The Hindu Business Line : `No bar under SICA to re-possess leased machinery if hirer defaulted'

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`No bar under SICA to re-possess leased machinery if hirer defaulted'

Our Legal Correspondent

The agreement stipulated that in case of default, respondent-company (Lakshmi Trade Credits) was entitled to re-possess machinery and sell it.

Chennai March 9 When action was initiated by owner of machinery against hirers due to default in repayments, it was not open to the latter to resist the same seeking shelter under Section 22 of Sick Industrial Companies (Special Provisions) Act, 1985 (`SICA') since it was not property of latter company and bar under SICA was not legal, the Madras High Court has ruled.

Appellant-company, Salem Textiles Ltd, Salem and respondent, Lakshmi Trade Credits Ltd (under liquidation), entered into a lease agreement on March 7, 1996 for a sum of Rs 42 lakh. The appellant committed defaults in payment of instalments.

The agreement stipulated that in case of default, respondent-company (Lakshmi Trade Credits) was entitled to re-possess machinery and sell it. Hence, the Administrator of respondent-company moved an application for attachment and sale of leased machinery.

The single judge, who heard the appellant-company, dismissed the petition holding that bar to re-possess property under SICA was only in respect of property belonging to the appellant-company.

The appellant contended that transaction between them and Lakshmi Trade Credits was in the nature of a loan transaction and could not be said to be a lease agreement. Holding that this submission could not be accepted, the First Bench, comprising Chief Justice A.P. Shah and Mr Justice K. Chandru, who heard the appeal, said that appellant-company had right through acknowledged the transaction as a sale-cum-lease back transaction, effected payment of instalments and enjoyed benefits under agreement.

The fact that physical delivery of machinery was not effected was not material as it was a settled position of law that physical delivery was not essential. In balance sheet of Lakshmi Trade Credits, amounts received from appellant were credited towards rental income of leasehold company.

The Bench said the appeal failed and it was dismissed.

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