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1996 Supreme(Cal) 354
High Court Of Calcutta
Sujit Kumar Sinha
BURN STANDARD CO.LTD. - Appellant
Versus
MC DERMOTT INTERNATIONAL INC. - Respondent
A. P. 121 Of 1996
Decided On : 09/10/1996
ASHIM CHOUDHURY, Bhaskar Gupta, TILAK K.BOSE
Arbitration proceedings cannot be stayed under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, but can be stayed under section 22(3) of the Act.
Headnote:
ARBITRATION - STAY OF PROCEEDINGS - SECTION 22 SICK INDUSTRIAL COMPANIES (SPECIAL PROVISIONS) ACT, 1985 - SCOPE AND APPLICABILITY - ARBITRATION PROCEEDINGS NOT WITHIN THE MISCHIEF OF SECTION 22(1) - CAN BE STAYED UNDER SECTION 22(3) - APPLICATION FOR STAY DISMISSED.
Fact of the Case:
Petitioner and first respondent entered into a technical collaboration agreement with an arbitration clause. Disputes arose and were referred to an arbitral tribunal appointed by the International Chamber of Commerce. Petitioner applied to the tribunal to suspend further arbitration proceedings under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (the Act) as the petitioner was declared a "sick industrial company" by the Board for Industrial and Financial Reconstruction (BIFR). The tribunal rejected the application, holding that arbitration proceedings cannot be suspended under section 22 of the Act. Petitioner challenged this decision.
Finding of the Court:
The court held that arbitration proceedings cannot be stayed under section 22(1) of the Act, as it does not expressly or otherwise refer to arbitration proceedings. However, the court held that arbitration proceedings can be stayed under section 22(3) of the Act, which gives the BIFR the power to suspend the operation of any award, including an arbitral award.
Issues: Whether arbitration proceedings can be stayed under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
Ratio Decidendi: The court interpreted sections 22(1) and 22(3) of the Act and found that they operate in different fields. Section 22(1) deals with proceedings that pose a threat to the properties of an industrial company, such as winding-up proceedings, execution or distress proceedings, and suits for recovery of money or enforcement of security. Section 22(3) deals with the suspension of contracts, agreements, awards, and other instruments in force to which a sick industrial company is a party. The court held that arbitration proceedings do not fall within the mischief of section 22(1) because they do not pose a threat to the properties of the industrial company. However, the court held that arbitration proceedings can be stayed under section 22(3) because the BIFR has the power to suspend the operation of any award, including an arbitral award.
Final Decision: The court dismissed the petitioner's application for a stay of arbitration proceedings, but made no order as to costs.
( 1 ) THE Court: By this application under sections 5, 11, 12, 33 and 41 of the Arbitration Act 1940, the petitioner has sought various reliefs. The facts leading to the present application may briefly be stated.
( 2 ) THE petitioner and the first respondent entered into a technical collaboration agreement dated 25th September, 1984 and its addendum dated 20th December, 1984. The said agreement contains an arbitration clause. The claims, disputes and/or controversies having arisen between them the same have been referred for adjudication by the arbitral tribunal appointed by the International Chamber of Commerce, the fifth respondent herein, in terms of the said arbitration clause.
( 3 ) THE Chairman and members of the said arbitral tribunal ("the said tribunal" for short) are respectively the second, third and fourth respondents herein.
( 4 ) THE arbitration proceedings before the said tribunal are now pending.
( 5 ) ON 16th July, 1996 the petitioner made an application before the said tribunal under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 as amended by the Amendment Act 1993 ("the said Act" for short) for suspension of further arbitration proceedings "till finalisation of the rehabilitation scheme" by the Board for Industrial and Financial Reconstruction ("the said BIER" for short ). The said BIER by its order dated 20th January, 1985 has declared the petitioner as a "sick Industrial company". The said application of the petitioner before the tribunal was opposed by the first respondent.
( 6 ) ON 21st July, 1996 the said tribunal communicated to the parties to the reference that by a majority decision it had taken the view that the arbitration proceedings cannot be suspended by reason of the provisions of section 22 of the said Act and it accordingly rejected the said application of the petitioner. The reasons for its said decision are recorded in the minutes dated 31st July 1996 (annexure 'e' to this application ). The grievance of the petitioner is that by refusing to suspend the arbitration proceedings the said tribunal has acted in excess of jurisdiction and further that it is guilty of legal misconduct. The short question therefore that arises for determination on the present application is as to whether the arbitration proceedings before the said tribunal can remain stayed by reason of the provisions of section 22 of the said Act
( 7 ) IT is convenient at this stage to set out the relevant provisions of section 22 of the said Act: "22 (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 section 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 association of the Mr 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 advances 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. ""22 (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 there under for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation
