2001 (7) TMI 1231 - HC - Companies Law

Summary

Issues:
1. Whether the proceedings in the OMP under section 9 of the Arbitration and Conciliation Act, 1996 should be stayed due to the registration of a reference before the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Interpretation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 regarding the enforcement of bank guarantees in relation to industrial companies under the Act.

Issue 1:
The petitioner sought an injunction against the encashment of a bank guarantee after rejecting a Firm Purchase Order (FPO) due to alleged fraud by the respondent. The respondent invoked the bank guarantee, leading to the OMP under section 9 of the Arbitration and Conciliation Act, 1996. The petitioner, a sick industrial company, filed an application before the BIFR for revival, leading to the question of whether the OMP proceedings should be stayed. The respondent argued that the OMP does not qualify as a 'suit' under section 22 of the SICA, citing relevant judgments. The petitioner contended that the spirit of section 22 requires BIFR's permission for bank guarantee enforcement. The court differentiated this case from precedent where proceedings involved guarantors, emphasizing that the OMP is an interim application related to arbitration proceedings and not a 'suit'. The court dismissed the application, stating that the petitioner is protected by SICA once a reference is registered, preventing bank guarantee encashment without BIFR's permission.

Issue 2:
The interpretation of section 22 of the SICA was crucial in determining the applicability of the provision to the enforcement of bank guarantees. The court analyzed relevant judgments, including the Supreme Court's decision in Patheja Bros. Forgings & Stamping v. ICICI Ltd., emphasizing that no suit for guarantee enforcement against an industrial company can proceed without BIFR's consent. The court highlighted the protection available to the petitioner under SICA once a reference is registered, ensuring bank guarantee security. By dismissing the application, the court upheld the legislative intent of SICA, preventing abuse of injunctions without merit decisions and ensuring BIFR's oversight in industrial company matters.