AI Structured Summary
Not yet generated for this judgment
Judgment
Kanakaraj, J.—The petitioner-company is engaged in the manufacture of soft drinks and also in the business of marketing the same. They
had borrowed a term loan of Rs. 39 lakhs from the second respondent in November, 1987. They became financially sick and were not in a
position to pay the quarterly instalments. The petitioner applied to the Board under the Sick Industrial Companies (Special Provisions) Act, 1985
(hereinafter called ""the Act""). The case was registered as No. 86 of 1991, and the petitioner-company was declared as a sick industrial company
u/s 17 of the Act by an order dated December 5, 1991. One of the major creditors, namely, SIPCOT, was objecting to the package formulated
by the operating agency in their statement dated September 28, 1992. By proceedings dated September 10, 1993, the Board formed the opinion
that the petitioner-company should be would up and forwarded the papers to the High Court, Madras.
On November 9, 1993, the petitioner filed an appeal u/s 25 of the Act and the same was taken on file as No. 131 of 1993. On October 29,
1993, the second respondent foreclosed the loan and called upon the petitioner to pay the entire amount of Rs. 71,63,513.68 within 15/7 days of
the notice. On November 3, 1993, the petitioner wrote to the second respondent that they had filed an appeal against the order of the Board of
Industrial and Financial Reconstruction and requested them not to take action u/s 29 of the State Financial Corporations Act. That letter was
received by the second respondent on November 4, 1993. Again, on November 9, 1993, the petitioner wrote to the second respondent about the
filing of the appeal and quoting section 22 of the Act and requesting them not to initiate any further action. This was received by the second
respondent on November 10, 1993. While so, the second respondent took possession of the unit on November 30, 1993, in such a manner that
the factory has been damaged resulting in considerable loss.
On the part of the second respondent it is stated that after the order of the Board for Industrial and Financial Reconstruction dated September
10, 1993, they foreclosed the loan on October 29, 1993, and were taking steps as a prudent commercial organisation. With reference to the
letters dated November 3, 1993, and November 9, 1993, they state that there was no proof regarding the filing of an appeal. They, therefore,
state that they took possession of the unit on November 30, 1993. They also point out that in fact the appeal was filed only on November 9, 1993,
and not on November 3, 1993. They proceed to say that they are taking steps to file an application before the appellate authority (AIFR) seeking
permission to sell the unit.
On the above pleadings I am called upon to decide whether the second respondent was justified in taking possession on November 30, 1993,
and as to what relief can be granted pending the appeal u/s 25 of the Act. That the action u/s 29 of the State Financial Corporations Act is barred
u/s 22 of the Act admits of no doubt (vide, Maharashtra Tubes Ltd. Vs. State Industrial and Investment Corporation of Maharashtra Ltd. and
Another, . That the appeal was filed on November 9, 1993, is not disputed. The only contention of the second respondent is that there was no
proof of the appeal forthcoming and, therefore, they took possession on November 30, 1993. They do not even say that they verified the facts
from their officers or lawyers in New Delhi. They had received a letter from the petitioner on November 3, 1993, and November 9, 1993. No
doubt the petitioner was not correct in stating that the appeal was filed on November 3, 1993. But the second respondent had no justification for
acting so hastily without verifying the correct facts or calling for proof of filing an appeal. No doubt the petitioner could have furnished proof at
least after November 9, 1993. One cannot forget that the second respondent is not a private money-lender but a Government of Tamil Nadu
undertaking. They cannot act arbitrarily or unreasonably. No doubt they should be vigilant in recovering their dues and act prudently and promptly.
They certainly cannot act in a manner which will enable themselves to gain an undue advantage over a borrowing company knowing fully well that
they were filing an appeal u/s 25 of the Act. They cannot pretend ignorance of the legal position that once an appeal is filed they cannot go
anywhere near the factory of the petitioner. Precisely with a view to confront the appellate authority with a fait accompli they had taken possession
of the unit on November 30, 1993. Their act is reprehensible. Such acts on their part make this court lose faith in their bona fides. I have no doubt
in my mind that the action of taking possession on November 30, 1993, when the appeal u/s 25 of the Act was pending from November 9, 1993,
is illegal and cannot be recognised by this court. The prayer in the writ petition itself is limited to have effect till the appellate proceedings. It is
certainly open to the second respondent to seek for appropriate directions from the Appellate Authority for Industrial and Financial
Reconstruction. But they must first restore status quo by handing over the unit to the petitioner. The writ petition is allowed and the second
respondent is directed to forthwith give back the unit to the petitioner at any rate on or before December 24, 1993. The second respondent is
directed to pay costs of the writ petition to the petitioner which is taxed at Rs. 2,500.