2001 (6) TMI 764 - HC - Companies Law

Summary

Issues Involved:
1. Validity of the arbitral award in light of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Applicability of Section 22 to execution proceedings against guarantors.
3. Grounds for setting aside an insolvency notice under Section 9(5) of the Presidency Towns Insolvency Act.

Detailed Analysis:

1. Validity of the Arbitral Award:
The applicant contended that the arbitral proceedings should not have continued due to the pending reference before the BIFR, invoking Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The arbitrator rejected this objection, holding that Section 22 does not bar arbitral proceedings. The applicant did not challenge the arbitrator's award under Section 34 of the Arbitration and Conciliation Act, 1996. Consequently, the award became final and enforceable as a decree. The court agreed with the arbitrator's decision, emphasizing that the applicant's failure to challenge the award in a timely manner disentitled him from raising this contention.

2. Applicability of Section 22 to Execution Proceedings Against Guarantors:
The applicant argued that Section 22 also barred execution proceedings against guarantors. The court, however, clarified that Section 22 provides protection to the industrial company against execution proceedings but extends protection to guarantors only in relation to suits. This interpretation was supported by several precedents, including the Delhi High Court's judgment in Lloyd Insulations (India) Ltd. v. Cement Corpn. of India Ltd. and the Division Bench of the Bombay High Court in Madalsa International Ltd. v. Central Bank of India. The court noted that the Supreme Court in Patheja Bros. Forgings & Stamping v. ICICI Ltd. did not disapprove of the Division Bench's interpretation regarding execution proceedings. Thus, the court held that execution proceedings against guarantors are not barred by Section 22.

3. Grounds for Setting Aside an Insolvency Notice:
Section 9(5) of the Presidency Towns Insolvency Act specifies the grounds for setting aside an insolvency notice, which do not include the invalidity of the underlying decree or award. The court can set aside an insolvency notice on other grounds under Section 91, but this is discretionary and reserved for cases where it is necessary in the interest of justice. The court found that the applicant's conduct-failing to challenge the award and only raising objections to delay payment-did not merit the exercise of this discretion. The court emphasized that interfering with the insolvency notice would not serve the interest of justice and would, in fact, defeat it.

Conclusion:
The court dismissed the notice of motion, upholding the validity of the insolvency notice based on the arbitral award. The applicant's objections, grounded in Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, were found to be without merit, and the court emphasized that execution proceedings against guarantors are not barred by Section 22. The applicant's failure to challenge the arbitral award in a timely manner and the lack of substantive grounds under Section 9(5) of the Presidency Towns Insolvency Act further supported the court's decision.