Case Note & Summary
The case involved an appeal by the Directors and Guarantors of M/s Rajat Pharmachem Pvt. Ltd. (RPL) against the orders of the High Court regarding their entitlement to protection under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA). The appellants were involved in recovery proceedings initiated by the Bank of Rajasthan, which sought to recover a substantial amount from RPL. The appellants contended that they were entitled to the protection of SICA as they were guarantors for the debts of RPL. The High Court had previously upheld the orders of the Debt Recovery Tribunal (DRT) and the Debt Recovery Appellate Tribunal (DRAT), which ruled that the protection under SICA did not extend to the appellants in their capacity as guarantors. The Supreme Court noted that the legal question was already settled by previous judgments, which clarified that the term 'suit' under SICA does not include recovery proceedings initiated by banks and financial institutions. The court reiterated that the liability of a guarantor is co-extensive with that of the principal debtor and emphasized that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB) prevails over SICA in cases of public revenue recoveries. Ultimately, the Supreme Court dismissed the appeal, affirming the High Court's decision without costs.
Headnote
A) Company Law - Protection under SICA - Applicability of Section 22(1) - Sick Industrial Companies (Special Provisions) Act, 1985, Section 22(1) - The court held that the protection under Section 22(1) of SICA is not available to guarantors in recovery proceedings initiated by banks, as such proceedings do not constitute a 'suit' under the Act. The court emphasized that the term 'suit' is confined to actions dealt with under the Code and does not extend to recovery proceedings before tribunals like DRT (Paras 5-8).
Issue of Consideration
Whether the appellants, as Directors and Guarantors of a sick company, are entitled to the protection of Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.
Final Decision
The Supreme Court dismissed the appeal, affirming the High Court's ruling that the appellants, as guarantors, were not entitled to the protection under Section 22(1) of SICA in the context of recovery proceedings initiated by the bank.
Law Points
- Sick Industrial Companies Act
- 1985
- Section 22(1)
- Recovery of Debts Due to Banks and Financial Institutions Act
- 1993
- non-obstante clause
- guarantor liability
- definition of suit
