Calcutta High Court
Biswanath Bhuwania And Ors. vs Indian Bank And Anr. on 20 March, 2007
Equivalent citations: AIR2007CAL191, (2007)2CALLT627(HC), 2008(1)CHN412, AIR 2007 CALCUTTA 191, 2007 (5) AKAR (NOC) 615 (CAL), 2007 CLC 1122 (CAL), (2007) 2 CALLT 627, (2008) 1 CAL HN 412
Author: Dipankar Datta
Bench: Dipankar Datta
ORDER Dipankar Datta, J.
1. M/s. Anirox Pigments (hereafter the company) was extended credit facilities by the Indian Bank. The petitioners stood as guarantors to the credit facilities sanctioned to the company. By virtue of loss suffered by the company, on or about 12-12-2006 a reference was made under Section 15(1) of the Sick Industrial Companies (Special Provision) Act, 1985, (hereafter SICA) before the Board for Industrial and Financial Reconstruction (hereafter BIFR) and the same was registered as BIFR Case No. 1117/2006. The company also failed to liquidate its dues and a substantial amount remained unpaid to the Bank. It is in this background that the Bank issued a letter dated 13-1-2007 which has been made the subject-matter of challenge in the present petition. By the impugned letter, the petitioners were informed of freezing of savings accounts maintained by the petitioners 1 and 3 with it in view of the fact that the company had failed to repay the amount due to the Bank resulting in the account becoming NPA and subsequently the advance having been called back. This was done by the Bank in exercise of its right of general lien.
2. Mr. Talukdar, learned Counsel for the petitioners submitted that the action of the Bank in freezing the personal accounts of petitioners 1 and 3 maintained with the Bank was absolutely illegal and arbitrary having regard to the fact of pendency of the reference before the BIFR. He invited the attention of this Court to Section 22 of the SICA and submitted that till such time the reference was disposed of, the Bank could not have proceed to freeze the personal accounts of the petitioners 1 and 2. In support of such submission, he relied on the decisions of the Apex Court : Patheja Bros. Forgings and Stamping v. ICICI Limited (paragraphs 1, 5, 7 to 8 and 11) and : Real Value Appliances Limited v. Canara Bank (paragraphs 22 and 23). He, accordingly, prayed for an order from this Court for quashing of the order of freezing of accounts as contained in the letter dated 13-1-2007.
3. Mr. Dutta, learned Counsel representing the Bank submitted that in terms of the agreement of guarantee executed by the company as well as the petitioners, the Bank was entitled in law to pass the order impugned. He invited the attention of this Court to Clause 15 of the said agreement to contend that the same empowers the Bank to freeze the personal accounts of the guarantors in exercise of its right of general lien. He has referred to the decision of the Apex Court : Kailash Nath Agarwal v. Pradeshiya Industrial & Investment Corporation of U.P. Ltd. and submitted that neither the provisions of Section 22 of the SICA nor the judgment in Patheja Bros. (supra) protects the guarantors like the petitioners and, accordingly, prayed for dismissal of the writ petition.
4. To counter the judgment in Kailash Nath Agarwal (supra), Mr. Talukdar, learned Counsel cited before this Court the Constitution Bench decision of the Apex Court ; Central Board of Dawoodi Bohra Community v. State of Maharashtra. It is his submission that Patheja Bros. (supra) being a decision rendered by a quorum of three Learned Judges of the Apex Court, it was not open for the bench of the Apex Court deciding Kailash Nath Agarwal (supra) having lesser quorum to express any opinion inconsistent with the one expressed in Patheja Bros. (supra). Relying on the decision in Dawoodi Bohra (supra), he submitted that the decision delivered in Patheja Bros. (supra) was binding on the bench deciding Kailash Nath Agarwal (supra) and, therefore, the decision in Kailash Nath Agarwal (supra) is denuded of its efficacy as a binding precedent. Following the law laid down in Patheja Bros. (supra), he urged this court to grant relief as prayed for by the petitioners.
5. Since a pure question of law in relation to interpretation of Section 22(1) of the SICA being involved in the case, the parties agreed to final disposal of the writ petition without filing of affidavits.
6. It is not disputed by learned Counsel for the petitioners that had no reference been pending before the BIFR, the Bank would have been justified in issuing the impugned letter.
7. The sole question which, therefore, arises for determination in this writ petition is whether Section 22(1) of the SICA would protect the guarantors if a secured creditor wishes to enforce the agreement of guarantee by exercising its power of general lien.
8. Section 22(1) of the SICA provides that in case an inquiry under Section 16 is pending or any scheme referred to under Section 17 is under preparation or consideration by BIFR or any appeal under Section 25 is pending, then certain proceedings against the industrial company are to be suspended or presumed to be suspended. The nature of proceedings which automatically attract the provisions of suspension are:
• Winding up of the industrial company;
• Proceedings for execution of distress against the properties of sick industrial company;
• Proceedings for the appointment of receiver.
• Suit for recovery of money.
• Suit for enforcement of any security or any guarantee in respect of any loans or advances granted to the company.
9. In Patheja Bros. (supra), a suit for recovery of the amount of loan had been filed by the ICICI Bank Limited against the appellant company in which the guarantors were also impleaded and the guarantees were sought to be enforced. Considering the provisions of Section 22(1) of the SICA vis-a-vis the fact that an appeal was pending at the relevant time before the appellate authority, the Apex Court held that the suit filed by the ICICI Bank Limited for enforcement of the guarantee in respect of the. loans granted to the appellant company could not be proceeded with unless consent as required under Section 22 of the SICA was obtained.
10. In the decision of the Apex Court in Kailash Agarwal (supra) it appears that the decision in Patheja Bros. (supra) has been explained.
11. Facts in the case of Kailash Nath Agarwal (supra) are these. M/s. Shefali Papers Limited had been given loans by the respondent No. 1 which it failed to repay. By way of security Shefali Papers Limited had mortgaged its immovable properties and hypothecated its assets to respondent No. 1. In addition, bonds of guarantee were executed by the appellants in consideration for the grant of loans to Shefali Papers Limited. Shefali Papers Limited was declared sick by the BIFR on 1-12-1997. During pendency of the proceeding before BIFR notices of demand were served on the appellants by the respondents No. 1. Since they were personal guarantors in respect of loans granted to Shefali Papers Limited, the appellants replied to the demand notices stating that because of the decision of the Apex Court on the scope of Section 22(1) of the SICA, the respondent No. 1 could not enforce its demand against them. The said stand was rejected and the appellants were called upon to liquidate the dues. Instead of paying, the appellants filed a writ petition which was dismissed. Thereafter, recovery certificates had been issued which, however, were stayed pending disposal of the Special Leave Petitions before the Apex Court. Ultimately it was held by the Apex Court that the respondent No. 1 did have the authority to proceed against the guarantors.
12. It is to be borne in mind that in course of hearing of the civil appeal, a submission was advanced that the Apex Court in Patheja Bros. (supra) had clearly held that the legislative intent was to protect the guarantors since the guarantee given in respect of industrial company which was being revived under the Act is a fundamental part of its restructuring process.
13. Considering the provisions of the SICA and other judgments of the Apex Court, it was held in Kailash Nath Agarwal (supra) that the proceeding initiated by the respondent No. 1 against the appellants was not prohibited under Section 22 of the SICA. Relevant portions of the judgment of the Apex Court in Kailashnath Agarwal (supra) which would have the effect of putting a quietus to the argument advanced on behalf of the petitioners are quoted below:
27. Since the legislature has expressly chosen to make a distinction between the suits for recovery of the money and enforcement of guarantees and proceedings for the recovery of money, that must be given effect to.
28. Furthermore, Parliament must be taken to be aware of the decision in Maharashtra Tubes and the fact that the word "proceeding" used in Section 22(1) had been widely construed to include proceedings for recovery of dues by the State Financial Corporation as arrears of land revenue. The deliberate choice of the word "suit" in the circumstances would indicate that Parliament intended to limit the ambit of the amendment introduced to particular modes for the recovery of money or enforcement of guarantees.
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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 creditor visa-vis the company to the extent of the liability met. Considering the contents of paragraph 9 of the decision in Patheja Bros. (supra), it was observed as follows:
34. These observations do not mean that when the words used are unambiguous, other extrinsic interpretative aids such as the objects of the statute, or the difficulties that would be faced by creditors will be relevant in interpreting the expression. The Court in Patheja case merely observed that the creditor could recover its sum from the principal debtor under the scheme and, therefore, the claim on the guarantee would not arise if the amount is so recovered under the scheme. We do not read the observations quoted as holding that protection of guarantors of loans to a sick company is an object of the 1994 Amendment which object must colour our interpretation of the amendment. Till 1994 no protection was afforded to the guarantors under the Act at all. A limited protection has been given in 1994. The expression used being clear and unambiguous, it is not for us to question the wisdom of the legislature in giving the limited protection it did or why such protection was necessary at all.
14. In view of the proposition of law laid down in the decision of Kailash Nath Agarwal (supra), this Court holds that a proceeding for recovery of money against the guarantors would not be barred under Section 22(1) of the SICA and that the respondent /bank is not prohibited from proceeding against the petitioners, who are the guarantors in respect of the loan granted to the company and, consequently, the order freezing the personal accounts of the petitioners invoking the power to exercise general lien in terms of the agreement, is not unauthorised and not illegal.
15. It is settled law that reliance cannot be placed blindly on precedents. In this connection, the decision of the Apex Court : The State Financial Corporation v. Ms. Jagdamba Oil Mills being relevant is quoted below:
19. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are not to be read as Euclid's theorems nor as provisions of the statute. These observations must be read in the context in which they appear. Judgments of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for judges to embark into lengthy discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes, their words are not to be interpreted as statutes. In London Graving Dock Co. Ltd. v. Horton 1951 AC 737 at P. 761, Lord Mac Dermot observed:
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21. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.
22. The following words of Lord Denning in the matter of applying precedents have become locus classicus:
Each case depends on its own facts and a close similarity between one case and an other is not enough because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To. decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.
xxxx xxxx xxx Precedent should be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it.
16. The decision of the Apex Court : Regional Manager, Food Corporation of India v. Pawan Kumar Dubey is also relevant and paragraph 7 thereof is quoted below:
7. ******** It is the rule deducible from the application of law to the facts and circumstances of a case which constitutes its ratio decidendi and not some conclusion based upon facts which may appear to be similar. One additional or different fact can make a world of difference between conclusions in two cases even when the same principles are applied in each case to similar facts.
17. The facts of the cases dealt with by the Apex Court in Patheja Bros. (supra) and in Kailash Nath Agarwal (supra) were entirely different. While the former dealt with a case relating to filing of a suit for recovery of money, the latter dealt with a proceeding initiated under a local Act. The Apex Court in Kailash Nath Agarwal (supra), in very clear terms, has drawn a distinction between a suit for recovery of money and a proceeding for enforcement of guarantee. In the humble view of this Court, the law laid down in Kailash Nath Agarwal (supra) is apposite and its applicability in the facts of this case is unquestionable. The ratio laid down by the Apex Court in Dawoodi Bohra Community is strictly not applicable here since the facts before the Apex Court while deciding Patheja Bros. (supra) and Kailash Nath Agarwal (supra) were different, as noted above and the Apex Court decision in Patheja Bros. (supra) was explained and distinguished in Kailash Nath Agarwal (supra).
18. For the above reasons, the writ petition stands dismissed. However, there shall be no order for costs.
19. Urgent certified copy of this judgment, if applied for, be furnished to the applicant within 3 days from date of putting in requisites therefor.