Orissa High Court
Prasana Kumar Rath vs Odisha State Financial Corporation on 7 February, 2025
Author: K.R. Mohapatra
Bench: K.R. Mohapatra
IN THE HIGH COURT OF ORISSA AT CUTTACK
W.P.(C) No. 22450 OF 2017
(An application under Articles 226 and 227 of the Constitution of India)
*****
Prasana Kumar Rath ...... Petitioner
-Versus-
1. Odisha State Financial Corporation,
2. Branch Manager, Odisha State Financial
Corporation ....... Opp. Parties
Advocates appeared:
For Petitioner : Ms. Deepali Mahapatra, Advocate
For Opp. Party : Mr. B.N. Mohanty, Advocate
CORAM :
MR. JUSTICE K.R. MOHAPATRA
MR. JUSTICE SANJAY KUMAR MISHRA
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Heard and disposed of on 07.02.2025
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JUDGMENT
By the Bench;
1. This matter is taken up through hybrid mode.
2. Petitioner in this writ petition seeks to assail the
proceeding initiated by the Odisha State Financial Corporation
(for brevity 'OSFC') under Section 29 of the State Financial
Corporation Act, 1951 (for brevity 'the SFC Act').
W.P.(C) No. 22450 OF 2017
3. Ms. Mahapatra, learned Counsel for the Petitioner
submits that Plot Nos.406 and 1037 under Khata No.1596 to an
extent of Ac.0.008 decimal and Ac.0.042 decimal respectively
(in total Ac.0.050 decimal) of Mauza-Badabazar, Sankarpur
Street, Berhampur in the district of Ganjam (for brevity 'the
case land') originally belonged to one Snehalata Mishra. By
virtue of registered gift deed dated 15th October, 1979, said
Snehalata Mishra gifted 50% of the case land from the northern
side to her husband namely Sarat Chandra Mishra. Both of them
are dead now.
3.1 During their lifetime, both of them vide registered sale
deeds dated 21st November, 1986 (Annexure-1) and 22nd
November,1986 (Annexure-2) sold the case land to the
Petitioner. Since then, the Petitioner is in peaceful possession
over the case land exercising his right, title and interest thereon.
Since the kisam of the case land was Gramakantha Parambok,
it was settled in favour of the Petitioner vide order dated 30th
January, 2017 in GK Lease Case No.13 of 2016. Since then, the
Petitioner is paying land revenue in respect of the case land.
The Petitioner has his residential house thereon, wherein he is
residing with his family members. Prior to alienation of the case
land in favour of the Petitioner, a part of the case land, which
was gifted by late Snehalata Mishra in favour of her husband,
was mortgaged with the OSFC to avail financial assistance for
running an Industrial Concern namely M/s. Kishore Traders
(Printing Press).
W.P.(C) No. 22450 OF 2017
3.2 At the time of purchase, the Petitioner was given to
understand that the original title deed in respect of the case land
was with the OSFC. However, the loan dues have already been
repaid by the borrower (Industrial Concern). The borrower
namely late Sarat Chandra Mishra was awaiting clearance
certificate from the OSFC at the time of sale.
3.3 The Petitioner had also applied for encumbrance
certificate, in which 'no encumbrance' was shown in respect of
the case land. Thus, in good faith, the Petitioner purchased the
case land on payment of consideration amount and was
delivered with possession.
3.4 When a matter stood thus, the Petitioner came across a
news publication dated 17th October, 2017 in Odia daily 'The
Samaj' (Annexure-10), wherein land measuring an area of
Ac.0.050 decimal out of the case land was put to auction sale.
Thus, finding no other alternative, this Writ Petition was filed.
4. It is further submitted by Ms. Mahapatra, learned
Counsel for the Petitioner that if the case land, as aforesaid, is
put to auction, the Petitioner will be evicted from his residential
house and thereby will suffer irreparable loss. She relied upon
the case of Karnataka State Financial Corporation Vs. N.
Narasimahaiah and others reported in (2008) 5 SCC 176, in
which it is held as under:-
"19. The heading of Section 29 of the Act states
"Rights of financial corporation in case of
default". The default contemplated thereby is of
W.P.(C) No. 22450 OF 2017
the industrial concern. Such default would create
a liability on the industrial concern. Such a
liability would arise when the Industrial Concern
makes any default in repayment of any loan or
advance or any installment thereof under the
agreement. It may also arise when it fails to meet
its obligation(s) in relation to any guarantee
given by the corporation. If it otherwise fails to
comply with the terms of the agreement with the
financial corporation, also the same provisions
would apply. In the eventualities contemplated
under Section 29 of the Act, the corporation shall
have the right to take over the management or
possession or both of the industrial concern. The
provision does not stop there. It confers an
additional right as the words "as well as" are
used which confer a right on the corporation to
transfer by way of lease or sale and realize the
property pledged, mortgaged, hypothecated or
assigned to the corporation.
20. Section 29 of the Act nowhere states that the
corporation can proceed against the surety even
if some properties are mortgaged or
hypothecated by it. The right of the financial
corporation in terms of Section 29 of the Act
must be exercised only on a defaulting party.
There cannot be any default as is envisaged
in Section 29 by a surety or a guarantor. The
liabilities of a surety or the guarantor to repay
the loan of the principal debtor arises only when
a default is made by the latter.
21. The words "as well as" in our opinion play a
significant role. They confer two different rights
but such rights are to be enforced against the
same person viz. the industrial concern.
Submission of the learned senior counsel that
the second part of Section 29 having not
referred to 'industrial concern', any property
pledged, mortgaged, hypothecated or assigned
to the financial corporation can be sold, in our
opinion cannot be accepted. It is true that sub-
Section (1) of Section 29 speaks of guarantee.
W.P.(C) No. 22450 OF 2017
But such a guarantee is meant to be furnished by
the Corporation in favour of a third party for the
benefit of the industrial concern. It does not
speak about a surety or guarantee given in
favour of the corporation for the benefit of the
industrial concern."
5. She, therefore, submits that the Industrial Concern may
be taken over and put to auction for realization of the defaulted
amount, if any, but not the property in question, i.e., the case
land, which was purportedly given as security. If OSFC is
intending to take over possession of the mortgaged property,
i.e., the case land and put to auction then it has to take resort to
Section 31 of the SFC Act. The said contingency has also been
discussed in the case of Karnataka State Financial
Corporation (supra), which reads as under:-
"30. Keeping the aforementioned legal principles
in mind, we may notice the other limb of the
argument of Mr. Venugopal that Section 31 of the
Act is to be taken recourse to only when an
interlocutory order is required to be sought for
and not otherwise.
31. Section 31 of the Act provides for a special
provision. It, apart from the default on the part of
the industrial concern, can be invoked where the
financial corporation requires an Industrial
Concern to make immediate repayment of loan or
advance in terms of Section 30 if and when such
requirement is not met. The aforementioned
provision could be resorted to by the
Corporation, without prejudice, to its rights under
the provisions of Section 29 as also Section 69 of
the Transfer of Property Act and for the said
purpose it is required to apply to the District
Judge having appropriate jurisdiction.
W.P.(C) No. 22450 OF 2017
32. Section 31 of the Act provides for the reliefs
which may be sought for by the Corporation
strictly in terms thereof. Clause (aa) of sub-
Section (1) of Section 31 of the Act provides for a
final relief. It does not speak of any interlocutory
order. Clause (aa), as noticed hereinbefore, has
been inserted by Act No. 43 of 1985. Thus, prior
thereto even Section 31 could not have been taken
recourse to against a surety. Such a relief, if
prayed for, would also lead to grant of a final
relief and not an interlocutory one."
6. She further submits that the loan in question was
advanced in favour of late Sarat Chandra Mishra in the year
1980 and action under Section 29 of SFC Act was taken on 26th
November, 2015, which is hopelessly time barred. Hence, the
auction under Section 29 of the SFC Act and decision to put the
case land to public auction is bad in law and is liable to be set
aside.
7. Mr. Mohanty, learned Counsel for the SFC vehemently
opposes the same. It is his submission that the Petitioner has no
locus standi to file this Writ Petition. He is neither the principal
borrower (Industrial Concern) nor the surety in the instant case.
He is a stranger to the proceeding under Section 29 of the SFC
Act and is in unauthorized possession over the case land.
7.1 Further, the Industrial Concern stands over the case land.
As such, no separate action to recover the outstanding under
Section 29 of the SFC Act in respect of the Industrial Concern
only would be possible without putting the entire case land to
public auction.
W.P.(C) No. 22450 OF 2017
8. The case law cited by learned Counsel for the Petitioner
has no application to the case at hand. He further submitted that
there is no time limit to initiate proceeding under Section 29 of
the SFC Act. If the Petitioner is so aggrieved, he can move the
common law forum by filing a suit to establish his right, title
and interest over the case land. Interference with the action
initiated by OSFC would amount to holding up recovery of
public money, which is due from the principal borrower
(Industrial Concern).
9. It is further submitted by Mr. Mohanty, learned Counsel
that the Petitioner had agreed to repay the loan in a settlement
arrived between the parties. But without adhering to the
settlement made, he has filed this Writ Petition, which is not
maintainable in the eye of law. He, therefore, prays for
dismissal of the writ petition.
10. Heard learned Counsel for the parties.
11. Perused the materials on record as well as the case law
cited. The issue involved for our consideration is whether the
action initiated under Section 29 of the SFC Act by putting the
case land to public auction is legal and/or justified. Before
delving into the issue involved, this Court feels it proper to refer
to Sections 29 and 31 of the SFC Act relevant portion of which,
are reproduced hereunder for ready reference:-
"29. Rights of Financial Corporation in case of
default -
W.P.(C) No. 22450 OF 2017
Where any industrial concern, which is under a
liability to the Financial Corporation under an
agreement, makes any default in repayment of any
loan or advance or any installment thereof or in
meeting its obligations in relation to any guarantee
given by the corporation or otherwise fails to
comply with the terms of its agreement with the
Financial Corporation, the Financial
Corporation shall have the right to take over the
management or possession or both of the
industrial concern, as well as the right to transfer
by way of lease or sale and realise the property
pledged, mortgaged, hypothecated or assigned to
the Financial Corporation.
xxx xxx xxx
31. Special provisions for enforcement of claims
by Financial Corporation .-
(1) Where an industrial concern, in breach of any
agreement, makes any default in repayment of any
loan or advance or any instalment thereof or in
meeting its obligations in relation to any guarantee
given by the Corporation or otherwise fails to
comply with the terms of its agreement with the
Financial Corporation or where the Financial
Corporation requires an Industrial Concern to
make immediate repayment of any loan or advance
under Section 30 and the Industrial Concern fails
to make such repayment, then, without prejudice to
the provisions of Section 29 of this Act and of
Section 69 of the Transfer of Property Act, 1882 (4
of 1882), any officer of the Financial Corporation,
generally or specially authorized by the Board in
this behalf, may apply to the District Judge within
the limits of whose jurisdiction the Industrial
Concern carries on the whole or a substantial part
of its business for one or more of the following
reliefs, namely:-
(a) for an order for the sale of property pledged,
mortgaged, hypothecated or assigned to the
W.P.(C) No. 22450 OF 2017
Financial Corporation as security for the loan
or advance; or
(aa)[ for enforcing the liability of any surety; or
xxxxxxx".
(emphasis supplied)
12. From a close reading of Section 29 of the SFC Act, it is
clear that if the Industrial Concern fails to comply with the
terms of the agreement with the Financial Corporation, then the
later (Financial Corporation) shall have the right to take over
the management and possession or both of the Industrial
Concern as well as the right to transfer by way of lease or sale
and realise the property pledged, mortgaged, hypothecated or
assigned to the Financial Corporation.
13. Thus, the provision makes it clear that on failure of the
borrower (Industrial Concern) to abide by the terms of the
agreements entered with the OSFC, it could have taken the
management or possession or both of the Industrial Concern and
not the property in question, i.e., the case land, which is
mortgaged with OSFC. Section 31 makes it further clear that if
the borrower (Industrial Concern) fails to comply with the terms
of its agreement with the Financial Corporation or where the
Finance Corporation requires an Industrial Concern to make
immediate repayment of any loan or advance under Section 30
and the Industrial Concern fails to make such repayment, then
without prejudice to the provision under Section 29 of the Act
and Section 69 of the Transfer of Property Act, 1882, any
Officer of the Financial Corporation generally or specially
W.P.(C) No. 22450 OF 2017
authorized by the Board in that behalf may apply to the District
Judge within the limits of whose jurisdiction the Industrial
Concern carries on whole and substantial part of its business,
amongst other, for an order for sale of the property pledged,
mortgaged, hypothecated or assigned to the Financial
Corporation as security for the loan or advance.
14. The Hon'ble Supreme Court in the case of Karnataka
State Financial Corporation (supra) dealing with the scope and
ambit of Sections 29 and 31 of the SFC Act also made it clear
that no action under Section 29 of the SFC Act can be taken by
the Financial Corporation to realize the loan amount by putting
the mortgaged property, i.e., the case land in the instant case to
public auction.
14.1 Following the ratio in the case of Karnataka State
Financial Corporation (supra), this Court in the case of
Himanshu Sekhar Panda Vs. Orissa State Financial
Corporation reported in AIR 2012 Ori. 120 has taken a similar
view.
15. Thus, there remains no iota of doubt that the action of the
OSFC in putting the case land to public auction exercising
power under Section 29 of the SFC Act is without jurisdiction.
16. So far as the locus standi of the Petitioner to maintain the
Writ Petition is concerned, this Court makes it clear that it is the
admitted case of both the parties that the Petitioner is in
possession over the case land. Any auction in respect of the case
W.P.(C) No. 22450 OF 2017
land would certainly prejudice the Petitioner and take away his
property rights, if any, over the case land without following due
procedure.
17. It is also not disputed that the case land has been settled
in favour of the Petitioner under raiyati status in GK Lease Case
No.13 of 2016. Thus, none other than the Petitioner is going to
be prejudiced, if the case land is put to auction. Thus, the
Petitioner has locus standi to maintain the Writ Petition.
18. In view of the discussions made above, this Court sets
aside the action taken by the OSFC under Section 29 of the SFC
Act and consequential action including any paper publication
and sale notice.
19. Vide interim order dated 26th October, 2017 passed in
Misc. Case No.19260 of 2017, this Court directed that on
depositing an amount of Rs.4,00,000/- (Four Lakh only) with
the Opposite Party-OSFC within a week therefrom, the
auction/sale of the mortgaged property may continue, but the
same shall not be finalized till the next date. The said order is
continuing till date. The Petitioner, in compliance of the said
direction, deposited an amount of Rs.4,00,000/- (Four Lakh
only) with OFSC and produced the money receipt before this
Court on 9th November, 2017.
20. Hence, it is directed that the said amount along with 6%
interest shall be returned to the Petitioner within a period of
W.P.(C) No. 22450 OF 2017
eight weeks from the date of deposit till the date of actual
payment.
21. The writ petition is allowed to the aforesaid extent.
22. In the facts and circumstances of the case, there shall be
no order as to cost.
(K.R. Mohapatra)
Judge
(S.K. Mishra)
Judge
Orissa High Court, Cuttack,
Dated 7th February, 2025/Banita
Signed by: BANITA PRIYADARSHINI PALEI
Location: HIGH COURT OF ORISSA, CUTTACK
Date: 12-Feb-2025 13:11:29
W.P.(C) No. 22450 OF 2017
