Haji Mohammad Sadiq vs State Financial Corporation and others

This civil First Appeal is directed against the order of the learned District Judge, Anantnag, dated 25111978 making absolute his order dated

14111975 passed in terms of Section 31 of the Financial Corporation Act and has arisen in the following circumstances of the case:

2, The respondent No. 1 (State Financial Corporation) had filed an application Under Section 31 of the Financial Corporation Act, 1951

(hereinafter referred to as Act) in the court of the learned District Judge, Anantnag, for recovery of Rs. 7, 939.63 from respondents 2 and 3

herein, by sale of the properties and assets mortgaged by them with the said Corporation. The Corporation had agreed to advance a loan of Rs.

17, 000/to respondent No. 2 herein and in this regard a mortgage deed was got executed from him. The respondent No. 3 herein, stood as

guarantor for repayment of loan by respondent No, 1. The respondent No. 2, allegedly, didfnot comply with the terms and conditions of the loan

and, therefore, only Rs. 12, 000/ could be advanced to him by the Corporation. The appellant herein was not a party to any of the transactions

entered into between the Corporation and the respondents 2 and 3. The respondent No. 3, however, has sold to the appellant the oil expeller, the

motor and a rice busker in the year, 1975, for which he had obtained the loan from the Corporation.

The application was resisted by the appellant and the respondents 2 and 3. They had filed' their objections before the learned trial court. The

appellant in his objections had stated that the property purchased by him did not figure in the mortgage deed and he was a bonafide purchaser of

the same. He had admitted to have purchased from respondent No. 2, the rice busker, the oil expeiler and a motor for Rs. 30, 000/.

The learned trial court examined some witnesses, as were produced by the parties and then after hearing them made the order dated 14111975

absolute. The order dated 14111975 is reproduced, asunder, for ready reference:

Counsel for the applicant.

I have perused the petition of the applicant u/s 31 of the State Financial Corporation Act 1951 as well as the Annexures.

An adinterim order attaching the mortgaged properties and' such other properties of the respondents as would when sold raise the amount

equivalent to outstanding liabilities of the respondents one and two to the applicant for the sum of Rs. 7, 838.63 (Rupees seven thousand eight

hundred and thirty eight and paisa sixty three only) the amount due and payable by respondent one to the applicant under the said Indenture of

Mortgage and interest thereon from 16th September 1975 till the date of its realisation and payment to the applicant together with costs and other

expenses incurred and to be incurred by the applicant on behalf of the Respondents, as also of the costs of this application. The other side is also

restrained to transfer or remove its machinery plant or equipment till further orders.

A notice accompanied by copies of the order, the applicant and the annexures be issued to the other side to show cause why the adinterim order

of attachment should not be made absolute and injunction confirmed. Put up on 17121975.

Sd/.......................

I have heard the learned counsel for the appellant. The reaspondents were summoned they appeared but lateron absented themselves and were

set exparte. The record was thoroughly examined.

Mr. Bashir argued that the appellant was a bonafide purchaser of the articles and the said articles were not mentioned in the mortgage deed

anywhere and nor were such articles in existence when the said deed was executed and, therefore, the learned trial court has misdirected itself in

passing an order against the property of the respondents 2 and 3, which stood mortgaged. The argument of Mr. Bashir appears not only forceful

but convincing as well. The order impugned appears to have been passed in utter confusion by the learned trial judge, without understanding the

correct meaning of the terms mortgage and charge and has intermingled them with 'pledge' or 'hypothecation'. He appears to have taken them all as

synonymous. He has, without any legal justification rejected the contention of the appellant, who had projected his case of bonafide purchase in the

right perspective. If the said articles were not mortgaged with the Corporation, then why should they be attached or auctioned out, muchless, when

they stood purchased by a bonafide purchaser, who was not a party to the mortgage deed The mortgaged property was some land and a house of

the respondent No. 2 and the same was sufficient to satisfy the Corporation for a paltry sum of Rs. 7, 836.63 It was manifastly unnecessary to

attach much more properly than was required to sati fy the amount due to the Corporation and by doing so, the learned trial court has transgressed

its jurisdiction causing unnecessary harassment to a bonafide purchaser. The respondent No. 2 had mortgaged 12 Marias of land as well as a shed

besides his residential house, as an additional security in favour of the Corporation and the sale by auction of any of such items could satisfy the

amount due to the Corporation. Not only that, respondent No. 3 had stood as guarantor of the respondent No. 2 and the court could have

ordered the auction of his property for making good the loan of the Corporation. This all shows that the learned trial court has not applied its mind

to the facts of the case and not even to the import of its own order dated 141 11975 at the time of passing the order impugned. The order dated

14111975 was to be made absolute only to the extent of satisfy ing the Corporation to the tune of Rs. 7, 838.63 and not beyond that. The trial

court instead has made it absolute as a whole which, in my opinion, is not correct. The Corporation cannot be given more than is due to it and that

amount is to be obtained from the person who has borrowed the same, or on his failure, from his guarantor. This was the simple proposition before

the learned trial court, which it has failed to comprehend and, therefore, the orderimpugned requires to be accordingly, modified.

In the result, the appeal succeeds and is hereby accepted The order impugned is set aside to the extent of the property of the appellant, i. e. oil

expeller, rice busker and 10 H, P. Motors purchased by him bona fidely from respondent No. 2. The learned trial court shall, however, be at

liberty to proceed with the auction proceedings so for as it relates to the property of the respondents 2 and 3 and to the extent of satisfying the

amount due from them to the State Financial Corporation, after due notice to them. Let the appeal file be consigned to record. The record shall be

remitted back to the learned District Judge, Anaatnag, for further necessary action under law, as directed above.