Dismissed

G. Mallesh and Another, v. Cheruku Swamy and 2 Ors.

Telangana HC4 Feb 2022WA/168/2009

Case brief

AI extract

What is this about?

The High Court dismissed a writ appeal challenging the sale of mortgaged property by the Andhra Pradesh State Financial Corporation. Relying on Karnataka State Financial Corporation vs. K. Narasimhaiah, the court upheld that Section 29 applies to the principal debtor only, ruling the sale illegal as the suit should have proceeded against the surety under Section 31.

What did the court decide?

No order for refund; appellants directed to apply to the Corporation if refund not received.

G. Mallesh and Another, Vs Cheruku Swamy and 2 Ors. — Banking and Recovery | Telangana HC (2022)

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HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD

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FRIDAY, THE FOURTH DAY OF FEBRUARY TWO THOUSAND AND TWENTY TWO

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PRESENT

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THE HONOURABLE THE CHIEF JUSTICE SATISH CHANDRA SHARMA AND

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THE HONOURABLE SRI JUSTICE ABHINAND KUMAR SHAVILI

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WRIT APPEAL NO: 108 OF 2009

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Writ Appeal under clause 15 of the Letters Patent against the order dated 22-10-2008 in WP No. 3733/2008 on the file of the Hiqh Court.

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Between:

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G.N,4allesh, S/o. Lale G.Chenchaiah, H.No.5-258, H.P.Road, Moosapet, Hyderabad.

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Smt.V.Sridevi, W/o.Srinivas, R/o.3-4-1 19/A, N/asjid Lane, L.B.Nagar, Hyderabad.

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...APPELLANTS

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(Respondents 3 & 4 in w.P)

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AND

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1 Cheruku Swamy, S/o. Cheruku l,4asaiah, R/o.2-5, Revanpally, Pochampally Mandal, Nalgonda District (Petitioner in W.P.)

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The Andhra Pradesh State Financial Corporation, 5-9-194, Chirag Ali Lane, Hyderabad, rep. by its l,4anaging Director.

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Andhra Pradesh State Financial Corporation, Ramachandrapuram B.ancl't,22-29 Reddy Complex, Adj. to LIC Office, Ramachandrapuram, Hyderabad, Rep. by Senior Branch Manager.

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...RESPONDENTS

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(Respond6nts 1 & 2 in w.P)

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Counsel for the Appellants : SRI.M.VIJAYA KUMAR GOUD

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Counsel for the Respondent No.1 : SRI.S.ARUN KUMAR

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Counsel for the Respondent Nos.2 & 3 : SRI.N.VIJAY

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The Court made the following ORDER

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TIIE HON'BLE THE CHIEF JUSTICE SATISH CIIANDRA SIIARMA AND

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THE HON'BLE SRI WSTICE ABHINAND KI'MAR SIIAVILI

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WRIT APPEAL No.168 of 2009

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JUDGMENT: lper the Han'bte the Chiel Justrce Sat$h chandrc shonw)

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The present writ appeal is arising out of order dated 22.1O.2OO8 passed in W.P.No.3733 of 2008 by the learned Single Judge.

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The undisputed facts of the case reveal that a partnership firm by name Sai Durga Tube Wells availed financial assistance for a sum of Rs.2S lakhs from the A.p. State Financial Corporation (for short,^,,the Corporati on"l, 2nd respondent in the writ petition, on 25.0 1 .2001 and the writ petitioner, Cheruku Swamy, offered his plot bearing No.g in Sy.No.268 as collateral security. As the barrower failed to pay the loan arnount, the Corporation initiated action under Section 29 of the State Financial Corporation Act, 1951 (for short, "the Act"). The plot was sold by the Corporation in favour of one G. Mallesh, respondent No.3 in the writ petition, on 01.02.2008. The wdt petitioner carne up before this Court stating that the property u,,orth Rs.60 lakhs was sold away only for Rs.27.50 lakhs and the Corporation could not have been proceeded against the suretv under Section 29 of the Act

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Reliance rvas placed upon the judgment of the Hon'ble

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Supreme Court in the case of Karnataka State Financial Corporation vs. K. Narasimhaiah aud othersl and it was aJgued that the Corporation can proceed only against the surety in terms of Section 31 of the Act and not under Section 29. Sections 29 and 31 of the Act are reproduced as under:

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'29. Rtghts of Flnanclal Corporatlo! in case of default,- (1) Where any industrial concern, which is under a liability to the Financial Corporation under aI agreement, makes al}y default in repayment of any loan or advance or any insta-lment thereof ior in meeting its obligations in relation to any guarantee given by the Corporation] or otherwise fails to comply^r,rith the terms of its agreement with the Financial Corporation, the Financia.l Corporation shall have the fright to take over the management or possession or both of the industria,l concem], as well as t}le lright^{to transfer b1 u,ayof lease or sde] and realisethe} propert]' plcdged, mortgaged. hypothecated or assigned to the Financial Corporation.

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12)^{Any transfer oI property madeby theFinarcial} Corporation, in exercise of its powers under sub-section (l), shall vest in the transfcree all rights in or to t}le property transferred Ias if the trarsfer] had been made by the owner of the property.

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(3) The Financial Corporation sha-ll have tJ.e same rights and powers with respect to goods marufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods.

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(4) Where any action has been taken against arl industdal concern under ttle provisions of sub-section (1), all costs, icharges and expenses which in the opinion of the Financial Corporation have been^properly incurredl by it [as incidenta.l thereto] shall be recoverable from the industrial concem arrd the money which is received by it sha-Il, in the absence of ary contract to the contlary, be held by it in trust to be applied firstly, irr paJment of such costs, charges and expenses artd, secondly, in discharge of the debt due to the Financial Corporation, alld the residue of the money so received sha-ll be paid to the person entitled thereto.

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(5) Where the Financial Corporation has ta.ken any action against aI industrial concern under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the^purposes of suits by or against the concern, and shall sue and be sued in the name of the conceln.

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'^{2oo8(4) sc^I-t,17i}

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)

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Spectal provislons for enforceme[t of clalms by Flnanclal Corporatlon.- (1) Where an industrial concem, in breach of any agreement, make aly default in repayment of any loan or advaace 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 Financia.l Corporation or where the Finalcia.l Corporation requires an industrial concem to make immediate repayment of ary ioan or advance under section 30 and the industrial concern fails to make such repayment, lthen, without prejudice to the provisions of section 29 of this Act arld of section 69 of the Tra:rsfer of Property Act, 1882 (4 of I882)l any officer ol the Financia-l Corporation, generally or specially authorised by the Board in this behalf, may apply to the district^judge within the limits of whose jurisdiction the industria.l concem caJTies on the whole or a substaltia.i pa-rt of its business for one or more of the following reliefs, namely:-

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{a)^{for an order for t1.e sale of theproperty} pledged, mortgaged, hypothecated or assigned to tl:e [Financial Corporation] as security for the loal or advance; or

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(aa) for enforcing tie liability of any surety; or

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(b) for tralsferring ttre management of the industrial concem to the Financial Corporation; or

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(c) for ar ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industria.l concern without the permission of the Board, where such removal is apprehended.

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12)^{An applicationunder sub-section (l) shall statethe} nature and extent of the liability of the industria.l concem to the Financial Corporation, the ground on which it is made artd such other particula-rs as may be prescribed,"

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The Hon'ble Supreme Court in the case of Karnateka

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State Financial Corporation (supra), after taking into

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account the aforesaid statutory provisions of larv, has held as

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under:

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'(14) Sec.29 of the Act nowhere states that the corporation cai proceed against the surety even if some properties are mortgaged or hJ.pothecated by it. The right of the hnancia] corporation in terms of Sec.29 of the Act must be exercised only on a defaulting party. There cannot be any default as is envisaged in Sec.29 by a surety or a guarantor. The liabfities of a surety or the guarantor to repay the loan of the principal debtor arises only when a default is made by t.Ile latter.

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(15) The \'ords^{-as ('ell as' inour opinion play a} !ig"in".rr, rolc.^{It conferstu'o different rights but such} .iit," r." to^{be enforccd agalnstthe sameperson' viz'' the} industrial^concern.

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soeaks of^{guaranlec. But} .., It is truc that^{such a guararltee sub-section is meant (1) of Sec to 29be} iI-*n.a "bv the eorporation in favour of a third party for itr" t"".n, .r^{thc iniustrial concernltdoes not speak} ubor, u surety^{orguaranteegiven infavour ofthe} corporation^{for the benefitof lhe industrialconcern'} (27) The legtslattve intent^{in our opinion' is manifest'} inJ i",.i.;o""or^{the Parliamentin enacLing Sections 29 ard} gi of ttt" Act was not similar' Whereas^{Sec'29ol the Act} "o""fi"^{of thepropertyof the industrial concern'Sec 31} i"t." *,hits'sweep both^{the propenyof the industrial} concern ald^{as thatof the surety Noneol the prousrons} control each other.^{The Parliamentintended to proude an} - remedy for^{recoveryof theamourtt in favour of} il" "aJitio"rl t.r-s of "omot"tlon Sec.31^{ty of proceedilg against the Act and not under a surery secuon only inz:/} thereof."

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In the light^{of the judgmentdeiiveredby the Hon'ble} Supreme Court,^{this Courtis of the considered opinionthat} the learned^{SingleJudge was justified in declaringthe sale of} the property^{as illegal, being contrary to the provisionsof the} Act and being^{contrary to the law laid down by the Honble} Supreme Court^{and therefore,this Court does not find anv} reason to^{interferewith the order passed by the learned} Single Judge.

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Accordingly,^{the writ appeal is dismissed'}

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Learned counsel^{for the appellants has arguedbefore} this Court at^{this stagethat the Corporationbe directed to} r.s refund the amount to the appellants, if not already refunded'

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The appellants shall be free to make an appropriate application before the Corporation, if the amount is not refunded, with a prayer to au,ard interest as per the statutory provisions and the Corporation shall take appropriate action in accordance with 1aw in the matter.

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Miscellaneous petitions, if any, shall stand closed.

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There shall be no order as to costs.

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//TRUE COPY//

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SD/.M.VIJAYA^BHASKAR DEPUTY REGISTRAR SECTION OFFICER

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To '1. One CC to SRl.lvl VIJAYA KUMAR GOUD, Advocate [OPUC] 2. one CC to SRI.N.VIJAY,^Advocate [oPUC] i. One CC to^{SRI.S.ARUN KUMAR, Advocate[OPUC]} 4. Two CD Copies 5. One spare^copy SA su t

HIGH COURT

DATED:04/0212022

JUDMGMENT

1tlE STA r+-
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WA.No.168 of 2009

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DISMISSING THE W.A