Case Note & Summary
The case involves a dispute between Fertilizer Corporation of India Ltd. (FCIL), a public sector undertaking, and M/s Coromandal Sacks Private Limited, a manufacturer of HDPE bags. The plaintiff supplied bags to FCIL under purchase orders and claimed that FCIL failed to pay the agreed price for extra supplies, wrongfully deducted liquidated damages and penalties, and refused to accept 25,000 bags. The plaintiff filed a civil suit for recovery of Rs. 18,58,903.88 including interest. FCIL contended that the suit was barred under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) as it had been declared a sick company. The trial court decreed the suit partly in favor of the plaintiff, awarding Rs. 55,710, Rs. 1,00,848, and Rs. 1,18,000 with 12% interest. Both parties appealed to the High Court, which enhanced the interest to 24% compound interest. The Supreme Court considered two issues: whether the suit was maintainable under Section 22(1) SICA, and whether the High Court's grant of 24% compound interest was correct. The Court held that Section 22(1) suspends proceedings only in respect of debts admitted by the sick company; since FCIL did not admit the debt, the suit was maintainable. The decree was not coram non-judice as the issue was not pressed. On interest, the Court found 24% compound interest excessive and reduced it to 12% simple interest per annum from the date of suit till realization, exercising discretion under Section 34 CPC. The appeals were partly allowed, modifying the High Court's decree.
Headnote
A) Sick Industrial Companies Act - Suspension of Legal Proceedings - Section 22(1) SICA, 1985 - The suspension of legal proceedings under Section 22(1) applies only to debts admitted by the sick industrial company; a civil suit for recovery of an unadmitted debt is maintainable and not barred. The decree passed in such a suit, where the defendant did not press the issue of maintainability, is not coram non-judice. (Paras 29-67) B) Interest - Discretionary Power - Section 34 CPC - The grant of interest is discretionary; the High Court's award of 24% compound interest was excessive and not justified. The Supreme Court reduced it to 12% simple interest per annum from the date of suit till realization, consistent with commercial practice and the discretion under Section 34 CPC. (Paras 68-90)
Issue of Consideration
Whether the suspension of legal proceedings under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 extends to a civil suit for recovery of money where the debt is not admitted by the sick industrial company; and whether the High Court was correct in granting 24% compound interest on the principal decretal amount.
Final Decision
The Supreme Court partly allowed the appeals. It held that the suit was maintainable and the decree was not coram non-judice. However, the High Court's award of 24% compound interest was set aside and substituted with 12% simple interest per annum from the date of suit till realization on the decretal amounts.
Law Points
- Suspension of legal proceedings under Section 22(1) of SICA
- 1985 applies only to debts admitted by the sick industrial company
- civil suit for recovery of unadmitted debt is maintainable
- decree passed without objection on maintainability is not coram non-judice
- interest rate under Section 34 CPC is discretionary
- compound interest at 24% is excessive and reduced to 12% simple interest.
