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2018 DIGILAW 1560 (GAU)

Wahida Begum v. Assam Financial Corporation

2018-10-30

M.R.PATHAK

body2018
JUDGMENT : 1. Heard Mr. Y.S. Mannan, learned counsel assisted by Ms. M. Bhattacharyya for the petitioner and Mr. L.P. Sharma, learned counsel for the Assam State Financial Corporation assisted by Mr. R. Thakuria for the respondent Nos. 1 and 2. 2. Challenge in this writ petition is to the “Takeover Notice” under reference No. AFC/GBO/L-2291/2017-18/516, dated 14.12.2017 issued by the Deputy General Manager, Guwahati Branch Office, Assam Financial Corporation (‘AFC’) under section 29 of the State Financial Corporations Act, 1951 (‘said 1951 Act’) to the petitioner, a mortgagor, for recovery of loan amount of the defaulter borrower industrial concern, M/s. Astha Packaging, of which she is one of the partners. 3. M/s. Astha Packaging, situated at House No. 5, Opposite Bora Service, Guwahati-7, is an industry for manufacturing and trading of corrugating boxes, craft paper, pulp paper and other paper products and is a partnership firm, where the petitioner is one of the three partners. Said Industry sought for a loan from the respondent-AFC. After due consideration, the AFC by its letter dated 12.4.2013 sanctioned an amount of Rs. 1.50 crores as term loan @ lending interest of 13% per annum and another amount of Rs. 1 crore towards Working Capital @ lending interest of 14% per annum to said M/s. Astha Packaging. However, the respondent-AFC eventually released an amount of Rs. 2.19 crores to said M/s. Astha Packaging. The said industry initiated its operation on 13.10.2013. But, after few months, since June 2015, the said Industry became inoperative and due to its closure, it defaulted in re-payment of the loan amount to the respondent-AFC. The said industry, managed by its partners, sought time for settlement of the loan amount by making payments in instalments and on the letter of the respondent-AFC dated 30.10.2015 and as per the repayment schedule, the said Industry started repaying the loan amount to the respondent-AFC on equal monthly instalments, commencing from January 2016. 4. The petitioner approached the respondent-AFC and submitted that the “term loan” granted to said M/s. Astha Packaging will be repaid in 72 equated monthly instalments @ Rs. 2,52,321 per month, commencing from January 2016 to December 2021 and that the “working capital” would be repaid in 60 equated monthly instalment, commencing from January 2016 to December 2020 @ Rs. 4. The petitioner approached the respondent-AFC and submitted that the “term loan” granted to said M/s. Astha Packaging will be repaid in 72 equated monthly instalments @ Rs. 2,52,321 per month, commencing from January 2016 to December 2021 and that the “working capital” would be repaid in 60 equated monthly instalment, commencing from January 2016 to December 2020 @ Rs. 2,29,722 per month, which was agreed upon by the parties, subject to the fulfilment of certain terms and conditions of the respondent-AFC. However, the petitioners failed to execute the deed of rectification towards the fulfilment of the terms and conditions of the respondent-AFC and also failed to repay the loan amount as per the repayment schedule. Therefore, the respondent-AFC on 30.1.2016 issued a notice to the petitioner and other two partners of M/'s. Astha Packaging, intimating them the detail amounts towards total default towards its term loan and working capital, as on 31.12.2015, including principal overdue, interest overdue and penal interest, amounting to Rs. 67,56,106, with the observation that failure on their part to clear the entire defaulted amount on or before 15.2.2016, the respondent-AFC will take necessary legal steps taking recourse to the provisions of the State Financial Corporations Act, 1951. 5. Further, by communication dated 18.5.2016, the respondent-AFC issued a Default Notice to the petitioner, one of the partners of M/s. Astha Packaging, informing her that an amount of Rs. 39,00,827 was due on her part as on 31.3.2016 towards the loan account of said Industry and she was requested to clear the said dues by 31st March, 2016. 6. As the re-payment of loan amount was not made and because of such default in payment, on 13.9.2016, the respondent-AFC took over the factory premises of said M/s. Astha Packaging and in the month of November 2017, the same was auctioned. However, it is contended by the petitioner that no notice or any information with regard to the said auction was given to the petitioner. 7. While taking the said loan for their industry M/s. Astha Packaging, the petitioner on 28.5.2013, towards surety, executed an Equitable Mortgage Deed in favour of the respondent-AFC mortgaging 1 Katha of her land under Dag No. 347, Kheraj Periodic Patta No. 209 of Revenue Village — Bagharbori, under Mouza — Beltola, Police Station Dispur, Guwahati — 781006, District Kamrup (M), Assam including the building over it. 8. 8. It is contended by the petitioner that the respondent-AFC without giving any prior notice to her and without informing about the said public auction of the factory premises of said M/s. Astha Packaging that was made by it in the month of November 2017 and without intimating the amount that was realised by the respondent-AFC from such public auction and also about the amount due, if any, to be repaid by said M/s. Astha Packaging, illegally issued the impugned Takeover Notice dated 14.12.2017, by which the petitioner was informed that land mortgaged by her, which she had given as a surety, against the loan sanctioned in favour of the industry concern M/s. Astha Packaging would be taken over by the respondent-AFC on 20.12.2017 and that the respondent-Corporation will proceed to transfer the same by way of sale/lease of the said asset by public auction or by private treaty without any notice to her to recover the dues to it. 9. It is also contended by the petitioner that without informing her the amount due to it after the public auction of the factory premises of M/s. Astha Packaging that was made by it in the month of November 2017 and without granting her any opportunity to repay the outstanding loan amount of M/s. Astha Packaging, if any, the respondent-AFC committed illegality in issuing the impugned Takeover Notice dated 14.12.2017. The petitioner further contended that the impugned Takeover Notice dated 14.12.2017 is illegal as the time given by the respondent-AFC in the same was only up to 20.12.2017, which was of very short duration. 10. Mr. Mannan, learned counsel for the petitioner submitted that the property and assets, mortgaged by her in favour of the respondent-AFC as surety, for the loan amount sanctioned and disbursed by it to the industry concern M/s. Astha Packaging, cannot be taken over by it under section 29 of the State Financial Corporations Act, 1951 and, therefore, the impugned Takeover Notice dated 14.12.2017, being illegal, needs to be set aside and quashed. 11. On the other hand, Mr. L.P. Sharma, learned counsel for the respondent-AFC submitted that an amount of Rs. 2.50 crores was sanctioned to M/s. Astha Packaging, a partnership industry of the petitioner and two other partners and out of that Rs. 2,29,12,365 was already disbursed, which included Rs. 1 crores as working capital and Rs. 11. On the other hand, Mr. L.P. Sharma, learned counsel for the respondent-AFC submitted that an amount of Rs. 2.50 crores was sanctioned to M/s. Astha Packaging, a partnership industry of the petitioner and two other partners and out of that Rs. 2,29,12,365 was already disbursed, which included Rs. 1 crores as working capital and Rs. 1,29,12,365 as term loan, on the basis of eligibility and progress made by the said industry in implementation of the unit. But as the said industry defaulted in payment of the loan amount of the respondent-Financial Corporation and was later closed down, since the said industry could not be managed by its management and the partners, Mr. Sarma submits that due to heavy outstanding amount of loan amount and finding no other alternative, the respondent-AFC, on 28.9.2016, through due process took over the land, machineries and the building of the said industry under section 29 of said 1951 Act and issued notices in the English daily The Assam Tribune on 15.2.2017, 20.3.2017 and 6.9.2017 regarding the sale of the factory of M/s. Astha Packaging and its machineries in public auction. Mr. Sarma also submitted that on 12.9.2017, the same was sold in public auction at Rs. 80.01 lakh with an outstanding amount of Rs. 1,54,63,874 to be realised from the petitioner. It is stated on behalf of the respondent-AFC that as the petitioner herself is the owner and one of the partners of said M/s. Astha Packaging, therefore, the said Financial Corporation took necessary steps to takeover her mortgaged property and assets, that was mortgaged with the respondent, so that it can sale the mortgaged property in public auction and thereby, realise its outstanding dues. 12. Therefore, the issue involved in this writ petition is as to whether a Financial Corporation under section 29 of the State Financial Corporations Act, 1951 can take over a property mortgaged with it by a mortgagor towards security for the purpose of obtaining a loan by an industrial concern? 13. Mr. Mannan, learned counsel in support of his argument for the petitioner relied on the judgments of the hon'ble Supreme Court in the cases of Karnataka State Financial Corporation v. N. Narasimahaiah, (2008) 5 SCC 176 and Subhransu Shekhar Padhi v. Gunamani Swaine, (2014) 12 SCC 368 . 14. Mr. 13. Mr. Mannan, learned counsel in support of his argument for the petitioner relied on the judgments of the hon'ble Supreme Court in the cases of Karnataka State Financial Corporation v. N. Narasimahaiah, (2008) 5 SCC 176 and Subhransu Shekhar Padhi v. Gunamani Swaine, (2014) 12 SCC 368 . 14. Mr. Sharma, learned counsel for the respondent-AFC submitted that the impugned Takeover Notice dated 14.12.2017 under section 29 of the said 1951 Act had been issued by the respondent-AFC to the petitioner, as the industrial concern M/s. Astha Packaging to whom the loan amount was sanctioned and disbursed by the respondent-Financial Corporation, is a partnership farm, where the petitioner is the owner of the same being one of the three partners of the said industry. Mr. Sharma also submitted that as the petitioner on 28.5.2013 executed an equitable mortgage deed in favour of the respondent-AFC, therefore, the respondent-Financial Corporation by the impugned Takeover Notice dated 14.12.2017 wanted to take over the land described in the Schedule of the impugned Notice, which is the same as that of the property mortgaged by the petitioner with the respondent-AFC, so that it can realise the outstanding due of Rs. 1,54,63,874 by selling or leasing the said mortgaged property of the petitioner through public auction. 15. M/s. Astha Packaging is an ‘industrial concern’ as defined under section 2(c) of the State Financial Corporations Act, 1951. Section 29 of the State Financial Corporations Act, 1951 reads as follows: “29. Rights of Financial Corporation in case of default. - (1) 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 concerns, 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. (2) Any transfer of property made by the Financial Corporation, in exercise of its powers under sub-section (1), shall vest in the transferee all rights in or to the property transferred as if the transfer had been made by the owner of the property. (3) The Financial Corporation shall have the same rights and powers with respect to goods manufactured or produced wholly or partly from goods forming part of the security held by it as it had with respect to the original goods. (4) Where any action has been taken against an industrial concern under the provisions of sub-section (1), all costs, charges and expenses which in the opinion of the Financial Corporation have been properly incurred by it as incidental thereto shall be recoverable from the industrial concern and the money which is received by it shall, in the absence of any contract to the contrary, be held by it in trust to be applied firstly, in payment of such costs, charges and expenses and, secondly, in discharge of the debt due to the Financial Corporation, and the residue of the money so received shall be paid to the person entitled thereto. (5) Where the Financial Corporation has taken any action against an industrial concern under the provisions of sub-section (1), the Financial Corporation shall be deemed to be the owner of such concern, for the purposes of suits by or against the concern, and shall sue and be sued in the name of the concern.” 16. From the reading of the Equitable Mortgage Deed, executed by the petitioner on 28.5.2013 in favour of the respondent-AFC, annexed by the respondent-AFC as Annexure IV in its affidavit-in-opposition filed in the present case; it can be seen that the petitioner as a mortgagor, mortgaged her land described in the Schedule of the said Deed, i.e., the same plot of land described in the Schedule of the impugned Takeover Notice dated 14.12.2017 that was issued by the respondent-AFC to the petitioner toward realisation of outstanding dues for repayment of the loan, was in fact was given as surety by the petitioner in respect of the loan that was taken by the borrower M/s. Astha Packaging. 17. 17. Section 29(1) of the said 1951 Act clearly provides that if the 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 said Financial Corporation or otherwise if the said industrial concern, fails to comply with the terms of its agreement with the Financial Corporation, then the said Financial Corporation shall have the right to take over the management or possession or both of the industrial concerns, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the said Financial Corporation. 18. The hon'ble Supreme Court in the case of Karnataka State Financial Corporation (supra) while holding that — “When a statutory power is conferred, it is a trite law that the same must be exercised within the four comers of the statute. Power of a lender to realise the amount lent either by enforcing the charged and/or hypothecated or encumbrance created on certain property and/or proceeding simultaneously and/or independently against the surety/guarantor is a statutory right” had also held that: “17. Such a right can also indisputably be conferred by way of contract as has been provided for under section 69 of the Transfer of Property Act in terms whereof a mortgagee is entitled to effect sale without the intervention of the court, subject, of course, to the limitations prescribed therein. 18. If special provisions are made in derogation to the general right of a citizen, the statute, in our opinion, should receive strict construction. “Industrial concern” has been defined under the Act. For the purpose of enforcing a liability of an industrial concern, recourse can be taken both under sections 29 and 31 of the Act. Right of the corporation to file a suit or take recourse to the provisions contained in section 32G of the Act also exists. 19. The heading of section 29 of the Act states “Rights of financial corporation in case of default”. The default contemplated thereby is of 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. The default contemplated thereby is of 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 realise 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 liability 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. 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. 22. It is true that sub-section (1) of section 29 speaks of guarantee. 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. 22. The legislative object and intent becomes furthermore clear as in terms of sub-section (4) of section 29 of the Act only when a property is sold, the manner in which the sale proceeds is to be appropriated has categorically been provided therein. It is significant to notice that sub-section (4) of section 29 of the Act which lays down appropriation of the sale proceeds only refers to “industrial concern” and not a “surety” or “guarantor”. 23. The provisions of section 128 of the Contract Act must also be kept in mind. It is only by reason thereof, subject of course to the contract by the parties thereto, the liability of a surety is made coextensive with the liability of the principal debtor. 24. Banking practice may enable a financial corporation to ask for a collateral security. Such security, we would assume, may be furnished by the Directors of a company but furnishing of such security or guarantee is not confined to the Directors or employees or their close relatives. They may be outsiders also. The rights and liabilities of a surety and the principal borrower are different and distinct. Apart from the defences available to a principal borrower under the provisions of the Contract Act, a surety or a guarantor is entitled to take additional defence. Such additional defence may be taken by the guarantor not only against the corporation but also against the principal debtor. He, in a given situation, would be entitled to show that the contract of guarantee has come to a naught. Ordinarily, therefore, when a guarantee is sought to be enforced, the same must be done through a court having appropriate jurisdiction. In the absence of any express provision in the statute, a person being in lawful possession cannot be deprived thereof by reason of default on the part of a principal borrower. 25. Furthermore, construction of a statute would not depend upon a contingency. A statute must be interpreted having regard to the constitutional provisions as also human rights.” 19. In the absence of any express provision in the statute, a person being in lawful possession cannot be deprived thereof by reason of default on the part of a principal borrower. 25. Furthermore, construction of a statute would not depend upon a contingency. A statute must be interpreted having regard to the constitutional provisions as also human rights.” 19. In the case of Subhransu Shekhar Padhi (supra), the hon'ble Apex Court by applying the law laid down by the said hon'ble Court in the case of Karnataka State Financial Corporation (supra) declared the action of the Orissa State Financial Corporation as illegal and in flagrant violation of the settled position of law in selling the properties, other than those belonging to defaulter industrial concern under section 29 of the said 1951 Act for realisation of its outstanding dues. 20. From the decisions of Karnataka State Financial Corporation (supra) as well as Subhransu Shekhar Padhi (supra), the law is well settled by the hon'ble Apex Court that it is only the properties of the defaulter industrial concern which can be proceeded against under section 29 of the State Financial Corporations Act, 1951, but not against the properties of the third parties whether they are guarantors, mortgagors, etc., since section 29 of said 1951 Act does not envisage any surety or guarantor or mortgagor as a defaulter and the liabilities of a surety or the guarantor or the mortgagor to repay the loan of the principal debtor arises only when a default is made by the latter. 21. In the present case, the petitioner as a mortgagor mortgaged her scheduled property as a surety in respect of the loan that was taken by the borrower M/s. Astha Packaging and it is M/s. Astha Packaging, the defaulter industrial concern, who borrowed the money from the respondent-AFC. 22. In view of the above, it is clear that the respondent-AFC by the impugned Takeover Notice dated 14.12.2017 cannot take over the mortgaged property of the petitioner that was mortgaged by her on 28.5.2013 in favour of the respondent-AFC as surety for the repayment of loan by the borrower industrial concern, M/s. Astha Packaging, as section 29 of the said 1951 Act clearly provides that such amount can be recovered only from the defaulter industrial concern and not from any third parties including guarantors and mortgagors. 23. 23. As such, the issue involved in this writ petition is decided in negative and in favour of the petitioner. Therefore, the impugned “Takeover Notice” under reference No. AFC/GBO/L-2291/2017-18/516 dated 14.12.2017 issued by the Deputy General Manager, Guwahati Branch Office of Assam Financial Corporation under section 29 of the State Financial Corporations Act, 1951 that was issued in favour of said Financial Corporation to the petitioner mortgagor, being bad in law, is hereby set aside and quashed. 24. Accordingly, this writ petition stands allowed. The interim order dated 20.12.2017 passed earlier in the present proceeding, stands merged with this order. 25. Needless to say that the respondent-Assam Financial Corporation may take recourse to any other appropriate provisions of the State Financial Corporations Act, 1951 so as to realise its outstanding dues of the borrower M/s. Astha Packaging, the defaulter industrial concern.