ORDER
R.M. Lodha, J.
1. The plaintiff has taken out this summons for judgment praying that judgment be entered for the plaintiff against the defendants in this suit for a sum of Rs. 1,34,498.61 and for further interest on Rs. 1,20,000/- at the rate of 18% or such other rate this Court may deem fit and proper from filling of the suit till payment and or realisation and for costs of the suit.
2. The summary suit filed by the plaintiff seeking judgment and decree against the defendants for the aforesaid amount is based on the facts which may be narrated in short to appreciate the controversy between the parties. It is the case of the plaintiff that the defendant No. 1 on 18-8-1997 for valuable consideration drew three bills of exchange for Rs. 50,000/-, Rs. 45.000/- and Rs. 23,000/ directing thereby the defendant No. 2 to pay to the plaintiff or order at Mumbai an aggregate amount of Rs. 1,20,000/- on demand. The said bills of exchange were accepted by the defendant No. 2 and delivered to the plaintiff on the same day i.e. on 18-8-1997. On 18-9-1997 the plaintiff presented the said bills of exchange to the defendant No. 2 and demanded the amount due thereunder aggregating td Rs. 1,20,000/-. The defendant No. 2 dishonoured the same by non-payment. The plaintiff brought this fact immediately to the notice of the defendant No. 1 and demanded the said sum of Rs. 1,20,000/-. The defendant No. 1 also failed and neglected to pay due amount or any part thereof despite various demands, though it was assured that the entire amount due along with accrued interest shall be paid to the plaintiff. It is the case of the plaintiff that ultimately the defendant No. 1 issued three cheques of the aggregate value of Rs. 1,20,000/-; one cheque of the amount of Rs. 50,000/- was drawn on Bank of Baroda, Mangaldas Market, Mumbai, and two cheques of the amounts of Rs. 45,000/- and Rs. 25,000/-, respectively, were drawn on Bank of Baroda, Vashi, New Bombay. These cheques were dishonoured. The plaintiff sent a notice to the defendants through their Advocate on 27-3-1998. A reply was sent by the defendant No. 1 on 11-5-1998 alleging therein that Rs. 1,20,000/- was kept with the plaintiff by way of deposit and an amount of Rs. 3,750/- was paid to the plaintiffs on 24-11-1997 towards renewal deposit of Rs. 50,000/-. Thereafter, the plaintiff has filed the present suit for recovery of the amount of interest.
3. Affidavit-in-reply has been filed by the defendant No. 4 on behalf of the defendants. It is stated in the said reply that the defendant No. 1, viz. Elegant Pharmaceuticals Ltd. has been registered as a sick company before the Board for Industrial and Financial Reconstruction (B.I.F.R.) under section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short 'S.I.C.A., 1985'). The defendants have set up the defence that the summary suit filed by the plaintiff for claim against the defendants jointly and severally has to be stayed under section 22 of S.I.C.A., 1985, since the 1st defendant is a sick company. It is also stated that so far as the defendants other than the 1st defendant are concerned, they have not received any consideration from the plaintiff and, therefore, they are entitled to unconditional leave to defend the suit.
4. In view of the fact that the 1st defendant-company is registered as a sick company before B.I.F.R. under S.I.C.A., 1985, the learned Counsel forthe plaintiff prayed for withdrawal of the summons for judgment against the 1st defendant-company with liberty to take out appropriate proceedings against the 1st defendant-company as and when proceedings under S.I.C.A., 1985 are over in respect of the 1st defendant-company before B.I.F.R. or for that matter before A.A.I.F.R. In view of the prayer made by the learned Counsel for the plaintiff, summons for judgment as against the 1st defendant is dismissed as withdrawn with liberty as prayed.
5. The learned Counsel for the plaintiff pressed for entering the judgment and decree against the defendant Nos. 2 to 5 as prayed for by the plaintiff in the suit. On the other hand, the learned Counsel for the defendants vehemently opposed the said prayer and submitted that the suit filed by the plaintiff is a summary suit and the claim against all the defendants is joint and several and since the 1st defendant-company is registered as a sick company or sick industrial undertaking under S.I.C.A., 1985, the summons for judgment deserves to be dismissed against all the defendants or adjourned sine die so long as the 1st defendant remains a sick company or sick industrial undertaking. According to the learned Counsel for the defendants, the defendant Nos. 2 to 5 are being sued as guarantors and once the borrower or the principal debtor is a sick industrial undertaking or a sick company, section 22 of S.I.C.A., 1985 is attracted and proceedings cannot continue against the guarantors. In this connection, the learned Counsel for the defendants heavily relied upon the judgment of this Court in Summons for Judgment No. 438 of 1997 in Summary Suit No. 3 of 1997 The Industrial Credit and Investment Corporation of India Limited v. Dhanesh D. Ruparelia & another, decided on 26-7-1999 reported in : 2000(1)BomCR268 . The relevant portion of the judgment in the Industrial Credit and Investment Corporation of India Limited (supra) relied upon by the learned Counsel for the defendants reads thus :-
'6. We may therefore have a look at the various situations which have been provided for under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985. The section before its amendment provided that no proceedings for winding up of the 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, could lie or be proceeded with except with the consent of the Board or, as the case may be, with the appellate authority. After amendment, apart from the above, 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. Therefore, the expression 'no suit for recovery of money' would take within its ambit also suit on guarantees given by the industrial company. Even otherwise the plain language of the section is 'of any guarantee in respect of any loans, or advance granted to the industrial company'. This can only mean guarantees in respect of loans advanced to the company. The Division Bench as pointed out earlier has held expression to mean that guarantee given by the industrial company itself and none else. The question of a principal giving a guarantee to oneself with respect to the Division Bench will not arise, if certain, provision of the Indian Contract Act itself are referred to and to which its attention was not invited. In fact before the Division Bench the facts as they stood was that the proceedings in execution were forforcible possession of properties by the Receiver and not enforcement of guarantees. Word guarantee is not defined under the Sick Industrial Companies (Special Provisions) Act, 1985. It is also not defined under the Companies Act or Industrial (Development and Regulations) Act, 1951 in terms of section 3(2)(a) and section 3(2)(b) of the Sick Industrial Companies (Special Provisions) Act, 1985. Being a Central legislation therefore the definition of guarantee can be seen from the Indian Contract Act. Section 126 defines what is a contract of guarantee. It reads as under:-
'A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety' the person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written.'
Thus a contract of guarantee requires a principal debtor, a surety and a creditor. Section 127 reads as under:-
'Anything done, or any promise made, for the benefit of the principal debtor, may be a sufficient consideration to the surety for giving the guarantee.'
It is thus clear that the principal debtor and guarantors have to be distinct persons. A company therefore considering sections 126 and 127 cannot be a guarantor for itself as in that event there would be no principal debtor. Also the language of the section would be rendered otiose if the meaning assigned by the Division Bench is accepted. Suit for recovery of money against the company would also include suits in respect of guarantee given by it. The object of the legislation has also to be borne in mind. Section 128 makes the liability of the surety co-extensive with that of the principal debtor, unless it is otherwise provided by a contract. Some other relevant sections are section 140 and section 141. Section 140 of the Indian Contract Act provides that where a guaranteed debt has become due, or default of the principal debtor to perform a guaranteed duty has taken place, the surety, upon payment or performance of all that he is liable for, is invested with all the rights which the creditor had against the principal debtor. By virtue of section 141 a surety is entitled to the benefit of every security which the creditor has against the principal debtor. If the expression is construed in the manner it is sought to be construed the effect would be that the guarantor has to pay the debts but at the same time is not entitled to get the securities of the principal debtor or even move against the principal debtor without the permission of the Board or appellate authority. Therefore if the section is read in its proper perspective it would mean that no suit for recovery of money can lie against the guarantors. The meaning assigned by the Division Bench, however, can encompass the expression securities given by the company. For example in a case of an inter-corporate loan the amount may be secured by mortgaging property. It is in this context the word 'security' will have to be read. In fact in Madalsa International Ltd. (supra) the issue arose out of a consent decree for forcible possession of securities where a Receiver was to stand appointed in case of breach of terms of the consent decree. The expression guarantee in respect of the loan or advance granted to the industrial company is construed in this background means guarantee given by a guarantor to the industrial company which has taken a loan or advance. This obviously, cannot mean that the guarantor is the industrial company but a person distinct from the company. Any suit therefore filed for enforcing such a guarantee will also have to be stayed. The meaning assigned by the Division Bench also cannot be accepted for the following reasons. If the guarantee is for repayment of debt then that would be covered by the expression suit against the company. If it is contemplated that by the guarantee some securities are given, then that would be covered by securities of the industrial company. Therefore, it can only mean guarantee given by a person other than an industrial company. Also in its plain meaning and construing the various provisions of the Indian Contract Act including the rights of the guarantors, I am of the respectful opinion that the words cannot be read in a manner as was construed by the Division Bench in Madalsa International Ltd. (supra) and that the expression guarantee given for the loan to the industrial company, must mean guarantee given to the industrial company. Therefore, suits in respect of such guarantees for loans or advances cannot lie or be proceeded with.
7. Normally, in the event a Single Judge comes to the conclusion that the law as interpreted by a Division Bench requires to be reconsidered the matter has to be referred. However, as pointed out what is to be considered is what is the ratio decendi of the judgment. In the instant case I have pointed out what was directly in issue was whether the expression 'suit' would include 'execution' proceedings. Considering the ratio decendi of the judgment, I am of the opinion that there is no need for referring the matter as the issue was not directly in issue. It may also be noted that the law as interpreted by the Division Bench was before the judgment of the Apex Court in the case of Real Value Appliances Ltd. v. Canara Bank and others, : [1998]3SCR170 . By that judgment, the Apex Court reversed the decision of this Court which was relied on by the Division Bench. The Apex Court has now held that once proceedings are registered all further proceedings in the suit must be stayed.
Considering the above, I am clearly of the opinion that even proceedings against the guarantors for the enforcement of guarantees, given as guarantee for loan or advances to the company, in respect of which proceedings are registered under the Sick Industrial Companies (Special Provisions) Act, 1985 will have to be stayed.'
6. I do not want to go into the various facts of the said judgment and the observations made by the learned Single Judge with reference to the Division Bench judgment of this Court in Madalsa International Ltd. & others v. Central Bank of India, : 1998(4)BomCR124 since in the present case, the judgment cited (supra) relied upon by the learned Counsel for the defendants has no application. In the present case, the suit has not been filed against the defendant Nos. 2, 3 & 5, particularly as guarantors. As a matter of fact, the defendant No. 2 is acceptor of the said bills of exchange and sued in that capacity. The defendant Nos. 3 & 5 are partners of the defendant No. 2 who is acceptor of the said bills of exchange and the defendant Nos. 3 & 5 have been sued accordingly. Section 37 of the Negotiable Instruments Act, 1881 provides in unequivocal terms that drawer of bill of exchange until acceptance, and the acceptor are liable as principal debtors, in the absence of a contract to the contrary. Section 37 reads thus:-
'37. Maker, drawer and acceptor principals.---The maker of promissory note or cheque, the drawer of a bill of exchange until acceptance, andthe acceptor are, in the absence of a contrary, respectively liable thereon as principal, debtors, and the other parties thereto are liable thereon as sureties for the maker, drawer or acceptor, as the case may be.'
7. If there is no contract to the contrary, both the drawer of the bill of exchange as well as the acceptor of the bill of exchange are principal debtors and are liable in respect of the said bill of exchange as principal debtors. 'Contract of guarantee' is defined under section 126 of the Indian Contract Act, 1872 and so also 'surety', 'principal debtor' and 'creditor' are defined in the said section. Section 126 of the Indian Contract Act reads thus:-
'126. 'Contract of guarantee', 'surety', 'principal debtor' and 'creditor'.---A 'contract of guarantee' is a contract to perform the promise, or discharge the liability, of a third person in case of his default. The person who gives the guarantee is called the 'surety', the person in respect of whose default the guarantee is given is called the 'principal debtor', and the person to whom the guarantee is given is called the 'creditor'. A guarantee may be either oral or written,'
A careful reading of section 37 of the Negotiable Instruments Act and section 126 of the Indian Contract Act and a minute comparison thereof leaves no manner of doubt that an acceptor of a bill of exchange cannot be considered to be guarantor since he is the principal debtor himself. The liability of acceptor is independent since by operation of law, an acceptor of bill of exchange is also a debtor. It is not even necessary under law for the creditor to file a suit against the drawer of a bill of exchange since it is open to such creditor to file a suit for recovery of an amount of bill of exchange against the acceptor of a bill of exchange alone because acceptor of a bill of exchange is the principal debtor himself.
8. Section 22 of S.I.C.A., 1985 which has been pressed in service by the learned Counsel for the defendants reads thus:-
'22. Suspension of legal proceedings, contracts, etc.---(1) Where in respect of an industrial company, an enquiry 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 case may be, the Appellate Authority.
(2) Where the management of the sick industrial company is taken over or changed (in pursuance of any scheme sanctioned under section 18), notwithstanding anything contained in the Companies Act, 1956 (1 of 1956) or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or under law.
(a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company;
(b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board;
(3) (Where an inquiry under section 16 is pending or any scheme referred to in section 17 is under preparation or during the period) of considering of any scheme under section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said date, shall remain suspended or shall be enforceable with such adaptations and in such manner as may be specified by the Board:Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.
(4) Any declaration made under sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956(1 of 1956) or any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any agreement or any decree or order of a Court, tribunal, officer or other authority or of any submission, settlement or standing order and accordingly;
(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration and all proceedings relating thereto pending before any Court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and
(b) on the declaration ceasing to have effect---
(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and
(ii) any proceeding so remaining stayed shall be proceeded with, subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed.
(5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded.'
9. The opening words 'where in respect of industrial company' and the use of expression 'industrial company' occurring in section 22 refers to an industrial company in respect of which an enquiry under section 16 of S.I.C.A. 1985 is pending or any scheme referred to under section 17 of the said Act is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 under S.I.C.A. 1985 is pending, then in respect of such industrial company, no suit for recovery of money or for the enforcement of any security against such industrial company or ofany guarantee in respect of any loans, or advance granted to the industrial company shall lie or continue unless B.I.F.R. or A.A.I.F.R. as the case may be, has given its consent. In the facts and circumstance of the present case, the drawer of bill of exchange is the 1st defendant-company, viz., Elegant Pharmaceuticals Ltd. which is a sick industrial company and, therefore, proceedings in the suit cannot continue any longer against the 1st defendant-company, but so far as the 2nd defendant is concerned, it is an acceptor of the bill of exchange and is independently liable as the principal debtor under section 37 of the Negotiable Instruments Act and section 22 cannot operate against the 2nd defendant or their partners. I, therefore, do not find any merit in the contention of the learned Counsel for the defendants that proceedings against the 2nd defendant or their partners also cannot continue since the 1st defendant-company is a sick industrial company.
10. As a matter of fact, during the course of arguments, the learned Counsel for the defendants except raising the objection of section 22 of S.I.C.A., 1985, did not raise any other argument in respect of the defendant Nos. 2, 3 & 5.
11. There is no plausible defence, therefore, raised on behalf of the defendant Nos. 2, 3 & 5 and I am satisfied that the summons for judgment deserves to be made absolute against the defendants Nos. 2, 3 & 5.
12. Accordingly, the summons for judgment is made absolute against the defendant Nos. 2, 3 & 5 and is dismissed as withdrawn against the defendant Nos. 1 & 4.
Certified copy expedited.
13. Rule made absolute.