Bombay High Court
Kiril Fine Art And Ors. vs The Maharashtra State Financial ... on 17 March, 1997
Equivalent citations: 1997(2)MHLJ348, AIR 1998 BOMBAY 207, (1997) 2 BANKCAS 519, (1998) 35 BANKLJ 56, (1997) 2 ALLMR 528 (BOM), 1997 (100) BOM LR 259, 1997 BOM LR 100 259
Author: V.S. Sirpurkar
Bench: V.S. Sirpurkar
JUDGMENT V.S. Sirpurkar, J.
1. This appeal, filed under Section 32(9) of the State Financial Corporation Act, 1951, challenges the judgment and order passed by District Judge, Chandrapur. The District Judge, Chandrapur has allowed application filed by the Maharashtra State Financial Corporation (hereinafter called "Corporation", for the sake of brevity, under Sections 31 and 32 of the State Financial Corporation Act against the appellants. It was inter alia contended by the Corporation in this application that the present appellants M/s. Kiril Fine Art and Its proprietor Nceraj Sadanand Totawar had borrowed an amount of Rupees 1,36,000/- and had agreed to repay the said amount within a period of 10 years by 17 half yearly instalments of Rs. 8,000/- each. According to the Corporation, the present appellants had agreed to pay interest at the rate of 14 per annum with six monthly rests. It was then pointed out that the appellants had also agreed for hypothecation of all existing tangible movable property plant fixed or otherwise machinery fixtures, fittings, electric and other installation and all other articles fixed and lying on the premises at Plot Nos. 77 and 78, Sheet No. 13, Block No. 50, near Kanyaka Mandir Bhapapeth, Chandrapur. The respondent had filed letter of hypothecation as Annexure-A and list of moveable property i.e. plant, machinery and other assets a Annexure-B. It was then claimed that that the appellants had agreed that in case of default for a period exceeding one month in the payment of agreed instalment, then Corporation, then Corporation would be entitled to exercise all the other rights and remedies under the said letters of Hypothecation. It is pointed out in para 8 of the application that some amounts were disbursed in favour of the appellants on particular dates as mentioned in para 8. It is then mentioned that inspite of demands and reminders the appellants, the appellants defaulted in respect of payment of instalments, interest and expenses. The total principal amount so defaulted according to the Corporation came to Rs. 1,16,489.47. Calculating the interest thereupon and expenses, total amount recoverable by the Corporation against the appellants came to Rs. 4,90,928/-. It was then contended that in pursuance of this, a resolution was passed by the Board of Directors of the Corporation that this debt should be recalled and the appellants should be directed to pay the same by appropriate proceedings under section 31 of the State Financial Corporation Act. This resolution was also filed along with the application, which was Annexure-D to the application. In para 12, it was stated that by police dated 28-3-89, loans were recalled and the appellants were directed to pay an amount of Rs. 5,20,035.31 as outstanding on 28-3-89 and that in spite of this, appellants had committed breach of their obligations under the covenants. It was claimed that under the circumstance, the Corporation had become entitled to proceed under section 31 of the State Financial Corporation Act to realise the hypothecated debts by sale of hypothecated property and were further entitled to ad-interim injunction was also prayed for on this ground. Finally, in the prayer clause, Corporation prayed for the sale of all plaint and machineries, equipments, accessories mentioned in the schedules for the realisation of outstanding hypothecated debt of Rs. 5,20,035.01, with future interest @ 14.5% p.a. with half yearly rests. The Corporation also prayed for the payment of net sale proceeds of the properties mentioned in prayer (a) for appropriating the same towards the amount as may be found due under the terms of said letter of hypothecation. Under prayer Clause (c), injunction tinder Section 32(i) of the Act was also claimed. Under prayer Clause (d), ad interim injunction in terms of prayer (a) was prayed; while in prayer Clause (t), costs were also claimed.
2. It seems that the appellants were tried to be served directly on their addresses but they were not served and, therefore, Corporation proceeded under Order 5 Rule 20 for substituted service. Even when appellants could not be served by substituted service they were tried to be served by issuance of a public notice in the News-paper. Since the appellants did not appear before the Court, the Court proceeded ex parte. In the beginning the Court had passed order for ex parte injunction and after the ex parte order was passed, the Court proceeded to pass a judgment against the appellants'. It is this judgment, which is in challenge.
3. The first and primary challenge of the learned counsel for the appellants is that the relief which has been granted by the Trial Court was not within the four corners of its jurisdiction. Shri Bobde, appearing for the appellants very categorically pointed out that the learned District Judge has passed an orderdirecting the appellants to pay to the respondent Rs. 5,20,035.01 ps. with future intrest @ 14.50 ps. per annum from 21-7-89 and proportionate cost of this proceedings. Shri Bobde insists that such kind of order could never have been passed because such kind of order is not contemplated under Section 31. He submits that under that section the only reliefs which could be granted are enumerated as below :--
(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) fp1or 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.
According to the learned counsel beyond this, no other relief can be granted in an application under Section 31. According to the learned counsel, therefore, direction by the District Judge to the appellants to pay the Corporation the amount decreed is entirely beyond jurisdiction.
4. Shri Dhareshwar, learned counsel for Corporation however, contended that though the direction appears to be for the payment of the amount, what the Trial Court had actually done was to ascertain the financial liabilities. According to Shri Dhareshwar further part of the operative order would be clear enough to suggest that it was for the recovery of the said amount, that the hypothecated property of the appellants, which was attached would continue to be so attached till the realisation of the dues.
5. It will have, therefore, to be seen as to whether the learned District Judge was within the limits of his jurisdiction under Section 31. Even a cursory glance at Section 31 would be enough to suggest that the application under Section 31 could result into the reliefs enumerated thereunder in Clauses (a), (aa), (b) and (c). Indeed, there is nothing from the language of Section 31 to indicate that the Court had any power to pass an order in the nature of the decree for the payment of any amount. The opening words of this section in Sub-section (1) suggest that where an industrial concern, in breach of any agreement, makes any default in payment of any loan or advance or any instalment thereof or fails to meet obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of the agreement or where the financial Corporation requires such 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 the Act and of Section 69 of Transfer of Property Act, any officer of the Corporation may apply to the District Judge within whose jurisdiction the industrial concern carries on the whole or a substantial part of its business, for the reliefs enumerated in Clauses (a), (aa), (b) and (c). I have already reproduced the said reliefs. Therefore, this Sub-section (1) is clear enough to exclude the power on the part of the District Judge to order any payment to be made to the Corporation by way of an independent relief. All that can be done by the District Judge in passing an order for the sale of the property pledged, mortgaged or hypothecated or for enforcement (of) any liability of a surety and under the wider Clause (c), District Judge could grant ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipments from the premises. When we consider the judgment of the District Judge in the light of the provisions of Section 31, it is clear enough that the District Judge actually in the first place has issued direction to the non-applicants meaning the present appellants to pay a sum of Rs. 5, 20,035.01 ps. Such a relief was clearly beyond the scope of Section 31. The learned counsel for the appellants invited my attention to Section 32(7), which speaks in terms of the powers of the District Judge and which provides that after making investigation under Sub-section (6) into the claim of the Corporation, in accordance with the provisions contained in the Code of Civil Procedure, the District Judge may confirm the order of attachment and direct the sale of the attached property. He may also vary 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. He may release the property from attachment. He may confirm or dissolve the injunction. He may direct the enforcement of the liability of the surety or reject the claim made on this behalf or transfer the management of the industrial concern to the Financial Corporation or reject the claim made in thisbehalf. Sub-section (5) of Section 32 provides that an order of attachment of 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 for the attachment or sale of the property in execution of a decree as if the Financial Corporation were the decree-holder. Sub-section (9) of Section 32 provides for an appeal to the High Court against such order. It will, therefore, be clear from the combined reading of Sections 31 and 32 that the District Judge can only grant reliefs as enumerated in Section 31 and a direction for payment to the Corporation in the nature of the decree is not covered by Section 31. There will, therefore, be no justification in issuing such a direction on the part of the District Judge, though the order in so far as ascertainment of the liability is absolutely correct. The learned counsel for the appellants could not show anything against such ascertainment. The learned counsel was unable to show that no opportunity was given to him to suggest anything against the application. Unfortunately there was nothing wrong with the procedural aspect in proceeding ex parte against the present appellants as the Court had correctly followed provisions of Order 5 Rule 20 CPC. Even on merits, the learned counsel was not able to attack that finding of the Court. It will have, therefore, to be held that the District Judge was in error in directing the payment of Rs. 5,20,035.01 ps. though the rest of the order of the District Judge regarding the sale of the property is a correct order. The result is that the attachment ordered by the District Judge and confirmed by him and direction of sale of the property will have to be confirmed, while direction given by the District Judge in the first part of his operative order will have to be set aside.
6. Shri Dhareshwar, learned counsel for respondent submits that this should be without prejudice to the other financial claims and remedies that the Corporation may have against the appellants. That would always be so. Since I have taken a view that Section 31 does not define or crystalise the financial liability and merely operates in terms of attachment and sale of properties of the borrower like the present appellants, it would always be open to the Corporation to establish its financial liability against the appellants in the separate proceedings, if they so choose to proceed against the appellants.
7. With these observations, the appeal is partly allowed. The direction of payment of Rs. 5,20,035.01 ps. is quashed, while rest of the operative order of the District Judge is confirmed. No cost.