Back
2003(2) Supreme 207
SUPREME COURT OF INDIA
(From Allahabad High Court)
Mrs. Ruma Pal & B.N. Srikishna, JJ.
Kailash Nath Agarwal & Ors. -Appellants
versus
Pradeshiya Indst. & Inv. Corp. of U.P. & Anr. -Respondents
Civil Appeal No. 1317 of 2003
(Arising out of SLP (C) No. 21369 of 2002)
With
C.A.Nos. 1318, 1319 of 2003
(Arising out of SLP (C) Nos. 21370 and 21371 of 2002)
Decided on 14-2-2003
Counsel for the Parties :
For the Appearing Parties : Jaideep Gupta, Raju Ramachandran, Sr. Advocates, Ms. Bina Gupta Ms. Divya Roy, Ms. Nina Gupta, R.K. Sharma, Anuvrat Sharma, M.P. Shorawala, Advocates.
Held : That the guarantees are enforceable by PICUP against the appellants under the U.P. Act is in fact not in issue before us. The limited question is whether PICUP is prohibited by Section 22(1) of the Act from doing so. (Para 15)
Held finally : The phrase introduced by the 1994 amendment relates to the pre-decretal stage because recovery proceedings by way of execution is already covered under the first half of sub-section (1) of Section 22. If the procedure under the U.P. Act is covered under the word proceeding in the first limb of Section 22(1) of SICA, which it is according to Maharashtra Tubes, it is not a `suit for recovery under the second limb of that Section. As rightly contended by learned counsel appearing for PICUP, the proceedings under the U.P. Act are really recovery proceedings within the meaning of the word proceeding as defined in Maharashtra Tubes. Since Section 22(1) only prohibits recovery against the industrial company there is no protection afforded to guarantors against recovery proceedings under the U.P. Act. The appeals are dismissed with costs. (Paras 34 and 35)
JUDGMENT
Ruma Pal, J.-Leave granted.
2. The scope of the protection afforded to guarantors under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (referred to as SICA) is in issue in these appeals. The Pradeshiya Industrial and Investment Corporation of U.P. Ltd., respondent No. 1 herein (referred to as PICUP hereafter) had given loans to a company, M/s Shefali Papers Ltd., the respondent No. 2 before us (hereinafter referred to as the company). By way of security the company mortgaged its immovable properties and hypothecated its assets to PICUP. In addition the appellants executed bonds of guarantee in consideration for the grant of loans to the company.
3. On 1st December 1997, the Company was declared sick by the Board for Industrial and Financial Reconstruction (BIFR) in terms of Section 3(1)(o) of the SICA. The BIFR appointed IFCI as the operating agency under Section 17(3) of the Act "to examine the viability and submit its report for revival of the company". While the proceedings before the BIFR were pending, on 6th February 2002 three separate notices of demand were served on the appellants as personal guarantors in respect of the loans granted to the company by PICUP. The total amount claimed was Rs. 8,90,84,259.06p. Each of the appellants was called upon to pay the demand within 30 days along with the interest at the rates specified in the notice falling which PICUP said that it would take legal measures to recover its outstanding dues from each guarantor. The appellants replied to the notice stating that because of the decisions of this Court on the scope of Section 22(1) of the Act, PICUP could not enforce its demand against the appellants. PICUP rejected the stand of the appellants and called upon the appellants to liquidate its dues falling which recovery certificates would be issued against the appellants.
4. The appellants did not pay. Instead they filed a writ petition which was ultimately dismissed on 23rd May 2002. The decision of the High Court is the subject matter of the present appeals. Recovery certificates which have been issued against the appellants have been stayed by this Court pending disposal of the special leave petitions.
5. The submission of the appellants is that Section 22(1) of SICA specifically prohibited the filing of a suit for the recovery of the money for the enforcement of any guarantee in respect of any loan or advance granted to an industrial company. Reliance has been placed on Maharashtra Tubes Ltd. v. S.I.I. Corpn. of Maharashtra 1993(2) SCC 144, Kanhaiyalal Vishindas Gidwani v. Arun Dattatray Mehta 2001 (1) SCC 78, LIC v. Escorts Ltd. 1986 (1) SCC 264, P.L. Kantha Rao v. State of A.P. 1995 (2) SCC 471, Ghantesher Ghosh v. Madan Mohan Ghose 1996 (11) SCC 446, Pandurang R. Mandlik v. Shantibair Ghatge 1989 Supp. (2) SCC 627 to submit that the word suit in Section 22(i) should be understood as including any proceeding including certificate proceedings for the enforcement of such a guarantee.
6. It is submitted that this Court in Patheja Bros. Forgings & Stampings v. ICICI Ltd. 2000(6) SCC 545 had clearly held that the legislative intent was to protect the guarantors since the guarantee given in respect of an industrial company which was being revived under the Act is a fundamental part of its restructuring process. It is further submitted that no rational distinction should be made between a creditor who would have to file a suit to enforce a guarantee and creditors like PICUP which could recover its dues without approaching the Court by summary proceedings as an arrear of land revenue. It is claimed that if a proceeding for recovery through a court of law were prohibited under Section 22(1), there was no reason why such protection should be refused when action was sought to be taken without recourse to Court.
7. Learned counsel appearing on behalf of PICUP has submitted that the word suit in Section 22(1) must be understood as a judicial or at least a
An indispensable Tool for Legal Professionals, Endorsed by Various High Court and Judicial Officers
Please visit our Training & Support
Center or Contact Us for assistance
Scan Me!
India’s Legal research and Law Firm App, Download now!
For Daily Legal Updates, Join us on :
Back to top
