THE HON'BLE SRI JUSTICE L.NARASIMHA REDDY Writ Petition No.25803 of 2002 ORDER: The 2nd respondent intended to purchase a commercial vehicle and accordingly approached the 1st respondent for financial assistance in the form of loan. A sum of Rs.2,88,900/- was sanctioned as loan and a vehicle bearing No. ATA 3915 was purchased. The petitioners stood as sureties for repayment of the loan. The 2nd respondent committed default. Thereupon, the 1st respondent recalled the loan. Exercising its powers under Section 29 of the State Financial Corporation Act (for short ‘the Act’), the 1st respondent brought to sale, an extent of Ac.10.52 cents of land of the petitioners, on 29.12.1999. The 3rd respondent purchased the same for a sum of Rs.1,00,000/-. The petitioners challenge the sale of their property by the 1st respondent. It is stated that they were not put on notice, before the property was brought to sale, and that the procedure under Section 29 of the Act was followed even in respect of the properties of the sureties. The 1st respondent filed a counter affidavit stating inter alia that the 2nd respondent committed default and since the primary assets could not be traced, he had to proceed against the properties offered as security by the sureties. According to him, a notice was issued on 25.01.1996, and that it was not served. The allegation of the petitioners that they were not put on notice, before the property was brought to sale, is not contradicted. It is also not denied that the procedure under Section 29 of the Act was invoked vis-à-vis the property of the petitioners. Heard Sri Ch.Janardhan Reddy, learned counsel for the petitioners, Sri Y.V.Ravi Prasad, learned counsel for the 1st respondent and Sri B.M.Patro, learned counsel for the 3rd respondent. The 2nd respondent, who borrowed amount from the 1st respondent, committed default in payment of instalments. It is not in dispute that the petitioners figured as sureties for repayment of the loan. An extent of Ac.10.52 cents of land was offered as security on their behalf. It is a matter of record that the 1st respondent brought the property to sale and the 3rd respondent purchased it for a sum of Rs.1,00,000/-. Two contentions are advanced on behalf of the petitioners. The first is that they were not put on notice before the property was brought to sale. The only statement made by the 1st respondent in this regard is that an attempt was made to serve a notice dated 25.01.1996 on the petitioners. The property was brought to sale on 29.12.1999. During these three years, not even effort was made either to demand any amount from the petitioners or to put them on notice, as to the proposed sale. Therefore, there was a clear illegality on the part of the 1st respondent in effecting the sale of the property of the petitioners. The second ground urged by the petitioners is that the correct procedure prescribed under the Act was not followed vis-à-vis the property. Section 31 of the Act enables the State Financial Corporation to approach the District Court vis-à-vis the properties of an industrial concern or a surety. The extraordinary power under Section 29 of the Act is available only in respect of the properties held by the industrial concern. In Karnataka State Financial Corporation vs. N.Narasimahaiah[1], the Supreme Court held that the power under Section 29 of the Act cannot be invoked vis-à-vis the properties of a surety. The relevant paragraph reads 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.” There is no dispute that in the instant case, the 1st respondent invoked the power under Section 29 of the Act against the property of the petitioners, who are only sureties. Therefore, the writ petition is allowed and the sale of the property of the petitioners, admeasuring Ac.10.52 cents of land, on 29.12.1999 is set aside. The 3rd respondent shall hand over the possession of the property to the petitioners. It shall be open to the petitioners to approach civil Court for award of damages, for the period during which they were kept out of possession. In case, the suit is filed within one year from today, it shall be entertained as having been presented within limitation. It shall be open to the 1st respondent to proceed against the petitioners in accordance with law. There shall be no order as to costs. _________ 02.12.2008 JSU THE HON'BLE SRI JUSTICE L.NARASIMHA REDDY Writ Petition No.25803 of 2002 Date: 02.12.2008 JSU [1] 2008(4) SCALE 473