Financial Daily from THE HINDU group of publications
Sunday, Sep 22, 2002

News
Features
Stocks
Port Info
Archives

Group Sites

Corporate - Courts/Legal Issues


SICA immunity applies to guarantor also: HC

Our Legal Correspondent

CHENNAI, Sept. 21

THE benefit conferred on the principal debtor (a public limited company) was applicable to the guarantor of a loan granted to that debtor. When the principal debtor had been declared as a `sick' industrial undertaking and the benefit under the Sick Industrial Companies Act, 1985 was made available to it, the same provision was applicable to the guarantor also, the Madras High Court has held.

In view of the provisions of sub-section (1) of Section 22 of the Sick Industrial Companies Act, no suit for the enforcement of a guarantee in respect of any loan or advance granted to the industrial company concerned would lie or could be proceeded with, Mr Justice P. Sathasivam ruled. The petitioning creditor could not be permitted to proceed with the insolvency proceedings against the guarantor.

The principal debtor, TTG Industries Ltd, was a public limited company, and on account of accumulated losses, its net worth was fully eroded, and therefore, a reference was made under Section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 to the BIFR. The BIFR had also initiated proceedings under Section 16(2).

The respondent, Manipal Finance Corporation Ltd, initiated arbitration proceedings against TTG Industries claiming a sum of Rs 76,51,296, together with interest. An award was passed on August 4, 2000 directing the petitioner (Mr V. Srinivasan) to pay the sum, together with interest.

Manipal Finance had filed an execution petition before the Sub-Judge at Poonamallee for executing the award of the arbitrator. The counsel for the petitioner, Mr Arvind Subramaniam, contended that the petitioner was the guarantor to the principal debtor, which was a sick industrial company, and hence under Section 22(1) of the Sick Industrial Companies Act, the immunity under these provisions, applicable to a sick industrial company, would also apply to the guarantor. In view of the reference before the BIFR, no action could be taken against the company, or the petitioner, who was the guarantor.

The petitioner prayed that the insolvency notice be set aside, as a special leave petition had been filed before the Supreme Court for setting aside the award of the arbitrator. No coercive steps could be taken against a sick industrial company or its guarantor.

The judge cited a recent order of the apex court [reported in 2000 Volume 102 (SC) Company Cases 21] and said that the provisions of Section 22 were clear and unambiguous and that they provided that no suit for the enforcement of a guarantee in respect of any loan or advance granted to the industrial company concerned would lie or could be proceeded with, without the consent of the board or the appellate authority. When the words of legislation were clear, the court must give effect to them as they stood and could not demur on the ground that the legislature must have intended otherwise.

In these circumstances, the judge held that the petitioning creditor (Manipal Finance Corporation) could not be permitted to proceed with the insolvency proceedings. It was clear from the decision of the Supreme Court that the benefit conferred on the principal debtor was applicable to the guarantor also. On this ground, the insolvency notice issued under Section 9(2) of the Presidency Towns Insolvency Act was set aside. Consequently, the application preferred by the petitioner was allowed.

Send this article to Friends by E-Mail

Stories in this Section
Scorpio models to cost more


Disprin back in soluble form
CNBC takes off Hinduja share quotes
SICA immunity applies to guarantor also: HC
Calcutta HC admits plea on jute order
Gujarat Propack merger with Cosmo complete
BPL facility to produce pin-free colour TV tubes
Metlight plans to invest Rs 82 cr in film business
Tony Adam quits as Sical MD
Sanak Misra joins SAIL board


The Hindu Group: Home | About Us | Copyright | Archives | Contacts | Subscription
Group Sites: The Hindu | Business Line | The Sportstar | Frontline | Home |

Copyright 2002, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line