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TMI Blog2006 (12) TMI 234X X X X Extracts X X X X X X X X Extracts X X X X ..... mpany which is before B.I.F.R. for a scheme of revival. X X X X Extracts X X X X X X X X Extracts X X X X ..... ld in M/s. Ambuja Cement Eastern Ltd. in pursuance of a public offer made by M/s. Holcim Cements India Pvt. Ltd. to purchase 5.92 per cent of the shares of M/s. Ambuja Cement Eastern Ltd. The respondent-company held 23,10,000 equity shares of the said company constituting about 1.02 per cent of its total share capital at Rs. 70 per share. In the said application a disclosure was made as regards the restraint order passed by the Allahabad High Court. The said application was dismissed by the Board by an order dated 4-6-2005, holding : "...The injunction orders against sale of company's assets from various Courts/Tribunals do not fall within the scheme of things envisaged under sections 22, 26, and 32. In fact, section 22A itself empowers the Board to give directions not to dispose of assets. We do appreciate the circumstances regarding the offer for ACEL shares but in view of the orders of the various Courts/Tribunals restraining the company from disposing of its assets including AAIFR's order dated 13-5-2005 to maintain status quo, the Board finds it difficult to agree to the proposal to sell the shares as prayed by MRL." 6. Questioning the legality of the said order, a writ peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measure so determined and for matters connected therewith or incidental thereto. 12. It contains special provision. The said Act was enacted for giving effect to the policy of the State for securing principles specified in Article 39 of the Constitution of India. 13. 'Sick industrial company' has been defined in section 2(o) to mean "an industrial company which has at the end of any financial year accumulated losses equal to or exceeding its entire net worth". 14. Chapter III of SICA provides for references, inquires and schemes. Section 15 empowers the Board of Directors of a company to make a reference to the Board for determination of the measures which shall be adopted with respect to the company. The Board on receipt of such an application may make an inquiry into the working of the sick industrial company in exercise of its power conferred under section 16 thereof, for deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e sick industrial company; or (b)suggesting a scheme for the financial reconstruction of the sick industrial company. (2) ******" 16. Section 20 provides for winding up of sick industrial company; sub-section (4) whereof reads as under : "(4) Notwithstanding anything contained in sub-section (2) or sub-section (3), the Board may cause to be sold the assets of the sick industrial company in such manner as it may deem fit and forward the sale proceeds to the High Court for orders for distribution in accordance with the provisions of section 529A, and other provisions of the Companies Act, 1956 (1 of 1956)." 17. Sub-sections (1) and (3) of section 22 which are relevant for our purpose read as under : "22. Suspension of legal proceedings, contracts, etc.--(1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under sections 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ept with the consent of the Board, any of its assets-- (a)during the period of preparation or consideration of the scheme under section 18; and (b)during the period beginning with the recording of opinion by the Board for winding up of the company under sub-section (1) of section 20 and up to commencement of the proceedings relating to the winding up before the concerned High Court." Section 32 provides for a non obstante clause. 20. The Board in exercise of its rule-making power made regulations, known as 'Board for Industrial and Financial Reconstruction Regulations, 1987'. Chapter IV to Chapter VIII thereof provide for various measures which are required to be taken by the Board during the inquiry or thereafter. 1996 Act 21. The 1996 Act was enacted to consolidate and amend the law relating to domestic, international and commercial arbitration and enforcement of the arbitral awards. 22. 1996 Act is in four parts. Part I provides for the matter relating to domestic arbitration; whereas Part II refers to enforcement of certain foreign awards. Part III provides for conciliation; whereas Part IV provides for supplementary provisions. We are concerned with the provisions conta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute that during the pendency of an inquiry before the Board, the respondent could sell its shares. It, however, could not, do so because of the restraint order passed against it. Was it, therefore, permissible for the High Court to direct sale of the shares despite refusal on the part of the Board so to do, is the question. The Board exercises statutory functions. It is a quasi-judicial authority. It exercises various powers under the Code of Civil Procedure. For the purpose of the 1996 Act it is a judicial authority. 27. A power to pass an interim order, however, and that too directing disposal of the assets must be found out in the scheme of the statute itself. Although the courts of limited jurisdiction may also possess by necessary implication incidental power so as to enable it to direct preservation of property during the pendency of a proceeding before it, it is doubtful whether such incidental power can be exercised for sale of the assets of the company. 28. When a reference is made before the Board, certain consequences ensue, the proceedings for the winding up of a company or for execution of distress or the like against the property of the company or for the appoint ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tanding orders or other instruments" in our considered view does not refer only to a contractual obligation which is binding on the company, but also liabilities thereunder. 33. The expression "award" has a distinct connotation. It envisages a binding decision of a judicial or a quasi-judicial authority. It may be an arbitral award. It may also be an award under section 10A of the Industrial Disputes Act, 1947, or one made by the Labour Court or an Industrial Tribunal. An award of a quasi-judicial or judicial authority may provide for a binding decision on the company. 34. Meaning of the term "award" in our opinion cannot be restricted to a contractual obligation inasmuch as by its very nature a third party intervention, for resolution of disputes between the parties where com- pany is a party, is envisaged. Even a 'settlement' arrived at by and between the parties thereto would be binding, inter alia, in terms of the provisions of section 18 of the Industrial Disputes Act, 1947. 35. Submission of Mr. Sundaram that sub-section (3) of section 22 would be attracted only in a case where a scheme has been made, in our opinion, does not stand a close scrutiny. Sub-section (3) of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the 1996 Act, which would depend on the meaning of the word "judicial authority" occurring therein. 44. However, sub-section (1) of section 22 would be attracted only when an award becomes a decree and, thus, enforceable in a court of law, albeit in the event a proceeding is initiated therefor. In this case, an objection to the award has been filed. It is, therefore, yet to become a decree. 45. While exercising its power under sub-section (3) of section 22, the Board cannot ignore an order passed by a superior court. It may be bound by the doctrine of judicial discipline. 46. Sub-section (1) of section 22 itself provides for a non obstante clause. It not only refers to the provisions of the Companies Act or the Memorandum or Articles of Association of an industrial company or any other instrument in force under the said Act, but also of other laws. 47. SICA furthermore was enacted to give effect to a larger public interest so as to secure the principles specified in Article 39 of the Constitution of India. Sub-section (1) of section 22 must be construed having regard to the aforementioned principles in mind. It seeks to restrain the Court from entertaining and/or proceeding w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consuming and inadequate machinery by efficient machinery for expeditious determination by a body of experts and, thus, to a limited extent making it entitled to safeguard the economy of the country and protect viable sick units, it, however, must act within the four-corners of the statute. The Board, however, while passing an interim order has to keep in mind not only the governing principles relating to grant of injunction as envisaged in Morgan Stanley Mutual Fund v. Kartick Das [1994] 4 SCC 2251, but also the principles of judicial amity or comity. [See 'A Treatise on the Law Governing Injunctions' by Spelling and Lewis' page 10 - See also Transmission Corpn. of A.P. Ltd. v. Lanco Kondapalli Power (P.) Ltd. [2006] 1 SCC 5402 , Ramdev Food Products (P.) Ltd. v. Arvindbhai Rambhai [2006] 8 SCALE 631 and M. Gurudas v. Rasaranjan [2006] 9 SCALE 275. Judicial Authority 51. The 1996 Act does not define the term 'Judicial Authority'. What is defined in section 2(e) thereof is 'Court'. In its ordinary parlance 'judicial authority' would comprehend a court defined under the Act but also courts which would either be a civil court or other authorities which perform judicial functions o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before it submits his first statement on the substance of the dispute. This last provision creates a right in the person bringing the action to have the dispute adjudicated by the court, once the other party has submitted his first statement of defence. But if the party, who wants the matter to be referred to arbitration applies to the court after submission of his statement and the party who has brought the action does not object, as is the case before us, there is no bar on the court referring the parties to arbitration." (p. 542) 55. In Fair Air Engineers (P.) Ltd. v. N.K. Modi [1996] 6 SCC 385, it was held that the District Forum, National Commission and the State Commission under the Consumer Protection Act are included in the term 'judicial authority' for the purpose of section 34 of the Arbitration Act, 1940. 56. In Canara Bank v. Nuclear Power Corpn. of India Ltd. [1995] 4 SCL 42 (SC), it was held : "8. Sub-section (1) of section 9A empowers the Special Court to exercise the jurisdiction, powers and authority exercisable by a civil court. It so empowers the Special Court in relation to any matter or claim, inter alia, that arises out of transactions in securities entere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority within the meaning of section 5 of the Act. Non-obstante Clause 59. Both the Acts contain non-obstante clauses. Ordinary rule of construction is that where there are two non-obstante clauses, the latter shall prevail. But it is equally well-settled that ultimate conclusion would depend upon the limited context of the statute (See Allahabad Bank v. Canara Bank [2000] 4 SCC 406). 60. In Maruti Udyog Ltd. v. Ram Lal [2005] 2 SCC 638, it was observed : "39. The interpretation of section 25J of the 1947 Act as propounded by Mr. Das also cannot also be accepted inasmuch as in terms thereof only the provisions of the said chapter shall have effect notwithstanding anything inconsistent therewith contained in any other law including the Standing Orders made under the Industrial Employment (Standing Orders) Act, but it will have no application in a case where something different is envisaged in terms of the statutory scheme. A beneficial statute, as is well known, may receive liberal construction but the same cannot be extended beyond the statutory scheme...." (p. 653) 61. In Shri Sarwan Singh v. Shri Kasturi Lal [1977] 1 SCC 750, this Court opined : "...When two or more laws op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anies Act as the recommendations therefor are made by BIFR or AAIFR, as the case may be, and, thus, the date on which such recommendations are made, the Company Judge applies its mind to initiate a proceeding relying on or on the basis thereof, the proceeding for winding up would be deemed to have been started; but there cannot be any doubt whatsoever that having regard to the phraseology used in section 20 of SICA that BIFR is the authority proprio vigore which continues to remain as custodian of the assets of the Company till a winding-up order is passed by the High Court." (p. 236) 64. In ICICI Bank Ltd. v. SIDCO Leathers Ltd. [2006] 67 SCL 383 (SC) the law is stated in the following terms : "The non obstante nature of a provision although may be of wide amplitude, the interpretative process thereof must be kept confined to the legislative policy. Only because the dues of the workmen and the debt due to the secured creditors are treated pari passu with each other, the same by itself, in our considered view, would not lead to the conclusion that the concept of inter se priorities amongst the secured creditors had thereby been intended to be given a total go-by. A non obstante ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... higher goal and, thus, the provisions of SICA would be applicable, despite section 5 of the 1996 Act. 69. In Kailash Nath Agarwal v. Pradeshiya Industrial & Investment Corpn. of U.P. Ltd. [2003] 4 SCC 305, it was held : "...The object for enacting SICA and for introducing the 1994 Amendment was to facilitate the rehabilitation or the winding up of sick industrial companies. It is not the stated object of the Act to protect any other person or body...." (p. 315) 70. In Burn Standard Co. Ltd. v. McDermott International Inc. disposed of on 11-6-1997, a Division Bench of the Calcutta High Court opined that the arbitration proceedings may continue during the pendency of an inquiry pursuant to a reference made under SICA. 71. Yet again in Saurabh Kalani v. Tata Finance Ltd. [2003] 3 Arb. LR 345 (Bom.), the Bombay High Court took the same view. Conclusion 72. In this case, the shares have been sold. The sale proceeds have been deposited before the Board. It is, thus, futile to interfere with the impugned order at this stage. However, we thought it necessary to lay down the law for future guidance of the Board while deciding a similar case. 73. For the reasons aforementioned, we do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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