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2012 DIGILAW 366 (BOM)

Tata Capital Ltd. v. Maven Industries Ltd.

2012-02-17

ANOOP V.MOHTA

body2012
Judgment : The Petitioner is a financial institution, has invoked Section 9 of the Arbitration and Conciliation Act, 1996 (for short, the Arbitration Act), to secure the loan amount and the property, mortgaged with them by the Respondents, as there exists arbitration agreement between them. 2. Respondent No.1 company executed a loan agreement. Respondent Nos.2 to 4 have executed a Personal Guarantee and mortgaged their personal property also and promised to repay the loan on demand or for defaults or for delay of Respondent No.1. The Personal Guarantees have been continued and still subsisting. 3. Admittedly, the Petitioner has knowledge that the Respondent has filed reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short, SICA Act) before the Board of Industrial and Financial Reconstruction (for short, “BIFR”). The same is still pending. The Respondents have also appeared before the BIFR. 4. As averred, the amount to the tune of `2,66,33,286/is payable by the Respondents as on 11 October 2011 with further interest thereon. There were defaults, though demanded, no due payment was made by the Petitioner. Therefore, to protect and to secure the property, as well as the amount, the Petitioner has filed this petition on 9 November 2011. 5. On 9 December 2011, this Court has passed the following order. “1. This petition is under section 9 of the Arbitration and Conciliation Act, 1996. Prima facie an amount of Rs.2.66 lacs is due and payable by the respondents to the petitioner. The repayment is secured by a mortgage of immovable properties. The amounts are due under a working capital facility granted by the petitioner to the respondents. 2. Ad-interim order in terms of prayer ‘a’ except portion bracketed in ‘red’ brackets. The receiver shall, however, at this stage appoint the respondent as his agents without security or royalty. Till the receiver takes possession, ad-interim-order in terms of prayer (b) except the words “dealing with” bracketed in red. Ad-interim order also in terms of prayer (c). Prayer (c) shall be complied with within 4 weeks of this order being served on the respondents.” On 23 December 2011, the above order was corrected as under: 1. In the second sentence of the order dated 9thDecember, 2011, the amount of “Rs. 2.66 lakhs” is corrected to read “Rs. 2.66 crores”. 6. The Respondents were absent on that day. Prayer (c) shall be complied with within 4 weeks of this order being served on the respondents.” On 23 December 2011, the above order was corrected as under: 1. In the second sentence of the order dated 9thDecember, 2011, the amount of “Rs. 2.66 lakhs” is corrected to read “Rs. 2.66 crores”. 6. The Respondents were absent on that day. Therefore, the Application was made to hear the matter again, on the basis of following averments:“ 6. I say that the aforesaid matter was on board of this Hon’ble Court on 9th December, 2011 at Sr. No. 55 and it was specifically mentioned at the top of the Board that the Ad-interim matters will be taken at 3.00 pm., since, the Ad-Interim board started from Sr. No.35, therefore, the Advocate for the Respondents was under bonafide impression that the said Sr. No.55 will come after completion of matters listed at Sr. No. 35 to 54. I further most respectfully state that since the Board discharged from Sr. 35 to 53 and immediately thereafter, Sr. No.55 came for hearing, wherein no one present on behalf of the Respondents resulting which this Hon’ble Court was pleased to pass an ex-parte order in terms of prayer clause ‘a’ except portion bracketed in ‘red’ brackets. Hereto annexed and marked as Exhibit “B” is the copy of the said order dated 9th December, 2011 passed by this Hon’ble Court. 8. I say that since, the Learned Board for Industrial and Financial Reconstruction has already registered the reference under section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 as Case No. 48/2011, therefore, no proceeding of whatsoever nature can be initiated including appointment of Court Receiver against the Respondent No.1 company. I say that the Respondents will inform this Hon’ble Court the status of the said Case No. 48/2011 pending before the Learned Board for Industrial and Financial Reconstruction.” 7. Heard the matter basically in view of the fact that when the interim ex-parte order was passed, the Respondents were absent. 8. It is necessary to consider the object and purpose of SICA Act read with the scope and purpose of Section 9 of the Arbitration Act. Heard the matter basically in view of the fact that when the interim ex-parte order was passed, the Respondents were absent. 8. It is necessary to consider the object and purpose of SICA Act read with the scope and purpose of Section 9 of the Arbitration Act. “The scope of SICA Act is with a view to 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 measures so determined and for all connected matters.” 9. Admittedly, an enquiry under Section 16 of SICA Act is pending before the Competent Authority. The purpose of Section 9 is to seek for an interim measures/protection, pending the Arbitration Proceedings as the amount is due and payable by the Respondents. It is definitely on a foundation of the recovery of due money from the Company and its Directors, pending its application before the BIFR. If the Company is revived as per the SICA Act, it will be in the interest of all, including share-holders and workers also. 10. Section 22 of the SICA Act, protects the Company and its Directors, on a certain situation. It covers any action or distress of like nature, against the Company, including the appointment of Receiver. Therefore, a sick company and/or the guarantors, are entitled to make submission that there is no case made out by the Petitioner to grant such protective measures in view of the pendency of their application before the Authority. 11. The learned counsel appearing for the Petitioner submitted that admittedly, Respondent Nos. 2 and 3 are Directors of the Company and have mortgaged their property, to secure the loan for the Company therefore, the present proceedings based upon such mortgage of the property are excluded from the purview of Section 22. He also submitted that Section 22 contemplates the Suit which is distinct from an arbitration proceedings. Therefore, the orders so passed cannot be stated to be without jurisdiction and/or contrary to the provisions of the SICA Act. 12. There is no serious dispute with regard to the proposition that the “Arbitration Petition” as filed is distinct and distinguishable from the terms and the concept of “Suit” (Zenith Steel Tubes & Industries Ltd. & Anr. Vs. Therefore, the orders so passed cannot be stated to be without jurisdiction and/or contrary to the provisions of the SICA Act. 12. There is no serious dispute with regard to the proposition that the “Arbitration Petition” as filed is distinct and distinguishable from the terms and the concept of “Suit” (Zenith Steel Tubes & Industries Ltd. & Anr. Vs. SICOM Ltd. ( 2008 (1) SCC 533 ). Still the issue is whether this falls within the ambit of Section 22 to recover the money and for appointment of Receiver. In my view, considering the scope and purpose of Section 9 read with Section 22 of the SICA Act, such proceedings is definitely not maintainable, at this stage, as the whole intention is to recover and to secure the amount due and payable by the Respondents jointly and severally, without proper permission from the BIFR. Secondly, no case is made out for interim protection or security. There are no averments that the Respondents are in position to transfer or create third party rights in the mortgaged property though their application is pending under the SICA Act. 13. Therefore, in view of the fact that the Respondent’s Application is pending before the Authority and considering the scope and purpose of SICA Act, I am inclined to observe that the filing of Section 9 Petition against such company merely on an unfounded ground that they are entitled to take such steps against the mortgagor, is not permissible, specially for the reason that the property as mortgaged by the Respondents-Directors is to secure the loan for the Company/Respondent No.1. It is difficult to dissect the basic of concept of security/ guarantee from the concept of mortgage or mortgagee. For the purpose of execution and/or for taking any action under Section 22 of the Act, merely because the properties are mortgaged that itself cannot be the reason to permit the Petitioner to take steps as prayed. 14. It is also relevant to note that the Petitioner has full knowledge that the Respondents have already invoked the provisions of SICA Act. Under the said Act, there are provisions, whereby the persons, like the Petitioner, may apply for appropriate directions to secure their properties/assets. 14. It is also relevant to note that the Petitioner has full knowledge that the Respondents have already invoked the provisions of SICA Act. Under the said Act, there are provisions, whereby the persons, like the Petitioner, may apply for appropriate directions to secure their properties/assets. It is necessary for them to obtain necessary permission from the SICA Authority before taking any proceedings for recovery of loan or for appointment of Receiver as contemplated under Section 9 of the Arbitration Act. 15. Therefore, the submission, referring to the Judgment of the Full Bench in State Bank of India Vs. Trade Aid Paper and Allied Products (India) Pvt. Ltd.( AIR 1995 Bom. 268 ), is of a little assistance in view of the present facts and circumstances of the case. The Suit was for appointment of a Receiver, where there was no involvement of SICA Act. 16. Though earlier view that the Suit can be lodged against the guarantors though the Petition is pending against the Company under the SICA Act, yet the Supreme Court has decided to revisit the issue as can be noted from the Supreme Court Judgment in Zenith Steel Tubes & Industries Ltd (Supra). There is nothing pointed out that the matter so referred is final and concluded. I am of the view that for the purpose of Section 9 proceedings, unless the parties settled their dispute finally through the Arbitration, the protection so claimed by the Petitioner, at this stage without finality and/or crystalization of the amount, is untenable. Section 22 protection, therefore, needs to be extended to the Company and the Directors’ property, at this stage, as the existence of the Company depends upon the rehabilitation and settlement as the loan so taken by the company on the basis of such security/mortgage of the Directors’ property. The approach to take steps for survival of the Company is more important from the point of view of others including shareholders, workers and creditors, if any, and not to hamper the rehabilitation process so initiated by the Petitioner. 17. It is also relevant to note that ultimately, if the Authority under the SICA Act, after due inquiry, takes step as contemplated, any order or injunction if granted under Section 9 Petition, will certainly affect the others including share-holders, creditors, workers etc. 17. It is also relevant to note that ultimately, if the Authority under the SICA Act, after due inquiry, takes step as contemplated, any order or injunction if granted under Section 9 Petition, will certainly affect the others including share-holders, creditors, workers etc. The apprehension of the Petitioner as averred only is to protect and to secure their due and payable amount. However, in view of the specific provisions of SICA Act and as referred above, the unfounded apprehensions are unacceptable, at this stage of the proceedings. 18. It is made clear that I am not deciding the merits of the matter nor the rights of the Petitioner. The liberty is granted to the Petitioner to take out appropriate application, as contemplated under the provisions of SICA Act and/or such other Act. 19. The learned counsel appearing for the Petitioner undertakes to file on record the Vakalatnama, during the course of the day. 20. In the result, the present Petition is dismissed. There shall be no order as to costs. Interim order, already granted, shall stand vacated and so also the appointment of the Court Receiver.