Madalsa International Ltd. . and others vs Central Bank of India

Judicial Analysis Court Copy Headnote Facts Arguments Court observation

1997 Supreme(Bom) 682

IN THE HIGH COURT OF BOMBAY
V.P. Tipnis Mrs. R.P. Desai, JJ.
Madalsa International Ltd. others ..... Appellants.
Versus
Central Bank of India .... Respondents.
Appeal No. 426 of 1997 in Chamber Summons No. 428 of 1997 in Suit No. 278 of 1995, decided on 11/12-12-1997.
Advocates appeared :
S.H. Doctor with Ms. J.M. Sidhwa i/b Mehta Girdharial, for appellants.
Pravin Diwan i/b Kanga and Co., for respondents.

Headnote:Section 22-Contrad Act. 1872, Sec. 126-Bar of proceedings against sick company-Section 22 does not cover guarantor or directors of a sick company but, only the sick industry Itself, it has nothing to do with independent persons, therefore bar under Sec. 22(2) comes only properties of the company and not that of its guarantor or directors.-Section 22 in a sense imposes serious restrictions on the rights of the third party against filing of suits of the nature mentioned thereunder or for taking coercive action of the nature mentioned therein mentioned against the industrial company. Apart from the fact that such restrictions will have to be read on strict interpretation they affect the valuable rights, even the rights finalised by the judgment and decrees of the competent courts, Court find absolutely no ground to read in this provisions that the proceedings against the guarantors could be absolute third parties or directors of an industrial company. However, in both cases, it would be guarantors, whether third parties or directors, who would be affected personally and court 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 guarantors 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 the guarantee given by the industrial company itself and none else.
       Section 22 (As amended in 1994)-Execution proceedings-Scope of Sec. 22(2)-Word suit in the amended portion of Sec. 22 does not include in its ambit execution or execution proceedings, even if, an appeal is pending, there cannot be any bar in proceedings further with the same.- The first question which arise in this case is whether the word suit used in Section 22 of the SICA, 1985 includes in its ambit execution or execution proceedings. In this behalf, it is relevant to notice that prior to the amendment of Section 22, it was provided that 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 Section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956 or any other law or the memorandum and articles of association of the industrial company, or any other in stringent 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 inspect thereof shall lie or be proceeded with further, except with the consent of the Board or, as the case may be the Appellate Authority. Un-amended section did not prohibit or suspend any suit for recovery of money or enforcement of any security against the industrial company and/ or guarantee in respect of any loans of advances granted to the industrial company. It is extremely relevant that the word execution is used in the un-amended section while in the added portion by amendment the word suit is used. It is also further relevant that various authorities quoted above, clearly show that the interpretation of word suit in any particular statute will have to be made in the context in which the same is used. In courts opinion, the intention and object of the amendment is that not only the coercive action against the industrial company or properties belonging to it should be suspended but, also the suit for any recovery of money or enforcement of any security against the industrial company should be suspended. The earlier part takes care of the coercive measures in execution, etc. while the latter part obviously suspends the very initiation or if, already initiated, prosecution of any suit of the description mentioned therein. Considered in this light, Court is of the clear opinion that the word suit in the amended portion of Section 22 cannot include in its ambit execution or execution proceedings. On this interpretation in fact even if, the appeal is pending so far as the execution proceedings are concerned, excepting the properties of the industrial company, there cannot be any bar or no impediment in proceeding further with the same.
       Sick Industrial Company Act, 1986
       Section- 22-Meaning of words "of any guarantee in respect of any loans or advance granted to the industrial company"-Guarantee given by industrial company itself and none else-The guarantors could be absolute third parties or director of an industrial company-Suspension of proceeding against director not proper.

JUDGMENT - V.P. TIPNIS, J.:---Central Bank of India filed a suit being Suit No. 278 of 1995 against the (1) Madalsa International Ltd. a company incorporated under the Companies Act, 1956, (2) Deepak Bhandari and (3) Hotel Emerald Pvt. Ltd. a company incorporated under the Companies Act, 1956 for recovery of large amount of more than Rs. 5 crores. Ultimately the parties reached a settlement and a decree on admission was passed on 16-4-1996 for a reduced amount of Rs. 1.34.94.692/-. The decree also provided that the decree shall not be executed and shall be marked as satisfied on the defendants jointly and severally paying the decreetal amount as mentioned under Clause (2) of the said decree on admission. It provided payment of a sum of Rs. 75, lacs within two months from the date of execution of the terms and the balance was to be paid in 9 monthly instalments each for minimum amount of Rs. 50 lacs, the first of which shall be paid on or before 30th June, 1996 and each subsequent instalments on or before the last day of each succeeding month so that the entitle balance decreetal amount shall be paid on or before 31st March, 1997. Under the very consent decree Hotel Emerald Private Limited defendant No. 3, created mortgage in favour of the plaintiffs to secure the dues under the decree. It was contemplated that before the mortgage is created the plaintiffs Advocates will have to be satisfied as to the defendant No. 3's marketable title to the said property and property being free from encumbrances. The defendant No. 3 Hotel Emerald Private Limited gave an undertaking to this Court to create mortgage as agreed. The decree also mentions regarding several undertakings by defendant Nos. 1 to 3 for creating the mortgages in respect of the property mentioned therein and also make out marketable title to the properties so agreed to be mortgaged. In the event of default it was provided that the plaintiff shall be at liberty to forthwith execute the decree and claim the entire decreetal amount. The terms inter alia also contemplated sale of the properties described in Exhibits A and B by sale in execution in the event of defendants Nos. 1 to 3 committing any default in payment of any instalments as provided in clause (2) of the decree or in case of breach of any other terms and conditions of the decree. Clause 8 which is relevant is as under :

"In the event of defendants committing any default in the payment of the instalments as specified in clause 2 above and/or breach of any other terms hereof, the Court Receiver High Court Bombay shall forthwith stand appointed as Receiver in respect of the stocks of good and book debts described in Exhibits A-4, A-5, A-7, D-7 and D-8 to the plaint and the properties described in annexure A and B hereto without any further orders from this Hon'ble Court with full power to take possession of said securities, forcibly if necessary and to sell the same in execution by public auction or private treaty and to hand over the net sale proceeds and/or realisation thereof to plaintiffs after deducting his cost, charges and expenses."

2. After the decree was passed, absolutely no payment was made and as such terms of the decree were breached by the defendants and the plaintiff moved the Receiver to take steps as were contemplated under Clause (8) of the decree i.e. to take forcible possession of the properties of which he was appointed Receiver.

3. Thereafter the defendants took out the Chamber Summons No. 428 of 1997 praying that the execution of the aforesaid decree be stayed against all the defendants and in particular against defendants Nos. 2 and 3.

4. Before the learned Judge it was contended that the defendant No. 1 has filed a Reference with the Board of Industrial and Financial Reconstruction (for short BIFR) on 19.3.1997 and since the defendants Nos. 2 and 3 are guarantors, they are also entitled to protection under section 22(2) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short

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1997 Supreme(Bom) 682

Cases Referred (4)