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PETITIONER: M/S PATHEJE BROS. FORGINGS & STAMPING & ANR.

       Vs.

RESPONDENT: ICICI LTD & ORS.

DATE OF JUDGMENT:       24/07/2000

BENCH: S.P. BHARUCHA. J, M.B. SHAH.J, & RUMA PAL J.

JUDGMENT:

Bharucha, J. L......I.......T.......T.......T.......T.......T.......T...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 industrial company.

      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 was registered.

      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.

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      It   was  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.

      Section 22, so far as it is relevant, reads thus:

      "22  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.

      a)      for the recovery of money or        b)      for the enforcement                i)      of any security against the                        industrial company.

      or      ii)     of any guarantee in respect of any                        loans or advance granted to the                        industrial company.

      shall  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

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industrial company will lie or can be proceeded with without the  sanction of the Board or the Appellate Authority  under the said Act.

      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.  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.

      Section  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.

      Section   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.

      It  remains to deal with the judgment of the Division Bench of the Bombay High Court in Madalsa International Ltd. The  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

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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.

      As  of  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.

      The appeal is allowed. The order under appeal is set aside.

      No order as to costs.