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TMI Blog2012 (5) TMI 872X X X X Extracts X X X X X X X X Extracts X X X X ..... A (OS) 23/2011 C.M. APPL. 10277/2011 AND EFA (OS) 26/2011 C.M. APPL. 12158/2011 1. This common judgment would dispose of two appeals directed against a judgment and order of a learned single judge of this Court, dated 24-03-2011 in EP No. 112/2010. The impugned judgment overruled the contentions of the appellant in EFA No. 23 of 2011, (hereafter B.K. Modi ) that execution proceedings were not barred in any manner, by operation of Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 (hereafter SICA ). The second appeal (EFA 26/2011) is by Morgan Securities Ltd (hereafter Morgan ); it claims to be aggrieved by a part of the same order, to the extent it excludes one of the properties of B.K. Modi, on the ground that it is a dwelling house (hereafter the suit property ) from execution proceedings. The facts necessary for deciding the controversy are set out hereafter. M/s Modi Rubbers Ltd. borrowed Rs 5 Crores from Morgan Securities through an inter corporate deposit on 20-3-2001; the money was payable in ninety days with 21% interest. V.K. Modi and B.K. Modi stood as guarantors. On the failure of the Modi Rubber Pvt. Ltd to pay back the inter-corporate deposit wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (C) No. 14293/2010. The Supreme Court issued notice and stayed the execution proceedings on 05.07.2010. In respect of the undertaking given by Modi Rubbers Ltd. to the High Court in Execution Petition No. 111/2010, it approached this High Court seeking permission to sell its shares and assets through Execution Application 440/2010. The Court issued notice but did not grant any interim relief. 4. On 25.08.2010, an SLP (No. 21589/2010) filed by V.K Modi against the order of the High Court in the appeal, FAO 75/2010 was clubbed with MRL's SLP (No. 14293/2010). The Court issued notice subject to the deposit of Rs 5 Crores with the Supreme Court. In these circumstances, B.K Modi filed an application for recalling his concession, leading to withdrawal of FAO (OS) 39/2010, (which had been dismissed as withdrawn on 19-1-2010), before the High Court, but this was dismissed on 21-09-2010. He then filed a special leave petition, SLP (C) No. 36522/2010 which too was dismissed on grounds of delay and laches on 21-1-2011. 5. On 07.02.2011, B.K. Modi filed E.A. No111 and 112/2010 for stay of further proceedings in the Execution Proceeding No. 112/2010 which had been initiated against him on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Modi and the other judgment debtors. 8. It was argued on behalf of Mr. B.K. Modi that the Single judge erred in holding that the stay order issued by the Supreme court in the two Petitions filed by the co-judgment debtors, did not operate as a general stay to his benefit. It is submitted that the learned Single Judge failed to appreciate that three execution proceedings instituted by Morgan Securities were in respect of the same award, where the judgment debtor Modi Rubbers and V.K Modi were made jointly and severally liable; those execution proceedings were stayed. Consequently, there was nothing which compelled the Trial Court to proceed with the execution of the award, only in the case of B.K. Modi. There was also no requirement to give separate securities by each judgment debtor when the total amount awarded had already been secured. It is submitted that since the appeal against the award is still pending in the Supreme Court, the impugned order for the execution of the award is illogical because, if the award is set aside, B.K. Modi would be seriously prejudiced; and even if the award is confirmed, Morgan Securities can recover the amount from the security already provided for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the said property. The impugned judgment was therefore, contrary to Section 60, CPC. It was contended that the choice of the dwelling home was that of the judgment debtor, and not of the Court. 12. It was argued on behalf of Morgan Securities, in response to B.K.Modi's appeal, that the principle of finality applies, and bars any inquiry about whether proceedings under Section 22 SICA are pending. It was submitted that even when objections were pending before the Court hearing the objections to the award under Section 34, Arbitration and Conciliation Act, a submission that Section 22 barred proceedings, and that the statutory scheme covered the debt in question, was made. The Court rejected that argument, and went on to uphold the award. The appeal preferred to the Division Bench, and later withdrawn, by B.K. Modi, also contained grounds containing the same submission. However, the unconditional withdrawal of that appeal, and the attempt to have that concession (leading to withdrawal) reviewed were futile. B.K. Modi's special leave petition too was dismissed. Therefore, it is not open to him to argue that Section 22 bars execution of the award. 13. It was submitted that in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding any hing contained in the Companies Act, 1956 (1 of 1956), or any other law or the memorandum and articles of association of the industrial company or any other instrument having effect under the said Act or other law, no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority. SICA was amended by Act No. 12 of 1994 which came into force on 1.02.1994. One of the amendments made was to Section 22 (1). By Section 12(a) of the Amendment Act, the following words were added after the words appointment of a receiver in respect thereof in the text of the original SICA: And no suit for recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company. 17. In M/S Patheja Bros. Forgings O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding to Maharashtra Tubes, it is not a 'suit' for recovery under the second limb of that Section. As rightly contended by learned counsel appearing for PICUP, the proceedings under the U.P. Act are really recovery proceedings within the meaning of the word 'proceeding' as defined in Maharashtra Tubes. Since Section 22(1) only prohibits recovery against the industrial company, there is no protection afforded to guarantors against recovery proceedings under the U.P. Act. 19. In Paramjeet Singh Patheja vs ICDS Ltd 2006 (13) SCC 322, it was held that: 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 language of Section 22 is explicit, the scheme would provide for the repayment of the loan or advance and, therefore, would take within its a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prohibiting institution or continuation of legal proceedings is that no proceedings for the winding up of the industrial company or for execution, distress or the like against any of the properties of the industrial company or for the appointment of a receiver in respect thereof shall lie or be proceeded with further.. As far as the proceedings in respect of guarantors is concerned, the bar is more limited; what is prevented is articulated as no suit for recovery of money or for the enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company. It is immediately apparent that there is an express bar to execution and distress against the assets of an industrial proceedings. However, there is a conscious omission in the very same provision, when the amendment of 1994 was introduced; what was prevented as against guarantors was suit for recovery of money or enforcement of security...or of any guarantee in respect of loans . Clearly, the use of the expression execution in respect of one class of subject matter, i.e. assets of industrial company, to bar such proceedings, and the omission (from the subj ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e would be binding on the High Courts. The second line of decisions is that in case there is a conflict between the judgments of Supreme Court consisting of equal authorities, incidence of time is not a relevant factor and the High Court must follow the judgment which appears it to lay down law elaborately and accurately... A Division Bench of this Court quoted an earlier decision, and after considering the Allahabad and Punjab, approved them, in Virender Kumar @ Bittoo v. State: 59 (1995) DLT 341 (DB) also considered the question of conflict of judgments of different Benches of the Supreme Court of co- equal strength. The Division Bench noted with approval the decision of the Full Bench of the Allahabad High Court in the case of Ganga Saran (supra) as having been laid down that if there is a conflict between two decisions of equal Benches of the Supreme Court, which cannot possibly be reconciled, the courts must follow the judgment which appears to them to state the law accurately and elaborately and particularly so when the later decision of the Supreme Court did not notice the earlier decision. Following Virender Kumar, this Court is of opinion that the ruling in Kailash Nath Ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eal to the Division Bench against the order of the learned Single Judge when the issue of the validity of the arbitral proceedings was again raised, that Court too did not rule in favour of B.K. Modi in respect of the contention. The latter's appeal, FAO(OS) 39/2010 was dismissed as withdrawn vide order dated 19.01.2010. This issue was again agitated in the review proceedings by B.K. Modi, seeking to recall the said order dated 19.01.2010; however, the review petition was unsuccessful. B.K. Modi's special leave petition against the dismissal of his review petition, was also rejected. Consequently, the issue has attained finality. There is no merit in B.K. Modi's contention on this aspect. Surety's liability 27. It was argued on behalf of B.K. Modi that in law, a surety's liability is co-extensive with that of the principal debtor. Here, the creditor had no problem with accepting an order whereby only Rs.5 crore stands deposited in the Supreme Court. Those special leave proceedings would in all probability, end in Modi Rubbers, the principal borrower's liability being scaled down. In these circumstances, B.K. Modi cannot be made liable to pay anything more th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he principal debtor unless it is otherwise provided by the contract. A surety is no doubt discharged under Section 134 of the Indian Contract Act by any contract between the creditor and the principal debtor by which the principal debtor is released or by any act or omission of the creditor, the legal consequence of which is the discharge of the principal debtor. But a discharge which the principal debtor may secure by operation of law in bankruptcy (or in liquidation proceedings in the case of a company) does not absolve the surety of his liability (see Jagannath Ganeshram Agarwala v Shivnarayan Bhagirath (AIR 1940 Bom 247 : ILR 1940 Bom 387 : 42 Bom LR 451); see also In re Fitzgeorge Ex parte Robson ((1905) 1 KB 462 : 74 LJ KB 322 : 90 LT 206)). In view of the unequivocal language of the letter of guarantee, no reliance can be placed by the Company in liquidation on the decision of this Court in Punjab National Bank Limited v. Bikram Cotton Mills ((1970) 2 SCR 462 : (1970) 1 SCC 60 : AIR 1970 SC 1973) in which the surety's liability was limited to the 'ultimate balance' found due from the principal debtor and the said balance had not been ascertained before the instit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ently executed or enforced, in the following terms: It is the duty of the surety to pay the decretal amount. On such payment he will be subrogated to the rights of the creditor under Section 140 of the Indian Contract Act, and he may then recover the amount from the principal. The very object of the guarantee is defeated if the creditor is asked to postpone his remedies against the surety. In the present case the creditor is banking company. A guarantee is a collateral security usually taken by a banker. The security will become useless if his rights against the surety can be so easily cut down. The principle discussed in the above decision, was reiterated by a three judge bench of the Supreme Court held, in State Bank of India vs. Indexport Registered Ors. AIR 1992 SC 1740, that for the purpose of execution of a decree, it is not necessary that the decree holder must first execute the decree against the principal debtor, and thereafter proceed against the guarantor if the decree still remains outstanding. The surety has no right to restrain execution against him until the creditor has exhausted remedies against the principal debtor. 31. In the light of the above discussion, this C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orded by this clause shall not extend to any property specifically charged with the debt sought to be recovered. 34. The execution proceedings in the case concern three immovable properties; one at Panchkula and two in Delhi. The two properties in Delhi are the properties at Prithvi Raj Road, which it is claimed, is mortgaged to a bank and being used as a dwelling house. The third property is at 36, Amrita Shergill Marg. 35. This Court notices that the affidavit in support of the review petition, as well the affidavits in the appeals, including the appeals under consideration here, were filed on behalf of Dr. B.K. Modi by Mr. Atul Prakash, his power of attorney holder. The deed of power of attorney was executed on 17.3.2009. The address of residence of B.K. Modi, is 36, Amrital Shergill Marg. In these circumstances, and since there is no dispute that B.K. Modi is a Non-Resident Indian who lives in Singapore - but who might be living a part of the year in this country - it cannot be said that the Prithviraj Road property is the main dwelling house occupied by him. This Court also finds insubstantial, and without substance, the materials placed on record by him, to say that he occupi ..... 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