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Judgment
AR. Lakshmanan, J.—This appeal is directed against the order dated 17.3.1997 in W.P. No. 3679 of 1997 passed by Jayasimha Babu, J.,
dismissing the writ petition filed by the writ appellant challenging the proceedings initiated by the respondent/ Corporation u/s 29 of the State
Financial Corporation Act.
The appellant applied to the respondent/Corporation for a term loan of Rs. 13.5 lakhs for construction of the building and purchase of
machinery and setting up a factory for manufacture of HDPE woven sacks, which was sanctioned on 5.3.1985. The petitioner firm executed a
registered mortgage hypothecation and other connected documents on 16.5.1985 and also created an equitable mortgage by deposit of title deeds
in favour of the respondent mortgaging the land and premises in Pudupatti Village bearing S.F. No. 672 and all the machineries etc., and promising
to repay the amount with interest at 14.5% p.a. The appellant had also agreed to pay an additional interest of 2% p.a. in case of default.
Subsequently, the Corporation sanctioned an additional term loan of Rs. 2.45 lakhs on 23.1.1986 out of which Rs. 2.18 Lakhs was disbursed.
According to the appellant, the industry became sick from the very beginning on account of various reasons, the chief among them being the non-
availability of continuous power supply and as a result, the appellant firm defaulted in repayment to the respondent/Corporation. Consequently, the
Corporation filed S.F.C.O.P. No. 5 of 1990 u/s 31 and 32 of S.F.C.Act, 1951 against the appellant herein in the court of he Principal District
Judge of Ramnad at Madurai praying inter alia (a) attachment of the mortgaged properties (b) order for sale of mortgaged/hypothecated properties
(c) appointment of a receiver in respect of the petitioner concern/unit, (d) order of injunction restraining the petitioner firm from transferring or
removing the machinery, plaint and equipments from the factory without the permission of the respondent and (e) enforcing the liabilities of the
sureties, namely the other partners of the firm as per amended Section 31(i)(aa) of the S.F.C.Act. An ex parte decree was passed against the
appellant herein and when the appellant came to know about the ex parte decree, he filed I.A. No. 432/93 in S.F.C.O.P. No. 5/92 on the file of
the District Judge, Kamarajar District at Srivilliputtur, to set aside the ex parte decree and to give him an opportunity to defend the main petition on
merits. The said LA. was dismissed on 21.12.1993 and thereafter, the appellant filed C.M.A. No. 525 of 1994 before this court to set aside the
aforesaid order and this court passed a conditional order on 29.11.1996 setting aside the ex parte decree on condition that the appellant herein
shall deposit a sum of Rs. 5 lakhs within two months and if deposit was not made, the appeal would stand dismissed. According to the appellant,
he was unable to deposit the said amount within the stipulated time, since his unit has become sick. There upon, the Corporation sent a notice on
5.3.1997 which is the subject matter of challenge in the writ petition stating that the respondent Corporation has decided to take possession of the
industrial assets on 18.3.1997 u/s 29 of the S.F.C.Act and has requested the appellant to be present on that day to hand over possession.
According to the appellant, the notice dated 5.3.1997 is illegal and without jurisdiction and once the Corporation has chosen to file a petition in a
civil court Under Sections 31 and 32 of the S.F.C.Act, the Corporation is prohibited from taking any steps u/s 29 of the S.F.C.Act. Therefore, the
appellant filed the above writ petition to quash the proceedings of the respondent dated 5.3.1997.
Before the learned single Judge, it was contended that the respondent has no jurisdiction to initiate proceedings u/s 29 of the S.F.C.Act having
obtained a decree in the civil court. Before the learned single Judge, the Judgment of the Supreme Court reported in Andhra Pradesh State
Financial Corporation Vs. M/s. GAR Re-Rolling Mills and another, , was cited. Construing the said decision, the learned single Judge held that it is
open to the Corporation to abandon or withdraw or give up the proceedings u/s 31 at whatever stage it may be. This apart, at the time of hearing
of the writ petition the Corporation has also made its choice and it has proceeded to pursue the proceedings u/s 29 of the Act and not to pursue
the proceedings u/s 31 of the Act, though it had obtained a decree. By making the said observation, the learned Judge dismissed the writ petition.
Aggrieved by the said order, the appellant writ petitioner filed the above appeal. Mr. V.P. Venket, learned counsel for the appellant contended
that the respondent has not categorically stated about the abandonment of the proceedings Under Sections 31 and 32 of the Act, but has relied on
the order of this court passed in C.M.A. No. 525 of 1994, in its order dated 5.3.1997, it is only logical to conclude that the respondent was
proceeding u/s 29 of the Act in addition to, not instead of, proceedings Under Sections 31 and 32 of the S.F.C.Act. It is also contended that the
order of the learned single Judge is in violation of the judgment by the Supreme Court in Andhra Pradesh State Financial Corporation Vs. M/s.
GAR Re-Rolling Mills and another, .
We are unable to agree with the contention of the learned counsel for the appellant. As already seen, the appellant filed I.A. No. 432 of 1993 in
S.F.C.O.P. No. 5 of 1992 on the file of the District Judge, Kamarajar District at Srivilliputtur, to set aside ex parte decree and to give him an
opportunity to defend the main petition on merits. The said LA. was dismissed on 21.12.1993. Therefore, he filed C.M.A. No. 525 of 1994
before this court to set aside the aforesaid order. This court passed a conditional order on 29.11.1996 setting aside the ex parte decree on
condition that the appellant shall deposit a sum of Rs. 5 lakhs within two months and if deposit was not made, the appeal would stand dismissed,
admittedly, the appellant has not remitted the said sum of Rs. five lakhs to the respondent Corporation within the time stipulated. Under the above
circumstances, the Corporation has decided to take possession of the industrial assets on 18.3.1997 u/s 29 of the S.F.C.Act. We are of the view
that the appellant has only made the respondent Corporation to invoke Section 29 of the Act by their own conduct. Though a direction was given
to the appellant to deposit a sum of Rs. five lakhs, the appellant had miserably failed to deposit the said sum in order to prove his bonafide. As held
by the Supreme Court, it is always open to the Corporation to abandon or withdraw or give up the proceedings u/s 31 of the Act at whatever
stage it may be. In the instant case, the respondent has given up their right to proceed Under Sections 31 and 32 of the Act even though they had
obtained a decree and have decided to pursue the proceedings u/s 29 of the Act. In our opinion, it is open to the Corporation to make such a
choice at any stage of the proceedings. The very same argument which was made before the learned single Judge, was also repeated at the time of
hearing of this appeal. We directed the Corporation to file a memo as to whether the Corporation is willing to pursue remedy u/s 29 of the
S.F.C.Act. The respondent has now filed a letter dated 4th July, 1997, addressed to its counsel Mr. R. Viduthalai, which reads thus:
The Tamil Nadu Industrial Investment Corporation Ltd., (Sponsored by the Govt. of Tamil Nadu) No. 473, Anna Salai, Nandanam, Chennai-
600 035.
TIIC/Legal/97-98 4th July 1997
Thiru R. Viduthalai, Advocate
Chennai.
Sir, Sub: M/s. Shree Andal Poly Industry - reg.
Ref: W.A. No. 316/97.
Though the Corporation is in possession of the decree passed by the Principal District Judge, Ramnad in SFC OP. No. 5/92 wherein the subject
unit is the respondent, it had decided to pursue action u/s 29 of the SFCs Act against the assets of the unit, pursuant to which a notice was issued
to the subject unit and the assets were taken possession. The Corporation is not pursuing the remedies u/s 29 and 31 of the SFC Act
simultaneously and will not also do so in future as regards the assets of the subject unit.
Yours faithfully,
Sd.-----
Manager (Law)
In view of the above letter, the Corporation has made it very clear about its intention or decision to pursue action u/s 29 of S.F.C. Act against
the assets of the Unit pursuant to which a notice was issued to the subject unit and the assets were taken possession. In our opinion, the
Corporation has got powers u/s 29 of the State Financial Corporation Act, 1951 to take possession of the assets of the defaulting units and sell the
same to recover its dues. The Supreme Court in U.P. Financial Corporation v. Gem Cap (India) Ltd., reported in AIR 1993 S.C 1435 has held
that courts cannot interfere with the action u/s 29 of SFC Act unless there is unfairness and that SFC has to recover the dues. A Division Bench of
this Court in TIIC v. Vimal Formulations (P) Ltd., Writ Appeal No. 507 of 1993 followed the same and has declined to intervene. It is held that
Financial Institution (TIIC) cannot be made to wait for realisation of their monies and it would frustrate their public purpose viz., making available
funds to others either for the purpose of starting or expanding industries. They are in need of funds for discharging their duties and functions and
such funds could be secured only by taking necessary steps for the recovery of the amounts due to them.
In our opinion, the appellant cannot invoke the extraordinary jurisdiction of this Court, when the relationship between the appellant and the
respondent is that of debtor and creditor and the appellant cannot throw the solemn contract to the wind. Therefore, the present writ appeal is not
maintainable in law or on facts. The opinion expressed by us in this case is also fortified by several other recent pronouncements of the Supreme
Court and more particularly the very recent decision of the Supreme Court reported in Karnataka State Financial Corporation v. Micro Cast
Rubber and Allied Products (P) Ltd. And Ors., 1996 5 S T 37.
The Writ Appeal fails and is dismissed. No costs. Consequently, C.M.P. No. 4922 of 1997 is dismissed.