Allowed

Smt. M.Mahalakshmi, v. The State of Andhra Pradesh

Telangana HC7 Jul 2011WP/5458/2009

Case brief

AI extract

What is this about?

Court allowed writ petition setting aside sale of land offered as collateral security by a guarantor. Ruling held that Section 29 of the State Financial Corporations Act, 1951 applies only to the industrial concern and not the guarantor's property, rendering the sale void.

What did the court decide?

Sale proceedings set aside; Sale deed declared void and cancelled; Registrar directed to forward copy of order to Sub-Registrar.

Smt. M.Mahalakshmi, Vs The State of Andhra Pradesh — Banking and Recovery | Telangana HC (2011)

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THE HON’BLE SRI JUSTICE SANJAY KUMAR

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WRIT PETITION NO.5458 OF 2009

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DATED JULY, 2011

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BETWEEN Smt.M.Mahalakshmi and another. …Petitioners And The State of Andhra Pradesh, through the Andhra Pradesh State Financial Corporation, Rep. by its Vice Chairman and Managing Director, having its Principal Officer at 5-9-194, Chirag Ali Lane, Hyderabad – 500 001 and others.

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…Respondents

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THE HON’BLE SRI JUSTICE SANJAY KUMAR

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WRIT PETITION NO.5458 OF 2009

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O R D E R

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The petitioners’ grandfather, late Sri J.Hemachandran, stood as a guarantor for repayment of the loan advanced by the Andhra Pradesh State Financial Corporation (APSFC) to M/s.Vinayaka Milk Suppliers, Chittoor, the fourth respondent. Consequently, he, along with his son, Harinagabhooshanam, the father of the petitioners, offered the subject land, being an extent of Ac.2.50 cents situated in Survey No.250 of Iruvaram Village, Chittoor Mandal and District, as collateral security to the APSFC by way of an equitable mortgage through deposit of title deeds. The petitioners’ grandfather died on 10.08.2002. It is their case that prior to his death, their grandfather executed a will on 29.08.1998 bequeathing all his properties, including the subject land, to them.

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While so, owing to default in the repayment of the loan by the fourth respondent to the APSFC, action was initiated under Section 29 of the State Financial Corporations Act, 1951 (for brevity, ‘the Act of 1951’) and a sale notification was issued in the newspapers on 29.08.2002 inviting tenders from the public for various items of immovable property proposed to be sold. The collateral security offered by the petitioners’ grandfather was one such item. The third respondent emerged as the highest bidder for this property at Rs.15,50,000/-. The same was accepted by the APSFC under letter dated 31.03.2004. However, it appears that the third respondent noticed a shortfall in the extent of the subject land by Ac.0.18 cents

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and requested the APSFC to reduce the sale consideration proportionately. The APSFC thereupon conducted a survey and having confirmed the shortfall as aforestated, finalized the sale consideration at Rs.14,38,400/- and communicated the same to the third respondent under letter dated 15.05.2008. As the third respondent had already paid the sale consideration in August, 2004, the APSFC executed a registered sale deed in her favour, being document No.394/2009 dated 29.01.2009.

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The petitioners claimed that they had no notice of the aforestated developments which were initiated by the APSFC after the death of their grandfather. According to them, it was only when they entered upon the subject land for the purpose of making construction in February, 2009, that the third respondent interfered, constraining them to seek a perpetual injunction against her in O.S.No.58 of 2009 on the file of the learned Additional Senior Civil Judge, Chittoor. It is stated that a temporary injunction was granted in their favour by the said Court. It is their further case that only after filing the civil suit aforestated, they made enquiries and came to know about the facts stated supra. They thereupon filed the present writ petition challenging the action of the APSFC in bringing to sale the subject land under Section 29 of the Act of 1951 after the death of the guarantor without notice to them. They pleaded that the sale in favour of the third respondent was at an abysmally low price as the certificate issued by the Registration and Stamps Department of Chittoor indicated that the market value of the subject land was Rs.3,22,10,000/- even in the year 2008. They pointed out that though the sale process commenced in August, 2002 it culminated only in the year 2009. They further contended that the sale process was initiated against the guarantor after his death and would therefore be a nullity. They also challenged the action on the ground that Section 29 of the Act of 1951 would have no application to the properties of a guarantor.

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This Court, by order dated 19.03.2009, directed status quo with

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regard to possession obtaining as on that day to be maintained.

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WVMP Nos.2090 of 2010 and 1153 of 2011 are filed by the third respondent and the APSFC respectively to vacate the above order.

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With the consent of the learned counsel, the main writ petition is taken up for disposal.

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It is the contention of the third respondent that the petitioners have no locus standi to maintain this writ petition. According to her, the subject land was an ancestral property and therefore the petitioners’ grandfather had no exclusive right to bequeath the entire property to them excluding the son, the petitioners’ father, altogether. She further stated that the registered will dated 29.08.1998 propounded by the petitioners was not the last testament of their grandfather and that it stood superceded by the registered will dated 09.07.2001 executed by him. She asserted that this will clearly negatived the claim of the petitioners, which was founded on the earlier will.

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The APSFC also took the stand that the petitioners had no locus standi to challenge the sale of the subject land as the registered will under which they were claiming had been superceded by the subsequent registered will executed by their grandfather. The APSFC pointed out that the later will cancelled the bequest in respect of the subject land in favour of the granddaughters, the petitioners herein, and therefore they had no claim at all to the said land. In so far as this land is concerned, it is the case of the APSFC that the grandfather died intestate and therefore, the petitioners’ father alone succeeded. As he did not choose to challenge the sale, the APSFC would have it that the petitioners have no role to play in the matter. The APSFC pointed out that the third respondent had paid the entire sale consideration in August, 2004 itself and therefore, the present writ petition was barred by laches.

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The petitioners filed a reply contesting the claim of the respondents that they have no locus standi to maintain the writ petition and reiterated the grounds earlier taken by them for assailing the sale

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of the subject land.

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Heard Sri D.Seshadri Naidu, learned counsel for the petitioners, Sri M.S.Ramachandra Rao, learned standing counsel for the APSFC, and Sri S.V.Bhatt, learned counsel for the third respondent.

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Though contentious arguments were advanced by the learned counsel on either side on the issue of the wills said to have been executed by the petitioners’ grandfather and the consequences thereof, this Court is not inclined to enter into this realm in a writ petition filed under Article 226 of the Constitution. The matter is amenable to resolution on another short ground and it would not be necessary to go into these disputed questions of fact.

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It is not in dispute that the subject land was offered as collateral security by a guarantor to the APSFC and that the APSFC brought it to sale by invoking the powers under Section 29 of the Act of 1951. The validity of a similar action fell for consideration before the Supreme Court in KARNATAKA STATE FINANCIAL CORPORATION V/s. N.NARASIMAHAIAH^[1] . Dealing with Section 29 of the Act of 1951, the Supreme Court pointed out that the said provision confers an extraordinary power upon the State Financial Corporations enabling them to either sell or take over the property belonging to the industrial concern. The Court observed that the default contemplated in Section 29 of the Act of 1951 is that of the industrial concern alone and the default envisaged in Section 29 could not be by a surety or a guarantor. The Court found that Section 29 of the Act of 1951 nowhere stated that the Corporations can proceed thereunder against the surety even if some properties are mortgaged or hypothecated by it. Section 31(1)(aa) inserted in the Act of 1951 by Amendment Act No.43 of 1985 provides a remedy to the Corporations for enforcing the liability of a surety and not Section 29. The Supreme Court therefore held that Section 29 of the Act of 1951 was of no avail for proceeding against the securities offered by a surety/guarantor.

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In the light of this authoritative pronouncement of the Supreme

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Court, it is no longer open to the APSFC to contend that recourse to Section 29 of the Act of 1951 for proceeding against the properties/securities offered by a guarantor is legal and valid. In the present case, it is no doubt true that the proceedings against the subject land were initiated as long back as in the year 2002. However, the same concluded only upon the execution of the sale deed in favour of the third respondent on 29.01.2009, after the Judgment was rendered in N.NARASIMAHAIAH. Therefore, the issue of delay or laches does not arise in the context of deciding the legality and validity of the APSFC’s action in the backdrop of the law laid down in N.NARASIMAHAIAH.

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As regards the allegation of delay on the part of the petitioners in challenging the sale, it is to be noticed that the petitioners were aged 17 years and 14 years respectively at the time of initiation of the sale proceedings in the year 2004. They claim that they came to know of the sale in favour of the third respondent only after her interference with their possession over the subject land which led them to file the suit, O.S.No.58 of 2009, before the competent Civil Court. Given these facts, this Court holds that there was no delay or laches on their part in approaching this Court.

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As regards the allegation of the respondents that the petitioners lack locus standi to challenge the subject sale, it is to be noticed that the sale in itself is legally invalid in view of the law laid down in N.NARASIMAHAIAH. It ill-behoves the APSFC, an instrumentality of the State, to seek to perpetuate what is now clearly established to be an illegal action by clutching at straws and assailing the petitioners’ locus to challenge the same. The contention of the learned standing counsel that the petitioners must first get their title decided by the competent Civil Court and only thereafter assail the subject sale is therefore liable to be rejected. Once the petitioners are in a position to demonstrate even a modicum of a claim over the subject land, it would be sufficient for this Court to entertain their case, recognize the

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illegality committed by the APSFC and declare it as such. When faced with an order or action which is bereft of jurisdiction this Court is dutybound to declare the same as such. Whether the petitioners can claim exclusive title under the will dated 29.08.1998 or whether their father alone would be entitled to the subject land by the law of intestate succession is an issue which would have to be decided by the competent Civil Court, if the need arises. However, in so far as this case is concerned, whether the petitioners have a right to the subject land or even a part thereof, or whether their father alone is entitled to succeed are questions which are of no consequence in applying the law laid down in N.NARASIMAHAIAH. Once the APSFC is found to have fallen foul of this judicial edict, such action cannot be sustained or permitted to continue on mere technicalities.

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The Writ Petition is accordingly allowed setting aside the proceedings initiated by the APSFC to bring to sale the guarantor’s land admeasuring Ac.2.50 cents situated in Survey No.250 of Iruvaram Village, Chittoor Mandal and District, under Section 29 of the Act of 1951. Sale deed No.394/2009 dated 29.01.2009 executed by the APSFC in favour of the third respondent is consequently declared to be void and shall stand cancelled. As there is no indication that possession of the subject land was delivered to the third respondent pursuant to the sale in her favour and as the petitioners claim that they continued in possession all through and are also protected by the temporary injunction granted in their favour by the competent civil Court, this Court deems it unnecessary to make any observation as regards this aspect. The Registrar (Judicial) is directed to forward a copy of this order to the Sub-Registrar, Chittoor, for noting the factum of cancellation of this sale deed in his records in accordance with Section 31(2) of the Specific Relief Act, 1963. Miscellaneous petitions filed in this writ petition shall stand dismissed in the light of this final order. Parties shall bear their own costs.

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SANJAY KUMAR, J.

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_______ JULY, 2011 PGS

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[1] (2008) 5 SCC 176

Smt. M.Mahalakshmi, v. The State of Andhra Pradesh

Case brief

What is this about?

What did the court decide?

Smt. M.Mahalakshmi, v. The State of Andhra Pradesh

Case brief

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