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Shree Sajjan Mills Limited And Others v. Municipal Corporation, Ratlam .
Factual and Procedural Background
The appellant company was declared a sick industrial company and registered before the Board for Industrial and Financial Reconstruction (BIFR) on 21-11-1989 under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). Although BIFR initially recommended winding-up, the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) approved a revival scheme on 29-11-1995.
An Assets Sale Committee, constituted pursuant to the scheme, auctioned surplus land. The respondent Corporation emerged as the highest bidder but failed to deposit the mandatory 20 % of the purchase price within thirty days. In 1998 the Committee cancelled the offer and forfeited the earnest money.
In 2001 the Corporation filed a civil suit for recovery of the forfeited amount. The appellant moved an application under Sections 9 and 151 CPC read with Section 26 SICA questioning the civil court’s jurisdiction. The District Judge, Ratlam held that Section 26 barred the suit, ordered return of the plaint for presentation before the appropriate forum, and invoked Order 7 Rules 10 and 10-A CPC (order dated 31-8-2004).
On appeal, the Madhya Pradesh High Court (Indore Bench) set aside the District Judge’s order on 28-7-2005, holding that the dispute lay outside BIFR/AAIFR jurisdiction and remanded the suit for decision on merits. The appellant’s application to recall the High Court’s order was rejected on 11-1-2007. The present appeal before the Supreme Court challenges both High Court orders.
Legal Issues Presented
- Whether the forfeiture of earnest money arising from a post-scheme auction constitutes a matter that BIFR or AAIFR is “empowered … to determine” under Section 26 SICA, thereby ousting the jurisdiction of civil courts.
- Consequently, whether the civil suit filed by the respondent Corporation is barred and the plaint must be returned for presentation before BIFR/AAIFR.
Arguments of the Parties
Appellant Company’s Arguments
- The auction sale formed an integral part of the revival scheme; hence any dispute over forfeiture of earnest money falls within the exclusive jurisdiction of BIFR/AAIFR under Section 26 SICA.
- Civil courts are barred from adjudicating such disputes; the plaint should therefore be returned.
- Relied on the Supreme Court decision in Jay Engg. Works Ltd. v. Industry Facilitation Council (2006) 8 SCC 677 to support the bar on civil jurisdiction.
Respondent Corporation’s Arguments
- While the auction was connected to the scheme, the specific question of earnest-money forfeiture is a private contractual dispute of a civil nature, not one that BIFR/AAIFR is authorised to decide.
- Section 26 SICA does not extend to such disputes; the civil court rightly retains jurisdiction.
- Accordingly, the High Court’s order remanding the suit for decision on merits requires no interference.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Jay Engg. Works Ltd. v. Industry Facilitation Council (2006) 8 SCC 677 | Interpretation of Section 26 SICA regarding exclusion of civil court jurisdiction. | Cited by the appellant; however, the Supreme Court did not find the precedent applicable to a dispute over earnest-money forfeiture arising from a sale transaction. |
Court's Reasoning and Analysis
The Supreme Court examined Sections 15 – 19 SICA, which empower BIFR to frame and implement revival schemes, and read Section 26 in that context. The Court concluded that the bar of jurisdiction applies only to matters that BIFR or AAIFR is expressly authorised to determine. Although the auction was connected with the scheme’s implementation, the specific issue—whether earnest money was rightly forfeited—does not require the specialised expertise or statutory power of BIFR/AAIFR.
The Court agreed with the High Court’s reasoning that the forfeiture dispute is a contractual question “of a purely civil nature.” Consequently, Section 26 does not oust the civil court’s jurisdiction, and the District Judge erred in returning the plaint. The earlier High Court order restoring the suit for adjudication on merits was therefore correct.
Holding and Implications
APPEAL DISMISSED.
The Supreme Court affirmed the Madhya Pradesh High Court’s decision, allowing the civil suit to proceed on merits before the District Judge, Ratlam. The order dated 11-1-2007 refusing to recall the High Court’s judgment also stands affirmed. The ruling clarifies that Section 26 SICA does not bar civil courts from deciding contractual disputes incidental to a revival scheme when such matters are not within the statutory purview of BIFR/AAIFR. No new legal precedent is set beyond this interpretative clarification.
Order
1. Leave granted. This appeal is directed against the judgment and order dated 28-7-2005, passed by the Madhya Pradesh High Court at Indore in MA No. 2275 of 2004 and also against the order dated 11-1-2007, passed in MCC No. 1194 of 2005.
2. The petitioner herein applied to the Board for Industrial and Financial Reconstruction (BIFR) under the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as “SICA”) for being registered as a sick company and it was so registered on 21-11-1989. It appears that a recommendation was made by BIFR for winding up of the Company, but in appeal before the Appellate Authority for Industrial and Financial Reconstruction (Aaifr), a scheme for revival of the Company was framed on 29-11-1995.
3. Pursuant to the scheme, an Assets Sale Committee was constituted which invited tenders for sale of surplus land belonging to the appellant Company. The respondent Corporation also participated in the auction and was found to be the highest bidder in respect of the plots tendered for sale.
4. Under the terms and conditions of the sale, the highest bidder was required to deposit 20% of the purchase price within thirty days from the date of the auction and the remaining balance in two subsequent stages. At the very initial stage, the Corporation failed to deposit 20% of the purchase price within the stipulated time and, accordingly, the aforesaid Committee cancelled the offer and forfeited the earnest money which had been deposited by the Corporation for participating in the auction. Such cancellation and forfeiture was effected as far back as in 1998.
5. Subsequently, in 2001, the Corporation filed a suit for recovery of the earnest money. Before the civil court, an application was filed by the appellant Company under Sections 9 and 151 of the Code of Civil Procedure read with Section 26 of SICA objecting to the jurisdiction of the court to entertain the suit.
6. The application was considered by the learned District Judge, Ratlam, Madhya Pradesh, before whom the suit was pending. Accepting the submissions made on behalf of the Corporation, the learned District Judge came to the finding that in view of Section 26 of SICA, the civil court had no jurisdiction to try any suit relating to sick units against the proceedings of the Board and was of the view that the plaint should be returned to the plaintiff under Order 7 Rule 10 CPC. However, on the request made on behalf of the plaintiff, an order was made for return of the plaint for presentation before the appropriate forum, including the Board, under the provisions of Order 7 Rule 10-A CPC.
7. Aggrieved by the order of the learned District Judge, dated 31-8-2004, the respondent Corporation filed Miscellaneous Appeal No. 2275 of 2004. The High Court considered the effect of Section 26 of the Sick Industrial Companies (Special Provisions) Act, 1985 and held that the transaction between the Corporation and the Company was outside the purview both of BIFR and Aaifr, and that the same did not affect the implementation of the scheme. The High Court, accordingly, allowed the appeal and set aside the order of the learned District Judge and remanded the same to the learned District Judge to dispose of the suit on merits. The said order of the High Court has been challenged in the present special leave petition.
8. Ms Sunita Rao, learned advocate for the appellant, tried to impress upon us that the sale, which was sought to be effected by the Assets Sale Committee, constituted a part of the process of implementation of the scheme and, accordingly, under Section 26 of SICA, appropriate relief should have been sought for before the Board and that the High Court had erred in holding otherwise.
9. Ms Rao submitted that the sale being part of the scheme for revival of the Company, only BIFR or Aaifr have jurisdiction to decide the question as to whether the earnest money had been rightly forfeited or not. Ms Rao relied on the decision of this Court in Jay Engg. Works Ltd. v. Industry Facilitation Council (2006) 8 SCC 677 in support of her submissions.
10. On the other hand, Ms Priya Puri, learned advocate, appearing for the respondent Corporation, submitted that the sale transaction may have been effected towards the implementation of the scheme, but the question as to whether the earnest money deposited by the Corporation was liable to be forfeited or not was not an issue which fell for the determination of BIFR or Aaifr under the aforesaid Act and that the same was an issue of a purely civil nature to be decided by the civil court. She submitted that no interference was called for with the judgment and order of the High Court.
11. Having considered the submissions made on behalf of the respective parties, we are unable to agree with Ms Rao that the forfeiture of the earnest money in respect of the sale transaction was part of the process for implementation of the scheme as such. The provisions of Sections 15 to 19 of SICA provide for BIFR to frame a scheme for revival of the company declared sick and, in that connection, it has authority to decide all matters with regard to such a scheme. It is in that context that Section 26 has to be read:
“26. Bar of jurisdiction.—No order passed or proposal made under this Act shall be appealable except as provided therein and no civil court shall have jurisdiction in respect of any matter which the appellate authority or the Board is empowered by, or under, this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.”
12. We agree with the view expressed by the High Court that the forfeiture of the earnest money by the Assets Sale Committee could not have been the subject-matter of a dispute within the meaning of Section 26 which either BIFR or Aaifr has the jurisdiction to determine. Accordingly, we see no reason to interfere with the judgment and order of the High Court impugned in this appeal.
13. The appeal is, therefore, dismissed. Consequently, the order dated 11-1-2007, rejecting the application filed on behalf of the Corporation for recalling the order by the appellant Company, does not call for any interference.
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