THE HON’BLE SRI JUSTICE C.V.RAMULU W.P.No.13204 of 2005 ORDER: Petitioner No.1 is the Company, represented by its Managing Director and Petitioners 2 to 4 are the persons, who offered their property as collateral security for the loans raised by the company. When the loans were not paid, first respondent invited public to participate in the auction of properties of the first petitioner as well as petitioners 2 to 4 by invoking Section 29 of State Financial Corporations Act, 1951 (for short ‘the Act’). The issue that arises for consideration in this writ petition is whether the collateral security offered by petitioners 2 to 4 could have been sold by the first respondent in the public auction by invoking Section 29 of SFC Act, or the only remedy available to invoke is Section 31 of the SFC Act. The learned counsel for petitioners submitted that the first respondent has no power to proceed under Section 29 of the Act, and necessarily they have to invoke powers under Section 31 of the Act whereunder a different procedure has been contemplated. To support his contention, the learned counsel relied upon the judgment in KARNATAKA STATE FINANCIAL CORPORATION v. N.NARASIMHAIAH AND OTHERS[1], wherein it was held as under: “If special provisions are made in derogation to the general right of a citizen, the statute, in our opinion, should receive strict construction. 'industrial concern' has been defined under the Act. For the purpose of enforcing a liability of an industrial concern, recourse can be taken both under Sections 29 and 31 of the Act. Right of the corporation to file a suit or take recourse to the provisions contained in Section 32 of the Act also exists. ‘The heading of Section 29 of the Act states "rights of financial corporation in case of default". The default contemplated thereby is of the industrial concern. Such default would create a liability on the industrial concern. Such a liability would arise when the industrial concern makes any default in repayment of any loan or advance or any instalment thereof under the agreement. It may also arise when it fails to meet its obligation (s) in relation to any guarantee given by the corporation. If it otherwise fails to comply with the terms of the agreement with the financial corporation, also the same provisions would apply. In the eventualities contemplated under section 29 of the Act, the corporation shall have the right to take over the management or possession or both of the industrial concern. The provision does not stop there. It confers an additional right as the words "as well as" is used which confers a right on the corporation to transfer by way of lease or sale and realize the property pledged, mortgaged, hypothetical or assigned to the corporation. 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. 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. Submission of the learned senior counsel that the second part of Section 29 having not referred to 'industrial concern', any property pledged, mortgaged, hypothecated or assigned to the financial corporation can be sold, in our opinion cannot be accepted. It is true that sub-section (1) of Section 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. The legislative object and intent becomes furthermore clear as in terms of Sub-section (4) of Section 29 of the Act only when a property is sold, the manner in which the sale proceeds is to be appropriated has categorically been provided therein. It is significant to notice that sub-section (4) of Section 29 of the Act which lays down appropriation of the sale proceeds only refers to 'industrial concern' and not a 'surety' or 'guarantor'. Section 31 of the Act provides for a special provision. It, apart from the default on the part of the industrial concern, can be invoked where the financial corporation requires an industrial concern to make immediate repayment of loan or advance in terms of Section 30 if and when such requirement is not met. The aforementioned provision could be resorted to by the Corporation, without prejudice, to its rights under the provisions of section 29 as also Section 69 of the Transfer of Property Act and for the said purpose it is required to apply to the District Judge having appropriate jurisdiction. Section 31 of the Act provides for the reliefs which may be sought for by the Corporation strictly in terms thereof. Clause (aa) of sub-section (1) of Section 31 of the Act provides for a final relief. It does not speak of any interlocutory order. Clause (aa), as noticed hereinbefore, has been inserted by Act No. 43 of 1985. Thus, prior thereto even Section 31 could not have been taken recourse to against a surety. Such a relief, if prayed for, would also lead to grant of a final relief and not an interlocutory one. Similarly, clause (b) of Sub-section (1) of section 31 of the Act also provides for a final relief. Only clause (c) of Sub-section (1) of Section 31 of the Act empowers the District Judge in the event any application is filed by the Corporation to pass an ad interim injunction. The very fact that Section 31 uses the terminology "without prejudice" to the provisions of Section 29 of the Act and/ or Section 69 of the Transfer of property Act, it clearly postulates an additional relief. What can be done by invoking Section 29 of the Act can inter alia be done by invoking Section 31 thereof also but therefor a different procedure has to be adopted. Section 31 also provides for a relief against a surety and not confined to the industrial concern alone. Sub-section (2) of Section 31 also refers to industrial concern and not the surety. The legislative intent, therefore, to our mind, is clear and unambiguous.” Whereas the learned counsel for first respondent strenuously contended that the judgments relied upon by the petitioners do not recognize as to the adequacy of sale price etc. Apart from that, since the property was already sold and the respondents 3 and 4 were already put in possession of the property, the judgments relied upon by the petitioners have no application to the facts of the case, particularly, the judgment in KARNATAKA STATE FINANCIAL CORPORATION v. N.NARASIMHAIAH AND OTHERS (1 supra). Further, no prejudice is caused to the petitioners whether the properties were sold by invoking Section 29 of the Act or after following the procedure as laid down under Section 31 of the Act. He further submitted that initially the writ petition was filed only questioning the sale of property of the company and later it was amended after the judgment of the Supreme Court. In this regard, the learned counsel for respondents relied upon the judgments in RAMCHANDRA SHANKAR DEODHAR AND OTHERS v. THE STATE OF MAHARASHTRA AND OTHERS[2], STATE OF BIHAR v. DAMODAR PRASAD[3] and STATE BANK OF INDIA Vs INDEXPORT REGISTERED[4]. I am of the considered opinion that in view of the authoritative pronouncement of the Apex Court in KARNATAKA STATE FINANCIAL CORPORATION v. N.NARASIMHAIAH AND OTHERS (1 supra), the judgments cited by the learned counsel for respondents have no relevance to the facts of the present case. The purport of the said judgments is that the choice for availing the remedy under Section 29 or Section 31 of the Act is that of the Financial Corporation alone and the defaulting concern has no say whatsoever in the matter, as to which remedy should be taken recourse to by the Corporation against it for effecting the recovery. The expression "without prejudice to the provisions of Section 29 of this Act" as appearing in Section 31 of the Act clearly demonstrates that the Legislature did not intend to confine the Corporation to take recourse to only a particular remedy against the defaulting industrial concern for recovery of the amount due to it. It left the choice to the Corporation to act in the first instance under Section 31 of the Act and save its rights and remedies under Section 29 of the Act to be availed at later stage, with the sole object of enabling the Corporation to recover its dues. However, the same was not approved in the judgment in KARNATAKA STATE FINANCIAL CORPORATION v. N.NARASIMHAIAH AND OTHERS (1 supra. Likewise, the other judgments have no relevance to the facts of the present case. Therefore, they need not be delved in detail, except to be rejected as not applicable. The learned counsel appearing for respondents 3 and 4 submitted that they have paid money and possession of the property was also delivered in their favour and in view of the interim orders, nothing is being done, and if the writ petition is allowed, they will be put to great hardship and injury. Having heard the learned counsel appearing for both the parties and perused the material available on record, I am of the considered opinion that in the teeth of the judgment rendered in KARNATAKA STATE FINANCIAL CORPORATION v. N.NARASIMHAIAH AND OTHERS (1 supra), the other arguments advanced by the respondents need not be gone into and in any event, the collateral security offered by the petitioners 2 to 4 could not have been auctioned by invoking Section 29 of the Act. It is clear that in terms of Sub-section (4) of Section 29 of the Act only when a property is sold, the manner in which the sale proceeds is to be appropriated has categorically been provided therein. It is significant to notice that sub-section (4) of Section 29 of the Act which lays down appropriation of the sale proceeds only refers to 'industrial concern' and not a 'surety' or 'guarantor'. Therefore, the collateral security offered by the petitioners 2 to 4 could not have been sold by the first respondent in the public auction by invoking Section 29 of SFC Act and the only remedy available was to invoke Section 31 of the SFC Act. Therefore, to that extent, the writ petition is liable to be allowed and the act of the respondents to the extent of selling the properties of petitioners 2 to 4 is liable to be set aside and is accordingly set aside. The writ petition is accordingly allowed. No order as to costs. ______________ C.V.RAMULU, J Date: 15.2.2011 DA THE HON’BLE SRI JUSTICE C.V.RAMULU W.P.No.13204 of 2005 .2.2011 IN THE HIGH COURT OF JUDICATURE OF ANDHRA PRADESH AT HYDERABAD THE HON’BLE SRI JUSTICE C.V.RAMULU W.P.No.13204 of 2005 Date: February, 2011 Between: D.R.Organics Pvt. Ltd., rep. by its Managing Director and others. .. Petitioners And A.P. Industrial Development Corporation, Fateh Maidan Road, Hyderabad, ,rep. by its Managing Director and others. .. Respondents [1] (2008) 5 SCC 176 [2] AIR 1974 SC 259 [3] AIR 1969 SC 297 [4] AIR 1992 SC 1740