relief undertaking--That State Government may, if it is satisfied that it is
necessary or expedient so to do for the purposes specified in section 3,
direct, by notification ,-- (a) that in relation to any relief undertaking all
or any of the enactments specified in the Schedule to this Act shall not apply
or shall apply with such adaptations whether by way of modification, addition
or commission (which does not, however affect the policy of the said
enactments), as may be specified in such notification, or (b) that the
operation of all or any of the contracts, assurances of property, agree-ents,
settlements, awards, standing orders or other instruments, in force (to which
any relief undertaking is a party or which may be applicable to any relief
undertaking) immediately before the date on which the State industrial
undertaking is declared to be a relief undertaking, shall remain suspended or
that all or any of the rights, privileges, obligations and liabilities accruing
or arising there under before the said date, shall remain suspended or shall be
enforceable with such modifications and in such manner as may be specified in
such notification." The Schedule to the Act mentions the following six
Acts:
(1)
The Industrial Employment (Standing Orders) Act, 1946 (No. 20 of 1946).
(2)
The Industrial Disputes Act, 1947 (No. 14 of 1947).
(3)
The Minimum Wages Act, 1948 (No. 11 of 1948).
(4)
The Madhya Pradesh Shops and Establishments Act, 1958 (No. 25 of 1958).
(5)
The Madhya Pradesh Industrial Relations Act, 1960 (No. 27 of 1960).
256
(6) The Madhya Pradesh Industrial Employment (Standing Orders) 1961 (No. 26 of
1961).
Now
we come to the important Section with which we are vitally concerned in this
appeal and that is Section 5 which reads as follows:
"5.
Suspension of suits or other legal proceedings against relief undertakings: As
from the date specified in the notification under sub-section (1) of section 3,
no suit or other legal proceedings shall be instituted or commenced or, if
pending, shall be proceeded with against the industrial undertaking during the
period in which it remains a relief under- taking any law, usage, custom,
contract, instrument, decree, order, award, settlement of other provisions
whatsoever notwithstanding." What we are called upon to decide in this
case is whether proceedings taken in the Madhya Pradesh Court for execution of
a decree validly obtained in the Bombay High Court has to be or can be stayed
under this Section. We have already seen that the maximum period of the stay is
seven years and this period will expire on 15-11-1987. Section 7 deals with
suspension or modification of certain remedies, rights etc. and reads as
follows:
"7.
Suspension or modification of certain remedies, rights etc., stay of
proceedings, their revival and continuance. Any remedy for the enforcement of
any right, privilege, obligation or liability referred to in clause (b) of
Section 4 and suspended or modified by a notification under that section shall,
in accordance with the terms of the notification, be suspended modified, and
all proceedings relating thereto pending before any court, tribunal, officer or
other authority shall accordingly be stayed or be continued subject to such
modification, so however, that on the notification ceasing to have effect-- (a)
any right, privilege, obligation or liability so suspended or modified shall
revive and be enforceable as if the notification had never been issued; and 257
(b) any proceeding so stayed shall be proceeded with subject to the provisions
of any law which may then be in force from the stage which had been reached
when the proceeding was stayed." A close scrutiny of the above section
reveals that Section 5 has a free field of operation unfettered by any
limitation. The section is not happily worded. What the section intends to
convey, according to us, if the words are re-arranged, would be as follows:
"Notwithstanding
any law, usage, custom, con- tract, instrument, decree, order, award,
settlement or other provisions, no suit or other legal proceedings shall be
instituted or commenced or if pending shall be proceeded against the industrial
undertaking as from the date specified in the notification under sub- section
(1) of Section 3 during the period in which it remains a relief
undertaking." So read, the object of the section becomes clear. The
section seeks to confer benefit to the relief undertakings from the ravages of
litigation during the period it remains a relief undertaking. The expression
'decree' is very material for our purpose. Inclusion of 'decrees' in the
section shows that the fact that decrees were validly obtained against a relief
undertaking will not pose any danger to it during the period the declaration is
in force. In other words, the section prevents execution of a decree validly
obtained against the undertaking during the period mentioned above. That takes
us to the question as to whether the words "other legal proceedings"
in the section would take in execution proceedings. It is not disputed that the
Section bars institution of suits and starting of other proceedings.
What
is disputed is that expression "other legal proceedings" will not take
in execution proceedings. The contention is grounded on the general principle
that the execution court cannot go behind a valid decree and that the execution
court cannot, therefore, refuse to execute it. It is admit- ted that the decree
obtained from the Bombay High Court is a valid decree. That being so, law
should take its course and execution should proceed. It is by virtue of the
enabling provisions contained in Sections 40 & 42 of the Civil Procedure
Code that this validly obtained decree got transferred to the Court in Madhya
Pradesh. It is contended that by the mere transfer of this decree in accordance
with the procedural law, its validity does not disappear nor its binding force
cease to exist. We find difficulty in accepting this contention. If we are to
accept this submission, it would be rendering section 5 of the Act nugatory and
to 258 destroy the benefits sought to be conferred by that section.
Nobody
questions the validity of the decree. All that is sought to be done is to
suspend its animation for the period mentioned in the notification. No Court in
Madhya Pradesh can question its validity, nor can refuse to execute it after
the period is over. To direct execution of the decree in the teeth of Section 5
would be to encourage filing of suits in Courts outside Madhya Pradesh, secure
decrees and defeat the purpose of the Act. We do not think that such an abuse
is permissible in the face of Section 5 of the Act. We have, therefore, to
answer this question in favour of the appellant.
For
the disposal of this case, we do not think it necessary to refer to the lengthy
discussion made by the High Court on substantive and procedural law. We have to
construe and interpret the section as it stands. The section is unambiguous and
full import has to be given to its words and its intent. The non-obstante
clause in this section takes within its ambit, all the decrees passed against
the relief undertakings. The bar of 'institution or commencement' takes within
its ambit suits or other 'legal proceedings' which include execution petitions
also.
An
attempt was made by the learned counsel for the respondent to contend that the
expression "other legal proceedings" cannot take in proceedings to
execute validly obtained decrees. It was further contended that if we give such
a wide construction to the expression "other legal proceedings"
institution of even claims of workers under the Industrial Disputes Act and
other similar beneficial legislations, arising after the issue of notification,
will be barred. On the wording of the section we feel such a conclusion is
inescapable.
Reliance
was placed by the counsel for the respondent on the decision in the case of
State Bank of India v. Jaipur Udyog & Ors., AIR 1986 Delhi 357 to contend
that no objection can be raised to the execution of the decree validly obtained
from the Bombay High Court. We find that the above decision has no application
to our case. In that case, an attempt was made to block a suit filed in the
Delhi Court against a relief undertaking under the Rajasthan Relief
Undertakings (Special Provisions) Act 9 of 1961, based on Section 3 & 4.
That contention was repelled and according to us rightly. There the State Bank
of India brought a suit for the recovery of certain amounts against Jaipur
Udyog Limited, the principal debtor, a company based in Rajasthan and the
guarantors. This company had been declared by the State of Rajasthan as a
relief undertaking under Section 3 of the Act. Section 2 of the Act barred
institution or commencement of suit 259 or other legal proceedings against a
relief undertaking.
This
section contains an explanation as to what "legal proceedings" are.
Relying upon this section, the company and the guarantors pleaded that the suit
was liable to be stayed. The question before the High Court was whether the Act
had extra territorial operation. The case was heard by a Single Judge who
referred it to a Division Bench in view of the conflict between the Allahabad
High Court and the Punjab & Haryana High Court. The High Court referred to Section
1(2) of the Act which stated that the Act "extends to the whole of the
State of Rajasthan" which was an explicit declaration of the legislature
about the territorial application of the Act and held that the contention of
the debt- ors that the suit in Delhi Court ought to be stayed was
unsustainable. We are here confronted with a different situation. If what is
contended before us had been contended before the Bombay High Court, same
result would have followed. We have here a situation entirely different and
that is, steps to execute a decree in a territory over which the Madhya Pradesh
Act has application. If the decree obtained from the Delhi High Court had been
transferred to a Rajas- than Court and a decision was rendered on an objection
to its execution in favour of the decree holder, that would have helped the
respondent. No support can be taken by the respondent from this case.
We
may seek support for our construction of the words 'legal proceedings' to
include execution proceeding from a judgment of the Federal Court in the case
The Governor- General in Council v. Shiromani Sugar Mills Ltd., [1946] FCR 40.
The factual details in brief are as follows:
The
respondent-company was assessed to income-tax for the year 1941-42 by an
assessment order dated 25th February, 1943. In the meantime, however, a
petition to wind up the company had been presented on the 26th November, 1941,
a provisional liquidator had been appointed on the 7th December, 1941 and
finally on the 17th April, 1942, a winding up order had been made by the High
Court at Allahabad. On 10th March, 1943, a notice of demand was served on the
official liquidator of the respondent-company under Section 29 of the
Income-tax Act, 1922. The official liquidator pointed out to the Income-tax department
that the proper procedure to be followed was to lodge a claim in the winding up
in respect of the tax alleged to be due from the Company. Instead of adopting
this procedure the Income-tax department adopted its statutory procedure under
Section 46 and accordingly sent an arrear demand, informing the latter that the
demand was recoverable as arrears of land revenue. The official 260 liquidator
thereupon made an application to the High Court under Sections 171, 228 and 233
of the Indian Companies Act, 1913, against the department asking for an order
that the respondent be directed to put in a formal claim to the official
liquidator in respect of the sum due. The Allahabad High Court restrained the
department from proceeding accepting the plea of the company as the leave of
the Court was not obtained under Section 171. We are only concerned with the
manner in which the Federal Court understood the expression "other legal
proceeding" occurring in Section 171 of the Indian Companies Act. That
Section reads as follows:
"When
a winding-up order has been made or a provisional liquidator has been
appointed, no suit or other legal proceeding shall be proceeded with or
commenced against the company except by leave of the Court, and subject to such
terms as the Court may impose." The Federal Court discussed this question
at page 56 as follows:
"That
still leaves open the question whether action under Section 46 of the Indian
Income- tax Act is covered by the phrase "other legal proceeding."
Clearly it is not a proceeding in an ordinary Court of law. But we see no
reason why in British India no "legal proceeding" can be taken
otherwise than in an ordinary Court of law, or why a proceeding taken elsewhere
than in an ordinary Court of law, provided it be taken in a manner prescribed
by law and in pursuance of law or legal enactment, cannot properly be described
as a "legal proceeding." If it be considered that the effect of the
Income-tax authorities putting the machinery of s. 46 of the Income-tax Act in
motion for the collection of arrears of income-tax is to bring into operation
all the appropriate legal enactments relating to the collection of land revenue
in the Province concerned, it is, in our judgment, very difficult to say that
they are not taking a "legal proceeding." In fact, in this very case,
had the company not been in liquidation, the appellant would have had the
choice at his option of (a) proceeding by "suit" in the ordinary
Courts in respect of the arrears, or (b) by forwarding (under s.
46(2)
of the Income-tax Act) to the Collector the requisite Certificate, initiating
and putting into force collection of the arrears as arrears of land revenue
under and in accordance with the appropriate provisions of the 261 U.P. Land
Revenue Act (III) of 1901. Surely such last mentioned action on the part of the
income-tax authorities, would be the adoption of another legal proceeding for
the collection of the arrears as opposed to the institution of a suit. The
proviso to s. 46(2) empowers the Collector, if he so chooses, to exercise all
the powers which a civil court may exercise in respect of the attachment and
sale of debts due to a judgment-debtor. If the Income-tax Officer will be
taking a "legal proceeding" when he moves the Collector--as we think
he must be held to do--to realize the tax by attachment and sale of debts due
to the assesee, it can make no difference in principle that the Collector is
asked to exercise his summary powers under the land revenue law.
Accordingly,
we agree with the learned Judges of the Allahabad High Court in holding that
the words "other legal proceeding" in s. 171 of the Indian Companies
Act, 19 13, comprise any proceeding by the revenue authorities under s. 46(2)
of the Indian Income-tax Act, and that accordingly before forwarding the
requisite certificate under s.
46(2)
of the Indian Income-tax Act." There is no reason why the expression
'other legal proceedings' in section 5 should not include execution petitions
also.
If
we look into the scheme of the Act and the various sections, it will be evident
that Section 5 is an independent section uncontrolled by Sections 4, 6 & 7.
Sections 4, 6 & 7, deal with suspension or modification of certain
remedies, rights etc., stay of proceedings, their revival and continuance.
Section 5 does not make any reference to Section 4. It had been enacted with a
definite object and that is to protect the relief undertakings from litigations
and consequent actions. The object is clear. The Government wants to relieve such
undertakings from litigative pressure for a period of time. It is not a
permanent relief. The Government are interested to see that the investments
made by it and other financial institutions do not get frittered away by
avoidable litigation and other legal proceedings.
The
bar contained in Section 5 by way of suspension of suits or other legal
proceedings is thus an absolute bar but only for the period contemplated by the
Act.
The
limited question that we have to answer is as to whether 262 Section 5 operates
even against execution of decrees obtained against the relief undertaking by
its creditors outside the State of Madhya Pradesh.
The
learned counsel for the respondent brought to our notice decisions reported in
AIR 1948 Patna 245 and AIR 1953 Mysore 37 and similar other decisions to
contend that the execution court cannot, while executing decrees, adopt a
procedure under any special law available in the State in which the execution
court is situate, in relation to decrees obtained outside the States. For
example, suppose a decree is obtained in Madras and it is transferred to Madhya
Pradesh. Suppose again that in Madhya Pradesh, there is an enactment to scale
down the decree amount either in installments or to wipe out the debt of an
agriculturist; will it be open to the executing court to take recourse to such
enactments and give relief to debtors in the State in relation to a decree
obtained in a Court outside the State. It is settled law that the transferee
Court has to execute the decree in accordance with the law obtaining in the
Court that passed the decree and determine the rights and liabilities of the
parties in accordance with the substantive law obtaining in the State where
that Court is situate. That being so the judgment-debtor cannot move the
execution court and get the benefit of the procedure available in the State in
which the transferee Court is situated.
Here
we are not confronted with such a situation. Nobody contends that the executing
Court has to change the terms of the decree. All that is stated is that its
execution has to be suspended for a specified period. Section 5, therefore,
does not come into conflict either with Section 40 or section 42 of the Civil
Procedure Code. In our view, the bar under Section 5 is an absolute one for the
duration of the period contemplated in the Act.
If
the relief undertakings are not protected by a provision like Section 5, the
position will be distressing. The creditors will proceed against them. Their
properties and goods will be attached. The workers will be rendered job- less.
In this case, this unit is said to employ nearly 2,000 workers. The creditors
will not be in a more advantageous position either. If liquidation proceedings
are initiated, the creditors will get only pro-rata from the sale proceeds of
the assets. If creditors are permitted to proceed against the assets and the
products of the undertaking, that would be detrimental to the heavy investment
made by the State and other financial institutions. The concern of the
Government in enacting this law is thus in the interest of the large 263 number
of workmen employed in these undertakings and in the revival, if possible, of a
sick unit. It is to protect them and not to render them unemployed that such
relief undertakings are financed by the State.
A
contention was raised that Section 5 cannot apply to post notification
liabilities. In other words, suits and other proceedings in relation to the
debts incurred prior to the notification under Section 3 alone are barred and
debts incurred subsequent to the notification under Section 3 are not barred
under Section 5. In our view, the reading of the Sections does not permit such
an interpretation. The object of Section 5 is to protect the relief
undertakings from all suits and legal proceedings. This protection is to end on
18-11-1987. We hold that the High Court was in error in allowing execution to
proceed.
Before
parting with this case, we wish to observe that the powers that be will have to
evolve a more acceptable procedure while dealing with sick units. We share the
concern expressed in high places about the loss that Government incurs in
trying to rescue sick units. Invariably, the amounts pumped in are ultimately
lost. The machineries of the unit in question are as old as 1920. One can
easily imagine the nature of the products that come out of a unit like this.
What purpose will be served by giving life to such units by providing
artificial respiration The concern for workers must be matched with the concern
for modernisation also. The labour should not be left to the mercy of such sick
units. The Government will have to evolve a more acceptable and intelligent
policy, to help the labour and for modernisation of industry. These units like
"flaring tapers brightening as they waste" with temporary financial
blood transfusion must, in the interest of all concerned, be subjected to
euthanasia. The situation created must be met boldly. Such units with decrepit
and antiquated machineries must be got rid of and public money must be saved.
In their places new units must come into existence. We know that this would
involve heavy financial liability. But in the long run, it would save public
interest more. If Government find it difficult to pump enough money, at least a
trial must be undertaken to entrust such units to the labour to test how they
work with their cooperative efforts. In such a situation. there will not be
siphoning of the funds of the unit by the entrepreneurs for self
aggrandisement, for, more often than not, sickness in such units sets in,
because the funds of the units are diverted to defeat both the Government and
the labour and only to benefit the owners of such units.
264
With these observations, we set aside the order of the High court and allow
this appeal, but with no order as to costs.
P.S.S.
Appeal allowed.
Back
