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Orissa High Court
G. K. MISRA, C.J., P. K. MOHANTY, AND N. K. DAS, JJ.
State Financial Corporation Ltd. - Appellant
Versus
M/s. Satpathy Brothers and Nanda Co. (P.) Ltd. - Respondents
Civil Reference No. 1 of 1972
Decided On : 18 March 1975
STATE FINANCIAL CORPORATIONS ACT, 1951 - SECTION 31 - CONSTITUTIONALITY - NOT HIT BY ARTICLE 14 OF THE CONSTITUTION - SPECIAL PROVISIONS FOR ENFORCEMENT OF CLAIMS BY FINANCIAL CORPORATION - MORE PROGRESSIVE AND PROVIDES BETTER JUSTICE THAN CIVIL SUIT - APPEAL LIES TO HIGH COURT - NO DISCRIMINATION.
Fact of the Case:
The State Financial Corporation filed a petition before the District Judge under Section 31 of the State Financial Corporations Act, 1951, seeking an order for sale of mortgaged properties and adjustment of sale proceeds towards realization of principal with interest. Opposite parties raised an objection that Section 31 is unconstitutional and filed an application for making a reference to the High Court under Section 113, C. P. C. The District Judge held that Section 31 is hit by Article 14 of the Constitution and made a reference to the High Court.
Finding of the Court:
The High Court held that Section 31 of the Act is not hit by Article 14 of the Constitution and is valid. The provisions under the Act are more liberal, providing for filing of application before a District Judge with an appeal to the High Court, and following the entire Civil Procedure Code except for inconsistencies with the Act. Parties get full opportunities to present their case, making the Act a step in advance of adjudication in Civil Courts.
Issues: 1. Whether Section 31 of the State Financial Corporations Act, 1951 is unconstitutional? 2. Whether the special provisions for enforcement of claims by Financial Corporation under the Act are more progressive and provide better justice than a civil suit?
Ratio Decidendi: 1. The provisions of Section 31 of the Act are more progressive and provide better justice than a civil suit. 2. The Act provides for a complete code by itself, conferring powers on high judicial authorities like the District Judge and the High Court in appeal. 3. The procedures laid down by the Act are not harsh or onerous, and provide safeguards for the parties affected, including notice, opportunity to file written statement and produce documents, and representation by lawyers. 4. The provisions of the Civil Procedure Code regarding summoning and enforcing attendance of persons, examining them on oath, and requiring discovery and production of documents are valuable safeguards. 5. The Act is a step in advance of adjudication made in Civil Courts, providing quicker action and remedies from the highest court of original civil jurisdiction and in appeal from the High Court.
Final Decision: The reference made by the District Judge under Section 113, C. P. C. is discharged. The District Judge is directed to dispose of the case within three months from the date of the judgment.
Judgement
G. K. MISRA, C.J. :- Facts may be stated in short. The State Financial Corporation Ltd. (hereinafter to be referred to as the Corporation) is the petitioner before the District Judge, Puri, M/s. Satpathy Brothers and Nanda Company (Private) Ltd. (opposite party No. 1) is an industrial concern. Its Directors are opposite parties 2 to 4. Opposite party No. 1 applied to the Corporation for a loan for setting up a rice mill at Sakhigopal in the district of Puri. The Board of Directors of the Corporation sanctioned a loan of Rs. 2,40,000 on 28-9-1962. Opposite parties executed and registered one mortgage bond on 30th October, 1962 and a supplementary mortgage bond on 27th December, 1963. In the mortgage deeds a first charge was created in respect of properties mentioned in Schedules B to D of the petition. Opposite parties 2 to 4 executed the mortgage deeds as Directors of the company and in their personal capacity as guarantors. The entire amount of Rs. 2,40,000 was paid to the opposite parties in different instalments. As per the terms and conditions of the mortgage bonds opposite parties were to pay the accrued interest quarterly each year and to repay the principal also in several instalments. Opposite parties defaulted in making repayment which fell due on 30-9-64, 30-9-65 and 30-9-66. They failed to pay interest to the tune of Rs. 19,280.34 P. till 31-12-66. Despite service of notice opposite parties did not pay the amounts accrued due. The Corporation accordingly filed a petition before the District Judge under Section 31 of the State Financial Corporations Act, 1951 (hereinafter to be referred to as the Act). They asked for an order for sale of the mortgaged properties and for adjustment of the sale proceeds towards the realisation of the principal with interest. They also asked for an ad interim injunction for restraining the opposite parties from alienating or dealing in any manner with the properties mentioned in Schedules B to D. Opposite parties filed an objection on several grounds. One of the grounds was that Section 31 of the Act is unconstitutional. An application was filed by them for making a reference to the High Court under Section 113, C. P. C. to decide the question of unconstitutionality of Sec. 31. The learned District Judge held that Section 31 of the Act is hit by Article 14 of the Constitution and made a reference to the High Court for its opinion. This is how the matter has come before us.
2. Section 113, C. P. C. prescribes that where the court is satisfied that a case pending before it involves a question as to the validity of any Act or any provision contained therein, the determination of which is necessary for the disposal of the case, and is of opinion that that Act or provision is invalid and the same has not been so declared by the High Court to which that court is subordinate or by the Supreme Court the Court shall state a case setting out its opinion and reasons therefor and refer the same for the opinion of the High Court. The constitutionality of Section 31 of the Act was raised before the learned District Judge. He was of opinion that the section is hit by Article 14 of the Constitution. There is no decision of this court or the Supreme Court on the point. The learned District Judge, was therefore, right in making the reference.
3. Before we examine the constitutionality of Section 31 of the Act it would be appropriate to notice the scheme of the Act. Chapter I deals with short title, extent and commencement and certain definitions. Chapter II refers to incorporation of State Financial Corporations, their capital and management. Powers and duties of the Board have been dealt with in Chapter III. Chapter IV covers investment of funds, accounts and audit. Chapter V deals with miscellaneous matters.
4. The definitions of "Board", "Financial Corporation" and "industrial concern" in Section 2 (a), (b) and (c) are as follows:
"2. (a) "Board" means the Board of Directors of the Financial Co
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