1. The appellant is an Industrial Company against whom the respondent Bank filed OA No. 355/2002 on the file of DRT, Ernakulam. Before the DRT, the appellant filed an application IA-671/2003 contending that the appellant had already been declared as a sick industrial company by the BIFR (Board for Industrial and Financial Reconstruction). Under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985, as early as on 12.11.1999 and, therefore, as per Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985, no suit or other proceedings will lie against the appellant company and guarantors, without the leave of the BIFR and prayed for the dismissal of the OA but, however, the said application was filed under Section 19(25) of the RDDB&FI Act, 1993. The DRT dismissed the said petition on the ground that there is no merit in the said IA in view of the decision rendered by the Supreme Court in , Kailash Nath Agarwal and Ors., Appellants v. Pradeshiya Industrial & Investment Corporation of U.P. and Anr., respondents, and the same is under challenge in this appeal.
The point for consideration in this appeal is whether the protection given under Section 22(1) of SICA, to the Borrower, would enure to the benefit of the guarantor also.
2. The learned Advocate for the appellant would contend that the DRT had not passed any speaking order and the order passed is one line order. Even otherwise, the observation of the DRT is not proper in the light of the judgment relied upon by it.
3. In the judgment rendered by the Hon'ble Supreme Court, which was cited before the DRT, the issue that arose for the consideration of the Supreme Court was with regard to the scope of protection afforded in the Industrial Company and to the guarantors under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985, referred to as SICA. Before going through the various passages referred to by both the learned Advocate for the appellant and the respondent, it would be appropriate to rely upon the very section itself i.e. Section 22(1) of the SICA (Special Provisions) Act, 1985, which runs as under: "22. Suspension of legal proceedings, contracts, etc.--(1) Where in respect of an industrial company, an injury 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 Company Act, 1956 (I 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." 4. The section states, "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 any be, the Appellate Authority." The plain reading of the section would make it clear that the protection given was only to the industrial company i.e. the principal borrower, and not to the guarantor. The core of the subject which came for the decision before the Supreme Court was whether protection given to the industrial company is available to the guarantors also. As the section deals with two words namely, "Proceedings" and the "Suit", the Supreme Court went at length in discussing and distinguishing the meaning of proceedings and the suit.
It was held, "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." It was further observed that one of the reasons for the word 'proceedings' in Section 22(1) being construed widely by the Supreme Court in Maharashtra Tubes was that the proceedings were against the company itself. Having regard to the object of the Act viz., if possible to revive the company, as also the operation of the various sections towards this end, the Court held that it would be unreasonable to give such meaning to the word 'proceeding' as it would result in dealing a death blow to the company so that the entire procedure envisaged under the SICA would be set at naught. Ultimately, the Hon'ble Supreme Court held, "The phrase introduced by the 1994 amendment relates to the pre-decretal stage because recovery proceedings by way of execution is already covered under the first half of Sub-section (1) of Section 22. If the procedure under the U.P. Act is covered under the word 'proceeding' in the first limb of Section 22(1) of SICA, which it is according to Maharashtra Tubes, it is not a 'suit' for recovery under the second limb of that section. The proceedings under the U.P. Act are really recovery proceedings within the meaning of the word 'proceeding' as defined in Maharashtra Tubes.
Since Section 22(1) only prohibits recovery against the industrial company, there is no protection afforded to guarantors against recovery proceedings under the U.P. Act (Emphasis supplied)." It is, therefore, made clear that the protection given under Section 22(1) of the SICA would only enure to the benefit of the sick industrial company i.e. the principal borrower and not to the guarantor. But whereas in our case, the appellant is the industrial company which had already been declared as a sick industry (as early as in the year 1999) and, therefore, the entire proceedings have come to a halt. As such, no proceedings could be proceeded except with the consent of the BIFR. As such, the order passed by the DRT is liable to be set aside and, accordingly, it is set aside.
6. At this juncture, the learned Advocate for the respondent Bank submitted that the application filed by the appellant was not only for himself but also on behalf of the guarantor also. That in the said circumstances, it is made clear that the judgment rendered by the Hon'ble Supreme Court in , is so clear that Section 22(1) of the SICA (Special Provisions) Act, 1985, only prohibits recovery against the industrial company, and the said protection is not extended to the guarantors. As such, the respondent Bank is at liberty, if they are so advised, to proceed against the guarantors.