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Khalid Mukhtar vs M/S Pradishiya Industrial And … on 9 July, 2019



Reserved on 28.1.2019

Delivered on 9.7.2019

Court No. – 34

Case :- FIRST APPEAL No. – 210 of 2011

Appellant :- Khalid Mukhtar

Respondent :- M/S Pradishiya Industrial And Investment Corp. Ltd. And Anr.

Counsel for Appellant :- Manish Goyal, Raj Kumar Singh Chauhan, Ankita Jain

Counsel for Respondent :- Anurag Khanna, Pranjal Mehrotra

Hon’ble Sudhir Agarwal,J.

Hon’ble Rajendra Kumar-IV,J.

(Delivered by Hon’ble Sudhir Agarwal, J.)

1. Heard Ms. Ankita Jain, learned counsel for appellant. None appeared on behalf of respondents, hence we proceed to decide this appeal ex-parte.

2. This is an appeal under Section 96 of Code of Civil Procedure (hereinafter referred to as “CPC”) arising from judgment dated 04.03.2011 passed by Ms. Rakhi Dixit, Additional Civil Judge (Senior Division), Court No. 2, Aligarh dismissing appellant’s Original Suit (hereinafter referred to as “OS”) No. 523 of 2002 on the ground that it is not maintainable and barred by Section 446 of Companies Act, 1956 (hereinafter referred to as “Act, 1956”).

3. Facts in brief, giving rise to present appeal, are that plaintiff-appellant, Khalid Mukhtar (hereinafter referred to as “appellant”) instituted above suit in the Court of Civil Judge (Senior Division), Aligarh seeking a declaration that defendant-1, i.e. M/s Pradeshiya Industrial Investment Corporation of U.P. Ltd. (hereinafter referred to as “PICUP”), has lost security of Company and their mortgage in the matter of enforcement of guarantee due to bar of limitation, therefore, PICUP is not entitled to enforce guarantee in August, 1983 against appellant regarding alleged debt of defendant-2 i.e. M/s Buckeye Batteries Private Limited (hereinafter referred to as “Principal Debtor”). Appellant has also prayed for issue of a decree of permanent prohibitory injunction restraining PICUP from enforcement of guarantee in regard to Principal Debtor, against appellant.

4. The case set up in the plaint is that PICUP sanctioned a term loan of Rs. 30,000,00/- to Principal Debtor in respect whereof appellant stood Guarantor and executed, in August, 1983, legal mortgage/equitable mortgage and deed of hypothecation in favour of PICUP. The actual amount of loan, disbursed by PICUP, was Rs. 29,75,000/-. Aforesaid term loan was sanctioned and disbursed to enable Principal Debtor to set up a project of manufacturing of Dry Cells at Sikandarpur, District Aligarh. PICUP was also required to secure repayment of loan amount by hypothecation of movable legal mortgage/ equitable mortgage by deposit of title deeds of property of Principal Debtor. However, it failed to validly create any such mortgage or hypothecation. There was no compliance of Sections 125 of Act, 1956. Principal Debtor failed to satisfy its other liabilities, hence, a winding up Petition No. 29 of 1993 was filed on 22.11.1993 wherein a winding up order was passed by Company Judge on 17.04.1995. Once a winding up order is passed, Section 446 bars any suit or legal proceedings against such company except by leave of Court. Defendant-1, however, since failed to take appropriate steps due to its negligence against Principal Debtor or its property, is not entitled to enforce guarantee against appellant. Further, a Guarantor is liable only to the extent of liability of company and not beyond that. PICUP having lost its charge due to non compliance of Section 125 of Act, 1956, has made its position that of unsecured creditor. In any case, proceedings for recovery could have been initiated within three years from the date of default, under Articles 36 and 37 of SectionLimitation Act, 1963 (hereinafter referred to as “Act, 1963”), hence claim of Principal Debtor cannot be enforced against appellant since it is now barred by limitation. The period of limitation could not have been extended either by Principal Debtor or Guarantor and moreso, it was never extended. PICUP once has lost its security due to negligence and careless etc., Guarantor also stood discharged under Section 139 of Contract Act, 1872 (hereinafter referred to as “Act, 1872”). The guarantee document dated 16.09.1983 could be operative only against secured items.

5. PICUP contested the matter by filing written statement stating that loan was secured by way of mortgage of immovable property, hypothecation of movable assets of company and also personal bond of guarantee executed by appellant for due repayment of outstanding dues of PICUP. PICUP proceeded against company but entitled to proceed against Guarantor also, since liability of Guarantor is co-extensive with that of Principal Debtor and PICUP is free to proceed against either of the two or both. PICUP is also entitled to initiate recovery proceedings under the provisions of U.P. Public Moneys (Recovery of Dues) Act, 1972 (hereinafter referred to as “Act, 1972”). Appellant can not wriggle out of guarantee bond only on the ground that PICUP is not able to recover its dues from Principal Debtor. In additional pleas, it is also pleaded that Principal Debtor, i.e. Company was promoted by appellant, Khalid Mukhtar himself, along with Dr. Aslam Qadeer and Khurseed Ahmad Khan for setting up a project for manufacturing dry cells with an installed capacity of 180 lacs IR 20 type cells and 50 lacs IR 6 type cells at Sikandarpur, District Aligarh. Loan agreement was executed by Principal Debtor on 16.09.1983. Deed of hypothecation is dated 03.10.1983 and equitable mortgage was also created on 03.10.1983 in respect of immovable properties of project located at Village Sikandarpur, Chherat, Pargana, Tehsil- Koil, District- Aligarh. PICUP also filed charge with Registrar of Company, Kanpur on 21.10.1983 vide Form No. 8 and also deposited original money receipt issued from the office of Registrar of Company, Kanpur as a token of filing of PICUP’s charge with said Registrar. Besides the Company i.e. Principal Debtor, Sri Aslam Qadeer, appellant Khalid Mukhtar and Sri Khursheed Alam Khan have also executed personal bond of guarantee dated 16.09.1983, to ensure repayment of PICUP’s loan availed by Principal Debtor. Principal Debtor did not perform well whereupon PICUP in its 77th Executive Committee meeting granted a rehabilitation package to Company, by way of funding of interest and re-schedulement of installment of loan. Still performance of Principal Debtor did not improve, therefore, a notice under Section 29 of State Financial Corporation Act, 1951 (hereinafter referred to as “SectionSFC Act, 1951”) was issued and physical possession of Principal Debtor’s Company was taken on 23.08.1995. However, in compliance of Company Judge’s order dated 29.11.1995, passed in Company Petition No. 29 of 1993, possession of unit was handed over to Official Liquidator on 20.12.1995. The issue of charge claimed by Canara Bank as first charge is still pending consideration in Special Appeal No. 618 of 1997, filed by PICUP, against order dated 23.10.1997 passed by Company Judge in Company Petition No. 29 of 1993 wherein an interim order has also been passed by a Division Bench. PICUP issued a recovery certificate dated 19.03.2001 for recovery of outstanding dues from Guarantor. Appellant challenged the same before Company Judge vide Misc. Company Application No. 1 of 2001 in Company Petition No. 29 of 1993 but the same has been rejected by Company Judge vide order dated 19.03.2002. This order has also been challenged by appellant in Special Appeal No. 441 of 2002 wherein a conditional interim order was passed by this Court on 19.04.2002 directing appellant to deposit Rs. 20 lacs in two equal installments, by 31.05.2002 and 30.06.2002, but the said order has not been complied with and, therefore, interim-order stood vacated. Suit in question, as filed, by appellant is nothing but an abuse of process of law and appellant is bound by its guarantee bond. PICUP is entitled to recover the dues of Principal Debtor from appellant who is a Guarantor. The account position of outstanding dues of Principal Debtor as on 31.07.2002, given in para-26 of written statement, is Rs. 112.81 lacs, comprising of principal outstanding amount of Rs. 16.78 lacs and interest of Rs. 96.03 lacs.

6. Trial Court formulated eight issues as under:-

^^1- D;k oknh bl ckr dh ?kks”k.kk izkIr djus dk vf/kdkjh gS fd izfroknh la[;k 1 ds }kjk nkf[ky dh x;h flD;ksfjVh lekIr gks x;h gS ,oa ekjxst dky ckf/kr gksus ds dkj.k ‘kwU; o vizHkkoh gS

2- D;k oknh dEiuht ds fo:) vUrxZr /kkjk 446 dEiuht ,DV dh olwyh dk dksbZ ekeyk okaNuh; gS ,oa izfroknh la[;k 1 oknh ds fo:) xkjaVh nsus ds l{ke gS

3- oknh izfroknh la[;k 1 dk fjdojh okn /kkjk 3 fyfeVs’ku ,DV ls ckf/kr gS ;fn gka rks izHkko

4- D;k okn /kkjk 34] 38 o 41 fof’k”V vuqrks”k vf/kfu;e ls ckf/kr gS

5- D;k okn /kkjk 115 lk{; vf/kfu;e ls ckf/kr gS

6- D;k okn dk ewY;kadu de fd;k x;k gS ,oa iznRr U;k;ky; ‘kqYd vi;kZIr gS

7- D;k oknh fdlh vU; vuqrks”k dks ikus dk vf/kdkjh gS

8- D;k oknh dk okn /kkjk 446 dEiuht ,DV 1956 ls ckf/kr gS**

“1. Whether the plaintiff is entitled to be awarded with a declaration that the security submitted by defendant no 1 has become ineffective and the mortgage being time-barred is null and void?

2. Whether any recovery case u/s 446 of the SectionCompanies Act is pending against the plaintiff companies and that the defendant no 1 is capable to give guarantee against the plaintiff?

3. Whether the recovery suit of plaintiff no 1 is barred by Section 3 of the Limitation Act. If so, its effect?

4. Whether the suit is barred by Sections 34, Section38 and Section41 of the Specific Relief Act?

5. Whether suit is barred by Section 115 of the Evidence Act?

6. Whether suit has been undervalued and Court fee paid is insufficient?

7. Whether the plaintiff is entitled to receive any other relief?

8. Whether plaintiff’s suit is barred by Section 446 of the Companies Act, 1956?” (English Translation by Court)

7. With the consent of parties, issue-8 was taken as preliminary issue. Trial Court has held that suit as framed interferes with the status of Principal Debtor who was also impleaded as opposite party-2 and in respect whereof a winding up order has been passed in Company Petition, hence, no suit is maintainable unless a permission has been obtained from Company Court.

8. Thus, the only point for determination, which has arisen in this appeal is, “whether Court below has rightly held that suit is barred by Section 446 or not”.

9. Counsel for appellant contended that appellant’s application seeking declaration has already been rejected by Company Judge vide order dated 19.03.2002 and the said judgment is reported in 2002 (2) AWC 1458 (Buckeye Batteries (P.) SectionLtd. vs. Official Liquidators and others) therefore, appellant has no other remedy but to file suit since Section 446 is not attracted in this case.

10. I find that appellant did not file an application seeking permission of Court to file a suit against Principal Debtor. In fact, in the application, filed by appellant before Company Judge, it challenged recovery certificate dated 19.03.2001 and sought a declaration against recovery of dues of Principal Debtor from appellant. Thus, Company Judge formulated the question to be decided on the application of appellant, as quoted in para-10, as under:-

“10. The Court has thus been called upon to decide whether the aforesaid application under Section 446 of the Companies Act, at the instance of the guarantor is maintainable and whether a Company Court in winding up proceedings can stay the recovery and adjudicate the question of law of guarantor of the company (in liq.) as against the creditor.” (Emphasis added)

11. The aforesaid prayer was made invoking principle that first an attempt should be made to realise outstanding dues from Principal Debtor. Appellant also sought to invoke the principal of ‘quia timet’. Company Court answered the question by observing in para-20 of judgment that basically, object of application is to determine right of Guarantor as executors of a surety to the debts of Company; and since it is open to PICUP to recover its dues from Guarantor, the Guarantor is also entitled in law if so permitted to defend itself upon taking pleas open to it but it cannot be said that determination of liability of a Guarantor is incidental to the proceeding of winding up. Whether Guarantor is liable to indemnify creditor and extent of such liability towards PICUP is not a matter which can be said to be rising out of winding up proceedings, or is necessary to be decided by a Company Court for effective winding up of a company in liquidation. Accordingly, Company Judge rejected application of appellant.

12. The observations that appellant can defend itself by taking such plea as open in law does not mean that learned Company Judge permitted appellant to get its liability settled against Company which is already under the process of winding up by impleading Company as defendant and without seeking any permission from Court. The two things are different. It was always open to appellant to file a suit against recovery proceedings initiated by PICUP challenging said recovery proceedings but without impleading Principal Debtor in that case. In such case, Section 446 obviously would not be come in picture but since in the present case, appellant not only has impleaded Principal Debtor, as defendant-2, but also attempted to get determination of his liability vis-a-vis obligations and property of Company, in my view, Court below has rightly held that suit was barred by Section 446 of Act, 1956.

13. In fact, after the order was passed by learned Company Judge, law has further developed with respect to liability of Guarantor and in respect of recovery proceedings initiated by PICUP against Guarantor by taking recourse to the provisions of SectionU.P. Act, 1972, without initiating any such proceedings against Principal Debtor. A larger Bench in Sobran Singh Vs. State of U.P. Others (2014) 10 SCC 799, held that it can do so since Guarantor’s liability is co-extensive with Principal Debtor and Guarantor cannot absolve from its liability on the ground that financial institution failed to take timely steps for recovery of its dues from Principal Debtor.

14. The above point for determination is accordingly answered against appellant.

15. Appeal lacks merit and is, accordingly, dismissed.

Order Date :- 9.7.2019

Siddhant Sahu



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