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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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