Supreme Court: Suit For Recovery Against 'Sick Company' Not Barred If It Does Not Affect Company's Properties Or Revival Scheme

The Supreme Court in the case Fertilizer Corporation Of India Ltd. vs. M/S. Coromandal Sacks Private Limited observed that if the recovery proceedings which are initiated against the Sick Company do not pose a threat to its properties or have adversely impacted the scheme of the revival of the Sick Company, then there would not be a bar for filing a suit for the recovery of the dues against the Sick Company.

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The bench comprising of Justice JB Pardiwala and Justice Sandeep Mehta while concurring with the findings of the High Court observed that the suit for recovery of money against the Sick Company towards the dues which arose under the alleged illegal deductions under the contract would not be barred as stated under Section 22(1) of the Sick Industrial Companies, Special Provisions Act, 1985, the 1985 Act as initiation of such proceedings would not adversely impact the scheme of revival of the company.

The court observed that the suit was a simple suit for recovery of money towards the dues arising under the alleged illegal deductions under the contract. The same cannot be said to be a proceeding initiated in the nature of execution, distress or the like and hence the suit was not hit by Section 22(1) of the 1985 Act.

The court stated that section 22(1) of the 1985 Act provides that subject to the fulfilment of the conditions as it is described in the sub-section, proceedings initiated of the nature mentioned therein shall remain suspended in respect of a sick industrial company.