1 app31.09.sxw ssm IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO. 31 OF 2009 IN MISC. PETITION NO. 2 OF 2007 Mr. Vikram Saboo & Ors. ....Appellants. Vs. SICOM ...Respondent. Mr. Vikram Setne with Ms. Jyoti Ghag and Ms. Varsha Shinde i/by M/s. Thakore Jariwala & Associates for the Appellants. Mr. Hemant Prabhulkar i/by M/s. Jurisconsultus for the Respondent. CORAM :- D.K DESHMUKH AND ANOOP V. MOHTA, JJ. DATE :- 22 SEPTEMBER 2011. P.C. :- By this Appeal, the Appellants challenge the order dated 1 July 2008 passed in Miscellaneous Petition No. 2 of 2007. By that order, the learned Single Judge has granted the Misc. Petition filed by the Respondent under Section 31(1)(aa) of the State Financial Corporation Act, 1951 (for short, the Act) in terms of prayer clause (a) of that Petition. The Petition was filed by the Respondent-SICOM claiming that Marvel Industries Limited which was Respondent No.1 2 app31.09.sxw ssm in the Petition, had applied for a loan with SICOM. It was sanctioned a term loan of `1 crore, additional term loan of `1 Crore 5 lacs, term loan of `3 crores 50 lacs, out of which `2 crores 50 lacs was disbursed and a further term loan of `1 crore 50 lacs on the terms and conditions which are mentioned in the agreement entered into with Respondent No.1. Respondent No.1 agreed to repay the loan advanced to it on the terms and conditions mentioned in the agreement entered into between SICOM and Respondent No.1. Respondent Nos. 2 to 6, who are present Appellants executed three deeds of personal guarantee dated 16 February 1993 in favour of SICOM whereunder, Respondent Nos. 2 to 6 guaranteed that in the event of default being committed by Respondent No.1-Company in payment of the loan advanced to it on demand being made, Respondent Nos. 2 to 6 guarantors would pay the amount demanded without their demand. According to SICOM Respondent No.1 Company-Principal Debtor, committed default in making the payment of loan therefore, demand notice was served on the Appellants on 27 August 2004 demanding the payment of the defaulted amount and on their failure to pay that amount, Petition under Section 31 (1)(aa) of the Act was moved against them. To this Petition two objections were basically raised on behalf of the Appellants. First objection was that 3 app31.09.sxw ssm demand notice was served in the year 1999 on the principal debtor company, copy of that notice was forwarded to the Appellants for their information. According to the Appellants the period of limitation is governed by Article 137 of the Schedule to the Limitation Act and therefore, Petition should have been filed under Section 31 within a period of three years from the date of default committed by Respondent No.1 company. The Second objection raised was based on the provisions of Section 22. It was claimed that Respondent No.1 has been declared as a Sick Industry and therefore, in terms of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short SICA), the Petition could not have been heard and decided by the learned Single Judge. 2 The learned counsel appearing for the Appellants in so far as the first objection is concerned relied on two judgments. (i) M/s. Margaret Lalita Samuel Vs. Indo Commercial Bank Ltd., AIR 1979 SC A102 (ii) Maharashtra State Financial Corporation Vs. Ashok K. Agarwal & Ors. (2006) 9 SCC 617. 3 So far as the second objection regarding Section 22 of the SICA is concerned, the learned counsel pointed out that the controversy has 4 app31.09.sxw ssm been referred to a larger bench by the Supreme Court. He referred two judgments. (i) Zenith Steel Tubes & Industries Ltd. Vs. SICOM Limited (2008) 1 SCC 533 and (ii) Kailash Nath Agarwal Vs. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. (2003) 4 SCC 305. 4 Now, taking up for consideration the first ground of limitation, perusal of the reply filed shows that an objection in relation to the limitation is contained in paragraph 9 of the reply, which reads as under:- “9. I say that the present petition is barred by law of limitation and on this ground alone the present petition be dismissed with costs. I say and submit that the present petition is barred by limitation as would be clear from the documents annexed to the Petition itself.” In paragraph 46 of the reply it is further stated that- “46. With reference to paragraph 30 of the Petition, I say and submit that I am informed that the part payment was made by the Respondent No.1 was not with a view to admit liability and that was made only on account payment. I repeat and reiterate that the loan was demanded in the year 1998 and hence the present petition which is filed in the year 2007 is barred by law of limitation.” 5 Thus, according to the Petitioner cause of action will arise for 5 app31.09.sxw ssm making an application under Section 31 when amount is demanded from the principal borrower and there is a default committed by the principal borrower. The learned counsel in support of this submission relied on the observations in paragraph Nos. 6 and 7 of the Judgment of the Supreme Court in Ashok K. Agarwal’s case. 6 Perusal of the Judgment shows that the Supreme Court has held that for making an application under Section 31, Article 137 of the Limitation Act applies. Perusal of Article 137 of the Limitation Act shows that under that provision, the period of limitation commences when the right to apply accrues. For deciding as to the point of time at which the right to apply accrues, one has to go to the agreement of guarantee between the Appellants and SICOM. From that point of view, it is a clause 1 of the guarantee agreement, which is relevant. It reads as under:- “1 If at any time default shall be made by the Company in the payment of the said loan of Rs.1,00,00,000/- (Rupees one crore only) or any part thereof or interest thereon or any other moneys for the time being due and owing by the Company to the Corporation under the said Security Document, the Guarantors will without demur jointly and severally pay to the Corporation on demand at Bombay the said loan together with interest thereon, and all other moneys which shall then be due to the Corporation as aforesaid and all costs, charges and 6 app31.09.sxw ssm expenses whatsoever which the Corporation may incur by reason of any default on the part of the Company its successor or successors and assigns and will indemnify and keep indemnified, saved harmless and defended the Corporation at all times hereinafter against any loss or damage which the Corporation may suffer by reason of any default by the Company in repayment to the Corporation of the said loan or any part thereof and/or payment of interest thereon or any other moneys for the time being due and payable by the Company to the Corporation under the said Security Document and all costs, charges and expenses whatsoever which the Corporation may incur by reason of any default on the part of the Company, its successor or successors and assigns.” (This clause is in one of the guarantee agreement, it is common ground before us that there are identical clauses in the other guarantee agreements). 7 It is thus clear that cause of action against the guarantor accrues after the principal borrower commits default in payment of the amount, then only demand can be made from the guarantor and liability of the guarantor to pay the amount commences once the amount is demanded. 8 In the present case, the amount has been demanded in the year 2004 and thereafter application has been filed within a period of three years. The cause of action as against the guarantor does not accrue in view of the recitals in the deed of guarantee on demand being 7 app31.09.sxw ssm made from the principal borrower. Making the demand from the principal borrower is only a first step. First demand is to be made from the principal borrower. If the principal borrower commits default in payment of the amount then the amount can be demanded from the guarantor and if the guarantor fails to make the payment of the amount, then only Application can be made for recovery against the guarantor. The observations of the Supreme Court in para 7 of its judgment in Ashok K. Agarwal’s case are based on the recitals in the agreement between the parties in that case. If one goes by the recitals in the agreement, in the present case, it cannot be said that the cause of action will accrue to SICOM as against the present Appellants in the year 1999 when amount was demanded from the principal borrower. 9 So far as second objection is concerned, the averments is to be found in paragraph 7 of the reply. Paragraph 7 reads as under:- “7. I say that the Respondent No.1 has been declared as a Sick Industrial Company by BIFR under the provisions of Sick Industrial Companies Act, 1985 and hence, the present Petition is barred u/s 22 of the SICA. The present petition as filed is an abuse of the process of law and the present petition is not maintainable in view of the fact that Marvel Industries Limited has been declared as a sick industry/company within the meaning of Sick 8 app31.09.sxw ssm Industrial Companies Act. In view thereof the present petition is not maintainable and is not sustainable in law for the reason that in view of the express view of the Section 22 of the Sick Industrial Companies Act.” 10 Thus, the only submission made is that as Respondent No.1 company i.e. the principal borrower has been declared as a Sick Industrial Company by the BIFR. Sub-Section (1) of Section 22 is the provision, which is relevant for the present purpose. It reads as under:- “22(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 company) shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority.” 9 app31.09.sxw ssm 11 Perusal of the above provisions show that the injunction contained in that provisions operates where in respect of an Industrial Company:- a) An inquiry under Section 16 is pending; b) Any scheme referred to under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation; or c) An appeal under Section 25 relating to an Industrial Company, is pending. 12 In the reply, there is no averments made that any of these things have happened in relation to Respondent No.1 Company unless in the reply a specific averments is made and is substantiated by documentary evidence that either an enquiry under Section 16 is pending or scheme under Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or an appeal is pending, there is no question of the provisions of Section 22 operating. The only averments to be found in the reply is that Respondent No.1 has been declared as a Sick Industrial Company. That averment does not trigger the operation of the provisions of Sub- 10 app31.09.sxw ssm Section (1) of Section 22 of the SICA, and therefore, it cannot be said that because of Sub Section (1) of Section 22, the Application could not have been granted by the learned Single Judge. Before the learned Single Judge only these two objections were raised. The same two objections were argued before us. 13 As we find no substance in any of the submissions, the Appeal fails and is accordingly dismissed. There shall be no order as to costs. (ANOOP V. MOHTA, J.) (D.K.DESHMUKH, J.)