Morgan Securities and Credit Pvt. LTD. vs Modi Rubber LTD.

Headnote:(A) Sick Industrial Companies (Special Provisions) Act, 1985 - Sections 22(1), 22(3) and 32 - Arbitration and Conciliation Act, 1996 - Sections 5 and 36 - Conflict between non-obstante clauses - Suspension of arbitral awards - The term "award" in Section 22(3) of the 1985 Act is not limited to contractual obligations but includes binding decisions of judicial or quasi-judicial authorities, including arbitral awards - A statutory authority exercising quasi-judicial functions and statutory powers is a "judicial authority" within the meaning of Section 5 of the 1996 Act.

(B) Conflict of Statutes - Where two laws operate in the same field and both contain non-obstante clauses, the resolution depends on the object and purpose of the laws - A law enacted to serve a larger public interest, such as the rehabilitation of sick industrial companies, protection of employment, and salvaging production assets, prevails over a law aimed at limiting judicial intervention in arbitration.

(C) Enforcement of Award - The legal fiction created under Section 36 of the 1996 Act, which treats an award as a decree for the purpose of enforceability, does not preclude the statutory board from exercising its power to suspend the operation of such award under the 1985 Act to enable the revival of a company.

Facts of the case:
An appellant advanced funds to a respondent company via an inter-corporate deposit. Following a default, an arbitral award was passed in favor of the appellant. The respondent had made a reference to a statutory board under the Sick Industrial Companies (Special Provisions) Act, 1985. The respondent sought permission from the board to sell shares of another company to raise funds, but the board refused, citing existing restraint orders from courts. The High Court subsequently allowed the sale of shares. The dispute arose as to whether the provisions of the Arbitration and Conciliation Act, 1996 prevail over the 1985 Act regarding the board's power to suspend the award and the assets.

Findings of Court:
The board is a judicial authority under the 1996 Act. Section 22(3) of the 1985 Act empowers the board to suspend the operation of awards, rights, privileges, and liabilities. The court found that the public interest goals of the 1985 Act override the non-interference principle of the 1996 Act.

Issues: Whether the provisions of the Arbitration and Conciliation Act, 1996 prevail over the Sick Industrial Companies (Special Provisions) Act, 1985; whether the statutory board constitutes a "judicial authority"; and whether the board can suspend the operation of an arbitral award.

Ratio Decidendi: The court ruled that the 1985 Act’s objective of rehabilitating sick companies is a higher public goal than the limitation of judicial intervention in arbitration. While an award is enforceable as a decree under the 1996 Act, this does not strip the board of its statutory power to suspend the award's operation under the 1985 Act to facilitate company revival.

Result: Appeal dismissed accordingly having become infructuous.

Legal Category Hierarchy

1. Appeal concerning whether Arbitration and Conciliation Act, 1996 prevails over Sick Industrial Companies Act, 1985. (Para 1 )

JUDGMENT

S.B. SINHA, J:

Introduction :

The principal question involved in this appeal arising out of a judgment 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 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 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 appellant for a sum of Rs.6,72,63,015/- , directing :

"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;

ii)The claimant will also be entitled to interest at the contractual rate of 21% 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, if the entire amount is paid within three months from the date of the award, the rate of interest 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 restraining the respondent no.1 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 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 of 2000 and 13.03.2002 in C.P. No.1 of 2002 restrained the Respondent Company from dealing with or in any way 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 Reconstruction (for short, the Board). An appeal against the order of winding up was preferred by the respondent before the Division Bench of the High Court. The High Court set aside the said order of winding up by an 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.

Before the Board, an application was filed by the Respondent purported to be under Section 19A read with Section 22(3) of SICA praying for permission to dispose of the shares it held 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% 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% 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 :

" The injunction orders against sale of companys 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 ass