JUDGMENT
S.M. Jhunjhunwala J.
1. In the suit filed by the plaintiffs to recover from defendants Nos. 1, 2 and 3, the sum of Rs. 12,90,56,879 with interest due thereon and for enforcement and sale of mortgaged and hypothecated securities and for other reliefs as mentioned in the plaint, defendants Nos. 1, 2 and 3 have taken out the present notice of motion for discharge of the receiver appointed by this court on February 13, 1990, and in the alternative, for directions to the receiver to hand back to the first defendants the possession of the first defendant’s factory premises taken on August 12, 1991. It is also prayed that the sum of Rs. 20 lakhs deposited by the second defendant and lying in this court should not be disbursed but should be utilised in such manner as may be directed by BIFR for rehabilitation of the first defendants.
2. Since, according to the plaintiffs, the first defendant has been in tremendous financial difficulties, their net worth having become negative, their liabilities being far in excess of the real assets, their share capital having been wiped out and they having stopped carrying on any business, the plaintiffs had taken out notice of motion bearing No. 479 of 1990, in this suit for appointment of the court receiver, High Court, Bombay, as receiver of the mortgaged properties described in the schedule, exhibit A, to the plaint, movables described in the schedule, exhibit B, to the plaint and current assets described in the schedule, exhibit C, to the plaint (hereinafter referred to as “the suit properties”) with all powers under Order XL, rule 1 of the Code of Civil Procedure, 1908, including the powers to sell the said movables and current assets described in the schedules, exhibit B and C, to the plaint and to pay over the net sale proceeds and/or net recovery thereof to the plaintiffs in or towards their claim in the suit and also for an order of injunction restraining the first defendant by themselves, their servants and agents from in any manner disposing of or alienating or transferring or parting with possession of or creating any third party title or interest in respect of the suit properties. On February 13, 1990, Cazi J., appointed ad interim receiver in terms of prayer (a) of the said notice of motion excluding the power of sale. Accordingly, by the said order dated February 13, 1990, the court receiver, High Court, Bombay, was appointed the receiver of the suit properties without the power of sale and with directions to him not to dispossess the first defendant provided the first defendant entered into an agreement with usual terms and conditions with the receiver without security. An ad interim injunction in terms of prayer (b) of the said notice of motion restraining the first defendants from in any manner disposing of or alienating or transferring or parting with possession or creating any third party rights in respect of the suit properties except in the ordinary course of business was also granted. An appeal from the said order dated February 13, 1990, was preferred by the first defendant and on February 21, 1990, Mukherjee C.J. and Sugla J. upheld the order of Cazi J., subject to modification that pending the hearing and final disposal of the notice of motion, the receiver was directed not to put up his board. Compensation payable by the first defendant was ordered to be determined but was ordered not to be payable for a period of three weeks from that date. Accordingly, the receiver took possession of the suit properties situated at sub-village Vadvali, Village Rajawadi, Taluka Khandala, Sub-District Phaltan, District Satara, on February 23, 1990, and took inventory of the suit plant and machinery and other movables. The first defendant agreed and undertook to hold the suit properties as agents of the receiver. The receiver fixed the royalty amount payable by the first defendants for the use and occupation of the suit properties as agents of the receiver at Rs. 11,60,000. The receiver calculated arrears of royalty which the first defendant became liable to deposit with the court receiver at the said rate which amount aggregated to Rs. 1,45,00,000. According to the first defendant, the reasonable amount of royalty which the receiver ought to have fixed was Rs. 1,08,000 per month. Since the first defendant did not comply with the directions of the receiver, a report dated April 26, 1991, was submitted by the receiver to this court for the following directions :
(a) that defendant No. 1 may be directed to deposit with the receiver the arrears of monthly royalty at the rate of Rs. 11.60 lakhs from the date of the order appointing the receiver as the receiver in the matter, viz., February 13, 1990, up to date and three months security deposit within such time as may be stipulated by this court;
(b) in the event of defendant No. 1 not complying with the directions in prayer (a) above, the receiver may be directed to take back possession of the suit properties from defendant No. 1, if necessary, with the help of police; …”
3. On this report, Dhanuka J. on May 3, 1991, directed the first defendant to deposit the sum of Rs. 10 lakhs within one week and a further sum of Rs. 10 lakhs within within four weeks thereafter on account and without prejudice. Further consideration on the said report was deferred till June 12, 1991.
4. Defendants Nos. 1, 2, and 3 took out a notice of motion, being Notice of Motion No. 1235 of 1991, for directions to the court receiver to enter into the agency agreement with the first defendants at a monthly royalty amount of Rs. 1,08,000 and not to make payable the royalty amount from February 13, 1990, but with effect from the signing of such agency agreement. On July 29, 1991, Dhanuka J., in the said Notice of Motion No. 1235 of 1991, recorded an undertaking of the chief executive of the first defendant to deposit the sum of Rs. 10 lakhs on or before August 1, 1991, and further sum of Rs. 10 lakhs on or before August 7, 1991. No amount was deposited by the first defendant in pursuance of the said undertaking. On August 7, 1991, suo motu notice for contempt was ordered to be issued to the chief executive of the first defendant and to all the directors of the first defendant. The receiver was directed to take back the possession of the suit properties from the first defendant in view of default in depositing the said sum of Rs. 20 lakhs committed by the first defendant. On August 12, 1991, the receiver has taken back possession of the suit properties from the first defendant as per the said order passed by this court. On August 13, 1991, the contempt notice which was ordered to be issued as aforesaid was heard and on the second defendant giving an undertaking to deposit the sum of Rs. 10 lakhs forthwith and a further sum of Rs. 10 lakhs before September 17, 1991, the same was discharged.
5. On May 16, 1991, the first defendant made an application to the Board for Industrial and Financial Reconstruction (for short hereinafter called “the BIFR”) under sub-sections (1) and (2) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short hereinafter called “the said Act”), which was registered with the BIFR on June 3, 1991, and given registration No. 69 of 1991. The enquiry under section 16 of the said Act commenced. On August 8, 1991, the BIFR passed an order and it was held that the first defendant-company would not be able to revive and make its net worth positive within a reasonable time on its own. It was further held that in public interest, it is expedient to revive the unit. Accordingly, the plaintiffs were appointed as operating agency for preparing a scheme for rehabilitation of the first defendant-company, if possible, in terms of sub-section (3) of section 17 of the said Act. The present notice of motion has been taken out the October 21, 1991, for the reliefs as aforesaid.
6. Mr. Zaiwalla, learned counsel appearing for defendants Nos. 1, 2 and 3, has submitted that in view of the order dated August 8, 1991, passed by the BIFR, proceedings for appointment of the receiver in respect of the properties of the first defendant do not lie and cannot be proceeded with and as such, the court receiver, High Court, Bombay, appointed as the receiver of the suit properties is liable to be discharged. He has further submitted that continuation of appointment of the receiver despite the said order of the BIFR would be contrary to the scheme of the said Act and would defeat its objects and as such, the receiver is liable to be discharged. He has further submitted that the receiver had not taken physical possession of the suit properties prior to the said order passed by the BIFR and as such the receiver cannot take physical possession after passing of the said order of August 12, 1991. He has endeavoured to draw a distinction between the receiver taking formal possession and physical possession. Alternatively, Mr. Zaiwalla has submitted that the order appointing the receiver is liable to be stayed. In support of his aforesaid submissions, Mr. Zaiwalla has relied upon the following cases :
(a) Central Bank of India v. Tauras Foundry Pvt. Ltd., ;
(b) Venubai Annantrao v. Prabhabai Govindrao Jamkar, AIR 1984 Bom 403;
(c) S. B. Industries v. United Bank of India, ;
(d) Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust, ;
(e) Hig Temp Chemicals P. Ltd. v. Satya Steel Strips (P.) Ltd. [1991] 72 Comp Cas 447 (AP).
7. Mr. Tulzapurkar, learned counsel appearing for the plaintiffs, has submitted that on February 13, 1990, the court receiver, High Court, Bombay, was appointed receiver of the suit properties with all powers under Order XL, rule 1 of the Code of Civil Procedure, 1908, but without the power of sale and with directions not to dispossess the first defendant provided the first defendant entered into the agency agreement with the receiver on usual terms and conditions but without security. No such agency agreement has been entered into by the first defendant with the receiver. He has further submitted that since February 23, 1990, the possession of the first defendant in respect of the suit properties was not absolutely in their own right but merely as agents of the receiver. On the appointment of the receiver as aforesaid and the receiver taking possession of the suit properties on February 23, 1990, as aforesaid, the suit properties became custodia legis. Mr. Tulzapurkar has further submitted that the capacity of the person in possession of a property as agent of the receiver is different from the capacity of the owner thereof. In the submission of Mr. Tulzapurkar, in the facts and circumstances of the case, section 22 of the said Act has no applicability. Mr. Tulzapurkar further submitted that the suit properties have been in the possession of the court and the first defendant were merely holding the same as the agents of the court receiver. When the receiver took possession, it did not make any difference whether it was a formal possession or otherwise. It was possession of the court. In his submission, in the facts and circumstances of the case, there is no question of the receiver being either appointed after the commencement of enquiry proceedings under the said Act or the receiver taking possession of the suit properties after the said order was passed by the BIFR. Any act done by the receiver to ensure restoration of his possession is not violative of the provisions of the said Act. In the submission of Mr. Tulzapurkar, the first defendant had ceased to be in possession of the suit-properties as owners thereof on the possession thereof being taken over by the receiver as aforesaid. As regards the said sum of Rs. 20 lakhs lying deposited with this court, Mr. Tulzapurkar has submitted that the said amount has been deposited pursuant to the undertaking given and towards the payment of the royalty charges. It is not an asset of the first defendant so as to form part of the scheme of the BIFR.
8. In the case of Central Bank of India v. Tauras Foundry P. Ltd., , on which reliance has been placed by Mr. Zaiwalla, the plaintiff-bank had filed a suit against the company and made an application for appointment of the receiver to take possession of the hypothecated goods and sell the same. The trial court has directed the receiver to take only symbolic possession. In appeal, the High Court held that the actual relief granted to the plaintiff by the trial court by appointing the receiver was illusory as the receiver was to remain only in symbolic possession of the hypothecated goods and the defendant was left free to deal with the goods as it liked. Such is not the situation in the facts and circumstances of the present case and as such, it cannot be said that the appointment of a receiver for the suit properties has been illusory. In the cases reported in S. B. Industries v. United Bank of India, and Venubai Annantrao v. Prabhabai Govindrao Jamkar, AIR 1984 Bom 403, it has been held that in a general way, a receiver has no power except such as are conferred upon him by the order by which he is appointed. It is open to a court not to confer all those powers stated in Order XL, rule 1 of the Code of Civil Procedure, 1908. It may confer upon him only such powers as may be necessary to preserve the property pending the litigation so that it may not be damaged or dissipated. The correct principles of law have been laid down in these cases. In the instant case, while appointing the receiver, all powers under Order XL, rule 1 of the Code of Civil Procedure, 1908, excepting the power of sale have been conferred. The first defendants were permitted to retain and use the suit properties only as the agents of the receiver and subject to their entering into an agency agreement with the receiver in respect thereof and not otherwise. The Gujarat High Court in the case of Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust , has interpreted section 22 of the said Act. It has been held therein that under section 22 of the said Act, the winding up proceedings already started against an industrial company can be dismissed. According to the view taken by the Gujarat High Court, the words “be proceeded with further” in section 22 of the said Act cannot be interpreted to mean that the winding up proceedings already started should be kept in abeyance without further proceedings in the matter. The words “or be proceeded with” occurring in section 22 of the said Act cannot, in any way, restrict the meaning that has to be given to the words “no proceedings shall lie”. In the case of Hig Temp Chemicals P. Ltd. v. Satya Steel Strips P. Ltd. [1991] 72 Comp Cas 477 (AP) it has been held that the said Act operates as a self-contained code for various steps to be taken in respect of a company which is declared as a sick industrial company under section 3(1)(o) of the said Act and since the BIFR had passed an order declaring the company a sick industrial company as defined in section 3(1)(o) of the said Act, no proceedings for winding up the company under the provisions of the Companies Act, 1956, would lie by virtue of section 22 of the said Act. Mr. Tulzapurkar has drawn my attention to the judgment of our court delivered by Dhanuka J. in Company Applications Nos. 314 of 1990, 315 of 1990, 316 of 1990, 317 of 1990, 318 of 1990 and 342 of 1990, respectively, in Company Petitions Nos. 512 of 1990, 513 of 1990, 515 of 1990, 516 of 1990, 517 of 1990 and 514 of 1990 Ramniklal and Co. v. Wallace Flour Mills Co. Ltd. [1993] 78 Comp Cas 546 (Bom), wherein both these authorities cited by Mr. Zaiwalla have been considered and after considering the same, Dhanuka J. has held that it was not possible to subscribe to the views taken by the said courts. It has been further held that unless a winding up order is passed by the company court, the corporate existence of the company is intact. Mr. Zaiwalla has fairly invited my attention to the case of Gram Panchayat v. Shree Vallabh Glass Works Ltd. [1990] 2 SCG 41; [1991] 71 Comp Cas 169, where the Hon’ble Supreme Court, on interpretation of section 22 of the said Act, has held as under (at page 172 of 71 Comp Cas) :
“Section 22(1) provides that in case the enquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration by the Board or any appeal under section 25 is pending then certain proceedings against the sick industrial company are to be suspended or presumed to be suspended. The nature of the proceedings which are automatically suspended are : (1) winding up of the industrial company; (2) proceedings for execution, distress or the like against the properties of the sick industrial company; and (3) proceedings for the appointment of a receiver. The proceedings in respect of these matters could, however, be continued against the sick industrial company with the consent or approval of the Board of the appellate authority, as the case may be.”
9. Mr. Zaiwalla then submitted that on the said order being passed by the BIFR there was automatic suspension of all proceedings against the first defendant in relation to the appointment of the receiver and as such, the receiver could not have taken possession of the suit properties from the first defendant on August 12, 1991.
10. It is clear from the provisions of the said Act that in case the inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration by the BIFR or any appeal under section 25 is pending, then certain proceedings including proceedings for the appointment of the receiver against the industrial company are to be suspended. The marginal note to section 22 of the said Act provides an indication that the proceedings in question are merely required to be suspended. The operative part of section 22(1) of the said Act provides that such proceedings may continue with the consent of the Board or, as the case may be, the appellate authority. If the proceedings can continue with the consent of the Board or, as the case may be, the appellate authority or in the event of the condition precedent prescribed under section 22(1) of the said Act ceasing to exist, there is no reason as to why proceedings for the appointment of a receiver against the first defendant must necessarily abate or be dismissed. Even though the said Act operates as a self-contained code for various steps to be taken in respect of a company which is declared as a sick industrial company under the provisions thereof, it is not that no proceedings for winding up of such industrial company or for execution, distress or the like against any of the properties of such industrial company or for the appointment of the receiver in respect thereof can be at all proceeded with. Following the decision in the case of Shree Vallabh Glass Works Ltd. [1991] 71 Comp Cas 169 (SC) and the judgment of our court delivered by Dhanuka J. in the aforesaid company applications, which is binding on me being the judgment of a court of co-ordinate jurisdiction, I am unable to subscribe to the view taken by the Gujarat High Court and the Andhra Pradesh High Court in the aforesaid two authorities cited by Mr. Zaiwalla.
11. Mr. Zaiwalla then submitted that the decision of Dhanuka J. in the said company applications has no application to the facts and circumstances of the case, there being no question of a receiver or liquidator being involved in those company applications. He has further submitted that the case before Dhanuka J. pertained to grant of an ad interim injunction and section 22 of the said Act in terms does not cover such contingency whereas the questions pertaining to appointment of the receiver are specifically covered by the provisions of section 22 of the said Act. It is correct that the facts in the said company applications decided by Dhanuka J. were different from the facts in the instant case before us. However, the ratio laid down in the said judgment is clear and binding on me. Dhanuka J. has in terms declined to follow the said two authorities cited by Mr. Zaiwalla for the reasons stated therein which I accept as correct.
12. The appointment of the court receiver, High Court, Bombay, as the receiver of the suit properties was made on February 13, 1990. The receiver had taken possession of the suit properties on February 23, 1990. The suit properties became custodia legis through its duly appointed receiver on February 23, 1990. The distinction sought to be drawn by Mr. Zaiwalla between “formal” and “physical” possession by the receiver, in the facts of the case, is of no legal consequence. The first defendant was permitted to retain and use the suit properties as the agents of the receiver and not in their absolute or own rights as owners thereof. As per the order dated August 7, 1991, the agency of the first defendants stood terminated and the first defendant became disentitled to retain or use the suit properties. Accordingly, on August 12, 1991, the receiver restored the possession to himself which the first defendants held as agents of the receiver. It is correct that under section 22 of the said Act, the proceedings are to be suspended. However, in the facts and circumstances of the case, the appointment of the receiver in respect of the suit properties of the first defendants as well as receiver taking possession thereof from the first defendants were much prior to even institution of inquiry under the provisions of section 16 of the said Act. The first defendant had no independent possession of the suit properties in their own rights as lawful owners thereof as on August 12, 1991, and as such, section 22 of the said Act did not apply. The continuation of the receiver, in the facts of the case, is not contrary to the scheme or objects of the said Act.
13. In the result, the notice of motion is dismissed. However, in the facts and circumstances of the case, there shall be no order as to costs of the notice of motion.