Case: Kailash Nath Agarwal  Vs. Pradeshiya Indst.&amp;Inv.Corp.Of U.P

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. In addition the appellants executed bonds of guarantee in consideration for the grant of loans to the company.3. 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 the appellants.4. The 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.

Court's reasoning:
30. We 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-a-vis the company to the extent of the liability met.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.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 Pathejas 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. Till 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.35. Finally, 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.