2004 (4) TMI 316 - HC - Companies Law

Summary

Issues Involved:
1. Arbitrability of the dispute under clause 15 of the contract.
2. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) to the arbitration proceedings.
3. Award of interest for the pre-reference period.
4. Conflict of the arbitral award with public policy.

Issue-wise Detailed Analysis:

1. Arbitrability of the Dispute:
The dispute arose regarding the unpaid price of bamboo transportation. The contractor claimed Rs. 6,12,902.25 with interest, while Nepa Limited denied the claim, arguing that the arbitration clause was not applicable as the transportation was completed. The arbitrator found that clause 15 of the agreement, which provided for arbitration, was still applicable even after the completion of the work. The court upheld this finding, stating that the dispute was indeed arbitrable under clause 15 of the contract.

2. Applicability of Section 22 of SICA:
Nepa Limited argued that the arbitration proceedings were barred under Section 22 of SICA, as the company was declared a sick industry and proceedings were pending before the BIFR. Section 22 suspends legal proceedings for recovery of money or enforcement of security against a sick industrial company without the consent of the BIFR. However, the court held that Section 22 did not apply to the recovery of transportation charges, as these were essential for running the factory. The court emphasized that the object of SICA is to facilitate rehabilitation, not to obstruct the functioning of the industrial undertaking. The court cited several precedents, including Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association and Rishabh Agro Industries Ltd. v. P.N.B. Capital Services Ltd., to support its conclusion that Section 22 did not bar the arbitration proceedings in this case.

3. Award of Interest for Pre-reference Period:
The arbitrator awarded interest @ 6% per annum from 1-1-1997 till the making of the award. The court found that the award of interest for the pre-reference period was just and proper. The contractor was not entitled to the benefit of the Interest Act, 1978, but was entitled to interest under Section 34 of the Code of Civil Procedure for the pre-reference period. The court upheld the arbitrator's decision on this matter.

4. Conflict of the Arbitral Award with Public Policy:
Nepa Limited contended that the arbitral award was in conflict with public policy and that the dispute was not capable of settlement by arbitration. The court rejected this contention, finding that the award was neither in conflict with public policy nor was the subject matter incapable of arbitration. The court emphasized that the object of SICA is to facilitate rehabilitation or winding up of sick industrial companies, and an interpretation that jeopardizes rehabilitation cannot be adopted.

Conclusion:
The court dismissed the appeals, upholding the arbitral award and finding no merit in the arguments presented by Nepa Limited. The court concluded that Section 22 of SICA did not bar the arbitration proceedings, the award of interest for the pre-reference period was proper, and the arbitral award was not in conflict with public policy. The appeals were dismissed, and parties were ordered to bear their own costs.