Discretionary stay of proceedings refused where sick-company protection was invoked after suppression of material facts.

Section 442 of the Companies Act, 1956 provides a discretionary basis to stay suit proceedings, and that discretion must be exercised judicially on the facts of each case, not mechanically. Protection under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 may apply in appropriate cases, including some enforcement actions against guarantees, but it is intended for genuine sick-company cases. Where the applicant obtained credit after concealing earlier winding-up proceedings, the court held that relief was unavailable because the party had not approached with clean hands and had suppressed material facts. The stay application was dismissed.

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Issues: Whether the suit proceedings should be stayed under section 442 of the Companies Act, 1956 in view of the pending winding-up proceedings and the reference under the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: The application for stay was based on the pendency of winding-up proceedings and the BIFR reference. The Court accepted that protection under section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 may bar proceedings in appropriate cases, including where guarantees are sought to be enforced. However, it held that the present facts were materially different because the company had obtained the loan after concealing the earlier winding-up proceedings. The Court emphasized that a party seeking relief must come with clean hands and that the protective provisions for sick companies are meant for genuine cases and not for those who procure credit by suppressing material facts. The discretion under section 442 had to be exercised judicially on the facts of each case and not mechanically.

Conclusion: The application for stay was not allowed and was dismissed.

Ratio Decidendi: Stay of proceedings under section 442 of the Companies Act, 1956 is a discretionary relief and should be refused where the applicant has obtained the transaction by suppressing material facts, even if sick-company protection is otherwise invoked.

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