Mortgage enforcement against guarantor property remains permissible under the financial corporations law despite pending sickness proceedings.

Section 29 of the State Financial Corporations Act, 1951 extends to property mortgaged by a surety or guarantor, even where that property does not belong to the borrowing industrial concern, so the Financial Corporation may proceed against such collateral security for recovery on default. The amended section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 does not bar section 29 action against guarantors during pendency of sickness proceedings, because the statutory bar is directed to suits and related recovery claims and does not convert section 29 enforcement into a prohibited proceeding. Recovery against the guarantors' mortgaged properties was therefore legally permissible.

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Issues: (i) Whether the power under section 29 of the State Financial Corporations Act, 1951 extends to property mortgaged by a surety or guarantor and not belonging to the industrial concern; (ii) Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 bars proceedings under section 29 of the State Financial Corporations Act, 1951 against guarantors while proceedings concerning the industrial company are pending under the sick industrial companies law.

Issue (i): Whether the power under section 29 of the State Financial Corporations Act, 1951 extends to property mortgaged by a surety or guarantor and not belonging to the industrial concern.

Analysis: Section 29 confers a wide right on the Financial Corporation to take over management or possession of the industrial concern and to transfer by lease or sale and realise property pledged, mortgaged, hypothecated or assigned to it. The language does not confine the remedy to assets belonging to the borrowing industrial concern. The mortgage or security created by a third-party surety or guarantor also falls within the statutory phrase, and the Corporation may proceed against such secured property for recovery of the dues on default by the borrowing concern.

Conclusion: The power under section 29 extends to the mortgaged property of a surety or guarantor, and action against such collateral security is legally permissible.

Issue (ii): Whether section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 bars proceedings under section 29 of the State Financial Corporations Act, 1951 against guarantors while proceedings concerning the industrial company are pending under the sick industrial companies law.

Analysis: After amendment, section 22 distinguishes between "proceedings" and "suit" and bars, in relevant situations, suits for recovery of money or enforcement of security against the industrial company or of any guarantee in respect of its loans, except with consent. The earlier broad construction of "proceedings" under the unamended provision, including in relation to coercive action against the industrial company, does not control the amended text so as to convert the word "suit" into all forms of recovery action. Proceedings under section 29 against guarantors are not civil suits and the statutory bar was held not to extend to such action against the petitioners as guarantors.

Conclusion: Section 22 does not bar proceedings under section 29 of the State Financial Corporations Act, 1951 against guarantors for realisation of mortgaged security.

Final Conclusion: The challenge to the recovery notice failed, and the petitioners remained liable to proceed against their mortgaged properties under section 29 notwithstanding the pending sickness proceedings against the borrowing company.

Ratio Decidendi: A Financial Corporation may proceed under section 29 against property mortgaged by a guarantor, and the amended section 22 of the sick industrial companies law does not prohibit such action because its bar on recovery claims is directed to suits and does not extend to section 29 proceedings against guarantors.

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