Telangana High Court
A.P.S.F.C. Another vs P. Hanumanth Reddy 4 Others on 30 December, 2021
Bench: Satish Chandra Sharma, N.Tukaramji
THE HON'BLE THE CHIEF JUSTICE SATISH CHANDRA SHARMA
AND
THE HON'BLE SRI JUSTICE N. TUKARAMJI
WRIT APPEAL No.267 of 2009
JUDGMENT: (Per the Hon'ble the Chief Justice Satish Chandra Sharma)
The present writ appeal is arising out of order dated
21.11.2008 passed in W.P.No.22950 of 2002 by the learned Single
Judge.
The facts of the case reveal that a writ petition was preferred
by one P. Hanumanth Reddy, S/o. P. Ram Reddy stating that A.
Hanumanth Reddy, S/o. Ram Reddy took a financial assistance
from Andhra Pradesh State Financial Corporation and as the
amount was not paid in time, the Financial Corporation took steps
to recover the amount. The vehicle in question was seized and it
was sold. However, as the entire amount was not recovered, the
property of the writ petitioner was sold on 04.08.2001, who was a
surety. Various grounds were raised before the learned Single
Judge and the learned Single Judge has allowed the writ petition
based upon the judgment delivered by the Hon'ble Supreme Court
in the case of Karnataka State Financial Corporation vs. N.
Narasimhaiah & others1. The operative paragraphs of the order
passed by the learned Single Judge read as under:
"Sri Vedula Srinivas, learned counsel for the petitioner,
submits that Section 29 of the Act confers extraordinary powers
on the 1 st respondent, and it can be used only vis-à-vis primary
assets, or the properties possessed by the "Industrial Concern". He
submits that the properties, as held by sureties, can be dealt with,
only under Section 31 of the Act. He places reliance upon a
judgment of the Supreme Court in KARNATAKA STATE
2008 (4) SCALE 473
FINANCIAL CORPORATION v. N. NARASIMHAIAH & OTHERS
[2008 (4) SCALE 473].
Sri Durga Reddy, learned counsel for respondent No.1, and
Sri B. Adinarayana Rao, learned counsel for 6 th respondent, on
the other hand, submit that the security offered for repayment of
the loan is comprehensive in nature, and it takes in its fold, the
primary assets, as well as those, which are pledged or mortgaged
by the sureties. He contends that the petitioner and respondents 3
to 5 were given ample opportunity, to pay the balance of the
amount, and they were also extended the facility of One Time
Settlement, and still the same was not availed of. They submit
that the judgment of the Supreme Court in Karnataka State
Financial Corporation's case has to be viewed, in the context of
the facts of the case.
The short question that arises for consideration in this writ
petition is as to whether the sale conducted by the 1st respondent,
by invoking its power under Section 29 of the Act vis-à-vis the
properties of the petitioner is valid. It is not in dispute that the
petitioner stood as a surety for repayment of the loan raised by 3rd
respondent and that the loan account was not completely settled.
Section 29 of the Act virtually confers powers of a Civil
Court as well as an Executing Court, upon the Financial
Corporations. A person who is entitled to recover the amount from
another is required to institute proceedings in a civil court, and to
take further steps under Order XXI CPC, if a decree is passed.
Special powers are conferred upon the Corporations, under
Section 29 of the Act, enabling them to straight away proceed to
sell the property, without the necessity of obtaining any decree, or
instituting execution proceedings. Such a provision naturally
deserves to be interpreted strictly.
The very opening words of the provision makes specific
mention of the Industrial Concerns i.e. borrower. In contrast,
Section 31 of the Act prescribes procedure, whereunder the
Corporation can proceed against the properties of the Industrial
Concerns, as well as sureties, by approaching the District Court.
The Hon'ble Supreme Court had an occasion to deal with the
scope of Sections 29 and 31 of the Act, in Karnataka State
Financial Corporation's case. The Supreme Court observed as
under:
"14. 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."
From this, it is clear that a financial corporation cannot exercise
its powers under Section 29 of the Act, vis-à-vis the properties
held by sureties. Admittedly, the 1st respondent brought the
properties of the petitioner to sale, in exercise of its powers under
Section 29, and the same is contrary to the law laid down by the
Supreme Court.
On this short ground, the writ petition is allowed, and the
sale of the property of the petitioner, in favour of 6th respondent, is
set aside. Respondents 1, 2 and 6 are directed to restore the
property to the petitioner, within four weeks from today. The
petitioner shall be entitled to take back the amount deposited with
this court, in compliance with the interim order, dated
18.11.2002. There shall be no order as to costs."
The point involved in the present case certainly stands
concluded on account of the judgment delivered by the Hon'ble
Supreme Court in the case of Karnataka State Financial
Corporation (supra). The Hon'ble Supreme Court has exhaustively
dealt with the scope of Sections 29 and 31 of the A.P. State
Financial Corporations Act (for short, "the Act") and it is evident
that a Financial Corporation cannot exercise its powers under
Section 29 of the Act vis-à-vis the properties held by the sureties
and therefore, the learned Single Judge was certainly justified in
allowing the writ petition. This Court does not find any reason to
interfere with the order passed by the learned Single Judge.
Accordingly, the writ appeal is dismissed.
Miscellaneous petitions, if any, shall stand closed. There
shall be no order as to costs.
__________________________________
SATISH CHANDRA SHARMA, CJ
______________________________
N. TUKARAMJI, J
30.12.2021
ES
