1) bank can proceed independently against the guarantor by auctioning your property given as guarantee

2) bank will not stop proceedings till BIFR proceedings are completed against the company

The BIFR was established under The Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The board was set up in January 1987 and became functional as of 15 May 1987. A new industrial policy was tabled in Parliament on 24 July 1991, aiming to maintain growth in productivity and gainful employment and to encourage the growth of entrepreneurship and upgrades to technology. That year the SICA was amended to include public sector enterprises in the board's purview.

The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act of 2002 placed corporate debt outside the purview of the BIFR. By preventing reference to the BIFR, which had become a haven for the promoters of sick companies, the act gives banks and financial institutions a better tool for recovering bad debt. It was complemented by the corporate debt restructuring package under which lenders and borrowers would meet to agree on a way of recasting stressed debt.

You may appeal to DRT giving the facts and request for stay of the Bank activities under the said act owing to the reference with BIFR, you may certainly get a relief provided you prove your genuine claim with authentic documents.

1. You can certainly implead yourself as you will be prejudiced by the auction carried out by the bank.

2. Seek a stay order from DRT against the auction. If DRT refuses to stay the auction then you may move the High Court.

Supreme Court referred the issue raised in Zenith Steel Tubes & Industries Ltd. for consideration by a Larger Bench. Briefly, the facts in this case were that the appellants before the Supreme Court were both the principal debtor company as well as the guarantor. The loan from the financial institution i.e., SICOM Limited had been taken by the principal debtor company which was, inter alia, secured by a personal guarantee of the second appellant. Since, there were defaults, notices were issued demanding payment of the amounts owed to SICOM Ltd. Upon failure, SICOM Ltd. filed a petition against the second appellant under section 31(1)(aa) of the SFC Act. In the meanwhile, the first appellant was declared a sick industrial company by the BIFR. Against the action of SICOM Ltd., a writ petition was filed before the Bombay High Court. The learned Single Judge of the Bombay High Court rejected the contentions of the second appellant /guarantor that by virtue of provision of section 22 of SICA, its liability under the personal guarantee could not be enforced. The Division Bench came to a somewhat similar conclusion and also went on to hold that, the liability of the guarantor being co-extensive with that of the principal debtor, the creditor was not required to exercise his right first against the principal debtor and only thereafter, against the guarantor. This is how the matter travelled to the Supreme Court.

20.1 The Supreme Court in paragraph 20 noticed the observations in Paramjit Singh Patheja?s case that the term "suit" would have to be understood in the larger context to include other proceedings as well, which were filed before a "legal forum" The court noticed that the decision in Kailash Nath Aggarwal?s case was not brought to the notice of the Division Bench in Paramjit Singh Patheja?s case. After noticing the observations of the court in Kailash Nath Aggarwal?s case, the bench decided to refer the matter to a Larger Bench.

elhi High Court

Inderjeet Arya & Anr. vs Icici Bank Ltd. on 2 May, 2012

Author: Rajiv Shakdher

* THE HIGH COURT OF DELHI AT NEW DELHI

Judgment reserved on : 26.03.2012

% Judgment delivered on: 02.05.2012

+ WP(C) No. 7253/2011

INDERJEET ARYA & ANR. ...... Appellants

Vs

ICICI BANK LTD. ..... Respondent

What emerges on a reading of the objects and reasons alongwith the interpretation accorded by the Supreme Court, to the provisions of sub section (1) of section 22, is that :

(i). the 1994 amendment which brought in the relevant insertion with which we are confronted, was not necessarily intended to accord protection to the guarantors of loans given to an industrial company; (see observations in Kailash Nath Aggarwal's case)

(ii). till 1994, no protection was accorded to the guarantors under SICA;

(iii). post 1994, a limited protection has been granted by the legislature to the guarantors;

(iv). the legislature has consciously used the two different terms, i.e., „proceedings? and „suit?; and

(v). the term. „proceedings? has been given a wider interpretation by the Supreme Court in the case of Maharashtra Tubes.

(vi). the amendment in sub section (1) of section 22 was brought about w.e.f. 01.02.1994, when the RDDB Act was already in force that is, w.e.f. 24.06.1993. Therefore, the Legislature while bringing about the amendment in sub section (1) of section 22 of SICA on 01.02.1994 was aware of the enactment of the RDDB Act. The term. „suit? would have to be read and understood in the context of this legislative history and in the background of the scheme of SICA as also the setting of the term in issue, in the very provision under consideration i.e., sub section (1) of section 22.

23. Thus, in our view, having regard to the facts set out hereinabove, the word „suit? cannot be understood in its broad and generic sense to include any action before a legal forum involving an adjudicatory process. If that were so, the legislature which is deemed to have knowledge of existing statute would have made the necessary provision, like it did, in inserting in the first limb of section 22 of SICA, where the expression proceedings for winding up of an industrial company or execution, distress, etc. is followed by the expression or "the like" against the properties of the industrial company. There is no such broad suffix placed alongside the term „suit?. The term suit would thus have to be confined, in the context of sub section (1) of section 22 of SICA, to those actions which are dealt with under the Code and not in the comprehensive or overarching sense so as to apply to any original proceedings before any legal forum as was sought to be contended before us. The term, „suit? in our opinion would apply only to proceedings in a civil court and not actions for recovery proceedings filed by banks and financial institutions before a Tribunal, such as, the „DRT?.