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CASE NO.: Appeal (civil)  3054 of 2008

PETITIONER: M/s. Ormi Textiles & Anr

RESPONDENT: State of U.P. & Ors

DATE OF JUDGMENT: 29/04/2008

BENCH: S.B. Sinha & Lokeshwar Singh Panta

JUDGMENT: J U D G M E N T  REPORTABLE

CIVIL APPEAL NO.  3054      OF 2008 [Arising out of  SLP (Civil) No. 17139 of 2006]

S.B. SINHA, J :          1.      Leave granted.

2.      Interpretation and application of Section 29 of the State Financial  Corporations Act, 1951 (for short "the Act") is the core question involved  herein.   3.      Before, however, adverting to the said question, we may notice the  basic factual matrix of the matter.           Appellant No. 1 is a partnership firm.  It was constituted in the year  1973.  It established a factory at Kadrabad in the town of Modi Nagar, U.P.   A loan of Rs. 3.96 lakhs was applied for but a sum of Rs. 3.14 lakhs was  sanctioned in 1974.  Appellant No. 1 was in possession of 1100 sq. yards in  Khasra Plot No. 397M, Khata No. 80 situated in Village Kadrabad Pargana  Jalalabad.  The factory is situated on a land measuring 800 sq. yards.  The  schedule of the land which was the subject matter of mortgage in favour of  the respondent - Corporation reads as under: "All that  piece or parcel of land measuring 800 sq.  yards out of Seven Biswas and Five Bigamain,  bearing Khasra plot number 397 M Khata No. 80,  situate in village Eadarkad, Pargana, Jalalabad,  tehsil Ghaziabad district Meerut and bounded:

On the North by: remaining land of Khasra No.  397 F, On the South by: remaining land of owned by Gur  Charan Jit Kaur of Khasra No. 397 M On the east by: D.K. Road On the west by: Land belonging to other persons."

       Appellant was furthermore granted loan for a sum of Rs.1.51 lakhs as  also for a sum of Rs.3,19,800/- during the period 1977-79.  According to the  appellant, although a substantial part of the loan had been repaid, a sum of  Rs.3,19,800/- is still owing and due to the respondent.  It has been contended  that the mortgaged land admeasuring 800 sq. yards continued to be the  security for the said loans.           The industrial unit of the appellant, however, became sick.  Efforts to  revive the said unit failed.  It was contended that the respondent \026  Corporation acknowledged that out of an area of 1350 sq. yards which was  in possession of the appellant, only 800 sq. yards was mortgaged in its  favour, wherefor a demand for demarcation was made by it in terms of a  letter dated 17.07.1990, stating: "The actual area of land belonging to your unit at

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present is around 1350 sq. yards approx.  So,  therefore, it could not be indentified which portion  of land has been mortgaged to the Corporation.  In  the absence of the demarcating of land mortgaged  to the Corporation, we may not be in a position to  evaluate the assets mortgaged at site.  Keeping in  view of this, you are hereby advised to submit the  following papers for clarification/ indentification  for the plot mortgaged to the Corporation so that  we may take action at our end\005"

4.      A notice dated 28.12.2005 under Section 29 of the Act was issued by  the respondent - Corporation.   A writ petition was filed questioning the legality thereof.  Pursuant to  an interim order passed by the High Court in the said writ petition, the  appellant deposited a further amount of Rs. 2 lakhs.  In the meantime,  another unit of the appellant became sick and subjected to a notice under  Section 29 of the Act wherefor also a writ petition was filed before the High  Court which was marked as Civil Misc. Petition No. 7219 of 2006.   5.      An advertisement was issued for sale of the appellant’s unit covering  the land area 7 Siswa, 5 Biswansi (951.25 sq. mtr.) in a newspaper known as  ’Amar Ujala’ on or about 6.06.2006. 6.      The High Court by reason of the impugned judgment dismissed the  writ petition filed by the appellants questioning the validity of the said  notice, stating: "Admittedly, the Petitioner approached earlier also  this Court against the proceeding initiated under  Section 29, of the State Financial Corporations  Act, 1951 in Writ Petition No. 6703 of 2006  wherein this Court granted indulgence permitting  the Petitioner to pay certain amount within a  prescribed time and in the meantime interim order  was passed.  Thereafter, again the said order was  modified and further opportunity was granted to  the Petitioner but the Petitioner failed to comply  both the said order though undertaking has been  given before this Court in the aforesaid Writ  Petition in order to obtain the interim order.  In the  circumstances, the Respondent Nos. 2 and 3  proceed to take over possession under Section 29  of the State Financial Corporations Act, 1951 and  hence the present Writ Petition is filed.

In my view, against the same cause of action the  present Writ Petition is filed which is not  maintainable.  Further, the Petitioner has also  approached this Court with unclean hands  inasmuch as he has already got interim orders from  this Court by giving certain undertakings but failed  to honour the same and, thus, is not entitled for any  equitable relief under Article 226 of the  Constitution of India.   

In view of the aforesaid facts and circumstances,  the Writ Petition is dismissed in limine."

7.      Mr. Tripurari Ray, learned counsel appearing on behalf of the  appellants, would submit that on a plain reading of Section 29 of the Act, it  would appear that the mortgaged property only can be the subject matter of  sale. 8.      Mr. Shrish Kumar Misra, learned counsel appearing on behalf of the  respondents, on the other hand, would contend: (i)     Section 29 of the Act although is in two parts, each part thereof is  separate and distinct. (ii)    Power of the Corporation to sell the property is not confined only

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to the mortgaged property but the entire industrial unit as the  power to redeem the mortgage provides for an additional remedy. 9.      Section 29(1) of the Act reads as under: "29. Rights of Financial Corporation in case of  default \026 (1) Where any industrial concern, which  is under a liability to the Financial Corporation  under an agreement, makes any default in  repayment of any loan or advance or any  instalment thereof or in meeting its obligations in  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 both of the  industrial concerns, as well as the right to transfer  by way of lease or sale and realize the property  pledged, mortgaged, hypothecated or assigned to  the Financial Corporation."

10.     The Act was enacted to provide for the establishment of the State  Financial Corporations.  Various statutory powers have been conferred upon  the Corporation.  It has power to take recourse to various remedies provided  under the Act, apart from the terms of the contract entered into by and  between it and the borrower as also the provisions of the Transfer of  Property Act.  It is a ’State’ within the meaning of Article 12 of the  Constitution of India.  Its power is, thus, required to be exercised reasonably  and fairly.  The right of the Corporation in the case of a default on the part of  the borrower is a statutory power.  The provisions of the Act conferring such  a power require to undergo a purposive construction.           For the purpose of invoking Section 29 of the Act, the borrower must  have a liability to the Corporation under an agreement.  It must make a  default in repayment of any loan or advance, etc.  The Corporation in such a  situation shall inter alia have the right to take over the management or  possession or both of the industrial concerns.  This power is in addition to  the power of the right to transfer by way of lease or sale and realize the  property pledged, mortgaged, hypothecated or assigned to the Corporation.   The right to transfer by way of lease or sale, however, is not an independent  right.  Only in case of default, such a right can be exercised.  We must keep  in mind that the powers contained in two parts of Section 29 of the Act are  separate and distinct.  The power to take over the management is ordinarily  exercised when the concern is an ongoing one.  But, when a power is  conferred to sell the property unilaterally, the same must have a nexus with  the mortgaged property.  The power to sale cannot be read in isolation.  It  can also realize the mortgaged property which would mean that when a  property had been sold, only the mortgaged property can be realized and not  any other property which was not the subject matter of mortgage.  What can  be transferred by the mortgagee even in terms of the provisions of the  Transfer of Property Act is the property which was the subject matter of  mortgage and not any other.  A power to take over the management or  possession is a statutory power.  As and when the debt is realized, the  Corporation would be bound to handover the management or possession of  the property, as the case may be, back to the industrial establishment.   11.     A mortgagee can have a right to sell a property even under the  contract.  The same must necessarily mean that the property to be sold is the  one over which he has the right, title and interest.  A sale without any right  would be a nullity. 12.     For proper construction of the provisions of the Act, we may notice  the provisions of Section 31 thereof.   It provides for an additional remedy.   Whereas Section 29 confers a power to sale the property unilaterally,  Section 31 provides inter alia for the same power only through the  intervention of the court.           Clause (a) of Sub-section (1) of Section 31 of the Act categorically  states that the jurisdiction of the District Judge can be invoked for order of  sale of the mortgaged or assigned property in favour of the Corporation.  

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Clause (b) thereof provides for transferring the management of the industrial  concern.  Clauses (aa) and (c) of Sub-section (1) of Section 31 of the Act  provide for additional remedies.  When an application is filed in terms of  Section 31 of the Act, the procedures laid down in Sub-section (1A) of  Section 32 of the Act are required to be followed.  A further additional  remedy has been provided to a Financial Corporation in terms of Section  32G of the Act. 13.     We need not dilate on the interpretation of the aforementioned  provision as the same is now covered by a decision of this Court in  Karnataka State Financial Corporation v. N. Narasimahaiah and Ors. [2008  (4) SCALE 473] wherein it was held: "26.    While interpreting the provisions of a  statute, the court employs different principles or  canons.  To interpret a statute in a reasonable  manner, the court must place itself in the chair of a  reasonable legislator/ author.  [See New India  Assurance Company Ltd.  v. Nusli Neville Wadia  and Anr. [JT 2008 (1) SC 31]  Attempt on the part  of the court while interpreting the provisions of a  statute should, therefore, be to pose a question as  to why one provision has been amended and the  other was not?  Why one terminology has been  used while inserting a statutory provision and a  different clause in another?  It is well-known that  casus omissus cannot be supplied. [See Ashok  Lanka v. Rishi Dixit (2005) 5 SCC 598 and J.  Srinivasa Rao v. Govt. of A.P. & Anr 2006 (13)  SCALE 27 and Southern Petrochemical Industries  Co. Ltd. v. Electricity Inspector and E.T.I.O. and  Ors. (2007) 5 SCC 447]   

27.     The legislative intent, in our opinion, is  manifest.  The intention of the Parliament in  enacting Sections 29 and 31 of the Act was not  similar.  Whereas Section 29 of the Act consists of  the property of the industrial concern, Section 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  Corporation by proceeding against a surety only in  terms of Section 31 of the Act and not under  Section 29 thereof."   

       This Court therein has also taken into consideration the interpretative  process required to be undertaken for construing the Act keeping in view the  fact that right to property is also a human right.           The High Court, in our opinion, committed a serious illegality insofar  as it failed to take into consideration the limited scope and effect of Section  29 of the Act.  It wrongly proceeded on the basis as if the contention of the  appellants stood covered by the earlier round of litigation.  Interpretation of  Section 29 of the Act did not fall for consideration in the earlier writ  petition. 14.     We, therefore, are of the opinion that the right to sell the property by  the Corporation must be exercised only in respect of the mortgaged property  and not the one which is not the subject matter thereof.   15.     Keeping in view the fact that the extent of property mortgaged has  been described in the deed of mortgage, it will be open to the respondents  herein to get the area of the said property duly demarcated.   16.     In the event, the sale is complete, the auction purchaser may be  handed over only so much property which was the subject matter of  mortgage.  This, however, would not mean that for realization of the balance  amount, if any, the respondents would be without any remedy.  They will be  entitled to take recourse to such remedies for realization of their balance due

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to which they are otherwise entitled to in law. 17.     The appeal is allowed to the aforementioned extent with costs.   Counsel’s fee assessed at Rs. 25,000/-.