L. Narasimha Reddy, J.
1. The respondents filed O.S. No. 56 of 2001 in the court of Senior Civil Judge, Nizamabad, against the petitioner, claiming damages for libel against them. It was pleaded that in a daily newspaper published by the petitioner, certain derogatory and defamatory remarks were published and a sum of Rs. 1,01,000 was claimed as damages.
2. The petitioner filed I.A. No. 90 of 2006 under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short 'the Act'), with a prayer to suspend all further proceedings in the suit. It was pleaded that the petitioner had become a sick industrial company and that the proceedings were initiated under the Act, before the Board of Industrial and Financial Reconstruction (BIFR). Placing reliance upon Section 22 of the Act, it was urged that no proceedings for recovery of the amount against a company, declared as sick industry, can be maintained or proceeded with, in view of the prohibition contained in it. The application was opposed by the respondents. Through its order dated August 14, 2007, the trial court dismissed the I.A. Hence, this civil revision petition.
3. Learned Counsel for the petitioner submits that the prohibition contained under Section 22 of the Act is absolute in its purport and the trial court was not justified in dismissing the application. He further submits that once the petitioner is declared as a sick industry, no proceedings can be maintained against it, for recovery of amount, irrespective of the basis for such claim.
The only question that arises for consideration in this civil revision petition is as to whether the suit instituted by the respondents is covered by Section 22 of the Act.
4. Parliament enacted the Act with an object of timely detection of sick and potentially sick companies, owning industrial undertakings, the speedy determination by a Board of experts, of the necessary measures, which need to be taken in respect of such companies, and the expeditious enforcement of the measures, so determined. Sick industrial company is defined under Section 3(o) of the Act as a company registered for not less than five years and has, at the end of any financial year the accumulated losses equal to or exceeding its entire net worth. Sections 4 - 14 of the Act deal with the constitution of the BIFR and the appellate authority. Chapter III, comprising of Sections 15 to 22A, deal with the method of references, enquires and the schemes. Section 22 of the Act, which takes care of any proceedings initiated or pending against such companies, reads as under:
Section 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.
(2) Where the management of the sick industrial company is taken over or changed in pursuance of any scheme sanctioned under Section 18, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law-
(a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company;
(b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board;
(3) Where an inquiry under Section 16 is pending or any scheme referred to in Section 17 is under preparation or during the period of consideration of any scheme under Section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board:
Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.
(4) Any declaration made under Sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly:
(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and
(b) on the declaration ceasing to have effect-
(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and
(ii) any proceeding so remaining 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 proceedings became stayed.
(5) In computing the period, of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this Section shall be excluded.
5. The circumstances, under which the institution of proceedings for winding up of the industrial company, execution of such orders, institution of suit for recovery of money or for enforcement of any security against such companies are made, are mentioned in the section. Sub-section (3) thereof further elaborates the purport of the proceedings that are either prohibited or suspended under the section. They are the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which are applicable to it immediately before the date of the order, that may be passed by the BIFR or the appellate authority. The provision to Sub-section (3) stipulates the duration of the orders, that can be passed in this regard.
6. The object underlying Section 22 of the Act is obvious and clear. The recognition of an entity as a sick industrial company would entail in formulation of several schemes in the direction of its revival. Therefore, no steps, which would have the effect of eroding its capital, or depletion of the properties, are permitted. It is not as if Section 22 of the Act wipes away the obligation under various proceedings, which it purports to suspend, once for all. They are only deferred for some period, to ensure that the scheme formulated by the Board or the appellate authority is not hampered or hindered, in any manner. The effect of Section 22 of the Act, though limited in its tenure, would certainly be adverse to the interests of many, who are otherwise entitled to institute the proceedings against the sick industrial company. Though the Section is couched with a non obstante clause, it needs to be interpreted strictly and the rights, which the individuals or agencies may have against the company, cannot be trampled indiscriminately. Much would depend upon the nature of proceedings that are instituted against the company. Broadly stated, if they do not have the effect of eroding into the assets or paid-up capital of the company, the suspension provided for under Section 22 of the Act cannot be extended to them.
7. Further, it is the liability of a sick industry arising out of contracts, whether entered voluntarily or implied under a statute, that constitute the subject-matter of Section 22 of the Act. Here again, the protection is not absolute. For instance, the proceedings initiated against a sick industrial company for eviction from the premises for non-payment of rent, or breach of other conditions, were held not covered by the protection under Section 22(1). see Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association : [1992]2SCR999 .
8. The issuance of a cheque by a company and the consequences of the cheque being not honoured, would certainly have a direct bearing, vis-a-vis the assets thereof. In B. Mohan Krishna v. Union of India [1996] 86 Comp Cas 487 (AP) and Raghunath Cotton and Oil Products Ltd. v. Ramarao Cotton Co. [1999] 95 Comp Cas 852 (AP), it was held that such proceedings cannot be brought under the umbrella of Section 22(1) of the Act. Proceedings instituted by the financiers of the vehicles purchased by the sick company were also held not protected under Section 22(1) of the Act. see Kotak Mahendra Finance Ltd. v. Deve Paints Ltd. : AIR1997Bom401 Authorities can be multiplied on this aspect.
9. The suit filed against the petitioner arises out of tortious liability, attributed against it. The distinction between contractual and tortious liability is too well known, to be elaborated. Breach of a contract gives rise to the entitlement, to recover liquidated damages or other consequences, agreed to by the parties. A tort, on the other hand, if committed, enables a wronged person, to seek redressal of his rights. The quantification of the damages, in such cases, is only a measure of retribution of the wrong in terms of money, than payment of any liquidated sum. When contractual obligations, under a lease agreement, or a negotiable instrument, are kept outside the protective umbrella of Section 22(1) of the Act, the suit filed by an individual, against a sick industrial company, a suit for damages, on account of defamation, can, by no stretch of imagination, be treated as barred under that provision.
Hence, the C.R.P. is dismissed. There shall be no order as to costs.