2012 (5) TMI 872 - HC - Companies Law

Summary

Issues involved:
1. Whether Section 22 SICA bars proceedings seeking to recover amounts pursuant to decrees made against guarantors.
2. Is it open to B.K. Modi to urge that execution proceedings against him are barred since the debt arising from the award against him was covered by a sanctioned scheme under SICA.
3. Is a guarantor's liability limited by virtue of Section 128, Contract Act.
4. Is the impugned judgment to the extent it grants liberty to B.K. Modi to apply for excluding the Amrita Shergill Marg property from execution proceedings justified in law.

Summary:

Point No. 1:
Section 22 SICA does not bar execution proceedings against guarantors. The Court held that "execution proceedings against guarantors are maintainable" as the legislative intent was clear in restricting the scope of Section 22 in respect of guarantors, only barring "suits for recovery of money or enforcement of security...or of any guarantee in respect of loans." The Court preferred the reasoning in *Kailash Nath Agarwal v Pradeshiya Industrial and Investment Corporation of UP* over *Paramjeet Singh Patheja vs ICDS Ltd*, concluding that execution against a guarantor is legal and maintainable.

Point No. 2:
B.K. Modi's contention that execution proceedings against him are barred under SICA due to the sanctioned scheme was dismissed. The Court noted that this issue had already attained finality as it was previously adjudicated and rejected in various proceedings, including appeals and special leave petitions before the Supreme Court.

Point No. 3:
The Court rejected B.K. Modi's argument that his liability as a guarantor is limited by the pending proceedings of the principal debtor before the Supreme Court. The Court emphasized that the liability of a surety is co-extensive with that of the principal debtor, and the surety can be independently pursued for the debt as per Section 128 of the Contract Act. The principle was supported by precedents like *Maharastra State Electricity Board v Official Liquidator, High Court* and *Bank of Bihar Ltd. v. Damodar Prasad and another*.

Point No. 4:
The Court found that the property at Prithviraj Road, claimed to be B.K. Modi's main dwelling house, was not substantiated with sufficient evidence. The Court held that the property at Amrita Shergill Marg should not be excluded from execution proceedings. The Court directed that the Prithviraj Road property also be subject to attachment in execution proceedings.

Conclusion:
The appeal by B.K. Modi (EFA (OS) No. 23/2011) was dismissed, subject to the direction that execution proceedings against him would proceed for recovery of the interest liability (Rs. 13 crores). The appeal by Morgan Securities (EFA (OS) No. 26/2011) was allowed, directing attachment of the Prithviraj Road property.