The main legal point established in the judgment is that the consent of BIFR is required to proceed with a suit against the guarantor of a sick industrial company under Section 22 of SICA.

R. BANUMATHI, J

1. In view of the Case No.252 of 1998 pending before the Board for Industrial and Financial Reconstruction (in short, "BIFR"), whether suit - C.S.No.889 of 2005 filed against the appellants-defendants, the Company - Salem Textiles Limited and the 2nd defendant - the Managing Director of the 1st appellant is liable to be rejected is the point falling for consideration in this appeal. This appeal arises out of the order dated 4.11.2009 in Application No.518 of 2006 in C.S.No.889 of 2005 dismissing the application filed by the appellants under Order 7 Rule 11 C.P.C. read with Order XIV Rule 8 of Original Side Rules.

2. The appeal arises on the following facts:

The first appellant Company is carrying on business in Textiles. The 2nd Appellant is the Managing Director of the 1st Appellant Company. Respondent/ Plaintiff is engaged in the business of leasing and hire purchase finance for machines, equipments, motor vehicles, etc. In the course of their business, the respondent/plaintiff extended lease finance facility to the 1st Appellant for which a personal guarantee was executed by the 2nd Appellant. Onbehalf of the 1st Appellant Company, the 2nd Appellant entered into a lease agreement dated 18.9.1995 in respect of two Lakshmi Rieter Comber Machines and one silver Lap Machine for a total contract value of Rs.40,50,000/- inclusive of finance charges, payable in 60 equal monthly instalments of Rs.67,500/- each. The first of such instalment was to be paid on 18.9.1995 and the last on 18.8.2000. As additional security, in his personal capacity, the 2nd appellant had executed a demand promissory note on 18.9.1995 in favour of the respondent promising to pay the respondent a sum of Rs.40,50,000/- jointly and severally on demand by the respondent for value received. The rentals had been remitted upto 14th instalment and only a part of 15th instalment was paid. The rental for the rest of the instalments viz., 16th instalment onwards remain unpaid.

3. The respondent filed Company Petition in C.P.No.163 of 1998 for winding up the first appellant - Company under Section 433(1)(e) on the ground that the 1st Appellant Company is unable to pay its debts. There were also other Company Petitions filed by other creditors against the 1st appellant Company. In the Company Petition, 1st Appellant filed counter stating that Company has preferred Case Nos.252 of 1998 and 168 of 2001 before BIFR and the matter is pending before BIFR. By the Order dated 19.9.2003, C.P.No.163 of 1998 had been closed with liberty given to the respondent to revive the same on the disposal of BIFR proceedings. According to plaintiff, the proceedings before BIFR are still pending. Stating that the 2nd Appellant had stood as guarantor and has given personal guarantee, which is co-existent with the liability of the 1st appellant, respondent filed the suit - C.S.No.889 of 2005 for recovery of Rs.84,16,083/-. Case of respondent is that the 2nd Appellant had given a personal guarantee for the loan availed by the 1st appellant and 2nd appellant is also bound to pay the amount due to the plaintiff from the 1st appellant Company and the liability of the 2nd appellant is distinct and can be enforced against the guarantor without any recourse to the borrower. The respondent averred that in view of Section 22(5) of the Sick Industrial Companies (Special Provisions) Act, 1985, (in short, "SICA"), the suit is not barred by limitation.

4. The appellants filed Application No.518 of 2006 under Order 7 Rule 11 C.P.C. read with Order XIV Rule 8 of Original Side Rules to reject the plaint. The appellants sought for rejection of plaint on the ground that case was registered by BIFR as Case No.252 of 1998 and ICICI Limited was appointed as the operating agency under Section 16(2) of the Act and the matter is still pending before BIFR for consideration. Further case of Appellants is that in view of Section 22(1) of SICA, no suit or legal proceedings shall lie or be procee