Bombay High Court
Mrs. Padma Prafulla Shirke And Shri ... vs Maharashtra State Financial ... on 24 March, 2003
Equivalent citations: IV(2004)BC371, 2003(5)BOMCR634, 2003(3)MHLJ496, [2003]46SCL275(BOM)
Author: R.M. Lodha
Bench: R.M. Lodha, A.S. Aguiar
JUDGMENT R.M. Lodha, J.
1. M/s. Shivam Rolling Mills Pvt. Ltd. is a company incorporated under the Companies Act, 1956. The said company took loan from Maharashtra State Financial Corporation (for short MSFC). The company executed diverse documents for repayment of the said loan. For the purposes of securing the loan granted in favour of said company, the petitioners who are wife and husband respectively, gave collateral security of their (i) residential bungalow, admeasuring 800 sq. ft. at 4/26, Artistic Village, Sector VIII, New Mumbai and (ii) residential flat at Tarun Bharat Society, Chakala, Andheri (East). it appears that the said company fond itself in tremendous financial difficulty and ultimately a reference was made under Section 15(1) of Sick Industrial Companies (Special Provisions) Act, 1985 (for short 'SICA') to the Board for Industrial and Financial Reconstruction (BIFR) ON 29.12.1998 which was registered as case No. 361 of 1998. By order dated 26.5.99, the BIFR declared the said company as a sick company and appointed the State Bank of India as operating agency and directed the operating agency to formulate the rehabilitation scheme with certain directions. The said company submitted rehabilitation proposal to operating agency on 31.8.99 which was not accepted and later on revised rehabilitation scheme was submitted by the said company on 18.2.2000. In the meanwhile, by notice dated 21.1.2000, the respondent MSFC called upon the first petitioner to pay the due amount outstanding against the said company for which collateral security was furnished by her by way of mortgaging residential house at 4/26, Artistic Village, Sector VIII, New Mumbai. The first petitioner was informed that failing which MSFC shall take possession of the said residential house and dispose of the same pursuant to the power vested in it under Section 29 of the State Financial Corporations Act, 1951 (for short 'Act of 1951). The petitioners apprehend that MSFC may also take action in respect of their residential flat at Andheri in Tarun Bharat Society which was also mortgaged by way of collateral security to MSFC for due payment of the loan extended to the said company. By means of this writ petition, the petitioners seek to challenge the notice dated 21.1.2000 under Section 29 of the Act of 1951. They have also prayed that MSFC be restrained from adopting any proceeding under Section 29 of the Act of 1951 in respect of the residential bungalow situate at 4/26, Artistic Village, Sector-VIII, New Mumbai and residential flat at Tarun Bharat Society, Chakala, Andheri (East).
2. To complete the narration of facts, we may note here the events that took place subsequent to the filing of writ petition. BIFR by order dated 7th August, 2002 recommended winding up of the said company and aggrieved by the said order, the said company has preferred appeal on 13th September, 2002 and the appeal under Section 25 of the SICA is pending before Appellate Authority (AAIFR).
3. Mr. Prafulla Shah, the learned counsel for the petitioners made two-fold submission: (i) Under Section 29 of the Act of 1951, the power of MSFC is restricted to taking possession of the industrial unit only and that power does not extend to any other properly mortgaged or given as and by way of collateral security by the guarantor, and (ii) Under Section 22 of SICA once the industrial company is declared as a sick company, there is bar of adopting any proceeding for enforcement of any security not only against the industrial company but also against the guarantors without consent of the BIFR.
4. Mr. K.A. Setalwad, learned counsel appearing for the MSFC stoutly refuted the contentions of the learned counsel for the petitioners. He submitted that under Section 29 of the Act of 1951, the property secured and not belonging to industrial concern but belonging to third party, surety of guarantor could always be proceeded. In support of this submission, the learned counsel sought benefit from the following judgments: (a) Thressiamma Varghese v. Kerala State Financial Corporation and Ors. , (b) Ms. K.T. Sulochana Nair v. Managing Director, Orissa State Financial Corporation and Ors. , (c) Uttar Pradesh Financial Corporation v. Garlon Polyfeb Industries, , (d) Jasbir Kaur and Anr. v. Punjab State Industrial Development Corporation Ltd. and (e) unreported Division Bench judgment of this court in writ petition No. 3184 of 2002, Anil Ishwardas Sharma v. Maharashtra State Financial Corporation, decided on 1st July, 2002. In response to the second contention, the learned counsel for MSFC submitted that when Section 22 was amended to include within the perview of claims of recovery of money, the legislature used the expression 'suit' and not 'proceedings' and the intention was to confine the bar under the section to suits for recovery of money against the industrial concern and the guarantor. He urged that the proceedings under Section 29 of the Act of 1951 cannot be said to be barred against guarantor even if the proceedings in respect of the sick industrial company are pending before the BIFR or AAIFR. Mr. Setalwad in this connection placed reliance upon Lloyd Insulations (India) Ltd. v. Cement Corporation of India Ltd. 2001 Volume 105 Company Cases, page 729 and P.S. Srinivasan v. Mukesh Babu Financial Services Ltd. 2001 Volume 106 Company Cases, page 597.
5. We shall deal with the first contention first. Section 29 of the Act of 1951 reads thus:--
"29. Rights of Financial Corporation in case of default.-(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof [or in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the [right to take over the management or possession or both of the industrial concern], as well as the [right to transfer by way of lease or sale] and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers [* * *] under Sub-section (1), shall vest in the transferee all rights in or to the property transferred [as if the transfer] had been made by the owner of the property.
(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.
(4) [Where any action has been taken against an industrial concern] under the provisions of Sub-section (1), all costs, [charges and expenses which in the opinion of the Financial Corporation have been properly incurred] by it [as incidental thereto] shall be recoverable from the industrial concern and the money which is received by it [* * *] shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto.] (5) [Where the Financial Corporation has taken any action against an industrial concern] under the provisions of Sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of [the concern].
6. Section 29 empowers the Financial Corporation to take over the management or possession or both of the industrial concern where such industrial concern has committed default in repayment of any loan or advance or any instalment thereof or in meeting the obligations in relation to any guarantee given to the Financial Corporation or such industrial concern otherwise fails to comply with the terms of its agreement with the Financial Corporation. Section 29 also confers right on the Financial Corporation in case of default in addition to the right to take over management or possession or both of the industrial concern, the right to transfer by way of lese or ale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. The expression, "right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned" is wide enough to include sale and realisation of the property mortgaged by the surety or guarantor. This power is not restricted to the property belonging to industrial concern alone. By enacting Section 29, the Legislature has taken great care in ensuring speedy recovery of loans advanced by Financial Corporation. Section 29 is attracted whenever there is default by a borrowing industrial concern. Power conferred under Section 29 is comprehensive which includes the power to take over the management or possession of industrial concern and/or also power to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. The bare reading of Section 29 shows that it does not make any distinction between the assets of industrial concern and assets not belonging to industrial concern but nevertheless, mortgaged or hypothecated or pledged or assigned to the Financial Corporation. The assets whether belonging to industrial concern or not belonging to industrial concern but mortgaged to the corporation can be proceeded against under Section 29 by the Financial Corporation if the borrowing industrial concern has defaulted. On a plain construction of Section 29, we have no hesitation in holding that the property secured and not belonging to the industrial concern but belonging to third party surety or guarantor could always be proceeded against under Section 29. The view we have taken finds support from some of the decisions which we refer now.
7. In Thressiamma Varghese, the Division Bench of Kerala High Court was dealing with the question whether appellant therein or her properties cannot be proceeded against in proceedings initiated under Section 31 of the Act of 1951 and no such order could have been passed under Section 32 of the Act. The submission before Kerala High Court on behalf of the appellant therein was that Sections 31 and 32 create a special machinery, procedure, and jurisdiction for realisation of money due only from the industrial concern and that there was no express provision in the Act of 1951 whereby co-mortgagors or guarantors (other than the industrial concern which borrowed the money) could be proceeded against under the special jurisdiction of Sections 31 and 32 and the remedy against them would lie only in proceedings in a suit in a civil court under the provisions of the Transfer of Property Act. The Division Bench of Kerala High Court considered various provisions of Act of 1951. Particularly Sections 29, 30, 31 and 32 and with reference to the scheme provided in Sections 29 to 32, held thus:-
"That is why the provision does not indicate that assets mortgaged or hypothecated must belong to the industrial concern. Section 29 does not make any distinction between assets of the industrial concern and assets not belonging to the industrial concern but nevertheless mortgaged to the Corporation. Both kinds of assets can be proceeded against under Section 29. It is not possible or us to read into Section 29 a restriction to the effect that the right conferred on the Corporation thereunder is restricted to the right to proceed only against property belonging to the industrial concern and mortgaged to the Corporation. The provision would apply to property not belonging to the industrial concern but nevertheless mortgaged by the owners of the assets to the Corporation, as guarantee or security."
8. The Kerala High Court, thus, held that the composite reading of Sections 29, 31 and 32, leave no manner of doubt that the property secured and not belonging to industrial concern but belonging to a third party surety or guarantor also could be proceeded against thereunder.
9. The Division Bench of Orissa High Court through G.B. Patnaik, J. (as he then was) in Ms. K.T. Sulochana Nair held that Financial Corporation can take possession of the property mortgaged by the guarantor under Section 29(1) of the Act of 1951. The question for consideration before the Division Bench of Orissa High Court was whether the right conferred in Financial Corporation under Section 29 of the Act of 1951 extends over the property mortgaged with the Corporation by the guarantor or not. In para 4 of the report, the Division Bench held thus-
4. In view of the rival stands of the parties, the sole question that arises for consideration is whether a guarantor's property which had been mortgaged with the Corporation can be taken possession under Section 29 of the Act when the loanee did not pay up the loan amount. To appreciate the contention raised, it would be appropriate to extract Section 29(1) of the Act:-
"Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof for in meeting its obligation in relations to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession of both of the industrial concern as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation."
A bare reading of the aforesaid provision makes it abundantly clear that the Financial Corporation shall have the right to take over the management or possession of both the industrial concern as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. There is nothing in the aforesaid provision to indicate that the right under Section 29 of the Act is only in respect of the property of the loanee mortgaged with the Corporation. On the other hand, all properties mortgaged with the Corporation would come within the purview of Section 29 of the Act. Mr. Palit, however, with reference to the Full Bench decision of the Allahabad High Court argues with vehemence that a guarantor's property cannot come within the purview of Section 29 of the Act. In the aforesaid case, their Lordships of the Allahabad High Court after analysing the provisions contained in Sections 29, 31 and 32 of the Act came to hold that the speedy remedy contained in Section 31 of the Act is available not against the surety but against the borrower only. The aforesaid conclusion was based on reading of Sections 31 and 32 of the Act together more particularly Sub-section (4) of Section 32 of the Act. But the said conclusion, in our considered opinion, will not apply to an action under Section 29 of the Act. In fact, in the aforesaid decision, their Lordships also observed that there is no conflict between the two provisions contained in Sections 29 and 31 inasmuch as the right of the Corporation under Section 29 in general to proceed against the mortgaged property remains intact but could be enforced not by the speedy remedy provided for in Section 31 but by taking recourse to the general law. In other words, though the Corporation can take possession of the mortgaged property of a guarantor under Section 29 of the Act but cannot sale the same by taking recourse to the power conferred under Section 31 of the Act and, on the other hand, can only sale by following the ordinary law contained in the Transfer of Property Act and the Code of Civil Procedure. But at the same time there cannot be any fetter on the power of Corporation under Section 29 to take possession of the property of the surety also. In this view of the matter, we do not find any infirmity in the letter of the Corporation, annexed as Annexure-7, and the Full Bench decision of the Allahahad High Court, on which Mr. Palit relied upon, does not support the contention raised by the learned counsel for the petitioner."
10. The Division Bench of Allahabad High Court recently in Garlon Polyfeb Industries (Supra) took the view that under Section 29 of the Act of 1951, Financial Corporation can proceed against guarantors of defaulting company and it is not the requirement of law that the Financial Corporation should first initiate proceedings to recover amount from hypothecated property of the company. In paras 8, 9 and 10 of the report, the Division Bench of Allahabad High Court held thus-
"8. The terms of the guarantee executed by the plaintiffs Nos. 4 and 5 show that they executed the bond wherein it was agreed that the money due from the company could be recovered from them and it was not necessary for the defendant to first proceed against the company for recovery of the amount. The condition No. 7 shows that the liability of the plaintiffs Nos. 4 and 5 shall arise on demand being made and the amount due could be recovered as arrears of land revenue. There is no condition in the bond of the guarantee executed by plaintiffs Nos. 4 and 5 that the defendant UPFC shall first initiate proceedings under Section 29 of the Act or shall first proceed to recover the amount from the properties which had been hypothecated in its favour and only thereafter proceed against the plaintiffs Nos. 4 and 5. Under the terms of the guarantee, UPFC could straightaway proceed to recover the amount from the plaintiffs Nos. 4 and 5 before taking any step to recover the same from the companies (Plaintiffs Nos. 1 and 2).
9. Section 128 of the Contract Act provides that the liability of the surety is coextensive with that of the principal debtor unless it is otherwise provided by the contract. This provision was considered in State Bank of India v. Ind/export Regd., and it will be useful to reproduce the paragraphs 14, 15, 16, 17 and 18 of this judgment:-
"14. In Pollock & Mulla on India Contract and Specific Relief Act, Tenth Edition, at page 728 it is observed thus:
"Co-extensive - Surety's liability is co-extensive with that of the principal debtor.
A surety's liability to pay the debt is not removed by reason of the creditor's omission to sue the principal debtor. The creditor is not bound to exhaust his remedy against the principal before suing the surety, and a suit may be maintained against the surety though the principal has not been sued."
15. In Chitty on Contracts, 24th Edition, Volume 2 at page 1031, paragraph 4831 it is stated as under:
"Conditions precedent to surety prima facie the surety may be proceeded against without demand against him, and without first proceeding against the principal debtor."
16. In Halsbury's Laws of England, Fourth Edition, Vol. 20, paragraph 159 at page 87 it has been observed that "It is not necessary for the creditor, before proceeding against the surety, to request the principal debtor to pay, or to sue hi, although solvent, unless this is expressly stipulated fro."
17. In Hukumchand Insurance Co. Ltd. v. Bank of Baroda a Division Bench of the High Court of Karnataka had an occasion to consider the question of liability of the surety vis-a-vis the principal debtor. Venkatchaliah, J. (as His Lordship then was) observed: (Para 12) "The question as to the liability of the surety, its extent and the manner of its enforcement have to be decided on first principles as to the nature and incidents of suretyship. The liability of a principal debtor and the liability of a surety which is co-extensive with that of the former are really separate liabilities although arising out of the same transaction. Notwithstanding the fact that they may stem from the same transaction, the two liabilities are distinct. The Liability of the surety does not also, in all cases, arise simultaneously."
18. It will be noticed that the guarantor alone cold have been sued, without even suing the principal debtor, so long as the creditor satisfies the Court that the principal debtor is in default."
Thus there cannot be even a slightest doubt that the UPFC is entitled to recover the amount even before taking any proceedings against the principal i.e. plaintiffs Nos. 1 and 2.
10. Under the State Financial Corporation Act several modes have been given to recover the loan. In A.P. State Financial Corporation v. Gar Re-rolling Mills it was held that the Corporation is not bound to adopt only one of the remedies provided under the Act and it can recover the amount by taking recourse to Section 31 of the Act but withdraw or abandon it at any stage and take recourse to the provisions of Section 29 of the Act. It was further held that while the Corporation cannot simultaneously pursue two remedies, it is under no disability to take recourse to the rights and remedy available to it under Section 29 of the Act, even after an order under Section 31; has been obtained but without executing it and withdraw from those proceedings at any stage. This authoritative pronouncement shows clearly that it is open to the UPFC to recover the amount in any manner. If the law permits several modes to recover the amount, the debtor cannot dictate which mode should be adopted by the creditor. It is therefore not permissible for a Court to issue an injunction directing UPFC to first proceed under Section 29 of the Act. Such an order is wholly against the provisions of the State Financial Corporation Act and also the Contract Act. The impugned order dated 6.1.2001 therefore cannot be sustained and has to be set aside."
11. Interalia, the question before the Division Bench of Punjab and Haryana High Court in Jasbir Kaur was whether the action of Punjab State Industrial Development Corporation in ordering that "the possession of the properties including collateral securities"..... "mortgaged/hypothecated property..... for the recovery of outstanding dues" was illegal. The Punjab and Haryana High Court held that the provisions of Section 29 can be invoked by State Financial Corporation to take over the property of the industrial concern as well as that of the surety or a guarantor. In para 20 of the report, the Division Bench of Punjab and Haryana High Court held thus-
"20. Thus, the first contention raised by the learned counsel for the petitioners is rejected. It is held that the provisions of Section 29 can be invoked by a State Financial Corporation to take over the property of the industrial concern as well as that of the surety or a Guarantor. Since the petitioners had admittedly mortgaged their property, the action of the Corporation in ordering the taking over of the two houses was absolutely legal and valid."
12. Incidentally, we may note that before the Kerala High Court as well as Orissa High Court, the Full Bench decision of the Allahahad High Court in Munnalal Gupta v. Uttar Pradesh Financial Corporation and Anr. was cited but the Kerala High Court expressed its respectful disagreement with a view taken by the Full Bench of Allahahad High Court in Munna Lal Gupta and the Division Bench of Orissa High Court explained the decision of Full Bench of allahahad High Court. In Munnalal Gupta, Full Bench of Allahahad High court though held that right extended to the Financial Corporation under Section 29 would extended to the property of surety also but qualified the said statement by holding that such a right can be enforced by taking recourse to the ordinary law contained in the Transfer of Property Act and the Code of Civil Procedure. The Kerala High Court in Thressiamma Verghese expressed disagreement with the said view of Full Bench of Allahabad High Court by observing in para 23 of the report thus-
"23. We have been taken through the Division Bench decision of the Allahabad High Court in U.R.F. Corporation v. D.I. (P) Ltd., 1971 All LJ 756 and the Full Bench decision of the Allahabad High Court in Munnalal v. U.P. Financial Corporation, . We are in respectful agreement with the view taken by the Division Bench. With great respect, we are unable to follow the view taken by the Full Bench. Statement of Objects and Reasons of the Act states that the Corporation will have special privileges in the matter of enforcement of its claims against borrowers. The Full Bench appears to have taken the view that the expression "borrower" is significant and limited to the industrial concern. With respect, we do not think that the expression used in the Statement of Objects and Reasons should be viewed in such a strict light. We have no doubt that the expression "borrower" has been used compendiously to take in all persons who render themselves liable under the loan transaction. We are also unable to agree that the absence of specific provision in Section 32 to issue notice to a third party surety is an indication of the legislative intention that such a surety cannot be proceeded against thereunder. The scheme of provisions of Sections 29, 31 and 32 would clearly indicate that the remedy under Section 32 is available against a third party surety who has mortgaged his property also and the audi alteram rule could be read into Section 32. We are unable to find any rationale in the view that while the Legislature wanted the money to be recovered from the industrial concern by making available expeditious remedy under Section 32. Legislature was satisfied with the delay-prone remedy by way of civil suit against the third party surety. For these reasons, with great respect. For these reasons, with great respect we are unable to follow the view taken in the latter decision of the Allahabad High Court."
13. The Orissa High court while explaining the judgment of Munnalal Gupta given by the Full Bench of Allahabad High Court observed that there is no conflict between the two provisions contained in Sections 29 and 31 inasmuch as the right of the Financial Corporation under Section 29 in general to proceed against the mortgaged property remains intact but could be enforced not by the speedy remedy provided for in Section 31 but by taking recourse to the general law. The Orissa High court observed that there cannot be any fetter on the power of the Financial Corporation under Section 29 to take possession of the property of the surety also. In our view also, once it is held that Section 29 confers a right upon the Financial Corporation to take over the management of industrial concern or realise the mortgaged property by way of lease or sale, then apparently such right given to the Corporation under Section 29 extends to the property of surety also, we hardly find any justification in holding that such a right can be enforced by taking recourse to the ordinary law contained in the Transfer of Property Act and the Code of Civil Procedure, as observed by the Full Bench of Allahabad High Court in Munnalal Gupta. It would not be out of place to mention here that the Division Bench of this Court in writ petition No. 3184 of 2002, Anil Ishwardas Sharma v. Maharashtra State Financial Corporation, decided on 1st July, 2002 also held that in exercise of the power under Section 29 of the Act of 1951, it is open to the Financial Corporation to realise the dues from surety or from guarantor. The Division Bench of this court in Anil Ishwardas Sharma (supra) held thus-
"In our opinion, it is clear that in such cases, it is open to the Financial Corporation to realise the dues from surety or from guarantor. Since Thomas stood as a guarantor and executed collateral security, the amount due could be recovered from such security. It, therefore, cannot be said that action against the said collateral security and property by the Corporation in exercise of its power under Section 29 of the Act is illegal or unlawful. The contention has no force and must be rejected."
14. Thus, we hold without any hesitation and any manner of doubt that the Financial Corporation in exercise of their right conferred on it under Section 29 of the Act of 1951 can proceed and take possession of the property mortgaged by the surety or guarantor and such realisation cannot be said to be inconsistent with the legal provisions or contravention of law.
15. We now advert to the second contention raised by the learned counsel for the petitioner Section 22 of SICA after it was amended by Act 12 of 1994, reads thus-
"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 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 [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 (2) Where the management of the sick industrial company is taken over or changed [in pursuance of any scheme sanctioned under Section 18] notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), or any other law or in the memorandum and articles of association of such company or any instrument having effect under the said Act or other law-
(a) it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company;
(b) no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the Board.
(3) [Where an inquiry under Section 16 is pending or any scheme referred to in Section 17 is under preparation or during the period] of consideration of any scheme under Section 18 or where any such scheme is sanctioned thereunder, for due implementation of the scheme, the Board may by order declare with respect to the sick industrial company concerned that the operation of all or any of the contracts, assurances of property, agreements, settlements, awards, standing orders or other instruments in force, to which such sick industrial company is a party or which may be applicable to such sick industrial company immediately before the date of such order, shall remain suspended or that all or any of the rights, privileges, obligations and liabilities accruing or arising thereunder before the said enforceable with such adaptations and in such manner as may be specified by the Board.
Provided that such declaration shall not be made for a period exceeding two years which may be extended by one year at a time so, however, that the total period shall not exceed seven years in the aggregate.
(4) Any declaration made under Sub-section (3) with respect to a sick industrial company shall have effect notwithstanding anything contained in the Companies Act, 1956 (1 of 1956), of any other law, the memorandum and articles of association of the company or any instrument having effect under the said Act or other law or any submission, settlement or standing order and accordingly,-
(a) any remedy for the enforcement of any right, privilege, obligation and liability suspended or modified by such declaration, and all proceedings relating thereto pending before any court, tribunal, officer or other authority shall remain stayed or be continued subject to such declaration; and
(b) on the declaration ceasing to have effect-
(i) any right, privilege, obligation or liability so remaining suspended or modified, shall become revived and enforceable as if the declaration had never been made; and
(ii) any proceedings so remaining stayed shall be proceeded with subject to the provisions of any law which may then be in force, from the stage which had been reached when the proceedings became stayed.
(5) In computing the period of limitation for the enforcement of any right, privilege, obligation or liability, the period during which it or the remedy for the enforcement thereof remains suspended under this section shall be excluded."
16. We may note that by Act 12 of 1994 in Section 22(1) of SICA, the expression "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" was inserted. The unamended provision of Section 22 came up for consideration before the Supreme Court in Maharashtra Tubes Ltd. v. State Industrial & Investment Corporation of Maharashtra Ltd. and Anr. . The question before the Apex Court was whether in a case where an industrial concern makes any default in repayment of any loan or advance or any instalment thereof or otherwise fails to meet its obligations under the terms of any agreement with the Financial Corporation, such as the State Industrial & Investment Corporation of Maharashtra Ltd. (respondent therein), can the latter take recourse to Sections 29 and/or 31 of the Act of 1951 notwithstanding the bar of Section 22 of SICA. Dealing with this question the Supreme Court in paras 9, 11, 12 and 14, observed thus-
"9. Having reached the conclusion that both the 1951 Act and the 1985 Act are special statutes dealing with different situations- the former providing for the grant of financial assistance to industrial concerns with a view to boost up industrialisation and the latter providing for revival and rehabilitation of sick industrial undertakings, if necessary, by grant of financial assistance, we cannot uphold the contention urged on behalf of the respondent that the 1985 Act is a general statute covering a larger number of industrial concerns than the 1951 Act and, therefore, the latter would prevail over the former in the event of conflict. Both the statutes have competing non obstante provisions. Section 46B of the 1951 Act provides that the provision of that statute and of any rule or order made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force whereas Section 32(1) of the 1985 Act also provides that the provisions of the said Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law. Section 22(1) also carries a non obstante clause and says that the said provision shall apply notwithstanding anything contained in Companies Act, 1956 or any other law. The 1985 Act being a subsequent enactment, the non obstante clause therein would ordinarily prevail over the non obstante clause found in Section 46-B of the 1951 Act unless it is found that the 1985 Act is a general statute and the 1951 Act is a special one. In that event the maxim generalia specialibus non derogant would apply. But in the present case on a consideration of the relevant provisions of the two statutes we have come to the conclusion that the 1951 Act deals with pre-sickness situation whereas the 1985 Act deals with the post-sickness situation. It is, therefore, not possible to agree that the 1951 Act is a special statute vis-a-vis the 1985 Act which is a general statute. Both are special statutes dealing with different situations notwithstanding a slight overlap here and there, for example, both of them provide for grant of financial assistance though in different situations. We must, therefore, hold that in cases of sick industrial undertakings the provisions contained in the 1985 Act would ordinarily prevail and govern.
11. Mr. Rao, however, invited our attention to the definition of the expression legal proceedings as found in Black's Law Dictionary (Fourth Edition) which reads as under:
"Any proceedings in court of justice...by which property of debtor is seized and diverted from his general creditors... This term includes all proceedings authorised or sanctioned by law, and brought or instituted in a court of justice or legal tribunal, for the acquiring of a right or the enforcement of a remedy."
Even this definition does not militate against the view we are inclined to take. In the first place action under Section 29 of the 1951 Act is to seize the property of the defaulting industrial concern and to appropriate it for satisfying the debt. It gets diverted from the general body of creditors. The Corporation is fully empowered to dispose it of to a third party and pass a clear marketable title. All this can be done by the Corporation without the need to go to a court or tribunal or any other recovery agency. The Corporation is itself permitted to play that role. In substance the Corporation is playing the same role. From the point of view of quality and character the remedy is the same as in execution or distress proceedings. Therefore, even if one goes by the said meaning and understands the term proceedings in the light of the object and purpose of Section 22(1) of the 1985 Act, no difficulty is experienced in taking the view that it must be widely construed.
12. Reliance was placed on decisions of two High courts in support of the contentions urged on behalf of the appellant-company. We shall deal with them briefly. In Testeels Ltd. v. Radhaben Ranchhodlal Charitable Trust the short point for decision was whether a winding up proceeding already commenced against an industrial company ought to be dismissed or stayed during the pendency of the reference under Section 15 of the 1985 Act. The High Court held that the words be proceeded with further in Section 22 cannot be interpreted to mean that the proceedings should be kept in abeyance but the various provisions of the enactment must be construed to put an end to both the contemplated and pending winding up proceedings. The High Court held that if the winding up proceedings are kept pending it may be difficult to effectively administer the schemes under Section 18 or grant financial assistance under Section 19 of the 1985 Act. The High Court held that the provision must be broadly construed keeping in mind the scheme of the law so that the ultimate objective is achieved and not defeated. In the other case of Industrial Finance Corporation of India v. Maharashtra Steel Ltd. the view taken was that pending enquiry by the BIFR the exercise of power under Section 30 of the 1951 Act would not be proper in view of Section 22(1) of the 1985 Act. Section 30 empowers the Financial Corporation to require an industrial concern by notice to discharge its liabilities before the agreed date. Even though no legal proceedings are contemplated under that provision, the High Court did not permit such an action during the pendency of proceedings under the 1985 Act. These two cases reinforce the view that the provision of Section 22(1) of the 1985 Act should receive a broad construction. These cases, therefore, support the view that the expression proceedings in Section 22(1) need not be limited to 'legal proceedings' understood in the narrow sense notwithstanding the use of that expression in the marginal note.
14. Now we come to the impugned decision. The High Court was considerably influenced by the fact that the appellant-company owed crores of rupees to banks and felt that so far as such creditors are concerned, different considerations may come into play but the High Court with respect failed to appreciate that the 1985 Act was enacted primarily to assist sick industrial undertakings which inter alia failed to meet their financial obligations. It is, therefore, difficult to accept the view of the High Court that where the creditors of a sick industrial concern happen to be banks or State Financial Corporations different considerations would come into play. It must be realised that in the modern industrial environment large industries are generally financed by banks and statutory corporations created specially for that purpose and if they are permitted to resort to independent action in total disregard of the pending inquiry under Sections 15 to 19 of the 1985 Act the entire exercise under the said provisions would be rendered negatory by the time the BIFR is able to evolve a scheme of revival or rehabilitation of the sick industrial concern by the simple device of the Financial Corporation resorting to Section 29 of the 1951 Act. We are, therefore, of the opinion that where an inquiry is pending under Section 16/17 or an appeal is pending under Section 25 of the 1985 Act there should be cessation of the coercive activities of the type mentioned in Section 22(1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. The expression 'proceedings' in Section 22(1), therefore, cannot be confined to legal proceedings understood in the narrow sense of proceedings in a court of law or a legal tribunal for attachment and sale of the debtor's property."
17. The Supreme Court, thus, held that where an inquiry is pending under Sections 16/17 or an appeal is pending under Section 25 of the SICA, there should be cessation of the coercive activities of the type mentioned in Section 22(1) to permit the BIFR to consider what remedial measures it should take with respect to the sick industrial company. The Supreme Court went on to hold that the expression proceedings in Section 22(1) cannot be confined to legal proceedings understood in the narrow sense of proceedings in a court of law or a legal tribunal for attachment and sale of the debtor's property. Placing strong reliance on the judgment of Supreme Court in Maharashtra Tubes, the learned counsel for the petitioner submitted that the initiation of proceedings under Section 29 of the Act of 1951 against the guarantor of the industrial company for which the proceedings are pending under SICA, is bad in law as any sort of proceeding against the guarantor is also barred under Section 22 of SICA. We are afraid, the reliance placed by the learned counsel for the petitioners on the judgment of the Supreme Court in Maharashtra Tubes Ltd. for the proposition advanced is misplaced and misconceived. The Apex Court in Maharashtra Tubes Ltd., as already noted above, was seized with the question whether in case where an industrial concern makes any default in repayment of any loan or advance or any instalment thereof or otherwise fails to meet its obligation under the terms of any agreement with the Financial Corporation, can such Financial Corporation takes recourse to Section 29 and/or 31 of the Act of 1951. The question before us is not relating to industrial concern but pertains to the guarantor/surety of industrial concern. Of course, in respect of such industrial concern proceedings under SICA are pending. Under the then provisions of Section 22 obtaining prior to amendment introduced by way of Act 12 of 1994, there was no prohibition or bar for proceeding against the guarantor of industrial concern either for recovery of amount by way of suit or any mode whatsoever. By Act 12 of 1994 Section 22 has been amended and in respect of industrial company, where an inquiry under Section 16 is pending or any scheme referred to in Section 17 is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 is pending, 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 proceeded with, save and except the permission of BIFR or the appellate authority as the case may be. What is additionally barred by the amended provision of Section 22 is the suit for recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company. The proceedings under Section 29 of the Act of 1951 against the guarantor or surety of the industrial company cannot be said to be barred under Section 22 of SICA since such proceedings are not suit as the expression suit is ordinarily understood. After the amendment in Section 22, two different expressions viz. 'proceedings' and 'suit' are used by Legislature in that section itself. It provides for that no proceedings for the winding up of the industrial company or for execution, distress or the like against the properties of industrial company or for the appointment of receiver in respect thereof shall lie or be proceeded with in respect of the industrial company where an enquiry 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 except with the consent of BIFR and AAIFR. The Apex Court in Maharashtra Tubes Limited held that the expression 'proceedings' in Section 22 has to be given wider meaning and has to be broadly construed and not to confine it to legal proceedings and once that broad meaning is given, obviously, the proceedings under Section 29 and/or 31 of the Act of 1951 would be covered by that expression but that is only in respect of industrial company. However by Act 12 of 1994, Section 22 has been amended and bar created by providing that no suit for recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loan or advance granted to the industrial company shall lie or be proceeded with except with the consent of BIFR or AAIFR as the case may be. By use of the expression 'suit' in contradistruction to the expression 'proceedings', the intention of the Legislature was to confine the bar under the section to suits for recovery of money alone. The expression 'suit' has to be understood as is understood in common parlance viz. suit which is filed in the civil court. Apparently, by use of two different expressions 'proceedings' and 'suit' in the same section, the Legislature has distruction of two expressions in mind and, therefore, it cannot be held that Legislature by using the expression 'suit' merely gave nomenclature to the legal proceedings and that intention of Legislature was to suspend all legal proceedings for recovery of money or for enforcement of any security against the industrial company or of any guarantee in respect of any loans or advance granted to the industrial company. In our considered view, the expression 'suit' occurring in Section 22 after amendment by Act 12 of 1994 cannot be given wider meaning to comprehend all legal proceedings. The suit ordinarily means and must be taken to mean and unless context otherwise so permits in civil proceedings instituted by presentation of plaint. Again, the proceeding which does not commence with the plaint or where claim is not in respect of dispute ordinarily triable in civil court, it could not be regarded as suit unless context demands otherwise. By way of amendment, the Legislature has deliberately in contradistinction to the expression 'proceedings' already occurring in Section 22, has used the expression 'suit' in so far as claim for recovery of money is concerned. The Legislature had in mind that as far as winding up, execution, distress are concerned, no proceedings of this nature shall lie or be proceeded with against industrial company except with the consent of the Board or the appellate authority, as the case may be. By amendment the claim or recovery of money by way of suit has also been barred. When the Legislature in the same provision uses two expressions, obviously, it has the distinction of two expressions in mind else, the Legislature could have used the word 'proceedings' in the matters of recovery of money as well when the amendment was introduced in Section 22 by Act 12 of 1994. In our considered view, the expression 'suit' in Section 22 relates only to the civil suit in the court of law which are governed by Section 9 of Civil Procedure code. In this view of the matter, the proceedings under Section 29 of Act of 1951 against the guarantor or surety of the industrial company in respect of which proceedings are pending before BIFR for enquiry or any scheme referred to under Section 17 in respect of such industrial company is under implementation or where an appeal under Section 25 of such industrial company is pending cannot be said to be barred under Section 22 of SICA.
18. The Division Bench of Delhi High Court in Lloyd Insulations (India) Ltd. (Supra) had occasion to consider Section 22 of SICA 1985 after amendment by Act 12 of 1994 and it was held that the word 'suit' occurring in Section 22(1) relates only to civil suits in the court of law. The only intention of Legislature was to confine the bar under Section 22 to suits alone and not include the proceedings under the Arbitration Act.
19. In the light of the legal position already discussed by us above, we are of the considered view that even if the proceedings against the industrial company viz. M/s. Shivam Rolling Mills Pvt. Ltd. are pending before the appellate authority under Section 25 of SICA 1985, there is no bar in proceedings against the present petitioners as guarantors for realisation of the property mortgaged by them as security under Section 29 of the Act of 1951. Section 22 of SICA is not attracted at all.
20. Writ petition, accordingly, is liable to be dismissed which we order hereby. Rule is discharged. No costs.
21. Mr. P.B. Shah, learned counsel for the petitioners orally prays for stay of our order. For a period of eight weeks, we direct that statements made by learned counsel for respondent on 7.3.2000 before this court shall continue.