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Judgment
K.B.K. Vasuki, J.—On consent the writ petition is heard on both sides. The writ petition is filed to set aside auction conducted on
22.09.2009 pursuant to item No. 18 of the auction notice in No. SLM11/2009-2010 dated 08.08.2009 published in Daily Thanthi on the same
day and for consequential direction forbearing the respondents from proceeding against the property of the petitioner except in strict compliance
with the provisions of the Act.
The short point arises for consideration in this writ petition is whether the provisions of law u/s 29 of the State Financial Corporation Act can be
invoked to proceed against the property belonging to the guarantor for the recovery of the amount borrowed by the principal borrower who is the
4th respondent herein. This writ petition is filed by the guarantor who stood as guarantor for the due repayment of the loan borrowed by the 4th
respondent from the 2nd respondent bank. The petitioner has also given as security the landed property belonging to him measuring an extent of
69cents in survey No. 412/6A of Prasmpalayam, Siluvampatti Village, Namakkal Taluk, Namakkal District by depositing title deeds relating to the
property. On the failure of the principle borrower to discharge the amount due to corporation, the respondents 1 and 2 invoked Section 29 of the
State Financial Corporation Act for initiating recovery proceedings against the petitioner herein who is the guarantor and the property given as
security is proceeded against and brought for public auction and the sale was confirmed in favour of the 3rd respondent herein who is the
successful bidder and who has also paid the entire sale consideration.
The writ petitioner has in this writ petition challenged the validity of the auction proceedings mainly on two grounds:
(i)the respondents have no authority to invoke Section 29 of the State Financial Corporation Act to proceed against the property belonging to the
guarantor and the correct provision of law to be invoked is Section 31 of the Act, hence the auction proceedings is in violation of the specific
statutory provision of law.
(ii)The petitioner is not served with any notice before the auction proceedings by invoking Section 29 of the Act.
Whereas, the learned Counsel for the respondents 1 and 2 would seriously oppose the claim of the petitioner by saying that the principle
borrower and the guarantor are jointly and severally liable to discharge the amount due to the corporation and it is open to the corporation to
proceed either against the principle borrower or against the guarantor and as the property of the principle borrower is not available and as the
principle security i.e., vehicle for the purchase of the same loan is sanctioned to the borrower was clandestinely removed by the principle borrower
from the reach of the Bank. The Bank has no other option, but to proceed against the available security i.e., immovable property belonging to the
guarantor and the proceedings are duly initiated against the guarantor only after giving due notice to the guarantor who is the petitioner herein.
Heard the rival submissions made on both sides.
The contention raised on the side of the learned Counsel for the respondents 1 and 2, is that both the principle borrower and the guarantor are
jointly and severally liable to discharge the loan due to the respondents 1 and 2 and it is for the corporation to decide to proceed against both or
either of them. Though this legal position can not be disputed the provision of law under which the proceedings can be initiated against the principle
borrower and against the guarantor are different and distinct under the State Financial Corporation Act. While the provisions of law available to
proceed against the principle borrower is Section 29 of the Act and the same can be invoked without the intervention of the Court, the provisions
of law applicable to proceed against the property belonging to the guarantor is u/s 31 of the Act. Wherein the corporation has to necessarily
approach the District Court for appropriate permission before proceeding against the property belonging to the guarantor.
That being so, the proceedings initiated by the Corporation by invoking Section 29 and without prior permission from the competent Civil Court
has to be necessarily declared as nullity in the eye of law and any auction held in pursuance of such proceedings is void and has to be necessarily
set aside as illegal and without jurisdiction.
The same is the law laid down by Hon''ble Supreme Court in its judgment reported in (1) Karnataka State Financial Corporation Vs. N.
Narasimahaiah and Others, ; (2) Ormi Textiles and Another Vs. State of U.P. and Others, . In both the cases it is clearly laid down by the
Supreme Court that the provisions of law applicable to bring it for sale the property belonging to the principle borrower and the guarantor are
different and while Section 29 confers the power to bring it for sale the property belonging to the principle borrower without the intervention of the
Court, Section 31 provides for the same power against the property of the guarantor but with the permission of the court.
Apex Court has in Karnataka State Financial Corporation case has having rejected the contention raised on the side of the corporation held as
follows :
Thus, the legislative intent is manifest. The intention of parliament in enacting Sections 29 and 31 of the Act was not similar. Whereas Section 29 of
the Act consists of the property of the industrial concern, Section 31 takes within its sweep both the property of the industrial concern and as that
of the surety. None of the provisions control each other. Parliament intended to provide an additional remedy for recovery of the amount in favour
of the Corporation by proceeding against a surety only in terms of Section 31 of the Act and not u/s thereof.
The contention that an implied power of the Corporation to proceed against a surety or guarantor should be read in Section 29 on the basis of the
principle that a construction which effectuates the legislative intent and purpose must be adopted, is not sustainable. A statutory authority may have
an implied power to effectuate exercise of substantive power, but the same never means that if a remedy is provided to take action against one in a
particular manner, it may not only be exercised against him but also against the other in the same manner. In the absence of any express provision
in the statute, a person being in lawful possession cannot be deprived thereof by reason of default on the part of a principal borrower.
By observing so the appeals are dismissed with cost of Rs. 50,000/- in each case.
On the other hand, the learned Counsel for the contesting respondents 1 and 2 has cited an authority of our Apex Court reported in AIR 2010
SC 266 in Punjab Financial Corporation v. Surya Auto Industries. The reading of the facts of the case involved therein would reveal that the
property proceeded against is given as collateral security and the property is proceeded against by invoking Section 29 of the Act and the auction
proceedings was challenged by the principle borrower on the ground that the action taken by corporation was arbitrary and unreasonableness.
When the matter came up before the Supreme Court at the instance of the corporation the Supreme Court has allowed the appeal by holding that
the action taken cannot be held unreasonable or unfair and the order of the High Court, that notice issued by the corporation u/s 29 without taking
effective steps for realisation of the dues in furtherance of the first notice is null and void cannot be allowed to sustain. It is further observed by the
Supreme Court that the court cannot sit as Appellate Authority over the action of the corporation and substitute its own decision for the one taken
by the corporation.
In the considered view of this Court, the observation of the Supreme Court made on different context cannot be made applicable to the facts
of the present case. Even otherwise, the Supreme Court has on the same judgment clearly observed that the action for recovery of the out standing
can be held to be nullity, while such action is found to be in violation of any statutory provisions resulting in prejudice to the party therein. The
observation so laid down is squarely applicable to the facts of the present case as the recovery proceedings taken herein also is totally in violation
of statutory provision as such the recovery proceedings initiated by the corporation and the auction of the property held in the course of the same
are held to be nullity in law and is liable to set aside.
As far as the second ground that no notice is issued to the guarantor for the proceedings under challenge is concerned the same is sought to be
answered in Paragraph 7 of the counter filed by the respondents 1 and 2. Though it is specifically stated therein that the respondents corporation
informed the petitioner vide letter dated 16.12.2003 of its intention to take possession of the property given as collateral security, the same is not
supported by any document. Even assuming it to be true that one such notice is duly sent to the petitioner, the same will in no way cure the illegality
attached to the proceedings initiated by invoking different procedure under different provision of law. Thus viewing from any angle, the auction
proceedings initiated u/s 29 of the Act by the corporation is to be declared as null and void.
However, the same will in no way deprive the respondent corporation of its right to proceed against the property of the guarantor in
compliance with the statutory provision. As a matter of fact, the relief sought for in this writ petition is only for the issue of certiorarified mandamus
to quash the impugned auction proceedings and for forbearing the respondents from proceeding against the property of the petitioner except in
strict compliance with the provisions of the act and the remedy is hence available to the respondents corporation to initiate proceedings for the
recovery of out standing against either the borrower or the guarantor under appropriate provisions of law.
In the result, the writ petition is allowed as prayed for, by setting aside the auction of the immovable property belonging to the petitioner held
on 22.09.2009 pursuant to item No. 18 notice in No. SLM11/2009-2010 dated 18.08.2009 and the respondents are restrained from proceeding
against the property of the guarantor except in strict compliance of the provisions of the relevant Act. No costs.