The Chief Administrative Officer, Central Organisation for Modernization of Workshop v. HMT Machine Tools

1. The petitioner herein is a Government of India Undertaking. The respondent No.1, the contesting respondent is also a Government of India undertaking –M/s HMT Machine Tools Ltd.

2. Certain supplies were made by respondent No.1 to the petitioner but an amount of Rs.7.30 Crores approximately was deducted from the payment as liquidated damages.

3. The respondent No.1 company, which was incorporated on 01.04.2000 filed an application and was declared to be a sick company under Section 3(1)(o) of the Sick Industrial Companies (Special Provisions) Act, 1985 and an Operating Agency was appointed to prepare a rehabilitation scheme. A Draft Rehabilitation Scheme was circulated but it appears that the petitioner did not receive a copy of the same.

4. Board of Industrial and Financial Reconstruction („BIFR‟ for short) by order dated 12.06.08 accepted the Draft Rehabilitation Scheme SS-8. Clause

9.13 of the sanctioned scheme postulated that the petitioner herein would refund Rs.7.30 Crores approximately which had been deducted as liquidated damages.

5. Subsequently, there was reconciliation of accounts and the respondent No.1 company by letter dated 21.10.08 called upon the petitioner to release Rs.6.02 Crores approximately in terms of the aforesaid paragraph in the sanctioned scheme.

6. The petitioner thereupon decided to challenge the order passed by the BIFR sanctioning in the scheme dated 12.06.08 and an appeal was preferred before the Appellate Authority for Industrial and Financial Reconstruction („AAIFR‟ for short).

7. Controversy arose on the question of limitation which was resolved by order dated 17.01.12 passed by a Division Bench of this Court in Writ Petition No.7729/11.

8. The petitioner has placed before us copy of order dated 14.03.13 passed by AAIFR which for the sake of convenience is reproduced below:- “Parties are present as per their attendance. Learned Counsel for the appellant submitted that they cannot refund the liquidated damages to the respondent M/S HMT Machine Tools Ltd. for the period prior to 01.04.2000 i.e. date the company was incorporated. According to them, relief is admissible to the Respondent M/s HMT Machine Tools Ltd. only after the cut off date i.e. 31.3.2007. This submission is not acceptable. Sanctioned scheme is meant to provide relief in respect of dues of creditors as on the cutoff date and not dues for the future perioid i.e. after the cutoff date. The contention of the appellant that the respondent company cannot claim relief for the period prior to their incorporation i.e. 01.04.2000 was accepted by the Learned Counsel for the respondent on instructions. The Learned Counsel for the appellant further submitted that in their claim the respondent company has included certain claims which do not pertain to COFMOW. The Learned Counsel for the Respondent submitted that they are ready to delete any claim not pertaining to COFMOW and rework the calculation, if so required, in consultation with the appellant. The appellant as well as the respondent were directed to sit together and mutually workout the calculations based on the principle that the refund of liquidated damages is to be claimed only for the period from 1.4.2000 to 31.3.2007. This order would apply only to the dues covered under para 9.13 of the sanctioned scheme and not to any other dues between the two parties. Matter be listed for further hearing on 8.4.13.”

9. A reading of the aforesaid paragraph would indicate that the order was in the nature of a consent order. It records the stand of the petitioner that they cannot refund liquidated damages to respondent No.1 for the period prior to 01.04.2000 i.e. before the date of incorporation of respondent No.1. This contention of the petitioner was accepted.

10. Another submission raised by the petitioner was that relief should be granted to the respondent No.1 only after the cut off date, i.e. 31.03.2007. This submission was rejected by AAIFR recording that the sanctioned scheme was meant to provide relief in respect of dues of creditors as on the cut off date and not for the future period, i.e. the dues created after the cut off date. As recorded above, the AAIFR accepted the plea of the petitioner that the respondent No.1 cannot claim relief for the period prior to their incorporation i.e. 01.04.2000.

11. Another dispute arose with regard to quantum of deduction as it was submitted by the petitioner that the entire amount of Rs. 6.02 Crores did not pertain to them. The parties were asked to sit and mutually work out and calculate on the principle that the refund of liquidated damages was to be claimed for the period from 01.04.2000 to 31.03.2007. It is apparent that thereafter meetings were held and the order dated 30.01.2014 was passed quantifying the amount payable as Rs.5.26 Crores approximately. The said order records that in respect of 4 bills, there was a dispute, as purchase orders in respect of these bills were issued prior to 01.04.2000 but the actual supplies were made after 01.04.2000 and the bills were raised by respondent No.1 thereafter. The findings of AAIFR on the said aspects are reasonable, fair and just.

12. Learned counsel for the petitioner relies upon Explanation to Section 3(1)(o) and submits that the claims prior to 31.03.2007 should not have been accepted as the respondent No.1 company was incorporated only on 01.04.2000. The said section defines a “sick industrial company” as an industrial company which has at the end of financial year accumulated losses equal to or exceeding its entire net worth. However, it also stipulates that the company should be registered for not less than 5 years. The explanation pertains to companies which were registered prior to enactment of the Sick Industrial Companies (Special Provisions) Amendment Act, 1993. The explanation is not applicable to the facts of the present case as the respondent No.1 company was registered on 01.04.2000. We cannot appreciate the contention of the petitioner that in view of Section 3(1)(o) claims or dues for 5 years cannot be taken into consideration and therefore the liquidated damages claimed from 01.04.2000 and relating to next five years cannot and should not have been subject matter of the rehabilitation scheme. The said contention has to be only noted to be rejected as it has no force. The prescription of period of 5 years from the date of registration is only for the purposes of ensuring that newly registered companies or companies registered within 5 years do not move an application under Section 3(1)(o). It has no reference to the claims etc. relating to this period.

13. The writ petition is dismissed. No costs.

SANJIV KHANNA, J. V. KAMESWAR RAO, J. SEPTEMBER 05, 2014