Delhi District Court
Sh. Naveen Kohli vs Icds on 18 July, 2008
1
IN THE COURT OF Sh. SANJEEV AGGARWAL
INSOLVENCY JUDGE : DELHI.
Ins. 35/2007
1 Sh. Naveen Kohli
S/o Late Sh. S.S. Lal Kohli
2 Mrs. Ashita Kohli
W/o Sh. Naveen Kohli
Both residents of
516, Sarita Vihar,
New Delhi110044. ...PETITIONERS
V e r s u s
SICOM Ltd.
having its regional office at:
2B, Vandana Building,
2nd Floor, 11, Tolstoy Marg,
New Delhi110001.
Also at:
Nirmal, First Floor,
Nariman Point,
Mumbai400021.
(Through its Managing Director). ...RESPONDENT
Date of institution : 18.09.2007
Date of judgment : 18.07.2008
JUDGMENT
Vide this judgment, I will dispose off the petition U/S 6 (5) of the Provincial Insolvency Act, 1920 read with Section 151 CPC for quashing of notice dated 11.08.2007 issued U/S 6(2) of the Provincial Insolvency Act, 1920.
22 Brief facts mentioned in the petition are; it is stated that the petitioners have filed the present petition U/S 6 (5) of the Provincial Insolvency Act, 1920 (hereinafter referred to as "Act") for cancellation of notice dated 11.08.2007 issued by the respondent U/S 6(2) of the Act, copy of which has been filed on record and the same was duly replied on 10.09.2007 by the petitioners. 3 It is stated that the petitioners were the guarantors of the loan facility availed from the respondent by M/s. Naveen Projects Limited (hereinafter referred to as "borrower company"), which is a company registered under the Companies Act, 1956 having its registered office at Okhla Industrial Estate, New Delhi and the said company is financially unviable company, whose reference is pending with the BIFR and the respondent herein is a public limited company incorporated and registered under the provisions of the Companies Act, 1956, having its regional office at New Delhi and registered office at Mumbai and M/s. Naveen Projects Limited i.e. the borrower company had availed a short term credit facility of Rs. 50 Lakhs from the respondent under the loan agreement dated 10.03.1999 for a period of six months repayable in installments and at the time of securing the said loan, the petitioners had executed personal guarantee(s) dated 10.03.1999 in favour of the respondent and thereafter, the borrower company had faced 3 financial crisis and liquidity problems, which were beyond the control of the borrower company and consequently, defaulted in the repayment of the dues of the respondent and on failure of the borrower company in repaying the dues of the respondent, the respondent had filed a summary suit No. 3741/2000 U/O 37 Rule 2 CPC before the Hon'ble High Court of Mumbai for recovery of Rs. 60,97,045/ alongwith interest @ 22.5% per annum from the date of filing of suit till realisation of the suit amount. 4 It is further stated that the net worth of the borrower company had completely eroded and as per the audited balance sheet of the company as on 31.03.2001, the borrower company filed a reference before the BIFR which was registered as BIFR case No. 217/2002. The said reference was taken up by the BIFR for the hearing held on 20.05.2003, wherein the BIFR had rejected the reference of the borrower company being time barred. Being aggrieved by the said order dated 20.05.2003, passed by the BIFR, the borrower company filed an appeal before the AAIFR which was registered as appeal No. 456/2003 and the same was allowed vide order dated 08.11.2005 and the matter was remanded back to the BIFR for fresh consideration on merits and during the pendency of the reference of the borrower company bearing BIFR case No. 217/2002, the borrower company had also filed two 4 other references before the BIFR, which were registered as BIFR case No. 229/2003 and 4/2004 respectively and while considering the reference(s) filed by the borrower company bearing No. 217/2002, after the same was remanded back by the AAIFR vide order dated 08.11.2005, the borrower company was declared sick by the BIFR in terms of Section 3 (1) of SICA vide order dated 06.03.2006 and it is stated that in between this period, the suit filed by the respondent against the borrower company came up for hearing on 23.09.2003 before the Hon'ble High Court of Mumbai, wherein on the basis of failure of the borrower company to file leave to defend, the Hon'ble High Court of Mumbai decreed the suit of the respondent and subsequently, on the basis of said order dated 23.09.2003 of the Hon'ble High Court of Mumbai, the respondent served a notice dated 11.08.2007 to the petitioners U/S 6 (2) of the Act, which was duly replied by the petitioners vide reply dated 10.09.2007.
5 It is stated that the borrower company i.e. M/s. Naveen Projects Limited is a sick industrial company, whose reference bearing BIFR case No. 217/2002 is as on date, pending adjudication before the BIFR and the the borrower company was already declared sick vide order dated 06.03.2006 and in compliance of the BIFR directions, the borrower company had also 5 filed draft rehabilitation proposal with the BIFR on 23.11.2006 and in the light of the above facts and circumstances, all efforts were being made for effecting the settlement of the liabilities of all the creditors by the borrower company and as such no coercive recovery action ought to be taken against the borrower company or its guarantors/petitioners. As a matter of fact, in terms of Section 22(1) of SICA, if the matter of a company is pending before the BIFR/AAIFR, no recovery proceedings can be initiated/continued as against the company and its guarantors, without the prior permission of the BIFR/AAIFR, which in fact implies that the insolvency notice is also not sustainable and the petitioners have also relied upon a judgment of the Hon'ble Supreme Court for the proposition, that no suit for the enforcement of a guarantee in respect of a loan or advance granted to the concerned industrial company will lie or can be proceeded with without the sanction of the board or the appellate authority under the said Act and it is stated that in the light of settled legal position, the respondent is not entitled to initiate the insolvency proceedings against the petitioners as the references of the principal borrower are pending consideration before the BIFR and in terms of Section 22(1) of SICA, all recovery proceedings are to be stayed including proceedings against the guarantors of a sick industrial company, until prior 6 permission of BIFR is taken. It is further stated that the notice issued by the respondent U/S 6(2) of the Act is arbitrary and against the law and is liable to be quashed.
6 Reply has been filed to the petition by the respondent stating that the respondent is a deemed financial institution under the provisions of State Financial Corporation Act, 1951 and the respondent had advanced loan to the company M/s. Naveen Projects Ltd. and the petitioners being the directors of the company stood as guarantors in respect of advancement of loan and executed personal deed of guarantee dated 10.03.1999. The relevant clauses of the said guarantee agreement has also been reproduced in the said reply and it is stated that pursuant to said guarantee agreement, the respondent had issued demand notice to the petitioners, who were the guarantors, in view of the default committed by the principal debtor i.e. the company and thereafter, the respondent instituted a suit for recovery both against the principal debtor/company and the guarantors/petitioners. Against the guarantors, the suit was based on the deed of guarantee and the said suit was decreed for Rs. 1,22,36,597.66/ with interest @ 22.5% per annum till date of realisation by the Hon'ble High Court of Mumbai vide judgment and decree dated 7 23.09.2003 and while passing the said judgment, the Hon'ble High Court of Mumbai recorded that the reference U/S 22 was rejected by BIFR vide order dated 20.05.2003. As the decree remained unsatisfied, the respondent issued an insolvency notice U/S 6(2) of the Provincial Insolvency Act, 1920. Instead of complying with said notice, the guarantors/petitioners have preferred the present application and thereby, have committed an act of insolvency.
7 It is further stated that the insolvency proceedings instituted by issuance of insolvency notice against the guarantors cannot be stayed under the provisions of SICA as Section 22 of the said Act is not applicable to the proceedings initiated against the guarantors, as the Hon'ble Supreme Court has held that Section 22 of SICA is not applicable to the criminal prosecution U/S 138 of the Negotiable Instruments Act and there are various judgment to the same effect and the judgment relied upon by the petitioners AIR 2007 SC 168 titled as Paramjit Singh Patheja Vs. ICDS, is not applicable to the facts and circumstances of the present case.
8 Further, it is stated that it is settled law that except suits, no other proceedings get protection of Section 22 of SICA including the proceeding 8 in the nature of insolvency notice and further the Hon'ble Supreme Court in the judgment relied upon by the petitioners(supra) only stayed the suit against the guarantors and not any other proceedings and further, it is stated that issuance of notice under the Insolvency Act is held as not a mode of enforcing a debt, enforcement is done by taking steps for execution available under CPC.
9 On merits, the issuance of notice is admitted and reply thereby issued by the petitioners dated 10.09.2007 is also admitted. However, it is stated that the respondent is not aware about the company M/s. Naveen Projects Ltd. being the financially unviable company and that any reference of company is pending in BIFR. Regarding the decree passed by the Hon'ble High Court of Mumbai, it is stated by the respondent that the petitioners had filed notice of motion No. 1184/2004 before the Hon'ble High Court of Mumbai for setting aside the order dated 23.09.2003 whereby decree was passed against the petitioner. However, the said notice of motion was dismissed by the Hon'ble High Court of Mumbai on 27.1.2005. Therefore, the decree dated 23.09.2003 has become final and binding as it has not been challenged by the petitioner till date and further that the reference of the company was rejected vide order dated 9 20.05.2003, whereas the judgment and decree was passed on 23.09.2003. Therefore, the decree has achieved finality and it is stated that the judgment 2000 (6) SCC 545 is also not applicable to the facts and circumstances of the present case. Hence, it is prayed that the petition is not sustainable and is liable to be dismissed.
10 Rejoinder has also been filed by the petitioners in which contentions made in the reply are denied and those made in the petition have been reasserted as correct.
11 I have heard ld. counsel for petitioners and ld. counsel for respondent and have also gone through the written submissions filed on behalf of the counsel for parties and perused the record. 12 Counsel for petitioners has argued that the instant petition has been filed by the petitioners seeking quashing of insolvency notice dated 11.08.2007 issued U/S 6 (2) of the Provincial Insolvency Act, 1920 (hereinafter referred to as 'Insolvency Act') and it is further argued that vide said notice, the respondent has claimed an amount of Rs. 1,22,36,597.66/ alongwith interest @ 22% per annum based on decree passed by the Hon'ble High Court of Mumbai in suit No. 374/2000 dated 23.09.2003 and the said claim of the respondent is based upon the 10 personal guarantees given by the petitioners for securing the loan facility of Rs. 50 Lakhs availed by the company M/s. Naveen Projects Ltd.. 13 It is further argued that in the meanwhile, the said company had filed reference U/S 15(1) of The Sick Industrial Companies (Special Provisions) Act, 1985 [ hereinafter referred to as SICA] before the BIFR registered as BIFR case No. 217/2002, which reference was rejected by the BIFR vide order dated 20.05.2003. Thus, it is stated that on the date of passing of the decree i.e. 23.09.2003, no reference of the company was pending before the BIFR. However, subsequently, the company had filed fresh references before the BIFR and against the dismissal of previous reference, the petitioners had preferred an appeal before the Appellate Authority for Industrial and Financial Reconstruction (AAIFR) and the said appeal was allowed and the reference was remanded back to the BIFR vide order dated 08.11.2005 and since November, 2005, three references of the company are pending before the BIFR and in the hearing held on 06.03.2006 by the BIFR, the representative of respondent was also present and on the said date, the company was declared sick and IDBI was appointed as the Operating Agency and on 21.11.2006 the company had submitted draft rehabilitation proposal before the BIFR, which 11 specifically provides for settlement of unsecured liabilities including the dues of the respondent.
14 Hence, it is stated that the insolvency notice U/S 6(2) of the Insolvency Act is not at all sustainable and is liable to be quashed since a person served with an insolvency notice can seek setting aside of the same if the decree or order is not executable under the provisions of any law and it is stated that on the date of issuance of the insolvency notice dated 11.08.2007, not only the reference of the company was pending before the BIFR but the respondent was also participating in the same and the company showing its bonafide intentions to settle the dues and had also submitted draft rehabilitation proposal before the BIFR. 15 It is further argued by the counsel for petitioners that by virtue of Section 22 (1) of SICA, no suit can be proceeded with, in such a case when a reference is pending before the BIFR, without the consent of board or the appellate authority as the case may be and counsel for petitioners has further argued that the meaning of "suit" as used in the second half potion of Section 22 (1) of SICA has been widened to a limited extent by the Hon'ble Supreme Court in the matter of Paramjeet Singh Patheja V. ICDS Ltd. AIR 2007 SC 168 and he has argued that the Hon'ble Supreme Court 12 has held that the word suit would mean, any proceeding adopted for the realisation of a right vested in a party by law. Hence, it is stated that the present proceedings initiated by the respondent by issuing insolvency notice U/S 6(2) of the Insolvency Act falls under the mischief of Section 22 of SICA, therefore, the present proceedings are liable to be quashed. 16 Counsel for petitioners has further argued that in terms of Section 32 of SICA, the same is having overriding effect over the provisions of any other law and in addition to this, SICA is a subsequent, special and beneficial Act and therefore, the protection given under it cannot be allowed to be defeated under the Provincial Insolvency Act, 1920. Counsel for petitioners has also argued that in terms of Section 18(8) of SICA, a sanctioned scheme is final and binding on the company as well as its creditors and it is also argued by the counsel for petitioners that the respondent has not filed any execution proceedings against the company and the guarantors being fully aware that same is barred under Section 22(1) of SICA. Consequently, it is prayed that the present insolvency notice is not at all sustainable and is liable to be quashed. 17 On the other hand, counsel for respondent has argued that Section 22 of SICA is not applicable to the facts and circumstances of the present 13 case as perusal of Section 22 of SICA would show that only suit for enforcement of any guarantee is stayed and vide said Section, the present proceedings cannot be stayed by any stretch of imagination and present proceedings cannot be termed as suit for enforcement of guarantee, as present proceedings are filed to challenge the insolvency notice U/S 6(2) of Provincial Insolvency Act, 1920 and he has further argued that the Hon'ble Supreme Court in the matter of Kailash Nath Aggarwal & Ors. Vs. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr. 2003 (4) SCC 305 was considering the scope of protection under Section 22 of SICA to guarantors and he has argued that the Hon'ble Supreme Court has held in the said judgment that only suit against guarantor of industrial company are stayed and not any other proceedings and he has also relied upon a judgment of Hon'ble High Court of Delhi 90 (2001) DLT 1 DB in support of his claim and the judgment of Hon'ble Supreme Court in the matter of BSI Ltd. & Anr. Vs. Gift Holdings Pvt. Ltd. & Anr. 2000 (2) SCC 737, wherein it has been held that complaint under Section 138 of Negotiable Instruments Act, 1881 against directors/guarantors would continue as they are not suit U/S 22 of SICA. 14 18 Counsel for respondent has further argued that the reliance of the petitioners on the judgment Paramjeet Singh Patheja Vs. ICDS Ltd. (supra) is completely distinguishable for the following reasons as the questions to be decided before the Hon'ble Supreme Court were i) Whether an arbitration award is a "decree" for the purpose of Section 9 of the Presidency Towns Insolvency Act, 1909? ii) Whether an insolvency notice can be issued under Section 9(2) of the Presidency Towns Insolvency Act, 1909 on the basis of an arbitration award?
19 And he has argued that reliance on para 61(vii) of the afore judgment, which reads "suit in Section 22 be given its plain meaning, namely any proceedings adopted for realisation of a right vested in party by law" cannot be stretched to include even insolvency notice and it has been further argued that it was a mere casual observation made by the Hon'ble Supreme Court and not ratio decidendi of the judgment, as every judgment has to be read in the context of the question raised before it, as the issue before the Hon'ble Supreme Court was not the expression word 'suit' appearing in Section 22 of SICA and regarding the ratio decidendi of the judgment, counsel for respondent has relied upon the judgment State of Orissa & Ors. Vs. MD Illiyas 2006 (1) SCC 15 275, wherein it has been held that " According to the well settled theory of precedents, every decision contains three basic postulates.... A decision is an authority for what it decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from various observations made in the judgment".
20 Counsel for petitioners has relied upon the judgments (1998) 5 SCC 554; (2006) 8 SCC 677; 127 (2006) DLT 367; Order dated 22.03.06 in CS (OS) No. 1590/2002; Order dated 22.01.07 in CM (M) No. 63/2006; 2005 (125) DLT 608; Order dated 01.10.02 in FAO (OS) No. 213/02; (2000) 5 SCC 515; (1993) 2 SCC 144; and (1990) 2 SCC 40.
Counsel for petitioners has also referred regarding the interpretation of Section 22(1) of SICA.
21 I have heard the rival contentions of the counsel for parties and perused the record and the judgments relied upon by the counsel for parties. It is the admitted case of the parties that when the judgment and decree dated 23.09.2003 was passed by the Hon'ble High Court of Mumbai in suit No. 374/2000, at that time, no reference of the company was 16 pending before the BIFR. However, later on, the company had filed fresh references before the BIFR and against the dismissal of previous reference they had preferred an appeal before the AAIFR, which appeal was allowed vide order dated 08.11.2005 and thereafter, vide order dated 06.03.2006, the company was declared sick and IDBI was appointed as the Operating Agency with directions to prepare a viability study report and revival scheme for the company if feasible and it is also the admitted case, that a representative of the respondent had also participated in the same. It is also the admitted case of the parties that the said decree dated 23.09.2003 has become final and binding, as the application filed by the petitioners for setting aside the decree dated 23.09.2003 was rejected by the Hon'ble High Court of Mumbai vide order dated 27.01.2005. Consequently, the said decree dated 23.09.2003 has become final and binding. 22 However, the question which falls for interpretation before this court is, whether the insolvency notice dated 11.08.2007 issued by the respondent is a suit or not because if the insolvency notice issued U/S 6(2) of the Insolvency Act falls within the definition of a suit, then the same cannot be continued with, in view of bar contained in Section 22 of SICA. 17 23 In this regard, Section 22(1) of SICA is reproduced as under:
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 implementation or where an appeal under Section 25 relating to an industrial company is pending, then, notwithstanding anything 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 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 [and no suit for the 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] shall lie or be proceeded with further, except with the consent of the Board or, as the case may be, the Appellate Authority."
24 Now, the question which has to be decided is, whether the present insolvency notice U/S 6(2) of the Insolvency Act,1920, falls under the definition of a suit or not. In this regard, counsel for petitioners has relied 18 upon various judgments(supra). The proposition of law laid down in the said judgments is not disputed, however, none of the judgments relied upon by the counsel for petitioners is applicable to the peculiar facts and circumstances of the present case, as none of the said judgments lay down the law that the insolvency notice issued U/S 6(2) of the Insolvency Act falls within the definition of a suit or not and therefore, in my respectful view, the afore judgments (supra) relied upon by the counsel for petitioners are not applicable to the peculiar facts and circumstances of the present case.
25 However, counsel for respondent has relied upon the judgment Kailash Nath Aggarwal & Ors. Vs. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr. 2003 (4) SCC 305, wherein in para 20 it has been held as under: "20. There is an apparent distinction between the expressions "proceeding" and "suit" used in Section 22(1). While it is true that two different words may be used in the same statute to convey the same meaning, that is the exception rather than the rule. The general rule is that when two different words are used by the same statute, prima facie one has to construe these different words as carrying different meanings. In Kanhaiya Lal 19 Vishindas Gidwam this Court found that the words "subscribed" and "signed" had been used in the Representation of the People Act, 1951 interchangeably and, therefore, in that context the Court came to the conclusion that when the legislature used the word "subscribed" it did not intend anything more than "signing". The words 'suit" and proceedings have not been used interchangeably in SICA. Therefore, the reasons which persuaded this Court to give the same meaning to two different words in a statute cannot be applied here."
26 Further, in para 30 of the aforesaid judgment, it has been held as under: "30. We have been unable to find a corresponding reason for widening the scope of the word "suit" so as to cover proceedings against the guarantor of an industrial company. The object for enacting SICA and for introducing the 1994 Amendment was to facilitate the rehabilitation or the winding up of sick industrial companies. It is not the stated object of the Act to protect any other person or body. If the creditor enforces the guarantee in respect of the loan granted to the industrial company, we do not see how the provisions of the Act would be rendered nugatory or in any way affected. All that could happen would be that the guarantor would step into the shoes of the creditors visavis the company to the extent of the liability met."
2027 From the said judgment, most specifically in para 30, wherein it has been held by the Hon'ble Supreme Court that scope of the word "suit" does not cover proceedings against the guarantor of an industrial company and the object for enacting SICA and for introducing the 1994 Amendment was to facilitate the rehabilitation or the winding up of sick industrial companies. It is not the stated object of the Act to protect any other person or body. If the creditor enforces the guarantee in respect of the loan granted to the industrial company, we do not see how the provisions of the Act would be rendered nugatory or in any way affected. All that could happen would be that the guarantor would step into the shoes of the creditors visavis the company to the extent of the liability met.
28 Further, a plain reading of Section 22 of SICA shows, that there is bar U/S 22 of SICA, for continuation of any suit for recovery or for the enforcement of any security against the industrial company or of any guarantee in respect of any loan or advance granted to the industrial company. It nowhere gives any protection to the guarantors in lieu of personal guarantee given by them for securing the loan advanced to the company, since it is settled law that a company is having a separate legal 21 entity and personality, separate and distinct from its member(s) and as per Indian Contract Act, the liability of guarantor is coextensive with that of principal debtors and is independent of principal debtor and what is being barred under Section 22 of afore Act, is the enforcement of any guarantee in respect of loan advanced to the industrial company. However, there is no bar regarding the enforcement of the personal guarantee(s) given by the guarantors for securing the loan to the company. Simple reason, would be, if the company and the guarantors are treated as one and the same person, then where was the need of getting the personal guarantee(s) at the time of lending loan to the company.
29 The very fact that personal guarantee deed(s) have been signed by the present petitioners in the present case, shows that it was clear, in the mind of the petitioners and respondent at the time of lending loan or executing loan agreement, that the liability of the guarantors was to be separate and independent from the liability of the company and it seems that the petitioners had signed the guarantee agreement dated 10.03.1999, being fully conscious of the fact that their liability in the said case would be personal and independent of any dues or liabilities of the 22 company. This is precisely the reason, why a personal guarantee is asked from the Directors at the time of lending loan to the company, so that a financial institution can recover dues from the guarantors, independent of the financial position of the company, whenever the loan is not paid or the guarantee is sought to be enforced against the guarantors, in case of nonpayment of dues by the company and it is quite possible that if no such like personal guarantee(s) are executed at the time of lending loan to the company, then the financial institution concerned may not lend any loan to the company at the first place itself as in said case, the loan would be totally unsecured.
30 Regarding the reliance upon the judgment by the counsel for petitioners AIR 2007 SC 168 titled as Paramjit Singh Patheja Vs. ICDS, the said judgment, in my respectful view, is not applicable to the peculiar facts and circumstances of the present case, as the question, which was in issue in the said judgment was whether any insolvency notice can be issued U/S 9 of the Presidency Towns Insolvency Act, 1909 on the basis of arbitration award and whether the execution proceedings in respect of said award cannot be proceeded with, in view of the statutory stay U/S 22 of SICA and in the said judgment, it was held by the Hon'ble 23 Supreme Court that an award does not satisfy any of the requirements of a decree. It is not rendered in a suit, nor is an arbitral proceeding commenced by the institution of a plaint and further, an award rendered under the provisions of the Arbitration Act, 1996 cannot be construed to be a decree for the purpose of Section 9(2) of the Insolvency Act and it was also held by the Hon'ble Supreme Court regarding Section 22 of SICA as under: " 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."
31 However, in my respectful view, the issue before the Hon'ble Supreme Court in the said case was not regarding the expression of the word 'suit' appearing in Section 22 of SICA and the only issue in question before the Hon'ble Supreme Court in the said case was, whether an 24 insolvency notice can be issued on the basis of arbitration award or not and therefore, in my respectful view, the observations made by the Hon'ble Supreme Court regarding Section 22 of SICA was not the ratio decidendi of the afore case, as the Hon'ble Supreme Court in the judgment State of Orissa & Ors. V. MD Illiyas 2006 (1) SCC 275 which is the judgment relied upon by the counsel for respondent, wherein it was held that according to the well settled theory of precedents, every decision contains three basic postulates. A decision is an authority for what it decides. What is of the essence in a decision is its ratio and not every observation found therein nor what logically flows from various observations made in the judgment.
32 And further, from the reading of the entire judgment it appears that the judgment rendered by the Hon'ble Supreme Court in the case Kailash Nath Aggarwal & Ors. Vs. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr. 2003 (4) SCC 305 (supra), was not considered by the Hon'ble Supreme Court in the said case and the Hon'ble Supreme Court in the judgment Kailash Nath Aggarwal & Ors. Vs. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. & Anr. 2003 (4) SCC 305, had clearly laid 25 down in para 30 that the word "suit" would not cover proceedings against the guarantor of the industrial company and the object for enacting SICA and for introducing the 1994 Amendment was to facilitate the rehabilitation or the winding up of sick industrial companies. It is not the stated object of the Act to protect any other person or body. If the creditor enforces the guarantee in respect of the loan granted to the industrial company, we do not see how the provisions of the Act would be rendered nugatory or in any way affected. All that could happen would be that the guarantor would step into the shoes of the creditors visavis the company to the extent of the liability met.
33 The said judgment is a clearcut judgment regarding the liability of guarantors and protection of guarantors U/S 22 of SICA. Consequently, in view of the aforesaid detailed discussion, the present petition of the petitioners U/S 6(5) of the Provincial Insolvency Act read with Section 151 CPC for quashing of the impugned notice dated 11.08.2007 issued U/S 6(2) of the Provincial Insolvency Act, 1920 is not maintainable and is dismissed. No order as to costs. File be consigned to Record Room.
Announced in the open court (Sanjeev Aggarwal) on 18.07.2008 InsolvencyJudge, Delhi.