A.K. Mohta vs Karnataka State Financial Corporation and Others

B.S. Patil, J.—In this revision petition filed under Section 115 of CPC, revision petitioner is calling in question order dated 20.12.2014 passed by the learned Principal District Judge, Bangalore Rural District, Bangalore. By the said order, the Court below has dismissed the application filed by the revision petitioner herein � respondent No. 3 in Misc. Petn. No. 61/2013 praying for dismissal of the petition on the ground that 1st respondent � Company had become a sick unit and the matter had been referred to the Board for Industrial and Financial Reconstruction (BIFR) whereupon the board sanctioned a scheme and therefore, in view of the provisions contained under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (for short ''the SICA''), Misc. Petn. No. 61/2013 filed under Section 31(1)(a) of the State Financial Corporations Act could not be proceeded against the 3rd respondent � guarantor.

The Court below has dismissed this application placing reliance on the judgment of the Apex Court in the case of Kailash Nath Agarwal and Others Vs. Pradeshiya Industrial and Investment Corporation of U.P. Ltd. and Another, .

Learned counsel appearing for the revision petitioner places reliance on the judgment of the Apex Court in the case of Paramjeet Singh Patheja Vs. ICDS Ltd., to contend that in this decision, a contrary view has been taken by the Apex Court to the effect that object of Section 22 of SICA 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. It has been held in the said judgment as under:

"To achieve that purpose, it is imperative that the expression "suit" in Section 22 be given its plain meaning, namely any proceedings adopted for realization of a right vested in a party by law. This would clearly include arbitration proceedings".

Indeed, the two inconsistent views taken in the aforementioned two judgments were brought to the notice of the Apex Court in a subsequent judgment in the case of ZENITH STEEL TUBES AND INDUSTRIES VS. SICOM LIMITED � APPEAL (CIVIL) No. 5347/2007 dated 21.11.2007. The Apex Court noticed the inconsistent views taken in the two decisions and referred the matter to the larger bench to resolve the anomalous situation. In paragraph Nos. 24 and 25 of the order in ZENITH''S case, the Apex Court has observed as under:

"In the decisions of this Court cited before us, two divergent views have been expressed in respect of the same issue involved in this appeal. In the other decisions, this Court had no occasion to go into the said issue which involved the interpretation of the Section 22(1) of the SICA in respect of either proceedings or suits respectively. In Kailash Nath Agarwal''s case (supra) this Court has taken the view that the legislature appears to have knowingly used two different expressions in Section 22(1) of SICA, namely, proceeding in the first part and the expression suit in the second part and the protection of Section 22 extended to guarantors in respect of suits alone and the use of the expression proceeding could not be extended to include suits as well nor could the expression suit be extended to include the expression proceeding also. On the other hand, in Paramjeet Singh Patheja''s case (supra) it was held that the expression suit which extends the protection of Section 22(1) to guarantors, would have to be interpreted to include proceeding also, in view of the intention of the legislature to protect sick industrial companies where references were pending before the BIFR. It is also evident from the decision in Paramjeet Singh Patheja''s case that the views expressed in Kailash Nath Agarwal''s case had not been brought to the notice of the learned Judges who decided the matter. Even if we are inclined to agree with one of the two interpretations, the anomalous situation will continue since the decisions are that of coordinate Benches.

In such circumstances, we consider it fit and proper that the matter should be referred to a larger Bench to resolve the existing anomaly resulting from the different views expressed in the two above mentioned cases".

However, it transpires that subsequently, ZENITH STEEL''S case was withdrawn and therefore, larger Bench did not have an occasion to lay down the correct position of law. Thus, we are now faced with two judgments of the coordinate benches of the Apex Court which have interpreted the provisions contained under Section 22 , particularly, the scope of the expression "suit" used therein. In the earlier judgment of KAILASH NATH AGARWAL''S case Apex Court has held that it was not the stated object of the Act, namely, SICA to protect any other person or body other than the principal debtor and if the creditor enforces the guarantee in respect of the loan granted to the industrial company, it would not defeat the provisions contained under Section 22(1) of SICA. In the judgment of the Apex Court in the case of PARAMJEET SINGH PATHEJA dealing with the very object and purpose of Section 22 of SICA, the Apex Court has held that the object of Section 22 in protecting guarantors from legal proceedings pending a reference to BIFR of the principal debtor is to ensure that the scheme for rehabilitation would not be defeated by isolated proceedings adopted against the guarantors of a sick company and that in order to achieve that purpose, it is imperative that the expression "suit" in Section 22 be given its plain meaning, namely any proceedings adopted for realization of a right vested in a party by law.

However, it has to be noticed here that in the subsequent decision of the coordinate bench of the Apex Court in PARAMJEET SINGH PATHEJA ''s case (supra) the earlier decision was not brought to its notice. But, the fact remains that the ratio laid down in the later decision is contrary to the decision which has been rendered in the earlier decision. Learned counsel appearing for the revision petitioner is right and justified in contending that in such a situation, the later decision of the Apex Court would be binding on this Court. Useful reference can be made in this regard to the decision of the Full Bench of this Court in the case of Govindanaik G. Kalaghatigi Vs. West Patent Press Co. Ltd. and Another, . The opinion of the full Bench in this case has been expressed as under:

"if two decisions of the Supreme Court on a question of law cannot be reconciled and if both Benches of the Supreme Court consist of equal number of Judges, the later of the two decisions should be followed by the High Courts and other Courts"

It is, therefore, clear that the later judgment wherein the scope of the expression "suit" found in Section 22 of the SICA has been interpreted, has to be followed. The Court below was in error in ignoring this aspect of the mater.

Hence, this revision petition is allowed. The impugned order is set aside. Application filed by the revision petitioner before the Court below under Section 151 CPC seeking dismissal of the petition as not maintainable in view of the provisions contained under Section 22(1) of the SICA is allowed. Misc. Petn. No. 61/2013 is accordingly dismissed.