Chandan Capital Services (P) Ltd. vs Mid East India Ltd. And Anr.
2002 Latest Caselaw 839 Del

JUDGMENT

Mukundakam Sharma, J.

1. By this order, I propose to dispose of the application registered as I.A.Nos.3114/1999 and 7322/2001, filed by the defendants under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985.

2. The plaintiff herein filed a suit for recovery of an amount of Rs. 1,41,64,771/- against the defendants under the summary procedure as provided for under Section xxxvII of the CPC. In the said suit, an ex parte decree was passed by this Court by judgment and order dated 18th August, 1998. Thereafter, the defendants No. 1 and 2 appeared and filed an application under Order IX Rule 13 CPC praying for setting aside the ex parte decree. The aforesaid applications registered as I.A.Nos. 10368/1998 and 10370/1998 are pending for consideration. However, thereafter, another application was filed by the defendants being I.A.No.3114/1999 under Section 22 of the Sick Industrial Companies (Special Provisions) Act, which was filed on the basis of the reference communicated to the defendant No. 1/Company by the Board for the Industrial and Financial Reconstruction, vide their letter dated 21st April, 1999. The aforesaid reference was rejected by the Board for Industrial and Financial Reconstruction vide its order dated 9th October, 2000 and the appeal filed against the said order was rejected by the Appellate Authority for Industrial and Financial Reconstruction vide its order dated 20th February, 2001.

3. However, before I.A.No.3114/1999 could be disposed of, a fresh reference under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act with regard to the defendant No. 1/Company was registered by the Board for Industrial and Financial Reconstruction which was numbered as Case No. 247/2001. The Registrar on behalf of the Board for Industrial and Financial Reconstruction informed the defendant No. 1/Company about the aforesaid position vide letter dated 21st June, 2001. Relying on the aforesaid letter, the present application was filed in this Court by the defendants seeking for stay of the proceedings in the suit as also in the execution petition, which was initiated by the plaintiff for enforcement of the judgment and decree passed by this Court on 18th August, 1998. The said application is opposed by the plaintiff/Decree Holder on the ground that the defendant No. 1/Judgment Debtor No. 1, was the principal borrower whereas, the defendant No. 2/Judgment Debtor No. 2 was the guarantor and, therefore, no such order for stay of the execution proceedings against the defendant No. 2/Judgment Debtor No. 2 could be ordered. In support of their contentions the counsel appearing for the parties relied upon and referred to and placed before me the relevant provisions, namely, Section 22(1) of The Sick Industrial Companies (Special Provisions) Act, which for proper understanding is extracted below:-

"22. Suspension of legal proceedings, contracts, etc. - (1) Where in respect under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Sections 25 relating to an industrial company is pending, then, nothwithstanding Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress, or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof [and no suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.

4. In the light of the aforesaid submissions of the counsel appearing for the parties, the question that arises for my consideration is whether the suit as also the execution petition could and should be stayed as against both the defendants/Judgment Debtors.

5. So far the defendant No. 1 is concerned, the said Company has been declared to be a sick company and the reference made under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, is pending for consideration before the Board for Industrial and Financial Reconstruction. Therefore, no proceedings in terms of Section 22 could be continued as against the defendant. No. 1 even for the purpose of execution, distress and such other steps. Even the counsel appearing for the plaintiff could not dispute the aforesaid position.

6. Therefore, the next question which is to be examined and considered is as to whether or not further proceeding in the suit and the execution proceedings initiated against the defendant No. 2 could be stayed by this Court under the provisions of Section 22 of The Sick Industrial Companies (Special Provisions) Act.

7. It was submitted by the counsel appearing for the plaintiff that so far the guarantor is concerned, what is contemplated under Section 22 of the Act is stay of further proceedings of suit for the recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company, except with the consent of the Board.

8. The Supreme Court in the decision in M/s. Patheja Bros. Forgings and Stamping and another v. I.C.I.C.I. Ltd. and others; interpreted the expression with which I am concerned in the present applications, For answering the present issue which arises for my consideration, the following expression "no suit for the recovery of money ..... shall lie or be proceeded with further, except with the consent of the Board" is relevant. The same wordings and the expression came to be considered by the Supreme Court in the aforesaid decision M/s. Patheja Bros. Forgings and Stamping and another (supra) and in the context thereof, it was held that there is no ambiguity in the aforesaid words. It was held by the Supreme Court that no suit for the enforcement of a guarantee in respect of a loan or advance granted to the industrial company will lie or can be proceeded with without the sanction of the Board and that it is not possible to read the relevant words in Section 22 as meaning that only a suit against the industrial company will not lie without such consent. It was also held that there is no requirement in Section 22, to be covered thereby, a suit for the enforcement of a guarantee in respect of a loan or advance to the industrial company should be against the industrial company. In paragraph 9 of the said judgment, the Supreme Court held that the language of Section 22 is explicit and that the scheme would provide for repayment of the loan or advance and, therefore, would take within its ambit the claim on the guarantee and, therefore, the question of proceeding with the suit against the guarantor would not arise.

9. Counsel appearing for the plaintiff also sought to rely upon the provisions of Section 22A, which empowers the Board to direct the industrial company not to dispose of, except with its consent, any of its assets. He submitted that no such power is available so far the guarantor is concerned and, therefore, as that of the principal borrower, namely, the Company which is declared sick.

10. Similar argument was also advanced before the Supreme Court in the case of M/s. Patheja Bros. Forgings & Stamping (supra). In the said decision, it was held that although Section 22-A empowers the Board to direct the industrial company not to dispose of, except with its consent, any of its assets and that there was no provision in the Act which empowerd the Board to order the guarantor of a loan or advance to an industrial company not to dispose of its assets, but, still Section 22 of the Act provides that the suit would lie or could be proceeded with after consent of the Board has been obtained and, therefore, it would be open to the claimant on a guarantee to obtain such consent from the Board.

11. Counsel for the plaintiff further submitted that when specific embargo is put in relation to a suit, it should be restricted and that the same benefit cannot be made available in execution proceeding. According to the counsel, execution proceeding cannot be treated as a suit and, therefore, an execution proceeding for the enforcement of any security or for any guarantee in respect of any loan of advance granted to the industrial company cannot be stayed and the same shall have to be proceeded with in accordance with law.

12. I have given my anxious consideration to the aforesaid submission of the counsel appearing for the plaintiff.

13. In the present case, an ex parte decree was passed on 18th August, 1998. However, two applications registered as I.A. Nos. 10368/1998 and 10370/1998 under Order IX Rule 13 CPC, seeking for setting aside of the ex parte decree are pending for consideration. On the other hand, the plaintiff has filed an execution petition seeking for enforcement of the decree. In order to allow the prayer in the execution petition, this Court shall have to enforce the judgment and decree passed in the suit enforcing the guarantee of the defendant No. 2 in respect of the loan or advance granted to the industrial company, namely, the defendant No. 1. But even in respect of the said suit, an application for setting aside the ex parte decree is pending for consideration. There is a clear embargo in proceeding with a suit in which a guarantee is also sought to be enforced as provided for under Section 22 of the Act.

14. So far the defendant No. 1 is concerned, the same being a sick Company is the principal borrower. So far the said Company is concerned, the suit cannot be proceeded with for, it is clearly stated in the first part of the provisions of Section 22 of The Sick Industrial Companies (Special Provisions) Act that no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company could be proceeded with, except with the consent of the Board. Therefore, even the execution proceeding as against the defendant No. 1 cannot be proceeded with without obtaining such consent from the Board. Therefore, the plaintiff now seeks to proceed only as against the defendant No. 2 for enforcement and execution of the decree passed in the suit in respect of the guarantee given by the defendant No. 2 in respect of the loan or advance granted to the defendant No. 1.

15. When it is explicitly provided in the Act that similar benefit as that of the industrial Company shall also be available to the guarantor and no such suit shall be proceeded with even as against the guarantor for enforcement of any guarantee in respect of the loan or advance granted to the industrial Company, the intention of the Legislature is clear, apparent and explicit. The Legislature clearly intended that a guarantor who gives a guarantee in respect of any loan or advance granted to the industrial Company should be equally placed with that of the industrial Company which is declared sick and no proceedings in the nature of suit shall be allowed to be proceeded with for enforcement of such a guarantee without obtaining the consent of the Board. There is no reason why such protection should also not be available even at the stage of the execution proceedings for at that stage what is sought to be enforced is the judgment and decree passed in the suit.

16. In the present case in respect of the judgment and decree passed in the suit, even the applications under Order IX Rule 13 CPC are pending for consideration. What is sought to be executed in the present proceedings by filling the execution petition by the plaintiff is the judgment and decree passed in the suit where the application for setting aside ex parte decree is pending for consideration. If the execution proceeding pending against the defendant No. 1 is allowed to be continued even though the application for setting aside the ex parte decree is pending for consideration, the same would amount to effecting enforcement of the guarantee given by the guarantor in respect of the loan or advance granted to the industrial Company. It is also to be noted that such or execution proceeding could be initiated or proceeded with after obtaining the consent of the Board.

17. In my considered opinion, in the facts and circumstances of the present case, the execution proceeding and the suit pending against the defendants are required to be stayed till such permission as is required under the provisions of Section 22 of the Act is obtained by the plaintiff from the Board.

18. In that view of the matter, both the applications registered as I.A.Nos. 3114/1999 & 7322/2001 filed by the defendants under Section 22 of the Sick Industrial Companies (Special Provisions) Act, stand allowed. Further proceedings in the suit and in the execution petition, both in respect of the defendant No. 1/Judgment Debtor No. 1 and defendant No. 2/Judgment Debtor No. 2 shall remain stayed sine die with a liberty to the counsel for the parties to get the proceedings revived once permission is obtained from the Board or at any other appropriate stage.