http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 28  

PETITIONER: MAHARASHTRA STATE FINANCIAL CORPORATION

       Vs.

RESPONDENT: JAYCEE DRUGS AND PHARMACEUTICALS PVT. LTD.AND ORS.

DATE OF JUDGMENT19/02/1991

BENCH: OJHA, N.D. (J) BENCH: OJHA, N.D. (J) RANGNATHAN, S. AGRAWAL, S.C. (J)

CITATION:  1991 SCR  (1) 480        1991 SCC  (2) 637  JT 1991 (1)   524        1991 SCALE  (1)276

ACT:      State Financial Corporation Act, 1951: Sections 31  and 32  Scope  of-Presidency  town-jurisdiction  to   entertain- Whether  a petition under sections 31 and 32 is to  be  made before a City Civil Court or the High Court.  Liability of a surety  -Enforcement of-Whether in such a petition  a  money decree  for repayment of loan can be passed against a  party who  stood surety personally without any security.  Held  if the  claim is upto Rs. 50, 000 the application would lie  to City  Civil Court and if it is more than to the High  Court- Amending  Act 43 of 1985.  By majority held that  after  the amendment introduced by Act 43 o.f 1985 such an  application shall  lie for enforcing the liability of a surety  who  has given only personal guarantee.

HEADNOTE:      Respondent  No.  1  a  Private  Limited  Company,   was sanctioned a loan of Rs.30 lakh by the Appellant-Corporation for  the  setting  up of a factory. To secure  this  loan  a mortgage  deed  of certain properties was  executed  by  the Company and Respondents 2 to 4 as its directors had executed a  personal  Surety  Bond  without  any  security  for   its repayment.   After obtaining a part of the sanctioned  loan, which  was  to  be  given  in  phases,  the  Company  became disinterested   in   availing   of   the   balance   amount. Consequently the Corporation demanded back the amount  ahead taken together with interest and on the company’s failure to do so, it took over the Industrial Concern under     section 29  of  the Act and initiated steps to realise its  dues  by putting the property to sale.  Having failed to recover  the amount as no adequate offer was forthcoming despite repeated advertisements,  it filed a petition before the Bombay  High Court  under sections 31 and 32 of the Act both against  the Company  as  well as its directors-sureties  praying  for  a decree  in the sum of Rs. 15,87,391.20 to be passed  against them jointly and severally.      The  respondents contested the petition contending  (a) that a petition under sections 31 and 32 of the Act could be filed  only before the City Civil Court and the  High  Court had  no  jurisdiction to entertain it, (b)  that  no  money decree  can be passed under sections 31 and 32 of  the  Act,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 28  

and   (c)  that  the  provision  in  the  Act  relating   to enforcement of the                                                        481 liablity of surety were ultra vires of Article 149  of   the Constitution.   The  learned  single  judge  relying  on  an earlier  decision of the Bombay High Court reported in  1987 Mah.  L.J- 243 held that the High Court had to entertain the petition  but on merits took the view that no  money  decree could  be passed under sections 31 and 32 even  against  the sureties and since in the instant case the sureties  had not given any security except their personal guarantee, the same could  be enforced only in  the  ordinary  course  and   not under  the   special  machinery  provided under  the    Act. In   view   of   his  findings on the  first  two  pleas  no arguments   were   entertained   on   the   last   plea  and accordingly    the   petition was dismissed.   The  Division Bench  while  dismissing  the appeal  not  only  upheld  the finding of the single Judge on merits but also overruled the decision  reported in 1987 Mah.  L.J. 243 and held that  the High  Court  had no jurisdiction  to  entertain  a  petition under  sections 31 and 32 of the Act.  The Corporation  came up in appeal before this court by special leave against this decision of the High Court of Bombay.      The  impugned judgement was assailed by  the  Appellant Corporation   both   on   merites  and  on   the   plea   of juridiction.The  respondents  in  reply  asserted  that  the findings of the High Court on both pleas were unassailable.      Allowing the appeal, by a majority decision,      HELD: A. By the Full Court      (i)The   extent   of  the  liability  stated   in   the application as contemplated by sub-section (2) of section 31 of  the  Act would represent the value of the claim  of  the Corporation  and  if  since  value  is  upto  Rupees   Fifty Thousand,  the application would lie in the City City  Court and if it is more than that amount it would lie in the High Court.    This  interpretation  would  give  meaning    and relevance  to the words "having jurisdiction" used in  sub- section (11) of section 32. A different interpretation would render  superfluous  or otiose not only the   words  "having jurisdiction"  but  also the words and in the  absence  such court, by the High Court, occurring in the said  sub-section (11)  inasmuch  as in a   Presidency-town,   in   terms   of territorial jurisdiction, the jurisdiction of the City Civil Court and of the High Court is co-terminus- [495D-F] (ii)  In  the instant case the extent of  liability  of  the surety   being   more  than  Rupees  fifty   thousand,   the application  could only have been filed  and   was   rightly filed  in  the  High Court  and  the   finding   in   the                                                        482 judgment   under  appeal  to  the   contrary   for   holding that  the  High  Court had no jurisdiction to entertain  the application cannot be sustained. [497A]      B.   Per N. D. Ojha, J. for himself and Ranganathan, J.      (iii) There can be no doubt that the term, "any surety" used in clause (aa) in sub-section (1) of section 31 of  the Act,  will  include  not only a surety who  has  given  some security  but  also  one  who  has  given  only  a  personal guarantee.   In  our  opinion, in a case  where  the  relief claimed in the application under section 31(1) of the Act is for enforcing the liability of a surety who has given only a personal guarantee, sub section 4(A) of section 32 where  no cause  is  shown and clause (da) of  sub-section  (7)  where cause  is shown, contemplate cutting across  and  dispensing with the provisions of the Code of Civil Procedure from  the stage  of filing a suit to the stage of obtaining  a  decree

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 28  

against  the  surety,  the passing of  an  order  which  can straightaway be executed as if it were a decree against  the surety which may be passed in the event of suit being filed. [498F, 499E]      (iv)  In  the  absence of any provision  such  as  sub- section  (8) of section 32 of the Act applying  the   manner provided   in   the  Code  for  the execution  of  a  decree against  a  surety  only  "as  far   as   practicable"   the entire provision contained in this behalf in the Code  shall be   applicable. This would be so in view of the use of  the expression  "any  other  law  for the time being  applicable to  an  industrial  concern"  used  in  section  46B of  the Act.  That  the  Code  is  applicable   to   an   industrial concern   also   is not in dispute and  cannot  be  doubted. [50OH-501A]      (v) Even in the absence of section 46B of the  Act  the provisions   of the  Code  would  have  been  attracted   in the   matter  of  enforcing   the liability of a  surety  in view of the  decision  of  this  Court  in  National  Sewing Thread   Co.   Ltd.  v.  James  Chadwick   &   Bros.   Ltd., [1953]    SCR 1028 inasmuch as the  District   Judge   while exercising   jurisdiction  under sections 31 and 32  of  the Act is not a  persona  designate  but  a  court  of ordinary civil jurisdiction. [501B-D]      (Per S. C. Agrawal, J. Dissenting.)      It   cannot   be  comprehended  that    while    making provision   which would  enable  passing  of  an  order   in the   nature  of  a  money   decree against a surety  on  an application  under  section  31  of  the   Act,   Parliament would  have   refrained   from   making   a    corresponding provision  prescribing the  procedure  for   carrying   into effect  such  an  order.  It                                                        483 appears to be more in consonance with the scheme of the  Act and  the  object  underlying  sections 31  and  32  that  by introducing the amendments in sections 31 and 32 of the  Act the  Parliament  intended to place the surety  on  the  same footing  as  the  principal  debtor  so  as  to  enable  the Financial   Corporation   to  obtain  relief   against   the properties of  the principal debtor as well as  the  surety- [515E-G]      If  considered  in  this  perspective,  the  expression "enforcing  the liability of any surety" in clause  (aa)  of section 31(1) would mean enforcing the liability of a surety in  the same manner as the liability of principal debtor  is enforced, by attachment and sale of property keeping in view that the proceedings under sections 31 and 32 of the Act are akin  to  an  application  for  attachment  of  property  in execution of a decree at a stage posterior to the passing of the decree. The relief of a money decree sought against  the sureties-respondents  2  to 4 was not maintainable  and  the said  relief  could  not  be granted  to  the  appellant  in proceedings  under section 31 of the Act.  As a result,  the petition  filed by the appellant must be dismissed  and  for the  same reason this appeal must fail. [515G-516A,  516D-E]      Munnalal    Gupta    v.   Uttar    Pradesh    Financial Corporation  &   Anr.,A.I.R. 1975 Allahabad 416; Thressiamma Varghese  v. K. S. F. Corporation, A.I.R. 1986  Kerala  222; Maharashtra State Financial Corporation v. Hindtex Engineers Pvt.   Ltd., [1987] M.L.J. 243; Kayastha Training &  Banking Corporation Ltd- v. Sat  Narain  Singh,  [1921]  I.L.R.   43 All. 433;  M.  K.  Ranganathan  &  Anr.  v.  Government   of Madras   &   Ors.,[1955]   2   S.C.R.   374;   The   Central Talkies    Ltd.,    Kanpur   v.   Dwarka  Prasad,  [1961]  3 S.C.R. 495, referred to.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 28  

    Maganlal   V.  MIS.  Jaiswal  Industries,   Neemach   & Ors.,   [1989]  4 S.C.C.  344;   M/s.   Everest   Industrial Corporation      &      Ors.      v.       Gujarat     State Financial Corporation,   [1987] 3S.C.C.     597;     Parkash Playing  Cards  Manufacturing   Co.   v.   Delhi   Financial Corporation,   A.I.R.    1980   Delhi  48;   Gujarat   State Financial   Corporation   V.  Natson    Manufacturing    Co. Pvt. Ltd. & Ors., [1979] 1 S.C.C. 193, distinguished.      West  Bengal  Financial  Corporation  v.  Gluco  Series Pvt. Ltd.,A.I.R.  1973  Cal.  268,   approved.

JUDGMENT: CIVIL  APPELLATE JURISDICTION:Civil Appeal No.  782  of 1991.      From the  Judgment and  Order  dated    10.7.1990    of the   Bombay                                                        484 High Court in Appeal No. 423 of 1987.      Ashok  H. Desai, Vinay Tulzapurkar, Raghu  Kothare  and Rajiv Dutta for the Appeallant.      Soli  J. Sorabjee, D.R.  Poddar,  Ms.   Purnima,   Atul Sharma,  A.V.Palli,  E.C.Agrawala  and  V.B.Joshi  for   the Respondents.      The Judgments of the Court was delivered by      OJHA, J. Special leave granted.      This appeal by special leave has been preferred against the judgment dated  10th  July,  1990  of  the  Bombay  High Court   in  Appeal No.  423  of  1987.  Respondent   No.   I is  a  private   limited   company whereas Respondents 2  to 4  are  its  Directors.  Respondent  No.  1,  for setting up a factory, sought financial assistance from  the   appellant and  the  appellant sanctioned a  loan  of   Rupees   thirty lakhs.  In  order  to secure  the  loan  Respondent  No.   1 executed   a  deed  of  mortgage   of certain properties  on 29th  June,  1979  and  Respondents  2  to  4  on  the  same date  by  executing  a  deed  of  guarantee   stood   surety for  repayment of the said loan. It was a case  of  personal guarantee  only  as  no property was given in security.  For the  sake  of  brevity  the  appellant, Respondent No. I and Respondents 2  to  4  shall  hereinafter  be  referred to as the   Corporation,   the   Company    and    the    sureties respectively.  The amount of loan was  to  be  advanced   in phases  and  after  the  Corporation had advanced a part  of the total  sanctioned  loan,  the  Company  did not want  to avail  of  the balance of the amount as it  seems  to   have lost interest in setting up the factory  for  reasons   with which    we    are    not   concerned.    The    Corporation consequently    called   upon   the   Company to  repay  the amount  already advanced together with  interest   and    on its  failure  to do so took possession under Section  29  of the  State  Financial Corporations Act, 1951 (for short  the Act)   over  the  industrial  concern, a term defined  under Section  2(c) of the Act  and  took  steps  to  realise  its outstanding  dues   by   transfer   of   property   in   the manner    provided   therein.   However,     notwithstanding advertisement   for   sale   thereof  having  been  made  on several   occasions  the  Corporation  could  not   get   an offer of more than about Rupees five lakhs.      Having  failed to recover the amount due to it  in  the manner  stated above, the Corporation proceeded  to  recover the  same from the sureties whose liability was  coextensive and  for this purpose it filed a petition in the High  Court under Sections 31 and 32 of the Act arraying

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 28  

                                                      485 the  Company  as  Respondent No. I  and  the   sureties   as Resondents   2  to 4, with the prayer that "the  respondents be  jointly  and  severally ordered and decreed to  pay  the petitioners  the sum of Rs- 15,87,391.20 as per  particulars hereto annexed and marked Ex. H. with   further interest  at the rates of 14-1/2% per annum till payment and may  further "be  ordered  to  pay to the  petitioners   costs   of   the petition".   Thus,  according to the relief claimed  in  the petition  the  liability  of  the respondents with regard to the  amount  payable  to  the  Corporation  on the  date  of making  of  the petition was for a sum which was  more  than Rupees  fifty   thousand  which,  as   will   be   presently shown,   represents  maximum   amount   over    which    the Bombay   City   Civil   Court   has pecuniary jurisdiction.      The  respondents  contested the petition   and   raised three   pleas  in defence: (1) A petition under Sections  31 and  32 of the Act could   be filed only in the Bombay  City Civil  Court  and  the  High  Court  had  no jurisdiction to entertain it, (2) the relief claimed in the petition   could not  be  granted  under Sections 31 and 32   of   the   Act inasmuch  as  these sections  did  not  contemplate  passing of   a   money  decree   not   only  against  the  principal debtor   but  also  against  the  sureties;  and  (3)    the provisions  in  the  Act  relating  to  enforcement  of  the liability  of a  surety were ultra vires Article 14  of  the Constitution.      The   learned   Single   Judge  of   the   High   Court before  whom   the petition came up for hearing did not,  in view of his finding on  the  first two pleas, entertain  any argument  on  the last plea nor has  the   said   plea  been raised before us and as such  the  same  does  not  need  to be   gone  into.  As  regards the   second   plea   it   was conceded  before  the learned Single Judge on behalf of  the Corporation  by  its  learned  counsel  that no  such  money decree   could  be  passed  against  the  Company  as    was claimed  in the petition. It was,  however,  asserted   that such  a  decree could be passed as against the sureties.  In this  view  of  the  matter  the petition  was  treated  and decided as being  confined  against  the  sureties only.  In regard to the plea of jurisdiction the learned Single  Judge took the view that since an appeal  was  pending  before   a Division  Bench  of the High Court against the judgment   of a   Single  Judge  in  Misc-  Petition  No.  357  of   1985, Maharashtra   State   Financial   Corporation    v.  Hindtex Engineers   Pvt.  Ltd.,  decided  on  3rd   December,   1986 (since reported in 1987 Maharashtra  Law  Journal  243),  in which   it   had   been  held  that  such  a  petition   was maintainable  in   the  High  Court,  he  would  proceed  to decide- the petition on merits on the  assumption  that   he had  jurisdiction  to entertain it. On merits, he  took  the view   that  no  money decree could be passed in a  petition under Sections 31 and  32  of  the  Act                                                        486 even  against  the sureties and since in  the  instant  case sureties had admittedly not given any security except  their personal guarantee the said surety could be enforced only in the  ordinary  course and not under  the  special  machinery provided  under  the  Act.   The  petition  was  accordingly dismissed.      Aggrieved  by the judgment of the learned Single Judge the Corporation preferred an appeal before a Division  Bench which has been dismissed by the judgment under appeal.   The Division  Bench  not only upheld the finding of  the  Single Judge on merits but also over ruled the decision reported in

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 28  

1987  Maharashtra  Law Journal 243 and held  that  the  High Court  had  no jurisdiction to entertain  a  petition  under Sections 31 and 32 of the Act.      Shri  Ashok  Desai, Senior Advocate appearing  for  the Appellant Corporation has assailed the findings of the  High Court in the judgment under appeal both on merits and on the plea  about  jurisdiction.  Shri Soli  J.  Sorabjee,  Senior Advocate appearing for the respondents has in reply asserted that  the findings of the High Court on both the pleas  were unassailable.   An application for intervention  being  I.A. No. 3 of 1990 has been made on behalf of Nav Bharat Udyog, a partnernship firm having its office at Mehta  Building,  2nd Floor, 47, Nagindas Marg, Bombay, confined to the plea  with regard  to  jurisdiction and it has been  urged  by  learned counsel for the intervenor also, in line with the submission made by learned counsel for the respondents, that it is only the Bombay City Civil Court and not the High Court which has jurisdiction  to entertain a petition under sections 31  and 32  of the Act.      For the sake of facility in considering the  respective submissions made by learned counsel for the parties we  find it  useful to refer to the statutory provisions relevant  in this behalf.  Section 2 of the Bombay City Civil Court  Act, 1948 contains definitions and inter alia provides:           "2.  In  this  Act  unless   there   is   anything           repugnant  in  the subject or context,-                (1)    "City   Court"   means   the     Court           established   under Section 3;                (2)  "High  Court"  means  the   High   Court           of   Judicature at Bombay"                                                        487 Section 3 in its turn provides:           "3.  The State Government may by  notification  in           the  Official Gazette, establish for  the  Greater           Bombay a court, to be called the Bombay city Civil           Court.  Notwithstanding anything contained in  any           law,   such  court  shall  have  jurisdiction   to           receive,  try and dispose of all suits  and  other           proceedings of a civil nature not exceeding  fifty           thousand  rupees in value, and arising within  the           Greater Bombay, except suits or proceedings  which           are cognizable-                (a)   by  the  High  Court  as  a  Court   of           Admiralty or Vice-Admiralty or as a Colonial Court           of  Admiralty, or as a Court having  testamentary,           intestate or matrimonial jurisdiction, or                (b)   by  the High Court for  the  relief  of           insolvent debtors, or                (c)  by the High Court under any special  law           other than the Letters Patent; or                (d)  by the Small Cause Court:                Provided that the State Government may,  from time  to time, after consultation with the High Court, by  a like notification extend the jurisdiction of the City  Court to any suits or proceedings which are cognizable by the High Court   as   a  court  having  testamentary   or   intestate jurisdiction  or  for  the  relief  of  insolvent   debtor." The  other  Section which is relevant is  Section  12  which reads:          "12. Notwithstanding anything contained in any law,           the High Court shall not have jurisdiction to  try           suits   and   proceedings cognizable by  the  City           Court;                Provided  that  the  High  Court   may,   for           any   special reason, and at any stage remove  for

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 28  

         trial by itself  any  suit or proceeding from  the           City Court."      As  regards  Sections  31   and   32   of   the   State Financial   Corporations Act, 1951,  since  the  submissions made by  learned  counsel  for  the                                                        488 parties referred to most of the provisions contained therein these  two Sections may be quoted in their  entirety.   They read:           "31. (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 any officer of  the  Financial           Corporation, generally or specifically  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           made   and  such  other  particulars  as  may   be           prescribed.           32.   (1) When the application is for the  reliefs           mentioned   in clauses (a) and (c) of  sub-section           (1) of section 31, the                                                        489           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,

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 28  

         plant or equipment.                (IA)   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 I)   or  sub-section  (2) or  issuing   a           notice   under   sub-section  (IA),  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           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           (IA), the district judge shall forthwith order the           enforcement of the liability of the surety.                                                        490                (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,    in   so    far    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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 28  

              (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:                                                        491                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 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,    for   the   possession   of     immovable           property   or    the   delivery    of    immovable           property   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-                                                        492                (a) in a presidency town, where  there  is  a

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 28  

         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    court    powers           incidental thereto.      At this place it may be pointed out that with regard to the enforcement of the liability of a surety it was held  by a  Full  Bench  of the  Allahabad  High  Court  in  Munnalal Gupta   v.   Uttar   Pradesh   Financial   Corporation   and Another,   A.I.R.   1975  Allahabad  416   that    from  the scheme  of the Act  it is clear  that  the   speedy   remedy contained  in Section 31 is available not against the surety but   against   the   borrower only.  In  arriving  at  this conclusion  reference was made inter alia  to   the  reliefs (a), (b) and (c) contained in sub-section (1) of Section  31 and  to sub-section (4) of Section  32 of the Act as it then stood.   It  was  pointed out that  this   sub-section   (4) contemplated   a   notice   to   the   borrower   industrial concern   after  an  interim  order  had  been   passed   to show cause why the ad  interim  injunction  should  not   be made   absolute   but did  not  contemplate  a   notice   to the  surety  and  that  it  would  be unthinkable  that  the Legislature   intended  that  the  property  of  the  surety may  be  attached and put to sale without even a  notice  to him.      It  appears that in order to meet  the  difficulty   in enforcing   the liability of a surety  as  pointed  out   in the  case  of  Munnalal  Gupta (supra) Parliament found   it necessary   to  make  specific  provisions  in this   behalf and     passed    the    State    Financial     Corporations (Amendment)  Act, 1985 (hereinafter  referred  to   as   Act 43   of  1985).  Among  other amendments made by Act  43  of 1985 were the following:           (i)  In  sub-section  (1)  of  Section  31  clause      (aa)   was inserted.           (ii)  In Section 32 a new sub-section (lA) and  in      sub-section  (3)  thereof  the  words  "or  issuing   a      notice  under  sub-section (lA)" were inserted.                                                        493           (iii)   Sub-section   (4)  of  Section   32    was      substituted  with  an inclusion of sub-section (4A).           (iv)  The  word "or" occurring  at  the   end   of      clause   (d)  of sub-section (7) was omitted and a  new      clause (da) was inserted.           (v)  In  the first proviso after  sub-section  (7)      the  words  "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)"  and      in   the  second  provis1on the words "or  rejecting the      claim  to  enforce  the  liability  of  the  surety  or      rejecting the claim to transfer the industrial  concern      to  the  Financial  Corporation"  were   inserted   and      in   sub-section  (9)  the  words  "under   sub-section      (4A),  sub-section  (5)"   were substituted for  "under      sub-section (5)"      By  the  same  Act  43  of  1985  a  new  Section   32G

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 28  

    was   inserted which reads:            "32G.  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  authorised by it in writing  in  this           behalf,  may,  without  prejudice  to  any   other           mode   of  recovery,   make   an   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   certificate  for that  amount  to   the           Collector,  and  the  Collector  shall  proceed to           recover   that  amount  in  the  same  manner   as           an arrear of land revenue."      Having  extracted the relevant statutory provisions  we now take  up the question of jurisdiction.  Sub-section  (1) of  Section  31  of  the Act   contemplates  making  of  the petition thereunder "to the district judge within the limits of whose jurisdiction the industrial concern carries on  the whole or a substantial part of its business".  A petition so made  is to be decided in the manner provided by Section  32 of the Act, subsection (11) whereof inter alia provides that the  functions  of a district judge under the  said  Section shall be exercisable, in a Presidency town, where there is a City Civil Court having jurisdiction, by a judge                                                        494 of  the court and in the absence of such court, by the  High Court.      It has been urged by learned counsel for the  appellant that  in  a case to which the provisions contained  in  sub- section (1) of Section 32 of the Act and of the Bombay  City Civil Court apply, if the extent of the liability sought  to be enforced against a surety is upto Rupees fifty thousand a petition  under Section 31 read with Section 32 of  the  Act would  lie  before the Bombay City Civil Court  and  if  the liability  is more than the said amount it would lie  before the  High Court.  This, according to him  is  apparent  from the  use of the words "having jurisdiction"  in  sub-section (11)  of  Section  32  of the Act  and  the  extent  of  the pecuniary  jurisdiction  of the Bombay City Civil  Court  as contained  in Section 3 of the Bombay City Civil Court  Act. According  to  him since in the instant case  the  liability sought to be enforced against the sureties was for a sum  of more  than  Rupees fifty thousand the petition made  by  the appellant  was maintainable in the High Court alone and  not in  the Bombay City Civil Court.  On the other hand, it  has been  urged on behalf of the respondents and the  intervenor by  their learned counsel that word "jurisdiction"  used  in sub-section  (1)  of  Section 31  and  sub-section  (11)  of Section  32  of the Act  connotes  territorial  jurisdiction alone  and  that the concept of  pecuniary  jurisdiction  is beyond  the  scope  of Sections 31 and 32  in  view  of  the decision   of   this  Court  in  Gujarat   State   Financial Corporation  v.  Natson Manufacturing Co.   Pvt.   Ltd.  and Ors., [1979] 1 SCC 193 relied on in M/s.  Everest Industrial Corporation and Ors. v. Gujarat State Financial Corporation, [ 1987] 3 SCC 597 and Maganlal v. M/s.  Jaiswal  Industries, Neemach and Ors., [ 1989] 4 SCC 344 which lays down that  an application  under  Section 31(1) of the Act  is  neither  a plaint  as  contemplated by Article I of Schedule I  nor  an application  in  the nature of a plaint as  contemplated  by

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 28  

Article  7  of the Court Fees Act, 1870,  that  the  special procedure contained in Section 3 1(1) was not even something akin  to a suit of a mortgagee to recover mortgage money  by sale  of mortgaged property, that even if  the  Corporation- applicant so chooses it cannot pray for a preliminary decree for accounts or final decree for payment of money nor can it seek  any  personal liability, that the  Corporation  cannot pray for a decree of its outstanding dues, that the  reliefs contemplated  by  Section  31(1) on being  granted  do  not result  in  a  money  decree  or  decree  for  recovery   of outstanding  loans or advance, that a substantive relief  in an  application under Section 31(1) is something akin to  an application  for  attachment of property in execution  of  a decree at a stage posterior to the passing of the decree and that  such relief cannot be valued in terms of the  monetary gain or prevention of monetary loss.                                                        495      Having  given   our  anxious   consideration   to   the question   we   are inclined to agree  with  the  submission made   by  learned  counsel  for  the appellant. The   three decisions  of  this  Court  referred  to  above  and  relied on by learned counsel for the  respondents  were  not  cases relating  to  the enforcement of a liability  of  a   surety made   possible  by  the amendments by  Act  43   of   1985. In  our  opinion,  what  has  been  laid down  therein  does not   in   any   way  militate   against   ascertaining   in monetary  terms  value or the extent of the liability  of  a surety,   which   is  sought to be  enforced  and  there  is intrinsic evidence in  Sections  31  and 32  themselves   to support   this   view.  Sub-section  (2)   of   Section   31 makes  it obligatory to state the "extent of -the  liability (1)  of  Section  32 refers to "an   amount  equivalent   in value   to   the outstanding  liability".  Sub-section  (lA) of  Section  32   contemplates notice to the surety to  show cause   "why   his  liability"  should  not   be   enforced. Sub-section (6) of  Section  32  contemplates  investigation and   determination  of  "the  claim"  of   the    Financial Corporation  which  is  to be recovered. If the  application under  Section 3  1(1)  is  made before the district  judge, there is no difficulty because he  has  unlimited  pecuniary jurisdiction.  The  difficulty arises, as  in  the   instant case,   when  such  application is to be made either  before the city Civil Court  or  the  High  Court  as  contemplated by  sub-section  (11)  of  Section  32.   In   our  opinion, the  extent  of the liability stated in the  application  as contemplated by sub-section (2)  of  Section 31 of  the  Act would  represent  the value of the claim of the  Corporation and  if  such  value is  upto  Rupees   fifty  thousand  the application would lie in the City Civil Court and if  it  is more  than  that amount it would lie in  the   High   Court. This  interpretation would give meaning and relevance to the words  "having  jurisdiction" used in  sub-section  (11)  of Section  32.  A   different   interpretation  would   render superfluous   or  otiose  not  only  the   words     "having jurisdiction"  but  also  the  words"and in the absence   of such  court,  by the High Court" occurring in the said  sub- section (11)  inasmuch  as  in  a  Presidency-town, in terms of  territorial jurisdiction, the jurisdiction  of the  City Civil  Court and of the High Court is co-terminus. That   it is  so is clear from Section 3  of  the  Bombay  city  Civil Court   Act   and  the definition of the  term  "Presidency- town"   contained   in   Section   3(44)   of  the   General Clauses   Act,   1897  according  to   which    "Presidency- town"  shall  mean the local limits for the time  being   of the  ordinary  original civil jurisdiction of the High Court

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 13 of 28  

of  Judicature   at  Calcutta,  Madras or  Bombay,  as   the case  may  be.      It is a settled rule of interpretation of statutes that if  the language and words used are plain  and  unambiguous, full  effect  must  be  given  to them as they stand and  in the garb of finding out the intention of the                                                        496 Legislature  no words   should   be   added    thereto    or subtracted     there from.  Likewise, it is again a  settled rule  of interpretation that statutory provisions should  be construed in a manner  which  subserves  the purpose of  the enactment  and does not defeat it and that no  part  thereof is rendered surplus or otiose.  The aforesaid interpretation of sub-section (II) of Section 32 of the Act is not only in conformity  with  the  rule of  interpretation  referred  to above, it also does not militate in any way with the concept of an application under Section 31(1) of the Act, not  being a plaint in a suit for recovery of money. Reliance  in this behalf has been placed by learned  counsel for the intervenor on a decision of the Delhi High Court  in Parkash   Playing  Cards  Manufacturing  Company  v.   Delhi Financial Corporation,  AIR 1980 Delhi 48.  In our  opinion, however,  the  said  decision is  of  little  assistance  in resolving  the  plea of jurisdiction raised in  the  instant case,  namely, whether in a Presidency-town  an   application under  Section 31(1) of the Act is to be made before a  City Civil  Court  or High Court.  In the case of Parkash  Cards Manufacturing  Company (supra), the provision which came  up for  consideration  in the forefront was Section  5  of  the Delhi High Court Act, 1966 and the question of  jurisdiction was  largely considered on that basis.  Sub-section (11)  of Section  32  with  pointed  reference  to  the  jurisdiction exercisable  by a City Civil Court in a Presidency-town  and the High Court did not fall for consideration in that case.      The  case  which throws some light on the  point  is  a decision  of  the  Calcutta  Court  Court  in  West   Bengal Financial  Corporation v. Gluco Series Private Limited,  AIR 1973 Cal 268) where it was held:          "Section 32 sub-section (1 1) does not say that the          City  Civil Court will have exclusive  jurisdiction          but  states "in the Presidency Town where there  is          City Civil Court having jurisdiction, by a Judge of          that Court and in the absence of such Court by  the          High  Court."  The words "in the  absence  of  such          Court"  mean  in the absence of such  Court  having          jurisdiction  in the matter.  The City Civil  Court          has no jurisdiction to entertain and try suits  and          proceedings of Civil nature exceeding Rs.50,000  in          value.   Here  the  value  of  the  claims  in  the          proceedings  exceeds much more than Rs.50,000  and,          therefore, under Section 32, sub-section (11)  this          proceeding  has  been duly instituted in  the  High          Court.                                                        497 In  the  instant  case the extent of the  liability  of  the surety   being   more  than  Rupees  fifty   thousand,   the application   could  only  have  been filed and was  rightly filed in the High Court and the finding   in   the  judgment under appeal to the contrary for holding that the High Court had  no jurisdiction to entertain the application cannot  be sustained.      Now we come to the second plea raised on behalf of  the respondents,  namely,  that  the  relief  claimed  in  the petition could not be granted  under  Sections  31  and   32 of   the   Act   inasmuch   as   these   sections  did   not

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 14 of 28  

contemplate  passing of a money decree not only against  the principal debtor but also against the sureties.      In   so   far  as  the   special   machinery   provided under  Sections   31   and 32 of the Act  being  applied  to a   surety  who  has  given  some  property in security,  it has  been pointed out by learned counsel for  the  appellant that  even  before  the  amendment  introduced   in    these sections by   Act   43 of  1985  a  Division  Bench  of  the Kerala   High   Court   had,   in   Thressiamma Varghese  v. K.  S. F. Corporation, AIR 1986 Kerala 222, taken  the  view that  the  provisions contained in these sections  would  be applicable.  According to teamed counsel, in any view of the matter,  after the amendment  of  these  sections   by   Act 43   of   1985    introducing     specific  provisions   for enforcement of the liability of a surety, the matter is  now beyond  doubt  that  the  procedure  contained   in    these sections shall be  applicable   for   the   enforcement   of the   liability   of   such   surety   who  has  given  some property in security.  According to him even in the judgment under  appeal the High Court has accepted  this  proposition and has expressed its reservation with regard to enforcement of  the  liability of a  surety  who  has  not   given   any property    in   security   and    has  given     only     a personal     guarantee.    Reference in   this    connection has  been   made   to   the   following   observations    in the    judgment     under appeal:          "Even  if  the Corporation  s   now   entitled   to          obtain relief also against any property which might          have  been  given  a security by  the  surety,  the          further  question  would  remain  whether       the          Corporation is entitled under Section 31(l)(aa)  to          obtain  any  relief personally  against   such    a          surety."      Indeed,   the   submission   even   before   us   which was    made    by learned counsel for the appellant has been that  the  only  effect  of  the  1985  amendment  is   that it   enables    proceedings   to   be    taken    for    the realisation   of  the  security  given  by  the  surety   in respect  of  his   own                                                        498 liability whereas such proceedings could not be taken before the amendment. He, however, asserted that the Act even after the amendment does not enable a monetary decree to be passed against  the  surety any more than a decree  can  be  passed against the principal debtor. According to him, in this view of  the  matter, in the instant case, the liability  of  the sureties  could not be enforced under Sections 31 and 32  of the Act in as much as they had given only personal guarantee and had not given any property in security.      In  the  background of the rules of  interpretation  of statutes  adverted  to earlier and the  specific  provisions with  regard  to enforcement of the liability  of  a  surety introduced  in  Sections 31 and 32 of the Act by Act  43  of 1985 we find it difficult to agree with the submission  made by  learned counsel for the respondents. It is true, as  has been  indicated  above, that this Court has in the  case  of Gujarat  State Financial Corporation (supra) taken the  view that  Sections 31 and 32 of the Act do not  contemplate  the passing  of  a money decree and the principle laid  down  in that case has been relied on in two later decisions referred to above. The said principle would, in our opinion, not come in the way of enforcing the liability under Sections 31  and 32  of the Act even against the surety who has given only  a personal  guarantee.  As indicated earlier  those  were  not cases  dealing  with  the question  of  enforcement  of  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 15 of 28  

liability  of  such a surety and naturally,  therefore,  the provisions   in  this  behalf  specifically  introduced   in Sections  31  and 32 of the Act by Act 43 of 1985  were  not considered in those cases. However, in this connection  what is  of  significance is that clause (aa)  inserted  in  sub- section (1) of Section 31 of the Act by Act 43 of 1985  uses the  words  "any surety". On its plain  grammatical  meaning there  can  be  no doubt that the  term  "any  surety"  will include  not only a surety who has given some  security  but also  one  who has given only a personal guarantee.  If  the submission  made by learned counsel for the  respondents  is accepted  the  words  "who  has given  property  by  way  of security"  will  have  to  be added  after  the  words  "any surety". Such a course not only militates against the normal rule  of  interpretation but also tends to defeat  the  very purpose  of  the  amendment introduced by  Act  43  of  1985 enabling  the Financial Corporation to make  an  application under Section 31(1) of the Act "for enforcing the  liability of  any  surety", inasmuch as it would have  the  effect  of restricting  or  qualifying the amplitude of the  term  "any surety"  which the Legislature has in its wisdom thought  it fit  to  use  in its widest sense.  The  procedure,  in  our opinion,  for  enforcing the liability of a surety  who  has given  only a personal guarantee would, after the  amendment introduced  by Act 43 of 1985, be that an application  under Section 31(1) shall lie for enforc-                                                        499 ing  the liability of such surety as contemplated by  clause (aa) of the said section. On such an application being  made notice shall be issued to the surety as contemplated by sub- section (1A) of Section 32. This may, in view of sub-section (3),  be  done  after  examining  the  officer  making   the application. If no cause is shown in pursuance of the notice served  on him by the surety sub-section (4A) of Section  32 contemplates   passing  of  an  order  forthwith   for   the enforcement  of  the liability of surety. If, on  the  other hand, cause is shown the claim of the Financial  Corporation shall  be determined as contemplated by sub-section  (6)  of Section  32  and thereafter a direction as  contemplated  by clause  (da)  of  sub-section (7) shall be  issued  for  the enforcement of the liability of the surety or rejecting  the claim  made in this behalf. In the case of Maganlal  (supra) which  related to the relief contemplated by clause  (a)  of Section 31(1) of the Act it was pointed out that the purpose of enacting Sections 31 and 32 of the Act was apparently  to provide for a speedy remedy for recovery of the dues of  the Financial Corporation and that these sections had the effect of cutting across and dispensing with the provisions of  the Code  of Civil Procedure, 1908 (hereinafter referred  to  as the  Code) from the stage of filing a suit to the  stage  of obtaining  a decree in execution whereof such properties  as are referred to in clause (a) of sub-section (1) of  Section 31  could  be sold. In our opinion, on the  same  principle, even  in a case where the relief claimed in the  application under  Section  31(1)  of  the  Act  is  for  enforcing  the liability  of  a  surety  who  has  given  only  a  personal guarantee, sub-section (4A) of Section 32 where no cause  is shown  and  clause (da) of sub-section (7)  where  cause  is shown  contemplate  cutting across and dispensing  with  the provisions  of the Code from the stage of filing a  suit  to the  stage  of obtaining a decree against  the  surety,  the passing of an order which can straightaway be executed as if it  were a decree against the surety which may be passed  in the event of a suit being filed. As seen above,  sub-section (2) of Section 31 enjoins upon the Financial Corporation  to

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 16 of 28  

state  the  "extent  of  the  liability  of  the  industrial concern" in the application to be made under sub-section (1) thereof.  Since the liability of the surety is  co-extensive the  same shall, in the absence of anything contrary in  the surety bond, be the liability of the surety also. In a  case where there is any provision confining the liability of  the surety,  the  extent  of the liability to be  shown  in  the application  shall  be  such as is in  conformity  with  the surety  bond. When no cause is shown by the surety on  being served  with the show cause notice the order which  will  be passed under sub-section (4A) of Section 32 would be for the enforcement  against the surety of that liability  which  is stated  in the application. Where, however, cause  has  been shown  by  the surety the extent of his liability  shall  be determined                                                        500 as  contemplated in sub-section (6) of Section 32 and it  is the  liability so determined which shall be  enforced  under clause  (da)  of  sub-section (7) of Section 32. It does not require  any  elucidation that the extent of  the  liability referred  to above will necessarily have to be in  the  very nature  of things in terms of monetary value even though  it may  not  be possible to call it  a  decree  stricto   sensu defined in Section 2(2) of the Code for recovery of money.      Here, Section 46B of the Act may be usefully extracted:           "46B. 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 industrial concern or in any  other           instrument  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.      On  its  plain  language, in the  absence  of  anything inconsistent  in the Act, the provisions of the  Code  shall obviously be applicable for the enforcement of the liability of  the surety directed to be enforced as aforesaid  in  the same manner as a decree is enforced in a suit instituted  in this  behalf. It is true, as has been emphasised by  learned counsel  for the respondents, that there is   no   provision corresponding   to   sub-section (8) of Section 32  for  the enforcement of the liability of a surety who has given  only personal guarantee but, in our opinion, keeping in view  the amendments  introduced by Act 43 of 1985, it  is  not   very significant. To us it appears that in view of Section 46B of the  Act  and for the reasons to be stated shortly  even  if Section  46B was not there, in the absence of any  provision to  the  contrary  in the Act, that order  also,  which  was passed in a case where relief contemplated by clause (a)  of Section  31(1)  of  the Act was  claimed,  could  have  been enforced  in the manner provided in the Code.  The   purpose of  yet  inserting sub-section (8) in Section 32 seems to be that  it  was  not  intended  to  apply  the  provisions  of execution of a decree for attachment or sale of property  as contained  in the Code in its entirety and to  achieve  this purpose  the  words "as far as practicable" were   used   in that  sub-section. To us it appears that in the  absence  of any provision such as sub-section (8) of Section 32 applying the   manner  provided  in  the Code for the execution of  a decree  against  a surety only "as far as  practicable"  the entire provision contained in this behalf in the Code                                                        501

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 17 of 28  

shall be applicable. this would be so in view of the use  of the expression "any other law for the time being  applicable to  an  industrial concern". That the Code is applicable  to an  industrial concern also is not in dispute and cannot  be doubted.      We may now state our reasons for holding that even   if Section  46B of the Act was not there the provisions of  the Code for the execution of a decree  against  a  surety   who had   given  only  personal guarantee would, in the  absence of any provision to the contrary in the Act, be  applicable. In view of the decision of this Court in The Central Taikies Ltd.  Kanpur v. Dwarka Prasad, [1961] 3 SCR 495,  where   it was  held that a persona designata is a person selected   as an   individual  in  his private capacity, and  not  in  his capacity as filling a particular character or office,  since the  term  used  in Section 31(1) of the  Act  is  "district judge" it cannot be doubted that the district judge is not a persona designata but a court of ordinary civil jurisdiction while  exercising jurisdiction under Sections 31 and  32  of the  Act.  In  National  Sewing Thread  Co.  Ltd.  v.  James Chadwick  & Bros. Ltd., [1953] SCR 1028 while repelling  the objection  that an appeal under the Letters  Patent  against the  judgment  of  a Single Judge  passed   in   an   appeal against the decision of the Registrar under Section 76(1) of the  Trade Marks Act, 1940 was not maintainable it was  held at pages 1033-34 of the Report:           "Obviously  after the appeal had reached the  High           Court  it  has to be determined according  to  the           rules of practice and procedure of that Court  and           in  accordance with the provisions of the  charter           under  which that court is constituted  and  which           confers  on it power in respect to the method  and           manner  of exercising that jurisdiction. The  rule           is  well settled that when a statute directs  that           an   appeal   shall  lie  to   a   Court   already           established, then that appeal must be regulated by           the  practice  and procedure of that  Court.  This           rule  was  very  succinctly  stated  by   Viscount           Haldane  L.C.  in National Telephone Co.  Ltd.  v.           Postmaster-General, in these terms:                "When a question is stated to referred to  an           established Court without more, it, in my opinion,           imports   that  the  ordinary  incidents  of   the           procedure  of that Court are to attach,  and  also           that any general right of appeal from its decision           likewise attaches."                                                        502                The   same  view  was  expressed   by   their           Lordships   of  the Privy  Council  in  R.M.A.R.A.           Adaikappa  Chettiar v. Ra. Chandrasekhara  Thevar,           wherein it was said:                "Where  a legal right is in dispute  and  the           ordinary Courts of the country are seized of  such           dispute  the Courts are governed by  the  ordinary           rules  of  procedure  applicable  thereto  and  an           appeal   lies   if  authorised  by   such   rules,           notwithstanding  that  the  legal  right   claimed           arises under a special statute which does not,  in           terms confer a right of appeal."                Again  in  Secretary of State  for  India  v.           Chellikani  Rama Rao, when dealing with  the  case           under  the  Madras  Forest  Act  their   Lordships           observed as follows:                "It was contended on behalf of the  appellant           that all further proceedings in Courts in India or

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 18 of 28  

         by  way  of appeal were incompetent,  these  being           excluded by the terms of the statute just  quoted.           In their Lordships’ opinion this objection is  not           well-founded. Their view is that when  proceedings           of  this character reach the District Court,  that           Court is appealed to as one of the ordinary Courts           of  the country, with regard to  whose  procedure,           orders,  and  decrees the ordinary  rules  of  the           Civil Procedure Code apply."               Though the facts of the cases laying down  the           above  rule were not exactly similar to the  facts           of  the  present case,  the  principle  enunciated           therein  is one of general application and has  an           apposite    application   to   the    facts    and           circumstances  of the present case. Section 76  of           the  Trade Marks Act confers a right of appeal  to           the  High  Court and says nothing more  about  it.           That being so, the High Court being seized as such           of the appellate jurisdiction conferred by section           76  it  has to exercise that jurisdiction  in  the           same  manner as it exercises its  other  appellate           jurisdiction   and  when  such   jurisdiction   is           exercised by a single Judge, his judgment  becomes           subject  to appeal under clause 15 of the  Letters           Patent there being nothing to the contrary in  the           Trade Marks Act.      And  it is in view of this decision that we are of  the opinion that the provisions of the Code would have, even  in the absence of Section                                                        503 46B  of the Act, been attracted in the matter  of  enforcing the  liability  of  a  surety.  In  view  of  the  foregoing discussion, the finding of the High Court even on this point cannot be sustained. Since, however, the High Court has  not made  a  determination of the liability of the  sureties  as contemplated  by sub-section (6) of Section 32 of  the  Act, the  matter  has  to be sent back to it  for  doing  so  and thereafter  to pass an order as contemplated by clause  (da) of  sub-section (7) of Section 32 of the Act and to  proceed to  enforce  the  liability so  determined  an  against  the sureties.      In  the  result, this appeal succeeds  and  is  allowed with  costs  and the judgment of the Division Bench and also of  the  Single Judge of the High Court are set  aside.  The High  Court  shall now decide the application  made  by  the appellant  in  accordance with law and in the light  of  the observations made above.      S.C. AGRAWAL, J. Special leave granted.      In  this appeal two questions arise for  consideration: 1) whether a petition under sections 31 and 32 of the  State Financial Corporations Act, 1951 (hereinafter referred to as ’the Act’) can be filed only in the Bombay Civil City  Court and  the  Bombay High Court, on its original  side,  has  no jurisdiction  to  entertain  it? and 2) whether  in  such  a petition,  a decree/order can be passed  directing   payment of   money by respondents nos. 2 to 4 who stood  surety  for repayment of the loan advanced by the appellant,   Financial Corporation  to respondent no. 1? The Division Bench of  the Bombay High Court has answered both these questions  against the  appellant.  My learned brother Ojha, J.  has  disagreed with  this  view  of  the Bombay  High  Court  on  both  the questions.  He has held that as the extent of the  liability of  the  surety  is  more than  Rupees  fifty  thousand  the application could only have been filed and was rightly filed in  the High Court which had the jurisdiction  to  entertain

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 19 of 28  

it.  He  has  also  held that  in  view  of  the  amendments introduced  in  the Act by the Amending Act 43 of  1985,  an order for payment of money can be passed against the  surety who has given only a personal guarantee. While I am fully in agreement  with  the decision of my learned brother  on  the first question with regard to the jurisdiction of the Bombay High Court to entertain the petition filed by the appellant, I  have not been able to persuade myself to agree  with  the view taken by him on the second question.      Section  31  of  the  Act has  been  described  in  the marginal  note  as  special provisions  for  enforcement  of claims by the Financial Corpora-                                                        504 tion. It deals with a situation 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 of the Act and the industrial concern fails to  make  such  repayment.  It enables  an  officer  of  the Financial Corporation, generally or specially authorised  by the  Board  in this behalf, to 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:           (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.      Clause (aa) was inserted in sub-section (1) of  section 31 by section 19 of Act 43 of 1985.      Section  32 of the Act prescribes the procedure  to  be followed  by the District Judge in respect  of  applications under  section  31  of  the Act.  Prior  to  the  amendments introduced in it by Act 43 of 1985, the said section read as under:           "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                                                        505           liability   of  the  industrial  concern  to   the           Financial Corporation, together with the costs  of           the  poceedings  taken under section 31,  with  or           without  an ad interim injunction restraining  the           industrial  concern from transferring or  removing           its machinery, plant or equipment.           (2)  When  the  application  is  for  the   relief           mentioned  in  clause (b) of  sub-section  (1)  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 20 of 28  

         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) 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 a  notice  accompanied  by           copies  of  the  order, the  application  and  the           evidence, if any, recorded by him calling upon  it           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.           (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, in           so far as such provisions may be applied thereto.           (7)  After  making  an  investigation  under  sub-           section (6), the district judge may-                                                        506           (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; or           (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)  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, such order shall not  be           given  effect to, untill 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 21 of 28  

         Code  of Civil Procedure, 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, for the possession of immovable property  of           the delivery of movable property in execution of a           decree,  as if the Financial Corporation were  the           decree-holder.                                                        507           (9)  Any  party aggrieved by an order  under  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."      By  Act 43 of 1985, the following amendments have  been introduced in section 32 of the Act:          (1)  Sub-section  (1A) which reads  as  under  was          inserted:           "(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) In sub-section (3), the words, or issuing a  notice under  sub-section (1A) "were inserted after the words"  "or sub-section (2)".                                                        508      (3) Subsection (4) was substituted by sub-sections  (4) and (4A), which read as under:           "(4) At the same time as he passes an order  under           subsection (1), the district judge shall issue  to           the  industrial  concern or to the  owner  of  the           security  attached a notice 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 22 of 28  

         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.    (4)  In sub-section (7), clause (da) was  inserted  which provides as under:           "(da)  direct the enforcement of the liability  of           the  surety  or  reject the  claim  made  in  this           behalf; or"      (5) In the first proviso to sub-section (7), the  words "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)" were inserted after the words "order under clause (c)".      (6)  In  the  second proviso to  sub-section  (7),  the following words were inserted after words "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."      (7)   In  sub-section (9), for the  words  "sub-section (5)",  the words "under sub-section (4A),  sub-section  (5)" were substituted.      In  order to find an answer to the second question,  it is  necessary  to  construe the  words  "for  enforcing  the liability  of  any surety" which were introduced by  way  of clause (aa) in sub-section (1) of section 31                                                        509 by the Act 43 of 1985, and also find mention in sub-sections (IA),  (4A) and (7) of section 32. The learned  counsel  for the  appellant  has urged that the said words  are  wide  in their amplitude and would cover  a case where the surety has given  a  personal  guarantee only  and   his  liability  is purely monetary. The learned counsel for the sureties, viz., respondents  Nos.  2,  3  and 4, has,  on  the  other  hand, submitted  that the said words must be construed in  a  more limited  sense  to cover only those cases where  surety  has given  security  of property to guarantee the  repayment  of loan  and in such an event the remedy provided  by  sections 31  and 32 of the Act can be invoked against the surety  and that  the said provisions do not enable passing of an  order for  payment of a monetary sum against the surety  who   has given  personal  guarantee only. In order to deal with these rival contentions, it would be of relevance to take note  of the  state of law existing on the date of the  enactment  of Act  43  of 1985 whereby amendments   were   introduced   in sections 31 and 32 of the Act.      The  provisions contained in sections 31 and 32 of  the Act came up for consideration before this Court  in  Gujarat State  Financial Corporation v. M/s Natson Manufacturing Co. (P)  Ltd.  & Ors., [1979] 1 SCR 372. That  case  related  to payment  of  court  fee on an  application  submitted  under section 31(1) of the Act and the question for  consideration was whether such an application should be  treated  on   par with  a suit by a mortgagee to enforce the mortgage debt  by sale  of the mortgaged property which is being treated as  a money  suit  failing  within the purview  of  Article  1  of Schedule I to the  Bombay  Court Fees Act, 1959 or it should bear  a fixed court fee under the residuary Article 1(c)  to Schedule II of the said Act. This Court disagreeing  withthe view  of  the Gujarat High Court, held that  an  application under  section  31(1)  of the Act would be  covered  by  the

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 23 of 28  

residuary Article 1(c) of Schedule II to the said Act and it should  bear a fixed court fee. In this context, this  Court has  examined the nature of the proceedings contemplated  by section 31(1) of the Act. After referring to the  provisions of  the  Act,  this  Court  has  held  that  "it  would   be inappropriate to say that an application under section 31(1) is  something  akin  to a suit by  a  mortgagee  to  recover mortgage  money by sale of mortgaged property" and that  "in an application under section 31(1), the Corporation does not and  cannot pray for a decree for its outstanding dues"  and that none of the three reliefs mentioned in sub-section  (1) of  section  31, if granted, "results in a money  decree  or decree for recovery of outstanding loans or advance"  (pages 378-379).  After  referring to the provisions  contained  in sub-section   (6)   of  section  32,  which   provides   for investigation of the claim of the Financial Corporation in                                                        510 accordance  with  the provisions contained in  the  code  of Civil Procedure, 1908, this Court has laid down:           "The claim of the Corporation is not the  monetary           claim  to  be investigated though  it  may  become           necessary to specify the figure for the purpose of           determining  how  much of the security  should  be           sold. But the investigation of the claim does  not           involve all the contentions that can be raised  in           a suit. The claim of the Corporation is that there           is  a  breach of agreement or  default  in  making           repayment of loan or advance or instalment thereof           and,  therefore, the mortgaged property should  be           sold. It is not a money claim. The contest can  be           that  the  jurisdictional fact which  enables  the           Corporation to seek the relief of sale of property           is not available to it or no case is made out  for           transfer of management of the industrial concern."           (p.381)            This  Court  has  further  emphasised  that  sub-          section (7) of section 32 "prescribes what  reliefs          can  be given after investigation under  subsection          (6)  is  made, and it clearly gives a clue  to  the          nature  of  contest  under  sub-section  (6)"   and          further  that sub-section (8) of section 32  .’only          prescribes  the  mode and method of  executing  the          order of attachment or sale of property as provided          in the Code of Civil Procedure". According to  this          Court, "the provision contained in sub-section  (6)          does  not  expand the contest  in  the  application          under s. 31(1) as to render the application to be a          suit between a mortgagee and the mortgagor for sale          of mortgaged property" (p.381). This Court has held          that  "the  substantive relief  in  an  application          under s. 31(1) is something akin to an  application          for attachment of property in execution of a decree          at a stage posterior to the passing of the  decree"          (p.382).      In  Everest  Industrial Corporation & Ors.  v.  Gujarat State Financial Corporation, [1987] 3 SCR 507 this Court was examining  the question whether the rate of interest on  the amount payable under an order passed under s. 32 of the  Act from  the date said order is governed by s. 34 of the-  Code of  Civil  Procedure, 1908 or whether it is payable  at  the contractual  rate.  This Court held that s. 34 CPC  was  not applicable  to  these proceedings. After  referring  to  the earlier  decision in Gujarat State Financial Corporation  v. M/s  Natson Manufacturing Co. (P) Ltd. & Ors. case  (supra), this  Court has reiterated that the  proceedings  instituted

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 24 of 28  

under  s.  31(1)  of  the  Act  is  something  akin  to   an application  for  attachment of property in execution  of  a decree at a stage posterior                                                        511 to the passing of the decree and, therefore, no question  of passing  any order under s. 34 CPC would arise since  s.  34 CPC would be applicable only at the stage of the passing  of the  decree and not to a stage posterior to the  passing  of the decree.      In Maganlal etc. v. Jaiswal Industries Neemach &  Ors., [1989] 3 SCR 697, after referring to the decisions mentioned above, this  Court has observed:           "In view of these two decisions, the law seems  to           be settled that an application under section 31(1)           of  the  Act cannot be put on par to  a  suit  for           enforcement  of  a mortgage nor the  order  passed           thereon under section 32 of the Act be put on  par           as  if  it  was  an order  in  a  suit  between  a           mortgagee and the mortgagor for sale of  mortgaged           property. On the other hand the substantive relief           in an application section 31(1) is something  akin           to  an application  for  attachment  of   property           in  execution of a decree at a stage posterior  to           the passing of the decree." (p.710)           The question whether the provisions of ss. 31  and          32 of the Act could be invoked against the property          of  the surety came up for consideration  before  a          full bench of the Allahabad High Court in  Munnalal          Gupta  v. Uttar Pradesh Financial   Corporation   &          Anr.,  AIR  1975  ALL 416. In that case, the surety          had  mortgaged  his  house  by  way  of  collateral          security  for  the  loan granted  to  the  borrower          industrial   concern and the Financial  Corporation          had moved an application under s. 31 of the Act for          sale  of the property of the surety which had  been          mortgaged as well as the property of the  principal          debtor  which had been mortgaged and  the  question          was whether  an  order  for  sale  of  the property          of  the  surety could be passed on  an  application          under  s. 31( 1) of the Act. It was held  that  the          relief  which  can be granted by a  District  Judge          under  s.  32 of the Act must be  confined  against          the   borrower industrial concern and its  property          and that the District Judge can pass an  ad-interim          order  attaching  the security or so  much  of  the          property  of  the industrial concern  as  would  be          sufficient   in   his  opinion   to   satisfy   the          outstanding  liability. It was laid down  that  the          order  of attachment is restricted to the  property          of  industrial concern given to the Corporation  by          way of surety and he is not empowered to attach the          property  of  a  person other  than  an  industrial          concern. According to the said decision, a  surety,          who is not a partner or otherwise interested in the          industrial  concern,  cannot be  proceeded  against          under s. 31 so that his property, even if mortgaged          with the Corporation, cannot be attached                                                        512 by  the District Judge. In this context, the  teamed  Judges pointed  out  the sub-section (4) of s.  32  contemplates  a notice  to the borrower industrial concern after an  interim order  has  been  passed to show cause why  the  ad  interim injunction  should  not  be  made  absolute  and  the   said provision  does not contemplate a notice to the  surety  and that  it would be unthinkable that the legislature  intended

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 25 of 28  

that  the property of the surety may be attached and put  to sale without even a notice to him.      The amendments introduced in ss. 31 and 32 by Act 43 of 1985  seek  to  remove the lacunae in  those  provisions  as pointed out in the aforesaid judgment of the Allahabad  High Court  and  with  that  end in view  clause  (aa)  has  been inserted  in  sub-section  (1)  of  section   31  whereby  a Financial Corporation can move an application under s. 31(1) for  enforcing  the liability of any surety  and  amendments have been made in s. 32 to prescribe the procedure for grant of  the said relief on such application.  Express  provision has  been  made in sub-section (1A) of s. 32 for  issuing  a notice  to  the surety requiring him to show cause  why  his liability should not be enforced.      It is argued on behalf of the appellant that the  words "for  enforcing  the liability of any surety"  are  wide  in their amplitude to cover the monetary liability of a  surety who has given personal guarantee only and has not given  his property  as  security  for repayment of  the  loan  by  the borrower industrial concern, though it is not disputed  that in   so  far  as  the  borrower   industrial   concern    is concerned,   the  amendments introduced in ss. 31 and 32  by Act 43 of 1985 do not alter the existing law and no order in the  nature of a money decree can be passed against  him  in these  proceedings. It is, however, urged that in so far  as the  surety  is concerned the position is different  and  in view of the amendments introduced in ss. 31 and 32, an order in  the nature of a money decree can be passed  against  the surety  who  has  given  personal guarantee only and has not given  security of his property for repayment of  the  loan. This  argument  implies that as a result of  the  amendments introduced in sections 31 and 32 by Act 43 of 1985 while the nature of the proceedings as against the borrower industrial concern remains unchanged and the said proceedings  continue to  be  proceedings akin to an application for attachment of property  in execution of a decree at a stage  posterior  to the  passing of the decree, the nature of  these  poceedings has  been changed in so far as the surety is  concerned  and they have become proceedings in which an order in the nature of  a money decree can be passed. In other words, in a  case where   the borrower industrial concern has obtained a  loan from   the   Financial Corporation  without  furnishing  the security of property on the basis of                                                        513 a  personal  guarantee given by the  surety,  the  Financial Corporation  will  have  to  proceed  against  the  borrower industrial  concern  by  instituting  a  regular  suit   for recovery  of the dues whereas it can  proceed   against  the surety under sections 31 and 32 of the Act. It means that as compared  to the principal debtor the Financial  Corporation vis-a-vis the surety has been placed on a more  advantageous Position.  It may, however, be mentioned  that   under   the common   law,  which  finds  re-enactment in section 128  of the  Indian Contract Act, 1872, the liability of the  surety is  coextensive with that of the principal debtor unless  it is  otherwise  provided by the contract. It means  that  the liability must be proved against the surety in the same  way as against the  principal debtor. Thus under the general law the  surety stands  on  the  same footing as  the  principal debtor.  These  submissions  raise  the  question:  can  the legislature  be  attributed  the  intention  to  alter   the existing law so as to bring about a change in the nature  of proceedings  under sections 31 and 32 of the Act and also to alter  the  general law relating to the enforcement  of  the liability of the surety? I find it difficult to answer  this

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 26 of 28  

question in the affirmative.      In   the  matter  of  interpretation  of  statutes,   a principle  which  is well-recognised in England is:  "it  is thought  to  be  in  the  highest  degree  improbable   that Parliament  would depart from the  general  system   of  law without   expressing   its   intention   with   irresistible clearness,  and  to give any such effect  to  general  words merely because this  would  be their widest, usual,  natural or literal meaning would be to place on them a  construction other  than that which Parliament must be supposed  to  have intended." (See: Mexwell on The Interpretation of  Statutes, 12th Edition, p. 116). In Minet v. Leman, [1955] (20) Eeav. 269.  Sir  John  Romilly,  M.R. stated  as  a  principle  of construction, which could not be disputed, that "the general words of the Act are not to be so construed as to alter  the previous  policy of the law, unless no sense or meaning  can be applied to those words consistently with the intention of preserving the existing policy untouched". In this  context, it  would  be of relevance to take note of the  decision  of this court in M.K.Ranganathan & Anr. v. Government of Madras &  Ors.,  [1955]  2 SCR 374. In that  case  this  Court  was required  to  construe the words "or any sale  held  without leave of the Court of any of the properties of the  Company" which  were added in s. 232 (1)  of  the  Indian   Companies Act,  1913  by  Act 22 of 1936.  the  said   amendment   was introduced   with  a view to get over the  decision  of  the Allahabad   High   Court  in Kayastha Training  and  Banking Corporation  Ltd v.  Sat  Narain  Singh, [1921] ILR 43  All. 433. The question was whether the words which had been added refer only to sales held through the intervention of the                                                        514 court  or  whether they included the sales effected  by  the secured  creditors  outside the winding up and  without  the intervention  of  the court. This Court held that  the  said words  referred only to sales held through the  intervention of  the   Court  and  that  the   amendments  whereby  these words were introduced were  not  intended  to  bring  within the  sweep  of  the general words  "sales  effected  by  the secured  creditors  outside  the winding up".  In  order  to arrive at this conclusion, this Court placed reliance on the principle  of  interpretation referred to above and  it  was observed:           "If  the  construction sought to be put  upon  the           words "or any sale held without leave of the Court           of any of the properties" by the Appellants   were           accepted    it    would   effect   a   fundamental           alteration  in  the  law as it  stood  before  the           amendment was inserted in section 232 by Act  XXII           of 1936. Whereas before the amendment the  secured           creditor stood outside the winding up and could if           the   mortgage  deed  so  provided,  realise   his           security without the intervention of the Court  by           effecting  a sale either by private treaty  or  by           public auction, no such sale could be effected  by           him  after the amendment and that was certainly  a           fundamental alteration in the law which could  not           be  effected  unless one found  words  used  which           pointed unmistakably to that conclusion or  unless           such  intention  was  expressed  with irresistible           clearness.  Having  regard  to  the  circumstances           under which the amendment was inserted in  section           232 by Act XXII of 1936 and also having regard  to           the  context we are not prepared to hold that  the           Legislature  in inserting that amendment  intended           to  effect a fundamental  alteration in  law  with

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 27 of 28  

         irresistible  clearness. Such a great  and  sudden           change  of policy could not be attributed  to  the           Legislature  and it would be legitimate  therefore           to  adopt  the narrower  interpretation  of  those           words   of   the   amendment   rather   than    an           interpretation  which  would  have  the   contrary           effect." (p. 388)      In my opinion, regard must be had of this principle  of interpretation   while   construing  the   expression   "for enforcing  the  liability  of any  surety"  which  has  been inserted by way of clause (aa) in sub-section (1) of section 31   by  Act  43  of  1985.  Considering   the    amendments introduced  in  sections 31 and 32 of the Act by Act  43  of 1985  and having regard to the principle  of  interpretation referred  to above I do not find any provision in  the  said amendments which may indicate that                                                        515 Parliament has evinced an intention to effect a  fundamental alteration  in the law with irresistible clearness. In  this context,  it  would  be  of relevance  to  note  that  while introducing the said amendments Parliament has chosen not to make any alteration in relation to the following matters:      (1)  In the marginal note, section 31 is  described  as ‘special  provisions for enforcement of claims by  Financial Corporation’. No alteration has been made therein by Act  43 of  1985 and section 31 continues to be a special  provision for enforcement of claims by  Financial Corporation.      (2)  Parliament  has not expressly  indicated  that  an order  for payment of money only may be passed  against  the surety.      (3)  Although in sub-sections (8) and (8A)  of  section 32,   express  provision  has  been  made  prescribing   the procedure  for carrying into effect an order  of  attachment and   sale  of  property  and  an  order  transferring   the management  of  an  industrial concern  to   the   Financial Corporation  passed under sub-section (7) of section 32,  no specific  provision was made prescribing the  procedure  for carrying into effect of an order passed under clause (da) of sub-section  (7) of section 32 directing the enforcement  of the liability of the surety. It cannot be comprehended  that while  making  a  provision  which  would  enable passing of an order in the nature of a money decree against a surety on an application under section 31 of the Act, Parliament would have   refrained  from  making  a  corresponding   provision prescribing  the procedure for carrying into effect of  such an order.      Having  regard  to the features referred to  above,  it appears to be more in consonance with the scheme of the  Act and  the  object  underlying  sections 31  and  32  that  by introducing   the  amendments  in sections 31 and 32 of  the Act,  Parliament  intended to place the surety on  the  same footing as the principal debtor in the matter of enforcement of  the claims of the Financial Corporation so as to  enable the  Financial  Corporation  to obtain  relief  against  the properties of the principal debtor as well as the surety. If considered  in this perspective, the  expression  "enforcing the liability of any surety" in clause (aa) of section 31(1) would  mean enforcing the liability of a surety in the  same manner  as  the liability of principal debtor  is  enforced, i.e.,  by  attachment and sale of property keeping  in  view that the proceedings under sections 31 and 32 of the Act are akin  to  an  application  for  attachment  of  property  in execution of a decree at a stage posterior to the passing                                                        516 of the decree. This construction would obviate the need  for

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 28 of 28  

a  procedure  for carrying into effect of the  order  passed under  clause (da) of sub-section (7) of section 32  of  the Act  because such an order would be an order for  attachment and sale of the property of the surety and it can be carried into effect in accordance with sub-section (8) of section 32 which  prescribes the procedure for carrying into effect  an order for attachment and sale of property. This construction will  also  preserve the special nature of  the  proceedings under  section 31 and would not result in bringing  about  a fundamental  alteration in the law laid down by  this  Court with  regard to the nature of these proceedings as  well  as the general law whereunder a surety is to be treated on  par with the principal debtor.      For  the reasons aforesaid, I am in agreement with  the view  of  the  Division  Bench of the  High  Court  on  this question  and I am unable to concur with the decision of  my learned brother Ojha, J.      I would, therefore, uphold the decision of the Division Bench  of  the  High Court that  the  petition  whereby  the appellant  had  sought  the relief of  a  money  decree  for payment of Rs. 15,87,391.20 paise against respondents 2 to 4 was  not  maintainable  and the said  relief  could  not  be granted to the appellant in proceedings under section 31  of the  Act. As a result, the petition filed by  the  appellant must  be dismissed and for the same reason this appeal  also must fail. R. N. J.                                     Appeal allowed.                                                   517