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2006 DIGILAW 2750 (RAJ)

Rajendra Kumar v. Rajasthan Financial Corporation

2006-09-15

R.S.CHAUHAN

body2006
JUDGMENT 1. - The appellant has challenged the order dated 25.8.2001 passed by the Additional District Judge No. 1, Sikar whereby he has allowed an application under Section 31(1)(a) and (aa) of the State Financial Corporations Act, 1951 (henceforth to be referred to as 'the Act' in short) and has directed the appellant to pay an amount of Rs. 12,68,896/- to respondent No. 1, the Rajasthan Financial Corporation (henceforth to be referred to as 'the RFC' in short). 2. The brief facts of the case are that on 2.5.1983, the appellant had sought a loan of Rs. 1,86,000/- from the RFC for the purpose of purchasing a truck. According to the agreement entered into between the RFC and the appellant, the appellant was to repay the said loan amount in 58 monthly instalments of Rs. 43U0/-. He was further to pay an interest @ 18% per annum on the loan amount. The respondents Nos. 2 and 3 were the guarantors of the said loan. The said truck was finally delivered to the appellant on 21.6.1983. According to the RFC, the appellant defaulted in the repayment of the said loan, which became due against him on 23,5.1997. Since the appellant did not repay the loan amount, the RFC filed the application under Section 31(1) (a) and (aa) of the Act. 3. The appellant filed the written statement and claimed that the truck was a defective piece. Repeatedly, he had brought the condition of the truck to the notice of the RFC. He had further explained to the RFC that because of the defective condition of the truck, he could not earn out a living. Therefore, he is unable to pay the loan. He further alleged that the interest has been miscalculated. According to him, the RFC had recovered the truck from him on 7/8.3.1997 and the truck was destroyed. The RFC had received the compensation from the insurance company. According to him, the amount received by way of compensation has not been adjusted by the RFC against the loan amount due. He had further pleaded the point of limitation, that the suit was beyond the period of limitation. However, after hearing both the parties vide order dated 25.8.2001, the appellant was directed to repay the loan amount as aforementioned. Hence, this appeal before this Court. 4. Mr. He had further pleaded the point of limitation, that the suit was beyond the period of limitation. However, after hearing both the parties vide order dated 25.8.2001, the appellant was directed to repay the loan amount as aforementioned. Hence, this appeal before this Court. 4. Mr. R.S. Agarwal, the learned counsel for the appellant has strenuously argued that the learned Judge has failed to appreciate the scope and ambit of Section 31 of the Act. According to Section 31, the learned Judge could only order the sale of the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance, or for enforcing the liabilities of any of the sureties, or to transfer the management of the industrial concern to the Financial Corporation, or to issue an ad interim injunction restraining the creditor from transferring or removing its machinery or plant or equipment from the premises without the permission. of the Board, where such removal is apprehended. However, the learned Judge has passed the order as though a suit for money decree had been filed. Therefore, the order is beyond the jurisdiction of the court. Since the order is ultra vires, it is void ab initio. In order to substantiate his contention, learned counsel has relied on the case of M/s. NLP Organics Pvt. Ltd. & Ors. v. Rajasthan Financial Corporation, S.B. Civil Writ Petition No. 208/2005 decided on 21st August, 2006 . 5. On the other hand, Mr. G.C. Garg, the learned counsel for respondent No. 1 has argued that it is within the domain of the court to assess the loan amount due to the RFC and to direct the repayment of the same and further to direct the sale of the property owned by the appellant and the guarantors. According to the learned counsel, this is exactly what has been done by the learned trial court. Therefore, he has supported the impugned order. 6. We have heard both the learned counsels and have also perused the impugned order. 7. A bare perusal of the impugned order clearly reveals that while accepting the application filed by the RFC, the learned Judge had directed that the RFC would be free to recover the truck and to auction it off, and to adjust the same towards the loan amount due. 7. A bare perusal of the impugned order clearly reveals that while accepting the application filed by the RFC, the learned Judge had directed that the RFC would be free to recover the truck and to auction it off, and to adjust the same towards the loan amount due. Furthermore, the RFC would be free to recovery its loan amount from the movable or immovable properties owned by the appellant as well as to recover the loan amount from respondents Nos. 2 and 3. The operative portion of the impugned order, indeed, reads like an order passed in a money recovery suit. 8. The nature and scope of Section 31 of the Act has drawn the attention of the Hon'ble Supreme Court in numerous cases. In the case of Gujarat State Financial Corporation v. Natson Manufacturing Pvt. Ltd., (1979) 1 SCC 193 , the Hon'ble Supreme Court has elaborately discussed and elucidated the nature and scope of the said Section and has held as under: "An application for such a relief is certainly not a plaint in a suit fork recovery of mortgage money by sale of mortgaged property... It would be inappropriate to say that on an analogy an application under Section 31(1) is something akin to a suit by a mortgagee to recover mortgage money by sale of mortgaged property. The distinguishing features noticeable between a suit for recovery of mortgage money by sale of mortgaged property and an application under Section 31 for one or more of the reliefs specified therein are that even if the Corporation as applicant so chooses, it cannot in the application, pray for a preliminary decree for accounts or a final decree for payment of money; nor can it seek to enforce any personal liability even if such one is incurred under the contract of mortgage. It can make an application for one of the three reliefs, none of which, if granted, results in a money decree, or decree for recovery of outstanding loan or advance... The Act clearly points to the conclusion that the proceedings are not in the nature of money recovery. It further asked and held, What then is the nature of proceedings contemplated by Section 31(1) if it is not a suit by the mortgagee for recovery of mortgage money by sale of mortgaged property. Section 31 would to some extent provide a clue to this question. It further asked and held, What then is the nature of proceedings contemplated by Section 31(1) if it is not a suit by the mortgagee for recovery of mortgage money by sale of mortgaged property. Section 31 would to some extent provide a clue to this question. On an application under Section 31(1) being made it is obligatory upon the Court to make an interim order attaching the security with or without interim injunction restraining the industrial concern from transferring or removing its plant, machinery or equipment without the permission of the Board of the Corporation, if the relief claimed in the application is transfer of the management of the industrial concern to the Corporation it is obligatory upon the District Judge to grant an ad interim injunction restraining the industrial concern from transferring or removing its machinery, plant or equipment. It concluded as under: The substantive relief in an application under Section 31(1) is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree... One has to look at the whole conspectus of provisions in Section 32 coupled with the nature of relief sought under Section 31(1) and it becomes clear that special provision is made for certain types of reliefs that can be obtained by a Corporation by an application under Section 31(1) which could not be styled as substantive relief for repayment of mortgage money by sale or mortgaged property." 9. Recently in the case of M/s. NLP Organics Pvt. Ltd. (supra), this Court has extracted the principles which have emerged from various cases decided by the Hon'ble Supreme Court and held as under: "(1) The jurisdiction of the Court is a limited one while dealing with an application under Section 31 of the Act of 1951. (2) The Court can grant only those four reliefs enumerated in Section 31(1) of the Act of 1951. (2) The Court can grant only those four reliefs enumerated in Section 31(1) of the Act of 1951. These reliefs are, firstly, sale of property pledged, mortgaged, hypothecated or assigned to the Financial Corporation as security for the loan or advance; secondly, for enforcing the liability of any surety; thirdly, for transferring the management of the industrial concern to the Financial Corporation; or fourthly, an ad interim injunction restraining the industrial concern from transferring or removing its machinery or plant or equipment from the premises of the industrial concern without the permission of the Board, where such removal is apprehended. It cannot travel beyond the reliefs contained in Section 31(1) of the Act of 1951. In case the court was to grant any other relief to the Financial Corporation, it would over step its jurisdiction. (3) An application for such a relief is not a plaint in a suit for recovery of mortgage money by sale of mortgaged property. (4) The Corporation as applicant can neither pray for a preliminary decree for accounts or a final decree for payment of money, nor can it seek to enforce any personal liability even if such one is incurred under the contract of mortgage. However, this is limited only to the principal borrower. In light of Section 31(1) (aa) of the Act of 1951, and in light of the case of Jaycee Drugs and Pharmaceutical Pvt. Ltd. (supra) the liability of the surety would be both personal and would extend to his properties mentioned in the Surety bond. (5) But the Corporation cannot pray for a decree for its outstanding dues. (6) The substantive relief in an application under Section 31 of the Act of 1951 is something akin to an application for attachment of property in execution of a decree at a stage posterior to the passing of the decree. (7) Only for sub-section (8) of Section 32 of the Act of 1951, a legal fiction has been created to treat the financial Corporation as a decree-holder. But the said legal fiction is a limited one. (8) In case cause is shown by the industrial concern, the District Judge has the power to investigate the claim of the Financial Corporation. But, such investigation is restricted only to discovering if the situation has arisen so as to grant the relief under Section 31(1) of the Act of 1951. But the said legal fiction is a limited one. (8) In case cause is shown by the industrial concern, the District Judge has the power to investigate the claim of the Financial Corporation. But, such investigation is restricted only to discovering if the situation has arisen so as to grant the relief under Section 31(1) of the Act of 1951. (9) The claim of the Corporation is not the monetary claim to be investigated. But, it may become necessary to specify the figure for the purpose of determining how much of the security should be sold. (10) The benefit of Section 34 of the Code cannot be given while passing an order under Section 31 of the Act of 1951. (11) The right of redemption contained in Order 34 Rule 5 of the Code is available to the industrial concern and can be exercised by it even after passing of the order under Section 31 of the Act of 1951." 10. In the present case, the learned trial court had framed the issue whether the appellant had taken a loan of Rs. 1,86,000/- for the purpose of buying a Tata Model Truck from the RFC and had entered into loan agreement with the RFC and further, whether respondents Nos. 2 and 3 had stood as the guarantors. Therefore, Is the RFC entitled to recover the said amount from the movable and immovable properties of the appellant and respondents nos. 2 and 3? However, the issue could not be framed in this language. Firstly, the movable and immovable properties of the principal borrower cannot be attached by the RFC under Section 31(1) (a) unless the said property is pledged, mortgaged, hypothecated or assigned to the RFC by way of security for the loan. Therefore, the very issue framed by the learned Judge is misplaced. Since the Issue has not been framed properly, the direction issued by the trial court to the effect that the RFC is free to recover its loan amount from the movable and immovable properties of the principal borrower is clearly illegal. In fact the trial court has not followed the principles laid down by the Hon'ble Supreme Court beginning with the Gujarat State Financial Corporation's case (supra) and thereafter. 11. In the result, we quash and set aside the order dated 25.8.2001. 12. This appeal is allowed, but without any order as to costs.Appeal Allowed. *******