TMI Blog2016 (8) TMI 1597X X X X Extracts X X X X X X X X Extracts X X X X ..... ttedly, in the present case, the parties are at a pre-award stage. Let alone a confirmed decree, even an arbitral award has not come into existence. The appellant is an unsecured creditor who has no charge on the assets. The continuance of proceedings do not entail any likelihood of distress or execution against the assets of the sick company, at this stage, thereby resulting in any interference with the BIFR scheme - In the present case, however, the institution of the arbitral proceedings required no prior permission of BIFR as at that stage no reference was pending. The Arbitral proceedings are thus not vitiated by any inherent lack of jurisdiction of the vice of coram non judice. With regard to the continuance of the proceedings in the present case, the same is to be governed by the law laid down in the Larger Bench judgment of Raheja Universal Ltd. [ 2012 (10) TMI 233 - SUPREME COURT] , which prescribes the additional requirement of interfering with the formulation, consideration, finalisation or implementation of the scheme. The pre-arbitration proceedings were not covered by Section 22(1) of SICA and such proceedings cannot be treated as a suit. The award which is yet to att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 2008 was terminated by the appellant and both the parties are suing each other for damages. 5. It is the case of the appellant that under the contract dated 7th August, 2008, the ASU is and will always remain the property of the appellant, removable at the will of the appellant, after default by the respondent or upon expiry of the contract, by efflux of time or early termination. The appellant submits that there is no subsisting contractual arrangement between the parties, for the operation of the ASU. Neither the party is suing for the specific performance of the contracts dated 7th August, 2008 and 17th April, 2013. The claims of the parties, as pending before the Arbitrators, are only for money claims. The appellant's claim is that the respondent is not the owner of the ASU. 6. During the hearing, counsel for the appellant had pointed out that in several communications exchanged between the parties, the respondent had acknowledged the appellant's ownership of the ASU and had expressed its consent for the removal of the same from the site of the respondent. 7. As the steel plant of the respondent is not operating since August, 2011, there is no possibility of reconcili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, therefore, is whether the properties which are not owned by the sick industrial undertaking, are covered under Section 22(1) of the Act of 1985? If the finance company resorts to recovery of its properties viz. its vehicles which have been given on lease to the lessee company, it cannot be said that it is property of the lessee company (sick industrial undertaking) or it is covered under Section 22(1) or such recourse can be equated with the kind of proceedings contemplated under Section 22(1). The expression 'against the properties' occurring in Section 22(1) is not without significance because it implies that an action of winding up or for execution, distress or such like proceeding must be against the property of the sick industrial company. 10. Applying the aforesaid ratio of the Apex Court, I have no hesitation in holding that the contention of the lessee company that Section 22(1) of the Act of 1985 is attracted is wholly misconceived. The finance company cannot be asked to approach BIFR Board for the recovery of its properties viz. vehicles in the present case from the lessee company when the said vehicles are not the properties of the sick industrial company (les ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the respondent that earlier the appellant had filed an appeal under Section 25 of SICA against the BIFR order dated 30th January, 2015. The contentions of the appellant were not accepted. In the impugned order, the Arbitral Tribunal had granted the appellant the liberty to move before BIFR, which is the appropriate authority for both, the appellant in case of any grievance as well as the third party i.e. Goyal Gasses Pvt. Ltd. who is claiming itself to be the owner of the ASU. It is also argued that as separate agreements have been executed between the parties, the respondent's petition under Section 11 of the Act for invoking the arbitration proceedings is pending in Madras High Court against Goyal Gasses Pvt. Ltd. As the subject matter, ASU is sub-judice before another High Court where the appellant is not a party and the appellant is also not a party to the said Agreement. If Goyal Gasses Pvt. Ltd. is a sister concern or it is owned by the appellant, in that case also it is an independent company and the question of removing ASU by the present appellant does not arise. Even otherwise, ASU is now a part of BIFR proceedings and the relief sought by the appellant under Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... does not impress us. The Tribunal is not justified to ignore the categorical declaration made in Paramjit Singh Patheja's case that the expression Suit in Section 22 would clearly include Arbitral Proceedings . The Tribunal is also not persuaded to agree with learned counsel for the Claimant that as in Paramjit Singh Patheja's case, the findings about Arbitral Proceedings cannot be treated as the ratio decidendi of that decision, therefore, the same can be overlooked. Keeping in view the conclusion recorded by the Bench in Paramjit Singh Patheja's, case in para 43 (viii), by which the Tribunal is bound, we hold, as the law stands at present, that the expression Suit in Section 22(1) of the SICA includes Arbitral Proceedings . 16. Another submission made by the learned counsel for the claimant as to whether the pre award stage in the Arbitral Proceedings would also fall within the scope of Section 22(1) or that the said section would get attracted only at the stage when an award is passed an Arbitral Tribunal and becomes executable as envisaged in Section 36 of the Arbitration Act does not detain us. In our view the decision of the Supreme Court reported in Morgan Secur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SICA, 1985 which has been held to be very significant and of vide ramification and application, having regard to its non obstante clauses would get attracted and no proceedings which fall within the scope of S. 22(1), can be either allowed to be taken out or continued, without the consent of BIFR or AAIFR, as the case may be. 20. In KSL and Industries Ltd. vs. Arihant Threads Ltd. and others, [2015(1) SCC 166] yet another Bench of three learned judges of the Supreme Court had an occasion to consider the scope and impact of S. 22 of SICA. In dealing with the overriding effect of the provisions of SICA, the object of S. 22 and the scope of powers vested with BIFR under Sections 16, 17 and 18 of the SICA, the court specifically observed in para 26, as to at what stage of the proceedings instituted/ or instituted and pending gets attracted to and becomes suspended under S. 22, as here under: 26. ......The submission is that Section 22 lays down that only proceeding for winding up or execution, distress or the like shall not lie or be proceeded with where an enquiry is pending or a scheme is under preparation or consideration or a sanction scheme is under implementation etc.; whereas a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rival submissions of the parties. 19. The appellant submits that it is not necessary to seek the consent of BIFR, for continuing with the arbitral proceedings as the bar of Section 22(1) of SICA is not attracted to the present case and the Arbitral Tribunal has erred in holding so. 20. The provisions of Section 22(1) of SICA reads 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 section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof and no suit for the recovery of money or for the enfor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicability of embargo contained in Section 22(1) of SICA requires the cumulative and conjoint satisfaction of two conditions; namely; a) the proceeding sought to be suspended should clearly satisfy the ingredients of Section 22(1) and fall within one or more of the categories of proceedings indicated in the said provision and b) additionally, the continuance of the proceeding should have the impact of interfering with the formulation of the scheme. 23. The Supreme Court has also made it clear that the applicability of the embargo contained in Section 22(1) of SICA depends on the facts and circumstances of each individual case; and no principle of universal application can be laid down in all such matters. The use of the expressions Firstly and Secondly , in para 80 of Raheja Universal Ltd. (supra) would make it clear that both the conditions given in the judgment have to be satisfied cumulatively. Even if the suit/proceeding is of the category contemplated in Section 22(1), that by itself will not attract the bar contained in the said provision, unless it additionally has the impact of interfering with the formulation, consideration, finalisation or implementation of the sche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he arbitral award having the force of a decree is put into execution, sub-section (1) of Section 22 of SICA would come in its way from being enforced.. The same observations of the Supreme Court are also made in para 18 of Jay Engineering Works Ltd. v. Industry Facilitation Council Anr. (2006) 8 SCC 677 and in para 30 of Raheja Universal Ltd. (supra). 27. He argued that the ASU (Gas plant) is owned by the appellant even as admitted by the respondent in its communications and is not a part of the scheme, thus where is the question of going to the BIFR to seek the approval to continue the arbitration proceedings. The communication exchanged between the parties speak for itself that ASU is owned by the appellant. Besides the communication issued by the respondent would also speak that the respondent has no objection if it is removed by the appellant. 28. The Supreme Court in San-A Tradubg Co. Ltd. v. I.C. Textiles Ltd. (2012) 7 SCC 192 held that an arbitral proceeding is not a suit within the meaning of Section 22(1) of SICA. From reading of paras 7, 11 12 of the said judgment, it is evident that the issue which fell for the consideration of the Supreme Court in the said matter was th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubg Co. Ltd. v. I. C Textiles Ltd., 2006 (3) CTC 59 (SC) (supra), has held that a proceeding in arbitration is neither a Suit under sub-section (2) of Section 22 of the SICA nor the proceedings thereunder and, therefore, there is no prohibition under Section 22 of SICA to take up the Arbitration proceedings to adjudicate the liability of the parties to the Arbitration proceedings. A similar view has been taken by the Hon'ble Supreme Court in the case of Jay Engineering Works Ltd. v. Industry Facilitation Council, 2006 (3) Arb LR 594 (SC) and Morgan Securities Credit Pvt. Ltd. v. Modi Rubber Ltd., 2006 (4) Arb LR 394 (SC) (supra). In view of the principles laid down by the Hon'ble Supreme Court in the aforementioned cases, the objection raised by the learned Counsel for the Respondent, that the Petition for enforcing the Arbitration clause and seeking appointment of an Arbitrator is not maintainable in view of the fact that the proceedings under the SICA are pending before the BIFR, cannot be accepted. 31. The said aspect of the matter has not been considered by the Arbitral Tribunal who has also not considered that the bar in Section 22(1) of SICA is applicable only to thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard. On coming to this conclusion, the Supreme Court held that in no uncertain terms that a suit tried by a civil court, which resulted in the passing of a decree was an entirely different specie of proceeding from an arbitral proceeding. This clearly supports the case of the appellant. In para 21 23 of the above said judgment the Court held as under:- 21. The words court , adjudication and suit conclusively show that only a court can pass a decree and that too only in a suit commenced by a plaint and after adjudication of a dispute by a judgment pronounced by the court. It is obvious that an arbitrator is not a court, an arbitration is not an adjudication and, therefore, an award is not a decree. 23. The words decision and civil court unambiguously rule out an award by arbitrators. The same effect are the observations of the Court in para 43 (iv) and (v) of the above said judgment where, while drawing a distinction between an arbitral award and a decree, the Court had held that the suit must start with a plaint and culminate in a decree [para 43 (iv) (b)]. Further, in the same sub-para the Court had held that An award does not satisfy any of the requirements of a decree. It is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so as to apply to any original proceedings before any legal forum as was sought to be contended before us. The term, 'suit' would therefore apply only to proceedings in a civil court and not actions for recovery proceedings filed by banks and financial institutions before a Tribunal, such as, the 'DRT'. 36. Actually the Division Bench of this Court in Om Prakash Parasrampuria (supra), after considering Patheja (supra), held in clear terms that the expression suit would only include proceedings in a civil court and that too under the Code i.e. CPC and not any and every proceeding before a legal forum involving an adjudicatory process. It is undisputed that an arbitral proceeding is not a proceeding under the CPC and proceedings before the Arbitrator are not proceedings before a civil court. In fact, this is precisely what Patheja (supra) also holds. In para 43 of Patheja (supra) it was held that To achieve that purpose, it is imperative that the expression suit in Section 22 be given its plain meaning, namely, any proceedings adopted for realization of a right vested in party by law. This would clearly include arbitration proceedings. The said findings to be read in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stage of determining liability, which is the subject matter of present appeals, was not an issue an issue in Patheja (supra) as that stage had already been crossed by the parties. At the best, the reliance can be placed by the respondent, if applied to the facts and circumstances of the present case, at the stage of enforcement of decree and not at the pre-award stage. 39. Another judgment referred in the case of KSL and Industries Limited v. Arihant Threads Limited Others (2015) 1 SCC 166, which has been relied upon by the Arbitral Tribunal and the respondent, is also not applicable to the facts of the present case, as in KSL and Industries Limited (supra) the proceedings for recovery , which were sought to be interdicted by resort to Section 22(1) of SICA, were proceedings for realization of the decretal amount and auction of the assets of the sick company, instituted by a secured creditor, holding a confirmed DRT decree, in its favour. This is evident from bare reading of paras 4 5 of the said judgment. The Supreme Court in fact in para 31 had clarified in its expression application for recovery and held that the proceedings in that case had in fact resulted in the execution an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laration with regard to the jurisdiction of BIFR, but is only seeking recovery of money. With regard to the issue of recovery of money, had the same was filed, the Court would observe hypothetically while passing the judgment that such a suit would be barred without prior permission of BIFR. This is because in the facts of the said case, the reference was already pending at the time of filing the suit and essential jurisdictional requirement of prior permission was not satisfied for institution of the suit, making the civil court coram non judice. 43. In the present case, however, the institution of the arbitral proceedings required no prior permission of BIFR as at that stage no reference was pending. The Arbitral proceedings are thus not vitiated by any inherent lack of jurisdiction of the vice of coram non judice. With regard to the continuance of the proceedings in the present case, the same is to be governed by the law laid down in the Larger Bench judgment of Raheja Universal Ltd. (supra), which prescribes the additional requirement of interfering with the formulation, consideration, finalisation or implementation of the scheme. 44. The judgment in Ghanshayam Sarda (supra) wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proceedings in a civil court and that too under the Code i.e. CPC and not any and every proceeding before a legal forum involving an adjudicatory process. It is undisputed that an arbitral proceeding is not a proceeding under the CPC and proceedings before the Arbitrator are not proceedings before a civil court. In fact, this is precisely what Patheja (supra) also holds. Even the reliance and affirmation of Patheja by the three Judges Bench in Sundaram Finance, vide order dated 23rd April, 2015, does not help the case of the respondent in any manner. 47. For the reasons stated above and facts and circumstances in the present case, the reliance of Ankur Pharma (supra) does not help the case of the respondent once the main judgment of Patheja (supra) referred in the said order has been distinguished. Even otherwise, the issue as to the stage of the plea of Section 22(1) of SICA is applicable in which stage has not been argued and decided by the said Bench. 48. Counsel for the respondent has also relied upon an order of AAIFR by which an appeal filed by the appellant was dismissed. It is submitted by the appellant's counsel that the said appeal was filed against the order of BIFR, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erence under SICA. 53. Once this Court in appeals, being Arb.A. No. 41/2015 and Arb.A. No. 42/2015, has held that at pre-award stage, the plea of Section 22(1) of SICA has no application, the Arbitral Tribunal is empowered to decide the said application. 54. The learned counsel for the appellant submits that this Court may also decide the present appeal on merit. I am of the view that while passing the common order, the Arbitral Tribunal has not decided the application under Section 17 of the Act on merit. The jurisdiction lies with the Arbitral Tribunal. Had the Arbitral Tribunal decided the application on merit, this Court would have considered the appeal on merit after hearing. 55. Thus, it is not proper to decide the appeal once nothing has been decided on merit by the Arbitral Tribunal. Thus, the appeal being Arb.A. No. 43/2015 is disposed of with the request to the Arbitral Tribunal that after passing of the judgment in appeals, being Arb.A. No. 41/2015 and Arb.A. No. 42/2015, let the application of the appellant under Section 17 of the Act be decided on merit after hearing both the parties. Parties to appear before the Arbitral Tribunal on 19th September, 2016 on this aspect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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