F.M.Ibrahim Kalifulla, J.: Aggrieved against the order of the learned single Judge, dated 9.4.2003 in W.P.No.37667 of 2002, the appellant has come forward with this appeal. 2. In the writ petition, the appellant prayed for a declaration that the drawal of lots conducted by the respondents on 2.9.2002 for three shops notified for Thammapatti Town Panchayat for grant of privilege to sell liquor during the year 2002-2003 is unilateral, illegal and un-enforceable in law and for a consequential direction to the respondents, to refund the privilege amount and security deposit along with application fee to the appellant. 3. The brief facts which are required to be stated are, that by a notification dated 8.7.2002 in G.O.Ms.No.128, Prohibition and Excise Department, the first respondent herein deleted Rule 14 of the Tamil Nadu Liquor (Retail vending) Rules, 1989 (herinafter referred to as ‘the Rules’), providing for automatic renewal of licence for the subsequent two years on payment of enhanced privilege amount. The existing licensees of the year 2001-2002, challenged the said amendment. 4. In pursuance of deletion of Rule 14, the first respondent invited applications on 10.7.2002 for grant of licence for retail vending of liquor during the year 2002-2003. The appellant applied for grant of licence for any one of the three shops notified for Thammampatti Town Panchayat by paying 50% of the privilege amount. The Notification dated 8.7.2002 was under challenge by the existing licensees by preferring writ petitions. Initially, on 16.7.2002, an order of interim stay was granted by this Court against the conduct of drawal of lots proposed to be held on 22.7.2002. The drawal of lots scheduled to be held on 22.7.2002 for the grant of licence for the excise year 2002-2003, was postponed in view of the order of interim stay. The Division Bench of this Court passed orders on 24.7.2002 holding that the existing licensees of the year 2001-2002 were entitled for the renewal and that the amendment brought by the Notification dated 8.7.2002 will have only a prospective application, i.e., after 1.8.2004. The order of the Division Bench was challenged before the Hon’ble Supreme Court. Pending Special Leave Petition, the State Government granted renewal in favour of the existing licensees for a period of two weeks on 31.7.2002. 5. On 12.8.2002, the appellant applied for refund of privilege amount since the drawal of lots was not held as scheduled. The order of the Division Bench was challenged before the Hon’ble Supreme Court. Pending Special Leave Petition, the State Government granted renewal in favour of the existing licensees for a period of two weeks on 31.7.2002. 5. On 12.8.2002, the appellant applied for refund of privilege amount since the drawal of lots was not held as scheduled. On 26.8.2002, the Hon’ble Supreme Court dismissed the Special Leave Petition affirming the judgment of the Division Bench dated 24.7.2002. According to the appellant, again on 1.9.2002, he renewed his request dated 12.8.2002 for refund of the privilege amount in view of the judgment of the Hon’ble Supreme Court. However, the drawal of lots was re-scheduled to be held on 2.9.2002. The appellant was selected in the said lot and he was also duly intimation, he was directed to deposit the balance 50% of the privilege amount, security deposit and licence fee. He was also directed to fill in Form VI-A and submit the same before 9.9.2002. It is not in dispute that the appellant paid the remaining 50% of the privilege amount on 2.9.2002. The appellant also submitted Form VI-A along with the required affidavit and copy of the lease agreement on 6.9.2002. 6. Pursuant to the direction of the Hon’ble Supreme Court, dated 9.9.2002, the Division Bench of this Court, by its order dated 25.9.2002 held that 4632 existing licensees who paid part of the privilege amount by 31.7.2002 or thereafter, were also entitled for the renewal. According to the appellant, on 13.9.2002, he once again renewed it request for the refund of the privilege amount as the right of 4632 existing licensees who paid the proportionate privilege amount to get renewal was directed to be decidied by the Division Bench by the Hon’ble Supreme Court in its order dated 9.9.2002. The appellant’s request was not considered, but on the other hand, he was issued with a temporary licence dated 3.10.2002, valid for the period between 3.10.2002 to 13.11.2002 and the same was offered to the appellant on 4.10.2002, but he refused to receive the said licence. The appellant’s request was not considered, but on the other hand, he was issued with a temporary licence dated 3.10.2002, valid for the period between 3.10.2002 to 13.11.2002 and the same was offered to the appellant on 4.10.2002, but he refused to receive the said licence. Apparently, the said licence seemed to have been issued pursuant to another order of the Hon’ble Supreme Court in S.L.P.(C) No.19277 of 2002 dated 3.10.2002 against the judgment of the Division Bench dated 25.9.2002, wherein, a direction was issued to the Government that the existing licensees and fresh applicants should be granted licence for six weeks. It is claimed that on 4.10.2002, the appellant once again applied for refund of the entire privilege amount on the ground that the licence was being issued both to the existing licensees as well as to the fresh applicants and therefore, it would be onerous. 7. On 13.11.2002, the Hon’ble Surpeme Court gave certain directions for the renewal of lease for the existing licensees and also for the fresh applicants in the following words: "All the existing licensees (the previous licensees) for the block period who had remitted the whole year’s licence fee for 31 st of July, 2002, as well as all of them who were granted licence for a period of six weeks subsequent to the impugned order of the High Court dated 25.9.2002 and in pursuance of the order of this Court dated 3.10.2002 on payment of the proportionate licence fee will be granted licence for the balance period of the Excise Year 2002-2003 culminating on 15 th September, 2003. By way of clarification, we hold that those of licensees who dropped out, even though applied for pursuant to the High Court’s order dated 25.9.2002 as well as those of the licensees who had participated in the fresh lot in accordance with the new Excise Policy will not be entitled to get advantage of this order. It is further clarified that all those licensees who might have deposited the whole year’s fee though were granted licence for a period of six weeks pursuant to the order dated 3.10.2002 will also be entitled to get the licence for the balance period of the Excise Year. It is further clarified that all those licensees who might have deposited the whole year’s fee though were granted licence for a period of six weeks pursuant to the order dated 3.10.2002 will also be entitled to get the licence for the balance period of the Excise Year. We would also observe that it will be open for any of the existing licensees as well as the new allottees on the basis of the draw of lots to opt out if they find the continuance of the privilege to be onerous in any area where the number of shops exceeds the number of notified shops on account of adjustment required to be made. The appeal stands disposed of on aforesaid terms." 8. On 26.11.2002, the Division Bench of this Court passed orders in W.P.Nos.38646 and 38959 of 2002. The Division Bench, by taking note of the order of the Hon’ble Supreme Court dated 13.11.2002, wherein, the existing licensees as well as the new allottees were permitted to opt out on the ground that the continuance of the business would be onerous, directed the authorities to permit the petitioners to opt out of their bid and refund the privilege amount and security deposit as also the licence fee. The Division Bench also held that it is for the authorities to enquire as to whether the petitioners had run the business or not and if those petitioners had run the business for some time, then the proportionate amount alone can be refunded. A time limit was also fixed for passing such orders. 9. Mr.V.R.Rajasekaran, learned counsel appearing for the appellant, would contend that irrespective of the stipulations contained in Rule 13, in the light of the non-fulfillment of the obligations on the part of the State Government pursuant to the Notification dated 8.7.2002 and 10.7.2002 as well as the benefit granted by the Hon’ble Supreme Court in its order in S.L.P.(C) No.19277 of 2002 dated 13.11.2002 which was followed by the Division Bench of this Court in its order in W.P.Nos.38646 and 38949 of 2002 dated 26.11.2002 refund ought to have been or dered by the learned Judge as claimed in the Writ petition. 10. 10. As against the above stated submissions of the learned counsel for the appellant, learned Special Government Pleader would contend that by virtue of application of Rule 13(9), the respondents are entitled to forfeit the whole of the privilege amount deposited by the appellant. As regards the order of the Hon’ble Supreme Court, the learned Special Government Pleader would contend that the benefit of option extended to the exsiting licensees as well as new allottees would not apply to the case of the appellant inasmuch as none of the three fresh allottees including the appellant made any attempt to run the shop and therefore, there was no question of the appellant finding the continuance of the running of the shop to be onereous in order to hold that the benefit of the said order could be availed of by the appellant. 11. Having heard the learned counsel for the respective parties, the question for our consideration boils down to the narrow compass as to whether the appellant can avail of the benefit made available to the existing licensees as well as fresh applicants to opt out as has been granted in the order dated 13.11.2002. 12. In the above extracted part of the order of the Hon’ble Supreme Court, after holding that all those existing licensees who had remitted the whole year licence fee earlier to the order of the Division Bench dated 25.9.2002 and those who had paid the proportionate licence fee in pursuance of the order of the Hon’ble Supreme Court dated 3.10.2002 and who were granted a temporary licence for six weeks by virtue of the order dated 3.10.2002 should be granted the licence for the balance period of the excise year. The later part of the extracted portion of the order, however, states that it will be open for any of the existing licensees as well as the fresh allottees to opt out if they find that in an area where the number of shops exceeded the number of notified shops on account of the adjustment required to be made. 13. The later part of the extracted portion of the order, however, states that it will be open for any of the existing licensees as well as the fresh allottees to opt out if they find that in an area where the number of shops exceeded the number of notified shops on account of the adjustment required to be made. 13. Be that as it may, by the interim order dated 3.10.2002, the Hon’ble Supreme Court directed to permit those persons who had been successful in the fresh allotment as well as the earlier licensees who have already deposited the fees in question by 3.9.2002, to be granted the licence for a period of six weeks from that date. The period of said six weeks thus commenced from 3.10.2002 and expired on 13.11.2002. The Hon’ble Supreme Court directed the matter to be posted on 12.11.2002 and that is how the subsequent order dated 13.11.2002 came to be issued. Therefore, the benefit of opting out could have been availed either by the existing licensees or by the fresh allottees if at all any one had commenced the business as per the above interim order to run the shop for a period of six weeks between 3.10.2002 and 13.11.2002 and who found the continuance of the business to be onersous. 14. When we examined the relief granted by the Hon’ble Supreme Court in its order dated 13.11.2002 which has been subsequently followed by the Division Bench of this Court in its order dated 26.11.2002, it will have to be held that once the existing licensees and the fresh allottees express to opt out of their bid on the ground that the continuance of the business will be onerous, the respondents are bound to refund the privilege amount de hors the other stipulations contained in Rule 13. 15. But the question is whether the said benefit can be permitted to be availed by the appellant? 16. 15. But the question is whether the said benefit can be permitted to be availed by the appellant? 16. We say so because even before passing of the orders of the Hon’ble Supreme Court dated 3.10.2002, wherein, the Hon’ble Supreme Court directed the State Government to grant licence for the existing licensees as well as the fresh applicants for the period of six weeks, the appellant preferred the writ petition in W.P.No.37667 of 2002 on 27.9.2002, in which, he claimed that the lot held on 2.9.2002 in respect of the shop allotted to him for Thammampatti Town Panchayat was not legal and therefore, he is entitled for the refund. In such circumstances, we have to examine as to whether the appellant’s claim for refund can be tested on the anvil of the order of the Hon’ble Supreme Court dated 13.11.2002 as well as the order of the Division Bench dated 26.11.2002. 17. When we retrace the facts relating to the appellant’s application and other particulars, we find that the appellant applied for the grant of licence immediately after 10.7.2002 by depositing 50% of the privilege amount. When the drawal of lots were not held on 27.2.2002 because of the intervention of Court orders, the appellant wanted refund of the whole of the privilege amount by making an application on 12.8.2002. Though he is stated to have renewed the said request on 1.9.2002, when the lots were held on 2.9.2002, the appellant participated and after intimation of the lot held in his favour, in respect of one of the shops, he also paid the balance of the 50% of the privilege amount on the same day, namely, 2.9.2002. Subsequently, he filed Form VI-A also along with the other relevant documents by 6.9.2002. He, however, claims that once again on 13.9.2002, he asked for refund of the privilege amount as he apprehended that the existing licensees were likely to get their licence renewed. However, on 3.10.2002, licence was issued as per the directions of the Hon’ble Supreme Court for a period of six weeks, on 27.9.2002, the appellant filed the present writ petition. 18. The order of the Hon’ble Supreme Court dated 13.11.2002, has specifically stated that it would be open for the existing licnesees as well as the new allottees to opt out if they find that the continuation of the privilege to be onerous. 18. The order of the Hon’ble Supreme Court dated 13.11.2002, has specifically stated that it would be open for the existing licnesees as well as the new allottees to opt out if they find that the continuation of the privilege to be onerous. The said option was made available by the Hon’ble Supreme Court while directing the State Government to renew the licence for the balance period of excise year. Therefore, the option was granted by the Hon’ble Supreme Court in respect of those applicants who availed the temporary licence for a perioid of six weeks between 3.10.2002 and 13.11.2002 and who after running the shop, found that the continuance would be onerous. As far as the appellant was concerned, even before the interim direction for the grant of six weeks licence was ordered by the Hon’ble Supreme Court on 3.10.2002, he participated in the lot on his own and also paid the remaining 50% of the privilege amount. But for reasons best known to him, he refused to receive the licence issued on 3.10.2002 and thereby he did not even try to run the shop allotted to him as a trial measure. 19. In the above stated circumstances, we are of the considered opinion that the appellant’s claim for refund should be tested strictly in accordance with the provisions contained in Rule 13 and his claim cannot be considered in the light of the benefit granted by the Hon’ble Supreme Court in its order dated 13.11.2002. 20. As far as Rule 13 was concerned, under Sub-Rule (1), any person interested in getting the privilege for retail vending, should make an application in Form VI along with a demand draft for 50% of the privilege amount plus a demand draft for Rs.500 towards application fee. Under Sub-Rule (4), when the selected applicant is intimated in writing about his selection, he should remit the remaining 50% of the privilege amount along with the licence fee of Rs.5,000 on the very same date either in cash or by way of demand draft. Under Sub-Rule (5), if the balance 50% of amount is not remitted as directed under Sub-Rule (4), whatever privilege amount originally paid under Sub-Rule (1) can be forfeited by the Government and the shops can be re-notified. Under Sub-Rule (5), if the balance 50% of amount is not remitted as directed under Sub-Rule (4), whatever privilege amount originally paid under Sub-Rule (1) can be forfeited by the Government and the shops can be re-notified. Under Sub-Rule (6), the initial 50% of the privilege amount can be returned if the applicant was not selected for the grant of privilege. Under Sub-Rule (7), after the payment of the remaining 50% of the privilege amount as per Sub-Rule (4), the applicant should select a suitable building confirming to Rule 18, within the notified area and should apply in Form VI-A within seven days of such intimation. An affidavit should also be filed sworn to before a Notary Public along with the lease deed ensuring the availability of the premises for the period of the licence. Thereafter, under Sub-Rule (8), if all the formalities under Sub-Rule (7) had been complied with, the licence should be issued issued in Form VII by the Authority concerned within three days from the date of receipt of such application. 21. It is true that the period of three days was not duly followed by the authorities, but it will have to be noted that the issuance of licence was then directed by this Court in its order dated 25.9.2002 which was also confirmed by the Hon’ble Supreme Court on 3.10.2002 by which order, the Hon’ble Supreme Court directed the State Government to issue a temporary licence for a period of six weeks. The direction of the Hon’ble Supreme Court was duly carried out even in the case of the appellant by issuing temporary licence on 3.10.2002 for the period up to 13.11.2002. As stated earlier, it was the petitioner who refused to receive the said licence when offered to him on that date. 22. In the above stated back ground, we are unable to see any lapses on the part of the respondents in the matter of issuance of licence in favour of the appellant as directed by the Hon’ble Supreme Court on 3.10.2002. Under the Rules, in particular Rule 13, once the appellant paid the balance of 50% of the privilege amount after the intimation about his selection in the lot, thereafter, it was not open to him to seek for refund of thereafter, it was not open to him to seek for refund of the privilege amount. Under the Rules, in particular Rule 13, once the appellant paid the balance of 50% of the privilege amount after the intimation about his selection in the lot, thereafter, it was not open to him to seek for refund of thereafter, it was not open to him to seek for refund of the privilege amount. The only provision which provided for refund of the privilege amount was Rule 13 (6) which would be available only in the event of an applicant not being selected in the lot and that too only in respect of the initial deposit of 50%. Therefore, in the case on hand, when the appellant paid the initial 50% of the privilege amount as per Rule 13(1) in July, 2002 and also paid the remaining 50% on 2.9.2002 after he was duly intimated about his selection, there was no scope for the appellant to claim for refund on any grounds. Therefore, his writ petition filed on 27.9.2002 for refund of the claim was not supported by any provision of law. 23. One other contention of the appellant is that the drawal of lot on 2.9.2002 was also not valid in law. On the other hand, from the materials placed before this Court, we find that the appellant participated in the lot and when he was informed about his selection, he also willingly deposited 50% of the privilege amount. In such circumstances, it was too late in the day for the appellant to contend that irrespective of the absence of any statutory right available to him, he should still be refunded the whole of the privilege amount. If the appellant had not availed the licence granted on 3.10.2002 for the period upto 13.11.2002, he was to be solely blamed and that will not entitle the appellant to claim for refund. 24. The contention of the appellant that the respondents failed to issue Form VII, within three days as stipulated under Rule 13(8) cannot be accepted inasmuch as, by order dated 9.9.2002, the Hon’ble Supreme Court directed the Division Bench of this Court to decide as to how the issuance of the licence should be made by the respondents. Thereafter, the Division Bench of this Court passed orders only on 25.9.2002 which was considered by the Hon’ble Supreme Court and by order dated 3.10.2002, the respondents were directed to issue a temporary licence for a period of six weeks. Thereafter, the Division Bench of this Court passed orders only on 25.9.2002 which was considered by the Hon’ble Supreme Court and by order dated 3.10.2002, the respondents were directed to issue a temporary licence for a period of six weeks. It is relevant to note that after the lot was held in favour of the appellant on 2.9.2002, the compliance of other requirements by the appellant was admittedly carried out only by 9.9.2002. On that date only the Hon’ble Supreme Court directed the Division Bench of this Court to take a decision which was made by the Division Bench on 25.9.2002. The order the Division Bench was affirmed by the Hon’ble Supreme Court only on 3.10.2002. Therefore, the period between 2.9.2002 and 3.10.2002 was covered by the orders of this Court as well as that of the Hon’ble Supreme Court. In such circumstances, the issuance of Form VII to the appellant was properly made by the respondents on 3.10.2002 covering the period up to 13.11.2002. Therefore, we do not find any illegality in the action of the respondents in the issuance of the licence to the appellant on 3.10.2002. The non-utilisation of the same by the appellant was the appellant’s own folly, for which, the respondents cannot in anyway be blamed. 25. As found by us earlier, the option made available to the licensees both existing as well as fresh entrants in the order of the Hon’ble Supreme Court dated 13.11.2002 was not available to the appellant which would have been available only where the continuation of the running of the shops after 13.11.2002 was felt to be onerous by such of those licensees who ran the shops between 3.10.2002 and 13.11.2002. 26. Therefore, looked at from any angle, we do not find any justification in the claim of the appellant made in the writ petition and consequently, the order of the learned Single Judge in dismissing the appellant’s writ petition was fully justified and we do not find a any scope to interfere with the same. 27. In the result, the writ appeal fails and the same is dismissed. However, we shall make no order as to costs. Consequently, W.A.M.P. is closed. -------------------------------------------------------------------------------- ---------------- (2005) 2 M.L.J. 211 at page 218 ---------------- -------------------------------------------------------------------------------- IN THE HIGH COURT OF JUDICATURE AT MADRAS. Present: P.Sathasivam and S.K.Krishnan, JJ. W.A.No.4117 of 2002 and W.A.M.P.No.357 of 2005 4th March, 2005. 27. In the result, the writ appeal fails and the same is dismissed. However, we shall make no order as to costs. Consequently, W.A.M.P. is closed. -------------------------------------------------------------------------------- ---------------- (2005) 2 M.L.J. 211 at page 218 ---------------- -------------------------------------------------------------------------------- IN THE HIGH COURT OF JUDICATURE AT MADRAS. Present: P.Sathasivam and S.K.Krishnan, JJ. W.A.No.4117 of 2002 and W.A.M.P.No.357 of 2005 4th March, 2005. G. Kailasam and another ... Appellants v. The Tamil Nadu Industrial Investment Corporation Limited, Chennai and others ... Respondents. Constitution of India (1950), Art.226 - State Financial Corporation Act (63 of 1951), Secs.29 and 31 - Contract Act (9 of 1872), Sec.128 - Realisation of loan amount - Power of the Financial Corporation to proceed against the property of the guarantor - Financial Corporation has powers not only to take over the management or possession of the industrial concern, but also to transfer the hyupotheca - Wide powers are conferred under Sec.29 of the Act - Liability of the guarantor is co-extensive with that of the principal debtor - Financial Corporation has got the same powers to deal with the property of the guarantor - The Act was enacted to recovery money due to the Financial Corporation - No equity in favour of defaulting party - Art.226 of constitution will not come to the rescue of defaulting party. In the light of the language used in Sub-sec.(1) of Sec.29, it is clear that the Financial Corporation has powers not only to take over the management or possession of the industrial concern, but to transfer by way of lease or sale-or realize the property pledged, mortgaged, hypothecated or assigned to them (Financial Corporation) .The power conferred under Sec.29 is of the widest possible amplitude and has dual aspects, namely, that it has power to take over management or possession of the industrial concern and also the power to transfer by way of lease or sale and realize the property pledged,mortgaged, hypothecated or assigned to the corporation. It cannot be construed that it refers to only the property or assets of the industrial concern. As rightly observed by the Division Bench, Sec.29 does not make any distinction between the assets of the industrial concern and assets not belonging to the industrial concern but mortgaged to the corporation. It cannot be construed that it refers to only the property or assets of the industrial concern. As rightly observed by the Division Bench, Sec.29 does not make any distinction between the assets of the industrial concern and assets not belonging to the industrial concern but mortgaged to the corporation. It gives the corporation ample power to deal with the property either pledged, mortgaged or hypothecated or assigned by any one including third party or surety or guarantor. The Court is in respectful agreement with the view expressed by the Division Bench of the Kerala High Court. [Para.8.] Sec.128 of the Indian Contract Act, 1872 lays down that the liability of the guarantor/surety is co-extensive with that of the principal debtor. Accordingly and in the light of the provisions in the Special Enactment, namely, State Financial Corporations Act, particularly Sec.29(1) that the Financial Corporation has every right to deal with the property in any manner not only the property of the industrial concern, but also that of the surety or guarantor. [Para. 10] In other words, the relief available to the corporation under Sec.29 of the Act to realize its dues in the manner prescribed therein is wider in scope than the limited relief available to it under Sec.31 of the Act and the same is not controlled by Sec.31 of the Act. Inasmuch as State Financial Corporation Act is a special Act enacted by the Parliament with an object to recover the money due to the Financial Corporation Institution, any interpretation which frustrates the right of the Corporation to recover its dues must be eschewed. There is no equity in favour of a defaulting party which may justify interference by the Courts in exercise of its equitable extraordinary jurisdiction under Art.226 of the Constitution of India to assist it in not repaying its debts. The aim of equity is to promote honesty and not to frustrate the legitimate rights of the Corporation which after advancing the loan takes steps to recover its dues from the defaulting party. [Para. 10] ‘Liability of the guarantor is co-extensive with that of the principal debtor.‘ Cases referred to: N.Narasimhahaiah v. Karnataka State Financial Corporation, A.I.R. 2004 Kar.46. [Paras. 5, 7] K.T. Sulochana Nair v. Managing Director, Orissa State Financial Corporation, A.I.R. 1992 Ori.157. [Para. 5] Jasbir Kaur v. PSID Corporation Limited, Chandigarh, A.I.R. 2002 P. & H. 74. [Para. 10] ‘Liability of the guarantor is co-extensive with that of the principal debtor.‘ Cases referred to: N.Narasimhahaiah v. Karnataka State Financial Corporation, A.I.R. 2004 Kar.46. [Paras. 5, 7] K.T. Sulochana Nair v. Managing Director, Orissa State Financial Corporation, A.I.R. 1992 Ori.157. [Para. 5] Jasbir Kaur v. PSID Corporation Limited, Chandigarh, A.I.R. 2002 P. & H. 74. Munnalal v. U.P. Financial Corporation, A.I.R. 1975 All.416 (F.B.). [Para. 5] Thressiamma Varghese v. K.S.F.Corporation, A.I.R. 1986 Ker.222. [Paras. 6, 8] M/s.Tirupati Plywood Product (P) Limited v. Pradeshik Industrial Investment Corporation, A.I.R. 1997 All. 364. [Para. 6] Kailash Chand Jain v. Uttar Pradesh Financial Corporation, A.I.R. 2002 All.301. [Para. 6] Andhra Pradesh State Financial Corporation v. M/s. GAR Re-rolling Mills, A.I.R. 1994 S.C.2151. [Para. 10] -------------------------------------------------------------------------------- ---------------- (2005) 2 M.L.J. 211 at page 219 ---------------- -------------------------------------------------------------------------------- T.L.Rammohan, Senior Counsel, for S.Subbiah, for Appellants. Sampath Kumar, Senior Counsel for M/s. Sampath Kumar and Associates, for Respondent Nos.1 and 2. S. Jaganathan, for Respondent No.3. The Judgment of the Court was delivered by P.Sathasivam, J.: The above Writ Appeal has been filed against the order of the learned Single Judge dated 25.11.2004, made in Writ Petition No.30013 of 2003 in and by which the learned Judge confirmed the auction notice for bringing the property of the appellant by way of public auction to realize the money due to Tamil Nadu Industrial Investment Corporation. 2. It is not in dispute that the third respondent borrowed a sum of Rs.4.95 lakhs from the first respondent herein, namely, Tamil Nadu Industrial Investment Corporation (hereinafter referred to as “T.I.I.C.”), promising to repay the said sum with interest as agreed. The appellant herein stood as a guarantor along with his wife K.Banumathy, 4th respondent herein (transposed as 2nd appellant as per order dated 25.1.2005 made in W.A.M.P. No.114 of 2005 ) and Flat, namely, C-2, Balaji Apartments, Dhandeeswarar Nagar, VI Main Road, Velachery, Chennai-42 was mortgaged by way of equitable mortgage by depositing title deeds as security for the loan amount. It is further seen that since the principal borrower, namely, third respondent herein, did not pay the amount, the T.I.I.C. initiated action against the guarantor, the first appellant herein and brought his property for sale by public auction. Questioning the same, the appellant herein filed Writ Petition No.30013 of 2003. It is further seen that since the principal borrower, namely, third respondent herein, did not pay the amount, the T.I.I.C. initiated action against the guarantor, the first appellant herein and brought his property for sale by public auction. Questioning the same, the appellant herein filed Writ Petition No.30013 of 2003. Before the learned single Judge, it was contended that the property sought to be brought for public auction does not belong to the principal borrower, but it belongs to the guarantor, and that therefore the said property cannot be taken for public auction exercising their power under Sec.29 of the State Financial Corporation Act, 1951 (hereinafter referred to as “the Act”). On the other hand, it is the claim of the Financial Corporation that the power under Sec.29 of the Act extends to the property mortgaged by the guarantor/surety and the said provision makes it clear that the T.I.I.C. has the right to take over not only the industrial concern, but also the property pledged, mortgaged, hypothecated or as- -------------------------------------------------------------------------------- ---------------- (2005) 2 M.L.J. 211 at page 220 ---------------- -------------------------------------------------------------------------------- signed to the Financial Corporation, of the surety/guarantor. The learned single Judge accepting the claim of the Financial Corporation, after holding that the guarantor is bound to pay the loan obtained by the principal borrower and the liability of the guarantor is co-extensive with that of the principal borrower and the Corporation is well within their powers under Sec.29 of the Act to recover the loan amount, dismissed the writ petition as devoid of merits; hence the present appeal. 3. Heard Mr.T.K.Rammohan, leaned senior counsel for the appellants and Mr.Sampathkumar, learned senior counsel for the respondents 1 and 2 as well as Mr.S.Jaganathan, learned counsel for third respondent. 4. The only point for consideration in this writ appeal is, whether respondents 1 and 2 herein - Financial Corporation is empowered to proceed against the property of the guarantor/surety for realization of the loan borrowed by the principal borrower, namely, the third respondent herein? 5. In view of the limited question as mentioned above, there is no need to traverse the other factual details. 5. In view of the limited question as mentioned above, there is no need to traverse the other factual details. As said earlier, the third respondent borrowed a sum of Rs.4.95 lakhs from the first respondent promising to pay the same with interest, for which the first appellant stood as a guarantor along with his wife and the property bearing No.C-2, Balaji Apartments, Dhandeeswarar Nagar, 6th Main Road, Velachery, Chennai-42, owned by them was mortgaged by way of equitable mortgage by depositing title deeds. Mr. T.K.Rammohan, learned senior counsel for the appellants, by heavily relying on Sec.29, particularly Sub-secs.(1), (4) and (5) of Sec.29 and Sec.31(1) (aa) of the Act, would contend that though Sec.31 covers surety, in the absence of such specific provision in Sec.29, which refers to only industrial concern, the action under Sec.29 for bringing the property of the first appellant/guarantor to public auction cannot be sustained. In support of his claim, he also pressed into service the following decisions: (i) N.Narasimhahaiah v. Karnataka State Financial Corporation, A.I.R. 2004 Kar.46; (ii) K.T. Sulochana Nair v. Managing Director, Orissa State Financial Corporation, A.I.R. 1992 Ori.157; (iii) Jasbir Kaur v. PSID Corporation Limited, Chandigarh, A.I.R. 2002 P. & H. 74; (iv) Munnalal v. U.P. Financial Corporation, A.I.R. 1975 All.416 (F.B.). 6. With regard to the legal submissions made by the learned senior counsel for the appellants, Mr.Sampathkumar, learned senior counsel for the appellants, Mr.Sampathkumar, learned senior counsel for the respondents, submitted that the decision of the Karnataka High Court, referred to above, has been stayed by the Supreme Court and all other decision sare not directly on the point, particularly in the light of the language used in Secs.29 and 31 of the Act. In other words, according to him, Sec.29 not only covers the property of the Industrial concern, but also the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation which include the property of the appellant which was mortgaged for sanction of the loan. He also very much relied on the following decisions: (i) K.Kirubakaran v. Tamil Nadu Industrial Investment Corporation. W.P.Nos.596 and 8238 of 1998 dated 5.4.2004; (ii) Thressiamma Varghese v. K.S.F. Corporation, A.I.R. 1986 Ker.222; (iii) M/s. Tirupati Plywood Product (P) Limited v. Pradeshik Industrial Investment Corporation, A.I.R. 1997 All. He also very much relied on the following decisions: (i) K.Kirubakaran v. Tamil Nadu Industrial Investment Corporation. W.P.Nos.596 and 8238 of 1998 dated 5.4.2004; (ii) Thressiamma Varghese v. K.S.F. Corporation, A.I.R. 1986 Ker.222; (iii) M/s. Tirupati Plywood Product (P) Limited v. Pradeshik Industrial Investment Corporation, A.I.R. 1997 All. 364; (iv) Kailash Chand Jain v. Uttar Pradesh Financial Corporation, A.I.R. 2002 All.302; (v) Order passed in S.L.P. (Civil) 15423-15427 of 2003 dated 27.1.2004 by the Supreme Court of India. Among the various clauses, Sub-sec.(1) of Sec.29 is relevant which reads as under: "29. Rights of Financial Corporation in -------------------------------------------------------------------------------- ---------------- (2005) 2 M.L.J. 211 at page 221 ---------------- -------------------------------------------------------------------------------- case of default: (1) Where any industrial concern, which is under a liability to the Financial Corporation under an argument, 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 to 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 the right to transfer by way of lease or sale and realize the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation. (2) xx xx (3) xx xx (4) xx xx (5) xx xx. “ According to him, the above Sub-sec.(1) enables the Financial Corporation only to take over the management or possession or both of the industrial concern and it does not enable the Corporation to enforce the liability of a surety by bringing the property/properties of the surety as specifically provided in Sec.31(1) (aa) of the Act. On a careful reading both the provisions, namely, Sec.29(1) and Sec.31(1) (aa) of the Act, we are unable to accept the said contention for the following reasons. 7. Though the Division Bench of the Karnataka High Court in N.Narasimhahaiah v. Karnataka State Financial Corporation, A.I.R. 2004 Kar. 46, has held that the Financial Corporaton can enforce the liability of the surety or proceed against the property secured against the surety only by approaching the Civil Court or by initiating action under Sec.31 of the State Financial Corporations Act, it is brought to our notice that the said decision of the Karnataka High Court has been stayed by the Supreme Court in S.L.P.(Civil) No.15423-15427 of 2003 dated 27.1.2004. Though it is an interim order, the fact remains that the Hon’ble Supreme Court has stayed the decision of the Karnataka High Court, hence placing reliance upon the said decisions, N.Narasimhahaiah v. Karnataka State Financial Corporation, A.I.R. 2004 Kar.46 may not be considered for the present. 8. It may be useful to refer the Division Bench decision of the Kerala High Court reported in Thressiamma Varghese v. K.S.F.Corporation, A.I.R. 1986 Ker.222, wherein the Division Bench had an occasion to consider similar question, namely, the property of a surety which was mortgaged by the principal borrower can be proceeded under Sec.29 of the Act to realize the loan amount. After a due consideration, the learned Judges have held that the recovery proceedings under State Financial Corporations Act cannot be restricted to properties of industrial concern only the properties of co-mortgagors, guarantors can be proceeded and recourse to Civil Court is not necessary in respect of such property. The conclusion arrived at therein is extracted hereunder: (para.14) ”14. The legislature has taken great care to ensure speedy recovery of the loans. The scheme is provided in Secs.29 to 32 of the Act. Operation of Sec.29 is attracted wherever there is default by a borrowing industrial concern. The Corporation shall have the right (a) to take over management or possession or both of the industrial concern and (b) to transfer by way of lease or sale and realize the property pledged, mortgaged, hypothecated or assigned to the Corporation. Sec.30 empowers the Corporation to call for repayment before the agreed period. Power conferred under Sec.29 is the widest possible amplitude and has dual aspects. There is the power to take over management or possession of the industrial concern; there is also the power to transfer by way of lease or sale and realize the property pledged, mortgaged, -------------------------------------------------------------------------------- ---------------- (2005) 2 M.L.J. 211 at page 222 ---------------- -------------------------------------------------------------------------------- hypothecated or assigned to the Corporation. There is nothing in any of the provisions of the Act indicating that only property or assets of the industrial concern can be mortgaged or hypothecated. Absence of such a provision is understandable and well-advised. To insist that every industrial concern must have sufficient assets of its own before it can approach the Corporation for accommodation and that would adversely affect public interest. Absence of such a provision is understandable and well-advised. To insist that every industrial concern must have sufficient assets of its own before it can approach the Corporation for accommodation and that would adversely affect public interest. Sub-sec.(2) of Sec.25 only prohibits accommodation being granted unless it is sufficiently secured, inter alia, by mortgage, hypothecation, movable or immovable property or other tangible assets. The provision does not indicate that the property or the assets must belong to the industrial concern. It should be possible for the industrial concern to arrange to secure hypothecation or mortgage of assets belonging to well-wishers who are prepared to assist the concern. That is why the provision does not indicate that assets mortgaged or hypothecated must belong to the industrial concern. Sec.29 does not make any distinction between assets of the industrial concern and assets not belonging to the industrial concern but nevertheless mortgaged to the Corporation. Both kinds of assets can be proceeded against under Sec.29. It is not possible for us to read into Sec.29 a restriction to the effect that the right conferred on the Corporation thereunder is restricted to the right to proceed only against property belonging to the industrial concern and mortgaged to the Corporation. The provision would apply to property not belonging to the industrial concern but nevertheless mortgaged by the owners of the assets to the Corporation, as guarantee or security." In the light of the language used in Sub-sec.(1) of Sec.29, it is clear that the Financial Corporation has powers not only to take over the management or possession of the industrial concern, but to transfer by way of lease on sale - or realize the property pledged, mortgaged, hypothecated or assigned to them (Financial Corporation). In other words, we are satisfied that the power conferred under Sec.29 is of the widest possible amplitude and has dual aspects, namely, that it has power to take over management or possession of the industrial concern and also the power to transfer by way of lease or sale and realize the property pledged,mortgaged, hypothecated or assigned to the corporation. It cannot be construed that it refers to only the property or assets of the industrial concern. As rightly observed by the Division Bench, Sec.29 does not make any distinction between the assets of the industrial concern and assets not belonging to the industrial concern but mortgaged to the corporation. It cannot be construed that it refers to only the property or assets of the industrial concern. As rightly observed by the Division Bench, Sec.29 does not make any distinction between the assets of the industrial concern and assets not belonging to the industrial concern but mortgaged to the corporation. It gives the Corporation ample power to deal with the property either pledged, mortgaged or hypothecated or assigned by any one including third party or surety or guarantor. We are in respectful agreement with the view expressed by the Division Bench of the Kerala High Court. 9. In K.T. Sulochana Nair v. Managing Director, Orissa State Financial Corporation, A.I.R. 1992 Ori.157, the Division Bench of the Orissa High Court, after considering Sub-sec.(1) of Sec.29, has held that there is nothing in the provision to indicate that the right under Sec.29 of the Act is only in respect of the property of the loanee mortgaged with the Corporation. The learned Judges also held that all the properties mortgaged with the Corporation would come within the purview of Sec.29 of the Act. 10. Sec.128 of the Indian Contract Act, 1872 lays down that the liability of the guarantor/surety is co-extensive with that of the principal debtor. Accordingly and in the light of the provisions in the Special Enactment, namely, State Financial Corporations Act, particularly Sec.29(1) we hold that the Financial Corporation has every right to deal with the property in any manner not only -------------------------------------------------------------------------------- ---------------- (2005) 2 M.L.J. 211 at page 223 ---------------- -------------------------------------------------------------------------------- the property of the industrial concern, but also that of the surety or guarantor. Similar view has been expressed by the Division Bench of the Punjab and Haryana High Court in Jasbir Kaur v. PSID Corporation Limited, Chandigarh, A.I.R. 2002 P. & H. 74. In Kailash Chand Jain v. Uttar Pradesh Financial Corporation, A.I.R. 2002 All.302, the Division Bench of Allahabad High Court has also held that the guarantor cannot compel Financial Corporation to first proceed against unit of the borrower company taken over and only thereafter proceed against him. In Kailash Chand Jain v. Uttar Pradesh Financial Corporation, A.I.R. 2002 All.302, the Division Bench of Allahabad High Court has also held that the guarantor cannot compel Financial Corporation to first proceed against unit of the borrower company taken over and only thereafter proceed against him. In the light of the above discussion, particularly Sec.29(1) of the Act, with respect we are unable to share the view expressed by the Full Bench of the Allahabad High Court in Munnalal v. U.P. Financial Corporation, A.I.R. 1975 All.416 (F.B.) to the effect that the property of the surety cannot be subject matter of proceedings under Sec.29 and surety can be proceeded only against under general Law. We are also unable to accept the view expressed by the Division Bench of the Orissa High Court in K.T. Sulochana Nair v. Managing Director, Orissa State Financial Corporation, A.I.R. 1972 Ori.157, that though the Financial Corporation can take possession of the mortgaged property of a guarantor under Sec.29 of the Act, but cannot sell the same by taking recourse to the power conferred under Sec.31 of the Act. In this regard, it is useful to refer the judgment of the Supreme Court in Andhra Pradesh State Financial Corporation v. M/s. GAR Re-rolling Mills, A.I.R. 1994 S.C.2151. In this decision, while considering Secs.29 and 31 of the State Financial Corporations Act, Their Lordships have held that the expression "without prejudice to the provisions of Sec.29 of the Act" as appearing in Sec.31 of the Act clearly demonstrates that the Legislature did not intend to confine the Corporation to take recourse to only a particular remedy against the defaulting industrial concern for recovery of the amount due to it. Their Lordships have further held that it left the choice to the Corporation to act in the first instance under Sec.31 of the Act and save its rights and remedies under Sec.29 of the Act to be availed at a later stage, with the sole object of enabling the Corporation to recover its dues. It is clear from the above decision that recourse to remedy available under Sec.29 of the Act can still be taken without executing order under Sec.31 of the Act. It is clear from the above decision that recourse to remedy available under Sec.29 of the Act can still be taken without executing order under Sec.31 of the Act. In other words, the relief available to the corporation under Sec.29 of the Act to realize its dues in the manner prescribed therein is wider in scope than the limited relief available to it under Sec.31 of the Act and the same is not controlled by Sec.31 of the Act. Inasmuch as State Financial Corporation Act is a Special Act enacted by the Parliament with an object to recover the money due to the Financial Corporation Institution, any interpretation which frustrates the right of the Corporation to recover its dues must be eschewed. There is no equity in favour of a defaulting party which may justify interference by the Courts in exercise of its equitable extraordinary jurisdiction under Art.226 of the Constitution of India to assist it in not repaying its debts. The aim of equity is to promote honesty and not to frustrate the legitimate rights of the Corporation which after advancing the loan takes steps to recover its dues from the defaulting party. 11. Before concluding our discussion, it is also worthwhile to extract hereunder the observation of the Hon’ble Supreme Court in Andhra Pradesh State Financial Corporation v. M/s. GAR Re-rolling Mills, A.I.R. 1994 S.C.2151. (para. 18) "18. .. A Court of equity, when exercising its equitable jurisdiction under Art.226 of the Constitution must so act as to prevent perpetration of a legal fraud and the Courts are obliged to do justice by promotion of good faith, as far as it lies within their power. Equity is always known to defend the law from -------------------------------------------------------------------------------- ---------------- (2005) 2 M.L.J. 211 at page 224 ---------------- -------------------------------------------------------------------------------- clefty evasions and new subtelities invented to evade law. Since the legislature enacted Secs.29 and 31 with a view to aid the Corporation to recover its legitimate dues etc., from the defaulting party, the saving clause in Sec.31 of the Act, preserving the rights under Sec.29 of the Act by giving up the pursuit under Sec.31 at any stage of the proceedings is available to the Corporation. The two provisions must be so harmonized as to facilitate the Corporation to recover its dues from the defaulting party. The two provisions must be so harmonized as to facilitate the Corporation to recover its dues from the defaulting party. The Act was enacted by the Parliament with a view to promote industrialization and offer assistance by giving financial assistance in the shape of loans and advances etc., repayable in easy instalments. The Corporation has to recover the loans and advances, so as to be able to give financial resources assistance to other industries and unless it recovers its dues, the money will not remain in circulation for long. It is with this end in view that the parliament gave the Corporation the right to proceed under Sec.31 of the Act, preserving at the same time its rights and remedy under Sec.29 of the Act, so that the Corporations are not chocked by the defaulting debtors by adopting frustrating or dilatory tactics in the proceedings in the Court initiated under Sec.31 of the Act." 12. Keeping the above view in mind and in the light of our discussion, we are unable to accept the contentions raised by the learned senior counsel for the appellants. On the other hand, we are in agreement with the conclusion arrived at by the learned Single Judge and we do not find any merit in the appeal; consequently, the same is dismissed. No costs. The connected W.A.M.P. is closed. P.C. ----------- Appeal dismissed.