1 IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION MISC.PETITION NO.2 OF 2007 SICOM .. Petitioner Versus Marvel Industries .. Respondent Mr.V.R.Dhond with Hemant Prabhawalkar i/b.Jurisconsultus for petitioner Mr.H.N.Thakore with Ms.Jyoti Ghag i/b. Thakore Jariwala & Associates for respondent. CORAM : S.C.DHARMADHIKARI, J. DATE : 1st July 2008 P.C. . This is a petition by SICOM Ltd. under section 31(1)(aa) of the State Financial Corporation Act, 1951 (for short SFC Act). 2. The petitioner has invoked the jurisdiction of this Court by instituting this petition and it is contended that it is a 2 financial institution. By virtue of Notification dated 11th December 1986, the provisions elaborated in the notification and Sections 30 and 31 of the State Financial Corporations Act, 1951 (SFC Act for short), particularly are made applicable to the petitioner. The petitioner contends that respondent No.1 is a company incorporated and registered under the provisions of Companies Act. It has its administrative office at the address set out in the petition. A term loan of Rs.1 Crore, additional term loan of Rs.1.5 Crore and another term loan of Rs.3.40 Crores was granted, out of which a sum of Rs.2.50 Crores only was disbursed and a further term loan of Rs.1.40 was sanctioned and disbursed. All these sums were disbursed to the first respondent to meet a part of the cost of manufacturing of HDFP and Cast PP films at its factory at Sinnar Dist.Nashik. 3. Respondent No.2 is the Director of 3 respondent No.1 and he, so also the Respondent Nos. 3 to 6 are guarantors. They have personally guaranteed the amount due and payable by respondent No.1 by executing deeds of guarantee in favour of petitioner. It is in these circumstances that the above provisions are invoked by the petitioner for enforcing the liability of the guarantor/sureties. 4. The petition does not claim any relief as far as First Respondent is concerned. It is contended that the dues of the petitioner were secured by an indenture of mortgage dated 16th February 1993 executed by first respondent. That was to secure the term loan of Rs.1 Crore. It is not necessary to refer to the deed of mortgage and the terms inasmuch as there is no dispute that the mortgage was executed and it contains the terms as stated in the petition. Para 7 of the petition reads thus:- 4 "7. The petitioner further states that respondent Nos.2 to 4 and respondent No.5 and 6 executed three deeds of personal guarantee dated 16th day of February 1993 in favour of the petitioner where under the respondent Nos.2 to 4, 5 and 6 guaranteed that in the event of default committed by the respondent No.1 in payment of the said principal amount of Rs.1,00,00,000/- or any part thereof or any interest thereon or any other moneys for the time being due and owing by the respondent No.1 to the petitioner, then the respondent Nos.2 to 4, 5 and 6 would without demur, on demand jointly and severally pay to the petitioner the said loan and interest along with all costs, charges and expenses as enumerated in the said deeds of guarantee dated 16th day of February 1993, copies of which are annexed herewith. The aforesaid 5 guarantees are irrevocable and shall be enforceable against the guarantors." 5. Thereafter, the petitioners invited attention of this Court to the deeds of guarantees which are annexed as Exh.C, D and E to the petition. It is contended that the guarantees are irrevocable and enforceable. The terms of repayment of the loan are then referred to and also the securities. 6. It is contended that all the liabilities are acknowledged by the first respondent. It failed and neglected to pay the instalment of principal amount and the interest as per the terms of loan agreement and security document. Even after reschduling of repayment of the term loan, first respondent failed to pay the outstanding amount and interest thereon. It is contended that even after the demand notice dated 21st December 1999 first respondent failed and 6 neglected to clear the dues and, therefore, recall notice dated 4th May 2000 recalling the entire outstanding Loan and raising the demand as stated in para 19 of the petition was issued. 7. In pursuance of the demand notice, Mr.Vikram Saba came to petitioner’s office but did not give any commitment of repayment of the sums which are due and payable. Thereafter, a take over notice was issued. In the meanwhile, the petitioner also became entitled to invoke the provisions of the Securitisation Act and the same came to be done by issuing notice dated 27th August 2004. However, the action could not be taken to its logical end in terms of the said Act as other secured creditors did not join in the proceedings. There are certain without prejudice proposals exchanged. Paras 25 and 26 of the petition read thus:- "25. The petitioner states that in 7 response to the said notice, respondent No.1 forwarded the cheque of Rs.10 lakhs and requested petitioner to withdraw the notice. In November 2005, the respondent No.1 submitted their proposal to make the payment of the principal outstanding over a period of 48 months but without interest. The said proposal was also not accepted by the petitioner and respondent No.1 was asked to revise the same. However, the same was not done despite repeated reminders. Then the petitioner was constrained to issue notices dated 27th August 2004 to the Guarantors (respondent No.2 - 6) invoking their guarantees and also for action under section 32(g) of the SFC’s Act, 1951. However, since the respondent No.1’s reference was pending before the Hon’ble BIFR, suit for recovery against respondent No.2 - 6 was not filed by the 8 petitioner." "26. That despite various Notices as mentioned hereinabove, and grant of sufficient time and opportunities granted to the respondent No.1 and respondent Nos. 2 to 6, they failed and neglected to pay the dues as demanded. In the premises the petitioner submits that it is entitled to file this petition under section 31(1) (aa) of the SFC’s Act 1951 for enforcing the liability of the respondents as sureties of the petitioners for said loans to the respondent No.1 company." 8. It is in these circumstances that it is urged by Mr.Dhond learned Counsel for petitioner that the present petition is filed on 5th October 2006. The jurisdiction of this court is invoked under section 31(a)(aa) of SFC Act. There is no 9 denial of the liabilities by the guarantors inasmuch as the execution of the deeds of guarantees is not in dispute. There is no dispute as far as the liabilities of respondent No.1 and that the guarantee is irrevocable. It is also not disputed, according to Mr.Dhond that a demand could be raised on the respondent Nos. 2 to 6 even when the proceedings under the SFC Act cannot proceed as far as the borrower company (respondent No.1). In such circumstances and when the guarantees are enforceable, then, this Court should pass appropriate orders in accordance with law. 9. The petition was duly served on the respondents. There is an affidavit in reply filed by respondent No.2. In the affidavit in reply it is contended that petitioner has taken possession of the properties of first respondent but has not sold the same. The same have been allowed to be deteriorated and flittered away 10 resulting in huge loss. In such circumstances, the respondents are entitled to be discharged in view of sections 132 to 140 of the Indian Contract Act. 10. It is contended that first respondent has been declared as sick industrial company by B.I.F.R. under Sick Industrial Companies (Special Provisions) Act, 1985 and, therefore, the present petition is barred, more particularly, in terms of section 22(1) thereof. There are several other denials in the affidavit in reply but it is not necessary to refer to them in the light of the contents of the documents, execution of which is not in dispute. It is also contended that the present petition is barred by limitation. 11. When this petition was argued before me, my attention has been invited to section 22(1) of SICA by both sides. Mr.Dhond appearing for 11 petitioner urges that the present petition is filed after a demand has been made and the guarantees are invoked vide demand notice dated 27th August 2004. Once the demand notice is issued and the guarantee has been invoked on the same date, then, the petition filed in October 2006 is still within the period of limitation and cannot be said to be time-barred. In such circumstances, according to him, there is no substance in the contention that the claim of petitioners against the guarantor is time barred. His second contention is that provisions of section 22(1) themselves would make it clear that despite the first respondent being declared as sick industrial unit, the guarantees can be proceeded against. This is a matter covered squarely by section 31(1)(aa) of the SFC Act read with section 32 thereof. These proceedings are not "suit" soas to protect the guarantors of the industrial company. In other words, his submission is that the words added in section 12 22(1) of SICA vide amendment act of 1994 do not take within their import the present petition or proceedings of like nature. They specifically cover a suit and the present proceedings do not partake the character of a suit. There is no bar under section 22(1) for maintaining this petition. As far as other contentions are concerned, his submission is that mere denials would not carry the matter further. The respondents must demonstrate as to how the property is allowed to be wasted or decipitated so as to incur losses. There are no particulars forthcoming in that behalf. 12. Further he submits that there is no question of guarantors being discharged as there is nothing which would indicate that the above mentioned provisions of Contract Act are applicable. he submits that the affidavit in reply has been filed with a view to delay the proceedings and, therefore, this Court while 13 overruling all objections should proceed and pass an order in terms of the prayers of the present petition. In support of his submissions, Mr.Dhond has relied upon the following decisions:- (1) (1991) 1 Comp.L.J. 315 (SC) (MSFC Vs. Jaycee Drugs Pharma Ltd.) (2) A.I.R. 1978 S.C. 1765 (GSFC Vs. natson Manufacturing Co. Pvt.Ltd. and Ors.); (3) (2008) 1 S.C.C. 533 (Zenith Steel Tubes and Industries Ltd. Vs. SICOM Ltd.) (4) (2003) 4 S.C.C. 305 (Kailash Nath Agarwal & Ors. Vs.Pradeshiya Industrial & Investment Corporation of U.P. Ltd. and Anr.) 14 (5) 2007 (4) BomC.R. 447 (Paramjeet Singh Patheja Vs. ICDS Ltd. 13. On the other hand, Mr.Thakore for respondent Nos. 2 to 6 urged that the present petition must be adjourned sine die as in the light of the clear language of section 22(1) of SICA. It is apparent that the proceedings are covered thereby. He submits that the C.P.C. is applicable to the proceedings of the present nature. Once they are so applicable, then, section 22(1) is clearly attracted. As long as the petitioner complies with the same, these proceedings cannot proceeded and, therefore, must be adjourned sine die. 14. Mr.Thakore’s contention is that the language of sections 31 and 32 is indicative of the Legislative intent. Further, a learned Single Judge of this Court who had delivered a 15 judgement in favour of SICOM/MSFC in some what identical circumstances, did not consider the provisions of section 32 in their proper perspective and it was not brought to the notice of learned Single Judge that these matters do result in money decrees being passed against the guarantors. Once the term "enforcing liability of the surety" is wide enough to cover a money decree being passed against the guarantors, then, it is futile to urge that the proceedings are not "suit". 15. That apart, his submission is that the petition is time barred. In the year 1999 itself a demand was made on the guarantors but the petitioners did not file petitions for nearly six years thereafter. Now, relying upon the notice dated 27th August 2004, it is not possible to save the bar of limitation. In any event, therefore, the petition deserves to be dismissed. 16 16. Both sides have taken me through the decisions in the field and the language of section 22(1). My attention has been invited to the judgement of learned Single Judge of this Court. The learned Single Judge (S.U.Kamdar, J - as he then was) was considering an identical objection and controversy. After referring to section 22 and noting the language thereof so also the decisions in the field, this is what the learned Judge has observed:- "6. Firstly dealing with the contention that the present petition cannot proceed in view of the provisions of section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, it is required to be considered whether the provisions of the said section 22 apply in the present case which is a proceeding not in the nature of a suit. The provisions of section 22(1) which are 17 relevant in the present case read as under:- "22. ...... My attention is also drawn to the jdugement of the Division Bench of this Court in the case of Mrs.Padma Prafulla Shirke & Anr. Vs. Maharashtra State Financial Corporation, reported in 2003 (2) All M.R. 884. Though the said judgement considered the provisions of section 22 in the context of section 29 of the State Financial Corporation Act but the Court has in para 16 held that the provisions of Section 22 (1) of the Sick Industrial Companies (Special Provisions) Act, 1985 apply only to the suit and does not apply to the proceedings other than a suit. It was held that the proceedings under section 18 29 to take over the assets and dispose of the same is not a suit and, therefore, the provisions of section 22 cannot apply. Thus, in view of the fact that the Apex Court has held that the proceedings under section 31(1) is not in the nature of a suit and a Miscellaneous petition under section 31 is held to be akin to the posterior stage to the filing of the suit and not a suit itself. In view of the aforesaid position in law, I am unable to accept the contention advanced by the learned counsel for the respondent company that the provisions of section 22 apply and, therefore, the present proceedings cannot be proceeded with." 17. My attention is also invited to the order of Division Bench in appeal, confirming the view 19 of that of the learned Single Judge. The appellate order is in Appeal No.205 of 2006 in Misc.Petition No.61 of 2000. The Division Bench relying upon an earlier decision of this Court, rendered by another division bench, observed thus in para 3:- "3. We have perused a Division Bench judgement of our High Court in Dewal Singhal Vs. State of Maharashtra, Vol.106, Company Cases, 587 (2001) wherein the Division Bench of our Court has in unequivocal terms held that the only proceeding against the guarantor of a loan granted to an industrial company which has been declared under the Sick Industrial Companies (Special Provisions) Act, 1985 which is barred under Section 22 of the Act, is a "suit" and nothing else. The above proceeding before the learned single Judge was not a "suit" at 20 all. In view of the aforesaid judgement, we cannot find any error in the judgement of the learned single Judge. The appeal is devoid of any merit hence the same is dismissed." 18. Mr.Thakore, however, was at pains to point out that all these views were placed before a two Judge bench of Hon’ble Supreme Court in the case of Zenith Steel Tubes and Industries Ltd. and Anr. Vs.SICOM - Civil Appeal No.5347 of 2007 decided on 21st November 2007. He submits that this decision is reported in 2008 (1) S.C.. 533. It also holds the field. The two Judge bench of the Supreme Court was dealing with an Appeal arising out of an order dated 29th November 2007 rendered by this Court in Appeal No.1 of 2007 in M.P.64 of 2000. Mr.Thakore would urge that the two Judge bench of the Supreme Court found substance in the contention of M/s.Zenith and has taken a view that all earlier decisions of the 21 Supreme Court require reconsideration. The matter has been referred to a larger bench and the reference is still pending. The learned Counsel was at pains to invite my attention to the following observations of the Supreme Court:- "36. In the decisions of this Court cited before us, two divergent views have been expressed in respect of the same issue involved in this appeal. In the other decisions, this Court had no occasion to go into the said issue which involved the interpretation of Section 22(1) of SICA in respect of either "proceedings" or "suits" respectively." "37. In Kailash Nath Agarwal case this Court has taken the view that the legislature appears to have knowingly used two different expressions in Section 22(1) off SICA, namely, "proceedings in 22 the first part and the expression "suit" in the second part and the protection of section 22 extended to guarantors in respect of suits alone and the use of the expression "proceedings could not be extended to include suits as well nor could the express "suit" be extended to include the expression "proceedings" also." "38. On the other hand, in Paramjeet Singh Patheja case it was held that the expression "suit" which extends the protection of Section 22(1) to guarantors, would have to be interpreted to include "proceedings also, in view of the intention of the legislature to protect sick industrial companies where references were pending before BIFR." "39. It is also evident from the 23 decision in Paramjeet Singh Patheja case that the views expressed in Kailash Nath Agarwal case had not been brought to the notice of the learned Judges who decided the matter. Even if we are inclined to agree with one of the two interpretations, the anomalous situation will continue since the decisions are that of coordinate benches." "40. In such circumstanrces, we consider it fit and proper that the matter should be referred to a larger bench to resolve the existing anomaly resulting from the different views expressed in the two abovementioned cases." 19. On the other hand, Mr.Dhond would urge that by no stretch of imagination an order of reference would take away the binding character 24 of a Supreme Court decision. His contention is that, a binding judgement of the Supreme Court directly dealing with the controversy cannot be brushed aside on the spacious ground that nowthe Supreme Court is reconsidering its earlier view. That would mean that a binding precedent looses its Authoritative Nature merely because it is being reconsidered and proceedings in that behalf are pending. He would urge that nothing in the Law of Precedents or otherwise is being pointed out which would enable this Court to ignore the Supreme Court’s decision and also the Division Bench and Single Judge’s view in the field. 20. There is much substance in the contention of Mr.Dhond. In the case of Kailashnath Agarwal and Ors. Vs. Pradeshiya Industrial Investment and Corporation U.P. Ltd. and Anr. (2003) 4 S.C.C. 305, an identical controversy was raised. The argument before the Supreme Court was that the company M/s.Shefali Papers Ltd. was declared 25 as sick industrial cocnern. That company had been given financial assistance by the petitioners PICUP. The Appellant before the Supreme Court executed bonds of guarantee in consideration for the grant of loans to that company. Despite the company being declared as sick industrial company, the U.P. Corporation called upon the appellant guarantors to pay the monies and a demand notice was issued in that behalf. The appellant guarantors replied to the notice that because of the decisions of the Court on the scope of section 22(1) of SICA, the U.P. Corporation cannot enforce its demand against them. That stand was rejected by the U.P. Corporation (PICUP). The recovery certificates were to be issued for recovering the dues from the guarantors and that is how they approached the High Court Allahabad in writ jurisdiction. The appellant guarantors instead of paying monies challenged this action but their petition was dismissed by the Allahabad High Court. Impugning 26 that decision of the High Court the matter was carried in appeals to the Supreme Court. The recovery proceedings, under U.P. Public Monies (Recovery of Dues) Act, 1972, could be said to be a suit as contended by the appellants was the controversy in the said proceedings/civil appeal before the Supreme Court. The relevant provisions of the U.P.Recovery Act and SICA were referred. All decisions including a decision of another two Judge Bench in Patheja Brothers Forging and Stamping Vs. ICICI were also noticed and finally, the Supreme Court held thus:- "20. 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. The general rule is that when two different words are used 27 by the same statute, prima facie, one has to construe these different words as carrying different meanings. In Kanhaiyalal Vishindas Gidwani this Court found that the words "subscribed" and "signed" had been used in the representation of the 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 "proceedings" 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 applied here." "21. In none of the decisions cited before us, has the word "suit" been 28 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 contradidistinction to the word "proceeding".. The decision in Ghantesher Ghosh Vs. Madan Mohan Ghosh as 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 tht "suing for partition" was a wider phrase than the phrase ’suit for partition" without defining what a suit meant." "22. The decision in CCE Vs. Ramdev Tobacco Co. related to the construction of the bar of suit section in the Central Excises and Salt Act, 1944. The section 29 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" 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." "23. A definition of the word "suit" has been given in Pandurang R. Mandlik Vs. Shantibai R. Ghatge but in the context of Section 11 of the Code of Civil Procedure. This is what the Court said:- (SCC p.639, para 18):- "In its comprehensive sense the word 30 "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." "24. According to these decisions, a suit is an action taken