Guarantor liability and novation limits in recovery proceedings: rehabilitation scheme did not extinguish the original contract.

A challenge to recovery proceedings failed where the issuing authority's competence was supported by the statutory framework and notification, the plea based on the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 did not defeat recovery, and protection under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 was held unavailable to a guarantor. The note also states that a rehabilitation scheme did not amount to novation under Section 62 of the Indian Contract Act, 1872 because no new contract was pleaded or proved; the original contractual liability therefore continued and the recovery certificate remained enforceable.

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Issues: Whether the recovery certificate could be successfully challenged on the grounds that the issuing authority lacked competence, that the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 barred recovery, that Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 protected the guarantor, and that the original loan contract stood novated by the rehabilitation scheme.

Analysis: The challenge to competence failed because the appellant could not displace the respondent's reliance on the statutory framework and the notification showing that the relevant provisions of the State Financial Corporations Act applied only to specified sections and not to the provision relied upon for recovery. The plea based on the overriding effect of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 also failed because the provision invoked by the appellant did not assist the financial institution in the manner suggested. The protection under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 was held unavailable to a guarantor, as the bar operates against the industrial company and not against personal recovery proceedings against the guarantor. The argument of novation under Section 62 of the Indian Contract Act, 1872 was rejected because there was no pleaded or proved substitution of the original contract, the rehabilitation scheme was not shown to have been accepted or acted upon as a new contract, and the original liability therefore remained unaffected.

Conclusion: The challenges to the recovery proceedings were rejected and the recovery certificate was upheld as enforceable against the guarantor.

Final Conclusion: The writ petition failed in its entirety, leaving the impugned recovery proceedings undisturbed.

Ratio Decidendi: A guarantor cannot invoke Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 to resist recovery proceedings, and a rehabilitation proposal does not extinguish the original contractual liability unless a new contract is clearly substituted under Section 62 of the Indian Contract Act, 1872.

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