2003 (3) TMI 539 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the Warrant of Attachment dated 16th August, 2002.
2. Validity of the Garnishee Notice dated 7th September, 2002.
3. Entitlement of the applicants to receive the award amount from the Garnishee.
4. Impact of the respondents being declared defaulters on 25th February, 2002.
5. Applicability and binding nature of the SEBI Circular dated 9th July, 1999.
6. Legal implications of Bye-Law No. 326 and Bye-Law No. 400 of the Stock Exchange Regulations.

Detailed Analysis:

1. Validity of the Warrant of Attachment dated 16th August, 2002:
The Chamber Summons was filed by the Garnishee to set aside the Warrant of Attachment issued on 16th August, 2002. The main contention was that on the date of issuance, no amount was due and payable by the Garnishee to either the applicants or the respondents. The court concluded that the Warrant of Attachment could not have been issued as there was no debt due by the Garnishee to the respondents or any amount payable to the applicants on the relevant date.

2. Validity of the Garnishee Notice dated 7th September, 2002:
The Garnishee Notice dated 7th September, 2002, served as a consequence of the Warrant of Attachment, was also challenged. The court held that since the Warrant of Attachment was invalid, the Garnishee Notice deserved to be revoked and set aside.

3. Entitlement of the applicants to receive the award amount from the Garnishee:
The applicants argued that they were entitled to receive Rs. 2.60 crores from the Garnishee as per the SEBI Circular dated 9th July, 1999. However, the court found that the Garnishee was not obligated to pay the award amount to the applicants, especially since the respondents were declared defaulters before the expiry of the statutory period for filing an appeal against the award.

4. Impact of the respondents being declared defaulters on 25th February, 2002:
The respondents were declared defaulters on 25th February, 2002. As per Bye-Law No. 326, all amounts lying with the Garnishee towards security deposits by the defaulter vested unconditionally in the Defaulters' Committee. This vesting meant that the amounts could only be disbursed in the manner provided by Bye-Law No. 400, thus negating any claim by the applicants for direct payment of the award amount.

5. Applicability and binding nature of the SEBI Circular dated 9th July, 1999:
The SEBI Circular required the Stock Exchange to keep the arbitration award amount in a separate account. However, the court noted that the Circular was either non-binding or directory in nature. Furthermore, even if binding, the Circular's requirements could not override the statutory Bye-Laws of the Stock Exchange, which took precedence once the respondents were declared defaulters.

6. Legal implications of Bye-Law No. 326 and Bye-Law No. 400 of the Stock Exchange Regulations:
Bye-Law No. 326 and Bye-Law No. 400 governed the handling of assets of defaulters. The court emphasized that these Bye-Laws were statutory in nature and mandated that all amounts pertaining to the defaulters vested in the Defaulters' Committee. The amounts could only be disbursed as per the specified priority order in Bye-Law No. 400, which did not include direct payment to the applicants.

Conclusion:
The court concluded that the Warrant of Attachment dated 16th August, 2002, and the Garnishee Notice dated 7th September, 2002, were invalid and set them aside. The court reasoned that due to the respondents being declared defaulters, all amounts vested in the Defaulters' Committee, and the SEBI Circular could not alter this statutory vesting. The Chamber Summons was made absolute, and the operation of the order was stayed for four weeks in the interest of justice.