JUDGMENT
D.K. Deshmukh, J.
1. By this notice of motion, the applicant seeks an order setting aside Insolvency Notice No. N/II/01.
2. The facts that are material and necessary for deciding this notice of motion are that an amount was due from Shaan Interwell (I) Ltd. to the respondent/judgment-creditor. Therefore, proceedings were started before the arbitrator against the company and the applicant. When the proceedings were started before the arbitrator, though the claim made by the respondent was not disputed, an objection was raised to the continuance of the arbitral proceedings on the ground that a reference was pending before the BIFR. The submission was that in view of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (‘the Act’), the arbitral proceedings cannot continue. The learned arbitrator after considering this submission in detail rejected the objection holding that the provisions of Section 22 will not operate to stay the proceedings before the arbitrator. The arbitrator made an award for payment of the amount against the applicant as also the company. They were held jointly and severally liable to pay the amount. Neither the company nor the applicant challenged the award by filing a petition under Section 34 of the Arbitration and Conciliation Act, 1996. Ultimately, on the basis of the award of the arbitrator, an insolvency notice was taken out by the respondent/decree holder against the applicant, because the award holds the applicant
jointly and severally liable for the amount with the company. The learned counsel appearing for the applicant raised two contentions : (i) that as in view of the provisions of Section 22, the arbitrator could not have made an award, and the award made by the arbitrator is inexecutable and, therefore, it cannot be made the basis of an insolvency notice, (ii) the second submission of the learned counsel is that in view of the provisions of Section 22, execution of a decree against the company as also its guarantors cannot be proceeded with. The learned counsel in support of his submissions relies on a judgment of the Supreme Court in Patheja Bros. Forgings & Stampingv. ICICI Ltd. [2000] 102 Comp. Cas. 21m 26 SCL 404. The learned counsel submits that the view taken in the judgment of the Division Bench of this Court in Madalsa International Ltd. v. Central Bank of India [2000] 99 Comp. Cas. 153 has not been approved by the Supreme Court in its judgment in Patheja Bros. Forgings & Stamping’s case (supra), and, therefore, the protection available to the sick company stands extended to the guarantors of such company.
3. The learned counsel appearing for the respondent/decree holder, on the other hand, submits that the bar of Section 22 does not operate in relation to arbitral proceedings. In support of that submission, the learned counsel relies on a judgment of a Division Bench of the Delhi High Court in Lloyd Insulations (India) Ltd. v. Cement Corporation of India Ltd. [2001] 105 Comp. Cas. 729, 33 SCL 520. The learned counsel also relies on a judgment of the Division Bench of this Court in Madalsa International Ltd. ‘s case (supra) referred to-above and contends that the protection provided by Section 22 against execution proceedings to the sick company does not extend to the guarantors. In the submission of the learned counsel, the provisions of Section 22 extend protection to the guarantors only in relation to the suit and in the submission of the learned counsel taking up proceedings under the Insolvency Act cannot be termed as a suit and there is no provision in any law which bars the respondent/decree holder taking out an insolvency notice on the basis of the award made by the arbitrator. The learned counsel in support of his submissions relies on a judgment of the Division Bench of this court in Madalsa International Ltd.’s case (supra) referred to above; as also the judgment of the Division Bench of this court in Sharad R. Khannav. Karimjee Ltd. [1995] 84 Comp. Cas. 611 a judgment of another Division Bench of this Court in Dewal Singhal v. State of Maharashtra [2001] 106 Comp. Cas. 587, [2002] 35 SCL 759 (Bom.), a judgment of a learned single judge of this Court in Maganlal Chaganlal Ltd. v. Hindustan Petroleum Corporation Ltd. [Arbitration Petition No. 6 of 1997, dated 10-11-1998], a judgment of another learned single judge of this Court in Toepfer International Asia (P.) Ltd. v. Hindustan Agro Chemicals Ltd. [Arbitration Petition No. 188 of 1995 dated 23-12-1997].
4. It may be pointed out here that the learned counsel appearing for the applicant also relies on a judgment of a learned single judge of this Court in Jaybharat Credit Ltd. v. APS Star Industries Ltd. [2001] 106 Comp. Cas. 593 (Bom.), wherein the learned single judge has held that even execution proceedings against the guarantors of the sick company are barred by the provisions of Section 22.
5. The learned counsel appearing for the respondent/decree holder in relation to that judgment submits that firstly the learned single judge has not considered the other judgments of this Hon’ble High Court referred to above. According to the learned counsel, taking out of an insolvency notice is not an execution proceeding and, therefore, according to the learned counsel, the judgment of the learned single judge in Jaybharat Credit Ltd. ‘s case (supra) referred to above is not relevant.
It is clear from the rival submissions that both the objections raised by the learned counsel for the applicant are based on the provisions of Sub-section (1) of Section 22. Sub-section (1) of Section 22 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 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.”
6. The first submission of the learned counsel for the applicant is that by virtue of the provisions of Section 22 no proceedings for winding up, no proceedings 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, also no suit for recovery of money or for the enforcement of any security against the industrial company can be proceeded with. Similarly, no proceedings 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, as no suit for recovery of money or for enforcement of any security in respect of any guarantee in relation to any loan or advance granted to the industrial company can be proceeded with. The Delhi High Court in Lloyd Insulations (India) Ltd.’s case (supra) has considered the question in detail and has observed thus :
“… In the instant case the Legislature has intentionally used the word ‘suit’ insofar as recovery of money is concerned. The unamended section which covered winding up, execution, distress, etc. has used the expression ‘proceedings’. Thus, the Legislature had in mind that as far as winding up, execution, distress, etc. are concerned, no proceedings of this nature shall lie or be proceeded with except with the consent of the Board. However, when the section was amended to add the claims for recovery of money, the Legislature used the expression ‘suit’ and not ‘proceedings’ Thus, if one has to really see the intention, it was to confine to suits only i.e., suits which are understood in common parlance, namely, which are filed in civil courts. It is for this reason that while amending Sub-section (1) of Section 22 of the SICA, Sub-section (5), it was provided 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 this sub-section shall be excluded. The reason is obvious. It is the suit in respect of which if limitation expires, there is no provision for condonation of delay in the Limitation Act which is not the case in respect of proceedings under Sections 14 and 17 of the Arbitration Act. Therefore, the need was felt to introduce specific provision i.e., Section 22(5) of the SICA for saving limitation in respect of ‘suits’ coming within the umbrella of Section 22(1). Thus, when Sub-section (5) is read along with ‘suit for recovery of money’ occurring in Sub-section (1), the intention becomes further clear that the word ‘suit’ related only to the civil suits in the court of law which are governed by Section 9 of the Civil Procedure Code.” (p. 741)
7. I am in respectful agreement with the view taken by the Delhi High Court. It is clear that Section 22 extends protection to the guarantor only in relation to suits and other proceedings.
It is further to be seen here that the applicant had raised an objection before the learned arbitrator that in view of the provisions of Section 22, the arbitrator has no jurisdiction to proceed with the proceedings and make an award. The arbitrator considered that argument in detail and has rejected the same. The applicant had an option of challenging that award on that ground by making a petition under Section 34 of the Arbitration and Conciliation Act. The applicant has for reasons best known to him not availed of that remedy. In my opinion, this conduct of the applicant also disentitles him to raise this contention.
8. So far as the second objection raised that even execution proceedings against the guarantors cannot be proceeded with is concerned, it is clear from a bare perusal of Section 22 that Section 22 provides that execution proceedings against the industrial company shall not proceed. However, so far as the guarantors are concerned, it is only the suits which are not to proceed. This aspect of the matter has been considered by the Division Bench of this Court in its judgment in Madalsa International Ltd. ‘s case (supra) and in paragraph 20 of the judgment of the court has held that the
expression ‘suit’ used in Section 22 does not take into its compass the execution proceedings. Paragraph 20 of the judgment of this Court in Madalsa International Ltd, ‘s case (supra) reads as under :
“Thus the first question which arises in this case is whether the word ‘suit’ used in Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, includes in its ambit execution or execution proceedings. In this behalf it is relevant to notice that prior to the amendment of Section 22 it was provided that 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, 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 shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the appellate authority. Thus, it is clear that the proceedings for 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 could not lie and if already taken up could not be proceeded with further except with the consent of the Board or the appellate authority. It is clear that this was with a view to giving a free hand – to the Board for Industrial and Financial Reconstruction for considering whether a company can be made viable and with that purpose it was thought necessary that the properties of the industrial company should not be exposed to coercive action of the nature mentioned in the section. The unamended section did not prohibit or suspend any suit for recovery of money or enforcement of any security against the industrial company and/or guarantee in respect of any loans or advances granted to the industrial company. It is extremely relevant that the word ‘execution’ is used in the unamended section while in the added portion by amendment the word ‘suit’ is used. It is also further relevant that various authorities quoted above, clearly show that the interpretation of the word ‘suit’ in any particular statute will have to be made in the context in which the same is used. In our opinion, the intention and object of the amendment is not only that coercive action against the industrial company or properties belonging to it should be suspended but also that the suit for any recovery of money or enforcement of any security against the industrial company should be suspended. The earlier part takes care of the coercive measures in execution, etc., while the latter part obviously suspends the very initiation or if already initiated, prosecution of any suit of the description mentioned therein. Considered in this light we are of the clear opinion that the word ‘suit’ in the amended portion of Section 22 cannot include in its ambit execution or execution proceedings. On this interpretation in fact even if the appeal is pending so far as the execution proceedings are
concerned, excepting the properties of the industrial company, there cannot be any bar or impediment in proceeding further with the same.”
(P. 165)
9. Now, it is to be seen that the judgment of the Division Bench in Madalsa International Ltd. ‘s case (supra) was referred to by the Supreme Court in its judgment in Patheja Bros. Forgings & Stamping’s case (supra). It is further to be seen that the Division Bench in its judgment in Madalsa International Ltd.’s case (supra) was considering also the question whether in view of the provisions of Section 22 a suit against the guarantors of a loan advanced to an industrial company which is before the BIFR can proceed and the Supreme Court has not approved the judgment of the Division Bench in Madalsa International Ltd.’s case (supra) only on the second question. The judgment of the Division Bench on the first question was neither relevant for consideration of the question that was being considered by the Supreme Court nor was it actually considered by the Supreme Court. Therefore, the observations of the Division Bench in relation to the question whether the expression ‘suit’ in Section 22 encompasses execution proceedings are still valid and in force and, therefore, binding on this court.
10. In this view of the matter, in my opinion, the execution proceedings on the basis of the award made against the guarantor, i.e., the applicant, would not be barred by the provisions of Section 22. The Division Bench of this court in its judgment in the case of Sharad R. Khanna (supra) has clearly held that the issuance of an insolvency notice is an independent proceeding and cannot be termed as further proceedings in the original suit. Thus, the Division Bench has held that even where there is a decree passed in a suit, an insolvency notice can be based on that decree as against the guarantor. The following observations appearing in paragraph 8 of that judgment are relevant:
“… The question is whether the issuance of an insolvency notice and its service can be considered as the original suit for the enforcement of guarantee being further proceeded with. It is difficult to consider the issuance of an insolvency notice as proceeding further with the original suit. It is an independent proceeding with its own consequences although it may be considered as a mode of equitable execution….” (p. 614)
11. Taking an overall view of the matter, therefore, in my opinion, the submission made on behalf of the applicant is not well-founded. So far as the judgment of the learned single judge of this Court in the case of Jaybharat Credit Ltd. (supra) is concerned, it appears that the judgments of the Division Bench referred to above were not pointed out to the learned judge. In any case, for the present proceedings, I am not considering the case of execution of a decree, which was being considered by the learned single judge in Jaybharat Credit Ltd.’s case (supra). The
judgments of the Division Bench are binding on this court. In my opinion, therefore, the judgment of the learned single judge in Jaybharat Credit Ltd. ‘s case (supra) cannot make any difference to the final order being passed in this notice of motion.
12. Section 9(5) of the Presidency Towns Insolvency Act specifies the grounds on which an insolvency notice can be set aside. The ground that the insolvency notice is based on a decree or award which is invalid is not one of the grounds specified in Section 9(5) of the Insolvency Act. It is true that the court can set aside an insolvency notice on any other ground also under Section 91 of the Insolvency Act, but the court can do so only in case the court finds that the making of such an order is necessary in the interest of justice. In other words, the jurisdiction of the court to set aside an insolvency notice on grounds other than the grounds specified in Section 9(5) of the Insolvency Act is discretionary. Therefore, the court would exercise its discretion only in favour of a person who has come to the court with clean hands. Insofar as the conduct of the applicant in the present case is concerned, the claim of the decree holder is not disputed by the applicant before the arbitrator. Before the arbitrator, only an objection to the jurisdiction of the arbitrator was raised. That objection was rejected by the arbitrator by giving detailed reasons in the award. It was open to the applicant to challenge the award by filing a petition under Section 34 of the Arbitration and Conciliation Act, but the applicant did not file any such petition with the result the award became final and enforceable as a decree. Though the claim was not disputed on the merits and the award had become final, the applicant did not pay the amount awarded. The applicant waited till the decree holder issued an insolvency notice. Thereafter, the present motion is taken out by the applicant challenging the validity of the award on the same grounds which were raised before the arbitrator. This conduct of the applicant shows that this notice of motion is taken out by the applicant merely to avoid, in any case to delay, the payment of the undisputed claim. In my opinion, therefore, not only would interfering with the insolvency notice at the instance of the applicant not be in the interest of justice, but any interference with the insolvency notice at the instance of the applicant would defeat the ends of justice.
13. Notice of motion is, therefore, disposed of.