Nath Agarwal & Ors Vs. Pradeshiya Industrial & Investment Corporation of
U.P  Insc 78 (14 February 2003)
Pal & B.N. Srikrishna
out of SLP (C) No.21369 of 2002) With C.A. Nos.1318 & 1319 of 2003 (Arising
out of SLP(C) Nos.21370 & 21371 of 2002) RUMA PAL, J.
scope of the protection afforded to guarantors under Section 22(1) of the Sick
Industrial Companies (Special Provisions) Act, 1985 (referred to as SICA) is in
issue in these appeals. The Pradeshiya Industrial and Investment Corporation of
U.P. Ltd., respondent No. 1 herein (referred to as 'PICUP' hereafter) had given
loans to a company, M/s Shefali Papers Ltd., the respondent No. 2 before us
(hereinafter referred to as the company). By way of security the company
mortgaged its immovable properties and hypothecated its assets to PICUP.
addition the appellants executed bonds of guarantee in consideration for the
grant of loans to the company.
On 1st December 1997, the Company was declared sick by
the Board for Industrial and Financial Reconstruction (BIFR) in terms of
Section 3(1)(o) of the SICA. The BIFR appointed IFCI as the operating agency
under Section 17(3) of the Act "to examine the viability and submit its
report for revival of the company". While the proceedings before the BIFR
were pending, on 6th
February 2002 three
separate notices of demand were served on the appellants as personal guarantors
in respect of the loans granted to the company by PICUP. The total amount
claimed was Rs.8,90,84.259.06p. Each of the appellants was called upon to pay
the demand within 30 days along with the interest at the rates specified in the
notice failing which PICUP said that it would take legal measures to recover
its outstanding dues from each guarantor. The appellants replied to the notice
stating that because of the decisions of this Court on the scope of Section
22(1) of the Act, PICUP could not enforce its demand against the appellants.
PICUP rejected the stand of the appellants and called upon the appellants to
liquidate its dues failing which recovery certificates would be issued against
appellants did not pay. Instead they filed a writ petition which was ultimately
dismissed on 23rd May
2002. The decision of
the High Court is the subject matter of the present appeals. Recovery
certificates which have been issued against the appellants have been stayed by
this Court pending disposal of the special leave petitions.
submission of the appellants is that Section 22(1) of SICA specifically
prohibited the filing of a suit for the recovery of the money for the
enforcement of any guarantee in respect of any loan or advance granted to an
industrial company. Reliance has been placed on Maharashtra Tubes Ltd. V.
S.I.I. Corpn. of Maharashtra 1993(2) SCC 144, Kanhaiyalal Vishindas
Gidwani V. Arun Dattatray Mehta 2001 (1) SCC 78, LIC V. Escorts Ltd. 1986 (1)
SCC 264, P.L. Kantha Rao v. State of A.P. 1995 (2) SCC 471, Ghantesher Ghosh V.
Madan Mohan Ghose 1996 (11) SCC 446, Pandurang R. Mandlik v. Shantibair Ghatge
1989 Supp.(2) SCC 627 to submit that the word 'suit' in Section 22 (1) should
be understood as including any proceeding including certificate proceedings for
the enforcement of such a guarantee.
submitted that this Court in Patheja Bros. Forgings & Stampings V. ICICI
Ltd. 2000(6) SCC 545 had clearly held that the legislative intent was to
protect the guarantors since the guarantee given in respect of an industrial
company which was being revived under the Act is a fundamental part of its
restructuring process. It is further submitted that no rational distinction
should be made between a creditor who would have to file a suit to enforce a
guarantee and creditors like PICUP which could recover its dues without
approaching the Court by summary proceedings as an arrear of land revenue. It
is claimed that if a proceeding for recovery through a court of law were
prohibited under Section 22(1), there was no reason why such protection should
be refused when action was sought to be taken without recourse to Court.
counsel appearing on behalf of PICUP has submitted that the word 'suit' in
Section 22(1) must be understood as a judicial or at least an adjudicatory
process. It is pointed out that PICUP was entitled to enforce its claim under
the U.P Public Money (Recovery of Dues) Act, 1972. Under the U.P Act a
distinction is drawn between a 'proceeding' and a 'suit'.
3 specifically states that no suit for the recovery of any sum shall lie in the
Civil Court against any such person to whom a
certificate was issuable under Section 3(1). It is submitted that since a suit
was already barred by the U.P. Act, the question it being further barred under
Section 22(1) did not arise. It is also pointed out that in Section 22(1) of SICA,
Parliament has drawn a distinction between the word 'proceeding' and 'suit'. It
is pointed out that this Court in its decision in Maharahstra Tubes (supra) had
construed the word 'proceeding' to include proceedings under the State
Financial Corporation Act. The section was subsequently amended by the
introduction of the prohibition relating to the filing of a suit inter alia to
enforce a guarantee in respect of loans advanced to a sick industrial company.
It is argued that had the Parliament intended to include proceeding like those
under the U.P Act within the word 'suit', it would have used the word
'proceeding' and not consciously used the word 'suit'. The respondents have
relied upon the decision of this Court in Assistant Collector of Central Excise
V. Ramdev Tobacco Company 1991 (2) SCC 119 to contend that the word 'suit' did
not cover any proceeding which was not in a Court. It is then contended that
the proceedings under the U.P. Act were really in the nature of recovery
proceedings under S.22(1) of the Act. Recovery proceedings were prohibited only
against the industrial company itself and not against the guarantor. It is
further submitted that the High Court had given liberty to the appellants to
approach the BIFR under Section 22(3) of the Act but the appellants had not
availed of that remedy.
128 of the Indian Contract Act, 1872 provides that the liability of the surety
is co-extensive with that of the principal debtor, unless it is otherwise
provided by the contract.
clauses of the guarantees executed by the appellant in favour of PICUP clearly
show that the liability of the guarantors was to remain unaffected by either
the failure of PICUP to enforce its mortgage and hypothecation against the
assets of the company. Clauses 6, 7, 15, 16 and 17 are relevant in this context
and they specifically provide:
guarantee herein contained shall be enforceable against the Guarantors
notwithstanding that the securities specified in the mortgage or any of them
shall at the time when proceedings are taken against the Guarantors hereunder
be outstanding or unrealised.
guarantee herein contained shall be enforceable against the Guarantors
notwithstanding that no action of any kind has been taken by the Corporation
against the Company/ Borrower and an intimation in writing sent to the Company
by the Corporation that a default or breach has occurred shall be treated as
final and conclusive proof as to the facts stated therein.
The Guarantors herein agree that it shall not be necessary for the Corporation
to sue the said Company/Borrower before suing Guarantors for the amount due
The Guarantors also hereby agree that the liability to repay the amount due to
the Corporation shall arise on demand being made by the Guarantors by a
registered notice addressed to the Guarantors on their addresses hereinafter
The guarantors hereby agree that any amount due from them hereunder to the
Corporation shall be recoverable under the U.P.
Money (Recovery of Dues) Act, 1972 (as amended from time to time) as arrears of
land revenue and further that it shall not be necessary for the Corporation to
take recovery proceedings against the said Company/Borrower before taking
recovery proceedings under the said Act against the Guarantors. The Guarantors
further agree for the applicability of relevant provisions of the State
Financial Corporation Act, 1951." There is therefore nothing in the
contracts which can in any way be construed as contrary to the joint and
severally liability created under Section 128.
the guarantees PICUP could raise and enforce a demand against the appellants
under the U.P Public Demands (Recovery of Dues) Act, 1972 (referred to as the
3 of the U.P Act provides for the issuance of a certificate to the Collector by
a financial corporation like PICUP in respect of sums from persons specified in
sub-section (1) of Section 3 requesting that such sums together with the costs
of the proceedings should be recovered as if it were an arrear of land revenue.
Sub-section 2 of Section 3 of the U.P. Act provides that the Collector on
receiving the certificate shall proceed to recover the amount stated therein as
an arrear of land revenue.
the procedure prescribed under the U.P. Act does not necessitate that PICUP
must enforce its rights through any legal forum nor indeed after any
adjudicatory process. This is clear also from the proviso to sub-Section 4 to
Section 3 of the U.P. Act which provides:
In the case of any agreement referred to in sub-section (1) between any person
referred to in that sub- section and the State Government or the Corporation,
no arbitration proceedings shall lie at the instance of either party either for
recovery of any sum claimed to be due under the said sub-section or for
disputing the correctness of such claim:
that whenever proceedings are taken against any person for the recovery of any
such sum he may pay the amount claimed under protest to the officer taking such
proceedings, and upon such payment the proceedings shall be stayed and the
person against whom such proceedings were taken may make a reference under or
otherwise enforce an arbitration agreement in in respect of the amount so paid,
and the provisions of Section 183 of the Uttar Pradesh Land Revenue Act, 1901,
or Section 287-A of the Uttar Pradesh Zamindari Abolition and Land Reforms Act,
1950 as the case may be, shall mutatis mutandis apply in relation to such
reference or endorsement as they apply in relation to any suit in the civil
court." In other words payment pursuant to the certificate must be made
before the dispute can be referred to arbitration. The U.P. Act has, as rightly
contended by counsel for PICUP also drawn a distinction between certificate
proceedings, suits and arbitrations and the demand and its enforcement are not
required to be determined or realised through Court or after any adjudicatory
the guarantees are enforceable by PICUP against the appellants under the U.P.
Act is in fact not in issue before us.
limited question is whether PICUP is prohibited by Section 22(1) of the Act
from doing so.
to 1994, Section 22(1) of the SICA read as follows:
Suspension of legal proceedings, contracts, etc.
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, 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 shall lie or be proceeded with
further, except with the consent of the Board or, as the case may be, the
Tubes Ltd. V. S.I.I. Corporation of Maharashtra Ltd. (supra), when a question
arose whether a State Financial Corporation could take action against an
industrial concern under Section 29 and/or Section 31 of the State Financial
Corporation Act, 1951, notwithstanding the bar of Section 22 of SICA, this
Court held that the expression 'proceeding' in Section 22(1) should not be
limited to 'legal proceedings' as understood in the narrow sense but would
include proceedings under Sections 29 and 31 of the State Financial Corporation
Act. It was said:
purpose and object of this provision is clearly to await the outcome of the
reference made to the BIFR for the revival and rehabilitation of the sick
words 'or the like' which follow the words 'execution' and 'distress' are
clearly intended to convey that the properties of the sick industrial company
shall not be made the subject-matter of coercive action of similar quality and
characteristics till the BIFR finally disposes of the reference made under
Section 15 of the said enactment. The legislature has advisedly used an omnibus
expression 'the like' as it could not have conceived of all possible coercive
measures that may be taken against a sick undertaking. The action contemplated
by Section 29 of the 1951 Act is undoubtedly a coercive measure directed at the
take over of the management and property of the industrial concern and confers
a further right on the Financial Corporation to transfer by way of lease or
sale the properties of the said concern and any such transfer effected by the
Financial Corporation would vest in the transferee all rights in or to the
transferred property as if the transfer was made by the owner of the company.
So also under the said provision the Financial Corporation will have the same
rights and powers with respect to goods manufactured or produced wholly or
partly from goods forming part of the security held by it as it had with respect
to the original goods.
therefore, obvious on a plain reading of Section 29 of the 1951 Act that it
permits coercive action against the defaulting industrial concern of the type
which would be taken in execution or distress proceedings; the only difference
being that in the latter case the concerned party would have to use the forum
prescribed by law for the purpose of securing attachment and sale of property
of the defaulting industrial concern whereas in the case of a Financial
Corporation that right is conferred on the creditor corporation itself which is
permitted to take over the management and possession of the properties and deal
with them as if it were the owner of the properties. If the Corporation is
permitted to resort to the provisions of Section 29 of the 1951 Act while
proceedings under Sections 15 to 19 of the 1985 Act are pending it will render
the entire process nugatory. In such a situation the law merely expects the
corporation and for that matter any other creditor to obtain the consent of the
BIFR or, as the case may be, the appellate authority to proceed against the
industrial concern. The law has not left them without a remedy. We are,
therefore, of the opinion that the word 'proceedings' in Section 22(1) cannot
be given a narrow or restricted meaning to limit the same to legal proceedings.
Such a narrow meaning would run counter to the scheme of the law and frustrate
the very object and purpose of Section 22(1) of the 1985 Act." It appears
that there were three reasons why this Court construed that the word
'proceeding' as including action which may be taken under Section 29 of the
State Financial Corporation Act:
recovery proceedings were against an industrial company, the revival of which
was one of the objects of the Act;
use of the omnibus expression "or the like" after the word
fact that the entire Scheme as contained in Sections 16 to 19 of SICA would be
rendered nugatory and the process short-circuited of State Financial
Corporations were allowed to recover their dues from the assets of the company.
this decision was rendered, Section 22(1) was amended by the Sick Industrial
Companies (Special Provisions) Amendment Act (12 of 1994). The following words
were inserted in Section 22(1):
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 company" There is an apparent
distinction between the expressions 'proceeding' and 'suit' used in Section
22(1). While it is true that two different words may be used in the same
statute to convey the same meaning, that is the exception rather than the rule.
general rule is that when two different words are used by the same statute,
prima facie one has to construe these different words as carrying different
meanings. In Kanhaiyalal Vishnidas Gidwani (supra) this Court found that words
'subscribed' and 'signed' had been used in the Representation of People Act, 1951
interchangeably and, therefore, in that context the Court came to the
conclusion that when the Legislature used the word 'subscribed' it did not
intend anything more than 'signing'. The words 'suit' and 'proceeding' have not
been used interchangeably in SICA. Therefore, the reasons which persuaded this
Court to give the same meaning to two different words in a statute cannot be
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
Ghose V. Madan Mohan Ghose (supra) 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.
decision in Assistant Collector of Central Excise V. Ramdev Tobacco Company
(supra) related to the construction of the bar of suit section in the Central
Excise 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 "There can be no doubt that 'suit' or 'prosecution' are those
judicial or legal proceedings which are lodged in a court of law and not before
any executive authority, even if a statutory one.
definition of the word 'suit' has been given in Pandurang R. Mandlik V. Shantibai
R. Ghatge (supra) but in the context of Section 11 of the Code of Civil
Procedure. This is what the Court said:
its comprehensive sense the word 'suit' is understood to apply to any
proceeding in a court of justice by which an individual pursues that remedy
which the law affords. The modes of proceedings may be various but that if a
right is litigated between parties in a court of justice the proceeding by
which the decision of the court is sought may be a suit".
to these decisions, a suit is an action taken in a Court of law.
regard to the judicial interpretation of the word 'suit', it is difficult to
accede to the submission of the appellants that the word 'suit' in Section 22
(1) of the Act means anything other than some form of curial process.
from the semantic difference between the words 'suit' and 'proceeding' there is
the absence of expansive words 'or the like' which appear after the expression
'proceedings, after the word 'suit'. The exclusion of such 'omnibus expression'
after the word 'suit' must be given some weight in interpreting the word. As
held by this Court in LIC V. Escorts Ltd. (supra):
distinction made by Parliament in the several provisions of the same Act cannot
be ignored or strained to be explained away by us. That is not the way to
interpret statutes. The proper way is to give due weight to the use as well as
the omission to use the qualifying words in different provisions of the Act.
significance of the use of the qualifying word in one provision and its non-use
in another provision may not be disregarded".
the Legislature has expressly chosen to make a distinction between the suits
for recovery of the money and enforcement of guarantees and proceedings for the
recovery of money, that must be given effect to.
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 intended to limit
the ambit of the amendment introduced to particular modes for the recovery of
money or enforcement of guarantees.
the reasons for the word 'proceeding' in Section 22(1) being construed widely
by this Court in Maharashtra Tubes was that the proceedings were against the
company itself. Having regard to the object of the Act viz., if possible to
revive the company, as also the operation of the various sections towards this
end, the Court held that it would be unreasonable to give such meaning to the
word 'proceeding' as would result in dealing a death blow to the Company so
that the entire procedure envisaged under the SICA would be set at naught.
have been unable to find a corresponding reason for widening the scope of the
word 'suit' so as to cover proceedings against the guarantor of an industrial
company. The object for enacting the SICA and for introducing the 1994
amendment was to facilitate the rehabilitation or the winding up of sick
industrial companies. It is not the stated object of the Act to protect any
other person or body. If the creditor enforces the guarantee in respect of the
loan granted to the industrial company, we do not see how the provisions of the
Act would be rendered nugatory or in any way affected. All that could happen
would be that the guarantor would step into the shoes of the creditor vis--vis
the company to the extent of the liability met.
true that this Court in Patheja Bros. Forgings & Stampings V. ICICI Ltd.
(supra) construed the 1994 amendment to section 22(1) to hold:
our purpose, 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 Board or the
appellate authority. The words are crystal clear. There is no ambiguity
therein. It must, therefore, be held that no suit for the enforcement of a
guarantee in respect of a loan or advance granted to the industrial company
concerned will lie or can be proceeded with, without the sanction of the Board
or the appellate authority under the said Act." This is in keeping with
the well established principle of statutory interpretation that where the
language of the provision is explicit the language of the statute must prevail.
appellants have, however, sought to draw sustenance from the following passage
in the judgment:
argument on behalf of the first respondent is that while this provision
provides for the continuation of proceedings against the industrial company,
there is no provision in the said Act which provides for the continuation of
any held-up proceeding against the guarantor of a loan or advance to such
company and that, therefore, Section 22 should be read as applying only to a
suit against the industrial company and not a guarantor.
from the fact that, as indicated above, the language of Section 22 is explicit,
the scheme would provide for the repayment of the loan or advance, and,
therefore, would take within its ambit the claim on the guarantee; the question
of proceeding with the suit against the guarantor would not arise.
other hand, if the industrial company cannot be revived by a scheme, the
embargo under Section 22 would cease to operate." (Emphasis ours) These
observations do not mean that when the words used are unambiguous, other
extrinsic interpretative aids such as the objects of the statute, or the
difficulties that would be faced by creditors will be relevant in interpreting
the expression. The Court in Patheja's case merely observed that the creditor
could recover its sum from the principal debtor under the scheme and,
therefore, the claim on the guarantee would not arise if the amount is so
recovered under the scheme. We do not read the observations quoted as holding
that protection of guarantors of loans to a sick company is an object of the
1994 amendment which object must colour our interpretation of the amendment.
1994 no protection was afforded to the guarantors under the Act at all. A
limited protection has been given in 1994. The expression 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.
the phrase introduced by the 1994 amendment relates to the pre-decretal stage
because recovery proceedings by way of execution is already covered under the
first half of sub-section (1) of Section 22. If the procedure under the U.P.
Act is covered under the word 'proceeding' in the first limb of Section 22(1)
of SICA, which it is according to Maharashtra Tubes, it is not a 'suit' for
recovery under the second limb of that Section. As rightly contended by learned
counsel appearing for PICUP, the proceedings under the U.P. Act are really
recovery proceedings within the meaning of the word 'proceeding' as defined in Maharashtra
Tubes. Since Section 22(1) only prohibits recovery against the industrial
company, there is no protection afforded to guarantors against recovery
proceedings under the U.P. Act.
appeals are dismissed with costs.