# Khalid Mukhtar v. M/S Pradishiya Industrial & Investment Corporation Ltd. & Anr

- **Citation:** (2019) 1 ILRA 154
- **Court:** High Court of Judicature at Allahabad
- **Decided:** 2019-07-09
- **Case number:** THE HON'BLE RAJENDRA KUMAR -IV J. FIRST APPEAL No.210 of 2011
- **Source:** https://unisonlegal.in/judgment/allahabad-high-court/khalid-mukhtar-v-m-s-pradishiya-industrial-investment-corporation-ltd-anr-44431
- **Pages:** 6

## Headnote

A. First Appeal - Section 96 C.P.C. - Section
446 of Company Act 1956- Suit to declare
that defendant / PIICUP had lost security
and mortgage due to bar of limitation.
PIICUP not entitled to enforce guarantee -
Winding up order passed by Company
Judge. Held:- Section 446 bars any suit
except with leave of Court -Principle laid
down - It is open to challenge recovery
proceeding without impleading principal
debtor, Section 446 would not come in
picture - Appellant impleaded principal
debtor and attempted to get determination
of his liability - Court below rightly held
the suit is barred by Section 446-First
Appeal dismissed.

B. Section Contract Act. Liability of
Guarantor - PIICUP initiated recovery
proceedings against Guarantor without
initiating proceeding against Principal
Debtor - Held - Guarantor's liability is coextensive with Principal Debtor.(E-1)

## Text

154 INDIAN LAW REPORTS ALLAHABAD SERIES

40. If for any reason, it is not
possible for the Registry of this Court to
issue refund certificate of the court fee
amount paid by the appellant landowners
on their memo of appeals filed in the High
Court on their respective appeal memo
then the requisite certificate shall be
issued by the High Court concerned as per
the Rules in favour of each appellant
landowner under the Court Fees Act".

10- The words "on any of the
grounds mentioned in section 351 of the
same Code" as used in Section 13 of the
Act, 1870 has been held by Hon'ble
Supreme Court in the case of Pt.
Chandra Bhushan Misra (supra) to be
referable to Section 351 of the Code of
Civil Procedure 1859. Refund of court
fees under Section 13 of the Court Fees
Act, has been exhaustively explained by
Hon'ble Supreme Court in the aforesaid
case of Chandra Bhushan Misra.

11- So far as the question of refund
of court fees under section 13 of the Court
Fees Act,1870 in land acquisition appeal
is concerned, the Hon'ble Supreme Court,
has provided in the case of Surendra
Singh (supra) for refund of court-fees,
while remanding the matter to the
reference court for fresh adjudication on
merits in accordance with law.

12- Thus, in view of the law settled
by Hon'ble Supreme Court in the case of
Pt. Chandra Bhushan Misra (supra)
and Surendra Singh (supra), I find no
difficulty to accept the submission of the
learned counsel for the appellant for
refund of Court-fees. Therefore, it is
provided that the appellant is entitled for
refund of court fees paid by him on his
memorandum of the present first appeal in
terms of the provisions of Section 13 of
the Court-Fees Act. Necessary certificate
under Section 13 of the Act, shall be
granted to the appellant.

13- In view of the aforesaid, this
first appeal is also allowed. The
impugned judgment of the reference
court in LAR No.164 of 1992 is set
aside. LAR No.164 of 1992 is restored
to its original number. The matter is
remanded to the reference court for
decision afresh in accordance with law.
For refund of court fees paid on the
memorandum of appeal, a certificate
shall be granted to the appellant under
Section 13 of the Court Fees Act. The
reference
court
shall
decide
LAR
No.164 of 1992 along with above
referred all land acquisition references,
if still pending, within six months from
the date of presentation of a certified
copy of this order, without granting any
unnecessary adjournment to either of
the parties.

14- Lower court record shall be
returned by the office to the court below
positively within two weeks.
---------
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 09.07.2019

BEFORE

THE HON'BLE SUDHIR AGARWAL J.
THE HON'BLE RAJENDRA KUMAR -IV J.

FIRST APPEAL No.210 of 2011

Khalid Mukhtar ...Appellant
Versus
M/S
Pradishiya
Industrial
&
Investment
Corporation Ltd. & Anr. ...Respondents

Counsel for the Appellant:
Sri Manish Goyal, Sri Raj Kumar Singh
Chauhan,
Ms.
Ankita
Jain
1 All. Khalid Mukhtar Vs. M/S Pradishiya Industrial & Investment Corporation Ltd. & Anr. 155
Counsel for the Respondents:
Sri Anurag Khanna, Sri Pranjal Mehrotra

A. First Appeal - Section 96 C.P.C. - Section
446 of Company Act 1956- Suit to declare
that defendant / PIICUP had lost security
and mortgage due to bar of limitation.
PIICUP not entitled to enforce guarantee -
Winding up order passed by Company
Judge. Held:- Section 446 bars any suit
except with leave of Court -Principle laid
down - It is open to challenge recovery
proceeding without impleading principal
debtor, Section 446 would not come in
picture - Appellant impleaded principal
debtor and attempted to get determination
of his liability - Court below rightly held
the suit is barred by Section 446-First
Appeal dismissed.

B. Section Contract Act. Liability of
Guarantor - PIICUP initiated recovery
proceedings against Guarantor without
initiating proceeding against Principal
Debtor - Held - Guarantor's liability is coextensive with Principal Debtor.(E-1)

(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
156 INDIAN LAW REPORTS ALLAHABAD SERIES
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 Limitation 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 reschedulement of installment of loan. Still
1 All. Khalid Mukhtar Vs. M/S Pradishiya Industrial & Investment Corporation Ltd. & Anr. 157
performance of Principal Debtor did not
improve, therefore, a notice under Section
29 of State Financial Corporation Act,
1951 (hereinafter referred to as "SFC 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 Companies 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, 38 and 41 of the Specific
Relief Act?
158 INDIAN LAW REPORTS ALLAHABAD SERIES

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, issue8 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.) Ltd. 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
1 All. Agra Development Authority Vs. Nafisa Begum & Ors.
159
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 U.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 coextensive
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.
---------
APPELLATE JURISDICTION
CIVIL SIDE
DATED: ALLAHABAD 25.07.2019
BEFORE
THE HON'BLE SURYA PRAKASH
KESARWANI, J.

FIRST APPEAL No733 of 2017
Alongwith

212 of 2017,341 of 2018, 345 of 2018,346 of
2018, 262 of 2019, 269 of 2019, 270 of 2019,
274 of 2019, 347 of 2019, 350 of 2019, 351 of
2019, 352 of 2019, 353 of 2019, 387 of 2019, 388
of 2019, 389 of 2019, 390 of 2019, 354 of 2019.

Agra Development Authority ...Appellant
Versus
Nafisa Begum &Ors. ...Respondents

Counsel for the Appellant:
Sri Jagannath Maurya, Sri M.C. Chaturvedi,
Sri Suresh Chandra Dwivedi.

Counsel for the Respondents:
Sri Rahul Agarwal, Sri Alok Kumar Tripathi,
Sri Kishan Jain.

A. Ratio decidendi - is the underlying
principle, namely, the general reasons or
the general grounds upon which the
decision is based - It is essence of a
decision - Every observation and various
observations made in the judgment is
not the ratio decidendi. (Para 47 [i])

B. Land Acquisition Act, 1894 - Section
23 (1) - relevant date to determine
market
value
for
the
purpose
of
compensation under Section 23(1) - is
the date of gazetter publication of the
notification under Section 4(1) of the Act
- date of publication of notice is not
relevant. (Para 47 (ii))

C. Market value of land acquired under
the Act has to be determined by the
court as on the date of the publication of
the notification in the Gazette under
Section 4(1) of the Act. (Para 47 [iii])