the pensionary benefits and gratuity. = the appellant - 55 per cent physically handicapped, was appointed as Typist-cum-Clerk on 13.10.1969 and retired from service in the year 2001. It is true that his appointment was after the Gujarat Panchayat Service (Appointing Authorities) Rules, 1967 and other set of Rules came into force. But nothing has been placed on record indicating any prevalent procedure which was allegedly infracted or any reason why his appointment could be termed as illegal or invalid. All through his service till he retired, he was paid all the emoluments and salary like any regular employee. We see no reason why the appellant could be denied the pensionary benefits and gratuity. We allow this appeal and direct the respondent to pay to the appellant family pension and the amount of gratuity with simple interest at the rate of 9% per annum within two months from the date of this Judgment.

                                                              Non-Reportable

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                        CIVIL APPEAL NO. 5441 OF 2016
                 (Arising out of S.L.P. (C) No.2324 of 2010)

Harijan Paniben Dudabhai                           …… Appellant

                                   Versus

State of Gujarat and others                        …… Respondents

                                    With

                       CIVIL APPEAL NO. 5442  OF 2016
                 (Arising out of S.L.P. (C) No.8896 of 2010)

                        CIVIL APPEAL NO. 5443 OF 2016
                 (Arising out of S.L.P. (C) No.1305 of 2011)

                                     and
                        CIVIL APPEAL NO. 5444 OF 2016
                (Arising out of S.L.P. (C) No. 9756 of 2011)

                                  JUDGMENT

Uday Umesh Lalit, J.


      Leave granted.

2.    These appeals challenge common judgment of the High Court  of  Gujarat
dated 02.07.2009.  As Letters  Patent Appeal No.1522 of 2004 was  considered
 as lead  matter by the High Court,  the appeal arising  therefrom  is  also
considered as lead matter by us.   The facts giving rise to Letters   Patent
Appeal No.1522 of 2004 are dealt with in detail hereafter.

3.    In terms of Gujarat Government Gazette dated 01.07.1961,     the  then
Okha  District  Municipality  got  converted  into  Okha  Gram   and   Nagar
Panchayat on and w.e.f.  02.02.1962.  Upon  such  conversion,  the  existing
staff of municipality was allocated to Gram Panchayat and  treated  as  part
of Panchayat Service. Gujarat Panchayats Act, 1961 (hereinafter referred  to
as the “Act”) deals with Panchayat Service and various sets of Rules  framed
pursuant to the power conferred under the Act, deal with  matters  including
classification of Panchayat Service and conditions  of  service  as  regards
Panchayat Service.

4.    Section 203 of the Act is to the following effect:
“203. Panchayat Service to be regulated by rules – (1) For this  purpose  of
bringing about uniform scales of  pay  uniform  conditions  of  service  for
persons employed in the discharge of functions  and  duties  of  panchayats,
there shall be constituted  a  Panchayat  Service  in  connection  with  the
affairs of panchayats.  Such  service  shall  be  distinct  from  the  State
service.

(2)   The Panchayat Service shall consist of such classes, cadres and  posts
and the initials strength of officers and servants in each  such  class  and
cadre shall be such, as the State Government may by order from time to  time
determine:

      Provided that nothing in this sub-section  shall  prevent  a  district
panchayat  from  altering,  with  the  previous  approval   of   the   State
Government, any class, cadre or number of posts so determined by  the  State
Government.

(2A)  (a)   The cadres  referred  to  in  sub-section  (2)  may  consist  of
district cadres, taluka cadres and local cadres.

      (b)   A servant belonging to a district cadre shall be  liable  to  be
posted, whether by promotion or transfer to any post in any  gram  or  nagar
in the same taluka.

      (c)   A servant belonging to a taluka cadre  shall  be  liable  to  be
posted, whether by promotion or transfer to any post in any  gram  or  nagar
in the same taluka.

      (d)   A servant belonging to a local  cadre  shall  be  liable  to  be
posted whether by promotion or transfer to any post in the same gram or,  as
the case may be, nagar.

(2B)  In addition to the posts in the  cadres  referred  to  in  sub-section
(2A),  a panchayat may have such other posts of such classes  as  the  State
Government may, by general or special order determine.  Such posts shall  be
called “deputation posts”  and  shall  be  filled  in  accordance  with  the
provisions of Section 207.

(3)   Subject to the provisions of this Act, the State Government  may  make
rules regulating the mode of recruitment either by holding  examinations  or
otherwise and conditions of service of persons appointed  to  the  panchayat
service and the powers in respect of appointments, transfers and  promotions
of officers and servants in the panchayats service and  disciplinary  action
against any such officers or servants.

(4)   Rules made under sub-section(3) shall in particular contain –

a provision entitling servants of such cadres in the  Panchayat  Service  to
promotion to such cadres in the State Service as may be prescribed.

A provision specifying the  clauses of posts recruitment to which  shall  be
made  through the District Panchayat Service  Selection  Committee  and  the
class of  posts,  recruitment   to  which  shall  be  made  by  the  Gujarat
Panchayat Service Selection Board, and


A provision regarding the percentage of vacancies to  be  reserved  for  the
members of Scheduled Castes, Scheduled Tribes and other backward classes  in
the Panchayat Service.

(5)      Such rules may provide for inter  district  transfers  of  servants
belonging to the Panchayat Service and the circumstances in  which  and  the
conditions subject to which such transfers may be made .

(6)         The promotion of a servant in a cadre in the  Panchayat  Service
to a cadre in the State service in accordance  with  the  rules  made  under
clause (a) of the sub-section (4) shall not affect-

  any obligation or liability incurred or default committed by such  servant
during the period of his service in a cadre in the Panchayat  Service  while
acting or purporting to act in the discharge of his duties as such  servant,
or

   any investigation, disciplinary action  or  remedy  in  respect  of  such
obligation, liability or default and any  such  investigation,  disciplinary
action or remedy may be instituted,  continued  or  enforced  in  accordance
with the law applicable thereto during the said period of  service  by  such
authority as the State Government may, by general or special  order  specify
in this behalf.”


5.    In State of  Gujarat  and  another  v.  Ramanlal  Keshavlal  Soni  and
others[1] a Constitution Bench of this Court  held  that  Panchayat  Service
constituted under aforesaid Section 203 of the Act is  a  Civil  Service  of
the State and the members of the Service are government servants.

6.    Coming to the facts of the lead  matter,  one  Vela  Keshav,  deceased
husband of the appellant was appointed  by  Okha  Gram  Panchayat  as  Safai
Kamdar on 04.02.1964.  After having put in 33 years of service, he  died  in
harness on 06.02.1997. The record indicates that monetary benefits  such  as
Rs.14525.50 towards leave encashment, Rs.26,042/-  towards  Group  Insurance
and Rs.54,221/- towards General Provident Fund were paid  to  the  appellant
as legal representative of the deceased.   The  appellant  represented  that
the family of Vela Keshav was also entitled to family pension  and  gratuity
which claim having not been accepted, the appellant moved the High Court  by
filing Special Civil Application No. 354 of 2004.

7.    Affidavits in opposition were filed  by  Deputy  District  Development
Officer, District Panchayat, Jamnagar as respondent no.3 and by Sarpanch  of
Okha Gram Panchayat as respondent No.5.   It  was  submitted  by  them  that
since the deceased was not recruited by the  Gram  Panchayat  in  accordance
with the Statutory Rules, the appellant was not  entitled  to  claim  family
pension.  The matter came up before a Single Judge of the High Court who  by
her order dated 15.07.2004 dismissed the  Special  Civil  Application.   The
submission advanced on behalf of the respondents  that  since  the  deceased
was not appointed by the  District  Panchayat  Service  Selection  Committee
constituted under Section 2(11)  of  the  Act,  was  not  a  member  of  the
Panchayat Service as envisaged by Section 203 of the Act  and  as  such  the
appellant was not entitled to claim any  family  pension  or  gratuity,  was
accepted by the Single Judge.

8.    The appellant being aggrieved carried the  matter  further  by  filing
Letters Patent Appeal No.1522 of 2004.  At the appellate stage affidavit  in
reply filed by District Development Officer,  District  Panchayat,  Jamnagar
reiterated the earlier stand.   An affidavit  in  reply  on  behalf  of  the
State Government was filed by Deputy Secretary,  Panchayats,  Rural  Housing
and Rule Development Department, Gandhi Nagar which dealt  with  the  matter
in issue in following terms.
“In the present case,  since  appellant  has  not  undergone  any  selection
procedure and he has  obtained  the  employment  only  on  the  strength  of
passing resolution in panchayat,  Okha  Gram  Panchayat  has  not  made  any
proposal to regularize such  unauthorized  recruitment  and  appointment  of
petitioner’s husband.  Therefore, he cannot be treated  as  an  employee  of
local cadre of panchayat service and since he  cannot  be  considered  as  a
member of panchayat service, he is not entitled for any pensionary  benefits
from government treasury.  It is the responsibility of Okha  Gram  Panchayat
to pay pensionary benefit from its own fund as per the terms and  conditions
at the time of petitioner’s husband appointment by Okha Gram Panchayat…….”

However what was the procedure which was  prevalent  in  1964  and  how  the
appointment was bad or illegal, was not specified

9.    The reply filed on behalf of respondent no.5 by the  Administrator  of
Okha Municipal Borough was as under:
“The appointment of deceased Vela Keshav was made by the Gram  Panchayat  by
passing a Resolution and he was holding the post within the  sanctioned  set
up of Safai Kamdars (Sweepers).  The said Resolutions of the Gram  Panchayat
making the appointment  of  the  deceased  are  not  available  at  present.
However, the necessary entry made  in  the  Service  Book  of  the  deceased
employee showing the other details in the Service Record is available.
……..

The deceased  employee  was  appointed  as  a  Full  time  employee  on  the
sanctioned set up of the Gram Panchayat getting regular salary.
…….

The Okha Gram Panchayat appointed him as  Safai  Kamdar  on  the  terms  and
conditions as its own employee where there  were  no  rules.   However,  the
fact remains  that  the  deceased  was  holding  the  post  on  the  set  up
sanctioned by the  Development  Commissioner  and  had  continued  till  his
retirement[2] as a regular full time employee.  Further, it cannot  be  said
that his appointment was not made in accordance with  the  provisions  under
Section 203 of the Panchayat Act because no such rules of  recruitment  were
as such  framed  on  the  date  on  which  the  deceased  was  appointed  on
4.2.1964.”
10.   The Division Bench of the High Court by its judgment and  order  under
appeal dismissed Letters Patent Appeal No.1522 of 2004 and  other  connected
matters.   It was observed that only those employees who had been  appointed
following the procedure laid down in Section 203 of the Act  and  the  rules
framed thereunder, would alone be members of Panchayat Service,  apart  from
the allocated employees from the municipality to the Panchayats at the  time
of formation of  the  Panchayats  or  such  other  employees  who  had  been
recognized as members of Panchayat Service by the State  Government,  or  by
the District Panchayat Selection Committee.  It was  further  observed  that
merely  because  Panchayat  had  paid  salary  and  other  benefits  to  the
deceased, it did not mean that he was member of  Panchayat Service so as  to
get the benefits available to  members  of  Panchayat  Service  like  family
pension and gratuity.

11.   In the present case the deceased was  appointed  as  Safai  Kamdar  on
4.2.1964 by Gram Panchayat by passing  an  appropriate  resolution.   It  is
true that Section 203(3) of the Act empowers the State  Government  to  make
rules regulating mode of recruitment.  Our  attention  in  that  behalf  was
invited to Gujarat Service (Appointing Authorities) Rules, 1967.  Rule 2  of
the said Rules stipulates, inter alia,  that  the  Appointing  Authority  in
respect of posts under the Gram Panchayat, which are included in the  “local
cadre” is Gram Panchayat itself.  The term “local cadre”  finds  elaboration
in Part III of Gujarat Panchayat  Service  (Conditions  of  Service)  Rules,
1977 (hereinafter referred to as “the  1977  Rules).   Part  III   captioned
“Local Cadre” is to the following effect:
“I.   Secretary of a Nagar Panchayat
 II   The following posts under the Nagar  or  as  the  Case  may  be,  Gram
Panchayat, namely –

Chief Officer (Nagar Panchayat)
Head Clerk
Senior Clerk
Junior Clerk
Vasulati Clerk
Typist
Octroi clerk
Accountant
Cashier
Tax Inspector
Shop Inspector
Octroi Inspector
Overseer
Power House Manager
Driver
Cleaner
Posts required for schools run by the Panchayat
Posts required for dispensaries run by the Panchayat
Posts required for libraries run by the Panchayat
 Posts required for dispensaries run by the Panchayat

III   All posts belonging to the  inferior  panchayat  Service   under  Gram
Panchayat or Nagar Panchayat.

IV    All other technical and non-technical posts under the  Gram  Panchayat
or Nagar Panchayat.”

12.   Item III of aforementioned Part III  deals  with  “Inferior  Panchayat
Service” under Gram Panchayat or  Nagar  Panchayat  which  term  is  defined
inter alia in Rule 2(h) of the 1977 Rules, as under:
“2(h) “Superior Panchayat Service” and “Inferior  Panchayat  Service”  means
respectively the Superior  Panchayat  Service  and  the  Inferior  Panchayat
Service as constituted respectively by clause (a) and  clause  (d)  of  sub-
rule (2) of Rule 3 of the  Gujarat  Panchayat  Service  (Classification  and
Recruitment) Rules, 1967.”

Sub-rule (2) of Rule 3 of the Gujarat Panchayat Service (Classification  and
Recruitment) Rules, 1967 deals with Panchayat Service  and  stipulates  that
it shall consist of two classes, namely, “Superior  Panchayat  Service”  and
“Inferior Panchayat Service”.

13.   The statutory provisions as mentioned above and  the  clear  assertion
by Respondent No.5 in his affidavit in reply, shows that in  the  year  1964
when deceased Vela  Keshav  came  to  be  appointed,  there  were  no  rules
governing the appointment  in  question.   The  rules  regulating  ‘Superior
Panchayat Service’ and ‘Infereior Panchayat Service’ in  the  form  of  Gram
Panchayat Service (Classification and Recruitment) Rules, 1967 came  on  the
statute book in the year 1967.   Going  by  the  Gujarat  Panchayat  Service
(Appointing Authorities) Rules, 1967,  Gram  Panchayat  is  the  appropriate
authority in respect of posts included in the Local Cadre.  Thus, we do  not
find any infraction in the appointment of Vela  Keshav,  who  was  appointed
pursuant to a resolution passed by Panchayat.  Nothing has been pointed  out
how Gram Panchayat was not competent to make such  appointment  or  that  at
the relevant time in question the power to make appointments was  vested  in
an authority other than Gram  Panchayat  or  that  there  was  any  separate
modality or procedure prescribed for effecting such an appointment.

14.   As detailed in the affidavit in reply on behalf  of  Respondent  No.5,
the deceased Vela Keshav was holding the post within the sanctioned  set  up
of Safai Kamdars and that he  was  a  full  time  employee  getting  regular
salary.  The deceased Vela Keshav had put in 33 years of  service  and  died
in harness.  At no stage, while he was in service any objection  or  even  a
doubt was raised that he was not  validly  appointed.   In  our  view,  Vela
Keshav must be held to be one who was regularly  appointed  and  we  do  not
find any infirmity or illegality in his appointment so as to disentitle  the
family of the benefits of family pension and gratuity.

15.   At this stage, Circular  dated  26.02.2008  issued  by  Government  of
Gujarat,  Panchayat Rural  Housing  and  Rural  Development  on  26.02.2008,
which was placed on record by way of Additional Documents, may  be  adverted
to.  This Circular after considering  cases  of  those  who  were  appointed
between 1.04.1963 and 5.05.1984, stated as under:
      “It is, therefore, informed to all the District  Development  Officers
to initiate proceedings in  accordance  with  the  instructions  given  vide
letters cited  at  preamble  for  regularizing  services  of  the  employees
appointed/recruited under the converted  gram/nagar  panchayats  during  the
period from 1.4.1963 to 10.7.1978 and 10.07.1978 to 5.06.1984 and to  decide
their other service  related  matters  accordingly.   Further,  it  is  also
hereby informed to submit proposal of posts of remaining  employees  as  per
item no.1  of  letter  at  preamble  1  who  have  been  recruited/appointed
promoted during the  period  from  10.07.1978  to  5.06.1984  and  on  other
aspects of the aforesaid letters also,  if  guidance/approval  is  required,
DDO shall have to  submit  proposal  through  Development  Officer’s  office
within six months after examining  service  record  of  each  employee  with
their clear opinion.”

16.   In the totality of circumstances, we find that  the  appellant  cannot
be denied the benefits in question.  We, therefore  allow  this  appeal  and
set aside the judgments and orders rendered by  the  Single  Judge  and  the
Division Bench and allow  Special  Civil  Application  No.354  of  2004.  We
direct  the  respondents  to  pay  to  the  appellant  all  the  arrears  of
pensionary benefits and gratuity with simple interest at the rate of 9%  per
annum within two months from the date of this Judgment.

 17.  In appeal arising out of SLP(C) No.8896 of  2010,  the  appellant  was
appointed as a Peon on 4.4.1964 and in due course of time  was  promoted  to
the post of Sanitary Mukadam and later to the  post  of  Octroi  Clerk.   He
retired in the year 2001 after having put in 37 years  of  service  and  all
through he  was  paid  all  the  benefits  including  those  under  4th  Pay
Commission as a regular employee would receive.    His case was  dealt  with
on the strength of the Judgment in the lead matter by  the  High  Court  and
since we have set aside the view  taken  by  the  High  Court  in  the  lead
matter, this appeal also deserves to be allowed.  While condoning the  delay
and allowing the appeal, the respondents are directed to pay the arrears  of
pensionary benefits and the amount of gratuity to the  appellant  along  and
gratuity with simple interest at the  rate  of   9%  per  annum  within  two
months from the date of this Judgment.

18.   In appeal arising out of SLP(C) No.9756 of 2011, the deceased  husband
of the present appellant was appointed as Sanitary Inspector  by  Okha  Gram
Panchayat on 14.12.1964 and the said  appointment  was  later  confirmed  by
Development Commissioner vide order dated 5.4.1973.  In accordance with  the
view taken by us in the  lead  matter,  this  appeal  also  deserves  to  be
allowed.  Allowing the appeal, we direct  the  respondents  to  pay  to  the
appellant all the arrears of family pension and the amount of gratuity  with
simple interest at the rate of 9% per annum within two months from the  date
of this Judgment.
19.   In appeal arising out of SLP(C) No.1305 of 2011 the appellant, 55  per
cent  physically  handicapped,  was   appointed   as   Typist-cum-Clerk   on
13.10.1969 and retired from service in the year 2001. It is  true  that  his
appointment  was   after   the   Gujarat   Panchayat   Service   (Appointing
Authorities) Rules, 1967 and other set of  Rules  came  into  force.     But
nothing has been placed on record indicating any prevalent  procedure  which
was allegedly infracted or any reason why his appointment  could  be  termed
as illegal or invalid.  All through his service  till  he  retired,  he  was
paid all the emoluments and salary like any regular  employee.   We  see  no
reason why the  appellant  could  be  denied  the  pensionary  benefits  and
gratuity.  We allow this appeal and direct the  respondent  to  pay  to  the
appellant family pension and the amount of gratuity with simple interest  at
the rate of 9% per annum within two months from the date of this Judgment.

20.   All the appeals are allowed in the aforesaid terms without  any  order
as to costs.

                                        ……………………………..J,
                                        (V. Gopala Gowda)


                                        ……………………………..J.
                                        (Uday Umesh Lalit)
New Delhi,
July 1 , 2016
-----------------------
[1]         [2]  (1983) 2 SCC 33

[3]

      [4]   The Affidavit wrongly mentioned that the employee had continued
till he retired.  As a matter of fact, Vela Keshav had died in harness.

whether suit filed by the plaintiff was barred by limitation. Relevant provisions of Limitation Act, 1963 are Article 55 and Article 113 which are to the following effect: |Article|Description of suit |Period of|Time from which | | | |limitatio|period begins to run| | | |n | | |55. |For compensation for the |Three |When the contract is| | |breach of any contract, |years |broken or (where | | |express or implied not | |there are successive| | |herein specially provided | |breaches) when the | | |for. | |breach in respect of| | | | |which the suit is | | | | |instituted occurs or| | | | |(where the breach is| | | | |continuing) when it | | | | |ceases. | | 113. |Any suit for which no period|Three |When the right to | | |of limitation is provided |years |sue accrues. | | |elsewhere in this Schedule. | | | =held that default is from 20th May, 1984 the suit ought to have been filed within 20.5.1987. Suit was filed on 25th May, 1988 being beyond three years was to be dismissed.= In exercise of power under Clause 4 of the agreement dated 20.9.1983 the plaintiff had taken possession of vehicle on 9.2.1985 and had immediately vide letter dated 12.2.1985 called upon the defendant to pay them due within 10 days from the receipt of the letter. The notice dated 12.2.1985 was received by the first defendant which was also replied by the first defendant as has been pleaded in the written statement. Thus,in any event of the matter contract stood broken on the default and right to sue accrued to the plaintiff on demanding the amount to be paid within 10 days. Thus, in any view of the matter suit filed by the plaintiff was beyond three years and has rightly been dismissed by the trial court. The High Court has also not erred in dismissing the appeal by taking the view that the suit was barred by limitation.

                                                                  REPORTABLE
                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPEALLATE JURISDICTION

                        CIVIL APPEAL NO.7245 OF 2008


M/S. SUNDARAM FINANCE LIMITED           … APPELLANT

                                   VERSUS

NOORJAHAN BEEVI AND ANOTHER          … RESPONDENT




                               J U D G M E N T



ASHOK BHUSHAN, J.

      The plaintiff-appellant has filed this  appeal  against  the  judgment
dated 10th April, 2002 in A.S. No.388 of 1992 of Kerala High Court by  which
the High Court dismissed the appeal  filed  by  the  plaintiff-appellant  in
which appeal the judgment of the trial  court  dated  29.05.1991  dismissing
the suit was assailed.

2.    The brief facts necessary to be noted in this appeal are :
      The plaintiff-appellant is a public  limited  company  carrying  on  a
business of extending hire purchase facilities for commercial vehicles.  The
plaintiff and the first  defendant  had  entered  into  an  agreement  dated
20.09.1983 by which plaintiff had financed an amount of  Rs.1,47,000/-.  The
first defendant, the hirer was to clear off entire amount due in 36  monthly
instalments.  The  first  defendant  committed   default   in   payment   of
instalments with  effect  from  20th  May,1984.  The  plaintiff  seized  the
vehicle No. KLI2447 on 9th February,  1985.  Thereafter,the  plaintiff  vide
letter dated 12th February, 1985 called upon the defendants  to  settle  the
contract within 10 days from the date of the receipt  of  the  notice.   The
defendants did not make any payment. The plaintiff on 30th  May,  1985  sold
the vehicle and after adjusting the amount received  from  sale  of  vehicle
balance of  Rs.40,138/-  was  further  demanded.  Notice  dated  12th  July,
1985/22.07.1985 was sent by the plaintiff. Reply to the notice was given  on
30th July, 1985. The  plaintiff  filed  Original  Suit  No.148  of  1988  on
25.5.1988 praying for decree of sum of Rs.40,138/- along with interest.  The
second defendant, the husband of  first  defendant  was  also  impleaded  as
guarantor. A written statement  was  filed  by  the  first  defendant  where
execution of hire purchase agreement was admitted. The  default  in  payment
of instalments was admitted. It  was  further  pleaded  that  provisions  in
Clause 4 of hire purchase agreement regarding termination without notice  is
contrary to the  statutory  provisions.  It  was  further  stated  that  the
vehicle was not sold on best price. The defendant pleaded that plaintiff  is
not entitled for any relief. The trial court framed 8  issues.  One  of  the
issues, issue No.7 was: “whether the suit  is  barred  by  limitation”.  The
trial court after  considering  the  facts  held  that  suit  is  barred  by
limitation.  It was held that default is from 20th May, 1984 the suit  ought
to have been filed within 20.5.1987.  Suit  was  filed  on  25th  May,  1988
being beyond three years was to be dismissed.

3.    The plaintiff filed an appeal in the Kerala  High  Court.  The  Kerala
High Court also affirmed the judgment of the trial court and held that  suit
is barred by limitation. Plaintiff has come in this appeal  questioning  the
correctness of the judgment of the High Court.
4.    The only question which needs to be considered was as to whether  suit
filed by the plaintiff was barred  by  limitation.  Relevant  provisions  of
Limitation Act, 1963 are Article  55  and  Article  113  which  are  to  the
following effect:


|Article|Description of suit         |Period of|Time from which     |
|       |                            |limitatio|period begins to run|
|       |                            |n        |                    |
|55.    |For compensation for the    |Three    |When the contract is|
|       |breach of any contract,     |years    |broken or (where    |
|       |express or implied not      |         |there are successive|
|       |herein specially provided   |         |breaches) when the  |
|       |for.                        |         |breach in respect of|
|       |                            |         |which the suit is   |
|       |                            |         |instituted occurs or|
|       |                            |         |(where the breach is|
|       |                            |         |continuing) when it |
|       |                            |         |ceases.             |
| 113.  |Any suit for which no period|Three    |When the right to   |
|       |of limitation is provided   |years    |sue accrues.        |
|       |elsewhere in this Schedule. |         |                    |

5.    The submissions which have been pressed by  the  learned  counsel  for
the plaintiff that last instalment was to be paid on  20th  September,  1986
and the balance liability of the defendant could be ascertained  only  after
the sale of the vehicle which took place on 30th May,  1985  and   the  suit
was filed within three years from the date of sale of the  vehicle  as  well
as within three years from the last date of payment  of  instalment,  hence,
it could not have been said to be barred by time. The  present  was  a  case
which was to be governed by Article 113 of the  Limitation  Act,  1963.  The
Courts below erred in applying Article 55. The case  was  fully  covered  by
the judgment of the Madras High Court in Bell Alloys Steels Private  Limited
vs. The National Small Industries Corporation  Limited(1980  Legal  Surveyor
85). The default in payment of each  of  the  instalments  would  constitute
default. Therefore, a “continuing breach”, hence, the suit  is  well  within
time  from the date of default of payment of last instalment  that  is  20th
September, 1986.
6.    Learned counsel appearing for  the  respondents  refuting  submissions
made by the learned counsel for  the  appellant  contended  that  the  trial
court was correct in dismissing the suit as barred by time. Learned  counsel
for the respondent has also placed reliance on the judgment  of  this  Court
in  Deepak  Bhandari  vs.  Himachal  Pradesh  State  Industrial  Development
Corporation Limited,2015 (5) SCC 518.
7.    We have gone  through  the  records  and  considered  the  submissions
raised by the learned counsel for the parteis.
8.    As noted above, the trial court framed issue No.7, as to  whether  the
suit was barred by time. In paragraph 10 of  the  judgment  this  issue  was
dealt with in the following manner:
“10.ISSUE NO.7 :- According to the learned counsel for  the  defendants  the
suit is barred by limitation for the reason that the date  of  agreement  is
20.9.83 and the last date of payment is 20.4.84 but the suit is  filed  only
on 26.5.88. He has invited by attention to clause 4 to the  effect  that  if
any instalment is not  paid  within  the  stipulated  time  whether  legally
demanded or not; break or fail to  perform  or  observe  any  conditions  on
their part therein contained, then and in  such  cases  the  rights  of  the
hirer under the  agreement  shall  forth  with  be  determined  ipso  facto,
without any notice to the hirer. Therefore,  according  to  him  on  20.4.84
itself to contract was also determined. But  the  learned  counsel  for  the
plaintiff would argue that clause  4  contains  provisions  for  seizure  of
vehicle and unless  the  vehicle  is  sold  to  balance  in  any  cannot  be
ascertained and therefore the plaintiff would get course of action  only  on
30.5.85, the date of  sale  of  the  vehicle.  Though  I  went  through  the
different provisions of Ext.A2 agreement, I could  not  find  any  provision
for sale of the vehicle. Even in Ext.A3 there  is  no  such  provisions.  So
this argument cannot hold good. In the case on hand,  the  default  is  from
20.5.84, the suit ought to have been filed within  20.5.87.  Therefore,  the
suit is barred by limitation.

9.    The trial court has elaborately considered  the  submissions  of  both
the parties  and  has  referred  to  relevant  clauses  of  agreement  dated
20.9.1983.
10.   On the question of limitation while  referring  to  Clause  4  of  the
agreement dated 20.9.1983 in para 4 of the judgment following was observed:
“4.....Ext.A2 agreement dated 20.9.83 contains the terms and  conditions  to
be followed by the parties. As per clause 4 of Ext.  A2,  the  plaintiff  is
entitled to seize the vehicle even without notice  in  case  of  default  of
instalments  or  other  conditions  mentioned   therein.   Admittedly,   the
defendants have committed default  of  instalments.  If  the  hirer  commits
breach of the agreement, the rights of  the  hirer  commits  breach  of  the
agreement, the rights of the hirer under the agreement  shall  forthwith  be
determined  ipso  facto  without  any  notice  to  the  hirer  and  all  the
instalments previously paid by the hirer shall be  absolutely  forfeited  to
the owners who shall thereupon be entitled  to  enter  any  house  or  place
where the said vehicle may then be seize, remove and  retake  possession  of
it and to sue for all the instalments due and for damages for breach of  the
agreement and for all the costs occasioned by the hirer's  default.  So,  as
per the defendants, the financier invoked Clause 4 of the agreement and  the
vehicle was seized and subsequently sold.  The  cause  of  action  arose  on
20.4.1984. The plaintiff ought to have filed the  suit  within  three  years
from 20.4.1984. but the suit was filed  only  on  26.5.1988.  The  agreement
between the parties were determined on the date of default itself.”

11.   The High Court has come to conclusion that as  per  Clause  4  if  the
hirer commits breach of the agreement, the rights of  the  hirer  under  the
agreement shall forthwith be determined ipso facto  without  any  notice  to
the hirer and all the instalments previously paid  by  the  hirer  shall  be
absolutely forfeited to the owners who shall thereupon be entitled to  enter
any house or place where the said vehicle may  then  be  seize,  remove  and
retake possession of it. Further in paragraph 6 of the judgment of the  High
Court following further was observed:
“As per the  agreement,  the  financier  is  at  liberty  to  terminate  the
agreement ipso facto and also seize the vehicle without  notice.   There  is
no question of surrender of the vehicle and as  stated  above,  the  vehicle
belonged to the first defendant at the time of the agreement.  The  suit  is
being one for damages for  breach  of  contract  of  hire  purchase,  it  is
governed by Article 55 of the Limitation Act and therefore, the suit  should
have been filed within three years from the date of the  breach.  Here,  the
breach has been committed on 20.4.84.  In  pursuance  of  clause  4  of  the
agreement, the vehicle was seized by the plaintiff. So,  he  ought  to  have
filed the sit within three years from the date of breach of  the  agreement.
The contract was determined on 20.4.84 itself. The argument of  the  learned
counsel for the plaintiff that the vehicle was sold only on  30.05.1985  and
the amount was credited and then only the cause of action will arise  cannot
be accepted since it is a loan  transaction  between  the  parties  and  the
contract has ipso factor determined on the date of breach  of  contract.  It
is clear from clause 4 of the agreement that the financier is at liberty  to
forfeited the previous payment  made  by  the  hirer  and  also  seized  the
vehicle and sue for all the instalments due and for damages  for  breach  of
the agreement and for all the costs  of  retaking  possession  of  the  said
vehicle  and  all  costs  occasioned  by  the  hirer's  default.  Since  the
plaintiff invoked the said provision, the argument advanced by  the  learned
counsel  for  the  plaintiff  that  the  last  instalment  is  due  only  on
20.09.1986 and the suit is within time cannot be accepted. Since,  there  is
no provision to sell the vehicle and credit the amount to the loan  advanced
there is no question of waiting till the sale of the vehicle.”

12.   There is no dispute between  the  parties  that  the  hirer  committed
default in payment of instalments on 20th May,  1984.  The  High  Court  has
further held that there is no clause in agreement permitting  the  plaintiff
to sell  the  vehicle.  The  submission  of  the  learned  counsel  for  the
appellant that limitation to file the suit for recovery  of  balance  amount
shall begin with effect from the date of sale this is  30th  May,1985,  does
not appeal to us. The contract was to be determined ipso  facto  on  default
being committed. The power of seizing the vehicle and to take possession  as
contemplated under Clause 4 of  the  agreement  was  consequent  to  default
being committed by the hirer.
13.   This Court on 12th June, 2012 passed the following order:
      “Learned counsel for the appellant shall place on  record  a  copy  of
the hire purchase agreement dated 20th September, 1983.

      List thereafter.”

            The copy of the agreement dated 20th September, 1983 having  not
been placed before us, we have no option except to rely on the  contents  of
Clause 4 as noted by the High Court in its  judgment.  The  High  Court  has
noted that agreement does not contain any provision for sale of the  vehicle
hence, taking starting point of limitation from the date of sale of  vehicle
cannot be accepted.
14.   As noted above, in paragraph 4 of  the  judgment  of  the  High  Court
while noticing the contents of  Clause  4  of  the  agreement  it  has  been
observed that “if the hirer commits the breach of the agreement, the  rights
of the hirer under the agreement shall forthwith be  determined  ipso  facto
without any notice to the hirer and all the instalments previously  paid  by
the hirer shall be absolutely forfeited to the owners  who  shall  thereupon
be entitled to enter any house or place where the said vehicle may  then  be
seize,  remove  and  retake  possession  of  it  and  to  sue  for  all  the
instalments  due  and  for  damages  for  breach   of   the   agreement....”
(underlined by us).
15.   Thus, as per Clause 4 the right to sue accrues when the hirer  commits
breach of the agreement. Committing default in   payment of  instalement  is
nothing but a breach of the agreement and  thus  courts  below  has  rightly
taken a view that period of limitation for filing a suit  under  Article  55
shall begin with effect from 20th May, 1984 when the default  was  committed
by the hirer.
16.   In this case it is relevant to refer the judgment  of  this  Court  in
Himachal Pradesh Financial Corporation vs. Pawna  and  others,  2015  (5)SCC
617. In the above case Himachal Pradesh Financial Corporation  had  given  a
loan to a partnership firm. As security for that loan, a mortgage  deed  was
executed. Clause 7 of the mortgage deed contemplated that without  prejudice
to the rights and powers  conferred  on  the  Corporation  under  the  State
Financial Corporations  Act,  1951,  in  the  event,  the  partners  of  the
industrial concern fail to pay the said principal  sum  with  interest,  the
Corporation shall be entitled to realise its dues by sale of  the  mortgaged
properties, and if the sale proceeds thereof  are  insufficient  to  satisfy
the dues of the Corporation, to recover the balance  from  the  partners  of
the industrial concern. Clause 7 of  the  agreement  was  to  the  following
effect:
 “3. Clause 7 of the mortgage deed is important. It reads as follows:
“Without  prejudice  to  the  above  rights  and  powers  conferred  on  the
Corporation by these presents and  by  Sections  29  and  30  of  the  State
Financial Corporations Act, 1951 and as amended in 1956  and  1972  and  the
special remedies available to the Corporation under  the  said  Act,  it  is
hereby further agreed and declared that if the partners  of  the  industrial
concern fail to pay the said principal sum with interest  and  other  monies
due from them under these presents to the Corporation in the manner  agreed,
the Corporation shall be entitled  to  realise  its  dues  by  sale  of  the
mortgaged properties, the said fixtures and fittings and other  assets,  and
if the sale proceeds thereof are insufficient to satisfy  the  dues  of  the
Corporation, to recover the balance from  the  partners  of  the  industrial
concern and the other properties owned by them though not included  in  this
security.”
                                                        (emphasis supplied)”


17.   In the above case the assets were sold  on  28.3.1984  and  14.3.1985.
The sale amount could not satisfy the  outstanding  hence,  the  notice  was
issued on 27.5.1985 and thereafter suit was filed  on  15.9.1985.  The  High
Court has dismissed the suit as barred by limitation.  In  the  appeal  this
Court set  aside  the  judgment  of  the  High  Court  by  making  following
observations in paragraphs 10 and 11:

“10. Whilst considering the question of limitation the  Division  Bench  has
given a very lengthy judgment running into approximately 50 pages.  However,
they appear to have not noticed the fact that under Clause  7  an  indemnity
had been given. Therefore, the premise on which the judgment  proceeds  i.e.
that  the  loan  transaction  and  the  mortgage  deed  are  one   composite
transaction which was inseparable is entirely erroneous. It is  settled  law
that a  contract  of  indemnity  and/or  guarantee  is  an  independent  and
separate contract from the main contract.  Thus,  the  question  which  they
required to address themselves, which unfortunately they did not,  was  when
does the right to sue on the indemnity arose. In  our  view,  there  can  be
only one answer to this question. The  right  to  sue  on  the  contract  of
indemnity arose only after the assets were sold off.  It  is  only  at  that
stage that the balance due became ascertained. It  is  at  that  stage  only
that a suit for recovery of  the  balance  could  have  been  filed.  Merely
because  the  Corporation  acted  under  Section   29   of   the   Financial
Corporations Act did not mean that the contract  of  indemnity  came  to  an
end. Section 29 merely enabled the Corporation to take possession  and  sell
the assets for recovery of the dues under the main contract. It may be  that
on the Corporation taking action  under  Section  29  and  on  their  taking
possession they became deemed owners. The mortgage may have come to an  end,
but the contract of indemnity, which was an independent contract,  did  not.
The right to claim for the balance arose, under the contract  of  indemnity,
only when the sale proceeds were found to be insufficient.

11. In this case, it is an admitted position that the sale took place on 28-
3-1984 and 14-3-1985. It is only after this date that the question of  right
to sue on the indemnity (contained in Clause 7) arose. The suit having  been
filed on 15-9-1985 was well within limitation. Therefore, it  was  erroneous
to hold that the suit was barred by the law of limitation.”

18.   The above case was based on Clause 7 of the agreement  as  well  as  a
specific  power  given  to  the  Corporation  under  the   State   Financial
Corporations Act, 1951, there is no such clause  akin to  Clause  7  of  the
mortgage deed in the present case.
19. In Deepak Bhandari vs. Himachal  Pradesh  State  Industrial  Development
Corporation Limited,2015 (5) SCC 518 while considering  Article  55  of  the
Limitation Act, 1963, this Court was considering the  question  whether  the
limitation   period begins  from  notice  recalling  loan  amounts  or  from
realisation of sale proceeds of mortgaged/hypothecated assets. It  was  held
that limitation for such suit beginsfrom the date when amount  of  dues  for
recovery are ascertained, and that  can  take  place  only  after  adjusting
amounts received from sale of mortgaged/hypothecated  assets.  In  paragraph
11 and 12 facts of the case were noted which are to the following effect:

“11. As per the defendants, the cause of  action  for  filing  the  recovery
suit arose on 21-5-1990 when recall notice was issued by the Corporation  to
the Company and the guarantors. Therefore, the suit was to be  filed  within
a period of 3 years from the said date and calculated in this  manner,  last
date for filing the suit was 20-5-1993. It was, thus, pleaded that the  suit
filed on 26-12-1994 was beyond the period of 3  years  from  21-5-1990  and,
therefore, the same was time-barred.

12. The Corporation, on the other hand, contended that  action  for  selling
the mortgaged/hypothecated properties of the Company  was  taken  under  the
provisions of Section 29 of the Act  and  the  sale  of  these  assets  were
fructified on 21-3-1994. It is on  the  realisation  of  the  sale  proceeds
only,  that  the  balance  amount  payable  by  the  guarantors   could   be
ascertained. Therefore, the  starting  point  for  counting  the  limitation
period is 31-3-1994 and the suit filed by the Corporation on 26-12-1996  was
well within the period of limitation.”


            This Court has also referred to the  judgment  of  the  Himachal
Pradesh Financial Corporation(supra). In paragraph 27 of  the  judgment  the
following was stated:

“27. We thus, hold that when the Corporation takes  steps  for  recovery  of
the amount by resorting to the provisions of Section  29  of  the  Act,  the
limitation period for recovery of the balance amount would start only  after
adjusting the proceeds from the sale of assets of  the  industrial  concern.
As the Corporation would be in a position to know as to whether there  is  a
shortfall or there is excess amount realised, only after  the  sale  of  the
mortgaged/hypothecated assets. This is  clear  from  the  language  of  sub-
section (1) of Section 29 which makes the position abundantly clear  and  is
quoted below:
“29. Rights of Financial Corporation  in  case  of  default.—(1)  Where  any
industrial concern, which is under a liability to the Financial  Corporation
under an agreement, makes any default in repayment of any  loan  or  advance
or any instalment thereof or in meeting its obligations in relation  to  any
guarantee given by the Corporation or otherwise fails  to  comply  with  the
terms of  its  agreement  with  the  Financial  Corporation,  the  Financial
Corporation shall have the right to take over the management  or  possession
or both of the industrial concern, as well as the right to transfer  by  way
of lease or sale and realise the property pledged,  mortgaged,  hypothecated
or assigned to the Financial Corporation.”


            This Court while taking the  above  view  has  referred  to  the
statutory  power  given  to  the  Corporation  under  the  State   Financial
Corporations Act.
20.   The above judgment of this Court was a case where the Court had  taken
into consideration the statutory power given to Financial Corporation  under
Section  29  of  the  State  Financial  Corporation   Act,1951   where   the
Corporation is entitled to take possession of the  assets  and  transfer  by
way of lease or sale. Present is not a case where  plaintiff  can  claim  to
exercise any power akin to Section 29 of the  State  Financial  Corporations
Act, 1951. The rights of the parties have to be determined as per terms  and
conditions of the agreement dated 20.9.1983. The terms of the  agreement  as
noted by the High Court and referred to by  us  as  above  clearly  indicate
that on committing a breach of terms and conditions  of  the  agreement  the
rights shall accrue to the plaintiff to sue for balance instalments and  the
damages for breach of contract. Thus, the  right  to  sue  shall  not  stand
differed till either sale which took place on 20th May,  1985  or  till  the
last date of payment of the instalment that is 20th September,  1986.   Both
the courts below have rightly taken the view  that  limitation  shall  start
running from the date the hirer defaulted  in  making  payment  that  is  on
20.5.1984 and suit has been filed beyond three years  from  the  above  date
was clearly barred by time. Article 55 of the Limitation Act, 1963 has  also
come  for  consideration  before  this   Court   in   Syndicate   Bank   vs.
Channaveerappa Beleri and others,2006 (11) SCC 506. In paragraph 13  of  the
judgment following was stated:

“13. What then is the meaning of the said words used in the guarantee  bonds
in question? The guarantee bond states that the guarantors agree to pay  and
satisfy the Bank “on demand”. It specifically provides  that  the  liability
to pay interest would arise upon the guarantor only from the date of  demand
by the Bank for payment. It also provides that  the  guarantee  shall  be  a
continuing guarantee for payment of the ultimate balance to  become  due  to
the Bank by the borrower. The terms of guarantee, thus, make it  clear  that
the liability to pay would arise on the guarantors only  when  a  demand  is
made. Article 55 provides that the time will begin to run when the  contract
is “broken”. Even if Article 113 is to be applied, the time  begins  to  run
only when the right to sue accrues. In this case, the  contract  was  broken
and the right to sue accrued only when a demand for payment was made by  the
Bank and it was refused by the guarantors. When a demand is  made  requiring
payment within a stipulated period, say 15 days, the breach occurs or  right
to sue accrues, if payment is not made or is  refused  within  15  days.  If
while making the demand for payment, no period is  stipulated  within  which
the payment should be made, the breach occurs or right to sue accrues,  when
the demand is served on the guarantor.”

21.   In exercise of power under Clause 4 of the agreement  dated  20.9.1983
the  plaintiff  had  taken  possession  of  vehicle  on  9.2.1985  and   had
immediately vide letter dated 12.2.1985 called upon  the  defendant  to  pay
them due within 10 days from the receipt of the  letter.  The  notice  dated
12.2.1985 was received by the first defendant which was also replied by  the
first defendant as has been pleaded in the written  statement.  Thus,in  any
event of the matter contract stood broken on the default and  right  to  sue
accrued to the plaintiff  on demanding the amount  to  be  paid  within   10
days. Thus, in any view of the  matter  suit  filed  by  the  plaintiff  was
beyond three years and has rightly been dismissed by the  trial  court.  The
High Court has also not erred in dismissing the appeal by  taking  the  view
that the suit was barred by limitation.
22.   In view of the foregoing, we do not find any  merit  in  this  appeal.
The appeal is dismissed accordingly.


                                      ………………….…...........................J.
                                       (ABHAY MANOHAR SAPRE)


                                      ………………..…...........................J.
                                             (ASHOK BHUSHAN)

NEW DELHI,
JUNE  29, 2016.

the provisions of SICA prevail over the provisions of the Companies Act.

                                             REPORTABLE
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO. 1475 OF 2006
M/s. Madura Coats Limited                  ...... Appellant
                                     VS
M/s. Modi Rubber Ltd. & Anr.                  …..Respondents

                               J U D G M E N T

Madan B. Lokur,  J.
1.     The appellant (Madura Coats) is aggrieved by the judgment  and  order
dated 20th May, 2004 passed by the Division  Bench  of  the  Allahabad  High
Court in Special Appeal No. 420 of 2004. By the impugned judgment and  order
the Division Bench of the High Court  allowed  the  Special  Appeal  of  the
respondent  and  stayed  further  proceedings  before  the   Company   Court
consequent upon a winding up  order  passed  against  the  respondent  (Modi
Rubber) till a final decision is taken on a reference made  by  Modi  Rubber
to the Board for Industrial and Financial Reconstruction.
2.     Company Petition No.1 of 2002  was  filed  by  Madura  Coats  in  the
Allahabad High Court for winding up Modi Rubber on the allegation that  Modi
Rubber was unable to pay its huge undisputed debts.  Notice  was  issued  in
the Company Petition to Modi Rubber who entered appearance but took  several
adjournments in the matter on one pretext or the other including  furnishing
the schedule for repayment  of  the  admitted  dues  to  the  creditors,  an
arrangement being worked out  with  Apollo  Tyres  Ltd.  and  various  other
reasons.
3.     Eventually, after  two  years  of  adjournments,  the  Company  Court
declined to grant any further adjournment to Modi Rubber. Accordingly, on  a
consideration of the material on record and after  hearing  learned  counsel
for the parties, the Company Court passed  an  order  on  12th  March,  2004
holding that Modi Rubber was unable to pay its undisputed debts and that  it
was  just  and  equitable  that  the  company  be  wound  up.   An  Official
Liquidator was appointed to take charge of the assets of the company and  to
submit a report along with the inventory.
4.     Feeling aggrieved by the winding up order, Modi Rubber  preferred  an
appeal before the Division Bench of the High Court which was allowed by  the
impugned judgment and order.
5.     Before the Division Bench it was brought out for the first time  that
on 6th December, 2003 the Board of Directors of Modi  Rubber  had  passed  a
resolution to file a reference before the Board of Industrial and  Financial
Reconstruction (for short ‘the BIFR’)  under  the  provisions  of  the  Sick
Industrial Companies (Special Provisions) Act, 1985 (for short ‘the SICA’).
6.     Pursuant to the aforesaid resolution,  an  application  was  made  by
Modi Rubber to the BIFR on 3rd February, 2004  which  was  received  by  the
BIFR on 4th February, 2004.  Thereafter,  the  application  was  scrutinized
and on 17th March, 2004 the reference made by Modi Rubber was registered  as
Case No. 153 of 2004.  It will  be  seen  that  while  the  application  for
making a reference was sent to the BIFR before  the  winding  up  order  was
passed by the Company Court, the reference  was  actually  registered  after
the winding up order was passed by the Company Court.
7.     On these broad facts, it was contended  by  Modi  Rubber  before  the
Division Bench that in view of the decision of  this  Court  in  Real  Value
Appliances Ltd. v. Canara Bank[1] on filing an application before the  BIFR,
all proceedings in respect of the company  ought  to  have  been  stayed  in
terms of Section 22 of the SICA. Consequently, even the  Division  Bench  of
the High Court could not have decided the appeal filed by Modi Rubber.  This
contention was rejected by the High Court and it was held that  the  crucial
date for a stay of proceedings under Section 22 of the SICA is the  date  on
which the reference is registered with the BIFR and not the  date  on  which
an application for reference is filed.
8.     However, the  High  Court  took  into  consideration  the  subsequent
events namely the fact of registration of the  reference  and  relying  upon
Rishabh Agro Industries Ltd. v. P.N.B. Capital Service Ltd.[2] it  was  held
that Modi Rubber was now entitled  to  the  benefit  of  the  provisions  of
Section 22 of the SICA.  It was also held that a  winding  up  order  passed
under the Companies Act, 1956 (for short ‘the Companies  Act’)  is  not  the
culmination of the proceedings pending before the Company Court.  The  final
order to be passed in the winding up proceedings is an order of  dissolution
of the company under Section 481 of the Act.
9.     Under the circumstances, the High Court  set  aside  the  winding  up
order passed by the Company Court and further directed that the  proceedings
before him shall remain in abeyance till the disposal of proceedings  before
the authorities under the SICA.
10.    Leave to appeal against the judgment and order of the High Court  was
granted on 24th February, 2006 and the following order passed:

“Leave granted.
Whether  the  Board  of  Industrial  and  Financial  Reconstruction   should
entertain a reference made by a sick company in terms of Section 15  of  the
Sick Industrial Companies (Special Provisions)  Act,  1985,  (‘SICA’)  after
the company had already been directed to be wound up by a Company  Judge  in
a matter which was pending before the Court for 2 years,  vis-à-vis  Section
22 of the Act is in question  in  this  appeal,  which  arises  out  of  the
judgment and order dated 20.05.2004 passed by  the  Division  Bench  of  the
High Court of Judicature at Allahabad in Special Appeal No.  420/2004.   Our
attention has been drawn to a Division  Bench  decision  of  this  Court  in
Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., (2000)  5  SCC
515, wherein this Court opined that the reference in terms of Section 15  of
SICA can  be  made  even  after  passing  of  the  winding  up  order.   The
correctness of the ratio of the said decision  has  been  questioned  before
us.  We are inclined to think that there is merit in the  challenge  to  the
correctness of the view taken therein.  We are also of the opinion that  the
proposition of law stated in the said decision of  this  Court  may  require
reconsideration having regard to Section 20 of the Act and  the  object  and
scope of SICA vis-à-vis the  provisions  of  the  Companies  Act.   We  are,
therefore, of the opinion that the matter be referred  to  a  larger  Bench.
Let the records of the case be placed before Hon’ble the  Chief  Justice  of
India for constitution of a larger Bench.
Hearing of the appeal is expedited.  Liberty to mention.”

It is under these circumstances that this appeal has been placed  before  us
for consideration.
11.    During the hearing of this appeal, further facts were  placed  before
us.  It was pointed out that the reference made by Modi Rubber to  the  BIFR
was challenged by Madura Coats by  filing  Civil  Misc.  Writ  Petition  No.
17870 of 2004 in the Allahabad High Court.  A view was  taken  by  the  High
Court in its  order  dated  10th  May,  2004  that  the  writ  petition  was
premature and the maintainability  of  the  reference  could  be  raised  by
Madura Coats before the BIFR.  Under the circumstances, the High  Court  did
not consider it proper to entertain the writ petition which was  accordingly
dismissed.
12.    Following upon the order passed  by  the  High  Court,  Madura  Coats
moved an application before the BIFR on  or  about  12th  January,  2006  in
which it was prayed that Madura  Coats  be  impleaded  as  a  party  in  the
proceedings and that its  dues  with  interest  thereon  be  included  as  a
pressing creditor in the rehabilitation scheme. It is not clear whether  any
formal order was passed impleading Madura Coats in  the  proceedings  before
the BIFR, but in any event, it does  appear  from  the  record  that  Madura
Coats participated in the proceedings before the BIFR.
13.    We were told by learned counsel for Modi Rubber that before the  BIFR
a Draft Rehabilitation Scheme (DRS) for revival of  the  company  was  filed
and advertised on 18th January, 2008.   In  connection  with  the  DRS,  the
summary record of proceedings of the BIFR  of  8th  April,  2008  notes  the
presence of the advocate for Madura Coats in paragraph 7.20 and records  the
submission that Madura Coats does not agree for a settlement at 30%  of  the
admitted amount as proposed.  The BIFR also noted in paragraph  7.38.1  that
objections to the DRS were raised by  some  employees,  unsecured  creditors
and  a  few  governments/government  agencies.   It  was  also  noted   that
unsecured creditors have  to  fall  in  line  with  the  provisions  of  the
rehabilitation scheme in the interest of revival of Modi Rubber.
14.    Paragraph 7.38.1  of  the  summary  record  of  proceedings  read  as
follows:-


“7.38.1 Objections were raised by some employees, unsecured creditors and  a
few  Governments/Government  agencies.   It  is  very  important  that   the
interest of the employees is safeguarded and employment is  protected  while
reviving the company.  The terms for settlement of the dues of  the  workers
should not be inferior to the terms offered for settlement of  the  dues  of
the secured creditors.  Unsecured creditors have to fall in  line  with  the
provisions of the rehabilitation scheme in the interest of  revival  of  the
company in respect of Government/Government agencies  who  objected  to  the
DRS, the words “to consider” have to be  stipulated  in  the  DRS.   DB  and
Arsec (I) Ltd., the two secured creditors who raised objections have  agreed
to settle the matter with the company.”

15.    The  BIFR  finally  issued  certain  directions,  one  of  which  was
sanctioning the rehabilitation scheme under Section 19(3) and 19(4) of  SICA
for implementation by all concerned.  As far as the unsecured creditors  are
concerned (and  this  includes  Madura  Coats),  the  rehabilitation  scheme
provided for acceptance of the outstanding dues as per one of the  following
three options:

“a) To accept 30% of the principal outstanding as full  and  final  payment.
The payment shall be made within 3 months of the sanction of the  scheme  by
the BIFR; or

b) To accept 40% of the principal outstanding as  full  the  final  payment.
The payment shall be made in 3 equal annual installments from  the  cut  off
date (i.e. 31.03.2008).  The first installment shall  be  payable  within  3
months of the sanction of the scheme by the BIFR; or

c) To accept 50 % of the principal outstanding as full  and  final  payment.
The payment shall be made in one  go  at  the  end  of  3rd  year  from  the
sanction of the Scheme by the BIFR.”

We were told that Madura Coats did not challenge the rehabilitation scheme.
16.    Under the circumstances, Modi Rubber addressed  a  letter  to  Madura
Coats on 3rd September, 2008 informing the  approval  and  sanction  of  the
rehabilitation  scheme  by  the  BIFR  and  indicating  the  three   options
available to Madura Coats for clearing the outstanding dues.  It seems  that
no reply was received by Modi Rubber to  this  communication.   Accordingly,
Modi Rubber sent another communication to Madura Coats on 12th August,  2011
reminding it to accept the settlement. In this communication,  it  was  also
mentioned that one raw  material  supplier  had  challenged  the  settlement
terms by filing an appeal before the Appellate Authority for Industrial  and
Financial Reconstruction but that it had lost in the appeal.
17.    Learned counsel for Modi Rubber brought to our notice  a  few  orders
passed by  the  Company  Court  after  the  approval  and  sanction  of  the
rehabilitation scheme.  These  orders  which  have  been  placed  on  record
suggest that Modi Rubber was willing to pay the  dues  to  Madura  Coats  in
terms of the rehabilitation scheme and  that  the  liability,  according  to
Modi Rubber was  Rs.  2.73  crores  while  according  to  Madura  Coats  the
liability was more than Rs. 4.00 crores.  By an order dated  16th  November,
2011 Modi Rubber was directed by the Company Court to pay an amount  of  Rs.
1.50 crores to Madura Coats within one month.  This  payment  of  more  than
50% of the dues was made to Madura Coats  by  a  cheque  on  15th  December,
2011.  We were told by learned counsel for Modi Rubber that the  cheque  was
encashed by Madura Coats on 19th December, 2011.
18.    The correctness of the impugned judgment and order will  need  to  be
tested on these facts and the law placed before us in  connection  with  the
reference made to the larger Bench.  On  hearing  learned  counsel  for  the
parties on these facts, we are of the opinion that different situations  can
arise in the interplay between the Companies Act and the SICA in the  matter
of winding up of a company and these  situations  have  already  been  dealt
with by this Court at one time or another.

19.    One such situation is where winding up proceedings are pending and  a
reference is made to the BIFR. This situation occurred in Real  Value  where
winding up proceedings were pending and the  appointment  of  a  provisional
liquidator was under challenge.  At that stage, steps  were  taken  by  Real
Value for making a reference under Section 15  of  the  SICA  to  the  BIFR.
Under these circumstances, one of the questions agitated  for  consideration
by this Court was whether on the registration of a reference,  the  Division
Bench of the High Court could pass orders in an appeal  against  an  interim
order passed by the Company Court.
20.    While referring to the provisions of the SICA, this  Court  concluded
that once a reference is registered after scrutiny, it is mandatory for  the
BIFR to conduct an enquiry.  It was also held that the SICA is  intended  to
revive and rehabilitate a sick industry before it can be wound up under  the
Companies Act.  The legislative intention is to ensure that  no  proceedings
against the assets of the company are taken before any decision is taken  by
the BIFR because if the assets are sold or the company is wound up,  it  may
become difficult to later restore the status quo ante.  It was held that  it
is for this reason that the enquiry under Section 16 of  the  SICA  must  be
treated to have commenced as soon as the registration of  the  reference  is
completed after scrutiny and that action against the company’s  assets  must
remain stayed in view of Section 22 of the SICA till  a  final  decision  is
taken by the BIFR. This is what this Court  said  in  paragraph  23  of  the
Report:

“It is argued that if the reference before the BIFR is only at the stage  of
registration under Section 15,  then  Section  22  is  not  attracted.  This
contention, in our opinion, has no merit. In our view,  when  Section  16(1)
says that the BIFR can conduct the inquiry “in such manner as  it  may  deem
fit”, the said words are intended only to convey that a wide  discretion  is
vested in the BIFR in regard to the procedure it may follow  for  conducting
an inquiry  under  Section  16(1)  and  nothing  more.  In  fact,  once  the
reference is registered after scrutiny, it is, in our  view,  mandatory  for
the BIFR to conduct an inquiry. If one looks at the format of the  reference
as prescribed in the Regulations, it will be clear  that  it  contains  more
than fifty columns regarding extensive financial details  of  the  Company’s
assets, liabilities, etc. Indeed, it will be practically impossible for  the
BIFR   to   reject   a    reference    outright    without    calling    for
information/documents or without  hearing  the  Company  or  other  parties.
Further, the Act is intended to  revive  and  rehabilitate  sick  industries
before they can be wound up under the Companies Act, 1956……. It is also  the
legislative intention to see that no  proceedings  against  the  assets  are
taken before any such decision  is  given  by  the  BIFR  for  in  case  the
Company’s assets are sold, or the Company wound  up  it  may  indeed  become
difficult later to restore the status quo  ante.  Therefore,  in  our  view,
[the High Court of Allahabad, the High Court of Andhra Pradesh and the  High
Court of Himachal Pradesh] are right in rejecting such a contention  and  in
holding that the inquiry must be treated as having commenced as soon as  the
registration of the reference is completed  after  scrutiny  and  that  from
that time, action against the Company’s assets must remain stayed as  stated
in Section 22 till final decisions are taken by the BIFR.”

21.    This Court also referred to the Regulations  framed  under  the  SICA
and in connection  therewith  it  was  held  that  after  the  amendment  of
Regulation 19 with  effect  from  24th  March,  1994  once  a  reference  is
registered and it becomes mandatory to simultaneously call  for  information
or documents from the informant and such  a  direction  is  given,  then  an
enquiry under Section 16(1) of the SICA must, for the  purposes  of  Section
22 thereof, be deemed to have commenced. This is what  this  Court  held  in
paragraph 30 of the Report:

“There can, therefore, be no difficulty in holding that after the  amendment
to Regulation 19 w.e.f. 24-3-1994, once  the  reference  is  registered  and
when once it is mandatory simultaneously to call  for  information/documents
from the informant and  such  a  direction  is  given,  then  inquiry  under
Section 16(1) must - for the purposes of Section 22  -  be  deemed  to  have
commenced.  Section  22  and  the  prohibitions  contained   in   it   shall
immediately come into play.”

22.    Another facet of this situation is when proceedings are pending  both
before the BIFR and the Company Court but no order of winding  up  has  been
passed against the company. In such a situation (though we are not  directly
concerned with  it)  this  Court  took  the  view  in  Tata  Motors  Ltd  v.
Pharmaceutical Products of India Ltd[3] that the provisions  of  SICA  would
prevail over the provisions of the Companies Act. In that case a  scheme  of
rehabilitation of the company was prepared and  presented  before  the  High
Court under Section 391 of the Companies Act while proceedings were  pending
before the Appellate Authority for Industrial and  Financial  Reconstruction
(AAIFR) under the SICA. The High Court approved  the  scheme  of  compromise
and arrangement and in view of the order of the High Court  the  AAIFR  also
approved the scheme. This Court relied upon NGEF Ltd. v. Chandra  Developers
(P) Ltd.[4] to conclude that the Company Court and the BIFR do not  exercise
concurrent jurisdiction. “Till the company remains  a  sick  company  having
regard to the provisions of sub-section (4) of Section  20  [of  the  SICA],
BIFR alone shall have jurisdiction as regards sale of  its  assets  till  an
order of winding up is passed by a Company Court.” Since the  provisions  of
the SICA would prevail over the Companies Act,  this  Court  held  that  the
High Court could not have exercised jurisdiction and approved the scheme  of
compromise and arrangement prepared under Section 391 of the Companies Act.
23.    Another situation is where a  winding  up  order  is  passed  by  the
Company Court but it is stayed in appeal.  In Rishabh Agro the  company  was
ordered to be wound up but this order was stayed by the  Division  Bench  of
the concerned High Court. Thereafter the company made  a  reference  to  the
BIFR under Section 15 of the SICA.
24.    Under these circumstances, one of the contentions  urged  by  learned
counsel for the respondents in that case was that an unscrupulous  litigant,
after suffering an order of winding up, could approach the BIFR and get  the
winding up proceedings stayed.  This Court observed that  such  a  grievance
might be justified but if a provision of law is  misused  and  subjected  to
abuse of the process of law, it is for the Legislature to  take  appropriate
steps.
25.    With regard to the merits of the controversy before  it,  this  Court
took the view that it could not be said that the provisions  of  Section  22
of the SICA would not be attracted after an order of winding up  is  passed.
While referring to this Section it was held that there  was  no  doubt  that
the provision would be applicable even after the winding up order is  passed
and no proceedings even thereafter could be taken  under  the  Act.  It  was
noted that a winding up order passed under the Act is  not  the  culmination
of  the  proceedings  before  the  Company  Court  but  is  in  effect   the
commencement  of  the  process  which  ultimately  would   result   in   the
dissolution of the company in terms of Section 481 of the Act. This is  what
this Court had to say in paragraphs 9 and 11 of the Report:

“9. It is true that for invoking the applicability of Section 22 it  has  to
be established that an inquiry under Section 16 is  pending  or  any  scheme
referred to under Section 17 is under preparation or  sanctioned  scheme  is
under implementation or an appeal under Section 25 to an industrial  company
is pending. But it cannot be said that despite the existence of any  of  the
aforesaid exigencies the provision of Section  22  would  not  be  attracted
after the order of winding up of the company is passed. The words
“no proceeding for 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 receiver in respect thereof shall  lie  or
be proceeded with further”,
leave no doubt in  our  mind  that  the  effect  of  the  section  would  be
applicable even after the winding-up order is passed as no  proceeding  even
thereafter can be proceeded with further under the Companies Act.  The  High
Court appears to have not taken note of  the  aforesaid  words  i.e.  to  be
proceeded with further.  As  the  impugned  judgment  is  based  upon  wrong
assumption of the provision of law and completely ignoring the  vital  words
noticed hereinabove, the same cannot be sustained.
10. xxxxx
11. It may also be noticed that winding-up order passed under the  Companies
Act is not the culmination of the proceedings  pending  before  the  Company
Judge but is in effect the commencement of the process. The  ultimate  order
to be passed in such a petition is the dissolution of the Company  in  terms
of Section 481 of the Companies Act.”

26.    In view of the above, this Court was  of  opinion  that  the  interim
order passed by the High Court after the reference  was  registered  by  the
BIFR could not be sustained and deserved to be set aside.
27.    From the above it is quite clear that different situations can  arise
in the process of winding up a company under the Companies Act but  whatever
be the situation, whenever a reference is made to the  BIFR  under  Sections
15 and 16 of the SICA, the provisions of the SICA would come into  play  and
they would prevail over the provisions of the Companies Act and  proceedings
under the Companies Act must give way to proceedings under the SICA.
28.    In this state of the  law,  in  so  far  as  the  present  appeal  is
concerned, we do not find any error in the view taken by the High  Court  in
concluding that the winding up proceedings before the Company  Court  cannot
continue after a reference has been registered by the BIFR  and  an  enquiry
initiated under Section 16 of the  SICA.  The  present  appeal  is  squarely
covered by the primacy  given  to  the  provisions  of  the  SICA  over  the
Companies Act as delineated in Real Value, Rishabh  Agro  and  Tata  Motors.
Consequently, the High Court was right in concluding that the provisions  of
Section 22 of the SICA would come into  play  and  that  the  Company  Court
could not proceed further in the matter pending  a  final  decision  in  the
reference under the SICA.
29.    Quite apart from the above, we are also of opinion that  in  view  of
the subsequent developments and the fact that Madura Coats had  participated
before the BIFR and has taken  its  dues  in  terms  of  the  rehabilitation
scheme approved and sanctioned by the  BIFR,  nothing  really  survives  for
consideration in this appeal. Strictly speaking, we have  merely  undertaken
an academic exercise pursuant to a reference made to a larger Bench.
30.    As far as the reference is concerned we are of  the  view  that  Real
Value and Rishabh Agro do not require any reconsideration. Tata  Motors  was
decided by a Bench of three Judges and we see no reason to differ  from  the
view taken therein that the provisions of SICA prevail over  the  provisions
of the Companies Act.
31.    The appeal is without merit and is dismissed.



                              ……..……………………………..J
                                ( Jagdish Singh Khehar)


                                ……………………………………J
                                     ( Madan B. Lokur )


                                        …..………………………………J
                                           ( C. Nagappan )
New Delhi;
June 29, 2016


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[1]  (1998) 5 SCC 554
[2]  (2000) 5 SCC 515
[3]  (2008) 7 SCC 619
[4]  (2005) 8 SCC 219