2003 (8) TMI 367 - HC - Companies Law

Summary

Issues:
1. Interpretation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) in relation to the invocation of a Bank Guarantee.
2. Whether the plaintiff's suit under Order XXXVII of the Code of Civil Procedure is maintainable given the circumstances.

Issue 1: Interpretation of Section 22 of SICA:
The defendant bank sought unconditional leave to defend the suit based on Section 22 of SICA, claiming an inability to honor the Bank Guarantee due to the sick company's status. The plaintiff argued that Section 22 of SICA applies only to guarantees in respect of loans or advances, not goods supplied. The court analyzed the provision, holding that the section encompasses guarantees for payments due from the sick company, not limited to loans or advances. It emphasized the objective of Section 22 to suspend legal proceedings hindering the sick company's revival. Referring to a Supreme Court judgment, the court concluded that even Bank Guarantees for goods supplied to a sick company fall under the purview of Section 22, warranting a triable issue and granting unconditional leave to defend.

Issue 2: Suit Maintainability under Order XXXVII:
The defendant raised a second ground, citing guidelines from a Supreme Court case regarding the plaintiff's need for government clearance due to both parties being government undertakings. However, this ground was not pursued further as the defendant bank did not fall strictly within the definition of a government entity. The court, after considering arguments from both sides, found in favor of the defendant on the primary issue related to Section 22 of SICA. Consequently, the court granted unconditional leave to defend the suit, deeming the defendant successful in raising a triable issue concerning the suit's maintainability under the given legal framework.

In conclusion, the High Court of Delhi, in the judgment delivered by R.C. Chopra, J., granted the defendant unconditional leave to defend the suit under Order XXXVII of the Code of Civil Procedure. The decision was primarily based on the interpretation of Section 22 of SICA, which was deemed to encompass Bank Guarantees for payments due from a sick company, not limited to loans or advances. The court's analysis highlighted the legislative intent behind Section 22 and its application to legal proceedings involving sick industrial companies, leading to the grant of leave to defend the suit.