TMI Blog1975 (5) TMI 91X X X X Extracts X X X X X X X X Extracts X X X X ..... e document embodying the terms and conditions for the repayment of loan with interest and for tine mortgage of the properties of the debtor as well ,as of Munnalal, the surety, According to the terms and conditions in the aforesaid deed, the loan carried interest at the rate of 5 per cent. and the principal amount and interest were payable in instalments. In the case of default, the entire outstanding principal with interest at enhanced rate became payable. It appears that out of a sum of ₹ 70,000 agreed to be advanced, only a sum of ₹ 26,000 was advanced to begin with. The debtor committed default in the payment of interest as also in the payment of instalments of the principal amount. Thereupon the Financial Corporation filed a petition before the District Judge, Kanpur under Section 31 of the State Financial Corporations Act, 1951 (hereinafter referred to as the 'Act'), claiming a sum of ₹ 26,000 as principal and ₹ 2,746.84 as interest. In the aforesaid application the following prayer was made:-- It is, therefore, prayed that the following reliefs may be granted to the petitioner against the opposite parties:-- (a) order for the sale of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot exceeding twenty years from the date on which they are granted or subscribed to, as the case may be. Sub-section (2) of Section 25 provides:-- (2) No accommodation shall be given under Clauses (a), (b) and (g) of Sub-section (1) unless it is sufficiently secured by a pledge, mortgage, hypothecation or assignment of Government or other securities, stock, shares, or secured debentures, bullion, movable or immovable property or other tangible assets in the manner prescribed by regulations or unless it is guaranteed as to the repayment of the principal and the payment of interest by the State Government, a scheduled bank or a State Co-operative Bank. Thus a loan to an industrial concern cannot be advanced unless it is secured by a mortgage of movable or immovable property or the repayment of the loan and the interest is guaranteed by the State Government, a scheduled Bank or a State Co-operative Bank. There was some discussion as to whether the Corporation was entitled to take mortgage of the property of a third person as a surety. But it appears to us that Sub-section (2) of Section 25 is so widely worded that the Corporation can take the mortgage of property even belonging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (c) of Sub-section (1). Clauses (b) and (c) contemplate action against the borrower. The management of the borrower industrial concern can be taken over by the Financial Corporation or an ad interim injunction can be obtained against it restraining it from removing its machinery, plant, equipments etc. Under Clause (a) it can ask for the sale of the property pledged. The question that arises is as to whether under Clause (a) the property of a surety can also be put to sale in the summary manner as provided in Section 31. The argument is that the property of the surety can, no doubt, be put to sale for purposes of securing the repayment of the loan and interest, but that can be done only in accordance with the provisions of Section 69 of the Transfer of Property Act and the relevant provisions of the Code of Civil Procedure. It cannot be attached and sold in the summary manner by the District Judge on a mere application of the Corporation. 6. It is contended that Section 31 is restricted only to actions against the borrower industrial concern or the property mortgaged by it, but if the Corporation wants to proceed against the surety also, it has to resort to the normal remed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order absolute and direct the sale of the attached property or transfer the management of the industrial concern to the Financial Corporation or confirm the injunction. Now a close reading of Section 32 shows very clearly that the relief which a District Judge can grant under Section 32 must be confined against the borrower of the industrial concern and its property. The District Judge can pass an ad interim order attaching the security or so much of the property of the industrial concern as would be sufficient in his opinion to satisfy the outstanding liability. The order of attachment is restricted to the property of industrial concern given to the Corporation by way of surety. It does not empower him to attach the property of a person other than an industrial concern. Clearly a surety, who is not a partner or otherwise interested in the industrial concern, cannot be proceeded against under Section 31 so that his property, even if mortgaged with the Corporation, cannot be attached by the District Judge. Moreover, the District Judge in the first instance has to attach only that much of the property of the borrower industrial concern as would be sufficient to meet the outstandi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y taking recourse to the ordinary law. 10. In the case of the U.P. Financial Corporation v. Deekey Industries (P.) Ltd. (supra) the Bench laid emphasis on Section 29 of the Act and took the view that the unfettered right of the Corporation to proceed against all the mortgaged property could not be cut down by Section 31 or Section 32. There is no conflict between Section 29, Section 31 and Section 32. Section 29 defines the right of the Corporation in general to proceed against the mortgaged property. That right is not taken away by Section 31 or Section 32. That right remains intact but is enforceable by modes other than that contained in Section 31. Sections 31 and 32 read together make it amply clear that a speedy remedy of an application to the District Judge is available to the Corporation only against the borrower industrial concern and if the Corporation wants to enforce its right against the surety, it must take recourse to the ordinary law of realising the debt secured by mortgaged property as contained in the Transfer of Property Act and the Civil Procedure Code. We are, therefore, unable to agree with the view taken by the Division Bench in the case of U. P. Financial ..... X X X X Extracts X X X X X X X X Extracts X X X X
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