2001 (5) TMI 880 - HC - Companies Law

Summary

Issues:
Execution of arbitral award against guarantors under the Sick Industrial Companies (Special Provisions) Act, 1985 - Interpretation of Section 22 - Legality of arbitration proceedings without specific clause in guarantee deed.

Analysis:

Issue 1: Execution of arbitral award against guarantors under the Sick Industrial Companies (Special Provisions) Act, 1985
The case involved a petition for raising the attachment of a property belonging to a guarantor of a company, which was under the purview of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The guarantors had guaranteed the lease rental amounts of the company. The arbitrator had passed an award against all respondents, including the guarantors, but had directed that the award would not be enforced against the company until it came out of the purview of the SICA. The key question was whether the guarantors were protected under Section 22 of the SICA, which suspends legal proceedings against industrial companies. The court analyzed relevant case law and determined that the guarantors were indeed protected under Section 22, and no execution proceeding could be initiated against them based on the arbitral award.

Issue 2: Interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985
The court delved into the interpretation of Section 22 of the SICA, which suspends legal proceedings against industrial companies under certain circumstances. The court referred to case law, including a Full Bench decision of the Supreme Court, to establish that the provision not only covers industrial companies but also extends to guarantees provided to such companies. The court emphasized that when the legislative language is clear, it must be given effect without speculation on the intent of the legislature. In this case, the court concluded that the guarantors were protected under Section 22, and hence, no execution proceeding could be pursued against them.

Issue 3: Legality of arbitration proceedings without specific clause in guarantee deed
Another aspect of the case involved the legality of the arbitration proceedings concerning the guarantors, as there was no specific clause in the guarantee deed regarding arbitration. The respondents argued that the arbitration was a nullity due to this absence. However, the court focused on the immediate issue of whether the execution proceeding based on the arbitral award was maintainable. The court opined that the guarantors, being related to the industrial unit, were protected under Section 22 of the SICA, and therefore, no execution proceeding could be pursued against them. The court directed the attachment of the property of one of the guarantors to be lifted, keeping the issue of the award's legality open for further adjudication.

In conclusion, the court allowed the chamber summons, stating that the attachment against the guarantor's property was illegal due to the protection granted under Section 22 of the SICA. The court rejected the prayer for a stay of the order, leaving all other contentions open for future consideration.