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Sunday, December 15, 2013

Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short “the SICA). - Application for protection of sec.22 (1) of SICA by Guarantors - whether maintainable - Settled law - if the action filed by the Bank comes with in the ambit of term suit, he can obtain protection - if the action of Bank is in the nature of proceedings , he can not avail the protection - in this case , he filed application in proceedings , High court rightly dismissed the application = Inderjeet Arya and another …. Appellants Verses ICICI Bank Limited …. Respondent = Published in judis.nic.in/supremecourt/filename=41087

   Section  22(1)  of  the  Sick  Industrial Companies (Special Provisions) Act, 1985 (for short “the SICA). - Application for protection of sec.22 (1) of SICA by Guarantors - whether maintainable - Settled law - if the action filed by the Bank comes with in the ambit of term suit, he can obtain protection - if the action of Bank is in the nature of proceedings , he can not avail the protection - in this case , he filed application in proceedings , High court rightly dismissed the application =
 whether  the
appellants who are Directors and  Guarantors  of  a  sick  company  and  are
entitled to get the protection of  Section  22(1)  of  the  Sick  Industrial
Companies (Special Provisions) Act, 1985 (for short “the SICA). =

Appellants, who are the guarantors, can obtain  the  protection  of  Section 22(1) of SICA only if the action filed by the bank comes  within  the  ambit of the term ‘suit’.  If the action filed  by  the  respondent  bank  in  the nature of ‘proceedings’ and not a ‘suit’,  protection  under  Section  22(1) would not be available, especially, when the appellants are guarantors. =

7.    This Court, in KSL and Industries Limited (supra) took the  view  that
even though both the conflicting statutes SICA and Recovery of Debts Due  to
Banks and Financial Institutions Act, 1993 (for short the “RDDB”) contain  a
non-obstante clause, in case of conflict the RDDB  Act,  1993  will  prevail
over SICA, so far as public revenue recoveries are  concerned.  
 This  Court
also emphasized that the liability of surety or  guarantor  is  co-extensive
with that of the  principal  debtor  in  Kailash  Nath  Agarwal  and  others
(supra).   
In  Nahar  Industrial  Enterprises  Limited  (supra)  this  Court
reiterated the term ‘suit’ 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 over-arching proceedings  so  as
to apply to any original proceedings before  any  legal  forum.    The  term
‘suit’ would apply only to proceedings in civil court  and  not  actions  or
recovery proceedings filed by banks  and  financial  institutions  before  a
tribunal such as DRT.

8.    In our view, all the legal  points  raised  by  the  appellants  stand
covered by the Judgments  referred  to  hereinbefore  and  hence  a  further
examination of the same  is  unnecessary.    The  appeal,  therefore,  lacks
merits and the same is dismissed, however, there will  be  no  order  as  to
costs.
                                    

                    NON-REPORTABLE

                        IN THE SUPREME COURT OF INDIA

                        CIVIL APPELLATE JURISDICTION

                      CIVIL APPEAL NO. 11029  OF 2013 @
                (Special Leave Petition (C) No.35942 of 2012)

Inderjeet Arya and another              …. Appellants

                                   Verses

ICICI Bank Limited                           …. Respondent

      J U D G M E N T

K.S. RADHAKRISHNAN, J.

      Leave granted.


2.    We are,  in  this  case,  concerned  with  the  question  whether  the
appellants who are Directors and  Guarantors  of  a  sick  company  and  are
entitled to get the protection of  Section  22(1)  of  the  Sick  Industrial
Companies (Special Provisions) Act, 1985 (for short “the SICA).

3.    M/s Rajat Pharmachem Pvt. Ltd. (RPL) was engaged in  the  business  of
manufacturing, trading and export of  generic  pharmaceuticals  formulations
and products.  First appellant is the Chairman-cum-Director  of  RPL,  while
second appellant is its Director.
The  Bank  of  Rajasthan,  prior  to  its
amalgamation with the respondent–ICICI  Bank  Limited,  instituted  recovery
proceedings in the Debt Recovery Tribunal (DRT),  Delhi  and  the  same  was
registered as OA No.118 of 2009.
In those proceedings,  the  State  Trading
Corporation of India Ltd. (STC) was defendant No.1,  while  RPL  along  with
its Directors and Guarantors were  arrayed  as  Defendant  Nos.2,  3  and  4
respectively.
By way of recovery proceedings, Bank of Rajasthan (Now  ICICI
Bank) sought recovery of Rs.26,55,35,824.50 which included interest  to  the
tune of Rs.2,79,43,736/- till the date of  institution  of  action  in  DRT.
Future  interest  @  18%  per  annum  was  also  sought.  
RPL  apprehending
institution of recovery proceedings took steps seeking registration  of  its
reference under Section 15 of the SICA.  
 Later  Board  for  Industrial  and
Financial Reconstruction (BIFR)  intimated  its  registration  and  accorded
Case No.14 of 2009.

4.    The Bank instituted Original Application OA No.118 of 2009 in  DRT  on
13.05.2009.  In the recovery proceedings notices were issued by the  DRT  to
all the defendants, which included the appellants as  well.  
On  14.12.2009
the appellant, along with RPL preferred an application under  Section  22(1)
SICA which was registered as OA No.1046 of 2009.  They sought  dismissal  of
IA since the same was  filed  without  prior  permission  of  the  Appellate
Authority  for  Industrial   and   Financial   Reconstruction   (for   short
“AAIFR”)/BIFR in terms of Section 22(1) of SICA.   
The  DRT  took  the  view
that the execution of the decree had  to  be  kept  in  abeyance  until  the
question whether the guarantors were entitled to  protection  under  Section
22(1) of SICA stood decided by the Apex Court.   
On  appeal,  the  DRAT  set
aside the order passed by the DRT.  The matter  was  ultimately  brought  to
the High Court wherein the correctness of the two orders passed by the  DRAT
on 29.08.2011 in OA No.118 of 2009  and  the  orders  dated  30.05.2011  and
03.05.2010 passed by the DRT were examined.


5.    The primary issue that came for consideration before  the  High  Court
was whether the protection under Section 22(1) of SICA can  be  extended  to
the appellants in their capacity as guarantors of debt owned  by  RPL.   The
High Court upheld the judgment dated 19.08.2011 passed by the DRAT  and  the
orders dated 30.05.2011 and 03.05.2010 passed by the DRT.  
The  High  Court
also held that the  protection  of  Section  22(1)  of  SICA  would  not  be
available to the  appellants  who  are  Directors  and  Guarantors  of  sick
industrial company, in view of the  Judgments  rendered  by  this  Court  in
Kailash Nath Agarwal  and  others  v.  Pradeshiya  Industrial  &  Investment
Corporation of  U.P.  Ltd.  And  another      (2003)  4  SCC  305,  KSL  and
Industries Limited v. Arihant Threads Limited and others (2008)  9  SCC  763
and Nahar Industrial Enterprises Limited v. Hong Kong and  Shanghai  Banking
Corporation (2009) 8 SCC 646 etc.   Aggrieved  by  the  same,  this  special
leave petition has been preferred.


6.    We need not labour much to answer the question of law raised  in  this
appeal since, as rightly pointed out by the  High  Court,  the  same  stands
covered  by  various  Judgments  of  this   Court   referred   to   earlier.
Appellants, who are the guarantors, can obtain  the  protection  of  Section 22(1) of SICA only if the action filed by the bank comes  within  the  ambit of the term ‘suit’.  If the action filed  by  the  respondent  bank  in  the nature of ‘proceedings’ and not a ‘suit’,  protection  under  Section  22(1) would not be available, especially, when the appellants are guarantors.

7.    This Court, in KSL and Industries Limited (supra) took the  view  that
even though both the conflicting statutes SICA and Recovery of Debts Due  to
Banks and Financial Institutions Act, 1993 (for short the “RDDB”) contain  a
non-obstante clause, in case of conflict the RDDB  Act,  1993  will  prevail
over SICA, so far as public revenue recoveries are  concerned.
 This  Court
also emphasized that the liability of surety or  guarantor  is  co-extensive
with that of the  principal  debtor  in  Kailash  Nath  Agarwal  and  others
(supra).  
In  Nahar  Industrial  Enterprises  Limited  (supra)  this  Court
reiterated the term ‘suit’ 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 over-arching proceedings  so  as
to apply to any original proceedings before  any  legal  forum.    The  term
‘suit’ would apply only to proceedings in civil court  and  not  actions  or
recovery proceedings filed by banks  and  financial  institutions  before  a
tribunal such as DRT.

8.    In our view, all the legal  points  raised  by  the  appellants  stand
covered by the Judgments  referred  to  hereinbefore  and  hence  a  further
examination of the same  is  unnecessary.    The  appeal,  therefore,  lacks
merits and the same is dismissed, however, there will  be  no  order  as  to
costs.


                                                             …………………………………J.
                            (K.S. Radhakrishnan)



                                                           ………………………………...J.
                                (A.K. Sikri)
New Delhi,
December 13, 2013


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