2016 (2) TMI 528 - HC - Indian Laws

Availability of alternative remedy - Recovery proceedings against the guarantors initiated by the bank for defaulters of loan - principal borrower company failed to pay even principal amount - Held that - We are not impressed with the arguments canvassed by learned Senior Counsel for the petitioners that powers under Article 226 of the Constitution of India be exercised as there is bar under Section 22 of the SICA, 1985 and the Tribunal has no jurisdiction or the Tribunal lacks jurisdiction to entertain application filed under Section 19 of the RDDB Act, 1993, for the reason that the very issue and the grounds can be raised before the appellate Tribunal, which has jurisdiction, power and discretion to entertain and consider such grounds on merit.

Issues Involved:
1. Exercise of powers under Article 226 of the Constitution of India vis-`a-vis the availability of alternative remedy under the statute.
2. Jurisdiction of the Debt Recovery Tribunal (DRT) in light of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA).
3. Applicability of Section 128 of the Indian Contract Act regarding the liability of guarantors.
4. Preliminary objection on the availability of statutory and efficacious alternative remedy under Section 20 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act).

Detailed Analysis:

1. Exercise of Powers under Article 226 of the Constitution of India vis-`a-vis Availability of Alternative Remedy:
The petitioners, who are guarantors and directors of the borrower company, challenged the orders passed by the DRT under Article 226 of the Constitution, arguing that the DRT lacked jurisdiction due to the bar under Section 22 of SICA. The respondents contended that the petitioners should have availed the alternative remedy under Section 20 of the RDDB Act before approaching the High Court. The court emphasized that the availability of an alternative remedy generally precludes the exercise of jurisdiction under Article 226, especially in matters involving recovery of public dues, taxes, and bank loans. The court referred to precedents such as United Bank of India vs. Satyawati Tondon, which highlighted the necessity of exhausting statutory remedies before invoking Article 226.

2. Jurisdiction of the Debt Recovery Tribunal (DRT) in Light of Section 22 of SICA:
The petitioners argued that the DRT lacked jurisdiction to entertain the recovery applications due to the bar under Section 22 of SICA, which suspends legal proceedings against industrial companies and their guarantors. They relied on several Supreme Court judgments, including Patheja Bros. Forgings & Stamping vs. ICICI Limited, which held that the bar under Section 22 applies to guarantors as well. However, the court noted that the issue of jurisdiction could be effectively addressed by the Appellate Tribunal under Section 20 of the RDDB Act, which has the power to consider and decide on such jurisdictional challenges.

3. Applicability of Section 128 of the Indian Contract Act regarding the Liability of Guarantors:
The DRT had held that the liability of the guarantors is coextensive with that of the principal borrower under Section 128 of the Indian Contract Act. The petitioners contended that this finding was erroneous in light of the bar under Section 22 of SICA. The court, however, reiterated that such contentions could be raised before the Appellate Tribunal, which is competent to adjudicate on these issues.

4. Preliminary Objection on the Availability of Statutory and Efficacious Alternative Remedy under Section 20 of the RDDB Act:
The respondents raised a preliminary objection, arguing that the petitioners should have approached the Appellate Tribunal under Section 20 of the RDDB Act instead of filing writ petitions. The court agreed, emphasizing that the RDDB Act provides a comprehensive mechanism for adjudication and recovery of debts, including the provision for appeal. The court cited the case of Punjab National Bank vs. O.C. Krishnan, which underscored the importance of exhausting statutory remedies before seeking judicial review under Article 226.

Conclusion:
The court concluded that the petitioners should have availed the alternative remedy under Section 20 of the RDDB Act. The writ petitions were disposed of on the preliminary ground of the availability of an alternative statutory remedy. The court also continued the conditional stay granted earlier for a further period of three weeks to allow the petitioners to approach the Appellate Tribunal or the Supreme Court.

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