ZENITH STEEL TUBES AND INDUSTRIES LTD. AND ANR. versus SICOM LIMITED

Citation: [2007] 12 S.C.R. 413 · Decided: 21-11-2007 · Supreme Court of India · Bench: ALTAMAS KABIR · Disposal: Matter referred to larger bench

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Judgment (excerpt)

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ZENITH STEEL TUBES AND INDUSTRIES LTD. AND ANR. 
A 
v. 
SICOM LIMITED 
NOVEMBER 21, 2007 
[AL TAMAS KABIR AND B. SUDERSHAN REDDY, JJ.) 
B 
•. 
' 
_J 
Si ck Industrial Companies (Special Provisions) Act, 1985-s. 22-
Expression 'suit' whether includes other proceedings before legal 
forum-Divergent views of co-ordinate Benches-Matter referred to c 
larger Bench-State Financial Corporation Act, 1951-s. 31 (I)( aa). 
The first appellant-Company obtained financial assistance 
amounting to Rs.1.42 lacs from respondent. It created a security for 
' 
repayment of amount by hypothecating plant and machinery. On the D 
..( 
same day, the second appellant executed a personal guarantee for 
repayment of the loan amount in case of default by the appellant-
company. The first appellant company defaulted in repayment of the 
amount. Inspite of several notices demanding the payment, the first 
appellant failed to make payment. 
E 
" 
The respondent issued a notice to second appellant to pay the entire 
amount by invoking the personal guarantee given by the second 
_, 
appellant. The second appellant also did not make the payment as 
" 
demanded and consequently respondent filed a petition against the 
--i 
second appellant under s.31(1 )( aa) of the State Financial Corporation F 
Act, 1951 for enforcing the personal guarantee given by the said 
appellant. 
Single Judge of the High Court held that the liability of the 
guarantor was independent of that of the principal debtor and accordingly G 
,,__; 
the guarantee could be invoked. On appeal, the Division Bench of the 
High Court held that the provision of s.22 of SICA, as amended in 1994, 
did not prohibit any proceeding, other than a suit for enforcement of 
413 
H 
414 
SUPREME COURT REPORTS 
[2007] 12 S.C.R. 
A any security against the guarantor. On such finding and also upon holding 
that the liability of the guarantor was co-extensive with the principal 
debtor and that the creditor was not required to exercise his right as a 
mortgagee before proceeding against the guarantor, the Division Bench 
dismissed the appeal. 
B 
In appeal to this Court, appellants contended that the decision in 
*Kai/ash Nath Agrawal's case had been rendered by this Court in the 
context of interpretation of the expressions 'suit' and 'proceedings' used 
ins. 22(1) of SICA, 1985. In construing the said two expressions, this 
C Court was of the view that while the expression 'proceedings' used in 
s. 22(1) would have to be confined to companies alone, the expression 
'suit' had been introduced by amendment to extend the protective cover 
of s. 22 to guarantors as well; that the purpose for which such amendment 
had been effected, namely, to extend the protective cover of s.22 to 
D guarantors also, would be rendered meaningless if coercive action 
continued to be taken against guarantors who could even be the 
Directors of the company in question; that the continuing ambiguity was 
sought to be explained in the **Paramjit Singh Patheja case wherein it 
was explained that the expression 'suit' would have to be understood 
E in a larger context to include other proceedings as well before a legal 
forum. 
Referring the matter to larger Bench, the Court 
HELD: In the decisions of this Court two divergent views have 
F been expressed in respect of the same issue involved in this appeal. In 
*Kai/ash Nath Agrawal 's case this Court has taken the view that the 
legislature appears to have knowingly used two different expressions 
in s.22(1) of SICA, namely, 'proceeding' in the first part and the 
expression 'suit' in the second part and the protection of s.22 extended 
G 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 it was held 
that the expression 'suit' which extends the protection of s. 22(1) to 
H guarantors, would have to be interpreted to include 'proceeding' also, 
\_.-
., . 
ZENITH STEEL TUBES AND INDUSTRIES LTD. v. 
415 
SICOM LIMITED [ALTAMAS KABIR, J.] 
in view of the intention of the legislature to protect sick industrial A 
companies where references were pending before the BIFR. It is also 
evident from the decision in **Paramjeet Singh Patheja 's case thatthe 
views expressed in *KailashNathAgrawal 's case had not been brought 
to the notice of the learned Judge

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