Bombay High Court
Messers Duke Offshore Limited vs Burns Standard Company Ltd. & Another on 2 September, 1998
Equivalent citations: 1999(1)BOMCR371
Author: F.I. Rebello
Bench: F.I. Rebello
ORDER F.I. Rebello, J.
1. By this petition the petitioners had sought a declaration that an arbitral dispute exists between the petitioners and the respondents and during the pendency of the arbitral dispute prayed that the respondent No. 1 be restrained from invoking the advance bank guarantee as also another bank guarantee. This Court by order dated 18th February, 1998 was pleased to direct the parties to maintain status quo. By order dated April 15, 1998 this Court decided the issue. Considering the terms of the contract, as to whether this Court would have jurisdiction over the subject matter. The Court answered in the affirmative that this Court has jurisdiction. The Court further directed that the status quo ante as granted earlier to continue until further orders. The respondents against the said order preferred a Special Leave Petition before the Supreme Court of India. The said Special Leave Petition was disposed of on August 17, 1998 by the following order :---
ORDER "Leave granted.
Heard Counsel on both sides.
The High Court should not have allowed the order of status quo to continue indefinitely, it ought to have considered whether the ad-interim order passed earlier on 23-2-1998 deserved to be continued or not. We, therefore, direct that the application for interim relief be heard and decided within four weeks from today. If it is not decided within that time, the order passed by the High Court will stand vacated. The appeal is disposed of accordingly. No order as to costs."
2. The matter was placed before this Court in view of the directions of the Apex Court in its order dated August 17, 1998. That is how the matter was placed for hearing today.
3. At the hearing of the petition Counsel for the petitioners contends that the respondent company has been declared to be a sick company under the Sick Industrial Companies (Special Provisions) Act, 1985. It is, therefore, contended that the respondent herein could not have invoked the bank guarantee. Reliance for that purpose is placed on a judgment of the Division Bench of the Allahabad High Court in the matter of Comet Filaments (India) Ltd. v. Pradeshya Industrial and Investment Corporation of U.P. Ltd., 66 Company Cases 124.
Secondly, it is contended that there was an agreement between the parties as reflected in the minutes. It is contended that in terms of the minutes the respondents herein agreed not to invoke the bank guarantee. It is, therefore, contended in the light of that also the respondents could not have invoked the bank guarantee.
4. The petition is for declaration that there is an arbitral agreement between the parties and disputed have arisen therein. The reliefs, however, sought are in terms of section 9 of the Arbitration & Conciliation Act, 1996 (hereinafter referred to Arbitration Act). This Court, by its order dated April 15, 1998, has held in favour of jurisdiction of this Court. The special Leave Petition preferred against the said order has been rejected.
5. The main question is whether the status quo as granted in the matter of the bank guarantee should be continued considering the arguments raised on behalf of the petitioners. The first contention is based upon the Sick Industrial Companies (Special Provisions) Act, 1985. The law in so far as the Sick Industrial Companies (Special Provisions) Act is concerned, is now settled by the Apex Court in the case of Real Value Appliances Ltd. v. Canara Bank & others, . The Apex Court has held that if proceedings have been registered before the Board for Industrial & Financial Reconstruction (B.I.F.R.) then no proceedings for winding up of the company or for execution or distress or the like against the property of company or for the appointment of Receiver and no suit for recovery of money or enforcement of any security or of any guarantee shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, by the Appellate Authority. This judgement nowhere lays down that the company against which the proceedings have been initiated is prohibited from taking legal steps for the enforcement of its rights. However, by placing reliance on the judgment of the Division Bench of the Allahabad High Court in the case of Comet Filaments (India) Ltd., 66 Company Cases 124 (supra) it is contended that once a company is declared to be sick the property of the company remains under the direct control of the Board for Industrial and Financial Reconstruction and no proceedings in respect of the property could be proceeded with except with the Board's consent. From the said observation it is impossible to hold that the Division Bench of the Allahabad High Court has taken a view that as the property vests in the Board, the company though not wound up, is barred from taking steps for realisation of its legal dues. At the highest all that can be said in such a case, is that the moneys recovered cannot be disposed of by the company without previous consent of the Board. It does not prohibit the company which still is in existence from carrying out its operations. The said contention, therefore, must be rejected.
6. The second contention that is raised is that in terms of the Minutes of the tripartite meeting the respondents were prohibited from invoking the bank guarantee. Para 6 of the minutes is clear. All that is said is that from 5th January, 1998 for a period of 15 days the respondents herein would hold back invocation of the bank guarantee if the conditions set out therein are satisfied. According to the petitioners themselves in para 19 of the petition they were informed that the respondent No. 1 threatened to invoke the bank guarantee on 5th February, 1998. This is clearly beyond the period of 15 days. Hence, the said contention also has to be rejected.
7. As a last submission it was contended that in view of the judgement in the case of U.P. State Sugar Corporation v. Sumac International Limited, the petitioners having made out an exceptional case the bank guarantee ought not to have been invoked and the order of status quo ought to be continued. As pointed out earlier whatever be the other contentions, in terms of the tripartite meeting all that the respondent No. 1 was called upon was not to invoke the bank guarantee for a period of 15 days from 5th January, 1998. What this means is that if the petitioners had any grievance they had given up the same. Even otherwise the only exceptional and irretrievable circumstances sought to be made out was that the respondent no. 1 had been declared to be a sick industry. The Apex Court in para. 17 of U.P. State Sugar Corporation itself has rejected the said contention by holding that merely because an enquiry is pending before the Board that would not be sufficient to bring the case under the order or irretrievable circumstance. This was also not a ground based on which the petitioners had approached this Court. It is, however, contended by them that in view of the affidavit filed by the respondent No. 1 they are entitled to raise the said contention. I am unimpressed. Even otherwise the respondent is a Government of India Undertaking. The Company was declared sick in 1994. The agreement was entered into between the parties on 18th October, 1996. In para 9 of the affidavit-in-reply filed by the respondent they have set out that the contract was entered into by the petitioner knowing fully well the position of the company. As I pointed out earlier there will be no legal bar for the company pursuing the legal remedy. At the highest the amount so realised would be under the control and custody of the B.I.F.R. In the light of that the status quo granted has to be vacated.
8. Counsel for petitioners points out that they have appointed Arbitrator whereas the respondent No. 1 has not appointed their Arbitrator. The Counsel for respondent No. 1 informs that the respondent No. 1 has also appointed Arbitrator. Even if the respondent No. 1 has not appointed the Arbitrator the petitioners are at liberty to move under section 11 of the Arbitration & Conciliation Act, 1996 to get the Arbitrator appointed by filing appropriate application before the learned Chief Justice.
9. In that light of the matter there is no substance in this petition, which is rejected. The status quo granted by this Court stands vacated. In the circumstances of the case there shall be no order as to costs.
10. All concerned parties and authorities to act on the ordinary copy of this order duly authenticated by the Associate of this Court.
Certified copy expedited.
11. Petition rejected.