Sick Industrial Companies Act protection does not bar insolvency proceedings against a guarantor; recovery certificate remains enforceable.

Section 22 of the Sick Industrial Companies Act bars suits for enforcement of guarantees relating to loans advanced to a sick industrial company, but it does not extend to an insolvency notice or insolvency proceedings against the guarantor because such proceedings are independent and not a suit. The Bombay High Court also treated a recovery certificate under section 101 of the Maharashtra Co-operative Societies Act as enforceable against the guarantor, as the certificate imposed joint and several liability and the preference to first recover from the borrower did not make enforcement contingent on prior exhaustion of remedies against the principal debtor.

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Issues: (i) Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 barred an insolvency notice and insolvency proceedings against a guarantor of loans advanced to a sick industrial company. (ii) Whether the recovery certificate issued under section 101 of the Maharashtra Co-operative Societies Act, 1960 could be enforced against the guarantor notwithstanding the proceedings before the BIFR.

Issue (i): Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 barred an insolvency notice and insolvency proceedings against a guarantor of loans advanced to a sick industrial company.

Analysis: Section 22 protects the industrial company against winding up, execution, distress and similar proceedings, and also restricts suits for enforcement of security and for enforcement of guarantees in respect of loans granted to the sick industrial company. The reasoning adopted was that the statutory bar, so far as a guarantor is concerned, extends to a suit and not to every kind of proceeding. An insolvency notice is an independent proceeding and is not a suit. The earlier binding view that an insolvency notice is not the continuation of the original suit was applied.

Conclusion: Section 22 did not bar the insolvency notice or the insolvency proceedings against the guarantor, and the challenge failed.

Issue (ii): Whether the recovery certificate issued under section 101 of the Maharashtra Co-operative Societies Act, 1960 could be enforced against the guarantor notwithstanding the proceedings before the BIFR.

Analysis: The recovery certificate treated the liabilities as joint and several and only indicated that recovery should first be attempted from the borrower. That preference did not make the certificate conditional upon recovery from the principal debtor becoming impossible. The challenge based on section 22 was already rejected, and the belated attempt to treat the certificate as unenforceable against the guarantor was not borne out from the record or the grounds of appeal.

Conclusion: The recovery certificate remained enforceable against the guarantor, and no ground for interference was made out.

Final Conclusion: The challenge to both the insolvency adjudication and the dismissal of the motion failed, leaving the adjudication and the insolvency process against the guarantor undisturbed.

Ratio Decidendi: Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 bars suits for enforcement of a guarantee in respect of a loan to a sick industrial company, but it does not bar an insolvency notice or insolvency proceedings against the guarantor.

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