{"id":1657,"date":"2007-11-21T00:00:00","date_gmt":"2007-11-20T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/zenith-steel-tubes-industries-vs-sicom-limited-on-21-november-2007"},"modified":"2017-11-27T13:53:38","modified_gmt":"2017-11-27T08:23:38","slug":"zenith-steel-tubes-industries-vs-sicom-limited-on-21-november-2007","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/zenith-steel-tubes-industries-vs-sicom-limited-on-21-november-2007","title":{"rendered":"Zenith Steel Tubes & Industries … vs Sicom Limited on 21 November, 2007"},"content":{"rendered":"
Supreme Court of India<\/div>\n
Zenith Steel Tubes & Industries … vs Sicom Limited on 21 November, 2007<\/div>\n
Author: A Kabir<\/div>\n
Bench: Altamas Kabir, B.Sudershan Reddy<\/div>\n
           CASE NO.:\nAppeal (civil)  5347 of 2007\n\nPETITIONER:\nZenith Steel Tubes & Industries Ltd & Anr.\n\nRESPONDENT:\nSICOM Limited\n\nDATE OF JUDGMENT: 21\/11\/2007\n\nBENCH:\nAltamas Kabir & B.Sudershan Reddy\n\nJUDGMENT:\n<\/pre>\n
J U D G M E N T
\nArising out of S.L.P. (CIVIL) NO.8486 OF 2007<\/p>\n
Altamas Kabir, J.\n<\/p>\n
1.\tLeave granted.\n<\/p>\n
2.\tThe appellant no.1 company was carrying on
\nbusiness of manufacturing galvanised pipes. In
\nNovember, 1992 the appellant-company approached the
\nrespondent for financial assistance amounting to
\nRs.1,42,000\/- to meet a part of the cost for setting
\nup a factory in village Madap, Taluq Kolhapur in the
\nDistrict of Raigarh for the manufacture of
\ngalvanised pipes.  The said amount was duly
\nsanctioned and the said sum of Rs.1,42,000\/- was
\nadvanced by the respondent to the appellant company.
\nAn agreement was entered into for a term loan and
\nthe appellant-company also created a security for
\nrepayment of the amount by hypothecating its plant
\nand machinery and creating an equitable mortgage of
\nits factory premises situated in the above mentioned
\nvillage. A loan agreement was executed on 30.3.1993
\nfor repayment of the loan in various instalments. On
\nthe same day, the second appellant executed a
\npersonal guarantee for repayment of the loan amount
\nin case of default by the appellant-company.\n<\/p>\n
3.\tThe appellant-company committed several
\ndefaults in repayment of the loan amount compelling
\nthe respondent to issue a notice on 16.10.98 calling
\nupon the appellant-company to pay the overdue amount
\nwithin a stipulated period. Despite such notice, the
\nappellant-company failed to make payment and
\naccordingly, by a further notice dated 10.1.1999 the
\nrespondent called upon the appellant-company to
\nrepay the entire amount due and payable to the
\nrespondent by 3.2.1999 failing which the possession
\nof the assets of the appellant-company would be
\ntaken on 5.2.1999.\n<\/p>\n
4.\tSince, despite such notice the appellant-
\ncompany failed and neglected to pay the entire
\namount as demanded, the respondent issued a notice
\nto the appellant no.2 on 13.6.2000 calling upon him
\nto pay the entire amount by invoking the personal
\nguarantee given by the second appellant. As in the
\ncase of the appellant-company, the second appellant
\ndid not also make the payment as demanded, and
\nconsequently, the respondent filed a petition
\nagainst the second appellant under Section 31(1)(aa)
\nof the State Financial Corporations Act, 1951, on
\n10.10.2000 for enforcing the personal guarantee
\ngiven by the said appellant.\n<\/p>\n
5.\tIn the meantime, the appellant-company applied
\nto the Board for Industrial and Financial
\nReconstruction (BIFR) and was declared a sick
\ncompany by the BIFR under the provisions of the Sick
\nIndustrial Companies (Special Provisions) Act, 1985,
\n(SICA), and the company is still under the said
\nBoard.\n<\/p>\n
6.\tTaking advantage of the aforesaid position, the
\nsecond appellant contended before the single Judge
\nof the Bombay High Court that in view of Section 22
\nof the aforesaid Act, the personal guarantee given
\nby the second appellant could not be invoked. It was
\nalso contended that the respondent could not enforce
\nthe guarantee till such time as the assets which had
\nbeen mortgaged in its favour had not been realised.
\nBoth the said contentions were rejected by the
\nlearned single Judge upon holding that the liability
\nof the guarantor was independent of that of the
\nprincipal debtor, and accordingly, the guarantee
\ncould be invoked and the amount could be recovered
\nfrom the guarantor. The guarantor was directed to
\npay Rs.1,67,89,225\/- with further interest on the
\nprincipal amount of Rs.92 lakhs from the date of the
\npetition till payment at the rate of 12%. The said
\ndecision of the learned single Judge was challenged
\nby the appellants herein before the Division Bench
\nof the Bombay High Court in Appeal No.1\/2007.  The
\nDivision Bench on consideration of the different
\ndecisions of this Court came to the conclusion that
\nthe provisions of Section 22 of SICA, as amended in
\n1994, did not prohibit any proceeding, other than a
\nsuit for enforcement of any security against the
\nguarantor. On such finding and also upon holding
\nthat the liability of the guarantor was co-extensive
\nwith the principal debtor and that the creditor was
\nnot required to exercise his right as a mortgagee
\nbefore proceeding against the guarantor, the
\nDivision Bench dismissed the appeal with costs on
\n29.1.2007.  It is the decision both of the learned
\nsingle Judge as also the Division Bench of the High
\nCourt which is the subject matter of this appeal.\n<\/p>\n
7.\tAppearing in support of the appeal, Mr. Shekhar
\nNaphade, learned Senior Advocate, submitted that
\nboth the learned single Judge and the Division Bench
\nof the High Court had erred in giving a narrow
\nmeaning to the word suit as used in Section 22 of
\nSICA.  He submitted that the context in which the
\nexpression suit had been used in Section 22 of the
\naforesaid Act made such expression all pervasive to
\ninclude other proceedings as well before a court or
\nother authority empowered to recover debts and other
\ndues against the company.  It was urged that in the
\ncase of Maharashtra Tubes Limited v. State
\nIndustrial Corporation of Maharashtra Ltd.<\/a> (1993) 2
\nSCC 144, it had been held that the expression
\nproceedings in Section 22(1) of SICA must be
\nwidely construed and could not be confined to legal
\nproceedings understood in the narrow sense of
\nproceeding in a court of law or a legal tribunal for
\nattachment and sale of the debtors property.
\nHowever, since the said decision could be applied to
\ncompanies only and not to guarantors, the
\nlegislature amended the provisions of Section 22(1)
\nso as to extend the protection given to companies to
\nguarantors also so that they too were given the
\nprotection of Section 22 of the Act.  Mr. Naphade
\nsubmitted that the object with which the 1985 Act
\nwas enacted was primarily to assist sick industries
\nwhich had failed to meet their financial
\nobligations. It was urged that in certain cases it
\nwas the Directors of the company who themselves
\nstood guarantee for the loans advanced to the
\ncompany and the enforcement of such guarantee
\nagainst the Directors would cause obstructions in
\nthe way of the BIFR to revive the said company,
\nwhich was also one of the objects of the 1985 Act.\n<\/p>\n
8.\tIn this regard, Mr. Naphade also referred to
\nthe decision of this Court in Patheja Bros. Forgings
\n& Stamping and anr. v. ICICI LTd. and others, 2000
\n(6) SCC 545, where the question involved was whether
\nSection 22 of the SICA would cover a suit against a
\nguarantor of a loan or advance that had been granted
\nto an industrial company.  Mr. Naphade pointed out
\nthat upon holding that the words of Section 22 were
\ncrystal clear and there was no ambiguity therein,
\nthis Court had held that no suit for enforcement of
\na guarantee in respect of a loan or advance granted
\nto the industrial company concerned would lie or
\ncould be proceeded with without the consent of the
\nBoard or the Appellate Authority under the Act. Mr.
\nNaphade also submitted that while dealing with the
\naforesaid question, this Court had overruled the
\ndecision of the Bombay High Court in Madalsa
\nInternational Ltd. v. Central Bank of India, AIR
\n1998 Bom 247, wherein it had been held that Section
\n22 would apply to companies only and not to
\nguarantors who would be affected personally and the
\nwords of any guarantee in respect of any loan or
\nadvance granted to the industrial company would
\nhave to be read as the guarantee given by the
\nindustrial company itself and none else.\n<\/p>\n
9.\tTo emphasise his aforesaid submission Mr.
\nNaphade laid particular emphasis on the decision of
\nthis Court in Paramjit Singh Patheja vs. ICDS Ltd.
\n(JT<\/a> 2006 (10) SC 41) where in connection with the
\nenforcement of an arbitral award and the issuance of
\nan insolvency notice under Section 9(2) of the
\nPresidency Towns Insolvency Act, 1909 this Court,
\ninter alia, held that it is a well established rule
\nthat a provision must be construed in a manner which
\nwould give effect to its purpose and to cure the
\nmischief in the light of which it was enacted. It
\nwas further observed that the object of Section 22
\nof SICA in protecting guarantors from legal
\nproceedings pending a reference to BIFR by the
\nprincipal debtor was to ensure that a scheme for
\nrehabilitation would not be defeated by isolated
\nproceedings adopted against the guarantors of a sick
\ncompany.  In order to achieve such purpose, it was
\nimperative that the expression suit in Section 22
\nbe given its plain meaning, namely, any proceedings
\nadopted for realisation of a right vested in a party
\nby law.\n<\/p>\n
10.\tMr. Naphade then submitted that the Bombay High
\nCourt had wrongly relied upon the decision of this
\nCourt in Kailash Nath Agrawal & Ors. vs. Pradeshiya
\nIndustrial & Investment Corporation of U.P. Ltd. &
\nAnr.<\/a> (2003 (4) SCC 305), wherein the decision
\nrendered by this Court in the Maharashtra Tubes case
\n(supra) as also in Patheja Bros. Forging case
\n(supra) were distinguished and it was held that in
\nboth the cases while considering the effects of the
\namendment to Section 22(1) of SICA, the Courts were
\nconcerned with suits which had been dealt with in
\nthe case of Patheja Bros, and not with proceedings
\nindicated in the first part of Section 22(1) of the
\n1985 Act. Mr. Naphade added that the decision in the
\nMaharashtra Tubes case (supra) had been rendered
\nprior to the amendment of Section 22(1) of SICA,
\nwhere as Pathejas case, as also the case of
\nParamjit Patheja were rendered after the amendment
\nwas effected, to extend the protection of Section 22
\nto guarantors as well.\n<\/p>\n
11.\tMr. Naphade submitted that the decision in
\nKailash Nath Agrawals case had been rendered by
\nthis Court in the context of interpretation of the
\nexpressions suit and proceedings used in Section
\n22(1) of SICA, 1985.  In construing the said two
\nexpressions this Court was of the view that while
\nthe expression proceedings used in Section 22(1)
\nwould have to be confined to companies alone, the
\nexpression suit had been introduced by amendment
\nto extend the protective cover of Section 22 to
\nguarantors as well. It was submitted that the
\npurpose for which such amendment had been effected,
\nnamely, to extend the protective cover of Section 22
\nto guarantors also, would be rendered meaningless if
\ncoercive action continued to be taken against
\nguarantors who could even be the Directors of the
\ncompany in question. It was urged that the
\ncontinuing ambiguity was sought to be explained in
\nthe Paramjit Singh Patheja case (supra) wherein it
\nwas explained that the expression suit would have
\nto be understood in a larger context to include
\nother proceedings as well before a legal forum.\n<\/p>\n
12.\tMr. Naphade submitted that, in any event, the
\nliability of the appellant No. 2 under the guarantee
\ngiven could be enforced under Section 31((1)(aa) of
\nthe State Financial Corporations Act, 1951, only if
\nand when the appellant made a default in repayment
\nof the loan.  Having regard to the fact that the
\nappellant No.1 had made a reference to the BIFR
\nunder Section 15 of the 1985 Act, the liability of
\nthe appellant-company stood suspended under Section
\n22 of the said Act.  As the liability of the
\nappellant-company stood suspended, there could be no
\nquestion of any default having been committed by the
\nappellant company towards repayment of the loan.
\nAccording to Mr. Naphade, since the respondent had
\nfiled an application under Section 31(1)(aa) of the
\nabove Act making only a monetary claim against the
\nappellant no.2, on a true construction of the above
\nprovisions the said Section permits enforcement only
\nof the security given by the guarantor and since in
\nthe instant case the respondent had filed an
\napplication not for enforcement of any security but
\nfor claiming only the amount of guarantee the same
\ncould not be enforced against the appellant No.2.
\nAccording to Mr. Naphade the appellant No.2 has not
\ngiven any other security which could be proceeded
\nagainst by the respondent.\n<\/p>\n
13.\tMr. Naphade submitted that the Bombay High
\nCourt had no jurisdiction to entertain the
\napplication  made under Section 31(1)(aa) of the Act
\nand the order passed there above was a nugity.\n<\/p>\n
14.\tIt was also submitted that I.A. No.1 of 2007
\nwas filed in the special leave petition for leave to
\nplace on record additional grounds as set out in the
\napplication and prayed that the same be allowed to
\nbe placed on record by way of additional grounds.
\nInasmuch as, such prayer was objected to on behalf
\nof the respondent, Mr. Naphade referred to the
\ndecision of this Court in the Management of State
\nBank of Hyderabad vs. Vasudev Anant Bhide<\/a> etc., 1969
\n(2) SCC 491, wherein while considering as to whether
\na claim was barred under Article 137 of the
\nLimitation Act, an objection was taken that such
\nground had not been raised either before the Labour
\nCourt or even in the special leave petition filed in
\nthis Court. In the said case, on an application made
\nto permit the appellant to raise the question of
\nlimitation based upon Article 137 of the Limitation
\nAct, this Court permitted the appellant to raise
\nsuch plea as no fresh facts were required to be
\ninvestigated and the matter could be dealt with as a
\npure question of law.\n<\/p>\n
15.\tMr. Naphade also referred to the decision of
\nthis Court in Pandurang Ramchandra Mandlik v.
\nShantibai Ramchandra Ghatge and ors.<\/a> (1989 Supp (2)
\nSCC 627) which was a case dealing with ousting of
\njurisdiction of the Civil Court with regard to the
\nprovisions of Section 80 and Section 85 of the
\nBombay Tenancy and Agricultural Lands Act, 1948.
\nReferring to the decision of the Judicial Committee
\nin Secretary of State v. Mask and Company (AIR 1948
\nPC 105), where it was observed that the exclusion of
\nthe jurisdiction of the Civil Court was not to be
\nreadily inferred, but that such exclusion must
\neither be explicitly expressed or clearly implied,
\nit was held that there was nothing in the language
\nor context of Section 80 or Section 85 of the above
\nAct to suggest that the jurisdiction of the Civil
\nCourt was expressly or by necessary implication
\nbarred with regard to the question as to whether the
\ndefendants have become statutory owners of the land.\n<\/p>\n
16.\tMr. Naphade concluded his submissions by urging
\nthat both the learned single Judge and the Division
\nBench of the Bombay High Court had misconstrued the
\nprovisions of Section 22 of the 1985 Act, as
\namended, in holding that the amended provisions
\ngranting protection to guarantors in suits for
\nenforcement, could not be stretched to include
\nproceedings for enforcement as well.\n<\/p>\n
17.\t Appearing for the respondent, Mr. Jay Savla,
\nlearned advocate, contended that the controversy
\nregarding the protection given by Section 22 of SICA
\nto guarantors had been set at rest by this Court in
\nKailash Nath Agrawals case (supra).  He submitted
\nthat while in the case of Patheja Bros. Forgings &
\nStamping case (supra) this court had to consider
\nwhether a suit against a guarantor would be covered
\nby the protection provided under Section 22(1) of
\nSICA, the question in Kailash Nath Agrawals case
\nthis Court was concerned not with a suit but a
\nproceeding for recovery of dues and in those
\ncircumstances this Court had examined the use of the
\nexpressions proceeding and suit used in
\ndifferent parts of Section 22(1) of SICA.  It was in
\nthat context that this Court distinguished the
\nearlier decision in Patheja Bros. Forgings &
\nStampings case and upon holding that since the
\nlegislature had expressly chosen to make a
\ndistinction between suits for recovery of money and
\nenforcement of guarantees and proceedings for the
\nrecovery of money, such distinction had to be given
\neffect to.  It was held that even under the amended
\nprovisions only a limited protection had been
\nafforded to guarantors with regard to the recovery
\nof dues by way of suit, but not by way of
\nproceedings, and, accordingly, a proceeding for
\nrecovery of money against a guarantor would stand
\noutside the protection afforded under Section 22(1)
\nof the 1985 Act.\n<\/p>\n
18.\tIt was urged that in the instant case, a
\nsituation similar to that in Kailash Nath Agrawals
\ncase had arisen, since the proceeding had been
\ninitiated against the guarantor under the relevant
\nprovisions of the State Financial Corporations Act,
\n1951, which stood outside the purview of Section
\n22(1) of SICA.\n<\/p>\n
19.\tMr. Savla submitted that although the decision
\nin Kailash Nath Agrawals case was not referred to
\nby the Division Bench of the Bombay High Court, a
\nsimilar decision rendered by the Division Bench of
\nthe Bombay High Court in Dewal Singhal vs. State of
\nMaharashtra (2001 (106) Company Cases 587) was
\nrelied upon.  In the said decision it was held that
\nthe protection conferred on guarantors under Section
\n22 of SICA is a limited protection and the bar is
\nrestricted only to a suit and did not apply to any
\nother proceedings.\n<\/p>\n
20.\tMr. Savla referred to the decision of this
\nCourt in BSI Ltd. and Anr. v Gift Holdings Pvt. Ltd.
\nand Another, (2000 (2) SCC 737), which was rendered
\nin a slightly different situation involving a fine
\nimposed on a company in a criminal case against the
\ncompany and its Directors under Section 138 of the
\nNegotiable Instruments Act, 1881.  It was held in
\nthat case that the ban envisaged in Section 22(1) of
\nSICA would not be attracted in case of punishment of
\nfine imposed on the company for such offence if it
\nwas with the consent of the BIFR.  Furthermore, the
\nban imposed under the said provision of SICA against
\nmaintainability of a suit for recovery of money
\nwould not cover prosecution proceedings for an
\noffence under Section 138 of the Negotiable
\nInstruments Act. This Court observed that as the
\nambit of suit has been clearly delineated in
\nSection 22(1) itself, it could not be stretched by
\nemploying the maxim that contemporaneous exposition
\nis the best and strongest in law.\n<\/p>\n
21.\tMr. Savla urged that a proceeding under the
\nState Financial Corporations Act could not be
\nequated with a suit as had been held by this Court
\nin Gujarat State Financial Corporation vs. M\/s.
\nNatson Manufacturing Co.<\/a>(P) Ltd. (1979 (1) SCR 372)
\nand having regard to the decision in Kailash Nath
\nAgrawals case (supra) such a proceeding would not
\nbe entitled to the protection envisaged under
\nSection 22(1) of SICA.\n<\/p>\n
22.\tAs to the second limb of Mr. Naphades
\nsubmission regarding the right of the respondent to
\nproceed against the guarantor before realising its
\nsecurities, Mr. Savla reiterated the High Courts
\nview that the claim against the guarantor was
\nagainst him personally and was independent of the
\nsureties given in mortgage by the Principal Debtor.
\nMr. Savla submitted that the decision rendered in
\nKailash Nath Agrawals case does not appear to have
\nbeen brought to the notice of the Honble Judges
\ndeciding the Paramjeet Singh Patheja case (supra)
\nand same was decided on other earlier decisions of
\nthis Court which dealt essentially with suits for
\nrecovery of dues.\n<\/p>\n
23.\tIt was submitted that since the Division Bench
\nof the High Court took a view which finds support in
\nKailash Nath Agrawals case, no case had been made
\nout for interference with the same.\n<\/p>\n
24.\tIn the decisions of this Court cited before us,
\ntwo divergent views have been expressed in respect
\nof the same issue involved in this appeal.  In the
\nother decisions, this Court had no occasion to go
\ninto the said issue which involved the
\ninterpretation of the Section 22(1) of the SICA in
\nrespect of either proceedings or suits
\nrespectively.  In Kailash Nath Agrawals case
\n(supra) this Court has taken the view that the
\nlegislature appears to have knowingly used two
\ndifferent expressions in Section 22(1) of SICA,
\nnamely, proceeding in the first part and the
\nexpression suit in the second part and the
\nprotection of Section 22 extended to guarantors in
\nrespect of suits alone and the use of the expression
\nproceeding could not be extended to include suits
\nas well nor could the expression suit be extended
\nto include the expression proceeding also.  On the
\nother hand, in Paramjeet Singh Pathejas case
\n(supra) it was held that the expression suit which
\nextends the protection of Section 22(1) to
\nguarantors, would have to be interpreted to include
\nproceeding also, in view of the intention of the
\nlegislature to protect sick industrial companies
\nwhere references were pending before the BIFR. It is
\nalso evident from the decision in Paramjeet Singh
\nPathejas case (supra) that the views expressed in
\nKailash Nath Agrawals case (supra) had not been
\nbrought to the notice of the learned Judges who
\ndecided the matter.  Even if we are inclined to
\nagree with one of the two interpretations, the
\nanomalous situation will continue since the
\ndecisions are that of coordinate Benches.\n<\/p>\n
25.\tIn such circumstances, we consider it fit and
\nproper that the matter should be referred to a
\nlarger Bench to resolve the existing anomaly
\nresulting from the different views expressed in the
\ntwo above-mentioned cases.\n<\/p>\n
26.\tAccordingly, the Registry is directed to place
\nthis matter before the Honble the Chief Justice of
\nIndia for appropriate orders in the light of what
\nhas been stated hereinbefore.<\/p>\n","protected":false},"excerpt":{"rendered":"
Supreme Court of India Zenith Steel Tubes & Industries … vs Sicom Limited on 21 November, 2007 Author: A Kabir Bench: Altamas Kabir, B.Sudershan Reddy 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: […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[30],"tags":[],"class_list":["post-1657","post","type-post","status-publish","format-standard","hentry","category-supreme-court-of-india"],"yoast_head":"\nZenith Steel Tubes & Industries ... vs Sicom Limited on 21 November, 2007 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/zenith-steel-tubes-industries-vs-sicom-limited-on-21-november-2007\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Zenith Steel Tubes & Industries ... vs Sicom Limited on 21 November, 2007 - 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