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

- **Citation:** 2024 INSC 348
- **Court:** Supreme Court of India
- **Decided:** 2024-04-26
- **Case number:** Civil Appeal Nos. 5366-5367 of 2024
- **Bench:** J.B. Pardiwala, Sandeep Mehta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/fertilizer-corporation-of-india-limited-ors-v-m-s-coromandal-sacks-private-37823
- **Pages:** 79

## Headnote

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-smallscale 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
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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

## Text

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* Author
[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-smallscale 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
322
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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
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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.
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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.
Digital Supreme Court Reports
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 selfsame 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 nonacceptance by the original defendants.
330
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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,
i.e., from Rs. 8.75/bag to Rs. 10.25/bag
49,500
2.
Towards price difference for 9,000 bags,
i.e., from Rs. 8.75/bag to Rs. 9.44/bag
6,210
Total
(Towards price difference for 42000 bags)
Rs. 55,710.00
3.
Towards Liquidated Damages deducted
by the defendants
1,63,470.75
4.
Towards deduction against penalties
4,89,919.99
5.
Towards loss incurred on 25,000 Bags
printed which was sold as waste @ 50%
price on account of not taking delivery.
1,18,000.00
Principal Grand Total
8,27,100.74
6.
Towards Interest on Rs. 55,710 from
01.01.1994 to 21.11.1996 at the rate of
24%
38,609.32
7.
Towards Interest on Rs. 1,63,470.75 from
01.01.1994 to 21.11.1996
1,13,298
8.
Towards Interest on delayed payment
up to 15.07.1994 as per the Debit Note
dated 15.07.1994
3,45,467
9.
Towards interest on Rs. 3,45,467 from
16.07.1994 to 21.11.1996
1,94,900.18
10.
Towards interest on Rs. 4,89,919.99 from
01.01.1994 to 21.11.1996
3,39,534.69
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.
No.
Issue
Decision of the trial
court
1.
Whether the plaintiff had supplied
42,000 bags (33,000 + 9,000) on
the advice and urgency showed by
the defendants on his own?
Decided in favour of the
plaintiff
2.
Whether the defendants after
taking and consuming the bags
even without placing order can
deny the agreed price for the
42,000 bags?
Decided in favour of the
plaintiff - Rs 55,710/-
with interest @ 12%
p.a. from 01.01.1994 till
realisation
3.
Whether the defendants had any
right to deduct Rs. 1,63,471/- as
Liquidated Damages?
Partly decided in favour
of the defendants
4.
Whether the defendants were
entitled to deduct Rs. 4,89,919.99
as penalty. If so, whether it was
in accordance with the terms and
conditions of order/tender?
Decided in favour of the
defendants
332
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5.
Whether the plaintiff was entitled
to interest for the delayed payment
as per law?
Partly decided in favour
of the plaintiff - Interest
rate of 12% granted on
the payments held as
due and delayed.
6.
Whether the plaintiff had printed
25,000 bags as per the oral order of
the defendants? If so, whether the
plaintiff sustained loss at the rate
of 50% of the value due to refusal
on the part of the defendants to
take delivery of the bags?
Decided in favour of the
plaintiff - Rs 1,18,000/-
with interest @ 12%
p.a. from 01.01.1994 till
realisation.
7.
Whether the defendants had called
for a fresh tender after placing
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?
Decided in favour of the
plaintiff
8.
Whether the defendants had
regularised the supply of 33,000
bags at Rs. 8.46/bag vide P.O. No.
40893 dated 21.04.1994 and same
was accepted by the plaintiff?
Decided in favour of
plaintiff
9.
Whether the suit was not
maintainable as the defendants
have been declared as Sick
Industry by the BIFR vide Case No.
PUC/C/515/92 dated 06.11.1992?
Decided in favour of the
plaintiff
10.
Whether the suit of the plaintiff was
barred by limitation?
Decided in favour of the
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
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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 selfcontained 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
[2024] 5 S.C.R.
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Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited
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.
[2024] 5 S.C.R.
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Fertilizer Corporation of India Limited & Ors. v.
M/s Coromandal Sacks Private Limited
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.