Appeal (L) No. 764 of 2012,Notice of Motion No. 3430 of 2012,Arbitration Petition No. 24 of 2010,Arbitration Petition No. 25 of 2010,Notice of Motion No. 2448 of 2012

24th January, 2013

Petitioner Counsel: Mr. Nitin Thakkar,Mr. Sharan Jagtiani,Mr. Lalan Gupta,Mr. Mayur Bhatt,M/s. Dhruve Liladhar & Co.
Respondent Counsel: Mr. Sunip Sen,Mr. Vishal Sheth,Ms. Viloma Shah,Mr. Ativ Patel,M/s. Hariani & Co.

Cases Cited:
Bharat Alumium Company Vs. Kaiser Aluminium Technical Services Inc., 2012 ALL SCR 2831 : (2012) 9 SCC 552 [Para 7]
Fuerst Day Lawson Limited Vs. Jindal Exports Limited, 2011 ALL SCR 2060 : (2011) 8 SCC 333 [Para 10]
ITI Ltd. Vs. Siemens Public Communications Network Ltd., (2002) 5 SCC 510 [Para 11]
Adhunik Steels Ltd. Vs. Orissa Manganese and Minerals (P) Ltd., 2007 ALL SCR 2524 : (2007) 7 SCC 125 [Para 11]
Nimbus Communications Limited Vs. Board of Control for Cricket in India and another, 2012(6) ALL MR 357=Appeal (L) No. 90 of 2012, Dt.27/02/2012 [Para 11]
Secretary of State for India in Council Vs. Chelikani Rama Rao, 43 1A 182 [Para 12]
Hem Singh Vs. Basant Das, 63 1A 180 [Para 12]
RMARA Adaikapa Chettiar Vs. R. Chandrasekhara Thevar, 741 A 267 [Para 12]
Advocate-General, State of Bihar Vs. M/s. Madhya Pradesh Khair Industries and another, (1980) 3 SCC 311 [Para 14]
Babbar Sewing Machine Co. Vs. T.N. Mahajan, (1978) 4 SCC 188 [Para 16]
Modula India Vs. Kamakshya Singh Deo, (1988) 4 SCC 619 [Para 17]
Ramavatar Surajmal Modi Vs. Mulchand Surajmal Modi, 2004(1) ALL MR 822=AIR 2004 Bom 212 [Para 18]

JUDGMENT

DR. D. Y. CHANDRACHUD, J. :- This Appeal arises from a judgment of a learned Single Judge dated 4 October 2012 by which a motion seeking a direction under Order 39 Rule 11 of the Code of Civil Procedure, 1908 striking off the defence of the Appellant to a Petition for enforcing a foreign award was allowed. The learned Single Judge has directed that the defence filed by the Appellant to the Petition instituted by the Respondent under Section 47 of the Arbitration and Conciliation Act, 1996 be struck off.

2. The facts before the Court lie in a narrow compass. On 25 October 2007 a contract of affreightment was entered into between the Appellant and the Respondent for shipment of a certain consignment of Bauxite from the west coast of India to China. One of the ports of dispatch was Okha which, the Court is informed, falls within the territorial jurisdiction of the District Court of Jamkhambhalia in the District of Jamnagar. The Respondent lodged a claim against the Appellant in arbitration in pursuance of an arbitration agreement between the parties before an Arbitral Tribunal consisting of a sole arbitrator, Mr. Alan Oakley in London. The reference to arbitration was in pursuance of Clause 28 of the contract of affreightment. The Arbitrator made and declared his Award on 8 July 2009 in favour of the Respondent, directing the Appellant to forthwith pay a sum of US Dollars 24,157,442 together with interest.

3. The Appellant has filed a Petition under Section 34 of the Arbitration and Conciliation Act, 1996 in the Court of the District Judge at Jamkhambhalia. In November 2009, the Respondent filed two Petitions before this Court under Sections 47 and 9 respectively, the former seeking a declaration of enforceability of the arbitral Award as a decree of this court and the latter, interim reliefs. Arbitration Petition Nos. 24 and 25 of 2010. On 20 December 2010 a learned Single Judge of this Court passed orders on the Arbitration Petitions. The learned Single Judge was of the view that the question as to whether the Court at Jamkhambhalia did or did not have jurisdiction to entertain the Petition under Section 34 was not a matter which could be addressed before this Court. The Appellant had sought an adjournment of the Petition seeking enforcement of the foreign arbitral Award pending the disposal of the challenge preferred by the Appellant to the Award in the District Court at Jamkhambhalia. The learned Single Judge adjourned the hearing of the two arbitration Petitions and issued the following directions :

"(1) The hearing of Petition Nos. 24 of 2010 and 25 of 2010 is adjourned till the disposal of the petition filed by the respondents under section 34 of the Arbitration Act in the District Court of Jamkhambhaliya but on the condition that they furnish security in the sum of sterling pounds 24,157,442.00 and 5,000.00 respectively within a period of twelve (12) weeks from today."

4. The direction for furnishing security by the Appellant was issued by the learned Single Judge in terms of Section 48 (3). The Appellant challenged the order of the learned Single Judge in Appeal. On 17 March 2011, a Division Bench of this Court while adjourning the hearing of the Appeal stayed the operation of the direction requiring the Appellant to furnish security subject to the condition that the Appellant not alienate its assets and make a disclosure on affidavit of its assets and investments. On 5 July 2011, the Appeal was disposed of by the Division Bench of this Court holding that the learned Single Judge acted within jurisdiction in passing an order for furnishing of security under Section 48 (3). In a Special Leave Petition filed by the Appellant against the order of the Division Bench Petition for Special Leave to Appeal (Civil) No. 21242 of 2011 the Supreme Court issued notice but specifically made it clear that this will not operate as a stay of the order of the High Court directing the Appellant to furnish security.

5. The Appellant filed a reference to the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on 2 June 2011. The reference was accepted by the BIFR on 18 October 2011. On 22 November 2011, the Respondent filed a Motion before the learned Single Judge for striking out the defence of the Appellant. Ad-interim relief was refused in the Motion. The Respondent has appeared before the BIFR in opposition to the reference. By an order dated 12 March 2012, the BIFR declared the Appellant as a sick industrial company.

6. By an order dated 4 October 2012, the learned Single Judge has allowed the Motion that was taken out by the Respondent for striking off the defence of the Appellant to the Petition for enforcement of the foreign arbitral Award. The learned Single Judge has held that :

(i) It was on the request of the Appellant that an adjournment was granted of the proceedings filed by the Respondent for the enforcement of the Award and for interim measures;

(ii) The Appellant obtained a conditional adjournment but thereafter deliberately did not comply with the direction to furnish security. Having taken the benefit of the order, the Appellant could not be permitted to be heard on its objection opposing enforcement without complying with the direction;

(iii) The default on the part of the Appellant in complying with the order furnishing security constitutes a wilful default of the order passed by the Court;

(iv) The provisions of Order 39 Rule 11 of the CPC could be extended to an application under Sections 48 and 49 read with Section 9 of the Arbitration and Conciliation Act, 1996.

On this foundation, the defence of the Appellant has been ordered to be struck off.

7. In Bharat Alumium Company vs. Kaiser Aluminium Technical Services Inc., (2012) 9 SCC 552 : [2012 ALL SCR 2831] a Constitution Bench of the Supreme Court has held that the applicability of Part I of the Arbitration and Conciliation Act, 1996, is limited to arbitrations which take place in India and no application for interim relief would be maintainable under Section 9 or any other provision in a foreign seated international commercial arbitration. Similarly no suit for injunction simpliciter would be maintainable in India on the basis of an international commercial arbitration with a seat outside India. The law declared by the judgment has been directed to apply prospectively to all arbitration agreements executed thereafter.

8. Learned Senior Counsel appearing on behalf of the Appellant submits that :

(i) The provisions of the CPC do not apply to proceedings under the Arbitration and Conciliation Act, 1996. The Act of 1996 is a Code in itself. When the legislature has considered it appropriate to include a reference to the CPC as in Section 36, a specific provision has been incorporated. The principles of the CPC can undoubtedly be borne in mind as for instance while deciding an application under Section 9;

(ii) Assuming that the CPC applies, the provisions of Order 39, Rule 11 which have been notified by the High Court under Section 122 cannot be read into a central enactment;

(iii) In the exercise of a discretionary power under Order 39, Rule 11, a right given by the Arbitration and Conciliation Act, 1996 to defend a petition seeking the enforcement of a foreign award cannot be taken away. Section 48(3) does not confer power on the Court to strike out the defence for want of compliance with a condition for furnishing security;

(iv) The learned Single Judge has not correctly exercised the discretion by striking out the defence of the Appellant. The Appellant has been registered as a sick industrial company under SICA and is undoubtedly, as this would indicate, not in a position to comply with the direction of furnishing security.

9. On the other hand, it has been urged on behalf of the Respondents that :

(i) The provisions of the Arbitration and Conciliation Act, 1996 do not specifically incorporate or for that matter exclude the application of the general procedural law that is contained in the CPC. In the case of an arbitral tribunal Section 19 stipulates that the Tribunal shall not be bound by the CPC or the Evidence Act but that is not to say that the provisions of the CPC or the principles cannot be applied. On the other hand, in the case of a Court which exercises power under the Act, the application of the CPC does not stand excluded and in any event, as an incident of the exercise of its jurisdiction under the Act, the Court can take recourse to the principles which are embodied in the CPC;

(ii) The power of the Court to strike out a defence has been incorporated in Order 39 Rule 11 by a High Court amendment made in pursuance of the provisions of Section 122. Order 39, Rule 11 (2) confers a locus penetentiae upon a defaulter to rectify the breach so as to secure compliance with the order of the Court;

(iii) The power to order the striking out of a defence is an inherent power which vests in the Court where the Court does not regard a breach of its directions to be of such a nature to warrant the invocation of its contempt jurisdiction;

(iv) In the present case, the Appellant took the benefit of an adjournment which was granted subject to a condition for the furnishing of security. Both the Appeal before the Division Bench and the SLP before the Supreme Court proceeded on the basis that there was a direction of the learned Single Judge to furnish security. After the expiry of a period of twelve weeks prescribed for furnishing security, the Appellant moved the BIFR and obtained a declaration of its being a sick industrial company which now forecloses the execution of the Award, even if enforcement were to be granted in a Petition filed before this Court. In the circumstances, it was urged that the exercise of the discretion by the learned Single Judge was correct and proper and does not call for interference.

The rival submissions now fall for consideration:

10. The Arbitration and Conciliation Act, 1996 has been held by the Supreme Court in the judgment in Fuerst Day Lawson Limited vs. Jindal Exports Limited (2011) 8 SCC 333 : [2011 ALL SCR 2060] to be "a self-contained Code". In that case the issue that fell for consideration was whether an order which is not appealable under Section 50 would nevertheless be subject to an appeal under the Letters Patent of the High Court. Section 50, provides an appeal against an order refusing to enforce a foreign award under Section 48. No appeal is provided by Section 50 against an order enforcing a foreign arbitral award. The Supreme Court held that since the Act is a selfcontained Code and exhaustive, the import of this position would be that only such acts as are mentioned in the enactment are permissible to be done and acts or things not mentioned would not be so permissible. Consequently, the Supreme Court came to the conclusion that an appeal against an order enforcing a foreign arbitral award would not be maintainable under the Letters Patent.

11. The issue as to whether the provisions of the CPC are applicable to proceedings under the Arbitration and Conciliation Act, 1996 has specifically been dealt with in two judgments of the Supreme Court. In ITI Ltd. vs. Siemens Public Communications Network Ltd. (2002) 5 SCC 510 a Bench of two learned Judges of the Supreme Court held that though the application of the Code was not specifically provided for, there was no express prohibition against the application of the Code to a proceeding arising out of the Act before a civil Court. A revision under Section 115 was held to be maintainable. The Supreme Court held that the Court could not draw an inference that merely because the Act has not provided for the applicability of the CPC, that the Code is inapplicable. The second judgment of the Supreme Court is in Adhunik Steels Ltd. vs. Orissa Manganese and Minerals (P) Ltd. (2007) 7 SCC 125 : [2007 ALL SCR 2524]. In that case, while considering the principles underlying the exercise of the powers to grant an interim measure of protection under Section 9, the Supreme Court held as follows :

"The grant of an interim prohibitory injunction or an interim mandatory injunction are governed by wellknown rules and it is difficult to imagine that the legislature while enacting Section 9 of the Act intended to make a provision which was dehors the accepted principles that governed the grant of an interim injunction. Same is the position regarding the appointment of a receiver since the section itself brings in the concept of "just and convenient" while speaking of passing any interim measure of protection. The concluding words of the section, "and the court shall have the same power for making orders as it has for the purpose and in relation to any proceedings before it" also suggest that the normal rules that govern the court in the grant of interim orders is not sought to be jettisoned by the provision. Moreover, when a party is given a right to approach an ordinary court of the country without providing a special procedure or a special set of rules in that behalf, the ordinary rules followed by that court would govern the exercise of power conferred by the Act."

The Supreme Court held that the power under Section 9 is not totally independent of the well-known principles governing the grant of interim injunctions by courts and that under Order 39 Rule 2 of the CPC an injunction could be granted to restrain a breach of contract. These decisions have been followed in a judgment of a Division Bench of this Court in Nimbus Communications Limited vs. Board of Control for Cricket in India and another Appeal (L) No. 90 of 2012 decided on 27 Feb. 2012 : [2012(6) ALL MR 357]. In the context of the grant of an interim measure of protection under Section 9, this Court has held that the Act does not either attach a special condition for the exercise of power nor does it embody a special form of procedure for the exercise of power by the Court. Moreover, Section 9 provides that the Court shall have the same power for making orders as it has for the purpose of and in relation to any proceedings before it. This, as construed by the Supreme Court means that the normal rules that govern Courts for grant of interim temporary measures are not jettisoned by the provision.

12. We are unable to subscribe to the broad submission that the provisions of the CPC are inapplicable to proceedings before a Court when it exercises its jurisdiction under the Arbitration and Conciliation Act, 1996. The expression 'court' is defined in Section 47, for the purposes of that Section and all other following Sections of Chapter I of Part II to mean the principal civil court of original jurisdiction in a district, and to include the High Court in the exercise of the ordinary original civil jurisdiction, having jurisdiction over the subject matter of the award if the same had been the subject matter of a suit but to not include any civil court of a grade inferior to such principal civil court or the Court of Small Causes. Where a statute provides a remedy before an ordinary civil court, the rules of procedure that apply are the ordinary rules of the Civil Procedure Code. Where the principal court of original civil jurisdiction is the District Court, the procedural provisions of the CPC govern the proceedings before the Court. Where the principal court of ordinary original civil jurisdiction is the High Court - a Chartered High Court in this case - the provisions of the CPC as modified in relation to matters governing its procedure will apply. The principle that the provisions of the CPC will govern matters of procedure, where a Special Act confers jurisdiction on a civil court was recognised and followed by the Privy Council (Secretary of State for India in Council vs. Chelikani Rama Rao 43 1A 182, Hem Singh vs. Basant Das 63 1A 180 and RMARA Adaikapa Chettiar vs. R. Chandrasekhara Thevar, 74 1A 267). Lord Simmonds held in the last of those cases that "the true rule is that where a legal right is in dispute and the ordinary courts of the country are seized of such a dispute the courts are governed by the ordinary rules of procedure applicable thereto ...". The Arbitration and Conciliation Act, 1996 does not provide a special procedure that must be followed by a Court while exercising the jurisdiction which the Act confers. Undoubtedly, since the Act is a complete Code in itself, the exercise of jurisdiction must conform strictly to the parameters laid down by the Act. The intervention of the Court in arbitral proceedings and awards must be scrupulously confined within the limits laid down by the Act and conform to the legislative policy of minimising judicial intervention. On matters of procedure, the principles which are traced to the procedural provisions of the CPC are not alien, subject to the caveat that the provisions of procedural law cannot widen the nature of the jurisdiction that is conferred on the Court by the Act of 1996. Hence, where the Arbitration and Conciliation Act, 1996 makes a specific provision regarding the exercise of power, that provision cannot be overridden by taking recourse to a more general power which is conferred by the CPC. Hence, an appeal under clause 15 of the Letters Patent is not available against an order enforcing a foreign award, since Section 50 confers a right of appeal against an order refusing to enforce a foreign award. But the broad and settled principles underlying the exercise of those powers which are recognised in the Act of 1996 should conform to the principles fundamental to procedure in the CPC. To hold otherwise would mean that courts under the Act of 1996 would enter upon an uncharted territory. When the legislature has conferred a specific power upon the Court in the Arbitration and Conciliation Act, 1996, the procedure which must govern the exercise of such a power must be in consonance with the fundamental principles of procedure in the CPC subject to the caveat that where a specific provision is contained in the Act of 1996, that provision must govern and the ambit of the intervention of the Court cannot be extended by taking recourse to the broad and general procedural norms contained in the CPC.

13. Order 39, Rule 11 has been introduced by a High Court Amendment with effect from 1 October 1983 and reads as follows:-

"11. Procedure on parties defying orders of Court, and committing breach of undertaking to the Court. - (1) Where the Court orders any party to a suit or proceeding to do or not to do a thing during the pendency of the suit or proceeding, or where any party to a suit or proceeding gives any undertaking to the Court to do or to refrain from doing a thing during the pendency of the suit or proceeding, and such party commits any default in respect of or contravenes such order or commits a breach of such undertaking, the Court may dismiss the suit or proceeding, if the default or contravention or breach is committed by the plaintiff or the applicant, or strike out the defences, if the default or contravention or breach is committed by the defendant or the opponent.

(2) The Court may, on sufficient cause being shown and on such terms and conditions as it may deem fit to impose, restore the suit or proceeding or may hear the party in defence, as the case may be, if the party that has been responsible for the default or contravention or breach as aforesaid makes amends for the default or contravention or breach to the satisfaction of the Court :

Provided that before passing any order under this sub-rule notice shall be given to the parties likely to be affected by the order to be passed."

Section 122 of the Code of Civil Procedure enables the High Courts to make rules regulating their own procedure and the procedure of the Civil Courts subject to their superintendence. The High Courts may under the provision by such rules annul, alter or add to all or any of the rules in the First Schedule.

14. On behalf of the Respondent it has been sought to be urged that the power to strike off a defence under Order 39, Rule 11 is a recognition of the inherent power that exists in the Court to ensure that orders of the Court are duly observed. Reliance was placed on a decision of the Supreme court in Advocate-General, State of Bihar vs. M/s. Madhya Pradesh Khair Industries and another. (1980) 3 SCC 311 While dealing with the powers of the Court to initiate proceedings for a criminal contempt as defined in Section 2 (c) of the Contempt of Courts Act, 1971, the Supreme Court held that every abuse of the process of the Court would not necessarily amount to a contempt of court. Minor abuses of process, it was held, may be suitably dealt with by striking out the defence under the provisions of Order 6 Rule 16 of the CPC, or in some other manner. The Supreme Court cited from Halsbury's Laws of England an extract elucidating that this is a part of the inherent power of the Court. For the purpose of the present case, it is, in our view, not necessary to express a conclusive opinion on the applicability of the provisions of Order 39 Rule 11 of the CPC to strike out a defence for want of compliance with an order for furnishing security under Section 48 (3). Assuming that the Court does have such a power, we are inclined to take the view that the order in the present case striking out the defence was harsh and disproportionate and ought not to have been passed on facts.

15. The learned Single Judge by his order dated 20 December 2010 allowed the application of the Appellant for adjournment of the Petition for the enforcement of the foreign award but issued this direction on condition that the Appellant furnish security within eight weeks. Section 48 (3) provides that if an application for the setting aside or suspension of the award has been made to a competent authority, the Court may, if it considers it proper, adjourn the decision on the enforcement of the award and may also, on the application of the party claiming enforcement of the award, order the other party to give suitable security. There was a direction by the learned Single Judge for the furnishing of security, which was a condition attaching to the grant of an adjournment till the disposal of the Petition filed by the Appellant under Section 34. The order of the learned Single Judge granted twelve weeks time to the Appellant for furnishing security. Upon the failure of the Appellant to furnish security within the period prescribed, the Appellant failed to meet the condition attaching to the grant of an adjournment and the Respondent would, therefore, be entitled to have its Petition for the enforcement of the foreign Award set down for immediate hearing.

16. Now, it is a settled principle of law that an order for striking out pleadings cannot be passed as a matter of course merely because a party is in breach of a condition imposed by the Court. Striking out of pleadings is a matter of serious prejudice. When a defence is struck off the party whose defence is not to be taken into account, loses a basic right to defend itself in a proceeding. In Babbar Sewing Machine Co. vs. T.N. Mahajan, (1978) 4 SCC 188 while construing the power of the Court to dismiss the suit or to strike off a defence under Order XI Rule 21 of the CPC for a failure to comply with an order to answer interrogatories or for discovery or inspection of documents, the Supreme Court cautioned that "it does not follow that a suit can be lightly thrown out or a defence struck out without adequate reasons". At para 14 page 193 The test, as formulated by the Supreme Court was whether the default is willful. The Supreme Court held that "the stringent provisions of Order XI, Rule 21 should be applied only in extreme cases, where there is contumacy on the part of the defendant or a willful attempt to disregard the order of the court is established." At para 15 page 193 The rule, the Court noted "must be worked with caution, and may be made use of as a last resort."At para 16 page 193

17. In Modula India vs. Kamakshya Singh Deo, (1988) 4 SCC 619 the Supreme Court while interpreting the provisions of Section 17(3) of the West Bengal Premises Tenancy Act, 1956 held that "the Court will act with great circumspection before striking out the defence" and that "striking off of defence is not obligatory on the court merely because there is a default and that it is a matter for exercise of great judicial restraint." At para 16 page 640 Such provisions, the Supreme Court held "should be construed strictly and that the disabilities of a person in default should be limited to the minimum extent consistent with the requirements of justice."

18. In a judgment of a Division Bench of this Court in Ramavatar Surajmal Modi v. Mulchand Surajmal Modi, AIR 2004 Bom 212 : [2004(1) ALL MR 822] Mr. Justice R.M. Lodha (as His Lordship then was), while construing the provisions of Order 39 , Rule 11 of the CPC held as follows :

"We are concerned with the question whether sub-rule (1) of Rule 11, Order 39 leaves no discretion on the Court and that it obliges the Court to visit the defaulting party with the penalty prescribed therein irrespective of the circumstances that default is not wilful or the conduct of the party responsible for the default is not contumacious or there is reasonable explanation for default. The meaning and intention of the rule making authority must govern, and these are to be ascertained not only from the phraseology of the provision but also by considering its nature, its design, and the consequences which would follow from construing it the one way or the other. Inter-alia the Courts have applied the test whether the object of the provision will be defeated or furthered by holding the provision mandatory or directory. Let us not forget that the dismissal of suit or proceeding or striking out the defence of a defendant for noncompliance of the Court's order or breach of an undertaking is a serious and grave consequence. ... In our considered view, the provision in Sub-rule (1) merely vests power in the Court to dismiss the suit or proceeding where the default is by the plaintiff and strike off the defence of the defendant where the defaulter is the defendant. It does not obligate to do so in every case of default. This is further fortified by the provision contained in Sub-rule (2) which gives a discretion to the Court that even after the order contemplated under the Sub-rule (1) of Rule 11 has been passed, upon sufficient cause being shown by the party responsible for the default or contravention or breach and such party makes amend for the default or contravention or breach to the satisfaction of the Court, the Court may restore the suit or hear the defence on such terms and conditions it deems fit. If the Court has power to restore the party to the same position even after the adverse order has been passed under Sub-rule (1) of Rule 11 if the case is made out under Sub-rule (2), the provision of Sub-rule (1) has to be held to be directory and not imperative. The provision in the nature of Sub-rule (2) leaves no manner of doubt the intention of the rule making authority that the provision of Sub-rule (1) of Rule 11 is directory and that by such provision power has been vested in the Court to dismiss the suit or proceeding where the plaintiff is in default or striking off the defence of the defendant, where defendant is responsible for the default.

-24. The principle governing the Court's exercise of its discretion under Order XI, Rule 21, as already stated, is that it is only when the default is wilful and as a last resort that the Court should dismiss the suit or strike out the defence, when the party is guilty of such contumacious conduct or there is a wilful attempt to disregard the order of the Court that the trial of the suit is arrested.

Applying this test, it is quite clear that there was no wilful default on the part of the Defendant of the Court's order under Order XI, Rule 18(2) for the production of documents for inspection, and consequently, the order passed by the trial Court on 23rd May, 1967, striking out the defence of the defendant must be vacated, and the trial must proceed afresh from the stage where the defendant was not permitted to participate." At para 7 pages 216 & 217

"...the power of dismissal of suit or striking out the defence, as the case may be under Order 39, Rule 11(1) of Code of Civil Procedure should be exercised for adequate reasons, where the defaulting party fails ultimately in complying with the order of the Court or the undertaking, where the default is willful and the conduct of the defaulting party contumacious and that results in causing substantial or serious prejudice to the opposite party." At para 8 page 218

The Division Bench noted that this power "should be exercised for adequate reasons where the defaulting party fails in complying with" the order of the Court or an undertaking, where the default is wilful and the conduct of the defaulting party contumacious and that results in causing substantial or serious prejudice to the other party." At para 8 p.218

19. In the present case, the Court cannot lose sight of the fact that in pursuance of a reference which has been filed by the Appellant before the BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985, the Appellant has been declared as a sick industrial company. Since the BIFR has entertained the reference and has proceeded to issue a declaration, it would not be possible for this Court on the basis of the facts as they stand to arrive at a conclusion that the reference is lacking in bonafides. The Respondent has participated in the proceedings before the BIFR. Under sub-section (1) of Section 15 of the SICA when an industrial company has become a sick industrial company, the Board of Directors of the Company shall, within sixty days from the date of finalization of the duly audited accounts of the company for the financial year as at the end of which the company has become a sick industrial company, make a reference to the BIFR. Section 2(o) defines a sick industrial company as an industrial company which has at the end of any financial year accumulated losses equal to or exceeding its net worth. Though the reference was made subsequently, that is grounded on the financial status of the company over the statutorily prescribed period prior to the filing of the reference. In the circumstances, we are of the view that the failure of the Appellant to comply with the order of the Court imposing a condition for the furnishing of security for the grant of an adjournment of the Petition filed by the Respondent seeking enforcement of the foreign Award should not on these facts result in a striking off of the defence of the Appellant. The financial position of the Appellant, which has been declared a sick industrial company within the meaning of SICA is certainly a matter of relevance to the issue as to whether there was a wilful or contumacious failure to comply with the condition imposed by the Court.

20. For these reasons, we are of the view that the order of the learned Single Judge directing that the defence of the Appellant be struck off requires to be set aside. While doing so, we direct that since the Appellant has failed to comply with the condition which was imposed by the learned Single Judge for adjourning the hearing of the Petition filed by the Respondent for the enforcement of the foreign Award, it would be open to the Respondent now to seek before the learned Single Judge an order directing that the Petition should be set down for hearing forthwith and should be heard expeditiously. We would request the learned Single Judge to do so on an early date subject to the exigencies of the Board.

21. The Appeal shall accordingly stand allowed in the aforesaid terms and the order of the learned Single Judge shall accordingly stand set aside. There shall be no order as to costs.

22. In view of the order on the Appeal, the Motion in the Appeal does not survive and the Motion is accordingly disposed of.

Ordered accordingly.