Karnataka State financial Corporation, Bangalore vs B. Shivaji Mendon

Heard the petitioner''s Counsel Sri K. Gopal Hegde and Sri N. Kumar, learned Counsel for the respondent.

This revision petition arises from order dated 17-1-1996 passed by the District Judge, Mangalore. The facts of the case in brief are that the Karnataka State Financial Corporation filed an application under Sections 31(1)(aa) and 32 of the State Financial Corporations Act, 1951 for recovery of Rs. 34,17,158-78 ps. from the three respondents jointly and severally who had executed a guarantee deed in favour of the Karnataka State Financial Corporation in respect of the amounts that had become due against the 4th respondent-partnership firm represented by its Managing Partner. The respondents 1 to 3 put in their appearance and filed objections denying the liability and the proceedings were pending from 8-3-1993 and was fixed for evidence on 3-6-1995. The present respondent who was respondent 2 before the learned District Judge and who had been one of the guarantors, filed an application u/s 10 read with Section 151 of the CPC for stay of proceedings of the case namely Miscellaneous Case No. 15 of 1993 (application u/s 31(1)(aa) of the State Financial Corporations Act) alleging that the Corporation had also filed a Suit No. 134 of 1994 in the Court of Civil Judge, Udupi, claiming the amount against the Insurance Company with which the cargo vessel was insured. The present respondent i.e., Sri Shivaji Mendon prayed that pending decision of the suit filed against the Insurance Company, the proceedings of the Miscellaneous Case No. 15 of 1993 instituted u/s 31(1)(aa) of the State Financial Corporations Act, 1951, be stayed. The District Judge considered the matter and opined that it was open to the petitioner-Corporation to initiate recovery proceedings and take resorts to proceedings u/s 31 against the respondents 1 to 3 before it i.e., against the guarantor particularly when the Suit No. 24 of 1992 and Suit No. 134 of 1994 had been pending before the Civil Judge, Udupi. It further opined that the proceedings before it were not in the nature of a suit and Section 10 of the CPC did not apply to the present case. But, it opined that, it had power u/s 151 to stay the proceedings of the miscellaneous case u/s 31 of the State Financial Corporations Act and passed an order allowing the application and directing that the proceedings of this miscellaneous case are stayed in exercise of powers u/s 151 of the CPC pending adjudication of the suits filed by the Corporation namely O.S. Nos. 24 of 1992 and 134 of 1994 in the Court of Civil Judge, Udupi. Feeling aggrieved by this order of the learned Additional District Judge, Mangalore, the Karnataka State Financial Corporation has come up before this Court u/s 115 of the CPC.

The Karnataka State Financial Corporation is a public institution and a social welfare institution under the State Financial Corporations Act. The duties and powers of the Karnataka State Financial Corporation have been clearly indicated in Chapter 3 of the Act. Section 31 of the Act contains special provision for enforcement of claims made by the Karnataka State Financial Corporation and provides for application being made for that purpose before the District Judge within whose jurisdiction the industrial concern carries on business for orders as specified in clause (a), clause (aa), clause (b) or clause (c) thereof and Section 32 prescribes the detailed procedure to be followed. The proceedings u/s 31 are not the suits. Section 24 of the Act discloses the object of the principle to be kept in view by the Board in discharging its functions and it provides that it shall act on business principles having due regard to the interest of industry, commerce and general public. It may do many acts as described in Section 25 of the Act itself. But there is general power to carry on business and keeping in view the principles having due regard to the interest of industry, commerce and general public. Apart from general business, special business has been indicated in Section 25. It also confers power to grant loans and advances as well u/s 25(g). When this public body has advanced loan, it has to make recovery also. The suit may be a lengthy procedure. Therefore, this special Act has provided special procedure for recovery of money advanced to the industrial concerns without any delay, but no doubt keeping in view the principles of natural justice and fair play. Therefore, an extensive procedure has been provided u/s 32 of the Act. It is because the public money is kept invested and if it is returned without returns or its recovery is allowed to be delayed by dilatory tactics, it may affect the interest of general public. So to get rid of this, special law has been enacted for expeditious recovery. That being the very object of these provisions, this object has to be kept in view when Court is called upon to exercise powers u/s 151. Section 151 of the CPC very clearly says that nothing in this Code shall be deemed to limit or otherwise affect the inherent power of the Court to make such orders as may be necessary for the ends of justice, or and to prevent abuse of process of the Court. The expression "interest of justice" has a connotation both ways. Interest of justice has to be looked at from the point of view not only of the applicant, but both the parties. The granting of stay order in such cases u/s 151 definitely delays recovery of money for which the claim has been made u/s 31 of the Act. If the proceedings has to be stayed till decision of the suit, the whole purpose would have been frustrated. Secondly, the proceedings can be taken under this Act against the principal-debtor as well as the guarantor, but no suit could lie. The Insurance Company is a distinct body. Even if the suit had been filed earlier against Insurance Company, but if the money is recovered under these proceedings from the guarantor or the principal-debtor, the suit may become infructuous. But if these proceedings are stayed, this may only result in delaying the recovery rendering the scheme of the Act nugatory. The purpose of Section 151 is not to render this special Act nugatory. This appears not to have been kept in view by the learned District Judge. When the learned District Judge did not apply its mind to this aspect of the matter and tried to exercise or exercised powers u/s 151, it acted illegally. It should also take note that the applicant who had made the application before it was not a party in the suit and the suit was only against the Insurance Company. In that view of the matter, even if any decree has been passed against the Insurance Company, the applicant i.e., the present respondent would not have been benefited by it. Looking to the effect of this order which has the effect of rendering the provisions of Section 31 nugatory and delaying the whole proceedings, it appears just and proper to interfere with the order of the Court below.

The revision petition, as such, is allowed. The order passed by the District Judge staying the proceedings on the ground that Suit No. 24 of 1992 or 34 of 1994 is pending is set aside. Let the District Judge proceed expeditiously with the Miscellaneous Case No. 15 of 1993 in accordance with law.