- Bookmark
- Share
- CaseIQ
Indian Maize & Chemicals Ltd. v. State Of U.P And Others
Factual and Procedural Background
The petitioner obtained an electrical connection of 1650 KVA from the U.P. State Electricity Board on 6 February 1990 after executing the requisite agreement under the Indian Electricity Act, 1910. When an outstanding amount of Rs 49.95 lakhs remained unpaid, the Board issued a demand on 4 June 1996. To prevent disconnection, the petitioner agreed on 10 June 1996 to liquidate the arrears in twelve monthly instalments and the Board restored supply on that condition. After paying only one instalment, the petitioner again defaulted and approached the Allahabad High Court (Lucknow Bench) asserting that, being a “sick industry” with rehabilitation proceedings pending before the Board for Industrial and Financial Reconstruction (BIFR), no recovery action could lawfully be taken. The High Court rejected this contention on 26 July 1996. The present special leave petition (SLP) challenges that order.
Legal Issues Presented
- Whether the protective embargo under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) bars the Electricity Board from disconnecting supply or insisting on payment of arrears when BIFR proceedings are pending.
- Whether the Supreme Court decision in C.E.S.C. Ltd. v. Bowrech Cotton Mills Co. Ltd., 1993 Supp (1) SCC 451, compels a contrary result and renders the High Court’s reliance on Modi Spg. & Wvg. Mills Co. Ltd. v. U.P. SEB, AIR 1992 All 247, incorrect.
Arguments of the Parties
Petitioner's Arguments
- The matter is governed by the Supreme Court ruling in C.E.S.C. Ltd. v. Bowrech Cotton Mills Co. Ltd., which allegedly shields sick industrial companies from recovery measures during BIFR proceedings.
- Consequently, the High Court erred in relying on Modi Spg. & Wvg. Mills Co. Ltd. v. U.P. SEB.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| C.E.S.C. Ltd. v. Bowrech Cotton Mills Co. Ltd., 1993 Supp (1) SCC 451 | Consideration of liabilities of sick industries and grant of instalments for payment of electricity dues while BIFR proceedings are pending. | The Court clarified that this case expressly left open the issue of default on undertakings; hence it does not assist the petitioner in avoiding payment or disconnection. |
| Modi Spg. & Wvg. Mills Co. Ltd. v. U.P. SEB, AIR 1992 All 247; 1992 AWC 364 | High Court authority on the Electricity Board’s right to disconnect supply for non-payment despite pendency before BIFR. | Referenced to explain that the Allahabad High Court relied on it; the Supreme Court found no error in such reliance. |
Court's Reasoning and Analysis
Invoking Section 22(1) of SICA, the Court observed that the statutory moratorium applies only to proceedings such as winding-up, execution, distress, or suits for recovery. Enforcement of a contractual condition—continued payment as a prerequisite for continued electricity supply—does not amount to “execution of a decree” and therefore falls outside the moratorium.
The Court further reasoned that:
- Under the Indian Electricity (Supply) Act, 1948, uninterrupted supply is conditional upon punctual payment for energy consumed; default justifies disconnection.
- The petitioner had voluntarily undertaken to clear arrears in twelve instalments, a condition precedent for reconnection. Non-compliance with that undertaking forfeits any equitable relief.
- The precedent cited by the petitioner (C.E.S.C. case) is distinguishable because it specifically left open the question of enforcing such undertakings and focused only on modification of instalment terms; consequently, it does not aid the petitioner.
- Because there is no court decree, the Board’s demand cannot be characterised as “execution,” and the statutory bar in Section 22(1) is inapplicable.
On these grounds, the Court found no merit in the SLP.
Holding and Implications
The special leave petition is dismissed.
Immediate Effect: The petitioner remains liable to pay the entire outstanding amount, and the Electricity Board is free to disconnect supply for continued default. Broader Implication: The decision reaffirms that Section 22(1) of SICA does not immunise sick industrial companies from fulfilling ongoing contractual payment obligations for essential services such as electricity, nor does it inhibit statutory disconnection for non-payment. No new legal precedent was announced, but existing statutory interpretation was clarified and reinforced.
Order
1. Delay condoned.
2. The petitioner is, through this petition, assailing the correctness of the order of the Allahabad High Court, Lucknow Bench, made on 26-7-1996 in Writ Petition No. 2109 of 1996. The petitioner got the electricity connection from the respondent-U.P State Electricity Board on 6-2-1990 for the supply of electric energy of 1650 KVA. The petitioner had executed an agreement and also complied with the formalities for the supply of electricity in terms of the Indian Electricity Act, 1910. The petitioner claimed the rebate on the basis that he had established the industry in an undeveloped area but we are not concerned with that controversy. Admittedly, a sum of Rs 49.95 lakhs was due from the petitioner. On a demand raised by the Board on 4-6-1996 in that behalf, the petitioner approached the High Court. The petitioner, with a view to avoid disconnection had agreed with the Board on 10-6-1996 for payment of the above outstanding amount in 12 monthly instalments and the Board had agreed for the same and given reconnection subject to the petitioner paying the amount as agreed. The petitioner after depositing one instalment, committed default in the payment. Since the petitioner anticipated disconnection, it approached the High Court for the direction not to recover the amount putting forth the plea that the petitioner is a sick industry and his claim for rehabilitation was pending before BIFR and, therefore, no action could be taken in that behalf. The High Court has refused to grant the relief by the impugned order dated 26-6-1996. Thus, this special leave petition.
3. The learned counsel for the petitioner has contended that the controversy is covered by the judgment of this Court in C.E.S.C Ltd. v. Bowrech Cotton Mills Co. Ltd. 1993 Supp (1) SCC 451 Therefore, the High Court was not right in relying upon that Court's earlier judgment in Modi Spg. & Wvg. Mills Co. Ltd. v. U.P SEB AIR 1992 All 247, 1992 AWC 364. We find that the contention raised by the learned counsel is not correct in law. It is seen that in CESC Ltd. case 1993 Supp (1) SCC 451, this Court had expressly left open the question of the undertaking given and the default committed and fulfilment thereof since that question was not raised in the High Court as expressly mentioned in para 3 thereof. With regard to the delayed payment, surcharge etc. the direction issued by the High Court was modified in para 4 and direction was given to pay the amount in instalments as envisaged in para 4 of the judgment. As far as the arrears are concerned, since the first question was not considered, this Court had held that since the matter was pending before the BIFR it needed to be considered by the BIFR itself.
4. It is seen that Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 envisages as under:
“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.”
5. A reading of the above section would indicate that when the proceedings are pending before the BIFR in respect of any matter referred to therein for inquiry by the Board, the proceedings or order of execution, distress or the like would be stayed until the proceedings get concluded before the BIFR or would not be proceeded without the leave of the Board or Appellate Authority. It is seen that under the Indian Electricity (Supply) Act, 1948 one of the conditions is that continued payment of the price of electrical energy supplied by the Board is a condition for the continued supply and the default committed in the payment thereof entails disconnection of the supply of electrical energy, except in accordance with the procedure prescribed under the contract or the regulation issued under the Indian Electricity (Supply) Act, 1948. Execution connotes pre-existing decree. It is true that any action for realisation etc. pending decision by BIFR or without its permission is prohibited. Enforcement of compliance of the obligation under the contract or regulation for supply of electrical energy by ordering payment of electrical energy is not and cannot be considered to be execution of a decree. Execution of the decree presupposes the existence of a decree of a competent court and the decree-holder should take steps to have it executed pending proceeding before BIFR. There is no decree of court. Since the petitioner had committed default and as a condition for reconnection, agreed to pay the amount in instalments, he is liable to comply with the undertaking given for supply of electrical energy. The petitioner committed default in that behalf. So, it is not entitled to seek any declaration or direction from the Court that since the matter is pending before the BIFR, he would be entitled to the supply of electrical energy without the compliance of the corresponding obligation of payment under regulations or of the contract under the Indian Electricity (Supply) Act, 1948. It is, therefore, not correct to say that since the proceedings are pending before the BIFR, the electricity is required to be supplied to the consumer without compliance of the conditions. It is then sought to be contended that the authorities may take coercive steps to recover the arrears. At this stage, we need not go into the question.
6. The special leave petition is accordingly dismissed.
Alert