2003 (2) TMI 338 - SC - Indian Laws

Scope of the protection afforded to guarantors under section 22(1) of the Sick Industrial Companies (Special Provisions) Act 1985 - whether PICUP is prohibited by section 22(1) of the Act from doing so? Held that - Appeal dismissed. 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.

Summary

Issues Involved:
1. Scope of protection for guarantors under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
2. Interpretation of the term "suit" in Section 22(1) of SICA.
3. Applicability of the U.P. Public Money (Recovery of Dues) Act, 1972 for enforcing guarantees against guarantors.
4. Whether proceedings under the U.P. Act are barred by Section 22(1) of SICA.

Issue-Wise Detailed Analysis:

1. Scope of Protection for Guarantors under Section 22(1) of SICA:
The appellants argued that Section 22(1) of SICA prohibits the enforcement of any guarantee in respect of loans granted to a sick industrial company. They relied on prior judgments, including Patheja Bros. Forgings & Stampings v. ICICI Ltd., which held that the legislative intent was to protect guarantors since guarantees are fundamental to the restructuring process of a sick industrial company. The appellants contended that no rational distinction should be made between creditors who need to file a suit to enforce a guarantee and those who can recover dues through summary proceedings.

2. Interpretation of the Term "Suit" in Section 22(1) of SICA:
The respondents argued that the term "suit" in Section 22(1) should be understood as a judicial or adjudicatory process. They pointed out that the U.P. Public Money (Recovery of Dues) Act, 1972, distinguishes between a "proceeding" and a "suit." The respondents emphasized that the term "suit" should not be broadly interpreted to include non-judicial recovery processes. The Supreme Court agreed, noting that the use of different terms ("suit" and "proceeding") in the statute indicates that they carry different meanings. The Court also cited Assistant Collector of Central Excise v. Ramdev Tobacco Co. to support that a "suit" refers to judicial proceedings.

3. Applicability of the U.P. Public Money (Recovery of Dues) Act, 1972:
The guarantees executed by the appellants included clauses that allowed PICUP to recover dues under the U.P. Act as arrears of land revenue. The Court noted that the procedure under the U.P. Act does not require PICUP to enforce its rights through any legal forum or adjudicatory process. The U.P. Act allows for the issuance of a certificate to the Collector for recovery as arrears of land revenue, bypassing judicial proceedings.

4. Whether Proceedings under the U.P. Act are Barred by Section 22(1) of SICA:
The Court examined the legislative history and judicial interpretations of Section 22(1) of SICA. It noted that the 1994 amendment to Section 22(1) introduced the prohibition of suits for the enforcement of guarantees. However, the term "suit" was not intended to include non-judicial recovery processes under the U.P. Act. The Court distinguished between "suit" and "proceeding," emphasizing that the latter term had been broadly interpreted in Maharashtra Tubes Ltd. v. State Industrial & Investment Corpn. of Maharashtra to include coercive actions under the State Financial Corporation Act. The Court concluded that the proceedings under the U.P. Act are recovery proceedings and not "suits" for recovery under Section 22(1) of SICA.

Conclusion:
The Supreme Court dismissed the appeals, holding that Section 22(1) of SICA does not prohibit PICUP from enforcing guarantees against the appellants through recovery proceedings under the U.P. Public Money (Recovery of Dues) Act, 1972. The term "suit" in Section 22(1) refers to judicial proceedings and does not encompass non-judicial recovery processes. The Court emphasized the legislative intent and the specific language used in the statute to reach this conclusion.