2001 (2) TMI 970 - HC - Companies Law

Issues Involved:
1. Validity and enforceability of the bank guarantee.
2. Respondent's obligations under the counter guarantee.
3. Impact of the memorandum of understanding and BIFR proceedings.
4. Applicability of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
5. Maintainability of the winding-up petition.

Detailed Analysis:

1. Validity and Enforceability of the Bank Guarantee:
The petitioner, Syndicate Bank, issued an unconditional and irrevocable bank guarantee (No. 11 of 1980) for Rs. 33,65,200 at the request of the respondent, Vijay Tank and Vessels Ltd., in favor of Southern Petrochemical Industries Ltd. (SPIC). The guarantee was issued towards the faithful performance of contractual obligations by the respondent. SPIC invoked the bank guarantee on 24-12-1982. The Madras High Court decreed that the bank guarantee was unconditional and irrevocable, obligating the petitioner to pay the guaranteed amount. The Division Bench of the Madras High Court affirmed this judgment on 28-6-1999.

2. Respondent's Obligations under the Counter Guarantee:
The respondent issued a counter guarantee to the petitioner on 5-5-1980. Despite the respondent's contention that the guarantee had expired and that they were not a party to the suit by SPIC, the court noted that the respondent had undertaken on 13-1-1995 to pay the petitioner if the Madras High Court ruled in favor of SPIC. The memorandum of understanding dated 7-10-1993 also stipulated that the counter guarantees would continue until the suit was finally decided by the Madras High Court.

3. Impact of the Memorandum of Understanding and BIFR Proceedings:
The memorandum of understanding signed on 7-10-1993 between the respondent and its creditors, including the petitioner, provided for the release of securities held by the petitioner. However, it explicitly stated that the counter guarantees related to the bank guarantees would continue to subsist until the final decision of the Madras High Court. The BIFR proceedings concluded that the respondent was no longer a sick industry as of 31-3-1995, and the case was closed.

4. Applicability of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985:
The respondent argued that the winding-up petition was not maintainable due to the ongoing implementation of the BIFR scheme. However, the court found that the BIFR proceedings had been closed and that the respondent was no longer a sick industry. Therefore, section 22 of the Act was not applicable.

5. Maintainability of the Winding-Up Petition:
The petitioner filed a suit (No. 4655 of 1998) to recover the proceeds of the bank guarantee. The court determined that there was a debt due and payable by the respondent to the petitioner and that the respondent had no bona fide defense in the winding-up proceedings. Consequently, the court directed the respondent to furnish security for the amount of Rs. 29.65 lakhs within 12 weeks, failing which the winding-up petition would be admitted and advertised.

Order:
1. The respondent must furnish security of Rs. 29.65 lakhs within 12 weeks, with 50% covered by an unconditional bank guarantee and the balance secured to the satisfaction of the Prothonotary and Senior Master.
2. If the respondent fails to furnish the security, the winding-up petition will be admitted and advertised, with the petitioner required to deposit Rs. 2,000 for publication charges.

Conclusion:
The court upheld the enforceability of the unconditional and irrevocable bank guarantee, confirmed the respondent's obligations under the counter guarantee, and dismissed the applicability of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The winding-up petition was deemed maintainable, subject to the respondent furnishing the required security.

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