The interpretation of Section 22 of SICA and its applicability to guarantors, the distinction between 'proceedings' and 'suits', and the protection afforded to guarantors in respect of recovery of dues.

ALTAMAS KABIR, J.

( 1 ) LEAVE granted.

( 2 ) THE appellant no. 1 company was carrying on business of manufacturing galvanised pipes. In november, 1992 the appellant-company approached the respondent for financial assistance amounting to rs. 1,42,000/- to meet a part of the cost for setting up a factory in village Madap, Taluq Kolhapur in the district of Raigarh for the manufacture of galvanised pipes. The said amount was duly sanctioned and the said sum of Rs. 1,42,000/- was advanced by the respondent to the appellant company. An agreement was entered into for a term loan and the appellant-company also created a security for repayment of the amount by hypothecating its plant and machinery and creating an equitable mortgage of its factory premises situated in the above mentioned village. A loan agreement was executed on 30. 3. 1993 for repayment of the loan in various instalments. On the same day, the second appellant executed a personal guarantee for repayment of the loan amount in case of default by the appellant-company.

( 3 ) THE appellant-company committed several defaults in repayment of the loan amount compelling the respondent to issue a notice on 16. 10. 98 calling upon the appellant-company to pay the overdue amount within a stipulated period. Despite such notice, the appellant-company failed to make payment and accordingly, by a further notice dated 10. 1. 1999 the respondent called upon the appellant-company to repay the entire amount due and payable to the respondent by 3. 2. 1999 failing which the possession of the assets of the appellant-company would be taken on 5. 2. 1999.

( 4 ) SINCE, despite such notice the appellant-company failed and neglected to pay the entire amount as demanded, the respondent issued a notice to the appellant no. 2 on 13. 6. 2000 calling upon him to pay the entire amount by invoking the personal guarantee given by the second appellant. As in the case of the appellant-company, the second appellant did not also make the payment as demanded, and consequently, the respondent filed a petition against the second appellant under Section 31 (1) (aa)of the State Financial Corporations Act, 1951, on 10. 10. 2000 for enforcing the personal guarantee given by the said appellant.

( 5 ) IN the meantime, the appellant-company applied to the Board for Industrial and Financial reconstruction (BIFR) and was declared a sick company by the BIFR under the provisions of the Sick industrial Companies (Special Provisions) Act, 1985, (SICA), and the company is still under the said board.

( 6 ) TAKING advantage of the aforesaid position, the second appellant contended before the single Judge of the Bombay High Court that in view of Section 22 of the aforesaid Act, the personal guarantee given by the second appellant could not be invoked. It was also contended that the respondent could not enforce the guarantee till such time as the assets which had been mortgaged in its favour had not been realised. Both the said contentions were rejected by the learned single Judge upon holding that the liability of the guarantor was independent of that of the principal debtor, and accordingly, the guarantee could be invoked and the amount could be recovered from the guarantor. The guarantor was directed to pay Rs. 1,67,89,225/- with further interest on the principal amount of Rs. 92 lakhs from the date of the petition till payment at the rate of 12%. The said decision of the learned single Judge was challenged by the appellants herein before the Division Bench of the Bombay High Court in Appeal No. 1/2007. The division Bench on consideration of the different decisions of this Court came to the conclusion that the provisions of Section 22 of SICA, as amended in 1994, did not prohibit any proceeding, other than a suit for enforcement of any security against the guarantor. On such finding and also upon holding that the liability of the guarantor was co-extensive with the principal debtor and that the creditor was not required