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Financial Services

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Sick Industrial Companies (Special Provisions) Act, 1985-s.22-Expression `suit’ whether includes other proceedings before legal forum-Divergent views of co-ordinate Benches-Matter referred to larger Bench-State Financial Corporation Act, 1951-s.31(1)(aa). The first appellant-Company obtained financial assistance amounting to Rs.1.42 lacs from respondent. It created a security for repayment of amount by hypothecating plant and machinery. On the same day, the second appellant executed a personal guarantee for repayment of the loan amount in case of default by the appellant-company. The first appellant company defaulted in repayment of the amount. Inspite of several notices demanding the payment, the first appellant failed to make payment. The respondent issued a notice to second appellant to pay the entire amount by invoking the personal guarantee given by the second appellant. The second appellant also did not make the payment as demanded and consequently respondent filed a petition against the second appellant under s.31(1)(aa) of the State Financial Corporation Act, 1951 for enforcing the personal guarantee given by the said appellant. Single Judge of the High Court held that the liability of the guarantor was independent of that of the principal debtor and accordingly the guarantee could be invoked. On appeal, the Division Bench of the High Court held that the provision of s.22 of SICA, as amended in 1994, did not prohibit any proceeding, other than a suit for enforcement of any security against the guarantor. On such finding and also upon holding that the liability of the guarantor was co-extensive with the principal debtor and that the creditor was not required to exercise his right as a mortgagee before proceeding against the guarantor, the Division Bench dismissed the appeal. In appeal to this Court, appellants contended that the decision in *Kailash Nath Agrawal’s case had been rendered by this Court in the context of interpretation of the expressions `suit’ and `proceedings’ used in s. 22(1) of SICA, 1985. In construing the said two expressions, this Court was of the view that while the expression `proceedings’ used in s. 22(1) would have to be confined to companies alone, the expression `suit’ had been introduced by amendment to extend the protective cover of s. 22 to guarantors as well; that the purpose for which such amendment had been effected, namely, to extend the protective cover of s.22 to guarantors also, would be rendered meaningless if coercive action continued to be taken against guarantors who could even be the Directors of the company in question; that the continuing ambiguity was sought to be explained in the **Paramjit Singh Patheja case wherein it was explained that the expression `suit’ would have to be understood in a larger context to include other proceedings as well before a legal forum. =Referring the matter to larger Bench, the Court HELD: In the decisions of this Court two divergent views have been expressed in respect of the same issue involved in this appeal. In *Kailash Nath Agrawal’s case this Court has taken the view that the legislature appears to have knowingly used two different expressions in s.22(1) of SICA, namely, `proceeding’ in the first part and the expression `suit’ in the second part and the protection of s.22 extended to guarantors in respect of suits alone and the use of the expression `proceeding’ could not be extended to include suits as well nor could the expression `suit’ be extended to include the expression `proceeding’ also. On the other hand, in **Paramjeet Singh Patheja’s case it was held that the expression `suit’ which extends the protection of s. 22(1) to guarantors, would have to be interpreted to include `proceeding’ also, in view of the intention of the legislature to protect sick industrial companies where references were pending before the BIFR. It is also evident from the decision in **Paramjeet Singh Patheja’s case that the views expressed in *Kailash Nath Agrawal’s case had not been brought to the notice of the learned Judges who decided the matter. Even if this Court agree with one of the two interpretations, the anomalous situation will continue since the decisions are that of coordinate Benches. [Para 24] [424-A-E] Industrial Corporation of Maharashtra Ltd., [1993] 2 SCC 144; Patheja Bros. Forgings & Stamping and Anr. v. ICICI Ltd. and Ors., [2000] 6 SCC 545; Madalsa International Ltd. v. Central Bank of India, AIR (1998) Bom 247; *Kailash Nath Agrawal & Ors. v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr., [2003] 4 SCC 305; **Paramjit Singh Patheja v. ICDS Ltd., JT (2006) 10 SC 41; State Bank of Hyderabad v. Vasudev Anant Bhide etc., [1969] 2 SCC 491; Pandurang Ramchandra Mandlik v. Shantibai Ramchandra Ghatge and Ors., [1989] Supp 2 SCC 627; Secretary of State v. Mask and Company, AIR (1948) PC 105; Dewal Singhal v. State of Maharashtra, (2001) 106 Company Cases 587; BSI Ltd. and Anr. v. Gift Holdings Pvt. Ltd. and Anr., [2000] 2 SCC 737 and Gujarat State Financial Corporation v. M/s. Natson Manufacturing Co.(P) Ltd., [1979] 1 SCR 372, referred to. Shekhar Naphade, Shivaji M. Jadhav, Himanshu Gupta, Brij Kishor Sah and Rahul Joshi for the Appellants. Jay Savla and Meenakshi for the Respondent.

CASE NO.: Appeal (civil) 5347 of 2007 PETITIONER: Zenith Steel Tubes & Industries Ltd & Anr. RESPONDENT: SICOM Limited DATE OF JUDGMENT: 21/11/2007 BENCH: Altamas Kabir & B.Sudershan Reddy JUDGMENT: J U D G M E N T Arising out of S.L.P. (CIVIL) NO.8486 OF 2007 Altamas Kabir, J. 1. Leave granted. 2. The appellant … Continue reading

Employees’ Provident Funds and Miscellaneous Provisions Act, 1952: S.11 – Provident funds dues payable by employer – Held: Would be first charge on assets of establishment – Such dues shall be paid in priority to all other debts – Priority clause enshrined in s.11 operate against statutory as well as non-statutory and secured as well as unsecured debts including a mortgage or pledge – On facts, held, sugar bags pledged by Sugar Mills in favour of appellant-bank as security for repayment of loan together with interest – Deeds of pledge executed did not have effect of transferring of ownership of sugar bags to bank – Sugar bags could be attached and sold for realization of provident fund dues of the workers – Constitution of India, 1950 – Articles 38, 43. Legislative intent behind enactment of the 1952 Act – Explained. Purposive interpretation – The 1952 Act is social welfare legislation – Courts to give purposive interpretation to the provisions contained therein in view of Directive Principles of State Policy – Interpretation of statutes. Contract: Pawn or pledge – Necessary ingredients – Discussed. The question which arose for consideration in these appeals was whether the sugar bags pledged by Sugar Mills in favour of the appellant-bank as security for repayment of the loan together with interest could be attached and sold for realization of the dues of provident funds etc. payable by the employer i.e., the management of the Sugar Mills under the Employees’ Provident Funds and Miscellaneous Provisions Act, 1952. =Dismissing the appeals, the Court HELD: 1. The framers of Indian Constitution were alive to the plight of the working class and particularly the unorganized labour employed in factories and other establishments. They were also conscious of the fact that the goals of justice – social, economic and political and equality of status and of opportunity proposed to be incorporated in the preamble to the Constitution would remain illusory for weaker sections of society unless the State takes affirmative legislative and administrative measures for ameliorating the conditions of those sections including the workers employed in factories etc. Therefore, specific provisions were incorporated in Part IV of the Constitution with the title “Directive Principles of State Policy” casting an obligation upon the State to apply these principles in making laws. Article 38 which has been renumbered as clause (1) thereof by the Constitution (Forty-fourth Amendment) Act, 1978 declares that the State shall strive to promote the welfare of the people by securing and protecting, as effectively as it may, a social order in which justice, social, economic and political, shall inform all the institutions of national life. Clause (2) of Article 38 mandates the State to strive to minimize the inequalities in income, and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different avocations. Article 43 casts a duty on the State to make efforts to secure by suitable legislation or economic organization or in any other way, to all workers, agricultural, industrial or otherwise, work, a living wage, conditions of work ensuring a decent standard of life and full enjoyment of leisure and social and cultural opportunities, and, in particular, social opportunities. [Para 16] [19-e-h; 20-a-d] Recovery Officer and Assistant Provident Fund Commissioner v. Kerala Financial Corporation (2002) 3 LLJ 643 Kerala; A.P. State Financial Corporation v. Official Liquidator (2000) SCC 291; Central Bank of India v. State of Kerala (2009) 4 SCC 94, referred to. 2.1. With a view to ensure that the employers religiously comply with the mandate of provisions enacted for benefit of the workers, the legislature has not only provided for imposition of penalty and damages but also made comprehensive provisions for recovery of the dues by way of attachment and sale of movable or immovable property of the establishment or the employer, as the case may be. Section 11 of Employees’ Provident Funds and Miscellaneous Provisions Act, 1952 gives statutory priority to the payment of contributions over other debts. Sub-section (1) of Section 11 relates to priority qua an employer who is adjudged insolvent or being a company an order of winding up is made. It lays down that the amount due from the employer in respect of any contribution payable to the Fund or, as the case may be, the Insurance Fund, damages recoverable under Section 14B, accumulations required to be transferred under Section 15(2) or any charges payable by him under any other provision of the Act or the Scheme or the Insurance Scheme shall be paid in priority to all other debts in the distribution of the property of the insolvent or the assets of the company being wound up, as the case may be. Sub-section (2) of Section 11 contains a non obstante clause and lays down that if any amount is due from the employer whether in respect of the employees’ contribution deducted from the wages of the employee or the employer’s contribution, the same shall be deemed to be the first charge on the assets of the establishment and shall, notwithstanding anything contained in any other law for the time being in force, be paid in priority to all other debts. [Para 18] [27-g-h; 28-a-h; 29-a] Organo Chemical Industries v. Union of India (1979) 4 SCC 573: Builders Supply Corporation v. Union of India 1965(2) SCR 289; State Bank of Bikaner and Jaipur v. National Iron and Steel Rolling Corporation (1995) 2 SCC 19; Dena Bank v. Bhikhabhai Prabhudas Parekh & Co. (2000) 5 SCC 694; State of M.P. v. State Bank of Indore (2002) 10 SCC 441, referred to. 2.2. The priority given to the dues of provident fund etc. in Section 11 is not hedged with any limitation or condition. Rather, a bare reading of the section makes it clear that the amount due is required to be paid in priority to all other debts. Any doubt on the width and scope of Section 11 qua other debts is removed by the use of expression `all other debts’ in both the sub-sections. This would mean that the priority clause enshrined in Section 11 will operate against statutory as well as non-statutory and secured as well as unsecured debts including a mortgage or pledge. Sub- section (2) was designedly inserted in the Act for ensuring that the provident fund dues of the workers are not defeated by prior claims of secured or unsecured creditors. This is the reason why the legislature took care to declare that irrespective of time when a debt is created in respect of the assets of the establishment, the dues payable under the Act would always remain first charge and shall be paid first out of the assets of the establishment notwithstanding anything contained in any other law for the time being in force. [Para 20] [31-B] UCO Bank v. Official Liquidator, High Court Bombay and another (1994) 5 SCC 1; Textile Labour Association and another v. Official Liquidator and another (2004) 9 SCC 741; Recovery Officer and Assistant Provident Fund Commissioner v. Kerala Financial Corporation (2002) 2 KLT 723, referred to. 3. Section 11 gives statutory priority to the amount due from the employer vis-

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.6893 OF 2009 (Arising out of S.L.P. (C) No.15243 of 2007) Maharashtra State Co-operative Bank Ltd. … Appellant Versus The Assistant Provident Fund Commissioner … Respondents and others WITH CIVIL APPEAL NO.6894 OF 2009 (Arising out of S.L.P. (C) No.20736 of 2007) Maharashtra … Continue reading

Provincial Insolvency Act, 1920: Sections 35, 37, 43,(1)-Annulment of insolvency-Effect of-In suit for insolvency a joint agreement was filed for sale with a clause for re- conveyance within 5 years-Plaintiff declared insolvent-Sale deed executed by official receiver-Plaintiff sent notice for re-purchase-Since creditor refused to re-convey, plaintiff filed suit for specific performance- Subsequently, adjudication as insolvent unconditionally annulled-Held-On annulment, property and rights of plaintiff stand restored to him with retrospective effect-Insolvency gets wiped out togehter-Notice sent and suit filed for re-conveyance when plaintiff was an undischarged insolvent, get retrospectively validated. Contract Act, 1872 : Section 55-Held-Time is of essence where contract is for re-conveyance of immovable property. Section 62-Novation-Plea cannot be raised or accepted for the first time in second appeal under Section 100 CPC. Code of Civil Procedure, 1908-Section 100-Contention of creditor that there was breach of re-conveyance agreement by plaintiff not pressed before trial court-However, in second appeal it was held that there was breach of re- conveyance agreement and sale deed was in pursuance of new contract-On appeal, held: High Court exceeded its jurisdiction u/s 100 C.P.C in giving a finding on an issue not pressed in trial court-Also, plea of novation cannot be accepted for the first time in second appeal. Limitation Act, 1963-Part II of Article 54-Where agreement does not specify period within which vendee is to execute deed of re-purchase- Held-Time of three years starts to run only from the date vedee refuses to execute re- conveyance deed. The Respondent-defendant instituted an insolvency suit on 19.11.1963 against the appellant-Plaintiff since the Plaintiff failed to return Rs. 7,000 owed to him. On the same day, the plaintiff and the defendant filed a joint application before the Insolvency Court, seeking permission for the debtor to transfer his property to the creditor in full satisfaction of his dues, with the condition that the debtor may repurchase the property, within 5 years, for Rs. 7,000. In terms of the settlement, the creditor agreed to withdraw the Insolvency Petition. Accordingly, on 22.11.1963 an Order was passed by the Court permitting the interim receiver to execute the sale deed. However, neither the sale deed was executed by the interim receiver nor were steps taken by the creditor to withdraw the Insolvency Petition and on 29.5. 1964, the plaintiff was adjudicated an insolvent and directed to apply for discharge within one year. The Official Receiver, however, executed a sale deed on 15.7.1964, wherein the plaintiff also joined as vendor, and reported to the insolvency court that the plaintiff had cleared all his debts. The plaintiff moved for discharge and later unsuccessfully moved an application u/s 43(1) of the Insolvency Act for annulment since all creditors had been paid in full. In appeal, the adjudication of the plaintiff as an insolvent was annulled, unconditionally on 22.10.1964. In the meanwhile, before annulment, since the period of 5 years for seeking re-conveyance was going to expire, the plaintiff issued notice on 12.7.1968 to the creditor to reconvey the property to him on payment of Rs. 7,000 However, the creditor refused to re-convey the property. A suit was filed by the Plaintiff seeking specific performance of the re conveyance agreement entered into between the plaintiff and the creditor on 19.11.1963 and filed in the insolvency court. The suit was decreed and the judgement of the trial court was affirmed in first appeal. However, in second appeal the High Court reversed the judgements of the lower courts. The High Court held that the agreement contained in the joint application dated 19.11.1963 was not given effect; the sale deed dated 15.7.1964 executed by the official receiver was not in pursuance of the original agreement dated 19.11.1963 but in pursuance of a “fresh contract” which did not have a re-conveyance clause; the contract dated 19.11.1963 was a conditional contract and since the conditions laid down by Order dated 22.11.1963 had not been fulfilled, there was no enforceable contract of re conveyance. In appeal to this Court the plaintiff-appellant contended that the High Court erred in holding that the order of insolvency court dated 22.11.1963 or sale deed dated 15.7.1964 executed by official receiver did not refer to re-conveyance agreement filed before the court and hence, the same was not enforceable; the High Court under Section 100 CPC, in second appeal, could not give a finding on an issue not pressed before the trial court and hold that the plaintiff had committed a breach of contract; that there was no fresh/new contract consequent to which the sale deed was executed by official receiver in favour of the creditor; that the annulment retrospectively validates the option exercised by the plaintiff vide notice dated 12.7,1968 and the filing of the suit on 6.10.1969, even though he was an undischarged insolvent on that date. The respondent-creditor contended that there was fresh contract at the time of execution of sale deed by official receiver on 15.7.1964 which was not traceable to the agreement dated 19.11.1963 which had a clause for re- conveyance. The Plaintiff did not implement the first agreement by executing the sale deed in favour of the respondent. The suit was not maintainable since the plaintiff was an undischarged insolvent on that date.

PETITIONER: SRI BABU RAM ALIAS PRASAD Vs. RESPONDENT: SRI INDRA PAL SINGH (DEAD) BY LRS. DATE OF JUDGMENT: 13/08/1998 BENCH: S.B. MAJMUDAR, M. JAGANNADHA RAO ACT:HEADNOTE:JUDGMENT: J U D G M E N T M. JAGANNADHA RAO, J. The appellant is the plaintiff in the original suit bearing No.225 of 1969 on the file of … Continue reading

Arbitration and Conciliation Act, 1996; Ss. 35-36/Presidency Towns-Insolvency Act, 1909; S. 9 and 9(2): Arbitration award-Nature of-Issuance of an insolvency notice in pursuance of an award-Correctness of-Held: Since 1909 Act is a statute weighed down with grave consequence of civil death for a person adjudged as an insolvent, it has to be construed strictly-Since an arbitration is not an adjudication, an award is not a decree/order for payment-Therefore, it could not be enforced as a decree-Issuance of Notice under the Insolvency Act is fraught with serious consequences-Such a notice, therefore, could be issued in pursuance of decree/order for payment of money passed by a Court/Judicial organ established for dispensation of justice-Notice under 1909 Act is not a mode of enforcing debt-Enforcement could be done in terms of provisions of CPC-No insolvency notice could be issued under Section 9(2) of the 1909 Act on the basis of an Arbitration Award-Hence, notice so issued and order passed by the Division Bench of the High Court in Notice of motion set aside-Code of Civil Procedure, 1908-S. 2(2) and 2(14)-Indian Arbitration Act, 1899-Ss. 4(a), 11 & 15. Words and Phrases: ‘Decree’, ‘order’ and ‘an award’-Distinction between. ‘Courts’, ‘tribunal’ and ‘arbitrator’-Distinction between. Words ‘Litigation’, ‘as if-Meaning of. The questions which arose for determination in this appeal were as to whether an arbitration award is a “decree” for the purpose of section 9 of the Presidency Towns Insolvency Act, 1909 and as to whether an insolvency notice could be issued under section 9(2) of the 1909 Act in pursuance of an arbitration award. Appellants contended that the Presidency Towns Insolvency Act (PTI Act) is a statute fraught with the grave consequence of ‘civil death’ for a person sought to be adjudged an insolvent, therefore, it has to be construed strictly; that it is impermissible to enlarge or restrict the language of the Act having regard to supposed notions of convenience, equity or justice; that the Indian Arbitration Act, 1899 clearly draws the distinction between Courts and Arbitrators; that only for the purpose of enforcement of the award, it is treated as if it were a decree of the Court; that issuance of a notice under the Insolvency or Bankruptcy statutes is not a mode of enforcement of a decree; that it is settled law that where the arbitration is governed by the Arbitration Act, 1899, the Second Schedule will not apply thereto; that PTI Act does not define ‘decree’ or ‘order’ for the simple reason that the meaning of these terms had been well-known since the enactment of Civil Procedure Code; that the words ‘suit or other proceeding in which the decree or order was made’ mean a suit in which a decree is made or a proceeding under the CPC which results in an order by a Civil Court which is not a decree; that the word ‘proceeding’ does not refer to arbitrations because they do not result in an ‘order’ but an ‘award’, much less an order of a Civil Court; that the ‘proceeding’ means a proceeding such as appellate or execution proceedings or applications under the CPC during the pendency of the suit or appeal; that the words ‘or other proceedings’ were added not for covering arbitrations but by way of abundant caution to make it clear that other proceedings in relation to or arising out of suits were to be included; that “Litigation” has been held to mean “a legal action, including all proceedings therein, initiated in a court of law”; that Arbitrators are not tribunals set up by the State to deal with special matters as they are not part of the judiciary exercising the judicial power of the State; that the legislative intendment was that only if a debt found due by the Courts and was not paid in spite of notice, it would amount to an act of insolvency; that the Legislatures never contemplated that a mere award given by persons chosen by parties to resolve their disputes should lead to an act of insolvency; that it is impermissible to substitute the word ‘Court’ with ‘arbitrators’ and the words ‘decree’ or ‘order’; that the Insolency Notice shall be in Form 1-B; that Form 1-B unambiguously points to the fact that the decree or order has been obtained from a Court in a suit or proceeding; that since the Parliament has amended the Act of 1909 in 1978 on the lines of the Bombay Amendment, it has expressly provided that the Notice ‘shall’ be in the prescribed form; and that there is no room left for the argument that variations according to circumstances can bring in arbitrators and awards when the form uses the words Court, decree and order. Respondents submitted that if an Award rendered under the Arbitration and Conciliation Act, 1996 is not challenged within the requisite period, the same becomes final and binding as provided under Section 35 of the Act, thereafter, the same can be enforced as a Decree as it is as binding and conclusive as provided under Section 36 of the Act; that there exists no distinction between an Award and a Decree, in view thereof, there is no impediment in taking out Insolvency Notice as contemplated under Section 9(2) of the Presidency Towns Insolvency Act; that the provisions of Section 9(2) to 9(5) of the PTI Act which are brought in by the amending Act of 1978 in the Presidency Towns Insolvency Act have to be viewed in the light of the statement of objects and reasons; that an Insolvency Notice by itself does not lead to the adjudication of the Debtor as Insolvent but the non-compliance thereof only results in an act of Insolvency, which enable the creditor to file an Insolvency Petition against the Debtor for having him adjudicated Insolvent; that any order, which has become final and enforceable, irrespective of whether passed by any Court, judicial authority, quasi-judicial authority, Tribunal etc. could be the basis of an Insolvency Notice under Section 9(2) of the said Act; that in Section 9(1) clauses (c) and (h), the legislature has used the phraseology “Decree of any Court” in Section 9(2), the legislature has consciously omitted the prefix “of Court” and has added the words “or Order”. Thus the legislative intent being to make it necessary to have a Decree of Court for the purpose of conferring Act of Insolvency under Clause (e) and (h) of Section 9(1) of the said Act, that when two words of different import are used in a statute in two consecutive provisions, it would be difficult to maintain that they are used in the same sequence; that it will be doing injury/offence to the legislative intent if even for the purpose of taking out Insolvency Notice under Section 9(2) of the said Act “a Decree of Court” is made necessary; and that it will be a misconception to borrow the definition of “Decree” or “Order” from the provisions of Civil Procedure Code, while interpreting and giving effect to the provisions of PTI Act, in particular Sections 9(2) to (5) of the Act.

CASE NO.: Appeal (civil) 4130 of 2006 PETITIONER: Paramjeet Singh Patheja RESPONDENT: ICDS Ltd. DATE OF JUDGMENT: 31/10/2006 BENCH: Dr. AR. Lakshmanan & Lokeshwar Singh Panta JUDGMENT: J U D G M E N T Dr. AR. Lakshmanan, J. This appeal was filed against the impugned interlocutory judgment and order dated 19.3.2003 passed in Notice … Continue reading

The appellant Institute of Chartered Accountants of India (for short `ICAI’) is a body corporate established under section 3 of the Chartered Accountants Act, 1949. One of the functions of the appellant council is to conduct the examination of candidates for enrolment as Chartered Accountants. The first respondent appeared in the Chartered Accountants’ final examination conducted by ICAI in November, 2007. The results were declared in January 2008. The first respondent who was not successful in the examination applied for verification of marks.

1 Reportable IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 7571 OF 2011 [Arising out of SLP (C) No.2040/2011] The Institute of Chartered Accountants of India … Appellant Vs. Shaunak H.Satya & Ors. … Respondents J U D G M E N T R.V.RAVEENDRAN,J. Leave granted. 2. The appellant Institute of … Continue reading

The letter of credit established by the issuing bank, inter alia, made the following stipulations: ” . . . . . . . . THIS DOCUMENTARY CREDIT WHICH IS AVAILABLE BY NEGOTIATION OF 2

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 1709 OF 2007 State Bank of India & Anr. …. Appellants Versus M/s. Emmsons International Ltd. & Anr. ….Respondents JUDGMENT R.M. Lodha, J. This civil appeal, by special leave, is from the judgment and decree of the Madhya Pradesh High Court whereby … Continue reading

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