# [1994] 1 S.C.R. 857

- **Citation:** [1994] 1 S.C.R. 857
- **Court:** Supreme Court of India
- **Decided:** 1994-02-10
- **Case number:** Civil Appeal No. 3689 of 1987
- **Bench:** Kuldip Singh, Dr. A.S. Anand
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/1994-1-s-c-r-857-12141
- **Pages:** 24

## Headnote

B
State Financial Corporations Ac~ 1951: Sections 29, 31 and 32--Expression 'without prejudice to the provisions of section 29' appearing in section
31-Meaning and effect of-Nature and scope of sections 29 and 31-Scope
of section 29 wider than section 31-Choice of Financial Corporation to in- c
itiate proceedings either under section 29 or section 31-Right of Corporation
to abandon at any stage the proceedings under either of the Sections and have
recourse to the other section-But cannot proceed simultaneously under both
the provisions.
Constitution of India, 1950: Article 226-Equitable extraordinary jurisD
diction-To be.exercised to prevent perpetration of legal fraud and to promote
good faith and honesty-Not to be exercised in favour of a defaulting party
which attempts to frustrate the legitimate claim of the order party.
Equity: Object of-To promote honesty and good faith-To prevent E
crafty evasion of law.
Doctrines: Doctrine of election-Applicability of-Not to apply where
two remedies available under the same statute differ in ambit and scope.
~-
In the first of the two appeals the respondent Mill borrowed a sum F
of Rs. 99,500 from the appellant Corporation for carrying on the business
of manufacturing agricultural implements. A mortgage deed was also
executed. On account of the default committed by the respondent Mill, the
appellant corporati.on filed an application for the realisation of the loan
with interest and the District Judge allowed the same but restricted the G
future interest to 6% as against 81/2% claimed. On appeals the High Court
stayed the execution sutaect to the condition that the respondent should
.... -t
deposit 1/4th of the amount due and furnish security for the balance
amount. The respondent Mill neither deposited the amount nor furnished
the security. The Corporat;on filed cross objections questioning the reduction of the rate of future interest. High Court dismissed the appeal of the H
857
858
SUPREME COURT REPORTS
[1994] l S.C.R.
A
respondent and allowed the cross objection of the Corporation.
j...
Thereafter the Corporation filed a suit before the City Civil Court
to enforce the. personal liability of its respondent and his guarantor.
Though the suit was decreed the Corporation could not execute it since the
B
respondent shifted his place of business and could not be traced.
The Corporation issued an advertisement in a local newspaper
notifying that sab of the respondent concern wotild be conducted under
section 2~ of the State Finance Corporation Act and invited tenders
··+--
therefore. The second respondent submitted a tender for Rs. 3,05,000
c which was duly accepteci ~nd he deposited Rs. 52,000 being 1/4th of the
tender amount. At this stage •'lie first respondent filed a Writ Petition
before the High Court question mg the invoking of section 29 of the Act on
..
various grounds. High Court stayed the same. When the writ petition came
up for hearing, it was brought to the notice of the High Court that there
D
was difference of opinion between two Benches of the High Court with
regard to the vires of s. 29 of the Act. The writ petition was accordingly
referred to a Full Bench. However, 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 inyoke the provisions of s. 29 of the Act, having first
successfully invoked the jurisdiction of the District Judge under s. 31 of
E
the Act and allowed the Writ Petition.
In the second of the appeals, the facts were similar. Following the
decisions of the Full Bench referred to above, the Division Bench allowed
the writ petition in this case as well holding that the Corporation having
~
moved the Court for relief under section 31 of the Act was not entitled to
F
recover the amount of debt by taking recourse to the Provisions of s. 29 of
'
the Act. The present appeals by s,ecial leave, were filed by the Corporation
against the High Court's decisions mentioned above.
Allowing the a

## Text

_Characters 0–39,678 of 59,148. This is a partial read: ask again with offset=39678 for what follows._

••
THE ANDHRA PRADESH STATE FINANCIAL CORPORATION
A
..l
v .
GAR RE-ROLLING MILLS AND ANR. ETC.
FEBRUARY 10, 1994
[KULDIP SINGH AND DR. A.S. ANAND, JJ.]
B
State Financial Corporations Ac~ 1951: Sections 29, 31 and 32--Expression 'without prejudice to the provisions of section 29' appearing in section
31-Meaning and effect of-Nature and scope of sections 29 and 31-Scope
of section 29 wider than section 31-Choice of Financial Corporation to in- c
itiate proceedings either under section 29 or section 31-Right of Corporation
to abandon at any stage the proceedings under either of the Sections and have
recourse to the other section-But cannot proceed simultaneously under both
the provisions.
Constitution of India, 1950: Article 226-Equitable extraordinary jurisD
diction-To be.exercised to prevent perpetration of legal fraud and to promote
good faith and honesty-Not to be exercised in favour of a defaulting party
which attempts to frustrate the legitimate claim of the order party.
Equity: Object of-To promote honesty and good faith-To prevent E
crafty evasion of law.
Doctrines: Doctrine of election-Applicability of-Not to apply where
two remedies available under the same statute differ in ambit and scope.
~-
In the first of the two appeals the respondent Mill borrowed a sum F
of Rs. 99,500 from the appellant Corporation for carrying on the business
of manufacturing agricultural implements. A mortgage deed was also
executed. On account of the default committed by the respondent Mill, the
appellant corporati.on filed an application for the realisation of the loan
with interest and the District Judge allowed the same but restricted the G
future interest to 6% as against 81/2% claimed. On appeals the High Court
stayed the execution sutaect to the condition that the respondent should
.... -t
deposit 1/4th of the amount due and furnish security for the balance
amount. The respondent Mill neither deposited the amount nor furnished
the security. The Corporat;on filed cross objections questioning the reduction of the rate of future interest. High Court dismissed the appeal of the H
857
858
SUPREME COURT REPORTS
[1994] l S.C.R.
A
respondent and allowed the cross objection of the Corporation.
j...
Thereafter the Corporation filed a suit before the City Civil Court
to enforce the. personal liability of its respondent and his guarantor.
Though the suit was decreed the Corporation could not execute it since the
B
respondent shifted his place of business and could not be traced.
The Corporation issued an advertisement in a local newspaper
notifying that sab of the respondent concern wotild be conducted under
section 2~ of the State Finance Corporation Act and invited tenders
··+--
therefore. The second respondent submitted a tender for Rs. 3,05,000
c which was duly accepteci ~nd he deposited Rs. 52,000 being 1/4th of the
tender amount. At this stage •'lie first respondent filed a Writ Petition
before the High Court question mg the invoking of section 29 of the Act on
..
various grounds. High Court stayed the same. When the writ petition came
up for hearing, it was brought to the notice of the High Court that there
D
was difference of opinion between two Benches of the High Court with
regard to the vires of s. 29 of the Act. The writ petition was accordingly
referred to a Full Bench. However, 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 inyoke the provisions of s. 29 of the Act, having first
successfully invoked the jurisdiction of the District Judge under s. 31 of
E
the Act and allowed the Writ Petition.
In the second of the appeals, the facts were similar. Following the
decisions of the Full Bench referred to above, the Division Bench allowed
the writ petition in this case as well holding that the Corporation having
~
moved the Court for relief under section 31 of the Act was not entitled to
F
recover the amount of debt by taking recourse to the Provisions of s. 29 of
'
the Act. The present appeals by s,ecial leave, were filed by the Corporation
against the High Court's decisions mentioned above.
Allowing the appeals, this Court
G
HELD: 1.1. The right vested in the Corporation under Section 29 of
the State Financial Corporations Act is besides the right already possessed
+-
~
by it at common law to institute a suit or the right available to it under
section 31 of the Act. [879-B]
H
1.2. Section 29 of the Act deals with not only the rights of the
AP. STATE FINANCIAL CORPN. v. GAR RE-ROLLING MILLS
859
Financial Corporation in cases of default by the industrial concern with A
or without possession as well as the right to transfer by way of lease or
sale of the hypothecated property to realise its dues. Since Section 29 vf
the Act provides both the rights and the remedies as also the procP.dure
for enforcement of the rights and is a complete code in itself, it is open to
the Corporation to act under section 29 of the Act to realise the dues from B
the defaulting concern by following the procedure prescribed under Section 29 of the Act. The Corporation does not require the assistance of the
court to enforce its right while invoking the provisions of Section 29 of the
Act to recover its dues from the defaulting concern. [872-C-E]
1.3. Section 31 of the Act has been enacted also to take care nf a C
situation where any industrial concern, in breach of any agreement, makes
default in repayment of the loan or advance or any instalment thereof or
the Corporation requires immediate repayment which the defaulting industrial concern fails to make. The Corporation may in any such event
without prejudice to its rights and remedies under Section 29 of the Act,
apply to the District Judge concerned. [872-F,GJ
D
1.4. The substantive relief under section 31(1) is something in the
nature of an application for attachment of property in execution of a
decree before the judgment. (875-GJ
Gujarat State Financial Corporation v. Naatson Mfg. Co., A.I.R. 1978
S.C. 1765, relied on.
2.1. A conjoint reading of Sections 29 and 31 of the Act shows· that
in case of default in repayment of loan or any instalment or any advance
E
or breach of an agreement, the Corporation has two remedies available to F
it against the defaulting industrial concern, one under section 29 arid
another under Section 31 of the Act. The choice for availing the remedy
under Section 29 or Section :u of the Act is that of the Financial Corporation. 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 e:Xpression "without prejudice to the G
provisions of Section 29 of this Act" as appearing in Section 31 clearly
deJDonstrates that the Legislature did not intend to limit 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
the Corporation to act in the first instance under Section 31 of the Act and H
860
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[1994] 1 S.C.R.
A
save its rights and remedies under section 29 of the Act to be availed of at
a later stage, with the sole object of enabling the Corporation to recover
its dues. It is not, however, obligatory on the part of the Financial Corporation to invoke the special provisions of Section 31 of the Act; it can
even without taking recourse to the provisions of the said Section invoke
B
the procedure prescribed under Section 29 of the Act for realisation of its
dues. [873-E-HJ
2.2. Where the Corporation takes recourse to the proV1s1ons of
Section 31 of the Act and obtains an order from the court, it shall
:~
ordinarily and invariably seek its enforcement in the manner provided by
C Section 32 of the Act, which provisions are aimed to act in aid of the orders
obtained under Section 31 of the Act and it cannot simultaneously initiate
and take recourse to the remedy available to it under Section 29 of the Act
unless it gives up, abandons or withdraws the proceedings under Section
31 of the Act, at whatever stage those proceedings may be. The Corporation
cannot simultaneously pursue two remedies at the same time.
D
~~m~~
E
3.1. The Doctrine of Election clearly suggests that when two remedies
are available for the same relief, the party to whom the said remedies are
available has the option to elect either of them but that doctrine would not
~pply to cases where the ambit and scope of the two remedies are essentially different. [875-H]
'
3.2. The doctrine of election would not be attracted under the Act in
view of the express phraseology used in Section 31 of the Act, viz. "without
prejudice to the provisions of Section 29 of this Act." While the CorporaF
tion cannot simultaneously pursue the two remedies, it is under no disability to take recourse to the rights and remedy available to it under
Section 29 of the Act even after an order under Section 31 has been
obtained but without executing it and withdrawing from those proceedings
at any stage. In other words, it cannot be said that the Corporation after
obtaining a final· order under Section 31 of the Act from a court of
G competent jurisdiction, is denuded of rights under Section 29 of the Act.
The Corporation which bas the right to make the choice may make the
choice initially whether to proceed und,er Section 29 of the Act or Section
31 of the Act, but its rights tinder Section 29 of the Act are not extinguished
if it decides to take recourse to the provisions of Section 31 of the Act. It
H can abandon the proceedings under Section 31 of the Act at any stage of
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AP. STATE FINANCIAL CORPN. v. GAR RE-ROLLING MILLS
861
execution if it finds it more practical, and may initiate proceedings under A
Section 29 of the Act. (876-E-H; 877-A]
4. The relief available to the Corporation under Section 29 of the Act
to realise its dues in the manner prescribed therein is wider in scope titan
the limited relief available to it under Section 31 of the Act and is not
controlled by Section 31 of the Act. (877-B]
B
5. 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 C
' 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 Sec~on 31 of the Act has been fully complied with and honoured 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 D
obtained an order/decree from the Court, the Corporation is prohibited
from invoking the provisions of Section 29 of the Act, notwithstanding the
fact that the defaulting concern has not honoured the court's order or
decree made under section 31 of the Act, would amount to putting
premium on the activities of the defaulting concern aimed at frustrating E
the order/decree of the court and depriving the Corporation of recovering
its legitimate dues and thereby rendering the expression "without prejudice
to" occurring in Section 31 as otiose. Courts do not favour such a course.
[877-E-H; 878-A]
6. There is no equity in favour of a defaulting party which may justify F
interference by the courts in exercise of its equitable extra-ordinary jurisdiction under Article 226 of the Constitution of India to assist it in not
repaying its debl<t. The aim of equity is to promote honesty and not to
frustrate the legitimate rights of the Corporation which after advancing
the loan took steps to recover its dues from the defaulting party. A court
of equity, when exercising its equitable jurisdiction under Article 226 of G
the Constitution must so act as to prevent perpetration of a legal fraud
and the court are obliged to do justice by promotion of good faith, as far
as it lies within their power. Equity is always known to defend the law from
crafty evasions and new subtleties invented to evade law. Since the Legislature enacted Sectio"ns 29 and 31 with a view to aid the Corporation to H
{
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SUPREME COURT REPORTS
[1994] 1 S.C.R.
A
recover its legitimate dues etc. from the defaulting party, the saving clause
-A
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 provi.sions must be so harmonised
as to facilitate the Corporation to recover its dues from the defaulting
B
party. The Act was enacted by the Parliament with a view to promote
industrialisation and offer 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 the Parliac . ment 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 dialatory tactics in the proceedings in
the court initiated under Section 31 of the Act. [878-B-H; 879-A]
.
-
D
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3216 of
_...k
1988.
From the Judgment and Order dated 16.12.86 of the Andhra Fradesh
High Court in W.A. No. 793 of 1981.
E
WITH
Civil Appeal No. 3689 of 1987.
From the Judgment and Order dated 16.12.86 of the Andhra Pradesh
F
High Court in C.W.P.No. 235 of 1982.
D.D. Thakur and Y.P. Rao for the Appellants.
M.B. Rao and A.V. Rangam for the Respondents.
...
G
The Judgment of the Court was delivered by
DR. ANAND, J. 1. The common question of law which arises in both
tthese appeals, by special leave, is whether the Financial Corporation set
up under Section 3 of the State Financial Corporation Act (hereinafter 'the
Act') is entitled to take recourse to the remedy available to it under Section
H 29 of the Act even after having obtained an order or a decree after invoking
A.P. STATE FINANCIAL CORPN. v. GAR RE-ROLLING MILL~ I ANAND, J.] 863
the provisions of Section 31 of the Acl but without executing that A
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 herein above.
CIVIL APPEAL NO. 3689 OF 1987.
2. The respondent borrowed a sum of Rs. 99.500 from the appellant,
the Andhra Pradesh State Financial Corporation (hereinafter the Corporation), for the purpose of ·carrying on the business of manufacturing
agricultural implements. A mortgage deed was executed by the respondent
on 27.12.1966. On account of the defaults committed by the respondent,
the Corporation filed an application being OP NO. 211 of 1969 before the
District Judge, Guntur, under Section 31 of the Act for realisation of the
sum of Rs. 1,09,020,19 paise together with further interest at the rate of
B
c
8V2 per cent per annum. Vide order dated 7.9.1971, the learned District
Judge allowed the petition, though restricting the future interest to 6 per D
cent per annum. The respondent filed Civil Misc. Appeal in the High Court
of Andhra Pradesh and the execution of the order in OP 211/69 was stayed
by the Court on 1.3.1973, subject to the condition of respondent depositing
1/4th of the amount due and furnishing security for the balance amount
within two months thereafter. The respondent failed to comply with the
order dated 1.3.1973 and neither deposited l/4th of the amount due nor
furnished the security. The Corporation had also filed cross-objections in
the High Court, questioning the reduction of the rate of future interest
from 8 1/2 per cent to 6 per cent per annum. A Division Bench of the High
Court dismissed the appeal filed by the respondent but allowed the crossobjections filed by the Corporation on 5.3.1975. The Corporation, it appears, filed OS No. 13 of 1974 before the Chief Judge, City Civil Court,
Hyderabad to enforce the personal liability of the first respondent and his
guarantor Shri E. Narapareddy as per the provisions of the Act. The suit
was decreed by the learned Chief Judge. The Corporation, however, was
E
F
not able to enjoy the fruits of the decree as the respondent shifted his place
of business and could not be traced. Faced with this situation, the CorporaG
tion, issued an advertisement in a local newspaper notifying that sale of the
respondent-concern would be conducted under Section 29 of the Act and
invited tenders for that purpose before 7.1.1982. The second respondent
submitted a tender for the sum of Rs. 2,05,000, which was duly accepted
by the Corporation. The second respondent, thereupon, deposited H
864
SUPREME COURT REPORTS
[1994) 1 S.C.R.
A Rs. 52000 with the Corporation on 12.1.1982 being 1/4th of the tender
amount. It was at this stage, that the first respondent filed Writ Petition
No. 235/82 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
B
condition that respondent No. 1 should deposit a sum of Rs. 35000. 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
C 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.
D CWIL APPEAL NO. 3216 OF 1988.
3. The first respondent applied for and obtained loan of Rs. 2,94,000
for the purpose of carrying on its business of rerolling mills at
Vijayanagaram in the name and style of MIS GAR Re-Rolling Mills. The
E first respondent on loan being sanctioned executed a mortgage deed dated
10.11.1970 in favour of the Corporation. The first respondent committed·
defaults in the matter of repayment of both the principal amount as well
as the interest and the Corporation issued an advertisement for the sale of
the unit invoking the provisions of Section 29 of the Act in 1975. The tender
p
of Sh. J aganmohan Gupta was accepted by the Corporation in response to
the advertisement and he deposited the earnest money. While the matters
rested thus, a suit, being OS No. 106/76, was got filed by respondent No.
1, through a third party, in the Sub-Court at Visakhapatnam and an order
of attachment before judgment was obtained in respect of the properties
of the first respondent which were already under mortgage with the CorG poration. The Corporation entered its appearance before the sub-court and
pleaded that it had the first charge on the property. The plea was accepted
by the sub-court and it vacated its e~lier order and permitted the Corporation to effect the sale under Section 29 Of the Act, subject to the
condition that the 'excess sale proceeds would be deposited by the CorH poration in the Court'. Since, Sh. Jaganmohan Gupta whose tende.r had
A.P. STAIB FINANCIAL CORPN. v. GAR RE-ROLLING MILLS [ANAND, J.J 865
been accepted by the Corporation was unable to get the property, because A
of the pendency of proceedings in OS No. 106/76, he resiled from his offer
and sought refund of the earnest money deposited by him in view of the
pending litigation. Faced with this situation, the Corporation initiated
proceedings against the respondent by invoking provisions of Section 31 of
the Act by filing OP NO. 162/77 before the District Judge at Visakhapatnam. The petition was allowed on 16.11.78 and the first respondent was
given six months' time to make the payment to the Corporation. The first
respondent, however, failed to do so even after obtaining a number of
extensions of time for making the payment from the Court. The first
respondent, it transpires from the record, got yet another suit, O.S. 133/79
filed by the same plaintiff in the High ·court who had earlier filed O.S.
106/76 seeking, the setting aside of the sale in favour of Sh. Jaganmohan
Gupta, the party whose 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,
B
c
no injunction was granted and the plaintiff in the suit was given time to D
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
16.11.1978, 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 E
first respondent filed CMA NO. 403/79 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 29.12.79 and a
further 1/4th by 29.2.80. The time, for deposit, was, however, extended at
the request of the first respondent, but despite the extension of time, the
first respondent did not deposit the amount and the Corporation, thereF
fore, was once again driven to advertise the unit for sale. The effort of first
respondent to obtain stay of the sale pursuant to the fresh advertisement
issued by the Corporation, failed on 13.5.80 when CMP 6566/80 filed by it
was dismissed by the High Court. Undettered by various orders against it G
and the continued default in making repayment or depositing the amounts
under directions of the court, it appears that the first respondent filed Writ
Petition 4187/80 questioning the fresh invitation of tenders by the Corporation by invoking the provisions of Section 29 of the Act and succeeded in
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[1994] 1 S.C.R.
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obtaining an order or stay. The writ petition, however, was dismissed on
14.12.81, by the High Court upholding the action taken by the Corporation
under Section 29 of the Act and the stay order was vacated. After the
vacation of the stay order, tender of one MIS Bhagchandka Brothers was
accepted by the Corporation, being the highest bidder, and they were put
B
in pos&ession of the property. The first respondent filed an appeal against
the order of the learned Single Judge dated 14.12.1981 in writ petition No.
4187/80 before the Division Bench; The Division Bench relying upon the
Full Bench judgment in Kata Subba Reddy's case (subject matter of C.A.
3689/87) held that the Corporation having moved the Court for relief under
Section 31 of the Act was not entitled to recover the amount of debt due
C by taking recourse to the provisions of Section 29 of the Act and allowed
the writ appeal filed by the first respondent. After obtaining special leave,
the Corporation has filed the present appeal.
4. Having noticed the facts of both the appeals, we shall now address
ourselves to answering the question posed in the opening part of this
D judgment. But, before doing so, it would be necessary to examine certain
relevant provisions of the Act.
5. Section 29 of the Act deals with the rights of the Financial
Corporation set up under Section 3 of the Act, in cases of default in
E payment of loans or advances or instalments thereof by any industrial
concern. It reads as follows:
F
G
"29. 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 relatiun 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 of sale and realise the property pledged, mortgaged, hypothe-.
cated 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
H
transferee all rights in or to the property transferred as if the
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A.P.STATEFINANCIALCORPN. v. GARRE-ROLLINGMILLS(ANAND,J.J 867
transfer had been made by th<; owner of the property.
A
(3) ..................... .
( 4) Where any action has been taken against an industrial concern
under the provisions of sub-section (1), all costs, charges and
expen!>es which in the opinion of the Financial Corporation have B
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 C
to the Financial Corporation and the residue of the money so
received shall be paid to the person entitled thereto.
(5) ........................... "
6. Section 30 then empowers the Corporation to require any inD
dustrial concern to discharge forthwith, in full, its liability to the Corporation and Section 31 contains special provisions for enforcement of claims
by the Financial Corporation and reads as follows:
"31. Special provisions for enforcement of claims by Financial E
Corporation - (1) Where an industrial concern, in breach of any
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 Financjal Corporation or where the Finandal Corporation requires an industrial F
concern to make immediate repayment of any loan or advance
under Section 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 authorized by the Board in this behalf, may apply to the G
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 relief!>, namely:-
(a) for an order for the sale of the property pledged, mortgaged, H
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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."
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 Acl. 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) of Section 31, 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 31, 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 suh-section (1) of Section 31, the District Judge shall issue
a notice calling upon the surety to show cause on a date to be
specified in the notice why his liability should not be enforced.
(2) When the application is for the relief mentioned in clause
(b) of sub-section (1) of Section 31, the District Judge !'hall grant
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A.P. STATE Fl'.\/A'.\'CIAL CORPN. v. GAR RE-ROLLING MILLS [ANAND, J.J 869
an ad intelim injunction restraining the industrial concern from A
transferring or removing its machinery, plant or equipment and
issue a notice calling upon the industrial concern to show cause,
on a date to be specified in the notice, why the management of
the industrial concern should not be transferred to the Financial
Corporation.
(3) Before passing any order under sub-section (1) or sub-section (2) or issuing a notice under sub-section (1-A) the District
Judge may, if he thinks fit, examine the officer making the application.
(4) At the same time as he passes an order under sub-section
(1), the District Judge shall issue to the industrial concern or to
the. owner of the security attached a notice accompanied by copies
of the order, the application and the evidence, if any, recorded by
him calling upon it or him to show cause on a date to be specified
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in the notice why the ad interim order of attachment should not D
be made absolute or the injunction confirmed.
( 4-A) If no cause is shown on or before the date specified in
the notice under sub-section (1-A), the District Judge shall
forthwith order the enforcement of the .liability of the surety.
(5) If no cause is shown on or before the date specified in the
notice under sub-sections (2) and ( 4), the District Judge shall
forthwith make the ad interim 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.
( 6) If cause is shown, the District Judge shall proceed to
investigate the claim of the Financial Corporation in accordance
with the provisions contained in the Code of Civil Procedure, 1908
(5 of 1908), in so far as such provisions may be applied thereto.
(7) After making an investigation under sub-section (6), the
District Judge may-
(a) confirm the. order of attachment and direct the sale of the
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attached property;
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SUPREME COURT REPORTS
(1994) 1 S.C.R.
(b) vary the order of attachment so as to release a portion of the
property from attachment and direct the sale of the
remainder of the attached property;
(c) 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 the management of the industrial concern to 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 Di'itrict 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, until the expiry of the period
fixed under sub-section (9) within which an appeal may be
preferred or, if an appeal is preferred, unless the High Court
otherwise directs until the appeal is disposed of.
(8) An order of attachment or sale of property under this
section shall be carried into effect as far as practicable in the
manner provided in the Code of Civil Procedure, 1908 (5 of 1908),
for the attachment or sale of property in execution of a decree as
if the Financial Corporation were the decree-holder.
(8-A) An order under this section transferring the management
of an industrial concern to the Financial Corporation shall be .
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A.P. STATE Fl'.'\ANCIAL CORPN. v. GAR RE-ROLLING MILLS [ANAND. J.) 871
carried into effect, as far as may be practicaMe, in the manner A
provided in the Code of Civil Procedure, 1908 (5 of 1908), for the
possession of immovable property or the delivery of movable
property in execution of a decree, as if the Financial Corporation
were the decree-holder.
(9) Any party aggrieved by an order under sub-section (4-A), B
si:b-section (5) or sub-section (7) may, within thirty days from the
date of the order; appeal to the High Court, and upon such appeal
the High Court may, after hear:ng the parties, pass such orders
thereon as it thinks proper.
(10) Where proceedings for liquidation in respect of an industrial concern have com1 11enced before an application is made
under sub-section (1) of Section 31, nothing in this section shall
be construed as giving to the Financial Corporation any preference
over the other creditors of the industrial concern not conferred on
it by any other law.
(11) The functions of a District Judge under this section shall
be exercisablec
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(a) in a presidency town, where there is a city civil court having
jurisdiction, by a judge of that court and in the absence of E
such court, by the High Court; and
(b) elsewhere, also by an additional district judge or by any judge
of the principal court of civil jurisdiction.
(12) For the removal of doubts it is hereby declared tliat any F
court competent to grant an ad interim injunction under this
section shall also have the power to appoint a Receiver and to
exercise all the other powers incidential thereto."
8. A perusal of thf; aforesaid provisions of the Act shows that they G
deal with rights of and '.he procedure to be followed to enable the Corporation, in the event of breach of agreement or default in payment of loan
or advance or an instalment thereof, by the loanee, to recover the same.
9. An analysis of Sectbn 29 of the Act (supra) reveals that where any
industrial concern which is under an obligation and a liability to the H
872.
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[1994) 1 S.C.R.
A
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
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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 default by the industrial concern, but also provides for a remedy to tab
over the management of the defaulting industrial concern with or without
possession as well as the right to transfer by way of lease or sale of the
D hypothecated property to realise its dues. Since Section 29 of the Act
provides both the rights and the remedies as also the procedure for
enforcement of the rights and is a complete code in itself, it is open to the
Corporation to act under Section 29 of the Act to realise the dues from
the defaulting concern by following the procedure prescribed under SecE
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tion 29 of the Act. The Corporation does not require the assistance of the
court to enfo~ce its right while invoking the provisions of Section 29 of the
Act to recover its dues from the defaulting concern.
10. Section 31 of the Act has been enacted also to take care of a
situation where any industrial concern, in breach of any agreement, makes
default in repayment of the loan or advance or any instalment thereof or
t.he Corporation requires immediate repayment which the defaulting industrial concern fails to make. The Corporation may in any such event
v:ithout prejudice to its rights and remedies under Section 29 of the Act,
apply to the District Judge within the local limits of whose jurisdiction, the
industrial concern carries on the whole or a substantial part of its business
G inter-a/ia for any of the following orders:
(a) for the sale of the property pledged, mortgaged, hypothecated or
assigned to the Corporation as security for the loan or advance;
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(b) for transferring the management of the industrial concern to the
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AP. STA TE F!NA!\CIAL CORPN. 1·. GAR RE-ROLLING MILLS (N'liAND . .I.( 873
Corporation; and
( c) for an ad-interim injunction restraining the defaulting industrial
concern from transferring or removing its machinery or plant or equipment
or any other material from the premises of the concern without the
permission of the Board.
11. An application made under Section 31 must disclose the nature
and extent of the liability of the industrial concern as well as the ground
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on which the application is made. Section 32 is procedural in nature and
provides for the procedure which is required to be followed when the
District Judge takes cognizance of an application filed under Section 31 of C
the Act.
12. Section 31 in terms provides that action under the said provision
may be taken ''without prejudice to the provisions of Section 29 of thi~ 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?" D
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 h&s no say whatsoever in the
matter, as to which remedy should be taken recourse to by the Corporation
against it for effecting the recovery.