Saurabh Kalani Vs Tata Finance Ltd - Citation 358051 - Court Judgment

Judgment:
ORDER

A.P. Shah, J.

1. This appeal arises out of a petition filed by the Appellant under Section 34 of the Arbitration & Conciliation Act, 1996 to set aside an award, Chandrachud J. dismissed this petition and it is from that order of dismissal that this appeal is preferred. Respondent No. 1 had granted financial facility to a company by name Gilt Pack Ltd. (GPL). In so far as the Appellant is concerned. It is common ground that he had furnished a personal guarantee to secure the outstanding dues of the Respondent No. 1. Respondent No. 1 invoked the personal guarantee which was furnished by the Appellant upon default of the company in paying the outstanding dues payable under four Bills of Exchange in the total amount of Rs. 50 lakhs, which were discounted by Respondent No. 1. On 16-12-1999, in pursuance of the provisions of arbitration contained in Clause 23 of the Deed of Guarantee Respondent No. 1 referred the dispute which had arisen between the parties to the sole arbitration of Mr. Ashwin Ankhad, a practising advocate under the provisions of Arbitration & Conciliation Act, 1996. In February 2000, two applications came to be filed before the arbitrator. The first questioning the jurisdiction of the arbitrator under Section 16 of the Act and the second, under Section 12 on the ground that there was a justifiable doubt as regards the independence and impartiality of the arbitrator. Insofar as the challenge to the jurisdiction of the arbitrator under Section 16 was concerned, it was contended that the company to which the Respondent No. 1 granted financial facility has been declared sick industrial company under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985 ('SICA' for short). The contention was that under Section 22 of the SICA arbitral proceedings were not maintainable and they could not be proceeded with. Insofar as the second challenge under Section 12 of the Act was concerned, the independence and impartiality of the arbitrator was sought to be questioned alleging that the arbitrator appointed by the Respondent No 1 was in fact an advocate engaged by the Respondent No. 1 and/or its sister concern in various matters. It was further averred that the Appellant was reliably informed that there exists very close relation between the arbitrator and the Respondent No. 1. The arbitrator dealt with both the applications and by an order dated 28th April, 2000 rejected the challenge to his jurisdiction and alleged bias. The arbitrator in his order stated that he has not acted as Advocate for Respondent No. 1 in any matter. The arbitrator further stated that he has acted as an Advocate in respect of only one company viz., Tata International Ltd. which has no connection with the Respondent No. 1. The arbitrator recorded that he has only acted as an arbitrator in few matters of the Tata Finance Ltd. and that he had never acted as Advocate for the said company. The objection that he would not be independent and impartial was consequentially rejected. Insofar as the challenge to his jurisdiction was concerned, the arbitrator held that Section 22 of the SICA is attracted to a suit for recovery of money and for enforcement of any security against the industrial company or any company in respect of any loan or advance granted to the industrial company. In the present case, the arbitrator held that there was no suit, therefore, bar under Section 22 was not attracted. The final award of the arbitrator was made on 25th August, 2001, by which the arbitrator has come to the conclusion that the Appellant was liable to pay to Respondent No. 1 the principal amount of Rs. 50,00,000 covered by the four Bills of Exchange, which have been discounted by the Respondent No. 1 and overdue discounting charge in the amount of Rs. 51,60,821.92 from the due date of the bill until 14-1-2000. Accordingly claim was allowed in the total amount of Rs. 1,01,60,821.92. The Appellant has been directed to pay interest at the rate of 18 per cent per annum on the principal amount of Rs. 50,00,000 from 15-1-2000, till payment or realisation. The award was challenged on various grounds, but only two grounds have been pressed before this Court. The first ground was that the arbitrator was disqualified from continuing to act as such, since within the meaning of Sub-section (1) of Section 12 and Sub-section (3) thereof, there were circumstances which existed to give rise to justifiable doubts as to his independence or impartiality. The second ground was that in view of the provisions of Section 22 of SICA the arbitral proceedings were not maintainable. The learned single Judge rejected both the grounds and dismissed the petition.

2. Mr. Chinoy, learned Counsel appearing for the Appellant strenuously submitted that independence and impartiality of an arbitrator, when it goes to the root of the matter has to be treated with the greatest circumspection and in view of the vast and untrammelled power of an arbitrator under the Arbitration & Conciliation Act, 1996, the independence and impartiality of an arbitrator must be beyond all reasonable doubts. He submitted that the arbitrator had merely stated at the hearing of the Application that 5 years earlier he had handled one matter of Tata International Ltd. and that he had not disclosed that he was the Head of the Legal Department of the group company of the Respondent No. 1. When the arbitrator was confronted with the allegation, an oral statement was made at the bar that the arbitrator was engaged by Tata International Ltd. He submitted that there is duty of disclosure cast upon the arbitrator and such disclosure ought to be made by the arbitrator, for which Section 12 of the Arbitration & Conciliation Act, 1996 has been enacted. He placed heavy reliance on the decision of this Court in Satyendra Kumar v. Hind Constructions Ltd. : AIR1952Bom227 , where Chief Justice Chagla speaking for the Bench observed that an arbitrator must show uberrima fides to the parties whose disputes he is going to arbitrate and who have constituted him their domestic forum. The arbitrator must disclose to the parties all facts which are likely or calculated to bias him in anyway in favour of one or the other party. A circumstance or a fact may in fact not bias the decision of the arbitrator. The arbitrator may have too strong a character, too deep a sense of justice to be influenced by any consideration extraneous to or foreign to the evidence which he has got to consider. But the question is not what is likely in fact to happen, but what is likely to tend or is calculated to tend to a particular result. Therefore, if the Court comes to the conclusion that there are any facts or any circumstances which are likely to bias him, it would be incumbent upon the arbitrator to disclose these facts to the parties. If he fails to disclose these facts, then his award would be liable to be successfully challenged.

3. Section 12 of Arbitration & Conciliation Act, 1996 provides that when a person is approached in connection with his possible appointment as an arbitrator, he shall disclose in writing any circumstances likely to give rise to justifiable doubts as to his independence or impartiality, Sub-section (2) of Section 12 provides that the arbitrator must disclose to the parties any circumstances referred to Sub-section (1) unless they have been disallowed. The question which falls for our consideration is whether there was an obligation to disclose the circumstance that at a distant point of time the arbitrator was employed in the Legal Department not of the Respondent No. 1 in the arbitral proceedings, but of Tata International Ltd., a company which is a Tata Group of Companies. In International Airport Authority of India v. K.D. Bali : [1988]3SCR370 . Sabyasachi Mukharji, J., (as he then was) speaking for the Bench observed that there must be purity in the administration of justice as well as in administration of quasi justice as are involved in the adjudicatory process before the arbitrator. It is well said that once the arbitrator enters into the arbitration the arbitrator must not be guilty of any act which can possibly be construed as indicative of partiality or unfairness. It is not a question of the effect which misconduct on his part had in fact upon the result of the proceeding, but of what effect it might possibly have produced. It is not enough to show that, even if there was misconduct on his part, the award was unaffected by it, and was in reality just: arbitrator must not do anything which is not itself fair and impartial. The learned Judge, then proceeded to observe as follows:--

'... The purity of administration requires that the party to the proceedings should not have apprehension that the authority is biased and is likely to decide against the party. But we agree with the learned Judge of the High Court that it is equally true that it is not every suspicion felt by a party which must lead to the conclusion that the authority hearing the proceedings is biased. The apprehension must be judged from a healthy, reasonable and average point of view and not on mere apprehension of any whimsical person.... '(p 1103)

4. In Parthasarathi v. State of Andhra Pradesh and S. Parthasarathi v. State of UP : (1973)IILLJ473SC the Supreme Court has held that there must be real likelihood of bias, Mathew, J. observed in para 16 of the Judgment as under:--

. The tests of real likelihood and reasonable suspicion are inconsistent with each other. We think that the reviewing authority must make a determination on the basis of the whole evidence before it, whether a reasonable man would in the circumstances infer that there is real likelihood of bias. The court must look at the impression which other people have. This follows from the principle that justice must not only be done but seen to be done. If right-minded persons would think that there is real likelihood of bias on the part of an inquiring officer, he must not conduct the inquiry; nevertheless, there must be a real likelihood of bias. Surmise or conjuncture would not be enough. There must exist circumstances from which reasonable men would think it probable or likely that the inquiring officer will be prejudiced against the delinquent. The Court will not inquire whether he was really prejudiced. If a reasonable man would think on the basis of the existing circumstances that he is likely to be prejudiced, that is sufficient to quash the decision (see per Lord Denning, M.R. in Metropolitan Properties Co. (F.G.C.) Ltd. v. Lannon WLR 707. We should not, however, be understood to deny that the court might with greater propriety apply the 'reasonable suspicion' test in criminal or in proceedings analogous to criminal proceedings.'

5. In Ranjit Thakur v. Union of India 1937 SCC 611 while considering the test of bias of the Judge, the Court held that the test of real likelihood of bias is whether a reasonable person, is possession of relevant information, would have thought that bias was likely and is whether the court or the Tribunal was likely to be disposed to decide the matter only in a particular way. As to the test of the likelihood of bias the court held that what is relevant is the reasonableness of the apprehension in that regard in the mind of the party. The proper approach for the Judge is not to look at his own mind and ask himself, however, honestly. 'Am I biased?' but to look at the mind of the party before him. A judgment which is the result of bias or want of impartiality is a nullity and trial 'coram non Judice'. In a subsequent decision in The Secretary to the Government, Transport Department v. Manuswamy Mudaliar : AIR1988SC2232 the Supreme Court held that a reasonable apprehension of bias in the mind of a reasonable man can be a ground for removal of the arbitrator. Mr. Justice Sabyasachi Mukharji held that a predisposition to decide for or against one part without proper regard to the true merits of the dispute is bias. There must be a reasonable apprehension of that predisposition which must be based on cogent material.

6. Recently, the Supreme Court in the case of Kumaon Mandal Vikas Nigam Ltd v. Girija Shankar Pant [2001] 1 SCC 187, after examining the English cases in R. v. Gough [1993] AC 646; and Locabail Ltd. v. Bayfield Properties [2000] 1 All ER 65 and other relevant English decisions, summed up the legal position as follows:--

'The Court of Appeal judgment in Locabail though apparently as noticed above sounded a different note but in fact, in more occasions than one in the judgment itself, it has been clarified that conceptually the issue of bias ought to be decided on the facts and circumstances of the individual case a slight shift undoubtedly from the original thinking pertaining to the concept of bias to the effect that a mere apprehension of bias could otherwise be sufficient.

The test, therefore, is as to whether a mere apprehension of bias or there being a real danger of bias and it is on this score that the surrounding circumstances must and ought to be collated and necessary conclusion drawn there from-in the event however the conclusion is otherwise inescapable that there is existing a real danger of bias, the administrative action cannot be sustained. If on the other hand, the allegations pertaining to bias is rather fanciful and otherwise to avoid a particular court, Tribunal or authority, question of declaring them to be unsustainable would not arise. The requirement is availability of positive and cogent evidence and it is in this context that we do record our concurrence with the view expressed by the Court of Appeal in Locabail case.'

7. We hastened to add that in Porter v. Magill [2002] 1 All ER 465, the House of Lords modified the real danger test propounded in Gough's case (supra) and in Locabail Ltd.'s case (supra). The Court took note of the fact that the reasonable likelihood and real danger tests which Lord Goff enunciated in Gough's case (supra) have been criticised by the High Court of Australia on the ground that they tend to emphasis the Court's view of the facts and place inadequate emphasis on the public perception of the irregular incident. The Court noted that the reasonable apprehension of bias test, on the other hand, was in line with the test adopted in most common law jurisdictions. The Court then referred to the judgment of the Court of Appeal In re Medicament and related Classes of Goods (No. 2) [2001] 1 WLR 700, in which the Court had taken the view that the test laid down in Gough's case (supra) required a modest adjustment. Lord Hope, in the House of Lords approved the modification of the real danger test which had been propounded in the Medicament's case (supra) and held thus:

'103. I respectfully suggest that Your Lordships should now approve the modest adjustment of the test in R v. Gough set out in that paragraph. It expresses in clear and simple language a test which is in harmony with the objective test which the Strasbourg Court applies when it is considering whether the circumstances give rise to a reasonable apprehension of bias. It removes any possible conflict with the test which is now applied in most Commonwealth countries and in Scotland. I would however delete from it the reference to a real danger. Those words no longer serve a useful purpose here, any they are not used in the jurisprudence of the Strasbourg court. The question is whether the fair-minded and informed observer, having considered the facts, would conclude that there was a real possibility that the Tribunal was biased.'

8. In the light of the decided cases, it is abundantly clear that in considering the question as to whether a Judge or an arbitrator, is liable to be disqualified in the facts of a given case on the ground of bias the test to be applied is whether the circumstances are such as would lead a fair minded and informed observer to conclude that there was a real possibility that the Judge or Tribunal was biased. In the application under Section 12, only allegations that are made against the arbitrator were that the arbitrator was an advocate engaged by the Respondent No. 1 or his sister concern in various matters. Then, it is also alleged that the arbitrator has very close relations with the Claimants. The arbitrator has categorically stated that save and except acting as an arbitrator for few matters of Tata Finance Ltd. i.e., Respondent No. 1 he had never acted as an advocate for the Respondent No. 1 in any matter or proceeding. During the course of hearing further affidavit was filed on behalf of the Appellant stating that upon inquiries he has been reliably informed that the arbitrator was originally practising as a Company Secretary to the Company known as Tata International Ltd. This allegation was not made at any stage before the arbitrator. It appears that the learned single Judge called upon the learned counsel for the Respondent No. 1 to take specific instructions and inform the Court whether as a matter of fact the arbitrator had served as a Company Secretary of Tata International Ltd. The learned Counsel appearing for the arbitrator has stated before the Court that between the years 1981 to 1987 the arbitrator was the Head of the Legal Department of Tata International Ltd. However, the arbitrator ceased to be in the service of Tata International Ltd. in 1987 and thereafter he has been practising as an advocate before this Court. It is an admitted position that Tata International Ltd. is an independent entity and duly registered under the Companies Act, 1986. Before us the ground that the arbitrator was biased as he had appeared in some of the Tata Group of companies was not even pressed. It is, however, urged that the arbitrator failed in his duty in disclosing the crucial fact that he was in the employment of the Tata Group of Companies during the period from 1981 to 1987. The question is whether any right thinking person knowing of the connection of the arbitrator with the Tata International Ltd. would feel that there was, any real possibility of bias in his case. The fact that the Arbitrator ceased from the employment of the Tata International Ltd. nearly 15 years back would make an allegation of bias clearly untenable. In Locabail Ltd.'s case (supra) the Court has observed that 'The greater the passage of time between the event relied on as showing a danger of bias and the case in which the objection is raised, the weaker (other things being equal) the objection will be.'

9. The learned single Judge has summed up the position in following terms:--

'I am of the view that in the present case, there were no justifiable doubts as regards the independence and impartiality of the Arbitrator. The apprehension of bias does not arise out of any alleged connection or interest of the Arbitrator in the affairs of the Claimant. The Arbitrator has had no such affiliation, contract or interest with the Claimant, least of all in the dispute with the Petitioner. The employment of the Arbitrator with Tata International Limited ended over twelve years prior to the reference. Employment in the distant past with another public company, albeit in the same group, was not such as would warrant the invocation of the circumstances spelt out in Section 12. The Arbitrator is a member of the Bar for over fifteen years now since he ceased to be in the service of Tata International Limited. A professional in the legal profession, who discharges the role of an Arbitrator is expected to bring to his task a sense of objectivity and a high degree of dispassionateness. No facts have been placed before the Court in these proceedings which would lead it to believe that this expectation has been belief.'

We are entirely in agreement with the conclusion of the learned Single Judge that no right thinking person knowing of the connection of the arbitrator, would feel that there was any possibility of bias in this case.

10. The next question is whether the bar under Section 22 of the SICA applies to the arbitral proceedings against the guarantor. Mr. Chinoy submitted that the term 'suit' is not defined in SICA nor is the term 'suit' restricted to the meaning of a suit in the CPC. Therefore the definition of the suit under the CPC is not relevant. He urged that having regard to the purpose and object underlying Section 22(1) viz., that the sick companies and their guarantors must be protected from the costs of litigation and the recovery of claims in the larger public interest, the term 'suit' must not receive a narrow & technical connotation. He submitted that in Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of Maharashtra Ltd. : [1993]1SCR340 , the decision of the High Court restricting the term 'legal proceedings' was reversed and it was held that having regard to the purpose and object underlying Section 22(1) the term must not receive a narrow and technical meaning. According to the learned Counsel for the same reason the term 'suit' also cannot be given a narrow or technical meaning. If the term 'suit' is given a narrow or technical meaning as being restricted to adjudicatory proceedings initiated in a Court by filing a plaint, it would mean that a sick company could be proceeded against in arbitration although it could not be proceeded against in a Court of law. Similarly, a guarantor could be proceeded against in arbitration even though he could not be proceeded against in a Court of law. The learned Counsel urged that this would run contrary to the evident purpose and object of Section 22(1). He submitted that the word 'suit' must receive its ordinary dictionary meaning i.e., 'an action or process for the recovery of a right or claim'. In this connection he has heavily relied upon the decision of the Supreme Court in Patel Roadways Ltd. v. Birla Yamaha Ltd. AIR 2000 SC 1461.

11. The short question is whether the arbitral proceedings against the Appellant who was the guarantor in respect of the financial facilities extended to the Company were not maintainable under Section 22 of SICA. Prior to 1994, Section 22(1) of the SICA read as follows:--

'22. Suspension of legal proceedings, contracts, etc.--(1) Where in respect of an industrial company, an inquiry under Section 16 is ending 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, 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 shall lie or be proceeded with further except with the consent of the Board or, as the case may be, the Appellate Authority.'

12. In Maharashtra Tubes Ltd's case (supra), when a question arose whether a State Financial Corporation could take action under Section 29 and/or Section 31 of the State Financial Corporation Act, 1951, notwithstanding the bar of Section 22 of SICA, the Supreme Court held that the expression 'proceedings' in Section 22(1) should not be limited to 'legal proceedings' as understood in the narrow sense, but would include proceedings under Sections 29 and 31 of the State Financial Corporation Act. The Court observed that:

'10. ...We are, therefore of the opinion that the word 'proceedings' in Section 22(1) cannot be given a narrow or restricted meaning to limit the same to legal proceedings. Such a narrow meaning would run counter to the scheme of the law and frustrate the very object and purpose of Section 22(1) of the 1985 Act.' (p. 159)

After this decision was rendered, Section 22(1) was amended by the Sick Industrial Companies (Special Provisions) Amendment Act (12 of 1994). The following words were inserted in Section 22(1):

'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 of advance granted to the industrial company.'

13. Section 22(1) itself has specified certain types of proceedings which would come within the purview of section namely, proceedings for winding up of the industrial company; proceedings for distress against any of the properties of the industrial company or the proceedings for appointment of Receiver in respect of the properties of the industrial company. From the nature of the proceedings mentioned above, it would be quite clear that only proceedings of coercive nature would come within the fold of Section 22(1) of the Act and not other proceedings. The Supreme Court has also observed on the same line in the case of Maharashtra Tubes Ltd. (supra):--

'...The words 'or the like' which follow the words 'execution' and 'distress' are clearly intended to convey that the properties of the sick industrial company shall not be made the subject-matter of coercive action of similar quality and characteristic till the BIFR finally disposes of the reference made under Section 15 of the side enactment. The Legislature has advisedly used an omnibus expression 'the like' as it could not have conceived of all possible coercive measures that may be taken against a sick undertaking....' (p. 158)

14. Similarly, in Shree Chamundi Mopeds Ltd. v. Church of South India AIR 1993 SC 1439, the Supreme Court explained the words or the like as follows:

'The words 'or the like' have to be construed with reference to the proceeding words, namely 'for execution', 'distress' which means that the proceedings which are contemplated in this category are proceedings whereby recovery of dues is sought to be made by way of execution, distress or similar proceedings against the property of the company.'

15. It is thus clear from the wording of Section 22(1) and above observations of the Supreme Court that only proceedings of coercive nature, be that legal or otherwise, would come within the purview of the expression 'proceedings' as mentioned in Section 22(1) and not all proceedings and the words 'or the like' should be construed ejusdem generis with the preceding words namely, 'execution' and 'distress' or in the other words, the said words or the like should be read as proceedings analogous to execution or distress proceedings against any of the properties of the industrial company. It is not the case of the Appellant that his case is covered by Section 22(1) of the Act.

16. It is to be noted that the Legislature in introducing, the aforesaid amendment has used the word 'suit' only and not 'suit and other proceedings'. The word 'suit' has not been defined in SICA nor any extended meaning of the word 'suit' has been given under any other provisions of the said Act. In Bouvier's Law Dictionary, 3rd Revision (1984) Volume-1, the word 'arbitration' has been defined at page 225 of the Book as follows:--

'Arbitration is the investigation and determination of a matter or matters of difference between contending parties, by one or more unofficial persons, chosen by the parties, and called arbitrators, or referees.'

'An arbitration is a domestic Tribunal created by the will and consent of the parties litigant, and restored to avoid expense, delay and ill-feeling consequence upon litigating in Courts of Justice.'

Arbitration is thus a substitution by consent of the parties of another Tribunal for those provided by the ordinary process of law. It is an arrangement for taking and abiding by the judgment of the selected persons in some disputed matter, instead of carrying it to the established Tribunal of Justice and is intended to avoid the formalities, the delay, the expense and vexation of ordinary litigation.

17. The definition of 'suit' has been given in Pandurang Ramchandra Mandlik v. Smt. Shantabai Ramchandra Mandlik : [1989]2SCR1 in the context of Section 11 of the Code of Civil Procedure in following terms:

'... In its comprehensive sense the word 'suit' is understood to apply to any proceeding in a Court of Justice by which an individual pursues that remedy which the law affords. The modes of proceedings may be various but that if a right is litigated between parties in a Court of Justice the proceedings by which the decision of the Court is sought may be a suit....' (p. 2248)

In Nawab Usmanali Khan v. Sagar Mal : [1965]3SCR201 , the question before the Court was whether the proceedings under Section 14 read with Section 17 of the Arbitration Act, 1940 would be is the nature of the suit. This question came up for consideration in the context of the provisions contained in Section 86(1) of CPC, as per which no suit could be filed against a ruler of former Indian State. The proceedings filed by an employee under Sections 14 and 17 of the Arbitration Act for making an award rule of the court against a ruler of a former Indian State were sought to be terminated on the ground that such proceedings were not maintainable against the ruler in view of the provisions under Section 86. The Supreme Court negatived the contention holding that these proceedings were not in the nature of a suit and therefore, the proceedings could go on against the ruler of a former Indian State.

18. In Lloyd Insulations (India) Ltd. v. Cement Corporation of India Ltd. [2001] 105 Comp. Cas. 729 (Delhi), a question arose before the Division Bench of the Delhi High Court as to whether the proceedings under Sections 14 and 17 of the Arbitration Act, 1940 can be treated as 'suit' for recovery of money and therefore would be covered by a bar of Section 22 of the SICA. The Division Bench answered this question in negative. The reasons for the decision were summarised as follows:--

'(1) The expression 'suit' under Sub-section (1) of Section 22 of the SICA is to be given the meaning in which it is normally understood, i.e., civil proceeding instituted by the presentation of a plaint. This would refer to the suit as contemplated by Section 9 of the Civil Procedure Code. Proceedings under Section 14 read with Section 17 of the Indian Arbitration Act, for the passing of a judgment and decree of an award do not commence with a plaint or a petition in the nature of a plaint and, therefore, cannot be regarded as a suit. This is the authoritative pronouncement of the Supreme Court in the case of Nawab Usmanali Khan v. Sagar Mal : [1965]3SCR201 , and is sufficient to annihilate all arguments of CCI Ltd. to the contrary.

(2) The Legislature, mindful of the expression 'proceedings' already occurring in Sub-section (1) of Section 22 of the SICA still used the expression 'suit' insofar as recovery of money or the enforcement of any security against the industrial company or any guarantee in respect of any loans or advance granted to the industrial company is concerned. Therefore, the Legislature wanted to give a restricted meaning to the word 'suit' which is understood in the common parlance and not all kinds of proceedings for recovery of money.

(3) The purpose of the amendment by adding 'suit for recovery of money' etc. is clear when understood along with Sub-section (5) of Section 22 inasmuch as it is in suits where the law of limitation applies stictosensu without any provisions for condonation of delay. A specific provision had to be added in the form of Sub-section (5) because of the expression 'suit' introduced in Sub-section (1) of Section 22.

(4) The arbitrator has given the 'award'. This award would be covered by the provisions of Sub-section (3) of Section 22 of the SICA and this, by necessary implication, excludes the awards from the expression 'suit' occurring in Sub-section (1) of Section 22 of the SICA. Otherwise, in respect of 'awards' both Sub-section (1) as well as Sub-section (3) of Section 22 would be applicable which would create an anomalous situation.

(5) The purpose for which Section 22 of the SICA was inserted is still achieved by reading Sub-sections (1) and (3) of Section 22 in the manner indicated above inasmuch as still the Board has power to declare that such an arbitration award shall remain suspended or be enforceable with such adoptions and in such a manner as may be specified by the Board. The only difference would be that instead of automatic stay of proceedings under Section 22(1), it will require a declaration by the Board to this effect under Section 22(3) of the SICA.' (p. 742)

19. In Burm Standard Co. Ltd. v. MC Dermott International INC 1998 CWN 26 the Division Bench of the Calcutta High Court held that the arbitration proceedings under the Arbitration Act, 1940 cannot be termed as a 'suit' within the meaning of Section 22(1) of SICA. The Court held that the suit as introduced in Section 22(1) of SICA by amendment Act, 1993 must be given its ordinary meaning and not any artificial or extending meaning as sought to be contended by the Appellant.

20. In P.S. Shrinivasan v. Mukesh Babu Financial Services Ltd. 2001 Comp. Cas. 597 to which one of us (Deshmukh, J.) was a party, it was held following the decision in Madalsa International Ltd. v. Central Bank of India [1998] Mah. LJ 666 and the decision of the Delhi High Court in Lloyd Insulations (India) Ltd.' case (supra) that Section 22 of the SICA extends protection to the guarantor only in relation to the suit and the execution proceedings on the basis of award made against the guarantor would not be barred by the provisions of Section 22 of the Act. It was further held that issuance of insolvency notice is an independent proceedings and cannot be termed as further proceedings in the suit.

21. In a recent decision of the Supreme Court in BSI Ltd. v. Gift Holdings (P.) Ltd. [2000] 24 SCL 351, 436 the question to be decided was whether the proceedings under Section 138 of the Negotiable Instruments Act, 1881 were in the nature of suit for recovery of money. The Court held that the word 'suit' envisaged in Section 22(1) cannot be a criminal proceeding. The term 'suit' mentioned therein restricts 'recovery of money' or enforcement of any security against the industrial company or of any guarantor in respect of any loan or advance granted to the industrial company. Although, in that case the question involved was whether the criminal proceeding under Section 138 of the Negotiable Instruments Act was 'suit' for recovery of money, what is significant for our purpose is that the Court did not accept the dictionary meaning of the word 'suit'. The Court also distinguished its earlier judgment in the case of Maharashtra Tubes Ltd. (supra).

22. In our opinion, the issue virtually stands concluded by the recent pronouncement of the Supreme Court in Kailash Nath Agarwal v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. 2003 (2) SCALE 169. The question which fell for consideration of the Court was whether the word 'suit' in Section 22(1) should be understood to include any proceedings including the proceedings under U.P. Public Demands (Recovery of Dues) Act, 1972. The Court noted the distinction between the expression 'proceeding' and 'suit' in paragraph 20 of the judgment:

'20. There is an apparent distinction between the expressions 'proceeding' and 'suit' used in Section 22(1). While it is true that two different words may be used in the same statute to convey the same meaning, that is the exception rather than the rule. The general rule is that when two different words are used by the same statute, prima facie one has to construe these different words as carrying different meanings. In Kanhaiyalal Vishnidas Gidwani(supra) this Court found that words 'subscribed' and 'signed' had been used in the Representation of People Act, 1951 interchangeably and, therefore, in that context the Court came to the conclusion that when the Legislature used the word 'subscribed' it did not intend anything more than 'signing'. The words 'suit' and 'proceeding' have not been used interchangeably in SICA. Therefore, the reasons which persuaded this Court to give the same meaning to two different words in a statute cannot be applied here. '

The Court, then, after noticing the judgment in Pandurang's case (supra) and certain other decisions observed as follows:--

'25. Having regard to the judicial interpretation of the word 'suit', it is difficult to accede to the submission of the appellants that the word 'suit' in Section 22(1) of the Act means anything other than some form of curial process.

26. Apart from the semantic difference between the words 'suit' and 'proceeding' there is the absence of expansive words 'or the like' which appear after the expression proceedings, after the word 'suit'. The exclusion of such 'omnibus expression' after the word 'suit' must be given some weight in interpreting the word. As held by this Court in LIC v. Escorts Ltd.'s case (supra):

'The distinction made by Parliament..... in the several provisions of the same Act cannot be ignored or strained to be explained away by us. That is not the way to interpret statutes. The proper way is to give due weight to the use as well as the omission to use the qualifying words in different provisions of the Act the significance of the use of the qualifying word in one provision and its non-use in another provision may not be disregarded.' 27. Since the Legislature has expressly chosen to make a distinction between the suits for recovery of the money and enforcement of guarantees and proceedings for the recovery of money, that must be given effect to.

28. Furthermore, the Parliament must be taken to be aware of the decision in Maharashtra Tubes and the fact that the word 'proceeding' used in Section 22(1) had been widely construed to include proceedings for recovery of dues by State Financial Corporation as arrears of land revenue. The deliberate choice of the word 'suit' in the circumstances would indicate that Parliament intended to limit the ambit of the amendment introduced to particular modes for the recovery of money or enforcement of guarantees, '

23. The Court further observed in Kailash Nath Agarwal's case (supra) in paragraph 30 of the judgment as follows:

'We have been unable to find a corresponding reason for widening the scope of the word suit so as to cover proceedings against the guarantor of an industrial company. The object for enacting the SICA and for introducing the 1994 amendment was to facilitate the rehabilitation or the winding up of sick industrial companies. It is not the stated object of the Act to protect any other person or body. If the creditor enforces the guarantee in respect of the loan granted to the industrial company, we do not see how the provisions of the Act would be rendered nugatory or in anyway affected. All that could happen would be that the guarantor would step into the shoes of the creditor vis-a-vis the company to the extent of the liability met.'

24. In the light of the decision in Kailash Nath Agarwal's case (supra), it would be totally impermissible to hold that even proceedings under the Arbitration & Conciliation Act, 1996 would be covered by the provisions of SICA. Mr. Chinoy, however, placed heavy reliance on the decision of the Supreme Court in Patel Roadways Ltd.'s case (supra). That was the case where the Court was considering the question whether the well-established principles of law incorporated in Section 9 of the Carrier Act are applicable in a proceedings before the Consumer Disputes Redressal Agency, particularly the National Commission. The Court noted from the conspectus of views taken in the decisions of different High Courts that the liability of a common carrier under the Carriers Act is that of an insurer, and this position is further made clear by provisions of Section 9 in which it is specifically laid down that in a case of claim of damage for loss to or deterioration of goods entrusted to a carrier it is not necessary for the plaintiff to establish negligence. The Court after noticing the definition of 'suit' in P. Ramanatha Aryar's Law Lexicon 1997 Edition observed in paragraph 49 as follows:--

'49. From the above it is clear that the term 'suit' is a generic term taking within its sweep all proceedings initiated by a party for realisation of a right vested in him under law. The meaning of the term 'suit' also depends on the context of its user which in turn, amongst other things, depends on the Act or the Rule in which it is used. No doubt the proceeding before a National Commission is ordinarily a summary proceeding and in an appropriate case where the Commission feels that the issues raised by the parties are too contentious to be decided in a summary proceeding it may refer the parties to a civil Court. That does not mean that the proceeding before the Commission is to be decided ignoring the express statutory provisions of the Carriers Act (Section 9) in a proceeding in which a claim is made against a common carrier as defined in the said Act. Accepting such a contention would defeat the object and purpose for which the Consumers Protection Act was enacted A proceeding before the National Commission, in our considered view, comes within the term 'suit'. Accordingly we reject the contention raised by Shri Ashok Desai in this regard.

The above observations of the Supreme Court make it clear that the meaning of the term 'suit' depends on the context of its user which in turn amongst other things, depends on the Act or the Rule in which it is used. In the context of the provisions of Section 22 of SICA and also keeping in mind the intention of the Legislature in amending the section, it is not possible to accept the submission of Mr. Chinoy that the arbitration proceedings under the Arbitration Act, 1996 are covered by the terms 'suit' use in Section 22(1) of the SICA.

25. In the result, the Appeal fails and is dismissed with costs.

Subject	Company
Court	Mumbai High Court
Decided On	Apr-28-2003
Case Number	Appeal No. 213 of 2003 and Arbitration Petition No. 165 of 2002
Judge	A.P. Shah and ;D.K. Deshmukh, JJ.
Reported in	2003(4)ALLMR117; 2003(3)ARBLR345(Bom); I(2004)BC443; 2003(5)BomCR844; 2003(4)MhLj810; [2003]46SCL678(Bom)
Acts	Arbitration and Conciliation Act, 1996 - Sections 12; Sick Industrial Companies (Special Provisions) Act, 1985 - Sections 22 and 22(1); Companies Act, 1956
Appellant	Saurabh Kalani
Respondent	Tata Finance Ltd.
Appellant Advocate	Apsi Chinoy, ;D. Purandare and ;H.N. Thakore, Advs.
Respondent Advocate	Pooniwalla and ;P.A. Sawant, Advs.

Saurabh Kalani Vs. Tata Finance Ltd. - Court Judgment