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2014 (4) TMI 906 - SC - Companies LawProtection u/s 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 - whether the appellants who are Directors and Guarantors of a sick company and are entitled to get the protection of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 - Held that - Appellants, who are the guarantors, can obtain the protection of Section 22(1) of SICA only if the action filed by the bank comes within the ambit of the term suit . If the action filed by the respondent bank in the nature of proceedings and not a suit , protection under Section 22(1) would not be available, especially, when the appellants are guarantors - term suit have to be confined in the context of sub-section (1) of Section 22 of SICA to those actions which are dealt with under the Code and not in the comprehensive over-arching proceedings so as to apply to any original proceedings before any legal forum. The term suit would apply only to proceedings in civil court and not actions or recovery proceedings filed by banks and financial institutions before a Tribunal such as DRT - Decided against appellant.
Issues:
Interpretation of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) regarding protection for Directors and Guarantors of a sick company. Analysis: The case involved Directors and Guarantors of a sick company seeking protection under Section 22(1) of SICA. The company, engaged in pharmaceuticals, faced recovery proceedings by a bank. The Bank sought recovery of a substantial amount, leading the company to register under SICA. The Directors and Guarantors filed an application under Section 22(1) of SICA to dismiss the recovery proceedings without prior permission from the Appellate Authority for Industrial and Financial Reconstruction (AAIFR)/BIFR. The issue was whether the protection under Section 22(1) of SICA extended to the appellants as guarantors. The High Court, citing previous judgments, held that such protection would not apply to Directors and Guarantors of a sick industrial company. The High Court referenced judgments like Kailash Nath Agarwal and Others v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd., KSL and Industries Limited v. Arihant Threads Limited, and Nahar Industrial Enterprises Limited v. Hong Kong and Shanghai Banking Corporation to support its decision. The Court emphasized that the liability of a guarantor is co-extensive with that of the principal debtor. It was clarified that the protection of Section 22(1) of SICA would only be available if the bank's action qualifies as a 'suit' and not merely 'proceedings', especially in the case of guarantors. The Supreme Court concurred with the High Court's decision, stating that the issue was settled by previous judgments. The Court highlighted that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 would prevail over SICA in case of conflict, particularly concerning public revenue recoveries. The term 'suit' in Section 22(1) of SICA was interpreted to apply to actions dealt with under the Civil Procedure Code, excluding actions before forums like Debt Recovery Tribunals. As all legal points raised were addressed in previous judgments, the appeal was dismissed, with no order as to costs.
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