BIFR reference and recovery proceedings: guarantor security remains exposed, and SARFAESI action need not await withdrawal of tribunal proceedings.

A pending BIFR reference does not protect guarantors or mortgaged collateral from recovery action under the securitisation law, because the statutory stay under section 22 of the Sick Industrial Companies Act applies to the sick company itself and not to third-party guarantors or their security. The later amendment to section 15 also indicates that a pending reference abates once secured creditors take measures under section 13(4) of the 2002 Act. The proviso to section 19(1) of the 1993 Act is enabling, not mandatory, so a secured creditor need not withdraw its recovery application before invoking the securitisation remedy. The notice-based recovery measures were therefore upheld.

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Issues: (i) Whether a pending reference before the Board for Industrial and Financial Reconstruction protected the guarantors or their mortgaged property from recovery action under the securitisation law. (ii) Whether the proviso to section 19(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 required the bank to withdraw its pending recovery application before taking action under the securitisation law.

Issue (i): Whether a pending reference before the Board for Industrial and Financial Reconstruction protected the guarantors or their mortgaged property from recovery action under the securitisation law.

Analysis: Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 suspends recovery-type proceedings in respect of the sick industrial company, but the protection does not extend to guarantors or to properties offered by them as collateral security. The later amendment to section 15 of the 1985 Act further provides that a pending BIFR reference abates when secured creditors take measures under section 13(4) of the 2002 Act. Once such measures are initiated, the pending reference cannot be used to claim continued protection.

Conclusion: The BIFR reference did not bar the bank's action against the guarantors and their secured assets.

Issue (ii): Whether the proviso to section 19(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 required the bank to withdraw its pending recovery application before taking action under the securitisation law.

Analysis: The proviso uses permissive language and does not state that withdrawal of the tribunal proceeding is a condition precedent to invoking the securitisation remedy. Reading it as mandatory would create multiplicity of proceedings, raise limitation difficulties, and undermine the statutory scheme allowing recovery of the balance amount after sale of secured assets. The provision was therefore treated as enabling rather than compulsory.

Conclusion: The bank was not required to withdraw the pending tribunal application before proceeding under the securitisation law.

Final Conclusion: The recovery notices were upheld and the writ petitions were rejected.

Ratio Decidendi: A pending BIFR reference does not protect guarantors or their collateral, and the proviso to section 19(1) of the 1993 Act is directory so a secured creditor may invoke the securitisation remedy without first withdrawing the tribunal proceeding.

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