T. Mathivanan, J.@mdashThe judgment and decree dated 12.4.2005 and made in A.S. No. 65 of 2002 on the file of the learned District Judge, Salem, confirming the judgment and decree dated 2.4.2002 and made in O.S. No. 3 of 1998 on the file of the learned District Munsif, Salem, have been challenged in this Memorandum of Second Appeal.
2. The appellants are the plaintiffs in the suit in O.S. No. 3 of 1998 on the file of the learned District Munsif, Salem and the respondents 1 to 3 are the defendants. For the sake of convenience and for easy reference, the appellants may hereinafter be referred to as the plaintiffs and the respondents be referred to as the defendants, wherever the context is so require.
3. This Second Appeal came to be admitted on the following singularly singular substantial question of law:-
''When the assets of the principal debtor which exceed the value of the debt dues '' are very much available for being proceeded against, is not the act of the institution in proceeding against the assets of the Guarantor, a result of an arbitrary exercise of power?''
4. The first plaintiff is a Partnership Firm wherein the second plaintiff and the third plaintiffs are the partners. The fourth plaintiff is the owner of the immovable properties which are given as collateral security for the loan availed by the plaintiffs 1 to 3. The fourth plaintiff is none other than the wife of the second plaintiff and the mother of the third plaintiff.
5. The plaintiffs 1 to 3 had approached the defendants 1 to 3 for a loan for purchasing a rig in or about July 1994 and the defendants had also sanctioned a sum of Rs.21.50 lakhs, for purchasing a lorry and rig materials. The procedure of purchasing chassis and fitting the rig in the same was completed in the month of March 1995 and from April 1995, the plaintiffs 1 to 3 have been doing the abovesaid business. The house-site, including a terraced house, stands in the name of the fourth plaintiff, which was offered as collateral security for the loan obtained by the plaintiffs 1 to 3 towards the purchase of the rig as aforestated.
6. According to the plaintiffs, the lorry and the rig and other materials are worth about more than Rs.40 lakhs, which were offered as principal security to the defendants for the sanctioned loan of Rs.21.50 lakhs. On account of natural calamities and there was a snail pace in the business, the plaintiffs were not able to repay the loan amount. However, totally, they have repaid a sum of Rs.3,46,500/-.
7. While being so, the second defendant viz., the Tamil Nadu Industrial Investment Corporation Limited, by its Senior Regional Manager, Salem-4, had caused two notices to be issued to the plaintiffs, demanding a sum of Rs.29.60 lakhs i.e., Rs.21.50 lakhs towards principal and Rs.8.10 lakhs towards interest and the plaintiffs were also directed to meet the second defendant in person. First notice is dated back to 11.11.1997 and the second one is dated back to 28.11.1997. Both the notices were containing the very same demand.
8. Under this circumstance, on 24.12.1997, the defendants have issued a public notice to the effect that the property offered by the fourth plaintiff as collateral security for the sanctioned loan would be auctioned in public on 5.1.1998 and that the intended bidders could inspect the said property on 29.12.1997 between 11.00 A.M., and 4.00 P.M.
9. The main contention of the plaintiffs is that the property which were already offered as principal security i.e., the lorry and the rig machineries would fetch more than Rs.40 lakhs and only after exhausting their remedy by selling the principal security at the first instance, they can proceed against the collateral security if any amount is still due. This procedure is contemplated under Section 29 of The State Financial Corporations Act, 1951.
10. The procedure envisaged under Section 29 of the said Act, applies only for realisation of the amount due by selling the principal security and not applicable for selling collateral security.
11. As per the provisions of Section 69 of the Transfer of Property Act, three months prior notice is very much essential to the fourth plaintiff before ever proceeding against the suit property. But no such notice was served on the fourth plaintiff. Therefore, the plaintiffs were constrained to file the above suit to declare that the notice dated 28.11.1997 issued by the second defendant, is arbitrary, unlawful, illegal and opposed to the principles of law, equity and natural justice, not binding upon the plaintiffs and also for a permanent injunction as against the defendants 1 to 3 from in any way proceeding against the suit property at the first instance for the realisation of the amount due.
12. The defendants in their written statement have contended that the suit itself has become infructuous as the plaintiffs are questioning the notice dated 28.11.1997. It is pertinent to note here that by July 1998, the plaintiffs had given an undertaking to pay the amount due to the Corporation. But, so far, no steps have been taken to repay the loan. In any event, there cannot be any permanent injunction restraining the defendants from proceeding against the suit property. The State Financial Corporations Act, 1951, has been duly amended and after amendment, there is no doubt that the defendants are entitled to proceed against any person, including the Guarantors. Therefore, there is no bona fide on the part of the plaintiffs in filing the suit and no relief can be granted to the plaintiffs.
13. The learned Trial Judge, on evaluating the evidences, both oral and documentary, had proceeded to dismiss the suit with costs, on 2.4.2002, on the ground that the reasons stated by the plaintiffs for non-payment of the loan due could not be accepted as he had agreed to repay the loan with interest as well as with tax and penal interest in case of default.
14. The learned Trial Judge had also found that when the plaintiffs were not able to establish their contention that Section 29 of the State Financial Corporations Act, 1951, provides for proceeding against the principal security at first, they would not be entitled to have the relief of permanent injunction. It is also the finding of the Trial Court that there is no specific or express provisions, preventing the Corporation from acquiring the property mortgaged by the third party for the Industrial Unit to which it had sanctioned the loan and it has been interpreted in the series of judicial decisions that the Corporation is having wide power to proceed against the property mortgaged by the third party also without proceeding against the Industrial Unit.
15. The judgment of dismissal dated 2.4.2002 was challenged by the plaintiffs in the appeal in A.S. No. 65 of 2002 on the file of the learned District Judge, Salem.
16. The learned District Judge, Salem, after placing reliance upon the decision of the Apex Court in Andhra Pradesh
17. Considering all these facts, he has also found that the notice dated 28.11.1997, Ex.A-14 is a valid one and it cannot be declared as null and void. Besides that he has also found that there is no special agreement between the first defendant-Corporation and the fourth plaintiff that the legal action against the property which was offered as collateral security could be taken only after exhausting the remedy as against the principal security offered by the principal debtors.
18. With the above findings, the learned District Judge, Salem, had proceeded to dismiss the appeal on 12.4.2005, confirming the judgment and decree of the Trial Court. Having been lost the suit before the Courts below, the plaintiffs stand before this Court in this Second Appeal.
19. Now, the core question that arise for the consideration of this Court is that ''when the assets of the principal debtor are very much available for being proceeded against, whether the defendant-Corporation can proceed against the assets of the Guarantor i.e., the collateral security offered by the fourth plaintiff.
20. Before answering the question, as afore-postulated, it may be appropriate to make reference to the contention of the defendants saying that after the amendment effected in the State Financial Corporation Act, 1951, the defendants are entitled to proceed against any person including the Guarantors. The plaintiffs never denied the borrowal of the loan from the defendants-Industrial Investment Corporation. Their only contention is that when the machineries which were given as prime securities are available, the defendants are not entitled to proceed against the property which is exclusively belonged to the fourth defendant and given as collateral security to the loan availed by the plaintiffs in addition to the prime security.
21. Section 29 of the State Financial Corporations Act, 1951, deals with the rights of Financial Corporation in case of default and it enacts as under:-
''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 instrument thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation, the Financial Corporation shall have the right to take over the management or possession or both of the industrial concern, as well as the right to transfer by way of lease or sale and realise the property pledged, mortgaged, hypothecated or assigned to the Financial Corporation.
(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.''
22. On a careful perusal of the provisions of Section 29 of the State Financial Corporations Act, 1951, no where it is stated that only after exhausting their remedy by selling the principal security at the first instance and if any amount is still due to the defendants, then only they are entitled to proceed against the collateral security for realisation of their balance. This Court finds that the arguments in this connection advanced by Mr. D. Rajagopal, learned counsel for the appellants, appears to be misconception of law and therefore, it is not discernible.
23. Section 31 of the State Financial Corporations Act, 1951 contemplates special provisions for enforcement of claims by Financial Corporation, whereas Section 32 envisages the procedure of District Judge in respect of applications under Section 31 of the Act, which reads as under:-
''31. Special provisions for enforcement of claims by Financial Corporation.''(1) Where an industrial concern, in breach of any agreement, makes any default in repayment of any loan or advance or any instalment thereof or in meeting its obligations in relation to any guarantee given by the Corporation or otherwise fails to comply with the terms of its agreement with the Financial Corporation or where the Financial Corporation requires an industrial concern to make immediate repayment of any loan or advance under section 30 and the industrial concern fails to make such repayment, then, without prejudice to the provisions of section 29 of this Act and of section 69 of the Transfer of Property Act, 1882 (4 of 1882), any officer of the Financial Corporation, generally or specially authorised by the Board in this behalf, may apply to the District Judge within the limits of whose jurisdiction the industrial concern carries on the whole or a substantial part of its business for one or more of the following reliefs, namely:''
(a) for an order for the sale of the property pledged, mortgaged, hypothecated or assigned to the ''[Financial Corporation] as security for the loan or advance; or
(aa)for enforcing the liability of any surety; or
(b)for transferring the management of the industrial concern to the Financial Corporation; or
(c)for 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.
(2) An application under sub-section (1) shall state the nature and extent of the liability of the industrial concern to the Financial Corporation, the ground on which it is made and such other particulars as may be prescribed.''
24. Clause (aa) of sub-section (1) to Section 31 of the Act assumes more important. This clause has been specifically inserted by Act 43 of 1985 under Section 19 with effect from 21.8.1985. It employs the words ''for enforcing the liability of any surety''. The phraseology ''any surety'' is to be underlined''. Therefore, it is crystallised that the provisions of either Section 29 or Section 31 do not make any distinction between the principal security and collateral security or principal debtor or co-obligant. In
25. In the above context, this Court also finds, that it may be appropriate to have the assistance of the provisions of clause (b) of sub-section (1) to Section 69 of the Transfer of Property Act, 1882. It reads as under:-
''69 (1) (b) where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage-deed and the mortgagee is the Government.''
26. From Clause (b) of sub-section (1) to Section 69, it is understood that the defendants-Industrial Investment Corporation is having a power to sell the mortgaged property without the intervention of the Court. This Section also does not make distinction between the prime security or collateral security. It is to be clarified that either it may be prime security or collateral security is not the matter, but the properties which are mortgaged to secure the debt.
27. Therefore, the defendants herein are construed to be the secured creditors. Only because of these reasons, they are empowered to bring the properties mortgaged with them for sale without the intervention of the Court. Hence, the notice dated 28.11.1997, issued by the second defendant to the plaintiffs, cannot be declared as arbitrary, unlawful, illegal and opposed to the principles of law, equity and natural justice. It will definitely bind upon the plaintiffs and equally they are also not entitled to get the relief of perpetual injunction as against the defendants.
28. It is obvious to note here that the suit was originally dismissed, rejecting the claim of the plaintiffs. That was also confirmed by the First Appellate Court. As the finding of the Trial Court is well within the bounds of law and since both the Courts below have given a concurrent finding, this Court''s intervention does not require in the absence of specific reasons to be recorded.
29. In the result, the Second Appeal is dismissed, confirming the judgment and decree of the Courts below. There shall be no order as to costs. Consequently, connected miscellaneous petition is also dismissed.
