Suit against the Guarantor Is Not a Suit for Recovery of Debt but For ‘Enforcement of the Guarantee’

Suit against the Guarantor Is Not a Suit for Recovery of Debt but For ‘Enforcement of the Guarantee’

1. An extract of Section 19(1) of the Recovery of Debts Due to Banks and Economic Institutions Act, 1993 (“DRT Act”) is reproduced under for ready reference.

“19. Application to the Tribunal.–(1) Exactly where a bank or a economic institution has to recover any debt from any person, it may make an application to the Tribunal inside the neighborhood limits of whose jurisdiction…………” (emphasis supplied)

INTERPRETATION — SECTION 19 (1)

It is submitted that that a civil action for the recovery of money beneath section 19(1) of DRT Act, and a civil action for the enforcement of any assure in respect of any loan, are two entirely various actions as explained under.

2. Here, it would be advantageous to refer Section 22(1) of the Sick Industrial Firms (Particular Provisions) Act, 1985, which states as follows.

“22. SUSPENSION OF LEGAL PROCEEDINGS, CONTRACTS, Etc. (1) Exactly where in respect of an industrial company, an inquiry under section 16 is pending, or any scheme referred to beneath section 17 is under preparation or consideration or a sanctioned scheme is under implementation or exactly where an appeal under section 25 relating to an industrial business is pending, then, notwithstanding something contained in the Firms Act, 1956 (1 of 1956) or any other law or the memorandum and articles of association of the industrial organization or any other instrument having impact beneath the mentioned Act or other law, no proceedings for the winding-up of the industrial firm or for execution, distress or the like against any of the properties of the industrial firm or for the appointment of a receiver in respect thereof and *[no suit for the recovery of money or for the enforcement of any security against the industrial organization or of any guarantee in respect of any loans, or advance granted to the industrial company] shall lie or be proceeded with further, except with the consent of the Board or, as the case could be, the Appellate Authority.” (emphasis supplied)

*Note: It is pertinent to note right here that the words in bracket have been inserted by Act 12 of 1994, S. 12 (w.e.f. 01-02-1994). Therefore, it is evident that suits for the recovery of money, and suits for the enforcement of any assure in respect of any loan, are two entirely different civil actions, otherwise, there was no need to have to add redundant words by the Parliament in section 22(1) w.e.f. 01-02-1994.

3. The aforesaid evaluation is further strengthened by observations of Hon’ble Bombay High Court in Centurion Bank Ltd. vs Indian Lead Ltd. And Anr. (2000) 100 Comp Cas 537 Bom (1999-3) 101 Bom LR 556 Decided on 20 August, 1999 as follows.

“19. It has been pointed out that defendant No. 2 is a guarantor against whom the suit is only for recovery of funds. The suit against the guarantor is not a suit for recovery of debt but for enforcement of the assure.” (emphasis supplied)

Thus, Hon’ble Bombay Higher Court held that the civil action against the guarantor is not for recovery of debt but for enforcement of the assure. As per Black’s Law Dictionary, Ninth Edition, at page 608, “enforcement” indicates the act or procedure of compelling compliance with a law, mandate, command, decree or agreement.
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