Holding

Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 applies once a reference to BIFR is made, ousting the jurisdiction of civil courts and rendering any subsequent judgment void.

Summary

M.D., Bhoruka Textiles Ltd. (appellant) supplied paddy husk to M/s Kashmir Rice Industries (respondent) but allegedly failed to receive payment, prompting the respondent to sue for Rs.2,61,696. The respondent contended that the appellant had become a "sick" industrial company under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and that a reference to the Board of Industrial and Financial Reconstruction (BIFR) had been made, invoking Section 22 which suspends civil proceedings. The trial court held that a mere reference was insufficient and that the transaction occurred after the reference, so Section 22 did not apply; the High Court affirmed. The Supreme Court held that once a reference is made, the receipt of that reference is the starting point of the enquiry, and Section 22 bars the civil suit, rendering the lower court's judgment a nullity. Consequently, the appeal was allowed, the impugned judgment set aside, and the deposited amount ordered to be transferred to BIFR for scheme formulation.

Issues considered

Whether Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 applies to a suit filed after a reference to BIFR but before a final order, thereby ousting civil court jurisdiction.
Whether a mere reference to BIFR suffices to trigger suspension of civil proceedings under Section 22.
Whether a judgment rendered by a civil court lacking jurisdiction under SICA is a nullity.

Legislation cited

Companies Act, 1956
Sick Industrial Companies (Special Provisions) Act, 1985s. 15, s. 16, s. 20, s. 22, s. 32

Subjects

sick industrial companySection 22BIFRjurisdiction oustercivil court nullitySICAreference to BIFRsuspension of proceedings

Judgment

[2009] 9 S.C.R. 463
""-

M.D., BHORUKA TEXTILES LTD. A
v.
M/S KASHMIR! RICE INDUSTRIES
(Civil Appeal No.3603 of 2009)
MAY 15, 2009
B
-~

~
[S.8. SINHA AND DR. MUKUNDAKAM SHARMA, JJ.]

SICK INDUSTRIAL COMPANIES (SPECIAL
PROVISIONS) ACT, 1.985:
c
Section 22 - Applicability of - Ouster of jurisdiction of
Civil Court - Trial Court held that since n5J final order passed
by BfFR mere reference would not suffice and s.22 does not
.... apply - Appeal thereagainst dismissed by High Court - On
appeal, Held: Reference having been made before filing of
.It D
the suit, the receipt of reference is the starting point of enquiry
- If the Civil Court's jurJ.;diction was ousted, any judgment
rendered by it would be coram non judis - Such judgment
becomes a nullity - Impugned judgment set aside - Civil
Court to transfer the deposit of the decretal amount to BIFR
- If no scheme has been finalized, BIFR to expedite the same
E
- It should also take into consideration the decree passed by
-l- the Trial Court.
y

Tata Motors Ltd. Vs. Pharmaceutical Products of India
Ltd. & Anr. (2008) 7 SCC 619; Kiran Singh & Ors. Vs. F
Chaman Paswan & Ors. AIR 1954 SC 340; Chief Engineer,
Hyde/ Project vs. Ravinder Nath (2008) 2 SCC 350 and
Mantoo Sarkar vs. Oriental Insurance Co. Ltd. & Ors. (2009) ·
2 sec 244, relied on.

-
;
1
G
CIVIL APPELLATE JURISDICT_ION : Civil Appeal No.
3603 of 2009.

From the Judgment & Order dated 29.01.2008 of the High
463 H
464 SUPREME COURT REPORTS [2009) 9 S,C.R.
.x
A Court of Karnataka at Bangalore in R.F.A. No, 982 of 2007.

R.S. Hegde (for P.P, Sin9n) for the Appellants.

Ka$hi Vi$hweshwar (for A. Sumathi) for the Respondents.

6 Tfle Jud~ment of the Court was delivered by ;.
s.a. $1NtiA, .J, 1. ~eave 9r€lnted. ),_

2. This appeal is directed against a judgment and order
dated 29.1.2008 passed by the Hi9h Court of Karnataka at
c Bangalore in RFA No.982 of 2007 whereby and whereunder
judgment and decree dated 21.12.2006 passed by the Civil
Jµdge, Senior Division, decreeing the suit being OS No.728
of 2002 filed by the respondent was affirmed.
I-

D 3. A partnership firm known as M/s. Kashmiri Rice J,
Industries has its place of business at HangaL The said firm
entered into a contract for supply -of paddy husk with the
appellant. Inter alia, on the premise that appellant herein,
despite supply of the agreed quantity of paddy husk, failed and/
E or neglected to pay the price therefor, the respondent filed a
suit for recovery of a sum of Rs.2,61,696/- in the Court of Civil
Judge, Hangal.
4-
One of the contentions raj$ed PY the appellant in the said .,.
suit was that as the appellant-co·mpany has become a sick
F industry within the meaning of the provisions of Section 22 of
the Sick Industrial Companies (Special Provisions) Act, 1985
(for short, 'the Act') and a reference having been made to the
Board of Industrial and Financial Reconstruction (BIFR) in terms
of the provisions of the Act, the suit was not maintainable. i..
I'
G
The learned Trial Judge, inter alia, framed the following ~

issue:

"Do defendants prove that suit is also hit by Section 22 of
Industrial Companies (Special Provisions) Act as
H
• '

'>(
M.D., BHORUKA TEXTILES LTD. v. KASHMIR! RICE 465
INDUSTRIES [S.B. SINHA, J.]
contended in Para 7 of W.S. Preliminary issue?" A

From a perusal of the judgment, it appears that no
argument was advanced before the learned Trial Judge on the
said issue. However, it was opined that Section 22 of the Act
provides for suspension of the proceedings and in view of the , B
A fact that no final order has been passed by the BIFR declaring
~
the appellant as a sick industry, mere reference would ngt suffice.
A finding of fact furthermore was arrived at that the transaction
in question being subsequent to the reference, Section 22 of
the Act would have no application.
c
4. An appeal preferred thereagainst has been dismissed
by the High Court by reason of the impugned order. The High
· Court, although noticed issue No.3, did not record any positive
... finding thereupon .
k. D
5. Mr. R.S. Hegde, learned counsel appearing on behalf
.of the appell3nt, would urge that the learned Trial Judge as also
the High Court committed a serious error insofar as they
entered into a wrong finding of fact that the transaction in
question is subsequent to the reference. It was furthermore
E
contended that a plain reading of Section 22 of the Act would
clearly establish that the jurisdiction of the Civil Court is ousted
-i- thereby.

6. 'Mr. Kashi Vishweshwar, learned counsel appearing on
behalf of the respondent, however, would support the impugned F I
judgment.

7 ..Before adverting to the rival contentions of the parties,
we may notice the following admitted facts .
...i I
. Supply of husk during the period 17.9.2001 and
G
•'

28.11.2001, the agreement wherefor was entered into on or
about 6.9.2001. Reference to BIFR in terms of Section 16 of
the Act was made on 27.12.2001. The said reference was
registered by the BIFR on 20.03.2002. Respondent filed the suit
on 17.12.2002. The learned Trial Judge, therefore, committed H
466 SUPREME COURT REPORTS [2009] 9 S.C.R.
.>:

A a manifest error in opining that the transaction in question was
subsequent to the- reference. It is also apparent from the record
that respondent was aware of the fact that the appellant had
made reference to the BIFR in terms of the provisions Act.

8. The Act was enacted to make, in the public interest,
B
special provisions with a view to securing the timely detection j.

of sick and potentially sick companies owning industrial ).,

undertakings, the speedy determination by a Board of experts
of the preventive, ameliorative, remedial and other measures
which need to be taken with respect to such companies and
c the expeditious enforcement of the measures so determined
and for matters connected therewith or incidental thereto.

Indisputably, thus, appellant is an industrial undertaking.
Chapter Ill of the Act provides for reference, enquiries and ~

D schemes. Section 15 of the Act provides for reference to the _),_
Board in terms whereof the Board of Directors of the Company
is required' to make a reference within 60 days from the date
of the duly audited accounts of the company for the financial
year as at the end of which the Company has become a sick
E industrial company. Such reference is made for determination
of the measures which may be adopted with respect to the
company. The proviso appended thereto, however, entitles the
Board of Directors to make a reference within 60 days from 4-·
the date of formation of the opinion that the Company had ,.
F become a sick industrial company before the audited accounts
of tne financial year in question are finalized.

Section 16 of the Act empowers the Board to make such
enquiry as it may deem fit for determining whether any Industrial
Company has become a sick industrial company, inter alia,
G upon receipt of a reference with respect to such company under I
"
' ~

Section 15.

Sub-section (1) of Section 22 of the Act reads as under:

"22. Suspension of legal proceedings, contracts, etc.-
H
M.D.', BHORUKA TEXTILES LTD. v. KASHMIR! RICE 467
INDUSTRIES [S.B. SINHA, J.]
'"\...
(1) Where in respect of an industrial company, an inquiry A
under section 16 is pendJng 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 B
contained in the Companies Act, 1956 (1 of 1956), or any
other law or the memorandum and articles of association
J."""'
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, c
/
distress or the like against any of the properties of the
Ioli
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
D
""' advance granted to the industrial company shall lie or be
.ii
proceeded with further, except with the consent of the
Board or, as the case may be, the Appellate Authority."

A plain reading of the aforementioned provision would
clearly go to show that a suit is barred when an enquiry under E
Section 16 is pending. It is also not in dispute that prior to
institution of the suit, respondent did not obtain consent of the
Board .
.._,
...
9. The provisions of the Act and, in particular, Chapter Ill F
thereof, provides for a complete code. The Board has a wide
power in terms of the provisions of the Act, although it is not a
Court. Sub-section (4) of Section 20 as also Section 32 of the
Act provides for non-obstante clauses. It envisages speedy
disposal of the enquiry and preferably within the time framed
G
-\ provided for thereafter. Section 17 empowers the Court to
make suitable orders on the completion of enquiry. Preparation
and sanction of the scheme is also contemplated under the Act.

10. Section 22 of the Act must be interpreted giving a plain
..... meaning to its contents. An enquiry in terms of Section 16 of H
468 SUPREME COURT REPORTS [2009] 9 S.C.ft

>·
A the Act by the Board is permissible upon receipt of a reference.
Thus, reference having been made on 27.12.2001 and the suit
having been filed on 17.12.2002, the receipt of a reference
must be held to be the starting period for proceeding with the
enquiry. The effect of the provisions of the Act has been
B considered by a Three Judge Bench decision of this Court in
Tata Motors Ltd. v. Pharmaceutical Products of India Ltd. &
Anr. ((2008) 7 SCC 619], wherein it, in no uncertain terms, held ·""~
that SICA is a special statute and, thus, overrides other acts
like Companies Act, 1956, stating :
c "31. SICA furthermore was enacted to secure the
principles specified in Article 39 of the Constitution of .....
India. It seeks to give effect to the larger public interest. It
should be given primacy because of its higher public
purpose. Section 26 of SICA bars the jurisdiction .of the
D civil courts. ,...
..t
32. What scheme should be prepared by the operating
agency for revival and rehabilitation of the sick industrial
company is within the domain of BIFR. Section 26 not only
E covers orders passed under SICA but also any matter
which BIFR is empowered to determine.

33. The jurisdiction of the civil court is, thus, barred in
respect of any matter for which the Appellate Authority or +
. the Board is empowered. The High Court may not be a ,J

F civil court but its jurisdiction in a case of this nature is
limited."

If the civil court's jurisdiction was ousted in terms of the
provisions of Section 22 of the Act, any judgment rendered by
G it would be coram non judis. It is a well settled principle of law
~·
that a judgment and decree passed by a court or tribunal
lacking inherent jurisdiction would be a nullity. In Kiran ·singh ·~

& Ors. v. Chaman Paswan & Ors. [(AIR 1954 SC 340], this
Court held:
H '4lli-
M.D., BHORUKA Tl::XTILES LTD. v, KASHMIR! RICE 469
INDUSTRIES (S.B. SINHA, J.]
-..,__
'
"... It is a fundamental principle well-established that a A
decree passed by a Court without jurisdiction is a nullity
& that its invalidity could be set up whenever and wherever
it is sought to be enfotced or relied upon, even at the stage
of execution and even in collateral proceedings. A defect
of jurisdiction, whether it is pecuniary or territorial, or 8
whether it is in respect of the subject-matter of the action,
-\ strikes at the very authority of the Court to pass any
k decree, and such a defect cannot be cured even by
consent of parties."
" [See also Chief Engineer; Hyde/ Project v. Ravinder Nath
c
f(2oos) 2 sec3501

In Mantoo Sarkar v. Oriental Insurance Company Ltd. &
Ors. [(2009) 2 sec 244], we must place on record, that a
~
distinction has been made between a jurisdiction with regard D
to the subject matter of the suit and that of the territorial and
1'
pecuniary jurisdiction. It was laid down that a case falling within
the former category would make a judgment a nullity.

11. For the reasons aforementioned, the impugned
E
I

judgment cannot be sustained. It is set aside accordingly. The
appeal is allowed accordingly.

12. However, it appears that the appellant has deposited
1-
50% of the decretal amount. The Civil Court shall transfer the
said amount to BIFR. The BIFR, if has not finalized any scheme F
so far, would do so as expeditiously as possible. The BIFR shall
also take into consideration the decree passed by the learned
Trial Judge in favour of the plaintiff. In the facts and
circumstances of the case, there shall be no order as to costs.
G
J,, G.N. Appeal allowed.