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R.K. Dewan And Ors. vs State Of U.P. And Ors.

High Court Of Judicature at Allahabad|23 December, 2004

JUDGMENT / ORDER

JUDGMENT
1. The present writ petition has been filed questioning the legality of the recovery proceeding initiated against the petitioners with a prayer to quash the recovery citations, dated 11.12.2004, issued to the petitioners on the ground that the recovery proceedings are without jurisdiction and reliance has been placed by the learned counsel for the petitioners in the case of Pawan Kumar Jain v. PICUP and Ors., (2004) 6 JT 305.
2. Petitioner Nos. 1 to 3 were the Directors of the Company and had also executed personal guarantee for the loan amount in favour of respondent No. 3. The said petitioners continued as Directors. Petitioner Nos. 4 to 6 are the sons of the persons who were either the Directors of the Company and some have also executed personal guarantee along with the other Directors in favour of respondent No. 3. Along with the supplementary affidavit filed on 21.12.2004, the petitioners have filed a copy of the hypothecation deed and Photostat copy of the personal guarantee executed by five persons including the petitioner Nos. 1 to 3. On behalf of the respondents an affidavit has been filed bringing on the record the letter/communication sent by the respondent No. 3 to the Collector intimating the Collector that the certificate of recovery issued in the year 2001 had been wrongly returned by the Collector on an erroneous assumption and, as such, the said certificate was being redirected for being executed. The letter clearly discloses that the certificate of recovery had been issued on 18.9.2001. The aforesaid fact of the certificate of recovery having been issued in the year 2001 has neither been stated nor disclosed either in the writ petition filed by the petitioners or in the supplementary affidavit referred to herein earlier.
3. We have heard Sri Sudhir Chandra, learned Senior Counsel assisted by Sri Vivek Chaudhary on behalf of the petitioners. Sri Anurag Khanna, learned Counsel appearing on behalf of respondent No. 3 and learned Standing Counsel on behalf of respondent Nos. 1, 3 and 4.
4. Sri Sudhir Chandra has made three principal submissions on behalf of the petitioners. The first submission is that since the company is already registered with BIFR under the provisions of Sick Industrial Company Special Provision Act, 1985, therefore, no proceeding for recovery could have been initiated against the petitioner. Quoting further, Sections 17, 18 and 19 of the SICA Act 1985, Sri Sudhir Chandra has submitted that even otherwise the recovery could not have been made without complying with the procedure and without taking into account the factors contemplated under Section 19 of the said Act.
5. The second submission of Sri Chandra is to the effect that the ratio of the case, Pawan Kumar Jain v. PICUP and Ors., (2004) 6 JT 305, squarely covers the case of the petitioners as they being the guarantors cannot be proceeded against without selling of the property of the principal debtor.
6. The third submission made by the learned Counsel for the petitioners is to the effect that the ratio in the case of Kailash Nath Agarwal and Ors. v. PICUP and Anr., (2003) 4 SCC 305, cannot be made applicable as the petitioners are now protected in view of Pawan Kumar Jain's case (supra).
7. Replying to the aforesaid contentions advanced on behalf of the petitioners, Sri Anurag Khanna, learned Counsel for respondent No. 3, has relied upon Kailash Nath Agarwal's case and has urged that the writ petition is squarely covered by the aforesaid decision and, therefore, deserves to be dismissed. He has further urged that the case of Pawan Kumar Jain is clearly distinguishable inasmuch as in Pawan Kumar Jain's case the company had not been registered under BIFR and that the recovery proceeding initiated in the present case being prior to 24.1.2004, the said decision would not apply to the present case. He has further taken us through the terms of the guarantee bond, and in order to sustain the liability on the guarantors, has relied upon the two decisions of the Apex Court rendered by a three Judges Bench to establish that the recovery can been enforced against the guarantors. The liability of the surety, according to the aforesaid decisions, is coextensive with that of the principal debtor. He has also filed on record the certificate of recovery dated 18.9.2004, which has been redirected to be enforced by respondent No. 3 through the Collector and also the letter dated 2.11.2004 as Annexure-SA-1 and Annexure-SA-2 respectively.
8. Another argument had been advanced by Sri Sudhir Chandra to the effect that the petitioner Nos. 4 to 6 cannot be proceeded against, as they by themselves have not executed any guarantee and that merely they happened to be the successors of the persons who had executed the guarantee bonds and therefore cannot be fastened with the liability of the original guarantors. Sri Anurag Khanna has refuted the aforesaid submission on the ground that since petitioner Nos. 4 to 6 have inherited the estate of the previous guarantors, they cannot be absolved from their responsibility and liability in law.
9. Having heard the learned Counsel for the parties, and noted their submissions herein above our conclusions are as follows. It is clear from the certificate of the recovery issued on 18.9.2001, that proceedings of recovery were initiated much earlier to the notification by the Central Government made on 24.1.2004, notifying the respondent 3 under the Debt Recovery Act. The contention of Sri Sudhir Chandra that a fresh recovery has been issued on 11.12.2004 pursuant to the communication dated 8.12.2004 and, therefore, the recovery will be presumed to have been initiated after 24.1.2004 cannot be accepted. The recovery had been clearly initiated in the year 2001. The Collector had erroneously returned back the recovery certificate which does not amount to the withdrawal of the recovery certificate issued in the year 2001. The communication by respondent No. 3 to the Collector for executing the recovery proceeding in the year 2004 does not amount to initiation of a fresh recovery proceeding. The recovery proceedings initiated in the year 2001 were neither withdrawn nor dropped nor cancelled. Thus, the contention on behalf of the petitioners relying on Pawan Kumar Jain's case cannot be accepted. On the contrary, paragraph 4 of the said judgment clearly supports the contention of the respondent which is quoted herein below :
"4. This authority would have been binding upon us. However, in reply Mr. Bhalla pointed out that in respect of the 1st respondent-institution the notification by the Central Government has only been issued on 24.1.2004, whereas the recovery certificate is of a much earlier date. He submitted that, therefore, in this case the proceedings under the U.P. Act are not barred. He pointed out that under Section 31 of the Debt Recovery Act, it is only suit or proceeding pending before any Court, which stand transferred to the tribunal established under that Act. In our view, Mr. Bhalla is right. As the action was initiated prior to the notification being issued by the Central Government, the action would not be barred and would not stand transferred to the tribunal."
10. The other contention advanced on behalf of the petitioners that Kailash Nath Agarwal's case (supra) cannot be applied, is also devoid of merit. The said decision clearly records in paragraph 35 as under :
"Since Section 22(1) only prohibits the recovery against the. Industrial Company, there is no protection offered to the guarantors against recovery proceeding under the U.P. Act."
11. In our opinion, the petitioners, who are admittedly the guarantors do not get any protection on the ground that the company has been registered under Section 22 of the SICA Act. The recovery, therefore, against the petitioners can be proceeded with.
12. The next contention advanced on behalf of the petitioner is based on the ratio of the Apex Court in paragraph 8 of Pawan Kumar Jain's case (supra) which is to the following effect :
"8. In our view, the above set out provisions of the U.P. Act, are very clear. Action against the guarantor cannot be taken until the property of the principal-debtor is first sold off. As the appellant has not sold the property of the principal-debtor, the action against the appellant cannot be sustained. We, therefore, set aside the recovery notice."
13. In this regard, it is to be noted that petitioners' case is distinguishable inasmuch as in the instant case the principal borrowers have sought protection under Section 22 of the SICA Act. Pawan Kumar Jain's case (supra) did not deal with a situation as is involved in the present case. The principal debtors have succeeded in getting the protection under the proceedings taken by BIFR under the SICA Act. Thus, the recovery cannot be proceeded against the assets of the company. This situation had not arisen in Pawan Kumar Jain's case and, therefore, in our opinion, the petitioners cannot derive any benefit from the said decision as their cases are clearly distinguishable on facts. Even otherwise, the guarantee bonds executed clearly make the petitioner liable as surety. The contention of the learned Counsel for the respondent that the liability as surety is coextensive, cannot be overlooked in view of the two decisions of the Apex Court rendered by three Hon'ble Judges, namely, Bank of Bihar Limited v. Dr. Damodar Prasad, 1969 ALJ 475, (Paragraphs 3 to 6). The other decision is in the case of State Bank of India v. Indexport, AIR 1992 SC 1740.
14. Sri Sudhir Chandra contends that in case the recovery proceedings are allowed to proceed against the petitioners, who are the guarantors without considering the factors of the SICA Act, the entire purpose of registration with BIFR would be frustrated. He contends that in the event any scheme is drawn in favour of the company and financial adjustments are made, the said proceeding may be rendered nugatory in the event the recovery is allowed to continue. The said situation cannot be helped in view of clear law laid down in Kailash Nath Agarwal's case, the contention, therefore, advanced on behalf of the petitioners is liable to be rejected.
15. One of the submissions advanced was that the petitioner Nos. 4 to 6 fall in a different category and since they themselves have not executed any personal guarantee, nor are they Directors of the Company, therefore, the recovery proceeding against them are without jurisdiction. We have examined the contention of the learned counsel for the parties on this score and we find that the contention of the petitioners deserve to be rejected. Petitioner Nos. 4 to 6 having inherited the estate from their fathers cannot escape the liability of the surety given by their father against the loan advanced. The surety/guarantee bonds executed is a liability on the estate and the properties of the executors of the guarantee bonds. The petitioners have stated in paragraph 16 of the writ petition that they have not inherited from their father such a huge amount so as to satisfy the debt and as such the recovery is not maintainable. The recovery against petitioner Nos. 4 to 6, according to the learned counsel for the respondent also, can be made only against the assets inherited by them from their predecessors which existed at the point of time when the guarantee bond was executed. The recovery against petitioner Nos. 4 to 6 cannot be executed against the properties other than those which have been inherited from their fathers, i.e. the guarantors.
16. Another aspect which deserves to be noted is the terms of the guarantee bond with special reference to Clause 11 to Clause 18 and with special reference to Clause 16 and 21. The aforesaid terms and conditions referred to in Clause 16 and 21 of the guarantee bond are in consonance with Section 131 of the Indian Contract Act, and, therefore, petitioner Nos. 4 to 6 cannot escape the liability to that extent. The contention, therefore, on behalf of the petitioners in that regard also does not hold water.
17. In view of the discussion and conclusion arrived at herein above the writ petition is devoid of merit and is accordingly dismissed.
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Title

R.K. Dewan And Ors. vs State Of U.P. And Ors.

Court

High Court Of Judicature at Allahabad

JudgmentDate
23 December, 2004
Judges
  • R Misra
  • A Sahi