Ashutosh Bansal and Others vs Debts Recovery Appellate Tribunal and Others

Narayan Shukla, J.—Heard Mr. Madhukar Dixit, learned Counsel for the petitioner and Mr. Vinay Shanker, learned Counsel for opposite party No. 3.

The petitioners have challenged the order dated 11th of November, 2008, passed by the Debts Recovery Appellate Tribunal, rejecting the petitioners'' statutory appeal preferred u/s 20 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as the Act, 1993), upholding the judgment and order dated 10th of September, 2008, passed by the Presiding Officer, Debts Recovery Tribunal, Lucknow.

Briefly the relevant facts for decision are that the opposite party No. 3 filed an application before the Debts Recovery Tribunal for recovery of Rs. 2,68,94,172/- from the petitioners'', who are the guarantors including the borrowers u/s 19 of the Act, 1993, which was registered as Original Application No. 38 of 2007-Lucknow.

It appears that during the pendency of the said application the petitioners as well as the principal borrower-Company preferred an application under Sub-section (1) of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 before the Board for Industrial and Financial Reconstruction, New Delhi (hereinafter referred to as the Board) for stay of the proceedings, in which the Bank also filed objection. The Tribunal allowed the application of the principal-borrower Company and stayed the proceedings of the Original Application till the pendency of the reference pending before the Board. At the same time it also ordered to continue with the further proceedings against the petitioners, who are the guarantors. The petitioners being aggrieved with the order dated 10th of September, 2008 passed by the Debts Recovery Tribunal, instituted the statutory appeal u/s 20 of the Act, 1993 before the Debts Recovery Appellate Tribunal, Allahabad. The Appellate Tribunal after considering the materials dismissed the appeal by means of order dated 11th of November, 2008, which is under challenge in the present writ petition.

The learned Counsel for the petitioners submits that since the Principal borrower-Company as well as the petitioners-guarantors submitted its reference with the Board for Industrial and Financial Reconstruction, New Delhi under Sub-section (1) of Section 15 of the Sick Industrial Companies (Special Provisions). Act, 1985, their cases are also covered within the ambit of Sub-section (1) of Section 22 and once the Board for Industrial and Financial Reconstruction, New Delhi, declared the Company as a sick industrial Company and also appointed the operating agency, the petitioners are also entitled for the protection as is provided u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereinafter referred to as the Act, 1985). To substantiate his arguments the learned Counsel for the petitioners cited a case i.e. M/S Patheja Bros. Forgings and Stamping and Another Vs. I.C.I.C.I. Ltd. and Others, and submitted that in the said case the Hon''ble Supreme Court has protected the interest of guarantors, who have given their personal guarantee with the creditors. The relevant paragrah 12 of which is reproduced hereunder:

We have analysed the relevant words in Section 22 and found that they are clear and unambiguous and that they provide that no suit for the enforcement of a guarantee in respect of any loan or advance granted to the industrial company concerned will lie or can be proceeded with or without the consent of the Board or the appellate authority. When the words of a legislation are clear, the court must give effect to them as they stand and cannot demur on the ground that the legislature must have intended otherwise.

In this background he submits that the order impugned suffers from error and is unsustainable.

On the other hand through the short counter affidavit the opposite party No. 3 has submitted that the respondent-bank moved an application u/s 19(1) of the Act, 1993 against M/s. Charu Papers Limited and its guarantors for recovery of loan as well as for enforcement of the guarantee executed by the petitioners/guarantors u/s 126 of the Indian Contract Act, therefore the provisions of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 are not applicable. In support of his submission he cited a case decided by Bombay High Court i.e. Madalsa International Limited, Mumbai and others Vs. Central Bank of India, . The relevant paragrah 23 of which is reproduced hereunder:

Considering the object and purpose of the SICA, 1985 and the scheme of the Act which is clearly for protecting the properties of the industrial Company and for enabling the BIFR to have complete free hand for the revival if possible of the sick industrial company, that the provisions of Section 22 are enacted. Section 22 in a sense imposes serious restrictions on the rights of the third party against filing of suits of the nature mentioned there under or for taking coercive action of the nature mentioned therein mentioned against the industrial company. Apart from the fact that such restrictions will have to be read on strict interpretation they affect the valuable rights, even the rights finalised by the judgment and decrees of the competent Courts we find absolutely no ground to read in these provisions that the proceedings against the guarantors or sureties of the Company should also stand suspended. The guarantors could be absolute third parties or directors of an industrial Company. However, in both cases it would be the guarantors, whether third parties or directors, who would be affected personally; and we see no reason to interpret the Section in such a manner that apart from the properties of the industrial Company, the Legislature intended to protect the personal interest of the guarantors as proceedings against guarantors and their personal properties would not affect the revival of the industrial company in any manner whatsoever. In the circumstances the words "of any guarantee in respect of any loans, or advance granted to the industrial Company" in the context will have to be read the guarantee given by the industrial Company itself and none else.

He further cited another case i.e. K.S.L.& Industries Ltd. v. Arihant Threads Ltd. and Ors. reported in 2009 (1) D.R.T.C. 1 (SC) : 2009 AIR SC 1148 in which the Hon''ble Supreme Court has held that the provisions of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 should be given priority and primacy over SICA. The relevant paragraph 67 is reproduced hereunder:

Applying the above tests in the instant case, to me, it is crystal clear that the provisions of RDDBFI Act should be given priority and primacy over SICA. I may concede that both the Acts are ''special Acts'' in the sense that they have been enacted for a specific purpose and object in view. Whereas SICA has been enacted in the public interest with a view to securing the timely detection of sick or potentially sick companies owning industrial undertakings, the speedy determination by a Board of experts of the preventive, ameliorative, remedial and other measures which need to be taken with respect to such companies and the expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto, RDDBFI Act has been enacted to secure and protect public revenue and for expeditious adjudication and recovery of debts due to banks and financial institutions. RDDBFI Act is subsequent Act in the point of time being RDDBFI Act. It must, therefore, be presumed even in absence of any specific provision in the RDDBFI Act that Parliament was aware of all statutes which had been enacted prior to RDDBFI Act including SICA of 1985. In spite of that, in Sub-section (1) of Section 34 of the RDDBFI Act, non obstante clause has been inserted so as to ensure expeditious adjudication and recovery of debts due to banks and financial institutions.

On the strength of the aforesaid judgments, he submits that since the proceeding has been initiated under RDDBFI Act, 1993, Section 22 of the SICA Act shall have no application in the matter.

Thus, the question for determination is whether the provisions of RDDBFI Act will prevail over SICA and secondly whether u/s 22 of the SICA Act guarantors are also protected along with main creditor. So far as the first question is concerned, in the case of K.S.L. & Industries Ltd. (supra) the Hon''ble Supreme Court has clearly held that it is the RDDBFI Act which shall be given priority and primacy over SICA Act. Accordingly the proceeding of SICA Act shall have no effect upon the proceeding initiated under RDDBFI Act, 1993. In the case of Madalsa International Ltd. (supra) Bombay High Court has clearly held that "We see no reason to interpret the Section in such a manner that apart from the properties of the industrial Company, the Legislature intended to protect the personal interest of the guarantors as proceedings against guarantors and their personal properties would not affect the revival of the industrial company in any manner whatsoever. In the circumstances the words "of any guarantee in respect of any loans, or advance granted to the industrial Company" in the context will have to be read the guarantee given by the industrial Company itself and none else." Thus there is no reason to take a view otherwise. Accordingly, I am of the view that u/s 22 of the SICA Act the guarantors have no protection against the execution proceedings and thus the second question is answered accordingly.

In this manner, I do not find any error in the order impugned dated 11th of November, 2008, passed by the Debts Recovery Appellate Tribunal Allahabad, contained as Annexure No. 1, to the writ petition.

In the result the writ petition is dismissed.