# [2008] 4 S.C.R. 853

- **Citation:** [2008] 4 S.C.R. 853
- **Court:** Supreme Court of India
- **Decided:** 2008-03-13
- **Case number:** Civil Appeal Nos. 610-612 of 2004
- **Bench:** Civil Appeal Nos. 610-612 of 2004) · MARCH 13, 2008 · [S.8. Sinha, Lokeshwa~ Singh Panta
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/2008-4-s-c-r-853-24486
- **Pages:** 28

## Headnote

A
B
·~
State Financial Corporations Act, 1951:
s.29 - Jurisdiction of Corporation to proceed against
surety/guarantors under s. 29 - Held: Corporation cannot C
proceed against the surety under s. 29 - Right of Corporation
in terms of s. 29 must be exercised only on a defaulting party
- There cannot be any default as is envisaged in s.29 by a
surety or a guarantor- Liability of surety or guarantor to repay
the loan of the principal debtor arises only when a default is
D
made by the latter.
s. 29 - Object of - Held: Is to expeditiously realize the
dues of the Corporation - s. 29 confers extraordinary power
upon Corporation - Transfer of Property Act - s. 69 - Contract
Act- s.128.
•
E
ss.29 and 31 - Interpretation of- [)istinctiori between -
Intention of Parliament in enacting s. 29 and s.31 was not
similar- Whereas s. 29 talks about the property of the industrial
concern, s. 31 takes within its sweep the property of industrial
F
concern and also of surety - None of the ... provisions control
each other - Parliament intended to provide an additional·
remedy for recovery of the amount in favour of Corporation by .
proceeding against a surety only in terms of s. 31 and not under
s. 29· thereof.
Interpretation of statutes:
Strict construction -
Special provisions made in
derogation to the general right of a qitizen - Held: Such
G
853
H
854
SUPREME COURT REPORTS
[2008] 4 S.C.R.
"
A provisions to be strictly construed.
Reading statute as a whole - Entire statute must be first
read as a whole then section by section, clause by clause,
phrase by phrase and word by word - To interpret a statute in
a reasonable manner, the court must place itself in the chair
8
of a reasonable legislator/ author - Casus Omissus cannot
be supplied.
Ambiguity in the statute - When the language of statute
is not clear and two meanings are possible, the object of the
c statute would he a relevant factor for interpretation.
When more than one remedy is provided or an option is
given to a suitor then such provision is not ultra vires -
Constitution of India, 1950 -Article 14 -Alternative remedies.
0
The questions for consideration in these appeals are
whether the appellant-Corporation can proceed against
the guarantors under s.29 of the State Financial
Corporations Act, 1951 and regarding interpretation of
s.29 vis-a-vis s.31 of the Act.
E
Dismissing the appeals, the Court
HELD: 1.1. A lender of money under the common law
has the remedy to file a suit for realization of the amount
lent if the borrower does not repay the same. The State
Financial Corporations Act, however, provides for a
F special remedy in favour of the Financial Corporation
constituted thereunder enabling it to exercise a statutory
power of either selling the property or take over the
management or possession or both belonging to the
industrial concern. S.29, therefore, confers an
G extraordinary power upon the 'Corporation'. It, being a
'State' within the meaning of Article 12 of the Constitution
of India, is expected to exercise its statutory powers
reasonably and bona fide. [Paras 8, 9] [869-C-E]
H
1.2. Apart from. the constitutional restrictions, the
Y-·'
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\
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).._ '· .
I e
KARNATAKA STATE FINANCIAL CORPORATION v.
855
N. NARASIMAHAIAH AND ORS.
-Y
statute does not put any embargo upon the corporation
A
to exercise its power under s.29 of the Act. Indisputably,
the said provision was enacted by the Parliament with a
view to see that the dues of the Corporation are realized
expeditiously. When a statutory power is conferred, the
same must be exercised within the four corners of the 8
Statute. Power of a lender to realize the amount lent either
by enforcing the charged and I or hypothecated or
-..,.._
encumbrance created on certain property and/ or
proceeding simultaneously and/ or independently against
the surety/ guarantor is a statutory right. Different statutes c
provide for different remedies. Such a right can also
indisputably be conferred by way of contract as has been
provided for u

## Text

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[2008] 4 S.C.R. 853
KARNATAKA STATE FINANCIAL CORPORATION
II.
N. NARASIMAHAIAH AND ORS.
(Civil Appeal Nos. 610-612 of 2004) ·
MARCH 13, 2008
· [S.8. SINHA AND LOKESHWA~ SINGH PANTA, JJ.]
A
B
·~
State Financial Corporations Act, 1951:
s.29 - Jurisdiction of Corporation to proceed against
surety/guarantors under s. 29 - Held: Corporation cannot C
proceed against the surety under s. 29 - Right of Corporation
in terms of s. 29 must be exercised only on a defaulting party
- There cannot be any default as is envisaged in s.29 by a
surety or a guarantor- Liability of surety or guarantor to repay
the loan of the principal debtor arises only when a default is
D
made by the latter.
s. 29 - Object of - Held: Is to expeditiously realize the
dues of the Corporation - s. 29 confers extraordinary power
upon Corporation - Transfer of Property Act - s. 69 - Contract
Act- s.128.
•
E
ss.29 and 31 - Interpretation of- [)istinctiori between -
Intention of Parliament in enacting s. 29 and s.31 was not
similar- Whereas s. 29 talks about the property of the industrial
concern, s. 31 takes within its sweep the property of industrial
F
concern and also of surety - None of the ... provisions control
each other - Parliament intended to provide an additional·
remedy for recovery of the amount in favour of Corporation by .
proceeding against a surety only in terms of s. 31 and not under
s. 29· thereof.
Interpretation of statutes:
Strict construction -
Special provisions made in
derogation to the general right of a qitizen - Held: Such
G
853
H
854
SUPREME COURT REPORTS
[2008] 4 S.C.R.
"
A provisions to be strictly construed.
Reading statute as a whole - Entire statute must be first
read as a whole then section by section, clause by clause,
phrase by phrase and word by word - To interpret a statute in
a reasonable manner, the court must place itself in the chair
8
of a reasonable legislator/ author - Casus Omissus cannot
be supplied.
Ambiguity in the statute - When the language of statute
is not clear and two meanings are possible, the object of the
c statute would he a relevant factor for interpretation.
When more than one remedy is provided or an option is
given to a suitor then such provision is not ultra vires -
Constitution of India, 1950 -Article 14 -Alternative remedies.
0
The questions for consideration in these appeals are
whether the appellant-Corporation can proceed against
the guarantors under s.29 of the State Financial
Corporations Act, 1951 and regarding interpretation of
s.29 vis-a-vis s.31 of the Act.
E
Dismissing the appeals, the Court
HELD: 1.1. A lender of money under the common law
has the remedy to file a suit for realization of the amount
lent if the borrower does not repay the same. The State
Financial Corporations Act, however, provides for a
F special remedy in favour of the Financial Corporation
constituted thereunder enabling it to exercise a statutory
power of either selling the property or take over the
management or possession or both belonging to the
industrial concern. S.29, therefore, confers an
G extraordinary power upon the 'Corporation'. It, being a
'State' within the meaning of Article 12 of the Constitution
of India, is expected to exercise its statutory powers
reasonably and bona fide. [Paras 8, 9] [869-C-E]
H
1.2. Apart from. the constitutional restrictions, the
Y-·'
'"
\
\
).._ '· .
I e
KARNATAKA STATE FINANCIAL CORPORATION v.
855
N. NARASIMAHAIAH AND ORS.
-Y
statute does not put any embargo upon the corporation
A
to exercise its power under s.29 of the Act. Indisputably,
the said provision was enacted by the Parliament with a
view to see that the dues of the Corporation are realized
expeditiously. When a statutory power is conferred, the
same must be exercised within the four corners of the 8
Statute. Power of a lender to realize the amount lent either
by enforcing the charged and I or hypothecated or
-..,.._
encumbrance created on certain property and/ or
proceeding simultaneously and/ or independently against
the surety/ guarantor is a statutory right. Different statutes c
provide for different remedies. Such a right can also
indisputably be conferred by way of contract as has been
provided for under s.69 of the Transfer of Property Act in
terms whereof a mortgagee is entitled to effect sale
without the intervention of the court, subject, of course,
D
to the limitations prescribed therein. [Paras 10, 11]
...
[869-F-G; 870-B]
Pawan Kumar Jain v. Pradeshiya Industrial and
Investment Corporation of UP Ltd. and Others (2004) 6 SCC
758 - relied on.
E
2.1. If special provisions are made in derogation to
the general right of a citizen, the statute, should receive
strict construction. For the purpose of enforcing a liability
of an industrial concern, recourse can be taken both
).. "'f
under s.29 and s.31 of the Act. Right of the corporation to
F
file a suit or take recourse to the provisions contained in
s.32G of the Act also exists. [Para 12] [870-C-D]
2.2. The heading of s.29 of the Act states "Rights of
financial corporation in case of default". The default
contemplated thereby is of the industrial concern. Such
G
default would create a liability on the industrial concern.
j
...(
Such a liability would arise when the industrial concern
makes any default in repayment of any loan or advance
or any instalment thereof under the agreement. It may also
arise when it fails to meet its obligation(s) in relation to
H
856
SUPREME COURT REPORTS
[2008) 4 S.C.R.
A any guarantee given by the corppration. If it otherwise fails
to comply with the terms of the agreement with the
financial corporation, also the same provisions would
apply. In the eventualities contemplated under s.29. of the
Act, the Corporation shall have the right to take over the
8 management or possession or both of the industrial
concern. The provision does not stop there. It confers an
additional right as the words "as well as" is used which
confers a right on the Corporation to transfer by way of
lease or sale and realize the property pledged, mortgaged,
C hypothetical or. assigned to the Corporation. [Para:·13]
[870-E-H]
2.3 S.29· of the Act nowhere states that the corporation
can proceed against the surety ·even if some properties
are mortgaged or hypothecated by it. The right of the
o financial corporation in terms of s:29 of the Act must be
exercised onlv on a defaulting party. There cannot be any
default as is envisaged in s.29 by a surety or a guarantor.
The liabilities of a surety or the guarantor to rep~y the loan
of the principal debtor arises only when a default is made,
E by the latter. The words "as well ~s" play a significant role.
It confers two different rights but such rights are to be
enforced against the same person, viz., the industrial
concern. It is. true. that sub-section (1) of s. 29 speaks of
guarantee. But such a guarantee is meant to be furnished
by the Corporation in favour of a third party for the benefit
F of the industrial concern. It does not speak aqout a surety
or guarantee give·n in favour of the corporation for the
benefit of the industrial concern. The legislative object and
intent becomes furthermore clear as in terms of Subsection (4) of s.29 of the Act only when a property is sold,
G the manner in which the sale proceeds is to be
appropriated has categorically been provided therein.
Sub-section (4)· of s.29 of the Act which lays down
appropriation of the s_~le proceeds only refers to 'industrial
concern' and not a 'surety' or. 'guarantor'. [Paras 14-16]
H [871-A-G]
...
•
KARNATAKA STATE FINANCIAL CORPORATION v.
857
N. NARASIMAHAIAHAND ORS.
-Y
3. The provisions of s.128 of the Indian Contract Act A
·must. also be kept in mind. It is only by reason thereof,
subject of course to the contract by the parties thereto,
the liability of a surety is made co-extensive with·the liability
of the principal debtor. Banking practice may enable a
financial corporation to ask for a collateral security. Such· B
~
security, assumingly may be furnished by the Directors
of a Company but furnishing of such security or
-"yguarantee is not confined to the Directors or employees
or their close relatives. They may be. outsiders also. The
rights and. liabilities of a surety and the principal borrower c
are different and distinct. Apart from the defences available
to a principal borrower under the provisions of the Indian
Contract Act, a surety or a guarantor is entitled to take
additional defence, which may be not only against the
corporation but also against the principal debtor. He, in a·
given situation, would be entitled to show that the D
~
contract of guarantee has come· to a naught. Ordinarily,
therefore, when a guarantee is sought to be enforced, the
same must be done through a court havjng appropriate
jurisdiction. In the absence of any express provision in
the statute, a person being in lawful possession cannot E
be deprived ther~of by. reason of default on the part of a
principal borrower. Furthermore, construction of a statute
would not depend upon a contingency. ·A statute must
be interpreted having regard to the constitutional
provisions as also human rights. [Paras 11,·15 and 19]
F
.J..
,..,.
[871-G-H; 872-A-E]
4.1. Reference to implied and/ or incidental power of
the Corporation deserves outright rejection. Moreover s.29
of the· Act does not deal with a case where express and
implied conditions have been laid down in the- matter of G
exercise of power conferred upon a statutory authority
under a Statute. S.29 does not envisage any prohibition
~ ........
at all either express or implied. [Paras 20, 21] [872-F;
873-8]
'Principles of Statutory Interpretation' by Jus'fice G.P
H
.
•·
858
SUPREME COURT REPORTS
[2008) 4 S.C.R.
A
Singh, 9th edition, page 365 - relied on.
'"'(-
4.2. A statutory authority, thus, may have an implied
power to effectuate exercise of substantive power, but the
same never means that if a remedy is provided to take
B
action against one in a particular manner, it may not only
be exercised against him but also against the other in the
I·
same manner. It is a trite law that the entire statute must
be first read as a whole then section by section, clause
by clause, phrase by phrase and word by word. [Para 21]
-{-
[874-8-D]
c
Reserve Bank of India v. Peerless General Finance and
Investment Co. Ltd. and Ors. (1987) 1 SCC 424; Deewan Singh
& Ors. v. Rajendra Pd. Ardevi & Ors. 2007 (1) SCALE 32 and
Sarabjit Rick Singh v. Union of India, 2007 (14) SCALE 263 -
D relied on.
Jamal Uddin Ahmad v. Abu Saleh Najmuddin and Anr.
~.
(2003) 4 sec 257 - referred to.
5.1. S.31 of the Act provides for a special provision.
E It, apart from the default on the part of. the industrial
concern, can be invoked where the financial corporation
requires an industrial concern to make immediate
repayment of loan or advance in terms of s.30 if and when
such requirement is not met. The aforementioned
F
provision could be resorted to by the Corporation, without
prejudice, to its rights under the provisions of s. 29 as
y
..\.
also s. 69 of the Transfer of Property Act and for the said
purpose it is required to apply to the District Judge having
appropriate jurisdiction. S.31 of the Act provides for the
reliefs which may be sought for by the Corporation strictly
G in terms thereof. Clause (aa) of sub-section (1) of s.31 of
the Act provides for a final relief. It does not speak of any
interlocutory order. Clause (aa) has been inserted by Act
No. 43 of 1985. Thus, prior thereto even s.31 could not
}..._ ......
have been taken recourse to against a surety. Such a
H relief, if prayed for, would also lead to grant of a final relief
I e
KARNATAKA STATE FINANCIAL CORPORATION v.
859
N. NARASIMAHAIAH AND ORS.
_-.,.....
and not an interlocutory one. Similarly, clause (b) of SubA
section (1) of s. 31 of the Act also provides for a final relief.
~
Only clause (c) of Sub-section (1) of s.31 of the Act
empowers the District Judge in the event any application
is filed by the Corporation to pass an ad interim injunction.
The very fact that s.31 uses the terminology "without a
prejudice" to the provisions of s.29 of the Act and/ ors. 69
of the Transfer of Property Act, it clearly postulates an
~"
additional relief. What can be done by invoking s.29 of
the Act can be done by invoking s.31 thereof also but
therefor a different procedure has to be adopted. S.31 also c
provides for a relief against a surety and not confined to
the industrial concern alone. Sub-section (2) of s.31 also
refers· to industrial concern and not the surety. The
legislative intent, therefore, is clear and unambiguous.
[Paras 22, 23] [874-F-H; 875-A-E]
D
•
5.2. Sub-section (1A) of s.32 of the Act lays down a
~ ...
procedure when clause (aa) of Sub-section (1) of s.31
thereof is invoked. Sub-section (4A) of s. 31 also
empowers the court to forthwith order the enforcement
of the liability of the surety if no cause is shown on or E
before the date notified by.the parties. However, in the
event, a cause is shown upon making an investigation as
provided for under Sub-section (6) of s.32, a final order
can be passed in terms of Sub-section (7) thereof.
Significantly, by Act No. 43 of 1985, s.32G of the Act was
F
>
~
also inserted. It does not speak of an industrial concern.
S.32G, therefore, can be resorted to both against the
a
industrial concern as also the security. [Para 24 and 25]
[875-F-H; 876-A]
6.1 While interpreting the provisions of a statute, the G
court employs different principles or canons. To interpret
a statute in a reasonable manner, the court must place
~ .....c_
itself in the chair of a reasonable legislator/ author. Attempt
on the part of the. court while interpreting the provisions
of a statute should, therefore, be to pose a question as to H
<)
860
SUPREME GOURT REPORTS
[2008) 4 s. c. R.
A why one provision has been amended and the other was
not and why one terminology has been used While
inserting a statutory prQvision and a different clause in
another it is well-known that casus omissus cannot be
supplied. [Para 2·6] [876-C-E]
B
. New India Assurance Company Ltd. v. Nusli Neville
Wadia and Ahr. JT (2008) 1 SC 31; Delhi Financia/. Corpn.
And Another v. Rajiv Anand and Others (2004) ·11 SCC 625;
Ashok Lanka v. Rishi Dixit (2005) 5 SCC 598 and J. Srinivasa
Rao v. Govt.· of A.P & Anr. 2006 (13) SCALE 27; Southern
C . Petrochemical Industries Co. Ltd,. ·v. Electricity Inspector and
· E. Tl.O. and Ors .. (2007) 5 sec 447 - relied on.
6.2. The legislative intent, is manifest. The intention
of the Parliament in enacting ss. 29 and 31 of the Act was
not similar. Whereas s.29 of the Act consists of the
D property of the industrial concern, s.31 takes within its
sweep both the property of the industrial concern and as
that of the surety. None of the provisions control each
other.. The Parliament intended to provide an additional
remedy for recovery of the amount in favour of. the
E Corporation by proceeding against a surety only in terms
of s.31 of the Act and not under s.29 thereof. [Para 27]
[876-F-G]
7. A Corporation, after coming into force of s.32G
of the Act has four remedies, viz.: (i) to file a suit (ii) to
F take recours.e to s.29; (iii) to take recourse to s.31; and
(iv) to take recourse to s.32G of the Act. [Para 28] [876-H;
877-A, B]
A.P State Financial Corporation v. Ml~ GAR Re-Rolling
G Mills and Anr. (1994) 2 SCC 647 - referred to.
""'(- .
8. Right of property, although no longer a
fundamental right, is still a constitutional right. It is also
human right. In absence of any provision either expressly
)... ,.,_,
or by necessary implication, depriving a person therefrom,.
o H the court shall not construe a provision leaning in favour
•
KARNATAKA STATE FINANCIAL CORPORATION v.
861
N. NARASIMAHAIAH AND ORS. [S.B. SINHA, J.]
-)-'
of such deprivation. [Para 30] [877-H; 878-A-B]
A
P. T Munichikkanna Reddy & Ors. v. Revamma & Ors.
(2007) 6 sec 59 - referred to.
9. A surety may be a Director of the Company. He. also
may not be. Even if he is a close relative of the Director or B
the Managing Director of the Company, the same is not
relevant. A Director of the Company is not an industrial
~'r
concern. He in his capacity as a surety would certainly
not be. A juristic person is a separate legal entity. Its veil
can be lifted or pierced only in certain· situations. [Para 31] c
[878-F-G]
Juggilal Kamlapat v. Commissioner of Income Tax, U.P.
(1969) 1 SCR 988; Kapila Hingorani v. StaJe of Bihar (2003)
6 sec 1 - relied on.
Salomon v. Salomon and Co. 1897 AC 22; Dal Chand D
~
and Ors. v. Commissioner of income Tax, Punjab (1944) 12
~
ITR 458 - affirmed.
10. Interpretation of a statute would not depend upon
a contingency. It t:ias to be interpreted on its own. The
E
court would ordinarily take recourse to the golden rule of
literal interpretation. It is not a case where a defect in the
legislative drafting is pointed out nor can it be presumed.
In a case where a court has to weigh between a right of
recovery and protection of a right, it would also lean in F
.>
"'(
favour of the person who is going to be deprived
therefrom. It would not be the other way round. Only
because a speedy remedy is provided for that would itself
lead to the conclusion that the provisions of the Act have
to be extend~d although the statute does not say so. The
object of the Act would be a relevant factor for G
interpretation only when the language is not clear and
when two meanings are possible and not in a case where
,J"
....(
the plain language leads to only one conclusion. Even if
the legislation is beneficent, the same by itself would not
be held to be extendable to a situation which the statute
H
862
SUPREME COURT REPORTS
(2008] 4 S.C.R.
A does not contemplate. [Para 32, 33] [879-A-D]
--(-
S. Sundaram Pillai, etc. v. VR. Pattabiraman AIR 1985
SC 582 - relied on.
Attorney General v. Milne (1914-15) All E.R. Rep. 1061
B - referred to.
11. It is now well-settled that when more than one
remedy is provided for, an option is given to a suiter to
--{-
opt for one or the other: remedy. Such a provision is not
c
ultra vires. [Para 34] [879-G-H]
Maganlal Chhaganlal (P) Ltd. v. Municipal Corporation of
Greater Bombay and Others (1974) 2 SCC 402, Director of
Industries, U.P. and Others v. Deep Chand Agarwal (1980) 2
sec 332 - relied on.
D
CIVILAPPELLATE JURISDICTION: Civil Appeal Nos.
610-612 of 2004.
~
From the final Judgment and Order dated 26.03.2003 of
the High Court of Karnataka at Bangalore in Writ Petition Nos.
E · 37209 & 37907of2000. 24452, 13354 & 16614 of2002 (GM/
KSFC)
K. K. Venugopal, Kiran Suri, S.J. Amith, Piparna Bhat and
Ankur Talwar for the Appellant.
Vikas Rojipura, E.C. Vidya Sagar and P.P. Singh for the
-
F
~
Respondents.
)"'
"""
The Judgment of the Court was delivered by
S.B. SINHA, J. INTRODUCTION
G
1. Interpretation of Section 29 vis-a-vis Section 31 of the
State Financial Corporations Act, .1951 (for short "the Act") is in
question in these appeals which arise out of a judgment and
order dated 26.03.2003 passed by a Division Bench of the
).. '·
Karnataka High Court in Writ Petition Nos. 37209 & 37907 of
H 2000, 24452 of 2001, 13354 and 16614 of 2002.
• e
KARNATAKA STATE FINANCIAL CORPORATION v.
863
N. NARASIMAHAIAH AND ORS. [S.B. SINHA, J.]
-~
FACTUAL BACKDROP
A
2. Respondents herein furnished sureties and/ or
guarantees in respect of the loans taken by the industrial
concerns (Respondent - Company)
3. We may notice the fact of the matter from the case of 8
AP Rocks Private limited (Writ Petition No. 37209 and 30907
of 2000) before the High. Court.
,. )---
AP Rocks Private Limited is an industrial concern. It
approached the appellant - Corporation for grant of loan in the
form of non-convertible debenture facility to the extent of 100 c
lakhs to meet its working capital requirements.
Respondents who were Directors of Company executed
deeds of guarantee dated 15.05.1996 and 9.08.1996 agreeing
to guarantee repayment/ redemption by the Company to the D
Corporation of the said non-convertible debenture subscription
..
together with interest, etc. The said Company also executed a
deed of hypothecation on or about 9.08.1996 whereby and
whereunder its plants and. machinery were hypothecated. A
collateral security agreement was also executed by Shri S.K.
Rajan wherefor a property bearing No. 49, House List Khata
E
No. 100-A, Hennarayanapalya, Hem let of Cholanayakamahalli, .
Kasba Hobli, Bangalore North Taluka was mortgaged as a
security therefor.
Respondent No. 1 executed an agreement on 15.05.J 996
F
.>
. ...,,
in terms whereof his property bearing Site No. 55 (old), New
No. 59, Annammadevi Temple Extension, Subedar Chatram
Road, B.C.C. Division No.22, Bangalorewasgivenasa collateral
security. The 'Industrial Concern' allegedly committed defaults.
PROCEEDINGS
G
4. Appellant - Corporation on or about 20.11.2000 in
exercise of its power under Section 29 of the Act directed that
.,; ....(
the possession of the said two properties of the guarantors be
taken over. Respondent No. 1 and Shri S.K. Rajan filed writ
petitions before the Karnataka High Cour:t on the premise that H
864
SUPREME COURT REPORTS
· [2008] 4 S.C.R.
A
the appellant - corporation could not have proceeded against
the guarantors under Section 29 of the Act.
8
c
The High Court by reason of the impugned judgment while
upholding the said contention directed:
"(i) The impugned orders passe.d by the Karnataka Stat~
Financial Corporation under Section 29 of the State
Financial Corporations.Act authorizing its officers to t~ke
possession of the properties of petitioners are quashed.
(ii) The Karnataka State Financial Corporation is directed
·not to proceed against the property· of the· surety,
mortgaged/ hypothec~ted in its favour, under Section 29
of the State Financial Corporations Act.
(iii) Parties to bear their respective costs."
D
Appellant is, thus, before us.
E
F.
SUBMISSIONS
5. Mr: K.K. Venugopal, learned senior counsel appearing
on behalf of the appellant, submitted:
(i)
the High Court committed a serious error in passing
the impugned judgrnent in so far as it failed to take
into consideration that the second part of Section 29
of the Act being an independent provision and having
not referred to an 'industrial concern', it was within
the jurisdiction of the appellant to take possession of
the said property also.
(ii)
Section 29 of the Act confers two independent rights,
viz., taking over of the mortgaged property and sale
G .
of the mortgaged, hypothecated and charged
property. Whereas first part of Section 29 of the Act
covers taking over possession and/ or management
of the mortgaged property, the second part thereof
covers the case of sale of the property mortgaged,
irr~spective of the fact as to whether the same
H
e
KARNATAKA STATE FINANCIAL CORPORATION v.
865
N. NARASIMAHAIAH AND ORS. [S.B. SINHA, J.]
-~
belonged to the industrial concern or not.
A
(iii) Section 29 having taken within its umbrag.e security·
and/ or guarantee, the legislative intent being speedy
recovery of the dues, the same includes the power to
take possession of the mortgaged property of the
B
guarantor also, being incidental to the main power
and/ or implied power of the Corporation.
.>- )'-
(iv)
Section 31 confers the same benefit to the
Corporation with an additional remedy, viz., ~o pray
for an ~nterlocutory order.
c
(v)
Section 69(c) of the Transfer of Property Act also
confers power upon the mortgagee to sale the
charged property privately wherefor taking over of
possession being not a pre-requisite, the High Court
committed a serious error in coming to the conclusion D
_....,
that before a property is to be sold,. taktng over
),
possession thereof is mandatory.
(vi)
Section 31° of the Act would be applica.ble only when
the loan is called b.ack in terms of Section 30 of the
E
Act.
(vii) Special statutory power having been conferred on
the Corporation so. as to enable it to recover its debts
which serves a larger economic interest of the
country, Sections 29 and 31 of the Act should be
F
,;,
~
interpreted in such a manner which would help it to
achieve the said purpose.
6. Mr. Vikas Rojipura, learned counsel appearing on behalf
of the respondents, on the other hand, submitted:
(i)
It is wrong to contend that similar reliefs can be
G
claimed both under Sections 29 and 31 of the Act as
.,,;
...(,
in that event it was not necessary for the Parliament
to enact two different provisions.
(ii)
Clause (aa) of Sub-section (1) of Section 31 of the
H
A
B
c
D
E
F
G
H
866
SUPREME COURT REPORTS
[2008] 4 S.C.R.
Act, which was inserted by Act No. 43 of 1985 with
effect from 21.08.1985, clearly establishes that the
purport and object of two sections are absolutely
distinct and separate.
(iii) Sections 29 and 31 confer two different rights on the
i;:orporation which are independent of each other.
Whereas Section 29 provides for a limited remedy,
Section 31 provides for a composit~ remedy to the
Corporation to realize the dues both from the principal
borrower as also from the guarantor.
(iv)
Remedy both under Sections 29 and 31 being equal,
speedy and efficacious, it would be wrong to contend
that both the reliefs can be claimed simultaneously.
THE ACT
7. The Act was enacted to provide for the establishment of
State Financial Corporations. Appellant is a Corporation
established and incorporated under the Act.
"Industrial concern" has been defined in Section 2(c) of
the Act to mean any concern engaged or to be engaged in any
of the activities specified therein.
Section 29 of the Act provides for the rights of financial
corporation to realize its dues in case of default.
We may take notice of Sub-section (1) of Section 29 of
the Act which reads as under:
"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 obligaticns 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
--f ~
" '
-( ...
).. .
.{
).-
-'..
• KARNATAKA STATE FINANCIAL CORPORATION v.
867
N. NARASIMAHAIAH AND ORS. [S.B. SINHA, J.]
_..,_
both of the industrial concerns, as well as the right to
A
transfer by way of lease or sale and realize the property
pledged, mortgaged, hypothec~ted or assigned to the
Financial Corporation."
Section 30 of the Act inter alia provides for power to call
B
for repayment before the agreed period.
Section 31 provides for special provisions for enforcement
.>- )'
of claims by Financial Corporation. It reads as under:
"31 . Special provisions for enforcement of claims by c
Financial 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 Financial Corporation D
or where the Financial Corporation requires an industrial
......
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 E
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
F
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
G
(aa) for enforcing the liability of any surety; or
(b)
for transferring the management of the industrial
concern to the Financial Corporation; or
H
868
SUPREME COURT REPORTS
[2008] 4 S.C.R.
A
(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.
f
B
(2) An application under sub-section (1) shall state the
nature and extent of the liability of the industrial concern to
~he Financial Corporation, the· ground on which it is made
~
and such other particulars as may be prescribed."
--('"'
c
Section 32 of the Act provides for the procedure in respect
....
of the proceedings before the District Judge on applications
•
under Section 31; sub-section (1A) whereof reads as under:
"(1-'A) When the application is for the relief mentioned in
clause ( aa) of sub-section (1) of Section 31, the District
D
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."
.(
I
For enforcing a claim envisaged under clause (aa) of SubE section (1) of Section 31 of the Act, a special procedure has
been laid down in sub-section (4A) of Section 32 which reads
as under:
....__
"(4A) If no cause is shown on or before the date specified
~
in the notice under Sub-section (1A) the district judge shall
F
forthwith order the enforcement of the liability of the surety."
~ ~--'---
Section 32G of the Act, which was also inserted by Act
No. 43 of 1985, provides for yet another additional remedy to a
financial corporation in the following terms:
:. )-
G.
"32G. Recovery of amounts due to the Financial
Corporation as an arrear of land revenue
Where any amount is due to the Financial Corporation in
respect of any accommodation granted by it to any
)...
industrial concern, the Financial Corporation or any person
H
authorised by it in writing in this behalf, may, without
;
• e
KARNATAKA STATE FINANCIAL CORPORATION v.
869
N. NARASIMAHAIAH AND ORS. [S.S. SINHA, J.]
prejudice to any other mode of recovery, make an
A
.... .,...
application to the State Government for the recovery of
the amount due to it, and if the State Government or such
authority, as that Government may specify in this behalf, is
satisfied, after following such procedure as may be
prescribed, that any amount is so due, it may issue a B
certificate for that amount to the Collector, and the Collector
shall proceed to recover that amount in the same manner
as an arrear ofland revenue."
#..,...
INTERPRETATION - SECTION 29 ISSUE
c
8. A lender of money under the common law has the
remedy to file a suit for realization of the amount lent if the
borrower does not repay the same. The Act, however, provides
for a special remedy in favour of the Financial Corporation
constituted thereunder enabling it to exercise a statutory power D
of either selling the property or take over the management or
possession or both belonging to the industrial concern .
...(
...
9. Section 29, therefore, confers an extraordinary power
upon the 'Corporation'. It, being a 'State' within the meaning of
Article 12 of the Constitution of India, is expected to exercise
E
its statutory powers reasonably and bona fide.
1 O. Apart from the said constitutional restrictions, the statute
does not put any embargo upon the corporation to exercise its
power under Section 29 of the Act. Indisputably, the said
F
provision was enacted by the Parliament with a view to see that
\,
-.c;
the dues of the Corporation are realized expeditiously. When a
...
statutory power is conferred, it is a trite law that the sanie must
be exercised within the four corners of the Statute. Power of a
lender to realize the amount lent either by enforcing the charged
and I or hypothecated or encumbrance created on certain G
property and/ or proceeding simult~neously and/ or
independently against the surety/ guarantor is a statutory right.
,,.
.....
Different statutes provide for different remedies. We may by
way of example refer to Pawan Kumar Jain v. Pradeshiya
Industrial and Investment Corporation oi U.P Ltd. and Others H
870
SUPREME COURT REPORTS
[2008] 4 S.C.R.
A [(2004) 6 SCC 758] where a statutory mandate h~s been given
to realize the dues from sale of the mortgaged properties and
then to sell other properties of the borrower. We are, however,
not concerned with such a situation.
11 . Such a right can also indisputably be conferred by way
8
of contract as has been provided for under Section 69 of the
Transfer of Property Act in terms whereof a mortgagee is entitled
to effect sale without the intervention of the court, subject, of
course, to the limitations prescribed therein.
c
12. If special provisions are made in derogation to the
general right of a citizen, the statute, in our opinion, should
receive strict construction. 'Industrial concern' has been defined
· under the Act. For the pu;pose of enforcing a liability of an
industrial concern, recourse can be taken both under Sections
0
29 and 31 of the Act. Right of the corporation to file a suit or
take recourse to the provisions contained in Section 32G of the
Act also exists.
13. The heading of Section 29 of the Act states "Rights of
financial corporation in case of default". The default
E contemplated thereby is of the industrial concern. Such default
would create a liability on the industrial concern. Such a liability
would arise when the industrial concern makes any default in
repayment of any loan or advance or any instalment thereof
under the agreement. It may also arise when it fails to meet its
F obligation(s) in relation to any guarantee given by the
corporation. If it otherwise fails to comply with the terms of the
agreement with the financial corporation, also the same
provisions would apply. In the eventualities contemplated under
Section 29 of the Act, the corporation shall have the right to
take over the management or possession or both of the industrial
G concern. The provision does not stop there. It confers an
additional right as the words "as well as" is.used which confers
a right on the corporation to transfer by way of lease or sale and
realize the property pledged, mortgaged, hypothetical or
assigned to the corporation.
H
•
KARNATAKA STATE FINANCIAL CORPORATION v.
871
N. NARASIMAHAIAH AND ORS. [S.B. SINHA, J.]
14. Section 29 of the Act nowhere states that the A
corporation can proceed against the surety even if some
properties are mortgaged or hypothecated by it. The right of
the ff nancial corporation in terms. of Section 29 of the Act must
be exercised only on a defaulting party. There cannot be any
default as is envisaged in Section 29 by a surety or a guarantor.
B
The liabilities of a surety or the guarantor to repay the loan of
the principal debtor arises only when a default is made by the
latter.
15. The words "as well as" in our opinion play a significant
role. It confers two different rights but such rights are to be C
enforced against the same person, viz., the industrial concern.
Submission of the learned senior counsel that the second part
of Section 29 having not referred to 'industrial concern', any
property pledged, mortgaged, hypothecated or assigned to the
financial corporation can be sold, in our opinion cannot be D
accepted. It is true that sub-section (1) of Section 29 speaks of
guarantee. But such a guarantee is meant to be furnished by
the Corporation in favour of a third party for the benefit of the
industrial concern. It does not speak about a surety or guarantee
given in favour of the corporation for the benefit of the industrial
E
concern.
16. The legislative object and intent becomes furthermore
clear as in terms of Sub.-section (4) of Section 29 of the Act only
when a property is sold, the manner in which the sale proceeds
is to be appropriated has categorically been provided therein.
F
It is significant to notice that sub-section (4) of Section 29
of the Act which lays down appropriation of the sale proceeds
only refers to 'industrial concern' and not a 'surety' or 'guarantor'
17. The provisions of Section 128 of the Indian Contract G
Act must also be kept in mind. It is only by reason thereof, subject
of course to the contract by the parties thereto, the liability of a
surety is made coextensive with the liability of the principal
debtor.
872
SUPREME COURT REPORTS
[2008] 4 S.C.R.
A
18. Banking practice may enable a financial co'rporation
to ask for a collateral security. Such security, we would assume,
....,
~
may be furnished by the Directors of a Company but furnishing
of such security or guarantee is not confined to the Directors or
employees or their close relatives. They may be outsiders also.
B The rights and liabilities of a surety and the principal borrower
are different and distinct.
Apart from the defences available.to a principal borrower
under the provisions of the Indian Contract Act, a surety or a
--{' ~
guarantor is entitled to take additional defence.·Such additional
c defence may be taken by the guarantor not only against the
corporation but also against the principal debtor. He, in a given
situation, would be entitled to show that the contract of guarantee
has come to a naught. Ordinarily, therefore, when a guarantee
is sought to be enforced, the same must be done through a
D court having appropriate jurisdiction.' In the absence of any
express provision in the statute, a person being in lawful
>-
possession cannot be deprived thereof by reason of default on
.,
the part of a principal borrower.
E
19. Furthermore,· construction of a statute would not
depend upon a contingency. A statute must be interpreted having
regard to the constitutional provisions as also human rights. We
will deal with this aspect of the matter a little later.
IMPLIED POWER
F
20. Reference to implied and/ or incidental power of the
}
Corporation as was contended by Mr. Venugopal deserves
)--
t' ...
outright rejection.
21. Our attention has been drawn to the following passage
G of 'Principles of Statutory Interpretation' by Justice G.P. Singh,
9th edition, page 365 : 1 oth edition, page 391:
" ... The rule of implied prohibition is, however, subservient
to the basic principle that the Court must, as far as
......
,).
possible, adopt a construction which effectuates .the
1$;::
H
legislative intent and purpose ... "
KARNATAKA STATE FINANCIAL CORPORATION v.
873
N. NARASIMAHAIAH AND ORS. [S.B. SINHA. J]
-
~
We fail to see how the aforementioned statement of law A
comes to the aid to the contention of the learned counsel.
Moreover Section 29 of the Act does not deal with a case
where express and implied conditions have been laid down in
the matter of exercise of power conferred upon a statutory
authority under a Statute. Section 29 does not envisage any
8
prohibition at all either express or implied.
Let us consider the legal implication of the aforementioned
statement of law in the light of a decision of this Court.
In Jamal Uddin Ahmad v. Abu Saleh Najmuddin and C
Another [(2003) 4 SCC 257], this Court stated the law, thus:
"11. Dealing with "statutes conferring power; implied
conditions, judicial review", Justice G.P. Singh states in
the Principles of Statutory Interpretation (8th Edn., 2001, 0
at pp. 333, 334) that a power conferred by a statute often
contains express conditions for its exercise and in the
absence of or in addition to the express conditions there
are also implied conditions for exercise of the power. An
affirmative statute introductive of a new law directing a
thing to be done in a certain way mandates, even if there
E
be no negative words, that the thing shall not be done in
any other way. This rule of implied prohibition is subservient
to the basic principle that the court must, as far as possible,
attach a construction which effectuates the legislative intent
and purpose.