IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) WEDNESDAY, THE TWENTY SECOND DAY OF OCTOBER TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MS JUSTICE G.ROHINI WRIT PETITION NO : 3733 of 2008 Between: Cheruku Swamy S/o.Cheruku Maisaiah R/o.2-25, Revanpally, Pochampally Mandal, Nalgonda District. ..... PETITIONER AND 1 Andhra Pradesh State Financial Corporation 5-9-194, Chirag Ali Lane, Hyderabad, rep. by its Managing Director. 2 Andhra Pradesh State Financial Corporation Ramachandrapuram Branch, 22-95, Reddy Complex, Adj. to LIC Office, Ramachandrapuram, Hyderabad -32, Rep. by its Asst. General Manager. 3 G.Mallesh S/o.late G.Chennaiah H.No.5-258, H.P. Road Moosapet, Hyderabad - 500 018. 4 Smt.V.Sridevi W/o.V.Srinivas R/o.3-4-119/A, Masjid lane L.B. Nagar, Hyderabad. .....RESPONDENT(S) Petition under Article 226 of the constitution of India praying that in the circumstances stated in the Aﬃdavit ﬁled herein the High Court will be pleased to issue a writ of Mandamus or any other appropriate writ, order or orders to declare the action of the Respondents 1 and 2 in selling away the property of the petitioner in Plot No.8, Syu.No.268, Bagh Hayathnagar Village, Hayathnagar Mandal, R.R. District in favour of the REspondents 3 and 4 by way of Sale Deed No. 387/08 dt. 01.02.2008 in exercise of its powers U/s. 29 of the State Financial Corporations Act, 1951 as arbitrary, unfair, lacking transparency and violative of Article 14 of the Constitution of India and also illegal and to consequently set aside the said Sale Deed and pass such other order or orders. Counsel for the Petitioner : MR. S.ARUN KUMAR Counsel for the Respondents: MR.J.PARTHASARATHY The Court made the following : THE HON’BLE MS JUSTICE G.ROHINI W.P.NO.3733 OF 2008 ORDER A partnership ﬁrm by name Sai Durga Tube Wells availed ﬁnancial assistance of a sum of Rs.25 lacs from the 2nd respondent-Corporation on 25-01- 2001. The petitioner herein oﬀered his plot No.8, admeasuring 300 square yards in Sy.no.268 of Bagh Hayathnagar as collateral security apart from some other immovable property belonging to him. While so, alleging that the borrower failed to make the repayment as agreed upon, the respondents 1 and 2 issued a publication notifying the properties oﬀered by the petitioner towards collateral security for sale. On a request made by the petitioner, the 1st respondent initially agreed for One Time Settlement(OTS) and the petitioner paid a sum of Rs.10,96,694/-. However, the 1st respondent cancelled the OTS subsequently and proceeded to sell the collateral security properties under Sec.29 of the State Financial Corporations Act,1951 (for short, ‘the Act’). Having come to know that the respondents 1 and 2 sold the petitioner’s property bearing Plot No.8 in favour of respondents 3 and 4 under a registered sale deed.01-02-2008, the petitioner filed this writ petition seeking a declaration that the action of the respondents 1 and 2 is arbitrary and illegal. Apart from raising various grounds on merits including that the impugned sale lacks transparency and that the property worth more than Rs.60 lacs was sold away only for Rs.27.50 lacs, the petitioner further contended that the Corporation cannot proceed against the properties of the petitioner under Section 29 of the Act for enforcing his liability as a surety. I have heard the learned counsel for both the parties. As could be seen from the material placed before this Court the property in question was sold by the Corporation in exercise of powers under Sec.29 of the Act. It is also clear that the property in question is one of the properties oﬀered as collateral securities in respect of the loan availed by M/s. Sai Durga Tube Wells. Though no counter-aﬃdavit is ﬁled, the learned counsel appearing for the Corporation did not dispute the above facts. Under section.29 of the Act the financial corporation shall have the right to take over the management or possession or both of the industrial concern as well as right to transfer by way of lease or sale and realize the property pledged, mortgaged, hypothecated or assigned to the ﬁnancial corporation, if the industrial concern makes any default in repayment of the loan availed by it. Under Sec.31 of the Act any Oﬃcer of the ﬁnancial corporation generally or specially authorized by the Board may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on its business for an order for sale of the property pledged, mortgaged, hypothecated or assigned to the corporation as security for the loan or for enforcing the liability of any surety if an industrial concern makes any default in repayment of any loan. Having interpreted the scope and object of Secs.29 and Sec.31 of the Act, the Supreme Court in Karnataka State Financial Corporation Vs. K.Narasimhaiah and Others( [1]) held that the Corporation can proceed against a surety only in terms of Sec.31 of the Act and not under Sec.29. The relevant portions of the said judgment wherein the Supreme Court had distinguished the remedies available to the Corporation under Secs.29 and 31 may be extracted hereunder: “(14) Sec.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 Sec.29 of the Act must be exercised only on a defaulting party. There cannot be any default as is envisaged in Sec.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. (15) The words “as well as” in our opinion play a signiﬁcant role. It confers two diﬀerent rights but such rights are to be enforced against the same person, viz., the industrial concern. … … .. …It is true that sub-section.(1) of Sec.29 speaks of guarantee. But such a guarantee is meant to be furnished by the Corporation in favour of a third party for the beneﬁt of the industrial concern. It does not speak about a surety or guarantee given in favour of the corporation for the benefit of the industrial concern. (27) The legislative intent, in our opinion, is manifest. The intention of the Parliament in enacting Sections.29 and 31 of the Act was not similar. Whereas Sec.29 of the Act consists of the property of the industrial concern, Sec.31 takes within its sweep both the property of the industrial concern and as that of the surety. None of the provisions control each other. The parliament intended to provide an additional remedy for recovery of the amount in favour of the corporation by proceeding against a surety only in terms of Sec.31 of the Act and not under Section.29 thereof.” The ratio laid down by the Supreme Court in the above decision squarely applies to the case on hand since admittedly the property in question is one of the properties oﬀered as collateral security. It is also not in dispute that the same was sold by the Corporation invoking Section 29 of the Act. Consequently the sale in favour of the respondents 3 and 4 being contrary to law is illegal. The writ petition is accordingly disposed of declaring the sale of the property in question by respondents 1 and 2 in favour of the respondents 3 and 4 is illegal being contrary to the provisions of the Act. However, it is made clear that this would not preclude the respondents 1 and 2 to enforce their rights in accordance with law against the petitioner herein. Keeping in view that the possession of the property in question was already delivered to the respondents 3 and 4 pursuant to the registered sale deed executed in their favour, it is also made clear that it is for the parties to work out the appropriate remedy as available under law either for restitution or any other appropriate relief. Writ Petition is accordingly disposed of. No costs. ___________ G.ROHINI,J 22nd October,2008 TSNR [1] 2008(4) SCALE 473