OM PRAKASH PARASRAMPURIA & ORS. vs. UNION OF INDIA & ANR.

* IN THE HIGH COURT OF DELHI AT NEW DELHI

% Judgment Reserved On :February 29, 2016
Judgment Delivered On : March 03, 2016

+ W.P.(C) 8617/2015

OM PRAKASH PARASRAMPURIA & ORS. .....Petitioners
Represented by: Ms.Purti Marwaha, Advocate with
Ms.Henna George and Mr.Arvind
Kumar, Advocates

versus

UNION OF INDIA & ANR. .....Respondents
Represented by: Mr.Sanjiv Kakra, Advocate with
Mr.Amrendra Kumar Singh and
Mr.Bheem Sain Jain, Advocates
for R-2

W.P.(C) 8732/2015

RATAN LAL PARASRAMPURIA & ORS. .....Petitioners
Represented by: Ms.Purti Marwaha, Advocate with
Ms.Henna George and Mr.Arvind
Kumar, Advocates

versus

UNION OF INDIA & ANR. .....Respondents
Represented by: Mr.Sumit Bansal, Advocate with
Mr.Ateev Mathur and Ms.Richa
Oberoi, Advocate for R-2

CORAM:
HON'BLE MR. JUSTICE PRADEEP NANDRAJOG
HON'BLE MS. JUSTICE MUKTA GUPTA

PRADEEP NANDRAJOG, J.
W.P.(C) No.8617/2015 Page 1 of 27


1. Whether the decision pronounced by a Three Judge Bench of the
Supreme Court, reported as (2015) 1 SCC 166 KSL & Industries Ltd. vs.
Arihant Threads Ltd. & Ors. has changed the track in which the river
was flowing heretofore, is the question which arises for consideration in
the two appeals. As per the writ petitioners the said decision holds that
recovery proceedings under Recovery of Debts Due to Banks and
Financial Institutions Act, 1993 are to be treated as a suit and therefore if
the principal borrower is declared as a sick industrial company
proceedings under Recovery of Debts due to Banks and Financial
Institutions Act, 1993 cannot lie or be continued against the guarantors.
Is that so?
2. The question arises in the backdrop of sub-Section 1 of Section 22
of the Sick Industrial Companies (Special Provisions) Act, 1985, which
reads as under:-

(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 (1 of 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 and no suit
for the recovery of money or for the enforcement of any
security against the industrial company or of any
W.P.(C) No.8617/2015 Page 2 of 27


guarantee in respect of any loans or advance granted
to the industrial company shall lie or be proceeded
with further, except with the consent of the Board or,
as the case may be, the Appellate Authority.”
3. The phrase : 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, in sub-Section (1) of Section 22 was inserted with effect from
February 01, 1994 by Act No.12 of 1994, and prior thereto the sub-
Section read : 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 (1 of 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.
4. A plain grammatical reading of the sub-Section as originally
enacted would reveal that the bar created was to the continuation or
institution of 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 and for the appointment of a receiver in respect
thereof without the consent of BIFR, and post-amendment, to the
continuation or institution of suits for the recovery of money or for the
W.P.(C) No.8617/2015 Page 3 of 27


enforcement of any security against the industrial company or of any
guarantee in respect of any loans or advance granted to the industrial
company.
5. It is by now well settled that protection to a sick industrial
company gets accorded under SICA, 1985 immediately on registration of
a reference as held in the decision reported as (1998) 5 SCC 554 Real
Value Appliances Ltd. Vs. Canara Bank & Ors . After a reference is
admitted under section 15 of SICA, 1985, the protection under Section 22
SICA, 1985 gets triggered. An inquiry has thereafter to be made by BIFR
under Section 16 and for which powers are vested in BIFR under Section
17. Provisions concerning preparation and sanction of the scheme are in
Section 18 with Section 19, providing for grants of relief and concessions
which may include even sacrifices to be made are enacted. If no scheme
can be sanctioned the Board has to make a reference to the High Court
for appropriate orders, recommending winding up of the industrial
company, which opinion is not binding on the High Court as per the law
declared in the decision reported as (1997) 89 Comp.Cas.609 V.R.
Ramaraju Vs. Union of India & Ors . It is between these two ends of the
spectrum that Section 22 of SICA, 1985 comes into play.
6. Perusal of sub-Section (1) of Section 22 of SICA, 1985 makes it
evident that it suspends proceedings such as ‘ winding up‟ of the industrial
company, ‘ execution‟ , ‘ distress‟ or ‘ the like‟ against the ‘ properties of the
industrial company‟ or, even initiation of steps for appointment of a
receiver qua the properties of the industrial company . The use of the
expression ‘ industrial company ’ as against ‘ sick industrial company ’ is
significant because there may arise situations which warrant protection to
be accorded to an industrial company prior to it being formally declared
as a Sick Industrial Company by BIFR.
W.P.(C) No.8617/2015 Page 4 of 27


7. The second limb of sub-Section (1) of Section 22, which begins
with the expression ‘ and no suit‟ concerns itself with actions for recovery
of money or for enforcement of security once again against the industrial
company. The latter part of this second limb which reads, ‘ or of any
guarantee in respect of any loans or advances granted to the industrial
company‟ creates some kind of a doubt as regards the guarantors i.e.
whether notwithstanding proceedings being suspended by virtue of sub-
Section 1 of Section 22 of SICA against the sick industrial company,
could the proceedings continue or be instituted against the guarantors.
8. The word used in sub-Section 1 of Section 22 is ‘ guarantee ’ and
not ‘ guarantor ’. The possible argument that the term ‘ guarantee ’ meant
a guarantee extended by the sick industrial company need not be debated
upon in view of the law declared by the Supreme Court in the decision
reported as (2000) 6 SCC 545 M/s.Pathreja Brothers Forging &
Stamping & Anr. Vs. ICICI Ltd. & Ors. wherein it has been held that the
term ‘ guarantee ’ would also extend to the guarantors.
9. In the decision reported as (2006) 13 SCC 322 Paramjit Singh
Patheja Vs. ICDS Ltd. , the appellant before the Supreme Court was a
guarantor qua a debt owed by one Patheja Forging and Autoparts
Manufacturers Limited. Both, the guarantor and company were sued in
an arbitration proceedings initiated by the respondent/creditor. The
company was registered with BIFR. An award was rendered by the
Arbitrator despite being informed about the registration of the reference.
On the basis of the award, an insolvency notice was taken out under
Section 9(2) of the Presidency Towns Insolvency Act, 1909 (hereinafter
referred to as the Insolvency Act).
10. Section 9(2) of the Insolvency Act stipulates that a debtor commits
an act of insolvency if a creditor who has obtained a ‘ decree‟ or an
W.P.(C) No.8617/2015 Page 5 of 27


‘ order‟ against him for payment of money, issues him a notice in the
prescribed form, to pay the amount and the debtor fails to do so within
the time specified in the notice. It is in this context that the
appellant/guarantor challenged the insolvency notice. A learned Single
Judge of the Bombay High Court differed with a view taken earlier by
another Single Judge of that court holding that an award is neither a
decree nor an order for the purpose of the Insolvency Act. The Single
Judge referred the matter to a Larger Bench, which answered the
reference in the affirmative, by holding that an award was a decree for the
purpose of Section 9 of the Insolvency Act, and therefore, an insolvency
notice could be issued on the basis of an award. It is in this context that
the Supreme Court framed two questions of law for adjudication, as
under:-
(i). whether an Arbitrator's award is a decree for the purposes of
Section 9 of the Insolvency Act; and
(ii). Whether an insolvency notice can be issued on the basis of such an
award.
11. The Supreme Court held that the award is not a decree, and hence
insolvency notice under Section 9(2) of the Insolvency Act could not be
taken out on the basis of the award. In the process of its reasoning the
Supreme Court examined whether the Arbitrator was a Court and whether
the award was a decree. In this context, that the court examined several
judgments. Some of the observations would illuminate the road map
drawn by the Supreme Court. These would be:-
“17. We are of the view that the Presidency Towns
Insolvency Act, 1909 is a statute weighed down with
the grave consequence of “civil death” for a person
W.P.(C) No.8617/2015 Page 6 of 27


sought to be adjudged an insolvent and therefore the
Act has to be construed strictly. The Arbitration Act
was in force when the PTIA came into operation.
Therefore it can be seen that the lawmakers were
conscious of what a “decree”, “order” and an
“award” are. Also the fundamental difference between
“courts” and “arbitrators” was also clear as back as
in 1909.
XXXXXXX
21. The words “court”, “adjudication” and “suit”
conclusively show that only a court can pass a decree
and that too only in a suit commenced by a plaint and
after adjudication of a dispute by a judgment
pronounced by the court. It is obvious that an
arbitrator is not a court, an arbitration is not an
adjudication and, therefore, an award is not a decree.”
12. The conclusions were stated by the Supreme Court in the following
words:-
“43. For the foregoing discussion we hold:
(i) That no insolvency notice can be issued under
Section 9(2) of the Presidency Towns Insolvency Act,
1909 on the basis of an arbitration award.
(ii) That execution proceedings in respect of the award
cannot be proceeded with in view of the statutory stay
under Section 22 of the SICA Act. As such, no
insolvency notice is liable to be issued against the
appellant.
(iii) Insolvency notice cannot be issued on an
arbitration award.
(iv) An arbitration award is neither a decree nor an
order for payment within the meaning of Section 9(2).
The expression “decree” in the Court Fees Act, 1870 is
liable to be construed with reference to its definition in
CPC and hold that there are essential conditions for a
“decree”:
(a) that the adjudication must be given in a suit,
W.P.(C) No.8617/2015 Page 7 of 27


(b) that the suit must start with a plaint and culminate
in a decree, and
(c) that the adjudication must be formal and final and
must be given by a civil or Revenue Court.
An award does not satisfy any of the requirements of a
decree. It is not rendered in a suit nor is an arbitral
proceeding commenced by the institution of a plaint.
(v) A legal fiction ought not to be extended beyond its
legitimate field. As such, an award rendered under the
provisions of the Arbitration and Conciliation Act,
1996 cannot be construed to be a “decree” for the
purpose of Section 9(2) of the Insolvency Act.
(vi) An insolvency notice should be in strict compliance
with the requirements in Section 9(3) and the rules
made thereunder.
(vii) It is a well-established rule that a provision must
be construed in a manner which would give effect to its
purpose and to cure the mischief in the light of which it
was enacted. The object of Section 22, in protecting
guarantors from legal proceedings pending a reference
to BIFR of the principal debtor, is to ensure that a
scheme for rehabilitation would not be defeated by
isolated proceedings adopted against the guarantors of
a sick company. To achieve that purpose, it is
imperative that the expression “suit” in Section 22 be
given its plain meaning, namely, any proceedings
adopted for realisation of a right vested in a party by
law. This would clearly include arbitration
proceedings.
(viii) In any event, award which is incapable of
execution and cannot form the basis of an insolvency
notice.
44. In the light of the above discussion, we further hold
that the insolvency notice issued under Section 9(2) of
the PTI Act, 1909 cannot be sustained on the basis of
arbitral award which has been passed under the
Arbitration and Conciliation Act, 1996. We answer the
two questions in favour of the appellant.”
W.P.(C) No.8617/2015 Page 8 of 27


13. As held in the decision reported as (2003) 2 SCC 111 Bhavnagar
University Vs. Palitana Sugar Mill (P) Ltd. & Ors. , a judgment is a
precedent for what is decided and not what logically follows from it,
therefore a Division Bench of this Court in the judgment reported as ILR
(2012) Vol.5 Delhi 218 Inderjeet Arya & Anr. Vs. ICICI Bank Ltd. held
that the judgment of the Supreme Court in Paramjit Singh Patheja ’s case
(supra) cannot be interpreted to conclude that each and every kind of
action is contemplated to be included in the term ‘suit’ because the
Supreme Court was dealing with a specific issue i.e. whether an award
was a decree or an order within the meaning of Section 9(2) of the
Insolvency Act.
14. In Inderjeet Arya ’s case (supra), the Division Bench of this Court
also considered the decision of the Supreme Court reported as (2003) 4
SCC 305 Kailash Nath Agarwal & Ors. Vs. Pradeshiya Industrial &
Investment Corporation of UP Ltd. & Anr. wherein the enforcement of
debt against the guarantors was initiated by Pradeshiya Industrial
Investment Corporation of UP Limited (in short, PICUP) for loans
granted to the principal debtor, one, Shaifali Papers Limited, by
triggering the provisions of the UPPM Act. The Division Bench
highlighted that the Supreme Court noted two significant aspects
pertaining to SICA, 1985. The first being : the interpretation accorded by
the Supreme Court to the expression ‘ proceedings‟ in the first part of
Section 22(1) of SICA. The Division Bench also noted that the Supreme
Court considered an earlier judgment reported as (1993) 2 SCC 144
Maharashtra Tubes Ltd. Vs. State Industrial and Investment Corpn. of
Maharashtra Ltd. wherein the word ‘ proceedings ’ used in the first limb
of Section 22(1) had been widely construed and thereafter highlighted the
fact that the said judgment was rendered prior to 1994, i.e., before the
W.P.(C) No.8617/2015 Page 9 of 27


amendment to sub-Section (1) of Section 22 of SICA when the second
part of Section 22 which reads : ‘ and no suit for recovery of money or
enforcement of any security against the industrial company or any
guarantee in respect of any loans or advances granted to the industrial
company ;’ was introduced. The Division Bench opined that in this
context the Supreme Court noted that the Supreme Court was called upon
to determine whether an action against an industrial concern under
Section 29 and/or Section 31 of the State Financial Corporation Act, 1951
would fall within the ambit of the term ‘ proceedings ’ set out in the first
part of sub-Section (1) of Section 22. The Division Bench held that in
Kailash Nath Agarwal ’s case (supra) the Supreme Court noted that in
Maharashtra Tubes Limited ’s case it had been observed that the term
‘ proceedings ’ should not be limited to legal proceedings as understood in
the narrow sense but should include actions taken out under Sections 29
and 31 of the State Financial Corporation Act. It was then noted by the
Division Bench that the Supreme Court's analysis as to why in
Maharashtra Tubes Limited ’s case such a course was adopted was set out
in paragraph 18 of the judgment in Kailash Nath Agarwal ’s case, and
since the reasoning, being apposite and informative, needed to be set out,
noted the same, which is as under:-
“18. It appears that there were three reasons why this
Court construed the word “proceeding” as including
action which may be taken under Section 29 of the
State Financial Corporations 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”.
W.P.(C) No.8617/2015 Page 10 of 27


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 if State Financial
Corporations were allowed to recover their dues from
the assets of the Company.” (emphasis supplied)
15. The Division Bench noted that thereafter the Supreme Court
analyzed the pre 1994 situation and undertook the exercise of analyzing
the insertion made to sub-Section (1) of Section 22 (with which, the
Division Bench was called upon to grapple;), and observations in para 19
to 25 of the decision in Kailash Nath Agarwal ’s case were relevant to be
noted, and noted the same. Paras 19 to 25 in Kailash Nath Agarwal ’s
case read as under:-
“19. 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”
20. 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 Vishindas Gidwani this Court found that
the words “subscribed” and “signed” had been used
in the Representation of the 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 interchangeably in
W.P.(C) No.8617/2015 Page 11 of 27


SICA. Therefore, the reasons which persuaded this
Court to give the same meaning to two different words
in a statute cannot be applied here.
21. 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
Ghosh v. Madan Mohan Ghosh 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.
22. The decision in CCE v. Ramdev Tobacco Co.
related to the construction of the bar of suit section in
the Central Excises 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: (SCC p. 124, para
6)
“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.”
23. A definition of the word “suit” has been given in
6
Pandurang R. Mandlik v. Shantibai R. Ghatge but in
the context of Section 11 of the Code of Civil
Procedure. This is what the Court said: (SCC p. 639,
para 18)
“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.”
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24. According to these decisions, a suit is an action
taken in a court of law.
25. 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.”
16. The Division Bench thereafter noted that the conclusions in paras
29 and 30 of the decision in Kailash Nath Agarwal ’s case were in the
following words:-
29. 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 SICA
would be set at naught.

30. 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 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-à-vis the company to the extent of the liability met.
(emphasis supplied)
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17. The Division Bench interestingly noted that the judgment in
Kailash Nath Agarwal ’s case was delivered by a Bench comprising
Hon’ble Ms.Justice Ruma Pal and Hon’ble Mr.Justice B.N.Shrikrishna
and Hon’ble Ms.Justice Ruma Pal was also a part of the Bench which
delivered the judgment in Patheja Brothers Forgings and Stamping ’s
case. The Division Bench noted that the decision in Patheja Brother
Forging and Stamping was distinguished in Kailash Nath Agarwal‟s case
and proceeded to note the reasoning to distinguish the same, in
paragraphs 31 to 34 in Kailash Nath Agarwal ’s case which read as
under:-
31. It is true that this Court in Patheja Bros. Forgings
& Stamping v. ICICI Ltd. construed the 1994
Amendment to Section 22(1) to hold: (SCC p. 548,
para 7)
“For our purposes, 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.”
32. 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.
33. The appellants have, however, sought to draw
sustenance from the following passage in the
judgment: (SCC p. 548, para 9)
“The argument on behalf of the first respondent is that
while this provision provides for the continuation of
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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.”

34. 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 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.” (emphasis supplied)
18. The Division Bench highlighted that it was noticeable that the
Supreme Court categorically observed that the observations in Patheja
Brothers and Forging and Stamping ’s case do not suggest that the
W.P.(C) No.8617/2015 Page 15 of 27


protection to guarantors of loan taken by a company which later on
becomes a sick industrial company is the object of the amendment
brought about in sub-Section (1) of Section 22 when the amendment was
made in the year 1994.
19. The Division Bench thereafter noted, in para 20 to 20.2 as under:-
“20. It is in this background that the Supreme Court
referred the issue raised in Zenith Steel Tubes &
Industries Ltd. for consideration by a Larger Bench.
Briefly, the facts in this case were that the appellants
before the Supreme Court were both the principal
debtor company as well as the guarantor. The loan
from the financial institution i.e., SICOM Limited had
been taken by the principal debtor company which
was, inter alia, secured by a personal guarantee of the
second appellant. Since, there were defaults, notices
were issued demanding payment of the amounts owed
to SICOM Ltd. Upon failure, SICOM Ltd. filed a
petition against the second appellant under section
31(1)(aa) of the SFC Act. In the meanwhile, the first
appellant was declared a sick industrial company by
the BIFR. Against the action of SICOM Ltd., a writ
petition was filed before the Bombay High Court. The
learned Single Judge of the Bombay High Court
rejected the contentions of the second appellant
/guarantor that by virtue of provision of section 22 of
SICA, its liability under the personal guarantee could
not be enforced. The Division Bench came to a
somewhat similar conclusion and also went on to hold
that, the liability of the guarantor being co-extensive
with that of the principal debtor, the creditor was not
required to exercise his right first against the principal
debtor and only thereafter, against the guarantor. This
is how the matter travelled to the Supreme Court.

20.1 The Supreme Court in paragraph 20 noticed the
observations in Paramjit Singh Patheja‟s case that the
term „suit‟ would have to be understood in the larger
context to include other proceedings as well, which
W.P.(C) No.8617/2015 Page 16 of 27


were filed before a „legal forum‟ The court noticed
that the decision in Kailash Nath Agarwal‟s case was
not brought to the notice of the Division Bench in
Paramjit Singh Patheja‟s case. After noticing the
observations of the court in Kailash Nath Agarwal‟s
case, the bench decided to refer the matter to a Larger
Bench.
21. We may also at this stage take note of the
observations of the Supreme Court in JT 2009 (10) SC
199 Nahar Industrial Enterprise Limited Vs. Hong
Kong and Shanghai Banking Corporation
21.1 The Supreme Court in this case was dealing with
a situation where the appellant before it – Nahar
Industrial Enterprises Ltd. had filed a suit against
HSBC, in a civil court at Ludhiana seeking a
declaration that the foreign interest derivative
contracts executed with HSBC, be declared void as
they were illegal and violative of the Foreign Exchange
Management Act (in short FEMA). On the other hand,
HSBC had filed an action under the RDDB Act. The
OA was filed before the DRT, Mumbai. HSBC
thereafter moved the High Court of Punjab and
Haryana by way of an application seeking transfer of
the proceedings filed before the civil court at Ludhiana
to the DRT at Mumbai. The learned Single Judge of
the High Court allowed the application in the form of a
counter claim to the OA pending in the DRT, Mumbai.
21.2 A special leave petition was filed against the said
order of the High Court. Other banks and financial
institutions filed applications by way of transfer under
section 25 of the Code of Civil Procedure, 1908 ( in
short the Code). By virtue of this judgment, the special
leave petition against the judgment of the High Court
of Punjab as well as the transfer petitions were
disposed of. It is in this context, the Supreme Court
considered as to whether the DRT was a court and
hence, a court subordinate to the High Court for
exercising a power of transfer. In dealing with this
issue, the Supreme Court in paragraph 113 touched
upon what are the attributes of a civil court as against
W.P.(C) No.8617/2015 Page 17 of 27


the Tribunal. The Supreme Court concluded by
holding that a tribunal under the RDDB Act is not a
civil court. The observations being apposite, are
extracted hereinafter :-
“113. The Tribunal was constituted with a
specific purpose as is evident from tis
statement of objects. The preamable of the
Act also is a pointer to that too. We have also
noticed the scheme of the Act. It has a limited
jurisdiction. Under the Act, as it originally
stood, did not even have any power to
entertain a claim of set off or counter claim.
No independent proceedings can be initiated
before it by a debtor. A debtor under the
common law of contract as also in terms of
the loan agreement may have an independent
right. No forum has been created for
endorsement of that right. Jurisdiction of a
civil court as noticed hereinbefore is barred
only in respect of the matters which strictly
come within the purview of section 17 thereof
and not beyond the same. The Civil Court,
therefore, will continue to have jurisdiction.
Even in respect of set off or counter claim,
having regard to the provisions of sub
sections (6) to (11) of section 19 of the Act, it
is evident :-
a) That the proceedings must be initiated
by the bank.
b) Some species of the remedy as
provided therein would be available therefor.
c) In terms of sub section (11) of Section
19, the bank or the financial institution is at
liberty to send a borrower out of the forum.
d) In terms of the provisions of the Act,
thus, the claim of the borrower is excluded
and not included.
W.P.(C) No.8617/2015 Page 18 of 27


e) In the event the bank withdraws his
claim the counter claim would not survive
which may be contrasted with Rule 6 of Order
VIII of the Code.
f) Sub section (9) of section 19 of the
Act in relation thereto has a limited
application.
g) The claim petition by the bank or the
financial institution must relate to a
lending/borrowing transaction between a
bank or the financial institution and the
borrower.
h) The banks or the financial
institutions, thus, have a primacy in respect of
the proceedings before the Tribunal.
i) An order of injunction, attachment or
appointment of a receiver can be initiated
only at the instance of the bank or the
financial institution. We, however, do not
mean to suggest that a Tribunal having a
plenary power, even otherwise would not be
entitled to pass an order of injunction or an
interim order, although ordinarily expressly it
had no statutory power in relation thereto.
j) It can issue a certificate only for
recovery of its dues. It cannot pass a decree.
k) Although an appeal can be filed
against the judgment of the Tribunal, pre-
deposit to the extent of 75% of the demand is
imperative in character.
l) Even cross-examination of the
witnesses need not be found to be necessary.
m) Subject to compliance of the principle
of natural justice it may evolve its own
procedure
n) It is not bound by the procedure laid
down under the Code. It may however be
W.P.(C) No.8617/2015 Page 19 of 27


noticed in this regard that just because the
Tribunal is not bound by the Code, it does not
mean that it would not have jurisdiction to
exercise powers of a court as contained in the
Code. Rather, the Tribunal can travel beyond
the Code of Civil Procedure and the only
fetter that is put on its powers is to observe
the principles of natural justice. [see
Industrial Credit and Investment Corpn. Of
India Ltd. Vs. Grapco Industries Ltd. [1999
(4) SCC 710]
The tribunal, therefore, would not be a Civil
Court.”
(emphasis supplied)
20. The Division Bench thereafter noted that what emerges on a
reading of the objects and reasons alongwith the interpretation accorded
by the Supreme Court, to the provisions of sub-Section (1) of Section 22,
is that :
(i). the 1994 amendment which brought in the relevant insertion with
which we are confronted, was not necessarily intended to accord
protection to the guarantors of loans given to an industrial company; (see
observations in Kailash Nath Agarwal‟ s case)
(ii). till 1994, no protection was accorded to the guarantors under
SICA;
(iii). post 1994, a limited protection has been granted by the legislature
to the guarantors;
(iv). the legislature has consciously used the two different terms, i.e.,
‘proceedings’ and ‘suit’; and
(v). the term. ‘proceedings’ has been given a wider interpretation by the
Supreme Court in the case of Maharashtra Tubes.
W.P.(C) No.8617/2015 Page 20 of 27


(vi). the amendment in sub section (1) of section 22 was brought about
w.e.f. February 01, 1994, when the RDDB Act was already in force that
is, w.e.f. June 24, 1993. Therefore, the Legislature while bringing about
the amendment in sub-Section (1) of Section 22 of SICA on February 01,
1994 was aware of the enactment of the RDDB Act. The term. ‘suit’
would have to be read and understood in the context of this legislative
history and in the background of the scheme of SICA as also the setting
of the term in issue, in the very provision under consideration i.e., sub-
Section (1) of Section 22.
21. Thus, it was held that having regard to the law laid down in the
various judgments, the word ‘ suit ’ cannot be understood in its broad and
generic sense to include any action before a legal forum involving an
adjudicatory process. If that were so, the legislature which is deemed to
have knowledge of existing statute would have made the necessary
provision, like it did, in inserting in the first limb of Section 22 of SICA,
where the expression proceedings for winding up of an industrial
company or execution, distress, etc. is followed by the expression or ‘ the
like‟ against the properties of the industrial company. There is no such
broad suffix placed alongside the term ‘ suit ’. The term suit would thus
have to be confined, in the context of sub-Section (1) of Section 22 of
SICA, to those actions which are dealt with under the Code and not in the
comprehensive or overarching sense so as to apply to any original
proceedings before any legal forum as was sought to be contended before
us. The term, ‘ suit ’ would therefore apply only to proceedings in a civil
court and not actions for recovery proceedings filed by banks and
financial institutions before a Tribunal, such as, the ‘DRT’.
W.P.(C) No.8617/2015 Page 21 of 27


22. That takes us to the nub of the question which we have to decide.
What is the impact of the three Judge Bench decision of the Supreme
Court in KSL & Industries Ltd. ’s case (supra). According to the writ
petitioners para 26 and 27 of the judgment would show that the Supreme
Court held that on account of sub-Section 1 of Section 22 of SICA all
proceedings before any fora concerning debt of a sick industrial company
would be stayed including the guarantors. Paragraphs 26 and 27, relied
upon read as under:-
“26. It may also be noted that the Section, along with
the SICA was enacted in 1985. At that time the
remedies which were later on provided by the RDDB
Act 1993, for recovery by a creditor through an
application to the Debt Recovery Tribunal were not in
existence nor contemplated. There is naturally no
reference to such a mode of recovery in the SICA and
neither is a stay contemplated of such a proceedings in
express terms. We say this in view of the submission
advanced before us that Section 22 only contemplates a
stay of proceedings for the distress or execution of the
properties of the sick company and suits for recovery
and that therefore an application for recovery under
the RDDB Act cannot be stayed, and must proceed. We
might also observe that the consequence of accepting
the submission that Section 22 cannot affect or render
untenable an application for recovery under the RDDB
Act, would result in an anomaly. The submission is that
Section 22 lays down that only proceeding for winding
up or execution, distress or the like shall not lie or be
proceeded with where an enquiry is pending or a
scheme is under preparation or consideration or a
sanction scheme is under implementation etc.; whereas
a proceeding for recovery of a debt may proceed. To
put it another way, that a proceeding for recovery shall
lie against a sick company but an order made in it
could not be executed against any of the properties of
the industrial company, the effect being that the
proceedings may continue without any consequence.
W.P.(C) No.8617/2015 Page 22 of 27


Thus there cannot be any execution or distraint against
the properties of the company but creditors may
continue to apply for recovery before the DRT. We do
not think that such an anomalous purpose can be
attributed to Parliament in the present legislative
scheme. Though there is no doubt that Parliament may
expressly bring about such a situation if it considers it
desirable. Even otherwise, it appears that the
legislative purpose for reconstruction of companies
could be thwarted if creditors are allowed to encumber
the properties of the company with decrees of the DRT
while the BIFR is engaged in reviving the company, if
necessary, by leasing or selling the properties of the
company for which there is an express power.

27. Plainly, the purpose of laying down that no
proceedings for execution and distraint or the like or a
suit for recovery shall not lie, is to protect the
properties of the sick industrial company and the
company itself from being proceeded against by its
creditors who may wish to seek the winding up of the
company or levy execution or distress against its
properties. It protects the company from all such
proceedings. It also protects the company from suits
for recovery of money or for the enforcement of any
security or of any guarantee in respect of any loans, or
advances granted to the industrial company. But as is
apparent, the immunity is not absolute. Such
proceeding which a creditor may wish to institute, may
be instituted or continued with the consent of the Board
or the Appellate Authority. In the Section as originally
enacted, the words "and no suit for the recovery of
money or for the enforcement of any security
..............." were not there. These words appear to have
been inserted to expressly provide, rather clarify that
no suits for the recovery of money etc. would lie or be
proceeded with against such a company.”
23. We find nothing in the two paragraphs which would support the
argument that the decision in KSL and Industries Ltd. has changed the
legal position. As a matter of fact, the observations of the Supreme Court
W.P.(C) No.8617/2015 Page 23 of 27


in paras 28 to 31 concerning law declared in Kailash Nath Agarwal‟ s case
would establish to the contrary. The said paragraphs read as under:-
“28. 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.

29. 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
the 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.

30. 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
enforce 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.

W.P.(C) No.8617/2015 Page 24 of 27

because the issue considered and decided was entirely different.

25. Arihant Threads Ltd. had defaulted in a credit granted by IDBI
which filed an application on December 20, 2001 before the Debts
Recovery Tribunal for recovery of its dues under the Recovery of Debts
due to Banks and Financial Institutions Act, 1993. The claim was
decreed on July 15, 2003. Executing the decree passed by the Debts
Recovery Tribunal a property of Arihant was attached and at a sale
terminating on October 30, 2004 sale certificate was issued in favour of
KSL & Industries Ltd. being the highest bidder. On December 15, 2004
Arihant applied for the sale to be set aside on the ground that the
valuation was low. The sale was set aside by the Recovery Officer on
July 26, 2005 but upon a condition. Two appeals were filed. KSL &
Industries challenged the sale being set aside and Arihant challenged the
condition imposed on December 21, 2005 Arihant was registered under
SICA as a sick company before BIFR. On February 10, 2006 appeal filed
W.P.(C) No.8617/2015 Page 25 of 27


by Arihant was dismissed by the Debt Recovery Appellate Tribunal and
that filed by KSL was allowed. The High Court allowed the writ petition
filed by Arihant on February 23, 2006 noting that the bar created by
Section 22 of SICA did not permit the attachment and sale of the assets of
Arihant.
26. Issue considered by the three Judge Bench was whether the
provisions of Recovery of Debts due to Banks and Financial Institutions
Act, 1993 should be given primacy over SICA by virtue of Section 34 of
Recovery of Debts due to Banks and Financial Institutions Act, 1993 as it
was a subsequent registration because of a difference of opinion by two
Hon’ble Judges on the issue. Hon’ble Justice C.K.Thakker held that the
provisions of Recovery of Debts due to Banks and Financial Institutions
Act, 1993 should be given primacy but Hon’ble Chief Justice Altamash
Kabir held to the contrary, but on facts held that the petition filed by KSL
& Industries Ltd. before the Supreme Court challenging the decision of
this Court had to be allowed. In other words two Hon’ble Judges reached
the same destination but on a different process of reasoning. The issue
therefore decided by the three Judge Bench of the Supreme Court was
whether the view taken by Hon’ble Mr.Justice C.K.Thakker was correct
or that by Hon’ble Chief Justice Altamash Kabir. The answer given was
that provisions of SICA shall prevail over the provisions of the recovery
of debts under the Recovery of Debts due to Banks and Financial
Institutions Act, 1993. The appeal was therefore allowed by the Supreme
Court on the legal interpretation as also for the reason the substantive
proceedings under the Recovery of Debts due to Banks and Financial
Institutions Act, 1993 had concluded and the sale had taken place much
prior to Arihant being registered under SICA for an inquiry as to its
sickness i.e. whether the company was a sick industrial company.
W.P.(C) No.8617/2015 Page 26 of 27


27. The two appellants are guarantors and notwithstanding the
principal borrower company being a sick industrial company, the Debts
Recovery Tribunal as also the Debts Recovery Appellate Tribunal have
rightly opined that proceedings under Recovery of Debts due to Banks
and Financial Institutions Act, 1993 can continue against the two.
28. The writ petitions are dismissed but without any order as to costs.

(PRADEEP NANDRAJOG)
JUDGE




(MUKTA GUPTA)
JUDGE
MARCH 03, 2016
mamta
W.P.(C) No.8617/2015 Page 27 of 27