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Issues: (i) Whether the suit for recovery was barred by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 against the sick company and its guarantor. (ii) Whether the defendants had raised a bona fide triable defence warranting leave to defend. (iii) Whether the contractual rate of interest at 25% per annum could be awarded, or the statutory ceiling under the Usurious Loans Act, 1918 applied.
Issue (i): Whether the suit for recovery was barred by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 against the sick company and its guarantor.
Analysis: Section 22 was held to apply only to proceedings in the nature of execution, distress or the like, or other proceedings having the effect of interfering with the formulation, finalisation, or implementation of a revival scheme. A mere suit for recovery of money, where the assets of the sick company are not threatened by coercive recovery proceedings, does not fall within the statutory bar. The claim against the guarantor also does not attract the protection of Section 22 in the absence of recovery action against the sick company's assets.
Conclusion: The suit was not barred by Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 and was maintainable.
Issue (ii): Whether the defendants had raised a bona fide triable defence warranting leave to defend.
Analysis: The defence rested essentially on the plea that the principal borrower was a sick company and on technical objections to liability under the agreement. The agreement expressly recorded the second defendant's personal guarantee and undertaking to pay the principal amount. The plaint also contained clear averments of liability and default. In these circumstances, the defence was treated as lacking substance and not amounting to a bona fide triable issue.
Conclusion: Leave to defend was rightly refused and the suit was decreed against both defendants.
Issue (iii): Whether the contractual rate of interest at 25% per annum could be awarded, or the statutory ceiling under the Usurious Loans Act, 1918 applied.
Analysis: The court applied the Delhi amendment to the Usurious Loans Act, 1918 and held that the debt being unsecured, the applicable rate was 12.5% per annum simple interest. The plaintiff was not shown to be exempt from the statute, so the contractual rate could not prevail over the statutory limit.
Conclusion: Interest was restricted to 12.5% per annum simple and the claim for 25% per annum was rejected.
Final Conclusion: The recovery suit was decreed for the principal sum with interest at the statutory rate, the leave-to-defend applications were rejected, and liability was held to be joint and several against both defendants.
Ratio Decidendi: Section 22 of SICA bars only those proceedings that operate as execution, distress, or similar coercive action against the assets of the sick company or otherwise impede a revival scheme; a simple money-recovery suit not affecting those assets may proceed, and contractual interest cannot override the statutory ceiling under the Usurious Loans Act.
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