TaxTMI 
TaxTMI 
2016 (8) TMI 1597
X X X X Extracts X X X X
X X X X Extracts X X X X
....15 under Section 37(2)(b) of the Act impugned common order dated 20th June, 2015 was passed by the Arbitral Tribunal, whereby the Arbitral Tribunal had declined to grant the interim measures sought by the appellant in its application under Section 17 of the Act only on the ground that the respondent had got itself registered with BIFR, under SICA and the proceedings were suspended, the same cannot be considered on merit. 4. Brief facts of the case as per the pleadings are that the parties entered into a contract dated 7th August, 2008 for the supply of oxygen and nitrogen gases by the appellant to the respondent; by the installation of a 100TPD Air Separation Plant. Disputes arose between the parties and the matter came up for arbitration by way of 2 separate references comprising of three Arbitrators titled as GMG-1 and GMG-2. The appeal being Arb.A.No.41/2015 pertains to GMG-2 and the appeals being Arb.A.Nos. 42/2015 and 43/2015 pertains to GMG-1. Under the said contract, the appellant had to set up an Air Separation Unit [ASU] for the manufacture of industrial gases for the steel plant of the respondent. Due to various breaches of the contract committed by the respondent, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tribunal in GMG-l for the said purpose. 9. After hearing the arguments of the parties, the Arbitral Tribunal had reserved orders on the application for suspension of proceedings on 28th May, 2015. 10. In the common order dated 20th June, 2015, the Arbitral Tribunal had proceeded to dispose of the appellant's application under Section 17 of the Act, declining the interim measure as sought and instead relegating the appellant to BIFR, for seeking removal of the ASU. The impugned common order pertains to the jurisdiction of the Arbitral Tribunal to continue further proceedings which is the subject matter of two separate and substantive appeals in GMG-l and GMG-2, respectively. 11. The case of the appellant before this Court is that the appellant is not required to approach BIFR for removing the ASU from the site of the respondent, as admittedly the said ASU is not the property of the respondent-Company. The prayer for interim measures sought by the appellant does not pertain to proceed against the properties of the respondent-Company, thus, the impugned order is contrary to the law laid down in Kotak Mahendra Finance Ltd. v. Deve Paints Ltd. AIR 1997 Bom. 401 (para 7) whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le on a Bill of Exchange under Section 30 of the Negotiable Instruments Act, even though the second Defendant had become a sick industrial company." 13. Short reply on behalf of the respondent to the appeal has been filed wherein it is stated that the arbitral proceedings are liable to be stayed under Section 22(1) of SICA for the following reasons:- a) The present arbitral proceedings are in the nature of a "money suit" as has been admitted by the appellant. b) Section 22(1) of SICA includes arbitration proceedings of the present nature, as has been held by the Supreme Court and this Court. c) "Money suit" falls under the second part of Section 22(1) SICA namely that "... and no suit for the recovery of money... shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority". 14. Learned counsel for the respondent argued that admittedly the claims of the appellant are for recovery of the amount. The arbitration proceedings are covered under the money suit which falls under the second part of Section 22(1) of SICA thus, no suit for recovery lies to be proceeded further. The arbitration pr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... include the recovery proceedings under the above UP Act and that the words "Suit and "Proceedings" have not been used to have or bear the same meaning, overlappingly. 14. In Paramjeet Singh Patheja vs. ICDS Ltd. [2006 (13) 5CC 322], yet another bench of two learned judges has held as follows in para 43(vii) : "(vii) : It is a well established rule that a provision must to be construed in a manner which would give the effect to its purpose and to cure the mischief in the light of which it was enacted. The object of S. 22 in protecting guarantors from legal proceedings pending a reference to BIFR of the principal debtor, is to ensure that a scheme for rehabilitation would not be defeated by isolated proceedings adopted against the guarantors of a sick company. To achieve the purpose it is imperative that the expression "Suit" in S. 22 be given its plain meaning, namely any proceedings adopted for realization of a right in a party by law. This would clearly include Arbitral proceedings" (Emphasis ours) 15. The submission of the learned counsel for the Claimant that, since in Paramjit Singh Patheja's case, there was no such question as to whethe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction (1) of Section 22, however, appear to be clear and unambiguous. Sub-section (3) of Section 22, on the other hand, does not speak of automatic suspension of the proceedings or bar the jurisdiction of the Court in entertaining any application........." 17. In Grampanchayat and another vs .Shree Vallbh Glass Works Ltd. and others, [1990(2) SCC 440], yet another bench of the Supreme Court held, that as soon as the enquiry under Section 16 is ordered by the BIFR, various proceedings set out under Sub-section(1) of Section 22 would be deemed to have been suspended. 18. Learned counsel for the claimant placed strong reliance on Raheja Universal Ltd. vs. NRC Ltd., (2012(4) SCC 148) and others(particularly on paras 78 to 80) wherein, a Bench of three Learned Judges of the Supreme Court, observed in para 80: "80. It is difficult to state with precision the principle that would uniformly apply to all the proceedings/suits falling under Section 22(1) of the Act of 1985. Firstly, it will depend upon the facts and circumstances of a given case, it must satisfy the ingredients of Section 22(1) and fall under any of the various classes of proceedings stated thereun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he BIFR is engaged in reviving the company, if necessary, by leasing or selling the properties of the company for which there is an express power. Proceeding further the Bench observed that, ".....But as is apparent, the immunity is not absolute. Such proceeding which a creditor may wish to institute, may be instituted or continued with the consent of the Board or the appellate authority. " 21. From the above discussion it inevitably follows that the provisions of Section 22(1) of SICA would get immediately "attracted to Arbitral Proceedings pending before the Arbitral Tribunal". The Arbitral Tribunal would be left with no choice but to proceed till the Award is made or pronounced. Infact learned counsel for the Claimant impressed upon this procedure to be followed." 17. The following issues are involved in the facts and circumstances in the present appeals: i) Whether the arbitration proceedings are covered under the money suit and would fall within the meaning of second part of Section 22(1) of SICA? ii) Whether the order for suspension of arbitration proceedings is a valid order when the award is yet to be published? iii) ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ess or the like against any of the properties of the industrial company or for the appointment of a Receiver in respect thereof. 79. The expression "the like" has to be read ejusdem generis to the term "proceedings". The words "execution, distress or the like" have a definite connotation. These proceedings can have the effect of nullifying or obstructing the sanctioning or implementation of the revival scheme, as contemplated under the provisions of SICA 1985. This is what is required to be avoided for effective implementation of the scheme. The other facet of the same section is that no suit for recovery of money, or for enforcement of any security against the industrial company, or any guarantee in respect of any loan or advance granted to the industrial company shall lie, or be proceeded with further without the consent of BIFR. In other words, a suit for recovery and/or for the stated kind of reliefs cannot lie or be proceeded with further without the leave of BIFR. Again, the intention is to protect the properties/assets of the sick industrial company, which is the subject-matter of the scheme. 80. It is difficult to state with precision the principle that wo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....* FMI Investment P. Ltd. v. Montari Industries Ltd. Anr., (2012) 194 DLT 687 (para 6). * Ralson Industries Ltd. v. Adhunik Transport Organization Ltd. in Review Appl. No. 1/2013 in CM(M) No. 1010/2012 decided on 4th January, 2013 (para 4). 25. Counsel for the appellant argued that the bar in Section 22(1) of SICA is applicable only to dues which are admitted and form part of the scheme before BIFR. Reliance is placed on the following judgments:- * Saketh India Limited v. W. Diamond India Limited 2010 (119) DRJ 190 (paras 6-11) [DB]. * Haryana Steel & Alloys Limited v. Transport Corporation of India (2012) 193 DLT 312 (paras 11-15). * Sunil Mittal v. LML Ltd. (2011) 180 DLT 389. 26. The Supreme Court has interpreted Section 22(1) of SICA and the stage of its applicability while holding that Section 22(1) of SICA is only attracted to arbitral proceedings when an award becomes a decree, enforceable in a Court of law, as held by a two Judge bench of the Supreme Court in Morgan Securities & Credit (P) Ltd. v. Modi Rubber Ltd. (2006) 12 SCC 642, in the following words : "45. However, sub-section (1) of Section 22 would be attracted only ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder sub-section (1) of Section 22 of 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. In my view, Section 22 of SICA does not debar the arbitration proceedings under the Arbitration and Conciliation Act, 1996. The objections to the arbitration proceedings raised by the respondent fail for the aforesaid reasons and are rejected. Mr. Manabu Nonoguchi was appointed as an arbitrator by the parties." 30. The above said judgment has been considered by various High Courts to hold that the reference under SICA does not bar proceedings under the Act. In this regard, the appellant has placed reliance on the following judgments:- i) Tata Capital Financial Services Ltd. v. Ramasarup Industries Ltd. (2013) 6 Bom. CR 230 "34. Supreme Court in case of San-A Tradubg Co. Ltd. (supra) after adverting to Supreme court in case of Maharashtra Tubes Ltd. (supra), Shree Chamundi Mopeds Ltd. v. Church of South India AIR 1992 SC 1439 and Kailash Nath Agarwal (supra) held that proceedings in arbitration is neither a suit u....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... (supra) and Deputy Commissioner Tax Officer v. Coromandel Pharmaceuticals (1997) 10 SCC 649. 32. The Arbitral Tribunal had passed the impugned order mainly by following the decision in the case of Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC 322 and held that the expression "suit" in Section 22(1) of SICA would include arbitration proceedings. Arbitral Tribunal at the same time did not follow the principles laid down in other judgments of the Supreme Court. If the ratio of CIT v. Sun Engineering Works (P) Ltd. (1992) 4 SCC 363 is applied to the facts of the present case, the findings would have been otherwise. In the case of Paramjeet Singh Patheja (supra), the only questions which fell for consideration of the Court were set out in para 12 of the judgment were as under:- "12. The substantial questions of law of paramount importance to be decided by this Court are: (i) Whether an arbitration award is a "decree" for the purpose of Section 9 of the Presidency Towns Insolvency Act, 1909? (ii) Whether an insolvency notice can be issued under Section 9(2) of the Presidency Towns Insolvency Act, 1909 on the basis of an arbitration award?" 33. The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as not required to be decided. There was thus no issue or question to be decided by the Court in the case of Paramjit Singh Patheja (supra) to go into the issue of whether the arbitration proceedings and the resulting award were null and void in view of the embargo contained in SICA and the same has been specifically stated by the Court in para 45(b) of the said judgment. 35. The Division Bench of this Court in Om Prakash Parasrampuria v. UOI (2016) 228 DLT 452 (DB) has, after extracting relevant portions of the judgment in Patheja's case held in para 13 that "the judgment of the Supreme Court in Paramjit Singh Patheja's case (supra) cannot be interpreted to conclude that each and every kind of action is contemplated to be included in the term 'suit' because the Supreme Court was dealing with a specific issue i.e. whether an award was a decree or an order within the meaning of Section 9(2) of the Insolvency Act." The Division Bench in the above said judgment has further held in para 21 that: "21. Thus, it was held that having regard to the law laid down in the various judgments, the word 'suit' cannot be understood in its broad and generic sen....
X X X X Extracts X X X X
X X X X Extracts X X X X
....A, when the same culminate and mature into a vested right i.e. post the Section 34 stage, when the arbitral award becomes a decree of the civil Court, executable under CPC. This reading of Patheja (supra) would also be consonant and harmonious with the law laid down in paras 45 and 67 of Morgan Securities (supra). The counsel for the appellant has submitted that the referral order dated 10th January, 2008 would show that the correctness of Patheja (supra) was doubted by the referral Court on the question of the enforceability of an arbitral award vis-à-vis the provisions of the PTIA Act, 1909. The scope and amplitude of Section 22(1) of SICA was neither referred nor the law on this aspect was considered by the three Judges Bench. Thus, there is no force in the submission of the counsel for the respondent that the three Judges Bench have held that an arbitral proceeding at the pre-award stage is a "suit" within the meaning of Section 22(1) of SICA. At the best, if the award attains the finality and becomes decree, at the time of enforcement of award arising from the arbitration proceeding, Patheja (supra) can be relied upon by raising the plea of Section 22 of SICA. 37.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y held in para 31 that "We are of the view that such a construction would be within the intendment of Parliament wherever the proceedings for recovery of a debt which has been secured by a mortgage or pledge of the property of the borrower are instituted." 41. Admittedly, 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. The observations in paras 26 and 27 of KSL and Industries Limited (supra), which have been relied upon by the respondent have to be read in this context. It would clear the legal issue with the law laid down in Raheja Universal (supra) and other judgments including the judgment of this Court cited above as also with the position of law laid down in Morgan Securities (supra) and San Tradubg (supra). In fact, the said judgments are directly applicable to the facts of the present case. 42. The respondent h....
X X X X Extracts X X X X
X X X X Extracts X X X X
....estment Ltd. 217 (2015) DLT 781, for the proposition that for the purposes of Section 22(1) of SICA a "suit" will include arbitral proceedings. It is submitted by Mr. Harish Malhotra, learned Senior counsel for the appellant that the said judgment was rendered in an appeal which was not maintainable. This Court in Aravali Infrapower Ltd. v. Michigan Engineers Pvt. Ltd. reported in 227 (2016) DLT 606 has after considering Ankur Drugs (supra) and the outcome of the SLP against it held in paras 10-15 that an appeal against suspension of proceedings by the Arbitral Tribunal is not maintainable as the Court has no jurisdiction under Section 37 to entertain such an appeal. It is argued by the learned Senior counsel that the judgment in Ankur Pharma (supra) has been rendered in a proceeding in which the Court was suffering from an inherent lack of jurisdiction and thus cannot be relied upon. He also argued that the judgments of Larger Benches of this Court as also the Supreme Court in the cases of Raheja Universal (supra), San Tradubg (supra) & Morgan Securities (supra) were not brought to the notice of the Learned Single Judge in Ankur Pharma (supra) and thus not considered by that....
X X X X Extracts X X X X
X X X X Extracts X X X X
....unsel for the appellant that the present appeal proceeding has nothing to do with the continuance of the arbitral proceedings, which are subject matter of the present appeal. The appellant has never acquiesced in the jurisdiction of BIFR as it firmly believes that Section 22(1) does not come in the way of continuance of the arbitral proceedings, for the reasons stated above. Accordingly, the submission is rejected. 49. From the entire gamut of matters and settled law on the subject, I am of the view that 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 attain finality cannot be called as decree. The plea of Section 22(1) of SICA can only be raised in arbitration matters once the award becomes a decree and the same could only be raised at the stage of enforcement of a decree. 50. Both the appeals, being Arb.A. No. 41/2015 and Arb.A. No. 42/2015, are allowed. The impugned order dated 20th June, 2015 is accordingly set aside. Arb.A. No. 43/2015 51. Now, I shall consider the third appeal, being Arb.A. No. 43/2015, which arises out of the common order dated 20th June, 2015 passed....