Hon'ble Apex Court in the case of San-A Tradubg Co. Ltd. v. I.C. Textiles Ltd. decided on 28.4.2006 has considered the same and held as under:
"Similarly, in Shree Chamundi Mopeds Ltd. v. Church of South India, MANU/SC/0501/1992 : AIR 1992 SC 1439, this Court explained the words 'or the like' as follows:"The words 'or the like' have to be construed with reference to the preceding words, namely 'for execution', 'distress' which means that the proceedings which are contemplated in this category are proceedings whereby recovery of dues is sought to be made by way of execution, distress or similar proceedings against the property of the Company."
It is, thus, apparent from the wording of Section 22(1) and the above decisions of this Court that the proceedings covered under Section 22 are the proceedings of coercive nature, be that legal or otherwise, which would come within the purview of expression 'proceedings' as mentioned in the Section but it would not cover all proceedings. Section 22 (1) incorporated certain types of proceedings which would fall within its ambit and which are the proceedings for winding up of the industrial company or the proceedings for execution and distress against any of the properties of the industrial company or the proceedings for the appointment of a Receiver in respect of the properties of the industrial company. From the nature of the proceedings referred to in this Section, it is clear that only the proceedings which have the shape and effect of coercive nature would come within the ambit of Section 22(1) and for taking up such proceedings the permission of BIFR is required. By Act 12 of 1994, Section 22(1) was amended by insertion whereby a 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 advances granted to the industrial company would not be maintainable unless consent of BIFR is obtained. In Kailash Nath Agarwal and others v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. and another MANU/SC/0114/2003 : (2003) 4 SCC 305 : (AIR 2003 SC 1886), the question arose as to the scope of the protection afforded to the guarantors under Section 22(1) of SICA. The company was declared sick by BIFR in terms of Section 3(1)(o) of SICA. An operating agency was appointed under Section 17(3). While the proceedings before BIFR were pending, three separate notices of demand were served on the appellants as personal guarantors in respect of the loans granted to the company by the respondent Pradeshiya Industrial & Investment Corporation of U.P. Ltd. and it was said in the notices that the Corporation would take legal measures to recover its outstanding dues from each guarantor. It was contended by the guarantors that in view of Section 22(1) of SICA, the Corporation could not enforce its demand against the appellants under the permission of BIFR is obtained. This Court has drawn a distinction between the proceedings taken up under the U.P. Public Moneys (Recovery of Dues) Act, 1972 and a suit contemplated under Section 22 of SICA. This Court has held in Kailash Nath Agarwal (supra) that having regard to the judicial interpretation of the word 'suit', it is difficult to accede to the submission of the appellants that the word 'suit' in Section 22(1) of SICA means anything other than some form of curial process and the Court found it difficult to widen the scope of the word 'suit' so as to cover proceedings against the guarantor of an industrial company. By virtue of amendment to Section 22 of SICA, 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 advances granted to the industrial company, shall he and adjudication is prohibited of the liability of the industrial company or the guarantor. Section 22 further prohibits taking up of the proceedings of the nature which would be coercive for recovery of money against a sick undertaking. Proceeding in arbitration is neither a suit under 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."
IN THE HIGH COURT OF MADHYA PRADESH (INDORE BENCH)
A.C. No. 18 of 2015
Decided On: 01.12.2016
TDB Spinners Pvt. Ltd.
Vs.
Parasram Puria Internatin
Hon'ble Judges/Coram:
J.K. Maheshwari, J.
1. This application under Section 11 of the Arbitration and Conciliation Act, 1996 has been filed by the applicant seeking appointment of independent arbitrator for adjudication of the disputes arisen between the applicant and respondents. The facts in brief are that the applicant is a private limited company incorporated under the provisions of Companies Act. The Director of the company is authorized by Board as per resolution dated 16.3.2015 to file this application. The respondent No. 1/Company was doing the job work, manufacturing yarn on supply of raw material by the applicant. The respondent No. 1/Company represented through respondent Nos. 2 and 3 approached to applicant, stating transformer required for manufacture of yarn at Pithampur has become very old, which needs immediate replacement. The applicant under the threat of losing the facility of manufacturing operations agreed to install 12.5 MVA transformer at their own cost in the premises of respondent No. 1 situated at Plot No. 432, Sector-Ill, Industrial Area, Pithampur, District Dhar to which a memorandum of understanding was executed. Clause-8 of the MOU contains arbitration clause. As per MOU, the terms and conditions were settled. Due to non-observance of those terms and conditions, dispute arose as regards to non-payment of rent and job work may be carried out by the respondents, which resulted into substantial loss to the applicant. However, alleging criminal breach and also to resolve the dispute, notice was served on the respondents on 10.10.2015 for appointment of arbitrator proposing the name of Hon'ble Mr. Justice P.D. Mule (Retd.).
2. In reply to the said notice, it is inter alia contended that the respondent is registered with the Board of Industrial and Financial Reconstruction (BIFR) under Sick Industrial Companies (Special Provisions) Act, 1985 as Case No. 67/2013 which was granted on 3.10.2013, however, no arbitration proceeding or any other similar proceeding for appointment of arbitrator can be initiated against the respondents. It is also stated that as per the arbitration clause, appointment of arbitrator may be by mutual consent and the name offered by the applicant to appoint Hon'ble Mr. Justice P.D. Mule (Retd.) is not acceptable.
3. It is to be noted here that on filing of this application seeking appointment of arbitrator, notices were issued and the respondents are represented w.e.f. 19.2.2016. They have not filed the reply, however, time was granted on 22.2.2016, 22.4.2016, 14.6.2016, 6.9.2016 and 18.10.2016. On 23.11.2016, learned counsel for the respondents has stated across the Bar that they are going to file reply today. This Court observed, in case reply is not filed, his right to file reply shall be closed and it was ordered to be listed for today. On 23.11.2016, reply has been filed on behalf of respondent No. 1 only and not for Chairman and Managing Director (respondent Nos. 2 and 3 herein) without filing any affidavit in support thereto. In the reply, the aforesaid two conditions have been elaborated and document Annexure A/1 i.e. reference of registration as made in the reply to notice dated 3.10.2013 under the provisions of SICA Act has been filed. In view of the aforesaid facts, it is apparent that despite ample opportunities, reply has not been filed by respondent Nos. 1 to 3, though, they are served and learned counsel appearing on behalf of respondent No. 1 was granted time as prayed on various dates. Looking to the last order-sheet, the right to file reply is hereby closed, however, this Court has proceeded to decide the case as per the material brought on record.
4. After hearing learned counsel appearing on behalf of both the parties and on perusal of the facts of this case, the dispute is on account of non-payment of monthly rent of Rs. 50,000/- which was fixed as per the agreement for use of transformer installed by the applicant. The payment was required to be made till March, 2015. Under the guise of assurance that respondents shall install their own transformer and handover the transformer of the applicant back because the applicant wanted to use it for starting its own manufacturing unit and the terms of the agreement with respect to inspection or remove of the said transformer, at any time by the applicant has not been informed by the respondents. As per Clause-8 of the MOU, arbitration clause has been specified which is reproduced as under:
"All the differences/dispute arising in relation to this memorandum of understanding, its construction validity, performance, duties, rights and obligations of the respective parties under or arising out of this understanding, breach or any dispute arising in relation thereto, shall be resolved by appointing arbitrator by mutual consent for arbitration proceeding to be Held in accordance with the Arbitration and Conciliation Act, 1996 at Indore or the statutory modification thereof and the decision of this Arbitrator shall be final and binding on both the parties."
5. In reply to the notice, the agreement between applicant and respondents has not been disputed but it is merely said that interpretation placed with respect to the MOU is incorrect. In addition to the same, the plea of registration with the BIFR under SICA Act has been placed on record to deny the appointment of Hon'ble Mr. Justice P.D. Mule (Retd.). In view of the aforesaid, Section 22 of SICA Act is relevant wherein the legal proceeding under the contract can be suspended, however, Section 22(1) is relevant, which is reproduced 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. Hon'ble Apex Court in the case of San-A Tradubg Co. Ltd. v. I.C. Textiles Ltd. decided on 28.4.2006 has considered the same and held as under:
"Similarly, in Shree Chamundi Mopeds Ltd. v. Church of South India, MANU/SC/0501/1992 : AIR 1992 SC 1439, this Court explained the words 'or the like' as follows:"The words 'or the like' have to be construed with reference to the preceding words, namely 'for execution', 'distress' which means that the proceedings which are contemplated in this category are proceedings whereby recovery of dues is sought to be made by way of execution, distress or similar proceedings against the property of the Company."It is, thus, apparent from the wording of Section 22(1) and the above decisions of this Court that the proceedings covered under Section 22 are the proceedings of coercive nature, be that legal or otherwise, which would come within the purview of expression 'proceedings' as mentioned in the Section but it would not cover all proceedings. Section 22 (1) incorporated certain types of proceedings which would fall within its ambit and which are the proceedings for winding up of the industrial company or the proceedings for execution and distress against any of the properties of the industrial company or the proceedings for the appointment of a Receiver in respect of the properties of the industrial company. From the nature of the proceedings referred to in this Section, it is clear that only the proceedings which have the shape and effect of coercive nature would come within the ambit of Section 22(1) and for taking up such proceedings the permission of BIFR is required. By Act 12 of 1994, Section 22(1) was amended by insertion whereby a 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 advances granted to the industrial company would not be maintainable unless consent of BIFR is obtained. In Kailash Nath Agarwal and others v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. and another MANU/SC/0114/2003 : (2003) 4 SCC 305 : (AIR 2003 SC 1886), the question arose as to the scope of the protection afforded to the guarantors under Section 22(1) of SICA. The company was declared sick by BIFR in terms of Section 3(1)(o) of SICA. An operating agency was appointed under Section 17(3). While the proceedings before BIFR were pending, three separate notices of demand were served on the appellants as personal guarantors in respect of the loans granted to the company by the respondent Pradeshiya Industrial & Investment Corporation of U.P. Ltd. and it was said in the notices that the Corporation would take legal measures to recover its outstanding dues from each guarantor. It was contended by the guarantors that in view of Section 22(1) of SICA, the Corporation could not enforce its demand against the appellants under the permission of BIFR is obtained. This Court has drawn a distinction between the proceedings taken up under the U.P. Public Moneys (Recovery of Dues) Act, 1972 and a suit contemplated under Section 22 of SICA. This Court has held in Kailash Nath Agarwal (supra) that having regard to the judicial interpretation of the word 'suit', it is difficult to accede to the submission of the appellants that the word 'suit' in Section 22(1) of SICA means anything other than some form of curial process and the Court found it difficult to widen the scope of the word 'suit' so as to cover proceedings against the guarantor of an industrial company. By virtue of amendment to Section 22 of SICA, 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 advances granted to the industrial company, shall he and adjudication is prohibited of the liability of the industrial company or the guarantor. Section 22 further prohibits taking up of the proceedings of the nature which would be coercive for recovery of money against a sick undertaking. Proceeding in arbitration is neither a suit under 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."
7. In view of the foregoing, the first objection raised by the respondent regarding pendency of the proceeding under BIFR and registration under SICA is not tenable. In addition to the aforesaid, it is to be noted here that The Sick Industrial Companies (Special Provisions) Repeal Act, 2003 has been incorporated by Act No. 1 of 2004 which has been implemented w.e.f. today vide the Gazette of India Extraordinary, Ministry of Finance (Department of Financial Services) Notification New Delhi, the 25th November, 2016 of the Central Government. As per Section 5 under the saving clause nothing has been saved which runs contrary to the aforesaid legal position to which any benefit may be derived by the respondents.
8. In view of the foregoing, it is concluded that the first objection raised by the respondents is devoid of any merit, hence repelled. Another objection is with respect to not agreeing on the name for appointment of Hon'ble Mr. Justice P.D. Mule (Retd.). Therefore, it is apparent that respondent is not agreeing on the name of arbitrator proposed by the applicant. In view of the aforesaid, exercising the power as per Section 11 of the Arbitration and Conciliation Act, 1996, in the opinion of this Court, Hon'ble Mr. Justice A.M. Naik (Retd.) may be appointed as arbitrator to resolve the dispute on a fees as specified in the Schedule which shall be borne by both the parties equally. The Registry of this Court may take appropriate step seeking consent of the arbitrator and place the same on record. In view of the foregoing, this application is hereby allowed and Hon'ble Mr. Justice A.M. Naik (Retd.) is appointed as arbitrator. Registry shall take appropriate steps to take consent from the arbitrator appointed by this Court. In case, consent has not been given, the matter may be placed for further orders before the Bench for change of the name of arbitrator.
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