2001 (4) TMI 849 - HC - Companies Law

Issues Involved:
1. Enforceability of a decree obtained against the defendant-applicant.
2. Applicability of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
3. Jurisdiction of the Court in passing the decree.
4. Validity and executability of the decree.
5. Principle of res judicata and constructive res judicata.
6. Consideration of the guarantee and its enforceability.

Detailed Analysis:

1. Enforceability of a Decree Obtained Against the Defendant-Applicant:
The primary issue is whether the decree obtained against the defendant-applicant can be enforced or proceeded with. The decree in question arises from a guarantee given by the defendant for the repayment of a loan advanced to VHEL Industries Limited (VHEL). The plaintiff sought to enforce this decree, but the defendant argued that the decree is a nullity due to the pending proceedings under SICA against VHEL.

2. Applicability of Section 22(1) of SICA:
The defendant argued that Sections 16, 17, and 22 of SICA barred the suit and the subsequent decree. Section 22(1) specifically bars suits for the recovery of money or enforcement of any security against an industrial company or any guarantee in respect of loans or advances granted to the industrial company without the consent of the Board or appellate authority. The Court found that since VHEL was under BIFR proceedings, the suit against the defendant, based on the guarantee for VHEL's loan, was barred by Section 22(1) of SICA.

3. Jurisdiction of the Court in Passing the Decree:
The Court examined whether it had the jurisdiction to pass the decree given the pending SICA proceedings. It concluded that the Court lacked inherent jurisdiction to proceed with the suit and pass the decree during the pendency of the reference under Section 16 of SICA without the consent of the Board. Thus, the decree was deemed a nullity.

4. Validity and Executability of the Decree:
The Court emphasized that an executing court cannot go behind the decree but must ensure the decree is executable. A decree that is a nullity is inexecutable. Since the decree was passed without jurisdiction due to the bar under Section 22(1) of SICA, it was declared a nullity and thus inexecutable. The Court has the responsibility to examine the executability of the decree and can refuse to execute a decree that is void.

5. Principle of Res Judicata and Constructive Res Judicata:
The plaintiff argued that the decree should be upheld based on the principle of res judicata, as it was passed in the presence of the defendant's advocate. However, the Court held that if a decree is a nullity due to lack of jurisdiction, it cannot operate as res judicata. The principle of constructive res judicata also does not apply because the Court's lack of jurisdiction makes the decree non est (non-existent).

6. Consideration of the Guarantee and Its Enforceability:
The defendant contended that the guarantee was without consideration and thus unenforceable. The Court, however, focused on the applicability of Section 22(1) of SICA, which barred the enforcement of the guarantee due to the pending BIFR proceedings against VHEL. The guarantee by O.P.R. was in respect of a loan or advance made to VHEL, and thus, the mischief of Section 22(1) was attracted, making the suit and the decree void.

Conclusion:
The Court declared that the suit was not maintainable, and the decree passed was void and a nullity due to the bar under Section 22(1) of SICA. Consequently, the execution proceedings were rejected, and all orders passed in the execution were recalled. The applications filed by the defendant judgment debtor were allowed.

← Previous Next →