K. Narayana Kurup, J.@mdashThe second respondent in the writ petition, viz., Project and Equipment Corporation of India Ltd. hereinafter referred to as "the Corporation; is the appellant. The appeal is directed against the judgment of the learned single judge allowing the writ petition and granting an injunction restraining the appellant/Corporation and the second respondent herein--the State Bank of Travancore, hereinafter referred to as the "bank" from invoking and making payment under the bank guarantee No. 26 of 1992 without the consent of the Board for Industrial and Financial Reconstruction (BIFR).
2. The brief facts necessary for the disposal of the writ appeal are as follows : The appellant/Corporation entered into an export contract on March 22, 1992, for supply of Bison and Lynx ACSR (Aluminium Conductor Steel Reinforced) and steel earthwire to Zimbabwe (S. A) Electricity Supply Authority (ZESA) for an approximate value of Rs. 20 crores. The appellant/Corporation in turn assigned to the first respondent-company the said export order for supply and delivery of Bison and Lynx ACSR and steel earthwire to Zimbabwe Electricity Supply Authority (ZESA). An associateship agreement as evidenced by exhibit P3 was entered into between the appellant Corporation and the first respondent-company setting out the respective rights, obligations and responsibilities of the parties. In terms of Exhibit P3 contract the first respondent-company required the second respondent bank to provide for a mobilisation advance of Rs. 2 crores for procurement of raw materials. Towards security for the due payment of the amount advanced, the first respondent-company furnished a bank guarantee No. 26 of 1992 for Rs. 2,25,00,000, issued by the Kundara branch of the bank. Subsequent amendments were made which are evidenced by exhibits P4, P4(a) and P4(b). In course of time, the first respondent-company became a sick company and by virtue of Section 18(4) read with Section 19(3) of the Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter referred to as "the Act", the Board sanctioned a scheme for rehabilitation of the first respondent-company in its meeting held on October 5, 1989. The company is now functioning under that sanctioned scheme. For the successful implementation of the scheme, the Board has issued instructions to various authorities throughout the country to waive accrued penalties/liquidated damages arising out of delay/default in delivery schedules, etc., and price revision of their past unremunerative contracts. The company having defaulted in the matter of performance of their part of the contract as alleged by the appellant/Corporation, the latter invoked the bank guarantee provided by the company by attempting to encash the same. According to the first respondent-company, the appellant/Corporation is not entitled to invoke the bank guarantee for certain alleged default on their part in contravention of exhibit P3 agreement between the parties. It is not necessary to go into those details since injunction prayer is pressed solely on the basis of the provision of Section 22(1) of the Act. The appellant/Corporation has filed a counter contending, inter alia, that the bank guarantee being an independent unconditional contract they have every right to invoke the guarantee without referring to the terms of the original contract between the parties. A reply affidavit has been filed by the company reiterating the original contentions and controverting the contentions raised by the appellant/Corporation in the counter affidavit. A learned single judge on a consideration of the rival contentions and on an interpretation of Section 22(1) of the Act as amended by Act 12 of 1994 allowed the original petition granting injunction restraining the appellant/Corporation and the second respondent bank from invoking and making payment under the bank guarantee. Hence this appeal by the Corporation.
3. Heard counsel on both the sides. Learned counsel for the appellant/Corporation contended that the interpretation placed by the learned single judge on Section 22(1) of the Act as amended by Act 12 of 1994 is not sustainable, the guarantee given by the bank to the appellant/Corporation is not a guarantee coming within Sub-section (1) of Section 22 of the Act as amended by Act 12 of 1994, that the guarantee given by a bank is an independent and autonomous contract whose enforceability is a matter between the beneficiary (appellant/ Corporation) and the bank alone and that the party at whose instance or for whose benefit it was given is not in the picture once the guarantee is given by the bank, that the appellant/Corporation is not liable to be restrained from invoking the bank guarantee in question or the second respondent-bank liable to be restrained from making payment under the amendment made to Sub-section (1) of Section 22 of the Act, that the said amendment, bars only a suit for the recovery of money or for the enforcement of any security against the industrial company, that in the instant case there is no suit and no suit is necessary to invoke a bank guarantee and therefore, the bank is liable to pay the amount covered by the bank guarantee the moment the beneficiary calls upon the bank to pay, etc. Per contra, it is contended that while amending Section 22 the Legislature has used the omnibus expression any guarantee with the full knowledge that bank guarantee is also a form of guarantee and intended to extend the protective umbrella of the statutory coverage to such bank guarantees as well.
4. Having considered the respective contentions advanced by the parties we are not persuaded to interfere with the judgment under appeal. Parliament enacted the Act under entry 52, List 1 of the VII Schedule to the Constitution to make special provisions with a view to securing the timely detection of sick and potentially sick companies owning industrial undertakings, the speedy determination by a board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and for the enforcement of the measures so determined and for matters connected therewith or incidental thereto. Section 22 has been incorporated in the Act which provides for suspension of legal proceedings, contracts, etc. This section provides that none of the following proceedings could be proceeded with except with the consent of the Board or the Appellate Authority.
1. Proceedings for the winding up of the industrial company.
2. Proceedings for execution against the properties of the industrial company.
3. Proceedings for distress against any of the properties of the industrial company.
4. Like proceedings against any of the properties of the industrial company.
5. Proceedings for the appointment of a receiver in respect of the properties of the industrial company.
5. The statutory provision as it stood then was construed by the apex court in the decision in
6. However, the Legislature found the provisions of the Act to be inadequate and therefore amended the same by the Amendment Act, 1993 extending the bar to the following categories of cases with effect from February 1, 1994, (vide amendment inserted by Act 12 of 1994) :
1. Suit for recovery of money against the industrial company.
2. Suit for the enforcement of any security against the industrial company.
3. Proceedings/suit for the enforcement of any guarantee in respect of any loans or advances granted to the industrial company.
7. The effect of Section 22(1) of the Act read in the light of the amendment makes the position abundantly clear that no proceedings 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. Therefore, notwithstanding anything to the contrary contained in the agreement between the parties or any law, if the industrial company is a sick company falling under the Act and if there is a scheme sanctioned by the Board which is under implementation, then, invocation or payment under any guarantees which will include a bank guarantee as well, could only be with the consent of the board or as the case may be, the appellate authority. It is not disputed that the first respondent is a sick industrial company. It is also not disputed that a scheme sanctioned by the Board is under implementation. The appellant/Corporation has advanced money to the company and the bank has issued a bank guarantee to secure repayment of money. The phraseology of the section, viz., Section 22(1) of the Act admits of no doubt that the transaction and the guarantee in question squarely fall within the ambit of any guarantee in respect of any loans or advance granted to the industrial company as provided therein. The appellant/Corporation has no case that it has obtained the consent of the Board for invoking the bank guarantee. Under the facts and circumstances thus noticed none of the contentions raised by the appellant/Corporation is liable to be countenanced. The statutory bar is clear and unambiguous. Therefore, we have no hesitation in repelling the contention advanced by learned counsel for the appellant/ Corporation.
8. That apart we have to take note of the fact that the statute in question should be interpreted applying the "mischief rule" by considering the following matters :
1. What was the law before the coming into force of the Act ?
2. What was the mischief which was sought to be remedied ?
3. What is the remedy that the Act has provided ?
4. What is the reason for providing the remedy ?
9. In this case until the law was amended in 1993 it did not extend its protection to guarantees and in order to extend the same the Legislature has included any guarantee in respect of any loans or advance granted to the industrial company, also to the section. In the ruling in
". . . It is a sound rule of construction of a statute firmly established in England as far back as 1584 when Heydon''s case [1584] 3 Co. Rep 7a was decided that ''. . . for the sure and true interpretation of all statutes in general ... four things are to be discerned and considered : (1) What was the common law before the making of the Act, (2) What was the mischief and defect for which the common law did not provide, (3) What remedy the Parliament hath resolved and appointed to cure the disease of the Commonwealth, and (4) The true reason of the remedy ; and then the office of all the judges is always to make such construction as shall suppress the mischief, and advance the remedy . . .'' In Mayfair Property Company, In re [1898] 2 Ch 28, Undley, M. R. in 1898 found the rule ''as necessary now as it was when Lord Coke reported Heycton''s case.'' The rule was reaffirmed by Earl of Halsbury in Eastman Photographic Materials Company Ltd. v. Comptroller General of Patents, Designs and Trade Marks [1898] AC 571 in the following words :
''My Lords, it appears to me that to construe the statute now in question, it is not only legitimate but highly convenient to refer both to the former Act and to the ascertained evils to which the former Act had given rise, and to the latter Act which provided the remedy. These three things being compared, I cannot doubt the conclusion.''
This rule being a rule of construction has been repeatedly applied in India in interpreting statutory provisions."
10. The aforesaid decision on the rule of interpretation assumes importance in the context of the contention of the appellant that only a suit is barred and that the invocation of the bank guarantee is not barred. In the light of the rule of interpretation which is now noticed and construing the section in its setting, it can be seen that an interpretation excluding bank guarantee from the purview of the section would lead to manifest contradiction of the apparent purpose and intendment of the enactment. The court in its competence can adopt a construction by ironing out creases but will stop short of altering the material with which the Act is woven. Thus interpreted any proceeding for the winding up of the company or for execution, distress or the like against any of the properties of the company and any proceeding or suit for the recovery of money or for the enforcement of any security against the company or of any guarantee in respect of any loans or advance granted to the company will also be barred except with the consent of the Board. Of course, learned counsel for the appellant would rely on the decision in Madalsa International Ltd. v. Central Bank of India [2000] 99 Comp Cas 167 (Bom) : AIR 1998 Bom 247 wherein it has been held in paragraph 22 that "restrictions will have to be read on strict interpretation as they affect the valuable rights". That decision is of no assistance to the appellant as it runs counter to the dictum laid down by the Supreme Court in
11. Thus, on the whole we are of the opinion that the learned single judge has rightly held that by virtue of the amended provision of Section 22(1) of the Act the first respondent-company is entitled to an injunction restraining invocation or payment under the bank guarantee. We find no infirmity in the judgment appealed against. Accordingly, we uphold the same and dismiss the writ appeal.
