The main legal point established in the judgment is the interpretation and application of Section 22 of SICA to suit proceedings, emphasizing that only suits with the effect of execution, distress, or like action against the properties of the sick company are hit by Section 22.

VALMIKI J. MEHTA, J (ORAL)

1. On 10.9.2012, the following order was passed:-

“1. Though there is no ground for adjournment in the present suit in which the application for leave to defend is listed, however, since the counsel for the defendant is stated to be not well and not appearing in any court, list on 11th October, 2012.

2. It is made clear that no adjournment shall be granted on the next date of hearing.”

2. Today, counsel appearing for defendant no.2 states that the defendant no.1 company, and which is the principal borrower, is a sick company and therefore, the present suit cannot proceed. Attention of this Court is invited to the order dated 12.2.2008, as per which, the suit had to be heard qua the maintainability in view of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 ( in short SICA).

3. The issue as to continuation of a suit filed against a sick company is no longer res integra and is fully covered by two recent judgments one of the Division Bench of this Court in the case of Sakethh India Ltd. Vs W. Diamond 2010 (119) DRJ 190; 2010 (160) CC 562 and second is the judgment of the Supreme Court in the case of Raheja Universal Ltd. Vs. NRC Ltd. (2012) 4 SCC 148.

4. The ratio of the judgment in Saketh India Ltd.’s (supra) case is that unless the dues are admitted by the sick company in a sanctioned scheme or is admitted before the Court where the same suit is filed, no permission is required under Section 22 of SICA. More particularly it is held that before Section 22 applies the proceedings have to be in the nature of „execution, distress or the like. Paras 6 and 14 of the said judgment are as under:-

“6. Courts, however, have always been alive to the possible mischief that invocation of SICA can lead to. In a nutshell, where the net worth of a company is reduced to a negative, and the amelioration that is sought is for reviving the company rather than winding it up, the recourse to the Act would be legitimate. There is no justifiable reason, therefore, for all legal proceedings to be immediately even held in abeyance, if not dismissed. We are mindful of the fact that Parliament has incorporated an amendment in the Section with effect from 1.2.1994 in these words - "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". It appears to us that the phrase "recovery of money" must be construed ejusdem generis and accordingly recovery proceedings in the nature of execution or any other coercive enforcement that has been ordained to be not maintainable. We do not find any logic in holding legal proceedings to be not maintainable, or to be liable to be halted unless, even if the debt sought to be proved in the Plaint has not been admitted. Given the delays presently endemic in the justice delivery system if a creditor is disallowed even from proving the indebtedness of a recalcitrant debtor SICA company, it would cause unjustified hardship. Whichever way we look at the matter, there can be no logic in denying legal recourse to a party for proving its debt. In the event that at least the principal amount, or a substantial part of it stands admitted, either in the suit or by means of a mention in the Scheme placed before the BIFR, the aggrieved party must be permitted to prove its claim. In holding so, the only prejudice that we can conceive of is incurring expenditure in legal fees. When this is weighed against the interests of a person claiming that the company is indebted to it, the balance tilts in favour of the latter. A holistic reading of Section 22(1) of SICA makes it manifestly clear that Parliament's intention was to insulate sick companies only against proceedings for winding-up or for execution, or distress or