Madras High Court
A.Dhandapani vs The Tamil Nadu Industrial ... on 17 November, 2021
WP No.641 of 2011
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 17-11-2021
CORAM
THE HONOURABLE MR. JUSTICE S.M.SUBRAMANIAM
WP No.641 of 2011
And
MP No.2 of 2011
A.Dhandapani .. Petitioner
vs.
1.The Tamil Nadu Industrial Investment
Corporation Limited,
Represented by its Branch Manager,
Special Loan Recovery Branch,
Division No.1,
No.692, Anna Salai,
Nandanam,
Chennai – 600 035.
2.M/s.Link World System,
Proprietor K.Arumugam,
No.4, V.O.C. Street,
2nd Main Road,
Kodambakkam,
Chennai - 24. .. Respondents
Writ Petition is filed under Article 226 of the Constitution of
1/14
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WP No.641 of 2011
India, praying for the issuance of a Writ of Certiorarified Mandamus,
calling for the records of the first respondent relating to the impugned
Mahazar dated 01.07.2004 along with possession notice dated 15.07.2004 in
taking over the petitioner's property situated at in Survey Nos.486/2,
486/1F, 486/1E in all measuring to an extent of 4.07 Acres in
Malayankulam Village, Uthiramerur Taluk, Kanchipuram District under
Section 29 of the State Financial Corporations Act, 1951 and quash the
same consequently direct the first respondent to discharge the petitioner
from surety on the ground of loss of security as stipulated in Section 141 of
the Indian Contract Act, 1872.
For Petitioner : Mr.P.R.Thiruneelakandan
For Respondent-1 : Mr.K.V.Sundara Rajan
For Respondent-2 : Not Ready in Notice
ORDER
The Mahazar dated 01.07.2004 along with the possession notice
dated 15.07.2004, taking over the property belongs to the petitioner in
Malayankulam Village, Uthiramerur Taluk, Kanchipuram District under
Section 29 of the State Financial Corporation Act, 1951, is sought to be
quashed and a direction is sought for to discharge the petitioner from surety
on the ground of loss of security as stipulated in Section 141 of the Indian
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WP No.641 of 2011
Contract Act, 1872
2. The petitioner states that through the impugned mahazar, the
first respondent has taken possession of the property belongs to the
petitioner on the ground that he stood as a surety in respect of the loan
sanctioned in favour of the second respondent-Company.
3. The petitioner contends that the subject properties are self-
acquired and he handed over all the original documents to one
Mr.M.P.Balakrishnan and who in turn said that those documents were lost.
The petitioner filed a complaint and it is contended by the petitioner that he
sold the subject properties in favour of one Smt.Logambal on 04.02.1998.
4. The impugned order was passed in the year 2004 and
possession was taken over by the first respondent-Corporation. The
petitioner contends that he sold the subject properties to one Smt.Logambal
on 04.02.1998 itself. Subsequently, the vendee Smt.Logambal filed a civil
suit against the petitioner in O.S.No.82 of 2007 and the learned counsel for
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WP No.641 of 2011
the first respondent informed that the said Civil Suit was dismissed and
thereafter an appeal suit in A.S.No.8 of 2019 was filed and the same is
pending.
5. The learned counsel for the petitioner reiterated that initial
action taken against the surety under Section 29 of the State Financial
Corporation Act, is improper and not in consonance with the provisions of
the Act itself.
6. The first respondent lost the opportunity of realising the loan
amount through the machineries, which were hypothecated and worth
Rs.17,30,000/- and therefore, the surety is to be discharged and on that
ground also the petitioner's surety is to be discharged.
7. The learned counsel for the petitioner, relying on Sections 29
and 31 of the State Financial Corporation Act and based on Sections 139
and 141 of the Indian Contract Act, contended that the action against the
surety is unsustainable and the provisions of the State Financial Corporation
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WP No.641 of 2011
Act, is misinterpreted and the impugned order of taking over possession is
done by the first respondent.
8. To substantiate the said contention, the learned counsel for the
petitioner relied on the judgments to establish that actions of the first
respondent is untenable.
9. In the case of Subhransu Sekhar Padhi vs. Gunamani Swain
and Others [CDJ 2014 SC 680], the Hon'ble Supreme Court of India held
that “the right of Financial Corporation in terms of Section 29 must be
exercised only on a defaulting party. Section 29 does not empower the
Corporation to proceed against the surety even if some properties are
mortgaged or hypothecated to it. Our view is further strengthened by the
provisions of sub-section (4) of Section 29 which lays down appropriation
of sale proceeds with reference to only industrial concern and not surety or
guarantor”.
10. Perusal of the facts reveal that the purchaser of the property
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WP No.641 of 2011
in an auction held under Section 29 of the State Financial Corporations Act,
was the party before the Supreme Court. Thus, the said purchaser was not
the surety in respect of the loan granted by the Financial Institution in the
said case. Under those circumstances, the Hon'ble Supreme Court of India
considered the issue as to whether the Financial Corporation was legally
entitled to invoke Section 29 of the Act and bring the properties to sale as
contemplated under Section 31 of the Act.
11. However, in the present case, the petitioner himself was the
surety. Though it is disputed by the petitioner by stating that without his
knowledge, the documents were handed over and a criminal case is
registered. But the learned counsel for the first respondent states that as per
the records of the Corporation, the petitioner stands as a surety. Thus, those
facts are inapplicable with reference to the case of the petitioner.
12. The learned counsel for the petitioner mainly contended that
the first respondent failed in their duty to conduct frequent inspections of
the Industry and further not initiated action against the machineries, which
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WP No.641 of 2011
were hypothecated with the first respondent-Corporation. The failure on the
part of the first respondent resulted in non-realisation of the loan dues for
which the petitioner cannot be penalised and therefore, the surety as far as
the petitioner is concerned, is to be discharged.
13. The petitioner mainly relied on the judgmnets of the
Karnataka High Court in the case of M.R.Chakrapani Iyengar vs. Canara
Bank [CDJ 1996 Kar HC 486], wherein the Hon'ble Karnataka High Court
considered the scope of Section 139 of the Indian Contract Act, as below:-
“2. The principal contention raised by the
petitioner's learned advocate is that undoubtedly
the liability of the surety is co-extensive with that
of the principal debtor but he contends that having
regard to the provisions of Section 139 of the
Contract Act, that it was obligatory on the part of
the bank to have ensured that the hypothecated
property did not vanish and more so, when his
client pointed out precisely where that property
was, for the bank to have taken all necessary steps
to have seized it, that by not having done so, the
bank has virtually forfeited the remedy that was
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WP No.641 of 2011
open to it to recover the sums in question and that
this situation brings the case clearly within the
four corners of Section 139 of the Contract Act
whereunder his liability stands discharged. In this
regard, the learned advocate has relied on a
decision of the Supreme Court (State Bank of
Saurashtra vs. Chitranjan R. Raja) wherein the
Court held that if such negligence was established
on the part of the bank, the surety would stand
discharged. The Court had occasion to refer to
some of the earlier decisions reported in (1872) 7
QB 756, (1873) 8 Ex 73, AIR 1967 SC 1105 and
AIR 1968 SC 1432. The learned advocate also
relied on another decision reported in AIR 1983
Punj and Har 244, wherein, on more or less
similar facts the Court took the view that the
liability of the surety stood completely discharged.
The petitioner's learned advocate submitted that
the principle enunciated in Section 139 is well
defined in so far as if the bank creates a situation
whereunder the liability which could easily have
been discharged gets unnecessarily foisted on the
surety, that the law in such a situation immunises
the surety. He therefore submits that as far as the
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present case is concerned, the decree passed
against the petitioner is liable to be set aside.
7. In this regard, I need to lay down that in
the case of hypothecated goods a greater degree
of vigilance is required on the part of the banks.
While it may be true that periodical checks are
very essential, it is equally important that the
banks must take all available measures which
have hitherto not been resorted to. In a situation
where it is pointed out to the bank that the
hypothecated property has disappeared, it is
always assumed that the only remedy open to the
bank is to file a suit or for an attachment order but
what is overlooked is that the law gives the banks
straight remedies by way of a complaint to the
police or to a criminal Court whereby the property
can be traced out, and whereby the bank can take
possession of the property and have it sold and
clear the dues. This is an aspect of the matter
which undoubtedly may not have been focussed
upon but it is essential that it should be brought to
the notice of the financial institutions and their
officers for future guidance.”
The abovesaid case was also filed against the decree passed in a civil suit.
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14. The learned counsel for the first respondent objected the
contentions of the learned counsel for the petitioner, by stating that the
petitioner admittedly sold the subject properties in the year 1998 and the
purchaser Smt.Logambal instituted a Civil Suit in O.S.No.82 of 2007 and
the said Civil Suit was dismissed and an Appeal Suit in A.S.No.8 of 2019
was filed and the same is pending.
15. Beyond all these facts, the first respondent filed OP No.201 of
2017 before this Court against all the parties and the said original petition
was filed under the State Financial Corporations Act, is pending. Thus the
writ petition is not maintainable and all such issues are to be adjudicated in
the original petition filed under the provisions of the State Financial
Corporations Act.
16. This Court is of the considered opinion that the complex
nature of issues of civil nature arose in the present writ petition between the
parties deserve an elaborate adjudication with reference to the original
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documents and evidences.
17. The petitioner claims that he is not the surety and he never
handed over the original documents to the first respondent-Corporation for
the loan availed by the second respondent.
18. Per contra, the first respondent states that as per their
records, the petitioner stood as the surety and handed over the original title
deeds of the documents to the first respondent. This apart, the petitioner
himself admitted that he sold the property in the year 1998 in favour of one
Smt.Logambal.
19. When all these disputed facts are placed in the writ petition,
this Court is of the opinion that an elaborate adjudication is imminently
necessary and such an adjudication cannot be made under Article 226 of the
Constitution of India. In the absence of adjudication and a specific finding
in these issues, the rights of the parties cannot be crystallised. If the rights of
the parties are unable to be crystallised, then questioning of discharging the
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surety would not arise, as the petitioner claims that he is not at all a surety.
When the basic facts are disputed, an adjudication must be done in the
manner known to law.
20. The petitioner claims to be an alien to the contract with the
first respondent. The first respondent states that the petitioner is part of
contract as surety. Such contractual obligations with reference to the terms
and conditions cannot be adjudicated in the writ proceedings under Article
226 of the Constitution of India.
21. The principles laid down by the Apex Court and the
interpretation considered in various judgments relied on by the petitioner,
are not disputed even by the learned counsel for the first respondent.
However, the facts and circumstances of each case plays a pivotal role for
the application of those ratio laid down by the Apex Court with a scope of
Section 29 and 31 of the State Financial Corporations Act, as interpreted by
the Hon'ble Supreme Court of India, is also not disputed by the first
respondent. But the point to be considered is that the basic factum regarding
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the surety itself is disputed by the petitioner and the subject properties were
sold in favour of Smt.Logambal and the first respondent says that the
petitioner is the surety and the original documents are with the first
respondent and they have initiated all actions against all the parties and
there are certain fraudulent activities involved in these transactions and
therefore, the first respondent filed O.P.No.201 of 2017 under the State
Financial Corporations Act, before the High Court and the said original
petition is pending.
22. This being the factum, all the parties are at liberty to
adjudicate the issues before the appropriate Court in the manner known to
law.
23. With the abovesaid observations, the writ petition stands
dismissed. However, there shall be no order as to costs. Consequently,
connected miscellaneous petition is also dismissed.
17-11-2021
Index : Yes/No.
Internet : Yes/No.
Speaking Order/Non-Speaking Order.
Svn
S.M.SUBRAMANIAM, J.
https://www.mhc.tn.gov.in/judis
WP No.641 of 2011
Svn
To
The Branch Manager,
The Tamil Nadu Industrial Investment
Corporation Limited,
Special Loan Recovery Branch,
Division No.1,
No.692, Anna Salai,
Nandanam,
Chennai – 600 035.
WP 641 of 2011
17-11-2021
https://www.mhc.tn.gov.in/judis
