2000 (9) TMI 969 - HC - Companies Law

Summary

Issues:
1. Applicability of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 to a suit against the guarantor of a loan.
2. Utilization of permission granted under section 22 by the Board for Industrial and Financial Reconstruction (BIFR) to proceed with recovery suits against guarantors.

Analysis:

Issue 1:
The case involved a dispute arising from a loan agreement where the guarantors failed to repay the loan, leading to a suit filed by the creditor against the guarantors for recovery. The key question was whether section 22 of the SICA applied to such a suit against the guarantor of a loan granted to a sick industrial company. The guarantors argued that the suit could not proceed without the consent of the BIFR as per section 22. The Single Judge initially rejected this argument, relying on a previous judgment. However, the appellants contended that a subsequent Apex Court judgment clarified that section 22 also covers recovery suits against guarantors. The Apex Court's ruling emphasized that the guarantors' personal interests should be protected, and suits against them require BIFR consent. Consequently, the suit against the guarantor could not proceed without the Board's permission.

Issue 2:
The second issue revolved around the applicability of the BIFR's permission to proceed with recovery suits against the company to suits against guarantors. The respondents argued that the BIFR's order dated 29-3-2000 allowed them to continue recovery suits against the company but contended that this permission did not extend to suits against guarantors. The guarantors, on the other hand, asserted that specific permission was required from the BIFR to proceed with the suit against them. However, the court analyzed the relevant clauses of the guarantee agreement and determined that the terms allowed the creditor to treat the guarantors as principal debtors jointly with the company. Therefore, the BIFR's permission to proceed with recovery suits against the company could also be utilized to proceed with the suit against the guarantors. The court concluded that denying such permission would lead to an absurd outcome, as the guarantors should not be placed on a higher pedestal than the company.

In conclusion, the court dismissed the appeal and upheld the lower court's decision, albeit on different grounds than initially provided. The judgment clarified the applicability of section 22 of the SICA to suits against guarantors and established that the BIFR's permission to proceed with recovery suits against the company extended to suits against guarantors as well.