Telangana High Court
M/S. Hindustan Fluro Carbons Limited vs M/S. Rockwell Industries Limited on 12 June, 2025
Author: P. Sam Koshy
Bench: P.Sam Koshy, N.Tukaramji
IN THE HIGH COURT FOR THE STATE OF TELANGANA, HYDERABAD
***
C.M.A. No. 918 OF 2018 AND COM.C.A.No.16 of 2020
Between:
M/s. Hindustan Fluro Carbons Ltd. Rep. by its Managing Director,
Hyderabad.
..Appellant
VERSUS
M/s. Rockwell Industries Ltd. And another
...Respondents
COMMON JUDGMENT PRONOUNCED ON: 12.06.2025
THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE N. TUKARAMJI
1. Whether Reporters of Local newspapers
may be allowed to see the Judgments? : Yes
2. Whether the copies of judgment may be
Marked to Law Reporters/Journals? : Yes
3. Whether His Lordship wishes to
see the fair copy of the Judgment? : Yes
________________
P. SAM KOSHY, J
________________
N. TUKARAMJI, J
PSK,J & NTR,J
2 CMA_918_2018&COMCA_16_2020
* THE HON'BLE SRI JUSTICE P.SAM KOSHY
AND
THE HON'BLE SRI JUSTICE N. TUKARAMJI
+ C.M.A. No. 918 OF 2018 AND COM.C.A.No.16 of 2020
% 12.06.2025
# Between:
M/s. Hindustan Fluro Carbons Ltd. Rep. by its Managing Director,
Hyderabad.
..Appellant
VERSUS
M/s. Rockwell Industries Ltd. and another
...Respondents
! Counsel for appellant (s) : Mr. Y.Venkateshwarlu
^Counsel for the respondent(s) : Mr. Prabhakar Sripada, leaned
Senior Counsel appeared on
behalf of Mr.Setty Ravi Teja, counsel.
<GIST:
> HEAD NOTE:
? Cases referred
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3 CMA_918_2018&COMCA_16_2020
THE HONOURABLE SRI JUSTICE P.SAM KOSHY
AND
THE HONOURABLE SRI JUSTICE N.TUKARAMJI
C.M.A. No. 918 OF 2018
AND
COM.C.A.No.16 of 2020
COMMON JUDGMENT:
(Per Hon’ble Sri Justice N.Tukaramji)
We have heard Mr. Y. Venkateswarlu, learned counsel for the
appellant, and Mr. Prabhakar Sripada, learned Senior counsel
appearing on behalf of Mr. Setty Ravi Teja, counsel for respondent
No.1.
2. Since both appeals arise out of disputes involving the same
parties and pertain to interconnected issues stemming from
arbitration proceedings, they were heard conjointly. Accordingly, this
common judgment is rendered in disposal of both appeals.
3. Civil Miscellaneous Appeal No. 918 of 2018 has been filed
by M/s Hindustan Fluorocarbons Limited, Hyderabad, challenging
the decree and order dated 27.02.2017 passed in Arbitration O.P.
No. 708 of 1998 by the learned Chief Judge, City Civil Court,
Hyderabad.
4. Commercial Court Appeal No. 16 of 2020 has been preferred
by the same appellant–M/s Hindustan Fluorocarbons Limited,
Hyderabad–who was the respondent in C.O.P. No. 42 of 2019,
assailing the order dated 05.02.2020 passed by the learned Judge,
Commercial Court-cum-XXIV Additional Chief Judge, City Civil Court,
Hyderabad.
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5. Brief Statement of Facts:
(a) The appellant, M/s Hindustan Fluorocarbons Limited,
Hyderabad, a public sector undertaking under the Government of
India, is engaged in the manufacture of Polytetrafluoroethylene
(PTFE). Respondent No.1, M/s Rockwell Industries Limited,
Secunderabad, entered into a supply agreement with the appellant
for the purchase of Chlorodifluoromethane (CFM-22) gas. Pursuant to
the said agreement, Respondent No.1 placed an order and remitted
full payment for the same. However, the appellant failed to supply the
gas, allegedly causing substantial financial loss to Respondent No.1.
Alleging breach of contractual obligations and resultant
damages, Respondent No.1 invoked the arbitration clause contained
in the agreement and appointed Respondent No.2 as the sole
arbitrator and asked the appellant for consent. The appellant though
agreed in the first instance, later objected to this appointment.
Despite the objection, Respondent No.2 proceeded to act as sole
arbitrator and passed an arbitral award dated 14.03.1998, directing
the appellant to pay a sum of Rs. 2,69,00,000/-, along with interest at
the rate of 18% per annum.
Aggrieved by the award, the appellant filed Arbitration O.P.
No. 708 of 1998 under Section 34 of the Arbitration and Conciliation
Act, 1996 (hereinafter referred to as “the Act”), seeking to set aside
the award on the grounds of lack of jurisdiction and invalid unilateral
appointment of the arbitrator.
By order dated 31.10.2001, the learned Chief Judge, City Civil
Court, Hyderabad, allowed the appellant’s petition and consequently
set aside the arbitral award. However, upon an appeal preferred by
Respondent No. 1, this Court, while allowing the appeal, set aside the
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said order passed under Section 34 of the Act, and remanded the
matter to the Chief Judge for fresh consideration in accordance with
law. Pursuant to the remand, the learned Chief Judge, by a
subsequent order dated 27.02.2017, dismissed the appellant’s
petition filed under Section 34 and upheld the validity of the arbitral
award.
Aggrieved by this order, the appellant has preferred the present
Civil Miscellaneous Appeal No. 918 of 2018, challenging the
dismissal of its Section 34 petition and the affirmation of the arbitral
award.
(b) In parallel, Respondent No.1 instituted C.O.P. No. 42 of
2019, asserting that though the petition under Section 34 was
dismissed, citing the appellant’s continued failure to satisfy the
award, filed the petition under Section 9(1) of the Act, seeking a
direction to the appellant to furnish a bank guarantee for Rs.
12,90,59,567/-, along with other incidental reliefs.
Upon evaluation of the pleadings and supporting materials, the
Commercial Court-cum-XXIV Additional Chief Judge, City Civil Court,
Hyderabad, allowed the petition with costs and directed the appellant
to furnish, within thirty (30) days, either (i) security or third-party
security to the satisfaction of the Court or (ii) a bank guarantee for
securing the amount of Rs. 12,90,59,567/-. Aggrieved by this
direction, the appellant preferred Commercial Original Miscellaneous
Civil Appeal No. 16 of 2020.
6. Appellant’s Pleadings: (a) Submissions in Civil
Miscellaneous Appeal (CMA): Learned counsel for the appellant
submitted that the Court, while adjudicating the petition under Section
34 of the Arbitration and Conciliation Act, 1996, erred in framing and
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deciding the following issue: “Whether the award dated 14.03.1998
passed by respondent No. 2 is a reasoned one justifying the claim
made by respondent No. 1 based on oral and documentary
evidence?”. It was contended that the Court failed to adequately
consider the fact that the appellant had not participated in the arbitral
proceedings and had submitted no documentary evidence during
arbitration. This procedural lapse, it was argued, materially
undermines the validity and enforceability of the arbitral award.
Further, it was asserted that (Late) Justice P. Rama Rao had
been unilaterally appointed as the sole arbitrator by Respondent No.
1 without securing the appellant’s consent, thereby violating the
principles of party autonomy and the underlying objectives of
arbitration. Counsel also questioned the competence of the witnesses
(PWs.1 and 2) presented by Respondent No. 1, arguing that they
were not properly or critically examined during the arbitral
proceedings.
It was emphasized that the arbitral award was passed ex parte,
despite the appellant’s explicit communication of its objection to the
jurisdiction of the arbitrator and refusal to participate in proceedings
conducted by a unilaterally appointed sole arbitrator. Consequently, it
was submitted that both the impugned arbitral award and the Court’s
order rejecting the Section 34 petition are unsustainable in law and
fact, and that CMA No. 918 of 2018 deserves to be allowed.
(b) In the connected appeal (CMACA), the appellant
challenged the maintainability and propriety of the impugned order
directing it to furnish a bank guarantee equivalent to the amount
awarded under the arbitral award, pending adjudication of the CMA. It
was argued that such a direction is both premature and untenable.
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The appellant brought to the Court’s attention that, as of the
date of the arbitral award, it had already been declared a “sick
industrial company” under the provisions of the Board for Industrial
and Financial Reconstruction (BIFR) Proceedings No. 507 of 1994.
Accordingly, by virtue of Section 22 of the Sick Industrial Companies
(Special Provisions) Act, 1985 (SICA), all legal proceedings, including
execution or enforcement of awards, are required to be suspended
during the formulation, consideration, or implementation of any
sanctioned rehabilitation scheme.
It was further submitted that a modified rehabilitation scheme
was duly sanctioned by BIFR and the Industrial Development Bank of
India (IDBI) on 24.08.2007. The certified copy of the BIFR-approved
scheme was filed along with an interlocutory application under Order
VIII Rule 1(3) read with Section 151 of the Civil Procedure Code, and
this application was allowed by the Commercial Court on 03.01.2020.
Despite this, the Commercial Court failed to appreciate the legal
embargo imposed by Section 22 of SICA, rendering the enforcement
of the arbitral award unsustainable.
Additionally, it was contended that under Section 42 of the Act,
all applications pertaining to arbitration proceedings must be filed
before the Court that has jurisdiction over the arbitral matter. Since
the petition under Section 34 (vide O.P. No. 708 of 1998) was
entertained and adjudicated by the Court of the Chief Judge, only that
Court retains jurisdiction over all subsequent applications arising out
of the same arbitration.
Lastly, reference was made to the 2016 amendments to the
Act, particularly Sections 9(2) and 9(3). It was argued that, where
effective interim measures are available under Section 17 from the
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Arbitral Tribunal itself, recourse to Section 9 is not maintainable. On
this ground as well, the petition under Section 9 ought to be
dismissed for want of maintainability.
7. Pleadings of Respondent No.1 : (a) Learned Senior Counsel
for Respondent No. 1 rebutted the appellant’s arguments by
emphasizing that the appellant had, in writing, expressed agreement
to the appointment of the arbitrator. Although the appellant later
issued a letter disputing such consent, it is noteworthy that during the
arbitral proceedings, a duly authorized representative of the appellant
appeared before the arbitrator and sought time to file a counter
statement. This act amounted to a clear waiver of the initial objection
regarding the arbitrator’s appointment.
Given this conduct, the appellant’s subsequent absence from
the proceedings appears to have been voluntary. Therefore, the
arbitrator’s decision to proceed ex parte and issue the arbitral award
based on the material available was legally justified. The appellant,
having abandoned the proceedings at its own volition, cannot now
validly impugn the arbitrator’s appointment. Such a challenge, raised
belatedly, appears to be a tactic to cause undue delay and
substantial prejudice to Respondent No. 1.
Furthermore, the court below, after a thorough and reasoned
evaluation of the facts and the objections raised, rightly dismissed the
appellant’s petition under Section 34 of the Arbitration and
Conciliation Act, 1996. As the present Civil Miscellaneous Appeal
(CMA) is premised on identical grounds, it is devoid of merit and
liable to be dismissed accordingly.
(b) Additionally, the appellant has failed to discharge any
part of the awarded sum, which, inclusive of accrued interest, has
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9 CMA_918_2018&COMCA_16_2020
escalated to Rs.12,90,59,567/-. In light of the likelihood of further
delay, Respondent No. 1 filed an application under Section 9 of the
Act–being COP No. 42 of 2019–seeking interim protection to
secure the arbitral dues. Considering the urgency and propriety of
such a request, the court justly directed the appellant to furnish
security. In these circumstances, there exists no justifiable reason to
interfere with the said order. Consequently, the present appeal
(COMCA) also deserves to be dismissed.
8. Upon a careful and considered examination of the submissions
advanced by the learned counsel for both parties, and having duly
reviewed the pleadings on record, the following issues arise for
determination:
I) Whether the order dated 27.02.2017, rendered by the learned
Chief Judge of the City Civil Court, Hyderabad, in Arbitration
O.P. No. 708 of 1998, is legally valid and factually sustainable
in view of the material placed on record?
II) Whether the order dated 05.02.2020, passed by the
Commercial Court in C.O.P. No. 42 of 2019, withstands judicial
scrutiny and is justified both in law and on facts?”
9. The principal contention advanced by the appellant in seeking
to set aside the arbitral award is that the appointment of the arbitrator
(respondent No. 2) is legally invalid. The appellant asserts that,
despite having communicated its non-acceptance of the appointment,
the arbitrator proceeded with the matter and rendered an award that
is alleged to be untenable.
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10. With respect to the appointment, respondent No. 1, invoking
the arbitration Clause of the agreement by letter dated 22.12.1997,
nominated Justice P. Rama Rao (Retired Judge of the High Court) as
the sole arbitrator, and requested the appellant’s consent to the same
within the period prescribed under the Arbitration and Conciliation
Act, 1996. In response, the Assistant Manager (P&A) of the
appellant addressed a letter dated 19.01.1998 to the Managing
Director of respondent No. 1, expressing acceptance of the proposed
appointment.
11. Subsequently, by letter dated 27.01.1998, the appellant
communicated to respondent No. 1 that the individual who had sent
the earlier communication was neither involved in the transaction
concerning the supply of Chlorodifluoromethane (CFM-22) nor
authorized to issue such correspondence. It was asserted that the
earlier letter had been issued as a matter of routine without requisite
approval from the competent authority and that the same should be
treated as cancelled and its disagreement in appointing the sole
arbitrator. However in the same letter, the appellant proposed a
panel of three arbitrators and to choose one among them for
adjudication of the dispute.
12. Further, on 04.02.1998, the Chief Manager (Marketing) of the
appellant addressed another letter to respondent No. 2 (the
arbitrator), indicating that appropriate steps were being taken in
accordance with the earlier letter dated 27.01.1998.
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13. Nonetheless, the appellant reiterated its objection to the
appointment of the arbitrator in its letter dated 16.02.1998, claiming
the appointment to be unacceptable.
14. Thereafter, on 19.02.1998, respondent No. 1 issued a letter to
the appellant stating that the appointment of the arbitrator had initially
been accepted without any objection and that the appellant’s Chief
Manager (Marketing) had personally appeared before the arbitrator,
sought an extension of time of two weeks, and also received a copy
of the claim statement — conduct which, according to respondent
No. 1, amounted to participation in the arbitral proceedings.
15. Thereafter, the Chief Manager (Marketing) addressed a
further letter dated 24.02.1998 to the arbitrator acknowledging receipt
of the proceedings dated 19.02.1998. The appellant reiterated its
prior objections and stated that continuing with the arbitration
proceedings in such circumstances would be improper. It was also
indicated that, should the arbitrator persist in the matter, the appellant
would be constrained to seek redress before a court of law.
Consequently, the appellant requested that the arbitrator recuse
himself and withdraw from the arbitral proceedings.
16. On the other hand, the arbitral record dated 21.01.1998
indicates that the appellant and the respondent No.1 were notified to
attend for the proceedings on 05.02.1998 at 11:00 a.m., for the
purpose of organizing the conduct of arbitration. On 05.02.1998, the
representative of the appellant company appeared and sought a two-
week adjournment. Accordingly, the matter was adjourned to
28.02.1998. However, on that date, the appellant failed to appear,
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prompting the arbitral tribunal to proceed ex parte. The matter was
then posted to 07.03.1998 and 10.03.1998, to record evidence. On
those dates, the appellant remained absent and the witness of
respondent No.1 was examined, and the arbitral award was ultimately
rendered on 14.03.1998.
17. The above factual narrative remains undisputed.
18. CMA NO.918 OF 2018: From the documentary record,
including the appellant’s own correspondence, it is evident that the
appellant initially accepted the appointment of the sole arbitrator.
However, later by 27.01.1998 retracted its consent on the ground that
the person who issued the letter of acceptance lacked the authority to
bind the appellant. Be that as it may, it is also clear that the
appellant’s representative appeared before the arbitrator on
05.02.1998, sought an adjournment and the proceeding recorded by
the arbitrator is not indicating that the adjournment was sought for
filing counter pleadings. However the appellant addressed further
correspondence requesting the arbitrator to voluntarily withdraw from
the proceedings, warning of prospective legal action.
19. In the present context, it is imperative to emphasize that the
unilateral appointment of an arbitrator by one party to a dispute
undermines the fundamental principles of fairness, neutrality, and
equality–cornerstones of the arbitral process. To address such
concerns, the Act provides safeguards under Sections 12 and 13 to
uphold the impartiality and independence of arbitral tribunals.
20. Under Section 12(1), an arbitrator is required to disclose in
writing any circumstances that may give rise to justifiable doubts
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concerning their impartiality or independence. Section 12(2) imposes
a continuing obligation on the arbitrator to make such disclosures
throughout the arbitral proceedings. Section 12(3) allows for a
challenge to an arbitrator’s appointment if: (a) justifiable doubts exist
as to their independence or impartiality, or (b) they lack the
qualifications agreed upon by the parties. Section 12(4) permits a
party to challenge an arbitrator it has appointed or participated in
appointing, and Section 12(5)–introduced via the 2015
Amendment–renders an arbitrator ineligible if any of the
relationships enumerated in the Seventh Schedule exist, unless both
parties expressly waive such disqualification in writing.
21. Section 13 of the Act outlines the procedure for challenging an
arbitrator. Pursuant to Section 13(2), a party must submit a written
statement of reasons for the challenge within 15 days of becoming
aware of the circumstances giving rise to the objection. Under
Section 13(3), if the arbitrator does not withdraw and the opposing
party does not agree to the challenge, the arbitral tribunal itself shall
decide on the challenge. If the challenge is unsuccessful, the
aggrieved party retains the right to raise the issue under Section 34
while seeking to set aside the award.
22. Upon close examination of the facts, it is undisputed that the
appellant was aware of the appointment of the sole arbitrator by
Respondent No. 1, as communicated in the letter dated 22.12.1997.
Further, the arbitrator issued notice dated 21.01.1998 summoning
both parties for a procedural meeting scheduled on 05.02.1998. The
appellant’s representative appeared on that date and sought two
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weeks’ time. Despite this engagement, the appellant failed to
participate in any further proceedings.
23. It is apparent from the record that the appellant had full
knowledge of the arbitrator’s appointment by at least 05.02.1998,
when it attended the meeting. The appellant’s communication dated
24.02.1998, wherein it requested the arbitrator’s withdrawal, indicates
its continued awareness and engagement. Nevertheless, the
appellant failed to file a formal challenge under Section 13(2), even if
the statutory 15-day timeline were to be interpreted with some
leniency. Though the letters sent may be interpreted as objections,
the failure of the arbitrator to withdraw, coupled with Respondent No.
1’s opposition, effectively triggered Section 13(3), wherein the arbitral
tribunal’s decision to proceed shall be deemed a rejection of the
challenge.
24. Accordingly, in the absence of a proper application or formal
steps under Section 13(4), and given that the tribunal continued the
proceedings, the objection must be treated as having been
conclusively decided. Hence, the arbitration was conducted in
accordance with the statutory scheme.
25. The pivotal issue under Section 34 now becomes whether the
appellant presented tenable grounds to contest the arbitrator’s
appointment and the fairness of the procedure.
26. Under Section 12(3) and relevant jurisprudence, valid grounds
for challenging an arbitrator include: demonstrable bias, close
relationship with a party, lack of qualifications, misconduct, refusal to
exercise jurisdiction, inordinate delays, indebtedness, collusion, and
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any circumstance leading to a miscarriage of justice. However, in this
case, the appellant’s letters dated 27.01.1998 and 24.02.1998 merely
asserted non-acceptance of the arbitrator without articulating any of
the legally recognized grounds, nor did they furnish any
substantiating material.
27. The appellant also contended that the award was rendered ex
parte and without witness examination, thereby violating principles of
natural justice. However, the record reveals that the appellant was
duly served, appeared initially, and then willfully abstained from
further participation despite multiple Arbitral hearings on 28.02.1998,
07.03.1998, 09.03.1998, 10.03.1998, and 11.03.1998. Given the
circumstances, there is no basis to allege misconduct or procedural
impropriety by the arbitrator.
28. The Hon’ble Supreme Court in Kailash Rani Dang v. Rakesh
Bala Aneja & Anr., (2009) 1 SCC 732, held that a party who
deliberately avoids participation to derail the proceedings cannot later
allege bias or misconduct. Similarly, in the present case, the
appellant failed to invoke any legal remedy despite threatening to do
so and voluntarily refrained from engaging with the tribunal. The
arbitrator’s conduct is in conformity with procedural fairness and
statutory norms.
29. Lastly, Judicial intervention under Section 34 of the Arbitration
and Conciliation Act, 1996 is strictly limited to specified statutory
grounds, such as incapacity, improper notice, excess of jurisdiction,
procedural irregularity, or conflict with public policy and patent
illegality. The court’s role is supervisory, not appellate–it may set
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aside an award only in cases involving serious procedural or legal
violations, without re-appreciating evidence or substituting its view for
that of the arbitral tribunal. In this framework it is pertinent to note that
as per the petition dated 12.06.1999 and in the written arguments of
the appellant dated 10.10.2001 and in the grounds of appeal dated
24.01.2018 the appointment of the Arbitrator and certain points on
merit have been contested but never referred to any proceedings
against the appellant under Sick Industrial Companies Act, 1985
(SICA). In this view and though there is no challenge before us on
findings of fact or law or merits recorded by the arbitrator upon
perusing the impugned order, we are of the considered view that the
learned Chief Judge, City Civil Court, Hyderabad, in Arbitration O.P.
No. 708 of 1998, had duly examined the record and rightly confirmed
the award dated 14.03.1998 by the decree and order dated
27.02.2017. Hence the impugned order in CMA No.918 of 2018 is
found sustainable.
30. COMCA NO.16 OF 2020: In the first, the appellant contested
that, the Commercial Court lacked jurisdiction to entertain the petition
under Section 9 of the Act, on the basis that the order under Section
34 of the Act had already been passed by the Principal District Court.
This contention is untenable in light of subsequent legislative
developments, particularly the enactment of the Commercial Courts
Act, 2015, which resulted in the reallocation of jurisdiction over
commercial disputes, including those arising under the Arbitration
Act. Thus, the mere fact that an order under Section 34 was passed
by the Chief Judge, City Civil Court, does not oust the jurisdiction of
the Commercial Court to entertain a petition under Section 9. The
jurisdiction of the Commercial Court flows from the nature of the
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dispute and is consistent with the current statutory framework
governing commercial litigation.
31. In this context, reference may be made to the judgment of the
Delhi High Court in Union of India v. Bongo Construction (P) Ltd.,
2022 SCC OnLine Del 3457, wherein the Court held that the
Commercial Court retains jurisdiction to entertain an application
under Section 9 even in cases where a challenge under Section 34
had been decided by the District Court, prior to the establishment of
the Commercial Court, owing to the commercial nature of the dispute.
32. The second ground urged by the appellant was that, pending
the CMA filing petition under section 9 of the Act, seeking bank
guarantee would expressly amount to implementation of the Award,
which is still under challenge under section 37 of the Act in CMA, thus
the petition was premature and not maintainable.
33. It is now well established that an application under Section 9 of
the Arbitration and Conciliation Act, 1996 is maintainable even after
an arbitral award has been passed, including during the pendency of
an appeal under Section 37, provided that the award has not yet
been enforced.
34. In SR Steel Private Limited v. ArcelorMittal Nippon Steel India
Limited : [(2022) 1 SCC 497], the Hon’ble Supreme Court affirmed
that Section 9 may be invoked post-award to secure the interests of
the successful party, particularly to preserve the fruits of the award
pending its enforcement. The Court underscored the importance of
such interim measures in safeguarding the subject matter of the
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dispute or protecting the efficacy of the arbitral process during
appellate proceedings.
35. The other point raised was during the pendency of the
proceedings, the appellant was declared a “sick industry” under the
provisions of the Sick Industrial Companies (Special Provisions) Act,
1985 (SICA). This declaration carries significant legal consequences
with respect to the execution of an arbitral award.
36. It is uncontroverted fact that the appellant company’s draft
rehabilitation was approved on 24.08.2007 and after commencement
of Insolvency and Banking Code continuing the benefit of the order
passed by BIFR. In light of this, it is imperative to recognize that
under Section 22 of the Sick Industrial Companies (Special
Provisions) Act, 1985 (“SICA”), once a company is declared a “sick
industrial company” by the Board for Industrial and Financial
Reconstruction (BIFR), as defined under Section 3(1)(o) of the Act, it
is statutorily protected from coercive legal proceedings. This statutory
shield includes an automatic suspension of any legal action for
recovery, execution, distress, or enforcement of any decree, order, or
arbitral award against the company or its assets, unless prior consent
from the BIFR is expressly obtained.
37. These statutory protections extend to execution proceedings
arising from arbitral awards. The Hon’ble Supreme Court, in Real
Value Appliances Ltd. v. Canara Bank, [(1998) 5 SCC 554],
categorically held that the term “proceedings” as employed in Section
22 of SICA encompasses execution actions under Section 36 of the
Arbitration and Conciliation Act, 1996. Consequently, any attempt to
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enforce an arbitral award against a company protected under SICA,
without the prior sanction of the BIFR, is rendered void ab initio and is
liable to be stayed or set aside.
38. While SICA has since been repealed, its functional framework
has, in substance, been succeeded by the Insolvency and
Bankruptcy Code, 2016 (IBC). Under Section 14 of the IBC, the
commencement of the Corporate Insolvency Resolution Process
(CIRP) imposes a statutory moratorium on all proceedings, including
execution actions, against the corporate debtor. Although the IBC
regime may not be directly applicable to the present factual matrix,
the core principle persists in regard to enforcement proceedings–
including those relating to arbitral awards–against a company
declared as a sick industrial unit are barred absent statutory consent,
as such protection is integral to preserving the viability of the
company’s rehabilitation process.
39. For this reason, although the Section 9 petition was filed during
the pendency of the Civil Miscellaneous Appeal (CMA) and relief has
been granted, as the order was against an entity classified as a “sick
industry” and cloaked in rehabilitation proceedings, the impugned
order cannot be sustained.
40. In conclusion, (a) we find no infirmity in the arbitral proceedings
or the award or the impugned order passed under Section 34 of the
Act. Additionally the objections raised are legally unsustainable and
unsupported by factual material. Thus in the absence of merit, the
C.M.A. No. 918 of 2018 filed by the appellant is liable to be and is
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accordingly dismissed. In effect, the decree and order passed by the
learned Chief Judge, City Civil Court, Hyderabad, stands confirmed.
(b) Further as the appellant is in rehabilitation process and any
proceedings thereafter are to be conducted with the prior consent of
the authority regulating the rehabilitation process, the order passed in
COP No.42 of 2019 is liable to be and is accordingly set aside.
Nonetheless the rights and liberties of respondent No. 1 to pursue
appropriate legal remedies before the authority concerned of the
appellant company rehabilitation process, in accordance with law, are
expressly reserved.
41. In the result, the CMA 918 of 2018 is dismissed and the
COMCA No. 16 of 2020 is allowed. There shall be no order as to
costs.
As a sequel, pending miscellaneous applications, if any, are
closed.
_______________
P.SAM KOSHY, J
_______________
N. TUKARAMJI, J
Date:12.06.2025
Note:
L.R. Copy to be marked.
B/O
ccm/svl