Case: Madhukar Nirgudkar S/O Dattaraya Nirgudkar Vs. Maharashtra State Financial Corporation & Another

N.A. BRITTO, J.This appeal is directed against Judgment/ Decree dated 31-12-2001 of the learned Additional Civil Judge, Senior Division, Panaji, by which the appellant, being one of the defendants in Special Civil Suit No.22/86 has been directed to pay an amount of Rs.25,92,978.14 to the plaintiff. The parties hereto are referred to in the names as they appear in the cause title of the said civil suit.2.Some facts are required to be stated to dispose of the present appeal. The plaintiff is a Financial Corporation who had advanced a loan of Rs.30,00,000/- on or about 16-9-1976 to M/s. Goa Metal Casters Pvt. Ltd. of which both the defendants were the Directors. The said loan was advanced, inter alia, under a mortgage deed dated 31-3-1978 under which the lease hold rights in a piece of land admeasuring 20,000 sq. meters, plant and machinery was mortgaged in favour of the plaintiff. The said loan was repayable with interest at the rate of 14.5% per annum in half yearly instalments of Rs.1,76,500/-. The defendants who were the Directors of the said Company executed an indenture of guarantee dated 31-3-1978 guaranteeing the repayment of the said loan. In the deed of guarantee it was, inter alia, stipulated that the guarantors would be liable to secure the repayment of the loan amount with interest on conditions contained in the deed of mortgage. It appears that there were internal differences between the Directors of the said Company as a result of which the Company closed its factory and in fact even abandoned the same. By notice dated 15-3-1994 the plaintiffs called upon the said Company to repay the amount of Rs.62,92,821.54 which included the principal amount of Rs.30,00,000/-, Rs.32,36,406.54 of interest and Rs.56,415/- towards expenses as on 1-3-1984 with further compound interest thereon at the agreed rate by 26-3-1984. In the said notice, it was specifically stated that in case the amount was not paid the possession of the factory would be taken on 27-3-1984 and in fact it was so taken on the same date under a panchanama. Subsequently, the assets of the said Company were sold by public auction which was duly advertised at least on two local papers and other national papers for a sum of Rs.42.27 lakhs to one K.P. Steels Pvt. Ltd. and the same was distributed between the plaintiff and E.D.C. pari passu, as per agreement between them and for the balance amount of Rs.35,86,724.63 inclusive of interest as on 26-3-1984 and expenses incurred as on 1-5-1985 the suit was filed with further interest at a the rate of 14.5% from 27-3-1984 till the amount was realized.3.Summons having been served upon the defendants the suit was contested by defendant no.2 alone and it proceeded ex parte against defendant no.1 who has also not appealed from the impugned Judgment. Various defences were taken on behalf of defendant no.2 in his written statement and several issues were also framed in the light thereof. All the pleas taken on behalf of defendant no.2, have been decided against him and the suit was decreed in the sum of Rs.25,92,978.14. We do not propose to go to the details of all the defences taken by defendant no.2 since at the hearing of this appeal two submissions have been made on behalf of the appellant/defendant no.2, by his learned Counsel. We proceed to deal with then.4.The first submission of Shri Menezes is that defendant no.2 was not notified of the auction held by the plaintiff for sale of the mortgaged property. This submission appears to have been made before the trial Court as well, and was made by keeping in mind the guidelines issued by the Apex Court in Mahesh Chandra v. Regional Manager, U.P. Financial Corporation and others (AIR 1993 SC 935 ) and in that regard the learned trial Court observed, and, in our view rightly, that the said guidelines were issued only on or about 12-2-1992 while the sale in question was conducted in the year 1985. However, the said guidelines have been subsequently reconsidered by the Honble Supreme Court in Haryana Financial Corporation v. Jagdamba Oil Mills (2002 (3) SCC 496 ). In fact, it appears that defendant no.2 did not at any time object to the said auction being held and the claim of defendant no.2 that in case he was informed he would have got a better value for the assets of the Company appears to be too far fetched. The Apex Court has now stated that unless the action of the Corporation is mala fide, even a wrong decision by it is not open to challenge as such decisions are taken on the basis of information in its possession and the advice it receives and according to its own perspective and calculations. In this case the assets of the company were sold by a duly and widely advertised public auction.5.The next submission of Shri Menezes is that the trial Court lacked jurisdiction as the suit was barred by Section 31(1)(aa) of the State Financial Corporations Act, 1951 (Act, for short) and the recovery proceedings ought to have been filed before the District Court. There is no doubt that clause (aa) of sub-section(1) of Section 31 of the Act was introduced w.e.f. 21-8-1985 and the suit was filed on 5-2-1986. Without much elaboration, it can be seen from the language of Section 31 of the Act, that it provides for a special remedy for enforcement of claims by Financial Corporations and with the introduction of clause (aa) a special provision has also been made for enforcing the liability of the sureties, as well. Special means not general. When the section speaks of special remedy it only means that it is a remedy other than ordinary remedy. Section 46(B) of the Act also stipulates that the provisions of the Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern. A conjoint reading of Sections 31 and 46(B) of the Act shows that the said provisions have been made by way of special provisions to facilitate a speedy recovery of loans advanced by the Corporations and they are in addition to and not in derogation of any other law applicable to the industrial concern including their rights to recover the sum advanced under ordinary mode of a civil suit. The special procedure of Section 31 of the Act, in our view, does not bar the ordinary remedy of a civil suit but is only in addition to the said ordinary remedy. Therefore, the contention that the suit was not maintainable before the Civil Judge as there was a separate remedy provided under Section 31(1)(aa) before the District Court needs to be rejected inasmuch as such a plea was also not raised before the learned trial Court.

Decision reasoning: 0[ds]This submission appears to have been made before the trial Court as well, and was made by keeping in mind the guidelines issued by the Apex Court in Mahesh Chandra v. Regional Manager, U.P. Financial Corporation and others (AIR 1993 SC 935 ) and in that regard the learned trial Court observed, and, in our view rightly, that the said guidelines were issued onlyon or aboute the sale in question was conducted in the year 1985. However, the said guidelines have been subsequently reconsidered by the Honble Supreme Court in Haryana Financial Corporation v. Jagdamba Oil Mills (2002 (3) SCC 496 ). In fact, it appears that defendant no.2 did not at any time object to the said auction being held and the claim of defendant no.2 that in case he was informed he would have got a better value for the assets of the Company appears to be too far fetched. The Apex Court has now stated that unless the action of the Corporation is mala fide, even a wrong decision by it is not open to challenge as such decisions are taken on the basis of information in its possession and the advice it receives and according to its own perspective and calculations. In this case the assets of the company were sold by a duly and widely advertised publicmuch elaboration, it can be seen from the language of Section 31 of the Act, that it provides for a special remedy for enforcement of claims by Financial Corporations and with the introduction of clause (aa) a special provision has also been made for enforcing the liability of the sureties, as well. Special means not general. When the section speaks of special remedy it only means that it is a remedy other than ordinary remedy. Section 46(B) of the Act also stipulates that the provisions of the Act and of any rule or orders made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or in the memorandum or articles of association of an industrial concern or in any other instrument having effect by virtue of any law other than this Act, but save as aforesaid, the provisions of this Act shall be in addition to, and not in derogation of, any other law for the time being applicable to an industrial concern. A conjoint reading of Sections 31 and 46(B) of the Act shows that the said provisions have been made by way of special provisions to facilitate a speedy recovery of loans advanced by the Corporations and they are in addition to and not in derogation of any other law applicable to the industrial concern including their rights to recover the sum advanced under ordinary mode of a civil suit. The special procedure of Section 31 of the Act, in our view, does not bar the ordinary remedy of a civil suit but is only in addition to the said ordinary remedy. Therefore, the contention that the suit was not maintainable before the Civil Judge as there was a separate remedy provided under Section 31(1)(aa) before the District Court needs to be rejected inasmuch as such a plea was also not raised before the learned trial Court.