# [2006] Supp. 10 S.C.R. 1022

- **Citation:** [2006] Supp. 10 S.C.R. 1022
- **Court:** Supreme Court of India
- **Decided:** 2006
- **Case number:** Civil Appeal No. 2572 of2006
- **Bench:** S.B. Sinha, P.K. Balasubramany An
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/2006-supp-10-s-c-r-1022-21179
- **Pages:** 28

## Headnote

Company Law:
Sick Industrial Companies (Special Provisions) Act, 1985: Section
c 22(3).
Suspension of legal proceedings, contracts etc.-Arbitration and
Conciliation Act and SICA-Interrelation between-Predominance of the
former over the latter-Inter Corpora/e Deposit-Default in paymenl of-An
D arbi1ra1ion a\rard was made in favour of a creditor for a certain sum- The
credilor also filed an applicalion before !he High Court for ll'inding up of'
!he deb1or-co111pany. irhich was allowed- The High Courl res/ruined the
debtor-company from dealing wilh ils assets ll'ilhout 1he permission of the
Court-The debtor-company made a reference under S. 15 of SICA to the
Board for Industrial and Financial Reconslruction-The Division Bench of
E the High Court set aside the order of winding up and directed to keep the
winding up proceedings in abeyance till the disposal of the appeal under
SICA-The debtor-company filed an application before the Board under S.
19-A read with S. 22(3) of SICA for permission to dispose of its shares, which
was dismissed-A writ petition filed against the aforesaid order before another
F
High Court was allowed-Pursuant lo or in furtherance of the said judgment
of' that High Court, the shares had been sold and the sale proceeds had been
deposited with the Board-Validity of-Held: During the pendency of an
inquil)' before the Board. the debtor-company could sell its shares -It, however,
could not do so because of' the restraint order passed against it-It was,
therefore. 11ot p£rmissible for the High Court to direct sale of the shares
G despite ref'uscil 011 the part of the Board to do so-The Board has the power
to suspend the operation of an award if any occasion arises thereforArbitralion and Conciliation Act, 1996, Ss. 5 & 36.
The appellant advanced a certain sum by way of an Inter Corporate
Deposit to the respondent-company. The respondent-company defaulted in the
fl
1022
MORGAN SECURITIES AND CREDIT PVT. LTD.'" MODI RUBBER LTD.
1023
payment thereof. An arbitration award was made in favour of the appellant for A
a certain sum under the Arbitration and Conciliation Act, 1996. The appellant
also filed an application before the High Court for winding up of the
respondent-company, which was allowed. The High Court restrained the
respondent-company from dealing with its assets without the permission of
the Court. The respondent, in the meanwhile, made a reference under Section
15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) B
to the Board for Industrial and Financial Reconstruction (Board).
An appeal against the order of winding up was preferred by the
respondent before the Division Bench of the High Court The Court set aside
the order of winding up and directed to keep the winding up proceedings in C
abeyance till the disposal of the appeal under SICA. The respondent filed an
application before the Board under Section 19-A read with Section 22(3) of
SICA for permission to dispose of its shares, which was dismissed.
A writ petition filed against the aforesaid order before another High
Court was allowed. Pursuant to or in furtherance of the said judgment of that D
High Court, the shares had been sold and the sale proceeds had been deposited
with the Board. Hence the appeal.
The followirg question arose before the Court:-
Whether the provisions of the Arbitration and Conciliation Act, 1996 E
would prevail over the provisions of the Skk Industrial Companies (Special
Provisions) Act, 1985?
Dismissing the appeals, the Court
HELD: (Per Sinha, J.) 1. The Arbitration and Conciliation Act, 1996 is F
a complete Code by itself. It lays down the machinery for making an arbitral
award enforceable. In terms of section 36 of the 1996 Act, an award becomes
enforceable as if it were a decree where the time for making the application
for setting it aside under Section 34 has expired, for such application having
been made, has been refused. (1036-F]
McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 6

## Text

_Characters 0–39,991 of 65,869. This is a partial read: ask again with offset=39991 for what follows._

A
MORGAN SECURITIES AND CREDIT PVT.LTD.
\·:
MODI RUBBER LTD.
DECEMBER 14. 2006
B
[S.B. SINHA AND P.K. BALASUBRAMANY AN, JJ.]
Company Law:
Sick Industrial Companies (Special Provisions) Act, 1985: Section
c 22(3).
Suspension of legal proceedings, contracts etc.-Arbitration and
Conciliation Act and SICA-Interrelation between-Predominance of the
former over the latter-Inter Corpora/e Deposit-Default in paymenl of-An
D arbi1ra1ion a\rard was made in favour of a creditor for a certain sum- The
credilor also filed an applicalion before !he High Court for ll'inding up of'
!he deb1or-co111pany. irhich was allowed- The High Courl res/ruined the
debtor-company from dealing wilh ils assets ll'ilhout 1he permission of the
Court-The debtor-company made a reference under S. 15 of SICA to the
Board for Industrial and Financial Reconslruction-The Division Bench of
E the High Court set aside the order of winding up and directed to keep the
winding up proceedings in abeyance till the disposal of the appeal under
SICA-The debtor-company filed an application before the Board under S.
19-A read with S. 22(3) of SICA for permission to dispose of its shares, which
was dismissed-A writ petition filed against the aforesaid order before another
F
High Court was allowed-Pursuant lo or in furtherance of the said judgment
of' that High Court, the shares had been sold and the sale proceeds had been
deposited with the Board-Validity of-Held: During the pendency of an
inquil)' before the Board. the debtor-company could sell its shares -It, however,
could not do so because of' the restraint order passed against it-It was,
therefore. 11ot p£rmissible for the High Court to direct sale of the shares
G despite ref'uscil 011 the part of the Board to do so-The Board has the power
to suspend the operation of an award if any occasion arises thereforArbitralion and Conciliation Act, 1996, Ss. 5 & 36.
The appellant advanced a certain sum by way of an Inter Corporate
Deposit to the respondent-company. The respondent-company defaulted in the
fl
1022
MORGAN SECURITIES AND CREDIT PVT. LTD.'" MODI RUBBER LTD.
1023
payment thereof. An arbitration award was made in favour of the appellant for A
a certain sum under the Arbitration and Conciliation Act, 1996. The appellant
also filed an application before the High Court for winding up of the
respondent-company, which was allowed. The High Court restrained the
respondent-company from dealing with its assets without the permission of
the Court. The respondent, in the meanwhile, made a reference under Section
15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) B
to the Board for Industrial and Financial Reconstruction (Board).
An appeal against the order of winding up was preferred by the
respondent before the Division Bench of the High Court The Court set aside
the order of winding up and directed to keep the winding up proceedings in C
abeyance till the disposal of the appeal under SICA. The respondent filed an
application before the Board under Section 19-A read with Section 22(3) of
SICA for permission to dispose of its shares, which was dismissed.
A writ petition filed against the aforesaid order before another High
Court was allowed. Pursuant to or in furtherance of the said judgment of that D
High Court, the shares had been sold and the sale proceeds had been deposited
with the Board. Hence the appeal.
The followirg question arose before the Court:-
Whether the provisions of the Arbitration and Conciliation Act, 1996 E
would prevail over the provisions of the Skk Industrial Companies (Special
Provisions) Act, 1985?
Dismissing the appeals, the Court
HELD: (Per Sinha, J.) 1. The Arbitration and Conciliation Act, 1996 is F
a complete Code by itself. It lays down the machinery for making an arbitral
award enforceable. In terms of section 36 of the 1996 Act, an award becomes
enforceable as if it were a decree where the time for making the application
for setting it aside under Section 34 has expired, for such application having
been made, has been refused. (1036-F]
McDermott International Inc. v. Burn Standard Co. Ltd., (2006) 6
SCALE 220, referred to.
2. It is not in dispute that during the pendency of an inquiry before the
Board for Industrial and Financial Reconstruction (Board), the respondent
G
H
1024
SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.
A could sell its shares. It, however, could not do so because of the restraint order
passed against it It was, therefore, not permissible for the High Court to direct
sale of the shares despite refusal on the part of the Board to do so. 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. (1036-G-H; 1037-AJ
B
3. A power to pass an interim order, however, and that to 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 ~s to enable it to direct preservation of property
C 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.
[1037-B]
4. When a reference is made before the Board, certain consequences
ensue. The proceedings for the winding up of a company or for execution of
D distress or the like against the property of the company or for the appointment
of a receiver would not continue Even, no suit for recovery of money or for
the enforcement of any security or of any guarantee shall lie or be proceeded
with further, save and except with the consent of the Board or the appellate
authority. [1037-CJ
E
F
5. Section 22-A of the Sick Industrial Companies (Special Provisions)
Act, 1985 (SICA), however, permits the Board to pass certain conditional
orders. Upon receipt of a reference, the Board has no other option but to make
an inquiry; of course, therefor the reference is tO be registered, upon scrutiny
thereof. The imperative character of an inquiry at the hands of the B~ard is
inherent in the scheme of the Act. The legislative intention therefor is clear ·
and explicit The consequences flowing from registration of a reference
necessarily would mean initiation of an inquiry which would include
investigation into facts, causes and effects thereof. [1037-D-G I
6. Section 19-A of SICA as inserted in the year 1994, although may be
G held to be clarificatory in nature, however, confers a special power to pass an
order envisaged thereunder. Section 19-A does not empower the Board to direct
sale of the assets at the stage of enquiry. Section 22(1) and 22(3) again would,
however, be applicable where an inquiry under Section 16 is pending. Whereas
under Section 22(1) no specific order is required to be passed by the Board;
it is necessary, in respect of the matters enumerated under Section 229(1)
H thereof. [1037-H; 1038-A-B]
MORGAN SECURITIES AND CREDIT PVT.LTD.''- MODI RUBBER LTD.
} 025
7. Although for the aforementioned purpose, it may not be imperative A .
that such an order be passed only in terms of 2 scheme but it is true that an
application of mind on the part of the Board in relation thereto is necessary.
8.1. It is difficult to accept the submission of the appellant that Section
22(3) of SICA deals only with the contractual obligations. The expression
"award", standing orders or other instrument" does not refer only to B
contractual obligations which are bindings on the company, but also liabilities
thereunder. [1038-C)
8.2. 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 C
award. It may also be an award under Section 10-A of the Industrial Disputes
Act, 1947, or one made by the Labour Court or an Industrial Tribunal. An
award of a quasi judicial authority may provide for a binding decision on the
company. (1038-D-E)
9.1. An award is, thus, to be treated to be a decree even without D
intervention of the court only for the purpose of its enforceability. (1039-E)
9.2. An order can be passed by the Board for suspending the operation
of the award if any occasion arises therefor. [l 039-F)
Rishabh Agro Industries Ltd v. P.N.B. Capital Services ltd, [2000) 5 E
sec 514, referred to.
10. However, Section 22(1) 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. (1039-H; 1040-A)
F
11. When an order is passed by the Board in exercise of its jurisdiction
under Section 22(3) directing the parties not to continue the proceeding, an
award or decree is not set aside thereby. They are merely kept in abeyance so
as to enable the Board to pass an appropriate order, inter alia, for revival of
a sick company for the purpose of giving effect other purport and object for G
which the laws relating to corporate insolvency have been enacted.
(1041-A-B)
MorganStanley Mutual Fundv. Kartick Das, (1994) 4 SCC 225, Mis.
Transmission Corporation of A.P. Ltd v. Mis. Lanco Kondapalli Power ltd.,
(2006) 1SCC540, Ramdev Food Products Pvt. ltd v. Arvindbhai Rambhai, H
1026
SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.
A (2006) 8 SCALE 63 and M Gurudas v. Rasaranjan, (2006) 9 SCALE 275,
referred to.
Spelling and Lewis: "A Treatise on the Law Governing lnjuctions" p.
10, referred to.
B
12. The expression 'judicial authority' must be interpreted having
regard to the purport and object for which tbe 1996 Act was enacted. Judging
the contention of the Board and having regard to the width of its jurisdiction,
the Board is a judicial authority within the meaning of Section 5 of the Act.
[1044-D]
C
Fair Air Engineers Pvt. Ltd. v. N.K. Modi, (1996) SCC 385 and Canara
Bank. v. Nuclear Power C01poration of India Ltd., [1995) Supp. 3 SCC 81,
relied on.
SBP & Co. v. Patel Engineering Ltd., [2005) 8 SCC 618, Konkan
Railway Corporation Ltd. v. Mehul Construction Co. (2000) 7 SCC 201,
D Konkan Railway Corporation v. Rani Construction Pvt. Ltd., [2002) 2 SCC
388, Management Committee of Montfort Senior Secondary School v. Vijay
Kumar, (2005) 7 SCC 472, P. Anand Gjapati Raju v. P. V.G. Raju, (2000] 4
SCC 539 and The Bharat Bank Ltd. v. Employees of the Bharat Bank Ltd.,
[1950) SCR 459, referred to.
E
3. Both the 1996 and the SICA 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. (1044-E]
p
Allahabad Bank v. Canara Bank, [2000) 4 SCC 406 and Maruti Udyog
Ltd. v. Ram Lal, (2005) 2 SCC 638, relied on.
Shri Sarwan Singh v. Shri Kasturi Lal, (1977) 1 SCC 750 and NGEF
Ltd. v. Chandra Developers, (P) Ltd., (2005) 8 SCC 219, referred to.
G
14.l. Section 5 of the 1996 Act also provides for a non-obstante clause.
It has, however, a limited application aiming at the ·extent of judicial
intervention. Its application would be attracted only when an order under
Section 22(3) is required to be passed. If the said provision is to be given
effect to, the Board would not intervene in the matter of the implementation
of the award. It would merely suspend the operation of it It may even pass an
H order suspending the liabilities or obligations of the industrial company under
MORGAN SECURITIES AND CREDIT PVT. LTD. '" MODI RUBBER LTD.
} 02 7
the award. Even otherwise in the fact of the present case it stands suspended. A
(1046-F-G)
14.2. The Board, however, has not passed an order under Section 22(3)
of SICA. The court, therefore, must proceed with the objection filed by the
respondent under Section 34 of the 1996 Act. However, if the objection filed
by the respondent is rejected, the question of its enforceability would come B
into being. Once the arbitral award having the force of a decree is put into
execution, Section 22(1) of SICA would come on its way from being enforced.
The appellant's contention that having regard to the provisions of Section 5
of the 1996 Act, the Board would have no Jurisdiction, therefore, does not
seem to have any force. (1046-H; 1047-A-B)
15. Section 22(3) of SICA provides for a specific power in the Board. c
The said provision contemplates a larger public interest. In the event an
arbitral award is held to be outside the purview of Section 22(3) thereof, it
may be difficult to frame a scheme or in a given case implement the same
under SICA. SICA provides for a time-frame for all the stages for the
proceedings. Proviso appended thereto assumes significance in this behalf. D
(1047-CI
16. The Parliament presumed that the suspension of an award shall not
be for a long period. In a given case, a party to an award may face some
hardships owing to its suspension; but in such an event, it would always be
open to it to bring the same to the notice of the Board. The Board under Section E
22(3) of SICA may pass such an order or may not do so. If an order is passed
by the Board, an appeal lies there against. The provisions of SICA, it will
bear repetition to state, have been made to seek to achieve a higher goal and,
thus, the provision of SICA would be applicable, despite Section 5 of the 1996
Act [1047-D-E)
Kai/ash Nath Agarwal v. Pradeshiya Industrial & Investment
Corporation of U.P. Ltd, (2003) 4 SCC 305 and Burn Standard Co. Ltd v.
McDermott International Inc. (decided by Calcutta High Court on
11.06.1997, referred to.
F
Saurabh Kalani v. Tata Engineering Ltd, (2003) 3 Arb. LR 345 (Bom), G
approved.
(Per Balasubramanyan, J. (concurring):
1. While purporting to exercise jurisdiction in a writ petition
challenging an order of the Board for Industrial and Financial Reconstruction H
1028
SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.
A (B.F.l.R.) which was approached by the respondent, the Division Bench of the
High Court has chosen to brush aside the valid orders passed by the Company
Court in Allahabad, the order to maintain status quo passed by the Appellate
Authority for Industrial and Financial Reconstruction (A.A.I.F.R.) and by
various Debts Recovery Tribunals and has permitted the asset of the
B respondent to be sold as proposed by the respondent It must be noted that the
orders were made by the competent tribunals or court and that those orders
were binding ori the respondent, the writ petitioner in the High Court. If on
its understanding of Section 22(3) of the Sick Industrial Companies (Special
Provisions) Act, 1985 (SICA), the High Court was of the view that the orders
of restraint did not bar the BIFR from considering the prayer of the respondent,
C there was still the order of AAIFR to maintain status quo regarding the assets
of the respondent-Company. Surely, that was an order under SICA. No reason
is given by the High Court to hold that the order of AAIFR is also not b~nding
on BIFR or that BIFR ~ould not ignore it. The High Court should have dealt
with the question properly with reference to the nature of the relevant orders
and the context in which they were made and if it was still of the view that the
D power vested in BIFR under Section 22(3) of SICA enabled it to override all
those orders, it should have normally remitted the application made by the
respondent to BIFR so as to enable it to take a decision on the prayer of the
respondent in the context of the proceedings pending before BIFR and all
elements relevant for the purpose of such a decision. The High Court has
E also not considered how far it will be appropriate to permit the sale of the
assets of a Company which is before the BIFR for a scheme of revival.
2. Occasions are not infrequent when not so scrupulous debtors
approach BIFR to stall the proceedings and to keep their creditors at bay.
The delay before the BIFR is sought to be taken advantage of. The
F Parliament has apparently taken note of this and has repealed SICA by the
Sick Industrial Companies (Special Provisions) Repeal Act, 2003. The vacuum,
thus created has been filled by an amendment to the Companies Act, 1956.
But, so far, the provisions of the Amending Act and the Companies Act
introduced, have not been brought into force. It appears to be time to consider
G whether these enactments should not be notified. (1049-B-C)
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2572 of2006.
From the Final Judgment and Order dated 8.6.2005 of the High Court of
Delhi at New Delhi in Writ Petition (C) No. 10284 of2005.
H
C.A. Sundram, Sushi! Kumar Jain, A.P. Dhamija, H.D. Thanvi, Ram
MORGANSECURITIESANDCREDITPVT.LID. v. MODIRUBBERLID.(S.B.SINHA,J.] }029
Niwas, Santanam Snaminathan and Rohini Musa for the Appellant.
A
Neeraj Sharma, V. Sheshagari, Roopali Singh, Rahul Prasanna Dave,
Suruchi Aggarwal and A. Yushyakumar for the Respondent
The Judgment of the Court was delivered by
S.B. SINHA, J. Introduction :
The principal question involved in this appeal arising out of a judgment
B
and order dated 08.06.2005. passed by the High Court of Delhi in Writ
Petition (Civil) No.10284 of 2005 revolves round a dispute as to whether the
provisions of the Arbitration and Conciliation Act, 1996 (for short, 'the 1996 C
Act') would prevail over the provisions of the Sick Industrial Companies
(Special Provisions) Act, 1985 (for short, 'SICA').
Background Facts :
A sum of Rs.5,00,00,000 (Rupees five crores) by way of an Inter D
Corporate Deposit (ICD) was advanced by Appellant to Respondent Company.
It committed a default in the payment thereof. The agreement contained an
arbitration clause which was invoked. The learned Arbitrator made an award
on or about 06.05.2004 in favour of the ap~ellant for a sum of Rs.6,72,63,015,
directing :
E
"I, therefore, in the circumstances, make the following Award :
(i)
The claimant is entitled to receive from the respondents and the
respondents are jointly and severally liable to pay Rs.6,72,63,015/
- up to the date of reference;
F
(ii) The claimant will also be entitled to interest at the contractual
rate of21% p.a. from the date of reference i.e. 15.4.2002 till the
date of Award and thereafter i.e. from the date of Award till the
date of payment with simple interest@ 18% p.a. However, ifthe
entire amount is paid within three months from the date of the G
Award, the rate of inte.rest from the date of Award till the date of
payment shall stand reduced to 12% p.a.
(iii) The claimant will also be entitled to costs of arbitration which are
fixed at Rs. 2,00,000/-.
In the course of the proceedings I had passed two interim orders H
1030
SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.
A
restraining the respondent No. l from transferring or alienating their
fixed as well as movable assets. Both those orders shall continue to
operate till the full payment of the amount awarded under this Award."
Appellant also filed an application before the High Court of Allahabad
for winding up of the respondent Company. The said application was admitted
B and an order of winding up was passed on 12.03.2004.
Apart from the. Arbitrator, the Allahabad High Court also by order
dated 13.08.2001 passed in C.P. No.92 of2000 and 13.03.2002 in C.P. No.l
of 2002 restrained the Respondent Company from dealing with or in any Way
C encumbering its assets without the permission of the court. In a proceeding
before the AAIFR, that Authority had also passed an order of restraint against
the respondent company. The respondent in the meanwhile made a reference
under Section 15 of SICA to the Board for Industrial and Financial
Reconstructiof! (for short, 'the Board'). An appeal against the order of winding
up was preferred by the respondent before the Division Bench of the High
D Court. The High Court set aside the said order of winding up by ~n order
dated 20.05.2004 and directed to keep the winding up proceedings in abeyance
till the disposal of the said appeal under SICA. An application for recalling
of the said order is said to be pending before the said Court.
E
Before the Board, an application was filed by the Respondent purported
to be under S~ction l 9A read with Section 22(3) of SICA praying for
permission to dispose of the shares it held in Mis Ambuja Cement Eastern
Ltd. in pursuance of a public offer inade by M/s Holcim Cements India Pvt.
Ltd. to purchase 5.92% of the shares of Mis Ambuja Cement Eastern Ltd.
The Respondent Company held 23, l 0,000 equity shares of the said company
F constituting about 1.02% 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 04.06.2005, holding :
G
H
" ... The injunction orders against sale of company's assets from various
Courts/Tribunals do not fall within the scheme of things envisaged
u/s 22, 26, & 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 restraiiting the company from
disposing of its assets including AAIFR's order dated 13.5.2005 to
)
MORGANSECURJTJESANDCREDITPVT.LTD.1>. MODI RUBBER LTD. [S.B.SINHA,J.] J 03 J
maintain status quo, the Board finds it difficult to agree to the proposal A
to sell the shares as prayed by MRL."
Questioning the legality of the said order, a writ petition, which was
marked as Writ Petition (Civil) No.10284 of2005, was filed by the Respondent
before the Delhi High Court. By reason of the impugned judgment, a Division
Bench of the High Court allowed the said writ petition.
B
It is not in dispute that pursuant to or in furtherance of the said judgment
of the High Court, the shares had been sold and the sale proceeds had been
deposited with the Board.
Submissions:
Mr. C.A. Sundaram, the learned Senior Counsel appearing on behalf of
c
the Appellant, inter alia, submitted that the provisions of SICA could not
have been taken recourse to as no scheme had been framed and, thus, the
High Court committed a serious error in passing the impugned judgment D
relying, inter alia, on or on the basis of Section 22(3) of SICA.
Section 5 of the 1996 Act having an overriding effect, the counsel
urged, even the Board could not have interfered with the award. Contrasting
the provision of sub-section (1) of Section 22 with sub-section (3) thereof, it
was contended that the award under the 1996 Act did not fall within the E
ambit thereof, in view of the fact that in terms of Section 36 thereof it
becomes a decree.
Mr. Neeraj Sharma, the learned counsel appearing on behalf of the
Respondent, on the other hand, submitted that the Board being not a judicial F
authority, Section 5 of the 1996 Act will have no application. On a conspectus
of the provisions of SICA, counsel contended, that the Board had the requisite
jurisdiction to pass an appropriate order directing sale of the property even
at the stage of inquiry. For the aforementioned purpose, Mr. Sharma argued,
all the provisions inserted by reason of Act 12 of 1994 of SICA Amendment
Act, 1993, namely, Section l 9A, Section 22A and Section 22(1) as ame.nded, G
must receive a harmonious construction. Counsel urged that the interim
award having merged with the final award and furthermore in view of the
fact that the award was yet to become a decree of the court, the question of
its having become enforceable in law did not and could not arise.
SICA:
H
1032
SUPREME COURT REPORTS [2006) SUPP. 10 S.C.R.
A
SICA was enacted in order to afford maximum protection of
employment, optimize the use of financial resources; salvaging the assets of
production, realizing the amounts due to the Banks and to replace the existing
time consuming and inadequate machinery by
efficient· machinery for
expeditious determination and with a view to securing the timely detection of
B 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.
C
It contains special provision.
The said Act was enacted for giving
D
effect to the policy of the State for securing principles specified in Article 39
of the Constitution of India.
'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.
Chapter Ill 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
E 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 determining whether the
company has become a sick industrial company or not. For the said purpose
it may require an operating agency to inquire into and to make a report to it.
The Board or the operating agency, as the case may be, is required to complete
F the enquiry as expeditim,isly as possible and an endeavour is to be made, to
do so within sixty days from the commencement thereof. The Board may
during the pendency of the said inquiry appoint Special Directors. Section
17 empowers the Board to make suitable orders on the completion of inquiry
if it is found to be practicable for a sick industrial company to make its net
G worth exceed the accumulated losses within a reasonable time. The Board
is also required to make an order in writing and subject to such restrictions
or conditions as may be specified therein, give such company as it may deem
fit to make its net worth exceed the accumulated losses. However, in the
event it comes to the conclusion that it is not practicable for the sick industrial
H company to make its net worth exceed the accumulated losses within a
reasonable time, it may by an order in writing direct any operating agency
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MORGANSECURITIESANDCREDITPVT.LTD.1" MODIRUBBERLTD.[S.B.SINHA,J.] J 033
. specified in the order to prepare, having regard to such guidelines as may A
be specified, a scheme in relation to such company.
Section 18 empowers the Board to prepare and sanction a scheme in
tenns whereof it is permissible for the operating agency, inter alia, to prepare
a scheme to direct sale or lease of a part or whole of any industrial undertaking
of the sick industrial company. Section 19 provides for rehabilitation by B
giving .financial assistance where the scheme relates to preventive, ameliorative,
remedial and other measures with respect to any sick industrial company.
Section l 9A of SICA reads as under :
"19A. Arrangement for continuing operations, etc. during inquiry.- C
(I) At any time before completion of the inquiry under Section 16,
the sick industrial company or the Central Government or the Reserve
Bank or a State Government or a public financial institution or a
State level institution or a scheduled bank or any other institution,
benk or authority providing or intending to provide any financial
assistance by way of loans or advances or guarantees or reliefs or D
concessions to the sick industrial company may make an application
to the Board -
(a)
agreeing to an arrangement for continuing the operations of the
sick industrial company; or
(b) suggesting a scheme for the financial reconstruction of the sick
industrial company.
(2) **·*
***
***"
Section 20 provides for winding up of sick industrial company; subsection (4) whereof reads as under :
"(4) Notwithstanding anything contained in sub-section (2) or subsection (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
E
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the sale proceeds to the High Court for orders for distribution in G
accordance with the provisions of section 529A, and other provisions
of the Companies Act, 1956 (I of 1956)".
Sub-sections (I) and (3) of Section 22 which are relevant for our purpose
read as under :
"22. Suspension of legal proceedings, contracts, etc- ( 1) Where in
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SUPREME COURT REPORTS [2006] SUPP. 10 S.C.R.
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 section 25 relating to an
industrial company is . pending, then, notwithstanding anything
contained in the Companies Act, 1956 (I of 1956), or any other law
or the memorandum and articles of association of the industrial
company or any other instrument having effect under the said Act or
other law, no proceedings for the winding up of the industrial company
or for execution, distress or the like against any of the properties of
the industrial company or for the appointment of a receiver in respect
thereof and no suit for the recovery of money or for the enforcement
of any security against the industrial company or of any guarantee in
respect of any loans or advance granted to the industrial company
shall lie or be proceeded with further, except with the consent of the
Board or, as the case may be, the Appellate Authority."
xxx
xxx
xxx
(3) Where an inquiry under section 16 is pending or any scheme
referred to in section 17 is under preparation or during the period of
consideration of any scheme under section 18 or where any such
scheme is sanctioned thereunder, for due implementation of the
scheme, the Board may by order declare with respect to the sick
industrial company concerned that the operation of all or any of the
contracts, assurances of property, agreements, settlement, awards,
standing orders or other instruments in force, to which such sick
industrial company is a party or which may be applicable to such sick
industrial company immediately before the date of such order, shall
remain suspended or that all or any of the rights, privileges, obligations
and liabilities accruing or arising thereunder before the said date,
shall remain suspended or shall be enforceable with such adoptions
and in such manner as may be specified by the Board.
Provided that such declaration shall not be made for a period
exceeding two years which may be extended by one year at a time
so, however, that the total period shall not exceed seven years in the
aggregate."
H
Sub-section (5) of Section 22 mandates that in computing the period of
limitation for the enforcement of any right, privilege, obligation or liability,
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MORGAN SECURITIES AND CREDIT PVT.LTD. ''· MODI RUBBER LTD. (S.B. SINHA, J.) } 03 5
the period during which it or the remedy for the enforcement thereof remains . A
suspended under the said Section shall be excluded.
Section 22A reads as under :
"22A. Directions not to dispose of assets.- The Board may, if it is of
opinion that any direction is necessary in the interest of the sick B
industrial company or creditors or shareholders or in the public interest,
by order in writing direct the sick industrial company not to dispose
of, except 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
C
(b) during the period beginning with the recording of opinion by
the Board for winding up of the company under sub-section ( l)
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.
The Board in exercise of its rule making power made regulations, known
as 'Board for Industrial and Financial Reconstruction Regulations, 1987'.
Chapters 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 :
The 1996 Act was enacted to consolidate and amend the law relating
. to domestic, international and commercial arbitration and enforcement of the.
arbitral awards.
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 contained
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in Part I of the Act. Chapter I, which begins with the interpretation clause, G
provides for the general provisions. Section 2( c) defines "arbitration award"
to include an interim award. Section 5 provides for a non-obstante clause in
the matters governed by Part I stating that no judicial authority shall intervene
except where so provided for therein. Section 16 provides for the power of
arbitral tribunal to rule on its own jurisdiction.
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SUPREME COURT REPORTS [2006) SUPP. JO S.C.R.
A
Chapter VII provides for recourses available against the arbitral awards.
Section 34 of the Act provides that the Court may be approached against an
arbitral award by way of an application for setting aside the same in terms
of sub-section (2) or sub-section (3) thereunder. Section 36 provides for
enforcement of award in the following tenns:
B
"36. Enforcement. - Where the time for making an application to set
aside the arbitral award under section 34 has expired, or such
application having been made, it has been refused, the award shall be
enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the
same manner as if it were a decree of the Court."
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In Mcdermot International Inc. v. Burn Standard Co. Ltd (2006) 6
SCALE 220, this Court noticing the changes made in the 1996 Act vis-avis the 1940 Act, observed :
"The 1996 Act makes a radical departure from the 1940 Act. It
has embodied the relevant rules of the modem law but does not
contain all the provisions thereof. The 1996 Act, however, is not as
extensive as the English Arbitration Act.
Different statutes operated in the field in respect of a domestic
award and a foreign award prior to coming into force of the 1996
Act, namely, the 1940 Act, the Arbitration (Protocol and Conve~tion)
Act, 1937 and the Foreign Awards (Recognition and Enforcement)
Act, 1961. All the aforementioned statutes have been repealed by the
1996 Act and make provisions in two different parts, namely, matters
relating to domestic award and foreign award respectively."
The 1996 Act is a complete Code by itself. It lays down the machinery
for making an arbitral award enforceable. In tenns of Section 36 of the 1996
Act, an award becomes enforceable as if it were a decree; where the time for
making the application for setting it aside under Section 34 has expired, or
such application having been made, has been refused.
G
Analysis vf the Statut01y Provisions:
It is not in dispute 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
H the Board so to do, is the question. The Board exercises statutory functions.
\
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MORGANSECURITIESANDCREDITPVT.LTD.1•. MODI RUBBER LTD. [S.B. SINHA,J.] 1037
It is a quasi judicial authority. It exercises various powers under the Code A
of Civil Procedure. For the purpose of the 1996 Act it is a judicial authority.
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 B
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.
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 C
or the like against the property of the company or for the appointment of a
receiver would not continue. Even, no suit for recovery of money or for the
enforcement of any security or of any guarantee shall lie or be proceeded
with further, save and except with the consent of the Board or the appellate
authority.
Section 22A, however, permits the Board to pass certain conditional
orders. Upon receipt of a reference, the Board has no other option but to
make an inquiry, of course, therefor the reference is to be registered, upon
scrutiny thereof. The imperative character of an inquiry at the hands of the
Board is inherent in the scheme of the Act. The legislative intention therefor
D
is clear and explicit. The consequences flowing from
registration of a E
reference necessarily would mean initiation of an inquiry which would include
investigation into facts, causes and effects thereof.
Act No. 12 of 1994
amending SICA also specified the main features of the amendments to be
as under :
"(a) jurisdictional amendments which redefine the category of the F
companies coming within the purview of the Act, and the options
which are available for revival, rehabilitation or winding up of
sick industries companies;
(b) amendments to enhance the effectiveness of Board;
(c) amendments which seek to remove certain ambiguities and
strengthen internal coherence of the Act by redefining certain
provisions which are clarificatory in nature."
G
Section l9A of SICA as inserted in the year 1994, although may be
held to be clarificatory in nature, however, confers a special power to pass H
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A an order envisaged thereunder. Section I 9A does not empower the Board to
direct sale of the assets at the stage of enquiry. Section 22(1) and 22(3) again
would, however, be applicable where an inquiry under Section 16 is pending.
Whereas under sub-section (I) of Section 22 no specific order is required to
be passed by the Board; it is necessary, in respect of the matters enumerated
B under sub-section (3) of Section 22 thereof.
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Although for the aforementioned purpose,· it may not be imperative that
such an order be passed only in terms of a scheme, as was submitted by Mr.
Sundaram, but it is true that application of mind on the part of the Board in
relation thereto is necessary.
It is difficult to accept the submission of the ieamed Senior Counsel
that sub-section (3) of Section 22 of SICA deals only with contractual
obligations. The expression "award, standing 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.
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 I OA 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
E decision on the company.
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 company is a party, is
envisaged. Even a 'settlement' arrived at by and between the parties thereto
F would be binding, inter alia, in terms of the provisions of Section 18 of the
Industrial Disputes Act, 1947.
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,
G does not stand a close scrutiny.