Tata Capital Financial Services ... vs Mitashi Edutainment Private ...
2021 Latest Caselaw 12825 Bom

                                                         (28) CARBP.457.2021.doc


 IN THE HIGH COURT OF JUDICATURE AT BOMBAY
     ORDINARY ORIGINAL CIVIL JURISDICTION
         IN ITS COMMERCIAL DIVISION

 COMM. ARBITRATION PETITION NO. 457 OF 2021


Tata Capital Financial Services Limited                     ... Petitioner

        Vs

Mitashi Edutainment Private Limited                        ... Respondent



Rohan Sawant a/w Gaurav Jangle, Juhi Shah i/b. I. V.
Merchant for the Petitioner.

Pratham Shirvate for the Respondent Nos.2 to 5.



                              CORAM : B.P. COLABAWALLA, J.

DATE : 8 th SEPTEMBER, 2021

P.C. :

1. The above Petition is filed under Section 9 of the

Arbitration and Conciliation Act, 1996 (for short, the

"Arbitration Act") seeking the following reliefs :

"(a) That pending the hearing and final disposal of the arbitral proceedings, making of the Arbitral Award and until final execution of the Arbitral Award, this Hon'ble Court be pleased to order and direct the Respondents to, jointly and severally, either, furnish the security and/or unconditional and irrevocable bank guarantee in favour of the Petitioner and/or to deposit a sum of

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Rs.4,47,14,566.10 ((Rupees Four Crores Forty-Seven Lakhs Fourteen Thousand Five Hundred Sixty-Six and Paise Ten Only) due as on 17 th June, 2021, as per the Particulars of Claim annexed at Exhibit "D" hereto, within such time as this Hon'ble Court deems fit;

(b) That pending the hearing and disposal of Arbitration proceedings, making of the Arbitral Award and until final execution of the Arbitral Award, each of the Respondents be ordered and directed by this Hon'ble Court to forthwith file their respective Affidavits, disclosing complete details of all the movable and immovable properties belonging to them with the encumbrances, if any, whether in their sole names or jointly with others, giving complete details and addresses thereof;

(c) That pending the hearing and final disposal of arbitration proceeding, making of the Arbitral Award and until final execution of the Arbitral Award, the Hon'ble Court be pleased to pass an interim order of injunction, inter alia, restraining Respondents, by themselves, their servants, assigns, agents, representatives, officers, trustees, beneficiaries, administrator/s or any other person claiming through or under them or under any instrument, whatsoever, from in any manner selling, alienating, transferring, parting with the possession of, dealing with, disposing of, inducting anyone into or developing or creating any third party right or interest of whatsoever nature and in any manner whatsoever in respect of their respective assets, whether held jointly and/or with any other person/s, both movable and immovable, or any portion thereof, directly and/or indirectly, including the following:

(i) the schedule of Properties as described in Exhibit "E"

hereto;

(ii) the assets / properties belonging to each of the Respondents and disclosed by them, pursuant to prayer clause (b) above;

(d) That pending the hearing and final disposal of arbitration proceeding, making of the Arbitral Award and until final execution of the Arbitral Award, the Hon'ble Court be pleased to appoint the Court Receiver, High Court, Mumbai, or any other fit or proper person of:

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(i) the schedule of Properties as described in Exhibit "E"

hereto;

(ii) the assets / properties belonging to the Respondents disclosed pursuant to prayer clause (b) above;

(e) that pending the Arbitral proceedings, making of the Arbitral Award and until final execution of the Arbitral Award, each of the Respondents be restrained by this Hon'ble Court from leaving the country without the permission of this Hon'ble Court and/or be directed to deposit their passports in this Hon'ble Court."

2. By an order passed on 9th August, 2021, this Court

had recorded that Respondent No.1 is before the National

Company Law Tribunal (for short, the "NCLT") at Mumbai

and an order admitting the Petition against Respondent No.1

has already been passed on 20th July, 2021. Under these

circumstances, a statement was recorded on behalf of the

Petitioner that for the time being the present Petition is not

being pressed against Respondent No.1.

3. Today, when the matter is argued, the Petitioner

has pressed the Petition against Respondent Nos.2 to 5. He has

further submitted that today he is pressing for reliefs only in

terms of prayer clauses (a) to (c) reproduced above and will

make an application before the Arbitral Tribunal for the

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remaining reliefs, if so advised.

4. The main relief pressed into service today is seeking

a direction against Respondent Nos. 2 to 5 to deposit in this

Court the outstanding amount which has not been paid to the

Petitioner under the Working Capital Term Loan Agreement

dated 22nd August, 2019 read with the Master Terms and

Conditions dated 31st December, 2018. Over and above this,

relief is also sought to restrain Respondent Nos.2 to 5 from

disposing of their assets pending the Arbitral proceedings.

5. The brief facts of the case would reveal that the

Petitioner had granted a Working Capital Demand Loan

Facility (Demand Loan) under a sanction letter dated 10th

August, 2018. Pursuant to the aforesaid sanction letter,

Respondent No.1 executed a Demand Promisory Note dated

20th August, 2018 in favour of the Petitioner and also entered

into a Working Capital Demand Loan Agreement (for short the

"Loan Agreement/Demand Loan") dated 23rd August,

2018 in the sum of Rs.5 Crores. This Demand Loan was for a

period of 12 months, extendable on a request for renewal by the

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Respondents. Over and above this, Respondent Nos.2 to 5

executed a letter of guarantee dated 23rd August, 2018

providing personal and irrevocable guarantees in favour of the

Petitioner for securing the amounts due and payable under the

said Loan Agreement. Respondent Nos.2 to 5 have also

executed personal individual Net Worth Affidavits, all dated

23rd August, 2018.

6. It is stated in the Petition that at the request of

Respondent No.1 (vide a letter dated 30th August, 2018

addressed to the Petitioner), the Petitioner on 1st September,

2018 disbursed a sum of Rs.1.47 Crores to Genus Electrotech

Limited and a sum of Rs.3.53 Crores to Dixon Technologies

(India) Ltd. for and on behalf of Respondent No.1. Thereafter,

a request was made by Respondent No.1 for an extension of the

Demand Loan, which was extended by the Petitioner vide its

extension letter dated 19th August, 2019. By a renewal letter

dated 22nd August, 2019, the Respondents confirmed and

acknowledged that the total amount due and payable by

Respondent No.1 to the Petitioner as on 19th August, 2019 was

Rs.4,99,97,307.82 along with further accrued interest and all

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other costs and expenses under and in relation to the said

Demand Loan. Accordingly, the Petitioner renewed the

Demand Loan up to 7th November, 2019. It is the case of the

Petitioner that Respondent No.1 availed of the said Demand

Loan and has defaulted in repaying the same in the manner

and on the terms on which it was sanctioned. It is in these

circumstances that the Petitioner has approached this Court

under Section 9 of the Arbitration Act seeking various interim

measures of protection. I must mention that after the filing of

this Petition, the Petitioner has also invoked Arbitration vide

its letter dated 27th August, 2021 (Exhibit "G" to the affidavit-

in-rejoinder).

7. In this factual background, Mr. Sawant, the learned

advocate appearing on behalf of the Petitioner, submitted that

this is a fit case where this Court ought to exercise its discretion

and grant relief to the Petitioner and against Respondent Nos.2

to 5, in terms of prayer clauses (a), (b) and (c) reproduced

above. He submitted that there is no dispute that monies were

disbursed to Respondent No.1 as set out in the Petition. It is

also not in dispute that the Respondents have defaulted in

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repaying the monies given by the Petitioner to the

Respondents. He submitted that it is also not in dispute that

Respondent Nos.2 to 5 are guarantors in the above loan

transaction.

8. Mr. Sawant then submitted that this apart, the

Respondents have clearly admitted their liability to the extent

of Rs.4,99,97,307.82 in their renewal letter dated 22nd August,

2019, the relevant portion of which reads thus:

"3. We hereby confirm and acknowledge that the total outstanding amount due and payable by us to you under the Facility as on 19.08.2019 is Rs.49,997,307.82 (Rupees Four Crore Ninety Nine Lakh Ninety Seven Thousand Three Hundred Seven Rupees and Eighty Two Paisa Only) along with accrued interest and all other costs, charges, expenses and amounts outstanding under and in relation to the Facility ("Outstandings") and undertake to make payment of the Outstandings in the manner set out in the Facility Documents.

4. We hereby acknowledge and confirm for the purposes of Section 18 and 19 of the Indian Limitation Act, 1963, and any other similar law and in order to preclude any question of limitation, that we are liable to the Lender for the payment of all Outstandings and other monies due and payable by us to the Lender as detailed in the Facility Documents. The Facility Documents and the Obligations undertaken by me/us shall remain in full force, till the said Facility is fully adjusted and repaid by me/us to the Lender."

9. Mr. Sawant submitted that looking at this

unequivocal admission, this is a fit case where Respondent

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Nos. 2 to 5 ought to be directed to deposit the amount as

mentioned in prayer clause (a) which was due as on 17th June,

2021 as per the particulars of claim annexed at Exhibit 'D' to

the Petition. He submitted that over and above this, to secure

and safeguard the dues of the Petitioner, an injunction order

also ought to be passed in terms of prayer clause (c) and a

direction ought to be given to Respondent Nos.2 to 5 to

disclose on oath the complete details of all the movable and

immovable properties belonging to them, with the

encumbrances, if any, whether standing in their sole names or

jointly with others, giving complete details and addresses

thereof.

10. On the other hand, Mr. Shirvate, the learned

advocate appearing on behalf of Respondent Nos.2 to 5

submitted that in the facts of the present case, a Petition under

Section 9 of the Insolvency and Bankruptcy Code, 2016 (IBC),

has already been admitted by the NCLT and an order of

moratorium is also subsisting in favour of Respondent No.1. He

therefore submitted that no order can be passed in the present

Petition either against Respondent No.1 (who is the corporate

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debtor) or against Respondent Nos.2 to 5 (who are the

guarantors). In this regard, he placed reliance on the order

passed by the NCLT on 20th July, 2021 in Company Petition

(IB) No.569 of 2020.

11. The second argument canvassed by Mr. Shirvate

was that the arbitration clause between the parties grants

unilateral power to the Petitioner to appoint a sole Arbitrator

to decide the disputes and differences between the Petitioner

and the Respondents. He submitted that it is now well settled

that the Petitioner cannot be permitted to unilaterally appoint

an Arbitrator to adjudicate the disputes and differences

between the Petitioner and the Respondents. He, therefore,

submitted that the arbitration clause itself is invalid and void

ab initio. If this be the case, there is no question of granting

any relief to the Petitioner under Section 9 of the Arbitration

Act, was the submission of Mr. Shirvate. In support of his

submission, Mr. Shirvate relied upon the decision of the

Supreme Court in the case of TRF Limited vs Energo

Engineering Projects Ltd. [(2017) 8 SCC 377]. For all the

aforesaid reasons, Mr. Shirvate submitted that there was no

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merit in the Petition and the same be dismissed with costs.

12. I have heard the learned advocates for the parties at

length and have perused the papers and proceedings in the

above Petition. It is not in dispute that monies have been

disbursed by the Petitioner to the Respondent No.1 under the

Loan Agreement which has been extended at the instance of

Respondent No.1. It is also not in dispute that the monies

disbursed by the Petitioner to Respondent No.1 have not been

repaid. To secure the Loan Agreement as well as any extension

thereof, Respondent Nos.2 to 5 have executed guarantees. This

apart, by the renewal letter dated 22nd August, 2019, the

Respondents have unequivocally admitted that the total

amount due and payable by the Respondents to the Petitioner,

as on 19th August, 2019, was Rs.4,99,97,307.82.

13. Considering these undisputed facts, I am, at least

prima facie, satisfied that Respondent No.1 has admitted its

liability to the Petitioner to the extent of Rs.4,99,97,307.82 as

on 19th August, 2019. Since there was a calculation mistake,

the Petitioner seeks a deposit of only Rs.4,47,14,566.10 as due

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and payable as on 17th June, 2021. Considering the above

admission, I would be fully justified in ordering Respondent

Nos.2 to 5 to secure this admitted amount, as held by this

Court in several decisions, which I shall advert to later in this

judgment.

14. However, before I proceed further, it would only be

fair to deal with the two arguments canvassed by Mr. Shirvate,

the learned advocate appearing on behalf of Respondent Nos.2

to 5.

15. The first argument canvassed by Mr. Shirvate was

that the guarantors (Respondent Nos.2 to 5) are not liable to

pay any amount to the Petitioner in view of the fact that a

Petition filed under Section 9 of the IBC against the 1st

Respondent has been admitted by the NCLT and there is also

an order of moratorium passed under Section 14 of the IBC in

favour of Respondent No.1. I find absolutely no merit in the

aforesaid submission. It is now well settled that the

moratorium order passed in favour of the corporate debtor (in

this case Respondent No.1) does not enure to the benefit of the

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guarantors (in this case Respondent Nos.2 to 5). This has been

so held by this Court in the case of M/s. Sicom Investments

and Finance Ltd. Vs. Rajesh Kumar Drolia [2017 SCC

OnLine Bom 9725], which decision has been approved by

the Supreme Court in the case of State Bank of India Vs. V.

Ramakrishnan and anr. [(2018) 17 SCC 394]. After

discussing the relevant provisions of the Insolvency and

Bankruptcy Code, 2016 (the IBC) the Hon'ble Supreme Court

held thus:

"20. Section 14 refers to four matters that may be prohibited once the moratorium comes into effect. In each of the matters referred to, be it institution or continuation of proceedings, the transferring, encumbering or alienating of assets, action to recover security interest, or recovery of property by an owner which is in possession of the corporate debtor, what is conspicuous by its absence is any mention of the personal guarantor. Indeed, the corporate debtor and the corporate debtor alone is referred to in the said section. A plain reading of the said section, therefore, leads to the conclusion that the moratorium referred to in Section 14 can have no manner of application to personal guarantors of a corporate debtor.

21. However, Section 2(e) and Section 60 are strongly relied upon by the learned counsel for the respondents as, according to them, the Code will apply to personal guarantors of corporate debtors, and by Section 60, proceedings against such personal guarantors will show that such moratorium extends to the guarantor as well.

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22. We are afraid that such arguments have to be turned down on a careful reading of the sections relied upon. Section 60 of the Code, in sub-section (1) thereof, refers to insolvency resolution and liquidation for both corporate debtors and personal guarantors, the adjudicating authority for which shall be the National Company Law Tribunal, having territorial jurisdiction over the place where the registered office of the corporate person is located. This sub-section is only important in that it locates the Tribunal which has territorial jurisdiction in insolvency resolution processes against corporate debtors. So far as personal guarantors are concerned, we have seen that Part III has not been brought into force, and neither has Section 243, which repeals the Presidency Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920. The net result of this is that so far as individual personal guarantors are concerned, they will continue to be proceeded against under the aforesaid two Insolvency Acts and not under the Code. Indeed, by a Press Release dated 28-8-2017, the Government of India, through the Ministry of Finance, cautioned that Section 243 of the Code, which provides for the repeal of the said enactments, has not been notified till date, and further, that the provisions relating to insolvency resolution and bankruptcy for individuals and partnerships as contained in Part III of the Code are yet to be notified. Hence, it was advised that stakeholders who intend to pursue their insolvency cases may approach the appropriate authority/court under the existing enactments, instead of approaching the Debts Recovery Tribunals.

23. It is for this reason that sub-section (2) of Section 60 speaks of an application relating to the "bankruptcy" of a personal guarantor of a corporate debtor and states that any such bankruptcy proceedings shall be filed only before the National Company Law Tribunal. The argument of the learned counsel on behalf of the respondents that "bankruptcy" would include Sarfaesi proceedings must be turned down as "bankruptcy" has reference only to the two Insolvency Acts referred to above. Thus, Sarfaesi proceedings against the guarantor can continue under the Sarfaesi Act. Similarly, sub- section (3) speaks of a bankruptcy proceeding of a personal guarantor of the corporate debtor pending in any court or

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tribunal, which shall stand transferred to the adjudicating authority dealing with the insolvency resolution process or liquidation proceedings of such corporate debtor. An "Adjudicating Authority", defined under Section 5(1) of the Code, means the National Company Law Tribunal constituted under the Companies Act, 2013.

24. The scheme of Sections 60(2) and (3) is thus clear -- the moment there is a proceeding against the corporate debtor pending under the 2016 Code, any bankruptcy proceeding against the individual personal guarantor will, if already initiated before the proceeding against the corporate debtor, be transferred to the National Company Law Tribunal or, if initiated after such proceedings had been commenced against the corporate debtor, be filed only in the National Company Law Tribunal. However, the Tribunal is to decide such proceedings only in accordance with the Presidency Towns Insolvency Act, 1909 or the Provincial Insolvency Act, 1920, as the case may be. It is clear that sub-section (4), which states that the Tribunal shall be vested with all the powers of the Debts Recovery Tribunal, as contemplated under Part III of this Code, for the purposes of sub-section (2), would not take effect, as the Debts Recovery Tribunal has not yet been empowered to hear bankruptcy proceedings against individuals under Section 179 of the Code, as the said Section has not yet been brought into force. Also, we have seen that Section 249, dealing with the consequential amendment of the Recovery of Debts Act to empower Debts Recovery Tribunals to try such proceedings, has also not been brought into force. It is thus clear that Section 2(e), which was brought into force on 23-11-2017 would, when it refers to the application of the Code to a personal guarantor of a corporate debtor, apply only for the limited purpose contained in Sections 60(2) and (3), as stated hereinabove. This is what is meant by strengthening the Corporate Insolvency Resolution Process in the Statement of Objects of the Amendment Act, 2018.

25. Section 31 of the Act was also strongly relied upon by the respondents. This section only states that once a resolution plan, as approved by the Committee of Creditors, takes effect, it

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shall be binding on the corporate debtor as well as the guarantor. This is for the reason that otherwise, under Section 133 of the Contract Act, 1872, any change made to the debt owed by the corporate debtor, without the surety's consent, would relieve the guarantor from payment. Section 31(1), in fact, makes it clear that the guarantor cannot escape payment as the resolution plan, which has been approved, may well include provisions as to payments to be made by such guarantor. This is perhaps the reason that Annexure VI(e) to Form 6 contained in the Rules and Regulation 36(2) referred to above, require information as to personal guarantees that have been given in relation to the debts of the corporate debtor. Far from supporting the stand of the respondents, it is clear that in point of fact, Section 31 is one more factor in favour of a personal guarantor having to pay for debts due without any moratorium applying to save him.

26. We are also of the opinion that Sections 96 and 101, when contrasted with Section 14, would show that Section 14 cannot possibly apply to a personal guarantor. When an application is filed under Part III, an interim-moratorium or a moratorium is applicable in respect of any debt due. First and foremost, this is a separate moratorium, applicable separately in the case of personal guarantors against whom insolvency resolution processes may be initiated under Part III. Secondly, the protection of the moratorium under these sections is far greater than that of Section 14 in that pending legal proceedings in respect of the debt and not the debtor are stayed. The difference in language between Sections 14 and 101 is for a reason.

26.1. Section 14 refers only to debts due by corporate debtors, who are limited liability companies, and it is clear that in the vast majority of cases, personal guarantees are given by Directors who are in management of the companies. The object of the Code is not to allow such guarantors to escape from an independent and co-extensive liability to pay off the entire outstanding debt, which is why Section 14 is not applied to them. However, insofar as firms and individuals are concerned, guarantees are given in respect of individual debts by persons who have unlimited liability to pay them. And such guarantors

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may be complete strangers to the debtor -- often it could be a personal friend. It is for this reason that the moratorium mentioned in Section 101 would cover such persons, as such moratorium is in relation to the debt and not the debtor.

26.2. We may hasten to add that it is open to us to mark the difference in language between Sections 14 and 96 and 101, even though Sections 96 and 101 have not yet been brought into force. This is for the reason, as has been held in State of Kerala v. Mar Appraem Kuri Co. Ltd. [State of Kerala v. Mar Appraem Kuri Co. Ltd., (2012) 7 SCC 106 : (2012) 4 SCC (Civ) 69] , that a law "made" by the legislature is a law on the statute book even though it may not have been brought into force. The said judgment states : (SCC pp. 141-42, paras 79-81) "79. The proviso to Article 254(2) provides that a law made by the State Legislature with the President's assent shall not prevent Parliament from making at any time any law with respect to the same matter including a law adding to, amending, varying or repealing the law so made by a State Legislature. Thus, Parliament need not wait for the law made by the State Legislature with the President's assent to be brought into force as it can repeal, amend, vary or add to the assented State law no sooner it is made or enacted. We see no justification for inhibiting Parliament from repealing, amending or varying any State legislation, which has received the President's assent, overriding within the State's territory, an earlier parliamentary enactment in the concurrent sphere, before it is brought into force. Parliament can repeal, amend, or vary such State law no sooner it is assented to by the President and that it need not wait till such assented-to State law is brought into force. This view finds support in the judgment of this Court in Tulloch [State of Orissa v. M.A. Tulloch & Co., AIR 1964 SC 1284 : (1964) 4 SCR 461] .

80. Lastly, the definitions of the expressions "laws in force" in Article 13(3)(b) and Article 372(3)

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Explanation I and "existing law" in Article 366(10) show that the laws in force include laws passed or made by a legislature before the commencement of the Constitution and not repealed, notwithstanding that any such law may not be in operation at all. Thus, the definition of the expression "laws in force" in Article 13(3)(b) and Article 372(3) Explanation I and the definition of the expression "existing law" in Article 366(10) demolish the argument of the State of Kerala that a law has not been made for the purposes of Article 254, unless it is enforced. The expression "existing law" finds place in Article 254. In Edward Mills Co. Ltd. v. State of Ajmer [Edward Mills Co. Ltd. v. State of Ajmer, AIR 1955 SC 25] , this Court has held that there is no difference between an "existing law" and a "law in force".

81. Applying the tests enumerated hereinabove, we hold that the Kerala Chitties Act, 1975 became void on the making of the Chit Funds Act, 1982 on 19-8- 1982, (when it received the assent of the President and got published in the Official Gazette) as the Central 1982 Act intended to cover the entire field with regard to the conduct of the chits and further that the State Finance Act 7 of 2002, introducing Section 4(1)(a) into the State 1975 Act, was void as the State Legislature was denuded of its authority to enact the said Finance Act 7 of 2002, except under Article 254(2), after the (Central) Chit Funds Act, 1982 occupied the entire field as envisaged in Article 254(1) of the Constitution."

(emphasis in original)

27. Thus, for the purpose of interpretation, it is certainly open for us to contrast Section 14 with Sections 96 and 101, as Sections 96 and 101 are laws made by the legislature, even though they have not yet been brought into force.

28. As argued by Shri Viswanathan, the historical background of the Code now needs to be looked at.

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28.1. Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 reads as follows:

"22. Suspension of legal proceedings, contracts, etc.--(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.

(2) Where the management of the sick industrial company is taken over or changed in pursuance of any scheme sanctioned under Section 18 notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law--

(a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company;

(b) no resolution passed at any meeting of the

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shareholders of such company shall be given effect to unless approved by the Board.

(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 thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board:

Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.

(4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly--

(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings

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relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and

(b) on the declaration ceasing to have effect--

(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and

(ii) any proceeding so remaining stayed shall be proceeded with subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed.

(5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded."

It will be clear from a reading of sub-section (1) thereof that suits for the enforcement of any guarantee in respect of loans or advances granted to the industrial company, shall not lie or be proceeded with further, except with the consent of the Board or appellate authority.

28.2. It may be noted that the Sick Industrial Companies (Special Provisions) Act, 1985 was repealed on 1-12-2016. By a Notification dated 30-11-2016, Section 14 of the Code was brought into force with effect from 1-12-2016. In Madras Petrochem Ltd. v. BIFR [Madras Petrochem Ltd. v. BIFR, (2016) 4 SCC 1 : (2016) 2 SCC (Civ) 478] , this Court found : (SCC pp. 37-39, paras 40-41 & 43-44) "40. An interesting pointer to the direction Parliament has taken after enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is also of some relevance in this context. The Eradi Committee Report relating to insolvency and winding up of companies dated 31-7-2000,

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observed that out of 3068 cases referred to BIFR from 1987 to 2000 all but 1062 cases have been disposed of. Out of the cases disposed of, 264 cases were revived, 375 cases were under negotiation for revival process, 741 cases were recommended for winding up, and 626 cases were dismissed as not maintainable. These facts and figures speak for themselves and place a big question mark on the utility of the Sick Industrial Companies (Special Provisions) Act, 1985. The Committee further pointed out that effectiveness of the Sick Industrial Companies (Special Provisions) Act, 1985 as has been pointed out earlier, has been severely undermined by reason of the enormous delays involved in the disposal of cases by BIFR. (See Paras 5.8, 5.9 and 5.15 of the Report.) Consequently, the Committee recommended that the Sick Industrial Companies (Special Provisions) Act, 1985 be repealed and the provisions thereunder for revival and rehabilitation should be telescoped into the structure of the Companies Act, 1956 itself.

41. Pursuant to the Eradi Committee Report, the Companies Act was amended in 2002 by providing for the constitution of a National Company Law Tribunal as a substitute for the Company Law Board, the High Court, BIFR and Aaifr. The Eradi Committee Report was further given effect to by inserting Sections 424-A to 424-H into the Companies Act, 1956 which, with a few changes, mirrored the provisions of Sections 15 to 21 of the Sick Industrial Companies (Special Provisions) Act, 1985. Interestingly, the Companies Amendment Act, 2002 omitted a provision similar to Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985. Consequently, creditors were given liberty to file suits or initiate other proceedings for recovery of dues despite pendency of proceedings for the revival or rehabilitation of sick companies before the National Company Law

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Tribunal.

***

43. Close on the heels of the amendment made to the Companies Act came the Sick Industrial Companies (Special Provisions) Repeal Act, 2003. This particular Act was meant to repeal the Sick Industrial Companies (Special Provisions) Act, 1985 consequent to some of its provisions being telescoped into the Companies Act. Thus, the Companies Amendment Act, 2002 and the SICA Repeal Act formed part of one legislative scheme, and neither has yet been brought into force. In fact, even the Companies Act, 2013, which repeals the Companies Act, 1956, contains Chapter 19 consisting of Sections 253 to 269 dealing with revival and rehabilitation of sick companies along the lines of Sections 424-A to 424-H of the amended Companies Act, 1956. Conspicuous by its absence is a provision akin to Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 in the 2013 Act. However, this Chapter is also yet to be brought into force. These statutory provisions, though not yet brought into force, are also an important pointer to the fact that Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 has been statutorily sought to be excluded, Parliament veering around from wanting to protect sick industrial companies and rehabilitate them to giving credence to the public interest contained in the recovery of public monies owing to banks and financial institutions. These provisions also show that the aforesaid construction of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 vis-à-vis the Sick Industrial Companies (Special Provisions) Act, 1985, leans in favour of creditors being able to realise their debts outside the court process over sick industrial companies being revived or rehabilitated. In fact, another interesting document

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is the Report on Trend and Progress of Banking in India 2011-2012 for the year ended 30-6-2012 submitted by Reserve Bank of India to the Central Government in terms of Section 36(2) of the Banking Regulation Act, 1949. In Table IV.14 the Report provides statistics regarding trends in non- performing assets bank-wise, group-wise. As per the said Table, the opening balance of non- performing assets in public sector banks for the year 2011-2012 was Rs 746 billion but the closing balance for 2011-2012 was Rs 1172 billion only. The total amount recovered through the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 during 2011-2012 registered a decline compared to the previous year, but, even then, the amounts recovered under the said Act constituted 70% of the total amount recovered. The amounts recovered under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 constituted only 28%. All this would go to show that the amounts that public sector banks and financial institutions have to recover are in staggering figures and at long last at least one statutory measure has proved to be of some efficacy. This Court would be loath to give such an interpretation as would thwart the recovery process under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 which Act alone seems to have worked to some extent at least.

44. It will, thus, be seen that notwithstanding the non obstante clauses in Sections 22(1) and (4), read with Section 32, Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 will have to give way to the measures taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, more particularly referred to in Section 13 of the said Act, and that this being the case, the sale

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notices issued both in 2003 and 2013 could continue without in any manner being thwarted by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985."

(emphasis supplied)

It is thus clear that for this reason also, it is obvious that Parliament, when it enacted Section 14, had this history in mind and specifically did not provide for any moratorium along the lines of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 in Section 14 of the Code.

29. The reasoning of the Bombay High Court in the judgment of Sicom Investments and Finance Ltd. [Sicom Investments and Finance Ltd. v. Rajesh Kumar Drolia, 2017 SCC OnLine Bom 9725] commends itself to us. The reasoning of the Allahabad High Court [Sanjeev Shriya v. SBI, 2017 SCC OnLine All 2717 : (2018) 2 All LJ 769 : (2017) 9 ADJ 723] , on the other hand, does not.

30. We now come to the argument that the amendment of 2018, which makes it clear that Section 14(3), is now substituted to read that the provisions of sub-section (1) of Section 14 shall not apply to a surety in a contract of guarantee for corporate debtor. The amended section reads as follows:

"14. Moratorium.--(1)-(2) * * * (3) The provisions of sub-section (1) shall not apply to--

(a) such transactions as may be notified by the Central Government in consultation with any financial sector regulator;

(b) a surety in a contract of guarantee to a corporate debtor."

31. The Insolvency Law Committee, appointed by the Ministry of Corporate Affairs, by its Report dated 26-3-2018, made certain key recommendations, one of which was:

"(iv) to clear the confusion regarding treatment of assets of guarantors of the corporate debtor vis-à-vis the moratorium on the assets of the corporate debtor, it has been recommended to clarify by way of an explanation that

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all assets of such guarantors to the corporate debtor shall be outside scope of moratorium imposed under the Code;"

(emphasis supplied)

16. As noted in the aforesaid decision, the Legislature

has now amended the provisions of Section 14 which reads

thus:

14. (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:--

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor.

(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period. (3) The provisions of sub-section (1) shall not apply to [(a)] such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(b) a surety in a contract of guarantee to a corporate debtor] (4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.

(emphasis supplied)

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17. In view of the decision of the Supreme Court in the

case of State Bank of India Vs. V. Ramakrishnan

(supra) and the amended provisions of Section 14 of the IBC,

I find no merit in the submission made by Mr. Shirvate that the

benefit of the moratorium order against the Corporate Debtor

also enures to the benefit of the guarantors. It is hereby

rejected.

18. The second argument canvassed by Mr. Shirvate

was that the Arbitration clause is invalid in view of the fact that

the same grants unilateral power to the Petitioner to appoint a

sole Arbitrator to adjudicate the disputes and differences

between the Petitioner and the Respondents. I find no merit in

this argument either. It is true, and now well settled, that the

Petitioner does not have unilateral power to appoint a Sole

Arbitrator to decide the disputes and differences between the

Petitioner and the Respondents. However, this does not mean

that the Arbitration clause is thereby rendered invalid. In a

case where, in the Arbitration Agreement, one of the parties to

the dispute is given the unilateral power to appoint an

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Arbitrator, then, notwithstanding that power and in absence of

an agreement between the parties, the party seeking the

constitution of the Arbitral Tribunal would have to come to

Court under Section 11 of the Arbitration Act and seek the

appointment of an Arbitrator. Merely because, the Petitioner

does not have a right to appoint a Sole Arbitrator, that, does

not by itself, make the Arbitration Agreement invalid and/or

void ab-initio. I, therefore, find no merit in this contention

either. It is hereby rejected.

19. Having rejected all the arguments canvassed by Mr.

Shirvate, and having stated earlier that the Respondents have

unequivocally admitted their liability to the Petitioner, I shall

now examine whether the facts of this case warrant an order of

deposit. In other words, I have to examine whether

Respondent Nos.2 to 5 should be directed to deposit in this

Court the sum of Rs.4,47,14,566.10 to secure the claim of the

Petitioner. In this regard, it would be useful to refer to the

decisions of this Court in the case of (i) Jagdish Ahuja v.

Cupino Limited [2020 SCC OnLine Bom 849]; (ii)

Valentine Maritime Ltd. v. Kreuz Subsea Pte Limited

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and another [2021 SCC OnLine Bom 75] and (iii)

Kotak Mahindra Bank Ltd. Vs. Williamson Magor &

Co. Ltd. & Anr [2021 SCC OnLine Bom 305: (2021) 3

Bom. C.R. 336].

20. In the case of Jagdish Ahuja (Supra), a Division

Bench of this Court has categorically opined that in an

appropriate case, where the court is of the view that there is

practically no defence to the amount payable and where it is in

the interest of justice to secure the amount which forms the

subject matter of the proposed arbitration, even if no case is

strictly made out within the letter of Order 38 Rule 1 or 2, it is

certainly within the power of the Court to order a suitable

interim measure of protection under Section 9 of the Act. For

ready reference, paragraph 7 of this decision is reproduced

hereunder:-

"7. In an appropriate case, where the court is of the view that there is practically no defence to the payability of the amount and where it is in the interest of justice to secure the amount, which forms part of the subject matter of the proposed arbitration reference, even if no case strictly within the letter of Order 38 Rule 1 or 2 is made out, though there are serious allegations concerning such case, it is certainly within the power of the court to order a suitable interim measure of protection. As we have noted above, the amount is either to be deposited into

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the treasury in accordance with the agreement between the parties or if, for any reason, it is not payable to the revenue towards the Respondent's tax liability, as is the case of the Appellants here, it is to be paid to the Respondent itself as part of the price of debentures. In fact, when these two options were posed by the learned Single Judge to the Appellants' counsel, in fairness both conceded that there was no third option."

21. Similarly, in the case of Valentine Maritime Ltd

(supra), this Court has followed its decision in the case of

Jagdish Ahuja (Supra). The relevant portion reads thus:-

"99. Learned senior counsel for the VML could not distinguish the judgment of the Division Bench of this Court in case of Jagdish Ahuja (supra). The Division Bench of this Court in the said judgment has clearly held that in an appropriate case, where the Court is of the view that there is practically no defence to the payability of the amount and where it is in the interest of justice to secure the amount, which forms part of the subject matter of the proposed arbitration reference, even if no case strictly within the letter of Order 38 Rule 1 or 2 is made out, though there are serious allegations concerning such case, it is certainly within the power of the Court to order a suitable interim measure of protection. The principles laid down by this Court in the said judgment applies to the fact of this case."

22. In fact, the aforesaid decisions of the two Division

Benches have been considered by another learned single Judge

of this Court (G. S. Patel J) in Kotak Mahindra Bank Ltd.

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Vs. Williamson Magor & Co. Ltd. (supra). After

considering the law on the subject, the learned Single Judge

held thus:

"31. Lest it be argued either here or in any other forum that no case has been made out under Order 38 Rule 5 of the Code of Civil Procedure, 1908 ("CPC"), which seems to me more or less the habitual and automatic chanting of every respondent in a Section 9 Petition, this needs to be stated : that is not the law. The recent decision of the Division Bench of this Court (RD Dhanuka and VG Bhisht JJ) in Essar House Private Limited v. Arcellor Mittal Nippon Steel India Ltd. [2021 SCC OnLine Bom 149] makes it clear that there is no requirement that for such relief an iron- clad case under Order 38 Rule 5 of the Code of Civil Procedure, 1908 ("CPC") must be made out (or, if not argued, that the Court must hunt for it). The Division Bench reaffirmed the principle that has long been settled, and restated repeatedly, but which seem to be reagitated in the wrong way again and again. The Division Bench said in the clearest terms that the principles of the CPC, including especially Order 38 Rule 5, are guides to a Section 9 Court and the order it makes under that Section. They are not fetters upon the Section 9 Court's discretion. On my reading of the Division Bench order, the position in law is that in such a case an order of deposit not only can be made, but ought to be made. In Valentine Maritime Ltd. v. Kreuz Subsea Pte Ltd. [2021 SCC OnLine Bom 75], the Division Bench of this Court reiterated this position regarding Order 38 Rule 5 and also held that in appropriate case, where the defence is prima facie untenable, the Petitioner has a chance of success, and the defence is moonshine, an order of deposit to secure the claim can and indeed should be made under Section 9. This was also the view of another Division Bench of this Court in Jagdish Ahuja v. Cupino Ltd. [2020 SCC OnLine Bom 849]. All three decisions referenced and explained the previous Division Bench

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decision in Nimbus Communications Ltd. v. Board of Control for Cricket in India [2013 (1) Mah L.J. 39] and the Supreme Court decision in Adhunik Steels Ltd. v. Orissa Manganese & Minerals (P) Ltd.[(2007) 7 SCC 125]. I followed the Division Bench decisions (referencing this law) in Parle Agro Pvt. Ltd. v. Shree Aqua Purifier Pvt. Ltd. and IIFL Finance Ltd. v. Shrenik Dhirajmal Sirqya.

32. Williamson Magor has no defence at all. Khaitan's defence is untenable and, in view of the settled law on the subject, is unstatable and probably the most complete moonshine. There is a contract with a clear and unequivocal obligation cast on the Respondents. The Petitioner has an excellent chance of success. Accordingly, the Respondents are required to deposit with the Prothonotary and Senior Master an amount of Rs. 14.88 crores by 31st March 2021.1 have rounded off the amount of deposit."

23. In the facts of the present case, the entire liability is

unequivocally admitted by the Respondents. In the light of this

admission, at least, prima facie, I find that there is practically

no defence available to Respondent Nos.2 to 5. Further, from

the record, prima facie it appears that the financial condition

of Respondent No.1 is quite precarious. It is Respondent No.1's

own case before the NCLT that they have defaulted in making

payments of Rs.16,61,583/- to the Operational Creditor who

has approached the NCLT and more than Rs.100 Crores are

due and payable to various creditors. It is further stated before

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the NCLT that the 1st Respondent is not in a position to secure

the same, due to the financial ill health of Respondent No.1.

Considering the totality of the facts, it would thus be just and

equitable to direct Respondent Nos.2 to 5 to deposit in this

Court the amount of Rs.4,47,14,566.10.

24. For the reasons stated above, I am satisfied that the

Petitioner has made out a case for an order of deposit. In these

circumstances, the following order is passed:

(i) Respondent Nos.2 to 5 are directed to deposit

the amount of Rs.4,47,14,566.10 in this Court

within a period of eight weeks from today.

(ii) In addition to the aforesaid order of deposit,

there shall be interim relief in term of prayer

clauses (b) and (c), except the bracketed

portion, which read thus:

(b) That pending the hearing and disposal of arbitration proceedings, making of the Arbitral Award and until execution of the Arbitral Award and until final execution of the Arbitral Award, each of Respondent Nos.2 to 5 be ordered and directed by this Hon'ble Court to forthwith file their respective Affidavits, disclosing complete

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details of all the movable and immovable properties belonging to them with the encumbrances, if any, whether in their sole names or jointly with others, giving complete details and addresses thereof;

(c) That pending the hearing and disposal of arbitration proceedings, making of the Arbitral Award and until final execution of the Arbitral Award the Hon'ble Court be pleased to pass an interim order of injunction, inter alia, restraining Respondent Nos.2 to 5, by themselves, their servants, assigns, agents, representatives, officers, trustees, beneficiaries, administrator/s or any other person claiming through or under them or under any instrument, whatsoever, from in any manner selling, alienating, transferring, parting with the possession of, [dealing with] , disposing of, inducting any one into or developing or creating any third party right or interest of whatsoever nature and in any manner whatsoever in respect of their respective assets, whether held jointly and/or with any other person/s, both movable and immovable, or any portion thereof, directly and/or indirectly, including the following:

(i) the schedule of Properties as described in Exhibit "E" hereto;

(ii) the assets / properties belonging to Respondent Nos. 2 to 5 and disclosed by them, pursuant to prayer clause (b) above;

(iii) It is clarified that the reliefs granted in prayer

clauses (b) and (c) are only to operate against

Respondent Nos.2 to 5 and not against

Respondent No.1. As far as the other reliefs

sought for in the Petition are concerned, the

Petitioner is granted liberty to press for those

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reliefs before the Arbitral Tribunal by filing an

appropriate application under Section 17 of

the Act, if so advised.

(iv) In case, the aforesaid deposit is made by the

Respondents, they shall be at liberty to move

this Court for vacating the reliefs granted in

terms of prayer clauses (b) and (c). If such an

Application is made, the same shall be decided

on its own merits and in accordance with law.

        (v)       It is clarified that if the aforesaid deposit is not

                  made     within    the    stipulated   time,     the

Petitioner shall be at liberty to execute this

order under Section 36 of the Code of Civil

Procedure, 1908 to ensure that the sum of

Rs.4,47,14,566.10, or any part thereof, is

brought into this Court.

25. The Section 9 Petition is disposed of in the

aforesaid terms. However, there shall be no order as to costs. It

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is needless to clarify that all observations made herein are only

prima facie and shall not influence the Arbitral Tribunal whilst

deciding the lis between the parties.

26. This order shall be digitally signed by the Private

Secretary/Personal Assistant of this Court. All concerned shall

act on production by fax or e-mail of a digitally signed copy of

this order.

Digitally signed by B.P. COLABAWALLA, J.

VINA     VINA ARVIND
         KHADPE
ARVIND   Date:
KHADPE   2021.09.18
         15:03:55
         +0530