2008 (3) TMI 659 - SC - Indian Laws

Whether the impugned orders passed by the Karnataka State Financial Corporation under Section 29 of the State Financial Corporations Act authorizing its officers to take possession of the properties of petitioners are to be quashed? Whether the Karnataka State Financial Corporation is directed not to proceed against the property of the surety, mortgaged/ hypothecated in its favour, under Section 29 of the State Financial Corporations Act?

Issues Involved:
1. Interpretation of Section 29 vis-`a-vis Section 31 of the State Financial Corporations Act, 1951.
2. Whether the corporation can proceed against the guarantors under Section 29 of the Act.
3. The scope and application of Section 31 of the Act.
4. The effect of subsequent amendments to the Act.

Detailed Analysis:

Interpretation of Section 29 vis-`a-vis Section 31 of the Act:
The central issue in these appeals is the interpretation of Section 29 in relation to Section 31 of the State Financial Corporations Act, 1951. The appeals arise from a judgment of the Karnataka High Court which quashed the orders of the corporation to take possession of properties of the guarantors under Section 29.

Section 29 Issue:
Section 29 of the Act confers extraordinary power upon the corporation to take over the management or possession of the industrial concern and to transfer by way of lease or sale the property pledged, mortgaged, hypothecated, or assigned to the corporation. The High Court held that this power is limited to the industrial concern and does not extend to guarantors or sureties. The Supreme Court upheld this view, stating that Section 29 does not expressly or impliedly allow the corporation to proceed against the guarantors' properties. The court emphasized that the liabilities of a surety or guarantor arise only when a default is made by the principal debtor, and such liabilities must be enforced through appropriate judicial proceedings.

Implied Power:
The argument that the corporation has implied or incidental powers under Section 29 to proceed against guarantors was rejected. The court clarified that statutory powers must be exercised within the bounds of the statute, and any implied power must be necessary to effectuate the substantive power granted by the statute. In this case, Section 29 does not imply any prohibition or grant of power to proceed against guarantors.

Section 31 Issue:
Section 31 of the Act provides a special provision for enforcement of claims by the corporation, including the power to enforce the liability of any surety. This section can be invoked when the industrial concern defaults or when immediate repayment is required under Section 30. The Supreme Court noted that Section 31 provides for final reliefs and not merely interlocutory orders. The reliefs under Section 31 are additional to those under Section 29 and can be sought against both the industrial concern and the surety.

Subsequent Amendment - Effect:
The amendments to the Act, including the insertion of Section 32G, provide additional remedies for the corporation to recover its dues. Section 32G allows for recovery of amounts due as an arrear of land revenue and can be resorted to against both the industrial concern and the surety. The court highlighted that the legislative intent was to provide multiple remedies for recovery, but the remedies under Sections 29 and 31 are distinct and serve different purposes.

Conclusion:
The Supreme Court concluded that the corporation cannot proceed against the properties of guarantors under Section 29 of the Act. The remedies under Sections 29 and 31 are separate and must be invoked as per the specific provisions of the Act. The appeals were dismissed, and the High Court's judgment was upheld. The court assessed counsel's fees at Rs. 50,000/- in each case.

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