Guarantor protection under sick company law applies only to loans or advances; genuine lease finance stays outside it.

Section 22(1) of the Sick Industrial Companies Act does not automatically stay proceedings against a guarantor merely because the industrial company is before BIFR; the protection extends only where the guarantee relates to a loan or advance granted to the industrial company, so the suit against the guarantor continued. A transaction described as lease finance was held to be a genuine lease where ownership stayed with the lessor, the lessee had only lease rights, and repossession rights on default were preserved; instalments, interest, and residual purchase terms did not convert it into a loan or advance, so statutory protection was unavailable.

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Issues: (i) whether proceedings against a guarantor are automatically stayed merely because the industrial company is before the Board for Industrial and Financial Reconstruction under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985; (ii) whether the transaction styled as lease finance was in substance a loan or advance so as to attract the statutory protection.

Issue (i): whether proceedings against a guarantor are automatically stayed merely because the industrial company is before the Board for Industrial and Financial Reconstruction under section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985.

Analysis: The statutory text, as amended, gives limited protection to guarantors only in respect of suits for enforcement of guarantees relating to loans or advances granted to the industrial company. The protection available to the industrial company itself does not automatically extend to the guarantor. The prior authorities relied upon by the Court distinguish between suits, execution proceedings, and the scope of suspension under the amended provision. On the facts pleaded before the trial court, the mere pendency of the reference before BIFR was insufficient to halt the suit against the guarantor.

Conclusion: The suit against the guarantor was not automatically stayed on the sole ground that the industrial company was before BIFR.

Issue (ii): whether the transaction styled as lease finance was in substance a loan or advance so as to attract the statutory protection.

Analysis: The agreement and surrounding documents showed that the equipment remained the lessor's property throughout the term, the lessee had only lease rights, and the lessor retained rights of repossession on default. The mere presence of instalments, interest, and residual purchase terms did not convert the lease into a loan or advance. The Court refused to rewrite the contract or ignore the express ownership and return clauses. As the guarantee was not in respect of a loan or advance, the statutory protection was unavailable.

Conclusion: The lease finance transaction was held to be a genuine lease and not a loan or advance.

Final Conclusion: The appeal failed on both grounds and the decree against the appellant was sustained.

Ratio Decidendi: Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 affords a guarantor protection only where the guarantee is in respect of a loan or advance granted to the industrial company, and a transaction that remains a true lease does not attract that protection.

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