Calcutta High Court (Appellete Side)
Mstc Ltd vs Meherkiran Enterprises Ltd on 4 August, 2016
Author: Indira Banerjee
Bench: Indira Banerjee
IN THE HIGH COURT AT CALCUTTA
CIVIL APPELLATE JURISDICTION
APPELLATE SIDE
FMAT 130 of 2016
With
CAN 1167 of 2016
MSTC Ltd.
Vs.
Meherkiran Enterprises Ltd.
B E F O R E:
The Hon'ble Justice INDIRA BANERJEE
And
The Hon'ble Justice SAHIDULLAH MUNSHI
For the appellant : Mr. Jishnu Chowdhury,
Mrs. Noelle Banerjee,
Mr. Dipak Dey,
Ms. Rimpa Rajpal
For the respondent : Mr. Ratnanko Banerjee,
Mr. Rupak Ghosh, Mr. R.N. Ghose, Ms. Dwidhiti Bhaduri, Heard on : 16.05.2016, 13.06.2016, 15.06.2016, 04.07.2016, 11.07.2016, 27.07.2016 Judgment on : 04.08.2016 INDIRA BANERJEE, J.: This appeal has been filed by the MSTC Ltd., challenging an order dated 11th December, 2015 passed by the learned District and Sessions Judge, South 24-Parganas at Alipore refusing to pass an ex parte ad interim order and directing that notice be issued to the respondent.
A memorandum of agreement dated 20th July, 2009 was executed by and between the appellant MSTC Ltd. and the respondent Meherkiran Enterprises Ltd. to facilitate import of prime hard coking coal. The said agreement contained an arbitration clause which provided for reference of disputes and differences to the arbitration of a sole arbitrator to be appointed by the Chairman cum Managing Director of MSTC Ltd.
In terms of the said agreement dated 20th July, 2009 the appellant MSTC Ltd. was to procure imports on behalf of the respondent and make payment for the same to the seller on behalf of the respondent.
Disputes and differences arose between the appellant MSTC and the respondent over the claim of the appellant MSTC that about Rs.50,20,00,000/- was due and payable by the respondent to the appellant MSTC for imports made by appellant MSTC on behalf of the respondent Meherkiran Enterprises Ltd..
The appellant MSTC invoked the arbitration clause and also made an application for appointment of an arbitrator. A retired Judge of this Court was appointed sole arbitrator.
Arbitration proceedings commenced on 22nd September, 2014 in Kolkata. The parties filed respective pleadings before the learned Arbitrator. The appellant MSTC has, however, alleged that the respondent has been delaying the arbitration proceedings purposely.
A perusal of the agreement by and between the appellant MSTC and the respondent indicates that the imported goods were pledged to the petitioner. On the allegation that the respondent was unauthorisely removing goods which were pledged and/or secured to the appellant MSTC Ltd., the appellant MSTC Ltd. filed an application under Section 9 of the Arbitration and Conciliation Act, 1996, hereinafter referred to as the 1996 Act being Misc. Case No.414 of 2015 for appointment of a Receiver, inter alia, to make inventory of the goods and get volumetric assessment done by an expert. There was also a prayer for a direction on the Receiver/Special Officer to take physical possession all goods lying at the stockyard.
The order under appeal is extracted hereinbelow for convenience:-
"On perusal of the documents, it appears that the Hon'ble Justice Ashok Chakraborty (Retd.) has already been appointed as Sole Arbitrator and as many as eight times there were sitting of the parties before the learned Sole Arbitrator. Last hearing took place on 22.7.2015. Under such circumstances, I am not inclined to pass any adinterim order of appointment of receiver/special officer without hearing the other side. Hence, refused at this stage.
Issue notice upon the respondent asking it to show cause by 27.1.2016 as to why the instant application of the petitioner will not be allowed. "
After this appeal was filed, appellant MSTC Ltd. moved an ex parte application and obtained an order dated 17th February, 2016 whereby Receiver was appointed to take symbolical possession of the goods in question, and make an inventory thereof.
The appointment of the receiver has been questioned by the respondent on various grounds. Mr. Ratnanko Banerjee, Senior Advocate appearing on behalf of the respondent argued that there was no urgency to warrant the passing of an ex parte ad interim order.
Mr. Banerjee next argued that the appellant MSTC Ltd. had not disclosed to this Court the fact that the respondent, Meherkiran Enterprises Ltd. had been referred to the Board for Industrial and Financial Reconstruction (BIFR) on or about 14th November, 2011 under the Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter referred to as SICA. Under Section 22 of SICA there was a specific bar for appointment of a Receiver in respect of the properties of an industrial company.
In support of his submissions, Mr. Banerjee cited :
(i) Paramjeet Singh Patheja Vs. ICDS Ltd. reported in (2006) 13 SCC
322.
(ii) San-A Tradubg Company Ltd. Vs. I.C. Textiles Ltd. reported in (2012) 7 SCC 192.
(iii) Morgan Securities and Credit (P) Ltd. Vs. Modi Rubber Ltd. reported in (2006) 12 SCC 642.
On the other hand, Mr. Jishnu Chowdhury appearing on behalf of the appellant argued that pursuant to the order of this Court dated 17th February, 2016, the learned Receiver carried out an inventory by way of volumetric assessment which reveals that further valuable goods have unauthorizedly been removed by the respondent.
Mr. Chowdhury argued that the bar under Section 22 of SICA does not apply in this case since the goods in question were admittedly pledged to appellant, MSTC.
Mr. Chowdhury argued that the appellant, as pledgee, has special rights in the goods. The appellant as pledgeee might even transfer the goods to third parties without concurrence of the pledgor. On the other hand, the pledgor's only right is to redeem the pledge. Until the pledge is redeemed, it has no rights. In support of his arguments, Mr. Chowdhury cited :
i) The Bank of Bihar Vs. The State of Bihar and Ors. reported in (1972) 3 SCC 196 (Para 5).
ii) Punjab National Bank Vs. Union of India & Ors. reported in (1983) 53 CC 842 (Pg. 849).
iii) Premier Industries (India) Ltd. Vs. Alliance Credit and Investments reported in (2000) 102 CC 456 (Cal) (Para 2).
The short question in this appeal is whether an application under Section 9 of the 1996 Act for interim relief of appointment of a receiver and for injunction restraining the respondents from dissipating, dealing with or transferring goods pledged to the respondent is hit by Section 22 of SICA.
However, before we consider the question of whether interim reliefs as prayed for by the appellant would be hit by Section 22(1) of SICA, reference may be made to Section 9(3) of 1996 Act as incorporated by the Arbitration and Conciliation (Amendment) Act, 2015, with effect from 23rd October, 2015, that is before the date on which the application was moved before the learned District Judge.
Section 9(3) provides:-
"9.(3) Once the arbitral tribunal has been constituted, the Court shall not entertain an application under sub-section (1), unless the Court finds that circumstances exist which may not render the remedy provided under section 17 efficacious."
Before a Court can entertain an application for interim relief under Section 9 on merits the Court will have to satisfy itself that circumstances exist which might not render the remedy provided under Section 17 efficacious.
Under Section 17, as amended by the said amendment Act of 2015 the arbitral tribunal has been conferred with some power as the Court to grant interim relief by reason of deeming provision of Section 17(2). The order issued by the arbitral tribunal is to be deemed to be an order of Court for all purposes, enforceable under the Code of Civil Procedure in the same manner as if it were an order of the Court.
Section 22 of SICA provides for suspension of legal proceedings, contracts etc. Section 22(1) is set out hereinbelow for convenience :
(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 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."
In view of Section 22, where any enquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation, then notwithstanding anything in the Companies Act, 1956 or any other law or 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 properties of the Industrial Company or for the appointment of Receiver thereof and no suit for the recovery of money or for enforcement of any security against the Industrial Company shall lie or be proceeded with further, except with the consent of the Board (BIFR).
From the language of Section 22, it is patently clear that proceedings for appointment of a Receiver or for enforcement of any security against the Industrial Company cannot be initiated except with the consent of the Board.
In Paramjeet Singh Patheja Vs. ICDS Ltd. (supra) cited by Mr. Banerjee, the Supreme Court held that to achieve the purpose for which Section 22 had been enacted, it was imperative that the expression 'suit' in Section 22 be given its plain meaning, namely any proceedings adopted for realization of a right vested in a party by law, and this would clearly include arbitration proceedings. In the aforesaid case, the Supreme Court held that execution proceedings in respect of award cannot be proceeded with in view of the statutory bar of Section 22 of SICA.
In Morgan Securities and Credit (P) Ltd. Vs. Modi Rubber Ltd. (supra), the Supreme Court held that an arbitral award was under the purview of Section 22(1). Execution of an arbitral award could not therefore be proceeded with.
In San-A Tradubg Company Ltd. Vs. I.C. Textiles Ltd. (supra), the Supreme Court held that Section 22 does not debar arbitration proceedings. Mr. Banerjee however submitted that this decision was impliedly overruled by Paramjeet Singh Patheja Vs. ICDS Ltd. (supra).
A judgment is a precedent for the authority of law which is raised and decided. In Paramjeet Singh Patheja Vs. ICDS Ltd. (supra), the question was whether execution proceedings in respect of the award could not be proceeded with. Execution proceedings are clearly in the nature of distress proceedings.
The appointment of a receiver to take symbolic possession of the goods in question and to make an inventory thereof does not affect any right of the respondent. No prejudice has been caused to the respondent. The respondent is still in physical possession of the goods. However, as long as proceedings in the BIFR remain pending, no question of directions on the Receiver to take actual possession of the pledged goods or for sale of the pledged goods without obtaining prior permission of BIFR.
The application for interim relief under Section 9 is still pending before the learned District Judge, South 24-Parganas at Alipore. The application has not been rejected. The learned Court only directed service of notice before taking up the application for consideration on merits. May be, as argued by Mr. Ratnanko Banerjee, Senior Advocate appearing on behalf of the respondent, there was no such urgency to warrant the passing of an ex parte ad interim order. However, as observed above, the respondent has not been prejudiced in any way by the grant of an ex parte order.
Since the application is pending in the Court of the learned District Judge, the learned District Judge may decide and dispose of the application in the light of the observations made above.
The appeal is disposed of accordingly.
Photostat certified copy, if applied for, be delivered to the learned counsel for the parties, upon compliance of all usual formalities.
( INDIRA BANERJEE, J. ) ( SAHIDULLAH MUNSHI, J. )