Case: Ved Prakash Agarwal Vs. Rama Petrochemicals Limited

( 2 ) THE suit claim was with respect to the unpaid lease rentals in an Agreement of Lease Finance for Equipment, the payment of which rentals was guaranteed by the appellant. The outstanding principal amount due as on the date of filing of the suit was Rs. 43,05,960/to which interest at the rate of 18% per annum for the unpaid period till filing of the suit (i. e. an amount of Rs.was added leading to a claim of Rs. 48,55,943/with further interest at the rate of 18% per annum on the principal amount from the date of filing of the suit till payment and/or realisation. The appeal was admitted on 5th July, 2002 and the impugned decree was directed to be stayed on the appellant depositing a sum of Rs.this Court. The appellant preferred a Special Leave Petition against this conditional order, but the same was dismissed by the Apex Court by its order dated 13th December, 2002. The Apex Court, however, observed that the High Court may consider hearing of the appeal as early as possible. Accordingly the appeal has been heard early. It is, however, material to record that the appellant has not deposited any amount contrary to the order passed at the admission3 ) AS can be seen from the order of the learned Single Judge, the only submission canvassed before him was that the affairs of the Company, to which the equipment was given on lease, were under investigation before the board for Industrial and Financial Reconstruction ("bifr" for short) and, therefore, the suit could not proceed against the guarantor (appellant) in view of the provisions of section 22 (1) of the Sick Industrial Companies (Special Provisions) act, 1985 (hereinafter referred to as "sica" ). However, in this appeal, it has been additionally argued that the lease finance was essentially a loan or advance granted to the industrial company and, therefore, also the suit should not have been proceed. Thus two points arise for our determination in this appeal, and they are as follows :(I) Whether the learned Single Judge had erred in proceeding with the suit against the appellant/guarantor when the industrial company, to which the lease finance was given (and the repayment of which was guaranteed by the appellant), was before the BIFR (ii) Whether the lease finance granted by the respondent to the industrial company was in fact a loan or advance and, therefore, the suit had to be suspended in view of the provisions of section 22 (1) of SICA( 4 ) BEFORE we deal with these points, it will be necessary to refer to the few necessary facts leading to the above suit and this appeal. (I) The respondent is a public limited company which carries on business of manufacture, trade, purchase, sale and leasing of various assets on rental basis. The appellant is the Managing Director of one Prakash industries Ltd. , a public limited company. (ii) The respondent entered into an agreement of Lease Finance on 18th March, 1994 with the said Prakash Industries Ltd. As per that agreement, the respondent arranged for the finance for purchase of heavy structural rolling Mill Rolls and leased out the machinery to the said Prakash industries Ltd. , on the terms and conditions as contained in the agreement. The amount spent was over Rs.. The same was to be repaid through lease rentals spread over 20 equated instalments. The appellant was the Managing Director of this Prakash Industries and had guaranteed payment of these instalments in his personal capacity and for that purpose he executed a personal guarantee before a special Metropolitan Magistrate on the same day. Clause 4 of the agreement clearly recorded that the property in the equipment shall at all times remain solely and exclusively with the respondent. The guarantee specifically stated that the liability thereunder was that of a principal debtor; that it was a continuing guarantee and an irrevocable one and shall continue until the lessee discharges all its obligations, (iii) It so happened that Prakash Industries honoured the payment of first 11 instalments whereafter it defaulted. A correspondence ensued between the parties ultimately leading to the respondent filing a suit in this court against Prakash Industries bearing Suit No. 4665 of 1997 for various reliefs including recovery of the lease equipment and arrears of the lease rentals. An ad interim order was passed therein on 18th february, 1998 which recorded a statement on behalf of Prakash Industries that they will not part with possession or in any way sell the property. Subsequently Prakash Industries lodged a reference with BIFR on 12th June, 1998. Consequently Suit No. 4665 of 1997 filed by the respondent was liable to be suspended under section 22 of SICA. The respondent, therefore, filed Summary Suit No, 6294 of 1999 against the appellant and took out the summons for judgment. The appellant did not file any affidavit in reply though he was served with the summons and oral submissions were made by his Counsel before the learned single Judge. (iv) As stated earlier, this suit was decreed by the learned Single Judge by his impugned order dated 22nd April, 2002. The learned Judge noted that though the defendant was served, he had not filed any reply disclosing any ground no which leave to defend could be granted. He also recorded that an oral submission was made that the Company, to which equipment was leased, was before BIFR and, therefore, the appellant being the guarantor was automatically protected under section 22 of sica. The learned Judge referred to his earlier order in the case of (Garden Finance Ltd. v. Prakash Industries Ltd.), 2002 (1) Bom. C. R. (O. O. C. J.)641 : 2001 (4) Mh. L. J. 425, wherein the learned Judge had considered the law laid down by the Apex Court in (Patheja Brothers v. ICICI), 2000 (6) S. C. C. 545 and had held that provisions of section 22 of SICA did not apply to a case where the machinery was given on lease to a company which was before BIFR and the guarantee was sought to be invoked for payment of lease rentals. The learned Judge granted the summons for Judgment in view of that earlier5 ) THE first point, which arises for our determination, is whether the moment the industrial company was before BIFR, there will be an automatic suspension of a proceeding against its guarantor. To analyse this submission, it would be necessary to refer to section 22 (1) of SICA, which is pressed into service and which reads as followsSuspension 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 her 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 advances 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. "( 6 ) IN this connection, it is material to note that this section has amended by Act No. 12 of 1994. The following portion, which is in the bracket as shown above, did not exist in the section under initial Act of 1985 and it came to be added by the amendment of 1994. "and no suit for the recovery of money or for the enforcement of any security against the industrial company" thus, by this amendment, it came to be specifically added that nono suit (a) for the recovery of money; or (b) for the enforcement; (i) of any security against an industrial company; or (ii) of any guarantee in respect of any loans or advances granted to industrial company; shall lie or be proceeded with except with the consent of the Board or the appellate Authority.

Reasoning: ( 24 ) IN the present case, as stated above, we are concerned with the relationship created by the respondent with the industrial company. The respondent is undoubtedly saying that it is a lease document. The industrial company has no where stated in the documents or in correspondence that it is not a lease agreement. When the text of the totality of the clauses and their tenor is seen, one cannot take some clauses with respect to payment of interest apart and hold that it is a finance agrement. One has to read the agreement to provide meaning to all its clauses. Any such interpretation canvassed by the appellant will render the specific clauses on ownership and return on default, identification and insurance etc. redundant. That cannot be permitted as held in Arul Jothis case (supra ). Besides, any such interpretation will go against the express intention of the contracting parties. That also cannot be permitted as held in Roop Kumar (supra ). The tenor of the entire agreement is clear that the respondent had purchased the particular equipment and leased it to the industrial company and it was to remain equipment owned by the respondent throughout the period of the agreement. It is another matter that at the end of the period if the twenty equated instalments and the residual amount was paid, the ownership was to pass on to the industrial company. That will not change the nature of the agreement during the subsistence thereof, viz. that it was an agreement of lease of equipment and not a financial agreement. There is no scope to read the agreement as anything else as in the case of Sundaram Finance (supra ). Similarly the principles of purposive interpretation relied upon by the appellant have no application in the present case since the amendment to section 22 is clear and unambiguous as explained in PICUP (supra25 ) IT is clear from the narration that it was the obligation of the industrial company to make the periodical payment and use the machines. The industrial company had defaulted in making the payment and, therefore, the respondent had every right to get back the machinery. As far as the present suit is concerned, it is with respect to the guarantee given by the appellant to fulfill the obligations of the industrial company on his own. The text of the guarantee is also very clear. That guarantee cannot be said to be a guarantee with respect to the repayment of a loan. Similarly, as stated earlier, in an advance of money the right of the financier is only with respect to money and not in the property. In the present case, there are clear rights of the financiers in the property. That being so, it cannot be said that the lease finance given by the respondent to the industrial company was in fact a loan or an advance and which was guaranteed by the appellant. In view of this conclusion arrived at, on the second point for determination also there is no substance in the appeal.