TaxTMI 
TaxTMI 
2016 (3) TMI 1476
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....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:- "22. Suspension of legal proceedings, contracts, etc.- (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 guarantee in respect of any loans or advance granted to the industrial c....
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....reafter 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&#....
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.... 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 o....
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.... 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 fur....
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....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:- ....
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....asons 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'....
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.... 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. (emphasis supplied) 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 B....
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....n 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 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 ....
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....vil 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 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 preamble of the Act also is a poi....
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....he 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 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 confron....
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....banks and financial institutions before a Tribunal, such as, the 'DRT'. 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....
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....e, 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 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 intend....
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....redit 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 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 A....