CASE NO.: Appeal (civil) 2572 of 2006 PETITIONER: Morgan Securities and Credit Pvt. Ltd. Appellant RESPONDENT: Modi Rubber Ltd. Respondent. DATE OF JUDGMENT: 14/12/2006 BENCH: S.B. Sinha JUDGMENT:
J U D G M E N T
S.B. SINHA, J:
Introduction :
The principal question involved in this appeal arising out of a
judgment and order dated 08.06.2005 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 (for
short, ‘the 1996 Act’) would prevail over the provisions of the Sick
Industrial Companies (Special Provisions) Act, 1985 (for short, ‘SICA’).
Background Facts :
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 06.05.2004 in favour of the appellant for a sum
of Rs.6,72,63,015/- , directing :
“I, therefore, in the circumstances, make the following
Award :
i) The claimant is entitled to receive from the
respondents and the respondents are jointly and
severally liable to pay Rs.6,72,63,015/- up to the
date of reference;
ii) The claimant will also be entitled to interest at the
contractual rate of 21% p.a. from the date of
reference i.e. 15.4.2002 till the date of Award and
thereafter i.e. from the date of Award till the date
of payment with simple interest @ 18% p.a.
However, if the entire amount is paid within three
months from the date of the award, the rate of
interest from the date of Award till the date of
payment shall stand reduced to 12% p.a.
iii) The claimant will also be entitled to costs of
arbitration which are fixed at Rs.2,00,000/-.
In the course of the proceedings I had passed two
interim orders restraining the respondent no.1 from
transferring or alienating their fixed as well as movable
assets. Both those orders shall continue to operate till
the full payment of the amount awarded under this
Award.”
Appellant also filed an application before the High Court of Allahabad
for winding up of the respondent Company. The said application was
admitted and an order of winding up was passed on 12.03.2004.
Apart from the Arbitrator, the Allahabad High Court also by order
dated 13.08.2001 passed in C.P. No.92 of 2000 and 13.03.2002 in C.P. No.1
of 2002 restrained the Respondent Company from dealing with or in any
way encumbering its assets without the permission of the court. In a
proceeding before the AAIFR, that Authority had also passed an order of
restraint against the respondent company. The respondent in the meanwhile
made a reference under Section 15 of SICA to the Board for Industrial and
Financial Reconstruction (for short, ‘the Board’). An appeal against the
order of winding up was preferred by the respondent before the Division
Bench of the High Court. The High Court set aside the said order of winding
up by an order dated 20.05.2004 and directed to keep the winding up
proceedings in abeyance till the disposal of the said appeal under SICA. An
application for recalling of the said order is said to be pending before the
said Court.
Before the Board, an application was filed by the Respondent
purported to be under Section 19A read with Section 22(3) of SICA praying
for permission to dispose 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% 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% 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 04.06.2005, holding :
“The injunction orders against sale of company’s
assets from various Courts/Tribunals do not fall within
the scheme of things envisaged u/s 22, 26, & 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.”
Questioning the legality of the said order, a writ petition, which was
marked as Writ Petition (Civil) No.10284 of 2005, was filed by the
Respondent before the Delhi High Court. By reason of the impugned
judgment, a Division Bench of the High Court allowed the said writ petition.
It is not in dispute that pursuant to or in furtherance of the said
judgment of the High Court, the shares had been sold and the sale proceeds
had been deposited with the Board.
Submissions :
Mr. C.A. Sundaram, the learned Senior Counsel appearing on behalf
of the Appellant, inter alia, submitted that the provisions of SICA could not
have been taken recourse to as no scheme had been framed and, thus, the
High Court committed a serious error in passing the impugned judgment
relying, inter alia, on or on the basis of Section 22(3) of SICA.
Section 5 of the 1996 Act having an overriding effect, the counsel
urged, even the Board could not have interfered with the award. Contrasting
the provision of sub-section (1) of Section 22 with sub-section (3) thereof, it
was contended that the award under the 1996 Act did not fall within the
ambit thereof, in view of the fact that in terms of Section 36 thereof it
becomes a decree.
Mr. Neeraj Sharma, the learned counsel appearing on behalf of the
Respondent, on the other hand, submitted that the Board being not a judicial
authority, Section 5 of the 1996 Act will have no application. On a
conspectus of the provisions of SICA, counsel contended, that the Board
had the requisite jurisdiction to pass an appropriate order directing sale of
the property even at the stage of inquiry. For the aforementioned purpose,
Mr. Sharma argued, all the provisions inserted by reason of Act 12 of 1994
of SICA Amendment Act, 1993, namely, Section 19A, Section 22A and
Section 22(1) as amended, must receive a harmonious construction. Counsel
urged that the interim award having merged with the final award and
furthermore in view of the fact that the award was yet to become a decree of
the court, the question of its having become enforceable in law did not and
could not arise.
SICA :
SICA was enacted in order to afford maximum protection of
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 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.
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.
‘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.
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 exercise of its power conferred under Section 16 thereof, for
determining whether the company has become a sick industrial company or
not. For the said purpose it may require an operating agency to inquire into
and to make a report to it. The Board or the operating agency, as the case
may be, is required to complete the enquiry as expeditiously as possible and
an endeavour is to be made, to do so within sixty days from the
commencement thereof. The Board may during the pendency of the said
inquiry appoint Special Directors. Section 17 empowers the Board to make
suitable orders on the completion of inquiry if it is found to be practicable
for a sick industrial company to make its net worth exceed the accumulated
losses within a reasonable time. The Board is also required to make an
order in writing and subject to such restrictions or conditions as may be
specified therein, give such company as it may deem fit to make its net
worth exceed the accumulated losses. However, in the event it comes to the
conclusion that it is not practicable for the sick industrial company to make
its net worth exceed the accumulated losses within a reasonable time, it may
by an order in writing direct any operating agency specified in the order to
prepare, having regard to such guidelines as may be specified, a scheme in
relation to such company.
Section 18 empowers the Board to prepare and sanction a scheme in
terms whereof it is permissible for the operating agency, inter alia, to
prepare a scheme to direct sale or lease of a part or whole of any industrial
undertaking of the sick industrial company. Section 19 provides for
rehabilitation by giving financial assistance where the scheme relates to
preventive, ameliorative, remedial and other measures with respect to any
sick industrial company. Section 19A of SICA reads as under :
“19A. Arrangement for continuing operations, etc. during
inquiry.-(1) At any time before completion of the inquiry
under Section 16, the sick industrial company or the
Central Government or the Reserve Bank or a State
Government or a public financial institution or a State
level institution or a scheduled bank or any other
institution, bank or authority providing or intending to
provide any financial assistance by way of loans or
advances or guarantees or reliefs or concessions to the
sick industrial company may make an application to the
Board –
(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) *** *** ***”
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)”.
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 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 enforcement of any
security against the industrial company or of any
guarantee in respect of any loans or advance granted to
the industrial company shall lie or be proceeded with
further, except with the consent of the Board or, as the
case may be, the Appellate Authority.”
xxx xxx xxx
(3) Where an inquiry under section 16 is
pending or any scheme referred to in section 17 is under
preparation or during the period of consideration of any
scheme under section 18 or where any such scheme is
sanctioned thereunder, for due implementation of the
scheme, the Board may by order declare with respect to
the sick industrial company concerned that the operation
of all or any of the contracts, assurances of property,
agreements, settlement, awards, standing orders or other
instruments in force, to which such sick industrial
company is a party or which may be applicable to such
sick industrial company immediately before the date of
such order, shall remain suspended or that all or any of
the rights, privileges, obligations and liabilities accruing
or arising thereunder before the said date, shall remain
suspended or shall be enforceable with such adoptions
and in such manner as may be specified by the Board.
Provided that such declaration shall not be made
for a period exceeding two years which may be extended
by one year at a time so, however, that the total period
shall not exceed seven years in the aggregate.”
Sub-section (5) of Section 22 mandates that in computing the period
of limitation for the enforcement of any right, privilege, obligation or
liability, the period during which it or the remedy for the enforcement
thereof remains suspended under the said Section shall be excluded.
Section 22A reads as under :
“22A. Directions not to dispose of assets.- The Board
may, if it is of opinion that any direction is necessary in
the interest of the sick industrial company or creditors or
shareholders or in the 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.
The Board in exercise of its rule making power made regulations,
known as ‘Board for Industrial and Financial Reconstruction Regulations,
1987’. Chapters 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 :
The 1996 Act was enacted to consolidate and amend the law relating
to domestic, international and commercial arbitration and enforcement of the
arbitral awards.
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 for conciliation; whereas Part IV provides for
supplementary provisions. We are concerned with the provisions contained
in Part I of the Act. Chapter I, which begins with the interpretation clause,
provides for the general provisions. Section 2(c) defines “arbitration award”
to include an interim award. Section 5 provides for a non-obstante clause in
the matters governed by Part I stating that no judicial authority shall
intervene except where so provided for therein. Section 16 provides for the
power of arbitral tribunal to rule on its own jurisdiction.
Chapter VII provides for recourses available against the arbitral
awards. Section 34 of the Act provides that the Court may be approached
against an arbitral award by way of an application for setting aside the same
in terms of sub-section (2) or sub-section (3) thereunder. Section 36
provides for enforcement of award in the following terms:
“36. Enforcement. – Where the time for making an
application to set aside the arbitral award under section
34 has expired, or such application having been made, it
has been refused, the award shall be enforced under the
Code of Civil Procedure, 1908 (5 of 1908) in the same
manner as if it were a decree of the Court.”
In Mcdermot International Inc. v. Burn Standard Co. Ltd. [2006 (6)
SCALE 220], this Court noticing the changes made in the 1996 Act vis-`-
vis the 1940 Act, observed :
“The 1996 Act makes a radical departure from the
1940 Act. It has embodied the relevant rules of the
modern law but does not contain all the provisions
thereof. The 1996 Act, however, is not as extensive as
the English Arbitration Act.
Different statutes operated in the field in respect of
a domestic award and a foreign award prior to coming
into force of the 1996 Act, namely, the 1940 Act, the
Arbitration (Protocol and Convention) Act, 1937 and the
Foreign Awards (Recognition and Enforcement) Act,
1961. All the aforementioned statutes have been
repealed by the 1996 Act and make provisions in two
different parts, namely, matters relating to domestic
award and foreign award respectively.”
The 1996 Act is a complete Code by itself. It lays down the
machinery for making an arbitral award enforceable. In terms of Section 36
of the 1996 Act, an award becomes enforceable as if it were a decree; where
the time for making the application for setting it aside under Section 34 has
expired, or such application having been made, has been refused.
Analysis of the Statutory Provisions :
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.
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.
When a reference is made before the Board, certain consequences
ensue, the proceedings for the winding up of a company or for execution of
distress or the like against the property of the company or for the
appointment of a receiver would not continue. Even, no suit for recovery of
money or for the enforcement of any security or of any guarantee shall lie
or be proceeded with further, save and except with the consent of the Board
or the appellate authority.
Section 22A, however, permits the Board to pass certain conditional
orders. Upon receipt of a reference, the Board has no other option but to
make an inquiry, of course, therefor the reference is to be registered, upon
scrutiny thereof. The imperative character of an inquiry at the hands of the
Board is inherent in the scheme of the Act. The legislative intention therefor
is clear and explicit. The consequences flowing from registration of a
reference necessarily would mean initiation of an inquiry which would
include investigation into facts, causes and effects thereof. Act No. 12 of
1994 amending SICA also specified the main features of the amendments to
be as under :
“(a) jurisdictional amendments which redefine the
category of the companies coming within the
purview of the Act, and the options which are
available for revival, rehabilitation or winding up
of sick industries companies;
(b) amendments to enhance the effectiveness of
Board;
(c) amendments which seek to remove certain
ambiguities and strengthen internal coherence of
the Act by redefining certain provisions which are
clarificatory in nature.”
Section 19A of SICA as inserted in the year 1994, although may be
held to be clarificatory in nature, however, confers a special power to pass
an order envisaged thereunder. Section 19A does not empower the Board to
direct sale of the assets at the stage of enquiry. Section 22(1) and 22(3)
again would, however, be applicable where an inquiry under Section 16 is
pending. Whereas under sub-section (1) of Section 22 no specific order is
required to be passed by the Board; it is necessary, in respect of the matters
enumerated under sub-section (3) of Section 22 thereof.
Although for the aforementioned purpose, it may not be imperative
that such an order be passed only in terms of a scheme, as was submitted by
Mr. Sundaram, but it is true that application of mind on the part of the
Board in relation thereto is necessary.
It is difficult 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.
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.
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 company
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.
Submission of Mr. Sundaram that sub-section (3) of Section 22 would
be attracted only in a case where a scheme has been made, in our opinion,
does not stand a close scrutiny. Sub-section (3) of Section 22 contemplates
four different regimes : (i) where an inquiry under Section 16 is pending; or
(ii) where any scheme referred to in Section 17 is under preparation; or (iii)
during the period of consideration of any scheme under Section 18; or (iv)
where any such scheme is sanctioned thereunder.
The expression “for due implementation of the scheme” would refer
only to the scheme which has been sanctioned under Section 18 and not any
stage prior thereto. If the submission of Mr. Sundaram is accepted, the
other provisions contained in sub-section (3) of Section 22 cannot be given
effect to, as a result whereof the same would become otiose.
What, however can be directed to be suspended were the matters
which were existing immediately before the date of such order.
Rule of ejusdem generis for construing the words “agreement,
settlement standing order or other instruments” is also not applicable in the
instant case.
An award under the 1996 Act indisputably stand on a different footing
vis-`-vis an award made under the Arbitration Act, 1940. Whereas under
the 1940 Act, an award was required to be made a rule of the court to make
it enforceable; the 1996 Act, however, raises a legal fiction. When an
award is made, an application under Section 34 is required to be filed
questioning the validity thereof. Once such an application is filed, it remains
under suspension in the sense that it would not be enforceable. Only upon
expiry of the period specified in Section 34 to challenge an award or when
such objection is refused, the same would become enforceable. Section 36
merely specifies as to how such an award can be enforced by laying down
that it can be enforced as if it were a decree.
The legal fiction created under Section 36 has, therefore, a limited
application. An award is, thus, to be treated to be a decree even without
intervention of the court only for the purpose of its enforceability.
Thus, an order can be passed by the Board for suspending the
operation of the award if any occasion arises therefor.
In Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd.
(2000) 5 SCC 514], it was held that the word ‘deemed’ used in the section
would thus mean, “supposed”, “considered”, “construed”, “thought”, “taken
to be” or “presumed”.
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.
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.
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.
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.
SICA furthermore was enacted to give effect to a larger public interest
so as to secure the principles specified in Article 39 of the Constitution of
India. Sub-section (1) of Section 22 must be construed having regard to the
aforementioned principles in mind. It seeks to restrain the Court from
entertaining and/or proceeding with any court proceeding if the lis is before
it.
The provisions contained in sub-section (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. The provision
empowers the Board to make a declaration in terms whereof, inter alia,
operation of a settlement or award, not only where the industrial company is
a party, but also where the same would be applicable thereto, would remain
suspended. It envisages suspension of not only operation of any contract of
assurances of property, agreement, settlement, award, standing orders, etc.,
but also rights, privileges, obligations and liabilities accruing or arising
thereunder. The result of such declaration is not far to seek. Such
declaration, however, either for suspension or operation of the contract or
award, etc. for the rights, privileges, obligations and liabilities or all or any
of the rights, privileges, obligations and liabilities accruing or arising
thereunder is to be made specifically. The Board may choose to make either
of the declarations, as provided for thereunder. The period for such
suspension, however, is controlled by the proviso appended thereto.
A statutory distinction has, thus, been made by the Legislature as
regard suspension of a proceeding, on the one hand, and initiation and/or
continuance thereof, on the other. Whereas in the former case the statutory
impact would be automatic, in the latter the court is required to apply its
mind having regard to facts and circumstances of each case. When an order
is passed by the Board in exercise of its jurisdiction under sub-section (3) of
Section 22 directing the parties not to continue the proceeding, an award or
decree is not set aside thereby. They are merely kept in abeyance so as to
enable the Board to pass an appropriate order, inter alia, for revival of a sick
company for the purpose of giving effect to the purport and object for which
the laws relating to corporate insolvency have been enacted.
While 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 etc. v.
Kartick Das etc. [(1994) 4 SCC 225], 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 M/s Transmission Corporation of A.P. Ltd.
& Ors. v. M/s Lanco Kondapalli Power Pvt. Ltd. (2006) 1 SCC 540,
Ramdev Food Products Pvt. Ltd. v. Arvindbhai Rambhai & Ors. 2006 (8)
SCALE 631 and M. Gurudas & Ors. v. Rasaranjan & Ors. 2006 (9) SCALE
275]
Judicial Authority :
The 1996 Act does not define the term ‘Judicial Authority’. What is
defined in Section 2(e) thereof is ‘Court’. In its ordinary parlance ‘judicial
authority’ would comprehend a court defined under the Act but also courts
which would either be a civil court or other authorities which perform
judicial functions or quasi judicial functions.
In SBP & Co. v. Patel Engineering Ltd. and Another [(2005) 8 SCC
618], a Seven Judge Bench of this Court although did not have the occasion
to deal with the question directly; but while overruling the decisions in
Konkan Railway Corporation Ltd. and Others v. Mehul Construction Co.
[(2000) 7 SCC 201] and Konkan Railway Corporation Ltd. and Another v.
Rani Construction Pvt. Ltd. [(2002) 2 SC 388] opined :
“A judicial authority as such is not defined in the Act.
It would certainly include the court as defined in Section
2(e) of the Act and would also, in our opinion, include
other courts and may even include a special tribunal like
the Consumer Forum (see Fair Air Engineers (P) Ltd. v.
N.K. Modi). When the defendant to an action before a
judicial authority raises the plea that there is an
arbitration agreement and the subject-matter of the claim
is covered by the agreement and the plaintiff or the
person who has approached the judicial authority for
relief, disputes the same, the judicial authority, in the
absence of any restriction in the Act, has necessarily to
decide whether, in fact, there is in existence a valid
arbitration agreement and whether the dispute that is
sought to be raised before it, is covered by the arbitration
clause. It is difficult to contemplate that the judicial
authority has also to act mechanically or has merely to
see the original arbitration agreement produced before it,
and mechanically refer the parties to an arbitration”
In Management Committee of Montfort Senior Secondary School v.
Vijay Kumar and Others [(2005) 7 SCC 472] a question arose as to whether
a Tribunal under the Delhi School Education Act, 1973, is a judicial
authority. It was held that a School Tribunal is a judicial Authority, as it act
judicially and exercise a judicial power.
The question again came up for consideration indirectly in P. Anand
Gajapathi Raju and Others v. P.V.G Raju (Dead) and Others [(2000) 4 SCC
539] wherein it was held :
“5. The conditions which are required to be satisfied
under sub-sections (1) and (2) of Section 8 before the
court 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.”
In Fair Air Engineers Pvt. Ltd. and Another 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.
In Canara Bank v. Nuclear Power Corporation of India Ltd. and
Others (1995) Supp. 3 SCC page 81], it was held :
“8. Sub-section (1) of Section 9-A empowers the
Special Court to exercise the jurisdiction, powers and
authority exercisable by a civil court. It so empowers the
Special Court in relation to any matter or claim, inter
alia, that arises out of transactions in securities entered
into between the stated dates in which a notified person is
involved. The words “civil court” are used in the context
of the jurisdiction, powers and authority that the Special
Court may exercise. The Special Court is empowered to
exercise such jurisdiction, powers or authority in relation
to the matters or claims therein specified. These matters
or claims include those arising out of transactions in
securities entered into between the stated dates in which a
notified person is involved. Sub-section (2) of Section 9-
A deals with the transfer of certain suits, claims or other
legal proceedings (other than an appeal) to the Special
Court. Every suit, claim or other legal proceeding
pending before any court the cause of action whereof is
such that, had it arisen after the commencement of the
Amendment Ordinance, the suit, claim or other legal
proceeding would have had to be filed before the Special
Court, stands transferred to the Special Court. Every suit,
claim or other legal proceeding pending before any court
the cause of action whereof arises out of transactions in
securities entered into between the stated dates in which a
notified person is involved would, therefore, if it is
pending before any court on the date on which the
Amendment Ordinance came into force, stand transferred
to the Special Court. By reason of sub-section (3) of
Section 9-A, on and after the commencement of the
Amendment Ordinance, no court other than the Special
Court may exercise any jurisdiction, powers or authority
in relation to any matter or claim referred to in sub-
section (1), that is to say, in relation to any matter or
claim, inter alia, arising out of transactions in securities
entered into between the stated dates in which a notified
person is involved.”
We are, however, not oblivious of a decision of this Court in The
Bharat Bank Ltd., Delhi v. Employees of the Bharat Bank Ltd., Delhi [1950
SCR 459] wherein an Industrial Tribunal functioning under the Industrial
Disputes Act was held to be not a Judicial Tribunal, stating that although it
has all the trappings of a court but is not a court.
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 :
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 and Another (2000) 4 SCC 406 para 34].
In Maruti Udyog Ltd. v. Ram Lal and Others (2005) 2 SCC 638], it
was observed :
“39. The interpretation of Section 25-J 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 Orders) Act, but it will have no
application in a case where something different is
envisaged in terms of the statutory scheme. A beneficial
statute, as is well known, may receive liberal construction
but the same cannot be extended beyond the statutory
scheme”
In Shri Sarwan Singh and Another v. Shri Kasturi Lal [(1977) 1 SCC
750], this Court opined :
“When two or more laws operate in the same field
and each contains a non-obstante clause stating that its
provisions will override those of any other law,
stimulating and incisive problems of interpretation arise.
Since statutory interpretation has no conventional
protocol, cases of such conflict have to be decided in
reference to the object and purpose of the laws under
consideration”
The endeavour of the court would, however, always be to adopt a rule
of harmonious construction.
In NGEF Ltd. v. Chandra Developers (P) Ltd. and Another [(2005) 8
SCC 219], interpreting sub-section (4) of Section 20 of SICA, it was held :
“41. It is difficult to accept the submission of the
learned counsel appearing on behalf of the respondents
that both the Company Court and BIFR exercise
concurrent jurisdiction. If such a construction is upheld,
there shall be chaos and confusion. A company declared
to be sick in terms of the provisions of SICA, continues
to be sick unless it is directed to be wound up. Till
the company remains a sick company having regard to
the provisions of sub-section (4) of Section 20, BIFR
alone shall have jurisdiction as regards sale of its assets
till an order of winding up is passed by a Company
Court.”
It was further held :
“49. Section 32 of SICA contains a non obstante
clause stating that provisions thereof shall prevail
notwithstanding anything inconsistent with the provisions
of the said Act and of any rules or schemes made
thereunder contained in any other law for the time being
in force. It would bear repetition to state that in the
ordinary course although the Company Judge may have
the jurisdiction to pass an interim order in exercise of its
inherent jurisdiction or otherwise directing execution of a
deed of sale in favour of an applicant by the Company
sought to be wound up, but keeping in view the express
provisions contained in sub-section (4) of Section 20 of
SICA such a power, in our opinion, in the Company
Judge is not available. (See BPL Ltd.)
50. 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.”
In ICICI Bank Ltd. v. Sidco Leathers Ltd. and Others [2006) 5
SCALE 27] the law is stated in the following terms :
“The non-obstante nature of a provision although
may be of wide amplitude, the interpretative process
thereof must be kept confined to the legislative policy.
Only because the dues of the workmen and the debt due
to the secured creditors are treated pari passu with each
other, the same by itself, in our considered view, would
not lead to the conclusion that the concept of inter se
priorities amongst the secured creditors had thereby been
intended to be given a total go-by.
A non-obstante clause must be given effect to, to
the extent the Parliament intended and not beyond the
same.”
Section 5 of the 1996 Act also provides for a non-obstante clause. It
has, however, a limited application aiming at the extent of judicial
intervention. Its application would be attracted only when an order under
sub-section (3) of Section 22 is required to be passed. If the said provision
is to be given effect to, the Board would not intervene in the matter of the
implementation of the award. It would merely suspend the operation of it.
It may even pass an order suspending the liabilities or obligations of the
industrial company under the award. Even otherwise in the fact of the
present case it stands suspended.
The Board however, has not passed an order under sub-section (3) of
Section 22 of SICA. The court, therefore, must proceed with the objection
filed by the Respondent under Section 34 of the 1996 Act. However, if the
objection filed by the Respondent is rejected, the question of its
enforceability would come into being. Once the arbitral award having the
force of a decree is put into execution, sub-section (1) of Section 22 of
SICA would come on its way from being enforced. The contention raised
by Mr. Sundaram that having regard to the provisions of Section 5 of the
1996 Act, the Board would have no jurisdiction, therefore, does not seem to
have any force.
Sub-section (3) of Sections 22 SICA provides for a specific power in
the Board The said provision contemplates a larger public interest. In the
event an arbitral award is held to be outside the purview of sub-section (3) of
Section 22 thereof, it may be difficult to frame a scheme or in a given case
implement the same under SICA. SICA provides for a time-frame for all the
stages of proceedings. Proviso appended thereto assumes significance in
this behalf.
The Parliament presumed that the suspension of an award shall not be
for a 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.
In Kailash Nath Agarwal and Others v. Pradeshiya Industrial &
Investment Corporation of U.P. Ltd. and Another [(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”
In Burn Standard Co. Ltd. v. Mc.Dermott International Inc. & Others
disposed of on 11.06.1997, 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.
Yet again in Saurabh Kalani v. Tata Finance Lrtd. and Anr. [2003 (3)
Arb. LR 345 (Bombay), the Bombay High Court took the same view.
Conclusion :
In this case, the shares have been sold. The sale proceeds have been
deposited before the Board. It is, thus, futile to interfere with the impugned
order at this stage. However, we thought it necessary to lay down the law
for future guidance of the Board while deciding a similar case.
For the reasons aforementioned, we do not intend to interfere with the
impugned judgment of the High Court. It is dismissed accordingly having
become infructuous. No costs.
