Creditors of sick companies have lost another battle to recover their money when the Supreme Court last week ruled that the Sick Industrial Companies Act (SICA) shall prevail over the Recovery of Debts due to Banks and Financial Institutions (RDDB) Act. There were differences among judges over this issue of precedence. Since two judges took different views, the question was referred to a larger bench. Last week, the new bench delivered a unanimous judgment in the case, KSL & Industries Ltd vs Arihant Threads Ltd, settling the law on this point. According to Section 22 of the Sick Industries Act, once a company is declared sick, all legal proceedings, including suits for recovery of money, are suspended till an attempt is made to revive the unit. The judgment pointed out that it was in the backdrop of the existing multitude of remedies which creditors may avail of against an indebted company and its properties bringing them to attachments, auction sale etc., making it difficult for the authorities entrusted with its reconstruction to evolve a scheme. Therefore, SICA specified that this provision will prevail over other laws. The RDDB Act, on the other hand, recites that its provisions shall be in addition to and not in derogation of the SICA provisions. The judgment said that the purpose of the two laws is entirely different. Parliament, suspecting that there might be conflict of views on this point, “wisely preserved the proceedings under SICA” the judgment said.
Cooking food in club is ‘manufacturing’
There is no distinction between a hotel and an elite club when it comes to contribution to the Employees State Insurance fund, the Supreme Court stated while dismissing the appeal of Delhi Gymkhana Club Ltd last week. The court rejected the argument of the club that it was not “manufacturing” food in its kitchen and therefore the club was not a factory covered by the ESI law. “Kitchen is an integral part of the club which caters to the needs of its members on payment, thereby making the club fall within the definition of factory,” the Supreme Court emphasised, agreeing with ESI Corporation. The high court had already dismissed the club’s petition. The appeal was dismissed with the searing remarks that the welfare law was not followed by the elite club and “it is very unfortunate that it has not paid ESI contribution for more than three decades.”
Quibbling over insurer's liability
The Supreme Court last week set aside the judgment of the Delhi High Court and ruled that the insurance company has the liability to pay compensation in a road accident death if the vehicle was driven by a person with licence for ‘light vehicle’ though not for ‘light goods vehicle’. In this case, Kulwant Singh vs Oriental Insurance Company, the motor accident claims tribunal directed the insurer to pay damages to the dependents of a tempo driver who died in the mishap. The company appealed to the high court, pleading that since the licence was not in order, it had a right to recover the amount from the owner of the vehicle. It argued that light motor vehicle was not the same thing as light goods vehicle. The high court accepted the contention and asked the owner to pay up. He moved the Supreme Court, which ruled in his favour. It said that there was no breach of insurance policy as the definition of light motor vehicle covered light goods vehicle as well, even if the driver did not obtain endorsement to drive a commercial vehicle.
Commercial plot buyer is a 'consumer'
A person who buys a commercial plot to earn his livelihood is a 'consumer' within the definition in the Consumer Protection Act, the Supreme Court ruled while setting aside the view of the National Consumer Commission in the case, Sanjay Joshi vs Municipal Board, Laxmangarh. Sanjay was the lowest bidder in the auction for commercial plots and he paid security amount. Later he came to know that the plot was caught in civil litigation and the municipal board could not sell it. He wanted to withdraw the security amount, which the board forfeited. He moved the district consumer forum which asked the board to return the money with interest. The state commission confirmed it. However, the National Commission took the view that since the buyer wanted to start a business in the plot, he was not a consumer. On appeal, the Supreme Court reversed the decision and stated that since he an unemployed person who wanted to make a living, he came within the definition of consumer.
'Be slow to quash cheque bounce cases'
When facts regarding the dishonour of a cheque are complex and seriously disputed, the high court cannot quash prosecution in a cryptic order, the Supreme Court stated in the case, Sesame Chemicals vs State of Meghalaya. The payee company alleged that the cheque it received bounced as the drawer firm had stopped payment by the bank. The drawer firm contended that the goods supplied by the other firm was substandard, and the cheque was signed at gun point. Both parties filed criminal complaints against each other, under the Negotiable Instruments Act and criminal laws. The Gauhati High Court quashed the trial regarding the bounced cheque. On appeal, the Supreme Court stated that the truth or otherwise of the allegations could be established only by evidence at the trial. The high court should not have cancelled the prosecution at the instance of the drawer of the cheque, who abused the process of the court.
Rallis official in defamation case
The Supreme Court has dismissed the appeal of the company secretary of Rallis India Ltd seeking to quash a defamation case against him. An ex-employee had floated a rival company in the same field of business and wanted to go public. According to him, the Rallis company secretary wrote to the lead manager in Mumbai, other financial entities and government authorities making defamatory charges to sabotage his efforts and cause losses. Therefore, he filed criminal cases against Rallis and its official before the magistrate in Vijayawada. The official maintained that he did not sign such a letter. He moved the Andhra Pradesh High Court to quash the complaint. It refused to do so as there was prima facie evidence to proceed with the trial. The Supreme Court upheld the high court order in its judgment, P S Meherhomji vs K T Vijay Kumar.
