2005 (5) TMI 331 - HC - Companies Law

Issues Involved:
1. Prevalence of Central Act over State Act in case of inconsistency.
2. Validity of the 1972 Act after the insertion of section 32G in the 1951 Act.
3. Consistency of section 3 of the 1972 Act with section 32G of the 1951 Act.
4. Recovery against guarantors under the 1993 Act.
5. Jurisdiction of the Collector under the 1972 Act in light of section 18 of the 1993 Act.
6. Necessity for the Corporation to exhaust remedies under section 29 of the 1951 Act before proceeding against guarantors.

Detailed Analysis:

Point I: Prevalence of Central Act over State Act
The court emphasized the supremacy of Central law in case of inconsistency between laws made by the Parliament and State Legislature. Article 246 of the Constitution delineates the distribution of legislative powers, stating that Parliament has exclusive power over matters in List I, while State Legislatures have power over matters in List II, subject to Parliament's supremacy. Article 254 reinforces this by giving primacy to Central law over State law in case of inconsistency, provided the President's assent is obtained for the State law. The court cited several precedents affirming the supremacy of Central law in such conflicts.

Points II & III: Validity and Consistency of the 1972 Act
The court examined whether the 1972 Act was rendered void or inconsistent after the insertion of section 32G in the 1951 Act. It concluded that section 32G of the 1951 Act, which provides a mode of recovery "without prejudice to any other mode of recovery," does not bar the 1972 Act. Therefore, the 1972 Act remains valid and operative as it is not contrary to section 32G, and there is no repugnancy between the two.

Point IV: Recovery Against Guarantors Under the 1993 Act
The court held that guarantors are covered under the 1993 Act. Section 19(1) of the 1993 Act allows banks and financial institutions to recover debts from any person, including guarantors, as defined under section 2(g) of the Act. The court reasoned that excluding guarantors from the 1993 Act would lead to multiplicity of proceedings and defeat the Act's objective. Hence, recovery proceedings against guarantors can be initiated under the 1993 Act.

Point V: Jurisdiction Under the 1972 Act
The court determined that the 1993 Act, aimed at expeditious adjudication and recovery of debts, overrides the 1972 Act when the debt amount exceeds Rs. 10 lakhs. The Corporation, being a financial institution under the 1993 Act, must initiate recovery proceedings under this Act for debts exceeding Rs. 10 lakhs. The court cited the Supreme Court's decision in Unique Butyle Tube Industries (P.) Ltd. v. UP Financial Corpn., which held that the 1993 Act's provisions take precedence over the 1972 Act for debts above this threshold.

Point VI: Exhaustion of Remedies Under Section 29 of the 1951 Act
The court found it unnecessary to decide whether the Corporation must exhaust remedies under section 29 of the 1951 Act before proceeding against guarantors. Given the conclusion that recovery against guarantors can be initiated under the 1993 Act and that the 1972 Act is barred for debts exceeding Rs. 10 lakhs, this point was rendered moot.

Conclusions:
(a) In case of repugnancy or inconsistency between Central and State Acts, the Central Act shall prevail.
(b) The 1972 Act is neither contrary to section 32G of the 1951 Act nor repugnant to it and is not void.
(c) Guarantors are covered under the 1993 Act, and recovery proceedings against them can be initiated under this Act.
(d) Recovery proceedings for debts exceeding Rs. 10 lakhs can only be initiated under the 1993 Act, not the 1972 Act.

The writ petition was allowed, and the recovery proceedings against the petitioner under the 1972 Act were quashed, with the respondents free to initiate recovery proceedings in accordance with the law.

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