2003 (4) TMI 489 - HC - Companies Law

Summary

Issues: Interpretation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1993 regarding the suspension of legal proceedings during the rehabilitation process.

In this judgment by the High Court of Andhra Pradesh, the main issue revolved around the interpretation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1993 (SICA) concerning the suspension of legal proceedings during the rehabilitation process of a sick industrial unit. The case involved a writ petition filed by a company declared as a sick industrial unit under SICA, challenging the appointment of an arbitrator by another party due to a contractual dispute. The key contention was whether the arbitration proceedings could proceed while the company was under rehabilitation by the Board for Industrial and Financial Reconstruction (BIFR) as per SICA.

The court analyzed section 22 of SICA, which prohibits the initiation or continuation of legal proceedings for winding up, execution, distress, or appointment of a receiver against a sick industrial company during certain stages of the rehabilitation process without the consent of BIFR. The provision aims to protect the interests of the company and facilitate its revival by suspending certain legal actions that may adversely affect the rehabilitation efforts. The court considered the specific language of section 22 and its implications on different types of legal proceedings, including arbitration proceedings, in the context of the company's rehabilitation status.

Referring to relevant legal precedents, the court highlighted the distinction between "proceedings" and "suit" under SICA, emphasizing that the term "suit" in section 22 does not encompass all forms of legal actions but is limited to specific modes for the recovery of money or enforcement of guarantees. The court also cited a Division Bench judgment that clarified the scope of section 22, stating that arbitration proceedings do not fall under the category of "suits for recovery of money" and therefore are not automatically stayed during the rehabilitation process of a sick industrial company.

Based on the interpretation of the law and precedents, the court concluded that the arbitration proceedings initiated by the appellant could proceed despite the company's rehabilitation status under SICA. The court set aside the previous order that restrained the arbitration process and dismissed the writ petition, allowing the appellant to continue with the arbitration proceedings. However, the court clarified that any award issued by the arbitrator would be subject to review by BIFR for appropriate relief under section 22(3) of SICA, ensuring the protection of the company's interests during the rehabilitation phase.

In summary, the judgment provided a detailed analysis of the legal provisions under SICA, particularly section 22, and clarified the scope of suspension of legal proceedings during the rehabilitation of sick industrial companies. The court's decision upheld the right of the appellant to pursue arbitration proceedings while safeguarding the company's interests through regulatory oversight by BIFR.