Patheje Bros. Forgings & Stamping & ANR Vs. ICIC Ltd. & Ors 
INSC 377 (24 July 2000)
BHARUCHA. J, M.B. SHAH.J, & RUMA PAL J.
The question in this appeal is whether Section 22 of The Sick Industrial
Companies (Special Provisions) Act, 1985 ('the said Act') covers a suit against
the guarantor of a loan or advance that has been granted to the concerned
On 31st March 1999 the first respondent filed a suit
inter alia aginst the first appellant to recover the amounts of the loans that
had been given to the latter. To the said suit were impleaded the guarantors
(including the second appellant) and the guarantees were sought to be enforced.
A Notice of Motion was taken out in the suit for ad interim relief. which was
granted on 1st, April 1999.
On 8th April, 1999 the reference made by the first
appellant to be declared a sick undertaking within the meaning of the said Act
On 9th April 1999 it was brought to the notice of the
learned single Judge hearing the Notice of Motion that the reference had been
registered; in view of that, he directed the Court Receiver not to take
possession pursuant to the ad interim order, if not already taken. On 3rd May, 1999 it was pointed out to the learned
signle Judge that certain properties mentioned in an exhibit to the plaint were
not the properties of the first defendant and that, consequently, the order of
ad interim relief would not apply to them. It was argued that these properties
belonged to the guarantors and, therefore, considering the language of Section
22 of the said Act, the suit in respect of these properties could not be
proceeded with. The attention of the learned single Judge was, on the other hand,
drawn to the judgment of a Division Bench of the High Court in the case of
Madalsa International Ltd. and Ors. vs. Central Bank of India, AIR 1998 BOMBAY 247. It had there been held that
the provision of Section 22 would not apply in so far as guarantors were
concerned. In view of that judgment, the learned single Judge declined to
vacate the ad interim order in so far as the guarantors' properties were
concerned. The order of the learned single Judge was carried in appeal, and a
Division Bench relying upon the judgment in Madalsa International Ltd.,
summarily dismissed the appeal. That is the order under challenge before us.
contended by learned counsel for the appellants that the provisions of Section
22 were clear and that thereunder no suit for the enforcement of any guarantee
in respect of any loan or advance granted to the concerned industrial company
would lie or could be proceeded with except with the consent of the Board or
the Appellate Authority under the said Act. The learned Solicitor General,
appearing for the first respondent, submitted that the suit contemplated by
Section 22 was a suit only against the industrial company and that it was only
when the industrial company was itself the guarantor or it was sued by a
guarantor on subrogation that the provisions of Section 22 would apply. He also
submitted that the provisions of Section 22 had to be read in harmony with
other provisions of the said Act and he relied in particular upon Section
17(3). Section 18(2)(e) and Section 22(A) thereof.
22, so far as it is relevant, reads thus:
Suspension of legal proceedings, contracts, etc (1) where in respect of an
industrial company, an inquiry 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 notwithstanding anything
contained in the Copanies 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 winging
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." The words in the square brackets
above were inserted into Section 22 by Act 12 of 1994 and it is these words
which are relevant for our purposes. As we read them they provide that no suit.
the recovery of money or b) for the enforcement i) of any security against the
of any guarantee in respect of any loans or advance granted to the industrial
lie or be proceeded with except with the consent of the Board or the Appellate
Authority under the said Act. For our purposes, therefore, the relevant words
are : no suit ... for the enforcement ... of any guarantee in respect of any
loans or advance granted to the industrial company" shall lie without the
consent of the Board or the Appellate Authority. The words are crystal clear.
There is no ambiguity therein. It must, therefore, be held that no suit for the
enforcement of a guarantee in respect of a loan or advance granted to the
concerned industrial company will lie or can be proceeded with without the
sanction of the Board or the Appellate Authority under the said Act.
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. There is
no requirement in Section 22, as analysed above, that 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.
17(3) empowers the Board to direct the preparation of a scheme adopting all or
any of the measures specified in Section 18. Sectionn 18(2) states that the
scheme may provide, inter alia, for "the continuation by, or against, the
sick industrial company or as the case may be, the transferee company or any
action or any other legal proceedings pending against the sick industrial
company immediately before the date of the order made under sub section (3) of
Section 17". The argument on behalf of the first respondent is that while
this provision provides for the continuation of proceedings against the
industrial company, there is no provision in the said Act which provides for
the continuation of any held up proceeding against the guarantor of a loan or
advance to such company and that, therefore, Section 22 should be read as
applying only to a suit against the industrial company and not a guarantor.
Apart from the fact that, as indicated above, the language of Section 22 is
explicit, the scheme would provide for the repayment of the loan or advance
and, therefore, would take within its ambit the claim on the guarantee, the
question of proceeding with the suit against the guarantor would not arise. On
the other hand, if the industrial company cannot be revived by a scheme, the
embargo under Section 22 would cease to operate.
22A empowers the Board to direct the industrial company not to dispose of,
except with its consent, any of its assets. Learned counsel for the first
respondent pointed out that there was no provision in the said Act which
empowered the Board to order the guarantor of a loan or advance to an
industrial company not to dispose of his assets. This is true, but section 22
provides that the suit would lie or be proceeded with after the consent of the
Board has been obtained. It would, therefore, be open to the claimant on a
guarantee to obtain such consent from the Board.
remains to deal with the judgment of the Division Bench of the Bombay High
Court in Madalsa International Ltd.
Division Bench found no ground to so read Section 22 as to hold that a suit
against the guarantor also stands suspended. It said, "The guarantor could
be absolute third parties or directors of an industrial company. However, in
both cases it would be the guarantors, whether third parties or directors, who
would be affected personally; and we see no reason to interpret the section in
such a manner that apart from the properties of the industrial company, the
legislature intended to protect the personal interest of the guarantors as
proceedings against ghuarantor and their personal property would not affect the
revival of the industrial company in any manner whatsoever. In the circumstances
the words "of any guarantee in respect of any loans, or advance granted to
the industrial company" in the context will have to be read as the
guarantee given by the industrial company itself and none elso." We have
analysed the relevant words in Section 22 and found that they are clear and
unambiguous and that they provide that no suit for the enforeement of a
guarantee in respect of any loan or advance granted to the concerned industrial
company will lie or can be proceeded with without the consent of the Board or
the Appellate Authority. When the words of a legislation are clear, the court
must give effect to them as they stand and cannot demur on the ground that the
legislature must have intended otherwise.
today, there is an appeal in respect of the first appellant pending before the
Appellate Authority under the said Act Therefore, the first respondent's suit
for the enforcement of the guarantees in respect of the loans granted to the
first appellant cannot be proceeded with unless consent as required by Section
22 is obtained.
appeal is allowed. The order under appeal is set aside.
order as to costs.