Full Judgment Text
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CASE NO.:
Appeal (civil) 1317 of 2003
PETITIONER:
Kailash Nath Agarwal & Ors.
RESPONDENT:
Pradeshiya Industrial & & Investment Corporation of U.P. Ltd. & Anr.
DATE OF JUDGMENT: 14/02/2003
BENCH:
Ruma Pal & B.N. Srikrishna
JUDGMENT:
J U D G M E N T
(Arising out of SLP (C) No.21369 of 2002)
With
C.A. Nos.1318 & 1319 of 2003
(Arising out of SLP(C) Nos.21370 & 21371 of 2002)
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 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.
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 failing 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 failing which recovery certificates would be issued against
the appellants.
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.
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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 (1) should be understood as
including any proceeding including certificate proceedings for the
enforcement of such a guarantee.
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.
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 3 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 under Section 3(1). It is
submitted that since a suit was already barred by the U.P. Act,
the question it being further barred under Section 22(1) did not
arise. It is also pointed out that in Section 22(1) of SICA,
Parliament has drawn a distinction between the word
’proceeding’ and ’suit’. It is pointed out that this Court in its
decision in Maharahstra Tubes (supra) had construed the word
’proceeding’ to include proceedings under the State Financial
Corporation Act. The section was subsequently amended by the
introduction of the prohibition relating to the filing of a suit inter
alia to enforce a guarantee in respect of loans advanced to a sick
industrial company. It is argued that had the Parliament
intended to include proceeding like those under the U.P Act
within the word ’suit’, it would have used the word ’proceeding’
and not consciously used the word ’suit’. The respondents have
relied upon the decision of this Court in Assistant Collector of
Central Excise V. Ramdev Tobacco Company 1991 (2) SCC
119 to contend that the word ’suit’ did not cover any proceeding
which was not in a Court. It is then contended that the
proceedings under the U.P. Act were really in the nature of
recovery proceedings under S.22(1) of the Act. Recovery
proceedings were prohibited only against the industrial company
itself and not against the guarantor. It is further submitted that
the High Court had given liberty to the appellants to approach
the BIFR under Section 22(3) of the Act but the appellants had
not availed of that remedy.
Section 128 of the Indian Contract Act, 1872 provides that
the liability of the surety is co-extensive with that of the principal
debtor, unless it is otherwise provided by the contract.
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The clauses of the guarantees executed by the appellant in
favour of PICUP clearly show that the liability of the guarantors
was to remain unaffected by either the failure of PICUP to
enforce its mortgage and hypothecation against the assets of the
company. Clauses 6, 7, 15, 16 and 17 are relevant in this
context and they specifically provide:
6. The guarantee herein contained
shall be enforceable against the
Guarantors notwithstanding that the
securities specified in the mortgage
or any of them shall at the time
when proceedings are taken against
the Guarantors hereunder be
outstanding or unrealised.
7. The guarantee herein contained
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 Guarantors
further agree for the applicability of
relevant provisions of the State
Financial Corporation Act, 1951."
There is therefore nothing in the contracts which can in
any way be construed as contrary to the joint and severally
liability created under Section 128.
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Under the guarantees PICUP could raise and enforce a
demand against the appellants under the U.P Public Demands
(Recovery of Dues) Act, 1972 (referred to as the UP Act).
Section 3 of the U.P Act provides for the issuance of a certificate
to the Collector by a financial corporation like PICUP in respect of
sums from persons specified in sub-section (1) of Section 3
requesting that such sums together with the costs of the
proceedings should be recovered as if it were an arrear of land
revenue. Sub-section 2 of Section 3 of the U.P. Act provides
that the Collector on receiving the certificate shall proceed to
recover the amount stated therein as an arrear of land revenue.
Therefore, the procedure prescribed under the U.P. Act
does not necessitate that PICUP must enforce its rights through
any legal forum nor indeed after any adjudicatory process. This
is clear also from the proviso to sub-Section 4 to Section 3 of the
U.P. Act which provides:
"4. In the case of any agreement
referred to in sub-section (1) between
any person referred to in that sub-
section and the State Government or the
Corporation, no arbitration proceedings
shall lie at the instance of either party
either for recovery of any sum claimed to
be due under the said sub-section or for
disputing the correctness of such claim:
Provided that whenever proceedings
are taken against any person for the
recovery of any such sum he may pay
the amount claimed under protest to the
officer taking such proceedings, and
upon such payment the proceedings shall
be stayed and the person against whom
such proceedings were taken may make
a reference under or otherwise enforce
an arbitration agreement in in respect of
the amount so paid, and the provisions
of Section 183 of the Uttar Pradesh Land
Revenue Act, 1901, or Section 287-A of
the Uttar Pradesh Zamindari Abolition
and Land Reforms Act, 1950 as the case
may be, shall mutatis mutandis apply in
relation to such reference or
endorsement as they apply in relation to
any suit in the civil court."
In other words payment pursuant to the certificate must
be made before the dispute can be referred to arbitration. 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
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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 company or for execution,
distress or the like against any of the properties
of the industrial company or for the
appointment of a receiver in respect thereof
shall lie or be proceeded with further, except
with the consent of the Board or, as the case
may be, the Appellate Authority."
In Maharashtra Tubes Ltd. V. S.I.I. Corporation of
Maharashtra Ltd. (supra), when a question arose whether a
State Financial Corporation could take action against an
industrial concern under Section 29 and/or Section 31 of the
State Financial Corporation Act, 1951, notwithstanding the bar of
Section 22 of SICA, this Court held that the expression
’proceeding’ in Section 22(1) should not be limited to ’legal
proceedings’ as understood in the narrow sense but would
include proceedings under Sections 29 and 31 of the State
Financial Corporation Act. It was said:
"The purpose and object of this provision is
clearly to await the outcome of the reference
made to the BIFR for the revival and
rehabilitation of the sick industrial company.
The words ’or the like’ which follow the words
’execution’ and ’distress’ are clearly intended
to convey that the properties of the sick
industrial company shall not be made the
subject-matter of coercive action of similar
quality and characteristics till the BIFR finally
disposes of the reference made under Section
15 of the said enactment. The legislature has
advisedly used an omnibus expression ’the like’
as it could not have conceived of all possible
coercive measures that may be taken against a
sick undertaking. The action contemplated by
Section 29 of the 1951 Act is undoubtedly a
coercive measure directed at the take over of
the management and property of the industrial
concern and confers a further right on the
Financial Corporation to transfer by way of
lease or sale the properties of the said concern
and any such transfer effected by the Financial
Corporation would vest in the transferee all
rights in or to the transferred property as if the
transfer was made by the owner of the
company. So also under the said provision the
Financial Corporation will have the same rights
and powers with respect to goods
manufactured or produced wholly or partly
from goods forming part of the security held by
it as it had with respect to the original goods.
It is, therefore, obvious on a plain reading of
Section 29 of the 1951 Act that it permits
coercive action against the defaulting 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
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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 narrow
meaning would run counter to the scheme of
the law and frustrate the very object and
purpose of Section 22(1) of the 1985 Act."
It appears that there were three reasons why this Court
construed that the word ’proceeding’ as including action which
may be taken under Section 29 of the State Financial
Corporation Act:
1. The recovery proceedings were against an industrial
company, the revival of which was one of the objects
of the Act;
2. The use of the omnibus expression "or the like" after
the word "proceeding";
3. The fact that the entire Scheme as contained in
Sections 16 to 19 of SICA would be rendered
nugatory and the process short-circuited of State
Financial Corporations were allowed to recover their
dues from the assets of the company.
After this decision was rendered, Section 22(1) was
amended by the Sick Industrial Companies (Special Provisions)
Amendment Act (12 of 1994). The following words were
inserted in Section 22(1):
"and no suit for the recovery of money or
for the enforcement of any security
against the industrial company or of any
guarantee in respect of any loans or
advance granted to the industrial
company"
There is an apparent distinction between the expressions
’proceeding’ and ’suit’ used in Section 22(1). While it is true that
two different words may be used in the same statute to convey
the same meaning, that is the exception rather than the rule.
The general rule is that when two different words are used by
the same statute, prima facie one has to construe these different
words as carrying different meanings. In Kanhaiyalal
Vishnidas Gidwani (supra) this Court found that words
’subscribed’ and ’signed’ had been used in the Representation of
People Act, 1951 interchangeably and, therefore, in that context
the Court came to the conclusion that when the Legislature used
the word ’subscribed’ it did not intend anything more than
’signing’. The words ’suit’ and ’proceeding’ have not been used
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interchangeably in SICA. Therefore, the reasons which
persuaded this Court to give the same meaning to two different
words in a statute cannot be applied here.
In none of the decisions cited before us, has the word
’suit’ been defined in a context similar to that of SICA. The
decisions cited by the appellants do not relate to the same or
similar statutes nor do they seek to define the word ’suit’ in
contradistinction to the word ’proceeding’. The decision in
Ghantesher Ghose V. Madan Mohan Ghose (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 Assistant Collector of Central Excise V.
Ramdev Tobacco Company (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 V. Shantibai R. Ghatge (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 a court of justice by which
an individual pursues that remedy which
the law affords. The modes of
proceedings may be various but that if a
right is litigated between parties in a
court of justice the proceeding by which
the decision of the court is sought may
be a suit".
According to these decisions, a suit is an action taken in a
Court of law.
Having regard to the judicial interpretation of the word
’suit’, it is difficult to accede to the submission of the appellants
that the word ’suit’ in Section 22 (1) of the Act means anything
other than some form of curial process.
Apart from the semantic difference between the words
’suit’ and ’proceeding’ there is the absence of expansive words
’or the like’ which appear after the expression ’proceedings, after
the word ’suit’. The exclusion of such ’omnibus expression’ after
the word ’suit’ must be given some weight in interpreting the
word. As held by this Court in LIC V. Escorts Ltd. (supra):
"The distinction made by Parliament
in the several provisions of the
same Act cannot be ignored or strained to
be explained away by us. That is not the
way to interpret statutes. The proper
way is to give due weight to the use as
well as the omission to use the qualifying
words in different provisions of the Act.
The significance of the use of the
qualifying word in one provision and its
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non-use in another provision may not be
disregarded".
Since the Legislature has expressly chosen to make a
distinction between the suits for recovery of the money and
enforcement of guarantees and proceedings for the recovery of
money, that must be given effect to.
Furthermore, the Parliament must be taken to be aware of
the decision in Maharashtra Tubes and the fact that the word
’proceeding’ used in Section 22 (1) had been widely construed to
include proceedings for recovery of dues by State Financial
Corporation as arrears of land revenue. The deliberate choice of
the word ’suit’ in the circumstances would indicate that
Parliament intended to limit the ambit of the amendment
introduced to particular modes for the recovery of money or
enforcement of guarantees.
One of the reasons for the word ’proceeding’ in Section
22(1) being construed widely by this Court in Maharashtra
Tubes was that the proceedings were against the company
itself. Having regard to the object of the Act viz., if possible to
revive the company, 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--vis the
company to the extent of the liability met.
It is true that this Court in Patheja Bros. Forgings &
Stampings V. ICICI Ltd. (supra) construed the 1994
amendment to section 22(1) to hold:
"For our purpose, therefore, the relevant
words are: "no suit . for the
enforcement . of any guarantee in
respect of any loans or advance granted
to the industrial company" shall lie
without the consent of the Board or the
appellate authority. The words are
crystal clear. There is no ambiguity
therein. It must, therefore, be held that
no suit for the enforcement of a
guarantee in respect of a loan or
advance granted to the industrial
company concerned will lie or can be
proceeded with, without the sanction of
the Board or the appellate authority
under the said Act."
This is in keeping with the well established principle of
statutory interpretation that where the language of the provision
is explicit the language of the statute must prevail.
The appellants have, however, sought to draw sustenance
from the following passage in the judgment:
"The argument on behalf of the first
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respondent is that while this provision
provides for the continuation of
proceedings against the industrial
company, there is no provision in the
said Act which provides for the
continuation of any held-up proceeding
against the guarantor of a loan or
advance to such company and that,
therefore, Section 22 should be read as
applying only to a suit against the
industrial company and not a guarantor.
Apart from the fact that, as indicated
above, the language of Section 22 is
explicit, the scheme would provide for
the repayment of the loan or advance,
and, therefore, would take within its
ambit the claim on the guarantee; the
question of proceeding with the suit
against the guarantor would not arise.
On the other hand, if the industrial
company cannot be revived by a scheme,
the embargo under Section 22 would
cease to operate." (Emphasis ours)
These observations do not mean that when the words used
are unambiguous, other extrinsic interpretative aids such as the
objects of the statute, or the difficulties that would be faced by
creditors will be relevant in interpreting the expression. The
Court in Patheja’s case merely observed that the creditor could
recover its sum from the principal debtor under the scheme and,
therefore, the claim on the guarantee would not arise if the
amount is so recovered under the scheme. We do not read the
observations quoted as holding that protection of guarantors of
loans to a sick company is an object of the 1994 amendment
which 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 appeals are dismissed with costs.