VERY IMPORTANT POINT
Section 22 of The Sick Industrial Companies (Special Provisions) Act, 1985 covers a suit against the guarantor of a loan or advance that has been granted to the concerned industrial company.

JUDGMENT

Bharucha. 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.

2. On 31st March, 1999 the first respondent filed a suit inter alia against 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.

3. 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.

4. 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 single 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. v. Central Bank of India1. It had there been held that the provisions 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.

5. 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.

6. 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 Companies 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