1 app1042.10.sxw ssm IN THE HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION APPEAL NO. 1042 OF 2010 IN MISCELLANEOUS PETITION NO. 7 OF 2009 Warij A. Kasliwal & Anr. .....Appellants. Vs. Madhya Pradesh State Industrial Development Corporation Ltd. ......Respondents. Mr. S.U. Kamdar Sr. Advocate with Ms. Sneha Phene, Mr. Jayendra Kapadia and Mr. O. Mohandas i/by M/s. Little & Co. for the Appellants. Mr. G.D. Utangale i/by M/s. Utangale & Co. for the Respondents. CORAM : DR. D.Y. CHANDRACHUD AND ANOOP V. MOHTA, JJ. DATE : JANUARY 10, 2011. P.C.: This appeal arises out of an order of a learned Single Judge dated 2 September 2010 on a petition filed under Section 31 of the State Financial Corporations Act, 1951 by the Respondents. We had initially heard the Appeal on 21 December 2010 and dictated the judgment in open Court as soon as arguments were concluded. Thereafter, before the Judgment was signed, the Appeal was mentioned before this Court on a praecipe filed by the Advocate for the Appellants on the ground that the Appellants sought a further 2 app1042.10.sxw ssm hearing to place the judgment of a Division Bench of the Karnataka High Court in Sri S.K. Kulkarni Vs. Karnataka State Industrial Investment and Development Corporation Limited (Miscellaneous First Appeal No. 1441 of 2001 decided on 5 August 2006) for the consideration of this Court. Counsel submitted that the Judgment of the Karnataka High Court was, as a matter of fact, confirmed by the Supreme Court in Karnataka State Industrial Investment and Development Corporation Limited Vs. S.K.K. Kulkarni & Ors.1 It was submitted before the Court that the facts set out in the judgment of the Division Bench of the Karnataka High Court would show that the aforesaid case also dealt with a claim by the State Financial Corporation against a guarantor under Section 31 (1) (aa) of the State Financial Corporations Act, 1951. In that case also, it was urged, the head office of the company was at Bangalore and on that basis proceedings were instituted before the City Civil Court at Bangalore. The Supreme Court confirmed the judgment of the Karnataka High Court which had come to the conclusion that proceedings under Section 31 (1) (aa) ought to have been filed at Belgaum where the Industrial unit was situated and not at Bangalore. The fact that the head office was situated at Bangalore would not vest jurisdiction in 1 (2009) 2 SCC 236 3 app1042.10.sxw ssm the Court at Bangalore, in view of the provisions of Section 31(1)(aa). 2 In paragraph 18 of the Judgment of the Karnataka High Court, it was held as follows- “In the instant case, as we have already stated, the sixth appellant was an industrial unit carrying on its business at Kakati, Belgaum District. The appellant Nos. 1 to 5 were guarantors/sureties for repayment of the loan sanctioned to the sixth appellant. The language employed in Section 31 of the Act makes it abundantly clear, that an application under Section 31 of the Act requires to be filed before a District Judge within whose limits the industrial unit was carrying on its business activities. In the instant case, as we have already stated, the sixth appellant, which is an industrial unit, is carrying on its business activities at Kakati, Belgaum, was seized by the Corporation by invoking its powers under Section 29 of the Act at Belgaum. The Corporation, in our opinion, ought to have filed the application for enforcement of the liability against the guarantors/sureties under Section 31(1)(aa) of the Act only at Belgaum. In that view of the matter, in our opinion, the findings and the conclusion reached by the learned VI Addl. City Civil Judge, Bangalore, is contrary to the statutory provisions.” 3 In the Appeal arising out of the judgment of the Karnataka High Court, the Supreme Court while confirming the judgment held thus:- “10 Under Section 31(1), which is invoked by SFC in this case, an application to obtain quicker remedy has to be made to the District Judge within whose jurisdiction the industrial concern is located. This is the mandate of Section 31(1). It is so mandated because wide powers are given to the District Judge under Sections 31 and 32 to 4 app1042.10.sxw ssm attach, sell and recover outstanding dues of SFCs in the shortest possible time. In fact, sub-section (aa) stood inserted in Section 31(1) for enforcing the liability of any surety. This sub-section is in addition to the power given to the District Judge to order sale of the property pledged, mortgaged, hypothecated or assigned to SFC as security for loan or advance. An application under Section 31 can be filed even before the exercise of power under Section 29 of the 1951 Act or Section 69 of the Transfer of Property Act. 11. Under the circumstances, the High Court was right in coming to the conclusion that the VIth Additional City Civil Judge, Bangalore, had no territorial jurisdiction to hear Misc. Case No. 109 of 1993 in view of Section 31 of the 1951 Act. The High Court was right in observing that the Corporation ought to have instituted the said case before the District Judge, Belgaum, within whose jurisdiction the industrial concern is located.” 4 The learned Single Judge in the present case, distinguished the judgment of the Supreme Court by holding that Section 31 (1) confers jurisdiction where the Industrial Concern carries on business, but this is not the place only where the Industrial Undertaking is situated. The learned Single Judge noted that the Corporation is taken to be carrying on business where its registered office is situated. On these grounds, the learned Single Judge held that the Petition under Section 31(1)(aa) was validly instituted before this Court. 5 Section 31(1) postulates that the Petition has to be filed before the District Judge, “within the limits of whose jurisdiction the 5 app1042.10.sxw ssm industrial concern carries on the whole or a substantial part of its business”. Among the reliefs that can be claimed is the enforcement of the liability of any surety. Clause (aa) of Sub-section 1 was inserted by Amending Act, 43 of 1985. Evidently, the jurisdictional requirement in sub-section 1 of Section 31 applies in respect of a Petition claiming any of the reliefs that are mentioned in clauses (a), (aa), (b) as well as, (c). 6 Counsel appearing on behalf of the Appellants submitted before the Court that in the present case, the judgment of the Supreme Court, noted earlier, would completely govern the factual situation and the Petition could have only been filed before the appropriate Court where the Hydel Power Project was being set up. That according to the Appellants, is the Industrial Concern within the meaning of Section 2(c) of the Act. In the Petition that has been filed under Section 31 of the State Financial Corporations Act, 1951 a copy of a settlement between the Corporation and the S. Kumar Group of Companies has been annexed at Exhibit “A”. The settlement provides in its recitals that two companies belonging to the S. Kumar Group of Companies viz. Entegra Infrastructure Ltd. and Modak Rubber and Textiles Ind. P. Ltd. were setting up a Hydel Power Project called the 6 app1042.10.sxw ssm Shri Maheshwar Hydel Power Project in Maheshwar in the District of Khargone in the State of Madhya Pradesh. The contention of the Appellants is that a Petition invoking the liability of the Appellants as guarantors could have only been filed before the District Judge having jurisdiction over the place wherein the Industrial Concern is situated. 7 On the other hand, it was urged on behalf of the State Financial Corporation, that an inter-corporate deposit of Rs. 48 Crores was furnished by it to various companies in the S. Kumar Group of Companies. In a settlement which was arrived at in July, 2004, the liability of the group was quantified at Rs.77.37 Crores. In consideration of the settlement, the Appellants executed a personal guarantee in favour of the Corporation by which they were jointly and severally liable to pay the dues of the Corporation. 8 The Petition was accordingly filed on the basis of the guarantee executed by the guarantors on 21 September 2005. The guarantee was executed at Bhopal. The Corporation initially presented a petition before the District Judge at Bhopal which was returned to the Appellants for presentation before the appropriate Court. The Corporation has contended that the Petition under Section 31(1) (aa) 7 app1042.10.sxw ssm has been validly instituted in this Court. 9 During the course of the hearing, counsel appearing on behalf of the Corporation submitted that the Corporation should be allowed an opportunity to place a further affidavit relating to the grant of financial facilities in the background of which the Appellants had executed a personal guarantee on 21 September 2005. After we have heard counsel, we are of the view that since the facts which are now sought to be placed on record by the Corporation have not been considered by the learned Single Judge, it is only appropriate and proper that the entirety of the case should be reconsidered by the learned Single Judge. Counsel appearing for the contesting parties have in fact agreed that it would be appropriate and proper that the parties have an opportunity to complete the pleadings before the learned Single Judge so that the Court would be in a position to reconsider the matter in all its facets. 10 In this view of the matter and having regard to the statement which has been made before the Court by counsel, we recall our order dated 21 December 2010 and set aside, by consent, the order of the learned Single Judge dated 2 September 2010. Miscellaneous Petition 8 app1042.10.sxw ssm No. 7 of 2009 is restored to the file of the learned Single Judge. We grant liberty to the Respondents to file a further affidavit in support of the Petition under Section 31, which counsel states, shall be done within a period of two weeks from today. The Appellants would be at liberty to file an affidavit dealing with the contents of the affidavit filed by the Corporation. All the rights and contentions of the parties on merits are kept open. 11 Counsel appearing on behalf of the Appellants has stated before the Court that the Appellants are desirous of exploring the possibility of a settlement with the Respondent Corporation. Counsel appearing on behalf of the Corporation stated that, in the event that any bonafide offer is made out on behalf of the Appellants, the Corporation shall consider it in accordance with established procedures. 12 The Appeal shall accordingly stand disposed of. No costs. (ANOOP V. MOHTA, J.) (DR. D.Y. CHANDRACHUD, J.)