IN THE HIGH COURT OF JUDICATURE, ANDHRA PRADESH AT HYDERABAD (Special Original Jurisdiction) TUESDAY, THE TWENTY THIRD DAY OF DECEMBER TWO THOUSAND AND EIGHT PRESENT THE HON'BLE MR JUSTICE L.NARASIMHA REDDY WRIT PETITION NO : 24645 of 2005 Between: Sekhamahanthi Surya Rao S/o Venkata Ramanandha Swamy R/o Bhimunipatnam, Visakhapatnam ..... PETITIONER AND 1 The A.P. State Finance Corporation Head Office 5-6-194, Chirag Ali Lane, Hyderabad rep by Chairman 2 The Branch Manager, A.P. State Finance Corporation 1st Floor, VUDA Balaji Complex, Vizianagaram 3 Bandaru Nageswara Rao S/o Late Venkata Ramana Kavujuwads Village, Bhogapuram Mandla, Vizianagaram District 4 Bandaru China Nageswara Rao S/o Late Venkata Ramana Kavujuwads Village, Bhogapuram Mandla, Vizianagaram District 5 Bandaru Vidyavathi W/o B. Ch. Narayanamurthy Kavujuwads Village, Bhogapuram Mandla, Vizianagaram District .....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 direction declaringthe action of the Respondnet Nos. 1 and 2 in effecting thesale of the property to an extent of ac. 4-02 cents in R.S. NO. 156 and 77 of Kavulawada Vilalge, Bhogapuram Mandla, Vijayanagaram District belonging to me treating it as a collateral Security offered by 5th Respondent by invoking Sec. 29 of the State Financial Corportion Act and the Consequential sale in favour of the 3rd respondent as illegal, arbitrary, vioaltive of principles of natural justice and contrary to the provisions of State Financial Corporation aCt and violative of Art. 14, 21 and 300-A of the Constitution of India. Counsel for the Petitioner:MR.K.CHIDAMBARAM Counsel for the Respondent No.: . The Court made the following : THE HONOURABLE SRI JUSTICE L. NARASIMHA REDDY W.P.No. 24645 of 2005 ORDER: The fourth respondent intended to construct a rice mill at Kavuluwada village of Bhogapuram Mandal, Vizianagaram District. He approached Andhra Pradesh State Financial Corporation- first respondent for financial assistance. A sum of Rs.5,90,000/- was sanctioned on 16.3.1993 and a sum of Rs.4,91,269/-was paid on 8.1.1994. In addition to mortgaging the primary assets i.e. the Mill in favour of the first respondent, the fourth respondent has arranged surety from his mother, the 5th respondent herein. The title deeds in respect of Ac.4-02 cents in Survey Nos. 156 and 77 of the village are said to have been deposited with the first respondent. The petitioner claims to have purchased Ac.4-02 cents of land from the fifth respondent. The fourth respondent committed default in payment of the instalments. Various steps have been initiated against the fourth respondent by the Corporation. Primary assets comprising of land, mill and machinery and the property offered as collateral security i.e. Ac.4-02 cents of land mentioned above, were sold in favour of the third respondent in pursuance of sale notice dated 15.7.2004. The mill was sold at Rs.3,50,000/-and the land at Rs.2,00,000/-. The petitioner challenges the sale of the land in favour of the third respondent. He contends that the land partakes the character of collateral security and it cannot be proceeded in exercise of power under Section 29 of the State Financial Corporation Act, 1951 (for short ‘the Act). Respondents 1 and 2 and respondents 4 and 5 filed separate counter affidavits. Respondents 1 and 2 submit that the sale was effected strictly in accordance with the law that existed at the relevant time. They contend that being the mortgaged property, it is similar to primary assets and as such it is liable to be proceeded under Section 29 of the Act. Heard Sri K.Chidambaram, learned counsel for the petitioner, learned standing counsel for Corporation-respondents 1 and 2, Smt.I. Maamu Vani, learned counsel for respondent No.3 and Dr.P.B.Vijaya Kumar, learned counsel for respondents 4 and 5. The land of Ac.4-02 cents owned by the fifth respondent was offered as collateral security in a loan transaction between the fourth respondent and the Corporation. The petitioner claims to have purchased the land from the fifth respondent. Though there is some dispute as to the exact nature of transfer, the petitioner has to be treated as a person claiming through his vendor, namely, the fifth respondent. Therefore, it has to be examined whether the corporation can proceed against the property owned by the fifth respondent. Admittedly, the fifth respondent is not the principal borrower and the property owned by her cannot be treated as primary asset. Section 29 of the Act empowers the Corporation to proceed against the primary assets or the securities offered by the industrial concern itself. It does not take in its fold, the properties offered by sureties as security. Section 31 of the Act provides for the remedy vis-à-vis such properties, in the form of petition before the District Court. Remedy under this provision is not only against the primary assets but also against the properties offered as surety. In Karnataka State Financial Corporation v N.Narasimahaiah and others,[1] the Hon’ble Supreme Court held that the power under Section 29 of the Act cannot be invoked against the properties of the sureties. It may be true that the Corporation proceeded against the property of the fifth respondent said to have been purchased by the petitioner before the Hon’ble Supreme Court rendered the said judgment. However, it has to be understood that Section 29 of the Act carried the same meaning from its inception. Therefore, the plea raised by the respondents 1 to 3 cannot be accepted. Hence, the writ petition is allowed and the sale of the land in Ac.4-02 cents in Survey Nos. 156 and 77 effected in favour of the third respondent is set-aside. This order shall not be treated as pronouncement on the rights and obligations between the petitioner on the one hand and respondents 4 and 5 on the other hand. The third respondent shall be entitled to be refunded the sale consideration. The first respondent shall deliver the possession of the land to the person from whom it was recovered, before it was put to sale. There shall be no order as to costs. ____________________ L.NARASIMHA REDDY,J 23.12.2008 Stp ..... REGISTRAR // TRUE COPY // SECTION OFFICER To 1.2CCs to 2.2CD copies Form-NIC-OGS/WP{TRT} [1] (2008) 5 SCC 176