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2016 (2) TMI 528 - GUJARAT HIGH COURT

2016 (2) TMI 528 - GUJARAT HIGH COURT - TMI - Availability of alternative remedy - Recovery proceedings against the guarantors initiated by the bank for defaulters of loan - principal borrower company failed to pay even principal amount - Held that:- We are not impressed with the arguments canvassed by learned Senior Counsel for the petitioners that powers under Article 226 of the Constitution of India be exercised as there is bar under Section 22 of the SICA, 1985 and the Tribunal has no jurisd .....

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ADVOCATE WITH MR NAVIN PAHWA FOR THAKKAR AND PAHWA, ADVOCATES, ADVOCATE FOR THE RESPONDENT : MR PRANAV G DESAI, ADVOCATE, MR SIDDHARTHA SAMAL, ADVOCATE COMMON ORAL JUDGMENT (PER : HONOURABLE MR. JUSTICE ANANT S. DAVE) 1 The petitioners, in both these petitions being guarantors of respondent No.2 company and defaulters to the tune of more than ₹ 75 crores, have filed these petitions and as common question of law about exercise of powers under Article 226 of the Constitution of India visavis .....

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ortterm loan of ₹ 50 Crores. The respondent No.2 company through its authorized director, has signed and executed security documents viz. demand promissory note, letter of waiver, agreement relating to term loan, guarantee agreement executed by the petitioners / original defendant Nos.2 and 3 and undertaking. 3 That Special Civil Application No.14480 of 2015 is preferred by the petitioners with a prayer to quash and set aside order dated 06.07.2015 passed by the DRTI, Ahmedabad in Original .....

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t term loans. In this Original Application No.192 of 2011, where judgment is delivered by the DRT on 06.07.2015 in which contentions raised by learned advocate on facts and law and findings, reasonings and conclusions of DRT are almost same to that of order dated 13.05.2015 passed in Original Application No.125 of 2011 and, therefore, to avoid repetition, same are not reproduced in this order. 4 Even after completion of six months, the petitioners being guarantors and the principal borrower comp .....

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377; 51,47,38,549.80. In written statement filed by defendant No.1 and defendant Nos.2 and 3, who are petitioners in writ petitions, denied to have signed and executed any security document in favour of the bank. Upon consideration of facts as well as law and specific plea raised by learned counsel appearing for the petitioners / defendant Nos.2 and 3 that in view of proceedings pending before AAIFR with regard to subject dispute and that by virtue of operation of Section 22 of The Sick Industri .....

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1993. 4.1 However, the learned Presiding Officer, DRTI, Ahmedabad allowed Original Application No.125 of 2011 filed by the Uco Bank by determining the debt with costs against the defendant Nos.2 and 3 / petitioners herein, keeping the original application pending against the defendant company i.e. the borrower company during the pendency of reference before the BIFR or any appeal before AAIFR and the injunction order passed by the Tribunal dated 12.09.2011 on the personal immovable properties o .....

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riginal application against the guarantors keeping the original application pending against the defendant No.1 company, till the reference before BIFR or appeal, if any, pending before the AAIFR is disposed off. The Tribunal also held that in terms of Section 128 of the Indian Contract Act, the liability of the guarantors viz. defendant Nos.2 and 3 / original petitioners herein is coextensive with that of principal borrower. 5 Learned counsels Mr. Pranav Desai and Mr. Siddhartha Samal appearing .....

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, submissions are made elaborately by Mr. Pranav Desai and Mr. Siddhartha Samal, learned counsels appearing for the respective respondent banks to which reference will be made later on. 6 Mr. Mihir Thakore, learned Senior Advocate appearing with Mr. Navin Pahwa, learned counsel for the petitioners, strenuously urged that in view of lack of jurisdiction, DRT ought not to have entertained much less proceeded further with application filed by the respondent banks under Section 19 of the RDDB Act, 1 .....

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stitution. In a case where order is passed by a court, Tribunal or any legal forum, in absence or lack of jurisdiction, it is the bounden duty of this Court not only to exercise jurisdiction under Article 226 of the Constitution of India, but also to entertain the writ petition and to grant reliefs, as prayed therein and to take it to a logical end. 6.1 Learned Senior Advocate appearing for the petitioners relied on various provisions of Sections of SICA, 1985, more particularly, Section 22 abou .....

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Appellate Tribunal. Section 24. Limitation. Chapter V. Recovery of Debt Determined by Tribunal. Section. 34. Act to have overriding effect. 6.2 Learned Senior Advocate appearing for the petitioners relied on the following decisions of the Apex Court: [1] In the case of Patheja Bros. Forgings & Stamping & Anr. vs. ICICI Limited & Ors. [(2000)6 SCC 545], in the context of bar under Section 22 of SICA, 1985 for enforcement of any guarantee in respect of any loan or advance granted to t .....

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e authority [BIFR or AAIFR]. In the facts of this case, nature of legal action taken by the bank against the petitioners for adjudication of debt and overall scheme of the RDDB Act, 1993 reveal that such action is not simplicitor recovery proceedings, but effective and meaningful adjudication of a dispute, and therefore, the Tribunal erred in assuming jurisdiction not vested in it. [2] In the case of Kailash Nath Agarwal & Ors. v. Pradeshiya Industrial & Investment Corporation of U.P. Lt .....

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covered under the word proceedings' in the first limb of Section 22(1) of SICA, 1985, it is not a suit' for recovery and second limb of section Section 22(1) only prohibits recovery against industrial company, there is no protection afforded to guarantors against the recovery proceedings initiated under the U.P. Public Moneys [Recovery of Dues] Act, 1972. The above declaration of law interpreting Section 22(1) of SICA, 1985 visavis provisions of U.P. Public Moneys [Recovery of Dues] Act .....

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r Arbitration and Conciliation Act, 1996. [4] In the case of Zenith Steel Tubes & Industries Ltd. [(2008)1 SCC 533], the Bench of two Judges of the Apex Court found the issue to be referred to a Larger Bench to resolve the anomaly resulting into different views emerging from two decisions in the case of Paramjeet Singh Patheja [supra], Patheja Steel Tubes & Industries Ltd. [supra] and Kailash Nath Agarwal [supra]. It is, therefore, submitted that since the case was resolved amicably, the .....

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of Section 34 of RDDB Act, 1993 about overriding effect, the matter was referred to Larger Bench, in which the controversy came to be finally resolved as per the decision in the case of KSL and Industries Limited vs. Arihant Threads Limited & Ors. [(2015)1 SCC 166] and it was held that both SICA, 1985 and RDDB Act, 1993 are special laws with different purposes. Normally, later enactment with nonobstante clause prevail over former enactment, however, express enactment by Parliament in nonobst .....

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Section 22(1) never fell for consideration with regard to overriding effect of SICA, 1985, more particularly, Section 22(1) bars jurisdiction of any court, Tribunal or legal forum and applies even in a case of guarantors too and such bar extends and covers guarantors of industrial company. Thus, the question of law with regard to applicability of Section 22(1) of the SICA, 1985 visavis provisions of RDDB Act, 1993 viz. Sections 17(2), 19 and 20 need to be considered in light of preliminary objec .....

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ion 66(2) of Income Tax Act was available, party was not deprived of a quick relief by a writ in absence of any sufficient reason. [6] In the case of Whirlpool Corporation v. Registrar of Trade Marks, Mumbai [(1998)8 SCC 1], the High Court has dismissed writ petition on the ground that the petition under Article 226 of the Constitution of India was not maintainable and in such matters parties were required to pursue alternative remedy. The Apex Court considered power to issue prerogative writs u .....

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to the appellant under Section 56(4) of Trade and Merchandise Marks Act, 1958 for cancellation of certificate of registration. 6.3 Lastly it is submitted that in Appeal No.94 of 2015 before AAIFR, New Delhi, it is referred in the order dated 06.01.2016 that ₹ 16.69 [approx.] crores will continue to remain appropriated subject to final order of BIFR and ₹ 11.27 [approx.] crores, which has been withheld and not yet appropriated will be kept separately in an interest bearing no lien acc .....

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cation for recovery of dues under Section 19 and availability of remedy of appeal to the appellate tribunal under Section 20 and deposit of amount of debt due on filing of appeal under Section 21 with proviso conferring discretion upon the appellate Tribunal for reasons to be recorded in writing, either to waive or reduce the amount to be deposited under the Section. The following decisions are relied on by Mr. Pranav Desai and Mr. Siddhartha Samal, learned counsels for the respective banks: [1] .....

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ice and granting stay against the impugned order, of the DRT, on condition that petitioner shall not hereafter transfer, lease or alienate or create any charge in all their immovable properties or any of the properties in which they may have interest, including of the properties by way of security to secured debt in question. In this regard, it is submitted that the above conditional stay in the facts of this case will be illusory inasmuch as the petitioners have no immovable or any other proper .....

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and it is submitted that in view of preliminary objection about availability of statutory alternative remedy, this court will relegate the petitioners to approach the appellate authority under Section 20 of the RDDB Act. 8 Having given our thoughtful consideration to the arguments canvassed by the learned counsels for the parties, perusal of record of the case, including the impugned judgment of DRT, Ahmedabad and case laws relied on by learned counsels for respective parties in support of thei .....

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se, on and from the appointed day, the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions. (2) An Appellate Tribunal shall exercise, on and from the appointed day, the jurisdiction, powers and authority to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act. 18. Bar of jurisdiction On and from the appointed day, no court .....

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under the MultiState Cooperative Societies Act, 2002 [39 of 2002] shall be continued and nothing contained in this section shall, after such commencement, apply to such proceedings. Chapter IV Procedure of Tribunals 19. Application to the Tribunal Subsections [1] to [25] of Section 19 prescribe detailed procedure of filing application before the Tribunal, on receipt of such application to issue summons to the defendant to show cause, hearing to continue preferably from day today and number of a .....

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Tribunal from an order made by a Tribunal with the consent of the parties. (3) Every appeal under subsection (1) shall be filed within a period of fortyfive days from the date on which a copy of the order made, or deemed to have been made, by the Tribunal is received by him and it shall be in such form and be accompanied by such fee as may be prescribed: PROVIDED that the Appellate Tribunal may entertain an appeal after the expiry of the said period of forty five days if it is satisfied that the .....

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nal under subsection (1) shall be dealt with by it as expeditiously as possible and endeavor shall be made by it to dispose of the appeal finally within six months from the date of receipt of the appeal. 21. Deposit of amount of debt due, on filing appeal Where an appeal is preferred by any person from whom the amount of financial debt is due to a bank or a financial institution or a consortium of banks or financial institutions, such appeal shall not be entertained by the Appellate Tribunal unl .....

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908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules, the Tribunal and the Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 .....

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any order passed by it ex parte; (h) any other matter which may be prescribed. (3) Any proceeding before the Tribunal or the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code (45 of 1860), and the Tribunal or the Appellate Tribunal shall be deemed to be a civil court for all the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973 (2 of 1974). 24. Limi .....

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be in addition to and not in derogation of, the Industrial Finance Corporation Act, 1948 (15 of 1948), the State Financial Corporations Act, 1951 (63 of 1951), the Unit Trust of India Act, 1963 (52 of 1963), the Industrial Reconstruction Bank of India Act, 1984 (62 of 1984), and the Sick Industrial Companies (Special Provisions) Act, 1985 [1 of 1986]and the Small Industries Development Bank of India Act, 1989 [39 of 1989]. 8.1 Thus, RDDB Act, 1993, amended from time to time, is enacted by the P .....

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tem headed by Shri M. Narasimham has considered the setting up of Special Tribunals with special powers for adjudication of such matters and speedy recovery as critical to the successful implementation of the financial sector reforms. An urgent need was, therefore, fell to work out a suitable mechanism through which the dues to the bank and financial institutions could be realized without delay. In 1981 a Committee under the Chairmanship of Shri T.Tiwari had examined the legal and other difficul .....

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ancial institutions were pending in various courts, recovery of debts involved more than ₹ 5622 crores in dues of Public Sector Banks and about ₹ 391 crores of dues of the financial institutions. The locking up of such huge amount of public money in litigation prevents proper utilization and recycling of the funds for the development of the country. The Bill seeks to provide for the establishment of Tribunals and Appellate Tribunals for expeditious adjudication and recovery of debts .....

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tions from the banks and financial institutions for recovery of debts due to such banks and financial institutions and Appellate Tribunal is to entertain appeals against any order made, or deemed to have been made, by a Tribunal under this Act. An elaborate procedure is prescribed under Section 19 of the Act empowering the Tribunals to consider, deliberate and decide the issues involved therein and Section 20 is provision to appeal to the Appellate Tribunal where any person aggrieved by an order .....

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ent cause is shown by the aggrieved person for not filing it within that period. Under subsection (4) Section 20, the appellate Tribunal is empowered to confirm, modify or setting aside the order appealed against after affording an opportunity of hearing to the parties and such appeal is to be disposed of preferably within 6 months from the date of receipt of appeal. 8.3 That Section 21 provides depositing 75% of the amount of due by an aggrieved person, as determined by the Tribunal under Secti .....

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micals Ltd. v. Union of India [(2004)4 SCC 311]. The above inbuilt mechanism provided by the RDDB Act, 1993 confers power upon the Appellate Tribunal to consider the appeal on any ground and for any error, either lack of jurisdiction or law or on fact committed by the concerned Tribunal. The contentions raised by Mr. Mihir Thakore, learned Senior Counsel appearing for the petitioners about lack of jurisdiction by DRTI, Ahmedabad in entertaining proceedings and deciding the application under Sect .....

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Ahmedabad and also appeal can be heard on other issues on merit. We are in complete agreement with the decisions cited at Bar by the learned counsels for the respondent banks in the case of Rajkumar Shivhare [supra] and United Bank of India [supra] in the context of efforts made by banks / financial institution for recovery of their dues under debt, financial and monetary laws, more particularly, in the case of United Bank of India [supra], the Apex Court has observed in paras 43, 44 and 45 as .....

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recovery of the public dues, etc. the High Court must keep in mind that the legislations enacted by Parliament and State Legislatures for recovery of such dues are a code unto themselves inasmuch as they not only contain comprehensive procedure for recovery of the dues but also envisage constitution of quasijudicial bodies for redressal of the grievance of any aggrieved person. Therefore, in all such cases, the High Court must insist that before availing remedy under Article 226 of the Constitut .....

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tation on exercise of that power but, at the same time we cannot be oblivious of the rules of selfimposed restraint evolved by this Court, which every High Court is bound to keep in view while exercising power under Article 226 of the Constitution. 45. It is true that the rule of exhaustion of alternative remedy is a rule of discretion and not one of compulsion, but it is difficult to fathom any reason why the High Court should entertain a petition filed under Article 226 of the Constitution and .....

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AIR 1964 SC 1491] whereby the question whether the High Court of Assam should have entertained the writ petition filed by the appellant under Article 226 of the Constitution of India questioning the order passed by the Commissioner of Taxes under Assam Sales Tax Act, 1947, the Apex Court in para 7 observed as under: 7. ...... The jurisdiction of the High Court under Article 226 of the Constitution is couched in wide terms and the exercise thereof is not subject to any restrictions except the ter .....

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ition for a writ under Article 226, where the petitioner has an alternative remedy, which without being unduly onerous, provides an equally efficacious remedy. Again the High Court does not generally enter upon a determination of questions which demand an elaborate examination of evidence to establish the right to enforce which the writ is claimed. The High Court does not therefore act as a court of appeal against the decision of a court or tribunal, to correct errors of fact, and does not by as .....

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o the machinery so set up." [emphasis supplied] In the above judgment, the Apex Court has relied upon the decision in the case of Titaghur Paper Mills Co. Ltd. v. State of Orissa [1983(2) SCC 433 and the view expressed in the case of Titaghur Paper Mills Co. Ltd. [supra] were echoed in the case of CCE v. Dunlop India Ltd. [(1985)1 SCC 260] observing that Article 226 is not meant to shortcut or circumvent statutory procedures and it is only where statutory remedies are entirely illsuited to .....

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