ORDER
Manmohan Sarin, J.
1. By this judgment I.A. 9362/2002 under Order XXXIX, Rule 4 read with Section 151, C.P.C. and LA. 9080/2003, under Section 151, C.P.C., for bringing on record additional documents, are being decided. The prayer in the application LA. 9362/2002 moved by defendant No. 2 is for vacation of the restraint order dated 16-12-1997, passed in LA. 11205/95, restraining defendants from selling, transferring or alienating the properties mentioned in Annexures A and B to the application. Defendant No. 2, guarantor of defendant No. 1, seeks vacation of the said order insofar as it restrains him from transferring or alienating the property mentioned in Annexure B i.e., A-7, Maharani Bagh, New Delhi.
2. The facts giving rise to the present application may be briefly noted. Plaintiff had filed the above suit under Order xxxvII of the Code of Civil Procedure for recovery of Rs. 50 lakhs together with interest. Defendant filed the application for leave to contest, claiming that the amount in suit was neither due nor payable by the defendants. On 16th December, 1997, as noted, the Court had restrained the defendants from selling, transferring or parting with possession or encumbering with regard to properties mentioned in Annexures A and B. An application I.A. 9930/98 under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as ‘SICA’, for short) had been moved by the defendant in October, 1998, claiming that during the pendency of the suit, the defendant No. 1 had been declared a sick company vide order dated 17-3-1998 in case No. 10 of 1998 titled Prestige H.M. Poly Containers Ltd. (An inquiry under Section 16 of SICA was pending and the scheme under Section 17 was stated to be under preparation. The defendant, therefore, submitted that in the absence of the requisite consent under Section 22 of the SICA, proceedings in the present suit were liable to be suspended straightaway until the plaintiffs obtained the consent under Section 22 of SICA to proceed with the suit from BIFR. The plaintiff is also stated to have moved the BIFR for obtaining such consent.
3. In the event, the BIFR vide its order dated 23rd November, 2001 concluded that it would be just and equitable to wind up defendant No. 1. under Section 20(1) of SICA. Upon the said order being passed, the plaintiff moved I.A. 361/2002 for revival of the present proceedings. The defendant in reply opposed the said revival by stating that the order dated 23rd November 2001, was challenged by the defendant No. 1 company before the AAIFR, by way of an appeal under Section 25 of SICA. The said appeal was dismissed on 1-12-2001 and defendant No. 1 filed a writ petition bearing C.W.P. No. 38/2002, before the High Court of Mumbai and the said petition is stated to be pending hearing. It was also pleaded that it was not open to the plaintiff to proceed only against defendant No.
2. It is in the aforesaid background of facts that the present application being I.A. 9362/2002, has been moved by the defendant No. 2 for vacation of the restraint order.
4. The suit had been adjourned sine die oN 28th September, 2000, as reference under Section 15 of the SICA before the BIFR had been registered. The defendants in the present application contend that Section 22 of SICA would not operate as a bar to the said defendants, seeking enforcement of their rights and vacation of the restraint order against them.
5. I have heard Mr. Rajiv Sawhney, senior advocate appearing for defendant No. 2 in support of the application under order XXXIX, Rule 4, C.P.C. His submissions are broadly two-fold.
(i) The first submission of Mr. Sawhney is that the present application for vacation of the interim order dated 16-12-1997 is not barred by Section 22 of SICA. Mr. Sawhney submitted that the bar under Section 22 was intended to protect the company, in respect of which a reference under Section 15 had been registered with inquiry under Section 16 pending. However, there was no embargo on the company instituting a suit or seeking any relief for enforcement of its rights. It was only the proceedings against the company, which were suspended. Mr. Chaudhary appearing for the plaintiff refutes the submission by urging that, there was a complete embargo on proceeding further with the suit under Section 22 of SICA, except with the consent and permission by BIFR being granted. The present application under Order XXXIX, Rule 4, C.P.C. was barred and could not be entertained in view of Section 22 of SICA.
(ii) The second submission of Mr. Sawhney is that the plaintiff had obtained the ex parte restraint order by willful misrepresentations and concealments. The plaintiff in the plaint did not disclose the payment made by the defendant of nearly Rs. 25 lakhs. Plaintiff also did not disclose that it had sought transfer of shares in its favor valued at over Rs. 25 lakhs, which had been pledged as security. The plaintiff in reply filed to the application for leave to contest by the defendant itself had admitted the receipt of Rs. 20.94 lakhs. Defendant No. 1 had plant and machinery worth Rs. 7.36 crores and factory building worth Rs. 90.82 lakhs at Maharashtra, as per the plaintiffs own case. The residential house at A-7, Maharani Bagh, belonging to the guarantor, defendant No. 2, the transfer/alienation of which has been restrained, is itself worth crores. The ex parte restraint order dated 16-12-1997, was liable to be vacated. Mr. U.K. Chaudhary, senior advocate appearing for the plaintiff refuted the above submissions. He denied that there was any concealment or willful misrepresentation. He submitted that as on the date of the institution of the suit, the defendant owned a sum of Rs. 61,38,279 and statement of account had been duly filed to reflect the payments received. He questions the interpretation sought to be given to Section 22 of SICA. He submitted that the said interpretation was against the legislative intent and the express provisions of the statute.
6. Having noted the submissions in brief of the plaintiff and defendant, let us examine the said propositions, as advanced:–
Point 1: Whether the present application under Order XXXIX, Rule 4, C.P.C. is barred by virtue of Section 22 of SICA?
As noted, it is the defendants who had invoked Section 22 of SICA. Suspension of proceedings in the suit was sought pending disposal of writ petition assailing the orders of AAIFR and BIFR. Plaintiffs attempt to seek revival of suit was opposed by the defendants.
It has not been disputed before me that pursuant to the writ petition being admitted to hearing, challenging the orders of the BIFR and AAIFR and the orders passed therein, the bar under Section 22 of SICA was still in operation. The submission of Mr. Sawhney is that Section 22 of SICA only bars the continuation of proceeding against the sick company. There is no bar on the sick company to seek enforcement of its rights. Section 22 of SICA is intended to ensure that asset base of a company which is having a reference under Section 15 of SICA is not eroded by suits or distress proceedings against the company. Section 22(1) of SICA is reproduced as under for facility of reference:–
“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 Section 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 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 ease may be, the appellate authority.”
7. Mr. Sawhney urged that the bar in the section was confined to the proceedings against the company mentioned therein. There was no bar under the said section against the company instituting a suit or recovering its assets or seeking enforcement of its rights. Mr. Sawhney also places reliance on a decision of the Bombay High Court in Duke Offshore Ltd. v. Burns Standard Co. Ltd., 1998 (CC2) GJX 350. The Court while considering whether the status quo granted in a matter of bank guarantee should be continued, made the following observations:–
“This judgment nowhere lays down that the company against which the proceedings have been initiated is prohibited from taking legal steps for the enforcement of its rights. However, by placing reliance on the judgment of the Division Bench of the Allahabad High Court in the case of Cornet Filaments (India) Ltd. (1988 ALL LJ 1246) (supra), it is contended that once a company is declared to be sick, the property of the company remains under the direct control of the BIFR and no proceedings in respect of the property could be proceeded with except with the Board’s consent. From the said observation it is impossible to hold that the Division Bench of the Allahabad High Court has taken a view that as the property vests in the Board, the Company, though not wound up, is barred from taking steps for realisation of its legal dues. At the highest all that can be said in such a case is that the moneys recovered cannot be disposed of by the company, which still is in existence, from carrying out its operations. The said contention, therefore, must be rejected.”
8. Relying on the above observations Mr. Sawhney submitted that there was no bar to the application under Order XXXIX, Rule 4, C.P.C., being entertained, especially when it is to subserve the ends of justice and getting a fraudulent order obtained with willful misrepresentations and concealments set aside, In those circumstances, Mr. Sawhney submitted that the application under Order XXXIX. Rule 4, C.P.C., deserves to be allowed and in the least the restraint on the residential house of defendant No. 2 deserves to be vacated.
9. Mr. Prag Tripathi, senior advocate appearing for the defendant No. 1, supported the submissions and stated that purposive interpretation was required to be given in the instant case. Mr. Tripathi relying on the work “Statutory interpretation, a Code” by FAR Bennion, submitted that this was a case, where purposive construction even if it required straining of the statutory language ought to be given. He relied on the following para of the above Code by FAR Bennion:–
“A purposive construction of an enactment is one which gives effect to the legislative purpose by–
(a) following the literal meaning of the enactment where that meaning is in accordance with the legislative purpose (in this Code called a purposive-and-literal construction), or
(b) applying a strained meaning where the literal meaning is not in accordance with the legislative purpose (in the Code called a purposive-and-strained construction).”
He submitted that a purposive construction must obviously be in all cases a construction which gives effect to the legislative intention, whether or not the statutory language needs to be strained to achieve this.
10. In the instant case it was urged that the legislative intent was for protection of the assets of the company, having financial difficulties for which provisions of Section 22 of SICA had been invoked. It is only proceedings against the company which are stayed and not to be proceeded with. The intention is to protect its assets base being eroded pending consideration and evaluation of a scheme for its rehabilitation. Accordingly, he submitted that there could be no embargo or bar on the defendant, seeking vacation of the restraint order which is for the benefit of the company or the guarantor.
11. Mr. Chaudhary submitted that once the conditions of applicability of Section 22 of SICA are satisfied then no suit for recovery of money or for enforcement of any security against the industrial company or any guarantee shall lie or be proceeded with further. He submitted that there was thus an embargo or a complete bar to the very exercise of jurisdiction by the Court to proceed further with the suit which remains suspended. Section 22 of SICA did not, provide or deal with any individual rights of parties by permitting ancillary or other proceedings to continue depending on whether the same were against or in favor of the company. The only eventuality provided for proceeding with the suit was obtaining the consent of BIFR under Section 22 of SICA. Relying on Patheja Bros. Forgings and Stamping v. ICICI Ltd. he submitted that proceedings against the guarantor could not be proceeded with. Hence, defendant No. 2 was also within the ambit of the embargo under Section 22 of SICA and the present application under Order XXXIX, Rule 4, C.P.C. could not be entertained.
12. I have given any anxious consideration to the question as to whether the application under Order XXXIX, Rule 4, C.P.C. for variation of the interlocutory order would be maintainable or not? In this context, it is recognised that the Court is not prevented from making interlocutory orders even if there is an order staying the suit under Section 10, C.P.C. Reference may also be usefully made to the decision of the Supreme Court in Indian Bank v. Maharashtra Co-operative Marketing Ltd. . In a summary suit, the Single Judge proceeded to grant leave to contest the respondent-Federation upon depositing Rs. 4 crores in Court. The Federation challenged the same before the Division Bench of the High Court of Bombay. The Division Bench took the view that the word ‘trial in Section 10, C.P.C. had not been used in a narrow sense and would mean entire proceedings after the defendant enters appearance. Accordingly, proceeding on the basis that Section 10, C.P.C. was attracted. It held that the suit filed by the Bank against the Federation was required to be stayed. The Division Bench set aside the order passed by the Single Judge granting leave to defend.
The Supreme Court held that under Section 10 C.P.C. the Court is not to proceed with the trial of the suit, but that does not mean that it cannot deal with the subsequent suit any more or for other purposes. The Court observed that in view of the object and nature of the provision and the fairly well settled legal position with respect to passing of interlocutory orders, the word ‘trial’ in Section 10, C.P.C. is not used in its wider sense. The Court held that the trial in a summary suit would really begin only after leave is granted to the defendant. The trial under Section 10, C.P.C. in the context of a summary suit cannot be interpreted to mean the entire proceedings starting with the institution of the suit by lodging a plaint. In a summary suit the trial really begins after the Court grants leave to the defendant to contest the suit. The Court, therefore, set aside the order of the Division Bench and restored the order passed by the Single Judge holding that the Single Judge could dispose of the application for leave to contest. Reference in this regard may also be made to Escorts Construction Equipment Ltd. v. Action Construction Equipment Pvt. Ltd. AIR 1999 Delhi 73. There are catena of authorities that the Court is not divested of its power to pass interlocutory orders when required in the interest of justice even if the suit stands stayed under Section 10 C.P.C. or Section 34 of Arbitration Act, 1940.
13. To determine whether on the analogy of Section 10, C.P.C. and Section 34 of the Arbitration Act, 1940, the Court can also pass interlocutory orders where Section 22 of SICA is attracted, during the stay of proceedings, the legislative intent as reflected in the statement of objects of SICA, various provisions and the content of Section 22 of SICA are required to be noticed.
SICA is intended to project the asset base of the sick company from being eroded, pending the consideration of the reference and inquiry thereon and the scheme for rehabilitation. The general scheme of various provisions is that as long as reference and inquiry are pending or the scheme for rehabilitation is under consideration or has not been rejected finally, the company has the protective umbrella of the stay of proceedings under Section 22 of SICA. Once the ingredients for the application of Section 22 arc satisfied then notwithstanding anything contained in the Companies Act or any other law or Memorandum and Articles of Association of the Industrial Company or any other instrument having effect under the said Act or law, none of the proceedings as mentioned in the section shall lie or proceeded with further except with the consent of the Board. The amendment in 1994 added the following words:–
“No suit for recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loan or advance granted to the industrial company shall lie or be proceeded with further”.
Unlike Section 10, C.P.C. which provides for stay of the trial of the suit so that interlocutory orders up to the stage of trial court be passed or Section 34 of the Arbitration Act, 1940 which confers discretion on the Court to stay the suit and requires an application to be made, the embargo in Section 22 appears to be a complete one on proceeding further with the suit. The SICA itself provides the complete code and machinery. The intent is to place assets of the sick company under control of the Board so that any scheme for rehabilitation of the Company can be considered without the asset base of the sick company being eroded or the creditors being prejudiced by the dissipation of its assets. Section 22(1) of the SICA makes a provision for prosecution of the suit with the consent of BIFR. Section 22(3) enables the BIFR to suspend the operation of all contracts, assurances of properties agreement, settlement awards pending the inquiry under Section 16 preparation and consideration of the scheme under Sections 17 and 18 of the SICA. Section 22A of SICA provides for a direction being given by the BIFR not to dispose of any of its assets except with the consent of BIFR during the period specified. These provisions are directed to ensure that a Company which is having a reference registered under section of SICA and is enjoying the protective umbrella against recovery distress or execution proceeding is also not permitted either to dissipate or disburse its assets or that of the guarantor to endanger the interest of the creditors in the event the proposal or scheme for rehabilitation does not come through or a decision is taken to wind up the company.
From the foregoing discussion, I am of the prima facie view that though the power of the Court to entertain an application for variation of interlocutory orders under Section 10, C.P.C. or the Arbitration Act may be there as noted above, SICA provides the complete machinery for getting permission either to proceed against the sick company or for obtaining restraint on the sale or disposal of assets or getting the operation of contracts, agreements, settlements suspended. The legislative intent is that during the inquiry and consideration of the schemes no proceedings as are mentioned in Section 22 are proceeded with. The use of the words ‘shall lie or proceeded with further’ considered along with other provisions lead me to the conclusion that embargo to proceed further with the suit is complete. This is further fortified by Section 22(5) of SICA wherein it is held that the period during which remedy for enforcement remained suspended, shall be excluded for computation of limitation. Further giving an interpretation to Section 22 of SICA, which permits interim applications within the suit for the benefit of sick company being made while the suit remains suspended could result in an anomolous situation, inasmuch as if the defendant feels that it has a good ease in defense, he could insist that the application for leave to contest to be heard and if it is in his favor, the same is given effect to while if it is decided against him, decree cannot be executed because of the bar under Section 22 of the SICA. In view of the foregoing discussion, it is held that the bar under Section 22(1) of SICA being in operation, application under Order XXXIX, Rule 4, CPC is not maintainable. Section 22 of SICA does not provide or deal with any individual rights or permitting ancillary or other proceedings by one of the parties to the suit being permitted to continue depending on whether the same were against or in favor of the company. Section 22(1) of SICA provides only for one eventuality of preceding with the suit, i.e., with consent of the BIFR under Section 22 of the suit.
14. Although I have held that the application under Order XXXIX, Rule 4, C.P.C. is not maintainable as the parties had addressed me on merits. I proceed to consider whether the defendant has made out a case for vacation of the order restraining sale, transfer or alienation of the property.
As noted earlier the main plank of the defendant argument is that the ex parte order was obtained by willful misrepresentation and concealment. Plaintiff filed the summary suit for Rs. 50 lakhs together with interest at 32 per cent per annum for, the Inter Company Deposit on the basis of dishonour of cheques and the written agreement and guarantee. The plaintiff, it is claimed, did not disclose the receipt of 20.94 lakhs from the defendant in the plaint. The plaintiff also did not disclose that the 3,50,000 shares of defendant No. 1 owned by M/s. Prestige Cops. Ltd. of which defendant No. 2 is the Managing Director had been pledged with the plaintiff as security. The plaintiff utilising blank transfer deeds had lodged the shares for transfer. It was thus urged that the plaintiff had come to the Court with unclean hands and was not entitled to the equitable relief of injunction. Learned counsel also placed reliance in the case of Lallan Prasad v. Rahmat Ali wherein the suit for recovery on account of non-disclosure of the security being pledged, the Supreme Court upheld the decision of dismissal of the injunction application. In the instant case while it is true that the plaintiff did not make a specific averment in the plaint with regard to receipt of Rs. 20.94 lakhs, the plaintiff filed a statement of account at page 105 of the paper book, which reflected the receipt of Rs. 20.94 lakhs and after adjusting the payments made and computing the interest payable, an amount of Rs. 61,38,279 was shown as due from the defendants as on 13-11-1997. As regards question of non-disclosure of security is concerned, learned counsel for defendant has pointed out that despite the lodging of shares the defendant No. 2 who controls the company is not allowing/permitting the transfer on account of one objection or the other such as deficiency in stamp duty for transfer, due to consideration being under valued. The shares being in jumbo lot are also not marketable and saleable. The defendant No. 2 has not acceded to the rupees for splitting up of the share. Plaintiff, in these circumstances, has not been able to obtain the registration of the transfer of the shares in his favor and to encash the said security. In these circumstances, it is hardly of any solace that technically the transferor may not have title and control over the shares after the lodging of the shares by the transferee accompanied with the duty executed transfer deeds. It cannot be lost sight of that shares are of a company controlled by defendant No. 2 namely Prestige Cops. Ltd. Nondisclosure of the security with regard to the shares and of the receipts of payments towards interest in the plaint cannot be said to be fatal to the grant of injunction although they may be relevant at the stage of consideration of grant of leave, to contest on terms. The payment of Rs. 20.94 lakh has been duly accounted for and adjusted partly towards interest and principal in the statement of account showing a balance of Rs. 61,38,279 as of 13th November, 1997. Mr. Chaudhary submitted that there was no equity in favor of the defendants inasmuch as even if 21 per cent rate of interest was to be considered, the amount due now runs in crores. The entitlement of the plaintiff with regard to the rate of interest would be seen during the arguments on leave to contest or trial.
15. The defendant No. 1 company having itself got the reference under Section 15 of the SICA registered and the orders of BIFR and AAIFR being in challenge before the High Court of Bombay in a writ petition, it cannot be said as to what part of the Company’s asset would be available to plaintiff for satisfaction of its claim in the suit. The BIFR had declared the defendant No. 1 Company as a sick one on 17th November, 1998, BIFR vide its order dated 23rd November, 2001 reached the conclusion that it was just and equitable to wind up the company. Thereafter, the proposal for one time settlement was also not found feasible. The AAFIR dismissed the appeal against the order of the BIFR. The BIFR again found that the accumulated loss and liabilities far exceeded the net worth of the company and it reiterated its opinion vide order dated 31-7-2001 regarding the company being wound up and disapproved of the attempts by the petitioner to write off the uncleared loans and other liabilities as not being maintainable. In this scenario, defendant No. 2, who is a guarantor cannot be permitted to be absolved of the obligations admittedly undertaken by the deed of guarantee. Defendant No. 2 itself along with the guarantee executed by him had filed an affidavit to the following effect. Relevant extract from the affidavit dated 4th July, 1995 is as under:–
“2. That on the request of our company MS Prestige HM Polycontainers Ltd., Goyal Gases Limited, New Delhi has been pleased to advance Inter Corporate Deposit (“ICD”) to the extent of Rs. 50 lakh (Rupees Fifty lakh only) for a period of 90 days at an interest of 30 per cent per annum (interest payable in advance) to our company (hereinafter referred to as the company) and for that I have executed personal guarantee to repay the entire amount of loan with interest as above in case of non-payment of the same by my company at the due date.
4. ** ** ** 5. That I am the absolute owner of the properties/assets as mentioned in the Annexure A and no dispute exists with regard to the title of ownership for the same. 6. That I undertake that I shall not sell/mortgage or dispose of or create any charge over my properties/assets/belongings as detailed at 4 above to any body without the prior written permission of the Goyal Gases Ltd." There is thus even an agreement by the defendant No. 2 not to sell the premises in question without the consent of plaintiff.
It may also be noticed that during the course of these proceedings efforts were made to see if a settlement in entirety could be reached. Defendant No. 2 had offered to deposit in Court or give security of Rs. 30 lakhs but was not willing for payment to the plaintiff. The plaintiff was interested in overall settlement of the claim in suit but not on the basis of the defendant No. 2’s property being released from restraint by alternative security or deposit of amount of Rs. 30 lakhs in Court, The settlement talks accordingly failed. Considering the embargo on legal proceedings under Section 22 of SICA is applicable to the case and in view of the aforesaid discussion on the pleas in the application under Order XXXIX, Rule 4, C.P.C I am of the view that no case is made out for vacation of the ex parte restraint order in the present facts. Accordingly, IA 9362/2002 is dismissed and IA 9080/2003 stands disposed of.