2016 (8) TMI 1597 - HC - Indian Laws

Money Suit - Jurisdictional objection of the respondent under Section 16 of Arbitration and Conciliation Act, 1996, was upheld - arbitral proceedings were suspended on the ground that the same are hit by Section 22(1) of the Sick Industrial Companies Act, 1985 - HELD THAT - From the entire gamut of the present case, it appears to the Court that the PATHEJA BROS. FORGINGS STAMPING VERSUS ICICI. LTD. 2000 (7) TMI 852 - SUPREME COURT case has been rightly interpreted by the Division Bench of this Court in OM PRAKASH PARASRAMPURIA AND ORS VERSUS UNION OF INDIA AND ORS 2016 (3) TMI 1476 - DELHI HIGH COURT to hold that the judgment of the Supreme Court in Paramjit Singh Patheja's case cannot be interpreted to conclude that each and every kind of action is contemplated to be included in the term 'suit' because the Supreme Court was dealing with a specific issue i.e. whether an award was a decree or an order within the meaning of Section 9(2) of the Insolvency Act. Admittedly, in the present case, the parties are at a pre-award stage. Let alone a confirmed decree, even an arbitral award has not come into existence. The appellant is an unsecured creditor who has no charge on the assets. The continuance of proceedings do not entail any likelihood of distress or execution against the assets of the sick company, at this stage, thereby resulting in any interference with the BIFR scheme - In the present case, however, the institution of the arbitral proceedings required no prior permission of BIFR as at that stage no reference was pending. The Arbitral proceedings are thus not vitiated by any inherent lack of jurisdiction of the vice of coram non judice. With regard to the continuance of the proceedings in the present case, the same is to be governed by the law laid down in the Larger Bench judgment of Raheja Universal Ltd. 2012 (10) TMI 233 - SUPREME COURT , which prescribes the additional requirement of interfering with the formulation, consideration, finalisation or implementation of the scheme. The pre-arbitration proceedings were not covered by Section 22(1) of SICA and such proceedings cannot be treated as a suit. The award which is yet to attain finality cannot be called as decree. The plea of Section 22(1) of SICA can only be raised in arbitration matters once the award becomes a decree and the same could only be raised at the stage of enforcement of a decree. Appeal allowed.

Summary

Issues Involved:
1. Whether the arbitration proceedings are covered under the "money suit" and would fall within the meaning of the second part of Section 22(1) of SICA?
2. Whether the order for suspension of arbitration proceedings is valid when the award is yet to be published?
3. At which stage can an award be treated as a decree?
4. Whether the issue of SICA is entertainable in pending arbitration proceedings (i.e., pre-award stage) or only at the stage of enforcement of the award (once it becomes a decree)?

Issue-wise Detailed Analysis:

1. Coverage of Arbitration Proceedings under "Money Suit" and Section 22(1) of SICA:
The appellant argued that the arbitration proceedings are not covered under Section 22(1) of SICA, which suspends legal proceedings against the properties of a sick industrial company without BIFR’s consent. The respondent contended that the proceedings are in the nature of a "money suit" and fall under Section 22(1) of SICA, as they involve claims for recovery of money. The court examined precedents, including Kotak Mahendra Finance Ltd. v. Deve Paints Ltd. and National Small Industries Corporation Ltd. v. ADL International Ltd., and concluded that Section 22(1) does not apply to properties not owned by the sick company.

2. Validity of Suspension Order for Arbitration Proceedings:
The court scrutinized the Arbitral Tribunal's decision to suspend proceedings based on the respondent's registration with BIFR under SICA. The Tribunal relied on Paramjeet Singh Patheja v. ICDS Ltd., which held that "suit" in Section 22(1) includes arbitral proceedings. However, the court distinguished this case by emphasizing that the pre-award stage of arbitration does not fall under the scope of Section 22(1). The court also referred to Morgan Securities & Credit (P) Ltd. v. Modi Rubber Ltd., which clarified that Section 22(1) is applicable only when an award becomes a decree.

3. Stage at Which an Award Becomes a Decree:
The court reiterated that an arbitral award becomes a decree only when it is enforceable in a court of law, as per Morgan Securities & Credit (P) Ltd. v. Modi Rubber Ltd.. Therefore, the bar under Section 22(1) of SICA would only be relevant at the stage of enforcement of the award, not during the arbitration proceedings.

4. Entertainability of SICA Issues in Pre-award Arbitration Proceedings:
The court held that the issue of SICA is not entertainable at the pre-award stage of arbitration proceedings. It emphasized that the arbitration proceedings to determine liability do not interfere with the formulation or implementation of a scheme under BIFR. The court cited San-A Tradubg Co. Ltd. v. I.C. Textiles Ltd., which held that arbitration proceedings are not barred by Section 22(1) of SICA.

Judgments Delivered:
The court allowed the appeals (Arb.A. No. 41/2015 and Arb.A. No. 42/2015), setting aside the impugned order dated 20th June 2015, and held that the pre-arbitration proceedings are not covered by Section 22(1) of SICA. The court disposed of Arb.A. No. 43/2015, directing the Arbitral Tribunal to decide the application under Section 17 of the Act on merit after hearing both parties.