SICA prevails over Companies Act

A weekly selection of key court orders

The Supreme Court stated last week that different situations might arise when a sick company is before both the company court for winding up and before the Board for Industrial and Financial Reconstruction (BIFR) for its revival, "but whatever be the situation, whenever a reference is made to the BIFR under the Sick Industries Act (SICA), the provisions of the latter 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 Sick Industries Act." The court reiterated this view after going through the case law on this issue in its judgment in the case, Madura Coats Ltd vs Modi Rubber Ltd. Madura Coats moved the Allahabad High Court for winding up Modi Rubber as its dues were not paid. The company court appointed an official liquidator, against which Modi appealed to the high court. Meanwhile, Modi also moved the BIFR and a rehabilitation package was approved. The high court stayed the company court proceedings. This situation raised the question which law would prevail and the Supreme Court upheld the high court view. The judgment noted that since Madura Coats has already participated in the BIFR proceedings, nothing survived in this case. "Strictly speaking, we have merely undertaken an academic exercise," the three judges observed in this 14-year-old litigation which is still continuing.

Insurance claim even after assignment
Even if a firm assigns its rights regarding insurance to another firm, it still retained its right to sue the insurer, unless it is specifically barred, the Supreme Court declared last week its judgment, United India Insurance vs Leisure Wear Exports Ltd. In this case, the Ludhiana garment factory exported Rs 2 crore worth of goods in 320 cardboard boxes to Moscow firm Magna Overseas via Mumbai port. The consignment was transported from Odessa in Ukraine by road to Moscow. On arrival, several cartons were missing. Since the cargo was insured under the Open Marine Policy, the shortage was reported to United India. When the insurer rejected the claim, the Ludhiana firm moved the Punjab state consumer commission, which ordered the insurer to pay compensation. On appeal, the National Commission upheld order. In the appeal before the Supreme Court, the insurer argued that since the exporter had assigned his rights to the Moscow firm, the Ludhiana firm had no locus to move the consumer forums. The court rejected the argument citing Section 17 of the Marine Insurance Act. The judgment doubted any assignment at all. Even if there was an assignment, the exporter was "legally entitled to retain, enjoy and exercise all those rights, which are available to it under the contract of insurance, despite making assignment of their policy." Section 17 of the Act in terms permitted the insured to make assignment of their insurance policy in favour of an assignee and at the same time allowed the insured even after making an assignment to retain all those rights which are available to them under the contract of insurance with the Insurer, the judgment explained while dismissing the appeal of United India.

Time limit starts from first default

The Supreme Court had last week dismissed the appeal of Sundaram Finance Ltd against the Kerala High Court judgment which stated that its suit against a defaulting borrower, Noorjehan Beevi, was beyond the time limit of three years. In this case, a woman bought a vehicle on hire purchase from the financing firm in 1984 but defaulted after a year. The company took over the vehicle and sold it, though there was no term in the contract empowering the company to sell it. However, the amount recovered was not sufficient to clear the loan and the company sued the woman for the balance. She argued that the suit was filed beyond the limitation period. The company argued that the time started from the sale of the vehicle. The woman contended that the time should be counted from the first default. The trial court, the high court and now the Supreme Court agreed with her.

MD absolved from pollution charge
The Madhya Pradesh High Court has quashed proceedings initiated by the Bhind magistrate against the managing director of Cadbury India for exuding untreated effluents from its factory there. The high court ruled that Manu Anand, MD, was not in charge of the day to day affairs, as argued by the MP pollution control board. It was the factory manager who was in charge, and prosecuting the MD was unlawful. The judgment cited Section 47 of the Water Pollution Act which stated that the person who is in charge of and responsible to the company for the conduct of the business of the company, as well as company, shall be deemed to be guilty of the offence. Moreover, proceedings cannot be initiated against a person if he is able to establish that the offence was committed without his knowledge or that the same was committed despite the said person exercising due diligence to prevent the offence. The judgment derived its reasons from decisions under the Negotiable Instruments Act dealing with bouncing cheques.

HC frees ship caught in cargo dispute
When a court attaches the cargo on board but does not arrest the ship itself, what would happen to the ship which has to leave the port for other destinations? Who will bear the cost of unloading the cargo or preserve them on board? The ship owner suffers losses because the cargo cannot be separated. This was the issue before the Bombay High Court last week when Hoang Anh Shipping JSC, a Vietnamese shipping firm, appealed for release of its ship, m.v.Ocean39 at Tuticorin port. The court had earlier ordered arrest of the cargo of sand at the instance of Cupid Shipping Ltd of Singapore in its dispute with Blue Metal Investments of the Republic of Maldives. The Vietnam ship owner pleaded that it was an innocent third party caught in the litigation between the other firms and the cargo should be offloaded and the ship allowed to sail, especially because its permit was about to expire. The high court accepted its pleas and observed in its judgment that the ship could not be allowed to be "converted into a storage place for the cargo under arrest." It asked the Singapore firm to take the expenses in offloading, maintaining and preserving the cargo.

The ship was allowed to set sail immediately as its sea-worthiness certificate had expired meanwhile.