TMI Blog1994 (2) TMI 268X X X X Extracts X X X X X X X X Extracts X X X X ..... e under Section 31 which had remained unsatisfied, could not debar the Corporation to invoke the provisions of Section 29 of the Act, by giving up further proceedings under Sections 31/32 of the Act. - Civil Appeal No. 3689 of 1987 and C.A. 3216 OF 1988 - - - Dated:- 10-2-1994 - ANAND, A.S. , KULDIP SINGH , JJ. JUDGMENT: - The Judgment of the Court was delivered by DR ANAND, J.- The common question of law which arises in both these appeals, by special leave, is whether the Financial Corporation set up under Section 3 of the State Financial Corporation Act (hereinafter entitled to take recourse to the remedy available the Act ) is entitled to take recourse to the remedy available to it under Section 29 of the Act even after having obtained an order or a decree after invoking the provisions of Section 31 of the Act but without executing that decree/order? The facts in both the appeals are, however, different and we shall first notice the relevant facts in each of the two appeals, before answering the question posed hereinabove. Civil Appeal No. 3689 of 1987 2.The respondent borrowed a sum of ₹ 99,500 from the appellant, the Andhra Pradesh State Financ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was at this stage, that the first respondent filed Writ Petition No. 235 of 1982 in the High Court of Andhra Pradesh, questioning the calling of tenders by invoking the provisions of Section 29 of the Act on various grounds. The High Court stayed the sale of the concern subject to the condition that Respondent I should deposit a sum of ₹ 35,000. When the writ petition came up for hearing, it was brought to the notice of the High Court that there was difference of opinion between two benches of the High Court with regard to the vires of Section 29 of the Act. The writ petition was accordingly referred to a Full Bench. The Full Bench did not go into the question of vires of Section 29 of the Act but held that it was not open to the Corporation to invoke the provisions of Section 29 of the Act, having first successfully invoked the jurisdiction of the District Judge under Section 31 of the Act and consequently the writ petition was allowed. The Corporation has assailed the judgment of the High Court, allowing the writ petition, through this appeal on special leave being granted. Civil Appeal No. 3216 of 1988 3.The first respondent applied for and obtained loan of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hose tender had been accepted in the proceedings under Section 29 of the Act but who had resiled from the same due to pending litigation. An injunction against the Corporation was also sought. However, no injunction was granted and the plaintiff in the suit was given time to make the deposit within the stipulated period but he failed to do so within the period granted for the purpose. The Corporation having remained unsuccessful in enjoying the benefit of the order of the District Judge dated November 16, 1978, because of the pendency of the proceedings in the civil courts, at the instance of the first respondent, once again took recourse to the provisions of Section 29 of the Act and advertised the unit for sale. The first respondent filed CMA No. 403 of 1979 in the High Court of Andhra Pradesh and obtained an order of stay of the sale by the Corporation. The order of the stay was later on made absolute by the High Court, subject to the first respondent depositing 1/4th of the amount due by December 29, 197.9 and a further 1/4th by February 29, 1980. The time, for deposit, was, however, extended at the request of the first respondent, but despite the extension of time, the first ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 as 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 under 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) * * * (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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion (1) shall state the and extent of the liability of the industrial concern Financial Corporation, the ground on which it is made and such other particulars as may be prescribed. 7.Section 32 of the Act deals with the procedure and the powers of the District Judge while dealing with applications made under Section 31 of the Act. Section 32 provides as follows: 32. Procedure of District Judge in respect of applications under Section 31.(1) When the application is for the reliefs mentioned in clauses (a) and (c) of sub-section (1) Section 3 1, the District Judge shall pass an ad interim order attaching the security, or so much of the property of the industrial concern as would on being sold realise in his estimate an amount equivalent in value of the outstanding liability of the industrial concern to the Financial Corporation, together with the costs of the proceedings taken under Section 3 1, with or without an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment. (1-A) When the application is for the relief mentioned in clause (aa) of sub-section (1) of Section 31, the District Judge shall is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... release the property from attachment; (d) confirm or dissolve the injunction; (da)direct the enforcement of the liability of the surety or reject the claim made in this behalf; or (e) transfer industrial concern to the management of the the Financial Corporation or reject the claim made in this behalf: Provided that when making an order under clause (c) or making an order rejecting the claim to enforce the liability of the surety under clause (da) or making an order rejecting the claim to transfer the management of the industrial concern to the Financial Corporation under clause (e), the District Judge may make such further orders as he thinks necessary to protect the interests of the Financial Corporation and may apportion the costs of the proceedings in such manner as he thinks fit: Provided further that unless the Financial Corporation intimates to the District Judge that it will not appeal against any order releasing any property from attachment or rejecting the claim to enforce the liability of the surety or rejecting the claim to transfer the industrial concern to the Financial Corporation, such order shall not be given effect to, unti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in payment of loan or advance or an instalment thereof, by the loanee, to recover the same. 9.An analysis of Section 29 of the Act reveals that where any industrial concern which is under an obligation and a liability to the Corporation under an agreement makes a default in repayment of the loan or advance or any instalment thereof or otherwise commits breach of any of the terms of the agreement, the Corporation has the right to take over the management or possession or both of the defaulting industrial concern. It also has the right to transfer by way of lease or sale and realise the property pledged, mortgaged or hypothecated or assigned to the Corporation as security for the loan. Any transfer of property of the defaulter thereafter made by the Corporation shall vest in the transferee all rights in or to the property transferred by virtue of Section 29(2) of the Act. Vide Section 29(3) of the Act, the Corporation has the same rights with respect to the goods manufactured, or produced wholly or partly as it had in respect of the original goods forming part of the security. Section 29 of the Act, therefore, deals with not only the rights of the Corporation in cases of defau ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... without prejudice to the provisions of Section 29 of this Act and of Section 69 of the Transfer of Property Act, 1882 . What is the import of the term without prejudice to the provisions of Section 29 of this Act ? 13.On a conjoint reading of Sections 29 and 31 of the Act, it appears to us that in case of default in repayment of loan or any instalment or any advance or breach of an agreement, the Corporation has two remedies available to it against the defaulting industrial concern, one under Section 29 and another under Section 31 of the Act. The choice for availing the remedy under Section 29 or Section 31 of the Act is that of the Financial Corporation alone and the defaulting concern has no say whatsoever in the matter, as to which remedy should be taken recourse to by the Corporation against it for effecting the recovery. The expression without prejudice to the provisions of Section 29 of this Ace as appearing in Section 31 of the Act clearly demonstrates that the Legislature did not intend to confine the Corporation to take recourse to only a particular remedy against the defaulting industrial concern for recovery of the amount due to it. It left the choice to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... breach of an agreement by an industrial concern the Corporation can seek one or more of the three reliefs set out in Section 31 (1). This Court went on to consider the question as to whether in an application under Section 31(1) of the Act, the Corporation can pray for a decree for its outstanding dues and opined in the negative. In the words of the Court: (SCC p. 198, para 9) At any rate, in an application under Section 31(1) the Corporation does not and cannot pray for a decree for its outstanding dues. It can make an application for one of the three reliefs, none of which, if granted, results in a money decree, or decree for recovery of outstanding loan or advance. Section 31(1) of the Act, in the circumstances therein set out, permits the Corporation to seek one or more of the three reliefs therein stated. The Court then considering the conspectus of the provisions of Sections 31 and 32 of the Act, went on to say that on an application under Section 31 (I) being made it is obligatory upon the court to make an interim order attaching the security with or without interim injunction restraining the industrial concern from transferring or removing its plant, mach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es provided under the Act. In our opinion the Corporation can initially take recourse to Section 31 of the Act but withdraw or abandon it at any stage and take recourse to the provisions of Section 29 of the Act, which section deals with not only the rights but also provides a self-contained remedy to the Corporation for recovery of its dues. If the Corporation chooses to take recourse to the remedy available under Section 31 of the Act and pursues the same to the logical conclusion and obtains an order or decree, it may thereafter execute the order or decree, in the manner provided by Section 32(7) and (8) of the Act. The Corporation, however, may withdraw or abandon the proceedings at that stage and take recourse to the provisions of Section 29 of the Act. A decree under Section 31 of the Act not being a money decree or a decree for realisation of the dues of the Corporation, as held in Gujarat State Financial Corpn. v. Naatson Mfg. Co. P. Ltd. I recourse to it cannot debar the Corporation from taking recourse to the provisions of Section 29 of the Act by not persuing the decree or order under Section 31 of the Act, in which event the order made under Section 31 of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 29 of the Act. Any interpretation which frustrates the right of the Corporation to recover its dues must be eschewed. Similarly, if in a given case, the Corporation has taken recourse to the provisions of Section 29 of the Act, there is no bar for it without taking those proceedings to their logical conclusion to abandon them and approach the court under Section 31 of the Act to seek one or more of the reliefs available to it under that section. Where, the defaulting party fails to honour the order or decree of the court made under Section 31 of the Act, it has neither any legal nor even a moral right to object to the Corporation from taking recourse to the provisions of Section 29 of the Act only on the ground that it has obtained a proper relief under Section 31 of the Act which relief it does not wish to pursue any further. Indeed, if the order of the court issued under Section 31 of the Act has been fully complied and honoured with by the defaulting concern, no occasion would arise for the Corporation to invoke the provisions of Section 29 of the Act. However, to hold that since the Corporation has initially taken action under Section 31 of the Act and obtained an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Sections 29 and 31 with a view to aid the Corporation to recover its legitimate dues etc. from the defaulting party, the saving clause in Section 31 of the Act, preserving the rights under Section 29 of the Act by giving up the pursuit under Section 31 at any stage of the proceedings is available to the Corporation. The two provisions must be so harmonised as to facilitate the Corporation to recover its dues from the defaulting party. The Act was enacted by Parliament with a view to promote industrialisation and offer assistance by giving financial assistance in the shape of loans and advances etc. repayable in easy instalments. The Corporation has to recover the loans and advances, so as to be able to give financial assistance to other industries and unless it recovers its dues, the money will not remain in circulation for long. It is with this end in view that Parliament gave the Corporation the right to proceed under Section 31 of the Act, preserving at the same time its rights and remedy under Section 29 of the Act, so that the Corporations are not choked by the defaulting debtors by adopting frustrating or dilatory tactics in the proceedings in the court initiated unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n to invoke the provisions of Section 29 of the Act, by giving up further proceedings under Sections 31/32 of the Act. The judgment under appeal has laid down the proposition too broadly and not given effect to the expression without prejudice to the provisions of Section 29 of the Act occurring in Section 31 and by laying down that if recourse is bad to the provisions of Section 31 of the Act, the Corporation must pursue that remedy alone and it cannot abandon or withdraw from those proceedings at any stage . The interpretation placed by the High Court chokes the benefit of recovery proceedings and cannot therefore be sustained and accepting the appeal, we set aside the impugned judgment. 21.In Civil Appeal No. 3216 of 1988, the facts as noticed in the earlier part of this judgment which are rather eloquent show that the respondents did not have any intention of repaying any part of the debt. Even in this Court their attitude was no different. They have been merely adopting delaying tactics and putting forward one or the other ploy to keep the Corporation divested of its legitimate dues. The learned Single Judge was perfectly justified to dismiss the writ petition, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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