THE HON’BLE SRI JUSTICE L.NARASIMHA REDDY WRIT PETITION No. 22950 OF 2002 O R D E R: The respondent No.3, an Ex-serviceman, intended to purchase a commercial vehicle. He approached the 1st respondent for financial assistance. A sum of Rs.6,92,880/- was sanctioned as loan on 9.9.1997, and the vehicle was purchased. Petitioner and respondents 4 and 5 stood as sureties, for repayment of the loan. The 3rd respondent paid only a sum of Rs.2,31,000/- and committed default. Therefore, the 1st respondent recalled the loan on 3.8.2000. The vehicle was seized, and shortly thereafter, it was sold for a sum of Rs.3,11,000/-. To recover the balance of the loan, together with accrued interest, the 1st respondent issued advertisement dated 4.8.2001, proposing to sell the house property of the petitioner at Adilabad, as well as agricultural land of respondent No.5. Certain developments have taken place in the meanwhile, and ultimately, the property of the petitioner was sold on 4.10.2002 for a sum of Rs.7,01,000/-. The petitioner challenges the same, on several grounds. It is stated that the 1st respondent invoked its power, under Section 29 of the A.P. State Financial Corporations Act (for short “the Act”), even to sell the property of a surety, and that the same is impermissible in law. Certain other grounds are also urged. Sri Vedula Srinivas, learned counsel for the petitioner, submits that Section 29 of the Act confers extraordinary powers on the 1st respondent, and it can be used only vis-à-vis primary assets, or the properties possessed by the “Industrial Concern”. He submits that the properties, as held by sureties, can be dealt with, only under Section 31 of the Act. He places reliance upon a judgment of the Supreme Court in KARNATAKA STATE FINANCIAL CORPORATION v. N. NARASIMHAIAH & OTHERS[1]. Sri Durga Reddy, learned counsel for respondent No.1, and Sri B. Adinarayana Rao, learned counsel for 6th respondent, on the other hand, submit that the security offered for repayment of the loan is comprehensive in nature, and it takes in its fold, the primary assets, as well as those, which are pledged or mortgaged by the sureties. He contends that the petitioner and respondents 3 to 5 were given ample opportunity, to pay the balance of the amount, and they were also extended the facility of One Time Settlement, and still the same was not availed of. They submit that the judgment of the Supreme Court in Karnataka State Financial Corporation’s case1 has to be viewed, in the context of the facts of the case. The short question that arises for consideration in this writ petition is as to whether the sale conducted by the 1st respondent, by invoking its power under Section 29 of the Act vis-à-vis the properties of the petitioner is valid. It is not in dispute that the petitioner stood as a surety for repayment of the loan raised by 3rd respondent and that the loan account was not completely settled. Section 29 of the Act virtually confers powers of a Civil Court as well as an Executing Court, upon the Financial Corporations. A person who is entitled to recover the amount from another is required to institute proceedings in a civil court, and to take further steps under Order XXI CPC, if a decree is passed. Special powers are conferred upon the Corporations, under Section 29 of the Act, enabling them to straight away proceed to sell the property, without the necessity of obtaining any decree, or instituting execution proceedings. Such a provision naturally deserves to be interpreted strictly. The very opening words of the provision makes specific mention of the Industrial Concerns i.e. borrower. In contrast, Section 31 of the Act prescribes procedure, whereunder the Corporation can proceed against the properties of the Industrial Concerns, as well as sureties, by approaching the District Court. The Hon’ble Supreme Court had an occasion to deal with the scope of Sections 29 and 31 of the Act, in Karnataka State Financial Corporation’s case1. The Supreme Court observed as under: “14. Section 29 of the Act nowhere states that the corporation can proceed against the surety even if some properties are mortgaged or hypothecated by it. The right of the financial corporation in terms of Section 29 of the Act must be exercised only on a defaulting party. There cannot be any default as is envisaged in Section 29 by a surety or a guarantor. The liabilities of a surety or the guarantor to repay the loan of the principal debtor arises only when a default is made by the latter.” From this, it is clear that a financial corporation cannot exercise its powers under Section 29 of the Act, vis-à-vis the properties held by sureties. Admittedly, the 1st respondent brought the properties of the petitioner to sale, in exercise of its powers under Section 29, and the same is contrary to the law laid down by the Supreme Court. On this short ground, the writ petition is allowed, and the sale of the property of the petitioner, in favour of 6th respondent, is set aside. Respondents 1, 2 and 6 are directed to restore the property to the petitioner, within four weeks from today. The petitioner shall be entitled to take back the amount deposited with this court, in compliance with the interim order, dated 18.11.2002. There shall be no order as to costs. _____________________ 21st November 2008 PAN [1] 2008(4) SCALE 473