REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.                 7288     OF 2008   (Arising out of S.L.P.(C)  No. 17519/2006)  

Karnataka State Industrial Investment & Development Corporation Ltd. … Appellant(s)

          versus

S.K.K. Kulkarni & Ors. … Respondent(s)

 O R D E R

     Leave granted.

     The short question which arises for determination in this Civil Appeal

is:  Whether  the  High  Court  erred  in  law  in  holding,  by  the  impugned

judgment, that the Bangalore court has no territorial jurisdiction to hear the

matter  in  view of  the  provisions  of  Section  31(1)  of  the State  Financial

Corporation Act, 1951?

     M/s.  Mullur  Cylinders  Pvt.  Ltd.,  defendant  No.6,  is  a  company

registered  under  the  Companies  Act.  Defendants  No.1  to  5  are  its

Promoters/Directors.  For the manufacture of gas cylinders, defendant No.6

approached appellant-Corporation for loan of Rs.37.50 lakhs.  The loan was

sanctioned vide letter dated 1st September, 1984.  Defendants also executed

a Deed of Hypothecation whereby the assets of defendant No.6 Company

stood mortgaged in favour of the appellant-Corporation.  The loan amount

was  released.  It  was  fully  utilized  by the  borrowers.  However,  when it

came to the question of repayment, defaults occurred.  Ultimately, a legal

notice came to be issued on 8th August, 1988 calling upon defendants to

pay the entire loan with interest.  Dispute consequently resulted.

     Appellant exercised its power under Section 29 of the State Financial

Corporations Act, 1951 (for short “1951 Act”).  Consequently, the unit was

sold for Rs.33 lakhs.  However, the full  outstanding amount could not be

recovered and, in the circumstances, for enforcement of surety, Misc. Case

No.109/1993  came to  be  filed  in  the  court  of  VI  Additional  City  Civil

Judge, Bangalore City.  The Suit  was ultimately decreed in favour of the

Corporation.  Aggrieved  by the  said  decision,  the  matter  was  carried  in

Appeal (Misc. Appeal No.1441/2001) in the Karnataka High Court.  

We are not concerned with the merits of the claim.  Suffice it to state

that the question which arose for determination, as reproduced hereinabove,

requires us to interpret the provisions of Section 31(1) of the 1951 Act.

     We quote hereinbelow Section 31(1) as also Section 32 and Section 46B

of the 1951 Act.  

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     “31. Special provisions for enforcement of claims by  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  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 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 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  

(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

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made and such other particulars as may be prescribed.    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  to  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.  

(1A) When the application is for the relief mentioned in clause (aa) of sub-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 shall grant an ad interim injunction restraining the industrial  concern  from  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)  for  issuing  a  notice  under  sub-section (1A), 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

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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 in the notice why the  ad  interim order  of  attachment  should  not  be made absolute or the injunction confirmed.  

(4A) If no cause is shown on or before the date specified in  the  notice  under  sub-section  (1A) 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)  insofar  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 attached property;  

(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  

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(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  district  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.  

(8A)  An  order  under  this  section  transferring  the management  of  an  industrial  concern  to  the  Financial Corporation shall be carried into effect, as far as may be practicable, in the manner provided in the Code of Civil Procedure,  1908  (5  of  1908)  for  the  possession  of immovable property or the delivery of movable property

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in execution of a decree, as if the Financial Corporation were the decree-holder.  

(9)  Any party aggrieved by an order under sub-section (4A),  sub-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 hearing the parties, pass such orders thereon as it thinks proper.  

(10)  Where proceedings for liquidation in respect of an industrial  concern  have  commenced  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 exercisable____  

(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 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 that any 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 incidental thereto.”  

“46B. Effect  of Act on other laws.--The provision of this Act and of any rule or orders made  thereunder shall have  effect  notwithstanding  anything  inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of  an  industrial  concern  or  in  any  other  instrument

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having  effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern.”      

     The  right  of  a  State  Financial  Corporation  (“SFC”  for  short)

recognized under  Section  29  of  the  1951  Act  is  different  from the  right

which  the  SFC can  enforce  under  Section  31.  Section  31  enables  SFC,

without having recourse to the provisions of Section 29 of the 1951 Act or

Section 69 of the Transfer of Property Act, to have its right emanating from

the agreement, enforced by initiating proceedings contemplated thereunder,

namely,  applying  to  the  District  Judge  within  the  limits  of  whose

jurisdiction the industrial concern carries on its business. Section 31 is one

mode of recovery. Therefore, the power under Section 31 and Section 32 are

in  addition  to  the  power  of  realization  of  money  under  the  Transfer  of

Property Act or any other law. It is within the discretion of SFC to choose

the forum under a particular Act. Once there is a default in the payment of

loan, it is for the Corporation to decide as to whether it shall proceed under

Section 29 for sale of the property mortgaged or whether it shall take any

recourse under Section 31 of the 1951 Act. Section 31 of the Act had been

enacted  to  enable  the  corporation  to  obtain  quicker  remedies  from  the

highest Court of Original Civil Jurisdiction in the locality. Where the SFC

takes recourse to the provisions of Section 31 of the Act and obtains an

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order from the Court, it shall ordinarily seek its enforcement in the manner

provided for by Section 32 of the 1951 Act, which section is aimed to act in

aid of the orders passed under Section 31 of the Act. Where the SFC takes

recourse to Section 31 and obtains an order from the Court, it shall seek its

enforcement in the manner provided for by Section 32 of the Act, therefore,

Section  31  makes  a  provision  for  enforcement  of  claims.  It  is  primarily

procedural in nature. The remedy provided for under Section 31 is not in

derogation of any other  mode of  recovery which is available  to the SFC

under any other law for the enforcement of its claims. The remedy under

Section 31 is not the sole or exclusive remedy available to the SFC. It is

only  an  additional  remedy  which  is  conferred  upon  the  SFC.  The

substantive relief in an application under Section 31(1) is not a plaint. This

is  clear  from  the  form  of  the  application,  the  nature  of  the  relief,  the

compulsion  to  make  interim order,  the  limited  enquiry  contemplated  by

Section 32(6), the nature of the relief that can be granted and the method of

execution. The proceedings under Section 32 of the 1951 Act are, therefore,

nothing but execution proceedings. A combined reading of Section 31 and

Section 32 of the 1951 Act indicates that an investigation has to be made to

find out the terms and conditions on which loan was given by SFC to the

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industrial concern and whether SFC was entitled to the relief under Section

31(1) on account of the breech of the terms of agreement.

Having discussed the nature of the proceedings under Section 31(1)

of the 1951 Act we are of the view that Section 31 read with Section 32

constitutes  a  Code  by  itself.  It  is  a  special  provision.  It  is  a  mode  of

recovery. It does not prevent or exclude the SFC from invoking any other

remedy open to it in law. However, once the SFC invokes Section 31(1), it

has to proceed in accordance with the procedure prescribed in Section 32.

Under  Section  31(1),  which  is  invoked  by  the  SFC  in  this  case,  an

application to obtain quicker remedy has to be made to the District Judge

within  whose  jurisdiction  the  industrial  concern  is  located.  This  is  the

mandate of Section 31(1). It is so mandated because wide powers are given

to the District Judge under Sections 31 and 32 to attach, sell and recover

outstanding dues of SFCs in the shortest possible time. In fact, sub-section

(aa) stood inserted in Section 31(1) for enforcing the liability of any surety.

This sub-section is in addition to the power given to the District Judge to

order sale of the property pledged, mortgaged, hypothecated or assigned to

the SFC as security for loan or advance. An application under Section 31

can be filed even before the exercise of power under Section 29 of the 1951

Act or Section 69 of the Transfer of Property Act.

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Under the circumstances, the High Court was right in coming to the

conclusion  that  the  VI  Additional  City  Civil  Judge,  Bangalore,  had  no

territorial jurisdiction to hear Misc. Case No. 109/1993 in view of Section

31  of  the  1951  Act.  The  High  Court  was  right  in  observing  that  the

Corporation ought to have instituted the said case before the District Judge,

Belgaum, within whose jurisdiction the industrial concern is located.

Before concluding, we may indicate the scope of Section 46B. That

section  mandates  that  if  any  other  law  or  memorandum  or  articles  of

association or any instrument deriving force from any other enactment is

inconsistent with any provisions of the 1951 Act or Rules or orders made

thereunder, the latter will prevail and the inconsistency will have no effect

but  if  the  provisions  of  the  1951 Act  or  Rules  made thereunder  are  not

inconsistent, they will be deemed to be in addition to the existing laws and

memorandum or articles  of  association.  Thus,  the provisions of  the 1951

Act and the Rules made thereunder shall have an overriding effect over the

existing  law  and  memorandum  or  articles  of  association  or  any  other

instrument  made  under  the  existing  law  if  they  are  inconsistent  but

otherwise if not inconsistent they will be deemed to be in addition to and

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not  derogating  to  any existing  law,  rules  and orders.  The  1951  Act  is  a

special statute. Therefore, the provisions of the 1951 Act have to be strictly

construed.  In  our  view,  reliance  on  Section  46B  of  the  1951  Act  is

misplaced.  Section  46B  will  not  control  the  parameters  of  territorial

jurisdiction of the District Judge prescribed under Section 31(1) of the 1951

Act. Section 31(1) is a special provision. It mandates that all applications

under Section 31(1) shall be made to the District Judge within the limits of

whose jurisdiction the industrial concern carries on its business. The word

“may” in Section 31(1) only indicates a mode of recovery in addition to any

other modes available to the SFC in law.  

For  the  aforestated  reasons,  we  do  not  find  any  infirmity  in  the

impugned judgment.  Accordingly, Civil  Appeal  filed by Karnataka State

Industrial  Investment  & Development  Corporation  Ltd.  stands  dismissed

with no order as to costs.

  ……………………………J.

                                       (S.H. KAPADIA)

……………………………J.                                               (AFTAB ALAM)

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   New Delhi, December 11, 2008.

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