2000 (11) TMI 1133 - HC - Companies Law

Issues Involved:
1. Maintainability of the suit in view of the existence of an arbitration clause.
2. Territorial jurisdiction and the interpretation of Clause 18 of the Guarantee Bond.
3. Applicability of Section 8 of the Arbitration and Conciliation Act, 1996.
4. Simultaneous legal proceedings and multiplicity of actions.
5. Impact of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on the suit.
6. Interim relief and restraining orders.
7. Application for warrants of arrest and seizure of passport.

Detailed Analysis:

1. Maintainability of the Suit in View of the Existence of an Arbitration Clause:
The primary issue was whether the suit was maintainable given the arbitration clause in the agreements. The court noted that the plaintiff had already initiated arbitration proceedings against Defendant No. 4 (the company) and filed the present suit against the guarantors (Defendants 1 to 3) and the company. The court held that the suit was not maintainable due to the arbitration clause, emphasizing that the disputes between the plaintiff and Defendant No. 4 were already under arbitration. The court stated, "It is a well-established principle of law, admitting of no exceptions, that the simultaneous continuance of two independent legal proceedings on the same subject-matter must be assiduously avoided."

2. Territorial Jurisdiction and Interpretation of Clause 18 of the Guarantee Bond:
The plaintiff argued that Clause 18 of the Guarantee Bond, which subjected all legal proceedings to the jurisdiction of the High Court of Delhi, allowed them to file the suit. However, the court disagreed, stating that Clause 18 only confined territorial jurisdiction to Delhi and did not exclude the applicability of the arbitration clause. The court explained, "It would be reading far too much into clause 18 to construe it as indicating anything more than that the parties had agreed only to the jurisdiction of the High Court of Delhi."

3. Applicability of Section 8 of the Arbitration and Conciliation Act, 1996:
The court examined the differences between Section 8 of the Arbitration and Conciliation Act, 1996, and Section 34 of the Arbitration Act, 1940. It highlighted that under the 1996 Act, the referral to arbitration is mandatory if an arbitration agreement exists. The court stated, "The ambit of section 8 is clearly much wider than of section 34... There is a conscious shift from the Courts to the Arbitral Tribunals." The court concluded that Section 8 applied, and the parties should be referred to arbitration.

4. Simultaneous Legal Proceedings and Multiplicity of Actions:
The court emphasized avoiding multiple legal proceedings on the same subject matter to prevent conflicting decisions. It noted that the plaintiff's attempt to file a separate recovery suit against the guarantors was likely due to the registration of Defendant No. 4 as a sick industrial company by the BIFR. The court reiterated that "the simultaneous continuance of two independent legal proceedings on the same subject-matter must be assiduously avoided."

5. Impact of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on the Suit:
The court referred to the Supreme Court's decision in Patheja Bros. Forgings & Stamping v. I.C.I.C.I. Ltd., which held that Section 22 of SICA prohibits suits for enforcement of guarantees in respect of loans granted to sick companies unless consent is obtained. The court found the plaintiff's position indefensible without such consent. The court stated, "Apart from other considerations which have prevailed on me to hold that the suit is not maintainable, the observations contained in this case make the position of the plaintiff, wholly indefensible."

6. Interim Relief and Restraining Orders:
The court addressed an application under Order XXXIX, Rules 1 and 2, read with Section 151 of the Code of Civil Procedure, where interim restraining orders were already in place. The court allowed the interim orders to remain in force for three months, during which the plaintiff could seek protection from the arbitrator. The court stated, "The interim orders shall remain in force for a period of three months. In this period the plaintiff may seek this protection from the learned arbitrator."

7. Application for Warrants of Arrest and Seizure of Passport:
The court dismissed the application for warrants of arrest and seizure of the passport of Defendant No. 1, finding no sufficient cause for such measures. The court noted that the plaintiffs already had security in the form of immovable properties. The court stated, "I am not satisfied that sufficient cause has been shown as would justify the issuance of Warrants of Arrest against defendant No. 1 and/or directing the seizure of his passport."

Conclusion:
The court allowed the application under Section 8 of the Arbitration and Conciliation Act, 1996, referring the parties to the pending arbitration before Mr. Justice P.K. Bahri (Retd.). The suit was rendered infructuous and dismissed. The court also disposed of the interim relief application with directions for the plaintiff to seek protection from the arbitrator and dismissed the application for warrants of arrest and passport seizure.

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