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TMI Blog1986 (4) TMI 358X X X X Extracts X X X X X X X X Extracts X X X X ..... n viz., co-mortgagor or guarantor cannot be proceeded against and the District Judge has jurisdiction to proceed only against the assets of the industrial concern. It was further contended that remedy, if any, against the mortgagors other than the industrial concern has to be worked out under the provisions of the Transfer of Property Act in a competent civil Court. Learned District Judge overruled these contentions and allowed the petition with costs holding that the Corporation is entitled to recover the entire amount claimed in the petition with future interest and confirming the interim order of attachment and injunction and directing all the properties mortgaged to be sold for realisation of the amount due to the Corporation. This order is challenged by the appellant. 2. The only contention urged before us on behalf of the appellant is that the appellant or her properties cannot be proceeded against in proceedings initiated under Section31 of the Act and no such order could have been passed against them under Section 32 of the Act. Learned counsel for the appellant would have it that Sections 31 and 32 create a special machinery, procedure and jurisdiction for realisation of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mortgage, hypothecation, or assignment of Government or other securities, stock, shares, or secured debentures, bullion, movable or immovable property or other tangible assets in the manner prescribed by regulations "or unless it is guaranteed otherwise as indicated therein. Section 26 lays down the limit of accommodation. Section 27 confers on the Corporation power to impose conditions for accommodation, for protecting the interests of the Corporation and securing that the accommodation granted is put to the best use by the industrial concern. 5. Section 29 lays down the rights of the Corporation in case of default. Sub-section (1) states that "where any industrial concern, which is under a liability to the Financial Corporation under an agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of applications under Section 31. Sub-section (1) deals with application for reliefs mentioned in Clauses (a) and (c) of Section 31(1). The District Judge shall pass an ad interim order attaching the security, or so much of the property of the industrial concern as would on being sold realise in his estimate ah amount equivalent in value to the outstanding liability of the industrial concern to the Corporation, together with costs of the proceedings taken under Section 31, with or without an interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment. Sub-section (2) of Section 32 deals with cases of application for relief mentioned in Section 31 (1)(b). Sub-section (3) enables the District Judge, before passing any order under Sub-section (1) or Sub-section (2), to examine the officer making the application. Sub-section (4) reads thus: "(4) At the same time as he passes an order under Sub-section (1), the District Judge shall issue to the industrial Concern a notice accompanied by copies of the order, the application and the evidence, if any, recorded by him calling upon it to show cause on a date to be specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vernment power to make rules. Section 48 confers on the Board power to make regulations. 9. The Industrial Finance Corporation Act, 1948 is the precursor of the State Financial Corporations Act, 1951. The necessity for the former Act was explained in the statement of Objects and Reasons thus : "The provision of credit for medium and long term capital requirements of industry falls outside the normal activities of commercial banks and in certain cases the usual methods of capital issued are not wholly practicable or suitable. In order to fill this lacuna, Industrial Finance Corporations to provide medium and long term credit for facilitating post-war rehabilitation and development have been established in several countries. This Bill seeks to establish a similar Corporation in India for the same purpose....." The State Financial Corporations Act is modelled on the provisions of the Industrial Finance Corporation Act and the latter has provisions similar to those in Sections 29, 30 and 31 of the former. 10. Statement of Objects and Reasons of the State Financial Corporations Act explains the need for the statute thus : "In order to provide medium and long-term c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y and expeditiously. If the Corporation is to be compelled to resort to recovery through the instrumentality of suits in civil courts, the process of recovery will naturally be delayed; this will limit the availability of funds with the Corporation and hamper further assistance to more and more people. Therefore, the Act contains provisions which enable the Corporation to avoid dilatory process, which, to a great extent, is unavoidable in civil suits and provides for an expeditious remedy for recovery. 12. It is in this background that we have to consider the relevant provisions of the Act Provisions of the Act override any inconsistent provisions in other laws. At the same time, they are in addition to and not in derogation of any other law applicable to an industrial concern. In other words, in the area of remedies and reliefs, this would mean that the provisions of the Act would apply even though they are inconsistent with the provisions of the Transfer of Property Act or the Code of Civil Procedure; at the same time, they provide additional remedies and reliefs, in addition to those provided in the Transfer of Property Act or the Code of Civil Procedure. 13. Great care has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... public interest Sub-section (2) of Section 25 only prohibits accommodation being granted unless it is sufficiently secured, inter alia, by mortgage, hypothecation, movable or immovable property or other tangible assets. The provision does not indicate that the property or the assets must belong to the industrial concern. It should be possible for the industrial concern to arrange to secure hypothecation or mortgage of assets belonging to well-wishers who are prepared to assist the concern. That is why the provision does not indicate that assets mortgaged or hypothecated must Belong to the industrial concern. Section 29 does not make any distinction between assets of the industrial concern and assets not belonging to the industrial concern but nevertheless mortgaged to the Corporation. Both kinds of assets can be proceeded against under Section 29. It is not possible for us to read into Section 29 a restriction to the effect that the right conferred on the Corporation thereunder is restricted to the right to proceed only against property belonging to the industrial concern and mortgaged to the Corporation, The provision would apply to property not belonging to the industrial concern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot envisage power in the Corporation to seek an order for sale of the mortgaged property not belonging to the industrial concern but belonging to a third party surety. We are unable to read any such restriction into Section 31, 17. Section 32 deals with the procedure to be followed by the District Judge in respect of applications under Section 31. As the Select Committee of the Parliament indicated, Section 31 is to provide for enforcement of the rights conferred on the Corporation under Section 29. Section 32 only prescribes the procedure of the District Judge in respect of applications under Section 31. It confers no new rights and casts no new obligations on the Corporation. Where the application is for reliefs mentioned in clauses (a) and (c) of Sub-section (1) of Section 31, the District Judge has to pass an ad interim order "attaching the security, or so much of the property of the industrial concern as would on being sold realise in his estimate an amount equivalent in value to the outstanding liability of the industrial concern to the Financial Corporation, together with costs of the proceedings taken under Section 31......" The above quoted provision indicates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... templated in Sub-section (7). District Judge may confirm the order of attachment, direct sale of the attached property or he may pass orders of other kinds mentioned therein. This provision also would indicate that what is to be sold is property attached. We have already indicated that what is to be attached is the security and of course so much of the property of the industrial concern as would on being sold realise the necessary amount. Sub-section (8) indicates that an order of attachment or sale shall be carried into effect as far as practicable in the manner provided in the Code of Civil Procedure for attachment or sale of property in execution of a decree, as if the Corporation is the decree-holder. 19. Reading" Sections 29, 31 and 32 together, we have no doubt in our mind that the property secured and not belonging to the industrial concern but belonging to a third party surety or guarantor also could be proceeded against thereunder. Contention of the learned counsel for the appellant is that if that be the legislative intent, the Legislature would have specifically contemplated issue of notice to the third party surety while providing for such notice under Sub-sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eople of the State are vitally interested. Moneys advanced by the State Government have got to be recovered expeditiously so that fresh advances may be made to others who have not yet received financial assistance from the State Government. If the State Government should resort to a remedy by way of a suit on the mortgage deeds or bonds executed in its favour, the realization of the amounts due to the Government is bound to be delayed resulting in non-availability of sufficient funds in the hands of the State Government for advancing fresh loans. It is with the object of avoiding the usual delay involved in the disposal of suits in civil courts and providing for an expeditious remedy, the Act has been enacted." On this basis, the Supreme Court held that there was a reasonable basis for the classification made by the statute and the classification has a reasonable relation to the object of the statute. 21. The same idea is reiterated by a Full Bench of the Orissa High Court in State Financial Corporation Ltd. v. Satpathy Brothers and Nanda Co. (P) Ltd., AIR 1975 Orissa 132. The Orissa High Court took note of the scheme of Sections 31, 32 and 46B and observed : "If recours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he absence of specific provision in Section 32 to issue notice to a third party surety is an indication of the legislative intention that such a surety catmot be proceeded against thereunder. The scheme of provisions of Sections 29, 31 and 32 would clearly indicate that the remedy under Section 32 is available against a third party surety who has mortgaged his property also and the audi alteram rule could be read into Section32. We are unable to find any rationale in the view that while the Legislature wanted the money to be recovered from the industrial concern by making available expeditious remedy under Section32, Legislature was satisfied with the delay-prone remedy by way of civil suit against a third party surety. For these reasons with great respect we are unable to follow the view taken in the latter decision of the Allahabad High Court. In the above circumstances, we repel the contentions of the appellant that the appellant who joined the mortgage deed as co-mortgagor and mortgaged her own immovable property to the Corporation cannot be proceeded against in an application before the District Judge. We have already indicated that the audi alteram rule has to be read into th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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