Maharashtra State Financial Corporation Vs. Jaycee Drugs and Pharmaceuticals
Pvt. Ltd. & Ors [1991] INSC 53 (19 February 1991)
Ojha, N.D. (J) Ojha, N.D. (J) Rangnathan, S. Agrawal, S.C. (J)
CITATION:
1991 SCR (1) 480 1991 SCC (2) 637 JT 1991 (1) 524 1991 SCALE (1)276
ACT:
State
Financial Corporation Act, 1951: Sections 31 and 32 Scope of-Presidency town-jurisdiction
to entertain- Whether a petition under sections 31 and 32 is to be made before
a City Civil Court or the High Court. Liability of a
surety -Enforcement of-Whether in such a petition a money decree for repayment
of loan can be passed against a party who stood surety personally without any
security. Held if the claim is upto Rs. 50, 000 the application would lie to City Civil Court and if it is more than to the High
Court- Amending Act 43 of 1985. By majority held that after the amendment
introduced by Act 43 o.f 1985 such an application shall lie for enforcing the
liability of a surety who has given only personal guarantee.
HEAD NOTE:
Respondent
No. 1 a Private Limited Company, was sanctioned a loan of Rs.30 lakh by the
Appellant-Corporation for the setting up of a factory. To secure this loan a
mortgage deed of certain properties was executed by the Company and Respondents
2 to 4 as its directors had executed a personal Surety Bond without any
security for its repayment. After obtaining a part of the sanctioned loan,
which was to be given in phases, the Company became disinterested in availing
of the balance amount.
Consequently
the Corporation demanded back the amount ahead taken together with interest and
on the company's failure to do so, it took over the Industrial Concern under
section 29 of the Act and initiated steps to realise its dues by putting the
property to sale. Having failed to recover the amount as no adequate offer was
forthcoming despite repeated advertisements, it filed a petition before the
Bombay High Court under sections 31 and 32 of the Act both against the Company
as well as its directors-sureties praying for a decree in the sum of Rs.
15,87,391.20 to be passed against them jointly and severally.
The
respondents contested the petition contending (a) that a petition under
sections 31 and 32 of the Act could be filed only before the City Civil Court
and the High Court had no jurisdiction to entertain it, (b) that no money
decree can be passed under sections 31 and 32 of the Act, and (c) that the
provision in the Act relating to enforcement of the 481 liablity of surety were
ultra vires of Article 149 of the Constitution. The learned single judge
relying on an earlier decision of the Bombay High Court reported in 1987 Mah.
L.J- 243 held that the High Court had to entertain the petition but on merits
took the view that no money decree could be passed under sections 31 and 32 even
against the sureties and since in the instant case the sureties had not given
any security except their personal guarantee, the same could be enforced only
in the ordinary course and not under the special machinery provided under the
Act.
In
view of his findings on the first two pleas no arguments were entertained on
the last plea and accordingly the petition was dismissed. The Division Bench
while dismissing the appeal not only upheld the finding of the single Judge on
merits but also overruled the decision reported in 1987 Mah. L.J. 243 and held
that the High Court had no jurisdiction to entertain a petition under sections
31 and 32 of the Act. The Corporation came up in appeal before this court by
special leave against this decision of the High Court of Bombay.
The
impugned judgement was assailed by the Appellant Corporation both on merites
and on the plea of juridiction.The respondents in reply asserted that the
findings of the High Court on both pleas were unassailable.
Allowing
the appeal, by a majority decision,
HELD:
A. By the Full Court
(i)The
extent of the liability stated in the application as contemplated by
sub-section (2) of section 31 of the Act would represent the value of the claim
of the Corporation and if since value is upto Rupees Fifty Thousand, the
application would lie in the City City Court and if it is more than that amount
it would lie in the High Court. This interpretation would give meaning and
relevance to the words "having jurisdiction" used in sub- section
(11) of section 32. A different interpretation would render superfluous or
otiose not only the words "having jurisdiction" but also the words
and in the absence such court, by the High Court, occurring in the said
sub-section (11) inasmuch as in a Presidency-town, in terms of territorial
jurisdiction, the jurisdiction of the City Civil Court and of the High Court is
co-terminus- [495D-F]
(ii)
In the instant case the extent of liability of the surety being more than
Rupees fifty thousand, the application could only have been filed and was
rightly filed in the High Court and the finding in the 482 judgment under
appeal to the contrary for holding that the High Court had no jurisdiction to
entertain the application cannot be sustained. [497A] B. Per N. D. Ojha, J. for
himself and Ranganathan, J.
(iii)
There can be no doubt that the term, "any surety" used in clause (aa)
in sub-section (1) of section 31 of the Act, will include not only a surety who
has given some security but also one who has given only a personal guarantee.
In our opinion, in a case where the relief claimed in the application under
section 31(1) of the Act is for enforcing the liability of a surety who has
given only a personal guarantee, sub section 4(A) of section 32 where no cause
is shown and clause (da) of sub-section (7) where cause is shown, contemplate
cutting across and dispensing with the provisions of the Code of Civil
Procedure from the stage of filing a suit to the stage of obtaining a decree
against the surety, the passing of an order which can straightaway be executed
as if it were a decree against the surety which may be passed in the event of
suit being filed. [498F, 499E]
(iv)
In the absence of any provision such as sub- section (8) of section 32 of the
Act applying the manner provided in the Code for the execution of a decree
against a surety only "as far as practicable" the entire provision
contained in this behalf in the Code shall be applicable. This would be so in
view of the use of the expression "any other law for the time being applicable
to an industrial concern" used in section 46B of the Act. That the Code is
applicable to an industrial concern also is not in dispute and cannot be
doubted. [50OH-501A]
(v)
Even in the absence of section 46B of the Act the provisions of the Code would
have been attracted in the matter of enforcing the liability of a surety in
view of the decision of this Court in National Sewing Thread Co. Ltd. v. James
Chadwick & Bros. Ltd., [1953] SCR 1028 inasmuch as the District Judge while
exercising jurisdiction under sections 31 and 32 of the Act is not a persona
designate but a court of ordinary civil jurisdiction. [501B-D] (Per S. C. Agrawal,
J. Dissenting.)
It
cannot be comprehended that while making provision which would enable passing
of an order in the nature of a money decree against a surety on an application
under section 31 of the Act, Parliament would have refrained from making a
corresponding provision prescribing the procedure for carrying into effect such
an order. It 483 appears to be more in consonance with the scheme of the Act
and the object underlying sections 31 and 32 that by introducing the amendments
in sections 31 and 32 of the Act the Parliament intended to place the surety on
the same footing as the principal debtor so as to enable the Financial
Corporation to obtain relief against the properties of the principal debtor as
well as the surety- [515E-G] If considered in this perspective, the expression
"enforcing the liability of any surety" in clause (aa) of section
31(1) would mean enforcing the liability of a surety in the same manner as the
liability of principal debtor is enforced, by attachment and sale of property
keeping in view that the proceedings under sections 31 and 32 of the Act are
akin to an application for attachment of property in execution of a decree at a
stage posterior to the passing of the decree. The relief of a money decree
sought against the sureties-respondents 2 to 4 was not maintainable and the
said relief could not be granted to the appellant in proceedings under section
31 of the Act. As a result, the petition filed by the appellant must be
dismissed and for the same reason this appeal must fail. [515G-516A, 516D-E] Munnalal
Gupta v. Uttar Pradesh Financial Corporation & Anr.,A.I.R. 1975 Allahabad
416; Thressiamma Varghese v. K. S. F. Corporation, A.I.R. 1986 Kerala 222; Maharashtra
State Financial Corporation v. Hindtex Engineers Pvt. Ltd., [1987] M.L.J. 243; Kayastha
Training & Banking Corporation Ltd- v. Sat Narain Singh, [1921] I.L.R. 43
All. 433; M. K. Ranganathan & Anr. v. Government of Madras & Ors.,[1955]
2 S.C.R. 374; The Central Talkies Ltd., Kanpur v. Dwarka Prasad, [1961] 3 S.C.R. 495, referred to. Maganlal V. MIS. Jaiswal
Industries, Neemach & Ors., [1989] 4 S.C.C. 344; M/s. Everest Industrial
Corporation & Ors. v. Gujarat State Financial Corporation, [1987] 3S.C.C.
597; Parkash Playing Cards Manufacturing Co. v. Delhi Financial Corporation,
A.I.R. 1980 Delhi 48; Gujarat State Financial Corporation V. Natson
Manufacturing Co. Pvt. Ltd. & Ors., [1979] 1 S.C.C. 193, distinguished.
West
Bengal Financial Corporation v. Gluco Series Pvt. Ltd.,A.I.R. 1973 Cal. 268, approved.
CIVIL
APPELLATE JURISDICTION:Civil Appeal No. 782 of 1991.
From
the Judgment and Order dated 10.7.1990 of the Bombay 484 High Court in Appeal
No. 423 of 1987.
Ashok
H. Desai, Vinay Tulzapurkar, Raghu Kothare and Rajiv Dutta for the Appeallant.
Soli
J. Sorabjee, D.R. Poddar, Ms. Purnima, Atul Sharma, A.V.Palli, E.C.Agrawala and
V.B.Joshi for the Respondents.
The
Judgments of the Court was delivered by OJHA, J. Special leave granted.
This
appeal by special leave has been preferred against the judgment dated 10th July, 1990 of the Bombay High Court in Appeal
No. 423 of 1987. Respondent No. I is a private limited company whereas
Respondents 2 to 4 are its Directors. Respondent No. 1, for setting up a
factory, sought financial assistance from the appellant and the appellant
sanctioned a loan of Rupees thirty lakhs. In order to secure the loan
Respondent No. 1 executed a deed of mortgage of certain properties on 29th June, 1979 and Respondents 2 to 4 on the same
date by executing a deed of guarantee stood surety for repayment of the said
loan. It was a case of personal guarantee only as no property was given in
security.
For
the sake of brevity the appellant, Respondent No. I and Respondents 2 to 4
shall hereinafter be referred to as the Corporation, the Company and the
sureties respectively. The amount of loan was to be advanced in phases and
after the Corporation had advanced a part of the total sanctioned loan, the
Company did not want to avail of the balance of the amount as it seems to have
lost interest in setting up the factory for reasons with which we are not
concerned. The Corporation consequently called upon the Company to repay the
amount already advanced together with interest and on its failure to do so took
possession under Section 29 of the State Financial Corporations Act, 1951 (for
short the Act) over the industrial concern, a term defined under Section 2(c)
of the Act and took steps to realise its outstanding dues by transfer of
property in the manner provided therein. However, notwithstanding advertisement
for sale thereof having been made on several occasions the Corporation could
not get an offer of more than about Rupees five lakhs.
Having
failed to recover the amount due to it in the manner stated above, the
Corporation proceeded to recover the same from the sureties whose liability was
coextensive and for this purpose it filed a petition in the High Court under
Sections 31 and 32 of the Act arraying 485 the Company as Respondent No. I and
the sureties as Resondents 2 to 4, with the prayer that "the respondents
be jointly and severally ordered and decreed to pay the petitioners the sum of Rs-
15,87,391.20 as per particulars hereto annexed and marked Ex. H. with further
interest at the rates of 14-1/2% per annum till payment and may further
"be ordered to pay to the petitioners costs of the petition". Thus,
according to the relief claimed in the petition the liability of the
respondents with regard to the amount payable to the Corporation on the date of
making of the petition was for a sum which was more than Rupees fifty thousand
which, as will be presently shown, represents maximum amount over which the
Bombay City Civil Court has pecuniary jurisdiction.
The
respondents contested the petition and raised three pleas in defence: (1) A
petition under Sections 31 and 32 of the Act could be filed only in the Bombay
City Civil Court and the High Court had no jurisdiction to entertain it, (2)
the relief claimed in the petition could not be granted under Sections 31 and
32 of the Act inasmuch as these sections did not contemplate passing of a money
decree not only against the principal debtor but also against the sureties; and
(3) the provisions in the Act relating to enforcement of the liability of a
surety were ultra vires Article 14 of the Constitution.
The
learned Single Judge of the High Court before whom the petition came up for
hearing did not, in view of his finding on the first two pleas, entertain any
argument on the last plea nor has the said plea been raised before us and as
such the same does not need to be gone into. As regards the second plea it was
conceded before the learned Single Judge on behalf of the Corporation by its
learned counsel that no such money decree could be passed against the Company
as was claimed in the petition. It was, however, asserted that such a decree
could be passed as against the sureties. In this view of the matter the
petition was treated and decided as being confined against the sureties only.
In regard to the plea of jurisdiction the learned Single Judge took the view
that since an appeal was pending before a Division Bench of the High Court
against the judgment of a Single Judge in Misc- Petition No. 357 of 1985, Maharashtra
State Financial Corporation v. Hindtex Engineers Pvt. Ltd., decided on 3rd
December, 1986 (since reported in 1987 Maharashtra Law Journal 243), in which
it had been held that such a petition was maintainable in the High Court, he
would proceed to decide- the petition on merits on the assumption that he had
jurisdiction to entertain it. On merits, he took the view that no money decree
could be passed in a petition under Sections 31 and 32 of the Act 486 even
against the sureties and since in the instant case sureties had admittedly not
given any security except their personal guarantee the said surety could be
enforced only in the ordinary course and not under the special machinery
provided under the Act. The petition was accordingly dismissed.
Aggrieved
by the judgment of the learned Single Judge the Corporation preferred an appeal
before a Division Bench which has been dismissed by the judgment under appeal.
The Division Bench not only upheld the finding of the Single Judge on merits
but also over ruled the decision reported in 1987 Maharashtra Law Journal 243
and held that the High Court had no jurisdiction to entertain a petition under
Sections 31 and 32 of the Act.
Shri Ashok
Desai, Senior Advocate appearing for the Appellant Corporation has assailed the
findings of the High Court in the judgment under appeal both on merits and on
the plea about jurisdiction. Shri Soli J. Sorabjee, Senior Advocate appearing
for the respondents has in reply asserted that the findings of the High Court
on both the pleas were unassailable. An application for intervention being I.A.
No. 3 of 1990 has been made on behalf of Nav Bharat Udyog, a partnernship firm
having its office at Mehta Building, 2nd Floor, 47, Nagindas Marg, Bombay,
confined to the plea with regard to jurisdiction and it has been urged by
learned counsel for the intervenor also, in line with the submission made by
learned counsel for the respondents, that it is only the Bombay City Civil
Court and not the High Court which has jurisdiction to entertain a petition
under sections 31 and 32 of the Act.
For
the sake of facility in considering the respective submissions made by learned
counsel for the parties we find it useful to refer to the statutory provisions
relevant in this behalf. Section 2 of the Bombay City Civil Court Act, 1948
contains definitions and inter alia provides:
"2.
In this Act unless there is anything repugnant in the subject or context,- (1)
"City Court" means the Court established under Section 3;
(2)
"High Court" means the High Court of Judicature at Bombay" 487 Section 3 in its turn
provides:
"3.
The State Government may by notification in the Official Gazette, establish for
the Greater Bombay a court, to be called the Bombay city Civil Court. Notwithstanding
anything contained in any law, such court shall have jurisdiction to receive,
try and dispose of all suits and other proceedings of a civil nature not
exceeding fifty thousand rupees in value, and arising within the Greater
Bombay, except suits or proceedings which are cognizable- (a) by the High Court
as a Court of Admiralty or Vice-Admiralty or as a Colonial Court of Admiralty,
or as a Court having testamentary, intestate or matrimonial jurisdiction, or
(b) by the High Court for the relief of insolvent debtors, or (c) by the High
Court under any special law other than the Letters Patent; or (d) by the Small
Cause Court:
Provided
that the State Government may, from time to time, after consultation with the
High Court, by a like notification extend the jurisdiction of the City Court to
any suits or proceedings which are cognizable by the High Court as a court
having testamentary or intestate jurisdiction or for the relief of insolvent
debtor." The other Section which is relevant is Section 12 which reads:
"12.
Notwithstanding anything contained in any law, the High Court shall not have
jurisdiction to try suits and proceedings cognizable by the City Court;
Provided
that the High Court may, for any special reason, and at any stage remove for
trial by itself any suit or proceeding from the City Court." As regards
Sections 31 and 32 of the State Financial Corporations Act, 1951, since the
submissions made by learned counsel for the 488 parties referred to most of the
provisions contained therein these two Sections may be quoted in their
entirety. They read:
"31.
(1) Where an industrial concern, in breach of any agreement makes any default
in repayment of any loan or advance or any instalment thereof or in meeting its
obligations in relation to any guarantee given by the Corporation or otherwise
fails to comply with the terms of its agreement with the Financial Corporation
or where the Financial Corporation requires an industrial concern to make
immediate repayment of any loan or advance under section 30 and the industrial
concern fails to make such repayment, then, without prejudice to the provisions
of section 29 of this Act and of section 69 of the Transfer of Property Act,
1882 any officer of the Financial Corporation, generally or specifically authorised
by the Board in this behalf, may apply to the district judge within the limits
of whose jurisdiction the industrial concern carries on the whole or a
substantial part of its business for one or more of the following reliefs,
namely:- (a) for an order for the sale of the property pledged, mortgaged,
hypothecated or assigned to the Financial Corporation as security for the loan
or advance; or (aa) for enforcing the liability of any surety; or (b) for
transferring the management of the industrial concern to the Financial
Corporation;
or (c)
for an ad interim injunction restraining the industrial concern from
transferring or removing its machinery or plant or equipment from the premises
of the industrial concern without the permission of the Board, where such
removal is apprehended.
(2) An
application under sub-section (1) shall state the nature and extent of the
liability of the industrial concern to the Financial Corporation, the ground on
which it is made and such other particulars as may be prescribed.
32.
(1) When the application is for the reliefs mentioned in clauses (a) and (c) of
sub-section (1) of section 31, the 489 district judge shall pass an ad interim
order attaching the security, or so much of the property of the industrial
concern as would on being sold realise in his estimate an amount equivalent in
value to the outstanding liability of the industrial concern to the Financial
Corporation, together with the costs of the proceedings taken under section 31,
with or without an ad interim injunction restraining the industrial concern
from transferring or removing its machinery, plant or equipment.
(IA)
When the application is for the relief mentioned in clause (aa) of sub-section
(1) of section 31, the district judge shall issue a notice calling upon the
surety to show cause on a date to be specified in the notice why his liability
should not be enforced.
(2)
When the application is for the relief mentioned in clause (b) of sub-section
(1) of section 31, the district judge shall grant an ad interim injunction
restraining the industrial concern from transferring or removing its machinery,
plant or equipment and issue a notice calling upon the industrial concern to
show cause, on a date to be specified in the notice, why the management of the
industrial concern should not be transferred to the Financial Corporation.
(3)
Before passing any order under sub- section I) or sub-section (2) or issuing a
notice under sub-section (IA), the district judge may, if he thinks fit,
examine the officer making the application.
(4) At
the same time as he passes an order under sub-section (1), the district judge
shall issue to the industrial concern or to the owner of the security attached
a notice accompanied by copies of the order, the application and the evidence,
if any, recorded by him calling upon it or him to show cause on a date to be
specified in the notice why the ad interim order of attachment should not be
made absolute or the injunction confirmed.
(4A) If
no cause is shown on or before the date specified in the notice under
sub-section (IA), the district judge shall forthwith order the enforcement of
the liability of the surety.
490
(5) If no cause is shown on or before the date specified in the notice under
sub-sections (2) and (4), the district judge shall forthwith make the ad
interim order absolute and direct the sale of the attached property or transfer
the management of the industrial concern to the Financial Corporation or
confirm the injunction.
(6) If
cause is shown, the district judge shall proceed to investigate the claim of
the Financial Corporation in accordance with the provisions contained in the
Code of Civil Procedure, 1908, in so far as such provisions may be applied
thereto.
(7)
After making an investigation under sub-section (6), the district judge may-
(a) confirm the order of attachment and direct the sale of the attached
property;
(b) vary
the order of attachment so as to release a portion of the property from
attachment and direct the sale of the remainder of the attached property;
(c) release
the property from attachment;
(d) confirm
or dissolve the injunction;
(da)
direct the enforcement of the liability of the surety or reject the claim made
in this behalf, or (e) transfer the management of the industrial concern to the
Financial Corporation or reject the claim made in this behalf;
Provided
that when making an order under clause (c) or making an order rejecting the
claim to enforce the liability of the surety under clause (da) or making an
order rejecting the claim to transfer the management of the industrial concern
to the Financial Corporation under clause (e), the district judge may make such
further orders as he thinks necessary to protect the interests of the Financial
Corporation and may apportion the-costs of the proceedings in such manner as he
thinks fit:
491
Provided further that unless the Financial Corporation intimates to the
district judge that it will not appeal against any order releasing any property
from attachment or rejecting the claim to enforce the liability of the surety
or rejecting the claim to transfer the industrial concern to the Financial
Corporation, such order shall not be given effect to, until the expiry of the
period fixed under sub-section (9) within which an appeal may be preferred or,
if an appeal is preferred, unless the High Court otherwise directs until the
appeal is disposed of.
(8) An
order of attachment or sale of property under this section shall be carried
into effect as far as practicable in the manner provided in the Code of Civil
Procedure, 1908 for the attachment or sale of property in execution of a decree
as if the Financial Corporation were the decree holder.
(8A)
An order under this section transferring the management of an industrial
concern to the Financial Corporation shall be carried into effect, as far as
may be practicable, in the manner provided in the Code of Civil Procedure,
1908, for the possession of immovable property or the delivery of immovable
property in execution of a decree, as if the Financial Corporation were the
decree- holder.
(9)
Any party aggrieved by an order under sub-section (4A), sub-section (5) or
sub-section (7) may, within thirty days from, the date of the order, appeal to
the High Court, and upon such appeal the High Court may, after hearing the
parties, pass such orders thereon as it thinks proper.
(10)
Where proceedings for liquidation in respect of an industrial concern have
commenced before an application is made under sub-section (1) of section 31,
nothing in this section shall be construed as giving to the Financial
Corporation any preference over the other creditors of the industrial concern
not conferred on it by any other law.
(11)
The functions of a district judge under this section shall be exercisable- 492
(a) in a presidency town, where there is a City Civil Court having
jurisdiction, by a judge of that court and in the absence of such court, by the
High Court; and b) elsewhere, also by an additional district judge or by any
judge of the principal court of civil jurisdiction.
(12)
For the removal of doubts it is hereby declared that any court competent to
grant an ad interim injunction under this section shall also have the power to
appoint a Receiver and to exercise all the court powers incidental thereto.
At
this place it may be pointed out that with regard to the enforcement of the
liability of a surety it was held by a Full Bench of the Allahabad High Court
in Munnalal Gupta v. Uttar Pradesh Financial Corporation and Another, A.I.R.
1975 Allahabad 416 that from the scheme of the Act it is clear that the speedy
remedy contained in Section 31 is available not against the surety but against
the borrower only. In arriving at this conclusion reference was made inter alia
to the reliefs (a), (b) and (c) contained in sub-section (1) of Section 31 and
to sub-section (4) of Section 32 of the Act as it then stood. It was pointed
out that this sub-section (4) contemplated a notice to the borrower industrial
concern after an interim order had been passed to show cause why the ad interim
injunction should not be made absolute but did not contemplate a notice to the
surety and that it would be unthinkable that the Legislature intended that the
property of the surety may be attached and put to sale without even a notice to
him.
It
appears that in order to meet the difficulty in enforcing the liability of a
surety as pointed out in the case of Munnalal Gupta (supra) Parliament found it
necessary to make specific provisions in this behalf and passed the State
Financial Corporations (Amendment) Act, 1985 (hereinafter referred to as Act 43
of 1985). Among other amendments made by Act 43 of 1985 were the following:
(i) In
sub-section (1) of Section 31 clause (aa) was inserted.
(ii)
In Section 32 a new sub-section (lA) and in sub-section (3) thereof the words
"or issuing a notice under sub-section (lA)" were inserted.
493
(iii) Sub-section (4) of Section 32 was substituted with an inclusion of
sub-section (4A).
(iv)
The word "or" occurring at the end of clause (d) of sub-section (7)
was omitted and a new clause (da) was inserted.
(v) In
the first proviso after sub-section (7) the words "or making an order
rejecting the claim to enforce the liability of the surety under clause (da) or
making an order rejecting the claim to transfer the management of the
industrial concern to the Financial Corporation under clause (e)" and in
the second provis1on the words "or rejecting the claim to enforce the
liability of the surety or rejecting the claim to transfer the industrial
concern to the Financial Corporation" were inserted and in sub-section (9)
the words "under sub-section (4A), sub-section (5)" were substituted
for "under sub-section (5)" By the same Act 43 of 1985 a new Section
32G was inserted which reads:
"32G.
Where any amount is due to the Financial Corporation in respect of any
accommodation granted by it to any industrial concern, the Financial
Corporation or any person authorised by it in writing in this behalf, may,
without prejudice to any other mode of recovery, make an application to the
State Government for the recovery of the amount due to it, and if the State
Government or such authority, as that Government may specify in this behalf, is
satisfied, after following such procedure as may be prescribed, that any amount
is so due, it may issue a certificate for that amount to the Collector, and the
Collector shall proceed to recover that amount in the same manner as an arrear
of land revenue." Having extracted the relevant statutory provisions we
now take up the question of jurisdiction. Sub-section (1) of Section 31 of the
Act contemplates making of the petition thereunder "to the district judge
within the limits of whose jurisdiction the industrial concern carries on the
whole or a substantial part of its business". A petition so made is to be
decided in the manner provided by Section 32 of the Act, subsection (11)
whereof inter alia provides that the functions of a district judge under the
said Section shall be exercisable, in a Presidency town, where there is a City
Civil Court having jurisdiction, by a judge 494 of the court and in the absence
of such court, by the High Court.
It has
been urged by learned counsel for the appellant that in a case to which the
provisions contained in sub- section (1) of Section 32 of the Act and of the
Bombay City Civil Court apply, if the extent of the liability sought to be
enforced against a surety is upto Rupees fifty thousand a petition under
Section 31 read with Section 32 of the Act would lie before the Bombay City
Civil Court and if the liability is more than the said amount it would lie
before the High Court. This, according to him is apparent from the use of the
words "having jurisdiction" in sub-section (11) of Section 32 of the
Act and the extent of the pecuniary jurisdiction of the Bombay City Civil Court
as contained in Section 3 of the Bombay City Civil Court Act.
According
to him since in the instant case the liability sought to be enforced against
the sureties was for a sum of more than Rupees fifty thousand the petition made
by the appellant was maintainable in the High Court alone and not in the Bombay
City Civil Court. On the other hand, it has been urged on behalf of the
respondents and the intervenor by their learned counsel that word
"jurisdiction" used in sub-section (1) of Section 31 and sub-section
(11) of Section 32 of the Act connotes territorial jurisdiction alone and that
the concept of pecuniary jurisdiction is beyond the scope of Sections 31 and 32
in view of the decision of this Court in Gujarat State Financial Corporation v.
Natson Manufacturing Co. Pvt. Ltd. and Ors., [1979] 1 SCC 193 relied on in M/s.
Everest Industrial Corporation and Ors. v. Gujarat State Financial Corporation,
[ 1987] 3 SCC 597 and Maganlal v. M/s. Jaiswal Industries, Neemach and Ors., [
1989] 4 SCC 344 which lays down that an application under Section 31(1) of the
Act is neither a plaint as contemplated by Article I of Schedule I nor an
application in the nature of a plaint as contemplated by Article 7 of the Court
Fees Act, 1870, that the special procedure contained in Section 3 1(1) was not
even something akin to a suit of a mortgagee to recover mortgage money by sale
of mortgaged property, that even if the Corporation- applicant so chooses it
cannot pray for a preliminary decree for accounts or final decree for payment
of money nor can it seek any personal liability, that the Corporation cannot
pray for a decree of its outstanding dues, that the reliefs contemplated by
Section 31(1) on being granted do not result in a money decree or decree for
recovery of outstanding loans or advance, that a substantive relief in an
application under Section 31(1) is something akin to an application for
attachment of property in execution of a decree at a stage posterior to the
passing of the decree and that such relief cannot be valued in terms of the
monetary gain or prevention of monetary loss.
495
Having given our anxious consideration to the question we are inclined to agree
with the submission made by learned counsel for the appellant. The three
decisions of this Court referred to above and relied on by learned counsel for
the respondents were not cases relating to the enforcement of a liability of a
surety made possible by the amendments by Act 43 of 1985.
In our
opinion, what has been laid down therein does not in any way militate against
ascertaining in monetary terms value or the extent of the liability of a
surety, which is sought to be enforced and there is intrinsic evidence in
Sections 31 and 32 themselves to support this view. Sub-section (2) of Section
31 makes it obligatory to state the "extent of -the liability (1) of
Section 32 refers to "an amount equivalent in value to the outstanding
liability". Sub-section (lA) of Section 32 contemplates notice to the
surety to show cause "why his liability" should not be enforced.
Sub-section
(6) of Section 32 contemplates investigation and determination of "the
claim" of the Financial Corporation which is to be recovered. If the
application under Section 3 1(1) is made before the district judge, there is no
difficulty because he has unlimited pecuniary jurisdiction. The difficulty
arises, as in the instant case, when such application is to be made either
before the city Civil Court or the High Court as contemplated by sub-section
(11) of Section 32. In our opinion, the extent of the liability stated in the
application as contemplated by sub-section (2) of Section 31 of the Act would
represent the value of the claim of the Corporation and if such value is upto
Rupees fifty thousand the application would lie in the City Civil Court and if
it is more than that amount it would lie in the High Court.
This
interpretation would give meaning and relevance to the words "having
jurisdiction" used in sub-section (11) of Section 32. A different
interpretation would render superfluous or otiose not only the words
"having jurisdiction" but also the words" and in the absence of
such court, by the High Court" occurring in the said sub- section (11)
inasmuch as in a Presidency-town, in terms of territorial jurisdiction, the
jurisdiction of the City Civil Court and of the High Court is co-terminus. That
it is so is clear from Section 3 of the Bombay city Civil Court Act and the
definition of the term "Presidency- town" contained in Section 3(44)
of the General Clauses Act, 1897 according to which "Presidency-
town" shall mean the local limits for the time being of the ordinary
original civil jurisdiction of the High Court of Judicature at Calcutta, Madras
or Bombay, as the case may be.
It is
a settled rule of interpretation of statutes that if the language and words
used are plain and unambiguous, full effect must be given to them as they stand
and in the garb of finding out the intention of the 496 Legislature no words
should be added thereto or subtracted there from. Likewise, it is again a settled
rule of interpretation that statutory provisions should be construed in a
manner which subserves the purpose of the enactment and does not defeat it and
that no part thereof is rendered surplus or otiose. The aforesaid
interpretation of sub-section (II) of Section 32 of the Act is not only in
conformity with the rule of interpretation referred to above, it also does not
militate in any way with the concept of an application under Section 31(1) of
the Act, not being a plaint in a suit for recovery of money.
Reliance
in this behalf has been placed by learned counsel for the intervenor on a
decision of the Delhi High Court in Parkash Playing Cards Manufacturing Company
v. Delhi Financial Corporation, AIR 1980 Delhi 48. In our opinion, however, the said decision is of little assistance
in resolving the plea of jurisdiction raised in the instant case, namely,
whether in a Presidency-town an application under Section 31(1) of the Act is
to be made before a City
Civil Court or High
Court. In the case of Parkash Cards Manufacturing Company (supra), the
provision which came up for consideration in the forefront was Section 5 of the
Delhi High Court Act, 1966 and the question of jurisdiction was largely
considered on that basis. Sub-section (11) of Section 32 with pointed reference
to the jurisdiction exercisable by a City Civil Court in a Presidency-town and the High Court did not fall for
consideration in that case.
The
case which throws some light on the point is a decision of the Calcutta Court Court
in West Bengal Financial Corporation v. Gluco Series Private Limited, AIR 1973
Cal 268) where it was held:
"Section
32 sub-section (1 1) does not say that the City Civil Court will have exclusive
jurisdiction but states "in the Presidency Town where there is City Civil
Court having jurisdiction, by a Judge of that Court and in the absence of such
Court by the High Court." The words "in the absence of such
Court" mean in the absence of such Court having jurisdiction in the
matter. The City Civil Court has no jurisdiction to entertain and try suits and
proceedings of Civil nature exceeding Rs.50,000 in value. Here the value of the
claims in the proceedings exceeds much more than Rs.50,000 and, therefore,
under Section 32, sub-section (11) this proceeding has been duly instituted in
the High Court.
497 In
the instant case the extent of the liability of the surety being more than
Rupees fifty thousand, the application could only have been filed and was
rightly filed in the High Court and the finding in the judgment under appeal to
the contrary for holding that the High Court had no jurisdiction to entertain
the application cannot be sustained.
Now we
come to the second plea raised on behalf of the respondents, namely, that the
relief claimed in the petition could not be granted under Sections 31 and 32 of
the Act inasmuch as these sections did not contemplate passing of a money
decree not only against the principal debtor but also against the sureties.
In so
far as the special machinery provided under Sections 31 and 32 of the Act being
applied to a surety who has given some property in security, it has been
pointed out by learned counsel for the appellant that even before the amendment
introduced in these sections by Act 43 of 1985 a Division Bench of the Kerala
High Court had, in Thressiamma Varghese v. K. S. F. Corporation, AIR 1986 Kerala
222, taken the view that the provisions contained in these sections would be
applicable. According to teamed counsel, in any view of the matter, after the
amendment of these sections by Act 43 of 1985 introducing specific provisions
for enforcement of the liability of a surety, the matter is now beyond doubt
that the procedure contained in these sections shall be applicable for the
enforcement of the liability of such surety who has given some property in
security. According to him even in the judgment under appeal the High Court has
accepted this proposition and has expressed its reservation with regard to
enforcement of the liability of a surety who has not given any property in security
and has given only a personal guarantee. Reference in this connection has been
made to the following observations in the judgment under appeal:
"Even
if the Corporation s now entitled to obtain relief also against any property
which might have been given a security by the surety, the further question
would remain whether the Corporation is entitled under Section 31(l)(aa) to
obtain any relief personally against such a surety." Indeed, the
submission even before us which was made by learned counsel for the appellant
has been that the only effect of the 1985 amendment is that it enables
proceedings to be taken for the realisation of the security given by the surety
in respect of his own 498 liability whereas such proceedings could not be taken
before the amendment. He, however, asserted that the Act even after the
amendment does not enable a monetary decree to be passed against the surety any
more than a decree can be passed against the principal debtor. According to
him, in this view of the matter, in the instant case, the liability of the
sureties could not be enforced under Sections 31 and 32 of the Act in as much
as they had given only personal guarantee and had not given any property in
security.
In the
background of the rules of interpretation of statutes adverted to earlier and
the specific provisions with regard to enforcement of the liability of a surety
introduced in Sections 31 and 32 of the Act by Act 43 of 1985 we find it
difficult to agree with the submission made by learned counsel for the respondents.
It is true, as has been indicated above, that this Court has in the case of
Gujarat State Financial Corporation (supra) taken the view that Sections 31 and
32 of the Act do not contemplate the passing of a money decree and the
principle laid down in that case has been relied on in two later decisions
referred to above. The said principle would, in our opinion, not come in the
way of enforcing the liability under Sections 31 and 32 of the Act even against
the surety who has given only a personal guarantee. As indicated earlier those
were not cases dealing with the question of enforcement of the liability of
such a surety and naturally, therefore, the provisions in this behalf
specifically introduced in Sections 31 and 32 of the Act by Act 43 of 1985 were
not considered in those cases. However, in this connection what is of
significance is that clause (aa) inserted in sub- section (1) of Section 31 of
the Act by Act 43 of 1985 uses the words "any surety". On its plain
grammatical meaning there can be no doubt that the term "any surety"
will include not only a surety who has given some security but also one who has
given only a personal guarantee. If the submission made by learned counsel for
the respondents is accepted the words "who has given property by way of
security" will have to be added after the words "any surety".
Such a course not only militates against the normal rule of interpretation but
also tends to defeat the very purpose of the amendment introduced by Act 43 of
1985 enabling the Financial Corporation to make an application under Section
31(1) of the Act "for enforcing the liability of any surety",
inasmuch as it would have the effect of restricting or qualifying the amplitude
of the term "any surety" which the Legislature has in its wisdom
thought it fit to use in its widest sense. The procedure, in our opinion, for
enforcing the liability of a surety who has given only a personal guarantee
would, after the amendment introduced by Act 43 of 1985, be that an application
under Section 31(1) shall lie for enforc- 499 ing the liability of such surety
as contemplated by clause (aa) of the said section. On such an application
being made notice shall be issued to the surety as contemplated by sub- section
(1A) of Section 32. This may, in view of sub-section (3), be done after
examining the officer making the application. If no cause is shown in pursuance
of the notice served on him by the surety sub-section (4A) of Section 32
contemplates passing of an order forthwith for the enforcement of the liability
of surety. If, on the other hand, cause is shown the claim of the Financial
Corporation shall be determined as contemplated by sub-section (6) of Section
32 and thereafter a direction as contemplated by clause (da) of sub-section (7)
shall be issued for the enforcement of the liability of the surety or rejecting
the claim made in this behalf. In the case of Maganlal (supra) which related to
the relief contemplated by clause (a) of Section 31(1) of the Act it was
pointed out that the purpose of enacting Sections 31 and 32 of the Act was
apparently to provide for a speedy remedy for recovery of the dues of the
Financial Corporation and that these sections had the effect of cutting across
and dispensing with the provisions of the Code of Civil Procedure, 1908
(hereinafter referred to as the Code) from the stage of filing a suit to the
stage of obtaining a decree in execution whereof such properties as are
referred to in clause (a) of sub-section (1) of Section 31 could be sold. In
our opinion, on the same principle, even in a case where the relief claimed in
the application under Section 31(1) of the Act is for enforcing the liability
of a surety who has given only a personal guarantee, sub-section (4A) of
Section 32 where no cause is shown and clause (da) of sub-section (7) where
cause is shown contemplate cutting across and dispensing with the provisions of
the Code from the stage of filing a suit to the stage of obtaining a decree
against the surety, the passing of an order which can straightaway be executed
as if it were a decree against the surety which may be passed in the event of a
suit being filed. As seen above, sub-section (2) of Section 31 enjoins upon the
Financial Corporation to state the "extent of the liability of the
industrial concern" in the application to be made under sub-section (1)
thereof. Since the liability of the surety is co-extensive the same shall, in
the absence of anything contrary in the surety bond, be the liability of the
surety also. In a case where there is any provision confining the liability of
the surety, the extent of the liability to be shown in the application shall be
such as is in conformity with the surety bond. When no cause is shown by the
surety on being served with the show cause notice the order which will be
passed under sub-section (4A) of Section 32 would be for the enforcement
against the surety of that liability which is stated in the application. Where,
however, cause has been shown by the surety the extent of his liability shall
be determined 500 as contemplated in sub-section (6) of Section 32 and it is
the liability so determined which shall be enforced under clause (da) of
sub-section (7) of Section 32. It does not require any elucidation that the
extent of the liability referred to above will necessarily have to be in the
very nature of things in terms of monetary value even though it may not be
possible to call it a decree stricto sensu defined in Section 2(2) of the Code
for recovery of money.
Here,
Section 46B of the Act may be usefully extracted:
"46B.
The provision of this 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 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.
On its
plain language, in the absence of anything inconsistent in the Act, the
provisions of the Code shall obviously be applicable for the enforcement of the
liability of the surety directed to be enforced as aforesaid in the same manner
as a decree is enforced in a suit instituted in this behalf. It is true, as has
been emphasised by learned counsel for the respondents, that there is no
provision corresponding to sub-section (8) of Section 32 for the enforcement of
the liability of a surety who has given only personal guarantee but, in our
opinion, keeping in view the amendments introduced by Act 43 of 1985, it is not
very significant. To us it appears that in view of Section 46B of the Act and
for the reasons to be stated shortly even if Section 46B was not there, in the
absence of any provision to the contrary in the Act, that order also, which was
passed in a case where relief contemplated by clause (a) of Section 31(1) of
the Act was claimed, could have been enforced in the manner provided in the
Code. The purpose of yet inserting sub-section (8) in Section 32 seems to be
that it was not intended to apply the provisions of execution of a decree for
attachment or sale of property as contained in the Code in its entirety and to
achieve this purpose the words "as far as practicable" were used in
that sub-section. To us it appears that in the absence of any provision such as
sub-section (8) of Section 32 applying the manner provided in the Code for the
execution of a decree against a surety only "as far as practicable"
the entire provision contained in this behalf in the Code 501 shall be
applicable. this would be so in view of the use of the expression "any
other law for the time being applicable to an industrial concern". That
the Code is applicable to an industrial concern also is not in dispute and
cannot be doubted.
We may
now state our reasons for holding that even if Section 46B of the Act was not
there the provisions of the Code for the execution of a decree against a surety
who had given only personal guarantee would, in the absence of any provision to
the contrary in the Act, be applicable.
In
view of the decision of this Court in The Central Taikies Ltd. Kanpur v. Dwarka
Prasad, [1961] 3 SCR 495, where it was held that a persona designata is a
person selected as an individual in his private capacity, and not in his
capacity as filling a particular character or office, since the term used in
Section 31(1) of the Act is "district judge" it cannot be doubted
that the district judge is not a persona designata but a court of ordinary
civil jurisdiction while exercising jurisdiction under Sections 31 and 32 of
the Act. In National Sewing Thread Co. Ltd. v. James Chadwick & Bros. Ltd.,
[1953] SCR 1028 while repelling the objection that an appeal under the Letters
Patent against the judgment of a Single Judge passed in an appeal against the
decision of the Registrar under Section 76(1) of the Trade Marks Act, 1940 was
not maintainable it was held at pages 1033-34 of the Report:
"Obviously
after the appeal had reached the High Court it has to be determined according
to the rules of practice and procedure of that Court and in accordance with the
provisions of the charter under which that court is constituted and which
confers on it power in respect to the method and manner of exercising that
jurisdiction. The rule is well settled that when a statute directs that an
appeal shall lie to a Court already established, then that appeal must be
regulated by the practice and procedure of that Court. This rule was very
succinctly stated by Viscount Haldane L.C. in National Telephone Co. Ltd. v.
Postmaster-General, in these terms:
"When
a question is stated to referred to an established Court without more, it, in
my opinion, imports that the ordinary incidents of the procedure of that Court
are to attach, and also that any general right of appeal from its decision
likewise attaches." 502 The same view was expressed by their Lordships of
the Privy Council in R.M.A.R.A. Adaikappa Chettiar v. Ra. Chandrasekhara Thevar,
wherein it was said:
"Where
a legal right is in dispute and the ordinary Courts of the country are seized
of such dispute the Courts are governed by the ordinary rules of procedure
applicable thereto and an appeal lies if authorised by such rules, notwithstanding
that the legal right claimed arises under a special statute which does not, in
terms confer a right of appeal." Again in Secretary of State for India v. Chellikani Rama Rao, when
dealing with the case under the Madras Forest Act their Lordships observed as
follows:
"It
was contended on behalf of the appellant that all further proceedings in Courts
in India or by way of appeal were
incompetent, these being excluded by the terms of the statute just quoted.
In
their Lordships' opinion this objection is not well-founded. Their view is that
when proceedings of this character reach the District Court, that Court is
appealed to as one of the ordinary Courts of the country, with regard to whose
procedure, orders, and decrees the ordinary rules of the Civil Procedure Code
apply." Though the facts of the cases laying down the above rule were not
exactly similar to the facts of the present case, the principle enunciated
therein is one of general application and has an apposite application to the
facts and circumstances of the present case. Section 76 of the Trade Marks Act
confers a right of appeal to the High Court and says nothing more about it.
That
being so, the High Court being seized as such of the appellate jurisdiction
conferred by section 76 it has to exercise that jurisdiction in the same manner
as it exercises its other appellate jurisdiction and when such jurisdiction is
exercised by a single Judge, his judgment becomes subject to appeal under
clause 15 of the Letters Patent there being nothing to the contrary in the
Trade Marks Act.
And it
is in view of this decision that we are of the opinion that the provisions of
the Code would have, even in the absence of Section 503 46B of the Act, been
attracted in the matter of enforcing the liability of a surety. In view of the
foregoing discussion, the finding of the High Court even on this point cannot
be sustained. Since, however, the High Court has not made a determination of
the liability of the sureties as contemplated by sub-section (6) of Section 32
of the Act, the matter has to be sent back to it for doing so and thereafter to
pass an order as contemplated by clause (da) of sub-section (7) of Section 32
of the Act and to proceed to enforce the liability so determined an against the
sureties.
In the
result, this appeal succeeds and is allowed with costs and the judgment of the
Division Bench and also of the Single Judge of the High Court are set aside.
The High Court shall now decide the application made by the appellant in
accordance with law and in the light of the observations made above.
S.C.
AGRAWAL, J. Special leave granted.
In
this appeal two questions arise for consideration:
1)
whether a petition under sections 31 and 32 of the State Financial Corporations
Act, 1951 (hereinafter referred to as 'the Act') can be filed only in the
Bombay Civil City Court and the Bombay High Court, on its original side, has no
jurisdiction to entertain it? and
2) whether
in such a petition, a decree/order can be passed directing payment of money by
respondents nos. 2 to 4 who stood surety for repayment of the loan advanced by
the appellant, Financial Corporation to respondent no. 1?
The
Division Bench of the Bombay High Court has answered both these questions
against the appellant. My learned brother Ojha, J. has disagreed with this view
of the Bombay High Court on both the questions. He has held that as the extent
of the liability of the surety is more than Rupees fifty thousand the
application could only have been filed and was rightly filed in the High Court
which had the jurisdiction to entertain it. He has also held that in view of
the amendments introduced in the Act by the Amending Act 43 of 1985, an order
for payment of money can be passed against the surety who has given only a
personal guarantee. While I am fully in agreement with the decision of my
learned brother on the first question with regard to the jurisdiction of the
Bombay High Court to entertain the petition filed by the appellant, I have not
been able to persuade myself to agree with the view taken by him on the second
question.
Section
31 of the Act has been described in the marginal note as special provisions for
enforcement of claims by the Financial Corpora- 504 tion. It deals with a
situation where an industrial concern, in breach of any agreement, makes any
default in repayment of any loan or advance or any instalment thereof or in
meeting its obligations in relation to any guarantee given by the Corporation
or otherwise fails to comply with the terms of its agreement with the Financial
Corporation or where the Financial Corporation requires an industrial concern
to make immediate repayment of any loan or advance under section 30 of the Act
and the industrial concern fails to make such repayment. It enables an officer
of the Financial Corporation, generally or specially authorised by the Board in
this behalf, to apply to the District Judge within the limits of whose
jurisdiction the Industrial concern carries on the whole or a substantial part
of its business for one or more of the following reliefs:
(a)
for an order for the sale of the property pledged, mortgaged, hypothecated or
assigned to the Financial Corporation as security for the loan or advance; or (aa)
for enforcing the liability of any surety; or (b) for transferring the
management of the industrial concern to the Financial Corporation; or (c) for
an ad interim injunction restraining the industrial concern from transferring
or removing its machinery or plant or equipment from the premises of the
industrial concern without the permission of the Board, where such removal is
apprehended.
Clause
(aa) was inserted in sub-section (1) of section 31 by section 19 of Act 43 of
1985.
Section
32 of the Act prescribes the procedure to be followed by the District Judge in
respect of applications under section 31 of the Act. Prior to the amendments
introduced in it by Act 43 of 1985, the said section read as under:
"32.
Procedure of district judge in respect of applications under Section 31. (1)
When the application is for the reliefs mentioned in clauses (a) and (c) of
sub-section (1) of section 31, the district judge shall pass an ad interim
order attaching the security, or so much of the property of the industrial
concern as would on being sold realise in his estimate an amount equivalent in
value to the outstanding 505 liability of the industrial concern to the
Financial Corporation, together with the costs of the poceedings taken under
section 31, with or without an ad interim injunction restraining the industrial
concern from transferring or removing its machinery, plant or equipment.
(2)
When the application is for the relief mentioned in clause (b) of sub-section
(1) of section 31, the district judge shall grant an ad interim injunction
restraining the industrial concern from transferring or removing its machinery,
plant or equipment and issue a notice calling upon the industrial concern to
show cause, on a date to be specified in the notice, why the management of the
industrial concern should not be transferred to the Financial Corporation.
(3)
Before passing any order under sub-section (1) or sub-section (2) the district
judge may, if he thinks fit, examine the officer making the application.
(4) At
the same time as he passes an order under sub-section (1), the district judge shall
issue to the industrial concern a notice accompanied by copies of the order,
the application and the evidence, if any, recorded by him calling upon it to
show cause on a date to be specified in the notice why the ad interim order of
attachment should not be made absolute or the injunction confirmed.
(5) If
no cause is shown on or before the date specified in the notice under
sub-sections (2) and (4), the district judge shall forthwith make the ad
interim order absolute and direct the sale of the attached property or transfer
the management of the industrial concern to the Financial Corporation or
confirm the injunction.
(6) If
cause is shown, the district judge shall proceed to investigate the claim of
the Financial Corporation in accordance with the provisions contained in the
Code of Civil procedure, 1908, in so far as such provisions may be applied
thereto.
(7)
After making an investigation under sub- section (6), the district judge may-
506 (a) confirm the order of attachment and direct the sale of the attached
property:
(b)
Vary the order of attachment so as to release a portion of the property from
attachment and direct the sale of the remainder of the attached property;
(c) release
the property from attachment;
(d) confirm
or dissolve the injunction; or (e) transfer the management of the industrial
concern to the Financial Corporation or reject the claim made in this behalf:
Provided
that when making an order under clause (c) the district judge may make such
further orders as he thinks necessary to protect the interests of the Financial
Corporation and may apportion the costs of the proceedings in such manner as he
thinks fit:
Provided
further that unless the Financial Corporation intimates to the district judge
that it will not appeal against any order releasing any property from
attachment, such order shall not be given effect to, untill the expiry of the
period fixed under sub-section (9) within which an appeal may be preferred or,
if an appeal is preferred, unless the High Court otherwise directs until the
appeal is disposed of.
(8) An
order of attachment or sale of property under this section shall be carried
into effect as far as practicable in the manner provided in the Code of Civil
Procedure, 1908 for the attachment or sale of property in execution of a
decree, as if the Financial Corporation were the decree- holder.
(8A)
An order under this section transferring the management of an industrial
concern to the Financial Corporation shall be carried into effect, as far as
may be practicable, in the manner provided in the Code of Civil Procedure,
1908, for the possession of immovable property of the delivery of movable
property in execution of a decree, as if the Financial Corporation were the
decree-holder.
507
(9) Any party aggrieved by an order under sub- section (5) or sub-section (7)
may, within thirty days from the date of the order, appeal to the High Court,
and upon such appeal the High Court may, after hearing the parties, pass such
orders thereon as it thinks proper.
(10)
Where proceedings for liquidation in respect of an industrial concern have
commenced before an application is made under sub-section (1) of section 31,
nothing in this section shall be construed as giving to the Financial
Corporation any preference over the other creditors of the industrial concern
not conferred on it by any other law.
(11)
The functions of a district judge under this section shall be exercisable- (a)
in a presidency town, where there is a city civil court having jurisdiction, by
a judge of that court and in the absence of such court, by the High Court; and
(b) elsewhere, also by an additional district judge or by any judge of the
principal court of civil jurisdiction.
(12)
For the removal of doubts it is hereby declared that any court competent to
grant an ad interim injunction under this section shall also have the power to
appoint a Receiver and to exercise all the other powers incidental
thereto." By Act 43 of 1985, the following amendments have been introduced
in section 32 of the Act:
(1)
Sub-section (1A) which reads as under was inserted:
"(1A)
When the application is for the relief mentioned in clause (aa) of sub-section
(1) of section 31, the district judge shall issue a notice calling upon the
surety to show cause on a date to be specified in the notice why his liability
should not be enforced." (2) In sub-section (3), the words, or issuing a
notice under sub-section (1A) "were inserted after the words"
"or sub-section (2)".
508
(3) Subsection (4) was substituted by sub-sections (4) and (4A), which read as
under:
"(4)
At the same time as he passes an order under subsection (1), the district judge
shall issue to the industrial concern or to the owner of the security attached
a notice accompanied by copies of the order, the application and the evidence,
if any, recorded by him calling upon it or him to show cause on a date to be
specified in the notice why the ad interim order of attachment should not be
made absolute or the injunction confirmed.
(4A) If
no cause is shown on or before the date specified in the notice under
sub-section (1A), the district judge shall forthwith order the enforcement of
the liability of the surety.
(4) In
sub-section (7), clause (da) was inserted which provides as under:
"(da)
direct the enforcement of the liability of the surety or reject the claim made
in this behalf; or" (5) In the first proviso to sub-section (7), the words
"or making an order rejecting the claim to enforce the liability of the
surety under clause (da) or making an order rejecting the claim to transfer the
management of the industrial concern to the Financial Corporation under clause
(e)" were inserted after the words "order under clause (c)".
(6) In
the second proviso to sub-section (7), the following words were inserted after
words "any property from attachment":
or
rejecting the claim to enforce the liability of the surety or rejecting the
claim to transfer the industrial concern to the Financial Corporation."
(7) In sub-section (9), for the words "sub-section (5)", the words
"under sub-section (4A), sub-section (5)" were substituted.
In
order to find an answer to the second question, it is necessary to construe the
words "for enforcing the liability of any surety" which were
introduced by way of clause (aa) in sub-section (1) of section 31 509 by the
Act 43 of 1985, and also find mention in sub-sections (IA), (4A) and (7) of
section 32. The learned counsel for the appellant has urged that the said words
are wide in their amplitude and would cover a case where the surety has given a
personal guarantee only and his liability is purely monetary. The learned
counsel for the sureties, viz., respondents Nos. 2, 3 and 4, has, on the other
hand, submitted that the said words must be construed in a more limited sense
to cover only those cases where surety has given security of property to
guarantee the repayment of loan and in such an event the remedy provided by
sections 31 and 32 of the Act can be invoked against the surety and that the
said provisions do not enable passing of an order for payment of a monetary sum
against the surety who has given personal guarantee only. In order to deal with
these rival contentions, it would be of relevance to take note of the state of
law existing on the date of the enactment of Act 43 of 1985 whereby amendments
were introduced in sections 31 and 32 of the Act.
The
provisions contained in sections 31 and 32 of the Act came up for consideration
before this Court in Gujarat State Financial Corporation v. M/s Natson
Manufacturing Co. (P) Ltd. & Ors., [1979] 1 SCR 372. That case related to
payment of court fee on an application submitted under section 31(1) of the Act
and the question for consideration was whether such an application should be
treated on par with a suit by a mortgagee to enforce the mortgage debt by sale
of the mortgaged property which is being treated as a money suit failing within
the purview of Article 1 of Schedule I to the Bombay Court Fees Act, 1959 or it
should bear a fixed court fee under the residuary Article 1(c) to Schedule II
of the said Act. This Court disagreeing withthe view of the Gujarat High Court,
held that an application under section 31(1) of the Act would be covered by the
residuary Article 1(c) of Schedule II to the said Act and it should bear a
fixed court fee. In this context, this Court has examined the nature of the
proceedings contemplated by section 31(1) of the Act. After referring to the
provisions of the Act, this Court has held that "it would be inappropriate
to say that an application under section 31(1) is something akin to a suit by a
mortgagee to recover mortgage money by sale of mortgaged property" and
that "in an application under section 31(1), the Corporation does not and
cannot pray for a decree for its outstanding dues" and that none of the
three reliefs mentioned in sub-section (1) of section 31, if granted,
"results in a money decree or decree for recovery of outstanding loans or
advance" (pages 378-379). After referring to the provisions contained in
sub-section (6) of section 32, which provides for investigation of the claim of
the Financial Corporation in 510 accordance with the provisions contained in
the code of Civil Procedure, 1908, this Court has laid down:
"The
claim of the Corporation is not the monetary claim to be investigated though it
may become necessary to specify the figure for the purpose of determining how
much of the security should be sold. But the investigation of the claim does
not involve all the contentions that can be raised in a suit. The claim of the
Corporation is that there is a breach of agreement or default in making
repayment of loan or advance or instalment thereof and, therefore, the
mortgaged property should be sold. It is not a money claim. The contest can be
that the jurisdictional fact which enables the Corporation to seek the relief
of sale of property is not available to it or no case is made out for transfer
of management of the industrial concern." (p.381) This Court has further emphasised
that sub- section (7) of section 32 "prescribes what reliefs can be given
after investigation under subsection (6) is made, and it clearly gives a clue
to the nature of contest under sub-section (6)" and further that
sub-section (8) of section 32 .'only prescribes the mode and method of
executing the order of attachment or sale of property as provided in the Code
of Civil Procedure". According to this Court, "the provision
contained in sub-section (6) does not expand the contest in the application
under s. 31(1) as to render the application to be a suit between a mortgagee
and the mortgagor for sale of mortgaged property" (p.381). This Court has
held that "the substantive relief in an application under s. 31(1) is
something akin to an application for attachment of property in execution of a
decree at a stage posterior to the passing of the decree" (p.382).
In
Everest Industrial Corporation & Ors. v. Gujarat State Financial
Corporation, [1987] 3 SCR 507 this Court was examining the question whether the
rate of interest on the amount payable under an order passed under s. 32 of the
Act from the date said order is governed by s. 34 of the- Code of Civil
Procedure, 1908 or whether it is payable at the contractual rate. This Court
held that s. 34 CPC was not applicable to these proceedings. After referring to
the earlier decision in Gujarat State Financial Corporation v. M/s Natson
Manufacturing Co. (P) Ltd. & Ors. case (supra), this Court has reiterated
that the proceedings instituted under s. 31(1) of the Act is something akin to
an application for attachment of property in execution of a decree at a stage
posterior 511 to the passing of the decree and, therefore, no question of
passing any order under s. 34 CPC would arise since s. 34 CPC would be
applicable only at the stage of the passing of the decree and not to a stage
posterior to the passing of the decree.
In Maganlal
etc. v. Jaiswal Industries Neemach & Ors., [1989] 3 SCR 697, after
referring to the decisions mentioned above, this Court has observed:
"In
view of these two decisions, the law seems to be settled that an application under
section 31(1) of the Act cannot be put on par to a suit for enforcement of a
mortgage nor the order passed thereon under section 32 of the Act be put on par
as if it was an order in a suit between a mortgagee and the mortgagor for sale
of mortgaged property. On the other hand the substantive relief in an
application section 31(1) is something akin to an application for attachment of
property in execution of a decree at a stage posterior to the passing of the
decree." (p.710) The question whether the provisions of ss. 31 and 32 of
the Act could be invoked against the property of the surety came up for
consideration before a full bench of the Allahabad High Court in Munnalal Gupta
v. Uttar Pradesh Financial Corporation & Anr., AIR 1975 ALL 416. In that case,
the surety had mortgaged his house by way of collateral security for the loan
granted to the borrower industrial concern and the Financial Corporation had
moved an application under s. 31 of the Act for sale of the property of the
surety which had been mortgaged as well as the property of the principal debtor
which had been mortgaged and the question was whether an order for sale of the
property of the surety could be passed on an application under s. 31( 1) of the
Act. It was held that the relief which can be granted by a District Judge under
s. 32 of the Act must be confined against the borrower industrial concern and
its property and that the District Judge can pass an ad-interim order attaching
the security or so much of the property of the industrial concern as would be
sufficient in his opinion to satisfy the outstanding liability. It was laid
down that the order of attachment is restricted to the property of industrial
concern given to the Corporation by way of surety and he is not empowered to attach
the property of a person other than an industrial concern. According to the
said decision, a surety, who is not a partner or otherwise interested in the
industrial concern, cannot be proceeded against under s. 31 so that his
property, even if mortgaged with the Corporation, cannot be attached 512 by the
District Judge. In this context, the teamed Judges pointed out the sub-section
(4) of s. 32 contemplates a notice to the borrower industrial concern after an
interim order has been passed to show cause why the ad interim injunction
should not be made absolute and the said provision does not contemplate a
notice to the surety and that it would be unthinkable that the legislature
intended that the property of the surety may be attached and put to sale without
even a notice to him.
The
amendments introduced in ss. 31 and 32 by Act 43 of 1985 seek to remove the
lacunae in those provisions as pointed out in the aforesaid judgment of the
Allahabad High Court and with that end in view clause (aa) has been inserted in
sub-section (1) of section 31 whereby a Financial Corporation can move an
application under s. 31(1) for enforcing the liability of any surety and
amendments have been made in s. 32 to prescribe the procedure for grant of the
said relief on such application. Express provision has been made in sub-section
(1A) of s. 32 for issuing a notice to the surety requiring him to show cause
why his liability should not be enforced.
It is
argued on behalf of the appellant that the words "for enforcing the liability
of any surety" are wide in their amplitude to cover the monetary liability
of a surety who has given personal guarantee only and has not given his
property as security for repayment of the loan by the borrower industrial
concern, though it is not disputed that in so far as the borrower industrial
concern is concerned, the amendments introduced in ss. 31 and 32 by Act 43 of
1985 do not alter the existing law and no order in the nature of a money decree
can be passed against him in these proceedings. It is, however, urged that in
so far as the surety is concerned the position is different and in view of the
amendments introduced in ss. 31 and 32, an order in the nature of a money
decree can be passed against the surety who has given personal guarantee only
and has not given security of his property for repayment of the loan.
This
argument implies that as a result of the amendments introduced in sections 31
and 32 by Act 43 of 1985 while the nature of the proceedings as against the
borrower industrial concern remains unchanged and the said proceedings continue
to be proceedings akin to an application for attachment of property in
execution of a decree at a stage posterior to the passing of the decree, the
nature of these poceedings has been changed in so far as the surety is
concerned and they have become proceedings in which an order in the nature of a
money decree can be passed. In other words, in a case where the borrower
industrial concern has obtained a loan from the Financial Corporation without
furnishing the security of property on the basis of 513 a personal guarantee
given by the surety, the Financial Corporation will have to proceed against the
borrower industrial concern by instituting a regular suit for recovery of the
dues whereas it can proceed against the surety under sections 31 and 32 of the
Act. It means that as compared to the principal debtor the Financial
Corporation vis-a-vis the surety has been placed on a more advantageous
Position. It may, however, be mentioned that under the common law, which finds
re-enactment in section 128 of the Indian Contract Act, 1872, the liability of
the surety is coextensive with that of the principal debtor unless it is
otherwise provided by the contract. It means that the liability must be proved
against the surety in the same way as against the principal debtor. Thus under
the general law the surety stands on the same footing as the principal debtor.
These submissions raise the question: can the legislature be attributed the
intention to alter the existing law so as to bring about a change in the nature
of proceedings under sections 31 and 32 of the Act and also to alter the
general law relating to the enforcement of the liability of the surety? I find
it difficult to answer this question in the affirmative.
In the
matter of interpretation of statutes, a principle which is well-recognised in
England is: "it is thought to be in the highest degree improbable that
Parliament would depart from the general system of law without expressing its
intention with irresistible clearness, and to give any such effect to general
words merely because this would be their widest, usual, natural or literal
meaning would be to place on them a construction other than that which
Parliament must be supposed to have intended." (See: Mexwell on The
Interpretation of Statutes, 12th Edition, p. 116). In Minet v. Leman, [1955]
(20) Eeav. 269. Sir John Romilly, M.R. stated as a principle of construction,
which could not be disputed, that "the general words of the Act are not to
be so construed as to alter the previous policy of the law, unless no sense or
meaning can be applied to those words consistently with the intention of
preserving the existing policy untouched". In this context, it would be of
relevance to take note of the decision of this court in M.K.Ranganathan & Anr.
v. Government of Madras & Ors., [1955] 2 SCR 374. In that case this Court
was required to construe the words "or any sale held without leave of the
Court of any of the properties of the Company" which were added in s. 232
(1) of the Indian Companies Act, 1913 by Act 22 of 1936. the said amendment was
introduced with a view to get over the decision of the Allahabad High Court in Kayastha
Training and Banking Corporation Ltd v. Sat Narain Singh, [1921] ILR 43 All.
433.
The question was whether the words which had been added refer only to sales
held through the intervention of the 514 court or whether they included the
sales effected by the secured creditors outside the winding up and without the
intervention of the court. This Court held that the said words referred only to
sales held through the intervention of the Court and that the amendments
whereby these words were introduced were not intended to bring within the sweep
of the general words "sales effected by the secured creditors outside the
winding up". In order to arrive at this conclusion, this Court placed
reliance on the principle of interpretation referred to above and it was
observed:
"If
the construction sought to be put upon the words "or any sale held without
leave of the Court of any of the properties" by the Appellants were
accepted it would effect a fundamental alteration in the law as it stood before
the amendment was inserted in section 232 by Act XXII of 1936. Whereas before
the amendment the secured creditor stood outside the winding up and could if
the mortgage deed so provided, realise his security without the intervention of
the Court by effecting a sale either by private treaty or by public auction, no
such sale could be effected by him after the amendment and that was certainly a
fundamental alteration in the law which could not be effected unless one found
words used which pointed unmistakably to that conclusion or unless such
intention was expressed with irresistible clearness. Having regard to the
circumstances under which the amendment was inserted in section 232 by Act XXII
of 1936 and also having regard to the context we are not prepared to hold that
the Legislature in inserting that amendment intended to effect a fundamental
alteration in law with irresistible clearness. Such a great and sudden change
of policy could not be attributed to the Legislature and it would be legitimate
therefore to adopt the narrower interpretation of those words of the amendment
rather than an interpretation which would have the contrary effect." (p.
388) In my opinion, regard must be had of this principle of interpretation
while construing the expression "for enforcing the liability of any
surety" which has been inserted by way of clause (aa) in sub-section (1)
of section 31 by Act 43 of 1985. Considering the amendments introduced in
sections 31 and 32 of the Act by Act 43 of 1985 and having regard to the
principle of interpretation referred to above I do not find any provision in
the said amendments which may indicate that 515 Parliament has evinced an
intention to effect a fundamental alteration in the law with irresistible
clearness. In this context, it would be of relevance to note that while
introducing the said amendments Parliament has chosen not to make any alteration
in relation to the following matters:
(1) In
the marginal note, section 31 is described as `special provisions for
enforcement of claims by Financial Corporation'. No alteration has been made
therein by Act 43 of 1985 and section 31 continues to be a special provision
for enforcement of claims by Financial Corporation.
(2)
Parliament has not expressly indicated that an order for payment of money only
may be passed against the surety.
(3)
Although in sub-sections (8) and (8A) of section 32, express provision has been
made prescribing the procedure for carrying into effect an order of attachment
and sale of property and an order transferring the management of an industrial
concern to the Financial Corporation passed under sub-section (7) of section
32, no specific provision was made prescribing the procedure for carrying into
effect of an order passed under clause (da) of sub-section (7) of section 32
directing the enforcement of the liability of the surety. It cannot be
comprehended that while making a provision which would enable passing of an
order in the nature of a money decree against a surety on an application under
section 31 of the Act, Parliament would have refrained from making a
corresponding provision prescribing the procedure for carrying into effect of
such an order.
Having
regard to the features referred to above, it appears to be more in consonance
with the scheme of the Act and the object underlying sections 31 and 32 that by
introducing the amendments in sections 31 and 32 of the Act, Parliament
intended to place the surety on the same footing as the principal debtor in the
matter of enforcement of the claims of the Financial Corporation so as to
enable the Financial Corporation to obtain relief against the properties of the
principal debtor as well as the surety. If considered in this perspective, the
expression "enforcing the liability of any surety" in clause (aa) of
section 31(1) would mean enforcing the liability of a surety in the same manner
as the liability of principal debtor is enforced, i.e., by attachment and sale
of property keeping in view that the proceedings under sections 31 and 32 of
the Act are akin to an application for attachment of property in execution of a
decree at a stage posterior to the passing 516 of the decree. This construction
would obviate the need for a procedure for carrying into effect of the order
passed under clause (da) of sub-section (7) of section 32 of the Act because
such an order would be an order for attachment and sale of the property of the
surety and it can be carried into effect in accordance with sub-section (8) of
section 32 which prescribes the procedure for carrying into effect an order for
attachment and sale of property. This construction will also preserve the
special nature of the proceedings under section 31 and would not result in
bringing about a fundamental alteration in the law laid down by this Court with
regard to the nature of these proceedings as well as the general law where under
a surety is to be treated on par with the principal debtor.
For
the reasons aforesaid, I am in agreement with the view of the Division Bench of
the High Court on this question and I am unable to concur with the decision of
my learned brother Ojha, J.
I
would, therefore, uphold the decision of the Division Bench of the High Court
that the petition whereby the appellant had sought the relief of a money decree
for payment of Rs. 15,87,391.20 paise against respondents 2 to 4 was not
maintainable and the said relief could not be granted to the appellant in
proceedings under section 31 of the Act. As a result, the petition filed by the
appellant must be dismissed and for the same reason this appeal also must fail.
R. N.
J. Appeal allowed.
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