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2008 Supreme(Guj) 321
2009(1) GCD(Guj.) 72
Hon’ble Mr. Justice Jayant Patel
Narayanbhai Raichanddas Patel
Versus
Managing Director, Gujarat Satate Financial Corporation & 2
Special Civil Application No. 10176/2008—Decided on 29-9-2008
Appearance :
Mr. Hasmukh C. Patel as Advocate for the Petitioner(s) no. 1
Notice served by DS as Advocate for the Respondent(s) no. 1-2
Mr. Sandeep N. Bhatt as Advocate for the Respondent(s) no. 3
Whether the respondent Corporation can exercise the power under Sec. 29 of the Act – Qua the property of the gurantor which is given as a collateral security or not.
Headnote:Head Note :
(A) State Financial Corporation Act – Sec. 29 & 31 – Guarantor – Recovery – Taken possession of plot no. 4 at Munglam Society in exercise of power under Sec. 29 by the respondent corporation as the petitioner stood as guarantor and the main borrower failed in repayment – Held that the action for taking over the possession of the property cannot be sustained in the eye of law – Restoration of possession directed – Petition allowed.
Held :
Same will be the situation, so far as the action under Section 29 of the Act, for taking over the possession of the plot is concerned, in as much as the action under Section 29 of the Act for taking over the possession of the property of the guarantor cannot be sustained in the eye of law. Therefore, such action deserves to be declared as illegal and without authority. (Para-7)
Head Note :
(B) State Financial Corporation Act – Sec. 29 and 31 – Guarantor – Recovery – Held that under Sec. 31, it would be open to the respondent Corporation to move appropriate proceedings before the District Court for taking over the possession of the property of the guarantor – Till than status quo ordered to be maintained.
Held :
It would be open to the respondent corporation to move appropriate proceedings under Section 31 of the Act, before the appropriate Court for taking over the possession of the property of the guarantor. At the Stage the petitioner may raise contention including the payment made and the rights and contentions of both the sides shall remain open. Such proceedings if respondent corporation is desirous to move, may be moved within a period of two months from the receipt of the order. It is also observed that the petitioner shall maintain statusquo qua title and possession of the proprty of the commercial plot No. 4 for a period of two months from the date of handling over the same by respondent corporation. [Para-13]
Head Note :
(C) State Financial Corporation Act – Sec. 29 & 31 – Guarantor – Recovery – Contended that details regarding actual amount due and payable in the loan account of the partnership firm of M/s. Krishna Petrochemicals, the borrower for whom the petitioner stood as guarantor – Held that the respondent corporation shall supply the account position and the details of the amount of the loan transaction with M/s. Krishna Petrochemicals.
Law Laid Down :
The respondents corporation has no power take the possession of the property of the guarantor under Sec. 29.
1. Rule. Mr. Bhatt learned Counsel waives service of notice of rule for respondent Nos. 1, 2 and 3.
2. With the consent of the learned Counsel appearing for both the sides, matter is finally heard.
3. The petitioner by this petition has prayed for the relief inter alia to direct respondent authority to provide the details of the actual amount due and payable in the loan account of the partnership firm of M/s. Krishna Petrochemicals. The petitioner has also prayed to declare that the action of the respondent corporation in demanding amount from the petitioner is arbitrary. The petitioner has also prayed to quash and set aside the letter dated 25.07.2008 Annexure-G, issued by the respondent corporation for demanding amount. The petitioner has also prayed to direct respondent corporation from the proceeding with the auction of the property under Section 29 of the State Financial Corporation Act and to restrain corporation to dispossess the petitioner of the property in question.
4. Heard Mr. Patel learned Counsel appearing for the petitioner and Mr. Bhatt learned Counsel appearing for the respondent corporation.
5. Upon hearing Counsel appearing for both the sides, it appears that it is an admitted position that the petitioner stood as a guarantor for the transaction of the loan with M/s. Krishna Petrochemicals by the respondent corporation. It is also an admitted position that the property of the petitioner was given as a collateral security to the respondent corporation, in capacity as the guarantor/surety of the loan amount. However, the respondent corporation in purported exercise of the power under Section 29 of the State Financial Corporation Act(hereinafter referred to as the ‘Act’) called upon the petitioner to make payment, failing which the action under Section 29 of the Act. It is also an admitted position that prior to the filing of the petition under Section 29 of the Act, respondent corporation has taken over the possession of plot No. 4 at Manglam Society, Detroj Road, Kadi, District Mehsana. However, so far as the residential property is concerned at 28, Manglam Society, the possession is not taken over by the respondent corporation and at that stage matter arise for consideration before this Court, on the aspect as to whether the respondent corporation can exercise the power under Section 29 of the Act, qua the property of the guarantor, which is given as a collateral security or not.
6. Similar question was considered by this Court in Special Civil Application No. 15898 of 2007 and allied matters decided on 11.9.2008 and it was inter alia observed by this Court as under :
“3. The only question to be considered in the present petitions is as to whether it is open to the respondent No. 1 Corporation to invoke power under Section 29 of the State Financial Corporation Act against the property of the guarantor or not.
4. Heard Ms. Mehta learned Counsel for the petitioner and Mr. Munshaw learned Counsel for the respondent.
5. As such the issue is covered by the decision of the Apex Court in case of Karnataka State Financial Corporation Vs. N. Narasimahaiah and others reported at 2008(5) SCC 176. Wherein the conclusion inter alia recorded at paragraph No. 37 as under :
37. The legislative intent, in our opinion is manifest. The intentions of Parliament in enacting Section 29 and 31 of the Act was not similar. Whereas Section 29 of the Act consists of the property of the industrial concern, Section 31 takes within its sweep both the property of the industrial concern and as that of the surety. None of the provisions control each other. Parliament intended to provide an additional remedy for recovery of the amount in favour of the Corporation by proceeding against a surety only in terms of Section 31 of the Act and not under Section 29 thereof.’’
6. The aforesaid shows that the highest Court of land has observed that power under Section 29 of the Act is not available to the State Financial Corporation against the pro
