Orissa High Court
Orissa State Financial Corporation vs Gajendra Prasad Das And Anr. on 6 July, 1993
Equivalent citations: AIR1994ORI140, AIR 1994 ORISSA 140, (1993) 76 CUT LT 643
Author: A. Pasayat
Bench: A. Pasayat
JUDGMENT A. Pasayat, J.
1. The Orissa State Financial Corporation (hereinafter referred to as the 'Corporation') calls in question legality of order passed by learned District Judge, Ganjan, Berhampur holding that an application for enforcing personal liability cannot be entertained in a proceeding instituted under Section 31 of the State Financial Corporations Act, 1951 (in short, the 'Act'), even if such a liability has been incurred under the contract of mortgage.
2. Background facts, sans unnecessary details are that Gajendra Prasad Das, respondent No. 1 (hereinafter referred to as the 'borrower') applied to the Corporation for sanction of loan with a view to acquire a truck. A sum of Rs. 1,92,000/- was sanctioned in his favour on 16-7-1980. For realisation of money advanced to the borrower, a deed of hypothevation was executed hypothecating the whicle in question in favour of the Corporation. In addition, Kailash Nath Das (hereinafter referred to as the ('guarantor') stood as surety and also executed necessary documents. Since there was default in repayment of the amounts which were to be paid in instalments by 26-9-1984, action under Section 29 of the Act was resorted to by the Corporation and the vehicle was seized and sold at a price of Rs. 1,70,000/- on 5-11-1983. Even after adjustment of the sale-proceeds towards outstanding debt, a sum of Rs. 76,186.72 remained unrealised and therefore, Corporation initiated a proceeding under Section 31 of the Act. Reliefs sought for in the proceeding were as follows :--
(a) For a personal decree against the borrower and guarantor and a direction for payment forthwith.
(b) For a direction to enforce liability of the borrower and the guarantor for an amount of Rs. 76,186.72 with pendente lite and future interest @ 14% per annum, and for recovery of the same and payment to the applicant Corporation by attachment and other steps taken against the borrower and guarantor.
(c) Such other reliefs which the Corporation is entitled to including cost.
3. An objection was filed by the contesting parties before the learned District Judge before whom the application was filed. He was of the view that after making investigation as laid down in Sub-section (7) of Section 32 of the Act, following reliefs can be granted in an application under Section 31 of the Act.
(a) confirm the order of attachment and direct the sale of 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; and
(e) transfer the management of the industrial concern to the Financial Corporation or reject the claim made in this behalf.
He was of the further view that the application cannot be entertained as the Corporation had taken away the hypothecated property, leaving nothing except personal liability for enforcing the terms of the loan to have the unpaid amount recovered. According to the Corporation, in this appeal conclusion of learned District Judge is contrary to law. The borrower however, supports the conclusion of learned District Judge.
4. Section 31(1) of the Act prescribes a special code for enforcement of claims by the Corporation. The said provision enables the Corporation in the event of breach of agreement or default in payment of loan or advance or instalment thereof to make an application for sale of mortgaged property, or transfer of management of industrial concern to the Financial Corporation or for injuncting the industrial concern from transferring or removing its machineries or plant or equipment from the premises of the concern, without permission of the Board. An application for transfer of management of the industrial concern cannot be treated to be an application for repayment of loan, A conjoint reading of Sections 32 and 31(1) of the Act makes it clear that a special provision is made for certain types of reliefs that can be obtained by a Corporation by an application under Section 31(1) which cannot be styled as substantive reliefs relating to payment of money by sale of mortgaged property, nor can it be said to be a proceeding to obtain substantive reliefs capable of being valued in terms of monetary gain or prevention of monetary loss. This aspect was highlighted by the apex Court in the Gujarat State Financial Corporation v. M/s. Natson Manufacturing Co. Pvt. Ltd., AIR 1978 SC 1765.
By a majority view, the apex Court in The Maharashtra State Financial Corporation v. Jevcae Drugs and Phermaceuticals Pvt. Ltd., 1991 (1) JT SC 524 : (1991 AIR SCW 612) observed that principles laid down in Gujarat State Financial Corporation (supra) does 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. 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 granumatical 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. Learned counsel for the owner has submitted that the provision should be applicable only in the case of sureties who have given property by way of security. Such a plea did not find acceptance by the apex Court in Maharashtra State Financial Corporation case (supra). If the plea 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. I am therefore, of the view that after the amendment introduced by Act 43 of 1985, an application under Section 31(1) shall lie for enforcing the liability of any person who has stood surety, giving only personal guarantee, as contemplated by Clause (aa) of the said section. On such 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 his by the surety, Sub-section (4A) of Section 32 permits 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 (aa) of Sub-section (7) shall be issued for the enforcement of the liability of the surety, or claim made in this behalf may be rejected. Where however cause has been shown by the surety, the extent of his liability shall be determined as contemplated in Sub-section (6) of Section 32 and it is this liability which shall be enforced under Clause (da) of Sub-section (7) of Section 32. It does not require any elucidation that the extent of 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 as defined in Section 2(2) of the Civil P.C. 1908 (in short, 'CPC') for recovery of money.
5. In view of the aforesaid conclusion, order passed by learned District Judge is indefensible. The same is set aside. He is directed to re-dispose of the application in accordance with law.
The Misc. Appeal is disposed of accordingly. Sand back the L.C.R. forthwith.