TMI Blog2006 (12) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... - Dated:- 14-12-2006 - S.B. SINHA AND P.K. BALASUBRAMANYAN, JJ. C.A. Sundram, Sushil Kumar Jain, A.P. Dhamija, H.D. Thanvi, Ram Niwas, Santanam Snaminathan, Ms. Rohini Musa for the Appellant. Neeraj Sharma, V. Sheshagiri, Ms. Roopali Singh, Rahul Prasanna Dave, Ms. Suruchi Aggarwal, A. Yushyakumar for the Respondent. JUDGMENT Introduction S.B. Sinha, J. - The principal question involved in this appeal arising out of a judgment and order dated 8-6-2005 passed by the High Court of Delhi in Writ Petition (Civil) No. 10284 of 2005 revolves round a dispute as to whether the provisions of the Arbitration and Conciliation Act, 1996 ( the 1996 Act ) would prevail over the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985 ( SICA ). Background Facts 2. A sum of Rs. 5,00,00,000 (Rupees five crores) by way of an Inter- Corporate Deposit (ICD) was advanced by appellant to respondent-company. It committed a default in the payment thereof. The agreement contained an arbitration clause which was invoked. The learned Arbitrator made an award on or about 6-5-2004 in favour of the appellant for a sum of Rs. 6,72,63,015, directing : "I, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the shares it held in M/s. Ambuja Cement Eastern Ltd. in pursuance of a public offer made by M/s. Holcim Cements India Pvt. Ltd. to purchase 5.92 per cent of the shares of M/s. Ambuja Cement Eastern Ltd. The respondent-company held 23,10,000 equity shares of the said company constituting about 1.02 per cent of its total share capital at Rs. 70 per share. In the said application a disclosure was made as regards the restraint order passed by the Allahabad High Court. The said application was dismissed by the Board by an order dated 4-6-2005, holding : "...The injunction orders against sale of company s assets from various Courts/Tribunals do not fall within the scheme of things envisaged under sections 22, 26, and 32. In fact, section 22A itself empowers the Board to give directions not to dispose of assets. We do appreciate the circumstances regarding the offer for ACEL shares but in view of the orders of the various Courts/Tribunals restraining the company from disposing of its assets including AAIFR s order dated 13-5-2005 to maintain status quo, the Board finds it difficult to agree to the proposal to sell the shares as prayed by MRL." 6. Questioning the legality of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for expeditious determination and with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measure so determined and for matters connected therewith or incidental thereto. 12. It contains special provision. The said Act was enacted for giving effect to the policy of the State for securing principles specified in Article 39 of the Constitution of India. 13. Sick industrial company has been defined in section 2( o ) to mean "an industrial company which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth". 14. Chapter III of SICA provides for references, inquires and schemes. Section 15 empowers the Board of Directors of a company to make a reference to the Board for determination of the measures which shall be adopted with respect to the company. The Board on receipt of such an application may make an inquiry into the working of the sick industrial company in exerci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( a )agreeing to an arrangement for continuing the operations of the sick industrial company; or ( b )suggesting a scheme for the financial reconstruction of the sick industrial company. (2) ******" 16. Section 20 provides for winding up of sick industrial company; sub-section (4) whereof reads as under : "(4) Notwithstanding anything contained in sub-section (2) or sub-section (3), the Board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of section 529A, and other provisions of the Companies Act, 1956 (1 of 1956)." 17. Sub-sections (1) and (3) of section 22 which are relevant for our purpose read as under : "22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under sections 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public interest, by order in writing direct the sick industrial company not to dispose of, except with the consent of the Board, any of its assets ( a )during the period of preparation or consideration of the scheme under section 18; and ( b )during the period beginning with the recording of opinion by the Board for winding up of the company under sub-section (1) of section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court." Section 32 provides for a non obstante clause. 20. The Board in exercise of its rule-making power made regulations, known as Board for Industrial and Financial Reconstruction Regulations, 1987 . Chapter IV to Chapter VIII thereof provide for various measures which are required to be taken by the Board during the inquiry or thereafter. 1996 Act 21. The 1996 Act was enacted to consolidate and amend the law relating to domestic, international and commercial arbitration and enforcement of the arbitral awards. 22. 1996 Act is in four parts. Part I provides for the matter relating to domestic arbitration; whereas Part II refers to enforcement of certain foreign awards. Part III provides f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 34 has expired, or such application having been made, has been refused. Analysis of the Statutory Provisions 26. It is not in dispute that during the pendency of an inquiry before the Board, the respondent could sell its shares. It, however, could not, do so because of the restraint order passed against it. Was it, therefore, permissible for the High Court to direct sale of the shares despite refusal on the part of the Board so to do, is the question. The Board exercises statutory functions. It is a quasi-judicial authority. It exercises various powers under the Code of Civil Procedure. For the purpose of the 1996 Act it is a judicial authority. 27. A power to pass an interim order, however, and that too directing disposal of the assets must be found out in the scheme of the statute itself. Although the courts of limited jurisdiction may also possess by necessary implication incidental power so as to enable it to direct preservation of property during the pendency of a proceeding before it, it is doubtful whether such incidental power can be exercised for sale of the assets of the company. 28. When a reference is made before the Board, certain consequences e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ficult to accept the submission of the learned senior counsel that sub-section (3) of section 22 of SICA deals only with contractual obligations. The expression "award, standing orders or other instruments" in our considered view does not refer only to a contractual obligation which is binding on the company, but also liabilities thereunder. 33. The expression "award" has a distinct connotation. It envisages a binding decision of a judicial or a quasi-judicial authority. It may be an arbitral award. It may also be an award under section 10A of the Industrial Disputes Act, 1947, or one made by the Labour Court or an Industrial Tribunal. An award of a quasi-judicial or judicial authority may provide for a binding decision on the company. 34. Meaning of the term "award" in our opinion cannot be restricted to a contractual obligation inasmuch as by its very nature a third party intervention, for resolution of disputes between the parties where com- pany is a party, is envisaged. Even a settlement arrived at by and between the parties thereto would be binding, inter alia, in terms of the provisions of section 18 of the Industrial Disputes Act, 1947. 35. Submission of Mr. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ord deemed used in the section would thus mean, "supposed", "considered", "construed", "thought", "taken to be" or "presumed". 43. The question, however, will moreover have to be considered in the light of section 5 of the 1996 Act, which would depend on the meaning of the word "judicial authority" occurring therein. 44. However, sub-section (1) of section 22 would be attracted only when an award becomes a decree and, thus, enforceable in a court of law, albeit in the event a proceeding is initiated therefor. In this case, an objection to the award has been filed. It is, therefore, yet to become a decree. 45. While exercising its power under sub-section (3) of section 22, the Board cannot ignore an order passed by a superior court. It may be bound by the doctrine of judicial discipline. 46. Sub-section (1) of section 22 itself provides for a non obstante clause. It not only refers to the provisions of the Companies Act or the Memorandum or Articles of Association of an industrial company or any other instrument in force under the said Act, but also of other laws. 47. SICA furthermore was enacted to give effect to a larger public interest so as to secure the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le it has to be acknowledged that that the Board has a duty to afford maximum protection to employment, optimize the use of financial resources, salvaging the assets of production, realizing the amounts due to the Banks and to replace the existing time consuming and inadequate machinery by efficient machinery for expeditious determination by a body of experts and, thus, to a limited extent making it entitled to safeguard the economy of the country and protect viable sick units, it, however, must act within the four-corners of the statute. The Board, however, while passing an interim order has to keep in mind not only the governing principles relating to grant of injunction as envisaged in Morgan Stanley Mutual Fund v. Kartick Das [1994] 4 SCC 225 1 , but also the principles of judicial amity or comity. [ See A Treatise on the Law Governing Injunctions by Spelling and Lewis page 10 - See also Transmission Corpn. of A.P. Ltd. v. Lanco Kondapalli Power (P.) Ltd. [2006] 1 SCC 540 2 , Ramdev Food Products (P.) Ltd. v. Arvindbhai Rambhai [2006] 8 SCALE 631 and M. Gurudas v. Rasaranjan [2006] 9 SCALE 275. Judicial Authority 51. The 1996 Act does not define t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... can exercise its powers are : (1)there is an arbitration agreement; (2)a party to the agreement brings an action in the court against the other party; (3)subject-matter of the action is the same as the subject-matter of the arbitration agreement; (4)the other party moves the court for referring the parties to arbitration before it submits his first statement on the substance of the dispute. This last provision creates a right in the person bringing the action to have the dispute adjudicated by the court, once the other party has submitted his first statement of defence. But if the party, who wants the matter to be referred to arbitration applies to the court after submission of his statement and the party who has brought the action does not object, as is the case before us, there is no bar on the court referring the parties to arbitration." (p. 542) 55. In Fair Air Engineers (P.) Ltd. v. N.K. Modi [1996] 6 SCC 385, it was held that the District Forum, National Commission and the State Commission under the Consumer Protection Act are included in the term judicial authority for the purpose of section 34 of the Arbitration Act, 1940. 56. In Canara Bank v. Nu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t although it has all the trappings of a court but is not a court. 58. The expression judicial authority must, therefore, be interpreted having regard to the purport and object for which the 1996 Act was enacted. Judging the contention of the Board and having regard to the width of its jurisdiction, we are of the opinion that the Board is a judicial authority within the meaning of section 5 of the Act. Non-obstante Clause 59. Both the Acts contain non-obstante clauses. Ordinary rule of construction is that where there are two non-obstante clauses, the latter shall prevail. But it is equally well-settled that ultimate conclusion would depend upon the limited context of the statute ( See Allahabad Bank v. Canara Bank [2000] 4 SCC 406). 60. In Maruti Udyog Ltd. v. Ram Lal [2005] 2 SCC 638, it was observed : "39. The interpretation of section 25J of the 1947 Act as propounded by Mr. Das also cannot also be accepted inasmuch as in terms thereof only the provisions of the said chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law including the Standing Orders made under the Industrial Employment (Standing Ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PL Ltd. ) We may, however, observe that the opinion of the Division Bench in BPL Ltd. to the effect that the winding-up proceeding in relation to a matter arising out of the recommendations of BIFR shall commence only on passing of an order of winding up of the company may not be correct. It may be true that no formal application is required to be filed for initiating a proceeding under section 433 of the Companies Act as the recommendations therefor are made by BIFR or AAIFR, as the case may be, and, thus, the date on which such recommendations are made, the Company Judge applies its mind to initiate a proceeding relying on or on the basis thereof, the proceeding for winding up would be deemed to have been started; but there cannot be any doubt whatsoever that having regard to the phraseology used in section 20 of SICA that BIFR is the authority proprio vigore which continues to remain as custodian of the assets of the Company till a winding-up order is passed by the High Court." (p. 236) 64. In ICICI Bank Ltd. v. SIDCO Leathers Ltd. [2006] 67 SCL 383 (SC) the law is stated in the following terms : "The non obstante nature of a provision although may be of wide a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... long period. In a given case, a party to an award may face some hardships owing to its suspension; but in such an event, it would always be open to it to bring the same to the notice of the Board. The Board under sub-section (3) of section 22 of SICA may pass such an order or may not do so. If an order is passed by the Board, an appeal lies thereagainst. The provisions of SICA, it will bear repetition to state, have been made to seek to achieve a higher goal and, thus, the provisions of SICA would be applicable, despite section 5 of the 1996 Act. 69. In Kailash Nath Agarwal v. Pradeshiya Industrial Investment Corpn. of U.P. Ltd. [2003] 4 SCC 305, it was held : "...The object for enacting SICA and for introducing the 1994 Amendment was to facilitate the rehabilitation or the winding up of sick industrial companies. It is not the stated object of the Act to protect any other person or body...." (p. 315) 70. In Burn Standard Co. Ltd. v. McDermott International Inc. disposed of on 11-6-1997, a Division Bench of the Calcutta High Court opined that the arbitration proceedings may continue during the pendency of an inquiry pursuant to a reference made under SICA. 71 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to me, the High Court should have dealt with the question properly with reference to the nature of the relevant orders and the context in which they were made and if it was still of the view that the power vested in B.I.F.R. under section 22(3) of SICA enabled it to override all those orders, it should have normally remitted the application made by the respondent to B.I.F.R. so as to enable it to take a decision on the prayer of the respondent in the context of the proceedings pending before B.I.F.R. and all elements relevant for the purpose of such a decision. The High Court has also not considered how far it will be appropriate to permit the sale of the assets of a Company which is before B.I.F.R. for a scheme of revival. 2. Occasions are not infrequent when not so scrupulous debtors approach B.I.F.R. to stall the proceedings and to keep their creditors at bay. The delay before the B.I.F.R. is sought to be taken advantage of. The Parliament has apparently taken note of this and has repealed SICA by the Sick Industrial Companies (Special Provisions) Repeal Act, 2003. The vacuum, thus created has been filled by an amendment to the Companies Act. But, so far, the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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