Case: Karnataka State Financial Corporation Vs. N. Narasimahaiah &amp; Others

FACTUAL BACKDROP2. Respondents herein furnished sureties and/ or guarantees in respect of the loans taken by the industrial concerns (Respondent - Company)3. We may notice the fact of the matter from the case of AP Rocks Private Limited (Writ Petition No. 37209 and 30907 of 2000) before the High Court.AP Rocks Private Limited is an industrial concern. It approached the appellant - Corporation for grant of loan in the form of non-convertible debenture facility to the extent of 100 lakhs to meet its working capital requirements.Respondents who were Directors of Company executed deeds of guarantee dated 15.05.1996 and 9.08.1996 agreeing to guarantee repayment/redemption by the Company to the Corporation of the said non-convertible debenture subscription together with interest, etc. The said Company also executed a deed of hypothecation on or about 9.08.1996 whereby and whereunder its plants and machinery were hypothecated. A collateral security agreement was also executed by Shri S.K. Rajan wherefor a property bearing No. 49, House List Khata No. 100-A, Hennarayanapalya, Hemlet of Cholanayakamahalli, Kasba Hobli, Bangalore North Taluka was mortgaged as a security therefor.Respondent No. 1 executed an agreement on 15.05.1996 in terms whereof his property bearing Site No. 55 (old), New No. 59, Annammadevi Temple Extension, Subedar Chatram Road, B.C. C. Division No. 22, Bangalore was given as a collateral security. The Industrial Concern allegedly committed defaults.PROCEEDINGS4. Appellant - Corporation on or about 20.11.2000 in exercise of its power under Section 29 of the Act directed that the possession of the said two properties of the guarantors be taken over. Respondent No. 1 and Shri S.K. Rajan filed writ petitions before the Karnataka High Court on the premise that the appellant - corporation could not have proceeded against the guarantors under Section 29 of the Act.The High Court by reason of the impugned judgment while upholding the said contentionThe impugned orders passed by the Karnataka State Financial Corporation under Section 29 of the State Financial Corporations Act authorizing its officers to take possession of the properties of petitioners are quashed.(ii) The Karnataka State Financial Corporation is directed not to proceed against the property of the surety, mortgaged/ hypothecated in its favour, under Section 29 of the State Financial Corporations Act.(iii) Parties to bear their respectiveis, thus, before us.

Reasoning: 10. Apart from the said constitutional restrictions, the statute does not put any embargo upon the corporation to exercise its power under Section 29 of the Act. Indisputably, the said provision was enacted by the Parliament with a view to see that the dues of the Corporation are realized expeditiously. When a statutory power is conferred, it is a trite law that the same must be exercised within the four corners of the Statute. Power of a lender to realize the amount lent either by enforcing the charged and / or hypothecated or encumbrance created on certain property and/ or proceeding simultaneously and/ or independently against the surety/ guarantor is a statutory right. Different statutes provide for different remedies. We may by way of example refer to Pawan Kumar Jain v. Pradeshiya Industrial and Investment Corporation of U.P. Ltd. and Others [(2004) 6 SCC 758] where a statutory mandate has been given to realize the dues from sale of the mortgaged properties and then to sell other properties of the borrower. We are, however, not concerned with such a situation.11. Such a right can also indisputably be conferred by way of contract as has been provided for under Section 69 of the Transfer of Property Act in terms whereof a mortgagee is entitled to effect sale without the intervention of the court, subject, of course, to the limitations prescribed therein.12. 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 32G of the Act also exists.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.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. 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.16. 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 orfail to see how the aforementioned statement of law comes to the aid to the contention of the learned counsel. Moreover Section 29 of the Act does not deal with a case where express and implied conditions have been laid down in the matter of exercise of power conferred upon a statutory authority under a Statute. Section 29 does not envisage any prohibition at all either express or implied. Let us consider the legal implication of the aforementioned statement of law in the light of a decision of this Court.Keeping the aforementioned legal principles in mind, we may notice the other limb of the argument of Mr. Venugopal that Section 31 of the Act is to be taken recourse to only when an interlocutory order is required to be sought for and not otherwise. 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.23. 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.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 Section 29 of the Act consists of the property of the industrial concern, Section 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 Section 31 of the Act and not under Section 29 thereof.Interpretation of a statute would not depend upon a contingency. It has to be interpreted on its own. It is a trite law that the court would ordinarily take recourse to the golden rule of literal interpretation. It is not a case where we are dealing with a defect in the legislative drafting. We cannot presume any. In a case where a court has to weigh between a right of recovery and protection of a right, it would also lean in favour of the person who is going to be deprived therefrom. It would not be the other way round. Only because a speedy remedy is provided for that would itself lead to the conclusion that the provisions of the Act have to be extended although the statute does not say so. The object of the Act would be a relevant factor for interpretation only when the language is not clear and when two meanings are possible and not in a case where the plain language leads to only one conclusion.33. Even if the legislation is beneficent, the same by itself would not be held to be extendable to a situation which the statute does not contemplate.It is now well-settled that when more than one remedy is provided for an option is given to a suiter to opt for one or the other remedy. Such a provision is not ultra vires as has been held by this Court in Maganlal Chhaganlal (P) Ltd. v. Municipal Corporation of Greater Bombay and Others [(1974) 2 SCC 402] , Director of Industries, U.P. and Others v. Deep Chand Agarwal [(1980) 2 SCC 332] Rajiv Anand (supra).For the views we have taken, it is not necessary for us to consider the question as to whether before a property is put to sale, possession is required to be taken.