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TMI Blog2012 (11) TMI 779X X X X Extracts X X X X X X X X Extracts X X X X ..... vision refers to the OA filed by a bank/financial institution to seek recovery of its debt and not interlocutory applications, such as, one for review. - It is, therefore, perhaps the legislature’s intention to apply the provisions of the Limitation Act to a limited extent and "as far as may be" to the original action for recovery of debt. This would not translate, perhaps, in the provisions of Section 5 of the Limitation Act being made applicable to an application for review of an order passed in an OA. It is interesting to note that there is no provision for review in the RDDB Act. Petitioners have not taken the trouble of filing an application for condonation of delay under section 5 of the Limitation Act - Issue no.1 is decided in favour of the respondent and against the petitioners. Scope of the term 'Suit' - held that:- the word ‘suit’ cannot be understood in its broad and generic sense to include any action before a legal forum involving an adjudicatory process. - If that were so, the legislature which is deemed to have knowledge of existing statute would have made the necessary provision, like it did, in inserting in the first limb of section 22 of SICA, where the ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRT, by RPL, is that, it is not the principal debtor and that another entity, being State Trading Corporation of India Ltd. (in short, STC) is the principal debtor, given the nature of the transaction. This is an aspect we have touched upon in the latter part of our judgment. We would, however, in our judgment refer to RPL as the principal debtor. Furthermore, it is their case that the DRT‟s order dated 03.05.2010, which was passed in IA No. 1046/2009, combined the relief to the principal debtor though relief was sought qua the principal debtor as also the guarantors. 2.1 The second order of the DRT dated 30.05.2011, is assailed on the ground that the petitioner s application for clarification/ modification / review of the DRT s earlier order dated 03.05.2010, has not been allowed. 3. In order to adjudicate upon the present writ petition it is necessary to notice some broad facts, insofar as they, are relevant to the present proceedings. 3.1 RPL is, evidently engaged in the business of manufacturing, trading and export of generic pharmaceuticals formulations and products. Petitioner no. 1, is the Chairman-cum-director of RPL, while petitioner no. 2 is its director. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hange becoming overdue, payments were sought by the respondent/bank both from RPL as well as STC, and upon, their failure to make the payment, the respondent bank issued legal notices dated 02.01.2009 to the petitioners as well as STC and RPL. The STC, in response to the legal notice, sent a reply dated 05.02.2009, inter alia refuting its liability to pay monies against outstanding bills of exchange on the ground that they were accepted on a back-to-back basis against export bills presented to the foreign buyers, and that, the respondent bank would receive payment only if, STC received payments from the foreign buyers. A reply dated 27.02.2009, to the legal notice, was also sent by RPL wherein, it refuted the liability inter alia on the ground that STC was the principal debtor since it had accepted the bills of exchange. 4.1 It appears, RPL apprehending institution of recovery proceedings, took the next best step which was to seek registration of its reference under Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (in short "the SICA") with the Board for Industrial and Financial Reconstructions (in short "the BIFR"). The reference was filed on 02.04.2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be listed before the DRT on 22.12.2009. The DRT, after noting the submissions of the counsel for the parties, directed the respondent/bank to file a reply based on the request of its counsel. The application alongwith the main proceedings, i.e., the OA No. 118/2009, was listed for disposal and further directions on 22.02.2010. What is important, however, is that, in the OA, the following directions were passed by the DRT. "IA No. 1046/2009 Xxxx Xxxx OA No. 118/09 On Behalf of defendant no. 1, sh. Harsh Parikh seeks more time to file written statement in view of the subsequent facts happened after filing of the present OA. Defendant no. 1 is hereby granted further opportunity to file its written statement within a period of 30 days. Defendant no. 2 to 4 are also directed to file written statement within the said period." (emphasis supplied) 4.7 In the interregnum, another secured creditor of RPL, i.e., Dena Bank initiated proceedings under The Securitisation and Reconstruction of Financial Assests and Enforcement of Security Interest Act, 2002 (in short SARFAESI Act). In pursuit of the same, symbolic possession of the properties belonging to the RPL was taken over by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enience: "Dated 25/05/2010 Present: Mr Ajay Rewal, Ld. Counsel for the applicant bank. Mr Suresh Arora, Ld. Counsel for the defendant no. 1. Mr Abhiroop Das Gupta, Ld. Counsel for the defendant no. 2 to 4 IN THIS MATTER TOTAL NO OF DEFENDANTS ARE D-4. Today the matter was listed for filing the WS by the defendants. Ld. Counsel for the defendant no. 2 to 4 stated that the order of Hon ble AAIFR is placed in the file and further he request that matter may kindly be placed before the Hon ble Presiding Officer for clarification of the order dated 03/05/10 of Hon ble Presiding Officer. There are no direction for filing the WS of defendant no. 3 and 4 for which the matter is placed for clarification. Ld. Counsel for the defendant no.1 states that he has recently engaged and further submits that he has filed an application alongwith Vakalatnama vide diary no. 472 dated 25/05/10 for supplying the legible paper book of OA and seeks 4 weeks time for filing the WS after supply the legible paper book of the OA. Let, the matter be placed before the Hon‟ble Presiding Officer on 31/05/10 for further directions." (emphasis supplied) 5.2 The matter, thereafter, evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... led till date. In so far as this application was concerned, the DRT after recording submissions, directed the petitioners to file their written statement before the next date of hearing, failing which, their right to file written statement would be deemed to be closed. As regards IA No. 6425/2010 was concerned, the learned Presiding Officer, disposed of the same with the following directions: "15. In my opinion, this review petition is time barred. The impugned order was passed on 3rd May, 2010 and, therefore, this application should have been filed within 30 days from the date of passing of the order. On this ground only, the application is not tenable and liable to be dismissed.‟ 16. Besides, there are conflicting view of the Hon‟ble Apex Court as to whether the guarantors are protected under Section 22 of the SICA in an OA filed by the bank. The matter is pending before a larger Bench for adjudication. However, on this ground the proceedings in the OA cannot be allowed to remain suspended sine die. The execution of the decree may, however, be kept suspended until this law is established by the Hon ble Apex Court as to whether the guarantors are entitled to protec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anr. (2003) 4 SCC 305 and Zenith Steel Tubes Industries Ltd. Anr. Vs Sicom Ltd. (2008) 1 SCC 533. 8. It is important to note that a compilation of the said judgments were handed over to us at the hearing held on 13.03.2012, by Ms Shukla when arguments were concluded. The matter was listed on 26.03.2012 to enable counsels to file their written synopsis. On 26.03.2012 alongwith the synopsis, a compilation was filed which included in addition to the judgments already filed, eight (8) additional judgments, though it was made clear to the counsels that after arguments had been concluded no further judgments would be taken on record. SUBMISSIONS OF COUNSELS 9. In their submissions both Ms Jayashree Shukla and Ms Maneesha Dhir contended as follows: (i) Section 22 of SICA provides protection not only to a sick industrial company which, in this case is the principal debtor, i.e., RPL but also the guarantors. The petitioners being guarantors ought to have been accorded the same protection which the DRT afforded to RPL. (ii) The judgment of the Supreme Court passed in Patheja Bros. Forging and Stamping Anr. (supra) makes this amply clear, and that, if there was any doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n action which is ordinarily presented before a civil court and not before a tribunal, such as the DRT. For this purpose, he relied upon the judgment of the Supreme Court in Nahar Industrial Enterprises vs HSBC JT 2009 (8) SC 199. Special emphasis was sought to be laid on the observations made by the Supreme Court in paragraph 113 of the said judgment. Mr Bansal, thus submitted, that even though a tribunal may have the trappings of a Court, it was still not a civil court. Mr Bansal went on to say that, the provisions of SICA would not apply to an action taken out before the DRT. The action before the DRT is initiated under the provisions of the RDDB Act which, by virtue of being enacted later in point of time, would override all other laws. Reliance in this regard was placed on Section 34 of the RDDB Act. It was thus contended that, Section 22(1) of SICA would have no application. As a matter of fact, in support of this submission, Mr Bansal relied upon the judgment of the Supreme Court in the case of K.S.L. Industries Ltd. vs Arihant Threads Ltd. Ors. JT 2008 (9) SC 381. In particular, emphasis was laid on paragraphs 19-25, 66, 67 and 112 of the said judgment. It is important to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Assistant Registrar of the DRT placed the matter before the Presiding Officer of the DRT on 31.05.2010. On 31.05.2010, the matter had to be adjourned as the Presiding Officer was on leave. It was, therefore, listed for further proceedings on 04.06.2010. On 04.06.2010, the counsel for petitioners chose not to appear. The DRT, after issuing directions on other interlocutory applications, listed the matter on 06.07.2010. Once WP(C) No. 7253/2011 Page 15 of 42 again, on 06.07.2010, there was no appearance by the counsels for the petitioners on the said date. The matter was directed to be listed on 26.07.2010. The counsel for the petitioners played truant even on the said date, though counsel for STC was present. The DRT, directed the matter to be listed on 23.08.2010. After a gap of nearly three (3) months, for the first time on 23.08.2010, counsel for the petitioners and RPL emerged on the scene. Since the Presiding Officer of DRT was on leave, the matter was adjourned to 07.11.2010. As indicated above by us, the matter was listed before the DRT on 07.09.2010. Though there is no proceeding on record to show how the matter came to be posted on 07.09.2010, a perusal of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bench of the Supreme Court in the case of Zenith Steels Tubes and Industries Ltd., the DRT granted a limited protection to the guarantors against execution of the decree, if any, obtained, till the decision in that case of the Supreme Court. This protection was extended to RPL as well. 13. In appeal, the DRAT correctly noticed these facts and by the impugned order, dismissed the same. Under Article 226 of the Constitution of India, this court could have interfered if the DRAT or the DRT had exercised jurisdiction either with material irregularity or exercised jurisdiction where none was conferred on it or had acted perversely in law on facts placed before it. We find no such error in the judgment. 14. It is trite to say that statute of limitation bars or runs against the remedy, but does not impair the right, obligation or cause of action. (see Bombay Dyeing Mfg. Co. Ltd. Vs. State of Bombay, 1958 SCR 1122 (para 12, page 1124). 14.1 It is pertinent to note that before us, no challenge is laid to the Rule 5A of the DRT Rules. Rule 5A gives a leeway to the DRT to entertain an application for review, only if, it is filed latest, by the sixtieth day from the date of the order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an appropriate case, since in this case, in any event, petitioners have not taken the trouble of filing an application for condonation of delay under section 5 of the Limitation Act. Therefore, having regard to the entirety of the facts and circumstances emerging in this case, we are not inclined to interfere with the impugned orders. It is precisely for this reason that judgments in the case of Collector, Land Acquisition, Anantnag Anr. Vs. MST. Katiji Ors., (1987) 2 SCC 107, Ram Nath Sao Vs. Gobardhan Sao Ors., (2002) 3 SCC 195 and N.Balakrishnan Vs. M. Krishnamurthy, (1998) 7 SCC 123 which relate to principles to be applied while considering the plea made to condone the delay does not require a discussion by us. We also find that the petitioners cannot be aggrieved by continuation of the legal proceedings, since the DRT has granted a stay against execution of the decree, if any, obtained against them pending the decision in the case of Zenith Steels Tubes and Industries Ltd. 15. For the reasons, as indicated by us hereinabove, Issue no.1 is decided in favour of the respondent and against the petitioners. Issue No.2 16. The other aspect of the matter as to whether ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate Govt., as also state level institutions and authorities. Once a scheme is sanctioned, it is binding upon all concerned. 17.3 In the event, the BIFR is unable to prepare a sanctioned scheme, it can under section 20 of SICA recommend winding up of the sick industrial company. The recommendation of winding up is placed before the concerned High Court for appropriate orders. This recommendation, however, is not binding on the High Court. (See V.R. Ramaraju Vs. Union of India and Ors., (1997) 89 Comp. Cas 609). It is between these two ends of the spectrum that Section 22 of SICA comes into play. Section 22 provides for suspension of legal proceedings and contracts. Since we are concerned with the provisions of sub section (1) of section 22, the same are extracted hereinbelow:- "22. Suspension of legal proceedings, contracts, etc. - (1) Where in respect of an industrial company, an inquiry under section 16 is pending or any scheme referred to under section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under section 25 relating to an industrial company is pending, then, notwithstanding anything contained in the Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etition. 17.6 It may be relevant to note that the term used in this sub part of sub section (1) of section 22 is "guarantee" and not "guarantor". One possible explanation could have been, taking into account the overall scheme of SICA, which is, to rehabilitate and resuscitate viable sick industrial companies, and if, necessary to liquidate assets of sick industrial companies where they become non-viable, to read the term guarantee‟ to mean perhaps a guarantee extended by an entity in which the industrial company has an interest as it could impact directly affairs of the industrial company since the industrial company's interest in such an entity would ordinarily be shown as an asset in its balance sheet. But this debate can no longer be taken forward for the reason that the Supreme Court in the case of "Patheja Brothers Forgings and Stamping"(supra) has categorically interpreted the term "guarantee" as that which relates to a guarantor who has furnished a guarantee as a security in lieu of loans and advances granted to an industrial company. It is important to note that Patheja Brothers Forging and Stamping dealt with a case where the suit was filed in a civil court both ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore it. These being:- (i). whether an arbitrator's award is a decree for the purposes of section 9 of the Insolvency Act; and (ii). Whether an insolvency notice can be issued on the basis of such an award. 18.3 After a detailed discussion, the court came to the conclusion that the award is not a decree and hence, insolvency notice under section 9(2) of the Insolvency Act could not be taken out on the basis of an arbitration award. In the process of its reasoning, the Supreme Court examined whether the arbitrator was a court and whether the award was a decree. In this context, that the court examined several judgments. The following observations highlight what the court was grappling with:- "17. We are of the view that the Presidency Towns Insolvency Act, 1909 is a statute weighed down with the grave consequence of "civil death" for a person sought to be adjudged an insolvent and therefore the Act has to be construed strictly. The Arbitration Act was in force when the PTIA came into operation. Therefore it can be seen that the lawmakers were conscious of what a "decree", "order" and an "award" are. Also the fundamental difference between "courts" and "arbitrators" was al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requirements in Section 9(3) and the rules made thereunder. (vii) It is a well-established rule that a provision must be construed in a manner which would give effect to its purpose and to cure the mischief in the light of which it was enacted. The object of Section 22, in protecting guarantors from legal proceedings pending a reference to BIFR of the principal debtor, is to ensure that a scheme for rehabilitation would not be defeated by isolated proceedings adopted against the guarantors of a sick company. To achieve that purpose, it is imperative that the expression "suit" in Section 22 be given its plain meaning, namely, any proceedings adopted for realisation of a right vested in a party by law. This would clearly include arbitration proceedings. (viii) In any event, award which is incapable of execution and cannot form the basis of an insolvency notice. 44. In the light of the above discussion, we further hold that the insolvency notice issued under Section 9(2) of the PTI Act, 1909 cannot be sustained on the basis of arbitral award which has been passed under the Arbitration and Conciliation Act, 1996. We answer the two questions in favour of the appellant." 18.5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... site and informative are set out hereinafter for the sake of convenience. "18. It appears that there were three reasons why this Court construed the word "proceeding" as including action which may be taken under Section 29 of the State Financial Corporations Act: 1. The recovery proceedings were against an industrial company, the revival of which was one of the objects of the Act. 2. The use of the omnibus expression "or the like" after the word "proceeding". 3. The fact that the entire scheme as contained in Sections 16 to 19 of SICA would be rendered nugatory and the process short-circuited if State Financial Corporations were allowed to recover their dues from the assets of the Company." (emphasis is ours) 19.1 After analyzing the pre 1994 situation, the court undertook the exercise of analyzing the insertion made to sub section (1) of section 22 (with which, we are also called upon to grapple;), in paragraph 19 to 25 of the Judgment. For the sake of convenience, the same are extracted herein below:- "19. After this decision was rendered, Section 22(1) was amended by the Sick Industrial Companies (Special Provisions) Amendment Act (12 of 1994). The following words we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the word "suit" has been given in Pandurang R. Mandlik v. Shantibai R. Ghatge6 but in the context of Section 11 of the Code of Civil Procedure. This is what the Court said: (SCC p. 639, para 18) "In its comprehensive sense the word suit‟ is understood to apply to any proceeding in a court of justice by which an individual pursues that remedy which the law affords. The modes of proceedings may be various but that if a right is litigated between parties in a court of justice the proceeding by which the decision of the court is sought may be a suit." 24. According to these decisions, a suit is an action taken in a court of law. 25. Having regard to the judicial interpretation of the word "suit", it is difficult to accede to the submission of the appellants that the word "suit" in Section 22(1) of the Act means anything other than some form of curial process." 19.2 The conclusion in a sense is set out in paragraphs 29 and 30. Once again, for easy reference, we extract the same hereinafter:- 29. One of the reasons for the word "proceeding" in Section 22(1) being construed widely by this Court in Maharashtra Tubes was that the proceedings were against the Company its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l lie without the consent of the Board or the Appellate Authority. The words are crystal clear. There is no ambiguity therein. It must, therefore, be held that no suit for the enforcement of a guarantee in respect of a loan or advance granted to the industrial company concerned will lie or can be proceeded with, without the sanction of the Board or the Appellate Authority under the said Act." 32. 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. 33. The appellants have, however, sought to draw sustenance from the following passage in the judgment: (SCC p. 548, para 9) "The argument on behalf of the first respondent is that while this provision provides for the continuation of proceedings against the industrial company, there is no provision in the said Act which provides for the continuation of any held-up proceeding against the guarantor of a loan or advance to such company and that, therefore, Section 22 should be read as applying only to a suit against the industrial company and not a guarantor. Apart from the fact that, as indicated above, the lang ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant /guarantor that by virtue of provision of section 22 of SICA, its liability under the personal guarantee could not be enforced. The Division Bench came to a somewhat similar conclusion and also went on to hold that, the liability of the guarantor being co-extensive with that of the principal debtor, the creditor was not required to exercise his right first against the principal debtor and only thereafter, against the guarantor. This is how the matter travelled to the Supreme Court. 20.1 The Supreme Court in paragraph 20 noticed the observations in Paramjit Singh Patheja s case that the term "suit" would have to be understood in the larger context to include other proceedings as well, which were filed before a "legal forum" The court noticed that the decision in Kailash Nath Aggarwal s case was not brought to the notice of the Division Bench in Paramjit Singh Patheja s case. After noticing the observations of the court in Kailash Nath Aggarwal‟s case, the bench decided to refer the matter to a Larger Bench. 21. We may also at this stage take note of the observations of the Supreme Court in Nahar Industrial Enterprise Limited Vs. Hong Kong and Shanghai Banking Corpora ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly come within the purview of section 17 thereof and not beyond the same. The Civil Court, therefore, will continue to have jurisdiction. Even in respect of set off or counter claim, having regard to the provisions of sub sections (6) to (11) of section 19 of the Act, it is evident:- a) That the proceedings must be initiated by the bank. b) Some species of the remedy as provided therein would be available therefor. c) In terms of sub section (11) of Section 19, the bank or the financial institution is at liberty to send a borrower out of the forum. d) In terms of the provisions of the Act, thus, the claim of the borrower is excluded and not included. e) In the event the bank withdraws his claim the counter claim would not survive which may be contrasted with Rule 6 of Order VIII of the Code. WP(C) No. 7253/2011 Page 36 of 42 f) Sub section (9) of section 19 of the Act in relation thereto has a limited application. g) The claim petition by the bank or the financial institution must relate to a lending/borrowing transaction between a bank or the financial institution and the borrower. h) The banks or the financial institutions, thus, have a primacy in respect of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as already in force that is, w.e.f. 24.06.1993. Therefore, the Legislature while bringing about the amendment in sub section (1) of section 22 of SICA on 01.02.1994 was aware of the enactment of the RDDB Act. The term. suit would have to be read and understood in the context of this legislative history and in the background of the scheme of SICA as also the setting of the term in issue, in the very provision under consideration i.e., sub section (1) of section 22. 23. Thus, in our view, having regard to the facts set out hereinabove, the word suit cannot be understood in its broad and generic sense to include any action before a legal forum involving an adjudicatory process. If that were so, the legislature which is deemed to have knowledge of existing statute would have made the necessary provision, like it did, in inserting in the first limb of section 22 of SICA, where the expression proceedings for winding up of an industrial company or execution, distress, etc. is followed by the expression or "the like" against the properties of the industrial company. There is no such broad suffix placed alongside the term suit . The term suit would thus have to be confined, in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch a forum would be coram non judice. This again a case where the principle evolved cannot but be accepted but the fact remains in the circumstances obtaining in the present case, the said judgment once again has no applicability. This is specially so as the moot question is whether the term "suit" appearing in sub-section (1) of section 22 of SICA would apply to a forum which is decidedly not a civil court. 24.3 The next judgment relied upon by learned counsels for the petitioners is Intercraft Ltd. Vs. Cosmique Global, 173 (2010) DLT 116. In this case, the issue was whether the provisions of section 22 would come into play immediately on registration of the reference under section 15 of the SICA. The DRAT had apparently applied an earlier judgment of this court rendered in the case of Industrial Development Bank of India Vs. Surekha Coated tubes and Sheets Ltd., 1994 II AD (Delhi) 119 ignoring the judgment of the Supreme court in Real Value Applicances Ltd. (supra). Quite correctly the Division Bench of this court reversed the order. The court incidentally also cited the judgment in Bhoruka Textiles Ltd. (supra) to emphasis that an order passed in violation of section 22 would ..... X X X X Extracts X X X X X X X X Extracts X X X X
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