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Judgment
P.K. Misra, J.—Heard the learned counsel appearing for the parties. The present writ petition has been filed by the guarantor challenging the
action of the respondent Corporation u/s 29 of the State Financial Corporations Act, 1951.
The fact that the property in question was given as mortgage to the Corporation as a collateral security in respect of the debt incurred by
another person is not disputed. Similarly, it is not in dispute that the borrower has failed to repay the amount, nor it is in dispute that in fact, the
property pledged by the borrower himself had been seized u/s 29 of the Act.
The main question raised by the learned counsel for the petitioner is to the effect that even though there is a liability of the petitioner, the
Corporation should not have invoked the jurisdiction u/s 29 of the Act, since a specific provision u/s 31 is available under the Act for proceeding
against the property of the surety.
Section 29 and Section 31 of the Act are extracted hereunder:
Rights of Financial Corporation in case of default--
(1) Where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any
loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to
comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management
or possession or both of the industrial concern, as well the right to transfer by way of lease or sale and realise the property pledged, mortgaged,
hypothecated or assigned to the Financial Corporation.
(2) Any transfer of property made by the Financial Corporation, in exercise of its powers under Sub-section (1), shall vest in the transferee all
rights in or to the property transferred as if the transfer had been made by the owner of the property.
(3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods
forming part of the security held by it as it had with respect to the original goods.
(4) Where any action has been taken against an industrial concern under the provisions of Sub-section (1), all costs, charges and expenses which
in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern
and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of
such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so
received shall be paid to the person entitled thereto.
(5) Where the Financial Corporation has taken any action against an industrial concern under the provisions of Sub-section (1), the Financial
Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the
name of the concern.
Special provisions for enforcement of claims by Financial Corporation (7) Where an industrial concern, in breach of any agreement, make any
default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the
Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation
requires an industrial concern to make immediate repayment of any loan or advance u/s 30 and the industrial concern fails to make such
repayment, then, without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882 (4 of
1882), any officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the District Judge within
the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following
reliefs, namely --
(a) for an Order for the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or
advance; or
(aa) for enforcing the liability of any surety; or
(b) for transferring the management of the industrial concern to the Financial Corporation; or
(c) for an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the
premises of the industrial concern without the permission of the Board, where such removal is apprehended.
(2) An application under Sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the
ground on which it is made and such other particulars as may be prescribed.
Learned counsel for the petitioner has submitted that so far as Section 29 of the Act is concerned, the expression ''realise the property pledged,
mortgaged, hypothecated or assigned to the Financial Corporation'' should be read in a restrictive manner so as to include the property only of the
industrial concern, that is to say, the principal borrower and so far as the property of the surety is concerned, the specific provision contained in
Section 31 of the Act should be followed. Even though the contention raised by the petitioner may prima facie be attractive, I find that the weight
of judicial precedent is against such contention.
So far as this High Court is concerned, in Writ Petition Nos. 5694 and 8238 of 1998 which was disposed of on 5.4.2002, a learned single
Judge of this Court, after referring to the provisions contained in Sections 29 and 32 of the Act, observed as follows:
The rights and power u/s 29 of the State Financial Corporations Act extends to the property mortgaged by the surety and a bare reading of
Section 29 of the State Financial Corporations Act makes it clear that the respondent Corporation has the right to take-over not only the industrial
concern, but also the properties pledged, mortgaged, hypothecated or assigned to the Financial Corporation, of the surety.
The aforesaid observation of the learned single Judge vas subsequently followed by another learned Judge of this Court in Writ Petition No. 30013
of 2003 which was disposed of on 25.11.2004. It is, no doubt, true that the latter decision is stated to be pending in an appeal filed by the
aggrieved party. However, the mere fact that appeal is pending does not take sway the precedent value of the decision of the learned single Judge.
As a matter of fact, the earlier decision is also to the similar effect.
Apart from the aforesaid decisions of the Madras High Court, it is found that several other High Courts have also decided in a similar manner. In
Miss. K.T. Sulochana Nair Vs. Managing Director, Orissa State Financial Corporation and Others, it was held, ''there cannot be any fetter on the
power of the Corporation u/s 29 to take possession of the property of the surety also''. A similar view has been taken by the Kerala High Court in
the decision Thressiamma Varghese Vs. Kerala State Financial Corporation and Others, These decisions were relied on by a Division Bench of
the Punjab & Haryana High Court in its judgment Jasbir Kaur and Another Vs. Punjab State Industrial Development Corporation Ltd.,
Chandigarh and Another, . Similarly, in a long line of decisions, most of which have been considered by the Division Bench of the Allahabad High
Court in Kailash Chand Jain v. Uttar Pradesh Financial Corporation AIR 2002 A11.302 similar views have been expressed. As a matter of fact,
no contrary decision has been brought to my notice. In such view of the matter, the main contention raised by the learned counsel for the petitioner
is not acceptable. The writ petition is, therefore, liable to be dismissed.
The learned counsel for the petitioner submitted that even assuming that the Corporation has the power to seize the property and subsequently
take steps for sale of such property, it has to follow the principles laid down by the Supreme Court in Gajraj Jain Vs. State of Bihar and Others, It
goes without saying that in case the Corporation takes steps to sell the seized property, it has to follow the ratio laid down in the decision of the
Supreme Court in the aforesaid case.
Subject to the aforesaid observations, the writ petition is dismissed. No costs. Consequently, W.P.M.P. No. 7423 of 2003 is closed.