2001 (8) TMI 1234 - HC - Companies Law

Winding up - Power of Court to stay or restrain proceedings, Suspension of legal proceedings etc.

Summary

Issues: Application for stay of suit under section 442 of the Companies Act, 1956 due to winding up petition and BIFR reference. Interpretation of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 regarding suits against guarantors. Clean hands doctrine and fraudulent concealment in loan procurement.

Issue 1: Application for Stay of Suit under Section 442 of the Companies Act, 1956:
The defendant sought a stay of the suit proceedings under section 442 of the Companies Act, 1956, based on the admission of a winding-up petition by the Gujarat High Court and a subsequent reference by BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985. The defendant relied on a Supreme Court judgment regarding the continuation of proceedings against a guarantor in cases involving SICA references. However, the court noted that the specific circumstances of this case, where the loan was obtained after the initiation of winding-up proceedings without disclosure, did not warrant a stay. The court emphasized the principle that litigants must approach the court with clean hands and highlighted the fraudulent concealment of winding-up proceedings by the defendant as a crucial factor in denying the application for a stay.

Issue 2: Interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:
The court delved into the interpretation of section 22 of SICA, which deals with the enforcement of guarantees in relation to loans granted to industrial companies. While the defendant argued for a broad interpretation to include protection for guarantors, the court referred to a Supreme Court decision that clarified the clear and unambiguous nature of the provision. The court emphasized that the consent requirement under section 22 must be strictly adhered to, and enforcement of guarantees cannot proceed without such consent. The court highlighted the importance of interpreting legislation as it stands without assuming legislative intent beyond the plain language of the statute.

Issue 3: Clean Hands Doctrine and Fraudulent Concealment in Loan Procurement:
The court applied the principle of coming to court with clean hands, emphasizing the Latin maxims suppressio veri suggestio falsi and dolus malus. It condemned the defendant's actions in obtaining a loan without disclosing the ongoing winding-up proceedings, labeling it as either hoodwinking or concealing crucial information. The court underscored that the protection under section 22 of SICA is not meant for individuals engaging in fraudulent activities to secure loans. It stressed that the provision aims to safeguard genuine cases and should be applied judiciously after scrutinizing all relevant facts. Referring to previous judgments, the court highlighted that the stay under section 442 of the Companies Act should not be granted mechanically but after a thorough examination of the circumstances.

In conclusion, the court dismissed the defendant's application for a stay of the suit proceedings under section 442 of the Companies Act, 1956, citing the fraudulent concealment of winding-up proceedings and the lack of clean hands in loan procurement as key reasons for denying the requested relief.