A) ABSTRACT / HEADNOTE

Case Title: Fertilizer Corporation of India Limited & Ors. v. M/s Coromandal Sacks Private Limited
Judgment Date: 26 April 2024
This judgment delves into the interplay between Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) and suits for money recovery. It examines whether legal proceedings initiated against a sick industrial company are barred under the protective ambit of SICA when the debts in question have not been admitted by the company. The case also addresses whether compound interest at 24% could be granted for delayed payments under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993 (1993 Act). The Supreme Court clarified that adjudicatory suits unrelated to the execution or attachment of company assets are not barred under SICA. The judgment harmonized the objectives of both statutes, emphasizing the legislative intent behind Section 22 of SICA to protect rehabilitation schemes and the deterrent provisions under the 1993 Act to safeguard small-scale industries.

Keywords:
Sick Industrial Companies Act, Suspension of Legal Proceedings, Recovery of Money, Compound Interest, Harmonious Construction.

B) CASE DETAILS

• i) Judgement Cause Title: Fertilizer Corporation of India Limited & Ors. v. M/s Coromandal Sacks Private Limited
• ii) Case Number: Civil Appeal Nos. 5366-5367 of 2024
• iii) Judgement Date: 26 April 2024
• iv) Court: Supreme Court of India
• v) Quorum: J.B. Pardiwala, Sandeep Mehta, JJ.
• vi) Author: Justice J.B. Pardiwala
• vii) Citation: [2024] 5 S.C.R. 321 : 2024 INSC 348
• viii) Legal Provisions Involved:
  • Sick Industrial Companies (Special Provisions) Act, 1985: Sections 3(1)(o), 16, 17, 22(1), 25.
  • Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993: Section 4.
  • Interpretation of Statutes: Principle of Harmonious Construction.
• ix) Judgments Overruled by the Case (if any): None specified.
• x) Law Subjects Involved: Corporate Law, Industrial and Contract Law, Statutory Interpretation.

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case arose from disputes between Coromandal Sacks Private Limited (plaintiff) and Fertilizer Corporation of India Limited (FCIL) (defendant). The plaintiff, a small-scale industrial entity, sought recovery of payments under a supply contract. FCIL contended that the suit was barred by Section 22(1) of SICA as it was a sick company undergoing proceedings before the Board for Industrial and Financial Reconstruction (BIFR). The trial court ruled in favor of the plaintiff, granting interest at 12%. However, the High Court revised the decree, granting compound interest at 24% as per the 1993 Act. FCIL challenged this in the Supreme Court.

D) FACTS OF THE CASE

The original plaintiff supplied HDPE bags to the defendant under a supply contract. Disputes arose when the defendant deducted amounts for alleged delays, penalties for poor quality, and reduced agreed-upon rates for additional supplies. The plaintiff sought recovery of:

1. Price differences for 42,000 bags.
2. Liquidated damages deducted without justification.
3. Losses from rejected supplies (25,000 bags).
4. Interest for delayed payments as per the 1993 Act.

The defendant claimed protection under SICA, stating its status as a sick company barred the proceedings.

E) LEGAL ISSUES RAISED

1. Does Section 22(1) of SICA bar suits for recovery of money against sick companies?
2. Was the High Court correct in granting compound interest at 24% under the 1993 Act?

F) PETITIONER/ APPELLANT’S ARGUMENTS

1. Bar under SICA: The appellant argued that Section 22(1) prevented suits for money recovery unless permitted by BIFR.
2. Interest Calculation: Claimed interest at 24% was excessive and detrimental to FCIL’s rehabilitation efforts.
3. Prior Judgments: Relied on precedents, including Bhoruka Textiles Ltd. v. Kashmiri Rice Industries and Jay Engineering Works Ltd. v. Industry Facilitation Council, to establish that unacknowledged debts are outside the scope of adjudication during SICA proceedings.

G) RESPONDENT’S ARGUMENTS

1. Non-Admitted Liability: The respondent contended that Section 22(1) only bars suits where liabilities are admitted by the sick company.
2. Interest under 1993 Act: Argued that statutory provisions under the 1993 Act allowed for higher interest to deter delays in payments to small-scale industries.
3. Distinction in Legal Proceedings: Asserted the suit was for determining liability, not execution, and thus not barred by SICA.

H) JUDGEMENT

a. Ratio Decidendi:

1. Section 22(1) of SICA does not extend to adjudicatory suits unrelated to execution or attachment of assets.
2. Compound interest at 24% aligns with the 1993 Act but excludes periods when FCIL was under BIFR.

b. Obiter Dicta (if any):
The court emphasized the importance of harmonizing SICA and the 1993 Act to uphold legislative intent.

c. Guidelines:

1. Suits for determining liabilities are not barred under SICA unless they affect rehabilitation schemes.
2. Interest calculations must consider statutory protections and financial distress timelines.

I) CONCLUSION & COMMENTS

The judgment underscores the judiciary’s role in balancing conflicting statutory objectives—corporate rehabilitation and small-scale industry protection. By delineating the scope of Section 22(1), it ensures that procedural shields do not hinder substantive justice.

J) REFERENCES

1. Bhoruka Textiles Ltd. v. Kashmiri Rice Industries, (2009) 7 SCC 521.
2. Jay Engineering Works Ltd. v. Industry Facilitation Council, (2006) 8 SCC 677.
3. Gram Panchayat v. Shree Vallabh Glass Works Limited, (1990) 2 SCC 440.
4. Sick Industrial Companies (Special Provisions) Act, 1985.
5. Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993.