2002 (5) TMI 704 - HC - Companies Law

Summary

Issues:
1. Application under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.
2. Stay of legal proceedings against defendants/judgment debtors.
3. Interpretation of section 22 regarding enforcement of guarantees in respect of loans or advances granted to industrial companies.

Analysis:
1. The judgment addressed applications filed under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The plaintiff had initiated a recovery suit against the defendants, resulting in an ex parte decree. Subsequently, the defendants filed applications seeking to set aside the decree and stay proceedings based on references from the Board for Industrial and Financial Reconstruction (BIFR).

2. The primary issue was whether legal proceedings should be stayed against both defendants/judgment debtors. The defendant No.1 was declared a sick company with a pending reference before the BIFR, warranting a stay on proceedings. However, the focus shifted to whether proceedings against defendant No.2, the guarantor, should also be stayed under section 22.

3. The interpretation of section 22 regarding enforcement of guarantees was crucial. The plaintiff argued that the section only applied to suits against the industrial company, not guarantors. Citing the Supreme Court's decision in Patheja Bros. Forgings & Stamp-ing v. ICICI Ltd., the judgment clarified that the section encompassed suits for enforcing guarantees without the Board's consent. It was established that the guarantor should receive similar protection as the sick industrial company.

4. The judgment emphasized that even in execution proceedings, the protection under section 22 extended to guarantors. It was highlighted that the intention of the legislature was to ensure parity between guarantors and sick companies, requiring consent from the Board for enforcement actions. Consequently, the court ruled in favor of staying proceedings against both defendants until obtaining necessary consent from the Board.

5. In conclusion, the applications under section 22 were allowed, and further proceedings in the suit and execution petition against both defendants were stayed indefinitely. The parties were granted liberty to resume proceedings upon obtaining permission from the Board or at an appropriate stage, ensuring compliance with the provisions of section 22.