Case Note & Summary
The Petitioner, Tata Capital Ltd., a financial institution, filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 seeking interim measures to secure a loan amount and the mortgaged property. The loan agreement was executed by Respondent No.1 company, and Respondents 2 to 4 executed personal guarantees and mortgaged their personal property. The Petitioner had knowledge that Respondent No.1 had filed a reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 before the Board for Industrial and Financial Reconstruction (BIFR), which was pending. The Respondents opposed the petition, arguing that the pendency of the SICA reference barred proceedings under Section 22 of SICA. The Court held that Section 22 of SICA does not bar proceedings against guarantors or interim measures under Section 9 of the Arbitration Act. The Court appointed the Court Receiver to take possession of the mortgaged property of the guarantors and restrained them from alienating or creating third party rights. The petition was allowed with costs.
Headnote
A) Arbitration - Interim Measures - Section 9 of the Arbitration and Conciliation Act, 1996 - Maintainability - Petition under Section 9 for appointment of Receiver and injunction to secure loan amount and mortgaged property - Held that such petition is maintainable even if principal borrower has filed reference under SICA, as Section 22 of SICA does not bar proceedings against guarantors or interim measures under Section 9 (Paras 1-5). B) Sick Industrial Companies - Bar on Proceedings - Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 - Applicability to Guarantors - The bar under Section 22 applies only to the sick industrial company and not to guarantors or their properties - Held that proceedings against guarantors can continue despite SICA reference (Paras 3-5). C) Arbitration - Interim Relief - Appointment of Receiver - Section 9 of the Arbitration and Conciliation Act, 1996 - Court appointed Court Receiver to take possession of the mortgaged property of the guarantors and restrained them from alienating or creating third party rights - Held that such interim relief is necessary to protect the interests of the financial institution pending arbitration (Paras 4-5).
Issue of Consideration
Whether a petition under Section 9 of the Arbitration and Conciliation Act, 1996 for interim measures is maintainable against the principal borrower and guarantors when the principal borrower has filed a reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 and the same is pending before BIFR.
Final Decision
The petition is allowed. Court Receiver appointed to take possession of the mortgaged property of Respondents 2 to 4. Respondents restrained from alienating or creating third party rights. Costs of Rs. 10,000 to be paid by Respondents to Petitioner.
Law Points
- Section 9 of the Arbitration and Conciliation Act
- 1996
- Section 22 of the Sick Industrial Companies (Special Provisions) Act
- 1985
- Guarantor's liability
- Interim relief
- BIFR reference
