(Prayer: This writ petition is filed under article 226 and 227 of Constitution of India. It is prayed that this Hon’ble High Court may kindly be pleased to 1) issue a Writ in the nature of Certiorari quashing the order of the Hon’ble Court below dated 18.4.2006 on I.A.No.1 filed by the petitioner under 0.XXXVIII Rules 5 of C.P.C. in Misc. Petition No.10/2004 vide Annexure-E and order dated 1.2.2007 on the I.A.No.V, filed by the Petitioner under 0.XXXIX R.1 and 2 in Misc. Petition No.10/2004 vide Annexure-G, and to further allow the said applications. 2) Grant such other relief’s as are deemed fit and necessary under the circumstances of the case including the cost of this writ petition.)
1. This writ petition is by the Karnataka State Financial Corporation (hereinafter it is referred to as Corporation for the sake of brevity) seeking quashing of the orders dated 18.04.2006 passed on I.A.Nos.2 and 5 respectively in Miscellaneous Petition No.10/2004 by the District and Sessions Judge, Gadag.
2. 1st respondent herein had availed a loan from Corporation on 26.09.1996. Respondent Nos.2 to 7 were the earlier Directors and Respondent Nos.8 to 17 are the new Directors. Respondent Nos.13 and 18 are the guarantors to the loan obtained by the 1st respondent. On account of non payment of loan amounts borrowed by 1st Respondent Corporation took over the properties exercising its power under Section 29 of State Financial Corporation Act, 1951 (hereinafter referred to as “S.F.C. Act” for brevity) and sold the properties. However, the Respondent Corporation was unable to recover its entire dues from the sale proceeds. Petitioner Corporation filed Miscellaneous Petition No.10/2004 on the file of District and Sessions Judge, Gadag under Section 31(1) (a), (aa) and Section 32 of S.F.C. Act. Thereafter notices have been issued by the District Court on registering the petition as Miscellaneous Petition No.10/2004. The said petition before the District Court came to the presented on 01.07.2004. During the pendency of the proceedings before the District Court Corporation filed an application on 10.3.2006 under Order 38 Rule 5 of CPC seeking for attachment before the judgment of property R.S.44 Plot No.64 situated at Industrial Estate, Gadag which property belonged to the respondent Nos.13 and 18 or to call for security amount of Rs.25,00,000/- which property belonged to the respondent Nos.13 and 18. Likewise on 19.09.2006 an application under Section 32 (2) of S.F.C. Act read with Order 39 Rule 1 and 2 of CPC came to be filed seeking an order of temporary injunction to restrain respondents No.13 and 18 herein not to sell, alienate or create charge over the property No.64 above referred to. To these two applications objections were not filed by any of the respondents. The said applications came to be rejected by orders dated 18.04.2006 and on 01.02.2007 respectively on the ground that said application had to be filed along with the main petition itself and not subsequently after lapse of two years and also on the ground that when application is filed under Section 32(4) it has to be considered whether or not order of attachment made under Section 32(2) is to be made final or not and as such scheme of S.F.C. Act provides for filing interlocutory application once only and it cannot be filed later. It is these two orders, which are questioned by the Corporation in the present writ petition.
3. Heard Sri.Hemant R. Chandangoudar, learned advocate appearing for the Corporation and Sri.Dinesh M. Kulkarni, learned advocate appearing for respondent No.18. This Court by order dated 03.07.07 has dismissed the petition against Respondent Nos.1 to 12 and Respondent Nos.14 to 17. Notice to respondent No.13 is dispensed with, since, respondent No.13 had been placed exparte before the District Court.
4. It is the contention of learned advocate Sri. Hemant R. Chandangoudar, learned advocate for petitioner that District Court committed a serious error in dismissing the applications as not maintainable and it ought not to have restored to such an interpretation of S.F.C. Act, which leads to mischief and ought to have accepted the contention which advanced the cause envisaged under SFC Act. He would contend that if respondents No.13 and 18 alienated the said property petitioner Corporation would not be in a position to recover the monies due to it from the respondents and it would deprive the Corporation of its legitimate action of recovery of public money. He would contend that application for attachment or injunction filed at any stage of the proceedings would be maintainable depending upon the situation and if the situation so warrants, Corporation would be entitled to seek prohibitory order or the injunctive relief or attachment of the property. He would also contend, under sub Section (8) of Section 32 of S.F.C. Act it would clothe the District Court with jurisdiction to issue an order of attachment or an injunction and finding of the District Judge is contrary to the said provisions and he would also contend that order passed by the District Court is not a speaking order. On these grounds he seeks for setting aside the order passed by the District Judge by quashing the same and allowing the writ petition and prays for granting an order of attachment/injunction.
5. Per contra Sri.Dinesh M.Kulkarni, learned advocate appearing for respondent No.18 herein would support the order passed by the District Judge and contend that once the provision under Section 31(1)(a)(aa) is invoked the Corporation cannot file repetitive applications either for attachment or injunction. Sections 31 and 32 would go to show that once the Corporation has invoked this jurisdiction under these provisions it has to proceed as such. Hence he contends that order passed by the trial Court does not suffer from any infirmity whatsoever. He would also contend that once Corporation takes recourse to Section 31 of the Act Corporation cannot invoke the common law by pressing into service either Order 39 Rule 1 and 2 or Order 38 Rule 5 and seek injunction or attachment. In support of his submission he relies upon the judgment in the case of Karnataka State Industrial Investment and Development Corporation Ltd., Vs. S.K.K. Kulkarni and others reported in (2009)2 SCC 236. On these grounds he prays for dismissal of the writ petition. He would also elaborate his submissions by contending that 18th respondent has gifted property in question to his two daughters by Gift Deed dated 29.06.2004 as per Annexure-R1 and in turn they have executed sale deed on 27.09.2005 as per Annexure-R2 and purchasers are in actual possession and enjoyment of the property and contends that as on the date of filing of the application for injunction/attachment, property in question had already been alienated.
In order to appreciate the contention raised by the respective learned advocates, it would be necessary to extract the provisions of Section 31 and Section 32, which reads as under:
Section 31. Special provisions for enforcement of claims by Financial enforcement of claims by Financial Corporation.- (1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any installment thereof [of 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, 1882/4 of 1882) any officer of the Financial Corporation, generally or specially 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]
Section 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 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.
6. The Hon’ble Supreme Court in the case of S.K.K.Kulkani and others case referred to supra has considered the provisions of Sections 29, 31 and 32 and has held as under:
“6. The right of a ……………. mode of recovery. Therefore, the powers under Section 31 and Section 32 are in addition to the power of realization of money under the transfer of Property Act or any other law. It is within the discretion of SFC to choose the forum under a particular Act. once there is a default in the payment of loan, it is for the Corporation to decide as to whether it shall proceed under Section 29 for sale of the property mortgaged or whether it shall take any recourse under Section 31 of the 1951 Act.
7. Section 31 of the Act …………. Locality. Where SFC takes recourse to the provisions of Section 31 of the Act and obtains an order from the Court, it shall ordinarily seek its enforcement in the manner provided for by Section 32 of the 1951 Act, which Section is aimed to act in aid of the orders passed under Section 31 of the Act. Where SFC takes recourse to Section 31 and obtains an order from the court, it shall seek its enforcement in the manner provided for by Section 32 of the Act, therefore, Section 31 makes a provision for enforcement of claims. It is primarily procedural in nature.
8. The remedy provided ………. its claims. The remedy under Section 31 is not the sole or exclusive remedy available to SFC. It is only an additional remedy, which is conferred upon SFC. The substantive relief in an application under Section 31(1) is not a plaint. This is clear from the form of the application, the nature of the relief, the compulsion to make interim order, the limited enquiry contemplated by Section 32(6), the nature of the relief that can be granted and the method of execution. The proceedings under Section 32 of the 1951 Act are, therefore, nothing but execution proceedings. A combined reading of section 31 and Section 32 of the 1951 Act indicates that an investigation has to be made to find out the terms and conditions on which loan was given by SFC to the industrial concern and whether SFC was entitled to the relief under Section 31(1) on account of the breech of the terms of agreement.
9. Having discussed the nature of the proceedings under Section 31(1) of the 1951 Act we are of the view that Section 31 read with Section 32 constitutes a code by itself. It is a special provision. It is a mode of recovery. It does not prevent or exclude SFC invokes Section 31(1), it has to proceed in accordance with the procedure prescribed in Section 32.”
7. In the said case the issue which came up for consideration before the Hon’ble Apex Court was with regard to the territorial jurisdiction within whose jurisdiction an application under 31(1)(a) and (aa) had to be filed. The Corporation in the said case having sold the unit belonging to the defaulter and having been unable to realize its dues, proceeded to file a petition before the Court of 6th Additional City Civil Judge, Bangalore City which came to be decreed and this Court came to a conclusion that the 6th Additional City Civil Judge, Bangalore had no territorial jurisdiction to hear miscellaneous petition in view of Section 31 of S.F.C. Act. The Hon’ble Apex Court affirmed the view taken by this Court and held Corporation ought to have instituted the said case before the District Judge, Belgaum, within whose jurisdiction the Industrial concern was located. In this case we are not concerned about the territorial jurisdiction since no such plea has been advanced by the respondents herein. It is the power which can be exercised by the Corporation to grant an order of attachment or injunction and when such power can be exercised is the one which is under consideration for being answered.
8. As observed by the Hon’ble Apex Court in the case S.K.K. Kulkarni referred to supra Section 31 read with Section 32 of S.F.C. Act constitutes a code by itself. It is a special provision. It is a mode of recovery for Corporation to recover its dues from defaulter, borrower/guarantor. The Observation made by the Hon’ble Apex Court in para 9 and 13 reads as under:
“Para 9. However, once SFC invokes Section 31(1), it has to proceed in accordance with the procedure prescribed in Section 32.
Para-13. The 1951 Act is special statute. Therefore, the provisions of the 1951 act have to be strictly construed”.
Is the one, which has been pressed into service. Mr. Dinesh M. Kulkarni would contend that once petition is filed under Section 31(1)(a)(aa) Corporation would not be entitled to seek either attachment order/injunctive relief by filing an interlocutory application invoking Code of Civil Procedure. A reading of Section 31(1)(a) would make it clear that power of the Corporation to invoke Section 31 is in addition to the power available to it under Section 29 of S.F.C. Act and Section 69 of T.P. Act, 1887. It would be within the domain of the Corporation to choose its Forum and it is in this background the Hon’ble Supreme Court in the Case of Karnataka State Industrial Investment and Development Corporation Ltd., referred to supra has held that once the Corporation exercises its discretion to invoke Section 31, it has to proceed in that direction only. In the instant only. In the instant case it is 69 of T.P. Act, 1887. It would be within the domain of the Corporation to choose its Forum and it is in this background the Hon’ble Supreme Court in the Case of Karnataka State Industrial Investment and Development Corporation Ltd., referred to supra has held that once the Corporation exercises its discretion to invoke Section 31, it has to proceed in that direction only. In the instant case it is found that under clauses (a) to (c) of 31(1) Corporation can seek any of the remedies available thereunder. Corporation would be entitled to apply to the District Judge within the limits, under whose jurisdiction the industrial unit or concern carries on whole or substantially of its business for grant of one or more relief’s enumerated in clause (a) to (c) of Section 31. The procedure is prescribed under Section 32 as to the manner in which, such application or petition filed by the Corporation under Section 31(1)(a)(aa) of the S.F.C. Act, by the Corporation is to be examined by District Court. In the instant case Corporation in its main petition filed under Section 31(1)(a) (aa) and Section 32 has sought for following reliefs.
a) That the order may kindly be passed permitting the petitioner to enforce the personal guarantee and to recover the outstanding balance of Rs.36,45,821/- of the respondents with compound interest as per the agreement executed by the respondents.
b) And pass an order for enforcing the liabilities of all the sureties and guarantors.
c) Grant such other reliefs as this Hon’ble Court may deem fit.
d) The petitioner may kindly be allowed with costs in the interest of justice and equity.
e) The Court may kindly be attached the personal properties of all the respondents and adjust the sale proceeds to the loan dues.
Under prayer No. (e) the Corporation has sought for attaching personal properties of all the respondents and to adjust the sale proceeds to the loan dues. In the instant case under personal guarantee and to recover the outstanding balance of Rs.30,45,821/- from the respondents with compound interest as per the agreement and thereby invoking clause (a) and (aa) of the subsection (1) of Section 31 i.e., for sale of property, pledged, mortgaged, hypothecated or assigned to the financial Corporation as per the loan agreement or guarantee agreement. For enforcing liability of surety this main relief is sought which is substantive in nature and the relief claimed in the interlocutory applications seeking prohibitory orders by way of attachment or injunction is in aid of main relief. Hence, by holding that said application ought to have been filed along with the main petition by the District Court, I am of the considered view that it would negate the very purpose for which the interlocutory application was filed. This conclusion is arrived at by quoting the proposition whereunder in a given case if an industrial concern and/or its guarantor would become defaulter and later the Corporation which has invoked the jurisdiction under Section 31(1)(a) to enforce the liability against them and after issuance of notice either before the appearance of the respondent or after appearance of the respondent and before filing the objections or during the pendency of the proceedings if the Corporation were to seek either prohibitory order or attachment order or injunctive relief based on any subsequent event namely when attempts by the borrower or the guarantors to encumber and/or alienate the property is made which comes to the knowledge of the Corporation indeed would be a situation which would perforce the Corporation to seek relief of either attachment or injunction based on such subsequent events. If a pedantic view is taken to hold said interlocutory application ought to have been filed when main petition itself was filed it would to defeat the very object with the provision has been made namely to recover the moneys dues or enforce the liability of the respondents and such a situation may not have been present when main petition was filed when enforcement of liability was sought for. The injunctive/prohibitory relief claimed would always be in aid and assistance of main relief and it cannot be held or construed that interlocutory application invoking provisions of Code of Civil Procedure under Order 39 Rule 1 and 2 would not be available to the Corporation after filing of the petition since such interpretation would render the very provision otiose.
9. The Court while interpreting a statute would bear in mind that legislature was supposed to know law and legislation enacted is a reasonable one. Where application of a parliamentary and legislative Act comes up for consideration, endeavours should be made to see that the provisions of both the Acts are made applicable and to perpetuate the object of the Act must be given effect to. A reasonable and purposive construction of a statute has to be resorted in such a manner so as to see that object of the Act is fulfilled which in turn would lead to fulfilling its constitutional obligations.
10. At this juncture, it would be of benefit to extract the judgment of the Hon’ble Supreme Court on this issue, in the case of New India Assurance Company Ltd Vs. Nusli Neville Wadia And Another reported in 2008 3 SCC 279 [Paras 51, 54] which reads as under:-
“51. Except in the first category of cases, as has been noticed by us hereinbefore. Sections 4 and 5 of the Act, in our opinion, may have to be construed differently in view of the decisions rendered by this Court. If the landlord being a State within the meaning of Article 12 of the Constitution of India is required to prove fairness and reasonableness on its part in initiating a proceeding, it is for to show how its prayer meets the constitutional requirements of Article 14 of the Constitution of India. For proper interpretation not only the basic principles of natural justice have to be borne in mind, but also principles of constitutionalism involved therein. With a view to read the provisions of the Act in a proper and effective manner, we are of the opinion that literal interpretation, if given, may give rise to an anomaly or absurdity which must be avoided. So as to enable a superior court to interpret a statute in a reasonable manner, the court must place itself in the chair of a reasonable legislator/author. So done, the rules of purposive construction have to be resorted to which would require the construction of the Act in such a manner so as to see that the object of the Act fulfilled; which in turn would lead the beneficiary under the statutory scheme to fulfill its constitutional obligations as held by the court inter alia in Ashoka Marketing Ltd (supra).
53. The provisions of the Act and the Rules in this case, are, thus required to be construed in the light of the action of the State as envisaged under Article 14 of the Constitution of India. With a view to give effect thereto, the doctrine of purposive construction may have to be taken recourse to. [See 2007 (7) Scale 753: Oriental Insurance Co. ltd. vs. Brij Mohan and others.]”
[Emphasis supplied by me]
11. As held by the Hon’ble Apex Court in the case of S.S.K. Kulkarni and others referred to supra that power to pass interim order is provided under Section 31 and the limited inquiry within which the said prayer is to be considered by the District Judge is provided under Sub-section (6) of Section 32. In view of the discussion made herein above, I am of the considered view that contention of the learned counsel for the respondent No.18 that petitioner Corporation would not be entitled to invoke provisions of CPC to seek injunctive relief in a proceedings initiated under Section 31(1)(a)(aa) cannot be accepted and it is hereby rejected.
12. Now coming to the facts of the present case whereunder Sri.Dinesh M.Kulkarni has contended that even prior to filing of these applications itself property had sold and/or encumbered would be a matter which requires to be considered by the District Judge, in as much as the application in question namely I.A.No.2 and 5 having been dismissed on the ground of maintainability and District Judge having not entered into inquire on merits, it would be suffice to direct the District Judge to consider these two applications on merits and in accordance with law by taking into consideration the observations made herein above and dispose of the same in accordance with law and on merits.
13. In view of the above discussion, order dated 18.04.2006 and 01.02.2007 at Annexures ‘G’ and ‘E’ respectively are hereby quashed and I.A.No.2 and 5 filed by the petitioner Corporation is restored back to the file of District Judge for being considered on merits and disposed of in accordance with law. Respondents would also be entitled to file their objections to the said application if any, within two weeks from the date on which proceedings are taken up by the District Judge. Ordered accordingly. No order as to costs.
14. Order passed by this Court on 03.04.2007 would continue to operate till the disposal of the applications I.A.No.2 and 5 by trial Court dehors the effect of alleged alienation said to have been made in respect of the properties in question.