2008 Supreme(SC) 480

2008(7) Supreme 549
SUPREME COURT OF INDIA
(From Karnataka High Court)
S.B. Sinha & Lokeshwar Singh Panta, JJ.
Karnataka State Financial Corporation — Appellant
versus
N. Narasimahaiah & Ors. — Respondents
Appeal (civil) 610-612 of 2004
Decided on : 13-03-2008

IMPORTANT POINTS
Section 29 does not empower the Corporation to proceed against the surety.
A Director of the Company is not an industrial concern, certainly not in his capacity as a surety.

Headnote:(a) State Financial Corporations Act, 1951 – Section 29 – Section 29 confers an extraordinary power upon the ‘Corporation’ – However, it being a ‘State’ within the meaning of Article 12 of the Constitution of India, is expected to exercise its statutory powers reasonably and bona fide. (Para 9)

        (b) State Financial Corporations Act, 1951 – Section 29 and section 69, T.P. Act – The lender can resort to take over or sale of the mortgaged property without intervention of the court. (Paras 10 and 11)

        (2004) 6 SCC 758 – Referred.

        (c) State Financial Corporations Act, 1951 – Section 29 – If special provisions are made in derogation to the general right of a citizen, the statute should receive strict construction – Section 29 does not empower the Corporation to proceed against the surety – It can exercise its rights u/s 29 only on a defaulting party. (Paras 12 and 14)

        (d) State Financial Corporations Act, 1951 – Section 29 – Interpretation – The words “as well as” occurring before “the right to transfer by way of lease or sale and realize the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation” confers two different rights – But such rights are to be enforced against the same person, viz., the industrial concern – “Guarantee” occurring in the provision is meant to be furnished by the Corporation in favour of a third party for the benefit of the industrial concern – It is not about a surety or guarantee given in favour of the corporation for the benefit of the industrial concern. (Para 15)

        (e) Indian Contract Act, 1872 – Section 128 – By virtue of the provisions of section 128, the liability of a surety is made coextensive with the liability of the principal debtor – However, when a guarantee is sought to be enforced, the same must be done through a court having appropriate jurisdiction – In the absence of any express provision in the statute, a person being in lawful possession cannot be deprived thereof by reason of default on the part of a principal borrower. (Paras 17 and 18)

        (f) State Financial Corporations Act, 1951 – Section 29 – Interpretation – The power of the Corporation to realize its dues from the borrowing Industrial concern in the manner provide cannot be exercised against the guarantor(s) in the same manner – Trite law that the entire statute must be first read as a whole then section by section, clause by clause, phrase by phrase and word by word – Casus omissus cannot be supplied. (Paras 21 and 26)

        (2003) 4 SCC 257 – Relied upon.

        (1987) 1 SCC 424; 2007 (1) SCALE 32; 2007 (14) SCALE 263; JT 2008 (1) SC 31; (2005) 5 SCC 598; 2006 (13) SCALE 27; (2007) 5 SCC 447 – Referred.

        (g) State Financial Corporations Act, 1951 – Section 31 – Section 31 postulates an additional relief – Section 31 also provides for a relief against a surety and not confined to the industrial concern alone, but therefor a different procedure has to be adopted. (Para 23)

        (h) State Financial Corporations Act, 1951 – Section 31 – The provision does not speak of an industrial concern – Section 32G, therefore, can be resorted to both against the industrial concern as also the security. (Para 25)

        (2004) 11 SCC 625 – Relied upon.

        (i) State Financial Corporations Act, 1951 – Section 31 – A surety may be a Director of the Company or any body – A Director of the Company is not an industrial concern – He in his capacity as a surety would certainly not be – A juristic person is a separate legal entity – Further, in a case where a court has to weigh between a right of recovery and protection of a right, it would lean in favour of the person who is going to be deprived therefrom. (Paras 31 and 32)

        (1994) 2 SCC 647; (2007) 6 SCC 59; AIR 1985 SC 582; [1914-15] All E.R. Rep. 1061 – Relied upon.

        1897 AC 22; (1944) 12 ITR 458; (1969) 1 SCR 988:1969 (73) ITR 702; (2003) 6 SCC 1 – Referred.

        (j) State Financial Corporations Act, 1951 – Sections 29 and 31 – Well-settled that when more than one remedy is provided for, an option is given to a suitor to opt for one or the other remedy – It is open to the Corporation to exercise its right u/s 29 or 31. (Para 34)

        (1974) 2 SCC 402; (1980) 2 SCC 332; (2004) 11 SCC 625 – Relied upon.

       Facts of the case :

        1. AP Rocks Private Limited approached the appellant - Corporation for grant of loan in the form of non-convertible debenture facility to the extent of 100 lakhs to meet its working capital requirements.

        2. Respondents who were Directors of Company executed deeds of guarantee agreeing to guarantee repayment/ redemption by the Company to the Corporation of the said non-convertible debenture subscription together with interest, etc. The said Company also executed a deed of hypothecation whereby and whereunder its plants and machinery were hypothecated.

        3. The guarantors mortgaged their house properties as collateral security.

        4. The company allegedly committed defaults.

        5. Appellant - Corporation on or about 20.11.2000 directed that the possession of the said two properties of the guarantors be taken over. The guarantors filed writ petitions before the Karnataka High Court on the premise that the appellant - corporation could not have proceeded against the guarantors under Section 29 of the Act.

        6. The High Court by reason of the impugned judgment upheld the said contention.

       Findings of the Court :

        The Corporation could not have proceeded against the guarantor u/s 29 of the Act.

       Result : Appeal dismissed with cost.