TMI Blog2003 (2) TMI 338X X X X Extracts X X X X X X X X Extracts X X X X ..... on afforded to guarantors against recovery proceedings under the U.P. Act. - CIVIL APPEAL NOS. 1317 AND 1318 OF 2003 - - - Dated:- 14-2-2003 - RUMA PAL AND B.N. SRIKRISHNA, JJ. Jaideep Gupta, Raju Ramachandran, Ms. Bina Gupta, Ms. Divya Roy, Ms. Nina Gupta, R.K. Sharma, Anuvrat Sharma, and M.P. Shorawala for the Appearing Parties. JUDGMENT Ruma Pal, J. - Leave granted. 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. Shefall 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. On 1st December 1997, the Company was declared sick by the Board for Industrial and Financial Reconstruction (BIFR) in terms of section 3(1)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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. 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 an adjudicatory process. It is pointed out that PICUP was entitled to enforce its claim under the U.P. Public Money (Recovery of Dues) Act, 1972. Under the U.P. Act a distinction is drawn between a proceeding and a suit . Section 9 specifically states that no suit for the recovery of any sum shall lie in the Civil Court against any such person to whom a certificate was issuable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntained shall be enforceable against the Guarantors notwithstanding that no action of any kind has been taken by the Corporation against the Company/borrower and an intimation in writing sent to the Company by the Corporation that a default or breach has occurred shall be treated as final and conclusive proof as to the facts stated therein. 15. The Guarantors herein agree that it shall not be necessary for the Corporation to sue the said Company/Borrower before suing Guarantors for the amount due hereunder. 16. The Guarantors also hereby agree that the liability to repay the amount due to the Corporation shall arise on demand being made by the guarantors by a registered notice addressed to the Guarantors on their addresses hereinafter contained. 17. The Guarantors hereby agree that any amount due from them hereunder to the Corporation shall be recoverable under the U.P. Public Money (Recovery of Dues) Act, 1972 (as amended from time to time) as arrears of land revenue and further that it shall not be necessary for the Corporation to take recovery proceedings against the said Company/Borrower before taking recovery proceedings under the said Act against the Guarantors. The Gua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. The U.P. Act has, as rightly contended by counsel for PICUP also drawn a distinction between certificate proceedings, suits and arbitrations and the demand and its enforcement are not required to be determined or realised through Court or after any adjudicatory process. 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. Prior to 1994, section 22(1) of the SICA read as follows : "22. Suspension of legal proceedings, contracts, etc. (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Companies Act, 1956, or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing industrial concern of the type which would be taken in execution or distress proceedings; the only difference being that in the latter case the concerned party would have to use the forum prescribed by law for the purpose of securing attachment and sale of property of the defaulting industrial concern whereas in the case of a Financial Corporation that right is conferred on the creditor corporation itself which is permitted to take over the management and possession of the properties and deal with them as if it were the owner of the properties. If the Corporation is permitted to resort to the provisions of section 29 of the 1951 Act while proceedings under sections 15 to 19 of the 1985 Act are pending it will render the entire process nugatory. In such a situation the law merely expects the corporation and for that matter any other creditor to obtain the consent of the BIFR or, as the case may be, the appellate authority to proceed against the industrial concern. The law has not left them without a remedy. We are, therefore, of the opinion that the word proceedings in section 22(1) cannot be given a narrow or restricted meaning to limit the same to legal proceedings. Such a n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adistinction to the word proceeding . The decision in Ghanteshar Ghosh s case ( supra ) was given in the context of the Partition Act where a distinction between filing a suit for partition and suing for partition has been drawn. It was held that suing for partition was a wider phrase than the phrase suit for partition without defining what a suit meant. The decision in Ramdev Tobacco Co. s case ( supra ) related to the construction of the bar of suit section in the Central Excise and Salt Act, 1944. The section as it stood at the relevant time provided that "no suit, prosecution or other legal proceedings shall be instituted for anything done or ordered to be done under the Act . . . . ". The Court held "There can be no doubt that suit or prosecution are those judicial or legal proceedings which are lodged in a court of law and not before any executive authority, even if a statutory one." A definition of the word suit has been given in Pandurang R. Mandlik s case ( supra ) but in the context of section 11 of the Code of Civil Procedure. This is what the Court said : "In its comprehensive sense the word suit is understood to apply to any proceeding in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny, as also the operation of the various sections towards this end, the court held that it would be unreasonable to give such meaning to the word proceeding as would result in dealing a death blow to the Company so that the entire procedure envisaged under the SICA would be set at naught. We have been unable to find a corresponding reason for widening the scope of the word suit so as to cover proceedings against the guarantor of an industrial company. The object for enacting the SICA and for introducing the 1994 amendment was to facilitate the rehabilitation or the winding up of sick industrial companies. It is not the stated object of the Act to protect any other person or body. If the creditor enforces the guarantee in respect of the loan granted to the industrial company, we do not see how the provisions of the Act would be rendered nugatory or in any way affected. All that could happen would be that the guarantor would step into the shoes of the creditor vis-a-vis the company to the extent of the liability met. It is true that this Court in Patheja Bros. Forgings Stampings ( supra ) construed the 1994 amendment to section 22(1) to hold : ". . . For our purpose, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... object must colour our interpretation of the amendment. Till 1994 no protection was afforded to the guarantors under the Act at all. A limited protection has been given in 1994. The expression used being clear and unambiguous, it is not for us to question the wisdom of the Legislature in giving the limited protection it did or why such protection was necessary at all. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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