2000 (9) TMI 927 - HC - Companies Law

Summary

Issues:
1. Application for injunction to restrain recovery under loan agreement pending suit.
2. Interpretation of Sick Industrial Companies (Special Provisions) Act, 1985, specifically section 22.
3. Jurisdiction and applicability of section 22 in a suit filed in a foreign court.
4. Distinction between civil suits and other proceedings under section 22.
5. Independence of bank guarantee from the main contract.
6. Remedies available under section 22(3) for grievances against guarantor.

Issue 1: Application for Injunction
The Plaintiff sought an injunction to prevent the Defendants from recovering any amount under a loan agreement without permission from BIFR pending the suit. The suit aimed to stop Defendant No. 5 from encashing a bank guarantee given to Defendant No. 1 at the Plaintiff's instance.

Issue 2: Interpretation of Sick Industrial Companies Act
The Plaintiffs argued that once a company is declared sick under section 22, proceedings against it cannot proceed without consent from the Board or appellate authority. They contended that this restriction applies even to guarantees given on behalf of the company, citing relevant case law.

Issue 3: Jurisdiction and Applicability
The Court examined the territorial application of section 22 concerning a suit filed in Switzerland. It was noted that the Act's provisions might not extend to foreign courts, especially when parties had agreed to submit to foreign jurisdiction and law.

Issue 4: Civil Suits vs. Other Proceedings
The Court clarified that section 22 primarily restricts civil suits for recovery or enforcement against sick companies. Invocation of a bank guarantee was deemed a separate transaction and not automatically covered under section 22.

Issue 5: Independence of Bank Guarantee
The judgment emphasized the independence of a bank guarantee from the main contract, citing a Supreme Court ruling. It was noted that a suit to restrain payment under a guarantee could be maintainable in case of fraud or irretrievable injustice.

Issue 6: Remedies under Section 22(3)
The Court highlighted that if the Plaintiff had grievances, remedies could be pursued under section 22(3) against the guarantor. However, the Plaintiff did not invoke this provision in the case.

In conclusion, the Court dismissed the motion for injunction, finding no grounds for relief based on the arguments presented. The judgment clarified the limitations and applicability of section 22 under the Sick Industrial Companies Act, emphasizing the independence of bank guarantees and the available legal remedies for grievances against guarantors.