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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: (i) Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 applies to a recovery suit against guarantors of a sick company's loan; (ii) whether permission granted by the Board to continue recovery proceedings against the company can be used to proceed against the guarantors.
Issue (i): Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 applies to a recovery suit against guarantors of a sick company's loan.
Analysis: The governing principle was taken from the Supreme Court's interpretation of section 22, which treated the language covering enforcement of a guarantee in respect of loans granted to a sick industrial company as clear and unambiguous. The statutory bar was therefore held to extend not only to suits against the company but also to proceedings for enforcement of the guarantee against the guarantors, absent the Board's consent.
Conclusion: Section 22 does apply to suits against guarantors in respect of loans granted to the sick company.
Issue (ii): Whether permission granted by the Board to continue recovery proceedings against the company can be used to proceed against the guarantors.
Analysis: The guarantee deed made the guarantors' liability irrevocable, joint and several, and authorized the creditor to treat the guarantors as principal debtors without first suing the company. On that footing, the Court held that permission to continue the already-filed recovery suits against the company could equally be relied upon for the suit against the guarantors, because the guarantors did not stand on a higher footing than the principal debtor and a contrary view would create an untenable distinction between the two proceedings.
Conclusion: The Board's permission to proceed against the company was sufficient to proceed against the guarantors.
Final Conclusion: The appeal failed because the recovery action against the guarantors was maintainable and the order permitting the suit to proceed was upheld.
Ratio Decidendi: Where the guarantee terms make the sureties jointly and severally liable and treat them as principal debtors, permission granted to continue recovery proceedings against the sick company can extend to proceedings against the guarantors, and section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 does not exclude such proceedings once Board consent is available.
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